Efficiency drive, expense control mandate prompts restructuring

Aon Corp. management, despite reporting a 10 percent gain in second-quarter net income, said it plans workforce reductions for its United Kingdom operations as part of a move to cut costs and increase efficiency.

The Chicago-based firm has been planning to restructure since it stopped accepting insurer contingency commissions that investigators have linked to bid-rigging and other misconduct.

Greg Case, Aon's president and chief executive officer, speaking during an analyst conference call discussing second-quarter results, said that changes in the way the company does business in its U.K. operation need to be made to drive down costs.

He said no definitive decisions have been made, but the changes in the operation would include payroll reductions.

Ultimately, Mr. Case said, the moves would result in annual savings from $100-to-$150 million. The company could take a charge ranging from $200-to-$300 million on the restructuring, he added, noting that the charge could involve more than just the U.K. restructuring.

“No decision has been made,” said Mr. Case, “but whatever action we take, we take from a position of strength. We need to do this to continue to grow and build our company.”

For the second quarter, net income rose 10 percent, from $173 million (52 cents a share) to $191 million (57 cents a share). Total revenues were down 1 percent to $2.52 billion.

Completing the first half, net income increased 14 percent, from $343 million ($1.03 a share) to $391 million ($1.16 a share). Revenues were off 2 percent to $5.03 billion.

Income improvements, the company said, came mainly from control of expenses.

Mr. Case said the broker has won “major new business” from its competitors and added talent to its brokerage pool.

Like other brokers, Aon said it is suffering from softening prices, with brokerage commissions and fees falling 2 percent in the quarter to $1.72 billion.

He said the company is seeing higher base commission rates, “coming back to a pre-9/11 place,” and is having “very good dialogue against that” with carriers.

William Wilt, an analyst with Morgan Stanley, in an investor's note, said that Aon's earnings per share were 10 cents ahead of estimates.

“Focusing just on operations, [Aon] appeared to hold its own this quarter compared to [Marsh & McLennan Companies]–which was back on its heels, in our view. Insurance and broking revenues were stronger at [Aon] and margins were improving (versus declining at MMC).”

He added that Aon, however, is just now beginning needed restructuring from the loss of contingent commissions, whereas MMC has already completed its plan.

Flag: The Skinny

Head: Key Numbers For Aon

o Revenue–down 1 percent for the second quarter and 2 percent for the first half.

o Net income–up 10 percent for the second quarter and 14 percent for the first half.

Quotebox with Case mug:

“…whatever action we take, we take from a position of strength. We need to do this to continue to grow and build our company.”

Greg Case, President & CEO

Aon Corp.

Special Reports /

Aon To Cut Jobs In U.K. Operation

Related Stories

Recommended For You