Willis Post Q3 Gains in Operating and Net Profits

October 30, 2002

Willis Group Holdings Limited, the world’s third largest global insurance broker, announced third quarter operating revenues before taxes and interest of $64 million, compared to a $72 million loss in the same period last year. Net profits for the period rose to $31 million compared to an $81 million loss last year.

The figures for the third quarter of 2001 were heavily impacted by the Sept.11 attacks. Willis, however, has continued to rebound, joining its colleagues MarshMac and Aon on the bandwagon of rising income from the increase in premiums. It posted gross revenues of $390 million for the third quarter and $1.252 billion for the first nine months, compared to $325 million and $1.037 billion for the same periods last year.

“Operating cash earnings for the third quarter of 2002 rose 84% to $46 million, or $0.28 per diluted share, compared to $25 million, or $0.16 per diluted share, a year ago,” said the announcement. “Operating cash earnings represents net income excluding non-cash charges for performance-based stock options, goodwill amortization, and gain or loss on disposal of operations,” the company explained. Willis began taking these as charges this year. The quarterly results include an $18 million charge for performance bonuses.

Joe Plumeri, Chairman and CEO stated that “Our results for the third quarter and first nine months of 2002 continue to affirm our business model. Willis is a pure, global broker, building a strong sales culture for success in all market environments. Our Associates around the world continue to distinguish themselves as we provide exceptional risk management services in a hard insurance market that is complex and enduring. That model, combined with disciplined expense and capital management, has enabled us to deliver eleven consecutive quarters of record operating results.”

Plumeri restated his goal of making Willis “the world’s best insurance broker.” In line with its expansion plans, the company noted that it has “increased its majority interest in subsidiary Willis GmbH & Co. KG, Germany’s third largest broker, to 78%, completed two acquisitions in Sweden, strengthening its leading share in that marketplace, and increased its ownership to 100% of certain business units in Australia and Indonesia.”

Ironically, although the report was entirely positive on all levels, it apparently wasn’t positive enough for Wall Street. Several analysts expressed disappointment that the company had “only” achieved a net profit generally in line with expectations. Willis’ failure to beat the street’s expectations caused its shares to fall by $2.43 to close at $30.55, a 7.37 percent drop. Analysts are apparently worried that with the economy still showing significant weakness, premium growth is slowing, and that this will reduce the company’s future growth prospects.

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