aon 1Q 08 Transcript

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aon 1Q 08 Transcript

  1. 1. FINAL TRANSCRIPT AOC - Q1 2008 Aon Corporation Earnings Conference Call Event Date/Time: May. 02. 2008 / 11:00AM ET www.streetevents.com Contact Us © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  2. 2. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call CORPORATE PARTICIPANTS Greg Case Aon Corporation - President, CEO Christa Davies Aon Corporation - CFO Scott Malchow Aon Corporation - VP, IR CONFERENCE CALL PARTICIPANTS Keith Walsh Citigroup - Analyst Jay Gelb Lehman Brothers - Analyst Brian Meredith UBS - Analyst Salvatore DiMartino Bear Stearns - Analyst Chuck Hamilton FTN Midwest Research - Analyst Chris Neczypor Goldman Sachs - Analyst Josh Smith TIAA-CREF - Analyst Meyer Shields Stifel Nicolaus - Analyst Matthew Heimermann JPMorgan - Analyst Dan Johnson Citadel Investment Group - Analyst PRESENTATION Operator Good morning ladies and gentlemen and thank you for holding. Welcome to Aon Corporation's first-quarter 2008 earnings conference call. (Operator Instructions). I would like to remind all parties that this call is being recorded. And if anyone has an objection, you may disconnect your line at this time. It is important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature as defined by the Private Securities Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. Information concerning risk factors that could cause such differences are described in the press release covering our first-quarter results as well as having been posted on our website. Now, it's my pleasure to turn the conference over to Mr. Greg Case, President and CEO of Aon Corporation. Sir, please go ahead. www.streetevents.com Contact Us 1 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  3. 3. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Greg Case - Aon Corporation - President, CEO Good morning everyone. Welcome to our first-quarter 2008 conference call. Joining me here today in her first conference call as CFO of Aon is Christa Davies. On the call today, I would like to cover three areas -- our performance against key commitments to shareholders, continued areas of investment across Aon and overall organic growth performance for the quarter. I will then turn the call over to Christa for further financial review. On the first topic, performance against key financial commitments to shareholders. As we commented in yesterday's press release, our first-quarter results reflect progress and momentum in each of our key operating metrics. Our team feels good about our results and the start to the year especially given the market conditions we're experiencing around the globe. As we do each quarter, we report on three metrics we committed to our shareholders -- grow organically, expand margins, and increase earnings per share. Our plans are committed to achieving all three over the course of each year, not necessarily every quarter. Further, we said we would not sacrifice one of these metrics for the other. We're very pleased that our first-quarter reflects continued improvement across all three metrics. Organic growth increased 2% in brokerage and 4% in consulting services. Pretax margin on an adjusted basis increased 180 basis points and EPS on an adjusted basis increased 25%. As we said before, we're not going to use soft pricing conditions or economic concerns as an excuse not to deliver on our commitments. When you look at our results across the organization, they represent meaningful progress from Aon colleagues around the globe who are working hard to strengthen our position as the industry-leading risk advice and human capital solutions provider. Topic two, on areas of investment across Aon. As we discussed before in these calls, our team is excited about the industry. We believe the aggregate level of risk continues to increase in complexity and size around the globe. As a result, the needs of our clients are increasing. With the completed sales of our remaining insurance underwriting businesses, we're solely focused on the two of the most critical issues facing our clients today, risk advice and human capital management. And Aon is exceptionally well positioned to help clients understand and capitalize on both this challenge and long-term opportunity. During the quarter, we continued to build on our industry-leading capabilities with significant investments around the globe in our construction, environmental and energy practice groups and emerging markets in the Middle East, China, India, Eastern Europe, where we already have industry-leading positions and sales leadership in the UK, key leadership in our consulting business and colleagues from our acquisition of Gallagher Re. These categories highlight a few of our investment areas. But we think it's a critical point for you to understand and is exactly in line with what we've talked about in building our firm -- removing inefficiency and costs from back office functions and processes primarily through our expense initiatives enabling long-term investment and client-facing capability while simultaneously improving margin. As we invest in capabilities and add leadership across the organization, we're very careful to do this in a way that is coordinated and leverages our global network. This ensures real economic return on our investment and is the primary reason behind the Aon Risk Services organization which consolidates all of our retail brokerage assets into a globally coordinated group with 26,000 colleagues and more than $5 billion in revenue. The formation of Aon Risk Services brings together a single global view of our retail brokerage assets and follows on our success with the globalization of both our consulting and reinsurance groups. This improves our ability to drive products and services to clients anywhere around the globe and we are already beginning to see early benefits. www.streetevents.com Contact Us 2 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  4. 4. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call As an example, Unilever, a global leader with 179,000 staff and presence in 100 countries. Unilever recently appointed Aon as sole and exclusive broker and consultant across all lines of business worldwide including [loss] pool insurance programs and employee benefits together with core global programs. This is a great example of the opportunity and reasons for bringing together the significant depth of resources across our risk and consulting organizations to deliver a complete solution as a global provider. Another example in the EMEA region, during the quarter, we utilized local market share planning to create more than 50 marketing campaigns that strategically identified potential clients who would benefit from our capabilities in products areas such as environmental or analytics such as benchmarking. This quarter, organic growth in EMEA was 5% with new business growth of 28% and our initiatives in this area are -- clearly played a big role in that success. Both of these examples highlight meaningful progress, capitalizing on the global capability and coordination across Aon. But we still have much left work to do to achieve our goals. The third topic, organic growth performance. In brokerage, overall organic growth was 2%. Retention rates were at 90% or better on average highlighting very strong client satisfaction. We had strong double-digit growth in new business in several areas across the firm and we continue to see early benefits for investments in many areas such as environmental and faculty reinsurance among many others. This really reflected solid results overall despite soft market conditions, where pricing was down on average mid to single high digits globally with substantially softer conditions in the Americas. On the Americas specifically, organic growth was 1% despite the challenging market conditions I just described. We had strong performance in our Latin American region and our Affinity business. Our US retail business continues to win RFPs on a two-to-one rate versus competitors for revenue retract that moves on or off our income statement during the period. But it also faced headwind compared to prior year in areas such as private equity transactions and commercial construction where overall activity declined. Overall from our view, our current positive growth in the Americas still doesn't fully reflect the underlying strength of our improvements we're seeing in productivity and collaboration across the group. In Europe, Middle East, and Africa, it was another strong quarter with organic growth of 5%, double-digit growth in emerging markets such as Africa and the Middle East, solid growth on Continental Europe and retention rates well above 90%. As I said, we're getting early benefits from deployment of our revenue engine effort and applying local market planning to drive marketing campaigns as discussed. And we continue to invest significantly in the region around construction and other emerging markets. In Asia-Pacific brokerage, there's a very, very solid platform of leadership positions in Australia, New Zealand, China, and across the region. Organic growth here was 3%, an improvement from the previous quarter with very strong double-digit growth across most Asian markets such as China and Korea. And we continue to make many investments across the region. In the UK, organic revenue decreased 1% in the quarter, very strong retention 90% plus, modest growth in our UK retail business as we've invested in sales leadership offset by weaker trends in our network business. And finally, on the reinsurance side, we delivered organic growth of 1% for the quarter, growth in both facultative and a number of new treaty placements despite higher cedant retentions and soft pricing. Our colleagues in reinsurance are -- delivered number one in treaty, number one in facultative, number one in capital markets which really provides our clients with a unique and integrated solution around capital management. And additionally, I would like to say we're excited to welcome our new colleagues from Gallagher Re during the quarter enhancing our capabilities in US accident, health, and life markets along with enhanced capabilities in the UK specialty, casualty and financial institutions business. www.streetevents.com Contact Us 3 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  5. 5. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Turning to the consulting side, overall organic growth was flat in the quarter. And as previously highlighted, this segment continues to be a tale of two businesses. In the core services business, organic growth was 4%. This was driven primarily by growth in the retirement and health and benefits group. In outsourcing business, we were down 17% as a direct result of our previously announced contract that was terminated. We've largely absorbed the majority of this decline but would anticipate a modest quarter-to-quarter impact over the remainder of the year. Overall, just a very strong quarter of progress in the consulting arena. In summary, as our team reflects on the quarter, it's really a story about continuing momentum and progress. We're in a position of strength with the industry's broadest set of globally owned resources and capability. We continue to work to change the behavior of how we evaluate and how we sell into our market segments as well as reinforce a culture of being held accountable for performance and delivering distinctive value. We intend to do that while continuing to deliver margin improvement and internally funding very substantial investments which are building a base for longer-term growth across Aon. We focused on core strengths as we align our global assets with the formation of Aon Risk Services as well as the completed sales of our insurance underwriting businesses. In short, we're working hard to build on our leadership position with our clients and markets. The team feels very good about our progress for the first quarter and our start to the year. We remain solidly on track to meet our margin EPS and growth objectives for 2008 and 2009. With that said, I now want to turn the call over to Christa for further financial review as well as extend a warm welcome on behalf of our colleagues around the globe and our shareholders on the conference call today. Christa? Christa Davies - Aon Corporation - CFO Good morning everyone. I'm very excited to be here. We have a great platform with a lot of opportunities for growth. As Greg noted, our positive momentum continued in the first quarter with improvement in each of our three key financial metrics. Organic revenue growth was solid in a challenging market. We delivered meaningful margin expansion as we continue to invest in building our global capabilities and earnings per share from continuing operations was up significantly. We also believe we are effectively allocating capital, as share repurchase sets the bar for required return among potential use of proceeds from the completed sales of our more capital intensive insurance underwriting businesses. The sales of both Combined and Sterling were completed on April 1. After-tax proceeds related to the transaction were approximately 2.7 billion and a pre-tax gain of approximately 1.3 billion is expected to be recorded in the second quarter. This transaction represented a tremendous amount of great work by our colleagues to complete them earlier than some had anticipated we could. The results of Combined and Sterling are reported in discontinued operations and the results for remaining P&C runoff books were previously moved to the unallocated section of continuing operations effectively completing our exit in the insurance underwriting business. Turning to continuing operations, EPS was $0.56 a share, up 10% from Q1 2007. There are several items that we have highlighted which we think are important to understand in assessing core performance. First, restructuring charges in the first quarter were $60 million or $0.13 per share. Second, we recorded a small time, onetime gain of $5 million or $0.01 per share related to the sale of land. Lastly, we recorded a total of $14 million or $0.03 per share for the previously disclosed review and compliance activities related to the Foreign Corrupt Practices Act, FCPA, and similar laws in other countries. Consequently, we would view the core or adjusted EPS performance of our continuing operations of $0.71 a share, up 25% since Q1 2007. Foreign currency translation had a favorable impact of approximately $0.08 per share as the US dollar declined against most major currencies and the first quarter is traditionally a seasonally strong quarter for our EMEA region. Before turning to the business segments, let me spend a moment on the 2005 and 2007 restructuring programs' important initiatives that are enabling concurrent funding of investments for the long-term growth of Aon and meaningful margin www.streetevents.com Contact Us 4 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  6. 6. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call expansion. Related to the 2005 program, we incurred no charges in the quarter and the actions necessary to generate the savings are complete. We believe that we have realized approximately $225 million of annualized savings in 2007 and are on schedule to realize our $270 million target in 2008, which would reflect incremental savings of approximately $45 million in 2008. With respect to the 2007 program, we incurred $60 million of charges in the first quarter, primarily related to work force reduction in EMEA and the UK. We anticipate this program will result in $360 million of total charges once complete. There was no material savings related to the 2007 restructuring program in the first quarter. We're on track to retrieve our $50 million to $70 million of savings in 2008, $175 million to $200 million of savings in 2009 and $240 million of cumulative annualized savings by 2010 before any potential reinvestment. Page 11 of the press release provides our usual quarterly update on these programs. Turning to the segments -- for the quarter, adjusted brokerage pre-tax income increased 15% to 310 million and adjusted pre-tax margin improved 100 basis points to 19.5%. Expense discipline has been a recurring theme of these calls. And in a challenging pricing market, prudent expense management becomes even more critical as we continue to invest significantly in growing our capabilities. As you can see from the press release, total brokerage expenses in the quarter increased 137 million quarter-over-quarter. Included in the results was a $68 million unfavorable impact from foreign currency translation, a $50 million increase in restructuring costs, and as I noted, $14 million related to the FCPA and related compliance activities. Excluding these items, expenses were up modestly versus the prior year quarter. Our expense initiatives continue to manage the inherent inflationary push and the investments we're making in our business with the net effect driving margin improvement. As Greg said, we're committed to margin improvement over the course of each year, not necessarily each quarter. Let me pause for a moment to provide a bit more detail on our internal review and compliance activity under the FCPA and similar statutes overseas. As we noted in our third-quarter 10-Q, we have engaged counsel to conduct a wide-ranging internal review of our compliance with these laws. And these lawyers and other external advisers did a great deal of work in the first quarter. We've been working hard to put in place best in class compliance programs in this area. Unfortunately, as you know from the dozens of other US companies which reported similar internal reviews, these activities can be very complex and expensive, particularly when a company like Aon operates in over 120 countries. Therefore, while it's very difficult to predict, we're hopeful this review will be largely concluded by year-end. Integrity and professionalism are at the core of running a professional services business. We view the improved compliance environment we're putting in place as leading-edge in the industry. Turning to consulting. Adjusted pre-tax income increased 35% to 66 million and the adjusted pre-tax margin improved 430 basis points to 19.2% in the quarter, a record margin for any quarter, primarily driven by the realization of restructuring benefits and other operational improvement efforts. It was a really strong performance this quarter as everything seemed to move in the right direction. As you can see from the press release, expenses were relatively flat, including a $12 million unfavorable impact from foreign currency translation. Absent that, consulting expenses were down meaningfully year-over-year, reflecting solid expense management while again funding investments in people and capabilities to drive future growth. Going forward, we continue to believe that this business is a mid-teens margin business which we believe is industry-leading. Finally, turning to unallocated items for the quarter. The property and casualty loss was similar to the prior year quarter. We would anticipate its runoff book to have a loss of approximately $13 million in 2008 consistent with the loss in 2007. Unallocated investment income for the quarter was $5 million, a decrease of $17 million from the prior year quarter, primarily reflecting an $11 million decline in distributions received from our PEP securities. We believe the value of these securities is still similar to the valuation given previously and we anticipate that we will monetize that gain over time. Given the current private equity environment, we would also anticipate distributions during 2008 to be lower than the previous guidance of $6 million to $10 million per quarter. Unallocated expenses were 21 million, a decrease of 13 million versus Q1 2007 www.streetevents.com Contact Us 5 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  7. 7. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call due to a number of moving items in both periods including costs in the prior year quarter related to our historical review of stock compensation practices that have been completed. We realize there are a lot of moving pieces in the unallocated section. We continue to anticipate a loss of approximately $50 million to $55 million per quarter in line with the loss of $51 million in the first quarter. This guidance does not include the impact of interest income earned on cash balances related to sale proceeds. The effective tax rate on continuing operations was 30.1% in the quarter as compared to 31.3% in the prior year quarter. For 2008, we anticipate the effective tax rate on continuing operations will be 30.5% as compared to previous expectations of 33% due primarily to statutory rate reductions and changes in the geographic distribution of income. During the first quarter, we repurchased approximately 8.9 million shares, or $375 million of common stock. Subsequent to the close, we have repurchased an additional 8.9 million shares or 485 million, bringing the total amount of share repurchase to 19.8 million shares or $860 million year-to-date. We have 1.9 billion of remaining share repurchase authorization. Shares of common stock outstanding were 299 million as at 3/31 compared to 305 million at 12/31. Cash and short-term investments were approximately 1.2 billion at 3/31. However, as of yesterday, the liquidity pool available for corporate use was approximately $2.5 billion reflecting our after-tax proceeds received post close of the quarter, less cash used for share repurchase during the second quarter and estimated tax repayments related to the transaction. In summary, with the completed sale of our insurance underwriting businesses, we have positioned our portfolio to focus on two of the most critical issues facing clients today, risk and human capital management. We continue to drive increases in both revenue and profitability in a challenging environment while simultaneously managing expenses that fund investments in our future and delivering meaningful margin improvement. Our balance sheet is strong and our liquidity is excellent as we continue to drive value creation through improved business results and effective capital management. With that, I will turn the call back over to the operator. And we would be delighted to take your questions. QUESTIONS AND ANSWERS Operator (Operator Instructions). Keith Walsh, Citi. Keith Walsh - Citigroup - Analyst Greg, a couple of questions here, first on revenues. When I look at Aon relative to your largest competitors out there, it appears you guys are investing while they are cutting right now. Is there a soft market window we are in right here where you have an opportunity to really aggressively step up recruiting efforts and gain some revenues? And then I have a follow-up. Greg Case - Aon Corporation - President, CEO As we've talked on the calls previously, we have been in investment mode really and in growth mode really for the last few years and continue to ramp that up, all within the context of what Christa described as very tight expense control margin analysis to make sure we're improving both organic growth margins and increasing earnings per share. So, we see significant opportunity on the investment side. www.streetevents.com Contact Us 6 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  8. 8. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Candidly, it's frankly picked up even over the last few months. But we're going to be very careful. We're going to bring in colleagues who we think can help us build the firm. And we just continue to see tremendous opportunity in that context. And by the way, it's not only in the US, it's globally. Keith Walsh - Citigroup - Analyst Then, just on margins. It's great you're adding business from global companies and that sounds good for revenues. But explain to me how do you maintain margins on these types of accounts that have a much larger level of resources needed to service? Greg Case - Aon Corporation - President, CEO The one thing that is always in undertone in the conversations that have come up on calls but also in conversations are around -- look, it's a larger client, it must be lower margin -- it must be lower revenue or lower margin overall. And candidly, we've not found that the case. In fact, this for us is all about approaching a client and doing it in a way they understand the value that we provide. And we are essentially -- we're not going to be low price. We're going to be high-value. We've had that approach and it's worked exceptionally well. It by the way raises the bar on us as we talk with clients about what Aon can do for them. We have to clearly differentiate what we can do. And what we found, Keith, is that clients all around the globe are facing increasing risks, increasing concerns about how they identify risk, mitigate risk, etc. And by the way, the audience who is interested in that, it is no longer just the risk colleagues but also CEOs, CFOs, Boards, etc. So, as the demand increases for high-quality risk advice, particularly in these larger global institutions, we see the opportunity for value-added has been quite significant. And when that's there, Keith, the opportunity to get value for price or price in the context of value is actually quite high. Operator Jay Gelb, Lehman Brothers. Jay Gelb - Lehman Brothers - Analyst I was hoping to get a bit more detail on the Americas brokerage organic growth. I believe you mentioned in the release that the strength came from Latin America. I was hoping to get a sense of the underlying trend within the US retail. Greg Case - Aon Corporation - President, CEO I would say as you take a step back on the growth story overall, as I said in my comments, the team feels very good about the underlying trends really across the board. Really, when you think about what we're trying to accomplish and put in place to drive growth, it starts with what we're doing around the revenue engine and really making sure we've got a clear view on client tracking which we've done with salesforce.com which covers 90% of our revenue, clear view on how the revenue engine works in terms of local market understanding, pipeline management, new products, client feedback, etc. And as we look at that across the globe, we feel very good about how the infrastructure is coming into place and the impact it is having. It's probably about three-quarters in place in the Americas, not completely and about 50% outside the Americas. In the context of the US, the underlying kind of activities that are going on we feel very good about. So as an example, we look at each of our producer groups -- [AEs] for example in the pipeline had an increase in what they closed in the first quarter of 2008 versus the first quarter of 2007 almost 40%, actually very, very strong performance. www.streetevents.com Contact Us 7 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  9. 9. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Our win rates as I talked before about RFP win rates in the US are still two to one over the competition. And we in fact saw that actually increase. We were at about 70% this quarter, about 60% in the same period last quarter. So that has actually strengthened. And candidly, our ability to react on a dime is actually increasing quite substantially. This is what really cuts to the US. And if you think about two of our most significant areas, private equity and construction, those areas when you compare our first quarter last year to first quarter now have gone down quite substantially. In fact, just think about the P/E reduction. The actual impact of those two categories is almost 3 points of growth. Our colleagues anticipated that, understood it, and in fact put a number of campaigns and activities in place to offset that. So we actually offset a headwind because we understood what was going on and had the fundamentals in place to drive activities which in turn drive growth. So, from our standpoint, 1% is not what we aspire but we feel very good about what's in place. And as our revenue engine efforts continue to take hold in the US and around globe, we believe the upside from a growth standpoint is actually quite strong. By the way, you combine that with the investments we're making and we feel very, very good about the platform. That's what led to my comments that candidly, the growth in the Americas for the first quarter, the performance lag we believe was the underlying strength or health of where we are right now. Jay Gelb - Lehman Brothers - Analyst Next question is on consulting. I believe Christa mentioned that the long-term goal there for margins is mid-teens compared to the 19% margin that was generated in the first quarter. What was the reason for the outperformance in the first quarter? Christa Davies - Aon Corporation - CFO There are a number of items that went in our favor in the first quarter. And whilst we couldn't pull them out of onetime activities, we don't believe that everything will continue to go that way quarter on quarter. So we do believe that mid-teens is the long-term margin expectation for that business. Greg Case - Aon Corporation - President, CEO All I would add to that is if you think about sort of how we're building the firm and how we have approached this over the last few years, we've essentially said we're going to drive growth, drive margin, drive EPS. We're committed to doing all three. And as you think about where consulting was a few years ago, consulting has experienced almost if you just went year to year to year, 2005, 2006 to 2007 and didn't even look at the first quarter of 2008, it's been almost a 550 basis point improvement in margin. And we attacked margin very hard to make sure we improved profitability, a little bit at the expense of maximum growth which is why you saw 4%. So you can expect our colleagues in consulting are going to continue to drive margin but also invest around growth to be industry-leading in growth as well as industry-leading in margin. Operator Brian Meredith, UBS. Brian Meredith - UBS - Analyst Two quick numbers questions and then one larger question for Greg. The first is a numbers question. The tax-free Christa, could we expect that to continue to go out until 2009 or is there something unusual about 2008 and why it's 30.5%? www.streetevents.com Contact Us 8 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  10. 10. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Christa Davies - Aon Corporation - CFO We do believe that 30.5 is our effective tax rate, will continue into the future. So, yes for 2009 as well. Brian Meredith - UBS - Analyst Excellent. And then, if I look at your average shares outstanding for the quarter and it just may have been when you were repurchasing the stock, the drop we had in the fourth quarter was not even comparable to what the actual share buyback was. Is that because of options issuance or was there just you are buying the stock back later in the quarter? Christa Davies - Aon Corporation - CFO Yes, it's two things. It's sort of shares we're issuing as part of our stock program and it's stock equivalents for things like debt, so conversion of our 3.5% convertible bonds. Brian Meredith - UBS - Analyst What was the hit from those -- was it 2 million shares or something like that? Christa Davies - Aon Corporation - CFO 14 million shares roughly from the conversion of bonds. Brian Meredith - UBS - Analyst Great. Last question for Greg. Historically, you've also talked about in addition to just wanting to grow margins and grow revenues, trying to grow organic revenues at 200 basis points faster than expense growth. And if I look at your fourth-quarter 2007 and first-quarter 2008 brokerage business when you adjust for FX, it's been about 100 basis points it looks like. And I guess the question I have there is, given the current market environment, is it really realistic to expect that you can actually grow your revenues at 200 basis points faster than your expenses? Greg Case - Aon Corporation - President, CEO I would take a step back. One thing in terms of sort of the quarter-to-quarter Brian as you think about what we're trying to accomplish and the specific focus on margin for the quarter, the team feels good about where we are. They feel good about because we are essentially tracking against the plan. We do have a very clear view on where we think the business can be and will be. And it's driven around margin, EPS, and growth. The 200 basis point spread is something that we continue to drive and look at. And if you again take a step back and think about this over the last few years and the trajectory we've been able to maintain, some quarters will be up, some will be down. By the way, as Christa talked about the restructuring, it is never in total sync with exactly what's happening on the investment side, so some up, some down. But what I would ask you to reflect on is when you think about the overall objectives, we've got a great base. We know we've got to improve and strengthen the base and our position. We've got to do it from the eyes of the shareholders clearly getting to a 20-plus% margin as we talked about, clearly getting to industry-leading growth which we largely have achieved but by the way not satisfied with the aggregate level and clearly increasing earnings per share. And we've got a very explicit game plan in terms of we think that's going to look like and we believe we're on track to continuing to do that. www.streetevents.com Contact Us 9 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  11. 11. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Again, from our standpoint, what the quarter did was just underscore that we're fully on track from that standpoint. And we've made the improvements that you described before really over the last three years in a market that was actually a down market. So, from our standpoint, we believe we can continue to push it and achieve what we set out and that's squarely in the minds of our operating leaders as we think about the quarters remaining in 2008. Christa Davies - Aon Corporation - CFO Brian, I would just add, if you look at compensation expense for the brokerage segment, it was 840 in 2007. If you add FX and acquisitions, you get to a comparable expense base of 897. You add restructuring, you get to 946 which is 5 million different from our 951 reported expenses; that's less than 1%. Brian Meredith - UBS - Analyst But less than 1% right but your organic is only 2%. Greg Case - Aon Corporation - President, CEO Right, but again if you -- Brian Meredith - UBS - Analyst Understood -- I understood. You're investing in the business, makes sense. Greg Case - Aon Corporation - President, CEO Right and if you take a step back and going to look at the trend line over the last three years, it's actually a quite positive trend line. And as I described before, the underlying activities that are going on we actually feel quite strongly about. I would say our team actually leaves the first quarter feeling even better about our ability to achieve our targets. Operator David Small, Bear Stearns. Salvatore DiMartino - Bear Stearns - Analyst This is actually Salvatore on behalf of David Small. I have a quick numbers question looking at in risk and insurance. If I take the $310 million of income from continuing operations in risk insurance and adjust it to exclude the impacts of FX, I get an adjusted income of roughly 276 million which gives an adjusted margin of approximately 18.5%. Am I thinking about this the right way? Christa Davies - Aon Corporation - CFO Yes, you are. If you look at the brokerage [PPI] increased year on year; it's 40 million. And of that, 33 million is related to FX. www.streetevents.com Contact Us 10 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  12. 12. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Salvatore DiMartino - Bear Stearns - Analyst So, if I run through the same math for quarter one 2007, I would get a margin of about 18.8 which would suggest that excluding FX, margin is down year-over-year. Is this a result of softening pricing environment or are the full effects of the restructuring still not coming through? Maybe you guys can provide some details on that. Greg Case - Aon Corporation - President, CEO First of all, I would take a step back a little bit and think about when you -- sort of how you want to factor in FX to the overall margin improvement. As we looked at it and think about how we're gauging the business, FX is part of what we do. We're a global business in 120 countries around the world. And frankly, it's just part of what we do. It's part of sometimes positive, sometimes negative. And when we think about the progress I described before and we factor in the mix on what's happening from an investment side and what's happening from a restructuring side, we actually feel very good about the trajectory overall. Salvatore DiMartino - Bear Stearns - Analyst And if I could just have one more question. I just have a question -- that new line in the risk and insurance other income, can you give some color on that? I may have missed it earlier. I'm not sure if you guys talked about it. Christa Davies - Aon Corporation - CFO It's the gain of $5 million on the sale of land. Greg Case - Aon Corporation - President, CEO So again, it's a one-off. And what we try to do is understand from a margin standpoint exactly what the core engine looks like and how it's evolving. And we pull out the one-off situations. Christa Davies - Aon Corporation - CFO It means that our organic growth is always calculated after subtracting for acquisitions or one-off disposals and FX. Operator Chuck Hamilton, FTN Midwest. Chuck Hamilton - FTN Midwest Research - Analyst Congratulations. Three quick questions, all of them centered on organic revenue growth. If we take a look at APAC and we take a look at the organic revenue growth that was identified at fourth quarter 2007, I think you had indicated a negative 5% change in organic revenue growth. This quarter, we've seen a significant swing up to positive 3%. Yet essentially, the boilerplate on the discussion is about the same. Can you give us a little more color to help us understand what took place in APAC this quarter compared to last? www.streetevents.com Contact Us 11 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  13. 13. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Greg Case - Aon Corporation - President, CEO Happy to do that, Chuck. In APAC, really as we talked about before first of all, it really is three different regions if you will broad-based regions. We've got Asia, which is continuing to perform exceptionally well with tremendous growth, very strong, strong double digits in places like China, Korea and as I described before. The second is in Australian-New Zealand. Australia-New Zealand really is a -- we are by far the dominant risk adviser in that region and that has experienced and continues to experience a very soft market environment. In fact, Australia is notorious for leading the charge down on the soft side but positively it usually comes back up first. But it's really been -- it has represented real headwinds for us. The final piece is in Japan where we were really -- there's a set of investments we've described on the last couple of calls around some consortiums that we were supporting and given some law changes experienced some real headwind. That really contributed to negative outcome in the fourth quarter of last year. So, what we're seeing really is the putting in place of the revenue engine we described before. It is some of the fundamental blocking and tackling we're doing around revenue management. And it is the investments that are beginning -- but I'd still emphasize beginning -- to take hold in the region. I would tell you we have very high aspirations what the growth rate should be in that region. And while we appreciate the recognition of the improvement quarter-to-quarter, we have very high expectations beyond where we are now. Chuck Hamilton - FTN Midwest Research - Analyst Second question deals with reinsurance organic revenue growth. And I believe you closed the Gallagher Re transaction that was around the first of the year? Greg Case - Aon Corporation - President, CEO Correct. Chuck Hamilton - FTN Midwest Research - Analyst I guess I was a bit surprised to see nothing identified in terms of the adjustment for organic revenue growth in acquisitions and divestitures for the quarter. And obviously it's not going to be even over the year, but I would've expected something along 2 or 3 percentage points from acquisition for Gallagher Re this quarter. Greg Case - Aon Corporation - President, CEO One of the things I would just highlight is -- and Christa can amplify this too -- the way we calculate organic growth -- if you made an acquisition and it was $100 in revenue, you don't count that as organic growth. You only count the increase in the $100, first. Second, Gallagher actually closed around mid quarter, a little bit later than that. So in fact, it really wouldn't shown up anyway. But I want to emphasize we are incredibly pure about -- and rigorous about how we think about organic growth. So, in the end, the only way it's going to impact our organic growth is incremental growth above what we brought in. www.streetevents.com Contact Us 12 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  14. 14. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Chuck Hamilton - FTN Midwest Research - Analyst My point, Greg, was that it didn't appear to be in the actual reported numbers. The 264 for reinsurance this quarter where it could've been backed out to get down to your organic revenue growth. Greg Case - Aon Corporation - President, CEO Yes, it really didn't show up. Because I said before, it really closed to be quite precise in two parts. It closed the US piece kind of almost toward the end of the quarter and the UK piece after that. So you're going to really see the full impact of that in the second quarter. Chuck Hamilton - FTN Midwest Research - Analyst Third question comes down to consulting. Obviously we're seeing strong growth in services and you've got the runoff of your outsourcing business. When did you lose the major client that was lost in 2007? What was the quarter that that appeared in so we know when we're going to get to a run rate? Greg Case - Aon Corporation - President, CEO You really started to see -- it was June of 2006 give or take when we got the notification and you saw a tremendous runoff from that -- by the way not from our outsourcing business, really just from this one specific contract. And what you're going to see for the rest of the year is very -- after the second quarter, a bit more now in the second quarter but after the second quarter, we think it will tail off quite substantially for the rest of the year. Operator Chris Neczypor, Goldman Sachs. Chris Neczypor - Goldman Sachs - Analyst Just to follow up on the continued growth in consulting, I was wondering if you could help me understand more of the drivers there and specifically if you could put some numbers around how much of the growth is coming from employee benefits and whether or not that's being offset by any weakness in what you might call the more economically sensitive parts of the business? Greg Case - Aon Corporation - President, CEO Give me a little more, Chris, in terms of sort of the -- what you're trying to get at in terms of the growth components. Are you looking at the economy or what are you looking (multiple speakers)? Chris Neczypor - Goldman Sachs - Analyst Yes, exactly. I'm wondering how much -- if you didn't have employee benefits, are you seeing weakness in say compensation management consulting that type of business given what's going on with the economy or is it really strong globally and the employee benefit is really driving the numbers. www.streetevents.com Contact Us 13 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  15. 15. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Greg Case - Aon Corporation - President, CEO No, we're actually seeing kind of mid single digits across-the-board, showing up both frankly on the US side as well as on the outside the US. So, you're seeing it in benefits. We're seeing it in retirement, compensation, etc. It will reflect on -- and when you think about we've obviously thought a lot about this consulting within the context of the kind of the global economy and the impact of a recession, we feel pretty good about the status of the business in the context of the two -- in context of a recession and our sense is probably about 80% of the business is tied to -- sorry, it would be separate from the impact of a recession. So, from our standpoint, again, you never know for sure. You never know how long things are going to last. But we actually feel quite good about the insulation of this business from that impact. Chris Neczypor - Goldman Sachs - Analyst So really, it's more about the fact that you guys have your mix towards business that might not be economically impacted as opposed to that you're just not seeing any of the so-called recessionary impact on some of your other business? Greg Case - Aon Corporation - President, CEO Yes, I think that's about right. I think it's about right. Does that answer your question? Chris Neczypor - Goldman Sachs - Analyst Yes, that's perfect. Operator Josh Smith, TIAA/CREF. Josh Smith - TIAA-CREF - Analyst A quick request. Can you just break out weighted average basic shares and fully diluted in the future? Can you just tell me what those numbers are? Is it just the 14 million or is there more in diluted? Christa Davies - Aon Corporation - CFO For diluted shares at the end of Q1 2008, it was 319,767. Josh Smith - TIAA-CREF - Analyst I was talking about the weighted average. So, what was your basic average and what was your diluted average for the quarter? Christa Davies - Aon Corporation - CFO Hang on. We're just looking that up for you. www.streetevents.com Contact Us 14 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  16. 16. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Josh Smith - TIAA-CREF - Analyst I can follow up later. It's just a trick question for future. Greg Case - Aon Corporation - President, CEO It'll be -- (inaudible) Scott Malchow can actually (multiple speakers). Scott Malchow - Aon Corporation - VP, IR Josh, this is Scott. I'm actually in the room. One way I think to look at it here as Christa said in her script, at the end of the quarter, for you to try and think about your model going forward as you think about it at 3/31, there were 299 million actual shares outstanding. At 12/31, there were 305 million shares actual shares outstanding at the end of the quarter so you had kind of a 6 million share delta from 12/31 to 3/31. It really represents the 9 million shares that we repurchased during the quarter less the 3 million shares that we issued. So you get 6 million kind of a net delta between the 305 at the end of 12/31 and 299 at the end of 3/31. So, your actual shares outstanding are 299 plus about 15.5 million or so of kind of common stock equivalents. That's how you would gauge your starting point for Q2 and then obviously share repurchase and issuance going forward from there. Josh Smith - TIAA-CREF - Analyst Then a more global question on -- investor conventional wisdom is not to own the brokers in the softening market just because how can you grow when premiums are declining in price. Or I mean actually I show it to be had total premiums down for the first time in quite some time. Can you give us a sense for what your mix of businesses is, fee versus commission, and how you're insulated from that? Greg Case - Aon Corporation - President, CEO First of all, again, take a step back from the standpoint of how we thought about growth and I would reflect Aon candidly is a very unique franchise with a very unique platform, very global -- one of two global networks with tremendous opportunities to both reduce costs and reinvest in growth. By the way, we've done that in the last three years in a softening marketplace. We've grown organically, increased margins and increased EPS. By the way, that's a function of how strong the Aon platform was certainly when I arrived. The team now is really just capitalizing on an incredibly strong platform. And we feel very good about our ability to continue to do that. So just macro point one. Two, we are about two-thirds commission, one-third fee. And as we continue to serve larger and larger clients, we've talked before that mix is just going to continue to strengthen on the fee side. And by the way, the conversations we're having with clients are very much around what's the value we provide, by the way value being defined as have we improved your operating performance? Yes or no. Not an unambiguous question. And/or have we strengthened your balance sheet? Yes or no? If we do that effectively and Aon adds value, we're getting compensated for that in the context of what we're doing with clients beyond just the pure brokerage piece of the equation. So, we are candidly cautiously optimistic and in fact very, very positive in terms of what we see the game plan evolving over the course of the next 12 to 24 months, particularly when you think about we've just begun to really put in place the revenue engine that I described before, in which we're understanding local market position. We're understanding our pipeline. We're driving new products and ideas through the system as well as creating a system for client feedback that's very much real-time. www.streetevents.com Contact Us 15 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  17. 17. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call So when you think all about all those things coming into play, those are outside of the traditional allure of here is what happens to a broker in a soft market. And again, I didn't -- Aon is a place that's not just an average broker. It's got tremendous capability with untapped potential and really it's our obligation or the team's obligation to capture that. And we think we can do that very, very effectively in any market. By the way obviously the upside in a stronger market is particularly striking. But even in a soft market, it is actually quite positive. Josh Smith - TIAA-CREF - Analyst And the two-third, one-third split, was that just for brokerage or was that for overall revenues? Greg Case - Aon Corporation - President, CEO It's basically -- it's a little bit more -- it would be a little bit more bias broker or commission if you include everything on the consulting side. But basically, it's about what it is across all the brokerage. Josh Smith - TIAA-CREF - Analyst Then one final follow-up on the restructuring. When can you envision a period where you won't have to report adjusted margins and we'll just look at actual margins? I mean I think you're going through 2010 at this point with the current restructuring plans. And I have to give you credit they've worked exceedingly well. But if you can't give me that, can you tell me roughly how much you are reinvesting or just give directionally how much it has to be reinvested, doesn't drop to the bottom line? Christa Davies - Aon Corporation - CFO Yes, so Josh, our current restructuring plan, the 2007 plan continued through 2009. So, of the sort of approximately 360 million in charges that we expect throughout the program, we roughly forecast those to be 46 million in 2007, 215 million this year and 99 million next year. So that gives you a sense about how it's changed over time. And obviously that 360 million expense is expected to generate 240 million in savings on an annualized run rate basis and we do believe that we're on track to achieve those savings. Operator Meyer Shields, Stifel Nicolaus. Meyer Shields - Stifel Nicolaus - Analyst I have a couple of nitpicky questions and then one real one. I guess Christa, is 3 million shares per quarter the right run rate for issuance? Christa Davies - Aon Corporation - CFO It does differ depending on shares. It's around 10 million per share -- 10 million per quarter on an ongoing basis -- 10 million for the year sorry. And 3 million was a little higher this quarter really due to sort of incentives and things like that. www.streetevents.com Contact Us 16 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  18. 18. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Meyer Shields - Stifel Nicolaus - Analyst And within consulting, were any of the small favorable issues that impacted the margin in the first quarter, are they going to be reversed in future quarters in 2008? Christa Davies - Aon Corporation - CFO They're not going to be reversed. It's more that there are a number of items sort of almost 10 that went in our favor in this quarter. It's not necessarily that we -- we just don't necessary see that many things going in our favor in one quarter again. Meyer Shields - Stifel Nicolaus - Analyst But none of them came from other quarters where we'll have low mid-teens? Christa Davies - Aon Corporation - CFO No, it didn't. Meyer Shields - Stifel Nicolaus - Analyst Then a bigger conceptual question I think for Greg. Obviously the international markets are growing faster. I guess economies are doing better and there's more insurance. Would it make sense to be making more acquisitions there to benefit from that? Greg Case - Aon Corporation - President, CEO In fact, we actually are. As you think about the last 12 months or so, we have described on previous calls 21 I believe acquisitions and spent about roughly $0.25 billion on some of our most significant invest -- or acquisitions in fact been in Europe and across Europe. And we will make those acquisitions when they help us with our strategy. They improve our capability. They broaden our footprint and we will absolutely actively look for those and in fact that's probably been the best place. I would also say from people standpoint beyond just companies, we've also made very substantial investments across regions outside the US. Christa Davies - Aon Corporation - CFO The thing I would say though, in terms of use of capital and how we think about using shareholder funds, is we do -- our primary use of capital will be share buyback. And that will set the bar that other uses of capital need to overcome for us to be thinking about spending on acquisitions, organic growth, or any other sort of use of capital. Operator Matthew Heimermann, JPMorgan. Matthew Heimermann - JPMorgan - Analyst I just had one left which was, can you just provide a bit more color in Americas, specifically US retail about some of the products that helped offset the lack of private equity and construction this quarter? And I guess also would be curious whether or not the headwind you overcame whether you overcame that with let's call it net new account growth or a cross selling? www.streetevents.com Contact Us 17 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  19. 19. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Greg Case - Aon Corporation - President, CEO It really is, back up a combination. First of all in terms of the other areas and this candidly again when I described the team's view, a positive view coming out of the quarter, it was really around all the things you are asking about. The underlying activities would suggest we can understand our position, take action, and change it. So we actually saw a significant movement in place like environmental which continues to grow very, very strongly, RiskConsole which is our technology platform which continues to grow very, very positively and really in multiple places across the US. And it was really those two sectors which for obvious reasons driven by the economy went the other way. So it really happened across the board. I would also say that when you think about whether it was new business or a cross sell, it was really the combination new. It was cross sell. It was also actions around renewal. So, one of the things the revenue engine helps us understand very, very clearly is where we need to take initiatives and actions to drive up retention and do renewal book analysis. So, it's a very, very micro view at the local, local market level and almost at the colleague level if you will. It was really a combination of those things that allowed us to understand where we were, take action and improve it. And, again, it's not even fully in place. But as we put that, make that fully in place in the US and around the world, we feel quite good about what that's going to do in terms of coordinating Aon's global assets to be delivered in a very local personal way to clients. Operator (Operator Instructions). Dan Johnson, Citadel. Dan Johnson - Citadel Investment Group - Analyst On the Gallagher Re, would you mind giving us a rough thought about the size of the revenue that you acquired there? Greg Case - Aon Corporation - President, CEO Sure. I think one thing again as you look at Gallagher, it's a great example of when you -- we just have so much scale analytically in this business, it just made this quite attractive for us. It was roughly 30 to $35 million in revenue give or take in 2008. I don't know how many folks Gallagher had in the business but they are quite substantial. We actually brought over 70 colleagues in the context of that. What it's going to do is it's going to strengthen our presence in US accident and health and life as well as our capabilities in UK specialty and casualty. But to us, it was a very natural kind of add-on to our re platform. Dan Johnson - Citadel Investment Group - Analyst Great. So, the 30 to 35 was what they had done last year or what we think they were going to do this year? Greg Case - Aon Corporation - President, CEO It's roughly what we think we're going to be in 2008, what we think we're going to retain. Dan Johnson - Citadel Investment Group - Analyst The next question would be in terms of the continued investment you make in the retail business, can you talk a little bit about how the areas of interest, how they've changed over the last year if at all? And I mean that by geography, by skill set of people you are acquiring of industry focus, however you want to answer that question please. www.streetevents.com Contact Us 18 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  20. 20. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Greg Case - Aon Corporation - President, CEO Well listen, it's a great question. In fact, it's sort of where we live every day. The profiles actually have changed and adjusted almost by quarter as you think about what we've invested. When you take a step back and look at ARS overall just to put it in your context, we've added a lot of folks kind of in the core brokering areas. We talked about environmental. We talked about technology, RiskConsole. We talked about construction. It's just a whole range of kind of the core brokering areas initially in the US, now in the US. But beyond the US, we've made a very substantial investment in our Affinity business. Our Affinity business is a $500 million business. It's been growing very, very substantially with very significant margins. It's a very scalable business. So, as an example, we've added 52 colleagues to be quite specific. I have got the roster in front of me in Latin America and across Europe in very clear places that we think we can scale the business. We know what the margins are going to be. It's going to take about 12 months for them to come to pass but we feel very good about it. So, there is an example of where we have changed. You saw us in the reinsurance world really focus on a brand-new area. We were already substantially in it in fact but a new area in terms of how we scaled up our capability when we invested on the fax side of reinsurance and brought in what we believe to be the foremost capability in the world on fax to add to our already substantial capability. So, this is a little bit of a ramble but we've got a very systematic way we look at it and your question is spot on. We do -- this actually changes by quarter as we track exactly who is coming in, the impact they are having, impact on margin, impact on revenue. And it has actually proven quite, as I said before, quite positive for us. And we feel very good about how these are going to pay off in the coming year. Dan Johnson - Citadel Investment Group - Analyst Finally, for Christa, when you look at the expense saves that are projected in the 2007 program, roughly how much of that goes to brokerage? Christa Davies - Aon Corporation - CFO The majority of it really goes to brokerage. As you have seen from the consulting margin improvement today, they have largely completed their restructuring sort of programs. So you should see the majority of this impact in the brokerage segment. Dan Johnson - Citadel Investment Group - Analyst The majority definitely like 90 something plus? Christa Davies - Aon Corporation - CFO Yes. Operator And with no further questions in queue, I will turn it back to you, Mr. Case, for any closing remarks. www.streetevents.com Contact Us 19 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  21. 21. FINAL TRANSCRIPT May. 02. 2008 / 11:00AM, AOC - Q1 2008 Aon Corporation Earnings Conference Call Greg Case - Aon Corporation - President, CEO We're in great shape. We just appreciate very much everybody being on the call. I just again wanted to offer a heartfelt welcome to Christa. Thanks for being on the call today. Christa Davies - Aon Corporation - CFO Thanks, Greg. Operator Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect. DISCLAIMER Thomson Financial reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes. In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. ©2008, Thomson Financial. All Rights Reserved. 1830161-2008-05-04T07:31:32.690 www.streetevents.com Contact Us 20 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

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