Aon - Earnings Call - Q4 2020
February 5, 2021
Transcript
Speaker 0
Good morning and thank you for holding. Welcome to Aon plc Fourth Quarter and Full Year twenty twenty Conference Call. It is important to note that some of the comments in today's call may constitute certain statements that are forward looking in nature as defined by the Private Securities Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. Information concerning risk factors that could cause such differences are described in the press release covering our fourth quarter and full 2020 results as well as being posted on our website.
Now it is my pleasure to turn the call over to Mr. Greg Case, CEO of Aeons plc. Sir, you may begin.
Speaker 1
Thank you, Catherine, and good morning, everyone. Welcome to our fourth quarter and full year twenty twenty conference call. I'm joined virtually by Krista Davies, our CFO and Eric Anderson, our President. As in previous quarters, we posted a detailed financial presentation on our website. There are very few firms who can say they ended 2020 stronger than they began.
And I want to thank our colleagues for making Aon one of those firms. Our team delivered a tremendous year set against the public health and economic impact of COVID nineteen and an overall unprecedented level of global volatility punctuated by social unrest around the world. During the year, colleagues our came together to deliver results for clients, to both time and energy to getting to know the Willis Toward Watson team and integration planning for our pending combination and to support each other through personal and professional challenges. One silver lining that we heard over and over from colleagues was that 2020 was a year of increased connection across our firm. We saw our colleagues respond to the virtual environment by replacing in person connections with introducing experts and sharing thought leadership with clients.
We felt the impact of that connectivity as our COVID nineteen task force ramped up to share insights and best practices. And we saw it translate into client success as local teams won new business by seamlessly bringing together colleagues from across the globe. By all accounts, 2020 tested our firm. Looking back, it's clear that our colleagues not only passed, but that this adversity actually accelerated our one firm strategy. Seeing our colleagues come together and forge stronger connections in new ways was inspirational, And we'll build on these positive learnings and practices in 2020 as we continue to reject the constraints of the so called new normal and instead look forward to defining a new better on our terms as we begin 2021.
Turning to financial performance. In the fourth quarter, we delivered a great finish to the year with 2% organic revenue growth across the firm, including 12% growth in reinsurance solutions and 4% growth in commercial risk solutions. As in recent quarters, organic revenue growth in the fourth quarter was driven by strength in the core areas of our business, reflecting the resilience of our firm in a challenging economic environment, overcoming ongoing unexpected pressure in the more discretionary areas. In particular, we would highlight growth in the core, driven by ongoing strong retention and net new business generation as we continue to deliver innovative solutions to our clients in a challenging environment. We saw increased organic revenue growth as compared to the third quarter despite the somewhat larger portion of more discretionary revenues in the fourth quarter.
The strong results stemmed partially from improvements in economic factors and sentiment around the virus and vaccine, which drives client buying behavior and investment. For example, we saw positive impacts to our revenue from construction starts and m and a activity in The US as well as from employment levels. I would also note that in more discretionary areas, we're seeing meaningful variation in revenue growth across our businesses, with some recovering more quickly and some more slowly, largely driven by external factors tied to economic reopening and recovery. For example, I would highlight strength in voluntary benefits and health solutions and construction and commercial risk. I would also note that more discretionary areas like travel and events within data analytics and even capital within retirement solutions continue to be impacted by economic and pandemic related conditions.
Our strong finish in q four contributed to full year financial results that demonstrate the strength and resilience of our business in this uncertain economic environment. For the year, we delivered organic revenue growth of 1%, operating income growth of 4% with full year operating margins of 28.5%, an increase of 100 basis points from 2019, and free cash flow growth of 64% to 2,600,000,000.0, the highest free cash flow in the history of our firm. This outstanding progress against each of our key financial metrics is a direct result of our one firm strategy, which guides everything we do in supporting colleagues, delivering value to clients, and driving shareholder value. We are well positioned to continue to build on this momentum. And while we see many positive signs for the economy, significant uncertainty remains, and we expect the recovery will remain inconsistent.
We continue to monitor several key factors, including GDP, asset values, corporate revenues, and employment. As we look to 2021, though significant uncertainty remains, we expect as economic conditions continue to stabilize and improve, we anticipate modest growth in q one with growth increasing toward mid single digits as we continue through the year. Looking back, the challenges we faced in 2020 underscore the importance of our colleagues, our culture, and our commitment to inclusion and diversity. We've long observed that leaders who embody one firm are our most successful leaders, both in delivering business results and driving colleague engagement. And this year, we've seen that in such a leadership trait results in even stronger engagement and confidence in the combination as measured in a January poll survey reflecting high engagement and consistently lower voluntary attrition, which decreased by 35% year over year from 2020 with strength in every major region and solution line.
Further, we know the diverse talent, expertise, and insights of our colleagues are vital to the success of our firm and our clients, and we continue to invest to attract, grow, and retain the best talent. In support of this priority, we announced the expansion of our apprenticeship program, including an investment of 30,000,000 over the next five years, and development of a nationwide network of employers to create 10,000 apprenticeships by 2030. With this expansion, we're building on our already successful program, which bridges the gap from education to employment by bringing high school graduates into the workforce while they complete their college education. This program provides a fantastic pipeline of diverse talent and embodies our commitment to inclusion and diversity. In addition to emphasizing the importance of our colleagues and our culture, the events of 2020 exposed the interconnected nature of risk and vulnerabilities in many companies.
Our recently published 2020 risk report highlights the increasing likelihood of connected extremes and reinforces that leading organizations of the future will be defined by their ability to manage the global implications of long tail risks. In this survey of over 500 organizations across geographies and industries, eighty two percent did not have pandemic in their top 10 risks before COVID nineteen struck, and only thirty percent had a pandemic plan in place. Looking forward, respondents overwhelmingly agreed on the need for an enterprise wide approach to risk. We know that existing and emerging long tail risks will continue to challenge organizations across all industries and geographies. Organizations must prioritize strategies to address risk and resilience.
We also know our strategy enabled us to support clients in this changing landscape because it enables us to understand their biggest challenges and bring world class content, capability, and innovative solutions to bear. And while we didn't architect our pending combination with Willis Towers Watson with the pandemic in mind, we see that the pandemic and its associated economic impacts have increased our conviction and the need to accelerate innovation to address client demand. On the topic of Willis Towers Watson, our excitement about the combination as well as the leadership and talent from both sides continues to grow. Last week, we reached another important milestone with the announcement of the combined executive committee that will be in place once the combination is closed. This team embraces the commitment to a one firm mindset and brings together the best expertise, talent, and leadership from both organizations.
This team also brings to the table an exceptional set of experiences and capability reinforcing the power of inclusion. As we said before, our culture is built to bring the best of our firm to clients. It's an essential part of how we operate our firm and drive results. At Willis Towers Watson, it's clear that their culture is equally focused on putting clients first. This newly announced team will blend the best of those cultures, and that client focused mindset will guide everything we do.
In summary, 2020 was a momentous year. Our performance and actions throughout the year reflect exceptional resilience and are the result of structural steps and investments we've made to ensure we're ready to not only take on but grow stronger in the face of these challenges. Further, we've demonstrated momentum that will accelerate in combination with Willis Towers Watson. We begin 2021 in a position of strength to continue executing our strategy and making progress on our key financial metrics, both the standalone Aon and in our pending combination with Littelfastar's Watson, creating a significant growth opportunity for clients, for colleagues and for shareholders. Now I'd like to turn the call over to Krista for her thoughts on our financial progress this year and long term outlook.
Krista?
Speaker 2
Thanks so much, Greg, and good morning, everyone. As Greg highlighted, we delivered a strong operational and financial performance in Q4 to finish the year despite continuing macroeconomic challenges, demonstrating the resiliency and strength of our business in any economic environment. Turning to our results. We delivered organic revenue growth of 2% in the fourth quarter and 1% for the full year, driven by ongoing strength in our core business, offset by pressure in our more discretionary areas. I would note, total reported revenue was up slightly, overcoming a nearly $100,000,000 headwind from the unfavorable impact of changes in FX as well as lower fiduciary investment income due to lower interest rates globally.
We also delivered operational improvement for the full year with operating income growth of 4% and operating margin expansion of a 100 basis points to 28.5%, continuing our trajectory of long term sustainable margin expansion. For the full year, adjusted operating expense declined 1% due to expense discipline and a reduction in travel and entertainment, offset by increased compensation costs. Adjusted operating expenses increased 4% in
Speaker 3
the fourth
Speaker 2
quarter. Putting q four in context, due to the significant uncertainty we saw during the year, we tightly controlled our expense base and level of long term investment in the business. During 2020, our organic revenue growth improved sequentially in the second quarter through the fourth quarter as internal and external factors contribute to a strong finish to the year. This led to a year over year increase in compensation benefit expense in the fourth quarter, a portion of which was variable compensation. This resulted in a full year increase in adjusted compensation and benefit expense of 1%.
I would also note that compensation expense increased in part because of our commitment during 2020 to retain all 50,000 colleagues as well as lower voluntary attrition which Greg described. As we said before, we make decisions on expenses and margins in the context of each full year and expect to continue to drive margin expansion in 2021. For the full year, we translate strong operational performance into EPS growth of 7%, overcoming a headwind from FX translation. If currency to remain stable at today's rate, we'd expect a favorable impact of approximately 20¢ per share or approximately approximately $60,000,000 of operating income in the 2021 due to a weaker dollar versus the euro. A key driver of our operational success has been the history of investment in our Aon Business Services platform, which has undergone a significant transformation over the last several years.
The journey began with initial group of 4,000 colleagues after the divestiture of our outsourcing business in 2017. By centralizing activities, eliminating inefficiencies, and promoting standardization, we delivered higher quality service levels and cost savings with better scalability, flexibility, and enhanced colleague experience. Today, approximately 13,000 of Aon's 50,000 colleagues are part of Aon Business Services, focused on driving operational improvement and enhancing how we serve clients. In 2020, for instance, we completed our data center consolidation program in The Americas, closing an additional 10 data centers and achieving 23,000,000 of annual savings. We increased usage of our digital signature tool by over a 110, saving more than sixty five thousand hours annually.
We renewed 90% of the nearly 9,000 US commercial risk paperlessly. And we improved our global operations and shared capabilities by delivering over a million hours of automation, freeing colleague capacity for high value activities with clients. Looking forward, we expect to leverage platform to continue to drive sustainable margin expansion. In addition, we see opportunities to embed best practices around agility and connectivity into how and where we operate, ultimately reducing our overall real estate footprint over the long term. Turning to cash and capital allocation.
Free cash flow increased 64% to 2,600,000,000.0, primarily driven by working capital improvements, including improved collections, a decrease in restructuring cash outlays, and strong operational improvement. We remain focused on maximizing the translation of revenue into the highest level of free cash flow as highlighted by our free cash flow margin of 23.9%, up substantially from last year. We allocate capital based on return on invested capital, cash on cash returns. We continue to maximize shareholder value creation highlighted by the 800,000,000 of share repurchase in the quarter and nearly 1,800,000,000.0 in 2020. In 2021, we expect to continue to allocate capital according to this framework, and we expect share repurchase will continue to be our highest return on capital investment given our free cash flow evaluation and outlook.
We expect to remain highly focused on closing and then successfully integrating our combination with Willis Towers Watson. Following that, we expect to continue to invest organically and inorganically in innovative content and capabilities in our priority areas. We remain very confident in the strength of our balance sheet and manage liquidity risk through a well lighted debt maturity profile. Historically, we've looked to increase debt as EBITDA grows while maintaining leverage ratios. However, due to uncertain macroeconomic conditions, we expect to continue to manage our leverage ratios conservatively in the near future and return to our past practice of growing debt as EBITDA grows over the long term.
As I look towards 2021 and our pending combination with Willis Towers Watson, I'd like to reiterate how excited we are about the newly announced leadership team and the significant shareholder value creation potential we see in bringing together our two complementary businesses, both from the top line growth driven by accelerated innovation for clients and from the bottom line impact of 800,000,000 in cost synergies. We continue to work collaboratively with the appropriate regulators to gain approvals and are focused on achieving a result that optimizes shareholder value. We remain committed to our expected close in the 2021. In summary, our business has shown resiliency through the challenges of 2020. Our Aon United strategy underpinned by our Aon Business Services operational platform has enabled historically high free cash flow of 2,600,000,000.0 and enabled us to return nearly 2,200,000,000.0 of capital to shareholders in 2020.
As we head into 2021 to our pending combination with Willis Towers Watson, this momentum will continue to enable long term shareholder value creation. With that, I'll turn the call back over to the operator and we'd be delighted to take your questions.
Speaker 0
The first question is coming from Dave Stybile of Jefferies. Your line is open.
Speaker 4
Hi there. Good morning. Thanks for the question. I wanted to circle back on your 2021 comments and appreciate the color there on the organic revenue cadence, which seems to make sense. I did want to ask a little bit more about the margin expansion opportunity.
I know you talked about they're still having an ability to expand margins this year, of course. And in that context, is it still going be tough to achieve 70 to 80 basis points of margin expansion towards your long term target given that you still might not have fully returned to the normalized cost base? Or are there other efficiencies that you've been able to realize through COVID, more work from home or other efficiencies, lower travel and expenses, that that still might make that that range feasible this year?
Speaker 2
Thanks so much for the question, Dave. So, we are certainly committed to margin expansion in 2021, and we don't give specific margin guidance in terms of how much we would grow each year. But as you, noted, Dave, we've driven long term margins of 880 basis points over the last eleven years, so 88 basis points a year on average. And we you know, that is really driven by accelerating organic revenue growth, the portfolio mix shift to higher revenue growth, higher margin areas, and, obviously, as you noted, the Aon Business Services platform continuing to drive productivity and efficiency for us, and that will continue to occur, Dave, in 2021. We're really excited, as Greg highlighted, about accelerating growth, year over year, trending towards, you know, mid single digits in in the, in the second half of the year.
And, you know, the margin expansion will be a result of that growth, the portfolio mix shift, and and the productivity from Aon Business Services.
Speaker 4
Okay. Thanks. And then just on the free cash flow setting off point from the 2,600,000,000.0, you know, had had some easier tailwinds of of things that weren't, gonna recur in 2020. As as you jump off from that, though, is there anything to note that's unusual in the 2020? Is basically a clean number to go from there?
And then a related question to that, I know you've been continuing to make progress towards your $500,000,000 of working capital improvement over time. How far into that? How much of that have you achieved so far?
Speaker 2
Yeah. So, Jay, first of all, the 2,600,000,000.0 is a clean number. And so that, you know, there's nothing unusual about that number. And then in terms of working capital, we obviously made some progress on working capital as you saw in 2020, but we'd actually say that the 500,000,000 is still the right long term target for AR on working capital. So, and, Dave, the thing I think I've said before on that 500,000,000 is that's just the number that gets you to working capital neutral.
There are several countries in which we operate where we're working capital positive. We think that is entirely reasonable for a professional services firm. And so we think that a 500,000,000 is a conservative number. And we're definitely targeting underlying free cash flow growth over the long term in the double digit range.
Speaker 4
Okay. Great. And then maybe a question for Greg and Eric just about client engagement and retention, how that is looking as you go forward into the year and new opportunities that continue to emerge just from COVID. Maybe any changes in client demand or services Aon should bring to the table better than peers that you would highlight?
Speaker 1
Maybe I'll start with that, Dave, and then Eric showed a number of examples we could draw from. Let's say, listen, as client, you know, need and pressure continues to increase, it really does give us a great opportunity to connect with them. And, you know, for all of its challenges and issues that COVID has brought to us, and they've been many, one of the things that's also done, you know, with our end business services platform has allowed us to connect the clients even more effectively. Even yesterday, I was on a call that, you know, would have been a client meeting a year ago with 100 clients plus. We had 1,000 clients on yesterday.
And so our ability to actually connect with clients and actually demonstrate, you know, the full capability of the firm at a time of high need is actually going up. So you're seeing more and more examples of our ability to drive new business, but as well as, you know, do more with existing clients given the capabilities we've gotten. It really is happening all across the firm. Maybe, Eric, couple of examples from your stuff standpoint. Bring it bring it.
Speaker 5
Sure. Sure, Greg. And I and I think it's really based on the Aon United model that we've been working on. You know, where you certainly have to be excellent in each of our subject matter capabilities and topics, but you have to work together to manage the client in a more holistic way. And so, you know, topics like health, retirement, talent are all really front line when you think about the COVID angle of the question.
And these topics aren't going away. You know, how we deal with voluntary benefits, pooled employer plans, comp insights, all critical as our clients are looking to manage their colleagues through this pandemic, not to mention sort of the return to workplace. So as we look out in '21, we see a lot of opportunity to really help our clients during the challenging time.
Speaker 4
Thanks guys. Appreciate it.
Speaker 0
The next question is coming from Alisa Greenspan of Wells Fargo. Your line is open.
Speaker 3
Hi, thanks. Good morning. My first question, you guys had pointed to the larger discretionary piece of your business in the fourth quarter as serving to pressure organic. You guys came in at positive too. So it seems like there was much better strength across many of your businesses probably than you expected three months ago.
So maybe if you could help us understand that. And then with that same discretionary piece, you know, given that reinsurance is a bigger component of the q one, I'm assuming so that would serve as a tailwind to Q1 organic just given that more of the reinsurance business comes on in the first quarter. Is that factored in to your guide?
Speaker 1
We really appreciate the question. As Eric has highlighted, there's so many opportunities that continue to emerge, to help clients, you know, at times of at times of need, and that, you know, they just continue to emerge around the world. Some of them are happening faster than we thought they would. Just think about the momentum into the fourth quarter. It really was in the core, and we continue to perform well there.
And then the discretionary pieces, you know, as there was some, you know, promise on the on the on the recovery front, the vaccine front, etcetera, we saw some of those discretionary areas, you know, like TL transaction liability and construction employment levels, you know, begin to come up. But by the way, other areas, we still saw the pressure. I I mentioned travel and events for as an example, and and some others. So it still remains mixed, but the trend is positive. And what you're really seeing is us, you know, enabled to kind of interact in a very, you know, in a very positive way with clients.
And you're seeing that sort of build into Q4. You're also seeing it as we think about our opportunities in 2021. On the reinsurance front, you know, again, team is fantastic. Eric, you talked about that sort of as we we end as we end Q4, the implications and also the thoughts for for the first in 2021 on the reinsurance side of the great work by the team.
Speaker 5
Yeah for sure certainly you know Q. Four is always been our smallest quarter of reinsurance that's been dominated by the target by fact and investment banking. There was some good treaty wins that happened certainly there's a lot of lot of action going on in that space- in the third and fourth quarter. In terms of new clients new company creation. And the like until we were there to be able to help those those new clients and existing clients really reposition their portfolios as they went into '21.
I would say that continued into the first quarter as- you know the market dynamics being what they are the insurers are certainly looking to position. And get support where they needed as they look to grow their own portfolio so- great quarter certainly on the back of a fantastic quarter a year ago. So to see that kind of growth this year off the back of the 70% comparable was a special quarter for the team, I think that momentum is carrying into the first quarter of this year.
Speaker 2
The only other thing I'd add, is, Elyse, that, q one twenty twenty was a very, you know, strong comparable for us because it largely was completed before COVID hit. So And while we've had terrific momentum coming into 2021, as Eric and Greg described, that, you know, difficult comparable means that q one is likely to be a lower growth quarter than the balance of the year.
Speaker 3
Okay. That's helpful. And then in terms of, expenses, right, I think you guys alluded to, right, higher higher expenses in the fourth quarter. Just, obviously, the year came in better than you expected of just tying back the comp and then obviously, less less employee turnover, I think you said. But if I look at the quarters, right, the q one, your expenses were close to flat last year.
Like, is there anything seasonally that you can point out with the expenses as we think to 2021 and obviously recognizing that you don't really guide the margin for the quarter, but anything within the expense base that we should be thinking about?
Speaker 1
No. At least there really isn't. You know, we we would encourage you to step back and think about it. 2020, was truly exceptional, literally. And when think you about COVID-nineteen, and we grew organically 1% versus last year at six percent, which was one of our all time highs, expanded margin 100 basis points from 28.5 and free cash, as Krista described, to the highest level in our history, grew at 60%, 60 plus percent.
And this momentum that we built throughout the year in 2020 is, you know, we believe we're gonna carry over into 2021. So there really isn't anything we would focus on in q four that you would really over rotate on. But it does reflect, you know, really, the great work of our colleagues in improving external factors, which impacted, you know, client find the areas I described. But we wanted to really recognize the performance of our colleagues in the year, and that certainly shows up. But we'd encourage you to sort of think about the overall year and the overall momentum that we've built and how it's gonna carry into 2021.
Speaker 3
Great. And then one last one. You guys laid out, right, the mid single digit for greater organic later in the year. I'm assuming that factors in, right, that you will close this merger at some point in the first half of the year, obviously, undergoing, some regulatory reviews. So can you just give us an update?
I think you said close this year. Just update timing wise and, things where you expect on the regulatory front, and I'm assuming you still expect this deal to close, you know, at some point in the 2021.
Speaker 2
So thanks so much for the question, Elyse. What I would start with is saying, you know, the guidance we gave on revenue was we're moving towards mid single digit, you know, over the course of the year, so not greater. The second thing I'd say is the guidance is Aon only. We certainly wouldn't give guidance to the combined until we close. And then third, we are on track to close in the first half of the year, as we've outlined when we announced the deal.
Speaker 3
Okay. That's helpful. Thanks for the color.
Speaker 0
The next question is coming from Jimmy Bhullar of JPMorgan. Your line is open.
Speaker 6
Hi. Good morning. So first, I just had a question on the transaction and the Willis deal. You've already obviously put together a management team, so seems it like you're confident that the deal will go through. But what are your views on potential dispositions as you go through the regulatory approval process?
And I think you've said in the past you wouldn't have to do much, but has that changed now as you've had more time?
Speaker 2
Thanks for the question, Jimmy. We remain incredibly committed to our combination with Willis Towers Watson. I'm thrilled about the nearly announced leadership team as you described, who will lead us in accelerating innovation on behalf of clients and create shareholder value. The businesses are complementary and operate in competitive areas of the economy, and we believe we've got the arguments and evidence to ensure a positive outcome. We continue to work collaboratively with the appropriate regulators to gain approvals in a timely manner.
And as we've said since we announced the deal, we expect to close in the 2021, and we're on track to do that.
Speaker 1
And I would add to that. I want to come back to the hold list for a second if I could. Obviously, we're gonna operate completely separately until we close. There's no question about that. We have in every day, shape, or form.
But we haven't had a chance to sort of get this group together and begin the planning process. And it's just been incredibly extraordinary, very gratifying to see this this kind of talent come together to think about what the possibilities are in the future of the firm, both in helping clients in the here and now, but also on thinking about how we can help them and some of most important issues as they come forward. And certainly pandemic the year of pandemic has certainly highlighted a number of those, but when you think about climate on the horizon, things like intellectual property, cyber, all these things sort of out there. And this team has really, begin to come together thinking about a one firm, approach to how we deliver the best of our capability. And it's really been, it's been extraordinary.
Very, very invigorating for all of us since we've come together.
Speaker 6
Okay. I guess we'll find out when the approvals come through. But on the and then relatedly on the cost savings, as you've looked more into the business and have you do you like, it seems like the 800,000,000 target you've outlined versus historical deals is somewhat conservative. Have your views on that changed at all?
Speaker 2
So, Jimmy, we would say, we remain at the place where we've, been, which is the 800,000,000. We feel really confident in achieving. It is five and a half percent of the combined cost base that compares to 11% of the combined cost base we achieved today on Hewitt and 18% of the combined cost base we achieved today on Benfield. And, you know, the components of that, you know, are people and IT and real estate. And as we've got into the integration planning, we feel extremely confident about achieving the 800,000,000.
And as we've said, you know, this year, we you know, we're very sort of confident about achieving that through this you know, based on the strength of our Aon Business Services platform, which is allowing us to bring together the operations of Aon and drive improved quality, consistency, and then efficiencies over time.
Speaker 6
Thank you.
Speaker 0
The next question is coming from Greg Peters of Raymond James. Your line is open.
Speaker 7
Good morning. Thank you for taking my questions. My first question is, you've had a lot of time obviously to study the Willis Towers operations. And one of the areas where I feel like the company has been having delivered the full benefit of margin improvement would be in their corporate risk of broking business. As you've looked at that business, can you walk us through how your views are on how you can, when it's combined with Aon, how you can deliver the margin improvement that you're thinking about?
Speaker 1
Greg, let me just talk for a couple of thoughts on that. First, I'll just get back and say, we have had a lot of time, in the planning process, you know, over the course since since we announced in March. And I will tell you, as we continue to to compare notes on the possibilities, again, we can't operate together until we close in any way, shape, or form. Our our excitement on the possibilities continues to build, and it really is in multiple areas. Just core content and capabilities that exist across both organizations, You know, we had very high expectations when we announced March 9.
You know, they've been exceeded substantially in multiple categories. And we think about the opportunity, you know, to drive growth, organic growth on behalf of clients, and you see it in multiple categories. All these things come together to reinforce, you know, opportunities to both drive top line and also drive margin improvement, which, by the way, we see for for Aon front and center before we get any place else. So we just wanna highlight, you know, we see tremendous opportunity both on the top line side and on the margin side for the combined firm for all the reasons Chris has outlined. And everything we've seen since March 9 has only reinforced that.
It's just been terrific.
Speaker 7
Great. And the second question, I'll pivot back to the organic revenue growth. I mean, we're watching and listening to all the carriers that have reported talk about how the strong pricing environment has helped not only improve their margins, but improve their revenue growth. And it seems like for Aon that there's been a tailwind benefit on the pricing side. And I'm wondering if you can sort of reconcile the difference between the benefit from pricing and the actual benefit to organic for you guys from unit count growth, if that makes sense.
Speaker 1
Well, certainly does. Greg, we would come back and say, listen, from an overall pricing table. We really look at, you know, market impact, which is really a function of, you know, how you describe price and then insured values and all of them to come with that. And then it really is client behavior. And so from our standpoint, you know, we would say all the pricing impacts have really had, you know, modest impact on our performance.
It really is around what we're doing fundamentally with clients. Maybe ask Garrett to give a couple of examples of where this is. But but really, Greg, just from we step back, it really is about, you know, this is when this is when Aon can really show up and help clients succeed in times of need. And they do a lot of, you know, a lot of reconfiguring as we think about sort of as the environment changes. But maybe Eric, a couple of examples if if that makes sense.
Speaker 5
Sure, Greg. It's never really a straight line between what the carrier points out is what they say is the unit price versus what a client actually does. You know, maybe to put it in a little bit of context. You know, when we sit with a client, we first do the risk identification process They're trying to help them understand exactly what risk they're trying to protect. Can they mitigated themselves in a way that either through contracts or different changes of behavior?
And can they finance it themselves? Right either through a captive or just using their balance sheet. So a lot happens with a client before they even risk transfer. So just always good to keep that in mind. But when they do decide to risk transfer, you know, they certainly go into a market, and we we help them with insight with regard to options and structures and, whether it's retentions or deductibles, coinsurance limits, a variety of things that clients will look at in terms of what their budget is able to do, and they'll make their trade off.
So it's never really a straight line as to the unit cost as to what the client behavior actually sort of manifest itself in. And you see that in a couple of distressed products that are out there today. Certainly Dino is one that's gotten a lot of attention. How we work with clients to help them make those choices in terms of the protection that they provide cyber is another property and, you know, catastrophe exposed areas. So there's a lot that goes into before they go to market as opposed to what they buy inside the marketplace.
And so, you know it is is frankly an area where our teams have been focused on now for the last twenty four months as the market has got firmer. To help clients make those trade offs because they're dealing with the market place now. At a time where many of them are feeling stress in general on their own business And so how do they make those trade offs become more acute, in the last, certainly in the last twelve months and would expect that that that behavior and that process would continue going into this year.
Speaker 1
Got it.
Speaker 0
The next question is coming from Suneet Kamath of Citi. So
Speaker 4
one question we get a lot from investors is that when you think about combination with Willis that some of your clients may want to sort of limit their concentration to one broker, one advisor. Can you just provide some color on how you're thinking about that, maybe influenced by the conversations that you're having with your clients?
Speaker 1
Steve. I'll start with the following. We have it's always been our practice. We step back and sort of we get tremendous amounts of client feedback. We call it Voice of the Client, and we've done it really for the last decade and continue to sort of probe into that.
Obviously, since the March 9 announcement, we've done a tremendous amount of of work voice of the client, getting their insight, guidance, perspective, views, on how we can better, you know, best best support them and serve them. I would say it's been overwhelming. As we dig in with clients and they understand, that we're all about bringing them the best of them now, all things they could do in the current environment. Eric just described a number of different challenges are out there and how we're gonna help them help serve them better. But also the challenges, you know, that are used to be on the horizon are now in their doorstep.
And they're asking questions around what about the next pandemic? What do we do? How do I think about cyber? Right? The market's still relatively small, $67,000,000,000 against a, you know, a connected, you know, client, you know, impact of, you know, closer to a trillion.
You know, what do we do about that? By the way, they they know climate's gonna be front and center, already is, but really gonna be front and center as pandemic has decided us or behind us. So they're asking questions to me around how do I address these long tail risks that are being asked of me by my you know, by CFOs and CEOs and boards of directors. So what I'm trying to highlight is need has never been higher, and the solutions that we must bring to bear has got has got to evolve. We have to be better in supporting them.
And we, as the, you know, we start with Aon, the entire industry, and they see this combination as a chance to reverse a trend in which our, you know, overall relevance has actually declined as a percent, you know, risk as a percent of GDP over the last thirty years. And they see real promise in that. So our feedback has been overwhelmingly positive across the globe on what this combination could mean for them, and we're very excited to work hard to meet those needs on their behalf.
Speaker 4
Got it. And then just on the regulatory approval front. Yesterday, there was a bill that was introduced around potential changes to antitrust reform. I know your deal was announced a while ago, but do you see anything from the new administration, considering yesterday's bill, that could impact the timing, of the approvals that you get, you know, from the regulators?
Speaker 2
Look. We appreciate the questions, Denise. But what we would say is, as we've said, we've since we announced the deal, we expect to close in the 2021, and we are on track to do that. And so we are really excited about, the combination of Willis Towers Watson and our newly announced leadership team who will help us in accelerating innovation for clients.
Speaker 1
Okay. Thanks.
Speaker 0
The next question is coming from Meyer Shields of KBW. Your line is open.
Speaker 1
Thanks. Two questions, I guess.
Speaker 8
I understand that the outlook for organic growth is for Aon alone. I was hoping you could help us at least think about directionally whether the combination with Willis and the associated innovation, would that outpace the sort of necessary distractions of integration, or should we expect maybe, some slowdown in organic growth in the earliest parts of the combination post close?
Speaker 2
So, Maya, one way to answer this is, if you recall on the March 9 when we announced the combination, we actually gave guidance for the combined firm of mid single digit or greater. And I would note that that is higher than what Willis Towers Watson had produced historically. And the reason and we did mid single digit growth or greater from year one. And so that gives you a sense of how confident we are in the new areas of, you know, unmet client need in our existing business and in brand new areas of demand where there are no products and solutions today, areas like intellectual property, climate, and cyber. So we're really excited, Maya, about the growth potential of the combined firm.
Speaker 8
No. That's very helpful. Second question, Chris, in your opening comments, you talked about, inorganic growth after, closing on Willis Towers Watson. And I was hoping you could flesh that out in terms of whether we should think about that in your current business lines or maybe new opportunities for business services.
Speaker 2
So, Maya, I would say we're really excited about the potential to invest organically and inorganically, in in content and capabilities in areas like digital where we, you know, we obviously, acquired CoverWallet earlier in, you know, 2020, in areas like intellectual property, in areas like climate, in areas, so in lots of areas across our business. And so there are many priority areas, my I would say, where they are higher revenue growth, higher margin, higher return on capital businesses, and we're really excited about investing in these areas to develop new solutions for clients to meet their unmet needs.
Speaker 4
Great. Thank you.
Speaker 0
And our last question is coming from Phil Stefano of Deutsche Bank. Your line is open.
Speaker 9
Yes, thanks. In discussing debt leverage, it feels like the plan is to keep it low versus historical leverage at this point and then we continue to grow debt with EBITDA. Was this a structural shift downwards in what you think the appropriate debt leverage is at this point? Or is there some kind of debt issuance catch up coming in the, you know, in in the out years as, the uncertainties of the current environment, you know, abates?
Speaker 2
Yes. Thanks for the question, Phil. What I would say is, it's really about the fact that we're managing conservatively, our cash level, given the macroeconomic uncertainty, which still remains. And we're obviously heading into q one, which is our seasonally lowest, you know, free cash flow quarter of the year. But I'd say, you know, we're fully committed to maintaining our current credit rating.
And, you know, longer term, we'll look to increase debt as EBITDA grows while maintaining leverage ratios.
Speaker 9
Okay. For the the the the FX impact, had highlighted 20¢ impact in first quarter twenty one. I can you frame for us what this could look like, you know, at at current exchange rates for the full year or even, you know, looking past first quarter?
Speaker 2
We we haven't given that guidance, Phil. But what I would say is q one is the majority of the impact to the year. It's primarily driven by a, higher euro versus US dollar, and, and q one is our euro centric quarter.
Speaker 9
Okay. Alright. And and the last one for you, and it's a it's very philosophical, so I apologize for that. But I I thank you for the comment on the the expanded apprenticeship program and how it impacts diversity inclusion. I guess I was hoping you could talk a little bit about ESG and the strategy there.
And part of to me what is underlying this question is we've seen some carriers step away from from certain products like coal and that they're not gonna ensure projects like that anymore. I mean, look, you know, when I think of Aon, I think of a solution for for unmet unmet needs and being strategic in how you help clients place that risk. But if carriers are stepping away from things like that, I you know, to me, there could be competing efforts of you being a solution for unmet needs, but also having your own ESG policies that maybe, you know, maybe coal isn't isn't within your So, you know, coal is just an example, but you can talk more broadly than that. But just to help you, you know, clarify how I'm thinking about this.
Speaker 1
Well, listen, it isn't philosophical at all. It's a terrific question. I really appreciate it, sir. Listen. We are absolutely, committed in every way to implementing ESG best practices internally for sure, and promote resiliency.
But listen, the piece you're on is is so important. The role the industry can play, relating to climate is isn't just a pressing problem. It's one of the greatest opportunities for us. Again, if you think about where we are, you know, everyone's focused on pandemic in many respects now, but this is just, you gets decided to behind us. You know, climate change in our view is gonna be front center.
And it's gonna be a challenge when you think about matching capital with risk, not to solve what energy source it is, but literally the transition risk to clients, transition pressure, to get the transition volatility of the client encounter as they think about going from point a to point b. That's the that should be our wheelhouse. That is how do we identify capability, how do we identify capital to help them do that. And the combination with Willis Towers Watson, we believe, will be formidable. There's tremendous capability in Willis Towers Watson that John Haley and the team have done a great job developing over time.
That combined with what we have, we think we have a shot to really make a difference, helping clients make better decisions as they think about this transition volatility that everyone is gonna encounter as we think about addressing the the climate challenges. So, you know, this is a high priority for us inside of Aon in our own world for sure. And you'll see that, by the way, we're an upcoming 2020 impact report that's gonna detail our commitment around, you know, carbon neutrality and all pieces around that. But, really, the opportunity here is what we can do on behalf of clients. And it is, in our view, again, another op you know, it's just not it's just not been addressed in a way that's that's meaningful, and it's a real opportunity for the industry to make a difference, and and we look forward to doing it.
Speaker 9
I just one quick follow-up on that. I I guess part of the question is, is there is there a conflict? Am I thinking about this right? That that some of the clients who have unmet needs, you you you may not be able to meet those needs simply because of your own ESG framework and and certain pieces of environmentally risky business that, know, you might want to get away from.
Speaker 1
Yeah. Listen. At the individual level, there's always different circumstances that are gonna come up. If you take a step back and think about the implications of the climate change overall, this is this is the global economy. This is, you know, largely massive massive challenge around increased volatility that's gonna be absorbed by companies as they address this challenge.
Our ability to help reduce that over time, is, we think, substantial. And that is why, in the end, this is a massive opportunity. It's gonna require, though, you know, new insight, new innovation, evolution beyond what our industry has done, beyond what we have done. And that's why back to why the combination, what's it all about? It's about being able to address some of these types of these issues.
Climate's one. Cyber's another one that's still underdeveloped, substantial intellectual property. So all these fit in this category, fill around massive unmet unmet client need that is growing over time that we've got to bring solutions toward. And so all these categories to us point to substantial opportunity.
Speaker 9
Alright. Perfect. Thank you so much.
Speaker 0
Thank you. I will now turn the call back to Mr. Greg Case for closing remarks.
Speaker 1
I just wanted to say to everyone, thanks so much for joining us this quarter. We look forward to our discussion next quarter. Have a great day.
Speaker 0
This will conclude today's conference. All parties may disconnect at this time.