Marsh & McLennan Companies' CEO Discusses Q1 2014 Results - Earnings Call Transcript

May. 2.14 | About: Marsh & (MMC)

Marsh & McLennan Companies, Inc. (NYSE:MMC)

Q1 2014 Earnings Conference Call

May 2, 2014 8:30 AM ET

Executives

Dan Glaser – President and CEO

Michael Bischoff – CFO

Scott McDonald – CEO. Oliver Wyman Group

Alex Moczarski – President and CEO, Guy Carpenter

Peter Zaffino – President and CEO, Marsh

Julio Portalatin – President and CEO, Mercer

Analysts

Michael Nannizzi – Goldman Sachs

Larry Greenberg – Janney Capital Markets

Sean Dargan – Macquarie Capital

Kai Pan – Morgan Stanley Smith Barney

Elyse Greenspan – Wells Fargo Securities, LLC

Brian Meredith - UBS

Thomas Mitchell – Miller Tabak + Co., LLC

Arash Soleimani – KBW

Operator

Welcome to Marsh & McLennan Companies Conference Call. Today’s call is being recorded. First quarter 2014 financial results and supplemental information were issued earlier this morning. They’re available on the company’s website at www.mmc.com.

Before we begin, I would like to remind you that remarks made today may include statements relating to future events or results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to inherent risk and uncertainties, and a variety of factors may cause actual results to differ materially from those contemplated by the forward-looking statements. Please refer to the company’s most recent SEC filings, which are available on the MMC website, for additional information on factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

I’ll now turn the call over to Dan Glaser, President and CEO of Marsh & McLennan Companies.

Dan Glaser

Thank you. Good morning and thank you for joining us to discuss our first quarter results reported earlier today. I’m Dan Glaser, President and CEO of MMC. Joining me on the call today is Mike Bischoff, our CFO. I’d also like to welcome our operating companies’ CEOs – Peter Zaffino of Marsh, Alex Moczarski of Guy Carpenter, Julio Portalatin of Mercer and Scott McDonald of Oliver Wyman Group. Also with us this morning is Keith Walsh, Head of Investor Relations.

I am pleased with our first quarter results. We’ve had a strong start to the year and are continuing the earnings momentum we’ve achieved over the past several years. In the quarter, we produced several underlying revenue growth, substantial margin improvement and double digit growth in earnings while returning capital to shareholders through dividends and share repurchase.

This performance was very much in line with the themes we laid out in March at our Investor Day which I would like to spend a few moments reinforcing. First, MMC is a unique company with several competitive advantages, including the quality of our colleagues, deep client relationships, a vast global footprint, depth of intellectual capital and capabilities and a cohesive, collaborative culture.

We are strong strategically, operationally and financially. And we are getting stronger. Our strategy is to focus on growing revenue, earnings, margins and cash flow with low capital requirements and to manage risk intelligently. We are committed to long term EPS growth of 13%, increasing cash flows, reducing our share count each year and delivering double digit dividend increases. With this level of growth, combined with lower polls on our cash for pension and restructuring, we anticipate generating substantially higher levels of cash flow with dividends, share repurchase and acquisitions.

In 2013, we allocated $1.2 billion to these three items. In 2014, we expect capital available for dividends, share repurchase and acquisitions to grow 75% to $2.1 billion.

Now, let me give you a little more color on our first quarter results. MMC’s underlying revenue growth was 4%. This exceeded the increase in underlying operating expenses as it has for all but one quarter over the past six years. Our consolidated adjusted margin rose 120 basis points to 20.9%, our highest quarterly margin since 2004.

Even as we produce exceptional financial results, we continue to make ongoing investments. Our level of capital expenditures reflects this approach and is part of our balanced capital allocation strategy to drive sustainable growth to revenue, earnings and cash flow.

Looking at our Risk and Insurance Services segment, revenue was $1.8 billion with underlying revenue growth of 3%. Adjusted operating income increased 6% to $500 million and the margin rose 60 basis points to 27.2%, the highest in a decade. This margin expansion is notable when you consider that it is on top of a 210 basis point expansion in the first quarter of last year.

At Marsh, revenue was $1.5 billion, an underlying revenue increase of 4%. This growth reflects solid renewals with strong client retention in all major areas and strong new business growth in Asia Pacific and in the Middle East. All major geographic regions contributed to the solid revenue performance in the quarter.

In the US-Canada division, underlying growth was 2%. The international division expanded 4% as underlying revenue growth continued throughout Marsh’s vast footprint. Latin America with growth of 11% reported its sixth consecutive quarter of double digit growth. Asia Pacific also continued to generate strong growth, rising 9%.

Guy Carpenter’s revenue was flat on an underlying basis, in line with our expectations. Revenue growth in international operations, marine and facultative was offset by higher levels of capacity, increased retentions by clients and significant rate reductions in many lines [ph].

In the consulting segment, revenue was $1.4 billion, up 5% on an underlying basis. Adjusted operating income was $225 million, an increase of 19% from the prior year. And the segment’s margin increased 190 basis points to 15.8%, the highest first quarter margin in at least 20 years.

Mercer’s revenue was $1.1 billion, an underlying increase of 3%. The revenue increase was spread across all geographic regions with particular strength from growth markets. Growth was driven by investments, which increased 8%. Retirement growth of 4% reflects strong levels of benefit administration work unique to this quarter.

Oliver Wyman’s revenue in the first quarter was $371 million, reflecting strong underlying growth of 11%. The results reflect significant growth in the financial services business and strong growth in Europe and North America.

In summary, we are well positioned to deliver on the long term goals we discussed at Investor Day which should lead to superior returns for our shareholders. With that, let me turn it over to Mike.

Michael Bischoff

Well, thank you, Dan, and good morning everyone. MMC had a strong first quarter. Revenue was $3.3 billion, an increase of 4% on both GAAP and in underlying basis. Adjusted operating income grew 11% to $682 million, the highest level of quarterly profitability in a decade. The consolidated adjusted margin rose 120 basis points to 20.9% and adjusted EPS increased 11% to $0.81 from $0.73 last year.

Investment income was $13 million in the first quarter compared with $21 million in the prior year. We anticipate minimal investment income in the second quarter. Foreign exchange was a slight negative in the quarter, impacting both segments. Corporate expense decreased to $43 million on adjusted basis. Our quarterly run rate should average about $45 million. With our strong first quarter results, we remain on target to deliver excellent EPS growth in 2014.

We would like to share with you some insight into MMC’s quarterly earnings growth this year. For example, consistent with our view expressed during the last earnings call, we expect foreign exchange to be a drag throughout the remainder of the year with the greatest impact approximately $0.02 in the second quarter occurring within the RIS segment.

In the second quarter, we expect investment income to be approximately $0.03 lower on a year-over-year basis. And in keeping with our 2014 business plan, we expect higher expense growth in the second quarter for the RIS segment. Looking forward, our business plan and current outlook calls for stronger earnings growth in the second half of the year, well beyond what we reported this quarter. Thus, we expect our performance for the entire year to be consistent with what we indicated at Investor Day in March.

So we are pleased with our first quarter results and are confident of a successful operating and financial performance this year.

Debt. Even with a higher level of debt, interest expense in the first quarter decreased to $42 million from $44 million of the first quarter of last year. By refinancing at attractive interest rates, the average cost of our debt has declined 50 basis points to 5.1%. As we approach the July debt maturity of $320 million, we will crystallize our thinking as it relates to the amount, timing and maturity of the refinancing.

We also increased MMC’s financial flexibility on the quarter by amending our revolving credit facility which increased the size from $1 billion to $1.2 billion, extended the maturity from 2016 to 2019 and reduced both the drawn and undrawn pricing.

Finally, we are pleased that earlier this week, Moody’s upgraded MMC’s senior debt, reflecting our strong financial position.

At the end of the quarter, we had $1.38 billion of cash with approximately $260 million in the United States. Cash utilized in the first quarter included outlays for our annual variable compensation programs, $360 million for acquisitions, $138 million for dividends and $100 million to repurchase $2 million shares of our stock. This marks the eighth consecutive quarter of share buybacks.

Finally, to reiterate what we stated at Investor Day, we plan to grow both organically and quality acquisitions. We will consistently return excess capital to shareholders, both through meaningful share repurchases and double digit growth in dividends and we are committed to reducing our share count year after year.

With that, I am happy to turn it back to Dan.

Dan Glaser

Thanks, Mike. Operator, we’re ready to begin the Q&A.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) And we’ll take our first question from Michael Nannizzi with Goldman Sachs.

Michael Nannizzi – Goldman Sachs

Thanks. Could you talk a bit about kind of what happened more specifically at Oliver Wyman and whether or not that was an exaggerated curve of growth or if some of the items that you talked about in your prepared comments should lead to sort of outsize growth relative to every other quarter since this one for the remainder of the year?

Dan Glaser

Okay, a couple of things and then I’ll hand over to Scott. I mean, first I think you’re seeing some of the impact of an improving economy and improved business confidence. But also, the year-over-year comparison is a fairly easy one for OW. I’m giving a wink to Scott right now, but it’s a fairly easy one for OW because it was a short quarter in the first quarter of last year. But Scott, you want to give us some more flavor?

Scott McDonald

Sure. Mike, we had a good first quarter and it was driven by pretty broad base strength in the business, a big performance from our financial services business which is our largest business, but also strength across most the other business, including our – the Lippincott, the branding firm, our manufacturing, transportation, energy retail services businesses.

And that’s picking up on the continued modest strength in the US economy. I think there’s been surprising strength in the European economy, a little more than we would have expected six months ago. Still modest but surprisingly stronger.

International remains mixed, driven by different things around the world. But overall, the business feels strong. The only caveat I’d make is the one that Dan made. We’ve had four quarters of improving performance and that means our comps were pretty easy this quarter. But I expect continued strong growth through the rest of the year but the comps will get harder.

Michael Nannizzi – Goldman Sachs

Right. Yes, I mean, this was usually even higher than ‘08 one Q, so I think it was the highest first quarter you guys have experienced at Oliver Wyman so – I mean I get obviously you got to be down drafting one Q last year but even on a run rate basis, I mean it seems like this is a pretty good top line quarter there.

Okay. So I guess the next question; in reinsurance, did you have any negative impact from softer reinsurance pricing and can you talk about any capital markets activity that you saw there?

Dan Glaser

We’ve certainly seen some impact – negative impact from reinsurance pricing. Alex, do you want to go deeper?

Alex Moczarski

Yes, sure. So we talked about the headwinds we would face at Investor Day. The good news is actually our new business was very, very strong in most regions and very health in the US due to our segmentation execution where we should also discuss at Investor Day. This filled the void left by reduced demands for our transactional products that we’ve successfully marketed in the first quarters of the last two years.

So we’re replacing one-time transactions with recurring business for new clients. And that’s also reduced the dependency on the large clients that are – that tend to have stronger balance sheets now and are probably buying, in some cases, less reinsurance. And it’s fair enough [ph] in other cases, more reinsurance because the cost of capital is interesting.

As regards to capital market transactions, we actually just closed a good one yesterday which I’m happy about. But it’s a lumpy business and so the first quarter didn’t see much of that [ph].

Michael Nannizzi – Goldman Sachs

Got it. So is that capital market activity able to offset some of the margin pressure that you might see from a lower reinsurance pricing?

Alex Moczarski

We’ll take it off.

Dan Glaser

I think what you’re seeing would be multiple things. You’ve got higher levels of capacity, you have insurance companies, some of the large ones retaining more risk. You have increasing alternative capacity and that creates a bit of a competitive activity on how some of the traditional reinsurers are trying to maintain their book in the face of income and capacity.

But there’s an awful lot of factors that are at play. And so our feeling about Guy Carpenter was, as we said last quarter, we anticipated a pretty tough year. Guy Carpenter has been our fastest grower over the last several years really in that 5% to 6% organic range. And this year, we’re expecting to see some growth. But it’s modest growth and so it’s not a year that we would drive for margin expansion within Guy Carpenter. It’s one of our finest businesses, it’s a true jewel and this is a year that we’re going to focus on serving clients and getting new ones.

I would just make the comment because sometimes brokers miss stating that lower pricing and broader terms and conditions are good for our clients. And we are in the client business, and so from fundamentally, many of our clients will look to obtain other products that they may not have had before because of the lower pricing and broader terms and conditions.

So next question, please.

Operator

And we’ll take our next question from Larry Greenberg with Janney Capital.

Larry Greenberg – Janney Capital Markets

Good morning. It’s a hard exercise from our position but it looked to me like the contribution to revenues in RIS from acquisitions was a little bit lower than I would have expected. I mean is there anything you could comment on there or perhaps any visibility you could give us going forward based on the number of deals that you’ve already done?

Dan Glaser

Yes, there’s a couple of things and then I’ll hand over to Mike who will summarize sort of our acquisition strategy. But I think what you’re seeing is some element of our string of pearls strategy. Marsh’s base and RIS’s base is quite significant. It’s a $6.5 billion segment and so you have to do a lot of pearls in order to see some real shift in movement on the top line. Mike, you want to add to that?

Michael Bischoff

Yes, Dan, you’re absolutely correct. I think what we saw in 2012 was a lot of increased activity in MMA because of the changes in the tax law. And so as we look at the acquisition impact in the Risk and Insurance Services area over the course of 2013, you felt that.

Conversely, because so much was done at the end of 2012, it was fairly limited over the course of 2013. What we did and what I indicated in the first quarter of this year is that we had six acquisitions, the largest of which is Barney & Barney which is part of our MMA long term strategic plan. Barney & Barney essentially closed for us in mid quarter, so you wouldn’t feel the full impact of that.

So when you put all of that together, Larry, with what Dan says, just the size of insurance services operations, that’s why you end up with the impact that you have in the quarter.

Dan Glaser

Peter, do you have something to add?

Peter Zaffino

Yes, Dan, I think in addition to Mike saying that Barney & Barney closed mid first quarter, the first quarter in terms of revenue is they’re small. And so you’ll start to see more even distribution in the second, third and fourth.

Dan Glaser

Okay, perfect. Any other questions, Larry?

Larry Greenberg – Janney Capital Markets

I’m okay with that. No, I guess just in general, Dan, we’re seeing a little bit of shift in the firm in this – on the primary side of commercial lines. Are you seeing anything surprising or unusual at this point?

Dan Glaser

I’ll address it a little bit and then if Peter has anything to add, but I think first of all, in my 30-year career, most markets will have downward pressure and upward pressure on terms and conditions. I mean that is sort of the pain of the insurance marketplace. And so we have these little periodic short periods of firmness which give away very quickly.

And so we’ve built our business really to operate in a shoulder environment and generally a softer environment. I mean there’s a lot of insurance and companies out there competing for business.

So having said that, I’d also look at differences between the United States and international. Internationally, it’s been relatively soft forever. And so we’re still seeing softness. That hasn’t changed. And even in areas where there’s catastrophe exposure. There was a firmness in pricing over the last couple of years and that’s beginning to come off. And so we’re seeing that internationally.

In the US, the US is probably the best market from a ratings point – from an insurance company’s perspective. But still, it’s not quite as – it doesn’t – the upward trajectory doesn’t feel that it’s stable. So Peter, do you have something to bring in?

Peter Zaffino

I agree, Dan. What we have seen is modest decreases if you look at quarter-to-quarter and year-over-year. They’ve been low single digits driven more by property, as Dan said, where they – peak exposures or companies are deploying cap. They did enjoy some rate increases over the last couple of years and so those are coming off.

But where we are seeing that offset a little bit is that Scott mentioned the economies are starting to recover. So – and the US is an example in the low single digits, we started to see total insured values increase, payroll modestly increase as well as sales. So we’re seeing that offset the slight decreases in pricing.

Dan Glaser

Okay. Thanks, Larry. Next question, operator.

Operator

And we’ll go next to Sean Dargan with Macquarie.

Sean Dargan – Macquarie Capital

Yes, thanks. Could you maybe help us frame what the impact of FX headwinds was in the quarter?

Dan Glaser

Sure. Mike?

Michael Bischoff

Yes. When we were looking at it going into the year, we were modeling it out where foreign exchange would have been at the end of January and how that would feel for the entire year. And as we indicated, it was in the neighborhood of $0.04 to $0.05 with a fairly minimal impact in the first quarter. Most of the impact in the second quarter in RIS segment and then the rest of it probably equally split between the third and fourth quarter. That certainly was between $0.00 and $0.01 in the first quarter.

Sean Dargan – Macquarie Capital

Okay, thank you. And I guess another numbers question. The intangible amortization expense increase was fairly modest but thinking about the acquisitions that you just mentioned a few minutes ago, will that be moving higher in a meaningful way this year?

Dan Glaser

Mike?

Michael Bischoff

No. It’s something that we’ve seen over the course of the last four years building up gradually bit by bit. And as we continue to pace, which has been a fairly consistent pace, notwithstanding what I just said in the answer to the prior question, and so some of the prior intangible amortization from earlier acquisitions start to roll off as we add in new. So we would expect it to go up but only go up modestly.

Sean Dargan – Macquarie Capital

All right, thank you.

Dan Glaser

Okay.

Operator

And we’ll go next to Kai Pan with Morgan Stanley Smith Barney.

Kai Pan – Morgan Stanley Smith Barney

Good morning. Thank you for taking my questions. I have the same question on the margin side. First on the RIS segments, the margins have improved quite a bit the last few years. And you mentioned that the increased spending level like in the second half of this year. So does that imply the pace of the margin improvement was slowing down from the last two years?

Dan Glaser

Okay. So a couple of things. You’re correct in noting that the company overall in RIS in particular have had a terrific run of margins over the last several years. When you think about the overall company with a margin of 20.9% and RIS at 27.2% and consulting at 15.8%, both for RIS and consulting, these are the highest margins in 10 years and 20 years or more respectively. So we have been able to drive margins.

As I’ve mentioned, in the past, our focus as a leadership team is first growing revenue and earnings. And margin expansion is an outcome of our philosophy in almost all quarters growing revenues at a pace which is greater than growing expenses, and so saying all that.

Now in terms of the second quarter, we really didn’t say anything about the second half of the year or the next couple of quarters. We basically said in the second quarter there would be a blip in RIS expenses and it’s for the reasons that Mike mentioned. I mean there’s a blip in RIS expansions, expenses. There’s a bit of a headwind in terms of foreign exchange within RIS as well.

And when you look at it overall, we’re still very comfortable that we have the ability over time to grow margins in both segments. Our overall feelings about RIS is that they’ve had a few years head start on our consulting segment. And so from that standpoint, we think that the pace of margin expansion in RIS in the mid and – or in the year and mid-term will be slower than the pace that we see in consulting.

But having said that, in the long term, both segments have significant expansion opportunities. Mike, you have anything to add?

Michael Bischoff

Yes. Let me just kind of go back and restate some recent history and put it into context. As far back as ‘07, I think the margins in Risk and Insurance Services were below 9%. I think they were around 8.6%, 8.9%. And as you saw a tremendous improvement in the senior management leadership, you saw those margins improve up through 2010 to 19.3%. And then in 2011, they improved but only to 19.4%

So the question was asked then, is all the margin improvement behind us, is that it, do you have to essentially grind it out? And I think Brian Duperreault and Dan said at the time, no, we have a lot of room for further expansion. And you obviously saw that margin go from 19.4% to 20.6% to 22.1%.

And just to reiterate and be very clear of what we’re saying, we’re looking for margin improvement in for Risk and Insurance Services this year and beyond but we just wanted to share with you the sequencing of the quarters because it’s been built into our business plan and we wanted to be very clear that you would see probably more growth, in fact, EPS significantly more growth in the second half of the year but wanted to make you aware of the nuances of the second quarter.

Kai Pan – Morgan Stanley Smith Barney

They were thorough answers. And then on the buybacks, $100 million buyback in the first quarter seems a bit low consider the run rate for the full year guidance of $700 million-ish. So is there any particular reason because the cash flow in the first quarter or the stock price getting softer?

Dan Glaser

Okay, thanks for the question. Mike?

Michael Bischoff

Yes. And very insightful question because it does have to do with the seasonality of our cash flows. And our cash rebuilds up through the second half of the year and peaks at the end of the year and then in anticipation of the variable compensation programs and payouts that occur at the end of February and early March.

So you can see that our cash position went down fairly dramatically from where it had been at the end of the year through the end of the first quarter. But that notwithstanding, we’re very committed to share repurchased and in the first quarter of last year, we did $100 million and we felt that it was appropriate to do $100 million in the first quarter this year even when it was the heaviest quarter of cash utilization.

Now with all of that said, and you’re absolutely right, we will expect to pick up the pace of that for the remainder of the year.

Kai Pan – Morgan Stanley Smith Barney

Thank you so much.

Dan Glaser

All right. Next question, operator.

Operator

And we’ll go next to Elyse Greenspan with Wells Fargo.

Elyse Greenspan – Wells Fargo Securities, LLC

Hi, good morning. I was hoping to spend a little bit more time talking about just what you’re seeing in with the economic conditions globally. I know you did mention some improvement in the US when you were talking about that earlier just as we kind of frame just organic growth expectations within Marsh both in the US and internationally for the balance of the year.

Dan Glaser

Okay. So I’ll start and then I’ll hand it over to Scott. I mean, one of our enduring advantages is our global footprint. So basically, where there’s growth anywhere in the world, we are on the ground and we will get it. And so when we look at the – and the world is always a choppy place, right? So you’re going to have areas of significant growth and an area of challenge or modest growth in different parts of the world.

When we’re looking at the – it’s kind of interesting when we were all at Davos this year because the US sort of over the last four years has gone from the gold to the era [ph]. And so the US level of growth not only in the US but also expansion opportunities around the world is at a better pace than what we’ve seen in the last few years. Although, to be sure, it’s not buoyant out there but it feels a lot better than it did three or four years ago. But Scott?

Scott McDonald

Thanks, Dan. I don’t have too much to add to my comments before but let me go a little deeper. I mean, we’re seeing across the US modest improvements in the economy and at no greater pace than we saw in the first quarter things to improve and we see this in the Oliver Wyman business. I see – I think we see this in the rest of the MMC businesses, too, to an certain extent.

Business confidence is improving again at a modest pace and the businesses we’re involved with seem to be spending more on both continued restructuring and on growth initiatives. As I said before, Europe has been a bit of a surprise. I mean, Europe was at a pretty low point. They’re coming off faster than people expected. The economies are recovering a little faster, very good performance in the UK and the politics are a little more stable than ever when expected.

All of this is of course in the context of Ukraine and the continued pretty volatile geopolitical environment. So there are things that could throw us off track but we feel pretty comfortable with the US and Europe.

And outside those markets, though, we are seeing a lot of volatility. And in most of the growth markets in Latin America or in Asia – I won’t talk about Russia now but – and beyond that, they’re more choppy but there’s more volatility. But we are seeing a reasonably good trend. So we’ve remained mildly optimistic and I don’t have too much more to add than that.

Dan Glaser

Thanks, Scott. Elyse, anything –

Elyse Greenspan – Wells Fargo Securities, LLC

Okay.

Dan Glaser

– any other question?

Elyse Greenspan – Wells Fargo Securities, LLC

Yes. I was hoping you could also just provide us a little bit of an update of what you’re seeing with Mercer Marketplace. I guess, when we sit here, it’s a little bit ahead of next year’s enrolment season but just kind of a little bit more of a feedback from last year and just some of your expectations as we look forward and you’re speaking to clients, better thinking about coming on the exchange for 2015.

Dan Glaser

Okay. Perfect. Julio?

Julio Portalatin

Thank you. Elyse, so the question on the Mercer Marketplace; last time, we updated numbers on Investor Day. We had mentioned that there was about 300 lives or so that we had already included in our active and retiree space for Mercer Marketplace. Our sales profits, as you can imagine, is very robust; pipeline continues to grow. It’s good and we continue to have clients going live on the platform throughout the year, especially our middle market clients.

Given that we are heavily into the sale cycle for this year, we think it’s best to probably update towards the beginning or at the end of our market sale cycles which is at the end of this year and the beginning of 2015. But you can be assured that the level of dialog and clients – with clients and our prospects and our exchanges is very high. And I look forward to updating you as the year goes on and towards the beginning of next year.

Well, you did mention that you also would like to get some color around some of the things – early information that we’ve been able to also get from the enrolment data that we already established this year. I mean, I want to really reiterate that on Investor Day, we talked a little bit about starting to get information out but we’ll be still on early enrolment process. And on balance, we see employees making different choices and buying less life insurance. Many of them were over insured and they’re kind of life sizing the actual plans to their needs.

And the result of these choices is an average annual medical cost reduction of about $800 per employee that we’re seeing with the employers seeing about $550 of that savings and employees seeing $250.

So as a reminder, Mercer Marketplace enables employees to gain control over their medical insurance course while at the same time offering real value to their employees. And by giving them more choice and control over how they spend healthcare [indiscernible]. So we’ll continue to strive to make sure that there is a differentiated difference for both employees and employers.

Dan Glaser

Thanks, Julio. Okay, operator, next question.

Operator

And we’ll go next to Brian Meredith with UBS.

Brian Meredith - UBS

Hi. I have two questions here. The first one in the consulting side. The slowdown in the health and benefits growth rate, is that something we should expect to continue here going forward or is there something unusual in the first quarter?

Dan Glaser

Okay. So Julio, you want to take that?

Julio Portalatin

Thank you. A lot of things contributed to softer results but let me just first say that our foreign breadth of business offers that we have for our clients globally gave us an ability to be able to maximize the diversification of numbers in our book [ph]. And in this particular case, a little bit of a slowdown is helped by other businesses that obviously moves up.

But our – the softer results is really our US consumer business. As you can recall, we announced quite some time ago came over from Marsh, we knew that we would face a tough comparison to last year in the first quarter and was anticipated in our plans that we would do so. Other things like in the US, Europe, in Asia, we have been doing a lot of work to restructure and improve the profitability of our book of administration clients as it relates to H&B. And in some cases, we ended up with a bit of low revenue but with higher margins.

So in the long run, we think that that will benefit significantly as we continue to grow both top line and bottom line. So it isn’t just one thing but a lot of things coming together that result in being a quarter that’s a bit softer than we’ve been running in the past.

Dan Glaser

Thanks. Brian, your next question?

Brian Meredith - UBS

Yes. The next question I guess more for Peter. If I take a look at the growth that you’re seeing in the developed countries, EMEA and the US business, it looks like it’s kind of running in line and maybe blow nominal GDP growth. I guess my question is, for Marsh, do we just expect nominal GDP growth as kind of what you guys can grow or is there any kind of urgency out there that kind of get that – get the growth kind of picking up here?

Dan Glaser

Yes, I’m not sure about the nominal GDP growth in the US in the first quarter because I saw something in the other day that said it was 0.1. So I think we’re not going to cover off the ball, but Peter, do you have some comments?

Peter Zaffino

I agree with you. And Brian, the underlying and fundamentals of the US and Canada business as well as Europe are quite strong. We have very strong client retention, strong rollover from prior year, meaning that we’re retaining the clients that we’re adding for – from prior year for new business. We have strong new business – so overall, I don’t think the 2% is the world we want to live in and we are aspiring to do 3% or more.

And to think that the underlying fundamentals support that overall longer term basis. I mean in the US, we had a couple of things that hurt us in the quarter with two large programs that are runoff – again, not an excuse but just pointing towards that the underlying fundamentals I think are stronger than the 2% and we’re optimistic in the future.

Dan Glaser

Thanks, Peter.

Brian Meredith - UBS

Thanks.

Dan Glaser

Next question, operator.

Operator

And we’ll go next to Thomas Mitchell with Miller Tabak.

Thomas Mitchell – Miller Tabak + Co., LLC

Thank you. This is just a little back of the envelope calculation but we started about $2.20 a share available for various allocations of excess cash in capital in 2013 and that’s going to go about $3.60 a share in 2014. I guess one question I have related to that is, can we expect it to stay at that level or are there reasons why it would fall back? And then secondly, on a sustained basis looking out a number of years, would you continue to see the cash flow available for different uses continue to grow although probably not at a similar pace?

Dan Glaser

Yes. It’s a good question. So basically, yes, we were looking at 2013 of having cash available for acquisition, share repurchase and dividends of about $1.2 billion. As we noted earlier, we expect that number for 2014 to be about $2.1 billion. And we believe that that kind of level is going to be available to us as we go forward beyond 2014.

We also, as we grow the business both organically and inorganically, we expect to see mild increases in our cash flow as we go forward. And so that is our expectation where we are today. I mean, it’s important to know that some of the calls on cash that we had before whether it was pension or restructuring kinds of things don’t exist right now. And in our planning horizon, we’re not expecting them to.

Thomas Mitchell – Miller Tabak + Co., LLC

And that – the other question I have is sort of related, but is that availability of cash flow – and Mike might be able to detail this – is that availability something that has to be moved geographically or is it – are the opportunities to make use of it in place or are the amounts easily enough transferred that it doesn’t matter where it comes from?

Dan Glaser

I’ll start to comment and then I’ll hand over to Mike. In terms of our business, right now, about 44% of our business is in the United States, so we have significant amount of business and profitability outside of the United States. Having said that, our uses of cash include not only share repurchase and dividends but also acquisitions. And when we look around the world, we see opportunities throughout the world in both segments. And so our – I wouldn’t make the assumption that all the cash that we have around the world has to come back to the United States. And that’s where good capital management and good cash flow management come in. And Mike, do you want to –

Michael Bischoff

You’re absolutely right. And the one pressure that exists for the company is returning capital to its shareholders. And with the dividends and share repurchases that we indicated and in fact for this year, I think we’ve said at Investor Day that we’re planning about $1.3 billion of capital return to shareholders in the form of share repurchases and dividend. That’s obviously all US oriented.

So it does mean that over not just this year but every year and going forward, we have to bring international cash back into the US in a tax-efficient manner to return capital to shareholders. We think we’ve been able to do that very judiciously in the past and we think we can do it judiciously going forward.

Thomas Mitchell – Miller Tabak + Co., LLC

That’s terrific. Thank you very much.

Dan Glaser

Cheers. Next question, operator.

Operator

And we’ll go next to Arash Soleimani with KBW.

Arash Soleimani – KBW

Hi, thank you. Just a couple quick ones here. I know you’d mentioned [indiscernible] at the Investor Day you had cancelled out some ancillary products to the exchange platform. So I’m just wondering, looking forward, what’s the margin potential there to just try and get a sense of how really [ph] that could be.

Dan Glaser

Okay. Julio, so the question is about ancillary products on Mercer Marketplace.

Julio Portalatin

All right. Thank you. As we sit back in Investor Day and in fact when we first started with Mercer Marketplace moving in this – in the direction of having a whole list of solutions for employers and employees, we started off with ensuring that we had a very good win-win value proposition for employees and employers. And we thought one way to be able to do that is to make sure that we gave a very broad breadth of options to employees to choose from.

So as they choose on their core medical programs, perhaps options of higher deductibles, we wanted to make sure that ancillary products were available. We wanted to fill some of that gap like with critical illness coverages, active [ph] health coverages, et cetera. And so we continued to expand our ancillary product offers to employees to give them options that perhaps others may not offer in terms of their structure.

And we continue to do that. We announced on Investor Day that about 25% of those that took higher deductibles are actually buying ancillary products. That continues to be the case. We continue to see good movement in that direction. We’ve added in addition to some of the products that I mentioned earlier, now Auto and Home that just recently launched and we don’t have any other numbers on that yet but we’ll see how that develops throughout the year and at the beginning of next year.

But it is our strategy to continue to add and to bring strong decision solution tools to aid people in making decisions as to when they should be using ancillary products to subsidize some of the decisions they’re making on core medical.

Arash Soleimani – KBW

Okay, good. Thank you. And just quickly, with Oliver Wyman, I know you had also mentioned some potential cross all opportunities there. I’m just wondering if those have come to fruition and to what extent you can benefit from those as well.

Dan Glaser

Just to make sure that we have the question, were you talking about OW cross-OpCo opportunities? Or are you – I’m not sure we heard you clearly.

Arash Soleimani – KBW

I was just referring just in general to cross opportunity, yes, between Oliver Wyman and the other MMC businesses.

Dan Glaser

Okay. Okay. So let me take that because it’s really broader than Oliver Wyman. We have, as you know, two segments and four operating companies within those two segments. And when we look at it, there’s opportunities to have significant amounts of activity in support of one OpCo for the other in servicing our clients. And so, it’s not specific op to Oliver Wyman. Let me give you some examples.

So outside the United States, Mercer and Marsh work jointly on employee benefits. Within the insurance company segment, Guy Carpenter and Oliver Wyman communicate regularly with regard to different types of capabilities that they can bring to insurance companies. Those are just two examples. We would have a list of a dozen.

I’m always wary, though, in a company that produces the kind of business and new business that we have, this is gravy and this optimization, making sure that we don’t leave anything off the table in servicing our clients and giving them innovation and new opportunities. But when we look at our business, not only do we see advantages of being part of Marsh & McLennan Companies and advantages in our intellectual capital.

So you’ll see more of that but you won’t see us combining operating companies. We believe in the strength of our present structure and the ability of each operating company to deliver value to clients and seek advice and solutions from the other operating companies as well.

Arash Soleimani – KBW

Okay, good. Thank you. That was very helpful.

Dan Glaser

Okay, cheers. Next question, please.

Operator

And at this time there are no further questions. I’d like to turn the call back over to you, sir, for any additional and closing remarks.

Dan Glaser

Okay. Well, thank you very much, operator. And I thank everybody for joining us on the call this morning. I would like to thank our clients for their support and our colleagues for their hard work and dedication in serving them. Have a great day. Bye.

Operator

And again, that does conclude today’s conference. We do thank you for your participation. You may disconnect at this time.

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