Willis Towers Watson PLC (WTW) 2009 Q1 法說會逐字稿

Welcome, and thank you for standing by.

And welcome to the Willis first quarter earnings conference call.

At this time, all parties have been placed on a listen-only mode until the question and answer session.

(Operator instructions) Today's call is being recorded.

If you have any objections, you may disconnect at this time.

I would now like to introduce Ms.

Kelly Calaiaro, the Director of Investor Relations.

Thank you -- you may begin.

Thank you, and welcome to our earnings conference call and webcast at willis.com for the first quarter of 2009.

Our call today is hosted by Joe Plumeri, Willis Group Holdings Chairman and Chief Executive Officer.

This call will be available by replay starting at approximately 10:00 a.m.

Eastern Time through May 30 at 11:59 Eastern Time, by calling 866-360-8717 domestic, or 1-203-369-0181 outside the U.S.

with no passcode or by accessing the website.

If you have any questions after the call, you may call me directly at 212-915-8084.

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 that term is defined by the Private Securities Litigation Reform Act of 1995.

Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated.

We refer you to the cautionary note in our press release, and additional information concerning risk factors that could cause such a difference can be found in the company's documents filed with the Securities and Exchange Commission from time to time.

I'll now turn the call over to Joe.

Thanks, Kelly.

Welcome, and thank you for joining us for our first quarter 2009 earnings call.

Here with me today are Pat Regan, COO and CFO, and Grahame Millwater, our President.

Other members of the management team are here with me, and we're in London today to answer any questions that you may have after our remarks.

Obviously, despite the global economic and financial headwinds, and I might add, a very soft insurance market, I think we delivered very solid financial results.

Let me go through some key metrics with you.

The adjusted earnings per share from continuing operations were $1.16 in the quarter, or $1.30 excluding foreign currency, compared to $1.32 last year, but you've got to remember that that was a great result, because it included the absorption of HRH acquisition, along with higher amortization, increased funding costs, and severance expenses.

Now, the adjusted operating margin was 29.8%, which came from good underlying business performance, and benefits from the ongoing expense review were more than offset by the impact of the number of financial headwinds that Pat Regan will review with you in more detail.

The decline in the adjusted operating margin, including dilution from HRH acquisition, higher pension expenses, severance expense, lower investment income, and an unfavorable foreign currency, all totaling [since October], 900 basis points of headwinds.

In spite of these headwinds, we had about 700 basis points of healthy, underlying margin expansion, so you can get a sense for the health of the business.

We continue to focus on top line, while successfully Right-Sizing Willis for the current environment in these very challenging conditions.

We had 2% organic growth in commissions and fees, reflecting the strength of our geographic and business line diversity.

Our earnings and operating margin demonstrate our ability to manage the expense base through these very difficult times while we face these headwinds.

Now, let me just talk about some of the financial headlines.

First of all, some revenue comments.

Our International Division continues to perform admirably.

We had 5% organic growth driven by exceptional performance in Denmark, Spain and Russia.

And our global businesses, which is our Specialties and Reinsurance, also had 5% organic growth.

Global Specialties had standout performance in Marine, Construction and Energy, and Reinsurance had very strong single digit growth across all specialties and regions, continuing to indicate the stabilization of the reinsurance market.

Now, North America declined by 5%, which was driven mostly by the US economy, and I think even more than that, our focus on integration and synergies, which I'm going to get into in a little bit.

And our client retention was an outstanding and very steady 92%.

We continued to manage through the soft market with a headwind from rates and other market factors of 5% in the quarter, which I might add, is the worst that we've seen since we started measuring this about four or five years ago.

And the only area where we've seen any stabilization is in reinsurance.

Overall, we are still seeing declining rates.

There are some places where rates are higher, property/cat in the southeastern part of the United States and places like that, but generally speaking, the headwinds are pretty severe as it relates to rate.

Now, let me talk about the HRH integration, which is going extremely, extremely well.

We had four main priorities during the integration process -- retaining the producers, expense reduction from synergies, implementing integration plans, and converting contingent commissions.

Now, let's see how we did on all those fronts.

First of all, our producer retention remains high, at 97%.

That is to say that we've lost, in almost in a year, from the time we announced the acquisition, of 3% of our producers.

Secondly, we are surpassing the original and revised synergy target, with $140 million targeted run rate savings by year-end 2010, with $23 million having been achieved in the first quarter.

Let me just remind everybody, when we made the announcement, we said we were going to get synergies of $100 million.

The last call, I said I thought we would get the entire $100 million in the first year, not two years.

Now I'm telling you it's $140 million by the end of 2010.

Now, that also is just a synergy number.

In North America, we're also targeting other cost reductions, which combined with the synergies will reduce the total cost base by over $150 million in 2009.

It's an astounding number, to show you how the synergies and the Right-Sizing are working together in combination with each other.

Those are the focuses in North America.

So there's good progress on all integration workstreams.

And I might add, the last bit that we've been working on is the conversion of the contingents, the upfront commissions -- 70% now of HRH's 50 million 2008 contingents are now been renegotiated into higher standard commissions.

So the integration effort has gone very, very well.

The synergies have gone very, very well.

So we're very happy with the way that's gone, and very proud of our people in North America, both from legacy Willis and legacy HRH.

Now, let me talk about our business units in a bit more detail.

First, our retail businesses, North America and International.

North America continues to feel the brunt of the soft insurance market and weak economy.

And given the environment, and the fact that we're in the first year of a merger integration, we should judge North American business on its ability to grow margins, not just the level of organic revenue growth.

And I say that, because there is so much that our people are going through to get integrated into our systems, and all of the training, and all of the meetings, and everything that is going on.

It's very hard to focus and concentrate on revenue growth.

There was a decline in organic commissions and fees of 5% in the first quarter, but however, due to the focus on synergies and integration, the operating margin increased by 1,110 basis points in the quarter, due to the enormity of the synergies, and how well the integration is working.

We continue to manage the expense base in the context of the rate environment and the economic headwinds.

The adjusted operating margin in North America was 25% in the first quarter of '09 -- that's 11 margin points, from 14% a year ago, with real underlying expansion of about 700 basis points.

So despite the fact that the organic growth is down, the things that we're concentrating on are working, and we expect them to get much better.

We've reduced the pro forma combined expense base by about 11% through merger integration and right-sizing Willis.

Discretionary costs, on a pro forma basis, are down approximately 50% in North America.

As a result, productivity, as measured by revenues per FTE, was $220,000 on a trailing 12-month basis.

Again, this suggests that the things that we've concentrated on are getting done.

Internationally, our organic growth in commissions and fees was 5% for the first quarter, as it continues its record of impressive growth across many regions in the face of some slowing economic growth.

The adjusted operating margin was 35%, up from 33% a year ago, reflecting good revenue growth and expense management.

Client retention was 92%, up from 91% a year ago.

As a result, productivity per FTE was $152,000 on a trailing 12-month basis.

Let me talk about our global businesses now.

The global business segment, comprised of Global Specialties and Reinsurance, had 5% organic growth in commissions and fees in the quarter, with solid performances, as I said earlier, both in Global Specialties and Reinsurance.

In the Specialty area, the revenue drivers were Marine, Energy and Construction.

The rate environment, continued softness in a number of areas in Global Specialties, although stabilization and firming in Marine and Energy, were apparent.

And the impact of slowing economic growth.

So you had a lot of things going on in Specialties -- some firming, slowing in economic growth, still able to deliver strong revenue increases.

In Reinsurance, as I said earlier, very strong, high single digit growth.

The revenue drivers had to do with strong new business generation, especially in International, and the rate environment, which showed stabilization and a much lower retention by the carriers.

Global operating margin was 46% in the first quarter, steady with a year ago.

And our client retention was 91%, up from 90% a year ago.

As you can see, in all of our businesses, the retentions are higher, because we concentrate in retaining our clients, which we're very proud of.

As a result, productivity per FTE was $356,000, on a trailing 12-month basis.

Now, I want to turn the next segment over to Grahame Millwater to update you on the three priorities that we're concentrating on in 2009 -- revenue growth, Shaping our Future, and Right-Sizing.

And he'll give you updates on all of those.

Grahame?

Thank you, Joe.

To help drive the results that Joe has just articulated, we continue to drive three main programs of activity across the Group.

Firstly, driving revenue growth.

Despite the fact that we have continually led the league in organic growth amongst our peers, we continue to believe that we can do better.

Our growth strategy has four key components.

Firstly, driving and tracking sales activity.

This has become far more scientific within the Group, involving detailed metrics by business units, particularly around pipeline management and conversion ratios.

Secondly, increasing the conversion rate of those opportunities by developing increasingly compelling propositions for the various business and industry segments that we work in.

Thirdly, increasing retention rates, as Joe has already pointed out, and driving further penetration of existing relationships by the rigorous application of our client efficacy model.

And fourthly, continuing to make strategic hires that fill both skill gaps and or enhance client relationships, together with the associated revenue.

Inevitably, given the focus in the US on the acquisition and integration of HRH, this organic growth structure has been largely focused on Willis Re International and the global businesses.

Let me just give a few examples of how this has manifested itself.

In Willis Re, we acquired a core reinsurance team from Kraft-Cargill's.

This was 20 plus people who will be accretive in their first year in 2009, and also fill a large skill gap in specialty, casualty, and professional liability.

We've made continued hires in our specialties, including Energy, Marine, Aerospace.

We've created Faber & Dumas to ensure we develop third party revenue around the world through channels -- through the third party channels, with associated hiring and development.

And I just mentioned the sale of Bliss & Glennon in the US does not change any of this strategy.

We've continued to hire in our International retail business, including Spain, Italy, Denmark, Brazil.

And as Joe has pointed out already, our retention levels are at 92%.

All of this has delivered clear market leading organic revenue growth in the non-US, with 3% last year and 5% in the first quarter of 2009.

Now we're working with the Willis HRH team to ensure the same level of focus is given to revenue growth in the US, now that they've delivered on the closing of the HRH acquisition and delivered the critical early stages of integration.

Now, let me turn to Shaping our Future, the second key program.

We've once again exceeded our Shaping our Future target in the first quarter, with $18 million worth of gross benefits, following on from exceeding benefit targets for the whole of 2008.

The first quarter benefits came mainly from global placement, with a $6 million delivery, client profitability with $5 million worth of benefit, and the reinsurance Shaping our Future program, which delivered $4 million worth of benefit.

Our program of rolling out technology and process change continues.

Shaping our Future London, the first Shaping our Future program, which is the complete overhaul of our London platform, will be completed this year, with more benefits achieved, at less cost than our targets set in 2006.

Taking some of the lessons from that, we've now begun our core retail program, and that's focused around UK retail, with the underlying technology selection completed, and office by office implementation underway.

And now I turn to the third program, which is Right-Sizing Willis.

This is the program -- Right-Sizing Willis for the current economic environment, and this is a program we really started in the third quarter of 2008, and was in recognition of the headwinds we would face, and where it recognized that we would face in the emerging economic and financial turmoil.

As usual, we tried to ensure that we got ahead of the game.

This program underpins the 4% pro forma expense reduction we saw in the first quarter, and includes examples such as, salary increases in 2009, a review of all employee benefits globally, strict performance management to ensure appropriate action regarding our poorer performers, whilst also ensuring reward and recognition is focused on our best performers.

Aggressive reduction of non-critical discretionary spend and continued optimal use of low cost locations, including rapid utilization of our new second site in Mumbai, with capacity for another 600 heads.

These programs -- growth, Shaping our Future, and Right-Sizing Willis, combined with the HRH integration synergies, underpin our results, and are critical for us to continue to deliver organic revenue growth while at the same time achieving expense reduction and margin improvement in our underlying business performance.

Not only do we continue the relentless execution of these programs, which are always accompanied by strict financial targets, but we're also always looking to refresh our strategy in the light of developing insurance industry and wider economic circumstances.

With that, I will turn the call over to Pat Regan, our COO and CFO, to review the financial results.

Thank you, Grahame, and good morning, everyone.

Reported earnings from continuing operations for the first quarter of 2009 were $192 million, or $1.15 per share.

And adjusted earnings from continuing operations were $194 million, or $1.16 per share.

Excluding a $0.14 unfavorable foreign currency impact, underlying earnings for the per share for the quarter were $1.30, down only $0.02 from $1.32 on a comparable basis, despite some significant financial headwinds I will discuss in a moment.

Turning to the operating margin, the adjusted operating margin for the quarter was 29.8%, compared with 32.5% a year ago.

That said, there were a number of moving parts in the story of the margin for the quarter.

Margin for the quarter was negatively impacted by a number of financial headwinds caused by the economic climate and the turmoil in the financial markets, as well as the pro forma impact of the HRH acquisition.

In total, we've had to over 900 basis points impact.

Taking each of them in turn.

Lower interest rates, net of the benefit of our forward interest rate contracts, caused invested income to decline $9 million in the first quarter, or about 70 basis points.

Due to reduced asset values in our pension plans, the pension expense for the first quarter was $16 million, an increase of $20 million over last year, or 220 basis points.

In the first quarter, as part of our ongoing expense review and Right-Sizing Willis, we expensed severance of $16 million, in relation to about 300 positions, equivalent to 180 basis points.

The impact of the HRH acquisition diluted margin by 410 basis points.

This was the result of two things.

Firstly, historically, Willis has had a higher margin that HRH in the first quarter, so the blended average of the two becomes lower.

Secondly, the increased amortization related to the transaction.

And finally, foreign currency, primarily related to the strengthening of the dollar versus the euro, had a 40 basis point impact.

As I said, in total, these items amounted to over 900 basis points impact in the quarter.

Adjusting for these headwinds, the underlying business performance contributed about 700 basis points of expansion.

A product of our organic growth of 2%, while pro forma SG&A expenses declined about 4% in the quarter.

Let me give you a bit more detail on our work on expense reduction.

We reduced Group headcount by approximately 350 in the first quarter, which represents a total decrease of 450, while hiring about 100 new people in Mumbai.

Simultaneously, we continued to invest in a number of our businesses, as Grahame mentioned.

Notwithstanding this, reported salaries were down approximately 1.5% for the quarter, adjusting for HRH.

This leaves us very well positioned to continue to affect and manage our cost run rate going forward.

In total, then, adjusted salaries and benefits for the quarter were $479 million, or 51.5% of revenues, compared with $396 million, or 49.8% a year ago.

The increase in the absolute amount of salaries and benefits reflect the acquisition of HRH, higher pension expense and severance, offset by all of those savings.

On an adjusted basis, other operating expenses in the first quarter were $136 million, or 14.6% of revenues.

We've had great success in reducing the level of other operating costs by some 30%, again, adjusting for HRH.

These are -- costs include items such as travel, legal fees, professional fees, catering, advertising, etc., etc.

As mentioned earlier, all of this contributed to a decline, pro forma, of SG&A expenses of 4% in the quarter.

On investment income, as expected, we saw a decline in investment income in Q1 '09 to $13 million, from $22 million, as global interest rates fell.

However, we have a forward hedging program in place, which will generate significant savings in '09, versus if we just had LIBOR-based rates.

We currently estimate the investment income of approximately $50 million to $55 million for full year '09, compared to $81 million in 2008.

On foreign currency, foreign currency translation had a negative $0.14 impact to earnings per share in the first quarter, versus last year, and a 40 basis point negative impact on the operating margin for the quarter.

The positive benefit to the dollar strengthening relative to sterling was more than offset by the effect, firstly, of our hedging program for the dollars versus sterling, and secondly, by the negative impact of the dollar strengthening 11% relative to the euro since full year 2008.

In other words, our net income in euros was worth less dollars this quarter.

As I told you on last quarter's call, we continue to expect foreign exchange to have a slightly positive effect for the remainder of 2009 on a year-over-year comparison.

The effective underlying tax rate for the first quarter 2009 was approximately 26%.

Turning to capital management.

Firstly, our pension status.

Like all pension plans, our US and UK pension planner asset values were impacted by the fall in markets in 2008, from a combined surplus of $360 million at the start of 2008, the schemes had a combined deficit of approximately $100 million at the end of 2008.

That deficit remained at approximately $100 million at the end of the first quarter.

From a cash contribution perspective, we reached an agreement with the UK trustees on the 2009 contribution levels for the UK pension schemes.

Contributions will be GBP 25 million for 2009, down from GBP 75 million in 2008.

Depending on the expected future funding level of the scheme going forward, contributions could rise to GBP 50 million 2010 and 2011.

We expect the cash contributions will be approximately $18 million in the US, and $5 million in the rest of the world in 2009.

In total, therefore, we estimate cash contributions of approximately $60 million for our defined benefit pension plans in 2009.

We've also made some changes to the US defined benefit plan, and to the US 401(k) retirement plan, to mitigate the increased expense and funding requirements.

We have frozen the US defined benefit plan effective May 15, 2009.

This will now be closed to future service.

We've also suspended the 401(k) match for 2009 only.

In total, these changes will save approximately $37 million for the remainder of 2009.

Turning then to Gras Savoye, you will have noted from the 10-k that earlier in the year, AXA put to us their 4% ownership in Gras Savoye.

This has not resulted in Willis buying any more of Gras Savoye, as the owning families exercised their pre-emption rights of the 2%, and Gras Savoye itself bought back the other 2%.

We remain comfortable that Gras Savoye will not exercise their put to us at this time, or in the near future.

Total debt at the end of the first quarter was $2.65 billion, flat from $2.65 billion at year-end.

The bridge facility was reduced to $103 million at quarter end, through proceeds in the Goldman Sachs financing and free cash flow.

Since quarter end, using the proceeds from the disposal of Bliss & Glennon, we've further reduced the bridge loan balance to $50 million.

As we always do at this time of year, the revolver was drawn down for normal seasonal usage, to $150 million.

We pay tax, dividends, and bonuses at this time of year.

We expect to pay back the revolver over the next few months.

There was also approximately $150 million of cash and cash equivalents on March 31, 2009.

With that, I'll now turn the call back to Joe.

Thanks, Pat.

I just want to follow up on a couple of things that Pat mentioned as it relates to capital management, because I know it's top of mind.

One of the top of mind issues was Gras Savoye putting their shares to us, and further putting some tension and pressure on our balance sheet.

Hopefully, by virtue of Gras Savoye and the families buying the 4% from AXA gives you some sense that that's probably not going to be in the wind, although we are very strongly committed to a partnership and a future with Gras Savoye.

Secondly, the paying down of the bridge, the $50 million, is a big deal, since I know that that was top of mind also over the last several months, and questions that I've gotten.

So I want to reinforce the fact that we feel very, very comfortable, obviously, with our balance sheet, and I think we'll continue to get stronger as the year goes by.

So, in conclusion, we're off to a good start in 2009.

The organic revenue growth of 2%, I think was outstanding, even given the fact that North America was facing enormous pressures as it relates to revenue growth, but did their job as it relates to synergies, and we're very proud of that.

The pro forma expenses fell 4%, driven by real discipline, especially with discretionary costs -- actually, across the board.

Even though revenue could continue to face soft market and economic headwinds, we're really pleased with the 2% organic growth in the first quarter, but we realized that the economic slowdown has been so pronounced in North America, it seems to be working its way around the globe, so we're keeping very close tabs on that.

And although our first quarter was strong, we still believe that there are a lot of headwinds out there for the rest of 2009.

So we remain very vigilant on the principles and the priorities that I mentioned earlier -- reinforce our sales and revenue culture.

As Grahame said, we could do better.

I said on the last call we could do better, and we're trying to strengthen all aspects of the sales process in our Company, continuing to execute Shaping our Future, and you heard how much it means to us in terms of contributing to our margin, continue to integrate HRH and achieve our targeted synergies by 2010, which is well on track, even more so.

And then, Right-Sizing Willis for the current environment.

All of those things, we monitor closely.

Those are our priorities, and all are working well.

These efforts will continue to position us, we believe, very well for success, as the years go on.

Thank you very much, and I'll turn it back to the moderator for any questions that you have.

I also want to add one other thing before we do that, and that is, how proud I am of our people around the world.

These are very tough conditions.

The disciplines that we have put into this Company are very strict disciplines.

Our people have been outstanding, and I would say to all those on the call that we're very proud of your efforts, and thank you.

Now I'll answer any questions that you might have.

Thank you.

(Operator instructions)

Our first question is from Keith Walsh.

You may ask your question, and please state your company name.

Hi.

It's Keith Walsh at Citi.

Good morning, everybody.

Hi, Keith, how you doing?

Hi.

Good, good.

Just first want to acknowledge very strong margins, especially in North America, but I'd like to talk more about the revenue side.

Maybe if you could just give us some color at what was the organic of the HRH piece of the business, first off, like you gave us last quarter?

And then secondly, if you could tell us, what does the organic for the Company look like if you didn't change the way you calculate revenues for HRH, and also, what would the benefit, employee benefits added there?

Just so we can get more of an apples to apples of how your competitors calculate revenue.

Thanks.

The organic number for HRH and Willis is about the same, so there isn't a big discrepancy in that regard.

And before I get -- I let Pat answer the second part of the question, Keith, you've got to remember that we have been concentrating -- you can't do everything.

And what the concentration has been, it's been on the integration of the companies.

Even you wrote, I think, that there is integration risk that you have to watch for.

You wrote that last June.

And you'd be right to say that, because that's the thing you watch in all these things.

And that's what we've concentrated on -- the integration of the cultures, the synergies that you predict that you try to get out of it, and the integration of all of the issues.

So we did that by focusing strictly on those issues.

We happened to catch economic headwinds that weren't favorable, two biggest parts of the businesses in North America were construction, of which $250 million on a combined basis -- I don't need to tell you what's happened to the construction business -- the employee benefits business, mostly in North America it's healthcare, there's less employees, there's less premiums that's being paid.

Our M&A business, and our financial business, have all been affected, obviously, by the headwinds.

So if you take the integration issues and the focus on integration, coupled with the economy that's affected large parts of our business, I think growing the margin, which is what we concentrated on doing, given the fact that we find ourselves in the position we're in, has been outstanding.

Now, at a point in time, as we keep the people, which we have, as the offices are still intact, as we're integrating and continuing to work together as the economic changes, we're just going to add to that improvement and that foundation that's already been made, and that's what makes us excited, because we're going to have an expense base that's well below what it used to be on a combined basis as the future starts to unfolds, economies start to get better -- who knows, the market might get harder.

So we're really excited, actually, about what's going on in North America, and I'll let Pat answer the second part of your question.

Keith, if you want to do those numbers, you can see on page 13 the dollars, the revenue, global total North America, which includes HRH as well.

And International, as Joe mentioned, the HRH organic is similar to the North America one, so if you actually -- if you wanted to, you could apply the weighting of the revenues as it shows on page 13.

But if I do that, 40% of your business is down 5%.

I do a weighted average there, I get 0% organic for your Company.

I guess the genesis of the question here is, why change the revenue calculation in the first place?

You know, the margins are impressive.

Why do you need to make that change?

It's difficult to compare what you guys are doing to any of your competitors out there.

Again, if you wanted to do the calculation, all the information is there in the press release.

As Joe said, it's a very different situation if you buy a company of the size of HRH that is the same size as our North America business, the priorities are slightly different.

It's not all about generating organic revenue growth.

Your priorities are around generating margin, and therefore, it's difficult to compare, exactly, like for like.

I think some of our peers actually do do the organic in the same way that we now calculate it as well.

Okay, thanks.

Thank you.

Our next question is from Meyer Shields.

You may ask your question, and please state your company name.

Thanks.

Stifel Nicolaus.

To begin --

Hi, Meyer.

Hi, how are you?

Okay, thank you.

Can you tell us how much you collected this quarter for legacy HRH contingents?

I understand that they're being switched, but you should still be getting paid now for the 2008 placements.

Meyer, would you mind repeating --

Meyer, would you please say that again?

I'm sorry.

Yes, my handset's a little defective.

Can you quantify the amount of contingent commissions you collected in the quarter based on the agreements with HRH for business placed in 2008?

So the amount of actual contingents showing up as contingents -- we talked previously about converting them into commissions.

That will more flow through as we go through the remainder part of the year.

The actual contingents we collected were broadly similar to the 2008 number that HRH collected.

Okay.

Do you expect that to be the case over the course of the year?

I mean, it's difficult to say.

There's all the moving parts in the contingent number, but at the moment, we're trying to -- well, we're focusing on converting them, as we've talked before, about straight commissions.

So some of that will go into commissions rather than straight contingents.

So it's a little more difficult to predict that as we go forward.

But it was broadly similar to the '08 level in the first quarter.

Okay.

And Joe, am I correct in inferring that there is an adjustment to the long-term plans for Gras Savoye?

Is that what you meant by --

An adjustment in the long-term plan?

Yes.

No, there's no adjustment in the long-term plan.

The long-term plan is to -- the long-term plan was to always continue to be partners with Gras Savoye.

The long-term plan is for us to, over time, to consolidate Gras Savoye.

Our intention stays the same.

I mentioned Gras Savoye because there was an issue as it relates to them putting the shares to us, and putting the pressure on our balance sheet.

And I -- my -- I answered that question over the last two quarters by suggesting that there was no intention over the next year or so to put those shares, and I wanted to reinforce it again.

But our plan, to continue to be partners with them, our plan to eventually consolidate with Gras Savoye, doesn't change.

Okay.

Does the timeline change?

Because my understanding has been that you were going to have it fully acquired by 2011.

I'm sorry.

Can you say that again, please?

Yes, I'm sorry.

My understanding was that you would have full ownership by year-end, 2011.

We had the opportunity to have full ownership by the end of 2011 -- actually, beginning in 2010.

We still have that capability.

But the question that arose in the last two quarters is that, will they put the shares to us on a premature basis?

And the answer, I said, was there was no intention to do that.

I continue to say that.

Okay, that's helpful.

And I guess, looking forward to the capital management, do you have any plans to pay down debt beside the bridge loan between now and the end of the year?

I think the -- obviously, we'll get rid of the rest of the bridge loan.

Nothing -- once we've done that, most of our financing is on a pretty permanent basis.

We have $250 million of bonds, 5-year bonds, that were issued in 2005, that become due halfway through 2010.

So that will become the next priority in terms of looking at debt management, and we'll look to pay those down at the appropriate time.

Okay, fantastic.

Thank you very much.

Thank you.

Thank you.

(Operator instructions) Our next question is from David West.

You may ask your question, and please state your company name.

Good morning.

Dave West, Davenport & Co.

I wondered if you could comment on your sell of Bliss & Glennon this quarter.

Are there other similar opportunities you feel like that for small dispositions?

The opportunity to sell Bliss & Glennon was a decision that we made that was basically, Bliss & Glennon is a wholesaler that did business on a very small ticket basis.

And through analysis of that business, simply, we did not feel that that business fit into our model and what we wanted to do.

That did not suggest that other wholesalers that were within the specter of HRH, we feel similarly about.

We -- right now, we have no plans to sell any other of our wholesale businesses.

Very good.

And then, I guess a clarification about -- Pat, you made the comment regarding foreign exchange, that the assumption that you think foreign exchange matters will positively -- slightly positively impact numbers over the remainder of the year.

What's the underlying assumption on that?

That currency relationships remain stable from this point?

Yes, that's assuming that currencies are as they are today, actually.

Yes.

All right, very good.

And then lastly, a clarification -- I think you mentioned as far as the use of cash flow this quarter, I think you cited several things, what -- taxes, pension payments.

Were there other matters that were mentioned there?

Yes.

The (inaudible) to this time of year for us, this is when we pay bonuses, we pay all our bonuses in March, taxes, dividends, and as you mentioned, a little bit of pension payments as well.

So they're the primary additional seasonal cash flow items.

Very good.

Thanks so much.

Thank you.

Thank you.

Our next question is from Brian Meredith.

You may ask your question, and please state your company name.

Yes, UBS.

Good morning, Joe.

Hi, Brian.

How you doing?

Good.

A couple questions here for you.

The first one, you mentioned 97% as the amount of producers you retained.

I assume that's just at HRH.

Is that number consistent with the total company, or the Willis people?

Yes.

Okay, so you're going to be able to hold people pretty well.

Yes.

And next question, Joe, I guess you're doing a lot of cutting right now.

What is the risk here that you're actually going to cut so much that you can actually hurt yourself on the way out of the declining economy?

You're supposed to say you're doing a great job at watching your expenses.

I know, but I'm focused on the long-term value as well.

Yes, I know, right.

We're just going to kill the place.

None of the things that we do, in my opinion, have -- are things that we think will cut into muscle.

I think we're very good at watching our expenses -- Brian, you've been covering us for a long time, and you know that we're constantly being vigilant about expenses.

We've been that way since I got here.

So I don't think that we've done anything -- as a matter of fact, we went through the things with you that we've invested in.

We invested heavily in people, even though we have dropped the headcount.

We've removed headcount in some of our offices around the world, while we added headcount to Mumbai as part of reprocessing our business.

We picked up people from Cargill's in reinsurance in London.

We've recruited people in some of our specialisms in London.

We've made a lot of investments over the course of the last year, and intend to continue to do that.

So this has not been simply a slash and burn philosophy.

The freezing of the US defined benefit plan in the United States -- we've got to be one of the last ones to do that.

There are a lot of people that did that before us, because we felt that we did enough with regard to our expenses, that we were safe in keeping the plan.

But because the headwinds in the economy has been so bad in the United States, that we felt compelled to beat -- to have to do that.

So I don't think that we have slashed and burned, if you will.

I think that we've simply eradicated a lot of waste.

We look at our expenses very, very carefully.

It's why -- it's one of the reasons why our margins are so high.

And as I said, especially in North America, when you combine the synergies that we were looking for and anticipated from the HRH acquisition, plus the Right-Sizing exercise that we have gone through around the world, you've got 25% margin with a 5% decline in revenue, with those kinds of headwinds, Brian -- I think it's pretty good.

Absolutely.

Could you also give us an update, Joe, on successes that you're having in getting some additional commission out of the carriers?

Yes.

I think part of what you see, and us being able to replace 70% of contingents with upfront fees, is a signature of the fact that that philosophy, which is called Shaping our Future marketing, is paying off.

We spend a lot of time in coordinating our marketing around the world.

We spend a lot of time in looking how -- at ways that we can paid, whether it be in placement, whether it's facilities that we've created around the world, or aggregation that we've created around the world.

So I think we've done a pretty good job at that as well in touching all the bases that allow us to grow the top line.

Okay, thank you.

Thank you.

Thank you.

Our next question is from Thomas Mitchell.

You may ask your question, and please state your company name.

Yes, it's Miller Tabak.

In light of the amount of debt that you've been able to pay down, but also, the relatively high interest rates that went into the Goldman Sachs financing, I'm just wondering, what is a reasonable run rate?

Was the first quarter a reasonable run rate for every quarter's interest expense going forward?

It will be -- because we took the Goldman debt on partway through the quarter, we were $38 million for -- first quarter will be a nudge over that in the quarters to come.

Okay, thank you.

Thank you.

Our next question is from Jay Cohen.

You may ask your question, and please state your company name.

Yes, good morning.

Bank of America-Merrill Lynch.

Hi, Jay.

Hello, Jay.

Hey, Joe.

You had mentioned that -- I guess you said rates, premium rates and other factors had a depressing effect on your revenues.

And I guess, just to clarify that, you threw in your other factors.

I'm wondering what those other factors are.

And then secondly, what we're hearing from others, the carriers mostly, is that rates -- while still going down, are at least showing signs of stabilization.

You seem to indicate that this issue has been kind of worse, or a bigger depressant in the quarter versus other quarters, and I want to try to clarify that.

Well, I don't know -- I can't speak for the carriers, but I can tell you, and I said this in my opening remarks, Jay, that other than property/cat, and some places of the world like the southeast part of the United States, I really don't see that stabilization taking place.

As I said, we monitored, as you know, for many years, the rate effects on our business, because we wanted to really see how healthy the net effect of our revenue growth would be.

And the last quarter was 5%.

We see rates going down, in some cases 20%, 30%.

So I can't speak for the carriers who made the comments that they're stabilizing, but the only stabilization that we see is in the reinsurance side of the business, not on the direct side of the business, other than the parts and areas that I see.

And are there other factors, again, using rates and other factors, or are you really just talking about premium rates?

The other factors, Jay, the same definitions we always have, so that includes things like fee compression, that kind of stuff.

Oh, okay.

Different buying patterns, that kind of thing.

You know, people buying less insurance, fees being depressed because people are looking for less fees to save money, things like that, Jay.

Is it basically impossible to really determine how much the economy -- say, lowered exposure specifically, is having an effect on things?

Are you able to quantify that?

It's tough to quantify, other than suggesting that broad lines of business which make up a lot of our business has been affected.

And I gave you a couple of examples.

Even though I think our employee benefit business in the United States is still good, it's more healthcare related than it is in the rest of the world, which is more pension related.

And so, their people are paying less premium, because there's less employees, it affects our business.

I still think we're growing nicely in the EB business, but not as much as we have traditionally grown, and one of the things that we wanted to do, to accomplish with HRH, was to grow a big combined -- to have a big EB business, which is, on a yearly basis, about $350 million.

Construction was the other thing that we wanted to achieve, by combining those businesses, which is $250 million, and I don't need to tell you what's happening with construction.

A lot of that is home-related, a lot of that is one-off based business, which has a lot to do with credit.

So as a result, if you take the combination and then you get the financial lines, which we do a big business in, we do a big business in M&A business, so if you take those businesses being affected by the economy, throw on top of that the economic headwinds that have to do with rate, and then throw on top of that the distraction of the integration, which I said is going very well, it was testified to by the margin increase, that's the story of North America, and we're very content with having kept our people, the integration going very well, the synergies that we're getting out of this is amazing.

And that be the first phase, if you will, because we understand, given the abnormality of what's going on in the US especially, that you can't do everything perfectly.

So we're very content concentrating on the margins, concentrating on the integration, despite all the bad things that are going on, and we're very happy with it.

Got it.

Thanks a lot.

You're welcome.

(Operator instructions) And we do have a follow up question from Meyer Shields of Stifel Nicolaus -- your line is open.

Thanks.

I just wanted to dig in a little bit on the reinsurance side.

You were able to pick up the people from Cargill, because they couldn't keep up with the demand for the business.

Are you seeing other reinsurance brokers kind of struggle, and is there any migration of either producers or accounts to the bigger reinsurance brokers?

Let me make sure -- for some reason, Meyer, we're not getting you as audibly as we'd like.

Let me reconstruction your question.

You mentioned the fact that we've gotten some brokers from Cargill's, and you also asked, and it relates to that, you're seeing other brokers having some issues with regard to moving from company to company.

Is that what you asked?

Yes.

Not on a wholesale basis -- no, Meyer.

Okay, thank you.

That was Peter Hearn.

Very good, Peter.

Thank you.

And at this time, I'm showing no further questions.

Okay.

Thank you very much, everybody.

Have a good day.

Thank you.

This concludes today's conference.

Thank you for participating.

You may disconnect at this time.