Q4 2021 Aon PLC Earnings Call

Good morning, and thank you for holding welcome to Aon Plc's fourth quarter and full year 2021 conference call. At this time all parties will be in a listen only mode until the question and answer portion of today's call I would also like to remind all parties that this call is being recorded if anyone has an objection you may disconnect. Your lines at this time.

It is important to note that some of the comments on today's call may constitute certain statements that are forward looking in nature as defined by the private security Reform Act of 1995.

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

Information concerning risk factors that could cause such differences are described in the press release, covering our fourth quarter and full year 2021 results as well as having been posted on our website now it is my pleasure to turn the call over to Greg case CEO of Aon plc, you may begin.

Thank you and good morning, everyone welcome to our fourth quarter Conference call.

By Christa Davies, our CFO and Eric Anderson, our president.

Previous quarters for your reference we posted a detailed financial presentation on our website.

Our strong performance in 2021 is the direct result of deliberate steps, we've taken but are enabling us to win more do more and retaining more with clients.

We're driving top and bottom line results.

Exceptionally well positioned to continue to deliver ongoing performance in 2022 and over the long term.

Most important.

We're expressing deep gratitude to our aon colleagues around the world for their performance our results this year and for everything they've done for clients and for each other.

Our colleagues delivered a fantastic Q4, and a very strong finish to an outstanding year, we achieved organic revenue growth of 10% in the fourth quarter with double digit growth in commercial risk and reinsurance driven by net new business generation and client retention.

The commercial risks, we saw strength across the world.

By net new business and retention in the core we also saw strength in more discretionary areas of the portfolio its economic growth and client activity continued to increase including double digit growth in project related work and transaction solutions as our teams responded to M&A deal flow and increased client demand.

Within health and what solutions, we saw double digit growth in priority areas that we've been disproportionately investing in the last several years, including voluntary benefits and health solutions and in delegated investment management and wealth solutions, which remains an essential part of our portfolio.

Our full year organic revenue growth of 5% reflects the strength and momentum of our Aon United strategy, which is designed to drive top and bottom line results.

To that point.

Operating income increased 17% year over year will your operating margins expanded 160 basis points to 31% with margins of 32, 8% in the fourth quarter, reflecting ongoing efficiency improvements none of investment in long term growth.

Earnings per share increased 22% for the full year free cash flow exceeded $2 billion.

And we completed $3 5 billion of share buyback in 2021.

Strong indication of our confidence in the long term value of the firm.

Looking forward to 2022 and beyond we continue to expect mid single digit or greater organic revenue growth margin improvement and double digit free cash flow growth.

Looking back on the year, we would offer three observations that drove performance in 'twenty, one and reinforce our continued strong momentum in 2022.

First.

As complexity and uncertainty have increased around the world clients are demanding a partner capable of providing them greater clarity and confidence to make better decisions that will protect and grow their businesses.

'twenty, one organizations and individuals continue to face the ongoing challenges of Covid.

And effects and supply chain growing concerns over climate change intellectual property retirement readiness regulatory change with cyber and workforce resilience.

Against that backdrop, our decade, plus focus on and United and the content and capability. It allows us to deliver.

That's never been more relevant.

Second.

Our colleagues feel that relevance and they take great pride in our ability to deliver existing or new sources of value to clients. They recognize these external challenges facing our clients create opportunity for them to bring better solutions and grow professionally. We know this is what engages our colleagues and why they were feeling more relevant more connected and more value.

And we're seeing the impact of this focus and our recent all colleagues survey engagement levels remain at all time highs in line with top quartile employers ultimately, we know that by creating an exceptional colleague experience, we're ensuring a better client experience both of which translate into better performance for the firm.

And third.

We continue to accelerate our innovation strategy by using our Aon, United operating model to replicate successful solutions and applying those capabilities to new client basis paving the way for innovation at scale.

We're incorporating our data analytics and insight to direct existing capabilities to previously unmet client needs. This allows us to serve existing clients and new and customized ways, bringing existing solutions to new clients and expand our addressable market.

Let me highlight a few examples that demonstrate how we scale innovation and help our clients both in new ways and from new sources.

Historically, you've heard us talk about Aon client treaty.

Underwriting insurance capacity, we establish the voids that we use to help our clients more easily and efficiently access capital for their placements. When we designed this program over five years ago, we analyzed every historic placement.

Quantify the risk parameters around business replacement of Lloyds and then prearranged capital to back those risks.

Aon client Treaty provides more efficient access to capital for clients and insurers and we see ongoing opportunity to apply this concept to different geographies and risk classes using the same proprietary data and analytics backbone supported by Aon business services.

One new offerings drawing directly from this capability, it's a solution that team design called barilla, which enables reinsurers and investors to invest across our global reinsurance client portfolio. This provides a broad entry point into global reinsurance risk and benefits our clients by enabling capital to access markets more efficiently.

This first of its kind solution could not have been designed without a proprietary analytic capability and we see important opportunities to build on this platform for future growth across Aon.

Another example to highlight is within voluntary benefits, where we're developing innovative solutions at scale and driving double digit growth.

The offering combined user insight around enrollment from our deep health care exchanges and capabilities from acquisitions like University pardon me.

Its platform and dashboards assess and illustrates planned future product usage claims experience and overall plant performance, providing insight and the employee demand and satisfaction.

This work is informed by 20 years enrollment data from over 4 million participants, which enables us to rapidly develop bespoke solutions for our clients, but strengthening their total rewards offerings and reinforced their human capital strategy at a time when this has never been more essential.

These examples demonstrate how we help our clients access to capital and markets in ways that never existed before.

Against that backdrop of increasing and changing risk, we're not only bringing our clients better solutions. We're also working more closely with them to understand their biggest challenges, which in turn guidance further innovation.

Our focus on building innovative capabilities that scale across aon to better meet our clients' needs is also highlighted by our recent appointment of Julian flight field.

As our Chief Innovation Officer, Julian it's digital experience and deep connections today and across the industry position are exceptionally well to ensure that we're rocco distributing new solutions to clients.

To summarize.

2021 was a year of incredible performance in a year that positions us for growth innovation and momentum in 2022.

We look for this momentum is further reinforced by global economic and societal trends and the resulting challenges and opportunities for our clients, which means that our aon United strategy becomes even more relevant as we help clients make better decisions to protect and grow their businesses the capability and track record that we built gives us confidence in our ability.

Youre right further value for our clients colleagues society and shareholders now I'd like to turn the call over to Christopher thoughts on our financial progress in Q4 in 2021.

Long term outlook.

Thanks, so much Greg and good morning, everyone.

As Greg highlighted we delivered another strong quarter of performance across our key metrics to finish the year.

In the course that we delivered 10% organic revenue growth the third consecutive quarter of double digit organic growth.

Which translate into double digit adjusted operating income and adjusted earnings per share continuing our momentum as we head into 2022.

As I reflect on the full year results first organic revenue growth was 9%, including double digit growth in commercial risk solutions and health solutions I would not the total revenue growth of 10% includes a modest favorable impact from changes in FX, partially offset by the impact of certain divestitures completed within the year.

Most notably the retiree health care exchange business as we continue to shift our portfolio towards our highest growth and return opportunities.

As we look to 2022 we're continuing to monitor various macroeconomic factors, including the underlying drivers of G. D. P values corporate revenues unemployment.

Inflation government stimulus and the impacts of Covid merits, all of which impact our clients.

We continue to expect mid single digit or greater organic revenue growth for 2022 and over the long term.

Moving to operating performance, we delivered substantial operational improvement with adjusted operating income growth of 17% and adjusted operating margin expansion of 160 basis points to a record 31% margin.

The investments we've made in Aon business services give us further confidence in our ability to expand margins building on our track record of approximately 100 basis points average annual margin expansion over the last decade.

We previously described a repositioning of expenses that incurred within 2021 which has no impact on year over year margins well certain expenses may move from quarter to quarter. We did not expect February passionate we expect the 2021 expense passenger which would be the right quarterly patterning going forward before the expense got it.

During the year as we previously communicated we saw revenue growth outpaced expense growth and investments, while we do expect expenses to increase in 2022 due to certain factors such as increased investment in colleagues and most resumption of G&A, we think about gross margins over the course of a full yet.

We expect to deliver margin expansion in 2022, as we continue our track record of cost discipline and managing investments in long term growth on rois fee basis.

We try and find a strong adjusted operating income growth into double digit adjusted EPS growth of 22% for the full year building on our track record of double digit adjusted EPS growth over the last decades.

As noted in our earnings materials FX translation was an unfavorable impact of approximately 3% in the fourth quarter and the favorable impact of approximately 23 cents, especially after the full year.

It caused you to remain stable at today's rates, we would expect an unfavorable impact of approximately 16 cents per share or approximately $48 million decrease in operating income in the first quarter of 2022.

In addition, we expect non cash pension expense of approximately 11 million for full year 2022 based on current assumptions that's come to us the 21 million of noncash pension income recognized in 2021.

Turning to free cash flow and capital allocation, we continue to expect to drive free cash flow growth over the long time based on operating income growth working capital improvements and structural uses of cash enabled by Amazon services.

In 2021 free cash flow decreased 23% to two 2 billion, reflecting strong revenue growth margin expansion and improvements in working capital, which will offset by a billion dollar termination fee payment and other related costs I'd observe that excluding the 1 billion termination fee payment.

Free cash flow grew 400 million or approximately 15% from $2 6 billion in 2020.

Our outlook for free cash flow growth in 2022 and beyond remains strong.

Given this outlook, we expect share repurchases to continues to remain our highest return on capital opportunity for capital allocation. As we believe we are significantly undervalued in the market today highlighted by the approximate 2 billion of share repurchase in the quarter and $3 5 billion of share repurchase in 'twenty or 'twenty one.

Over the last decade, we've repurchased over a third of our total shares outstanding on a net basis.

And 'twenty two we expect to return to more normalized levels of Capex as we invest in technology and smart Lucky.

We expected investment of 180 to 200 million as we've said before we manage capex like all of our investments on a disciplined return on capital basis.

We also expect to invest organically and inorganically and content and capabilities to address unmet client needs.

M&A pipeline is focused on our highest priority areas that will bring scalable solutions to our clients growing and evolving challenges.

We continue to assess all capital allocation decisions I'm not a job portfolio on a return on capital basis. We ended 2021 with a return on capital of 27, 4%.

An increase of more than 1500 basis points over the last decade.

Turning now to our balance sheet and debt capacity, we remain confident in the strength of our balance sheet and manage liquidity risk through a well a lot of debt maturity profile.

In addition, we issued $500 million of senior notes and people.

As we said before growth in EBITDA combined with improvements in our year end pension and lease liability balances increases the capacity, we have to issue incremental debt, while maintaining our current investment grade credit ratings.

Our net unfunded funded pension balance improved by nearly 500 million in 'twenty or 'twenty, one reflecting continued progress and a result of the steps we've taken over the last decade to Derisk this liability and reduce volatility.

This reduction in volatility is significant for many of our clients is still have pension obligations on their balance sheets current market conditions and funding status of giving many clots of chops to reduce the risk of future volatility related to funding status of regulatory changes our time it teams insight and analytics in this space can help our clients.

This new capital to efficiently reduce their risk often with a partial pension risk transfer, creating long term opportunity for us to help our clients manage that balance sheet risk effectively.

In summary, 2021 was another year of strong top and bottom line performance driven by the strength of our and United strategy and Aon business services. We retired nearly 4 billion to shareholders through share repurchase and dividends in 2021.

The success, we achieved this year provides continued momentum as we head into 'twenty. Two we believe our discipline approach to return on invested capital combined with expected longtime free cash flow growth will unlock substantial shareholder value creation over the long term with that I'll turn the call back onto the operator and we'd be delighted to take your questions.

Thank you we would now like to open the phone lines for any questions. If you would like to ask a question. Please on mute your phone press star one and record your name slowly and clearly when prompted to withdraw. Your question. You May start you start to again Thats star one to ask a question.

Looks like our first question will come from Elyse Greenspan from Wells Fargo. Please go ahead.

Hi, Thanks. Good morning, My first question goes back to Christy's comment Eli.

<unk> mentioned, you know investing organically and inorganically over the coming year I'm, just trying to get a sense of the increase in expenses that you expect in 'twenty two and if you have a thought on how the margin expansion could trend relative to 200 basis point average you mentioned over the past decade.

Thanks, So much Elyse as we stated previously our goal is to grow margins each and every year, including in 2022, we expect 2022 margins to be driven by accelerating revenue growth portfolio mix shift to higher growth higher margin businesses and leverage from Aon business services, you've seen our track record as you mentioned are driving it.

100 basis points of margin expansion a year over the past decade with tell me, it's a little bar and somebody has a little less we did deliver above average margin expansion about 160 basis points in 2021 and there'll always be lumpiness from quarter to quarter, which we did see this year in terms of the timing of investment in discretionary expenses. So we're going to expand margins in 2020 two.

Absolutely and as we look to 'twenty 'twenty. Two we also expect investments in colleagues someone going resumption of TNA and investments in long term growth. So we expect to drive margin expansion net of investments over the course of the full year.

Okay. Thanks, and then on the capital side I know you guys bought back 2 billion, a pretty robust number in the fourth quarter. As you think about going forward. I know you guys don't provide guidance on buybacks, but is the right way to think about the potential level of capital return thinking.

Expectations for free cash flow as well as an incremental leverage that you guys could have as your EBITDA grows can you just help us.

Think about the capital firepower.

Would have in 'twenty, two and beyond.

Absolutely and look we we do expect double digit free cash flow growth for the foreseeable future. So we have a substantial cash flow generation capacity I'm ran a really strong capital position and so you're right at least the first starting point is expectations free cash flow, which are double digit over the long time and.

Incremental capacity so as EBITDA grows you should expect us to add debt keeping our leverage ratios in line without.

Current investment grade ratings and then what we would say is what we continue to follow a very disciplined return on capital approach to allocate that capital and you know you saw that with share buybacks remain the highest return on capital opportunity across Aon, three 5 billion repurchased in 2020 , one 2 billion in Q4, giving you a sense off.

How undervalued, we think the stock currently is.

In addition to investing in share buyback at least we have a substantial M&A pipeline and we expect to do M&A during 2022 in areas of high growth and high demand from clients.

We also expect to invest organically in all colleagues in politics in technology to scale innovation across across the globe and so we're really excited about the full billion of capital returned to shareholders in 'twenty 'twenty. One I'm also really pleased with the return on capital of 27, 4%.

In 2021, an increase of almost 800 basis points over the last 10 years.

Thanks for the color.

Our next question comes from Mike <unk>.

M ski from Wolfe Research. Please go ahead.

Hey, Good morning. This is Charlie on for Mike So and it's been ahead of the curve building collaborative workplaces via less real estate.

There's an expect to undergo any cost cutting measure is similar to some peers, who have announced four more expense savings initiatives.

Well, we'd start I think.

Our entire designer entire approach is really around as it always is a down round quite deliberate we're trying to accomplish supporting our colleagues to do that so we will first and foremost really optimize around that approach in that perspective, and we've done as you've described a number of innovative things and sort of reinforce that its actually worked exceptionally well on the client side and for our colleagues as well so you'll continue to see.

Let's do that the outgrowth on the expense side will be a little deep well make investments as Christa just described on our return on invested capital basis, and that's actually worked exceptionally well for us and where there's opportunities to create optimization, we'll do that when there's opportunities to invest to create a better outcome for our clients and colleagues will do that so that.

That's really how we've thought about it and it's worked exceptionally well for us, especially as the environments continue doable.

Okay, Great and then you noted in your slide deck that exposures and in pricing on the P&C side, where were modestly positive.

Can you talk to us about what you're seeing in terms of momentum there and whether you have an outlook on the P&C pricing environment for 'twenty two.

Go ahead Eric.

Sure Greg Thanks, listen I would say and I think I've said this on a couple of these calls the pricing environment really is just one factor you'll also have to look at exposure growth and alike and listen our role in this when we work with our clients is really about first how they do risk identification risk management. So there's a lot that they do it does.

Can go into the market.

And then ultimately they also find out right. So what can they do on their own balance sheets and how can they protect themselves.

Using their own resources, but when they get to a point, where they actually want to do risk transfer.

They have a number of tools out there there durability. They they look at retention as they look good coinsurance. They looked at deductibles. They look at terms and conditions. They look at limits all of these areas and we try and bring all of our insight our data and analytics to them to help them make those best choices and so when you see discussions around market rates.

It's different than what clients actually buy Joe there, it's not a direct line from the carriers, who may say, the market's going up the market's going down versus what they do for their own portfolio.

Okay. Thank you.

Yeah.

Next we'll go to Paul Newsome from Piper Sandler. Please go ahead.

Good morning, and thank you for the call everyone. That's in the quarter.

I was hoping you could give us a little bit more on the relationship between.

Organic growth and margin expansion over time.

Rule of thumb in the industry is going through.

We will pursue growth who most school cruise allows war or margin expansion, but there's been some folks who've been talking maybe but because of the pandemic that relationship as well.

Broken down and and wanted to see what your thoughts were on it.

Well, that's the top line a couple of things first what do you think overall.

About what we've said around organic we've continued to improve that profile shrink with that profile as we serve our clients, we believe more and more effectively over time against their demands which are changing and increasing are all the ways. We've described and you've seen us kind of low to mid single digit or greater.

See that opportunity, obviously achieved in 2020 , one do you see that opportunity in 2022 and beyond again, serving existing demand thats out there but also.

New demand new addressable markets in terms of what we're trying to accomplish and Duane I would just also observe and Christa described very well our perspectives on margin from original accomplish you know if you think about over the last 10 years, it's been under a variety of different growth environments. We've achieved margin expansion and fully expect to do that but Chris what would you add to that.

You know, Greg I would say there there's a number of areas, where we continue to drive growth and how we've built our strategy around trying to take advantage to bring that value to clients you've got what we do today, how do we connected globally, how do we make sure we're bringing new solutions within our existing business and then areas, where we find growth where we're actually connecting with.

Capabilities that we have across what had historically been business units, where you might free up you know insight that sits inside of our reinsurance business and bring it to corporate clients are how're you bring human capital capability to match with our directors and officers capability on the risk side. So how do you bring those new how're you bring existing capability.

Together in new ways to solve clients problems and then you've obviously got the net new growth that we're so focused on whether it's cyber where it's no longer just an insurance policy you need to bring risk mitigation risk identification new skills to be able to provide real value to clients certainly climate, how you drive better insight to gig.

To give our clients an opportunity to try and manage today the issues that they're facing with quite a bit while also investing in the future to provide new opportunities to help manage those risks. So theres. There are issues that are happening that would be had been considered horizon risks that are today on everybody's front doors, we said in the past, but also how we use our existing.

<unk> and new ways to drive better outcomes for our clients. So we see an opportunity for growth.

Certainly today into the future.

My second question that I'd like to ask you about the M&A environment.

Two.

It seems like we continue to hear lots of.

Comments, the private equities is interested in just about everything brokerage and there seems to be just an endless supply of knee robot companies I'm sure well probably back row of companies.

But it's hard not southern who knows that environment is getting a lot more competitive and valuations of horizon or if it's more of a stable view, what's your take on it couldn't buy them.

Hi, Paul one of the things we.

Two is we look at we stopped from client need and we then build out M&A pipelines around the highest growth highest margin harsh return on capital opportunities, which are really a lot, but the biggest area is quite neat whether that holds and associated benefits, whether that's delegated investment management, whether that state or analytics.

And so a lot of the areas that were actually focused in where actually you know at building relationships with companies well before they.

Go through a process and so we're not actually competing with others and so we're building relationships with companies in areas like cyber in areas like intellectual property and a lot of data analytic intensive businesses, which.

Really thrilled to be bringing that capability into a on a we expect to do a lot more of that in 2022 .

Terrific. Thank you very much girl to help I appreciate it.

Next we'll go to the line of your own Qunar from Jefferies. Please go ahead.

Good morning, and thanks for taking my question actually it's only one question that I have here if I look at the actual common shares outstanding I think you ended the year with 250 million just under another $2 million of dilutive equivalents and yet you called out at the beginning of.

Our first period or first quarter of 'twenty two.

Diluted share count of 224 million homes.

I could you maybe provide some color as to why that share count would be going up.

So we have actual shares outstanding in Q4, 2021 up to two one points fall.

And then we have.

A few dilator shafts, which get you to two to 3.7 is the estimated Q1 2022 diluted shares.

Okay, I suppose that's apples to oranges, okay, and and maybe could you just remind me.

The stock based compensation does that flow into adjusted EPS.

Yes of course, so you know when you issue shares you know you increased the share count related to stock based compensation and so if you think about the actual shares issued each year for the last couple of years, it's been going down substantially while the dollar amount of stock we issue it's been.

The things we've been very disciplined about the granting amounts were giving out but obviously the stock price increases that the diluted impact decreases so in 2020 one as an example, we issued one 7 million shares.

Thank you.

Next we'll go to the line of Jimmy Buhler from J P. Morgan. Please go ahead.

Yeah.

Hi, Good morning, So just I think there were a lot of questions about the just our concerns about the fallout from the Willis deal and based on your organic growth doesn't seem to be have to be impacted a lot, but if you could just talk about that and then.

Relatedly it seems like if I look at your expenses.

Comp and benefits line is the only one that's actually up from a couple of years ago. All the other ones are down so not sure if youre, having to pay a little bit more to retain talent.

Whether because of inflation or just because of the the the deal break them up.

Jimmy I appreciate the question.

Both of them will start with the first one and when.

When you consider when you think about our ability to maintain momentum over 'twenty two 'twenty three 'twenty four and really over time.

We're gonna find momentum by the way it used to be very specific as grow revenue improve margins and grow free cash flow double digits.

We believe the opportunity for Aon is very strong in fact unique at this point in time and we'd start I think Jimmy.

And to your question on sort of where are we where we're going and our future start with our current position and our financial performance you saw at 9% organic margin of 30 free cash flow double digits.

More important colleague engagement, 80% voluntary attrition by the way is below pre COVID-19 levels and in client need as Erik was describing is high and getting higher but it's also evolving.

And so you think about the streaming as you look.

And then one thing we have going into 2022 is exceptional and it really is on all these fronts financial performance colleagues and clients need but most important is you ask the question you get behind whats driving that and the actions that drove this performance are the exact same actions to build momentum and it really is.

The reasons, we performed now on why we're going to continue to perform a 'twenty two 'twenty three 'twenty four.

And it really builds on the decade of work on Aon, United and especially the continued refinement and amplification of about over the last six months and this is on the blueprint we've talked about before around Aon business services, what we're doing on innovation I never called delivering Aon, United very very.

Systematic around the globe and our people leadership really the operating model, we've got really matters a lot maybe you were asking about.

That our brand and talent all fit together and it really is an amplification of the strategy. We've had in the final point I'd say on this in terms of go forward as you think.

Goodbye client demand and all traditional areas, you know theyre, requiring more and more capability. Because this mix has approached the need they have requires a more integrated approach and well who would have known that aon United while compelling you know for the last 10 years become more compelling now in a post COVID-19 world and clients are really thinking about volatility more than ever before.

And finally, the colleague opportunity rear Pat in the context of this.

Is more exciting it's more it's more.

It is more compelling and you think about it we're going to make a difference in all these areas that matter for clients and that means it's a better career path, that's a greater opportunity for development and you know more wealth creation for them and that's why we would say look we are unfortunate we believe enhanced position to win now and in the future and we've got really strong momentum around it so whenever you got to.

Two questions there I just want to stay on the person, but Eric anything else you would add to that first piece around this where we're going.

Yeah, Greg I think you covered it really well I think the you know the client demand question, we talked about a few minutes ago, but as we work with the clients on their risk today and help plan around the rest of the future. It really is an opportunity for us to show the value of our operating model, but as we can bring the capabilities of our firm to acquire into.

But if they want to use it and provide the insight that looks at a risk holistically not just as an insurance risk not just as a talent risk.

But really pull all of it together at one point and you see that in our resilience work, that's being done out of our human capital and risk teams together, you see better reinsurance risk a couple of those different examples we've talked about but the operating model I think provides us with a competitive advantage that is different from what you see in the marketplace connecting globally by using our ability to talk to.

Clients segments with industry background really understanding their issues and then bringing that capability.

He can say it is absolutely critical to do it to be able to meet these needs in the future, but also having in Aon business services as the backbone of the firm, where we're able to leverage the data and analytics.

Being able to leverage our scale provide the level of service. The clients are looking for in a way that drives the efficiency that allows us to invest back in the talent that you need the new talent that you need to draw and do it for them to be able to handle issues like cyber like climate like resilience and those trucks. So we feel really good that the model that we've put in place.

Just give us an ability to meet those needs going forward.

And then on your comp and benefits question I think he said you know your expenses are going up we are absolutely investing in our colleagues we're investing in our current colleagues and talent development and wealth creation and in hiring great new talent serve unmet client needs and we're excited about being able to continue to do that.

2022.

As well as you know are continuing to invest in growth areas all across our business in the context of driving margin expansion for the full year.

Okay, and how do you think about inflation affecting your business, obviously to the extent the premiums go up that helps you but.

Are you seeing evidence of inflation as well, but if you just comment on the positive negative.

The pick up in inflation.

Yes, we do see wage inflation in our business. We saw that in Q3, we expect that to continue into 2022, but what we would say is while we continue to invest in our colleagues, which we think is terrific. We expect them to offset that with efficiencies driven by Aon business services.

At scale, I'd say that that that offsets and continued sort of efficiency that allows us to continue to drive margin expansion one of the other macro things I might add I'm, just while you're on inflation is interest rate. So if interest rates were to continue to rise that is a very positive job Ross and three.

<unk> fiduciary investment income increases every 100 basis points in short term interest rates. There is an increase of 60 million topline and bottomline for Aon.

The second is pension liability comes down.

Third what you may think of as a negative, but it's not interest expense and our entire debt portfolio has fixed our interest and fixed rate interest that has no impact on that side.

You know inflation are we do expect longer term it should be a positive profits in the short time that sort of a wage inflation impact for sure interest rates. It's positive on three fronts. So we do think the macro environment is very positive for our business.

Thank you.

And for our last question will go to the line of Adam Klauber from William Blair. Please go ahead.

Oh good morning. Thanks.

Hum.

Historically, you've been able to increase the margin and part.

I think you said you're focused on high growth higher margin businesses from a business mix perspective.

But also you divest historically low growth lower margin businesses. So on the second part of as we look at our 2022 2023.

There's still a fair amount of or growth or margin parts of the business that you could divest.

I mean, what we would say is we continue to manage the portfolio actively and continue to invest in high revenue growth high margin businesses. We are we will continue to divest lower revenue growth lower margin lower return on capital businesses. I think that's still all of them left in the portfolio. So you saw us do that.

With the you know the retiree health care exchange business are in AR in Q4, but there's also a huge opportunity with aon business services to to invest and improve the efficiency and therefore increase the margins, but the existing businesses to help them scale globally and much more efficient way of why isn't towards scale innovation and more and more.

All ways. So yes, we will continue to be an active manager of a portfolio that island and so that's probably a much bigger.

Leave if we're off in driving margin expansion going forward.

Okay got him here. This is also a very dynamic conversation you know every year every situation evolves over time, and it's led to a 40% margin, which we believe as Christa described very clearly with real real upside over time as we move through that but also you know if you'd call out return on invested capital. This process has led to 27.

Per cent and change our return on invested capital, which is really a phenomenal outcome in terms of sort of what it's been able to do is what served us well and businesses that you know there were no quote in the performing category two or three years ago, we have to continue to improve and we're looking for ways to do that so this is really not just about the static but about the dynamic and how it evolves over time and not the <unk>.

It's Chris and the team are set up has really served us well I think because there's probably like more like a return invested capital side, almost like 600 basis points over the last 10 years, surpassing even what we've done on margin.

Okay.

And then just one follow up on the health solutions business.

You did quite well this year.

From what I understand you know that business has been impact them send that business across the market has been impacted by it.

HR managers being very very busy during COVID-19 and that always having the time to be.

A more offensive do more discretionary projects are you seeing sort of that macro environment, beginning to turn her HR managers getting more engaged with them to do more for the work forces as we go into two into 2022.

And we really are the activity that's been it's been frenetic and just continues to increase and weather results in center revenue dollar revenue in the future the opportunity to work with people leaders and our clients around the World is just you know it is just exceptional and as you highlight the demand is tremendous not just for the sort of literally the here.

Right now and what you do day to day to support employees, but also we should think about resiliency all things work force and talent. So you know we love the space overall from a talent and a health standpoint, although it also ties into what's going on on the retirement side I don't think helping employees really be more effective as it is as leaders in humans in terms of what they.

Do everyday beyond just you know a specific benefit lines. So we're seeing we see tremendous opportunity on the outside everywhere around the world.

Not just in the U S and as Eric described before it connects with demand and other areas that touch employees like retirement and in all aspects of that.

Hey, Greg maybe one other comment I think the you know when we talk about our own colleagues I was the whole person, but it's not just the professional side, but certainly the well being side that absolutely is playing out right now with all of our clients. There's also a desire to understand on a global basis, what their benefit programs look like how you harmonize those.

And this global benefit strategy that corporations are doing really is designed to free up talent to be able to move talent across borders to meet opportunities and so that is a building part of what the human resource person is looking at and I think it also fits into the talent piece of trying to use their talent, where their best able to do.

To drive value for the company, but also for the individual for career opportunities as well.

Thank you very much.

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

Thanks, very much just want to say on behalf of Chris that Eric and I. Thank you very much for joining us this quarter and look forward to our discussion next time take care.

That concludes the Ana Plc's fourth quarter and full year 2021 conference call. Thank you for joining and have a great rest of your day.