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NEW YORK, February 12, 2008 — Marsh & McLennan Companies, Inc. (MMC) today reported financial results for the fourth quarter and year ended December 31, 2007.
In the quarter, consolidated revenue was $2.9 billion, up 8 percent from the fourth quarter of 2006, or 2 percent on an underlying basis, which measures the change in revenue before the impact of acquisitions and dispositions, using consistent currency exchange rates. Income from continuing operations was $90 million, or $.17 per share, compared with $168 million, or $.30 per share, in the fourth quarter of 2006.
Net income, including discontinued operations, was $85 million, or $.16 per share, compared with $226 million, or $.40 per share, last year. Noteworthy items, described in the attached supplemental schedules, reduced earnings per share by approximately $.07 in the fourth quarter of 2007, compared with an increase of $.01 in the fourth quarter of 2006. Additionally, incremental costs associated with the departure of MMC's former CEO negatively impacted earnings per share by approximately $.02 in the fourth quarter of 2007.
For the year 2007, consolidated revenue was $11.4 billion, an increase of 8 percent from $10.5 billion in 2006, or 4 percent on an underlying basis. Income from continuing operations was $538 million, or $.99 per share, compared with $632 million, or $1.14 per share, in 2006.
Income from discontinued operations, net of tax, was $1.9 billion, or $3.54 per share, compared with $358 million, or $.62 per share, in 2006, reflecting gains on the Putnam transaction in the third quarter of 2007 and the sale of Sedgwick Claims Management Services in the first quarter of 2006. Net income in 2007 was $2.5 billion, or $4.53 per share, compared with $990 million, or $1.76 per share, in 2006.
Brian Duperreault, who joined MMC as president and chief executive officer on January 29, 2008, said: "I am extremely pleased to join MMC, a company with outstanding franchises that have unrivaled talent, resources, and capabilities. I look forward to capitalizing on the many exciting opportunities before us. Our immediate focus is to improve profitability at Marsh and Kroll."
Risk and Insurance Services
Risk and Insurance Services revenue in the fourth quarter of 2007 was $1.4 billion, unchanged from the fourth quarter of 2006. Operating income declined in the current quarter to $58 million from $127 million in the fourth quarter of 2006, primarily due to a $66 million reduction in revenue, or approximately $.08 per share, from Risk Capital Holdings.
In the quarter, Marsh's revenue was $1.2 billion, up 6 percent from last year on a reported basis and 1 percent on an underlying basis. Geographically, revenue included $659 million in the Americas, an increase of 3 percent from the prior year; $427 million in EMEA, up 9 percent; and $109 million in Asia Pacific, an increase of 11 percent. Marsh's new business production was strong, increasing 8 percent on an underlying basis, with the strongest growth generated in the United States. Premium rate declines in the commercial insurance marketplace continued to accelerate as 2007 progressed, continuing into the January 2008 renewals.
Guy Carpenter's fourth quarter revenue was $167 million, a decline of 2 percent from the prior year's quarter on a reported basis and 4 percent on an underlying basis. Reinsurance premium
rates continued to decline across most coverages globally, and clients continued to increase risk retentions.
For the year 2007, revenue for the Risk and Insurance Services segment was $5.6 billion, an increase of 2 percent from 2006. Marsh's revenue in 2007 rose 3 percent to $4.5 billion, and Guy Carpenter's revenue rose 2 percent to $902 million.
MMC's Consulting segment revenue grew 19 percent to $1.3 billion in the fourth quarter on a reported basis and 13 percent on an underlying basis.
Mercer increased revenue 14 percent to $882 million in the fourth quarter and 8 percent on an underlying basis. Double-digit revenue growth was achieved throughout Mercer's operations: retirement and investment had revenue of $340 million, an increase of 16 percent; health and benefits, $188 million, or 10 percent growth; outsourcing, $197 million, grew 17 percent; and talent, $126 million, increased 14 percent.
The strong demand for consulting services offered by Oliver Wyman continued for the fourth year in a row. Revenue grew 28 percent to $437 million in the fourth quarter, or 22 percent on an underlying basis. All businesses, including management and economic consulting, produced double-digit revenue growth.
Consulting's profitability grew 38 percent in the fourth quarter of 2007, which was the fifth quarter in a row of double-digit earnings growth in the segment. Consulting's margin improved 170 basis points, to 12.2 percent in the fourth quarter of 2007 from 10.5 percent in the fourth quarter of 2006.
For the year 2007, Consulting generated revenue of $4.9 billion, a 16 percent increase over 2006. On an underlying basis, revenue increased 10 percent. Mercer's revenue increased to $3.4 billion, an increase of 11 percent on a reported basis and 7 percent on an underlying basis. Oliver Wyman's revenue grew 26 percent to $1.5 billion in 2007 on a reported basis and 18 percent on an underlying basis.
Operating income rose 30 percent to $606 million in 2007 from $466 million in 2006. Margins for the Consulting segment were 12.4 percent in 2007, compared with 11 percent in 2006.
Risk Consulting and Technology
Kroll's revenue was $249 million in the fourth quarter, an increase of 3 percent from the year-ago quarter. On an underlying basis, revenue decreased 3 percent. Operating income declined to $17 million in the fourth quarter of 2007, compared with $45 million in the fourth quarter of 2006.
Revenue in Kroll's technology operations increased 18 percent in the fourth quarter to $149 million due to an acquisition and very strong growth in background screening. Revenue in Kroll's consulting operations decreased 13 percent to $100 million, primarily due to weakness in the corporate restructuring operation.
For the year 2007, Kroll's revenue was $1 billion, up 2 percent, or 1 percent on an underlying basis. Technology revenue increased 13 percent to $569 million, while consulting revenue was down 10 percent to $426 million. The decline in consulting revenue reflects continued weak demand for Kroll's corporate restructuring services, including lower client success fees for completed engagements in 2007 compared with 2006.
In August 2007, MMC entered into an $800 million accelerated share repurchase transaction and received 21 million shares of its common stock. Based on the final average share price during the buying period less a discount, it is expected that approximately 10.5 million additional shares will be delivered to MMC in March. Primarily as a result of shares repurchased in 2007, MMC's shares outstanding decreased from 552 million at the end of 2006 to 520 million at the end of 2007.
MMC's net debt position, which is total debt less cash and cash equivalents, was $1.7 billion at the end of 2007, a substantial decrease from $3 billion at the end of 2006, largely due to proceeds received from the Putnam transaction.
In January, MMC's board of directors voted to increase the quarterly dividend by 5 percent, from $.19 per share to $.20 per share.
MMC is a global professional services firm providing advice and solutions in the areas of risk, strategy and human capital. It is the parent company of a number of the world's leading risk experts and specialty consultants, including Marsh, the insurance broker and risk advisor; Guy Carpenter, the risk and reinsurance specialist; Kroll, the risk consulting firm; Mercer, the provider of HR and related financial advice and services; and Oliver Wyman, the management consultancy. With more than 55,000 employees worldwide and annual revenue exceeding $11 billion, MMC provides analysis, advice and transactional capabilities to clients in more than 100 countries. Its stock (ticker symbol: MMC) is listed on the New York, Chicago and London stock exchanges. MMC's website address is www.mmc.com.
A conference call to discuss fourth quarter 2007 results will be held today at 8:30 a.m. Eastern Time. To participate in the teleconference, please dial 877 857 6151. Callers from outside the United States should dial 719 325 4773. The access code for both numbers is 4922584. The live audio webcast may be accessed at www.mmc.com. A replay of the webcast will be available approximately two hours after the event at the same web address.
This press release contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events or results, use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "intend," "plan," "project" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." For example, we may use forward-looking statements when addressing topics such as: changes in our business strategies and methods of generating revenue; the development and performance of our services and products; market and industry conditions, including competitive and pricing trends; changes in the composition or level of MMC's revenues; our cost structure and the outcome of cost-saving initiatives; dividend policy and share repurchase programs; the expected impact of acquisitions and dispositions; pension obligations; cash flow and liquidity; future actions by regulators; the outcome of contingencies; the impact of changes in accounting rules; and changes in senior management.
Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements include:
- our ability to achieve profitable revenue growth in our risk and insurance services segment by providing both traditional insurance brokerage services and additional risk advisory services;