Q1 2021 Aon PLC Earnings Call
And our team continues to find ways to get back not just the normal, but even better than before because we like to call. It the new better.
The idea of the new better started and the second half of last year with a series of regional and local client coalitions they're on.
Now 10 coalitions of leading companies around the world.
And that we formed to explore the societal and economic implications of the pandemic. The group reject the idea of accepting a sub optimal new normal and is working to define new better.
But work is ongoing and continues to offer meaningful insights into how leading organizations will work travel and convene and the year ahead.
And we're translating those insights and the new solutions that are designated and designed to accelerate recovery from COVID-19.
For instance, we know that widespread global vaccine distribution is a key part of the solutions.
And one that Aon.
As enabling let me describe <unk>.
Recognizing the limitations with current supply chain solutions Aon colleagues from commercial risk reinsurance and health solutions collaborated with insurance reinsurance and share tech and supply chain industry partners to develop a groundbreaking solution that uses sensors and analytics and the transportation and storage of vaccines.
Sensors provide transparent real time data and alerts if the temperature and the vaccine shipment both outside the manufacturer's range potentially allowing for mitigation efforts and helping to maximize the number of doses administered to the public. It's just another example of how we're creating innovative solutions to move our industry and society forward.
We're also donating all 2021 revenue from our solution to an international organization working to health and the human and economic toll caused by the pandemic.
Turning now to financials or.
Our global team delivered outstanding results across each of our key financial metrics, including.
6% organic revenue growth, a very strong start to the year on top of 5% organic in Q1 and 2020.
Substantial operating margin expansion of 170 basis points 16.
16% EPS growth and 91% free cash flow growth.
Within organic revenue, we continue to see strengthen our core driven by strong retention and net new business generation and overall growth within more discretionary areas of revenue with some areas coming back faster than others.
Commercial risk delivered 9% organic and outstanding result, with very strong new business growth and growth and project related work and double digit growth and transaction liability.
Reinsurance delivered 6% growth with strong net new business and treaty and double digit growth and facultative placements.
Retirement solutions delivered 5% growth and I would highlight strength and core retirement and double digit growth and human capital.
Health solutions growth of 4% was driven by strength and the core offset by pressure on project work one of the areas, we're seeing a little slower bounce back and data and analytics continue to see pressure from the travel and events and practice globally, resulting in a 2% organic decline.
So against the prior Q1 quarter and pre pandemic results.
These results are an improvement from our Q4 earnings call outlook.
During the quarter, we saw better than expected macroeconomic growth, which positively impacted client buying behavior looking forward. If macroeconomic conditions continue to be strong we would expect mid single digit or greater organic revenue growth for the full year of 2021.
And while our Q1 results demonstrate that our Aon United strategy is driving innovative solutions that address our clients' biggest challenges, we keep seeing signs that we must move faster.
We see our clients justifiably focused on the economic impact of COVID-19, but they are also increasingly focused on other challenges like climate change supply chain disruption.
Imagining and Reconfiguring, how and where work gets done and the growing health wealth GAAP and cyber.
Our recent cyber risk report highlighted findings from our proprietary cyber quotient evaluation.
Comprehensive assessment of cyber risk maturity the.
For 2020 data tells us that organizations across regions and industries are only maintaining a basic level of cyber readiness specifically on.
On the two and five organizations report theyre prepared to navigate new exposures.
And only 17% and report having adequate application security measures in place.
And on a recent great Swan report and we look back at 40 years of corporate crises analyzing 300 examples that show the significant impact on shareholder value due to lack of preparedness.
<unk> impact represents $1, two trillion and destroyed value and and 10% of the events, 50% of shareholder value was lost.
These risks and challenges are exactly what we want to help our clients assess and prepare for it.
And another Great example of our human capital and commercial risk teams realize that their clients and our life Sciences Med Tech space and not done and assessment of our quantification of cyber risk for their business or products on.
Our team analyzed risks across infrastructure technology vendor and digitally enabled products and quantified potential losses from impacts as reputation and business interruption or hack from their director of their devices in response to this prioritized and quantified risk assessment and our clients strengthen their own security measures and change their insurance coverage increase.
And their preparedness and reducing potential future volatility to their business and <unk>.
And that's more critical than ever for companies and the life Sciences industry.
Looking forward this is a process.
And our solution offering that makes innovative cyber solutions more accessible to our clients and the life Sciences space as.
And as we look to our pending combination with Willis towers Watson, we're confident their insights and capabilities will be a compelling catalyst to this work.
And this is just one example out of thousands and where we see the potential for the pending combination of Aon and Willis towers Watson teams to drive innovation based on forward looking analytics and insight.
As we brought together the executive committee that will be and place after the close of the combination and the potential is clearer than ever.
We have an opportunity to be more relevant to clients at a time when they need us most and.
Another example, our Aon team is currently advising our clients on the integration of our largest transaction to date a complex global merger, that's moving very quickly colleagues from data and analytics retirement health and benefits and human capital came together to advise our clients on harmonizing our people programs, while balancing synergies and deal objectives to drive employee engagement and retention.
As well as the shared vision from day one.
Our client is rely on aon to health and protect their greatest asset their people.
We know that the combination with Willis towers Watson will enable us to bring together, our combined capabilities and in each company and client insight around health retirement, and engagement will improve and accelerate our ability to deliver projects like these for clients.
In summary, our first quarter results demonstrate the continued success of our strategy and position us with momentum to drive improvement on our key metrics over the course of the year.
Building on the track record on progress that we've delivered over the past decade.
The events of 2021 continue to highlight unmet need and growing demand from clients around their biggest challenges, which we know are best addressed by our one firm Aon United strategy.
Our ability to address client needs and accelerate innovation will only get better and our pending combination with Willis towers, Watson, which continues to increase our commitment and excitement and the potential of the combined firm.
Now I would like to turn the call over to Christopher for her thoughts on our financials and long term outlook for continued shareholder value creation Christa.
Thanks, So much Greg and good morning, everyone as Greg mentioned, and we delivered strong operational and financial performance and the first quarter Scott Hi.
Highlighted by 6% organic revenue growth that translated into double digit growth and operating income earnings per share and free cash flow.
And that strategy has enabled continued growth across our key financial metrics.
We look forward to building on this momentum through the rest of 'twenty, 'twenty, one and and our pending combination with Willis towers Watson.
As I further reflect on the quarter, we delivered organic revenue growth of 6% driven by ongoing strength in our core business with and uneven recovery and on more discretionary areas.
I would also note that total reported revenue was up 10%, including the favorable impact from changes in FX, primarily driven by a weaker U S dollar versus the euro.
Second we delivered strong operational improvement with operating income growth of 15% and operating margin expansion of 170 basis points to 37, 4%.
Stepping back our goal is to deliver.
Sustainable operating margin expansion over the course of the full year as there can be volatility quarter to quarter, given the seasonality of our business and timing of expenses, including long term investment and growth.
In Q1 margin expansion was helped by two factors.
First organic revenue growth exceeded our Q4 outlook due to the impact of the macroeconomic factors and buying behavior.
And Q1, 2020 had higher expenses and areas like G&A and investment in the business, which made for an easier comparable when compared to our expectations for the rest of 2021.
Looking to the rest of 2021, we anticipate investment and the business and some potential resumption of TMA later in the year.
Looking forward to closely patenting and expenses for the balance of 2021.
As we described last year, we reduced certain discretionary expenses at the onset of the pandemic given the significant macroeconomic uncertainty and then return to somewhat more normalized levels of spend and the back half of the year as macroeconomic conditions improved on the outlook stabilized.
In 2021 compared to 2020, we expect approximately $200 million less expense to be recognized in the fourth quarter offset by approximately $175 million more expense in Q2 and $65 million more expense in Q3.
Put another way, we expect $135 million of expense to move from Q4, <unk> and $65 million expense and move from Q4 to Q3, when comparing to our expectation for the remainder of 2021 to prior year results prior to any growth occurring.
This shift representing about 2% and our annual cost base is primarily due to the actions, we took and highlighted last year and.
Including the reduction of debt discretionary expenses, including variable compensation in Q2, and Q3 of 2020.
This shift also spreads our expense base more evenly across the quarters David.
We still do expect the occasional variability and lumpiness and expenses.
This change will have an impact on quarterly margins, where do you think margins in Q2, and Q3 and increasing them and Q4.
However, it does not.
Change our expectation of full year.
Margin expansion for 2020 'twenty one.
As we stated previously our goal is to deliver sustainable margin expansion over the course of each full year, driven by accelerating revenue growth portfolio mix shift to higher growth higher margin businesses and.
Leverage from Aon business services.
Aon business services is focused on innovation as well as effectiveness.
Recently, our Aon business services team, sorry, and opportunity to improve premium accounting with a blockchain solutions. The team went through the carrier partner and the insurance industry standard setting groups to design and develop a clearinghouse the premium transactions.
And this process has been lives and so first of January 2021, and has over 13000 transactions executed.
Already improving the speed at which areas are identified and resolved.
Over time, we expect our major carrier partners and other brokers to join the platform.
We see this as a significant opportunity to improve the client experience with high quality.
And reduce inefficiencies across the industry.
As with other Aon business services process improvements and efficiencies and this new blockchain process enable I'll call it and spend more time with clients and on higher value added activities.
Turning back to the results for the quarter.
We translated strong operational performance into EPS growth of 16%.
And that earnings material FX translation was a favorable impact of approximately 18 debt during the quarter.
If currency to remain stable at today's rates, we would expect.
That's a full set per share favorable impact in Q2.
<unk> per share and favorable impact in Q3, and a 1% favorable impact in Q4.
Finally, moving to cash and capital allocation free cash flow increased 91% to $533 million pre.
Primarily driven by strong operational improvement or decrease and restructuring cash outlays and a decrease in capex.
Note that we do expect Capex for the full year to increase modestly as we invest in technology to drive business growth.
Looking forward, we expect to drive free cash flow growth over the long term building on a 10 year track record of 14% CAGR growth and free cash flow, including 64% growth to $2 6 billion free cash flow and 2020.
We remain incredibly excited for the long term cash flow potential of the pending combination.
We make capital allocation decisions based on our ROIC day framework highlighted by $50 million of share repurchase and the fourth quarter.
As a reminder, Q1 is our seasonally smallest closer to free cash flow due primarily to incentive compensation payments.
We also repaid 400 million of term debt and February.
Looking forward, we expect to remain highly focused on closing and then successfully integrating a combination with Willis towers Watson.
Following that we expect to continue to invest organically and inorganically and innovative content and capabilities in priority areas to service our clients unmet needs.
We remain very confident and the strength of our balance sheet and manage liquidity risks through a well lettered debt maturity profile.
And the near term, we expect to continue to manage our leverage ratios conservatively and return to our past practice of growing debt as EBITDA growth over the long term.
As I look towards our pending combination with Willis towers Watson, we remain incredibly excited about the potential for growth and innovative solutions for clients and the shareholder value creation opportunity.
We are continuing to work collaboratively with the appropriate regulators to gain approvals and we've also had remedies.
We continue to anticipate $800 million of cost synergies taking into account the remedies offered.
And expect to allocate any divestiture proceeds according to our ROIC framework, and which share buyback continues to be our highest return on investment.
We are working towards the close and the first half of 2021 subject to regulatory approval.
In summary, our first quarter results reflect continued progress building on a decade of momentum driven by and other strategy and underpinned by our <unk> and business services operational platform. We remain incredibly excited about the closing up pendant combination and beginning the integration process with Willis towers, Watson, which will continue to enable long term.
Shareholder value creation.
With that I'll turn the call back on the operator, and we'd be delighted to take your questions.
Thank you we will now begin our question and answer session. If you would like to ask a question over the phone. Please press star and why you need to withdraw your question. Please press star two one moment and wait for the first question.
Okay and.
Our first question comes from Sydney comment from Citi. Your line is now open.
Thanks, and good morning.
So last year you.
You guys pulled your guidance for the merger.
And when you pulled your and Standalone guidance.
But now that you've reestablished guidance on a standalone basis can you provide some thoughts on your expectations for guidance for the merger.
I appreciate it as we've said before when we got.
Got together as the pandemic and to report guidance overall, what we said today is as we think about.
Okay.
And we're talking about mid single digit or greater and soybean Mike.
Economic conditions continued on <unk>.
I would remind everybody that before pandemic, we've talked about our combined mid single digit or greater and we plan to do as needed and when we as we as we complete the combination and we'll obviously be back to you with with what we expect going forward, but remember where we were and when we started the process.
Okay, and then just focusing on the expense guidance I guess for and on a standalone basis.
Chris I think you said.
I'll add a couple of things that are moving from quarter to quarter, but is there and assumed underlying kind of growth rate and expenses.
As we think about 2021 versus last year and if so can you give me give us a sense of what that growth rate is.
Yes.
Great question and thank you for asking and so what Youre really saying is just $200 million come out of Q4, and then of that 175 goes into Q2 and 65 goes into Q3 and eight that is before growth and so you should assume growth is built on top of that and we haven't given that growth rate, but what I would say is it's in the context on.
<unk> full year margin expansion for 2021 on top of a track record as you noticed and eight over the last 10 years of 890 basis points out of the last 10 years, approximately 90 basis points a year.
Got it and then just the last one for me is on the free cash flow.
You mentioned <unk> is typically your lowest quarter, but the growth was quite strong. This quarter was there anything sort of unusual from a timing perspective that maybe something was pulled forward in <unk> or just wanted to get some color on that.
Yeah, I mean, we do expect to drive free cash flow growth annually over the long term building on our track record of 14% CAGR over the last 10 years, I mean Q1 free cash flow was exceptionally strong driven by operating income growth very strong operating income growth and the quarter give.
And given our pending combination with Willis towers, Watson, and especially the impact of free cash flow relating to achieving the $800 million of cost synergies, we're not providing standalone guidance for aon at this time, but we do remain incredibly excited for the long term cash flow potential of the pending combination.
Okay. Thanks.
Thank you and our next question comes from Elyse Greenspan from Wells Fargo. Your line is now open.
Hi, Thanks, Greg.
My first question.
Non U.
Make sure I understood correctly.
And you essentially said that the $800 million of expense saves for the deal you're reaffirming that even with on.
And remedies or divestitures I guess that have been offered up to regulators is that what you said Brett on that.
And that is correctly.
Okay, Great and then my second question on.
I'm not sure.
Much detail you guys on a go into and we obviously lead and the class in terms of what divestitures might've been offered.
I know there was a $1 8 billion kind of divestiture cap included within the merger and is there any way that you could speak to that and give us a sense of whether you would be willing to go on a certain amount above that level or any color you can give us and reference that 188 billion and that was laid out with the merger.
So at least we're not going to speculate on remedies. We have confirmed that we've all had revenues were continuing to work collaboratively with regulators.
And we continue to anticipate and as I mentioned, the $800 million of cost synergies considering the remedies offered and we'd expect to allocate any divestiture proceeds according to our OSB framework and much share buyback continues to be our highest return activity.
Okay, and then on the tax rate.
I was interested and how your tax rate was impacted by guilty and be the last couple of years and then.
And also on the cash size and doubling the guilty as guidance has proposed.
We have a tangible impact on your tax rate all else equal.
So at least we're not giving guidance tax guidance going forward, but I would say as we look back historically exclusive and the impact of discrete items, which can be positive or negative and eight quarter on historical underlying rate over the last four years has been 18%.
Okay and then.
And then one last line.
Debt to Q1.
Tough comp and then obviously the macroeconomic environment improved and help these estimates.
Net for the quarter and we think about the mid single digit.
Organic outlook on greater does it feel like to you that power three quarters and.
Assuming the economy continues to improve should be greater than the Q1.
Given that we would get the better economy on it.
Packaging organic as we go through the year.
So all we're really highlighting and believes as you go back and really Q1 last year, which is really pre pandemic. There really wasn't a lot of pandemic embedded and and we were just observing and 6% against that is a great start to the year just really underscores the momentum we have we're obviously not going to.
Give guidance other than the mid single digit as we proceed through the year, assuming macroeconomic conditions continue to trend on the right and the.
And the right direction, but we would just observed was on commercial risk and 9% organic and reinsurance at six and retirement and five and health and for <unk>.
Really strong start to the year with momentum and the data analytics piece Christian and I described before obviously as against a pre pandemic quarter with some pressure around travel and events, but that's going to come back very very strongly when it does so.
And macroeconomic conditions hold we are comfortable with mid single digit or greater.
Great. Thanks for the color.
Thank you. Our next question comes from Jimmy Bullard from Jpmorgan. Your line is now open.
Hi, Good morning, So first I just had a question on your overall view of the potential accretion from the realist deal I think when you previously talked publicly you assumed no dispositions and obviously youre going to have to do some dispositions.
And your $800 million target seems unchanged on expense savings how do you think about the overall.
<unk> from the deal and do you think you'll still be able to hit your previous assumptions and.
And given that you'll be able to do something with the proceeds from.
Business dispositions.
Or do you think there is downside to the initial numbers.
So Jimmy what we would say is we're not providing updated guidance at this time once we close we'll certainly look forward to updating us on.
But what we will say is.
That the $800 million remains regardless of remedies and.
We would note that when we originally got the $800 million of guidance on.
On the expense savings that was on it and EPS base that was going to grow as pre pandemic and sorry.
And obviously 800 million of expenses on a smaller basis, it's still a very positive outcome and and then the last thing I'd say is clearly none of that math assumed any upside in terms of.
Revenue growth and meeting unmet needs for clients, which is really.
The entire strategic rationale for the transaction that Greg talked to you and I'll talk about this.
And if you take a step back and think about where we were really a little over a year ago March 2020, as we announced and the combination.
We described by the way and opportunity was grounded with the $800 million as Christa just described but really was about opportunity opportunity per clients opportunity for colleagues on.
Obviously, you don't have and deliver that opportunity for shareholders.
And we described that literally if you think about that opportunity. The next five years from our standpoint from a value creation standpoint.
We think it is as strong as we've ever seen in any way on our in our 10 plus years and if that includes the 10 years.
Almost 200 basis points improvement on return on invested capital on a course to 600 basis points improvement on free cash flow margins and so from a real shareholder value standpoint, a year ago. We just really excited about this I would tell you over the course of the year, having spent time with Willis towers Watson colleagues that conviction has only grown and <unk>.
You see and we've talked about externally as Christa described very well doesn't include how and how we're thinking about accelerating and innovation and Theres a lot. It's kind of gone on as we've begun the integration in terms of how this plays out that really has been.
It's been really exciting I mean, the momentum that's building around this with that with that with our colleagues is quite quite high and we're just looking forward to all aspects clients colleagues and shareholders shoulder impact.
And then maybe one either for Greg or for Eric can you talk about it seems like your comments on pricing or a little bit.
Subdued or less upbeat than some of the underwriters, but what youre seeing in terms of pricing change and.
Commercial and then reinsurance as well.
Sure, Greg maybe I'll pick up but before I do if I can make a comment on your earlier question just.
On the excitement around the combination and what we're starting to see maybe a level lower certainly the teams have been working on integration from a client experience and a revenue standpoint culture innovation and all those things and we're really beginning to see the possibilities as we go deeper into the organization around the planning process, whether it's things like on the risk side.
Sure.
On the cat modeling and securitization experience at Aon has the Willis as climate capabilities, and a resilient and the hub and Theyre climatize those types of things when you put them together really do provide excitement for our teams to see what's possible and so theres a lot of those those.
There's things that we're identifying as we go through the process and it is really building some excitement across both organizations because they really begin to see the value they can unlock for clients.
And so now maybe to hit your picture question on pricing.
And I.
I would say that the dynamic of the price because we say it's moderately positive, but it's always it's never a straightforward answer Ryan and I'll give you some context as to why we engage these clients and a couple of steps before you ever get to the marketplace. We do the risk analysis on identification, we work with them on mitigating strategies, so that they don't even and transfer the risk.
And how they can finance and among themselves and then ultimately if they do decide to make the transfer to a third party.
And we're coming at this marketplace with their own risk appetite their own budget capacity you'd be options and the market, we're using our capabilities to help them make the trade offs.
But ultimately each product there is no marketplace right I always get a kick out of what people talk about the broader market. It's a series of micro markets. Each product has its own dynamics on claim trends terms conditions retention claim supply demand all of that whether youre talking property D&O marine and it's a variety of different things and ultimately.
And our role and this is to help clients evaluate how to manage the risk make the right choices that they could make it they can make so as we see it. It's moderate is moderately positive as we say, but ultimately clients make choices and every market that help them meet their own needs.
Thanks.
Thank you and our next question comes from Phil Stefano from Deutsche Bank. Your line is now open.
Yes, thanks, good morning, and congrats on the quarter I guess just.
A quick follow up on the.
And depending acquisition of Willis towers Watson.
There was a question earlier about the $1 eight.
$1 billion revenue marker and.
And the agreement.
To me this is a pretty specific number can you give any flavor on on.
And how this number came to be that that was the.
And the line in the sand and which we might need to go back and get approvals.
Yes, Scott.
Back.
And the shareholder value question was asked and answered as we as we did in August.
I'll come back and also the opportunity that we see and how it's evolved over time.
And we really want you to take away is the opportunity. We saw a year ago is stronger now than we saw a year ago by the way that's not just the work that Eric described and how the teams have come together and seeing all of them.
Possibilities. That's also pandemic one of the outcomes and pandemic is really and amplification and both awareness across the globe literally across every company and the world is a bigger awareness for things like pandemic climate and tangible asset ciber and a more than ever before also up into the C suite and ways that it has and as a permitted before and so for US sure we'd see a true.
And this opportunity we saw that opportunity as we brought on.
Brought together the discussion on the combination on its margin, we see it's continuing and so from our standpoint.
As Christa described at the beginning we're making our way through the process and and.
And making good progress and.
Very excited about the outcome.
Okay.
And what are the shop.
Okay, Chris that you had mentioned.
The expense guidance that you that you gave and I appreciate that and it has some potential resumption and TMA for later this year I was hoping you could just kind of flush out what how youre thinking about without any specifics just kind of generally how youre thinking about that right. If I want to run and actual versus expected of of the world opening back up and people.
Back to whatever normal business activities look like moving forward.
How can I compare that took to how you were thinking about it.
Yes, so I guess I'll start with we've got a 10 year track record of margin expense and approximately 90 basis points for a decade every year.
We expect margin expansion for the full year 2021.
And we're obviously not giving specific guidance on margin expansion for 2021, but I'd say if you look to the rest of 2021, we should anticipate some investment on the business and some potential of resumption of <unk> laser and the year.
And that's really all in the context of.
Overall margin expansion for 2020 one.
But if you, but Greg you might want to talk about this from a client perspective, and how we're thinking about DNA and and delivering for clients.
It's really an excellent.
And on sort of how the business evolves and this idea of new better we're not kidding actually it's been amazing the tin coalitions and we have literally.
The major cities around the World, and Chicago, and New York, and London, and Tokyo and the draw.
<unk>, Singapore et cetera on either of those largest companies and the world will be comparing notes on how they come back together.
Travel will convene and the process and we've just taken away its huge amount from that and in many respects. When we think about client leadership and how we go engage with clients. Obviously the face to face is key and will continue to be key but our ability to make a difference with clients and remote environments, where we can actually amplify on what it means to be aon, United literally bringing and colleagues around the world, obviously and a virtual.
Way to clients has proven to us and unbelievably.
And I'm going to be effective on both new business with existing clients relative net new opportunity, so very very familiar and Eric Ludwig.
And this work around the World maybe you can talk a bit about this because it's very important as you think about TD overall.
Yes, sure Greg and look we're going to be smart about how we do <unk> and the future as business opens up in person meetings and it is ultimately a positive step and the global recovery that we can interact and but we've learned a lot right as we've said in the past and.
And just using that example, Greg to go a little bit deeper historically, if a client wanted to talk about a situation that was occurring outside their home country.
To try and do a conference call our plan a trip alright, and now what we do is we open up Webex and we actually have the leader of the country leader of the issue and that country on the Webex and we can solve the issue right away and certainly there is efficiency and cost advantages to it but more importantly, I think theres enormous client value to unlock that expertise and and immediate way where they are not good.
And interpretation through someone else theyre talking right to the source and getting that and getting that value and real time. So I mean, ultimately we're going on we're going to use what we've learned and we're going to beat the clients, where they want to be better.
But I think we've learned a lot and we're going to apply it.
I Wonder if they were just final piece I'd add on this flow because it's really it's important to us because we really worked it for a decade, obviously anybody can open up buybacks as Eric described and put faces on there, but when you actually put the colleagues around the world from different solution lines together and it's clear to the clients that they know each other they are reacting to different situations or support.
And each other that's non duplicated on right that's taken us a decade to work through and so the ICU and it turns out the temporary it is on the screen amplifies what it means to work Aon United together.
And as one firm and that's what clients see the commented on it to US which is Wow I didn't really understand what this meant before and buy.
The only way they could have seen it is Eric as Eric described we put 10 people on the conference here and which we're never going to do but 10 on webex totally interact and on behalf of clients really addressing their issues that it's pretty cool. The example, I gave on the commentary upfront around the.
The vaccine protection was exactly that it was it was a group of people together that probably would have gotten together and the same way before so we just want you to understand how we're thinking about our business.
As PD comes back, but it's much much broader than that.
Okay.
Thanks for all the color I I'll take a swing it one more.
When I look at the what I would call the underlying expenses revenue less operating adjusted operating income and the first quarter.
Is there anything abnormal and the growth rate or anything that you'd call out.
That makes the growth rate, we saw first quarter 'twenty, one versus first quarter 'twenty.
Not a good way to think about this.
So if you are talking about expenses fell what I've noticed inexpensive is.
And.
And in 'twenty.
And in 2021, you have a lot less DNA.
And you have a lot less investment and the business compared to Q1 and 2020. So the margin expansion is much more pronounced in Q1 that then you might guess.
And the full year, we do expect full year margin expansion and then we didn't see and increase in comp and benefits due to FX, but also due to investment and the business.
And so I guess, that's probably the two unusual things that sort of night and Q1.
Great Alright, I appreciate it thank you.
Yeah.
Thank you and our next question comes from David <unk> from Evercore ISI. Your line is now open.
Hi, Thanks, good morning.
I wanted to just talk about.
The strong level of organic growth this quarter.
So I guess I was just wondering.
Is there anything one off and this result.
This quarter and just as I think about the rest of the year is there any reason why we shouldnt expect an acceleration and organic growth from these levels.
And as we've described David.
And our view is great momentum as we began the year no doubt first quarter strong across the board on all aspects with some real standout and we see as macroeconomic conditions evolve mid single digit or greater as we think about where we are for the debt for the for the year.
And obviously, the first quarter gave us real confidence growing confidence and that assuming macroeconomic conditions hold.
Got it and nothing one off and that result that that would lead you know that we should come down off of assets. Okay Thats helpful.
And it was really across there was across the board in terms of sort of all the different aspects of commercial risk reinsurance retirement and health.
Across the board with real.
Great work by the teams around the world on new business growth and growth and project related work, which came back a bit.
And some other search mines.
Got it thanks.
And then maybe just just on the.
The combination with Willis.
Christa I think you had said.
On some something to the effect that you would expect to achieve the $800 million of cost synergies.
And in any level of concessions, but I guess I just wanted to sort of dig into that and but maybe just talk about is there a level that would make that tough to achieve.
And just sort of maybe just sort of.
Till back on and a little bit on just what gives you confidence that you can you can get to that 800 million and saves.
Yeah.
So David we continue to anticipate $800 million of cost synergies considering the remedies, we love it.
And we'd expect to allocate any.
Any divestiture proceeds according to our ROIC framework and with share buyback continues to be our highest expected.
Return on activity I would note that.
The $800 million of cost synergies.
<unk>.
And we're very confident on achieving its five 5% on the combined cost base and we achieved 11% of the combined cost base and day on Helios and 18% of the combined cost base and Aon Benfield and Theres no structural differences here and so we feel really good about achieving that $800 million.
Got it helpful and Thats clear.
And then maybe if I could just sneak one more in.
Yes, just just on the margin.
And you guys obviously.
I appreciate the slide you guys put in and the deck you guys have expanded margins by 90 basis points of year over the last decade.
You did a 170 basis points and the first quarter, obviously, you need comps there.
And I know that you guide for the full year.
But I guess is there is there any reason to expect that expanding margin shouldnt expand here over the next three quarters.
So first of all David.
We absolutely expect fully and margin expansion for the for the year 2021, and we think about margin expansion and the context of full year because quarter to quarter.
Expenses will be lumpy.
As we sort of talked about what the reported negative expenses, but what we would say is Q1 was unusual in terms of margin expansion, because we had a pre pandemic comparable in Q1 2020, and so I would think about margin expansion over the course of the full year 2021, and as you said, we had a 10 year track record of 890 basis points of margin expansion over the last 10 years the non.
And the basis points, a year and we're on track to do fully on margin expansion again in 2020 one.
Thank you.
Thank you and our final question comes from Meyer Shields from <unk>. Your line is now open.
Thanks, I guess beginning basic question, you talked a little bit about the blockchain for a premium and clearinghouse.
Should we expect to see that and the financials, let me numbers, but where does that make a difference.
Yeah, I mean, it really makes a difference in terms of margin expansion, it's driving improved quality and therefore reduced errors.
And it's driving efficiency, because it's allowing colleagues to spend more time on high value activities with that client. So it's both.
It's both reduced errors and improve efficiency and then.
Utilized and client experience, but I mean, my simple at gross operating margin expansion.
Okay. No that's perfect I think thats, what I was looking for a second question you never.
Bank.
Disclosed a number for the expected revenue synergies from the innovation I know that the $800 million savings guidance is still there is the internal number for revenue still the same.
Well as we said before we didn't disclose Mike as you described.
But the entire reason, we're bringing the combination together really goes back to this idea of we've got to accelerate and we've got to find ways to accelerate innovation on behalf of clients continue to do and what we're doing but just keep getting better on their behalf and.
It's not hard to find the categories, where we can continue to improve and support.
Issues like pandemic, obviously, but.
How are we going to bring solutions that really matter for clients and climate and as they think about taking actions to zero carbon and how do we hope and reduce volatility and then we back we haven't sort of use back in March 2020 on that and and Eric I think described it very well and as we spent time with our colleagues at Willis towers, Watson, and we see more potential and possibilities and Edgar and pandemic capex. So.
Clients are actually more tuned there like what am I going to do on this and I'm not going to play it out and things like intangible assets. We've made great progress on intangible assets and how you think about defending the house on intangible assets, but now I'm going to start with what's on the opportunity. We believe is even greater areas like cyber et cetera. So.
We are we were excited and 2020 around the possibilities on what we can do to drive innovation, which is in fact net new opportunity for our clients and per our colleagues, but also revenue.
And we see that opportunity greater now than we saw we saw a year ago.
Thank you.
Now I'd like to turn the call back over to Greg case for closing remarks.
Thank you Britney I, just wanted to say to everyone and thank you very much for joining us this quarter. We appreciate it and very much look forward to our discussion next quarter. Thanks, so much.
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