Hiring spree dampens Willis Q2 profits despite growth

Willis enjoyed some strong growth in the second quarter of 2014 driven largely by its business in emerging markets and North America. But its profits in the period were reduced by increased costs driven by a number of new hires in the past 12 months.

The company’s revenues, including commissions and fees, increased by 5.1 percent in the quarter compared with the same period a year earlier. It said organic growth of 4.5 percent was led by its emerging markets and North America units. It also enjoyed modest growth in reinsurance despite what it described as challenging market conditions.

The broker posted total revenues of $935 million in the quarter compared with $890 million a year earlier. Its operating income, however, dropped to $148 million, an operating margin of 15.8 percent, compared with $167 million in the second quarter of 2013, an operating margin of 18.8 percent.

“Strong revenue growth in the second quarter 2014 was more than offset by increased expenses primarily driven by investment in new hires since the end of the second quarter 2013,” the company explained in its results.

“The resulting business performance reduced second quarter earnings by approximately $0.04 per diluted share compared to the same period last year. The pace of hiring has moderated since the second half of 2013, with global headcount up about 1 percent year to date in 2014.”

Dominic Casserley, chief executive of Willis, said: “Willis grew revenues strongly in many of its businesses and even saw modest growth in reinsurance where the market faces significant rate pressure. This is testament to our diversified strength across geographies, sectors and business lines and reflects the cumulative investments for growth we have made, including in the second half of last year, in revenue-producing talent and client service and risk management capabilities.

“We will continue to invest selectively in talent but expect salary and benefit expense growth, excluding acquisitions, to moderate during the second half of the year as the comparisons to prior year periods begin to reflect both the higher base levels in the second half of 2013 and also our lower headcount growth in 2014.

“A number of non-cash and non-operating items significantly reduced our reported earnings this quarter but that should not detract from the performance of our business. We have maintained our first half underlying EBITDA at a level consistent with last year against a backdrop of more challenging market conditions and significant investments for growth by us over the past twelve months. This is a good indicator of what we have achieved and can achieve, going forward.”