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 insurers' 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's conference call discussing the second-quarter results, said that changes in the way the company does business in its U.K. operation need to be done to drive down costs.
He said no definitive decisions have been made yet, 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 noted that the charge could involve more than just the U.K. restructuring.
"No decision has been made," said Mr. Case, "but what 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 by $18 million, from $173 million, or 52 cents a share, to $191 million, or 57 cents a share. Total revenues were down 1 percent, or $26 million, from $2.54 billion to $2.52 billion.
Completing the first half, net income increased 14 percent, or $48 million, from $343 million, or $1.03 a share, to $391 million, or $1.16 a share. Revenues were off 2 percent, or $79 million, from $5.11 billion to $5.03 billion.
Income improvements, the company said, came mainly from control on expenses and cost controls.
Mr. Case said the broker has won "major new business" from its competitors and added talent to its brokerage pool. Like others, Aon is suffering from the soft market prices, with brokerage commissions and fees falling 2 percent in the quarter, or $35 million, from $1.76 billion to $1.72 billion in 2005.
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 estimate.
"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 (vs. 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.
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