Business context and reporting period
Marsh & McLennan Companies, Inc. (MMC) filed this Form 10-K for the fiscal year ended December 31, 2021. The filing reports full-year results, not standalone fourth-quarter results; the provided filing text does not provide a clear standalone Q4 financial summary. MMC is a global professional services firm operating in more than 130 countries, with approximately 83,000 colleagues. Its two segments are Risk and Insurance Services (Marsh and Guy Carpenter) and Consulting (Mercer and Oliver Wyman Group).
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $19.82 billion | $17.22 billion | +15%; +10% underlying |
| Operating income | $4.31 billion | $3.07 billion | +41% |
| Operating margin | 21.8% | 17.8% | +4.0 percentage points |
| Net income attributable to MMC | $3.14 billion | $2.02 billion | +56% |
| Diluted EPS | $6.13 | $3.94 | +56% |
| Cash provided by operations | $3.52 billion | $3.38 billion | +4% |
Operating expenses rose 10% to $15.51 billion, primarily reflecting higher headcount and incentive compensation. Operating cash flow less capital expenditures was approximately $3.11 billion in 2021, calculated from reported figures.
Risk and Insurance Services generated $12.09 billion in revenue, up 17% (10% underlying), and $3.08 billion in operating income; its margin increased to 25.5% from 22.7%. Consulting generated $7.79 billion in revenue, up 12% (10% underlying), and $1.50 billion in operating income; its margin increased to 19.3% from 14.3%.
At year-end, cash and cash equivalents were $1.75 billion; fiduciary cash of $9.62 billion is segregated and unavailable for corporate use. Debt totaled approximately $10.95 billion, comprising $10.93 billion long-term and $17 million short-term. MMC had no commercial paper outstanding and no borrowings under its $2.8 billion revolving facility. Current assets were $8.26 billion and current liabilities $6.65 billion. The company paid $1.03 billion in dividends ($2.00 per share) and repurchased 7.9 million shares for $1.2 billion.
Material changes and unusual items
- Both segments delivered 10% underlying revenue growth, which management attributed to strong demand for advice and services and improving economic conditions.
- Reported growth included currency translation and acquisitions. The $267 million gain from remeasuring MMC’s previously held Marsh India investment upon increasing ownership to 92% contributed to reported revenue and operating income.
- 2021 results included $93 million of JLT integration and restructuring costs. MMC reported $679 million of such costs cumulatively through 2021, expects another $46 million in 2022, and said it had realized at least $425 million of annualized savings. Integration was expected to conclude in 2022.
- The legacy JLT pension-transfer advice E&O provision decreased by $69 million in 2021, including $33 million of indemnity recoveries; the comparable 2020 provision increase was $161 million.
- Other notable items included $62 million of legal claims charges, a $50 million net gain on business dispositions, and $61 million of investment income versus a $22 million loss in 2020. Interest expense declined to $444 million from $515 million.
- The effective tax rate fell to 24.6% from 26.7%. The U.K. tax-rate increase from 19% to 25% generated a deferred-tax charge; tax treatment of the Marsh India gain and other tax planning partly offset the impact.
Outlook, risks and contingencies
Management said demand remained strong and expected to serve clients effectively in remote and office settings, but did not provide specific revenue, earnings, or margin guidance in the supplied filing text. It cited continuing uncertainty from COVID-19, including new variants and possible restrictions. Other material risks include cyberattacks and data privacy requirements; errors-and-omissions and fiduciary claims; regulation and litigation concerning broker compensation and conflicts; talent retention; competition and digital disruption; economic, inflation, interest-rate and foreign-exchange volatility; and market-related fees in Mercer’s investment business.
MMC disclosed a Brazil antitrust proceeding involving Marsh and JLT, Greensill-related litigation and investigations, and legacy JLT pension-transfer advice redress. It recorded a $29 million charge after JLT agreed in principle to a DOJ resolution involving alleged profits from reinsurance placements; the company said it was cooperating with ongoing investigations. MMC stated that outcomes of certain proceedings could materially affect a future period, but it could not estimate the range of possible loss for matters still developing. Its total E&O liability was reported as $434 million in the notes; the balance-sheet line of $355 million appears to exclude $79 million included in current liabilities.
Defined-benefit pension obligations were approximately $18.7 billion against plan assets of approximately $19.4 billion at year-end. MMC expected 2022 contributions of about $31 million to U.S. non-qualified plans and $147 million to non-U.S. plans, including approximately $112 million to the JLT U.K. pension section. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The company revised prior cash-flow statement presentation to include fiduciary cash; it concluded the revision was not material to previously filed statements and did not represent a material weakness.
Important facts for investors to verify
- Confirm the drivers and sustainability of 10% underlying revenue growth, including the contribution from pricing, new business, retention, acquisitions, and the Marsh India remeasurement gain.
- Assess whether segment margin expansion can continue as compensation costs, hiring, and incentive payments rise.
- Review the remaining JLT integration costs, savings realization, and completion timing, as well as the final outcome and recoveries for the pension-transfer advice matter.
- Monitor debt maturities, refinancing needs, pension contributions, share repurchases, and dividends against corporate cash generation; exclude fiduciary cash from available liquidity.
- Track material litigation and regulatory matters, especially the DOJ-related resolution, Greensill proceedings, and broker-compensation and antitrust scrutiny.
- Evaluate exposure to cyber and privacy incidents, COVID-19 developments, foreign exchange, market-driven investment fees, and changes in insurance and reinsurance pricing.