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2018 Annual Report

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2018 Annual Report 201 Financial Report 2019 Annual Shareholder Letter To Our Shareholders: For the last decade, Aon has been on a mission to become the leading professional services firm providing advice and solutions in Risk, Retirement and Health at a time when those topics have never been more important to the global economy. We develop insights—driven by data and delivered by experts—that reduce the volatility our clients face and help them maximize their performance. As part of our mission, we have also been laying the foundation to connect our global firm more effectively through our Aon United growth strategy. We have taken significant steps to evolve into the firm you see today; aligning our portfolio, investing in new content and capability, and addressing emerging client demands—all focused on increasing our relevance and strengthening our ability to better serve clients more globally and more holistically. In 2018, we took additional steps to reinforce and amplify this progress through structural changes that broke down barriers and made it easier to deliver the best of our firm to clients. x We established a single leadership team through the announcement of our global Aon Operating Committee overseen by co-presidents, which reinforced the single income statement we announced in 2017. A single leadership team encourages Aon United behaviors and decisions that accelerate growth by setting priorities for the entire firm instead of individual businesses. x We established a single brand, retiring remaining business unit brands (Aon Risk Solutions and Aon Benfield), following similar steps with Aon Hewitt in 2017. We now have approximately 50,000 global colleagues going to market as Aon to with a consistent focus on addressing client need through innovation and the delivery of distinctive solutions. x We continued to make progress towards uniting under a single operating model, with the acceleration of our Aon Business Services (ABS) organization, to deliver additional insight and connectivity while creating greater efficiency to drive increased operating leverage and productivity across the firm. Our ABS organization accelerates revenue growth through the centralization and simplification of our underlying business support infrastructure, creating greater focus of time and capacity for our client-facing colleagues. In addition, we organized two focused teams of leaders in 2018 to dedicate more of their time to value creation efforts. Our New Ventures Group, comprised of senior leaders from across the firm, was formed to accelerate industry-leading innovation and identify ways to better scale our internal capabilities with greater speed to market. Further, our Enterprise Client Group was formed to lead Aon United efforts with our largest clients by identifying superior, tailor-made solutions that address their specific business objectives. Both dedicated teams are starting to unlock significant value for clients and create new solutions that can then be applied more broadly, and faster, across geography and industries. These targeted efforts, combined with an increased leadership focus on developing new data and analytic service offerings, all reinforce Aon’s innovation agenda and long-term growth potential. Operating together as one firm, we can more effectively make decisions about where to invest to bring the best overall value to our clients globally and achieve the highest overall return for our business and shareholders. Our level of investment is unmatched in the industry and focuses on bringing first-to- market solutions and data and analytic driven insights to help solve problems and create differentiated value in response to specific areas of growing demand. We are extremely disciplined in our capital management approach, with a focus on maximizing cash-on-cash returns based on a Return on Invested Capital (ROIC) methodology. Further, in addition to significant organic investments that are expected to increase operating leverage and drive long-term growth, we returned $1.8 billion of capital directly to shareholders through share repurchase and dividends in 2018. Our team is proud to report that we delivered strong financial performance in 2018, with continued progress across each of our key financial metrics, which is a direct reflection of the initial success of our Aon United growth strategy. We delivered accelerated organic revenue growth, record operating margin, and adjusted earnings per share of $8.16; well surpassing our near-term target of exceeding $7.97 per share that was established nearly two years ago at the time of the divestiture of the outsourcing business. Our success as a firm in 2018 was truly the result of the tireless, Aon United efforts of our colleagues around the globe. x We strengthened our industry-leading portfolio of capabilities reflected in overall organic revenue growth of 5%, our strongest level of organic revenue growth since 2006; including growth across all five of our solution lines and highlighted by 5% growth or greater in Reinsurance Solutions, Commercial Risk Solutions, and Health Solutions. This level of performance continues to demonstrate an improvement in the firm’s growth profile as we focus our portfolio on our highest value solutions and client’s greatest needs; reflected in organic revenue growth that has increased from 3% in 2014 and 2015, to 4% in 2016 and 2017, and now 5% in 2018. x We increased our operating income by 18%, reflecting both core operational improvement and savings related to the restructuring program and other operational initiatives. Operating margin increased by 220 basis points to a record 25.0%. x We delivered 26% growth in net income per share attributable to Aon shareholders from continuing operations primarily driven by significant operational improvement and effective capital management. x We generated 198% growth in free cash flow, reaching $1.45 billion. When excluding the near- term cash impacts related to the divestiture of the outsourcing business, adjusted free cash flow increased 9% to $1.9 billion. Further, we have taken significant steps to continue to maximize the translation of a dollar of revenue into the highest amount of free cash flow, which we measure through increasing free cash flow margin. As the chart below highlights, we have consistently improved free cash flow margin since 2010, reaching 18.0% on an underlying basis in 2018. x We also delivered record Return on Invested Capital (ROIC) of 21.6% in 2018, an increase of 380 basis points since year-end 2017. We have improved return on invested capital each year since 2010, a total increase of 990 basis points, as highlighted in the chart below, reflecting our disciplined capital management approach. x Lastly, and highlighted in the chart below, we have also consistently outperformed the benchmark S&P 500 Index, delivering double-digit annualized total returns over the last decade. In summary, 2018 was another year of delivering on our commitments and continued progress. We took several structural steps to strengthen our firm, all while delivering strong financial results, increased value to our clients and colleagues, and consistent industry-leading returns for our shareholders. As we begin 2019, our team is excited about the outlook for our firm which is amplified by the considerable momentum we built in 2018. Looking ahead, we see continued upside in the Era of Aon United, as we drive towards our goal of mid-single digit organic revenue growth or greater over the long- term. This is amplified by our expectation of continued long-term operating margin expansion driven by three areas: continued revenue growth acceleration, portfolio mix shift towards higher contribution margin businesses resulting from disciplined investments, and on-going productivity improvements from our single operating model. More importantly, we are focused on continuing to maximize the translation of accelerating revenue growth into the highest level of free cash flow in three ways: operating income growth, continued progress on working capital initiatives, and structural uses of cash winding down. Declining uses of cash for restructuring, capital expenditures and pension contributions collectively are expected to free up roughly $620 million of free cash flow by the end of 2020. This adds significant upside to a base of $1.45 billion of free cash flow at year-end 2018, prior to any operating income growth or working capital improvements. Together these three inputs give us confidence in our ability to deliver on our goal of double-digit annual growth in free cash flow over the long-term. Further, we have opportunity for substantial incremental leverage, providing significant financial flexibility over the coming years to further deploy capital to the highest return opportunities, unlocking significant value creation opportunity for our clients, colleagues and shareholders. This is an incredibly exciting time to be a part of Aon. Thank you for the continued trust you have placed in our Board of Directors and management team. Your support is critical, and we will remain focused on exceeding your expectations. Greg Case Chief Executive Officer UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________________________ FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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