Aon plc — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. Aon is a global professional-services firm providing risk, health and wealth solutions, operating as one segment across four solution lines. The filing was signed February 18, 2022.
Financial performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $12.193 billion | $11.066 billion | Up 10%; organic growth 9% |
| Operating income / margin | $2.090 billion / 17.1% | $2.781 billion / 25.1% | Down; 2021 included substantial WTW termination costs |
| Adjusted operating margin (non-GAAP) | 30.1% | 28.5% | Up 1.6 percentage points |
| Net income attributable to Aon shareholders | $1.255 billion | $1.969 billion | Down 36% |
| Diluted EPS | $5.55 | $8.45 | Down 34% |
| Adjusted diluted EPS (non-GAAP) | $12.00 | $9.81 | Up 22% |
| Operating cash flow / free cash flow (non-GAAP) | $2.182 billion / $2.045 billion | $2.783 billion / $2.642 billion | Down 22% / 23% |
Revenue growth reflected 9% organic growth and a 2% favorable currency impact, partly offset by a 1% unfavorable impact from divestitures, net of acquisitions. By solution line, organic growth was 11% in Commercial Risk, 8% in Reinsurance, 10% in Health and 2% in Wealth.
Net interest expense was $311 million ($322 million expense less $11 million income). The effective tax rate increased to 32.3% from 18.2%, primarily reflecting the nondeductible WTW termination fee, the U.K. tax-rate change and share-based-payment tax benefits. Other income included $142 million of gains on business disposals.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $544 million and short-term investments were $292 million; $160 million of the combined $836 million was restricted. Client fiduciary assets are segregated and unavailable for general corporate use.
- Total debt was $9.392 billion, up from $7.729 billion. Debt due in 2022 was approximately $1.165 billion. Aon had $1.75 billion of committed credit facilities, with no borrowings under those facilities at year-end.
- Share repurchases were $3.543 billion in 2021, and shareholder dividends were $447 million. The annual dividend was $1.99 per share. Aon reported total equity of $1.158 billion at year-end.
- Management said operating cash flow, cash reserves, credit facilities and capital-market access should provide adequate liquidity for obligations and anticipated needs. Expected 2022 pension contributions were approximately $74 million.
Material changes, outlook and notable items
- Aon and Willis Towers Watson terminated their proposed combination in July 2021 after a U.S. Department of Justice antitrust challenge. Aon paid WTW a $1 billion termination fee. Total 2021 operating charges related to the combination and termination were $1.436 billion, versus $123 million in 2020. Adjusted results exclude these charges and other specified items.
- Despite lower reported earnings and cash flow, adjusted operating margin and adjusted EPS rose, supported by strong organic growth, foreign exchange and share repurchases. Aon repurchased 12.4 million shares during 2021.
- Management reported that pandemic impacts had lessened and activity was strong across the firm in 2021, while noting the duration and full effects of COVID-19 remained uncertain. The filing does not provide specific numerical forward guidance for 2022.
- The 2021 cash-flow statements include an immaterial presentation correction concerning client funds for prior periods; operating cash flow was unchanged. The solution-line reporting realignment changed presentation only and did not affect consolidated results.
Principal risks and contingencies
- Legal claims include the Christchurch City Council arbitration, insurance-placement and aviation-related litigation, and an investment-related claim concerning Structured Alpha funds. A separate Lowe’s 401(k) case resulted in judgment for Aon, but plaintiffs appealed.
- For disclosed matters where losses were estimable, the reasonably possible loss range in excess of amounts accrued was $0 to $0.8 billion, exclusive of insurance. Aon said the ultimate outcomes could not be determined with certainty; unfavorable outcomes could materially affect a particular period’s results or cash flows.
- Other key risks include competition and insurance-premium cycles, economic conditions, foreign exchange and interest-rate movements, pension funding, debt and refinancing, tax uncertainty, regulatory compliance, cybersecurity and data privacy, talent retention, acquisitions, and business continuity. Aon also cited ongoing uncertainty related to COVID-19 and post-Brexit arrangements.
- The independent auditor gave an unqualified opinion on the financial statements and internal controls. Deferred-tax-asset realizability was identified as a critical audit matter; net deferred tax assets were $365 million.
Important facts for investors to verify
- How much of the gap between GAAP and adjusted earnings reflects the one-time WTW termination and other excluded items, and whether the adjusted measures are comparable over time.
- Progress in sustaining organic growth, particularly in Wealth Solutions, and the resulting impact on margins and cash generation.
- Debt maturities, refinancing plans and the effect of repurchases and dividends on balance-sheet flexibility.
- Developments in the disclosed litigation and contingencies, including potential insurance coverage and any changes to accruals or estimated exposure.
- Assumptions supporting deferred tax asset realizability, pension funding and the expected 2022 contribution.