Willis Towers Watson PLC (WTW) 2002 Q4 法說會逐字稿

Good morning, and welcome to the Willis fourth quarter earnings release conference. All participants will be in a listen-only mode until the question and answer session. This conference is being recorded at the request of Willis. If you have an objection, you may disconnect at this time.

I would now like to introduce our moderator, Ms Kerry Calaiaro. You may begin.

Thank you. Good morning and welcome to our fourth quarter and full-year 2002 earnings conference call on webcast at willis.com.

On our call today are Joe Plumeri, our chairman and CEO, Tom Colraine, our chief financial officer, and Richard Bucknall chief operating officer.

This teleconference call will be available by replay starting at noon today, Eastern Standard Time and ending at 5:00 p.m. on February 20th. To access the replay, call 800-839-0129 in the U.S., or 402-998-1201 from outside the U.S., or by accessing our web site. If you have questions after the call, call me directly at 212-837-0880.

As we begin our call, let me remind you that we may make certain statements relating to future results which are forward-looking statements as the term is defined by the Securities Litigation Reform Act of 195. That could cause actual results to differ materially from historical results for those anticipated. Additional information concerning risk factors that could cause such a difference can be found in the company's documents filed with the SEC from time to time.

At this time I'd like to turn the call over to Joe Plumeri.

Thank you, everybody. Welcome to our call today.

Obviously, we had a great fourth quarter. We had a great year. Before I get into some of the specific thoughts about that, I want to make a comment because I think that the quarter and the year was a manifestation of what we have been talking about since we went public. We're not trying to be like any other insurance broker. We're not trying to be a broker that simply operates with the wind at its back in the hard market. Watch our expenses and do well for a short period of time. That's not what this company is all about. That's not what we're breeding here. This is a company that is a true growth company, a company that will operate and grow in all market environments because we're in the sales business. In the sales business, that means you sell more things to more people and you open more accounts than you lose. That's what we mean by a sales culture. Everybody is dedicated to that. That will endure forever.

We're always going to watch our expenses, because that's what you should do. We'll watch the expenses so we earn more money. We will invest more money, and we'll watch our expenses so that we can get the best returns for our shareholders, because that tells the -- how we operate our company for the best interests of the shareholders. What the quarter and the year is all about is again another manifestation, another reflection, another example of the way we run our company. One that is simple, easy to understand, not distract by outside influences, meaning anything other than being very good brokers, a business that is sustainable, that's recurring in the culture that gets stronger every day, year over year over year. That's what we're going to do. Then we think we can sustain that forever, until kingdom come. That's what this is all about. It was just not a great year, but again, I think the message would be lost if everyone did not understand or appreciate the fact that we're different than everybody else, and we should be judged as a growth company that's really building a great business.

Our operating cash earnings for the quarter obviously, you saw rose 69% to $83 million or 49 cents a share. For the full year they rose to $271 million or $1.62. The report revenues grew 25% to $483 million on the quarter, rose 22% to $1 billion 735 for the full year, 2002. I think that those numbers are obviously a reflection of the sales culture that gets and takes hold every day. We have been talking about this for a long time. Our people are energetic. They go after business. They do a great deal to hold onto business. What you are seeing is the results of that. Sometimes it doesn't happen every month, and sometimes it doesn't happen every week. With the phasing of the business and the placement of the business, the hardening of the markets, we operate all over the world, that doesn't happen every day like you want it to. But over a reasonable amount of time, on a year by year basis, this culture is growing, and it's something we're very, very proud of.

Our organic growth was 19% for the fourth quarter, up from 14% a year ago. And it's something that we're very proud of. I think the best example that I can give you is that for the 2002 full year, the organic revenue growth was 18%, up from 12% a year ago, and about 65% of the growth in the fourth quarter came from organic growth. 55% of the full year was attributed to net new business. The balance obviously was from hard markets. You could just see over the period of a year the growth of our sales culture and more and more business coming from the fact that we were doing more business with more people and opening more accounts than in fact we lost. Our margins were 31% in the quarter, up from 26% a year ago.

For the year of 2002, operating margin was 28%, up 700 basis points over 21% last year. Adjusted for goodwill amortization last year, the operating margins still increased 400 basis points. We're very proud of that, because we look at margins. We're cognizant of margins. It's a reflection of how well we run the business and the sense of spread or the difference between the growth of revenue and the growth of our expenses. EBITDA margin was 33% in the quarter. Up from 30% a year ago. EBITDA margin was 30% for the year, up 26% in 2001, and 19% in 2000, illustrating how we grow revenue and once again limiting expenses.

I'm going to talk a little bit about our model and the dividends that we announced. Our results obviously continue to validate our model. I made mention of it earlier. I'll make mention of it again. The model is a global broker, we specialize in providing risk management services. That means that we don't anything else. We are not going to get away from the core business. We're not going to do anything silly or jeopardize our attention span which is to be able to take care of our clients. We think whether a new market or changing market, our clients need attention, because the market is nothing like it has ever been before. We want to be focused and responsive and create value for our clients. That is a business that will endure. People are always going to be able to -- you are always going to need them, if we're responsive and creative (inaudible), that's a growth business, that's the way we grew the business and that's an enduring business, the way we run that growth business allows us to grow year over year.

We're proving every day, that a global company like ours, capitalizes on local (inaudible) disciplined expense. Strong balance sheet and just running our money and taking care of the money properly enabled us to deliver 12 consecutive quarters of record operating results and gives us the ability happy to declare the first dividends. We're very pleased obviously to be able to do that. To declare our 12.5 cent quarterly dividend and annual rate of 50 cents or 31% of 2002 cash earnings per share is a big deal for us, because again, it is another example of how well we watch our money. We can say that we have chosen to pay the dividend while we still have not taken our eye off the ball with reducing our debt. We still haven't taken our eye off the ball with giving consideration at all times to our ability to be able to buy back our stock. We have the opportunity to be able to do all of these things. We have simply chosen at this point in time to pay a dividend because we think it's in the best interests of our shareholders, and again a great reward for the trust that our shareholders have.

It's been less than two years since the company's initial public offering. There has been much accomplished over that period. I just want to give you some idea of how that's grown. In 2000, in the year 2000, organic revenue growth was 8%. EBITDA margins was 19%, and cash earnings per share was 45 cents. In 2001, organic revenue growth was 12%, EBITDA margin was 26%, and cash earnings per share grew 120% to 99 cents. In 2002, organic revenue growth was 18%, EBITDA margin was 30%, and cash earnings per share grew 64% to $1.62. This is great work. This is something that is sustainable over time, year over year. And during 2002, the company generated free cash flow of about $300 million. We reduced the debt by $220 million during the year to 40% of total capital and ended the year with $120 million cash on hand.

If you go back again to the philosophy, grow your revenues, watch your expenses, be careful with your money. Be very diligent with the way we do things. Prioritize and grow the business like a grown-up company not one that just went public and is taking care of the hard market and going away. This is a true reflection of that. With the strong balance sheet and cash flow, we know that we have the financial flexibility we need, and we look for alternatives to deploy the capital most effectively for the benefit of the shareholders, given current trends, we would be debt free by 2004 had we continued to do what we did last year. I think that's an amazing accomplishment.

I'm proud of our people. I'm proud of our company, and it's unbelievable given where we started out. I think, again, a great manifestation and testimony to the maturity and the continuing maturity of our company. We looked at these other things, as I told you, the debt, the stock was paid down, the cash dividend. We believe the initiation of the dividend at this time was a great return for the shareholders.

Let me talk about the outlook. A lot of people are surprised at -- that we gave you an outlook. I wanted to make sure that everybody understands that this is a growth company. And you can't look at it as this one-shot momentum sort of a play that a lot of people have done. I mean, the fact of the matter is that we're growing this company. We're growing it, we're controlling the company. We control our cash. We control everything that goes on in this company as companies should. I have said from the beginning, that when you build a great company, you build it for all of the market environments, hard markets, soft market, it doesn't matter. Our sales culture has taken hold and will function in all of the conditions. And all of the times for watching expenses, so that we continue to execute our growth strategy in this current environment, and we expect organic revenue growth of 15% or better this year. We intend to grow this year. That means the whole year. We intend to grow operating cash earnings per share by 25%, or better in 2003, over the $1.62 reported for the year ended December 31st, 2002.

Beyond 2003, we expect to grow an operating cash earnings per share, 15% or better each year in any market environment year over year. That's what we expect to do. That's what we intend to do. Let me talk about the conditions in the market. It's very important, you know, that everybody understands that this is a year over year business, and one that we're very excited about. We anticipate that the insurance premium rates will continue to rise at least through 2003. The rate of increase obviously varies is on a line by line basis. We have seen some leveling in property rates. You all know that. That's to say that the rate of increase has not gone up as much as it did, you know, in the previous time, the previous part of the -- the early part of 2002. New capacities allowed placements to be completed at a good rate. It's not based on a reasonable price competition, and the casualty markets are firm, but if you look at it on a line by line basis, it's still very hot.

(inaudible) up 50% to 200% with very high deductibles. Terrorism coverage is available, but usually separate from the main policy from the impact of the government initiative is frankly still -- a lot of people are grappling to understand what that's all about. The increased demand I think for alternative risk transfer, which is other kinds of ways to accomplish being able to solve the risk and -- including captives, becomes very interesting and is a discussion on a day to day basis. I think recent reserve increases by the carriers are reflected in pricing. The impact of the duration of the hard market. This could possibly go on for some time, the more people put reserves in, obviously, they're more concerned about capacity, which means more concern about combined ratio, which means more concern about a lot of things. So, we really don't know.

I can tell that you we definitely believe for the end of the year, the hard markets will prevail and maybe possibly play longer. We also have done a great job, I think in terms of our recruitment in the past couple of years. We have hired -- we hire people, we hire recruits. We hire producers prudently. Meaning people who want to be with us, people who enjoy our culture and want to enhance our growth strategy. In 2002, we increase the net producer count by 150 with very high quality, experienced associates in North America and international business units. Total head count on a like for like basis rose less than 3% in the past year as we had to staff judiciously and seek continual improvements in productivity and efficiency. So, our ability to be able to add producers, add staff, carry on servicing duty, et cetera, has a very nice ratio about it. We're quite proud of it.

Obviously, when I talked about the deployment of money, and I talked about the dividend, always the possibilities of looking at other ways, pay down the additional debt or buy-backs obviously, I let that an acquisition strategy because it's always been part of what we yearn to do. The more money we're able to accumulate, the greater our opportunity, we think it is, to make acquisitions. Our pipeline is very robust. We're very excited about it. We're still very disciplined about our pricing criteria. We completed two acquisitions. One was a scenario at the beginning of the year, and two, special risk advisers. The scenario has (inaudible) gave us the ability to enroll the clients and special risk advisers (inaudible) which is a marketing sports organization.

We increased our ownership in two subsidiaries since the end of the year. We now own 100% of the business in Germany and 77% of our business in Iberia, Spain, so, we brought as much as we could to Spain, 23% of Iberia is owned by our associate in France. Let me give you a business unit summary.

I'm also told by a note which is why I paused a bit that you have some problems in the line. So, they want me to dial back in. So, hold on, everybody.

All parties please stand by in conference. Again, all party, please stand by. All parties please continue to stand by. We appreciate your patience. All parties please stand by for the Willis conference call. We appreciate your patience.

Sir, you may proceed. Yes. You're back online.

Okay. I have no idea what you heard, didn't hear. When we were breaking up. I was told that we came up obviously in and out and a bit garbled. I start to talk about the acquisition strategy. For those parts -- I don't know where to go back to, but obviously in the Q & A, I'll talk about any subject that you want to. That's the best way to handle it. I started to talk about the acquisitions strategy.

I didn't talk about the deployment of our capital as it related to acquisitions because that's always something that we were always interested in doing. Under any circumstances. I want to talk about a couple that we did. We completed two acquisitions. One was SENARO (ph), which is an employee benefits enrollment company. We want to grow the employ benefits business bigger than it has been in the past. It's been quite robust, I might add. Now it's an North American acquisition. Special risk advisers is a sports marketing organization. We increased our ownership in two very large subsidiaries, one in Germany. We told everybody all along that we would be doing that. And we did. So, we have 100% ownership in Germany. 70% -- 77% of our Iberian or Spanish business which is the limit to which we can go. The other 23% is owned by Grase (ph), our France company. We sold the life and TPA businesses. We have exiting non-core business in the past two years. We have gone back to the strategy of sticking to our knitting. That was consistent with everything that we said we would do.

Each of the business units performed well and contributed to our strong performance in the quarter, and full year. Over the past two years, we have had more than double the organic revenue growth rate of the company, and each business unit within North America, global and international has done well. This revenue growth, again, I think reflects what I said earlier, which is much more than just the hard market, much more than just, you know, somebody that's got the wind at his back. Because I think that the biggest number that you are -- that you ought to look at and focus on is the 55% revenue growth that came from net new business and 35% due to the hard market. 65% in the fourth quarter due to revenue growth. We think that's a big deal, and something that we were quite happy about, especially given our focus on the hard market. In North America, the reported revenues were $170 million in the fourth quarter. Organic revenue growth was 24% in the quarter, and 17% for the full year 2002, up from 7% in 2001.

I think North America performed brilliantly. I think North America was outstanding, and again, another suggestion of how the sales culture has taken hold. We have a fantastic middle market business and upper middle market business in North America. We believe there's tremendous opportunity to grow our business here using all three components of our strategy, organic, recruits and acquisition, which really hasn't happened in full swing all at the same time all at once yet. And that's the part, I think you have to focus on.

One thing that I'm very pleased about is to announce that Mario Batale (ph) has been named the CEO of North America. Mario, if you remember from the last call, was in charge of sales and marketing of the company. He got here just a little bit after I got here, he was my first recruit, actually. It was -- he constructed an entire sales and marketing organization from scratch. I gave him the responsibility five months ago to grow our total worldwide resolutions practice, which is our major accounts. He has done an outstanding job, and now what we're going to do is take our major accounts business in North America and our middle market business, which had been separate, merge them together under Mario Batale, which is a very, very significant step for us and very, very exciting, all again to continue to do what we have been doing, which is to grow our business. This line of the American operations I think will yield a more aggressive growth in North America, driven by a single integrated growth strategy.

As the hard market continues throughout the region, especially in D & O, umbrella and excess cover with more modest increases for property, we said that before, but we want to be a very aggressive company. There's no question about that. We want to be a very aggressive sales machine. That's what it's all about. A lot of people like to dodge that issue. We sell things. We solve problems for people. In the solution of finding ways to make our clients' risk more palatable, we're able to sell a lot of things that we do. That's what we do. The aggressiveness as I think you see is showing up. The global business had reported revenues of $232 million in the quarter. Organic revenue growth was 14% in the quarter, and 18% for the for the full year in 2002. Compared to 16% for the 2001. 18% for 2002 compared to 16% for 2001.

Let me make a comment about that because I know that you are going to ask the question. Well, organic revenue growth was 14% in the quarter, and it was 18% for the full year compared to 16% the year over year was great, but what happened in the quarter? You got to remember that the fourth quarter of 2001, everybody was worried whether or not carriers would insure anything. People were wondering and worrying because it was after 9-11, what the status of the underwriting markets were. The markets around the world. Finally, when they opened up, there was a bit more risk. There was lots of surcharges involved in aviation. There was a lot of things going on in those days. So, I think that the 14% growth in the absence of all of those kinds of things in markets where capacities opened up and things like that is a heck of an achievement. These are great businesses, global property and casualty, reinsurance, large corporate accounts, specialties including marine and aerospace have done a terrific job. The rates continue to rise on average, but we have seen some indication of a -- as I told you before, the rate is not rising in property as much as they did before, but several of those lines have gotten even higher.

We also make mention in Europe that the markets in Germany, France, Spain have gotten -- are continuing to get much harder. Whereas they were not hard last year, or you haven't seen the full effect of the rate increases. You're starting to see them now. We expect that will happen throughout the rest of the year. The outlook remains favorable. We have had great opportunity to leverage our expertise fully throughout the network, especially in North America. Now what you see is the global businesses working with North America and now working with international. Our international business report revenues were $81 million in the fourth quarter. Organic revenue growth was 24% in the quarter and 17% for 2002 up from 14% in 2001. A great growth in these areas. Great leverage from areas that are starting to come on strong that I think represent the future of our business while the people that have been always generating the business for us in our global businesses continue to do that, and represent the bedrock from which we built these businesses on, which I think is terrific.

We had great performances in many regions. Europe, Eastern Hemisphere. Especially Australia. Outstanding job, and Latin America, despite the issues that are going on there, it's fabulous. In the fourth quarter we had strong performance across all geographies, steady new business as a result of the coordinated effort with our global specialties. Real evidence of one flag. We talk about one team, one flag. We don't tolerate internal disputes here. We don't tolerate, you know, people worrying about what they get paid and how they split things. What we worry about is taking care of the clients here. We don't tolerate anything other than that. We don't have these inter-company feuds. This is not the way to build a great business. We don't do that here. You can see the manifestations of the pistons firing and people working together, which I think is the strength of this company. In the fourth quarter of 2002, into the first quarter of this year, we saw increase hardening. I told you. Terrorism is now excluded from most policies and many clients are deciding not to buy it separately, but that continues to go on.

Again, I apologize for the line problems. You can't do much about phone lines. You can do a lot about running a good business, though. And we can talk more about what you didn't hear by way of questions or what might have come out. We'll be glad to do that. One of the things that I did not do is talk a lot about the capital. I will give you some ideas about deployment and talk heavily about the expenses. There's a lot of things that I did not go into, because I want Tom Colraine, the chief financial officer to do that.

Tom, the line is now clear. And you're ready to go -- Tom Colraine.

Thank you, Joe.

Let me start with offsetting expenses. General administrative expenses rose 20% in the fourth quarter compared to the fourth quarter of 2001, and increased 15% for the full year, 2002. Organic growth that is like for like on acquisitions on a constant basis, organic growth in expenses in 12% in the quarter, and 11% for the full year. G&A expenses were 70% of revenues down from 74% of revenues last year. Most of our new spending is producer related and revenue generating, that is recruiting, training, and performing with competition. The growth rate in revenues out paced expense to give a nice spread of 7%. Salaries and benefits were 50% of revenues for the full year 2002, down from 54% in 2001. Total capital expenditures were $47 million in 2002 compared to $40 million in 2001. Capital expenditures will rise modestly in 2003 as we continue to invest in new systems with I.T., but doing so without substantial extra spending.

We are constantly watching expenses, eliminating waste and improving productivity and freeing up money to invest in the business. We do this every day. Let me talk about the non-cash credit for performance stock options. Each quarter since September 2001, we have been called a non-cash competition expense in connection with performance granted in 1999 as part of the KKR buyout. The charge each quarter was comprised and amortization component based on the vesting schedule of the options through 2004 and a cumulative mark to market adjustment on the price of the stock at the quarter end. As the market price of the stock was lowered at the year-end than it was at the end of the third quarter, in accordance with GAAP accounting, we recorded a non-cash compensation credit of $34 million in the quarter. This demonstrates beyond all doubt what I have said before, this charge or credit has nothing at all to do with how our business is performing. We have recorded $230 million or 5% of ultimate charge since the third quarter last year and the total charge is estimated to be $282 million.

As of year end, all performance criteria have been met, so there will be no further mark to market adjustments. The remaining amortization charge is estimated at $44 million and will be amortized quarterly through 2004. Approximately $28 million of this will come to 2003 and $16 million in 2004. We also issued time options at the time of the KKR. buyout and from time to time issued options to attract and retrain talented people. Without following the discussions on accounting options at this time, I have decided not to charge them through our income statements in line with most companies. I don't believe it really matters. The information is included in our filing, but the charge would have been about $7 million after tax in 2002, if it had been through the income statement. You can adjust for that, if you would like.

Let me say a few words about the pension obligation and expense. The company, like many others is in the process of completing the annual year-end review of the U.S. and U.K. pension plans. As a result of the declining investment returns and a decrease in the value of securities held in the plan, the company estimates were of an increase in the minimum pension liability of approximately $170 million net of tax in the pension plans with a commensurate reduction in shareholders' equity at the year-end. For 2003, the company has maintained its expected long term rate of return on the assets for the U.S. plan 8.5% and the U.K. plan at 7.25 percent. These are some conservative compared to most companies in the S&P 500 and also conservative with respect to returns that have been achieved over many, many years in the plan. Pensions are for the long term. Pension expense in 2003 is estimated to increase about 15 to $20 million. The anticipated increase in pension expense is reflected in our outlook for 2003 earnings, and we'll have it at 1% to 2% to salaries and benefits as a percentage of total revenues on taxes.

I said that the full year tax rate would probably be in the range of 35 to 35.5%. The effective tax rate was 35% in 2002. It should remain approximately the same level in 2003. The impact in the fourth quarter then was the reduction of the effective tax rate to 34%. Capitalization and the credit. At the year-end, long term debt was $567 million, down 28% since last year. Shareholders' equity, net of the estimated pension adjustment was approximately $850 million at the year-end, resulting in a debt to capitalization ratio of 40%. We generated free cash flow of $300 million in 2002, and about $180 million in 2001. During 2002, we repaid $220 million in debt with excess cash flow from the business, and the manager repayment remains steady in December 2005. We repaid $171 million of debt in 2001 as well as using the proceeds from the IP that year to redeem $273 million of shares.

As of the year end, unrestricted cash was $120 million, giving us tremendous flexibility to support the cash needs of the company. Accordingly, we all feel very comfortable in initiating the cash dividend of approximately $75 million for the year, while continuing to invest in our business.

Thank you very much. And I now hand the call back over to Joe Plumeri.

Thank you, Tom.

2000 was a good year. 2001 was a great year. 2002 was an even better year. And as I said earlier, every year is going to get better and better and better and better because that's the way we run our business. Over the past two years, we have more than doubled the organic revenue growth, growth rate of the company each business unit. We have done that over the past three years and have executed the game plan. We have been talking since day one that we're going to do what we're going to do, and we're going to do it every year just like we said. Build a sales culture. Recruit good people, watch our expenses every day. This is a growth company. Not just a broker doing well in the hard market. We're in this for the long term. We're taking advantage of the hard market with the wind at our backs, sure we are. But the way we run the company every day, even when the market turns, we are confident that our discipline will be rewarded with continued success with the wind in our face. That's the way you can tell the difference between the good ones and the ones that are just around for a little bit and take advantage of an environment. The building blocks are in place.

We're executing our business model for continued growth in all market environments. We as a company, management team all of the associates all over the world are very, very proud of what we do every day for our shareholders.

Again, I apologize for the earlier line problems. That's the part that we haven't controlled yet. We'll stick around as long as you want and answer any questions that were maybe distorted in the presentation. We're table to take questions now. Thank you.

Thank you. At this time we're ready for the question and answer session. If you would like it ask a question, press star-1 on your touch-tone phone. You will announced prior to asking the question. To withdraw the question, please press star-2. Once again to ask a question, please press star-1 now. We'll wait a moment while the questions register.

The first question comes from Renee Saki (ph) at Morgan Stanley.

A couple of questions, one is in terms of share buy-backs and capital management, I know that you mention the dividend is in place. Can you give us more of the thought process as to when we can expect a share buy-back or what the process was in thinking about a dividend relative to a share buy-back? Did it involve the liquidity of the stock and so forth?

Well, we thought of all of the above. We got to a time where thankfully, we had the opportunity to have, you know, various alternatives. We looked at buy-back. You know, we looked at the dividend. You know, obviously, we could have continued to pay down the debt. It's the culture of our place. We look at acquisitions. There's lots of ways to deploy money. We basically felt that we had spent a lot of time, as you know trying to create liquidity in the stock. We did two secondaries to do that. That was the whole purpose of doing that. It seemed to be against what we tried to do in the past year or so and create liquidity and then move on it. We thought we were in the perfect position to be able to pay a dividend simply because, hey, we could afford it, but it's the right thing to do for the shareholders. It doesn't take off the table the ability to do that, but that's something that we may do. We have no timing related to it. It's not something that's poured in cement. It's simply an alternative. And that's basically why we chose to do what we did.

Second question is just on the pension. If Tom can just touch on if you are reaching any thresholds where you might have to fund the pension, and what type of environment are you looking for in 2003 and beyond in terms of thinking of funding the pension if there could be a requirement to do so?

As of this time, I mean, we have been funding the pension schemes regularly over the years. We're funding them -- we continue to fund them in line with the actuarial recommendations. We have not had to put any extra cash in at this point in time. We may choose to do so, and --but as Joe said, that was just another use of the capital rather than something that we absolutely needed to do. We're very well above the minimum funding requirements as required in the rules in the U.S. and the U.K. That's something that we'll keep on review.

So, no regulatory requirement yet but something that you are thinking about?

Exactly.

Third question is can you just run over the organic growth numbers. That's when I think part of the conversation was cutting out for each of the three segments.

Yes. In North America, the organic growth was 24% on the quarter and 17% for the full year. Again, 7% for the full year 2001. In global, the growth organically was 14% in the fourth quarter against 18% for the year, 16% in the full year 2001. And internationally, 24% organic growth in the quarter, 21% in the full year against 14% for the full year 2001. Taking the group as a whole, 19% organic growth in the quarter, 18% for the full year against 12% full year 2001.

Great. Thank you very much.

Thanks, Renee.

Thank you. Your next question comes from Jay Cohen (ph) of Merrill Lynch.

Hi, Jay.

Good morning, Joe. I'm wondering if you can talk about the acquisitions that you made and the stuff that you have gotten rid of in the third and fourth quarter. If you can just let us know what the effect of annual revenues is on those actions?

Sure. The SENARO acquisition, the small acquisition of a company in Atlanta that reinforces our employee business by giving us the kind of software that will enable our people to be able to enroll people, employees of companies that we do business with. It's a very sophisticated program. We have already seen business done from it. The sports marketing business was also in Atlanta, which reinforces our opportunity that we think to grow our sports marketing business not only in the United States but the entire year. The Yaspers whippersaw (ph) that we have been doing -- if you remember, last year we bought controlling interest in the company and got it up to 66%. Those numbers were consolidated all year. We just took the thing up to 100%, and you already saw those reflected in the consolidated numbers. In Spain, the same thing applied. We took the remaining shares that we could that the effects are not different. It's simply the controlling interest to buy the rest of the shares and we basically cleaned it up.

What's the annualized revenue in SENARO and the sports marketing operation?

Jay, the revenues from the businesses are fairly small. Indeed, the T.P.A. that we saw towards the end of the year had more revenues than they did but in truth, they won't make a substantial difference to the bottom line in the short term.

But understand that scenario doesn't generate revenues in itself, Jay. It's a company we bought to create software for us to generate employee benefits which should manifest itself a lot over time, but it's not revenue generated by the company.

I got you.

The same thing with the sports marketing company. If you look at what they generated, you are looking at $500,000 to $1 million of revenue, but what it will help generate around the world with regard to the other interests and the things that we're doing is the real story there. This is all again buying companies to reinforce our core business, buying companies that reinforce we're a broker, filling in the gaps that we have to fill so that on all circumstances, you see we grow over time. That's the real story behind the acquisitions, Jay.

That's a helpful answer. Thanks.

Thank you.

Thank you. The next question comes from JoAnn Smith (ph) of UBS Warburg.

Hi, JoAnn. How much of the call was interrupted?

It was pretty garbled in the beginning, Joe, but I think that we got the gist of it.

Did you get my enthusiasm?

That is very hard to garble.

Go ahead. Thank you.

I have a few questions. I was wondering if you could talk first about competition. I'm talking about competition in two ways, one is in the business versus other brokers, and then obviously competition for producers. If you could take us through the dynamics of the market right now. Second is any idea what your full year 2002 market share ended up being, and where you think that the market share gains, if there were gains, is coming from. Is it the large top, is it the small competition, or is it both?

I guess the other issue is can you talk about some of your recent wins against, you know, who you were -- not necessarily specifically who you were bidding against, but can you tell us -- give us a little bit of flavor in terms of what was it about Willis that made the client choose to do business with you, and then lastly, I'm sure that you're probably not going to be surprised with this question, any indication of timing of potential additional shares being floated by KKR. Thank you very much.

Sure, JoAnn, I think I got all of the questions written down. If I can remember them all. The competition, I think you asked for brokers. It's always hot and heavy. That's the nature of the business. I don't think we have an industry, as I said before, that concentrates on sales culture. What you have all of the time is a terrific competition for brokers. That's the way you grow your business, that and acquisitions. That's why I have always believed in the long term, if you are building a sales culture first and all of the other kinds of things are gravy. What I have found, and I have perspective now, I think, that over -- you know, when I first got here, you know, Willis, you know, people are trying to figure out what the culture was, where we were going, what's the vision, what are we doing? All of that kind of stuff. Why we were -- so, as a result acquiring brokers was more like, you know, what are you going to pay me versus I really want to be at Willis, because I love your strategy, I love your vision. This is a company with a future.

What I have found is especially in the last six months is that people really feel that this company has a future. You can actually build your net worth here. You actually has a company that has a real idea of the way it sells. We solve people's problems. We don't want to be in a commoditized business that's driven by price. The people have real problems. We start off our business so that people can help you all over the world with solving your client's problems. Even Joe Plumeri, even Tom Colraine, even Richard Bucknall, we will go any place, do anything at this time. We said to people, there's a real energy here. What a combination of a company that's been around since 1828 and wants to behave like it's two years old is a heck of a combination. I think the recruiting wars are still hot and heavy, but we found that we actually have people that want to join us for other reasons other than the traditional ones which is, "my guarantee is up. We don't give that away. It's now time to go someplace else and get another one until I can keep the string going." That's not what we do.

We want people to enjoy being here, and have a career here. We want people to get excited here. We want people to high-five. We want people to get excited about the future, because this is a great place. I find that our recruiting is never easier, but there's a real thing that they see here now. That makes us quite different than everybody else. There's a real business. Our employees get excited that we're going to run a stable business that we're never going to run into the problems that affect others watch we --because we watch our business closely and we don't do silly things. As it relates to some of the winds that we have had, I'm going to take into that -- take that into the next subject of wins because it goes to the culture. I'm not going to go through all of the wins.

But I'll give you one of recent note. A lot of what we do is a cooperation between our global businesses, the international business, the French business, North America recently we had a very big win, a very big company whose headquarters is in Germany with great North American operations called Salbe (ph). That was a company that we competed against the incumbent. I think the incumbent in that case was one of the businesses at Marsh (ph). Richard Bucknall and I went to Brussels, I think on the coldest day that I can remember. We met with the CFO and the risk manager. They told us they had never seen people at our level come there and talk to them. We talked to them about our business. We answered their questions. Our people in our network worked together in our global business that did a great job in a global property and casualty business. The people were very helpful all over the globe. It was a great example of the teamwork that is, I think, now the definition of growth. People working together to solve the clients' problems. It doesn't matter where we have to go and what we have to do.

Richard, I think it's important that you give a little bit of your flavor. No one has heard from you today. Richard is the chief operating officer. He does a great job with our global businesses, international. I think that's a good example of the question that JoAnn was asking.

You said it virtually all, Joe. That's it. We had great wins in the last quarter, not only in Belgium, Spain, the United States, Asia, and throughout Latin America. Exactly that. The consistency has been the ability to pull teams together from all around the world at short notice to work with a single integrator unit. People talk about it. We actually do it. I think that's the visible difference as we get the company.

That's great. Thank you very much.

Also add, JoAnn, about market share. I have no idea, but it's growing. I'm excited about that. It's going north. I can't tell you -- it's very difficult. You know, I don't want to guess. It's tough to track that. You have a global business. I just know we're open in more than we're losing. We're winning more than we're losing. I'm excited about that. If you do that over time, the market share has to go up. So, I can't quantify it. There's no science to it. But it's growing. It's getting better. We're touching more people. Our mantra is that where we --we leave no account untouched. No new account not called. Potential new account not called. That's what we're doing here. It has got to be higher. I can't quantify it for you.

As far as KKR is concerned, gees, I don't know. I'm asked that question all the time. All I know is that we have a great relationship with them. They have been very helpful to us. As far I'm concerned, they're doing exactly what they told me they would be when I took this job which is to help us grow a great company. They are great partners. From time to time they're in the business of, you know, taking the pockets off the table. They have done that in the last couple of times, mostly at my urging to create liquidity. I feel a long term partner here. From time to time we'll see what happens. We'll see what happens with markets. It's a great relationship. We both have the same thing in mind. That's building a great company. That's what we'll do.

Joe, as a follow-up, do you think that the recent decline in the price has been a reason behind their unwillingness to take more stock to the market. I think the market is looking at Willis saying there's an overhang issue here. There's a pending offer. We know it's coming. Maybe KKR is unwilling to sell at the current price because it's so depressed?

No. Not at all. As a matter of fact, I will tell you. I say this unequivocal. If my spiritual adviser, Father Benedict were here, I would tell him the same thing, I have had no conversations with KKR with regard to any of this stuff. I think the rumors that abound go on and on. I mean, one day it's KKR has got overhang. The next day they need money for something else. The next day it's the World Trade Center. The next day it's the -- the frost on the East River. I don't know, JoAnn. I don't know where these rumors emanate from. As far as the stock being depressed, I don't know why that was the case. I guess people don't have as much faith and enthusiasm as we do. But I think that will -- that will all even out over time. All we can do is build a great company over time. Do what I said we were going to do. This year we will grow cash earnings per share 25% or better. Every year after that, 15% or better. I think that's what we control and that's what we're going to do.

That's good enough for me, Joe, thanks.

Thank you. The next question comes from Ron Frank of Salomon Smith Barney.

Hi, Joe.

Hi, Ron. How are you doing?

I'm all right. How are you doing?

I guess I know how you are doing. Okay. I have a few, too. You want to write these down. First of all, I know you want to keep up the margins, but you might want to lose the rotary phone. A few things.

Thanks for the comic relief.

A few things again. One, you mentioned that the comparison in fourth quarter for global was made difficult by the fact that the post 9-11 effect caused you to have throw-ins in the surcharges. If my numbers are right, organic growth peaked for global last year, it passed north of 20 and went into the high teens in the fourth quarter and they grew 20% in third quarter of this year. I wondered if you could give us clarity on that.

Second, with the benefit of 20/20 hindsight with the year behind you, I was wondering if you could give us a post mortem on the third quarter dip in North America and the sharp rebound and the drivers there. Third, I was wondering if Richard Bucknall could comment on aviation. We heard a major carrier this morning comment on a touch of softening there.

Finally, if you could just go over again, you went fast on the percentage of year over year growth that was organic, and that got by me.

As far as, you know, the quarterly peaks and dips and all of the things that you mentioned, the global and North America and comment on North America's their and then what's referred to as the rebound in fourth quarter -- I don't think that you can look at our business sequentially. I don't think that anybody should look at our business sequentially. There are so many variables. I keep saying that. Variables in terms of placement and variables in terms of the difficulty these days to place business because of the harder markets. We operate all over the world. We try to find the best placements and best solutions for the people's problems. There are lots of activity going on out there.

You can't say this quarter, you know, versus that quarter. You have to look out on the year on year basis. North America was the perfect example of that. You know, everybody, you know, panicked because I think somebody asked me, you went from 12 to 10 to 15, on your way down to 10. That's not the way it works. The way it works is to look at our pipeline. We can now figure out our pipelines because we can see what's in them. We have now been able to determine the gestation rate of the pipelines. How long it takes to open an account. What rates of conversion we have. We now have the opportunity to do those things, that we didn't have the opportunity to do them before.

So, to look at the things sequentially is simply wrong, and every time something goes on like that, that's the reason why I mentioned our business on a year over year basis, not quarter to quarter. I think if you look at international, or our global business, and what you are looking at was the fact in the third quarter of 2001 there was a 20% increase in revenue and 20% in the third quarter last year, those are high rates. If you look at the business that was 17% rate in 2000 and then went to 14 at the end of last year, that's why I explained anticipating that, number one, you can't look at it quarter to quarter. Number two, there was very unusual events that took place in the quarter that had to do with worries about whether that business, I remember, was Richard -- Richard remembers it as well, if not better than I would, because he was in the middle of it, the last two weeks of the year where insurers were scrambling around deciding what they would do. They didn't understand the reinsurance they were getting. It's a very unusual time.

So, to compare that apple with that orange is not the way to do it. I think what people need to do is look at our business year over year. If you do that, you can see the strength and the real depth of our business. I'll get back to Richard in a second. Basically, the organic, you know growth, which grew year over year very significantly, the point that I made there was that 65% of that came from new business, and new and existing business of 35% in the fourth quarter came from what we called rates. For the year, it was 55% versus 45, and again, you saw year over year very good trends. You can't look at it quarter to quarter. Just there's too many variables, to many things going on.

I'll let Richard answer the question with regard to aviation.

To comment on the fourth quarter to reiterate what Joe said. It was a spiky quarter with anomaly situations which are unlikely to be repeated again because in relation to war, terrorism, aviation, aviation surcharges, and the fact in terms of the number of property risks, particularly large risks, the number of insurers that have blown through their reinsurance. To reiterate that. In the global businesses, we tend to have a number of lumpy, one-up transactions and contracts. To look at it quarter by quarter can be depleting if some of the transactions go one quarter, it can make a percentage point one way or the other.

Turning to your specific question of aviation. It would -- I think it would be great to say that what we saw over the last 12 months was aviation rates -- aviation premiums roughly doubling. Aviation people numbers going up ten fold. It would be true to say that in particular on the aviation liability side where there's surcharges that have been rolled into the airport premium, there is some softening of those. That's what I have mentioned is what you have heard about and certain softening of the aviation core rates. Having said all of that, that also depends on the nature of the contract. There are some airlines that are still coming off three-year contracts. In those cases, they can expect reasonably high increases. Think it's difficult to general generalize for the whole business. Of course, just to state the obvious, is that in contrast to aviation, we're seeing in other areas, enormous increases in DNO that we weren't seeing a year ago.

Thank you, Richard.

Okay. Joe, just quickly to clarify, I'm sorry for this, the 65% that was net new business, that's of organic growth, of reported growth?

That's organic.

Thanks, again.

Thank you.

Thank you. The next question comes from Brian Meredith (ph), Banc of America Securities.

Good morning, Joe.

Hi, Brian. How are you doing?

Good. Couple of quick questions. Market share gains that you all were picking up. Can you tell where you're getting them from? Is it the big business, big-ticket business, is it middle market, is it reinsurance? The next part would be, are you seeing an increase in your percentage of fee income? Are you offering fees to clients right now to get the business instead of commission income?

No. Thanks for asking the first question, because I really didn't answer fully what JoAnn had asked. The business is coming from all over. You just have to understand that I'm just thrilled about everything. Our -- our reinsurance business is terrific. Our international business. It's coming from all over. It's coming -- real market accounts, major market accounts. I got to tell you all, this is Willis's time. I mean, we have clients out there, you know, who would love to have somebody else to do business with. Willis has been out there. We just never introduced ourselves. That's what we're doing now.

We have great services. Better than we had before. They were good then. We're better now. We are actually going out and saying hello. We're here from Willis and we have lots to offer. That's the companies are coming from. They are coming from the obvious places. We have competitors all over the place, the obvious ones and the local ones. But I think it's a question of now, you know, you can be really good. You can be the greatest pianist in the world, but you have to have a stage. Somebody has to hear you play. That's what I think that the difference is. It's coming from across the board. It's coming from all over the place. Because our people are getting out and saying, I'm from Willis, and let me tell you what we're going to do for you. Because we want to understand your business. We want to learn as much as we can. We want to solve your problems. This is a good thing. That's our goal -- that's going to go on forever, everybody is always going to need what we do from that way. So, I -- you know, I -- I know that that sounds sort of broad, but it's just -- it's just the fact.

As far as our fees are concerned. We're still a 70% commission-driven, 30%, you know fee-driven, you know, company. We already had the opportunity to charge accordingly. Responsibly for the good work that we do. We do that. But, no, this is just pure. We're just open and more accounts -- we're opening more accounts than we're not. We're doing more business with our client, a culture that didn't do a lot of cross-selling before is now part of the sales culture. Doing the cross-selling. People are much more aware of it and that's where I would say that this is coming from. This is the sales culture that I made reference to, you know, all day long. It's not going to stop.

Are you getting any push back to reduce fees and commissions right now, given the high prices?

We have not had -- that's something that's always ongoing.

Right.

That's the commissions and so forth. But nothing to the extent that, we can't handle. That's obvious in the numbers.

Great. Thank you.

Thank you.

Next question comes from Hugo Warrens (ph) of J.P. Morgan.

Good morning.

Good morning.

Joe, I don't know how you feel after the call, but I'm exhausted already.

I'm not exhausted. I'm excited.

Yeah. I would never have known. One question here that I kind of have is I think we all appreciate the guidance, obviously, that you have laid out. One of the things that I was curious. If you are to think of your long term revenue growth rate over all cycles. Many brokers will say, hey, we have a target of 15% with 7.5 being organic or 7.5 being M & A. Where do you think that your revenue growth is? You said that you think you have 15% long term earnings growth. Is it 15% on the top line?

I don't think that I can do that. If I threw a number like that at me, you would think me irresponsible. I can't tell you what's going to happen in 2004 or 2005 given everything that's gone on in the world and markets and so forth. I do know this the way we run our business. I do know that we keep the very close tabs on the spread between the growth of the revenue and the growth of the expenses.

Right.

Which gives me a very good feeling to be able to tell you that we're going to grow the cash earnings per share 15% or better. It comes in a lot of different ways and forms. So, I can't tell you that.

Okay.

Obviously, with the sales culture that we're building, if anybody is going to, you know, take advantage of whatever occurs in the future, we're going to do it. If anybody is going to take advantage of putting business on the book, you can be rest assured we're going to do it, but I can't tell you that in 2005 or whatever the case is, it's going to be this or that. I can tell you that we have such controls in place that wherever the business takes us, we're going to monitor how much it costs to do that business, and as a result, grow the cash earnings per share 15% or better hard market, soft market, mediocre market, whatever market that's what we're going to do. The place is rigged to do it.

Maybe we can get a little color on the organic inside North America. We looked in the fourth quarter of '01, it was 10%. It exploded as you went through the fourth quarter. I know we -- Mario is taking over there. Can you give as you little more color on that kind of growth? That 24% organic growth rate is head and shoulders over any other broker inside the U.S.

I'm proud of the people in North America. I know I keep saying this, and so, forgive me. It's just not a sequential business quarter over quarter. It's just not that way.

Even year over year, you have had a huge move.

I'm sorry.

Year over year, you have had a monster move.

If you look at North America, it's 6, 7, 17% in terms of organic revenue. But again, I kept saying we have to the sales force in place. We're hiring more people. We're prudently as you can see. Not to the extent that it's harming our expenses, because we have watch these things. We don't do things willy nilly. We have a sales pull tour put in place. Our people are responding. They're energetic. They're good at what they do. Sometimes quarters end when they're not supposed to. Sometimes there's things called phasing. I have no control over whether it's Tuesday or Thursday.

We just control the fact that we're going to do more business year over year. It's -- for people that don't see this every day, it's --somebody gives you a call and says they want to make a decision on Tuesday, and they were supposed to be there Monday. Something happens with the placement because instead of jetting it in today, we don't worry about that stuff, we do it right through the client and it takes a little bit more time because we're global in nature. There's lots of opportunities where we could have placed something in a market in New York and somebody thought it was bet tore do it in London if we had no time. If Joe Plumeri said, no, do it now because I want it. That's the way it works. I say it's a combination. You -- of all of those things. And I think that the best example of that, we have great leverage in North America, the people are outstanding.

Going back to my issue about this being great growth company, I mean, North America. We haven't made any acquisitions yet. We haven't done any of those things yet. There's a lot of things that we haven't done yet. I find that exciting, even for a person that's easily excitable.

Does the dividend change your view on the M & A side?

Absolutely not. We did not pay a dividend and say we're forfeiting doing that. We didn't pay a dividend saying we're forfeiting, you know, making acquisitions. We're forfeiting paying down debt. We're forfeiting the possibility of buying stock at one time in the future. The dividend is not -- was not a choice between this or that. It was simply an acknowledgement. I think of the capital soundness of this company and the trust and faith our shareholders have in us.

Great. Thanks a lot.

Thank you. The next question comes from Steve Lavin (ph) of Langan McHenny (ph).

Hi. Good morning.

Hi, Steve. How are you doing?

A little sick, but other than that, well.

Joe, if you could talk a little bit about producer compensation, what portion of it is variable? How they get compensation for new business versus renewal business. Something to give us parameters to work out ourselves. If you could share with us if there's any change in your comfort level with regards to Mr. Silverstein (ph) and his disputes with his insurers, and how that's playing out?

We pay our producers based upon recognition in salary form. Our -- understand before I do that, not everybody gets paid around the world the same way. There are more producers defined as a person who does business supported by a team in the North America, and different in the U.K. and the rest of the world where it's a team oriented operation with the same result, producing more business. So, understand that right off the bat. It's not like it's uniform around the world.

Secondly, they're all based upon the same thing, though, in terms of our incentive programs. It's based upon salary which is different than it was before. Before, the salary was that performance was tied to the unit and the office. Today we have told people that you can hit the targets, and you could get paid more than 100% of what that target compensation would be, because we think in the sales culture, you shouldn't have a ceiling. In the sales culture, it should be a heroic environment where people aspire, they should make whatever they want to make, because they work for it.

Now, you can shoot through your targets on the upside. We have including revenue. If you take 100% of the bonus, you get 70% is based upon revenue growth in targets. Growth hitting targets at 30% have to do with your pipelines, the amount of the accounts that you are opening. The amount of account ratio, the new accounts. The way you conduct yourself in the business, our compliance procedures. All of those things that make up for what you would write down makes up for great compensation for the sales force whether you would be in the United Kingdom or North America or Latin America. It's based on aspirations, heroic. You can shoot through target, get paid as much as you want. There's no ceiling. The targets are high. It's revenue EBIT, and qualitative, pipelines and sales culture issues.

Great.

There's nothing new here. We have -- they have made the allegations. Silverstein has made them. The P.R. has gotten hot and heavy in the last couple of days. The parties are battling. They're battling it out in the press as well as in the courtroom. It's tough to keep track of all of this stuff. We fully expect that this is going to continue. It will probably make more heated before it's resolved. -- become more heated before it's resolved. For a year-and-a-half, I have been telling everybody that this is not our fight. I haven't changed my tune. It is not our fight. I have likened it to the -- the guy in the bar minding his own business, the fight breaks out. He's ducking bullets left and right. He has nothing to do with the fight. He simply happens to be in the bar. And the fight got worse. Every time they talk about Silverstein and lawyers and carriers, this and that. Willis's name gets mentioned and everybody is spooked.

The fact of the matter is that we have done nothing wrong. As a matter of fact, we have done everything right. I am very proud. We talk too much about, you know the things that the possibilities of bad things. Our people were outstanding. I mean, the place -- to place the cover in the market in that short a period of time, I would like somebody to tell me if they did better, ever. That's unbelievable. I was saying earlier that all we had to do was tell people how old we were. We obtained $3.5 billion of coverage in the World Trade Center in extraordinarily short period of time. Our people were terrific.

The conclusion here is simple. Our people did a terrific job and are proud of it. As a matter of fact, we do such a terrific job, Silverstein in print said that we did a Herculean job. I'm not paraphrasing. That's the word that he used. The last time I looked, Hercules was big. The guy was huge. He said that in print. That's an idea of the satisfaction. We'll continue to supply our people as required, provide testimony. We have been to all of the proceedings and live through all of the depositions. We have done all of the stuff. The fact remains this is simply not our fight. We can great -- we did great stuff here. That's what happened.

Well, thank you very much.

You're welcome.

Thank you. Mr. Plumeri, I'll turn the meeting back over to you. At this time, we have no further questions.

Anybody have any other questions. I'll give you a second. If you want to think of anything. Terrific. Any other questions?

If you have a question, please press star-1 now. We have a question from Adam Chrouber (ph) of Cochran (ph).

Hi, Joe, how are you?

Fine, Adam. How are you doing?

Good. Can you give us an outlook for contingent commissions for 2003? Do you think they're going to improve? Will that have an effect on the bottom line?

Continue to improve. That's not something that I want to comment on, if you are telling me that the commission level is going to go up or down or stay the same, I really don't know. As I said earlier, the commission levels are not something that have been an issue with us, if that's what you mean. It's not something that we can concern ourselves with.

Okay. Another question, can you give us an idea of how much revenue from reinsurance hits in the fourth quarter and first quarter just generally? I'm not looking for exact.

First quarter is the biggest quarter in reinsurance. That's typical. I think of this company or most companies. I think it's been a great contributor.

Okay. Thank you very much.

Thank you, Adam.

I'm showing no further questions at this time.

Thank you very much, everybody. Appreciate it. I'm sorry again earlier for the little problems in the hookup. Hopefully, you got all of the information that you want. You have a flavor for how proud we are of our company. Thank you very much.

Thank you for joining the Willis fourth quarter earnings release. This conference call has concluded. All parties may disconnect.