Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2016 Willis Towers Watson’s Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today’s conference Ms. Aida Sukys, Director of Investor Relations. Ma’am, please go ahead.

Thank you, good morning. Welcome to the Willis Towers Watson earnings call. On today’s call are John Haley, Willis Towers Watson’s Chief Executive Officer; and Roger Millay, our Chief Financial Officer. Please refer to our website for the press release issued earlier today. Today’s call is being recorded and will be available for a replay via telephone through tomorrow by dialing 404-537-3406, conference ID 53649380. The replay will also be available for the next three months on our website. This call may include forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 involving risks and uncertainties. For a discussion of the forward-looking statements and the risks and other factors that may cause actual results or events to differ materially from those contemplated by forward-looking statements, investors should review the forward-looking statements section of the earnings press release issued this morning, a copy of which is available on our website at willistowerswatson.com, as well as other disclosures under the heading of risk factors and forward-looking statements and our most recent annual report on Form 10-K and quarterly report on Form 10-Q and in other Willis Towers Watson filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of date of this earnings call. Except as required by law we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events. During the call we may discuss certain non-GAAP financial measures. For a discussion of the non-GAAP financial measures as well as reconciliations of non-GAAP financial measures under Regulation G to the most direct comparable GAAP measures investors should review the press release we posted on our website. After our prepared remarks, we will open the conference call for your questions. Please note, today’s call is schedule for one hour. Now I will turn the call of the John Haley.

Thanks, Aida. Good morning, everyone. Today we will review our results for the fourth quarter of 2016 and provide updated guidance for the full year of 2017. We will also provide consolidated full year 2016 and certain pro forma 2015 financial results. Our segment results are presented based on the updated Willis Towers Watson structure. We provided historical Willis Towers Watson segment information in Form 8-K filed on July 14, 2016. Now let’s turn to our results which mark the end of our first year as Willis Towers Watson. Reported revenues for the quarter were $1.9 billion flat as compared to pro forma prior year revenues. This includes $74 million of negative currency movement on a pro forma basis. For the quarter, revenues on an organic basis were up by 1%. Reported revenues for the year were $7.9 billion up 5% as compared to pro forma prior year revenues. Adjusted revenues for the year were $7.9 billion up 6% as compared to pro forma prior year revenues. This includes $202 million of negative currency on a pro forma basis. For the year, organic revenues were up by 2%. Net income attributable to Willis Towers Watson for the quarter was $34 million as compared to the prior year pro forma net income of $66 million. Adjusted EBITDA for the quarter was $419 million or 21.7% of revenues, as compared to the prior year pro forma adjusted EBITDA of $406 million, or 21.1% of revenues. We are pleased to see year-over-year margin enhancement, which is consistent with our goal. Adjusted EBITDA for the year was $1.8 billion, or 22.3% of adjusted revenues, as compared to pro forma adjusted EBITDA for the prior year of $1.7 billion, or 22.5% of adjusted revenues. For the quarter, diluted earnings per share were $0.25 and adjusted…

Thanks, John, and good morning everyone. I’d like to add my thanks to our colleagues around the globe for all their efforts during 2016. As we take a step back and consider the progress we’ve made in just 12 months, bringing together 40,000 colleagues from three legacy companies in over 140 countries. It’s really quite an accomplishment. While we still have a couple of years to complete our integration, the actions required in the first year of building a new organization and culture are the hardest and most sensitive. There’s simply a lot of change to absorb. It took a lot of collaboration and commitment to get us where we are today, and as we turned into our second year, I saw the necessary foundation for ultimate success building in the right direction. Now for the financial results; as a reminder our segment margins are before consideration of unallocated corporate costs such as amortization of intangibles, restructuring costs, and certain integration expenses resulting from mergers and acquisitions. The segment results include discretionary compensation. Income from operations for the quarter was $88 million, or 4.6% of revenues. The prior year fourth quarter pro forma operating income was $131 million, or 6.8% of pro forma revenues. Adjusted operating income for the quarter was $374 million or 19.4% of revenues and the prior year quarter pro forma adjusted operating income was $377 million or 19.6% of pro forma revenues. As we highlighted earlier, revenue pressure and seasonality related to Gras Savoye impacted the fourth quarter margin. Income from operations for the year ended December 31, 2016 was $551 million, or 7% of revenues. The prior year pro forma operating income was $765 million, or 10.2% of revenues. Adjusted operating income for the year ended December 31, 2016, was $1.6 billion or 20.4% of…

Thanks, Roger. And now we’ll take your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Ryan Tunis with Credit Suisse. Your line is open. Please go ahead.

Hey thanks. I guess, just following up on the segment outlooks for brokerage and for HRB next year, it sounded like low single-digit organic expense growth which implies a decent amount of acceleration from what we’ve seen year-to-date especially on the brokerage side. I guess, looking back at 2016, you talked a little bit about the revenue synergies. How much do you think revenue dissynergies may have impacted that comp? Because I’m trying to bridge from where we’ve been in corporate risk and broking in IRR which has been zero to subzero to getting that to low single digits. Thanks.

Okay, Roger may want to add to this, but I would say I think revenue synergies did not play any significant of fact that all. Frankly, we didn’t really see any revenue dissynergies really across the Company. I think the reason for the revenue growth being off in 2016 was really reflected in a distraction that we had that took people – had them more internally focused than it should have been, didn’t have the best go-to-market operation that we could have had and it distracted from our new business efforts. But I don’t think revenue dissynergies were anything that really added to that.

Okay and then my follow-up, I guess, is just on thinking about 2% to 3% organic growth this year, and I guess, looking out to 2018 thinking about the $10 number; do you think you need acceleration off the 2% to 3% in 2018 to be able to hit that or are we still thinking that capital management and organic expense management can produce those type of results even if we are still sort of in a 2% to 3% organic growth environment? Thanks.

Yes. So I think I would say this with regard to the $10 number, when you think about the various components that we had to get there. One of them was certainly revenue growth. Really we thought 3% plus was we needed to get to that to be achieving $10. The other items were our tax rate getting to 25% or better and I think we’ve got a check next to that. Our share repurchase, actually, if you think about last year, in the beginning of the year we said we were going to try to be – purchase $200 million worth of shares last year. And then midway through, we said we’d like to get to $300 million; we ended up purchasing $400 million. So we feel good about what we were able to accomplish there. As Roger said, we expect to buy back at least $500 million worth of shares this year, so that’s in place as to where we want to be; and we will continue to buy shares back in 2018 also probably at a higher clip than we have in 2017. And then we want to get the expense savings and the margin enhancement; and we referenced a couple of times some of the OIP savings that we expect to get coming out of 2017. So we’re on board for almost all the things. We just see we have to get the revenue growth up a little bit but we are focused right now on getting to the 2% to 3% level for 2017 and we think that will give us a good base to improve that going into 2018.

Okay and then just lastly, I guess, in the retirement business, if you could just help us understand the macro sensitivity of that just given the move higher run rates, the new administration. It sounds like a lot of the slowdown there was less actuarial work, lump sum, but it sounded like it was maybe being replaced with pension administration. How should we think about that if interest rates are sort of where they are, continuing to rise? Is that an area where you are going to continue to see kind of sluggish organic growth? Thanks.

Yes, I think overall that’s right. We’ve had some of our competitors have reported and when you look at our retirement revenue growth, it’s almost identical to there’s so maybe that’s not so surprising. Now on top of it though, we had the restructuring program which was largely focused on retirement. When I was younger, I used to think you could put these restructuring programs in place and not lose any revenue in the short run, but I’ve learned from experience that is not the case. So the fact that we had retirement slow down a little bit was not a particular surprise here. That happened but we think – we love the restructuring we did. We think it positions us extraordinarily well for the future, so that was clearly the right thing to do. So that hurt us a little bit in the fourth quarter, but as I said, even then we still came out right at the same level as our competitors; so we feel good about this going into 2017. When we look at the outlook for 2017, I think the thing that we would most focus on is this is probably likely – it’s never, you can never tell at this stage in the year. But this is probably likely to be a slower growth for bulk lump sum work – a real slowdown in bulk lump sum work compared to other years. Now bulk lump sum work, it varies. I mean, I think 2013 it was $28 million; 2014, I think it was over $75 million, I think it was around $77 million or something; it’s been just under $50 million 2015 and 2016. We think it’s going to go down substantially in 2017. But bulk lump sum is granular; one of the reasons we think it will probably go down is because we are likely to see several rate increases during the year. It’s not the absolute level; it’s the arbitrage between what you can pay out the lump sum at and what you are recording it at as the accounting expense. So 2017 might be a low year for bulk lump sums; in the end though, that may just mean that there is more work in 2018. We see this as you’ve got to look at it on a multi-year cycle.

That’s helpful. Thanks.

Thank you. And our next question comes from the line of Sarah DeWitt with JPMorgan. Your line is open. Please go ahead.

Hi, good morning. Just looking at the margin in the quarter, could you talk about how you see the margin expansion given the low organic growth and just walk us through how much came from OIP dropping to the bottom line versus integration savings versus if there was any FX-margin benefit?

Sure Sarah. Hi. We think again maybe just to step back to the margin trends for the year and we’ve been watching all the elements closely quarter-to-quarter and as we said in the third quarter we saw probably about a few percentage points in sequential drop in expenses and that sort of trend continued into the fourth quarter. And really we think it’s the combination as John and I both referred to in our remarks. It’s the combination of continuing to push across the board on the savings initiatives which now you mentioned two of the elements and the third element is the business restructuring, so all of those kicking in, along with just the financial discipline that we are employing throughout the Company. So margin comes gradually and last time we said we weren’t sure that we saw all those efforts flow through, but I think this time you are seeing it; so I think those were the drivers.

Okay great. Thanks. And then separately, I’d be interested to get your thoughts on some of the macro issues post the U.S. election. If the U.S. tax rate fell to 20% but there was no interest deduction, what would that mean for Willis Towers Watson’s earnings? And then also, would you be impacted by border adjustment at all since you’re domiciled outside the U.S. Would your services be considered an import?

So I think just generally on the taxes, it’s two points. One is it depends very much on the details of how these things are structured as to how we could do that. Depending on exactly what’s in there we could get a slight benefit; we could see our taxes even increase depending on what the details of that are. I think whatever we see, anything we have modeled, it is still within us achieving our 2018 goals of being at the 25% or less so nothing that would impact that. I think, and by the way all of the modeling we have done is sort of a worst-case because it’s a steady-state assuming we don’t make any changes in response to new tax legislation which we wouldn’t do. So overall, we don’t – we see any changes as being relatively modest. It actually is possible under certain scenarios for our tax rate to go up, but it doesn’t go up that much. I think how a border-adjusted tax applies to services, the short answer is nobody knows.

Okay great. Thank you.

Thank you. And our next question comes from the line of Greg Peters with Raymond James. Your line is open. Please go ahead.

Good morning, thank you for the call. My first question is – centers around your comments around the Exchange Solutions segment. You talked about a global, a slowdown or a normalization in that business. Perhaps you could provide some additional color on that?

Yes, sure. So, let me just mention Greg what’s really going on here. The biggest part of the business we have right now is the retiree part of the business. And the retiree part of the business we’ve been very fortunate. We’ve gotten almost all of the really big cases that have gone on to the exchanges. We won almost every one of them. But there’s, at some point you run out of, there’s fewer and fewer of those big ones to go out. And so we did our largest client ever, we implemented last year. And of course that’s what led to the big enrollments we have for this year and the big revenue growth. We don’t have a similar really big one that we are implementing this year. We’re still going to get up to 110,000 retirees because we are getting a lot of them; but the one client that accounted for I think it was 140,000, 145,000 retirees last year. So 110,000 is still a great result, but it doesn’t make up for that one big client; so we’re seeing that so down a little bit. I think what I would point to, and as Roger said, the active exchange is a smaller piece of the business. In the long run that’s what we expect to be by far the dominant part of the business. Our growth rate was terrific there the last year, we really added a lot of folks. We’ve already got four big clients signed up for 2018; so we are very enthusiastic about that, but that’s a small part of the piece that’s having that high growth rate.

Thank you. And I know you have already commented in some other answers about the legacy OIP program, but if we could just step back and from a big picture perspective, I know periodically last year you expressed some frustration about the ability for these savings actually to fall to the bottom line. And perhaps now that you have a year under your belt you could provide some updated perspective on the legacy OIP program and what you think might be impactful as we think about 2017 and 2018?

Let me make just two quick comments and then I’ll turn it over Roger who I know will want to provide some more color. But I think we were – I think frustrated is the right word, that it was we had these good savings we were getting in OIP and for one reason or another they weren’t dropping to the bottom line. And I think one of the things we said to the analyst and investor community was we were actually going to be focused less on what the top-line savings in OIP were, but really how are we going to be getting margin improvement? Are we going to be seeing things falling through there? In the last quarter Roger talked about our sequential expenses being down and I think he said at that time, this is too early for us to say this is a real trend and we will wait and see what happens in the fourth quarter. And as he just mentioned in his prepared remarks, I think the fourth quarter has come in and we have said, okay they are down again and we are seeing margin improvement. So we feel like that kind of a focus is paying off and we are seeing some results there. We’re still not exactly where we would like to be, but I think we have seen parts of the operation, I think in Great Britain there was enthusiastic adoption of the OIP program, and we’ve seen it have a very positive effect on margins there. So I think one of the things we want to do is take some of the learnings from that and apply them worldwide. Roger, maybe you want to add?

The only thing John I would add to that is again refer to probably one of the changes in our remarks this time and that we both talked about financial discipline. And I think it fits what John said about our emphasis earlier in the year internally and externally just shifting more to really thinking about value or thinking on a more focused basis about value creation through margin enhancement in these programs. And it really seems, as we ended 2016, that was showing through in the financials. It’s something that we emphasized in the budget process really challenging ourselves to find the levers, to see the enhancement as we go forward and know how we had to manage different parts of the business to make sure margin came through as a result of those cost programs. And I think the results now, as John said, are showing through in the margin line; so it bodes well I think for 2017.

Thank you for your answers.

Thank you. And our next question comes from the line of Kai Pan with Morgan Stanley. Your line is open. Please go ahead.

Thank you and good morning. Just wanted to drill down a little bit specific on the cost savings the three buckets there. I just want to make sure you mentioned that the integration savings will be $30 million in 2017 and $95 million from the OIP program and how much of that will drop to the bottom line? And also you have the business restructuring in HCB segment. How much savings will that be in 2017?

Yes. I’d say in terms of the individual amounts and consistent with what we just talked about on the last question, the drive here is to achieve a margin improvement. So we came in with 22.3%, I think we said EBITDA margin for 2016. We are guiding to 23% to 24%, so if you take the $30 million, plus the $95 million, plus some I don’t know tens of millions of dollars, I don’t have the specific number in front of me for the business restructuring, that’s what’s really driving the overall margin improvement which is in that range, based on the range we gave you of around 100 basis points. Again without specifying by individual program, that’s margin improvement obviously of somewhere around $80 million.

Okay that’s assuming there’s no – constant top line right?

Well actually we have – the reason we don’t have every last dollar in there is because there’s some cost on the top line.

Okay great and my second question on the sort of free cash flow side, you guided about $500 million buyback in 2017. If you add about $300 million for the dividends, that’s $800 million. That’s pretty much the same free cash flow in 2016. I just wonder is there– either there is no growth in free cash flow or you plan to use part of free cash flow for other purposes?

Yes. I mean, I think in general now that we are using round of hundreds of millions of dollars here, you are doing the numbers correctly. There are some other payments going out. We do have related to some past acquisitions some payouts of contingent consideration, so that’s a little bit of an add to what you mentioned. But in general, we are circling call it available free cash, I don’t know that anybody really uses that term, but maybe we made it up here. We are looking to target available free cash to pay back in share repurchases. That’s roughly what we’re trying to communicate.

Any plans as far as would acquisition be a focus here or not?

We would never want to rule out if there’s some really attractive acquisition, but I think at the moment we think we’re going to be hard put to find something that’s more attractive than buying our own stock.

Great. Thank you so much.

Thank you. And our next question comes from the line of Adam Klauber with William Blair. Your line is open. Please go ahead.

Hi, in the North American U.S. brokerage operation in 2016, did the level producers– was it pretty much flat, did it grow or did it decline? And how are you thinking about the level of producers in North America in 2017?

Yes. The level of producers was lower at the end of 2016 than it was at the beginning. There’s a number of moving pieces that occurred there. One is that we have some smaller accounts that we have transferred over to – we’ve sort of sold some operations or we’ve transferred them over under some agreements we have to some other operations and we lose some producers when we do that. We had some retirements. We had some folks who moved from producer to non-producer status where they are still managing clients but they are doing it in a different way. We did have some turnover among the producers. So we did have fewer producers at the end than at the beginning. At the end of the day, I think the turnover rate was about what – the voluntary turnover rate was about what we would have expected. I think going forward for 2017 we’d expect to see an increase in the number of producers. We expect to have more producers at the end of the year than we have now.

Okay great and one follow-up. I’m not sure if you said it, but how is organic running as a wholesale business and again do you expect that in 2017 to be better than the other parts of IRR?

Yes, the wholesale business led by Miller was up in 2016 and we expect continued steady growth performance.

Okay. Thanks a lot.

Thank you. And our next question comes from the line of Mark Marcon with Baird. Your line is open. Please go ahead.

Good morning. Nice to see the progress. I was wondering if you could just talk about a few things. One, you did a great job in terms of outlining the area of revenue synergies that you ended up seeing in 2016. I’m wondering if you can talk a little bit about the targeted revenue synergies that you would have at the highest point in your list and the highest aspirations for, for 2017 and 2018.

Well, we have, so I think – let me just mention something about the revenue synergies too Mark. When I went through them, the revenue synergies are the run rate that we were expecting to get from selling these things. It’s not the revenue synergies that necessarily occurred in the year. So for example, when I talked about the Exchange Solutions and the revenue synergies from the mid-market, we sell to mid-market. For the most part, they are going to be implementing January 1 that we’re getting. So the ones we sold in 2016, we’re getting the revenue in 2017

I fully appreciate that.

But it’s not revenue that you would have seen there. Likewise, even for like the large-company P&C, most of those were sold in the second half of the year and so you haven’t seen much of the revenue increases there. So when we come to this as to where we’d expect to be, I think generally we were, as I said, the revenue synergies, we expect it to be about 5% to 10% of what the ultimate run-rate goal was for the end of 2018; we expected to be there at the end of 2016. It’s probably between about a third and 40% is where we would expect to be at the end of 2017.

That is great. And then can you just talk about the Exchange Solutions in terms of what you ended up seeing there with the four large clients that you’ve got on the active exchange coming on in 2018? Any way to size that in terms of number of lives or scope and how you would think the momentum would build with those four getting announced?

I think, we don’t have an exact figure to give right now. I’d say it will be over 100,000 for those lives for those four clients we have there. I think one or two of them we even talked about potentially whether they might decide to adopt in January 1, 2017, and I think, as we worked with them, it became clear that because of all the things they had to pull together as well as what we could have done, we probably could have adopted for January 1, 2017. But I think they wanted to make sure they had everything going well and we now have a very good plan with them. So we found that encouraging. I think it fits with the general theme that the larger companies, it’s a longer time talking about it; it’s more planning. Their organizations are more complex; I think they are more risk-averse about doing it, so you need to build in a longer process for that. But frankly, we feel very good about the enrollment season we had for what we’re implementing for January 1, 2017, and we think this gives us a lot of momentum heading into 2018.

Great and if I can squeeze in two more. One would just basically be with regards to the uncertainty around the ACA, how would you expect that to end up impacting your healthcare consulting business here in the U.S.? And the second question would be totally different, but on the CRB side; when we think about Todd taking over and the recent fine-tuning of the management team under him, how’s that – how do you expect just from a cultural perspective the adoption of a pay-for-performance kind of culture to translate to retention and performance? Thank you.

Yes, thanks. The first one on the ACA, I mean, frankly ACA doesn’t impact our typical client all that much. We, when we deal with it in the exchanges, we only deal with it in a few limited circumstances. When we deal with it in our consulting, some of our clients that have lower-paid folks that they don’t want to provide healthcare coverage for or have a lot of part-time workers or something, it comes into it, but it’s not the biggest part of what our – it’s not a very large part at all of what our consulting does. So I think in general, changes there won’t have a significant impact on our healthcare consulting business. Who knows maybe we’ll get a few more questions about things. In the CRB business, I think one of the things I know you didn’t get a chance to see Todd and Carl in person at Analyst Day, but you did get a chance to hear them over the phone. I think they are both individuals who really understand the segments that they are working with and leading. I think Todd commands great respect throughout the organization. I think people appreciate the fact that he has a long background in brokerage. I think they believe in his vision of the future, so I’m as excited as can be to have him rolling out his program and leading that operation.

Great. Thank you.

Thank you. And our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.

Yes, a few questions. First off, in your 2017 guidance are you including any impact from currency?

Well, the guidance is based on the rates that I stated in my remarks. I think it was $1.24 for the pound and $1.08 for the euro. I think, I believe that’s what we said.

Okay do you know what would that translate to just in bottom line in terms of EPS?

Yes, I really don’t have specific numbers. There isn’t a huge impact for us EPS-wise with changes to the pound and the euro because we do have in the legacy businesses one of them was net in the P&L, net long pound; the other was net short pound. We do have profitability in the Euro so a little more exposure there, but big movements don’t drive a lot of – or movements don’t drive a big impact on EPS.

Okay and then in terms of the fourth quarter margins, I know on the last call we had mentioned there potentially being a lower level of incentive comp just as the revenue was you guys said a little bit lower than you would have expected for this year. Does that have an impact on the fourth quarter margins?

Certainly, we do have a pay-for-performance system and we update that as the year goes on. There would have been a little bit of an impact in the fourth quarter, but not something that was a big driver.

Not anything that was way out of whack, and in fact in, for the year we came in right in our range; we say in between 30% and 35% sort of our net operating income and we came right in there.

Okay and then in terms of the margin outlook for 2017, I know you guys, you did go through the components of the OIP and the merger-related savings that you expect to see fall to the bottom line, do you expect to see that even? I mean will we see more of the OIP savings fall to the bottom line within your Q1 margins, just how do you think about the projection of that kind of as we move through 2017?

I think there is, in this being the last year of OIP and I think there is a push of getting all the possible activity done by the end of 2017. So I think OIP impact this year will be a little bit back-end loaded in the year. I think the cost savings from the merger cost savings, probably pretty even. I don’t think there’s – I can’t think of a big kind of driver of early or late of any of those programs. The restructuring savings from the business of course occurred in the second half of 2016. So we will have the biggest impact on margins in the first half of the year.

Okay great and one more question if I may. Does your guidance for IRR assume a return to growth just within the reinsurance component of that segment in 2017? Or how are you thinking about the outlook for the reinsurance business?

I think in our outlook the reinsurance business was roughly flat in the outlook.

Okay. That’s great. Thank you very much.

Thank you and, due to time, this does conclude today’s question-and-answer session. And I would like to turn the conference back over to Mr. John Haley for any further remarks.

Okay. Thanks very much everybody and we look forward to talking with you after our next quarter, our first quarter earnings call in May.

Ladies and gentlemen thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.