Q4 2020 Aon PLC Earnings Call

Good morning, and thank you for holding welcome to Aon plc fourth quarter and full year 2020 conference call.

At this time all parties are in a listen only mode until the question and answer portion of today's call.

I would like to also remind all parties. The call is being recorded if anyone has any objections. You may disconnect. 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 shut.

Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated and.

Information concerning risk factors that could.

Cause such differences are described in the press release, covering our fourth quarter and full year 2020 results.

As well as being posted on our website now it is my pleasure to turn the call over to Mr. Greg case, CEO of Aon plc, Sir you may begin.

And you Kathryn and good morning, everyone welcome to our fourth quarter and for your 2020 conference call I'm joined virtually by Christa Davies, our CFO and Eric Anderson, our president and.

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

There were very few firms, who can say day ended 2020 stronger and they began and.

And thank our colleagues for making Aon.

One of those firms.

Our team delivered a tremendous year.

The public health and economic impact of Covid, 19, and and overall unprecedented level of global volatility punctuated by social unrest around the world.

During the year, our colleagues came together to deliver results for clients. The both time and energy for getting to know the Willis towers Watson team and the integration planning for our pending combination and the support each other through personal and professional challenges.

One silver lining that we heard over and over from colleagues, what's the 'twenty and 'twenty, what's the year of increase connection across our firm.

With all of our colleagues responded the virtual environment for replacement and the person connections with introducing experts and sharing and thought leadership with clients. We felt the impact of that connectivity of our COVID-19 task force ramped up the share insights and best practices and we saw it translate and the client success as local teams won new business Mike.

Seamlessly bring it together colleagues from across the globe.

By all accounts 'twenty and 'twenty tested our firm looking back it's clear that our colleagues not only cost.

So that's the diversity actually accelerated our one firm strategy.

She and her colleagues come together and for its stronger connections and new ways was inspirational.

And we'll build on these positive learnings and practices from 'twenty and 'twenty as we continue to reject the constraints of the so called new normal and instead look forward to defining a new better on our terms and as we begin 2021.

Turning to the financial performance and the fourth quarter, we delivered a great finish to the year with 2% organic revenue growth across the firm, including 12% growth and reinsurance solutions and 4% growth and commercial risk solutions.

And the recent orders organic revenue growth and the fourth quarter was driven by strength and the core areas of our business risk.

And of the resilience of our firm and the challenging economic environment, overcoming ongoing unexpected pressure and the more discretionary areas.

In particular, we would highlight growth and the core driven by ongoing strong retention and net new business generation and we continue to deliver innovative solutions for our clients and a challenging environment.

We saw increased organic revenue growth as compared to the third quarter. Despite the somewhat larger portion of the more discretionary revenues and the fourth quarter the.

The strong results and partially from improvements in economic factors and sentiment around the virus and vaccine, which drives the client buying behavior and investment for example, we saw a positive impact to our revenue from construction starts and M&A activity and the U S as well as from employment levels.

Also note that and more discretionary areas, we're seeing meaningful variation and revenue growth across our businesses with some recovering more quickly and so I'm more slowly largely driven by external factors tied to economic reopening and recovery.

For example, I would highlight the strength and voluntary benefits and health solutions and construction and commercial risk I would also note that more discretionary expenses within data and analytics and human capital within retirement solutions continued to be impacted by economic and pandemic related conditions.

Our strong finish in Q4 contributed to full year financial results that demonstrate the strength and resilience of our business and this uncertain economic environment for the year, we delivered organic revenue growth of 1%.

Operating income growth of 4% with for your operating margins of $28 five per cent and increase of 100 basis points from 2019.

And free cash flow growth of 64 per cent the $2 6 billion, the highest free cash flow and the history of our firm.

This outstanding progress against each of our key financial metrics is the direct result of our one firm strategy, which guides everything we do and supporting colleagues delivering value to clients and driving shareholder value.

We are well positioned the continuing to build on this momentum.

And while we see many positive signs for the economy significant uncertainty remains and we expect the recovery will remain inconsistent. We continue to monitor several key factors, including G. D P asset values corporate revenues unemployment.

And have you looked at 'twenty 'twenty one the significant uncertainty remains we expect as economic conditions continue to stabilize and improve we anticipate modest growth in Q1 with growth of increasing toward mid single digits as we continue through the year.

Looking back the challenges, we faced in 'twenty and 'twenty underscored the importance of our colleagues our culture and our commitment to inclusion and diversity.

One of the observed the leaders who embody one firm all of our most successful leaders, both and delivering business results and driving colleague engagement.

And this year, we've seen that and central leadership trait result, and even stronger engagement and confidence and the combination that's measured and of January poll survey, reflecting high engagement and consistently lower voluntary attrition, which decreased by 35% year over year from 'twenty and 'twenty with strength and every major region and some of July.

Further.

We know the diverse talent expertise and insights of our colleagues are vital to the success of our firm and our clients and we continue to invest to attract grow and retain the best talent.

Support of this priority, we announced the expansion of our apprenticeship program, including the investing about $30 million over the next five years and the Gulf.

Of the nationwide network of employers to create 10000 in front of ships by 2030.

With this expansion we're building on our already successful program, which bridges the gap from education to employment by bringing the high school graduates into the workforce, while the complete their college education. This program provides the fantastic pipeline of diverse talent and embodies our commitment to inclusion and diversity.

In addition to emphasizing the importance of our colleagues and our culture the events of 'twenty and 'twenty expose the interconnected nature of risk and vulnerabilities and many companies.

A recently published 'twenty and 'twenty risk report highlights the increasing the likelihood of connected extremes and reinforces the leading organizations of the future will be defined by the ability to manage the global implications of long tail risks in the survey of over 500 organizations across geographies and industries, 82% did not the pandemic.

And their top 10 risk before COVID-19 struck and only 30 per cent had of pandemic planning and place looking for respondents overwhelmingly agreed on the need for an enterprise wide approach to risk.

We know that existing and emerging long tail of risk will continue to challenge organizations across all the industries and geographies organizations must prioritize strategies to address the risk and resilience.

We also know our strategy enables us to support clients and this changing landscape because it enabled us to understand their biggest challenges and Britain world class content capability and innovative solutions to bear.

And while we didn't architect our pending combination with Willis towers Watson with the pandemic and mine, we see that the pandemic and its associated economic impacts and increased our conviction and the need to accelerate innovation to address the client demand.

On the topic of Willis towers Watson.

And our excitement about the combination as well as the leadership and talent from both sides continues to grow.

The last week, we reached another important milestone with the announcement of the combined executive committee that will be and place once the combination is closed.

This team embraces the commitment to of one for a mindset and brings together the best expertise talent and leadership from both organizations.

And this team also brings to the table and exceptional set of experiences and capability reinforcing the power of inclusion as we've said before our culture is built to bring the best of luck for them. The clients. It's in the central part of how we operate our firm and drive results.

Mike Willis towers Watson, it's clear that their culture is equally focused on putting clients first this newly announced T mobile and the best of both cultures and that client focused mindset will guide everything we do.

In summary.

<unk> 'twenty 'twenty one of the moment this year.

Our performance and actions throughout the year reflect exceptional resilience no the.

The result of structural steps and investments we've made to ensure we're ready to not only take on what grow stronger and the face of these challenges further we've demonstrated momentum that will accelerate and combination with Willis towers Watson, we begin 'twenty 'twenty, one and a position of strength to continue executing of our strategy and making progress on our key financial.

Metrics both of the Standalone Aon and then our pending combination with Willis towers Watson, creating a significant growth opportunity for clients for our colleagues and for shareholders now I'd like to turn the call over the Christa for her thoughts on our financial progress this year and long term outlook Christa.

Thanks, so much Greg and good morning, everyone.

Greg highlighted we delivered a strong operational and financial performance in Q4 to finish the year, despite continuing macroeconomic challenges and demonstrating the resiliency and strength of our business in any economic environment cutting.

Turning to our results, we delivered organic revenue growth of 2% and the fourth quarter and 1% for the full year, driven by ongoing strength and alcohol business offset by pressure and I'm more discretionary areas.

And what not twice of what portion of revenue was up slightly overcoming of nearly 100 million dollar headwind from the unfavorable impact of changes and FX as well as law of fiduciary investment income due to the low interest rates globally.

We also delivered the operational improvement for the full year with operating income growth of four per cent and operating margin expansion of 100 basis points to 28 five for sex continuing our trajectory of long term sustainable margin expansion for.

For the full year adjusted operating expenses declined 1% due to the expense discipline and a reduction in travel and entertainment offset by increased compensation costs.

Adjusted operating expenses increased 4% and fourth quarter.

Put it in Q4 and context due to the significant uncertainty we sold during the year, we tightly control of our expense base and the level of long term investing in the business.

During 2020, our organic revenue growth improved sequentially from the second quarter through the fourth quarter of internal and external factors contributed to a strong finish to the year.

This led to a year over year increase in compensation and benefits expense and the fourth quarter of portion of which with variable compensation.

This resulted in a full year increase and adjusted compensation and benefits expense of one of a sense I would also of note the compensation expense increase in part because of our commitment during 'twenty and 'twenty to retain all of 50000 colleagues as well as lower voluntary attrition, which Greg described.

And as we've said before we make decisions on expenses and margins and the context of each for yes, and expect to continue to drive margin expansion in 'twenty and 'twenty one.

For the bogey, and we try and glad and strong operational performance into EPS growth of 7% and becoming a headwind from FX translation.

It's called data remain stable at today's rates, we would expect the favorable impact of approximately 20 cents per share or approximately $60 million of operating income and the first quarter of 2021 G to a week of dollar versus the euro.

A key driver of our operational success has been the history of investment and our Aon business services platform, which is on the gondola significant transformation of the last several years.

The journey of the Guy, but the initial group of 4000 colleagues of the divestiture of our outsourcing business and 2017.

And by centralizing activities, eliminating inefficiencies and providing standardization, we delivered high quality service levels and called settings, with the scalability flexibility and and hot colleague experience.

Today, approximately 13000 of Aon and 50000 colleagues the part of Aon business services focuses on driving operational improvement and enhancing how we subclass.

In 'twenty and 'twenty for instance, we completed our data center consolidation program and the Americas closing, an additional 10 data centers and achieving $23 million of annual savings.

We increased usage of our digital thing is total by over 110% saving more than 65000 of annually.

Well, the new 90 per cent of the nearly 9000 U S commercial risk losses, those paperless late.

And we improved our global operations and share capabilities by delivering over a million dollars of automation free and colleague a paucity of of high value of activities of Clos.

Looking forward, we expect deleverage and the themselves the platform to continue to drive sustainable margin expansion.

In addition, we see opportunities to embed best practices around the agility and connectivity in the hall and the way we operate ultimately reducing our overall real estate footprint over the long term.

Turning to cash and capital allocation.

Free cash flow increased 64% to $2 6 billion, primarily driven by walking couple of improvements, including improved collections of decrease in restructuring cash outlays and strong operational improvement.

We remain focused on maximizing the translation of revenue and to the highest level of free cash flow of haul I buy of free cash flow margin of 23, 9% up substantially from last year.

We allocate capital based on return on invested capital cash on cash for times, we continue to maximize shareholder value creation highlighted by the $800 million of share repurchase and the closer and nearly one 8 billion in 'twenty and 'twenty.

In 'twenty and 'twenty, one we expect to continue to allocate capital. According to the framework and we expect share repurchases will continue to be of highest return on capital investment given our free cash flow of evaluation and the outlook.

We expect to remain highly focused on closing and then and successfully integrating all combination with Willis towers Watson.

Following that we expect to continue to invest organically and inorganically and innovative content and capabilities in our priority areas.

We remain very confident and the strength of our balance sheet and manage the liquidity risk throw well a lot of debt maturity profile. Historically, we've looked to increase debt as EBITDA grows while maintaining the leverage ratios.

However, due to uncertain macroeconomic conditions, we expect to continues and manage our leverage ratios conservatively in the near future and.

And returns of our past practice of growing debt as EBITDA grows over the long term.

As I look towards the 'twenty 'twenty, one and our pending combination with Willis towers Watson I'd like to reiterate how excited we are about the newly announced the leadership team and the significant shareholder value creation potential, we see and bringing together all of two complementary businesses, but from a top line growth driven by accelerated innovation of the clients and from the bottom of.

The impact of $800 million of cost synergies, we continue to work collaboratively with the appropriate regulators to gain approvals and a focus on achieving of result that optimize the share holder value. We remain committed to our expected close and the first half of 'twenty and 'twenty walk.

In summary, our business and shine resiliency through the challenges of 'twenty and 'twenty, our Aon United strategy underpinned by our Aon business services operational platform has enabled historically high free cash flow of 2.26 billion and enabled us to return nearly $2 2 billion of capital to shareholders and 2020.

As we head into 'twenty and 'twenty, one two of our pending combination with Willis towers Watson. This momentum will continue to enable long term shareholder value creation.

With that I'll turn the call back over to the operator, I'm gonna be delighted to take your questions.

We will now begin our formal question and answer session. If you would like to ask a question. Please press star one on your telephone keypad remember to record your first and last name to Australia question. You May Press Star two the first question is coming from Dave stable of Jefferies. Your line is open.

Hi, there good morning. Thanks for the question I wanted to circle back on your on your 'twenty 'twenty, one and comments and appreciate the color there.

On the organic revenue cadence of but you would seem to make sense Ah I I did want to ask a little bit more about the margin expansion opportunity I know you talked about there, they're still having and an ability to expand margins. This year of course and in that context.

And.

Is it is it still can be tough to achieve 70 to 80 basis points of margin expansion towards your long term target given that you still might not have fully returned to the to the normalized cost base or the other efficiencies that you've been able to realize through COVID-19 more work from home or other efficiencies lower travel and expenses that that's still might be.

And that that range feasible this year.

Mike It's not about for the question day. So are we are certainly committed to margin expansion in 'twenty and 'twenty, one and we don't give specific margin guidance in terms of how much we would grow each year, but as you noted day, we've driven long term margins of 880 basis points over the last 11 years, So 88 basis.

And once a year on average.

And we you know and that is really driven by accelerating organic revenue growth the portfolio mix shift of higher revenue growth higher margin areas and obviously as you know should the Aon business services platform continuing to drive productivity and efficiency for off and that will continue to occur day in 'twenty and 'twenty, one and we're really excited as Greg highlighted about.

And growth of.

Year over year are trending towards the mid single digits and and the and the second half of the year and the margin expansion will be a result of that growth the portfolio of mix shifts and and the productivity per mile of bids and services.

Okay. Thanks, and then just the on the free cash flow stepping off point from the $2 6 billion.

You know have had some easier tailwind of things that weren't going to recur in 2020 as you jump off from that though is there anything of note.

That that's unusual in the 2020 does that basically of clean number to go from from there and then a related question to that I know you've been continuing to make progress towards your and your $500 million of working capital improvement overtime, how far into that how much of that and you achieved so far.

Yeah. So a day first of all of the $2 6 billion and as a clean number I'm sorry. That's you know there's nothing unusual about that number and then in terms of the working capital. We obviously made some progress on working capital as you saw in 'twenty and 'twenty, but we've actually say that the 500 million of still the right long term target for Aon I'm working capital side and David the thing.

And I think I've said before and that 500 million is that's just the number that gets you the working capital neutral there of several countries in which we operate well we're working capital positive. When you think that is entirely reasonable for a threshold services fun.

And so we think that the 500 million that's a conservative number.

And we're definitely targeting underlying free cash flow growth over the long term in the double digit range.

Okay, Great and then maybe a question for Greg and the Eric just about client engagement and retention and how bad. It is looking as you go for it into the year and new opportunities that continue to emerge from Covid.

And maybe any any changes and client demand or services that that aon can bring to the table better than peers that you would highlight.

Please go and start with that David and Eric set of number of examples we could draw from which they listen and and client.

Need and pressure continues to increase.

It really does give us a great opportunity to connect with them and you know for all of US the challenges and issues. The Covid has brought to us and they've been many one of the things. That's also done you know.

With the rentals and services platform has allowed us to connect the clients even more effectively even yesterday.

I was on the call that you know would have been a client meeting a year ago of 100 clients plus we got a thousand clients all of yesterday, and so our ability to actually connect with clients and actually demonstrate the.

And we'll capability of the firm at a time of high need is actually going up so you're seeing more and more examples of our ability to drive new business, but as well as you do more with existing clients given the capabilities. We've got really is happening all across the firm, but maybe Eric a couple of examples from the standpoint that bring it for sure sure, Greg and I and I.

It's really based on the Aon United model that we've been worked and yard where you certainly have to be excellent and each of our subject matter of capabilities and topics, but you have to work together of batteries, the client and a more holistic way and so the topics like health retirement talent are all really front of mind. When you think about the COVID-19 angle of the question and these topics aren't growing.

The way you know how do we deal with voluntary benefits cooled employer plans and cop and sites all critical as our clients are looking to manage their colleagues through this pandemic and also mentioned sort of the return to workplace. So as we look out in 'twenty, one we see a lot of opportunity to really help our clients during the challenging times.

Thanks, guys I appreciate it.

The next question is coming from Elyse Greenspan of Wells Fargo. Your line is open.

Hi, Thanks. Good morning, My first question and I'm you know you guys had pointed to.

The larger and discretionary piece of your business and the fourth quarter of servings of Crusher organic and you guys came in and positive kids and so it seems like there was <unk>.

Better strength across many of your business day, probably than you expected green months ago, and maybe if you could help us understand that and then but that same discretionary piece you know given the reinsurance is the bigger component of the Q1 I'm, assuming so but that would serve as a you know what.

Callaway and to Q1 organic just given that more of the reinsurance business comes on and the first quarter of that factored in your guide.

Well listen we really appreciate the question as Eric has highlighted there's so many opportunities and continue to emerge. The help clients you know the times of the times of need and the you know, they're just continuing to emerge around the world and some of them are happening faster than we thought they would you think about the momentum into the fourth quarter. It really was and the core and we continue to perform well there.

And then the discretionary pieces you know is there was some you know promise on the on the one of the recovery from and the vaccine from et cetera are we saw some of those discretionary areas like T. L transaction liability and construction and employment levels, you know begin to come up but by the way of other areas. We still saw the pressure on much and travel and events for us.

As an example, and some others so and still remains mixed but the trend is positive and what you're really seeing is us and able to kind of interact and the very you know and a very positive way with clients.

And you're seeing that sort of build into Q4, and you'll also see and and as we think about our opportunities in 'twenty and 'twenty. One on the reinsurance from you know again to use the fantastic or if you could talk about that sort of the suite as we and as we had in Q4 of the implications and also the the thoughts for for the first quarter in 'twenty and 'twenty one on the reinsurance side of the great work by the team.

Yeah for sure and certainly you know Q4 is always been our smallest quarter and reinsurance that's the dominated by historically by factor of the investment banking. There was some good treaty wins that happened certainly theres a lot of a lot of action going on in that space and the third and fourth quarter and in terms of new clients New company creation and the like until we were there to be able to help them.

And those new clients and existing clients really reposition their portfolios as they went into 'twenty, one and I would say that continued into the first quarter of the market dynamics being what they are the the insurers are certainly looking into position and get support where they need it as they look to grow their own portfolio. So the great quarter of certainly all.

And the back of a fantastic quarter of year ago, So to see that kind of growth this year off the back of the 17% comparable.

<unk> was the special quarter for the team and I think that momentum is carrying into the first quarter of this year.

The only other thing I'd add is that our Q1 'twenty and 'twenty was a very strong comparable for us because it largely was completed before COVID-19 hit and so while we've had terrific momentum coming into 'twenty and 'twenty, one as Eric and Greg described them that you know of difficult comparable means that.

Q1 is likely to be a lull a great quarter and developed for the yeah.

Okay. That's helpful and then in terms of.

Fences right I think he buys alluded to the right hire higher expenses in the fourth quarter. Just obviously the Europe came in better than you expected and just tying back the comp and then obviously with lots of employee turnover I think he said, but I look at the quarter. It's right on the coupon and your expenses were close to flat last year.

Like is there anything seasonally that you can point out with the expenses as anything for 'twenty 'twenty, one and obviously recognizing that you don't really guide to margin for the quarter, but and even within the expense base and we should be thinking about.

And at least there really isn't you know we we would encourage you later, if you step back and think about 'twenty and 'twenty.

What is truly exceptional and literally in the and you think about COVID-19, and we grew organically 1% versus last year at six which was one of our all time highs and expanded margin on the basis points of the 20th five and free cash as Christa described to the highest level and our history of about 60% 60 plus percent and this momentum that we built throughout the year.

And 2020 and as you know, we believe you're going to carry over into 'twenty and 'twenty, one and so there really isn't anything we would focus on on Q for you, which really over rotate on but it does reflect.

And really.

The great work of our colleagues and improving the external factors, we can talk to and from a client buying behaviors I described but we wanted to really recognize the performance of our colleagues and the year and that certainly shows up but we'd encourage you to sort of think about the overall year and the overall momentum and it was built and how it can carry and the point of 21.

Right and then one last one of you guys.

Laid out by the mid single digit for greater organic later in the year I'm, assuming that factories and might that you will close the merger and some point and the first half of the year, obviously undergoing some regulatory reviews. So can you just give us an update I think you said close the here just update timing wise and and things where you were.

And that's on the regulatory front and I'm, assuming you don't expect the deal to close.

And at some point and the first half of 'twenty 'twenty one.

So thanks, so much of the question of late what I would start with the saying the guidance. We gave on revenue was we're moving towards mid single digit.

Most of the year, so not great huh.

The second thing I'd say is the guidance of Aon. The only we certainly wouldn't give guidance of the combined until we close and then third we are on track to close in the first half of the year as we outlined when we announced the deal.

Okay. That's helpful. Thanks for the color.

The next question is coming from Jimmy Bullard of J P. Morgan Your line is open.

Hi, Good morning, So first I just had a question on the transaction and the Willis deal.

You've already obviously put together a management team. So it seems like you're confident that the deal will go a true but what are your views on potential dispositions as you go through the regulatory approval process and I think the set in the past you wouldn't have to do much but has that changed now as you've had more time.

Yeah.

Thanks for the question Jami, we remain incredibly committed to all of them and I suppose Willis towers Watson of thrilled about and the newly announced leadership team as he described the layoffs and accelerating innovation on behalf of clients and create shareholder value. The businesses are complementary and operate and competitive areas of the economy and we believe we've got the arguments and evidence to ensure a positive outcome we continue to.

Net collaboratively with the appropriate regular items to gain approval for in a timely manner.

And as we've said since we announced the deal we expect to close and the first half of 'twenty 'twenty, one and we're on track to do that.

And to.

And to me that I don't want to come back to the origins for a second if I could obviously, we're gonna operate completely separately until we close the no question about that and we are in every way shape or form, but we have had a chance to sort of get the script together and begin the planning process and of it.

It's been incredibly extraordinary and very gratifying to see this that's the kind of talent come together to think about what the possibilities are and the future of the firm, both and helping clients and the here and now but also on thinking about how we can help them and some of the most important issues as they come forward and certainly the pandemic the euro pandemic and certainly highlighted a number of those but and you can think about climate on the horizon.

It seems like intellectual property cyber all of these things sort of out there and this team is really beginning to come together they get about a one firm approach to how we deliver the best of our capability of them and it's really been it's been extraordinary very very invigorated and for all of us as we come together.

Okay, I guess, we'll find out when the approvals come through but on the and then relatedly on the cost savings that you've looked more into the business and have you do you like it seems like the 800 million target you had outlined the versus historical deals and somewhat conservative have your views on that changed at all.

So Jimmy we would say we remain at the place where we've been which is the 800 million are we feel really confident in achieving it is five and a half the son of the combined cost base that compares to 11th of kind of the combined cost base, and we achieved and Aon Hewitt and 18 per cent of the combined cost base, we achieved at Aon benfield.

And you know the components of that are of people and I T and real estate and as we've got into the integration planning, we feel extremely confident about achieving the $800 million.

And as we said you know this year. We you know, we're very sort of confident about achieving that three of the you know based on the strength of our Aon business services platform.

Which is allowing us to bring together the operations all of the Aon and drive improved quality.

Consistency and then efficiencies all the time.

Yeah.

Thank you.

The next question is coming from Greg Peters of Raymond James Your line is open.

Good morning. Thank you for taking my questions. My first question is and <unk>.

<unk> had a lot of time, obviously the study of the Willis towers operations and one of the areas, where I feel like the company has been.

And it hasn't delivered the full benefit of margin improvement would be and their corporate risk and broking business as you've looked at that business can you walk us through how your views are and how you can and when it's combined with me on how you can deliver the margin improvement that you were thinking about.

Greg maybe just offer a couple of thoughts on the first I'd step back and say we have had a lot of time and the planning process you know over the course and since we announced in March and I will tell you. We continue to the compare notes on the possibilities again, we can't operate together until we close and any way share perform.

And our excitement on the possibilities continues to build and it really is multiple areas of.

Just core content and capability that exists across both organizations and we had very high expectations for the one we announced for Tonight, you know they've been exceeded substantially and multiple categories and we think of about the opportunity.

And to drive growth organic growth on behalf of clients and we see it in multiple categories. All of these things come together to reinforce our you know opportunities to both drive top line and also drive margin improvement, which by the way we see for for Aon and front and center before we get any place else. So we just want to highlight you know we see tremendous opportunity both on the topline side and on the margin.

Sorry for the combined firm for all of the reasons Christa has outlined and.

And and everything we've seen since March 9th has only reinforced that it just and it's been terrific.

Great and the the second question and I'll pivot back to the organic revenue growth I mean, we're watching and listening to all of the carriers that have reported talk about how the strong pricing environment and has helped not only improve their margins, but improve the revenue growth and it seems like for a on the.

Theres been a tailwind benefit on the pricing side and I'm wondering if you can sort of reconcile the the difference between the benefit from pricing and the actual benefit to organic for you guys from unit count growth if that makes sense, but it certainly does Greg we would come back and say listen.

For them and our overall pricing, but we really look at you know market impact, which is really a function of how would you describe price and then insured values and all the things that come with that and then it really is client behavior and so from our standpoint and.

We would say all of the pricing impacts of it really had a modest impact on our performance. It really is around what we're doing fundamentally with clients and maybe I'll ask Eric to give a couple of examples of where this is but but really Greg. This from when we step back and it really is about you know this is one this is one of your own can really show up and health clients succeed and times of need and they.

A lot of you know a lot of reconfigure it and as we think about sort of as the environment changes and maybe Eric a couple of examples of the does that makes sense sure Greg and it's never really of straight line between and what the carrier points out is what they say is the unit price versus what the client actually does.

And maybe to put it in a little bit of context, you know when we sit with the client we first do the risk identification of product.

Mike trying to help them understand exactly what risk, they're trying to protect and they mitigated themselves in a way of that either through contracts of different changes of behavior and can they finance it themselves right because of our captive or just using their balance sheet. So a lot happens where the client before they even risk transfer and so there's always good to keep that in mind, but when they do decide the risk transfer.

For you know they certainly the window of market and weak we helped them with insight with regard to options and structures and you know, whether it's retentions or deductibles coinsurance limits of variety of things that clients will look at in terms of what their budget is able to do and they'll make their trade off so it's never really of straight line as to the unit cost is for what.

The client behavior actually sort of manifests itself and and you see that and a couple of distressed products that are out there today certainly D. N. O is one that's gotten a lot of attention how we work with clients to help them make those choices in terms of the protection that they provide cyber is another property in.

The catastrophe exposed areas. So theres a lot that goes into before they go to market as opposed to what they buy inside of the marketplace and so.

It is frankly and area, where our teams have been focused on now for the last 24 months of as the market has gotten firmer.

And to help clients make those tradeoffs, because they're dealing with the marketplace now at a time, where many of them are feeling stressed and general on their own businesses and so how they make those tradeoffs become more acute.

And the last certainly and the last 12 months and would expect that that that behavior and the <unk>.

<unk> would continue going into this year.

Got it thank you for the answers.

The next question is coming from Sony and come out of Citi. Your line is open.

Thanks, Good morning.

So one question, we get a lot from investors is that and when you think about the combination with Willis, but you know some of your clients may want to sort of limit their concentration to the one broker wonderful and advisor.

Can you just provide some color on how you're thinking about that you know maybe and.

Influenced by the conversations that Youre, having with your clients.

And the city of them starting with the following we have it's always been our practice.

Step back and sort of we get tremendous amounts of client feedback, we called voice of the client and we've done it really for the last decade and continue the sort of probe into that obviously since the March 9th of announcement, we've done a tremendous amount of a work force of the quaint get and they're inside guidance perspective views on.

And how we can better that's the support them and serve them and I would say, it's been overwhelming and as we dig in with clients and they understand the.

And that we're all about bringing them the best of the now all the things they could do on the current environment. Eric just described a number of different challenges are out there and how we're gonna help them help serve them better but also the challenges that are used to be on the horizon or now and their doorstep and they're asking questions around what about the next pandemic what do we do all the way to think about cyber right and the market is still relatively small.

All of six 7 billion against the you know of connected you know of client impact of you know closer to of Trillium now what do we do about that by the way.

And they know climate is going to be front and center already is really going to be front and center for them it because beside us or behind us. So they're asking questions for me around how do I address these long tail risks, but the.

Net are being asked of me by my bias Cfos and Ceos and boards of directors. So what I'm trying to highlight is need has never been higher and.

And the solutions that we must bring the bear has got has got to evolve we have to be better and supporting them and and we as the ease.

And we start with one of them, but the entire industry and they see this combination as the chance to the reverse the trend and which are the overall relevance has actually declined as a percentage of no risk as the percentage of GDP over the last 30 years and they see real promise and that so our feedback has been overwhelmingly positive across the globe on what this combination can mean for them and the we're very excited.

And at the time to work hard to meet those needs on their behalf.

Got it and then just on the regulatory approval front and yesterday there was a bill that was introduced around the potential changes to antitrust perform.

I know your deal was announced a while ago, but do you see anything from the new administration inclusive of yesterday's bill that could impact the timing of the approvals that you get.

You know from the regulators.

Look we appreciate the questions Tonight, but what we would say is as we've said since we announced the deal we expect to close and the first half of 'twenty 'twenty, one and we all I'm trying to do that and so we are really excited about the combination of Willis towers Watson and the newly announced leadership team, who will help us and accelerating innovation for the client.

Okay. Thanks.

Yeah.

The next question is coming from my own shield of K B W. Your line is open.

Thanks, two questions I guess.

And I understand of the our outlook for organic growth is for Aon alone and I was hoping you could help us at least think about directionally, whether the combination with Willis and the associated and innovation would that outpace the sort of necessary distractions of integration or should we expect maybe some slowdown and organic growth and the early.

And as parts of the combination and post close.

And my one way to answer this is if you recall of the night for March and we announced the combination.

We actually gave guidance for the combined for the mid single digit or Gray shop, and I would note debt that is higher than what Willis towers Watson had produced historically.

And the reason and we did mid single digit growth or greater up from year, one and so that gives you a sense of how confident we are in the new areas of unmet client need and our existing business and in brand new areas of demand whether of no products and solutions today areas like intellectual property climate and so on.

So we're really excited Mike about the growth potential of the combined SAP.

No that's very helpful second.

The second question, Chris in your opening comments, you talked about or inorganic growth after.

Clothing on Willis towers, Watson and I was hoping you could flush that out in terms of whether we should think about that and your current business lines or maybe new opportunities.

And for business services.

But Mike I would say, we're really excited about the potential to invest organically and inorganically and and content and capabilities in areas like digital where we you know and we havent seen a quad top of wallet and Elliot and you know of 'twenty and 'twenty in areas like intellectual property and areas like climate.

And there is so in lots of areas across our business and so there are many priority areas of my I would say, where they have higher revenue growth higher margin higher return on capital businesses and they're really excited about investing in these areas to develop new solutions for clients to meet the unmet needs.

Great. Thank you.

And our last question is coming from sales to find out after which the bank. Your line is open.

Yeah, Thanks, and and discussing the debt leverage it feels like the plan is to keep it low versus historical leverage at this point and then we continue to grow debt with EBITDA I E.

Was this a structural shift downwards and what you think the appropriate debt leverage is at this point or is there some kind of debt issuance and catch up coming in the you know and and the out years as the uncertainties of the current environment Abates.

Yeah. Thanks for the question, Phil what I would say is it's really about the fact that we're managing conservatively our cash levels are.

Given the macroeconomic uncertainty still remains.

And we're obviously heading into Q1, which is our seasonally lowest our you know the free cash flow quarter of the year, but I'd say you know are we absolutely committed to maintaining our current credit ratings and.

And you no longer time, and we'll look to increase debt as EBITDA grows while maintaining leverage ratios.

Okay for the the FX impact you had highlighted 20 cent impact and first quarter 'twenty. One can you frame for us what this could look like and you know at current exchange.

Change rates for the full year or even you know looking past first quarter.

Oh, we haven't given that got it and so but what I would say is Q1 is the majority of the impact to the yeah, It's primarily driven by a higher euro versus U S. Dollar.

And and Q1 is out of euro centric quarter.

Okay, Alright, and and the last one for you and it's it's the very philosophical so I apologize for that but I. Thank you for the comment on the the expanded the express apprenticeship program and how it impacts diversity and inclusion because I was hoping you could talk a little bit about ESG and the strategy there and part of to me. What is underlying this question is we've seen some carry.

Your step away from from certain products like coal and that they're not going to ensure projects like that anymore, and you know and when I think of Aon and I think of a solution for for unmet unmet needs and being strategic and how you help clients place that risk.

But if carriers of stepping away from things like that I, you know and to me there could be competing efforts of you being a solution for unmet needs, but also having your own ESG policies that maybe you know maybe coal is and is it within your wheelhouse anymore. So the you know coal is just an example, but you could talk more broadly than that but just to help you.

You know.

Clarify how I'm thinking about this.

But with the Ism philosophical and all of its a terrific question really appreciate it for all listen we are absolutely committed and every way to implement and he has a few best practices and.

<unk> for sure and.

The resiliency, but listen the Peach you're on is so important for the industry can play and relating to the climate.

And isn't just press you called and it's one of the greatest opportunities for US again, if you think about where we are you know everyone's focused on and then making many respects now but this is the when it gets decided and behind as you know of climate change and our views and to be front and center and it's gonna be a challenge for you to think about matching capital with the risk not the solve what energy source. It is but remember with the transition.

The client's position pressure for getting the transition and volatility to the clients and counter or do you think about going from point a to point of view, that's the that should be our wheelhouse and that is how do we identify and capability how do I know if Mike capital to help and do that and the combination with Willis towers Watson and we believe will be the formidable there's tremendous capability and one of the star as well.

And the John Haley and the team has done a great job developing overtime that combined with the we have we think we got the shot to really make a difference helping clients make better decisions as they think about this transition volatility that everyone's going to encounter and so you think about addressing the climate challenges. So this is of high priority for us inside of the Aon and our own world for sure.

And you'll see that by the way you've kind of upcoming 'twenty and 'twenty impact report, that's gonna detail our commitment of.

Around you know of carbon neutrality, and all the pieces around that but really the opportunity here is what we can do on behalf of clients and it is and our view again another off.

And just not it's just not been addressed and a way that's meaningful and it's a real opportunity for the industry to make a difference and the and we look forward of doing that.

And just one quick follow up on that and I guess part of the question is.

Is there is there a conflict and my thinking about this right the the <unk>.

Some of the clients who have unmet needs. You you you may not be able to meet those needs simply because of your own ESG framework, and and and certain pieces of environmentally risky business that you know you might want to get away from yeah from.

And at the individual level and there's always different circumstances that are in and come up but if you took a step back and think about the implications of the climate change around the world. This is this is the global economy. This is you know largely massive massive challenge around increased volatility it's gonna be absorbed by companies that they address this challenge our ability to help reduce debt.

The time.

As we think of substantial and that is why and then this is a massive opportunity it's going to require though you know new insights new innovation and evolution beyond what our industry has done and beyond what we have done and that's why back to why the combination what's it all about it's about being able to address some of these types of these issues climates. One cyber is another one that's the.

Underdeveloped substantially intellectual property. So all of these fit in this category of fill around the massive unmet unmet client needs and that is growing over time. So we've got to bring solutions toward and and so all of these categories for us points of substantial opportunity.

Alright, perfect. Thank you so much.

Thank you I will now turn the call back to Mr. Greg case for closing remarks.

And just wanted to say to everyone and thanks, so much for joining us this quarter, we look for door of discussion next quarter and have a great day.

This will conclude today's conference all parties may disconnect at this time.