Willis Towers Watson plc — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 24, 2022. This is an annual filing, not a standalone fourth-quarter report. Unless noted, financial figures are in U.S. dollars and continuing-operations revenue excludes Willis Re, which was classified as discontinued operations.
Business context and reporting period
WTW is a global advisory, insurance broking and solutions company focused on people, risk and capital, with approximately 44,200 employees serving more than 140 countries and markets. For 2021, it reported four segments: Human Capital and Benefits (HCB), Corporate Risk and Broking (CRB), Investment, Risk and Reinsurance (IRR), and Benefits Delivery and Administration (BDA). Effective January 1, 2022, it reorganized into Health, Wealth and Career and Risk and Broking.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue, continuing operations | $8.998 billion | $8.615 billion |
| Organic revenue growth | 6% | 1% |
| Income from operations | $2.202 billion | $859 million |
| Adjusted operating income / margin | $1.791 billion / 19.9% | $1.554 billion / 18.0% |
| Adjusted EBITDA / margin | $2.394 billion / 26.6% | $2.141 billion / 24.9% |
| Income from continuing operations | $2.156 billion | $762 million |
| Net income attributable to WTW | $4.222 billion | $996 million |
| Diluted EPS, continuing operations | $16.63 | $5.67 |
| Adjusted diluted EPS | $11.60 | $9.71 |
| Cash from operating activities / free cash flow | $2.061 billion / $1.913 billion | $1.774 billion / $1.551 billion |
| Cash and cash equivalents at year-end | $4.486 billion | $2.039 billion |
| Total debt at year-end | $4.587 billion | $5.635 billion |
Revenue grew 4% as reported; foreign currency contributed $171 million. Segment organic revenue growth was HCB 3%, CRB 5%, IRR 16% and BDA 10%. Reported IRR revenue fell 12%, primarily reflecting divestitures. WTW’s reported operating income and net income were materially affected by large transaction-related and divestiture items; adjusted measures provide a different view of ongoing performance.
Cash from investing activities was $2.570 billion, reflecting proceeds from Willis Re and Miller sales, partly offset by cash and fiduciary funds transferred with divestitures. Financing activities used $3.114 billion, including $1.627 billion of share repurchases, $1.008 billion of debt repayments and $374 million of dividends. The company had an undrawn $1.5 billion revolving credit facility and reported compliance with its financial covenants. Approximately $614 million of senior notes were due in 2022.
Material changes and unusual items
- Willis Re sale: Completed the principal closing on December 1, 2021 for $3.25 billion upfront cash consideration, with an earnout of up to $750 million potentially payable in 2025. WTW recorded a preliminary $2.3 billion pretax disposal gain and $2.080 billion of net income from discontinued operations, including the gain. Some local-territory closings remained pending, expected by the end of Q2 2022; earnings from those businesses between closings are payable to Gallagher.
- Aon transaction termination: The proposed combination was terminated in July 2021 after a U.S. Department of Justice challenge. Aon paid WTW $1 billion, recorded in transaction and integration, net. The payment contributed substantially to the increase in operating income; WTW estimates $250 million of related tax expense.
- Other disposals: The Miller sale closed in March 2021, producing a $356 million net tax-exempt gain. The company also completed sales of Wholesale Insurance Broking and Innovisk during 2021.
- Book-of-business settlements: Contributed $134 million of revenue in 2021; management cautioned that such revenue is non-repeatable.
- Share repurchases: WTW repurchased $1.627 billion of shares during 2021 and had approximately $3.9 billion of authorization remaining at year-end.
Guidance, outlook, management commentary and risks
- No specific consolidated revenue or EPS guidance is provided in the supplied filing text. Management expected pandemic-related and broader economic conditions could create revenue and operating-result volatility in 2022.
- A three-year Transformation program began in Q4 2021, targeting approximately $300 million of annual savings by the end of 2024. Expected investment is $750 million: approximately $490 million in costs and $260 million in capital expenditures. WTW recorded $26 million of restructuring charges in 2021; 2022 capital expenditures were forecast at $250 million.
- Management cited continued client demand, especially for services addressing labor-market challenges and supply-chain disruption, but warned that tight labor markets and elevated attrition could constrain capacity. Voluntary turnover was 15.2% in 2021 versus 8.7% in 2020; management said the 2020 rate was unusually low.
- Other highlighted risks include inflation and employee-cost pressure, ongoing leadership and organizational changes, execution of the Transformation program and Willis Re transition, cybersecurity and data-privacy exposure, regulatory and litigation matters, pension obligations, foreign-exchange movements, and dependence on insurance-market conditions. Management said the pandemic had not materially adversely affected overall results to date, while acknowledging continuing uncertainty.
- The board approved a quarterly dividend of $0.82 per share in February 2022, or $3.28 annualized. WTW reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Reconcile reported earnings and EPS with adjusted measures, especially the $1 billion Aon termination payment, Willis Re disposal gain, Miller gain, and discontinued-operations results.
- Track completion of the remaining Willis Re transfers, the Transition Services Agreement costs and reimbursements, and whether the contingent earnout conditions are met.
- Assess whether organic growth can continue after the $134 million of book-of-business settlements and amid the reported CRB staff departures and slower near-term growth expectations.
- Monitor Transformation spending, delivery and timing of the targeted $300 million savings, and the effect on margins and cash flow.
- Review the 2022 senior-note repayment, pension funding needs, share repurchases, and liquidity available after planned capital spending and shareholder distributions.