Marsh & McLennan Companies, Inc. (NYSE: MMC) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the provided text does not give a clear standalone fourth-quarter income statement or Q4-specific results.
Business context
Marsh McLennan is a global professional services firm focused on risk, strategy and people, with more than 85,000 colleagues operating in over 130 countries. Its two reporting segments are Risk and Insurance Services (Marsh and Guy Carpenter) and Consulting (Mercer and Oliver Wyman Group).
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $20.72 billion | $19.82 billion |
| Underlying revenue growth | 9% | |
| Operating income | $4.28 billion | $4.31 billion |
| Operating margin | 20.7% | 21.8% |
| Net income attributable to MMC | $3.05 billion | $3.14 billion |
| Diluted EPS | $6.04 | $6.13 |
| Cash from operations | $3.47 billion | $3.52 billion |
- Revenue increased 5% reported; underlying growth was 9%, with 1% contribution from acquisitions and a 4% adverse foreign-currency effect.
- Risk and Insurance Services revenue was $12.65 billion, up 5% reported and 9% underlying; operating income was $3.09 billion, versus $3.08 billion. Segment margin declined to 24.4% from 25.5%.
- Consulting revenue was $8.14 billion, up 5% reported and 8% underlying; operating income rose to $1.55 billion from $1.50 billion. Segment margin was 19.1%, versus 19.3%.
- Compensation and benefits rose to $12.07 billion from $11.43 billion; total operating expenses increased 6% to $16.44 billion, faster than reported revenue.
- Cash and cash equivalents available for corporate purposes were $1.44 billion at year-end, excluding $10.66 billion held in a fiduciary capacity and unavailable for corporate use. Total debt was approximately $11.50 billion; approximate net debt on this basis was $10.05 billion. The company had no commercial paper or revolving-credit-facility borrowings at year-end.
- The company paid $1.14 billion in dividends and repurchased 12.2 million shares for $1.9 billion in 2022. Remaining repurchase authorization was approximately $4.3 billion.
- Current assets were $8.30 billion and current liabilities $7.17 billion. Commissions-and-fees receivables were $5.29 billion; management identifies collection and client-payment delays as risks.
Changes, unusual items and outlook
- Operating income fell $32 million, or 1%, and diluted EPS fell 1%, despite revenue growth. Higher headcount, incentive compensation, restructuring charges, travel costs, currency effects and higher interest expense weighed on results.
- The company recorded $427 million of restructuring costs, including $219 million for workforce actions, technology and functional rationalization, and real-estate reductions. Management estimated $125 million to $150 million of related savings in 2023; the program could continue into 2024, and plans and estimates remained subject to change.
- Other notable items included a $112 million net gain on the sale of Mercer’s U.S. affinity business and a $52 million loss and related charges associated with deconsolidating Russian businesses. Russia exit and transfer to local management remained subject to regulatory approval.
- Management described demand for advice and services as strong. The company completed 20 acquisitions in 2022. Its Westpac-related Australian transaction was expected to close in the first half of 2023, subject to regulatory approvals. No broader earnings or revenue guidance is provided in the supplied filing text.
- Foreign-currency translation adjustments reduced equity by approximately $1.2 billion in 2022. Pension assets recorded significant investment losses, while higher discount rates reduced measured pension obligations. Defined-benefit obligations were approximately $11.8 billion, with related assets of approximately $13.0 billion under U.S. GAAP at year-end.
Risks, contingencies and controls
- Key risks include macroeconomic weakness, inflation, geopolitical events and sanctions; cyberattacks and data-protection obligations; competition and technology disruption; talent retention; conflicts of interest; regulatory change; foreign exchange; receivable collection; and debt and pension-market exposures.
- Errors-and-omissions and other professional-liability claims may cause significant losses. The filing reports a $419 million E&O liability at year-end, including current and non-current amounts; ultimate outcomes and potential losses on certain proceedings cannot be estimated clearly. Deloitte identified the E&O liability as a critical audit matter.
- Disclosed proceedings include Brazilian competition authorities’ investigation involving insurance brokers and insurers, Greensill-related litigation and investigations, and legacy JLT matters. The FCA closed its review of JLT’s U.K. pension-transfer advice in 2022; the recorded related liability was reduced to approximately $6 million at year-end. Adverse outcomes in other matters could materially affect a future period.
- Auditor Deloitte & Touche issued an unqualified opinion on the financial statements and internal control over financial reporting. Management and the auditor concluded controls were effective as of December 31, 2022.
Most important facts for investors to verify
- Underlying growth versus reported growth, including the effects of foreign exchange, acquisitions, fiduciary interest income and one-time disposal gains.
- Whether restructuring savings of $125 million to $150 million are realized, and how final charges and timing compare with management’s estimates.
- Trends in margins, compensation costs, headcount and incentive compensation relative to revenue growth.
- Cash generation and use of capital, including dividends, repurchases, acquisitions, and debt maturities and refinancing costs.
- Developments in material legal and regulatory matters, the Russia exit, and the collectability of receivables.
- Pension funding requirements and investment performance, alongside foreign-exchange and market exposures.