1st Quarter Results
Marsh & McLennan Co Inc
08 May 2007
News Release
Media Contact: Investor Contact:
Christine Walton Rich Myers Mike Bischoff
MMC Edelman for MMC MMC
212 345 0675 212 819 4807 212 345 5470
MMC REPORTS FIRST QUARTER 2007 RESULTS
Consolidated Revenues Increased 5 Percent to $2.8 Billion
Income from Continuing Operations Rose 14 Percent
$500 Million Share Repurchase Program Is Announced
NEW YORK, NEW YORK, May 8, 2007-Marsh & McLennan Companies, Inc. (MMC) today
reported financial results for the first quarter ended March 31, 2007.
Consolidated revenues in the first quarter were $2.8 billion, an increase of 5
percent from the first quarter of 2006, or 1 percent on an underlying basis.
Income from continuing operations rose 14 percent to $228 million, or $.41 per
share, from $200 million, or $.36 per share last year.
• Earnings per share was $.47 in the first quarter of 2007, including
discontinued operations representing Putnam's results.
• Noteworthy items, described in the attached supplemental schedules,
reduced earnings per share by $.05 in the first quarter of 2007.
'The first quarter demonstrated the strength of MMC as a diversified company,'
said Michael G. Cherkasky, president and chief executive officer of MMC. 'We met
our overall corporate performance expectations while we continued to position
Marsh for success in the future. The consulting segment continued to perform
very well, growing revenues 13 percent and operating income 22 percent on a
business with annual revenues approaching $4.5 billion. Kroll performed as
expected, with strong growth in its largest operation, technology-enabled
solutions. Guy Carpenter produced solid results, driven by continued strong new
business. Marsh made significant strides in executing the realignment of its
operations, repositioning the business for long-term growth. Change always has a
short-term cost, but we are confident we are making the right trade-offs in
Marsh. Also in the first quarter, we announced that Great-West Lifeco, a
subsidiary of Power Financial Corporation, agreed to purchase Putnam for $3.9
billion in cash. This transaction is expected to close in the second quarter. In
recognition of MMC's improving operating performance and greatly strengthened
financial position, MMC's Board of Directors has approved a $500 million share
repurchase program, which we expect to execute promptly.'
Risk and Insurance Services
Risk and insurance services revenues in the first quarter were $1.5 billion, an
increase of 1 percent from the first quarter of 2006, or a 2 percent decline on
an underlying basis.
Marsh's revenues were $1.1 billion, unchanged from the first quarter of 2006.
Geographically, Marsh revenues included $540 million in the Americas, a decline
of 5 percent from the prior year's quarter; $524 million in EMEA, an increase of
3 percent; and $78 million in Asia Pacific, an increase of 12 percent. New
business increased 7 percent in the first quarter, reflecting growth of 5
percent in the Americas, 8 percent in EMEA, and 17 percent in Asia Pacific.
Premium rate declines in the commercial insurance marketplace continued through
the first quarter. Underlying revenues declined 3 percent in the quarter,
primarily due to lower retention rates in the United States.
Guy Carpenter's revenues increased 4 percent in the first quarter to $292
million, driven by 11 percent growth in new business. These results were
achieved despite the decline in U.S. property catastrophe rates from the peak
levels seen in the mid-year 2006 renewal season and higher risk retention by
clients. Underlying revenues increased 2 percent in the quarter.
Risk Capital Holdings recognized revenues of $49 million in the first quarter,
compared with $46 million in the same period of 2006. Revenues in the quarter
were derived from MMC's private equity fund investments.
Risk Consulting and Technology
Kroll's revenues increased 1 percent in the first quarter to $235 million and
were flat on an underlying basis. The technology-enabled solutions business
increased revenues 14 percent to $132 million, due to continued strong
performance in background screening and growth in the electronic discovery
business. Kroll's consulting business saw revenues decline 12 percent to $103
million, reflecting the expected level of activity in corporate advisory and
restructuring.
Consulting
Consulting revenues increased 13 percent to $1.1 billion in the first quarter,
with 7 percent growth on an underlying basis.
Mercer Human Resource Consulting increased revenues 8 percent to $800 million in
the first quarter, with a 4 percent increase on an underlying basis. This growth
was achieved throughout Mercer HR's operations: retirement and investment
produced $319 million in revenues, an increase of 11 percent; health and
benefits, $183 million, the same level as last year; outsourcing, $176 million,
an increase of 13 percent; and talent, $99 million, an increase of 6 percent.
Mercer Specialty Consulting's revenues grew 25 percent to $329 million in the
first quarter, with a 15 percent increase on an underlying basis, continuing the
strong growth this group has achieved over the last four years. Each of the
Mercer Specialty companies contributed to this exceptional performance.
Discontinued Operations
Due to the agreement to sell Putnam, announced on February 1, 2007, Putnam's
results for both years are now reflected in discontinued operations. Results
from discontinued operations, net of tax, were $40 million, or $.06 per share,
in the first quarter of 2007, reflecting Putnam's results for the quarter,
compared with $.39 per share last year, primarily due to a $.32 gain from the
sale of Sedgwick Claims Management Services.
In the first quarter, Putnam had revenues of $356 million, an increase of 3
percent from the first quarter of 2006. Putnam's assets under management on
March 31, 2007 were $188 billion, comprising $119 billion in mutual fund assets
and $69 billion in institutional assets. Average assets under management were
$189 billion, compared with $190 billion for the first quarter of 2006.
MMC Share Repurchase
The MMC Board of Directors has approved a $500 million share repurchase program.
Other Items
MMC's net debt position, which is total debt less cash and cash equivalents, was
$3.5 billion at the end of the first quarter, compared with $3.8 billion at the
end of the 2006 first quarter. In the first quarter, MMC increased its quarterly
dividend by 12 percent, from $.17 to $.19.
Conference Call
A conference call to discuss first quarter 2007 results will be held today at
8:30 a.m. Eastern Time. To participate in the teleconference, please dial 800
390 5311 or 719 457 2086 (international). The access code for both numbers is
4680329. The audio webcast may be accessed at www.mmc.com. A replay of the
webcast will be available approximately two hours after the event at the same
web address.
MMC is a global professional services firm. It is the parent company of Marsh,
the world's leading risk and insurance services firm; Guy Carpenter, the world's
leading risk and reinsurance specialist; Kroll, the world's leading risk
consulting company; Mercer, a major global provider of human resource and
specialty consulting services; and Putnam Investments, one of the largest
investment management companies in the United States. More than 55,000 employees
provide analysis, advice, and transactional capabilities to clients in over 100
countries. Its stock (ticker symbol: MMC) is listed on the New York, Chicago,
and London stock exchanges. MMC's website address is www.mmc.com.
This press release contains 'forward-looking statements,' as defined in the
Private Securities Litigation Reform Act of 1995. These statements, which
express management's current views concerning future events or results, use
words like 'anticipate,' 'assume,' 'believe,' 'continue,' 'estimate,' 'expect,'
'intend,' 'plan,' 'project' and similar terms, and future or conditional tense
verbs like 'could,' 'should,' 'will' and 'would.' For example, we may use
forward-looking statements when addressing topics such as: the timing and
expected impact of acquisitions and dispositions; future actions by regulators;
the outcome of contingencies; changes in our business strategy; changes in our
business practices and methods of generating revenue; the development and
performance of our services and products; market and industry conditions,
including competitive and pricing trends; changes in the composition or level of
MMC's revenues; our cost structure and the outcome of restructuring and other
cost-saving initiatives; share repurchase programs; and MMC's cash flow and
liquidity.
Forward-looking statements are subject to inherent risks and uncertainties.
Factors that could cause actual results to differ materially from those
expressed or implied in our forward-looking statements include:
• the economic and reputational impact of litigation and regulatory
proceedings described in the notes to our financial statements;
• the fact that MMC's agreement to sell Putnam, announced on February 1,
2007, is subject to a number of closing conditions, some of which are outside
of MMC's control, and we cannot be certain that the transaction will close as
planned or that the announced sale price will not be adjusted pursuant to the
terms of the sale agreement;
• Putnam's performance between now and the closing of the announced sale
later in 2007, including the actual and relative investment performance of
Putnam's mutual funds and institutional and other advisory accounts, Putnam's
net fund flows and the level of Putnam's assets under management;
• our ability to effectively deploy MMC's proceeds from the sale of
Putnam, and the timing of our use of those proceeds;
• the fact that our estimate of the dilutive impact of the sale of Putnam
on MMC's future earnings per share is necessarily based on a set of current
management assumptions, including assumptions about MMC's use of sale proceeds
and the operating results of Putnam and MMC's other subsidiaries;
• our ability to achieve profitable revenue growth in our risk and insurance
services segment by providing both traditional insurance brokerage
services and additional risk advisory services;
• our ability to retain existing clients and attract new business, and our
ability to retain key employees;
• revenue fluctuations in risk and insurance services relating to the net
effect of new and lost business production and the timing of policy inception
dates;
• the impact on risk and insurance services commission revenues of changes
in the availability of, and the premiums insurance carriers charge for,
insurance and reinsurance products, including the impact on premium rates and
market capacity attributable to catastrophic events such as hurricanes;
• the impact on renewals in our risk and insurance services segment of
pricing trends in particular insurance markets, fluctuations in the general
level of economic activity and decisions by insureds with respect to the level
of risk they will self-insure;
• the impact on our consulting segment of pricing trends, utilization rates,
legislative changes affecting client demand, and the general economic
environment;
• our ability to implement our restructuring initiatives and otherwise reduce
or control expenses and achieve operating efficiencies, including our
ability to generate anticipated savings and operational improvements from the
actions we announced in September 2006;
• the impact of competition, including with respect to pricing and the
emergence of new competitors;
• fluctuations in the value of Risk Capital Holdings' investments;
• our ability to make strategic acquisitions and dispositions and to integrate,
and realize expected synergies, savings or strategic benefits from, the
businesses we acquire;
• our exposure to potential liabilities arising from errors and omissions
claims against us;
• our ability to meet our financing needs by generating cash from operations
and accessing external financing sources, including the potential impact of
rating agency actions on our cost of financing or ability to borrow;
• the impact on our operating results of foreign exchange fluctuations;
• changes in applicable tax or accounting requirements, including any
potential income statement effects from the application of FIN 48 ('Accounting
for Uncertainty in Income Taxes') and SFAS 142 ('Goodwill and Other Intangible
Assets'); and
• the impact of, and potential challenges in complying with, legislation
and regulation in the jurisdictions in which we operate, particularly given
the global scope of our businesses and the possibility of conflicting
regulatory requirements across the jurisdictions in which we do business.
The factors identified above are not exhaustive. MMC and its subsidiaries
operate in a dynamic business environment in which new risks may emerge
frequently. Accordingly, MMC cautions readers not to place undue reliance on
its forward-looking statements, which speak only as of the dates on which they
are made.
MMC undertakes no obligation to update or revise any forward-looking statement
to reflect events or circumstances arising after the date on which it is made.
Further information concerning MMC and its businesses, including information
about factors that could materially affect our results of operations and
financial condition, is contained in MMC's filings with the Securities and
Exchange Commission.
Marsh & McLennan Companies, Inc.
Consolidated Statements of Income
(In millions, except per share figures)
(Unaudited)
Three Months Ended
March 31,
2007 2006
Revenue:
Service Revenue $2,763 $2,623
Investment Income (Loss) 49 51
Total Revenue 2,812 2,674
Expense:
Compensation and Benefits 1,677 1,586
Other Operating Expenses 748 751
Total Expenses 2,425 2,337
Operating Income 387 337
Interest Income 19 15
Interest Expense (71) (78)
Income Before Income Taxes and Minority Interest Expense 335 274
Income Taxes 106 73
Minority Interest Expense, Net of Tax 1 1
Income from Continuing Operations 228 200
Discontinued Operations, Net of Tax 40 216
Net Income $268 $416
Basic Net Income Per Share - Continuing Operations $0.41 $0.37
- Net Income $0.49 $0.76
Diluted Net Income Per Share - Continuing Operations $0.41 $0.36
- Net Income $0.47 $0.75
Average Number of Shares Outstanding - Basic 553 547
- Diluted 562 555
Shares Outstanding at 3/31 555 549
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Three Months Ended
(Millions) (Unaudited)
Components of Revenue Change
Three Months Ended % Change Acquisitions/
March 31, GAAP Currency Dispositions Underlying
2007 2006 Revenue Impact Impact Revenue
Risk and Insurance Services
Insurance Services $1,142 $ 1,146 - 3% - (3)%
Reinsurance Services 292 281 4% 2% - 2%
Risk Capital Holdings 49 46 9% - - 9%
Total Risk and Insurance Services 1,483 1,473 1% 3% - (2)%
Risk Consulting & Technology 235 234 1% 3% (2)% -
Consulting
Human Resource Consulting 800 739 8% 4% - 4%
Specialty Consulting 329 262 25% 5% 5% 15%
Total Consulting 1,129 1,001 13% 4% 2% 7%
Total Operating Segments 2,847 2,708 5% 3% 1% 1%
Corporate Eliminations (35) (34)
Total Revenue $2,812 $2,674 5% 3% 1% 1%
Revenue Details
The following table provides more detailed revenue information for
certain of the components presented above and the remaining quarters of 2006.
Three Months Ended % Change 2006
March 31, GAAP Three Months Ended Twelve
2007 2006 Revenue June 30 Sept.30 Dec.31 Months
Insurance Services:
Americas $ 540 $ 568 (5)% $ 634 $ 594 $ 641 $2,437
EMEA 524 508 3% 378 329 390 1,605
Asia Pacific 78 70 12% 94 86 98 348
Total Insurance Services $1,142 $1,146 - $1,106 $1,009 $1,129 $4,390
Risk Consulting & Technology:
Technology $132 $116 14% $ 132 $ 129 $ 127 $ 504
Consulting 103 118 (12)% 133 110 114 475
Total Risk Consulting &
Technology $235 $234 1% $ 265 $ 239 $ 241 $ 979
Human Resource Consulting:
Retirement and Investment $319 $288 11% $ 282 $ 271 $ 292 $1,133
Health and Benefits 183 183 - 183 189 171 726
Outsourcing 176 156 13% 159 165 169 649
Talent 99 93 6% 107 115 111 426
Reimbursed Expenses 23 19 N/A 20 22 26 87
Total Human Resource
Consulting $800 $739 8% $ 751 $ 762 $769 $3,021
Notes
Underlying revenue measures the change in revenue, before the impact of
acquisitions and dispositions, using consistent currency exchange rates.
Interest income on fiduciary funds amounted to $48 million and $41 million for
the three months ended March 31, 2007 and 2006, respectively.
Revenue includes net investment income (loss) of $49 million and $50 million for
Risk and Insurance Services and $0 million and $1 million for Consulting for the
three months ended March 31, 2007 and 2006, respectively.
Risk Capital Holdings owns investments in private equity funds and insurance and
financial services firms.
Insurance Services revenue includes market service revenue of $2 million and $6
million for the three months ended March 31, 2007 and 2006, respectively.
Marsh & McLennan Companies, Inc.
Supplemental Information
(Millions) (Unaudited)
Three Months Ended
March 31,
2007 2006
Revenue:
Risk and Insurance Services $1,483 $1,473
Risk Consulting & Technology 235 234
Consulting 1,129 1,001
2,847 2,708
Corporate Eliminations (35) (34)
$2,812 $2,674
Operating Income (Loss):
Risk and Insurance Services $ 259 $ 268
Risk Consulting & Technology 26 24
Consulting 138 113
Corporate (36) (68)
$ 387 $ 337
Segment Operating Margins:
Risk and Insurance Services 17.5% 18.2%
Risk Consulting & Technology 11.1% 10.3%
Consulting 12.2% 11.3%
Consolidated Operating Margin 13.8% 12.6%
Pretax Margin 11.9% 10.2%
Effective Tax Rate 31.6% 26.6%
Potential Minority Interest Associated with the Putnam
Equity Partnership Plan $ 2 $ 2
Marsh & McLennan Companies, Inc.
Supplemental Information- Continuing Operations
(Millions) (Unaudited)
Significant Items Impacting the Comparability of Financial Results:
The year-over-year comparability of MMC's first quarter financial results is
affected by a number of noteworthy items. The following table identifies the
impact of noteworthy items on segment and consolidated operating income for the
periods indicated.
Risk & Risk
Insurance Consulting & Corporate &
Services Technology Consulting Eliminations Total
Three Months Ended March 31, 2007
Restructuring Charges (a) $ 24 $ - $ - $ 6 $ 30
Accelerated Amortization/Depreciation 5 - 3 3 11
Settlement, Legal and Regulatory (b) 11 - - - 11
Other (c) - - - (14) (14)
Total Impact in 2007 $ 40 $ - $ 3 $ (5) $ 38
Three Months Ended March 31, 2006
Restructuring Charges (a) $ 19 $ - $ - $ 26 $ 45
Accelerated Amortization/Depreciation 5 - - - 5
Settlement, Legal and Regulatory (b) 10 - - - 10
Total Impact in 2006 $ 34 $ - $ - $ 26 $ 60
Notes:
(a) Primarily includes severance and related charges, costs for future rent and
other real estate costs, and consulting costs related to previously announced
cost reduction initiatives (see Form 8-K dated September 20, 2006 for more
information).
(b) Reflects legal fees arising out of the civil complaint relating to market
service agreements and other issues filed against MMC and Marsh by the New York
State Attorney General in October 2004 and settled in January 2005, and
indemnification of former employees for legal fees they have incurred in
connection with the events of October 2004.
(c) Represents an accrual adjustment related to the separation of former MMC
senior executives.
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets
(Millions) (Unaudited)
March 31, December 31,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $ 1,203 $ 2,015
Net receivables 2,904 2,718
Assets of discontinued operations 1,579 1,921
Other current assets 318 322
Total current assets 6,004 6,976
Goodwill and intangible assets 7,593 7,595
Fixed assets, net 979 990
Long-term investments 144 124
Pension related asset 647 613
Other assets 1,861 1,839
TOTAL ASSETS $17,228 $18,137
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 1,045 $ 1,111
Accounts payable and accrued liabilities 2,483 2,476
Regulatory settlements-current portion 178 178
Accrued compensation and employee benefits 663 1,230
Liabilities of discontinued operations 393 792
Accrued income taxes 20 131
Dividends payable 106 -
Total current liabilities 4,888 5,918
Fiduciary liabilities 4,126 3,587
Less - cash and investments held in a fiduciary capacity (4,126) (3,587)
- -
Long-term debt 3,609 3,860
Regulatory settlements 174 173
Pension, postretirement and postemployment benefits 1,082 1,085
Liabilities for errors and omissions 636 624
Other liabilities 891 658
Total stockholders' equity 5,948 5,819
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,228 $18,137
Marsh & McLennan Companies, Inc.
Supplemental Information - Discontinued Operations
(Millions) (Unaudited)
On January 31, 2007, MMC entered into a stock purchase agreement with Great-West
Lifeco ('GWL'), a majority-owned subsidiary of Power Financial Corporation,
pursuant to which GWL agreed to purchase Putnam Investments Trust. MMC expects
the sale of Putnam to close in the second quarter of 2007. Putnam's results of
operations for the three-month periods ended March 31, 2007 and 2006 were
segregated and reported as discontinued operations in the accompanying
consolidated statements of income.
In 2006, MMC sold its majority interest in Sedgwick Claims Management, a
provider of claims management and associated productivity services; Price
Forbes, its U.K.-based insurance wholesale operation; and Kroll Security
International, its international high-risk asset and personal protection
business. The gains or losses on these disposals, as well as their results of
operations, are reported as discontinued operations in the accompanying
consolidated statements of income.
Summarized Statements of Income data for discontinued operations is as follows:
Three Months Ended
March 31,
2007 2006
Putnam:
Revenue $356 $345
Expense 281 281
Net Operating Income 75 64
Minority interest and other discontinued operations (1) -
Provision for income tax 34 24
Income from discontinued operations, net of tax 40 40
Gain on disposal of discontinued operations - 306
Provision for income tax - 130
Gain on disposal of discontinued operations, net of tax - 176
Discontinued operations, net of tax $40 $216
Marsh & McLennan Companies, Inc.
Reclassification of Discontinued Operations
(Millions) (Unaudited)
The following table provides reclassified prior period reported amounts to
reflect discontinued operations classification for Investment Management:
Three Months Ended
2006 March 31, June 30, Sept. 30, Dec. 31, Full Year
Segment Revenue as Reported $ 3,053 $ 3,000 $ 2,915 $ 3,084 $12,052
Less: Putnam (345) (339) (342) (359) (1,385)
Corporate Eliminations (34) (27) (41) (18) (120)
Total Revenue $ 2,674 $ 2,634 $ 2,532 $ 2,707 $10,547
2006
Operating Income (Loss):
Risk and Insurance Services $ 268 $ 139 $ 143 $ 127 $ 677
Risk Consulting & Technology 24 42 38 45 149
Consulting 113 124 112 117 466
Corporate (68) (42) (49) 22 (137)
337 263 244 311 1,155
Interest Income 15 12 15 18 60
Interest Expense (78) (78) (75) (72) (303)
Income Before Income Taxes and
Minority Interest, Net of Tax 274 197 184 257 912
Income Taxes 73 64 48 87 272
Minority Interest Expense, Net of Tax 1 2 3 2 8
Income from Continuing Operations 200 131 133 168 632
Discontinued Operations, Net of Tax 216 41 43 58 358
Net Income $ 416 $ 172 $ 176 $ 226 $ 990
Basic Income Per Share -
Continuing Operations $ 0.37 $ 0.24 $ 0.24 $ 0.31 $ 1.15
Diluted Income Per Share -
Continuing Operations $ 0.36 $ 0.24 $ 0.24 $ 0.30 $ 1.14
Marsh & McLennan Companies, Inc.
Supplemental Information - Putnam Assets Under Management
(Billions) (Unaudited)
March 31, Dec. 31, Sept.30, June 30, March 31,
2007 2006 2006 2006 2006
Mutual Funds:
Growth Equity $ 24 $ 26 $ 26 $ 27 $ 31
Value Equity 36 37 36 36 37
Blend Equity 29 28 26 26 27
Fixed Income 30 33 30 30 31
Total Mutual Fund Assets 119 124 118 119 126
Institutional:
Equity 36 36 34 32 34
Fixed Income 33 32 30 29 29
Total Institutional Assets 69 68 64 61 63
Total Ending Assets $188 $192 $182 $180 $189
The asset information above includes the following:
Assets from Non-US Investors $ 38 $ 36 $ 34 $ 31 $ 32
Assets in Prime Money Market Funds $ 1.6 $ 4.3 $ 0.5 $ 0.6 $ 0.2
Average Assets Under Management:
Quarter $189 $189 $179 $185 $190
Year-to-Date $189 $186 $185 $188 $190
Net Flows including Dividends Reinvested:
Quarter $(6.0) $ (0.1) $ (3.1) $ (6.0)* $ (6.6)
Year-to-Date $(6.0) $ (15.8) $(15.7) $(12.6) $ (6.6)
Impact of Market/Performance on Ending
Assets Under Management $ 1.8 $ 9.9 $ 5.5 $ (3.5) $ 7.0
* Net redemptions in the quarter ended June 30, 2006 includes $2.8 billion of
redemptions in institutional equity resulting from ending Putnam's alliance with
an Australian partner.
Categories of mutual fund assets reflect style designations aligned with
Putnam's various prospectuses. All quarter-end assets conform with the current
investment mandate for each product.
This information is provided by RNS
The company news service from the London Stock Exchange
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