Aon plc · Aon plc Second Quarter 2019 Results July 26, 2019. 1 Greg Case Chief Executive Officer...

Aon plc

Second Quarter 2019 Results

July 26, 2019

1

Greg Case

Chief Executive Officer

Christa Davies

Chief Financial Officer

Michael O’Connor

Co-President

Eric Andersen

Co-President

2

Safe Harbor Statement

This communication contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are

forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks

and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. These forward-looking

statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts that address

activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, future capital expenditures, growth in

commissions and fees, changes to the composition or level of our revenues, cash flow and liquidity, expected tax rates, business strategies, competitive strengths,

goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes, are forward-looking statements. Also, when we

use the words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “probably”, “potential”, “looking forward”, or similar expressions, we are making

forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward looking statements: general economic and political conditions

in different countries in which Aon does business around the world, including the U.K.’s expected withdrawal from the European Union; changes in the competitive

environment; fluctuations in exchange and interest rates that could influence revenue and expense; changes in global equity and fixed income markets that could affect

the return on invested assets; changes in the funding status of Aon's various defined benefit pension plans and the impact of any increased pension funding resulting

from those changes; the level of Aon’s debt limiting financial flexibility or increasing borrowing costs; rating agency actions that could affect Aon's ability to borrow

funds; volatility in our tax rate due to a variety of different factors, including U.S. tax reform; changes in estimates or assumptions on our financial statements; limits on

Aon’s subsidiaries to make dividend and other payments to Aon; the impact of lawsuits and other contingent liabilities and loss contingencies arising from errors and

omissions and other claims against Aon; the impact of, and potential challenges in complying with, legislation and regulation in the jurisdictions in which Aon operates,

particularly given the global scope of Aon’s businesses and the possibility of conflicting regulatory requirements across jurisdictions in which Aon does business; the

impact of any investigations brought by regulatory authorities in the U.S., U.K. and other countries; the impact of any inquiries relating to compliance with the U.S.

Foreign Corrupt Practices Act and non-U.S. anti-corruption laws and with U.S. and non-U.S. trade sanctions regimes; failure to protect intellectual property rights or

allegations that we infringe on the intellectual property rights of others; the effects of English law on our operating flexibility and the enforcement of judgments against

Aon; the failure to retain and attract qualified personnel; international risks associated with Aon’s global operations; the effect of natural or man-made disasters; the

potential of a system or network breach or disruption resulting in operational interruption or improper disclosure of personal data; Aon’s ability to develop and implement

new technology; the damage to our reputation among clients, markets or third parties; the actions taken by third parties that perform aspects of our business operations

and client services; the extent to which Aon manages certain risks created in connection with the various services, including fiduciary and investments and other

advisory services and business process outsourcing services, among others, that Aon currently provides, or will provide in the future, to clients; Aon’s ability to

continue, and the costs and the costs and risks associated with, growing, developing and integrating companies that it acquires or new lines of business; changes in

commercial property and casualty markets, commercial premium rates or methods of compensation; changes in the health care system or our relationships with

insurance carriers; Aon’s ability to implement initiatives intended to yield cost savings, and the ability to achieve those cost savings; risks and uncertainties in

connection with the sale of our divested business; and our ability to realize the expected benefits from our restructuring plan.

Any or all of Aon’s forward-looking statements may turn out to be inaccurate, and there are no guarantees about Aon’s performance. The factors identified above are

not exhaustive. Aon and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Further information concerning Aon

and its businesses, including factors that potentially could materially affect Aon’s financial results, is contained in Aon’s filings with the SEC. See Aon’s Annual Report

on Form 10-K for the year ended December 31, 2018 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019 for a further

discussion of these and other risks and uncertainties applicable to Aon’s businesses. These factors may be revised or supplemented in subsequent reports. Aon is

under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statement that it may make from time to time, whether as a result of

new information, future events or otherwise.

3

2019 GAAP Financials From Continuing Operations

Explanation of Non-GAAP Measures

This communication includes supplemental information related to organic revenue growth, free cash flow, adjusted operating margin, and adjusted earnings per

share for continuing operations that exclude the effects of intangible asset amortization, restructuring, capital expenditures, and certain other noteworthy items that

affected results for the comparable periods. Organic revenue growth includes the impact of intercompany activity and excludes foreign exchange rate changes,

acquisitions, divestitures, transfers between revenue lines, fiduciary investment income, and gains or losses on derivatives accounted for as hedges. The impact of

foreign exchange is determined by translating last year’s revenue, expense or net income at this year’s foreign exchange rates. Reconciliations to the closest U.S.

GAAP measure for each non-GAAP measure presented in this press release are provided in the attached appendices. Supplemental organic revenue growth

information and additional measures that exclude the effects of certain items noted above do not affect net income or any other U.S. GAAP reported

amounts. Free cash flow is cash flow from operating activity less capital expenditures. The effective tax rate, as adjusted, excludes the applicable tax impact

associated with expenses for estimated intangible asset amortization, restructuring, and certain other noteworthy items. Management believes that these

measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors. They should be viewed in

addition to, not in lieu of, the Company’s Consolidated Financial Statements. Industry peers provide similar supplemental information regarding their performance,

although they may not make identical adjustments.

Q2’19 YTD’19

Total Revenue 2% 2%

Operating Margin 15.8% 22.4%

Earnings Per Share $1.14 $3.85

Cash Flow from

Operations$361M

4

Table of Contents

Page(s)

Leading Global Professional Services Firm Enabled by Data & Analytics 5

Client Challenges are Increasing, Demanding Better Insight & Solutions 6

The Power of Aon United at Scale 7

Example of Aon United Innovation in Response to Broad Client Need 8

Example of Aon United Analytics Driving Better Business Performance 9

Management Summary

Delivering Strong Operational Performance While Investing in Growth 11

Aon United Delivering Long-Term Momentum 12

Quarterly & Full Year (FY) Performance

Performance Across Key Metrics: Q2 / YTD 14

Organic Revenue Overall Performance: Q2 / YTD 15

Organic Revenue Solution Line Summary: Q2 16

Operating Income & Margin Performance: Q2 / YTD 17

Earnings Per Share (EPS) Performance: Q2 / YTD 18

Non-Operating Segment Financials: Q2 19

Delivering Long-Term Growth

Organic Growth: Investing in Innovation and Differentiated Capabilities 21

Inorganic Growth: Investing in High-Growth, High-Margin Client Needs 22

Shift to Single Operating Model Enables Growth and Productivity 23

Restructuring Program Creating Anticipated Savings Opportunities 24

Acceleration of Free Cash Flow (FCF)

Financial Flexibility and Cash Generation Set Stage for Further Growth 26

Declining Uses of Cash Will Substantially Increase Capital Flexibility 27

Positioned for Long-Term Value Creation (ROIC + Free Cash Flow) 28

Appendices 29 - 41

5

Leading Global Professional Services Firm Enabled by Data & Analytics

Aon is the leading global professional services firm providing

advice and solutions in Risk, Retirement and Health at a

time when those topics have never been more important to

the global economy. Aon develops insights—driven by data

and delivered by experts—that reduce the volatility our

clients face and help them maximize their performance

$125Brisk premium

placed annually

120countries in

which Aon

operates

50kAon colleagues

around the

world

ENABLED BY

DATA & ANALYTICS

RISK RETIREMENT HEALTH

$3.1Tin assets under

advisement1

$180Bof healthcare premium

directed annually

Aon provides risk advisory, commercial

risk and reinsurance solutions to help

clients better identify, quantify and

manage their risk exposure

Aon provides actuarial, investment and

bundled retirement solutions to help clients

design and implement secure, equitable

and sustainable retirement programs

Aon provides consulting, global benefits

and exchange solutions to help clients

mitigate rising health care costs and

improve employee health and well-being

Aon combines proprietary data,

technology, and advisory services to

develop insights that help clients reduce

volatility and improve performance

1 As of 6/30/2018, includes non-discretionary assets advised by AHIC and its global affiliates which includes retainer clients and clients in which AHIC and its

global affiliates have performed project services for over the past 12 months. Project clients may not currently engage AHIC at the time of the calculation of

assets under advisement as the project may have concluded earlier during preceding 12-month period.

6

Client Challenges are Increasing, Demanding Better Insight & Solutions

▪ In today’s evolving world, nearly every organization, industry and

economy is confronting more challenges than ever before, while

at the same time most organizations report the view that they are

less prepared than ever before

▪ Aon’s global survey revealed the top 15 challenges reported by

clients; most are underserved today due to less historical

experience and data available to predict, measure or manage these

challenges

▪ As a result, risk readiness has declined to its lowest level in 12

years, and more concerning is that these challenges are very likely

to grow in intensity over the next few years

▪ At Aon, we are focused on bringing the full force of our firm to

our clients by developing innovative solutions and applying data &

analytics to better inform and prepare them for the future

▪ The steps we have taken around Aon United, combined with

significant investment in content and capability, all reinforce and

amplify our ability to increase relevance with clients

▪ Helping a client improve operational performance, reduce

volatility or strengthen their capital position is at the core of our

mission

Insights from +2,600 clients, across 33

industries, from 60 countries

Current Top 15 Challenges in 2019

Economic slowdown / slow recovery

Damage to reputation / brand

Accelerated rates of changes in market factors

Business interruption

Increasing competition

Cyber attacks / data breach

Commodity price risk

Cash flow / liquidity risk

Failure to innovate / meet customer needs

Regulatory / legislative change

Failure to attract or retain top talent

Distribution or supply chain failure

Capital availability / credit risk

Disruptive technologies

Political risk / uncertainties

7

Delivering Client Value & Benefiting from Leading Aon United at Scale

Continue to take steps that make it easier to bring the best of Aon to

clients and help us deliver on the growth potential of our firm

▪ Leadership: established co-presidents overseeing global Aon Operating

Committee, which reinforces movement to a single P&L; encourages Aon

United decisions that accelerate growth by bringing the best of the firm

to clients

▪ Single Brand: retired remaining business unit brands

(Aon Risk Solutions and Aon Benfield), following similar steps

with Aon Hewitt in 2017. 50,000 colleagues going to market as Aon to

reinforce our priority to address client need with innovation and

distinctive solutions

▪ Innovation: created leadership capacity to develop new

Data & Analytics offerings and further integrate existing offerings, all designed

to reinforce innovation agenda and increase long-term growth

▪ Client Value: formed New Ventures Group comprised of senior leaders from

across the firm that have increasingly committed their time to identifying new

sources of client value through the delivery of internal capabilities at

scale. In 2019, the group has begun scaling opportunities with Intellectual

Property Solutions and also the launch of its global Public Sector Partnership,

which focuses on governments and leading social sector institutions as clients

Portfolio of Solutions

Commercial

Risk

Solutions

Reinsurance

Solutions

Retirement

Solutions

Health

Solutions

Data &

Analytic

Services

8

Example: Cloud-Based Machine Learning Optimizes Client Benefit Plans

Client

Issue

Client

Outcome

Collaborating across solution lines in combination with the IT capability of our Aon Business

Services organization, drove the development of a data-driven, cloud-based tool called Aon

Architect to help clients design optimal health benefit packages that thoughtfully balance

employer financial objectives and employee satisfaction.

Companies of all sizes and across a multitude of industries are faced with the common challenge of

managing their ever-increasing health care costs while not impacting their ability to attract and retain

key talent.

In an Aon United effort between actuaries, data scientists, user design experts, software developers, and

subject matter experts in the business, an innovative cloud-based tool that uses machine learning science

was built to address this client need. Aon Architect is a customizable, interactive model that identifies the

most cost-effective and attractive combinations across thousands of different benefit program options

based on an employers’ actual population demographics and Aon’s proprietary employee perception data.

Aon Architect launched in 2018 and has already been introduced to over 100 clients so far in 2019.

Clients are now better able to explore plan design and pricing options to then identify the optimal

intersection of significant savings while also improving employee experience and satisfaction.

9

Client Example: Predictive Analytics Reduce Operational Volatility

Client

Issue

Client

Outcome

Pairing capability from our Human Capital business with industry-leading data and analytics

resulted in the ability to identify behavioral risk factors of truck drivers and design a predictive

model to improve hiring at a logistics company facing high losses from driver accidents. The

predictive analytics created a more efficient selection process for the client to hire safer

drivers.

An international logistics company operating a fleet of trucks had an insurance claim on every vehicle

they operated in 2018, contributing to £1.9 million of retained losses in 2018 alone. The client had

incurred £6.1 million of total expense related to accidents over the last four years.

Utilizing sophisticated online assessment tools, the Aon United team was able to identify the

behavioral risk factors in the existing group of truck drivers and then apply predictive analytics to

design a new selection process that enabled the client to identify applicants that were less likely to

produce accidents.

Improved our client’s ability to hire more efficient drivers which ultimately led to both improved

profitability and reduced volatility; reflected in drivers that produced 60% less accidents per hour of

driving, a 30% reduction in the number of insurance-related events, and a £570,000 reduction in

retained losses.

10

Management Summary

11

Delivering Strong Operational Performance While Investing in Growth

Strong Quarterly Performance Against Key Metrics1

▪ Organic Revenue growth of +6%, reflecting the fourth consecutive quarter of 6% growth and a continuation of the

historical trend of accelerating organic revenue growth

▪ Operating Margin expansion of +240 basis points and operating income growth of +13%; primarily reflecting

strong organic revenue growth, increased operating leverage and savings from restructuring initiatives, partially offset by

incremental reinvestment of savings in long-term growth

▪ Earnings per Share (EPS) growth of +9%; primarily reflecting strong organic revenue growth, operational strength,

and effective capital management, as highlighted by $1.05B of share repurchase in the quarter. Results were partially

offset by a higher effective tax rate and an unfavorable impact from FX translation

▪ Free Cash Flow (FCF) of $255M year-to-date; strong operational improvement and a $26 million decrease in

restructuring cash outlays was more than offset by approximately $85 million of net cash payments made in the first

quarter related to legacy litigation

Investing in Client Innovation and Increased Operating Leverage to Enable Acceleration of Long-Term Growth

▪ Organic Growth Investments: We are disproportionally investing in high-growth areas of client need across our

portfolio and in creating more innovative and differentiated client solutions backed by our Aon United efforts

▪ Inorganic Growth Investments: Following the acquisition of 601West, we announced our first commitment to develop

our innovation portfolio with Intellectual Property Solutions

▪ Productivity Improvements: We are driving greater operating leverage with investments in a single operating model

and our Aon Business Services (ABS) organization; improving the effectiveness of our operations and enabling

increased insight, connectivity, and scalability

1 Reflects performance from continuing operations. The results presented on this page are non-GAAP measures that are reconciled to their corresponding U.S.

GAAP measures in the Appendices of this presentation.

12

Aon United Efforts Delivering Long-Term Momentum1



Driving Towards Mid-Single Digit Organic Revenue Growth or Greater Over the Long-Term

▪ Driven by three areas: continued improvement and market share gains in core businesses, portfolio mix shift

towards faster growing areas of client demand and data & analytic driven solutions, and new opportunities under Aon United growth initiatives

Expected Long-Term Operating Margin Expansion Beyond Near-Term Restructuring Savings Initiatives

▪ Driven by three areas: accelerating top-line growth, portfolio mix-shift to higher contribution margin businesses, and

increased operating leverage from on-going productivity improvements resulting from the Aon United operating model

and our Aon Business Services organization

Expect to Deliver Double-Digit Free Cash Flow Growth Over the Long-Term

▪ Driven by three areas: operating income improvement, continued progress on working capital initiatives, and

declining required uses of cash for pension, restructuring initiatives, and capital expenditures that are expected to

free up over $585 million of discretionary cash by the end of 2020

▪ Additional opportunity for increased debt driven by improvement in operational performance, restructuring

charges winding down and improvement in the funded status of our pension liability

Disciplined Capital Management Approach based on Return on Invested Capital (ROIC)

▪ All capital allocation decisions based on ROIC, noting share repurchase continues to be our highest return

opportunity currently based on our strong free cash flow generation outlook, highlighted by $1.15 billion of share

repurchase through the first half of 2019

▪ Significant financial flexibility to deploy capital driven by strong free cash flow generation and opportunity for

increased debt

Translating into a Significant Shareholder Value Creation Opportunity

▪ We believe double-digit free cash flow growth combined with an expected reduction in total shares outstanding

represents a significant long-term shareholder value creation opportunity

13

Quarterly Performance

14

Key Metrics1 – Translating Revenue Growth into Operational Improvement



Q2’18 Q2’19 YTD’18 YTD’19

Organic Revenue +5% +6% +4% +6%

Operating Margin 22.0% 24.4% 27.4% 29.5%

Year-over-Year +240 bps +210 bps

Earnings Per Share $1.71 $1.87 $4.69 $5.19

Year-over-Year +9% +11%

Free Cash Flow $302M $255M

Year-over-Year -16%

15

Organic Revenue1 – Accelerating Growth YTD Across the Portfolio

1 Reflects performance from continuing operations. Organic revenue is a non-GAAP measure that is reconciled to its corresponding U.S. GAAP measure in

Appendix A of this presentation.

▪ Organic revenue growth of 6% overall in the second quarter, primarily driven by strong new business generation

and management of the renewal book globally across our core portfolio

▪ Organic revenue growth of 6% reflects the fourth consecutive quarter of 6% organic growth, reflecting consistent

improvement in both portfolio mix and return on investment in high-growth areas of client demand

▪ Year-to-date organic revenue growth has accelerated in four of the five solution lines

▪ Reported revenue increased 2% in the second quarter, including a 3% unfavorable impact from FX translation

Q2’18 Q2’19 YTD’18 YTD’19

Commercial Risk Solutions +6% +6% +5% +6%

Reinsurance Solutions +8% +12% +6% +10%

Retirement Solutions +3% +1% +1% +1%

Health Solutions +7% +6% +2% +5%

Data & Analytic Services -4% +4% -1% +4%

Total Aon +5% +6% +4% +6%

16

Quarterly Summary of Organic Revenue Growth1 Across Solutions Lines



Commercial Risk Solutions

▪ Organic revenue growth of +6% reflects solid growth globally, including particular strength in the U.S., driven by strong new business

generation, retention and management of the renewal book portfolio

▪ Results in the U.S. reflect a strong performance in both property & casualty and strong growth in transaction liability, an area of on-going

investment to support increasing client demand

▪ We also saw solid growth internationally across EMEA and the Asia Pacific region

▪ On average globally, exposures and pricing were both modestly positive; resulting in a modestly positive market impact overall

Reinsurance Solutions

▪ Organic revenue growth of +12% was primarily driven by strong net new business generation globally in treaty, as well as strong growth

globally in facultative placements and capital markets

▪ Market impact was modestly positive on results in the second quarter, both in the U.S. and internationally

▪ The majority of revenue in our treaty portfolio is recurring in nature and is recorded in connection with the major renewal periods that take

place throughout the first half of the year, while the second half of the year is largely driven by facultative placements and capital markets

that are more transactional in nature

Retirement Solutions

▪ Organic revenue growth of +1% reflects solid growth in delegated investment management and in our rewards and assessment

businesses within the Human Capital practice

▪ Organic revenue growth is expected to improve in the second half of the year, as performance in the current quarter was offset by an

unfavorable impact from certain businesses that were divested in the quarter, as well as the timing of certain revenue in the actuarial

business and from performance fees in the delegated investment management business

Health Solutions

▪ Organic revenue growth of +6% reflects solid growth globally in health and benefits brokerage, highlighted by particular strength

internationally in Asia and continental Europe, as well as growth in the active healthcare exchange business for off-cycle enrollments

Data & Analytic Services

▪ Organic revenue growth of +4% primarily reflects growth globally across our Affinity business, with particular strength across both

business and consumer solutions in the U.S.

17

Operating Margin1 – Improvement Reflects Increased Operating Leverage

1 Reflects performance from continuing operations. Operating income and operating margin are non-GAAP measures that are reconciled to their corresponding

U.S. GAAP measures in Appendix B of this presentation.

22.0%

27.4%

24.4%

29.5%

Q2 YTD

$564

$1,547

$637

$1,697

Q2 YTD

Operating Income ($ millions)

Operating Margin (%)

Q2 Commentary:

▪ Organic revenue growth of +6%, including strong

growth in areas of continued investment

▪ Incremental restructuring savings contributed $38

million, or +150 basis points, to operating

performance, before any potential reinvestment

▪ Foreign exchange translation had a -$14 million

unfavorable impact on operating income

YTD Commentary:

▪ Incremental restructuring savings contributed $83

million, or +140 basis points, to operating

performance, before any potential reinvestment

▪ Foreign exchange translation had a -$53 million

unfavorable impact on operating income

Operating results in both periods include the

absorption of near-term reinvestment of savings

in client-facing colleagues and capabilities to

support long-term growth initiatives

18

EPS1 – Continued Progress Despite Unfavorable FX Translation

1 EPS from continuing operations is a non-GAAP measure that is reconciled to its corresponding U.S. GAAP measure in Appendix B of this presentation.

▪ Earnings growth in both periods reflects strong organic revenue growth, significant operational improvement and

effective capital management, partially offset by a higher effective tax rate and unfavorable FX translation

▪ Foreign exchange translation had a -$0.05 per share unfavorable impact in the second quarter and an -$0.18 per

share unfavorable impact year-to-date

o If currency were to remain stable at today’s rates, we would expect an unfavorable impact of approximately

-$0.02 per share (approximately -$6 million operating income) in each of the third and fourth quarters

▪ Results also include $5 million of additional interest expense resulting from the $750 million of 3.75% Senior Notes

issued on May 2, 2019

▪ Repurchased 5.8 million ordinary shares for approximately $1.05 billion in the second quarter; totaling 6.4 million for

approximately $1.15 billion through the first half of 2019

$4.69 $5.19

YTD'18 YTD'19

$1.71 $1.87

Q2'18 Q2'19

Q2 EPS from Continuing Operations YTD EPS from Continuing Operations

19

Non-Operating Financials

▪ Interest expense increased $8 million

reflecting higher outstanding debt balances

o The Company expects ~$81 million of

interest expense per quarter going

forward, reflecting both the issuance of

$750 million of term debt on May 2,

2019 and higher average debt balances

compared to the second quarter

▪ Pension income is estimated to be

approximately $5 million per quarter in 2019,

based on current assumptions

▪ Effective tax rate in the prior year period

benefitted from a more significant net

favorable impact of certain discrete items

▪ Actual common shares outstanding

decreased to 235.7 million with approximately

3.8 million additional dilutive equivalents. The

Company repurchased 5.8 million ordinary

shares for approximately $1.05 billion in Q2.

Estimated Q3’19 beginning dilutive share

count is ~239.5 million subject to share price

movement, share issuance and share

repurchase

1 Represents non-GAAP financials. See the Appendix B of this presentation for a reconciliation of non-GAAP numbers to their corresponding U.S. GAAP

measures.

($ millions) Q2’18 Q2’19

Interest Income $1 $1

Interest Expense ($69) ($77)

Pension Income1$9 $5

Other Income $4 $1

Effective Tax Rate1 14.7% 18.0%

Non Controlling Interest ($10) ($10)

Actual Common Shares

Outstanding243.0 235.7

20

Delivering Long-Term Growth

21

3% 3%4% 4%

5%6% 6% 6% 6%

2014 2015 2016 2017 2018 Q3'18 Q4'18 Q1'19 Q2'19

▪ We have a strong track record of developing innovative, first-to-market solutions to help solve problems and

create differentiated value in response to specific client needs

▪ Our global Aon operating committee and single P&L focuses us on working more collaboratively across and

within our five primary solution lines and is further accelerating the delivery of more innovative and differentiated

client solutions

▪ Examples of Aon United solutions include:

Delegated

Investment

Mngmnt

Intellectual

Property

US

Mortgage

Risk

Healthcare

Exchange

Cyber

Security

Aon Client

Treaty

Organic Growth1 – Investing in Innovation and Differentiated Capability

FY Organic Revenue Growth



Quarterly Organic Revenue Growth

22

Inorganic Growth – Investing in High-Growth Areas of Client Need

▪ Identifying inorganic growth opportunities within primary

solution lines, at their intersection and in adjacencies that

are focused on areas of high client demand and further

differentiate our integrated offering

▪ Strategically investing through M&A in high-growth, high-

margin businesses across our portfolio, or in attractive

geographies, driven by a ROIC decision-making process

▪ Driving shift in overall portfolio mix with a goal to accelerate

long-term growth

FY Total Revenue Growth

-4%

-1%

6% 5%

1%

2%

2015 2016 2017 2018

Organic FX M&A

8%

1 Organic revenue includes the impact of intercompany activity and excludes the impact of foreign exchange rate changes, acquisitions, divestitures, transfers

between revenue lines, and fiduciary investment income.

1

23

Shift to Single Operating Model Enables Growth and Productivity

1 Excludes $100 million of non-cash charges.

2 Return on Invested Capital (ROIC) is a non-GAAP measure. A reconciliation can be found in Appendix E.

▪ Creating a next generation global business services model that allows for better scalability, flexibility and enhanced

colleague and client experience

▪ Driving one operating model across the firm to create additional operating leverage and deliver additional insight,

connection and efficiency:

o Information Technology – create greater insight from data center optimization, application management and

strategic vendor consolidation

o Real Estate – create greater connection through real estate portfolio optimization

o People – create efficient scalability of operations and activity, including the use of centers of excellence and third-

party providers

▪ After evaluating progress of the program in its final year, the restructuring program estimates have been updated to

reflect a $35 million increase in total expected annualized savings by 2020 and a $100 million increase in

expected cash investment

o Restructuring cash charges are expected to increase by $125 million, partially offset by a $25 million decrease in

capital expenditures associated with the program

o Restructuring charges will be completed by the fourth quarter of 2019

▪ Expect to deliver $510 million of annualized savings in 2019, or $150 million of incremental savings when comparing

2019 versus 2018, and $535 million of annualized savings in 2020, before any potential reinvestment

▪ Expect to invest an estimated $1,425 million in total restructuring cash1 over a three-year period (2017-2019)

o $1,250 million of cash charges1; with $927 million of cash spent through Q2’19. Cash outlays are expected to

decline substantially by 2020

o $175 million of incremental capital expenditure investment; with $116 million incurred through Q2’19

▪ Expect to deliver ROIC2 of 38% before any potential reinvestment, as these restructuring initiatives contribute to future

operating leverage through improved productivity over the long-term

24

Restructuring Program Delivering Anticipated Savings Opportunities

($ millions) Q2’19

Total Since

Inception Total Program1

% of Plan

Completed

Workforce Reduction $78 $516 $530 97%

Technology Rationalization $4 $95 $130 73%

Lease Consolidation $5 $50 $80 63%

Asset Impairments $2 $41 $45 91%

Other Associated Costs $38 $498 $565 88%

Total Restructuring Charges2 $127 $1,200 $1,350 89%

Capital Expenditures $12 $116 $175 66%

Cash Spend (excluding CapEx) $109 $927 $1,250 74%

Total Savings $122 $4433 $5103 87%

▪ Incurred $127 million of restructuring related charges in

the second quarter and a total of $1,200 million since

inception, primarily relating to workforce reduction and

other costs associated with restructuring and

separation initiatives, representing 89% of the total

program estimate

▪ Recognized $122 million of total savings in the second

quarter, or an increase of $38 million year-over-year,

and annualized savings of $443 million since inception,

before any potential reinvestment, representing 87% of

the estimated annualized savings in 2019

1 Represents management’s estimates as of July 26, 2019, which are subject to change if and when underlying factors may change.

2 Includes $100 million of non-cash. Total cash charges are estimated at $1,425 million, including capital expenditures.

3 Represents annualized estimated savings in 2019. Annual estimated savings are expected to reach $535 million in 2020.

$11 $44 $55 $56 $63 $84 $105 $108 $108 $122

$443

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 ToDate

2019

Restructuring Savings ($ millions)

3

2017 2018

25

Free Cash Flow (FCF) Drives Long-Term

Shareholder Value

26

$302 $255

YTD'18 YTD'19

Financial Flexibility and Cash Generation Set Stage for Further Growth

1 Reflects performance from continuing operations. Free cash flow is non-GAAP measure that is reconciled to its corresponding U.S. GAAP measure, in


2 Debt to EBITDA is calculated based on trailing twelve-month EBITDA using GAAP financials for continuing operations.

▪ Manage the balance sheet focused on current investment

grade ratings, which are important for the firm to maintain

▪ Debt to EBITDA on a GAAP basis is expected to decline

as restructuring charges wind down by the end of 2019

▪ Over time, we will evaluate incremental debt based on

remaining within the target leverage ratio ranges of each

of the various rating agencies

▪ Opportunity for incremental debt as EBITDA grows,

restructuring costs wind down and pension liability

improves, providing significant financial flexibility over the

next few years to invest in value creation or return of

capital to shareholders

o Issued $750 million of Senior Notes at 3.75% on

May 2, 2019

Free Cash Flow1

($ millions)

▪ Cash flow from operations decreased $52 million as

strong operational performance and a $26 million

decrease in restructuring cash outlays was more than

offset by approximately $85 million of net cash

payments in the first quarter related to legacy litigation

▪ Free cash flow also reflects a $5 million decrease in

capital expenditures

Balance Sheet($ millions)

Mar 31

2019

Jun 30

2019

Cash $600 $581

Short-term Investments $134 $235

Total Debt $6,416 $7,584

Shareholders’ Equity $4,775 $3,836

Debt to EBITDA2 2.7x 2.9x

27

146252

145 117

280

425470

50

183

240245

165

2017 2018 2019 2020

Pension Restructuring CapEx

1 1

Declining Uses of Cash1 Expected to Substantially Increase Capital Flexibility

$609

$917$860

$332

Accelerated Growth and Operational Improvement

Continued Progress on Working Capital Initiatives

Declining Required Uses of Cash to Free Up +$585 million by the end of 2020

1

2

3

Expected strong free cash flow growth in 2020+ is expected to support significant investments

in long-term growth opportunities and the return of excess capital to shareholders

1 Reflects the Company’s best estimates as of July 26, 2019, and the Company disclaims any obligations to update whether a result of new information, future

events, or otherwise. Actual results may differ materially.

28

11.7%

21.6%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Positioned to Unlock Significant Long-Term Shareholder Value Creation

1 Return on Invested Capital (ROIC) is a non-GAAP measure. A reconciliation can be found in Appendix E.

2 Free Cash Flow Margin is a non-GAAP measure. A reconciliation can be found in Appendix F.

3 Reflects performance from continuing operations.

4 Reflects the Company’s best estimates as of July 26, 2019, and the Company disclaims any obligations to update whether a result of new information, future

events, or otherwise. Actual results may differ materially.

Return on Invested Capital1 (%)

8.2%

18.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Free Cash Flow Margin2 (%)

Expected free cash flow growth of 10%+

annually while reducing share count

Unlocks substantial long-term

shareholder value creation

2018 Free Cash Flow3

of $1.45 billion

Declining uses of cash4 to contribute

+$585 million before any growth

Operating income growth + working

capital improvements

29

Appendix

30

Commercial Risk Solutions

Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Q1’18 Q2’18 Q3’18 Q4’18 2018 Q1’19 Q2’19

Total Revenue1 ($M) $969 $990 $884 $1,088 $3,931 $989 $1,041 $915 $1,218 $4,163 $1,184 $1,166 $1,029 $1,273 $4,652 $1,118 $1,167

Organic Growth1 (%) 2% 2% (1%) 5% 2% 4% 6% 8% 4% 6% 6% 6%

Place over

$60Bof bound premium

each year

#1primary insurance

brokerage

Retention rates

+90%on average in Retail

Brokerage

Retail Brokerage:

▪ Our dedicated teams of risk experts utilize the industry’s most comprehensive

data and analytics capabilities to provide clients with distinctive risk advice that

empowers results for their organizations

▪ Through our specialty-focused organizational structure, colleagues in 120

countries around the world dive deep into their areas of expertise to develop

unparalleled insights around industry verticals and lines of business to best

deliver value to clients in today’s complex and integrated risk environment

Global Risk Consulting:

▪ World leading provider of risk consulting services supporting clients in better

understanding and managing their risk profile through identifying and

quantifying the risks they face by assisting them with the selection and

implementation of the appropriate risk transfer, risk retention, and risk mitigation

solutions, and by ensuring the continuity of their operations through claims

consulting

Cyber Solutions:

▪ One of the industry’s premier resources in cyber risk management; our strategic

focus extends to identifying and protecting critical digital assets supported by

best-in-class transactional capabilities, enhanced coverage expertise, deep

carrier relationships, and incident response expertise

Captives:

▪ Leading global captive insurance solutions provider; managing +1,100

insurance entities worldwide including captives, protected segregated and

incorporated cell facilities, as well as entities that support Insurance Linked

Securities and specialist insurance and reinsurance companies

1 Organic revenue is a non-GAAP measure that is reconciled to its corresponding U.S. GAAP measure for the above historical periods that have been

restated on page 21 of the Company’s fourth quarter 2017 press release dated February 2, 2018, for the new revenue recognition accounting standard

effective in the first quarter of 2018.

31

Reinsurance Solutions

Treaty:

▪ Addresses underwriting and capital objectives on a portfolio

level, allowing our clients to more effectively manage the

combination of premium growth, return on capital and rating

agency interests. This includes the development of more

competitive, innovative and efficient risk transfer options.

Facultative:

▪ Empowers clients to better understand, manage and transfer risk

through innovative facultative solutions and the most efficient

access to the global facultative markets

Capital Markets:

▪ Global investment bank with expertise in M&A, capital raising,

strategic advice, restructuring, recapitalization services, and

insurance–linked securities

▪ Works with insurers, reinsurers, investment firms, banks, and

corporations to manage complex commercial issues through the

provision of corporate finance advisory services, capital markets

solutions, and innovative risk management products

Place over


each year

#1treaty and facultative

brokerage

23consecutive

quarters of net new

business in core

treaty

Place over


each year

#1treaty and facultative

brokerage

+30consecutive

quarters of net new

business in core

treaty

Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Q1’18 Q2’18 Q3’18 Q4’18 2018 Q1’19 Q2’19

Total Revenue1 ($M) $667 $335 $234 $131 $1,367 $671 $345 $257 $153 $1,426 $742 $380 $279 $162 $1,563 $788 $420

Organic Growth1 (%) 4% 6% 10% 20% 6% 6% 8% 8% 8% 7% 9% 12%




32

Approximately

$3.1T of pension assets

under independent

advisory

Retirement Solutions

Retirement:

▪ The Retirement practice is dedicated to navigating the risk and opportunities

associated with retirement and investing to optimize performance and financial

security for institutions and individuals

▪ Retirement Consulting specializes in providing organizations across the globe

with strategic design consulting on their retirement programs, actuarial services,

and risk management – including pension de-risking, governance, integrated

pension administration and legal and compliance consulting

Human Capital:

▪ We deliver advice and solutions that help clients accelerate business outcomes

by improving the performance of their people

▪ We support the full employee lifecycle from assessment and selection of the right

talent to the design, alignment and benchmarking of compensation to business

strategy and performance outcomes

Investments:

▪ Provides public and private companies and other institutions with advice on

developing and maintaining investment programs across a broad range of plan

types, including defined benefit plans, defined contribution plans, endowments

and foundations

▪ Our delegated investment solutions offer ongoing management of investment

programs and fiduciary responsibilities either in a partial or full discretionary

model for multiple asset owners. We partner with clients to deliver our scale and

experience to help them effectively manage their investments, risk, governance

and potentially lower costs

Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Q1’18 Q2’18 Q3’18 Q4’18 2018 Q1’19 Q2’19

Total Revenue2 ($M) $396 $405 $465 $441 $1,707 $385 $388 $492 $489 $1,754 $424 $431 $501 $509 $1,865 $420 $419

Organic Growth2 (%) 2% 1% 6% 4% 3% - 3% 2% 4% 2% 2% 1%

1 As of 6/30/2018, includes non-discretionary assets advised by AHIC and its global affiliates which includes retainer clients and clients in which AHIC and its

global affiliates have performed project services for over the past 12 months. Project clients may not currently engage AHIC at the time of the calculation of

assets under advisement as the project may have concluded earlier during preceding 12-month period.

2 Organic revenue is a non-GAAP measure that is reconciled to its corresponding U.S. GAAP measure for the above historical periods that have been restated

on page 21 of the Company’s fourth quarter 2017 press release dated February 2, 2018, for the new revenue recognition accounting standard effective in the

first quarter of 2018.

1+10,000organizations trust

Aon’s advice and

solutions

Global leader with

+7,000 colleagues around

the world

33

Health Solutions

Aon Health Solutions helps organizations confidently navigate the evolving

health and benefits landscape while continuously adapting their approach

and strategy to provide greater choice, affordability and wellbeing.

Consulting & Brokerage:

▪ Develops and implements innovative, customized health and benefits

strategies for clients of all sizes across industries and geographies to

manage risk, drive engagement, and increase accountability

▪ Partners with insurers and other strategic partners to develop and

implement new and innovative solutions.

▪ Delivers specialized expertise and solutions across a range of areas

such as pharmacy, voluntary benefits, and regulatory

▪ Leverages proprietary, world-class, analytics and technology to help

clients make informed decisions and manage healthcare outcomes

Global Benefits:

▪ Advises multinational companies on range of topics including program

design and management, financing optimization, and enhanced

employee experience

▪ Assists employers in navigating and managing complex regulatory and

compliance requirements in countries in which they operate

Healthcare Exchanges:

▪ Helps transform how employers sponsor, structure, and deliver

healthcare strategies for both active and retiree populations

Place over

$30Bof health premium

with a full set of

solutions

#1provider of fully and

self-insured health

care exchanges

More than

8,000 Colleagues in 90

countries

Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Q1’18 Q2’18 Q3’18 Q4’18 2018 Q1’19 Q2’19

Total Revenue1 ($M) $338 $253 $245 $522 $1,358 $428 $281 $277 $526 $1,512 $451 $309 $278 $558 $1,596 $486 $317

Organic Growth1 (%) 15% 4% 4% 6% 7% - 7% 8% 8% 5% 5% 6%




34

Data & Analytic Services

Affinity:

▪ Specializes in developing, marketing and administering

customized insurance programs and specialty market

solutions for Affinity organizations and their members or

affiliates

Aon InPoint:

▪ Draws on Aon’s proprietary database (Global Risk Insight

Platform) and is dedicated to making insurers more

competitive through providing data, analytics, engagement

and consulting

ReView:

▪ Draws on Aon’s proprietary database and broker market

knowledge to provide advisory services analysis and

benchmarking to help reinsurers more effectively meet the

needs of cedents through the development of more

competitive, innovative and efficient risk transfer options

+200associations and

organizations

benefit from Aon’s

Affinity solutions

Invest nearly

$400Mannually in data and

analytics

Global Risk Insight

Platform captures

+$219Bin bound premium

Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Q1’18 Q2’18 Q3’18 Q4’18 2018 Q1’19 Q2’19

Total Revenue1 ($M) $263 $271 $260 $256 $1,050 $273 $281 $287 $299 $1,140 $294 $277 $263 $271 $1,105 $336 $286

Organic Growth1 (%) 6% 4% 2% 12% 5% 1% -4% 5% 9% 3% 5% 4%




35

Appendix A: Q2 Reconciliation of Non-GAAP Measures – Organic

Revenue Growth & Free Cash Flow

36

Appendix B: Q2 Reconciliation of Non-GAAP Measures – Operating

Margin and Diluted Earnings per Share

37

Beginning in Q1 of 2018, Aon adopted a new accounting standard that shifted the financial components of net periodic

pension cost and net periodic postretirement benefit cost from above the line in compensation and benefits expense to

below the line in other income / expense.

Based on current assumptions, our best estimate is approximately $5 million of non-cash pension income per

quarter as part of other income / expense in 2019, excluding all other items we do not forecast that could be

favorable or unfavorable in any given period.

Appendix C: Other Income/Expense Under New Pension Accounting

Standard Effective 1/1/2018 (ASU No. 2017-07)

(millions) Q1’19 Q2’19

Other income (expense) – Pension – Non-GAAP $4 $5

Other income (expense) – Other ($4) $1

Total Other income (expense) – Non-GAAP $0 $6

Pension Settlements $0 $0

Total Other income (expense) – GAAP $0 $6

38

Appendix D: Intangible Asset Amortization Schedule

39

Appendix E: Reconciliation of Return on Invested Capital (ROIC)

Return on Invested Capital (ROIC) is a non-GAAP measure calculated as adjusted net operating profit after tax (NOPAT) divided

by average invested capital (short-term debt, + long-term debt + total equity) and represents how well the Company is allocating its

capital to generate returns. The metric for the historical periods shown below was calculated using financial results for total

consolidated Aon and therefore includes discontinued operations in connection with the sale of the outsourcing business completed

on May 1, 2017, which will not be included on a going forward basis.

(millions) FY'10 FY'11 FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18

Revenue - as reported 8,512 11,287 11,514 11,815 12,045 11,682 11,627 9,998 10,770

Consolidated operating income - as reported 1,244 1,596 1,596 1,671 1,966 1,848 1,906 979 1,544

Restructuring 172 113 101 174 - - - 497 485

Pension adjustment 49 - - - - - - - -

Hewitt related costs 40 47 - - - - - - -

Transactions/Headquarter relocation costs - 3 24 5 - - 15 - -

Legacy receivable write-off - 18 - - - - - - -

Anti-bribery, regulatory and compliance initiative 9 - - - - - - 28 -

Legacy Litigation - - - - 35 176 - - 75

Pension settlement - - - - - - 220 128 -

Amortization of Intangible Assets 154 362 423 395 352 314 277 704 593

Total Adjustments 424 543 548 574 387 490 512 1,357 1,153

Consolidated operating income - as adjusted 1,668$ 2,139$ 2,144$ 2,245$ 2,353$ 2,338$ 2,418$ 2,336$ 2,697$

Adjusted Effective tax rate (%) 28.9% 27.3% 26.1% 25.4% 18.9% 17.9% 16.8% 14.9% 15.6%

NOPAT (Adj. OI*(1-Adj. Tax Rate)) 1,186$ 1,555$ 1,584$ 1,675$ 1,908$ 1,919$ 2,012$ 1,988$ 2,276$

Short-term debt and current portion of long-term debt 492 337 452 703 783 562 336 299 251

Long-term debt 4,014 4,155 3,713 3,686 4,799 5,138 5,869 5,667 5,993

Total Debt 4,506 4,492 4,165 4,389 5,582 5,700 6,205 5,966 6,244

Total Shareholder's Equity 8,251 8,078 7,762 8,145 6,571 6,002 5,475 4,583 4,151

Noncontrolling interest 55 42 43 50 60 57 57 65 68

End of Period Total Invested Capital 12,812 12,612 11,970 12,584 12,213 11,759 11,737 10,614 10,463

Average Total Invested Capital 10,126 12,712 12,291 12,277 12,399 11,986 11,748 11,176 10,539

ROIC (NOPAT/Average Total Invested Capital) 11.7% 12.2% 12.9% 13.6% 15.4% 16.0% 17.1% 17.8% 21.6%

40

(millions) FY'10 FY'11 FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 FY'18

Revenue - as reported 8,512 11,287 11,514 11,815 12,045 11,682 11,627 9,998 10,770

Cash Flow from Operations 876 1,112 1,534 1,753 1,812 2,009 2,326 669 1,686

Capital Expenditures (180) (241) (269) (229) (256) (290) (222) (183) (240)

Free Cash Flow - as Reported 696 871 1,265 1,524 1,556 1,719 2,104 486 1,446

Adjustments:

2017 Restructuring initiatives (Cash + CapEx) 307 491

Transactions costs related to the divested business 45

Tax payments related to the divested business 940

Underlying Free Cash Flow - as Adjusted 1,778 1,937

Free Cash Flow Margin 8.2% 7.7% 11.0% 12.9% 12.9% 14.7% 18.1% 17.8% 18.0%

Appendix F: Reconciliation of Free Cash Flow Margin

Free Cash Flow Margin is a non-GAAP measure calculated as Free Cash Flow (defined as Cash Flow from Operations less

Capital Expenditures) / Total Revenue and represents the Company’s conversion rate of revenue into cash. The metric for the

historical periods shown below was calculated using financial results for total consolidated Aon and therefore includes discontinued

operations in connection with the sale of the outsourcing business completed on May 1, 2017, which will not be included on a going

forward basis.

1 In the fourth quarter of 2015, the Company reclassified certain cash flows related to employee shares withheld for taxes. This resulted in reclassifying $93

million, $94 million, $115 million for the years ended December 31, 2010, 2011,and 2012, respectively, from "Accounts payable and accrued liabilities" and

"Other assets and liabilities" within Cash Flows From Operating Activities, to "Issuance of shares for employee benefit plans" within Cash Flows From Financing

Activities.

1 1 1

Investor Relations

Scott Malchow

[email protected]

Erika Shouldice

[email protected]

Office: 312-381-5957

Adam Klauss

[email protected]

Office: 312-381-1801

Aon plc · Aon plc Second Quarter 2019 Results July 26, 2019. 1 Greg Case Chief Executive Officer...

Documents

Transcript of Aon plc · Aon plc Second Quarter 2019 Results July 26, 2019. 1 Greg Case Chief Executive Officer...