watsonwyatt.com Watson Wyatt Worldwide Fiscal 2007 Presentation
Forward-looking statements Forward looking statements During the course of this presentation, management may make forward-looking statements, including statements that express the Company s or management s beliefs or expectations, or statements that are not historical facts. A number of risks and uncertainties exist that could cause results to differ materially from the results reflected in these forward-looking statements. Such factors include but are not limited to the Company s ability to integrate the business of Watson Wyatt LLP into our own business, processes and systems, and achieve the anticipated results; our continued ability to recruit and retain qualified associates; the success of our marketing, client development and sales programs after the business combination; our ability to maintain client relationships and to attract new clients after the business combination; declines in demand for our services; outcomes of pending or future litigation and the availability and capacity of professional liability insurance to fund pending or future judgments or settlements; the ability of the Company to obtain professional liability insurance; a significant decrease in the demand for the consulting, actuarial and other services we offer as a result of changing economic conditions or other factors; actions by competitors offering human resources consulting services, including public accounting and consulting firms, technology consulting firms and internet/intranet development firms; our ability to achieve cost reductions after the business combination; foreign currency and interest rate fluctuations; exposure to Watson Wyatt LLP liabilities that have not been expressly assumed; general economic and business conditions that adversely affect us or our clients after the business combination; the level of capital resources required for future acquisitions and business opportunities; regulatory developments abroad and domestically that impact our business practices; legislative and technological developments that may affect the demand for our costs or our services; and other factors discussed under Risk Factors in the Company s most recent Form 10-K filed with the Securities and Exchange Commission. Statements made during this presentation are accurate only as of today. The Company undertakes no obligation to update any of the forward-looking information included in this presentation as a result of new information, future events, changed expectations or other developments. 2
Watson Wyatt Presentation Who we are What we do Our financial performance 3
Who we are Trusted business partner to the world s leading organizations on people and financial issues Revenues of $1.48 billion in FY07 6,000 employees in 30 countries in the Americas, Europe and Asia Pacific Founded in 1878 Acquired Watson Wyatt LLP in 2005 4
Acquisition of Watson Wyatt LLP Acquired alliance partner of 10 years in August 2005 Providing global platform to global clients New offerings to existing geographies Expansion into new geographies Equity capital around the world 5
Watson Wyatt s Global Reach 5 offices in Canada 28 offices in Europe 34 offices in United States 21 offices in Asia-Pacific Region 7 offices in Latin America/Caribbean UNITED STATES Atlanta, GA Berwyn, PA Boston, MA Charlotte, NC Chicago, IL Cincinnati, OH Cleveland, OH Columbus, OH Dallas, TX Denver, CO Detroit, MI Grand Rapids, MI Honolulu, HI Houston, TX Irvine, CA Las Vegas, NV Los Angeles, CA Memphis, TN Miami, FL Minneapolis, MN New York, NY Philadelphia, PA Phoenix, AZ Portland, OR Rochelle Park, NJ San Diego, CA San Francisco, CA Santa Clara, CA Seattle, WA St. Louis, MO Stamford, CT Tampa, FL Teaneck, NJ Washington, DC ASIA-PACIFIC Australia: Melbourne, Sydney China: Beijing, Guangzhou, Hong Kong, Shanghai, Shenzhen, Wuhan India: Bangalore, Delhi, Kolkata, Mumbai Indonesia: Jakarta Japan: Tokyo Korea: Seoul Malaysia: Kuala Lumpur Philippines: Manila, Data Management Center Singapore Taiwan: Taipei Thailand: Bangkok The strongest global network in the human capital consulting business with over 6,000 associates and 95 offices in 30 countries worldwide. EUROPE Belgium: Brussels France: Paris Germany: Düsseldorf, Frankfurt, Munich Hungary: Budapest Ireland: Dublin Italy: Milan, Rome Portugal: Lisbon Spain: Madrid Sweden: Stockholm Switzerland: Zürich The Netherlands: Amsterdam, Apeldoom, Eindhoven, Nieuwegein, Purmerend, Rotterdam United Kingdom: Birmingham, Bristol, Edinburgh, Leeds, London, Manchester, Redhill, Reigate, Welwyn LATIN AMERICA Argentina: Buenos Aires Brazil: São Paulo Colombia: Bogotá Mexico: Mexico City Puerto Rico (U.S.): San Juan Chile: Santiago Uruguay: Montevideo CANADA Calgary Kitchener-Waterloo Montréal Toronto Vancouver 6
What We Do Tech & Admin 11% $156-158 million Human Capital 12% $167-169 million Benefits 55% $811-819 million Insurance & Financial Services 8% $111-112 million Investment 8% $125-126 million Other 7% $100 million FY07 revenue guidance of $1.48 billion 7
Benefits Retirement Consulting, valuation and administration services Focus on Fortune 1000, P&I 1000, FTSE 100 and large pension funds Long-term client relationships Regulatory and accounting reform FY06 revenues - $660 million Health Care Strategy, design, financing, delivery, communication and ongoing planning and management of all health and welfare programs. Cost efficient vendor management strategies Issue based consulting FY06 Revenues - $66 million FY07 revenues expected to be in the range of $811 - $819 million 8
Well Established Market Position (Top 300 Funds by Size) 40% 35% 30% % Market Share 25% 20% 15% 10% 5% 0% Global North America Europe Watson Wyatt Towers Buck Hewitt Mercer Source: Pension & Investment and Intersec 2005 9
Retirement Programs in Context Employee wealth needed for retirement Company s need employees to retire 9 to 12 times final pay in disposable wealth required for an adequate retirement Risk diversification is an important consideration Why do companies provide retirement benefits? Attraction Retention To avoid retiring in place and to allow employees to leave at the appropriate time 10
Pension Protection Act Broad Implications There are New Rules for Single-Employer Plans Funding targets Contribution requirements Valuation requirements Credit balances PBGC premiums Benefit limitations Disclosures Hybrid Pension Plans Defined Contribution Plans Multiemployer Plans The biggest change to our industry since ERISA was enacted in 1974 11
Healthcare Consulting Rising Costs Evidence Based Solutions Consumer Driven Health Care Healthcare Spending Accounts 12
Cumulative Health Spending across a Covered Population by Segment Group 1: 70 percent of people, 10 percent of expenditures Group 2: 25 percent of people, 40 percent of expenditures Group 3: 5 percent of people, 50 percent of expenditures 100 Percentage of plan expenditures 80 60 40 20 0 1 2 3 0 10 20 30 40 50 60 70 80 90 100 Percentage of total covered population 13
Framework of targeted consumerism 14
Technology & Administration Solutions Total Outsourcing Total Insourcing HR-BPO Outsourcing Multi-Process Outsourcing Single-Process Outsourcing HRMS Insourcing Business Process Outsourcing Outsourcing the majority of HR functions to single vendor. Outsourcing two or more HR processes with a single vendor/contact Systems and administration outsourced; frequently the employee interaction is outsourced Multiple vendors may still be used Outsourcing includes HR processes. Separate contracts and processes Systems outsourced; administration and employee interaction designed to meet client-specific needs Many vendors, models and price points Multiple vendors frequently used HR delivery is a core competency; company culture/history demands transactions to be done internally System up-front and upgrade costs can be high FY07 revenues expected to be in the range of $156 - $158 million 15
Human Capital Group Compensation Executive pay Incentive design Board remuneration Option expense/ valuations Corporate governance Sales compensation Total Rewards Organization Effectiveness Diagnostic services WW Human Capital Index Talent management Proprietary best practices database Watson Wyatt Data Services Over 200 compensation reports Variable pay Performance management Personnel policies Multinational company practices FY07 revenues expected to be in the range of $167 - $169 million 16
Investment Consulting LiabilityWatch ManagerWatch Performance standards Benchmark review Manager evaluation Compliance and style monitoring Context areas Client Internal governance Assess manager capabilities Manager searches Transition management Value creation areas Funding policy Investment objectives Investment policy Asset/liability modeling Risk budgeting FY07 revenues expected to be in the range of $125 $126 million 17
Insurance & Financial Services Provide actuarial and business consulting to financial services organizations globally Advise a wide range of companies including: Life and non-life insurance companies Health insurance companies Banks Projects include: Claims reserving Mergers & acquisitions advice Actuarial support, valuation Capital adequacy and management Asset and liability modelling FY07 revenues expected to be in the range of $111 - $112 million 18
watsonwyatt.com Our Financial Performance
Revenues $1,600 $1,480 $1,400 $1,200 $1,000 $1,206 $1,308 CAGR 11% $1,272 $Millions $800 $600 $625 $700 $710 $710 $702 $737 $400 12% $200 $0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07E FY 05 and FY 06 amounts are pro forma and assume Watson Wyatt LLP acquisition had occurred at the beginning of the fiscal year 20
Earnings Per Share $3 $2.52 - $2.56 $2 $1.21 $1.37 $1.41 $1.51 $1.50 $1.56 $1.99 CAGR 28% $1 13% $0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07E Earnings per share exclude expenses associated with the now-discontinued Stock Incentive Bonus Plan, whose after-tax effect was $0.58 per share in FY00. 21
Income from Operations $175 $170-173 $155 11.5-11.7% $135 $132.4 10.4% $115 $Millions $95 $75 $72.6 $72.2 10.4% 10.2% $77.9 11.0% $68.5 $80.8 11.0% $55 9.8% $35 $30.8 $15 4.9% -$5 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07E 22
Cash Flow from Operations $169.1 $170-175 $160 $140 $120 $Millions $100 $80 $60 $40 $38.1 $43.2 $51.6 $74.7 $59.5 $68.1 $20 $0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07E 23
Returns to Shareholders Closing Price 10 May 2007 $52.16 $52 $47 $42 $37 $32 $27 $22 $17 IPO $12.50 Secondary $22.00 Tender $25.25 Annual Dividend of $0.30 initiated Acquisition $28.44 $12 IPO 2001 2002 2003 2004 2005 2006 2007 24
Key Takeaways Key Investment Highlights Established reputation, management team and track record of delivery to investors Global presence Strong demand for services Well-established market position High revenue visibility Continuing growth prospects Looking to the future Growth in European business Increase in market share Legislative change Executive compensation demand Expansion in new and existing geographies 25