An plc Furth Quarter and Full Year 2017 Results February 2, 2018
Greg Case Chief Executive Officer Christa Davies Chief Financial Officer 1
Safe Harbr Statement This cmmunicatin cntain certain statements related t future results, r states ur intentins, beliefs and expectatins r predictins fr the future which are frward-lking statements as that term is defined in the Private Securities Litigatin Refrm Act f 1995. Frward-lking statements relate t expectatins r frecasts f future events. They use wrds such as "anticipate," "believe," "estimate," "expect," "frecast," "prject," "intend," "plan," "prbably," "ptential," "lking frward" and ther similar terms, and future r cnditinal tense verbs like "culd," "may," "might," "shuld," "will" and "wuld." Yu can als identify frward-lking statements by the fact that they d nt relate strictly t histrical r current facts. Fr example, An plc ( An ) may use frward-lking statements when addressing tpics such as: market and industry cnditins, including cmpetitive and pricing trends; changes in its business strategies and methds f generating revenue; the develpment and perfrmance f its services and prducts; changes in the cmpsitin r level f its revenues; its cst structure and the utcme f cst-saving r restructuring initiatives; the utcme f cntingencies; dividend plicy; the expected impact f acquisitins and dispsitins; pensin bligatins; cash flw and liquidity; expected effective tax rate; future actins by regulatrs; and the impact f changes in accunting rules. These frward-lking statements are subject t certain risks and uncertainties that culd cause actual results t differ materially frm either histrical r anticipated results depending n a variety f factrs. The fllwing factrs, amng thers, culd cause actual results t differ frm thse set frth in the frward lking statements: general ecnmic and plitical cnditins in different cuntries in which An des business arund the wrld; changes in the cmpetitive envirnment; fluctuatins in exchange and interest rates that culd influence revenue and expense; changes in glbal equity and fixed incme markets that culd affect the return n invested assets; changes in the funding status f An's varius defined benefit pensin plans and the impact f any increased pensin funding resulting frm thse changes; the level f An s debt limiting financial flexibility; rating agency actins that culd affect An's ability t brrw funds; the effect f the change in glbal headquarters and jurisdictin f incrpratin, including differences in the anticipated benefits; changes in estimates r assumptins n ur financial statements; limits n An s subsidiaries t make dividend and ther payments t An; the impact f lawsuits and ther cntingent liabilities and lss cntingencies arising frm errrs and missins and ther claims against An; the impact f, and ptential challenges in cmplying with, legislatin and regulatin in the jurisdictins in which An perates, particularly given the glbal scpe f An s businesses and the pssibility f cnflicting regulatry requirements acrss jurisdictins in which An des business; the impact f any investigatins brught by regulatry authrities in the U.S., U.K. and ther cuntries; the impact f any inquiries relating t cmpliance with the U.S. Freign Crrupt Practices Act and nn-u.s. anti-crruptin laws and with U.S. and nn-u.s. trade sanctins regimes; failure t prtect intellectual prperty rights r allegatins that we infringe n the intellectual prperty rights f thers; the effects f English law n ur perating flexibility and the enfrcement f judgments against An; the failure t retain and attract qualified persnnel; internatinal risks assciated with An s glbal peratins; the effect r natural r man-made disasters; the ptential f a system r netwrk breach r disruptin resulting in peratinal interruptin r imprper disclsure f persnal data; An s ability t develp and implement new technlgy; the damage t ur reputatin amng clients, markets r third parties; the actins taken by third parties that prefrm aspects f ur business peratins and client services; the extent t which An manages certain risks created in cnnectin with the varius services, including fiduciary and investments and ther advisry services and business prcess utsurcing services, amng thers, that An currently prvides, r will prvide in the future, t clients; An s ability t grw, develp and integrate cmpanies that it acquires r new lines f business; changes in cmmercial prperty and casualty markets, cmmercial premium rates r methds f cmpensatin; changes in the health care system r ur relatinships with insurance carriers; An s ability t implement initiatives intended t yield cst savings, and the ability t achieve thse cst savings; risks and uncertainties in cnnectin with the sale f ur benefits administratin and business prcess utsurcing business; and ur ability t realize the expected benefits frm ur restructuring plan. Any r all f An s frward-lking statements may turn ut t be inaccurate, and there are n guarantees abut An s perfrmance. The factrs identified abve are nt exhaustive. An and its subsidiaries perate in a dynamic business envirnment in which new risks may emerge frequently. Further infrmatin cncerning An and its businesses, including factrs that ptentially culd materially affect An's financial results, is cntained in An's filings with the SEC. See An s Annual Reprt n Frm 10-K fr the year ended December 31, 2016 and its Quarterly Reprts n Frm 10-Q fr the quarters ended March 31,2017, June 30, 2017, and September 30, 2017 fr a further discussin f these and ther risks and uncertainties applicable t An s businesses. These factrs may be revised r supplemented in subsequent reprts. An is under n bligatin, and expressly disclaims any bligatin, t update r alter any frward-lking statement that it may make frm time t time, whether as a result f new infrmatin, future events r therwise. Explanatin f Nn-GAAP Measures This cmmunicatin includes supplemental infrmatin related t rganic revenue, free cash flw, adjusted perating margin, adjusted earnings per share, and adjusted effective tax rate that exclude the effects f intangible asset amrtizatin, capital expenditures, transactin csts and certain ther ntewrthy items that affected results fr the cmparable perids. Organic revenue excludes frm reprted revenues the impact f freign exchange, acquisitins, divestitures, transfers between business units, reimbursable expenses and unusual items. The impact f freign exchange is determined by translating last year's revenue, expense r net incme at this year's freign exchange rates. Free cash flw is cash flw frm perating activity less capital expenditures. The effective tax rate, as adjusted, excludes the applicable tax impact assciated with expenses fr legacy litigatin. Recnciliatins f nn-gaap measures t their mst directly cmparable GAAP measures are prvided in the attached appendices. Supplemental rganic revenue infrmatin and additinal measures that exclude the effects f the restructuring charges and certain ther items d nt affect net incme r any ther GAAP reprted amunts. Management believes that these nn-gaap measures are imprtant t make meaningful perid-t-perid cmparisns and that this supplemental infrmatin is helpful t investrs. Nn-GAAP measures shuld be viewed in additin t, nt in lieu f, the Cmpany s Cnslidated Financial Statements. Industry peers prvide similar supplemental infrmatin regarding their perfrmance, althugh they may nt make identical adjustments. 2
Accelerating a Prven Strategy t Unite Firm and Imprve Grwth Prfile An is a leading glbal prfessinal services firm prviding Risk, Retirement and Health slutins Using prprietary data and analytics t empwer results fr clients by reducing vlatility and imprving perating perfrmance Divestiture f utsurcing businesses represents natural acceleratin f a prven strategy Cnsistent with jurney twards ffering advice and slutins; further aligns the prtfli arund clients highest pririties Prvided apprximately $3 billin f incremental capital t accelerate investment in emerging client needs Reinfrces return n invested capital (ROIC) decisin-making prcess and emphasis n free cash flw Accelerating rganic revenue 1 grwth driven by investment in highgrwth, high-margin areas f ur prtfli Organic revenue grwth f +4% in 2017 and in 2016 versus +3% in 2015 and 2014 Uniting the firm t address client needs, drive scial impact and maximize sharehlder value One perating mdel t deliver additinal insight, cnnectivity and efficiency One prtfli f capabilities enabled by insights frm prprietary data and analytics Organic Revenue Grwth 4% 4% 3% 3% 2014 2015 2016 2017 1 Reflects perfrmance frm cntinuing peratins. Organic revenue is a nn-gaap measure. A recnciliatin f rganic revenue t revenue, the crrespnding U.S. GAAP measure, can be fund in Appendix A f this presentatin 3
Q4 and FY 2017 Key Metrics 4
Key Metrics 1 Strng Finish t the Year with Mmentum int 2018 Q4 16 Q4 17 Organic Revenue +5% +6% Operating Margin 25.5% 27.5% Year-ver-Year +200 bps Earnings Per Share $2.00 $2.35 Year-ver-Year +18% 2016 2017 Organic Revenue +4% +4% Operating Margin 21.6% 23.4% Year-ver-Year +180bps Earnings Per Share $5.58 $6.52 Year-ver-Year +17% Free Cash Flw $1,673M $486M Year-ver-Year -71% Q4 Organic Revenue Grwth: Highlighted by strng grwth in Data and Analytic Services and Reinsurance Q4 Operating Margin: Primarily driven by strng rganic revenue grwth and cre peratinal imprvement frm return n investments and increased perating leverage, as well as savings frm restructuring initiatives Includes -10 basis pints f transactin related csts frm recent acquisitins Q4 Earnings Per Share: Duble-digit earnings grwth primarily driven by strng peratinal imprvement and effective capital management, partially ffset by a higher effective tax rate and a lss n the dispsal f certain businesses Includes a +$0.06 favrable impact fr FX translatin, ffset by a -$0.06 lss in ther expense Repurchased 3.5 millin shares fr apprximately $500 millin 2017 Free Cash Flw: Cash flw frm peratins decreased apprximately $1.2 billin primarily driven by cash tax payments f an estimated $940 millin assciated with the divested business, $280 millin f cash restructuring charges and $45 millin f transactin csts related t the divestiture, partially ffset by peratinal imprvement Free cash flw reflects a decline in cash flw frm peratins and a $27 millin increase in capital expenditures, including investments in ur perating mdel 1 Reflects perfrmance frm cntinuing peratins. The results presented n this page are nn-gaap measures that are recnciled t their crrespnding U.S. GAAP measures in the Appendices f this presentatin. 5
Q4 and FY 2017 Grwth and Investment 6
Organic Revenue 1 Strng Grwth Acrss all Revenue Lines Q4 16 Q4 17 Cmmercial Risk Slutins +0% +5% Reinsurance Slutins +1% +8% Retirement Slutins -2% +4% Health Slutins +30% +6% Data & Analytic Services +4% +12% Ttal An +5% +6% 2016 2017 Cmmercial Risk Slutins +2% +2% Reinsurance Slutins +1% +6% Retirement Slutins +2% +3% Health Slutins +13% +7% Data & Analytic Services +6% +6% Ttal An +4% +4% Cmmercial Risk Slutins: Strng grwth in U.S. retail and slid grwth internatinally led by the Asia and Pacific regins, as well as new client wins in the captive management business Reinsurance Slutins: Strng grwth acrss every majr prduct line, highlighted by particular strength in treaty placements reflecting recrd net new business generatin, and grwth in bth facultative placements and capital markets transactins Retirement Slutins: Grwth acrss every majr business and gegraphy, with particular strength in the talent practice fr cmpensatin surveys and assessment services and in investment cnsulting, primarily fr delegated investment management Health Slutins: Strng grwth glbally in health & benefits brkerage, reflecting cntinued strength in bth the U.S. and internatinally, partially ffset by a decline in prject related wrk in the healthcare exchange business Data & Analytic Services: Cntinued strength acrss U.S. Affinity, as well as an increase in claims activity in the Fld business fllwing certain catastrphe events earlier in the year 1 Reflects perfrmance frm cntinuing peratins. Organic revenue is a nn-gaap measure that is recnciled t revenue, its crrespnding U.S. GAAP measure, in Appendix A f this presentatin. 7
Strategically Investing in High-Grwth, High-Margin Areas f Client Need Clients cntinue t navigate an increasingly vlatile wrld with 2017 being the cstliest year n recrd fr weather related disasters at an estimated $344 billin f ecnmic lsses Weather related disasters, cmbined with ecnmic, demgraphic, geplitical frces and the expnential pace f technlgy change, are all cnverging t create a challenging new reality fr businesses An has a strng track recrd f develping innvative, firstt-market slutins t help slve prblems and create differentiated value in respnse t specific client needs Strategically investing rganically and thrugh M&A in the highest grwth, highest margin businesses acrss ur prtfli, r in attractive gegraphies, driven by a ROIC decisin-making prcess; including: Data & analytics Cyber Health and elective benefits brkerage Healthcare exchanges Delegated investment management Psitining the firm fr lng-term grwth and imprved perating leverage 8
Q4 and FY 2017 Financial Summary 9
EPS 1 Duble-Digit Earnings Grwth fr the Quarter and Full Year Duble-digit earnings grwth primarily driven by strng rganic revenue grwth, significant peratinal imprvement and effective capital management, partially ffset by a higher effective tax rate and a lss n the dispsal f certain businesses Includes a $0.06 favrable impact frm freign currency translatin Includes a $0.06 lss in ther expense frm the sale f a certain business and lsses n the remeasurement f assets and liabilities in nn-functinal currencies Repurchased 3.5 millin rdinary shares fr apprximately $500 millin in the furth quarter Q4 EPS frm Cntinuing Operatins 2017 EPS frm Cntinuing Operatins $2.00 $2.35 $5.58 $6.52 Q4 2016 Q4 2017 2016 2017 1 EPS frm cntinuing peratins and EPS attributable t An sharehlders are nn-gaap measures that are recnciled t their crrespnding U.S. GAAP measures in Appendix B f this presentatin. 10
Operating Margin 1 Driving Cre Imprvement in Additin t Savings Operating Incme ($ millins) $2,336 $2,030 $676 $799 Q4 Full Year Operating Margin (%) Operating incme increased $123 millin cmpared t the prir year quarter Cre imprvement drve $67 millin, r mre than half f the dllar increase, reflecting return n investments and increased perating leverage Includes $56 millin, r +190 basis pints, f savings related t restructuring and ther peratinal imprvement initiatives, befre any reinvestment Includes $3 millin, r -10 basis pints, f transactin related csts 25.5% 27.5% 21.6% 23.4% FX translatin had an immaterial impact n perating margin in the quarter Fr the full year, perating incme increased +15% and perating margin imprved +180 basis pints frm the prir year Q4 2016 2017 Full Year A strng perfrmance peratinally in the first year f executin against ur multi-year investment in the firm 1 Reflects perfrmance frm cntinuing peratins. Operating incme and perating margin are nn-gaap measures that are recnciled t their crrespnding U.S. GAAP measures in Appendix B f this presentatin. 11
Investing in One Operating Mdel Creating a next generatin glbal business services mdel that allws fr better scalability, flexibility and enhanced clleague and client experience Driving ne perating mdel acrss the firm t create additinal perating leverage and deliver additinal insight, cnnectin and efficiency: Infrmatin Technlgy create greater insight frm data center ptimizatin, applicatin management and strategic vendr cnslidatin Real Estate create greater cnnectin thrugh real estate prtfli ptimizatin Peple create efficient scalability f peratins and activity, including the use f centers f excellence and third-party prviders After evaluating the current prgress f the restructuring prgram and identifying further pprtunities t imprve ur perating mdel, the restructuring prgram estimates have been updated t reflect a $50 millin increase in ttal expected savings Expect t invest an estimated $1,175 millin in ttal cash 1 f the $3 billin ttal utsurcing divestiture prceeds ver a three year perid (2017-2019) $975 millin f cash charges 1 ; with $497 millin f expense incurred and $280 millin f cash spent t date. Future cash utlay is expected t increase mdestly in 2018 and decline each year there after $200 millin f incremental capital expenditure investment; with $27 millin incurred in 2017, and apprximately $100 millin expected in 2018 and $70 millin expected in 2019 Expect t deliver $450 millin f estimated savings in 2019, befre any ptential reinvestment $165 millin in 2017, $300 millin in 2018, and $450 millin in 2019 1 Excludes $50 millin f nn-cash charges included in asset impairments. 12
Incurred 48% f Prgram Charges with 63% f Savings Left t Achieve We incurred $96 millin f restructuring related charges in the furth quarter and a ttal f $497 millin charges in 2017, primarily relating t wrkfrce reductin and ther general initiatives, representing 48% f the ttal prgram estimate The cash impact in 2017 is an utflw f $280 millin We recgnized $56 millin f savings in the furth quarter and a ttal f $165 millin in 2017, befre any reinvestment, representing 37% f expected ttal savings ($ millins) Q4 17 Ttal Since Inceptin Ttal Prgram 1 % f Plan Cmpleted Wrkfrce Reductin $42 $299 $450 66% IT Ratinalizatin $11 $33 $130 25% Lease Cnslidatin $0 $8 $85 9% Asset Impairments $0 $26 $50 52% Other Assciated Csts $43 $131 $310 42% Ttal Restructuring Charges 2 $96 $497 $1,025 48% Capital Expenditures $200 Ttal Savings $56 $165 $450 37% 1 Represents management s estimates as f February 1, 2018, which are subject t change if and when underlying factrs may change. 2 Includes $50 millin f nn-cash charges included in asset impairments and lease cnslidatins. Ttal cash charges are estimated at $1,175 millin, including capital expenditures. 13
Nn-Operating Segment Financials ($ millins) Q4 16 Q4 17 Interest Incme $3 $7 Interest Expense ($70) ($71) Other (Expense) Incme $9 ($19) Effective Tax Rate 1 12.0% 15.5% Nn-Cntrlling Interest ($7) ($7) Actual Cmmn Shares Outstanding at 12-31-17 n/a 247.6 Interest Incme increased $4 millin due t additinal incme earned n the remaining balance f prceeds frm the sale f the utsurcing business Other Expense f $19 millin primarily includes a lss n the sale f certain businesses and a lss n the unfavrable impact f exchange rates n the remeasurement f assets and liabilities in nn-functinal currencies Adjusted effective tax rate in bth perids benefitted frm a net favrable impact f certain discrete items Actual cmmn shares utstanding n December 31 st were 247.6 millin, and there were apprximately 4.5 millin additinal dilutive equivalents. The Cmpany repurchased 3.5 millin rdinary shares fr apprximately $500 millin in the furth quarter. Estimated Q1 18 beginning dilutive share cunt is ~252 millin subject t share price mvement, share issuance and share repurchase 1 Represents the nn-gaap effective tax rate. See Appendices f this presentatin fr a recnciliatin f nn-gaap numbers. 14
Strng Balance Sheet and Financial Flexibility Supprting Investments Balance Sheet ($ millins) Sep 30 2017 Dec 31 2017 Cash Flw frm Operatins 1 ($ millins) Free Cash Flw 2 ($ millins) Cash $749 $756 $1,829 $1,673 Shrt-term Investments $1,640 $529 $669 2016 2017 $486 2016 2017 Ttal Debt $5,967 $5,966 Sharehlders Equity $5,175 $4,583 Debt t EBITDA 3 3.3x 3.2x Cash flw frm peratins decreased apprximately $1.2 billin driven primarily by an estimated $940 millin f cash tax payments assciated with the divested business, $280 millin f cash restructuring charges and $45 millin f transactin csts related t the divestiture, partially ffset by peratinal imprvement Free cash flw decreased apprximately $1.2 billin, reflecting a decline in cash flw frm peratins and an $27 millin increase in capital expenditures, including investments in ur perating mdel Excluding the tax payments and transactin csts assciated with the divestiture, as well as the investments in restructuring activities resulting frm the divestiture, underlying free cash flw grwth was 6% fr the full year 2017 We expect Debt t EBITDA t return t the 2-2.5x range n a U.S. GAAP-basis by year-end 2018 driven by perating imprvement 1 Reflects perfrmance frm cntinuing peratins. 2 Reflects perfrmance frm cntinuing peratins. Free cash flw is nn-gaap measure that is recnciled t its crrespnding U.S. GAAP measure in Appendix A f this presentatin. 3 Debt t EBITDA is calculated based n U.S. GAAP EBITDA fr cntinuing peratins. 15
Psitined fr Substantial Free Cash Flw Generatin Over Lng-Term 11.7% Return n Invested Capital 1 (%) Disciplined capital management apprach t maximize return n invested capital 17.8% Increased ROIC, up +610 basis pints t 17.8% in 2017 Taken significant steps t maximize the translatin f a dllar f revenue int the highest amunt f free cash flw Increased free cash flw margin +960 basis pints t 17.8% n an underlying basis in 2017 2010 2011 2012 2013 2014 2015 2016 2017 Free Cash Flw Margin 2 (%) 17.8% 8.2% Lking frward, we expect tw main drivers t cntribute t free cash flw generatin ging frward: Operatinal imprvement as the firm cntinues t deliver accelerated rganic grwth, increase perating leverage and imprve return n invested capital Wrking capital imprvements as the firm fcuses n clsing the gap between receivables and payables In the near-term, we expect t exceed $7.97 earnings per share in 2018 2010 2011 2012 2013 2014 2015 2016 2017 Over the lng-term, we expect t deliver cntinued duble-digit cmpunded annual grwth in free cash flw 1 Return n Invested Capital (ROIC) is a nn-gaap measure calculated as adjusted net perating prfit after tax (NOPAT) divided by average invested capital (shrt-term debt, + lngterm debt + ttal equity) and represents hw well the Cmpany is allcating its capital t generate returns. The metric fr the histrical perids 2010-2016 shwn abve was calculated using financial results fr ttal cnslidated An, and therefre includes discntinued peratins in cnnectin with the sale certain utsurcing businesses cmpleted n May 1, 2017, which will nt be included n a ging frward basis. A recnciliatin can be fund in Appendix F. 2 Free Cash Flw Margin is a nn-gaap measure calculated as Free Cash Flw (defined as Cash Flw frm Operatins less Capital Expenditures) / Ttal Revenue and represents the Cmpany s cnversin rate f revenue int liquidity. The metric fr the histrical perids 2010-2016 shwn abve was calculated using financial results fr ttal cnslidated An and therefre includes discntinued peratins in cnnectin with the sale certain utsurcing businesses cmpleted n May 1, 2017, which will nt be 16 included n a ging frward basis. A recnciliatin can be fund in Appendix G.
Appendix 17
Cmmercial Risk Slutins Retail Brkerage: Our dedicated teams f risk experts utilize the industry s mst cmprehensive data and analytics capabilities t prvide clients with distinctive risk advice that empwers results fr their rganizatins Thrugh ur specialty-fcused rganizatinal structure, clleagues in 120 cuntries arund the wrld dive deep int their areas f expertise t develp unparalleled insights arund industry verticals and lines f business t best deliver value t clients in tday s cmplex and integrated risk envirnment Glbal Risk Cnsulting: Wrld leading prvider f risk cnsulting services supprting clients in better understanding and managing their risk prfile thrugh identifying and quantifying the risks they face by assisting them with the selectin and implementatin f the apprpriate risk transfer, risk retentin, and risk mitigatin slutins, and by ensuring the cntinuity f their peratins thrugh claims cnsulting Cyber Slutins: One f the industry s premier resurces in cyber risk management; ur strategic fcus extends t identifying and prtecting critical digital assets supprted by best-in-class transactinal capabilities, enhanced cverage expertise, deep carrier relatinships, and incident respnse expertise Captives: Leading glbal captive insurance slutins prvider; managing +1,100 insurance entities wrldwide including captives, prtected segregated and incrprated cell facilities, as well as entities that supprt Insurance Linked Securities and specialist insurance and reinsurance cmpanies Place ver $60B f bund premium each year Retentin rates +90% n average in Retail Brkerage #1 primary insurance brkerage Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Ttal Revenue ($M) $969 $990 $884 $1,088 $3,931 $989 $1,041 $915 $1,218 $4,163 Organic Grwth 1 (%) 2% 2% (1%) 5% 2% 1 Organic revenue is a nn-gaap measure that is recnciled t its crrespnding U.S. GAAP measure fr the abve histrical perids that have been restated fr the new revenue recgnitin accunting standard effective in the first quarter f 2018 in the schedule n page 22 f the furth quarter 2017 press release. 18
Reinsurance Slutins Treaty: Addresses underwriting and capital bjectives n a prtfli level, allwing ur clients t mre effectively manage the cmbinatin f premium grwth, return n capital and rating agency interests. This includes the develpment f mre cmpetitive, innvative and efficient risk transfer ptins. Facultative: Empwers clients t better understand, manage and transfer risk thrugh innvative facultative slutins and the mst efficient access t the glbal facultative markets Place ver $30B f bund premium each year #1 treaty and facultative brkerage Capital Markets: Glbal investment bank with expertise in M&A, capital raising, strategic advice, restructuring, recapitalizatin services, and insurance linked securities Wrks with insurers, reinsurers, investment firms, banks, and crpratins t manage cmplex cmmercial issues thrugh the prvisin f crprate finance advisry services, capital markets slutins, and innvative risk management prducts 23 27 cnsecutive quarters f net new business in cre treaty Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Ttal Revenue ($M) $667 $335 $234 $131 $1,367 $671 $345 $257 $153 $1,426 Organic Grwth 1 (%) 4% 6% 10% 20% 6% 1 Organic revenue is a nn-gaap measure that is recnciled t its crrespnding U.S. GAAP measure fr the abve histrical perids that have been restated fr the new revenue recgnitin accunting standard effective in the first quarter f 2018 in the schedule n page 22 f the furth quarter 2017 press release. 19
Retirement Slutins Retirement & Investment: The Retirement & Investment practice is dedicated t navigating the risk and pprtunities assciated with retirement and investing t ptimize perfrmance and financial security fr institutins and individuals Retirement Cnsulting specializes in prviding rganizatins acrss the glbe with strategic design cnsulting n their retirement prgrams, actuarial services, and risk management including pensin de-risking, gvernance, integrated pensin administratin and legal and cmpliance cnsulting Talent, Rewards & Perfrmance: We deliver advice and slutins that help clients accelerate business utcmes by imprving the perfrmance f their peple We supprt the full emplyee lifecycle frm assessment and selectin f the right talent, ptimized deplyment and engagement t the design, alignment and benchmarking f cmpensatin t business strategy and perfrmance utcmes Investment Cnsulting: Prvides public and private cmpanies and ther institutins with advice n develping and maintaining investment prgrams acrss a brad range f plan types, including defined benefit plans, defined cntributin plans, endwments and fundatins Our delegated investment slutins ffer nging management f investment prgrams and fiduciary respnsibilities either in a partial r full discretinary mdel fr multiple asset wners. We partner with clients t deliver ur scale and experience t help them effectively manage their investments, risk, gvernance and ptentially lwer csts As a glbal leader 1000 s f cmpanies trust An with their retirement plans Apprximately $150B f assets under delegated management Mre than $4T f pensin assets under independent advisry Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Ttal Revenue ($M) $396 $405 $465 $441 $1,707 $385 $388 $492 $489 $1,754 Organic Grwth 1 (%) 2% 1% 6% 4% 3% 1 Organic revenue is a nn-gaap measure that is recnciled t its crrespnding U.S. GAAP measure fr the abve histrical perids that have been restated fr the new revenue recgnitin accunting standard effective in the first quarter f 2018 in the schedule n page 22 f the furth quarter 2017 press release. 20
Health Slutins Health & Benefits Brkerage: Partners with emplyers t develp innvative, custmized benefits strategies t help manage risk, drive engagement, and prmte accuntability Healthcare Exchanges: Our private health exchange slutins help emplyers transfrm hw they spnsr, structure, and deliver health benefits by building and perating a cst-effective alternative t traditinal emplyee and retiree healthcare by seeking utcmes f reduced emplyer csts, risk and vlatility, alngside greater cverage and plan chices fr individual participants Place ver $30B f health premium with a full set f slutins Mre than 90% client satisfactin n An s health care exchanges #1 prvider f fully and self-insured health care exchanges Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Ttal Revenue ($M) $338 $253 $245 $522 $1,358 $428 $281 $277 $526 $1,512 Organic Grwth 1 (%) 15% 4% 4% 6% 7% 1 Organic revenue is a nn-gaap measure that is recnciled t its crrespnding U.S. GAAP measure fr the abve histrical perids that have been restated fr the new revenue recgnitin accunting standard effective in the first quarter f 2018 in the schedule n page 22 f the furth quarter 2017 press release. 21
Data & Analytic Services Affinity: Specializes in develping, marketing and administering custmized insurance prgrams and specialty market slutins fr Affinity rganizatins and their members r affiliates An InPint: Draws n An s prprietary database (Glbal Risk Insight Platfrm) and is dedicated t making insurers mre cmpetitive thrugh prviding data, analytics, engagement and cnsulting ReView: Draws n An s prprietary database and brker market knwledge t prvide advisry services analysis and benchmarking t help reinsurers mre effectively meet the needs f cedents thrugh the develpment f mre cmpetitive, innvative and efficient risk transfer ptins +200 assciatins and rganizatins benefit frm An s Affinity slutins Glbal Risk Insight Platfrm captures $196B in bund premium Invest nearly $400M annually in data and analytics Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Ttal Revenue ($M) $263 $271 $260 $256 $1,050 $273 $281 $287 $299 $1,140 Organic Grwth 1 (%) 6% 4% 2% 12% 5% 1 Organic revenue is a nn-gaap measure that is recnciled t its crrespnding U.S. GAAP measure fr the abve histrical perids that have been restated fr the new revenue recgnitin accunting standard effective in the first quarter f 2018 in the schedule n page 22 f the furth quarter 2017 press release. 22
Appendix A: Q4 and Full Year Recnciliatin f Nn-GAAP Measures Organic Revenue and Free Cash Flw 23
Appendix B: Q4 and Full Year Recnciliatin f Nn-GAAP Measures Operating Margin and Diluted Earnings per Share 24
Appendix C: Pr Frma Financials Under New Accunting Standards Effective 1/1/2018 (ASC 606 and ASU N. 2017-07) 25
Appendix D: Pr Frma Other Incme/Expense Breakut Under New Pensin Accunting Standard Effective 1/1/2018 (ASU N. 2017-07) Beginning in Q1 f 2018, An will adpt a new accunting standard that will shift the financial cmpnents f net peridic pensin cst and net peridic pstretirement benefit cst frm abve the line in cmpensatin and benefits expense t belw the line in ther incme / expense. The histrical impact f adpting ASU N. 2017-07 is shwn belw in the pr frma financials fr 2016 and 2017. Based n current assumptins, we believe that apprximately $10 millin per quarter is the right run-rate t mdel fr ther incme / expense in 2018, excluding all ther items we d nt frecast that culd be favrable r unfavrable in any given perid. (millins) Q1'16 Q2'16 Q3'16 Q4'16 2016 Q1'17 Q2'17 Q3'17 Q4'17 2017 Pensin Incme / (Expense) $11 $11 $12 $13 $47 $8 $9 $9 $16 $42 All Other $15 $4 $11 $13 $43 ($12) ($9) ($11) ($18) ($50) Ttal Other Incme / (Expense) as Adjusted $26 $15 $23 $26 $90 ($4) $0 ($2) ($2) ($8) Pensin Settlements - ($62) - ($158) ($220) - - - ($128) ($128) Ttal Other Incme / (Expense) GAAP $26 ($47) $23 ($132) ($130) ($4) $0 ($2) ($130) ($136) 26
Appendix E: Intangible Asset Amrtizatin Schedule 27
Appendix F: Recnciliatin f Return n Invested Capital (ROIC) Return n Invested Capital (ROIC) is a nn-gaap measure calculated as adjusted net perating prfit after tax (NOPAT) divided by average invested capital (shrt-term debt, + lng-term debt + ttal equity) and represents hw well the Cmpany is allcating its capital t generate returns. The metric fr the histrical perids shwn belw was calculated using financial results fr ttal cnslidated An and therefre includes discntinued peratins in cnnectin with the sale f certain utsurcing businesses cmpleted n May 1, 2017, which will nt be included n a ging frward basis. FY'10 FY'11 FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 Revenue 8,512 11,287 11,514 11,815 12,045 11,682 11,627 9,998 Cnslidated perating incme - as reprted 1,244 1,596 1,596 1,671 1,966 1,848 1,906 979 Restructuring 172 113 101 174 - - - 497 Pensin adjustment 49 - - - - - - - Hewitt related csts 40 47 - - - - - - Transactins/Prject csts - 3 24 5 - - 15 - Legacy receivable write-ff - 18 - - - - - - Anti-bribery and cmpliance initiative 9 - - - - - - 28 Legacy Litigatin - - - - 35 176 - - Pensin settlement - - - - - - 220 128 Amrtizatin f Intangible Assets 154 362 423 395 352 314 277 704 Ttal Adjustments 424 543 548 574 387 490 512 1,357 Cnslidated perating incme - as adjusted $ 1,668 $ 2,139 $ 2,144 $ 2,245 $ 2,353 $ 2,338 $ 2,418 $ 2,336 Adjusted Effective tax rate (%) 28.9% 27.3% 26.1% 25.4% 18.9% 15.8% 16.8% 14.9% NOPAT (Adj. OI*(1-Adj. Tax Rate)) $ 1,186 $ 1,555 $ 1,584 $ 1,675 $ 1,908 $ 1,969 $ 2,012 $ 1,988 Shrt-term debt and current prtin f lng-term debt 492 337 114 703 783 562 336 299 Lng-term debt 4,014 4,155 4,051 3,686 4,799 5,138 5,869 5,667 Ttal Debt 4,506 4,492 4,165 4,389 5,582 5,700 6,205 5,966 Ttal Equity 8,251 8,078 7,762 8,145 6,571 6,002 5,475 4,583 Nn-cntrlling interest 55 42 43 50 60 57 57 65 End f Perid Ttal Invested Capital 12,812 12,612 11,970 12,584 12,213 11,759 11,737 10,614 Average Ttal Invested Capital 10,126 12,712 12,291 12,277 12,399 11,986 11,748 11,176 ROIC (NOPAT/Average Ttal Invested Capital) 11.7% 12.2% 12.9% 13.6% 15.4% 16.4% 17.1% 17.8% 28
Appendix G: Recnciliatin f Free Cash Flw Margin Free Cash Flw Margin is a nn-gaap measure calculated as Free Cash Flw (defined as Cash Flw frm Operatins less Capital Expenditures) / Ttal Revenue and represents the Cmpany s cnversin rate f revenue int liquidity. The metric fr the histrical perids shwn belw was calculated using financial results fr ttal cnslidated An and therefre includes discntinued peratins in cnnectin with the sale certain utsurcing businesses ( the divested business ) cmpleted n May 1, 2017, which will nt be included n a ging frward basis. FY'10 FY'11 FY'12 FY'13 FY'14 FY'15 FY'16 FY'17 Revenue - as reprted 8,512 11,287 11,514 11,815 12,045 11,682 11,627 9,998 Cash Flw frm Operatins 876 1,112 1,534 1,753 1,812 2,009 2,326 669 Capital Expenditures (180) (241) (269) (229) (256) (290) (222) (183) Free Cash Flw - as Reprted 696 871 1,265 1,524 1,556 1,719 2,104 486 Adjustments: 2017 Restructuring initiatives 307 Transactins csts related t the divested business 45 Tax payments related t the divested business 940 Underlying Free Cash Flw - as Adjusted 1,778 Free Cash Flw Margin 8.2% 7.7% 11.0% 12.9% 12.9% 14.7% 18.1% 17.8% 29
Investr Relatins Sctt Malchw sctt.malchw@an.cm Erika Shuldice erika.shuldice@an.cm Office: 312-381-5957 Adam Klauss adam.klauss@an.cm Office: 312-381-1801