Fourth Quarter Key Metrics From Continuing Operations and Highlights
- Total revenue increased 3% to $3.0 billion, including organic revenue growth of 2%
- Operating margin increased to 24.0%, and operating margin, adjusted for certain items, decreased 100 basis points to 26.9%
- EPS increased to $2.27, and EPS, adjusted for certain items, increased 4% to $2.62
- Repurchased 3.9 million Class A Ordinary Shares for approximately $800 million
- Announced the authorization of a new $5 billion share repurchase program
- Announced the expansion of its Apprenticeship program, designed to bridge the gap from education to employment, with an investment of $30 million over the next five years
Full Year Key Metrics From Continuing Operations and Highlights
- Total revenue was flat at $11.1 billion, including organic revenue growth of 1%
- Operating margin increased to 25.1%, and operating margin, adjusted for certain items, increased 100 basis points to 28.5%
- EPS increased to $8.45, and EPS, adjusted for certain items, increased 7% to $9.81
- Cash flows from operations increased 52% to $2,783 million and free cash flow increased 64% to $2,642 million
- Repurchased 8.5 million Class A Ordinary Shares for approximately $1.8 billion
Aon plc (NYSE: AON) today reported results for the three and twelve months ended December 31, 2020.
Net income from continuing operations attributable to Aon shareholders in the fourth quarter was $524 million, or $2.27 per share, compared to $374 million, or $1.58 per share, in the prior year period. Net income per share from continuing operations, adjusted for certain items, increased 4% to $2.62, including a favorable impact of $0.02 per share if the Company were to translate prior year period results at current period foreign exchange rates ("foreign currency translation"), compared to $2.53 in the prior year period. Certain items that impacted fourth quarter results and comparisons with the prior year period are detailed in "Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 10 of this press release.
"We delivered a strong finish to 2020, with 2% organic revenue growth and 4% EPS growth in the fourth quarter. For the full year, free cash flow increased by $1.0 billion to $2.6 billion, the highest in our firm's history, demonstrating the stability of our business and the efficiency of our Aon Business Services platform," said Greg Case, Chief Executive Officer. "Our team is incredibly proud of the tremendous resiliency demonstrated by our colleagues. Understanding the opportunity and the need in front of them, they responded by bringing the best of our firm to our clients and each other, allowing the firm to excel during a year filled with unprecedented challenges. We enter 2021 in a position of strength, with momentum for Aon and our pending combination with Willis Towers Watson."
FOURTH QUARTER 2020 FINANCIAL SUMMARY
The fourth quarter financial results discussed herein represent performance from continuing operations unless otherwise noted.
Total revenue in the fourth quarter increased 3% to $3.0 billion compared to the prior year period driven by 2% organic revenue growth and a 1% favorable impact from foreign currency translation.
Total operating expenses in the fourth quarter decreased 5% to $2.3 billion compared to the prior year period due primarily to a $170 million decrease in restructuring charges, expense discipline, including lower travel and entertainment expense, and a $51 million decrease from accelerated amortization related to certain tradenames that were fully amortized in the second quarter, partially offset by $44 million of transaction costs related to the pending combination with Willis Towers Watson, a $38 million unfavorable impact from foreign currency translation, a $19 million increase in expenses related to acquisitions, net of divestitures, an increase in expense associated with 2% organic revenue growth, and an increase in compensation and benefits expense.
Foreign currency exchange rates in the fourth quarter had a $2 million, or $0.01 per share, favorable impact on U.S. GAAP net income and a $4 million, or $0.02 per share, favorable impact on adjusted net income if the Company were to translate prior year quarter results at current quarter foreign exchange rates. The Company also incurred $8 million, or $0.03 per share, of net losses due to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies recorded in other expense. If currency were to remain stable at today's rates, the Company would expect a favorable impact of approximately $0.20 per share, or approximately $60 million increase in operating income, in the first quarter of 2021.
Effective tax rate used in the Company's U.S. GAAP financial statements for the fourth quarter was 14.7%, compared to 13.4% in the prior year period. After adjusting to exclude the applicable tax impact associated with certain non-GAAP adjustments, the adjusted effective tax rate for the fourth quarter decreased to 13.4% compared to 15.7% in the prior year period, primarily driven by changes in the geographical distribution of income and a net favorable impact from discrete items. The prior year period also included a net favorable impact from discrete items. These adjustments are discussed in "Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 10 of this press release.
Weighted average diluted shares outstanding decreased to 230.9 million in the fourth quarter compared to 237.0 million in the prior year period. The Company repurchased 3.9 million Class A Ordinary Shares for approximately $800 million in the fourth quarter. As of December 31, 2020, the Company had approximately $5.3 billion of remaining authorization under its share repurchase program, including $5.0 billion that was authorized during the fourth quarter.
FULL YEAR 2020 CASH FLOW SUMMARY
The full year 2020 cash flow summary provided below includes supplemental information related to free cash flow, which is a non-GAAP measure that is described in detail in "Reconciliation of Non-GAAP Measures - Organic Revenue Growth (Decline) and Free Cash Flow" on page 9 of this press release.
Cash flows from operations for 2020 increased 52%, or $948 million, to $2,783 million compared to the prior year primarily driven by working capital improvements, including improved collections and actions taken to proactively manage liquidity, a $288 million decrease in restructuring cash outlays, and strong operational improvement. The prior year included approximately $130 million of net cash payments related to legacy litigation.
Free cash flow for 2020, defined as cash flow from operations less capital expenditures, increased 64%, or $1,032 million, to $2,642 million compared to the prior year, reflecting an increase in cash flow from operations and a $84 million decrease in capital expenditures. The prior year included $75 million of capital expenditures related to the restructuring program.
FOURTH QUARTER 2020 REVENUE REVIEW
The fourth quarter revenue reviews provided below include supplemental information related to organic revenue, which is a non-GAAP measure that is described in detail in "Reconciliation of Non-GAAP Measures - Organic Revenue Growth (Decline) and Free Cash Flow" on page 9 of this press release.
