Strong Dollar %amp; Integration Costs Drops Willis 4Q Income 35%

Willis Group Holdings management reported fourth quarter net income dropped 35 percent as a strong U.S. dollar and costs for its integration of Hilb, Rogal & Hobbs bit into what it said was otherwise a strong performance.

Fourth quarter net income dropped $33 million from $95 million, or 66-cents a share for the prior year to $62 million, or 37-cents a share. Revenues increased 25 percent, or $160 million, to $799 million from $639 million.

The revenue increase came primarily from commissions and fees, which rose 28 percent, or $172 million, to $782 million, while investment income fell 29 percent, or $7 million, to $17 million.

The London headquartered firm reported fourth quarter organic growth of 6 percent, despite a 4 percent decline in its North America business.

For the year, net income dropped 26 percent, or $106 million, to $303 million, or $2.05 a share, from prior year $409 million, or $2.78 a share. Revenues for 2008 rose 10 percent, or $256 million, to $2.83 billion from prior year $2.46 billion.

Investment income fell 16 percent, or $15 million, to $81 million, while commission and fees for the year rose 12 percent, or $288 million, to $2.75 billion. Organic growth for the year stood at 4 percent, with international business leading the way at 9 percent.

During a conference call with financial analysts, Patrick C. Regan, chief financial officer, explained that foreign exchange translation impacted earnings primarily due to one of the firm's United Kingdom pension plans. Foreign exchange had a 23-cent negative impact on earnings per share in the quarter. He said the plan's surplus is small now and a similar impact is not expected in 2009.

The company also reported integration costs from the HRH deal totaled $4 million in the quarter. Donald J. Bailey, chairman and chief executive officer of Willis HRH, said the integration is complete and the aim now is to grow the business. He said $20 million of expenses was removed from HRH.

Willis, he said, has spent as much time on cultural integration of the firm as on business integration.

Prior to the acquisition, the Richmond, Va.-based broker received $50 million in contingent commissions. Mr. Bailey said Willis has converted 60 percent of the contingents into upfront commission payments.

Joseph J. Plumeri, chairman of the board and CEO of Willis Group, said he expects the North America business to begin performing better in 2009 as the distractions from the HRH integration wane and insurance rates begin to stabilize.

However, he cautioned that the unknown future of the economy makes it difficult to say what the benefit of the increases will be for Willis if customer's buy less insurance. He said Willis would not issue earnings guidance due to the uncertainty.

However, he was upbeat about the firm's future, adding, "I like the way we ended this year and like the way we go into next year."

Executives said they are investing in the future with 400 new hires internationally. However, according to the financial information it released, the firm eliminated 350 positions in 2008 amounting to $24 million in severance costs.

The company also reported it reduced its $1 billion bridge loan to $750 million and intends to payoff the loan in the first quarter. It will replace its lending with $500 million long-term debt financing obtained through Goldman Sachs Mezzanine Partners.

Willis also announced it would pay a quarterly cash dividend of 26-cents a share on April 13 to shareholders of record as of March 31.