威達信集團 (MMC) 2015 Q1 法說會逐字稿

Welcome to Marsh & McLennan Companies conference call.

Today's call is being recorded.

First-quarter 2015 financial results and supplemental information were issued earlier this morning.

They are available on the Company's website at www.mmc.com.

Before we begin I would like to remind you that remarks made today may include statements relating to future events or results which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to inherent risks and uncertainties and a variety of factors may cause actual results to differ materially from those contemplated by the forward-looking statements.

Please refer to the Company's most recent SEC filings which are available on the MMC website for additional information on factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

I will now turn this over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

Thank you, Jamie, and good morning and thank you for joining us to discuss our first-quarter results reported earlier today.

I am Dan Glaser, President and CEO of MMC.

Joining me on the call today is Mike Bischoff, our CFO, and our operating company CEOs: Peter Zaffino of Marsh; Alex Moczarski of Guy Carpenter; Julio Portalatin of Mercer; and Scott McDonald of Oliver Wyman.

Also with us is Keith Walsh of Investor Relations.

The business world is changing rapidly and we continue to see examples of disruption and discontinuity.

We believe Marsh & McLennan Companies is well-positioned in this environment.

We are global leaders in the areas of risk, strategy and people and these areas all have great relevance to our clients.

We are defined by deep specialization and united by a common purpose: doing meaningful work that makes a difference for our clients, colleagues and shareholders.

We are industry innovators and thought leaders, proud of our heritage of advising clients on complex challenges.

Many organizations, ranging from multinationals to regionals and small firms, both public and private, are affected by issues such as heightened cyber security risk, political and economic uncertainty, increased regulation, and slow economic growth.

In this increasingly complex and dynamic world the need for advice and services is rising.

Our competitive positioning as a trusted advisor to our clients has never been stronger.

Our proposition for shareholders remains unchanged.

We are a global growth company with increasing capital flexibility, we continue to invest for future growth, and we have a proven leadership team known for keeping its commitments.

I am pleased with our operating performance in the first quarter, especially considering global economic pressures and a softening P&C insurance market.

We posted underlying revenue growth across all operating companies, margin improvement in both segments, and strong growth in earnings per share.

We continue to return capital to shareholders through dividends and meaningful share repurchases.

Like other US multinational companies we are faced with challenges presented by the current global economic environment.

In particular we are weathering substantial headwinds from low interest rates and the strong US dollar.

As we discussed on our last conference call, our mitigation efforts primarily impact the first quarter, resulting in a net benefit to EPS of $0.03 in the quarter, and Mike will give you additional details.

MMC's overall underlying revenue growth was 4% in the first quarter and I am optimistic about our ability to continue to drive underlying revenue growth in both RIS and Consulting.

Looking at our RIS segment, revenue was $1.8 billion with underlying growth of 3%.

Adjusted operating income increased 9% to $546 million.

At Marsh, revenue was $1.4 billion.

Underlying growth was 3% with all major geographic regions contributing.

Strong new business drove the revenue increase.

In the US/Canada division, underlying revenue growth was 3% led by Marsh & McLennan Agency.

The International division also expanded 3%; EMEA rose 2%; Asia-Pacific grew 5%; and Latin America increased 6%.

Guy Carpenter's revenue was $368 million, up 2% on an underlying basis; growth in Global Specialties, led the way, primarily marine and Lloyd's property.

In the Consulting segment, revenue was $1.4 billion, up 5% on an underlying basis.

Adjusted operating income was $247 million, an increase of 9% from the prior year.

Mercer's revenue was $1 billion, an underlying increase of 4%.

The revenue increase was spread across all major geographic regions including solid growth in Europe and Growth Markets.

Good revenue performance was aided by the third consecutive quarter of double-digit underlying growth for Investments at 13% while Talent contributed 4%, Health was up 3% and Retirement was flat.

In February Mercer made a $75 million strategic equity investment in Benefitfocus, significantly expanding the relationship with Mercer Marketplace, our private health exchange.

Together we are driving innovation within the Health and Benefits industry.

Oliver Wyman's revenue in the first quarter was $384 million reflecting underlying growth of 8%.

Revenue increases were achieved across all industry sectors.

As expected, the rate of growth decelerated from the double-digit growth rate produced last year.

In summary, even excluding the $0.03 net benefit from our mitigation efforts, we produced strong EPS growth and margin expansion in both segments.

In 2015 we expect to deliver underlying revenue growth, margin expansion in both operating segments, and high-single-digit EPS growth.

Additionally, we remain confident in our ability to grow EPS at a 13% CAGR over the long term.

With that let me turn it over to Mike.

Thank you, Dan, and good morning, everyone.

In the first quarter we delivered solid underlying revenue growth across each of our operating companies and double-digit growth in adjusted earnings per share.

Revenue growth exceeded the increase in underlying operating expenses for the 18th consecutive quarter.

GAAP EPS rose 10% to $0.88 and adjusted EPS increased 12% to $0.91.

As we discussed on last quarter's call, results this year are being impacted by two macroeconomic headwinds: the decline in global interest rates and the strengthening of the US dollar.

Consistent with our comments last quarter, our estimate is that higher retirement plan expenses and foreign-exchange should impact earnings per share this year by approximately $0.30.

The effects on our quarterly results will vary.

In the first quarter these macro-headwinds impacted earnings by approximately $0.12.

As anticipated, we made changes to our US post-65 retiree medical program last month.

This medical benefit was eliminated for most colleagues more than a decade ago.

The net result of the two headwinds in this mitigating action was a benefit to operating income of $23 million or $0.03 per share.

Looking forward, if foreign-exchange rates remain at their present levels, we estimate the impact of the two macro headwinds will be $0.08 in the second quarter, $0.06 in the third quarter, and $0.04 in the fourth quarter.

It also helps to look at the net impact of these items by segment.

In the first quarter the mitigation almost completely offset the macro headwinds in the Consulting segment, and had a positive impact on profitability and margins in the Risk & Insurance Services segment.

In the second quarter the headwind should impact Risk & Insurance Services slightly more than Consulting; in the third and fourth quarter about one-third of the headwinds are expected to impact the RIS segment with two-thirds impacting Consulting.

So, as we progress throughout the year it may be best to look at profitability growth and operating margin improvement on a year-to-date basis.

We expect adjusted earnings per share in the second quarter to be similar to last year.

And, as the year-over-year impact of the macro headwinds dissipates, we expect EPS growth in the second half of the year to be stronger than the first half.

We think it is important to share this level of detail in order to give the investment community insight regarding the net impact, by quarter and by segment, of the macro headwinds, our overall business plans, and our mitigation actions.

I would like to reiterate what Dan said earlier, we expect to generate high-single-digit growth in earnings per share this year.

Investment income was $2 million in the first quarter, a decrease of $11 million from a year ago.

Investment income is expected to be de minimis in the second quarter unless there is a change in the status of Trident III.

Corporate expense was $44 million, in line with our anticipated quarterly expense level.

Over the last several years we have reshaped our debt portfolio.

Our most recent transaction was in March when we issued $500 million of five-year senior notes.

As a result of these actions our average cost of debt has declined substantially; for example, from 5.1% in the first quarter of last year to 3.4% this quarter.

Our next debt maturity is a $50 million term loan due in March of next year.

Our cash position at the end of the first quarter was $1.1 billion with approximately $260 million in the United States.

Uses of cash in the first quarter included: outlays for our annual bonus awards, which have increased in each of the past six years; $300 million to repurchase 5.3 million shares of our stock; $151 million for dividends; and $140 million for acquisitions and investments.

With that I am happy to turn it back to Dan.

Thanks, Mike.

So, Jaime, we are ready to begin the Q&A.

(Operator Instructions).

Jay Gelb, Barclays.

On the EPS outlook, I just want to confirm that the starting point of that high-single-digit EPS growth rate is $2.82 for full year 2014, which is the adjusted?

That is correct, Jay.

That is correct.

Okay, thanks.

The other thing that caught my attention the quarter was the pace of buybacks, $300 million in the quarter.

Can you talk about why that accelerated in 1Q and what the implications are perhaps for the rest of the year in terms of buybacks?

Sure.

If you go back to last year we returned, between acquisitions, dividends and share repurchase, $2.35 billion to shareholders and we made the comment in our last call that we would expect this year to be at least that amount.

So we feel very comfortable with our ability to return value to shareholders through those three actions.

And when we look at it, our overall feel as we go forward would be that you will see us over time reducing cash on the balance sheet, increasing our level of leverage over time and putting that leverage -- increased leverage to work for our shareholders.

And so, our expectation in terms of share repurchases and acquisitions are similar to last year.

Although acquisitions is one of those things that you can never really quite time and share repurchase to us would be a very good use of our money and certainly superior to growing cash on the balance sheet.

Okay and then my final question was with regard to the first quarter, the offsetting benefit of closing the retiree medical plan, my sense is that had a benefit even on the adjusted operating income, especially for RIS.

Can you provide us with sort of a normalized margin for 1Q relative to the 30.3 that was printed?

Yes, sure.

When you look at our margins in general I think what -- it is smart to not only back out things like foreign-exchange, but also back out the mitigation aspect, particularly in the first quarter, because that is where it landed so heavily.

Even if you back all of that out on an underlying basis, MMC's margin would have been up about 50 bps and we would've had margin improvement in both segments.

Dan, I think you meant Risk and Insurance Services margins would have been up about 40 or 50 bps, Consulting is fairly straightforward.

That is helpful, thank you.

Ryan Tunis, Credit Suisse.

I guess my first question is just on the organic growth in US and Canada.

I know you mentioned I think it was driven by MMA.

Just curious, what was the growth there in MMA, and what were some of the other puts and takes maybe against that 3% US and Canada?

Sure.

Well, we are not going to start disclosing quarterly individual units within segments and calling them out separately.

But, Peter, you want to talk broadly about the US and Canada division?

Sure, I will start, Dan, with why we called out MMA.

And we have been communicating on our quarterly calls about the quality of acquisitions that we are making, the ability that we have in terms of being meaningful in the middle market and having a national platform.

But in addition to making those acquisitions and bringing something very unique to our clients and to the market, we had strong organic growth.

So we are seeing the components of strength from acquisition as well as from organic growth.

In the US and Canada division, again, we have multiple businesses that roll up in the reporting and MMA was the leader in terms of its organic growth.

The one thing that we'll have within overall Marsh as well as the US and Canada division was a weak new business in the first quarter of last year.

So therefore the rollover had some impact in the first quarter growth.

But overall the fundamentals of client retention, strong new business and the 3% in the US and Canada and the mature part of the world we were pleased with.

That is helpful, thanks.

And I guess my follow up would just be, the $500 million debt deal you guys did, does that change your outlook I guess in terms of what you think you can do for dividend, acquisition, and share repo for the remainder of the year?

Mike, you want to take that?

Yes, thank you very much.

This is basically in line with what we've been doing over the last three years in essentially reshaping our debt portfolio, or as some people say debt maturity ladder.

We looked at it over a number of years and we started to reposition our 2014 and 2015 maturities.

And then looking at that we wanted to essentially have a smooth ladder going out into the future.

We went through about three years with keeping our actual debt essentially flat at around $3 billion.

And then what we have been indicating to the investment community, as well as the credit rating agencies, that as our earnings continue to grow we will begin to bring up our overall debt levels in a sequential fashion.

And so, it is very much in keeping with our long-term view, very consistent with what we have been doing.

If you look at it on a seasonal basis, where we need the cash -- where we have heavily utilization of cash, all things being equal, is in the first quarter due to our annual payments for bonuses.

And so, where we are increasing our debt most likely on an annual basis, it could occur in the first part of the year.

So that is a long answer to something to say, no, it is very consistent with a multi-year strategy.

That is helpful.

Thanks, guys.

Appreciate it.

Okay, thank you.

Next question, please.

Kai Pan, Morgan Stanley.

Just a follow up on Jay's question on the margin expansion especially in the RIS segments.

Even excluding now these foreign-exchanges and the pension impact pretty healthy year over year improvement.

Is that sort of -- if you look at organic growth at 3% is that an indication when the organic growth is 3% or above we should see some meaningful margin expansion for these segments going forward?

Yes.

Well, I will start by saying for quite a while we sort of used 3% as the baseline in saying if we can grow organically 3% or better we believe that we should be able to achieve some margin expansion.

I wouldn't say it quite the way you did, Kai, in terms of "at 3% there will be meaningful margin expansion".

I mean clearly whatever the delta is between 3% and a higher number creates more of an ability for us to expand margins.

And if we are closer to 3% we wouldn't really be driving at that stage for margin expansion.

But, Mike, do you have anything to add?

Just more specifics on the first quarter for the clarity.

When we looked at the margin improvement in Risk & Insurance Services for the quarter, which was 310 basis points, we knew that that was affected by the benefit -- the net benefit of the closing of the retiree medical plan post-65 in the United States.

And so, that is why we wanted to give the investment community much more specificity on the first quarter.

So, the benefit the net benefit that we indicated at $23 million was felt almost completely in the RIS segment.

And so, that is what I was saying earlier.

If you just say based upon the underlying growth in the segment what would be the organic growth and what would be the margin improvement predicated on that.

And thus for the RIS segment it would be in the neighborhood of 40 to 50 bps.

In Consulting it is a different situation.

The net headwinds and the net offsetting items essentially netted out, it was actually a $2 million or $3 million hurt in Consulting.

So the margin improvement of 160 basis points was more of a true margin improvement for the segment in this quarter excluding the impacts of the mitigating items and the macro headwinds.

Thank you very much for the detail.

Then follow up on the Health segments, the organic growth 3% this quarter.

And just try to see your view because last year, end of last year announced you had a pretty meaningful increase in terms of your Mercer Marketplace private healthcare exchange.

Just wondering how those growths, which translate into organic growth in particular in the health segment.

Julio, do you want to take that?

Thank you, and thanks for the question it will allow us to provide some additional clarity and color around our health growth which we are actually very bullish on in very pleased with.

You might recall a couple of years ago we made an announcement that we would be incorporating our benefit admin business into our line of businesses.

In this particular case the Health and Benefits benefit administration business or outsourcing was actually incorporated in our Health segment.

And we did that of course the results have been actually pretty good because we have been able to put profit improvement plans in place to improve our margins in that business.

Part of that decision -- part of those decisions that we make of course has to do with client and client retention, our ability to price adequately for the services that we give.

So if you were to take the impact of some of the client retention challenges that we had because of anticipated action that we took to improve profitability in ben admin, if you were to take that impact out of the Health number you would actually see what I think is a much more expected 7% growth.

So our core Health along with MMX grew 7%, with the actions of ben admin, it impacted it to 3%.

So we are very pleased in fact that we had good performance in our Health business, we expect this to continue.

Client retention ex ben admin is actually very strong, our commissions continue to increase.

Mercer Marketplace will enhance this segment going forward.

And it is important to keep in mind that we will continue to invest in our exchange Health business because we think it is a robust environment for us to do so and to maintain our leadership position.

Thanks, Julio.

Next question, please, operator.

Michael Nannizzi, Goldman Sachs.

I guess just a couple questions.

One is so, on the buyback, I mean it is great to see your comment about leverage, Dan, and the buyback there.

I guess one question is looking now, running at the 200 to 300 quarterly run rate, 1Q seasonally light because of operating expenses.

Do you expect or should we expect that -- or can we infer that we will look to maybe increase leverage a bit during the first quarter to sort of supplement the seasonally light cash flows there and to kind of adopt or espouse a run rate near this level on buybacks?

Yes, I think the way you should look at it is more annual than quarterly.

I mean clearly every year we pay bonuses in the first quarter, and so it tends to be where we are cash light.

We have lots of ability to cover that, so that is not an issue.

And as you see, we ended the year with quite a bit of cash on our balance sheet including $260 million in the United States.

And I would think more over time what you should consider is that we will be increasing our leverage over time.

And that by doing that will give us more capital flexibility not only for share repurchase but also for dividends and acquisitions.

And we remain a very balanced player in those three areas.

What you can infer from that is that our level of acquisitions will not necessarily impact our level of share repurchase, that we are looking at really our ability to do more of each over time.

Great, great, that is helpful, thanks so much.

And then just on the -- kind of trying to square the margin and FX and high-single-digit earnings comment.

So if we think about organic growth kind of sticking at this level on RIS, maybe we continue to see that sort of 50 basis point margin expansion through the year.

So to get to that mid-single-digit EPS growth, does that mean that Consulting margins -- we should expect to see this level of margin expansion?

Or just -- I'm just trying to mathematically think about how we square kind of those points.

Thanks.

Sure.

So the way I would look at it is first look at last year, right, because a switch is not flipped and everything is different in a new year.

So if you look at last year we grew overall as a Company about 70 bps in margin, and RIS grew 30 bps and Consulting grew 160.

When we think about this year in terms of 2015, I think what you will see is RIS will probably be pretty similar to last year and Consulting will come off a bit from 160 bps, we are not expecting that for the full year.

But we will have some corporate benefit because our corporate initiatives that we had in the back half of last year are unlikely to recur, so we will have some benefit there.

So overall we feel like we will end up with pretty good margin expansion for the Company during the year of 2015.

Got it, great.

And then just a last quick one, maybe Julio, on the private exchange.

Any update on enrollment from the last time we spoke?

And one question I would love to ask too is thinking about like the employer size spectrum, I mean can you talk about your initiatives or kind of hit rate in the sub 1,000 or maybe mid size or large on that front?

Thank so much.

Julio?

Thanks for the question.

As we have discussed in the past, it is our intent to give full updates of our Mercer Marketplace progress on an annual basis, so it will be towards the end of the year when we do that again.

But I would like to remind you of a couple of things and maybe add some color to the size piece because we did make some disclosures on that in the past.

So as mentioned in the past, our total eligible lives is over 1 million for both active and Medicare, when you put those together it is over 1 million.

And when you add voluntary benefits and individual access mediums we can add another 1.5 million or so.

So we are up over 2 million when you talk about eligible lives.

Mercer's US Health and Benefits business touches millions of lives and gives us an opportunity to grow our exchange business over time as well as new prospects.

We continue to have good interest from and dialogue with clients, both our current clients and new clients, both in mid and large market companies.

Although we continue to see a little bit more momentum still in the midmarket versus the large market.

Mercer Marketplace is a key part of our future, as you know.

So if you look at some of the early adopters versus what our current numbers are you will see that in 2014 we had about 67 clients, now we have close to 250 in 2015, talked about the number of lives already.

If you break it down by client size you will see that nearly half of the clients that we have in our 2015 number is about let's say 5,000 or less number of employees.

So you still see a pretty good number of people going into the exchange that obviously are in the market space that is considered to be midmarket and below.

And about 40% of our clients, by the way, would be somewhere in the area of over 5,000.

But then again when you look at jumbos over 20 it really drops considerably.

So that goes to your comment earlier in terms of wanting more color as it relates to the size of the employees that we're currently having as part of our Mercer Marketplace initiative.

Thanks.

Great, thank you so much.

Sure.

Next question, operator.

Elyse Greenspan, Wells Fargo.

I was hoping to spend a little bit more time I guess on the acquisitions in light of your capital outlook for the year.

A little bit lower in the first quarter.

And I know if you guys can kind of just talk about what you are seeing in the acquisition pipeline, especially in terms of M&A, in terms of the MMA platform and if higher prices of deals have kind of caused you to walk away on that front or just kind of what you are seeing there as we look for the balance of 2015.

Sure, so I will talk a little bit about acquisitions and then I will hand over to Peter to talk a little bit more about the pipeline within Marsh and in particular MMA.

I think it is important to reiterate that our philosophy around acquisitions is that we have no budget or timetable associated with acquisitions.

We work a pipeline and we develop relationships and sometimes it takes years to actually cultivate a relationship to where we then can have a discussion around whether they want to join with us or not.

Our primary focus is on quality, we prefer companies that are growing faster than we are, that are trading at multiples below our multiples, and where we can see that we can improve the business by working together.

And from that standpoint I'd also say that we rarely participate in auctions.

Auction environments are not the kind of -- they don't meet our philosophy because actually they are generally geared to optimizing of the price for the seller as opposed to any kind of joining together of two different companies.

So just to reaffirm, we develop relationships with really talented people over a long stretch of time.

Now in terms of the multiples, I mean it is clear over a number of years there has been some expansion in multiples, generally fueled by low interest rates and the entry of many PE firms into this space.

And multiples are important to look at.

But it may be even more important to look at well what is the EBITDA, because these are private companies and you have to make assumptions around EBITDA.

And sometimes I would say that buyers can be far more optimistic about what those assumptions are than what we would be as a disciplined buyer.

And so, you also will have to look at the projected growth rate.

And from that standpoint we are well practiced.

As an overall Company last year was a fairly active year and it added up to almost $1 billion worth of acquisitions.

The pipeline overall for the entire Company looks about the same.

I am not going to say it is fuller than it was at this point last year.

It is about the same.

And we are working on some things that are consistent with our approach of a string of pearls strategy where the average acquisition for us over the last five or six years has been around $40 million.

And we're also working on some things that we would call more nuggets that might be a little bit more size, but those tend to take more time.

And so, Peter, you want to add in some specifically about MMA?

Sure.

I think you summarized everything, Dan, for the organization and it fits very well within MMA.

We are working very hard to cultivate relationships.

We don't have a budget so it can be very lumpy from quarter to quarter or from year to year.

And as Dan had mentioned, we very much focus on companies that can strategically position us differently, whether it is it a space like the SME or provide capabilities that we may not have.

We made an acquisition of Torrent at the end of last year which was a best-in-class flood servicing company with great technology.

So we are very focused on making sure that we're cultivating those relationships.

We tend not to be in a bid process, so in that cultivation of relationships there tend to be just two parties involved.

And if I can speak specifically about MMA and International, which is where we focus a lot of our acquisitions, we feel the pipeline is very strong for 2015 and are optimistic that throughout the next several quarters we should be able to move forward.

Thanks.

Elyse, would it be helpful if Julio talked a little bit about the investments that they have made where they haven't purchased 100% of a firm but they have invested in Benefitfocus and Alexander Forbes?

Sure, that would be great.

Julio?

Okay, thank you.

Yes, it is great to be able to give some additional color on this, because, as we've talked about in the past, we have some very pointed strategies on how we want to continue to expand our business.

In the case of Alexander Forbes mentioned earlier, it was very important for us to be able to get a much more of a foothold and much more of a footprint in the Africa continent.

And of course Alexander Forbes provides that in a very meaningful way.

It is part of our focus to expand our new capabilities in growth markets and of course in the Investments and the Retirement space as well.

So our investment in Alexander Forbes really helps us do that and continues to help us move forward.

Benefitfocus we are very excited about.

I mean obviously we have a big investment going on in our exchange business and we bought $75 million of newly issued shares of Benefitfocus representing 9.9% of outstanding shares.

And quite frankly, we are really pleased with the partnership that we've developed with Benefitfocus.

We are developing proprietary approaches to the exchange space and we wanted to make sure that that was preserved over a long period of time, sustainable for us to count on for a long period of time.

And we made the investment there and we're very excited about our partnership and developing new things.

As we continue to also invest in our Investments expansion, SCM came available to us.

And through a lot of discussions over a period of time we were able to secure that acquisition.

Of course that supports our Investments business, especially in the alternative investment space.

So it really expands us in that area because our clients have been asking us to actually provide great solutions in that space and that helps us in that area.

So as you can see, all of these acquisitions are really very strategic, they are very much aligned with our strategic purpose.

And we will continue to look for opportunities just like those.

Thanks.

Any other questions, Elyse?

Yes, if we can also spend some time talking on Guy Carpenter, 2% growth in the quarter.

Just how you kind of think about the growth you can potentially see there on an underlying basis for the balance of 2015 especially in light of some of the price declines you've been seeing in the reinsurance market.

Thank you.

Sure.

Alex.

Sure, thanks.

So the first quarter was actually a little stronger than we had expected and second-quarter maybe a bit tougher.

We can expect -- it is a moderate or slight to moderate underlying growth environment for us.

We expect to grow over the year slightly, maybe even moderately.

But next quarter may be a little bit tougher.

We may have clunky quarters because when you are in that sort of environment where percentages are small, one quarter will be stronger than the other.

But we do believe that we've got a good pipeline, we continue to innovate, we continue to be relevant.

As there are more options around capital we are agnostic to where that capital comes from and our clients are looking for disinterested, unbiased, but informed alternatives.

We have been specializing, as you know, we have been segmenting.

We opened up the mutual company practice in 2013, the Excess & Surplus line practice, the cyber solution specialty in 2014, Health Care in 2014 and just announced the public sector specialty practice.

So we continue to seek relevance, we continue to seek innovation, we have got strategic advisory teams around the world helping companies grow, helping companies face increased regulation.

So yes, we are optimistic about our growth -- our continued growth this year though, as I said, at a slight to moderate pace.

To sum that up, GC is doing a terrific job in specialization and segmentation and all that hard effort enables them to eke out some level of growth in a low growth environment.

And that is our expectations for the year.

Next question, please.

Dave Styblo, Jefferies.

I think I will flip to the other side of the business on Marsh for the organic growth there.

Another solid quarter at 3%.

I guess as I was looking at things it is a little bit lower than any of the quarters last year.

And obviously the environment, as you mentioned, is a little bit more challenging.

But I'm curious what you are seeing more specifically in the end market.

Is there any sort of more material slowdown in activity or increased competition?

Or on the other side, I am just wondering if there is perhaps any sort of timing of revenue that might have been going on in the quarter.

Okay, so I will just take that broadly and then hand over to Peter.

I think when you look at this segment overall, one thing to consider is that for the last 17 out of 18 quarters, we have grown organically 3% or better.

And so, as you stated, we have had some periods that were higher than that, but we've really done a good job creating that as essentially our floor in the segment.

But, Peter?

Yes, I had commented on the United States earlier.

So perhaps I'll just give a little bit of insight on international and its growth.

First of all, we have a terrific international business, it is really balanced with strength across the entire geographical platform.

But in the first quarter it is heavily weighted towards EMEA.

We had 2% growth in EMEA, 5% in Asia Pac really led by Asia, and 6% in Latin America.

So there are a couple of factors impacting the growth, again nothing to be concerned about, but we had modest renewal growth in the quarter and that was primarily based on two factors.

One is we had slow new business growth in the first quarter of 2014, so that had a slight impact on the rollover for 2015.

And then pricing coming off a little bit more thinking mid-single-digits led by property in the international business had some impact.

The real positive for us is that we had terrific new business in the quarter so we were up 7% in International.

And in Continental Europe we had 10% new business growth and then in the UK we had 8%, other strong performances we had Africa at 15%, and Latin America in double-digits.

So we are winning and the marketplace, we are in a very positive way and a balanced way growing our portfolio through adding clients.

And so we had a little bit of an impact from last year again and it is heavily weighted towards Europe and the UK.

So when you think about the macroeconomic factors and the slight impact, again, we had from rollover new business in the rating environment, we were pleased with the performance.

Okay, is it more appropriate to think more like a 3%-ish organic growth for the year as opposed to kind of a 4% to 5% clip you were at last year then?

No, I don't think that would be appropriate.

I think the way you should look at it is the overall Company, including RIS and including Marsh, has been operating in a 3% to 5% organic growth area.

And we are just as likely to pop out of that as we are to go underneath it.

But 3% to 5% seems to be the more accurate way to look at it over a longer period of time.

Okay, great.

And then a little bit more coming back to Benefitfocus.

I know you started to highlight that.

I am just curious, to get a better sense of the rationale for the investment, obviously you guys have been working with them for a while.

And what was the reason for needing to actually help make the investment in there?

I guess at one point, the company was burning through a little bit of cash.

Was it just to help the company out, make sure the business was (technical difficulty) so that they could focus on operations?

Or was there something new in terms of the expansion of the contract terms and things, and services that they were doing for you that is part of this new relationship?

I will say broadly and then I will hand over to Julio that we saw a tremendous opportunity to develop a closer relationship where we could collaborate more deeply.

And we certainly weren't needed as a cash source for them; they had all kinds of different choices.

And we are very pleased that we were able to make an equity investment in return for some cash.

Julio?

Thanks for the question.

As you know, the importance of Mercer Marketplace is high on our list of priorities.

Mercer Marketplace is our proprietary benefit exchange solution as powered by Benefitfocus, and our relationship has flourished.

We now serve a lot of lives together, including active and retirees, as well as their dependents in our Mercer Marketplace private exchange.

This equity investment enhances that relationship, it strengthens our proprietary solution, and allows us to more closely collaborate and align on employer and consumer development needs.

And those were the primary reasons why we actually went in and did the equity investment.

It solidifies the partnership and, in essence, allows us to look at things more strategically together as the exchange business continues to evolve and grow.

Thanks, Julio.

Next question, please.

Larry Greenberg, Janney Capital.

I guess this is for Mike, and it relates to FX and other good stuff like that.

So is it fair to say that the pension impacts, both the costs and mitigation efforts, are still expected to completely offset one another for the year?

And that the FX impact is now up to $0.30 a share from what you had indicated, $0.15 coming out of the fourth quarter?

Mike, you want to take that?

Okay, thank you.

Larry, I am glad you asked for clarity.

When we look at the total headwinds, the lower interest rates essentially impacting our pension expenses on a year-over-year basis and foreign exchange, it comes to roughly $240 to $250 million pretax or roughly $0.30 a share.

And it basically is roughly equal between the two macro headwinds.

So about $0.15 of foreign exchange, about $0.15 of call it the impact of lower interest rates.

That is very consistent with what we had said on the fourth-quarter earnings call.

The numbers just changed a bit, meaning a few million.

But the total aggregate amount was still in that $240 million, $250 million category.

So to be very clear, the foreign-exchange impact is $125 million for the year and we felt almost about $50 million of that in the first quarter.

Thanks.

Anything else, Larry?

Just on Guy Carpenter, I saw that there was a negative 2 point impact from M&A.

I am just curious what that was.

Oh, Larry, that is just the category -- this is Mike.

That is just the category where we say transfers of businesses between different of our operating units and others.

So that is really what it was.

We wanted to be very clear when we show just the underlying growth it is true business growth to the investment community.

And so that was really in the other category.

Okay, thank you.

Sure, next question, please.

Josh Shanker, Deutsche Bank.

Want to talk a little bit about FX.

And obviously 1-1 is a big day for you guys, you -- and currency is much stronger 1-1.

When we think about the new year 2016, is there much of an FX impact expected, I mean I guess particularly from Guy Carpenter or whatnot?

Well, why don't you tell us, Josh (laughter).

Well, where interest rates are right now?

Well, I think FX moves in a lot of different factors other than interest rates and there is many variables and it tends to move in cycles.

I mean we have looked at the movement of the dollar all the way since Bretton Woods.

And the reality over that length of time where it is sort of close to the median level of where the dollar has been.

It feels a lot stronger just because it was weaker over the last period of time.

But actually over a longer period of time it is about at the median.

And it is really the volatility rather than whether the dollar is strengthening.

And we were -- I think the whole world was taken by surprise in the period from say late October, early November all the way through to say the end of January.

And so, we are not anticipating that, but ultimately we are working on a series of mitigating actions to try to make sure that we are as prepared as we can be in a situation of either a strengthening dollar or interest rates to where that could create an impact on 2016.

Well, yes, I'm just talking actually January 1 though.

Given when you guys -- or on the last conference call you had, I would imagine, a good sense of where your FX would be by the end of the year because just a proportioned amount of the revenue for the quarter was already earned through by the time you guys held the conference call.

Yes, I mean, well, if you look at our quarters in general, Guy Carpenter is a little bit more weighted toward January than the other operating companies.

Europe is a little bit more weighted toward January within Marsh.

But Marsh actually, as the biggest OpCo, is pretty well-balanced between the first, second and fourth quarter and the third quarter is the shortest quarter.

So I don't think you can read too much into the results as to whether we anticipate headwind January 1 or not from FX, because I think it is too early to say.

I think the important thing to remember with FX is over a longer period of time for long-term shareholders it has been a wash for Marsh & McLennan Companies.

And that is over 10 years or 20 years.

And so, from that standpoint this is an issue that has arisen for this year.

The last few years we have worn $0.04 or $0.05 a year of headwind on it, this was just a spike year in our view.

But it is hard to tell where the macro world goes and there's an awful lot of variables beyond interest rates that impact the US dollar.

That is perfectly reasonable.

And then I can probably do the math myself and get it wrong.

If I take all the puts and takes from FX, interest rates, pensions, the mitigation efforts, in terms of long-term target of 13% EPS growth where did the quarter shake out on a normalized basis?

Well, I would say I would go back to what we said last quarter, which was when we were looking at 2015, we were saying if we looked at the year of 2015 on a constant currency basis we thought that we would deliver a result which was akin to our 13% long-term growth target.

And that is just the impact of FX.

And so, from that standpoint we expect to be high-single-digit EPS growth this year, taking into consideration all of those factors.

And we are working on a series of initiatives now that could potentially be utilized for next year in the event that there is headwinds that we have to deal with.

All right, well good luck with that and thank you.

Okay, thanks, Josh.

Next question, please.

Brian Meredith, UBS.

Two quick questions here for you.

First one, Mike, this question on the pension, any changes to the expected cash into the pension plan this year with the changes that you have made?

Mike?

Good question.

No, I think we are anticipating $190 million.

Okay, so it doesn't change at all.

Okay, great.

And then secondly, I am just curious, I noted you hired somebody, a pretty senior person for tax in the first quarter.

Any kind of updated thoughts?

I know you chatted about it in the last conference call, but any kind of updated thoughts on what you could do to get your tax rate down?

Well, actually, we have hired two senior people within the finance department recently, both a head of tax and also a treasurer.

But, Mike, you want to talk a little bit about tax more broadly?

Yes.

I would say with regard to the new head of tax, it is really just long-term planning, succession planning.

And we are very fortunate to get a very, very capable individual to add to our team.

When you look at tax, obviously we look at a lot of issues across the entire globe.

The thing that would help us the most, but we can't wish for it, is a reduction in the US corporate tax rate.

It's among the highest if not the highest in the developed world.

The other issue with regard to the US tax regulations is that it makes it very difficult to bring international cash back to the United States in a tax efficient manner.

And so, a lot of our efforts are predicated to that.

When we look at what we have done over the last four or five years, the tax rate, either on an adjusted basis or on a GAAP basis, has averaged in a range of 29.5% to about 30%.

And I think that is probably a good range to use for modeling purposes going forward.

Great.

And just quickly from an operations perspective.

I wondered if you could talk a little bit about opportunities with cyber security -- what you have done to beef up.

Is there anything that you still need to do from an investment perspective to get yourself in a position to really take advantage of what looks like clearly a big opportunity for you all?

Yes, I am glad you mentioned that, Brian, because it is a tremendous opportunity for the insurance community at large.

And it is probably one of those things that is a journey without end.

I mean in terms of what kind of innovations we can do to help better prepare our clients to not only beef up and be aware about risks associated with cyber, but also gain some level of risk transfer protection.

So the insurance industry has done a great job in other areas over a long period of time of helping spread best practice and actually help clients avoid and mitigate risk before they even think about transferring it.

And we think that Marsh & McLennan Companies has a tremendous role to play in not only risk transfer but also risk identification, risk avoidance, risk mitigation.

But, Peter, do you have something to add to that?

We just -- yes, Dan, with RIMs being this week we just launched some additional cyber capability.

So we do agree that the high-profile breaches, the awareness at the Board level, risk appetite in new industries like financial institutions, retail and healthcare, there is definitely an increased demand.

And I think insurance companies are being very thoughtful in trying to offer capacity.

We have continued to expand our modeling capabilities and just launched Marsh Cyber Monitor and Marsh Cyber View.

I won't go into great detail, but it is a fresh look at cyber by continuously updating different threat indicators, and the analytic side is looking outside in, provides a very interesting lens into companies and risk scoring.

And so we're able to do that in a real-time basis and have partnered with a Company called Cyence.

We announced it on Monday and believe that we will be arranging capacity for clients and have already rated 40,000 plus companies in the US.

So I think it's an emerging and evolving part of our business, but one that we think will have high growth over time.

Thank you.

Thank you.

So, operator, I think we have time for one more question.

Thomas Mitchell, Miller Tabak.

A couple of semi philosophical questions here.

First of all, when you think about the, quote/unquote, mitigation opportunities that you have, and you mentioned having more mitigation opportunities going forward, how does that tally with your general view of the value proposition you offer to employees who might expect to work until they retire?

Okay, so I will take that broadly.

And I enjoy your semi philosophical questions, Thomas.

But I think you're onto something, because ultimately all mitigation in a company has to be finding ways of reducing organic expense as a way to mitigate some headwinds that can be anticipated.

And then you look at well what organic expenses do you have to try to mitigate.

And there is a whole series of things, but compensation and benefits is the largest expense category of all professional services firms.

And then you have areas like technology, real estate, travel and entertainment, etc.

And so you have to look at those things really broadly.

When -- I think as a good example of the way we approach our work with colleagues, I mean we really do believe very sincerely that our colleague base is the heart and soul of the entire Company.

And actually when we are making decisions as an executive committee we always have the thought of is this good for colleagues on a mid- and long-term basis in our minds when we are making those decisions.

So I really don't think it has anything to do with people as they are getting closer to retirement and that sort of thing.

I mean we are an industry that actually builds knowledge and historical knowledge is incredibly important.

And so, from that perspective I think that we have a lot of people who have had significant experiences in our businesses over long periods of time who are still working for us and we are happy they are.

And you are basically at a standard that is the same as the rest of the industry, so you are not likely to get producers taken away from you for any reason for that.

I wouldn't as a standard view us as being similar to any of the companies that you think are traditional competitors of ours.

The fact of the matter is Marsh & McLennan Companies is a unique Company and we do not have a single competitor in the world that competes with us globally across our operating companies.

We have some competitors that come close to that, but in our view we don't have the issue that you are citing about production or producers.

We are not a producer culture; we are a content and we employ people who enjoy working in a creative environment for smart people who are dedicated to working on clients.

And it is self-selecting.

So we attract those sorts of people and we have not seen any abnormal blips in our voluntary turnover over the last several years.

No, that is very helpful, I appreciate that.

Now I have a sort of different kind of question for Mike, which is if -- just if we just sort of close our eyes and we are sitting a year from now, now our sort of base is essentially $0.76 a share, that is we are now looking at foreign-exchange neutral as if there were no change from March 31, 2015 to March 31, 2016.

So in that case it's perfectly reasonable for you to make the comparisons you do against first quarter 2014, I'm not talking about that.

But now that we're looking at that, my basic question is are there things that come in either on an annual basis or even a quarterly basis from this termination of this plan that would essentially benefit either quarterly or annual earnings going forward?

Perhaps not by as much as the one-time adjustment, but would be an ongoing or recurring savings for the Company?

Okay, thank you, Thomas.

And Mike, if I can only ask in the interest of time to give a nice crisp answer.

A crisp answer is that we have been dealing with these two macro headwinds -- depending on how you account for four or seven years.

In aggregate the interest rates -- lower interest rates have cost us probably $0.55 on our earnings and foreign-exchange over the last four years has cost us $0.30 -- enormous amounts, yet every year we continue to have growth despite the headwinds and I think that is what we are looking at in 2016 and beyond.

Okay, thanks, Mike, and thanks, Thomas.

And I would like to thank everybody for joining us on the call this morning.

Specifically and having Peter and I just returning from RIMS I would like to thank our clients for their support and our colleagues for their hard work and dedication in serving them.

Have a good day, everybody.

Thank you.

And again, that does conclude today's conference.

We do thank you for your participation and have a great day.