Willis Net Income Down 50%; Revenues Up 6% in Q2

July 31, 2008

Despite a soft insurance market, Willis Group Holdings Limited reported a 7 percent growth in commissions and fees, including 3 percent organic growth for the quarter and six months ended June 30, 2008.

However, Willis reported net income of $39 million for the quarter, compared with $78 million a year ago. Willis said the results for the second quarter 2008 were significantly impacted by pre-tax charges totaling $62 million for contract buyouts, severance and other costs related to its “Shaping our Future” strategy.

Willis said it currently anticipates that these charges and other actions arising from the expense review will lead to cost savings in the range of $25 million to $35 million in 2008, rising to approximately $45 million to $55 million in 2009. These savings are in addition to the anticipated annualized net benefit from the 2006 Shaping our Future charges currently estimated to be approximately $30 million in 2008 and $45 million by 2009.

Total reported revenues for the quarter ended were $661 million compared with $626 million for the same period last year, an increase of 6 percent.

“Our three percent organic commissions and fees growth is a testament to our successful top line growth strategies and diversified business mix, despite continued softness in the insurance marketplace,” said Joe Plumeri, chairman and CEO.

Organic growth in commissions and fees was 3 percent in the second quarter 2008 compared with second quarter 2007. This reflected net new business won of 5 percent; there was a negative 2 percent impact from declining premium rates tempered by other market factors, such as higher commission rates, higher insured values and changes in limits and exposures.

The International business segment contributed 10 percent organic growth in commissions and fees in the second quarter 2008 compared with the same period in 2007. Willis noted there was continued strength in Europe, especially Spain, Denmark and Norway, and in Latin America, as well as in Russia and China.

The North America segment reported organic growth in commissions and fees of negative 1 percent compared with second quarter 2007 in a soft insurance market. The North America segment continues to make strategic investments in targeted practice areas and geographies, the company reported.

The Global segment, which comprises Global Specialties and Reinsurance, recorded flat organic growth in commissions and fees in the second quarter 2008 compared with second quarter 2007.

Reported operating margin was 11.6 percent for the quarter ended June 30, 2008 compared with 22.0 percent for the same period last year. Excluding the charges, adjusted operating margin was 21.0 percent for the quarter ended June 30, 2008 compared with 22.0 percent a year ago.

Six Months 2008 Financial Results
Reported net income for the first half of 2008 was down $42 million compared to the same time period in 2007. For the six months ended June 30, 2008, Willis reported net income of $205 million compared with $247 million a year ago. The results for the first six months of 2008 were significantly impacted by pre-tax charges totaling $95 million for contract buyouts, severance and other costs.

Total reported revenues for the six months ended June 30, 2008 were $1,456 million compared with $1,365 million for the same period last year, an increase of 7 percent. The effect of foreign currency translation increased reported revenues by 5 percent.

Organic growth in commissions and fees was 3 percent for the six months ended June 30, 2008 compared with the same period in 2007. This growth was attributed to net new business won of 4 percent; there was a negative 1 percent impact from declining premium rates tempered by other market factors such as higher commission rates, higher insured values and changes in limits and exposures.

Reported operating margin was 20.7 percent for the six months ended June 30, 2008 compared to 27.5 percent for the same period last year. Excluding the impact of the charges relating to severance and other costs, adjusted operating margin was 27.3 percent for the six months ended June 2008, relatively flat compared with the same period last year.

“Overall, we’re very pleased with our first-half performance. We said we were going to deliver industry-leading organic revenue growth and a steady adjusted operating margin this year. Thus far, we’ve done that, despite soft market conditions, thanks to the great progress we’re making with our Shaping our Future initiatives,” Plumeri said. “We’re building a solid platform for future profitable growth at Willis, both with the Shaping our Future strategy and with our pending acquisition of Hilb Rogal & Hobbs, which will double the size and footprint of our North America business.”

Hilb Rogal & Hobbs Company Acquisition
On June 8, 2008, the Company announced the acquisition of Hilb Rogal & Hobbs Company (HRH), the eighth largest insurance and risk management intermediary in the United States.

Under the terms of the definitive agreement, Willis will acquire all of the outstanding shares of common stock of HRH for $46.00 per share (subject to adjustment based on changes in the company’s stock price in the period prior to the closing of the acquisition), with approximately 50 percent of the total consideration being paid in cash and the other 50 percent being paid in stock. The total purchase price of approximately $2.1 billion includes the assumption of approximately $400 million of HRH existing debt. Over time, the company plans to repurchase the majority of the shares issued in connection with the merger under its existing buyback authorization.

The transaction is expected to close in the fourth quarter of 2008, subject to customary closing conditions, including regulatory and HRH shareholder approval.

Source: Willis Group Holdings Limited

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