Q1 2020 Aon PLC Earnings Call

Good morning, and thank you for holding welcome to be <unk> first quarter 2020 conference call. A that's all I'm all parties will be in listen only mode. I did a question Andrew portion.

Oh I would also like to remind all parties that this call is being recorded if anyone has any objection you may disconnect. Your line at this time.

It is important you know that some of the comments in today's call may constitute certain statements that are forward looking in nature, a defined by the private Securities Reform Act of 1990 fives, such statements are subject to certain risks and uncertainties that could cause actual results could differ materially from historical results or.

It was anticipated information concerning risk factors that could cause such differences are described in the press release, covering our first quarter two without anybody results.

Well, it's having been posted on our website.

No. It's my pleasure during the call over to Greg Geese C O a young plc.

Excellent and good morning, everyone welcome to our first quarter conference call.

Unfortunately, my question Davies, our CFO, Eric Anderson, our president.

Like previous quarters, we posted a detailed financial presentation on our website.

At this time of unprecedented humanitarian an economic challenge I want to start by thanking our 50000, a on colleagues around the world for the remarkable dedication resilience unimpressive response to this crisis.

It's inspiring to see our colleagues tirelessly go into extraordinary likes to support each other I connect the firm.

Embracing and United.

Our global team is fully committed to bringing the best apart from their clients at a time when they need our help more than ever.

As we all know we're experiencing humanitarian tragedy at a scale that's difficult to comprehend.

Your next economic consequences are likely to play out for months or even years to comp.

The global economy is forecast to shrink by 3% and 2020 unemployment is increasing around the world.

Against that backdrop I'd like to talk about how we're responding as a firm how we expect to emerge stronger.

Even more capable.

Our colleagues are the firm and we're committed to their safety well be <unk>.

In response to local government guidelines, we canceled traveling events now have over 90% of our colleagues working remotely.

To ensure a colleague staying healthy well and productive we made available to all colleagues virtual learning tools to optimize remote work as well as multiple tools and services around telemedicine and well be.

We've also increased communication connectivity across from our leadership teams and our Cobot Nike Task force accelerate best practice sharing coordinate our responses and anticipate future impacts to ensure we can continue to deliver solutions for clients.

Further our young business services operational platform ensures that we can work remotely we secure access to all applications with no loss of productivity, enabling our team full access to all resources required to meet client.

And finally, we're committed to know colleague will lose their job as a result of cobot 19.

Turning to Q1 results our team delivered a strong quarter with positive performance across each of our key metrics. Despite some early disruption from the impacts of coping Nike in the quarter.

Our results include 5% organic revenue growth with particular strength from reinsurance solutions and health solutions.

Substantial operating margin expansion of 200 basis points to 35.7% and.

An 11% year over year earnings for growth per share growth.

In the quarter. We also took substantial steps to bring a full force of our firm so clients respond to the pandemic and resulting economic stress, while also delivering on business as usual commitments and we did this well managing the transition of working remotely which gave us even more opportunity for innovation across the organization.

To coordinate off I don't think response for clients are coordinating tests for springs, together experts from across the firm to develop deliver and share solutions around the world both for our own firm and for clients.

In one example, that's dependent quickly escalated in Italy, our commercial risk solutions colleagues partnered with carriers to address a need for cobot 19 coverage for our clients employees. This unique and tailor made solution provides employees with allowances for hospitalization and recovery expenses and you got your diagnosed with cobot Nike.

In addition, the cover provide supposed hospitalization assistance, including domestic assistance childcare anymore. The solution is now available in Italy, and Spain, and we're working to scale. This further across the globe a great example, over and United team innovating on behalf of clients during a very critical time.

In another instance, in New York argument capital team developed and analytic tool to assess the pandemic restore communities workforce and help speed recovery. The tool. They built uses department of labor data and analytics to analyze occupational risk by job and location based on won't characteristics like proximity and exposure the team took that model and layered on.

Medical forecast from Al solutions doing some out potential impacts by geography overtime.

The resulting tool helps communities plan reopening strategies on anybody's risk and prioritizing antibody test the highest Chris and most mission critical workers currently we're using our model in partnership with community groups in New York, well, we anticipate rolling out the clients communities around the world.

And these are just two examples of the many ways in which we're helping clients respond to the new demands are these challenging times.

Could still will elaborate more on our financial results and outlook. However, I would highlight that our business is globally diversified and highly resilient given its largely recurring and non discretionary business and we operate in over 120 countries in virtually every sector and doesn't second it's also important to reinforce that given our strong historic focus on cash flow.

We are fortunate to have an extreme surprisingly strong underwriting our understanding of revenue cost in cash.

And our single you know we have the ability to assess cash and other performance by business by geography by solution line and by individual offering this capability that's been in place and then further refined every year for well over a decade.

With this embedded capability for our business, we can compare the current economic environment to the recession of 2008 2009.

We have considered a number of macroeconomic scenarios and their potential impacts to our business at this unique point in time no. One can predict the future. However, we will continue to act from a position of strength on areas that we can control and protect our colleagues and our clients.

Well always hope for the best we've taken steps to prepare for virtually any economic scenario.

For Q1, we did see some early in pockets of cobot 19, especially in more discretionary areas within retirement and data analytics overall impact we've seen on a revenue and cash flow through April is modest.

Moving toward we're taking steps in three areas. Our top priority is to broccoli support colleagues followed by our priority is to manage expenses and could sort of liquidity.

First we're reducing non compensation expenses through an effort, which began in early March 2nd we pause share buyback in M&A, although we're committed to maintaining our dividend.

And third we have committed that no colleagues will lose their job as a result of covered 90.

In order to protect all 50000 colleagues were asking them to support the firm with a temporary compensation reduction.

We're planning for roughly 70% of colleagues to take a reduction of up to 20% of salary, which will be implemented in accordance with local practices.

While the remaining roughly 30% of our firm well see no reduction.

This step is intended to protect 50000 colleagues ensures that we were able to continue to deliver a full capability. They on at a time when clients need us most.

Taking these preemptive steps now from a position of strength ensures we're able to continue to invest and increasing our relevance to clients as we continue to look to address their unmet needs.

Welcome to the current trauma as it were seen it's a heightened interest by clients and understanding where other areas of major potential risk might exist.

Specifically, we see concern in areas like cyber climate change and health wealth gap.

Which may create future debilitating events up to now these risks I've only been addressed in a very limited way.

For example for one client cobot 19 highlighted that wouldn't when catastrophes happen, whether epidemics or natural catastrophes, a very key aspects of success a recovery is access to liquidity and capital to match exposures available immediately.

To create to cover and fulfill the required speed a resolution our team designed and innovative parametric insurance solution to address earthquake exposure. The program quickly provides our clients with the liquidity infusion and you're going to the quake and gives them broad discretion on how to use. These funds. This product covers our client and your exposure to their employees who may require for.

Actual assistance, ensuring the resilience and responsiveness and a future crisis.

Driving faster innovation for clients is a key outcome of our strategy and one that we can accelerate through our plan combination with Willis towers Watson.

Our world becomes more complex clients need unique capabilities that this combination will create our two firms have been on similar pass focused on bringing the best solutions from across their respective organizations to clients as a combined from we'll be able to accelerate progress and become even more relevant to our clients with faster innovation and better solution.

In summary.

Our global team has been truly remarkable and the response to take over 19 crisis supporting each other and our clients. In addition, they delivered a strong first quarter of progress even at the early effects of the crisis or being experience.

We believe our and United growth strategy is positioned us very well to emerge from the current crisis, even stronger from position for long term growth without overview I'd like to turn the goal, but a good stuff or thoughts on our financial results and outlook Christa.

Thanks, a lot scragg and good morning, everyone as I talk about our results I'll also provide some thoughts on how the macroeconomic environment impacts our outlook and the steps were taking to proactively and conservatively manage our business I'm not balance sheet. So when shall we became stability I'm flexibility and position ourselves continue to live a shareholder value.

As a long time.

I'll business has strong fundamentals.

Our revenue basis, divest vitacost industry geography, and solution line, roughly 80% Nondiscretionary I'm has a significant portion that renews every at 95% retention rate on average however, given uncertainty around duration I'm magnitude of 'cause it 19, and the resulting economic downturn and its impact.

So I Clive they're not bad for the near time, where we're throwing up and not just got a mid single digital Grayson organic revenue growth and double digit free cash.

We're also taking prudent steps to preemptively reduce expenses and discretionary uses of cash and those have maintained strict about sheet and optimize financial flexibility in the event of any future declines in revenue.

We are taking these actions and position of strength I know that will position us to continue to protect how colleagues execute a and United strategy and focus than I keep it actually metric in the short and long term.

In Q1, we delivered strong operational and financial performance stopped yet.

She is 5% organic revenue growth that translated into solid operational improvement over the coming in on favorable niche that impact from foreign currency translation.

As I reflect on each of our key financial metrics.

First we delivered organic revenue growth, 5% strikes in reinsurance solutions I'm health solutions offset by some early disruption from the impact of covered 98, an hour time and data analytics businesses.

It also not reported revenue was pressured by FX and the ongoing impact that's shows some efforts. We've described in prior calls is to reshape <unk> well, it's a high growth in high margin areas.

Second we live in solid operational improvement with operating income growth of 8% operating margin expansion of 200 basis points and 11% earnings per share.

Driven by strong organic revenue growth, an ongoing productivity improvements and expense discipline from Aon business services.

We know she did not any material FX was an unfavorable impacts of approximately three cents in the close up.

Today's right, we would expect reset Michelle unfavorable impact in Q2.

All set Michelle unfavorable impact in Q3, and six 7% unfavorable impact in Q4.

But free cash flow was 279 million in Warsaw, and I wouldn't know Q1 is our seasonally smallest calls on the cash flow due primarily to incentive compensation payments.

279 million this yet because it increases last year was 17 million, which was negatively impacted by approximately 85 million of net cash payments related to legacy litigation.

The increase in free cash flow was driven by operating income growth as well of near term actions, we've taken to delay certain expenses.

We did see an increase in receivables, primarily driven by the strong 9% organic revenue growth in reinsurance solutions.

As I look towards the rest of the yet we have confidence in the underlying resilience of our business and while much about businesses Nondiscretionary. It is impacted by long term macroeconomic factors like GDP growth employment and property values amongst other things.

While we're not providing revenue guidance I wanted to provide a bit more insights into our business that may be helpful. In understanding how we may be impacted in various economic scenarios.

We had a very stable revenue base with 80% of AD revenues include all highly recurring businesses with retention rates of 95 cents on average.

In terms of obviousness, 80% of opposites, it's cool coal revenues tend to be highly recurring non discretionary and include things like property and casualty well directors and officers insurance placements cyber remediation treaty reinsurance required actual actuarial work on pension programs and help.

The benefits brokerage many of these services are regulated required when necessary cost of doing business.

20% of our business is relatively more discretionary.

More discretionary revenues include project work like risk consulting transaction liability human capital consulting traveling a basketball and health and benefits consulting.

Much of this book also because Henri news every yeah. Those some of it is likely to be to FID or not renewed.

And then economic downtime, we expect to see a lot more immediate impact in the more discretionary potion of Apple.

We've already started seeing some early in parts of covered 19 in Q1, as I mentioned and given the overall global economic environment. We expect this could be more negatively impacted going forward.

Within our solution lines commercial risk reinsurance I'm health include the largest pull completed well over time, it solutions and data analytics services have the largest complete its at a more discretionary.

More positively as Greg mentioned, we see significant opportunities and there isn't about business around innovative solutions to address the current process for instance in balance sheet and liquidity solutions the plots.

Overall wet clubs that now strong fundamental business.

We did not see material impacts to revenue all collections in Q1 or in April.

However, given global economic uncertainty, we're taking steps to manage cost prudently and defer some spend an investment in order to proactively get in front of any negative impacts.

Our business is highly resilience and I'll start investment and Aon business that was it gives us the ability to make quick a lot of decisions across the fun to manage expenses.

Steps, we've taken with a and business services platform to drive operational efficiency, not only help us manage costs and improve margins, but also help us continue to manage cash flow and working capital, which further and shows out stability and flexibility.

For instance, in Q1, 82% of outside services spend was managed essentially allowing us to manage purchase decisions and so we derive maximum supply value and optimize working capital.

This allows us to take steps now to defer preemptively and reduce costs.

I would note that these expense reductions will contribute to nearby margin improvement how about some like travel and entertainment do not reflect sustainable core operating margin expansion.

Overall, our elder themselves is operating platform enables us to operate effectively well. The continued her on the phone on cash and prudently manage cash and liquidity position.

In the consistently focused and delivered on key financial metrics of organic revenue growth operating margins free cash flow and return on invested capital.

In today's economic environment, the context is different but our strategy in toxic to drive performance of Alpha remain the same.

Our historic focused on maximizing the translation of revenue into the highest level of free cash flow serves us well in this environment.

Focused on preserving capital to enable future growth.

These steps and others, we've taken to drive operating income growth.

Make progress on working capital I'm pretty structural uses of cash I, perhaps more essential now in this economic environment than ever before.

For instance, we have daily cash outlay for caustic across the line the cash flow statement.

Because we run the phone based on free cash flow for well over 10 years. So this gives us the ability to compare our free cash flow the previous years, I don't particularly for not just crossed the 2000 and whatnot.

Just because that's the ability to analyze and take steps to address any challenges by country by business by lot of the cashless statement and to look up early Mako trends for instance, some areas that may have been more hard hit by covered 90.

I'd also highlight that structural uses of cash and pension restructuring in capex collectively are expected to free up approximately 300 million of cash and twentytwenty compared to 29 team.

While we are maintaining out dividends, we have pools that especially uses of cash the share buyback and M&A.

I'm very confident in the strength of our balance sheet and how we manage liquidity, we do not take underwriting risk and we're committed to out investment grade credit ratings, we manage liquidity with throw well lot of debt maturity profile with no more than 750 million of term debt coming due in any given year.

We have 1.65 billion and committed credit for about 900 million credit facility due in 2022, and I'll 750 million credit facility June 2023.

We have not had a need to draw on our committed credit despite our seasonally lowest period of past life.

We also continue to access commercial paper market for working capital needs in the U.S. and Europe.

We know this prudence makes us resilient now I'm prepares us to come out stronger.

As Greg mentioned, we are committed and excited about a combination with Willis towers Watson and we expect to file a joint preliminary proxy in the coming weights, followed by a joint definitive proxy and shell about but which we expect in Q3.

In summary, our colleagues business and United strategy, and I am business services operational platform, a strong and equip us wells reacts challenging Todd.

Steps, we've taken to drive at key financial priorities, a more relevant than ever as we manage flexibility and stability in these challenging times.

Our disciplined approach to free cash flow a return on invested capital provides stability and flexibility to unlock significant shareholder value creation over the long term.

With that I'll turn the call back over to the operator and we'd be delighted to take your question.

Thank you we will now begin that question answer session. If you would like to ask questions. Please press star followed by the number one on your phone on mute your phone or record your name and company to be when prompted are quite our first question is coming from a lease greenstein from Wells Fargo. Your line is no.

Hi, Thanks, Good morning, Hi, Lisa Hi, My question you know recognized.

All the liquidity of the situation and the impact of Cold Midnight and and obviously you guys wanting to know a movie organic guidance for the time being but anyway that you can give us and you know to the bulk of your ability right while what yeah.

You is for the balance of a year or maybe some kind of wide range from one it seems the other just the we have a fan club you know how you know you know, it's still going to be slightly positive glop slightly negative I know, maybe some kind of range.

How cold it might impact isn't it.

Yes, so at least when not giving guidance on revenue and margins as you described because of the uncertainty the macroeconomic environment, but we are managing you know them very closely over the course of the yet and we would expect that if there aren't any reductions in revenue that we would reduce expenses.

Disproportionately Ah to match, a and I'm very much focused on managing free cash flow for the for them to preserve flexibility and stability over the long time.

I would note if you think about the macro environment a leader in 2008 nine out when you know GDP was essentially flat our worst year of organic revenue growth was minus 1%. So we do have a very stable business and you know global economic recession.

At least I might add if you think about sort of just put in perspective is very important very important question. It's me Chris as referenced in the history in the facts are are very helpful that set the baseline. So 2008 2000 I just as Christa described.

What's different from 2008 2009 and today, we'd say two things are different one obviously aon as much stronger and United strategy is 10 years more mature you're not a blueprint in the plan we have Oh, we delivered a global former clients in place.

Business services is a real game changer for US we didn't happen 2008, 2009 drug business improvement executing executing that scales with all these things are in place. We've also had a very substantial spend on data as you're well aware. Since then 400 million a year so call. It through an after 4 billion and we're seeing opportunities around net new and a new business generation returns.

And it all time highs. So that's a different were stronger from what's also different though objective late.

Pairing it to than the current economic trauma is likely more much worse, we don't know where no one knows Q twos, obviously, a problem greater than the U.S. greater than 30% reduction in GDP 26 million unemployment claims the last five months.

Suggest unemployment is greater than 20%. A me is obviously got a tremendous amount of 50 million employees plus potentially affected age out same same place to the duration did not know no. You know in normal course really is or how fast do that because the recovery going to happen and you know by geography, I was going to play out and Christa described in her script. In particular is we want to be in a position to perform.

And every scenario, but not too we believe we're set up to do.

Okay, and then on the margin side.

He said right you guys are focused on managing expenses. So it's the message that maybe there is some fluidity on what happened with organic but regardless of the range of outcomes you guys. Like continued due to the expense management will continue to look back to show margin improvement.

But at least we haven't given guidance on margins, nor given got it to revenue, but we do manage margins of the close of the yet and we would expect that we will reduce expenses proportionally with revenue impacts for the full yet I would tell you at least what we've done is we've acted early from a position of strength.

And we are taking actions on what we can control and we're not predicting the future. We are hoping for the best but we are planning to every economic outcome and so we have taken actions as as Greg and I talked about an hour and out opening remarks, you know to reduce expenses I had all Uh huh.

The economic impact we see a two until we come out stronger a and we want to make sure that we that we are able to do a little for clients in a time of greater need for that.

Okay. One last one you guys announced the merger without the acquisition of Willis bite at the start of March kind of the for the economic slowdown picked up and you know when you announced the deal you had put forth a target up mid single digit or greater organic revenue growth for the combined firms and now you know that deal doesn't close.

It is wait till the first half of next year. So with the you know long term view.

Getting back to that mid single digit or greater organic growth no kind of let me come out of this slow down on you know is that still that combine view going into that acquisition.

It's certainly it delays we would say we're not set acquisition no. We're not that combination with Willis towers Watson on March 9th and we are even more excited about it today than we were that as we continue to engage with Willis towers Watson, a we find that the DNA and strategies, if I'm a remarkably similar and we.

I'm incredibly excited about the opportunity for clients and the upside to me I met client needs a and we do believe that the combination has a complementary capabilities to be able to live with clients and so we certainly see that the upside in revenue over time is is very much in line with a commitment to mid single digit Oh Grace, though.

Over the long time.

I think it leases just think about the potential and John Healy and I talked about that really from day one the entire thesis behind the combination are they on Hello stars Watson centers on bringing the two firms together do you really set a new standard and client leadership, an impact and the combination as we described is better now with commentary capability as Christian mentioned weather in solution mines in geographies and.

Segments tremendous opportunity.

But not just better now we think better in the future back to your point on mid single digit or greater better in the future with analytics capability better understanding of Virgin client need our ability to create new market solutions, a et cetera. All these things come together and really doing something for clients, which often no no one's been able to really do an address sort of major risk challenges.

Like pandemic climate change cyber health well Ironically this current trauma, it's just reinforced in so many ways or the the the value of the combination and I think we would say March like we had high expectations, having spent more time with John Haley and the team our high expectations or exceeded and we're we're really looking forward to them.

Stops.

Okay. Thanks for the color.

Thank you already next question is familiar shields KBW. Your line is now open.

Thanks.

One quick question on the recurring revenue stream I think Chris when you talk about 80% of that being recurring event in a normal scenario. We don't have lot of small business is going out of business or is that sort of framing the current expectation.

That's driving the current expectations by what we would say is I guess that other call I'm call. It tends to be highly recurring non discretionary things like property and casualty Deanna.

Five a treaty you know actual work on pension plans et cetera, but 20% about businesses more discretionary and more discretion rate much of this record them or news each yet and so we do have a very stable them, but they'll get business less than lumps and about revenue comes from any single client a and we operate in 100 countries different industry.

Raise different segment. These economies. So we feel very good about the resilience of our business.

Okay. That's helpful. Greg can you talk on a big picture perspective about the compensation reduction and what that could imply for employee retention.

Well I would say Meyer from our standpoint first took a step back you know that we're really focusing on creating value for our clients and taking care of colleagues and really to emerge a stronger firms.

And we only.

I'll tell you. We're you know we will be reflect were humbly proud of the principles based approach we've taken at the commitments, we made a and it really don't come through as we described before a lots happened in the world and well Evolent, hoping for a bounce back are you able to result will be by the way to bounce back to a major recession I guess is whatever one is anticipated, but no one really knows.

That's what it's going to look like and how long, it's going to look and we stepped back and so listen we've got to be in a position and any scenario to perform on behalf of clients.

Colleagues and for US first I'll just ask you to consider the foundation upon which we made made our decisions.

Christa highlighted we've been managing cash flow as an important metric or better part of a decade that couple coupled with others and services really is a very unique perspective on where we stand at anytime and this is really all aspects of performance catch all aspects and ability to execute a decisions across but across the board and by all measures I mean look at the corner and look at the reason.

We currently stands at an exceptionally strong position, we know that and we know that very well yeah. We also know when all the scenarios look like all the economics work scenarios irrespective of how remote and for US. It's an absolute priority to have our entire farm in place to support clients and it potentially historic and sustained downturn and you know.

If you take this priority seriously it requires you to take difficult stuff styles Christa highlighted to protect 50000 colleagues and so the alternative by the way it gets to hope and hope that the current downturn really comes back to 2008 2009 revisiting.

That alternative by the way puts client leadership fully at risk at the very time clients might need at the most and there's no doubt in every respect. That's you know that's easier path to take you can you can sort of shade over a lot of things along the way and we have essentially said listen we desperately hope that's the outcome, but if it's not we want to be an absolutely.

Absolutely unique and pristine place to help our clients exceeded protect our colleagues and and what what I would highlight is.

We we fully anticipate coming out a much stronger from and this really comes back to our investment over the last decade in there.

I will tell you something for our team, we often talk about and United in the capability and positive times, but it turns out and United It is equally meaningful in times of challenge and this decade of investment and and United means we can take a global sort of actions that we know will be difficult for maybe for others to do but for us a global set of actions that really puts.

I wasn't position to support clients in every scenario. So our colleagues around the world have done very very unique things and very very strong things and we're excited we're excited right now about our ability to help clients in times of the irrespective of what that comes out so from our standpoint, Oh, we're going to be a stronger from coming out of it.

And we're taking steps that we can take the we know are important to the right answer for us to make that happen.

Hi, Greg.

Just to jump, but a little bit on one of the examples you know we talked about the cold in 19 test for us on the in your early opening but I think it's important to recognize the this is the fourth time with activated that group so going back to 2009, whether it was a two and then one Sars a bowl. So this group is is a group that consists of experts across the firm.

From from everything from epidemiology to credit risk to capital solutions liquidity, all different capabilities around the world and essentially what they're trying to do is innovation on behalf of clients, whether its try and whether they are working on how they're dealing with their employees, how they're thinking about returned to work how they're working on capital solutions and liquidity for the firm it really is a key.

Ross the entire affirmed learning from areas of the world that were affected earlier being able to share best practices and so there was an advisory part of that's for sure but more importantly, I think we're trying to help them think through on of innovative new way, it's actually can't do until you pull all the capabilities together, we wanted guiding principle of trying to help the clients get.

Through this and and so while the salary pieces one part there's a lot of innovation that we're pushing and working on people to help those clients get through to get through the challenge.

No completely understood. Thank you very much.

Thank you.

Have a question from Suneet Kamath of Citi. Your line is now.

Thanks, I just wanted to follow up on the base salary reductions.

Can you just give some feedback in terms of how the employee response has been it seems like obviously a pretty dramatic step. So just curious what you've been hearing since monday's announcement.

It really has been city drugs, a again I would sort of come back an incredibly strong positive reinforcement on and United and what we're all about Oh I can imagine what we essentially step back and ask her colleagues around the globe than our leadership team or how do we actually repair on behalf of clients and we looked at all the scenarios and again as I highlighted.

The alternative right now for is to hope that the current downturn ends up being a recession, which by the way we hope to we hope we celebrate that nope. That's the case, but we all realized at the time the typical choices how do you protect 50000 colleagues to serve clients in the most effective way.

And you recognize that if you wait a and the downturn becomes more acute how do you actually have them. There how do you support their colleagues to do that and we collectively made a decision a that we're going to take the steps. We took a because we know again in addition to protecting 50000 jobs our ability to continue supporting clients is extraordinary and.

And so that was the piece it was obviously when we when we talked about it on Monday I would say since Monday, what's happened around the world is really been our colleagues have have embraced it and understood exactly where we're trying to do and as I said before we're coming through this a stronger from and you know if we're wrong. So if we're wrong by the way I hope were wrong.

We hope it ends up being a recession.

And our colleagues now we took steps that perhaps it would be hard for other people to take to support clients and that if we're wrong. We basically you know remediate all the actions we've taken mitigator actions no problem whatsoever, and they've done something no one else could do the fact that we could act across the firm in it and United fashion is pretty unique and it actually has been incredibly invigorating as our.

Colleagues have actually puts us in place among other things as we have reduced expenses and done a number of other things Christa described that package puts our firm in a unique position to perform and what is really no one else can do under any scenario.

Got it and is there any way that you can help us think through the size of the expense reductions you know just maybe as a percentage of total expenses to help us frame how impactful what you guys are doing it will be.

So it's an eight we haven't given guidance and the size of this we would say that play fabi expense reductions, we've taken a modest and we're not giving guidance on revenue or margins, but we would say that you know as you know if revenue was to come down that we would reduce expenses proportionately I'm. We're also very focus as I mentioned belly up on cash.

Yes, and making sure that we maintain a very strong cash position. It's always been the way we run the fed we have unique insight and visibility into our cash flow by lot of the catch my statement by solution line and and one of things I would say is we've taken a number of actions on the you know I know.

Salary side, and we did that but we reduced the number of expenses.

Things like T N a things like said potty spanned a much earlier in Q1, and so we are taking action for position of strength.

It had bought solved impacts we observed.

One of their go to sort of highlight city in context of this is we you know, it's we talked to clients amendment to the long discussion with clients in the month, leading up to our decision and what sort of what we've done across the board on the different aspects and you know when we explained the principles based approach our clients not surprising are incredibly grateful they understand what happens they understand or inability to.

Serve them up if you take different courses things get difficult and candidly some of our global clients have asked for the playbook. They know what they've said how do you do this around the world in different geographies and make it work and you know we've described them you know what and United is all about how it's played out over a decade, how we built out foundation overtime and then see you know it's come together support each other.

Sure.

In an ability to support them in times of eat whatever those times are that's been also frankly inspire and for our colleagues to sort of get that reaction as clients recognize what we're doing on their behalf.

Got it okay. Thank you.

Thank you. Our next question is from Jimmy Bhullar of JP Morgan. Your line is now open.

Hi, good morning, so at a few questions first just on the impact of goal that you discussed the sensitivity or the exposure of the various businesses, but on a the commercial risk business. Your organic growth was decent 4%, but it had been like 6% to 7% or in the past a couple of.

He is actually and so is the decline just tougher comps or is it more just a slow down in March and is it reasonable reasonable assumed that that's a business that could potentially turned negative in the new Yorker.

Yeah listen from our standpoint, no. We've put we feel very strong momentum in commercial risk across the board as we highlight a again in the first quarter.

We were touching on some of the impacts come in at the end of the quarter in terms of sort of overall, where we are but no we feel tremendous momentum a sort of across each of our solution lines, particularly as we're conducting the clients and there are a number of things that are happening sort of in most solution lines as they currently exist as well as our ability to candidly generate net new bill.

And so I described before net new business for US all time high retention all time high rollover all time high.

And it isn't just in the business. It's also the net new things we're doing maybe Eric can you talk a little bit about some of the none of the bright spots that we're seeing across a across the the plainfield here as well as some of the new initiatives that we're putting in place.

Sure Great. There's a couple in particular certainly on the do you know area. The work we're doing around distressed companies. In particular has has really created some opportunities for us, but also trying to create liquidity using surety bonds were placed letters of credit and other areas along the lines I would say balance sheet protection and providing financial liquidity or just things that.

Honestly today the clients are very interested in dealing with but also I would say just our traditional business and how we're providing advice and how helping clients do structuring and understanding the different areas, where perhaps they can take more risk themselves or or perhaps combined programs things along those lines, but.

We were pretty pretty optimistic with the business as it came through the first quarter.

One of the do you look look I think you look at the 80% that Christa described incredibly strong core the 20% or we're working through but these net new areas are very strong very powerful in terms of sort of how that how that plays out over time building momentum at the business.

But do you would expect to slow down in that business as well in the short term, though right.

And some are what we would expect is as as I talked about the components business, we would expect out our commercial risk a reinsurance I know how businesses to have a much higher percentage of call than the rest about business because the business is a highly recurring nondiscretionary and as Eric said.

You know they regulate isn't required and offer them necessary cost of doing business, even funds into not just a threat.

Okay, and then just on the villas deal I think there was sort of.

Yes.

On the part of the listen ministers, there were somewhat disappointed with the modest premium and obvious that did you offered on the takeout and on top of that your stocks declined a lot, but many on shareholders are also concerned about you potentially a raising the offer especially given sort of the supervoting.

Requirements at Willis can you sort of discuss if the deal does not go through as proposed would you be willing to walk away from it or or is there a possibility you actually consider a higher but.

Jimmy Smart standpoint, listen, we've been engaging with our shareholders and John.

With their shareholders I'm, a little stars Watson side, our feedback has been exceptionally positive again, when our shareholders really start to understand and Willis towers Watson really start to understand what this combination can do it down.

Ordinary and they're just not by the way to describe it and it's extraordinarily off of clients. It's extraordinary in the now as I described for a good the solution line commentary piece is very very positive geographically you know very very positive interim that's what we're trying to do the segments very positive obviously the future equally strong are strong.

Anchor with analytic capability that lets us do things around understanding client need and creating net new markets that are extraordinary. So I think our investors see that potential are incredibly excited about it and Willis towers Watson sees the same incredibly excited about it obviously the structure of the deal I mean, the share price movements down you know are really less relevant in terms of sort of where we are at all.

Okay and so that's an opportunity is extraordinary then obviously not to mention we highlighted in everybody in synergies and not isn't changing in any way shape or form. So from our standpoint. This is really about the upside in the revenue potential new solutions for clients and we're incredibly excited about it continue to date and as I said before ironically.

If there's one thing about this you know current crisis is pandemic it really highlights the need for higher octane higher capability higher insight and you know you want you want that you go to Alan Willis Towers Watson, that's really what we're talking about so that's really been one of the observations are shareholders have made and so it's a little started lots Charles as what you engage with them.

And Greg I would just I think as we look forward Jimmy were very excited about the combination you could hear the excitement in terms of even more excited today than we when we announce it on last night.

And you know going forward, we expect to the two big milestones. The first is I'm going to follow presumably proxy in the coming weeks and the second is a in Q3, we will follow spend a proxy and have both shareholder, but so I went very much looking for those milestones on looking for the combined capabilities to be able to subplot need that should let me do today.

Thank you.

Thank you already next question is friend, Dave Styblo of Jefferies. Your line is now open.

Hi, good morning, Thats the questions appreciate the global diversification and solutions that you guys can provide financings on and obviously that can help insulate the business at the site at same time everyone's trying to figure out and assess the impact of of what larger companies might dial back down for discretionary standpoint in the smaller companies that may not able may not be able to survive.

Hi.

I'd like to pick a little bit more at the 80% of the business. That's nondiscretionary I I'm curious just to make sure I understood comment there is that already contemplating companies that that may not be able to survive in that in that situation, where even though it's not discretion that they're just thought there anymore or not can you provide a little bit more color about the revenue breakdown by employee.

Her size you know whether you know how much of that is from employers with a thousand plus employees versus some span between 102000 or less than 100 to give us a sense of what might be at risk in that book.

Absolutely. So as we think about our business. It is a globally diversified its diversified across clients across industry verticals geographies. We do operate never have to countries and no. One class a actually makes up you know even one set of revenue and so were very fortunate to have a very resilient business.

We look at out business about 80% of the cool, it's highly recurring nondiscretionary activity, where many of you said. This is a regulated required unnecessary cost of doing business, even to clients of financial distress, even to clot still potentially entering bankruptcy. Many of you said. This is this still required and so we have real opportunities that actually.

Provide a liquidity and capital solutions, a full clots and financial distress out as we think about even clot size.

Dave We we are you know very well diversified that's it and so we feel good about the coal part of our business being extraordinarily resilience the 20% about businesses more discretionary and discretionary revenues include things like project Watt, a invest consulting transaction liability human capital consulting I try.

Dublin events business and so much of this actually require some renews each year. It just may have you know <unk> you, obviously need to be just said slightly which is what we did see in Q1 in our time and data analytics businesses.

Right. Okay. So question, Chris maybe just a tick up on appointed that just to drive it a little bit in that like on the transactional I believe is tied to deals being closed on construction projects push for bombs, it's tied to putting a shovel in the ground. So those events will I will eventually happen there just so.

Actually been deferred until those deals come back up.

Oh and also as Dave This is not a static position.

For a number as Christian and they're just described we keep evolving so the new offerings are described before the new solutions clients need change. So we reinforce the 80 and then we actually change and build the 20. So it isn't just a zero sum game and the work we do is and the investments we could make on behalf of clients and now we're going to.

Able to making any scenario on behalf of clients is a very unique position. That's also why in the end you end up seeing particularly in times of stress a flight to quality, where you clients just really come to places that you know that they know they can get great great results in great service in great capability, and we're very fortunate and we're seeing a lot of that too. So there are lots of things that put us.

In a unique position, we think to actually performed exceptionally well in the current environment or frankly, any other environment one can imagine.

Okay, Great doesn't we certainly we saw that a lot in reinsurance certainly with the pandemic models the ability to access capital globally, and so I think you saw some of that in particular in reinsurance this quarter.

Sure right that's helpful.

And then maybe to ship the conversation back the margins I appreciate the commentary on the flexibility to manage through revenue pressure to.

Operating expenses.

Obviously, there's a wide range of outcome with but as you've modeled this and thought through the levers that you can pull on yearend how much of a revenue decline and for how long can you absorb that without margins coming under pressure year over year.

I look at the Great question, David <unk>, what we would say, it's we're not giving guidance on revenue I'm old margins, a and obviously you know very I'm session. Both in terms of the you know <unk> macro impact on the duration that you described.

What we have dawn is we've assumed position of strength.

Weve taken decisive steps in Q1, two reduced up you know non people expenses third party expenses T N, a et cetera, and our investments in the Aon business I was just platform of really enable us to do that far more effectively and far more quickly with third party providers and we continue.

To do this early and show that we're taking those steps proactively to and so that we can handle whatever comes in this uncertain environment and so we come out of this stronger delivering to plot in a time they need us must and I've finished by saying you know as if there are options or revenue impacts in the air we don't see Saint Sauveur early on and.

Q1 in out discretionary revenue, then we will reduce expenses proportionally.

Okay. Thanks Christa.

Thank you. Our next question is from falling used some of my first answer your line is now open.

Good morning, Thanks for the call.

You folks have made a lot and has made a lot of acquisitions and divestitures since the financial crisis.

How would the 80% recurring number.

Look of compare in the business mix change from from the financial crisis is we're trying to compare and contrast, the two periods.

Yeah look it's a really good question Paul I'm one of things. We've spent a lot of time on is not just on the revenue imagine fly, but actually the cash side too I'm, comparing you know where we out today because of our portfolio. That's just the 2009, but actual crosses the thing we would say is our business is far stronger today, both in terms of the overall portfolio and the Rick.

Hiring and non discretionary nature of it vessels, but not to process and the Aon doesn't services platform, which have allowed us to reduce <unk> non people expenses a very quickly for example, 82% about third party spend is all managed essentially and so we were able to you know throughout online.

Kill a platform actually just turned off that spend into five payments immediately in Q1, and so we feel very good about our Oh overall business portfolio. It from a revenue and sort of margin point of view, but equally from a free cash flow appointed me because we've been managing the company on free cash flow for well over 10 years, including through the financial crisis, which will.

I love to compare you know cash side of the last couple of years by day by lot of the cash my statement by business.

And also to see how the impacts on special was supposed to but not so across the so we feel very good about <unk> insight on the strength of our business to manage through its extremely resilient.

Remember Paul as Christa described before on these calls as we thought about capital allocation by the way pre crisis at crisis post crisis back in 2008 2009, It really is a band and allocation of capital based on return on invested capital cash on cash return, which means the businesses. We brought in since the crisis I don't know by definition, if you're going to meet that are.

Higher margin higher growth higher free cash flow businesses in terms of sort of what were up two and a and we've also been at that period of time, you know done things as we thought about return on invested capital that really is change you know our ability to kind of create a cash margin cashflow margin against rather than overall in terms of what we're trying to do a working capital improved overtime. So the translation of its cash from it.

Our revenues also improved so we've changed the business mix and strengthened our ability to generate cash over that period of time. So all those things contribute to a stronger a on now coming where in 2008 2000 or not.

No no question emerges and Kessler higher than they were back there dramatically, but I guess I was looking for particular examples that they have been changed it would've been a <unk>.

More resilient as opposed to a.

I mean dramatically higher margins.

My My second question is just to the county, when it when the insurance Cobiz allow customers to do me a payment how does that run through your income statement.

So we actually haven't say not yet Paul but if they want us to allow because I think what we've seen in certain areas in the consumer lines also well things like that but we haven't seen in our business life off.

Just just house How's it how would you can you know yet.

So we would still recognize revenue Paul I'm, because we'd be placing the business. It would then be a a collection of caching.

Great. Thank you very much.

Thank you. Our next question is from Michael Phillips of Morgan Stanley. Your line is now open.

Thank you good morning.

Greg a couple of times in your comments you mentioned the difficulty of some steps you're taking the difficulty that others would have on a global basis and I I assume you're part of that is the is the salary cuts that you're talking about but I guess could you give some examples of other things that you referred to there that would be difficult for competitors.

I actually.

I mean, I'd just like start with it we don't make it a practice actually to comment on on competitors or others. So really shouldn't comment on them in any way shape or form what I would highlight is a on and that really is the thought at some place we know well that's what we focus on everyday and we would say it just step back to think about the steps we've taken to position our from they'd be able to serve clients.

Any circumstance and protect our 50000 colleagues the investment in and United for the last decade has put us into position, where we can sit together and look across our global from a with our teams in place in every way shape or form they come up with the point of view they come up with a point of view that they know it was one is right on behalf of clients and they know we can exit.

Got it now not just because because it's the right thing to do because that's just this one stuff, but because we have come together, we actually we actually were supporting each other noise. We haven't before then a on business services allows us to execute it. So when you think about the overall package, we step back looked at the scenarios. The you know the economy as it is evolving and said listen under every scenario one could emerge.

<unk>, particularly given the uncertainty how do we make sure we're ready and the ready his father way the expense pieces that Chris the talked about that are non sip related and this is a on business services at its best I mean, we're doing things instantly that used to take US you know you had to build consensus overtime you know our teams got extraordinary capability there.

We obviously did things around around the buyback in M&A that are much more straightforward, but what we're doing and is it services, it's very unique and it really supports what we do on efficiency and productivity, but it really is the team and as how they've come together in every way shape or form in terms of sort of where we are and what we're up to and that's that's really what's been different and and that's what's unique about and you're not.

<unk>.

Hey, Greg I think there's also another component that's worth mentioning in that a lot of what we've done about ABS is really about leveraging our capability and getting it out globally and so we're able to deliver for clients today, using our technology being able to connect with markets being able to connect with clients actually pull in global capability to a client virtually.

In a way that actually allows them to move forward with their business to understand the risks that are certainly the things we've talked about in the past we're continuing to work on whether it's the mortgage business, whether it's building in intellectual property market, whether it's working on transaction liability type and James we're continuing to move board and turns a product creation using the technology investments we've.

Made historically trying to get in front of what we perceive as client need that's there today, but also what we think is coming as people return to the workplace. So it is a it's not just the expense side, it's actually the front end value creation, but we're leveraging using the investments that were made in technology and business services.

Okay, great. Thank you very much appreciate the color.

Thank you our last question is from fields to fine.

Bank. Your line is now open.

Yeah. Thanks, I appreciate the color commentary around the discretionary versus the more discretionary break out of the business. I guess is there anyway qualitatively you can help us understand maybe a proportion of business the dependent on volume or number of exposure units something along those lines.

And then the the place I'd start with is.

80% about businesses call I now coal revenue was highly recurring nondiscretionary and many of you said as the regulator for quite a necessary cost of doing business, even for businesses and financial distress or potentially going into bankruptcy and so it is an incredibly stable them, but they'll get business globally diversified specified by industry.

<unk> segment et cetera, and then we'll take the to what extent about this is it more discretionary much of this because I'm a news every yet a and so you know I'd say, we do see that thing you know I'm actually quite strong too. There is some project work in may which could be to FID as Eric describes as we think about impact.

Maxim GDP, either obviously as I mentioned impacts and GDP or employment levels, while asset values and we may see explosions go down, but we do often take lots by more in these circumstances given the increased risk at the current crosses is highlighting for them.

[laughter] from the perspective of the comp reductions. He can you just help us thinking about the timing of this they are their employment regulations in certain regions that maybe complicate goes versus other reasons. Maybe just you know how we think about how this might flow through from a timing perspective.

Phil This is about to back to the prior question around sort of no 10 years ago wouldn't be able to do this without and United and while we are the answer is now we're executing a very very quickly on an overall game plan to support our affirming away on or 50000 colleagues. So we can support our clients. Every single you know scenario one can imagine so no actually what we've done essentially.

Is this put all these in place and we're seeing a and asked for a kind of voluntary where do you see voluntary it's going to actually done exceptionally well by country around the world with our leaders in EMEA doing amazing work in Asia, and Latin America Amazing work coming together in our U.S.U.S. and Canadian this exceptional sort of frankly tour to of course on leadership around.

In the world and so we tailor to local markets, but no. The timing is immediate a relatively immediate in terms of sort of you know days weeks not months in terms of sort of where we aren't so how many very very quickly and it's something we can do now that we couldn't have done 10 years ago impossible and we couldn't have executed and actually taking some of things are described in actually scale them around the globe.

Possible today.

Today with and United we not only can do what we can do it actually in a way that actually strengthen confirm and built in the firm. We can do it in a way that protects our colleagues in our clients somebody could turn away that candidly gives us a position actually strengthen our from coming out of the crisis, which is which is why this this investment and United as I as I said earlier has really been wonderful.

And you know in positive we're in good environments turns out throughout this environment is a is really shows us that it's incredibly powerful.

And the more challenging environments as well and it really is the credit to our colleagues around the world. They just have an extraordinary.

I look I wouldn't say Oh still as we think about you know when obviously, it's going to giving revenue and margin guidance.

But this along with other expense control measures.

We will you know if we do see revenue declines during the year, we will decrease expenses proportional with revenue as we manage there's uncertainty and so a very you know I focused on the I'm incredibly stable revenue base, we have as we've described and the resilient business. We have to navigate through this helps of our clients and come out of the stronger.

Got it okay, thanks, and I'll be well.

Thank you I would now like to turn the call back over to Greg gave for closing remarks.

Just wanted to say can truly appreciate everybody participating on the call today into our own colleagues around the world I'm excited to be with you at sort of we are we push through this environment and emerging were stronger on the other side toxin. Thanks very much.

And that concludes today's conference. Thank you for your participation you may now disconnect.

Yeah.

Plc's first quarter 2020 conference call at this time, all parties will be in a listen only mode. I did a question and answer portion of today's call I would also like to remind all parties that this call is being recorded if anyone has any objection you may disconnect. Your line at this time it is important to note that some.

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 2020 results as well as having been posted on our website now it is my pleasure to turn the call over to Greg case.

Oh of A&P Aussie.

Thanks, Elena and good morning, everyone welcome to our first quarter conference call I'm joined virtually by Christa Davies, our CFO and Eric Anderson, our President Mike.

Like previous quarters, we posted a detailed financial presentation on our website.

At this time of unprecedented humanitarian and economic challenge I wanted to start by thanking our 50000 Aon colleagues around the world for their remarkable dedication resilience and impressive response to this crisis.

It's inspiring to see our colleagues tirelessly going to extraordinary lengths to support each other and connect the firm.

Embracing and United.

Our global team is fully committed to bringing the best of our firm to clients at a time when they need our help more than ever.

As we all know we're experiencing humanitarian tragedy at a scale that is difficult to comprehend.

Economic consequences are likely to play out for months or even years to come.

The global economy is forecast to shrink by 3% in 2020 and unemployment is increasing around the world.

For our clients employees. This unique and tailor made solution provides employees with allowances for hospitalization and the recovery of expenses in the event that you're diagnosed with COVID-19.

In addition, the cover provides post hospitalization assistance, including domestic assistance childcare and more the solution is now available in Italy, and Spain, and we're working to scale. This further across the globe a great example of her and United team innovating on behalf of clients during a very critical time.

In another instance in New York are human capital team developed an analytic tool to assess the pandemic risk to a community's workforce in order to help speed recovery. The tool. They built uses department of labor data and analytics Tantalize occupational risk by job and location based on what characteristics like proximity and exposure the team took that model and layered.

Medical forecast from a health solution steam some out potential impacts by geography overtime, the resulting tool helps communities planned reopening strategies, while minimising risks and prioritizing antibody test the highest risk and most mission critical workers currently we're using our model in partnership with community groups in New York, but we anticipate rolling it out to <unk>.

Science communities around the world.

And these are just two examples of the many ways in which we're helping clients responded to new demands of these challenging times.

Crystal It will elaborate more on our financial results and outlook. However, I would highlight that our business is globally diversified and highly resilient given it's largely recurring and nondiscretionary business and we operate in over 120 countries in virtually every sector and business segment. It's also important to reinforce that given our strong historic focus on cash flow.

We are fortunate to have an exceptionally strong understanding of revenue cost in cash within our single P&L, we have the ability to assess cash and other performance by business by geography by solution line and by individual offering. This capability has been in place and then further refined every year for well over a decade.

With this embedded capability for our business, we can compare the current economic environment to the recession of 2008 2009, we have considered a number of macroeconomic scenarios and their potential impacts to our business at this unique point in time no. One can predict the future. However, we will continue to act from a position of strength on areas that we can control and protect.

Colleagues and our clients.

While we're always hope for the best we've taken steps to prepare for virtually any economic scenario.

Four Q1, we did see some early impacts of COVID-19, especially in more discretionary areas within retirement and data analytics overall the impact we've seen on a revenue and casually through April is modest.

Moving toward we're taking steps in three areas are top priority is to properly support colleagues followed by our priorities to manage expenses and conserve liquidity.

First we're reducing noncompensation expenses through an effort, which began in early March 2nd we pause share buyback and M&A, although we're committed to maintaining our dividend.

And third we have committed that no colleague will lose their job as a result of COVID-19.

In order to protect all 50000 colleagues, we're asking them to support the firm with a temporary compensation reduction and.

And we're planning for roughly 70% of colleagues to take a reduction of up to 20% of salary, which will be implemented in accordance with local practices.

While the remaining roughly 30% of our firm will see no reduction.

This step is intended to protect 50000 colleagues ensures that we were able to continue to deliver a full capability today on at a time when clients need us most.

Taking these preemptive steps now from a position of strength insurers were able to continue to invest in increasing our relevance to clients as we continue to look to address their unmet needs.

One I'll cover the current trauma is that were seen as a heightened interest by clients and understanding where other areas of major potential risks might exist.

Specifically, we see concern in areas like cyber climate change in the health wealth gap, which may create future debilitating events up to now these risks have only been addressed and a very limited way where.

For example for one client COVID-19 highlighted when catastrophes happen with our epidemics are natural catastrophes, a very key aspects of successful recovery is access to liquidity and capital to match exposures available immediately to.

To create the cover and fulfill the required speedy resolution our team designed and innovative parametric insurance solution to address earthquake exposure. The program quickly provides our client with a liquidity infusion and you're going to have a quake and give them broad discretion on how to use. These funds. This product covers our client and the exposure to their employees, who may require a fish.

Angel assistance insuring, the resilience and responsiveness in a future crisis.

Driving faster innovation for clients is a key outcome of our strategy and one that we can accelerate through our planned combination with Willis towers Watson as our world becomes more complex.

That's neat unique capabilities that this combination will create our two firms have been on similar paths focused on bringing the best solutions from across their respective organizations to clients as a combined firm will be able to accelerate progress and become even more relevant to our clients with faster innovation and better solutions.

In summary.

Our global team has been truly remarkable and the response to the COVID-19 crisis supporting each other and our clients. In addition, they delivered a strong first quarter of progress even as the early affects of the crisis, we're being experience.

We believe our Andrew 90 growth strategy is position is very well to emerge from the current crisis and even stronger firm position for long term growth.

Overview I'd like to turn the call over to Christa for thoughts on our financial results and outlook Christa.

Thanks, so much Greg and good morning, everyone.

As I talk about our results I'll also provide some thoughts on how the macroeconomic environment impacts our outlook.

Sweat taking to proactively and conservatively manage our business and now balance sheet, so and so we became stability and flexibility and position outside and to continue to live a shareholder value over the long time.

Our business has strong fundamentals.

Revenue basis diversified across industry geography installation line.

Roughly 80% is nondiscretionary and has a significant portion that renews every year with 95% retention rate on average.

However, given uncertainty around duration and magnitude of Covid, 19, and the resulting economic downturn and its impact to our clients.

For the near term, we're withdrawing off the natural got it made several digital gracing organic revenue growth and double digit free cashflow.

Yeah also taking prudent steps to preemptively reduce expenses and discretion me instead of cash in order to maintain the strength of about sheet and optimize financial flexibility in the event of any future declines in revenue.

We're taking these actions from a position of strength and maybe that will position us to continue to protect how colleagues execute out and United strategy and focused on a key financial metrics and the short and long term.

In Q1 week limit strong operational and financial performance stop it.

We have seen 5% organic revenue growth that translated into solid operational improvement of becoming an unfavorable niche had impact some foreign currency translation.

As I reflect on each of our key financial metrics fast we delivered organic revenue growth of 5% restricted Ranchette solutions Unhealth solution. All set by some early disruption from the impact of COVID-19, and a retirement and data analytics businesses.

I would also reported revenue was pressured by ethics and the ongoing impact of did that says from efforts. We've described in prior causes to reshape Apple play, it's a high growth and high margin areas.

Second we delivered solid operational improvement with operating income growth of 8% operating margin expansion of 200 basis points and 11% earnings per share growth driven by strong organic revenue growth and ongoing productivity improvement and expense discipline from Amazon services.

As we know she's not earnings material FX as an unfavourable impacts of approximately three cents in the quarter.

At today's rate would expect to three cents per share unfavourable impact in Q2 four.

Full set for sure unfavorable impacting Q3, and six cents per share unfavourable impact in control.

Third free cash flow was $279 million in the quarter and I wasn't a Q1 is out seasonally smallest quota cassoulet due primarily to incentive compensation payments.

$279 million. This year is it increasing laski is 17 million, which was negatively impacted by approximately $85 million of net cash payments related to legacy litigation.

The increase in free cash flow was driven by operating income growth as well as near term actions, we've taken to delay certain expenses.

We did see an increase in receivables, primarily driven by the strong 9% organic revenue growth and reinsurance solutions.

As I look towards the rest of the year, we have confidence in the underlying resilience of our business and while much of our businesses Nondiscretionary. It is impacted by long term macroeconomic factors like GDP growth employment and property values amongst other things.

While we are not providing revenue guidance I wanted to provide a bit more insight into a business that may be helpful. In understanding how we may be impacted in various economic scenarios.

We have a very stable revenue base with 80% of our revenues in call highly recurring businesses with retention rates of 95% on average.

In terms of our business, 80% of our business is cool cool revenues tend to be highly recurring nondiscretionary and include things like property and casualty or directors and officers insurance placement cyber remediation Tracy ran charrette required actual actuarial welcome pension programs and help them.

[noise] benefits brokerage many of these services are regulated required or necessary cost of doing business.

20% of our business is relatively more discretionary these.

These more discretionary revenues include project work like risk consulting transaction liability human capital consulting travel in Nevada cover and health benefits consulting.

Much of this book also because and renews every yeah. There's some of it is likely to be deferred or not renewed.

And an economic downturn, we expect to see a larger and more immediate impact in the more discretionary portion of a book we've already started to see some early impacts of Covid 1991, as I mentioned and given the overall global economic environment. We expect this could be more negatively impacted going for it.

Within a solution lines commercial risk reinsurance unhealth include the largest poll components, while retirement solutions and data analytics services have the largest components that are more discretionary.

More positively as Greg mentioned, we see significant opportunities in areas of our business around innovative solutions to address the current process for instance, and balance sheet and liquidity solutions for clients.

Overall, we're confident in our strong fundamental business we.

Did not seem material impacts of revenue Oh collections in Q1 or in April .

However, given global economic uncertainty, we're taking steps to manage cost prudently and defer some spend an investment in order to proactively get in front of any negative impacts.

Business is highly resilience and I'll start investment in a on business services. It gives us the ability to make quicker smarter decisions across the phone to manage expenses.

We've taken with Amazon services platform to drive operational efficiency, not only help us manage costs and improve margins, but also help us continue to manage cash flow and working capital, which further and shows I stability and flexibility.

For instance, in Q1, 82% of outside service to spend with managed centrally allowing us to manage purchase decision until we derive maximum supply of value and optimize working capital.

This allows us to take steps now to differ preemptively and reduce costs.

I would note that these expense reductions will contribute to nearby margin improvement how about some like travel and entertainment did not reflect sustainable co operating margin expansion.

Overall, our ambition services operating platform enables us to operate effectively while we continue to run the firm on cash and prudently manage cash and liquidity position.

Hi, Insistently focused and delivered on key financial metrics of organic revenue growth operating margins free cash flow and return on invested capital in.

In today's economic environment that context is different but our strategy and tactics to drive performance about remain the same.

A historic focus on maximising the translation of revenue into the highest level of free cashflow says as well in this environment.

Focus on preserving capital to enable future growth.

These steps and others, we've taken to drive operating income growth make progress on western capital I'm reduced structural uses of cash or perhaps more essential now in this economic environment than ever before.

For instance, we have daily Cashway forecasting across the lines the cash flow statement.

Cause we run the phone based on free cashflow for well over 10 years down this gives us the ability to compare our free cash flow to previous years and in particular, the financial cross of 2008 nine.

This gives us the ability to analyze and take steps to address any challenges by country by business byline or the cashless statement and to look out for early market trends for instance from areas that may have been more hard hit by COVID-19.

I'd also highlight that structural uses of cash and pension restructuring in capex collectively I expected to free up approximately $300 million of cash in 2020 compared to 2019.

While we are maintaining a dividend we have paused out, especially when he uses of cash to share buyback and M&A.

I'm very confident in the strength of our balance sheet and how he managed liquidity, we do not take underwriting risk and we're committed to investment grade credit rating.

We managed liquidity with real well out of debt maturity profile with no more than $750 million a tonne that coming to you in any given year we.

We have 1.65 billion and committed credit for about 900 million credit facility due in 2022, and a 750 million credit facility June 2000 twenty-three.

We have not had a need to draw on a committed credit despite out seasonally lowest period of cash flow.

We also continue to access commercial paper market for working capital needs in the U S and Europe .

We know this prudence makes us resilient now and prepares off to come out stronger.

As Greg mentioned, we are committed unexcited about a combination with Willis Tom Watson I'll may expect to file a joint preliminary approximately in the coming weeks, followed by a joy definitive proxy and shallow, but which may expect in Q3.

Okay.

Five O three D. You know actual welcome pension plans et cetera, but 20% of our business is more discretionary and more discretion right much of this because I'm a music she yet and so we do have a very stable and resilient business less than 1% of our revenue comes with many symbol clot and we you know up right at 100 countries.

Industries different segments of the economy. So we feel very good about the resilience of our business.

Okay. So that's that's helpful. Great can you talk on a big picture perspective.

About the compensation reduction and what that could imply for employee retention.

[noise] well Oh, two from our standpoint first take a step back you know.

We're really focusing on creating value for our clients and taken care of colleagues and really to emerge as stronger firm.

And we.

I'll tell you where you know really reflect we're humbly proud of the principles based approach, we've taken too much rebate and it really come through and she can be described before a lot's happened in the world and while everyone's hoping for a bounce back Ultra result will be by the way to bounce back to a major recession I guess is what everyone is anticipating but no one really knows.

<unk>, what it's gonna look like and how long, it's gonna look and we step back until listen we've got to be in a position in any scenario to perform on behalf of clients on behalf of colleagues and for US first of all we just ask you to consider the foundation upon which we made made our decisions.

Crystal highlighted it we've been managing cashflow is an important metrics or better part of a decade that couple of couple of that there's a services really is a very unique perspective on where we stand at any time and this is really all aspects of performance cash all aspects and ability to execute decisions across across the board and by all measures I mean look at the corner and look at the reason.

Aren't we currently stand in an exceptionally strong position, we know that we know that very well yeah. We also know what all the scenarios look like all the economics alert scenarios irrespective of how remote and for US. It's an absolute priority kind of our entire firm in place to support clients and a potentially historic and sustained downturn.

And if.

If you take this priority seriously. It requires you to take difficult step styles crystal highlighted to protect 50000 colleagues and so the alternative by the way it gets to hope and hope that the current downturn really comes back to 2020 09 revisited.

That alternative by the way he puts client leadership fully at risk at the very time clients might need it the most and there's no doubt in every respect that's the that's the easier path to take and you can you can sort of shade over a lot of things along the way and we have essentially said listen we desperately hope that's the outcome, but if it's not we want to be in in in in in absolutely.

Absolutely unique and pristine place to help our clients exceed and protect our colleagues and and what what I would highlight is.

We we fully anticipate coming out a much stronger firm and this really comes back to our investment over the last decade, and Amnionitis you know I'll tell you something for our team, we often talk about and United in the capability and positive times.

But it turns out and United It is equally meaningful in times of challenge and this decade of investment in and United means we can take a global set of actions that we know will be difficult for maybe for others to do but for us the global set of actions that really puts us in a position.

To support clients in every scenario so our colleagues around the world have done very very unique things and.

And very very strong things and we're excited we're excited right now about our ability to all clients in times of the irrespective of what that comes out so from our standpoint.

Going to be a stronger for him coming out of it and we're taking steps that we can take that we know are important to the right answer for us to make that happen.

Okay, great just a job that a little bit on one of the examples we talked about the COVID-19 task force on the in your early opening but I think it's important to recognize that this is the fourth time, we've activated that group now going back to 2009, whether it was H one N. One Sars a bowl. So this group is is a group that consists of.

Experts across the firm from everything from epidemiology to credit risk capital solutions liquidity, all different capabilities around the world and essentially what they're trying to do with any of these on behalf of clients, whether it's trying whether they're working on how they're dealing with their employee Heather thinking about returned to work how they're working on capital solutions and liquidity for the firm.

It really is across the entire firm learning from areas of the world that were affected early being able to share best practices and so there was an advisory part of it for sure but more importantly, I think we're trying to help them think through on an innovative new way, but you actually can't do until you pull all the capabilities together with one guiding principle of trying to help.

The clients get get through this and and so while the salary pieces. One part there was a lot of innovation that we're pushing and working on so able to help those clients get through to get through the challenge.

Completely understood. Thank you very much.

Thank you we have a question for him so neat and that I've C. D. You're lying is now open. Thanks I just wanted to follow up on the base salary reductions.

Can you just give some feedback in terms of how the employee responses been it seems like obviously a pretty dramatic steps are just curious what you've been hearing since monday's announcement.

Yeah. It really has been city trucks again, I would sort of come back an incredibly strong positive reinforcement on a on United and what we're all about again.

<unk> imagine what we essentially step back and ask our colleagues around the Globe then our leadership team how.

How do we actually prepare on behalf of clients and we looked at all the scenarios and again as like a highlighted.

The alternative right now for is to hope that the current downturn ends up being a recession, which by the way we hope to we hope we celebrate that no. If that's the case, but we all realize at the time the difficult choices. How do you protect 50000 colleagues to serve clients and the most effective way.

And and you recognize that if you wait in the downturn becomes more acute how do you actually have them. There how do you support their colleagues to do that and we collect really made a decision that we are going to take the steps. We took because we know again in addition to protecting 50000 jobs our ability to continue supporting client is extraordinary and.

And so that was the peace. It was obviously when we when we talked about it on Monday I would say since Monday, what's happened around the world has really been our colleagues have have embraced it and understood exactly where we're trying to do and as I said before we're coming through this a stronger firm and you know if we're wrong. So neat if we're wrong by the way I hope you're wrong.

Hope it ends up being a recession in the end our colleagues know we took steps that perhaps it would be hard for other people to take to support clients and then if we're wrong. We basically remediate all the actions we take can mitigate or actions no problem whatsoever, and they've done something no one else could do and the fact that we can act across the firm and and and United fashion is pretty unique.

And it actually has been incredibly invigorating as our colleagues I've actually put this in place among other things as we have reduced expenses and done a number of other things close to describe that package puts our firm in a unique position to perform and what is really no one else could do under any scenario.

Got it and is there any way that you can help us think through the size of the expense reductions yeah, just maybe as a percentage of total expenses to help us frame how impactful what you guys are doing will be.

Yeah Tonight, we haven't given guidance and the size of this they would say that play father expensive options, we've taken a modest.

And we're not giving got it some revenue homage and but we would say that you know as you know if revenue S come down that we would reduce expenses proportionately and we're also very focused as I mentioned earlier on cash and making sure that we maintain you know a very strong cash position. It's always been the way they were on the phone we have unique insight.

And visibility into our cashflow pylon attached to my statement by solution line and and one of the things I would say is we've taken a number of actions on the.

Non salary side, and we did that but we reduce the number of expenses things like TNA things like third party spend Marcelia M. P. One and so we are taking action from a position of strength I'm in advance solved impacts we observe.

One of the guys just what I'd like to <unk> you know in context of this is.

Can we talk to clients familiar with long discussion with clients and the month, leading up to our our decision what sort of what we've done across the board on the different aspects and when we explain the principles based approach our clients not surprising are incredibly grateful they understand what happens I understand our inability to serve them. If you take different courses, if things get difficult and can't believe some of our global client.

<unk> have asked for the playbook the ability to said how do you do this around the world and different geographies and make it work and we've described to them what and you know what it is all about how it's played out over a decade, how we built a foundation overtime and them seeing us to come together support each other.

And an ability to support them in time to the beat whatever those times are has been also frankly inspiring for our colleagues to sort of get that reaction as clients recognize what we're doing on their behalf.

Got it okay. Thank you.

Thank you all our next question is from Jimmy Bullard I've J P. Morgan Your line is now open.

Hi, Good morning, So I had a few questions first just on the impact of Covid, you discussed the sensitivity or the exposure of the various businesses, but on the commercial risk of business. Your organic growth was decent 4%, but it had been like 6% to 7% in the past couple of years.

Actually and so is the decline just duffer comps or is it more just a slowdown in March and is it reasonable reasonable assumed that that's a business that could potentially turn negative and the new Yorker.

Listen from our standpoint, we feel very strong momentum and commercial risk across the board as we highlight.

In in the first quarter.

We were touching on some of the impacts come in at the end of the quarter in terms of sort of overall, where we are but.

And then just in the business. It's also the net new things we're doing maybe Eric can you talk about what about some of the you know the bright spots that we're seeing across across the the the playing field here as well as some of the new initiatives that we're putting in place.