Towers Watson Analyst Day - Transcript

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Towers Watson Co. (TW) Analyst Day Call September 19, 2011 9:00 AM ET


John Haley – Chairman, Chief Executive Officer

Roger Millay – VP and CFO

Gene Wickes – Managing Director, Benefits Segment

Julie Gebauer – Managing Director, Talent and Rewards Segment

Tricia Guinn – Managing Director, Risk and Financial Services

Jim Foreman – Managing Director, North America

Paul Morris – Managing Director, Europe, Middle and Africa

John Haley

Okay. Good morning, everyone. Thanks to all of you for coming to our 2011 Analyst Day. We’re in a bit more of an upscale than you this year and I think we’ve actually see a few new faces, so going to see that worked out.

Before we begin, I have to remind you that we may be making some forward-looking statements and their actual results may be different than expected.

So, here is the agenda we have today. I’m going to start off with a few introductory remarks and then we’re going to have our segment leaders run through each of the segments and Roger our CFO will come up and then, we’ll have Q&A and lunch. Before I go into everything, let me introduce some of the members of the Executive Committee that are here today. So, we have Gene Wickes, who is the Segment Leader for Benefits, you want to wave or something Gene, or stand up. Thank you. We have Julie Gebauer, who heads our Talent and Rewards segment. We have Tricia Guinn, who heads our Risk and Financial Services segment. We have our CFO Roger Millay. And then we have Jim Foreman, from the Americas, runs the Geographic Region. And Paul Morris, from Europe, Middle East, Africa.

So, we hope to keep to the schedule in fact I may even give them a few extra minutes here to run through this. So, first of all just about the global rep and depth of Towers Watson and this is a slide that I think, you know, those of you I’ve been talking with, we’ve used this a lot before. We are extraordinarily well positioned to work on global clients. We got over 14,000 associates in 34 countries around the world. We have over 100 offices around the world there. So, this wide geographic footprint is one that enables us to serve the largest clients in the world, and then we’ll talk a little bit later about the kind of clients we have. But clients that have been global problems are ones that we’re probably particularly well positioned to deal with. In terms of the kind of work we do, we’re as large as anybody in the world in terms of our footprint and number of associates doing that.

A couple of key results from the fiscal year that just ended on June 30, we were very pleased with the way this year came out. We had $3.25 billion of revenue which is 2% growth on an organic basis that pro forma adjusting for acquisition and divestitures. The first half of the fiscal year that was one where we saw a revenue had declined from the prior period and we ended up second half with some pretty strong growth in the 5% to 6% range, with 6% organic revenue growth in the fourth fiscal quarter. So, we’re very pleased to see this.

We had said at the end of calendar 2010, that we thought we were turning the corner and you know, there is a lot things related to the merger and there were some special situations that made us think that the revenue decline was something that was temporary and return, I think it turned a little bit faster and the revenue growth was a little bit higher than we had expected. The EBITDA margin also came in very nicely. We had been targeting of getting to about 18% three years into the merger. And so to do 18.9% for the first full year, we feel pretty good about that result also. And you know, particularly since these are done under some relatively challenging economic conditions. So, we’re reasonably pleased with where we’ve come out this year.

Just looking at where we are today, there is I think four main things I’d look at. First is just, the organizational alignment. And I’ve talked before to some of you about our integration. Integration has gone I think better than we had any light to expect. It doesn’t mean that everything was perfect and it doesn’t mean that they weren’t a lot of things that were hard. But I think basically, the things that were hard were things that we always thought were going to be hard and so, we basically had been prepared for them. At this point, for the most part of the organizational alignment, the harmonization of any of our internal policies is pretty much completed. And so, we’re moving forward now as Towers Watson.

In terms of the marketing and our branding, we are going to market as Towers Watson, I think one of things that was a surprise to, and so I think all of us in the management team was how quickly the market responded to the notion of us as Towers Watson. And we were doing some sensing of the market even just a few months into the merger and clients responding on the knowledge of us as Towers Watson as no longer as Tower Perrin or no longer as Watson Wyatt occurred much, much faster than we had expected there. So, our clients have responded quite well of that. And in the very beginning, the questions we were getting from clients were things around make sure that I don’t lose the team that’s working on my case right now, you know, make sure that you don’t change them up as you do the merger.

And about nine months into the merger we saw that change and now we’re just continually hearing from clients about I want to tap into the resources that you have and the extra resources that you’re bringing to the case. And of course that’s exactly the reason we did the merger, so we feel pretty good about that.

In terms of rationalizing systems and infrastructure, we have one big remaining project and that’s our ERP implementation project. Now Roger is going to talk a little bit more about this later. But needless to say, any ERP implementation is not a small effort. And as long as that’s hanging up, I mean, that’s actually one of the things, whenever things are going to ERP projects, I always worry about things going along with that. And I think in a professional services firm, you’d probably worry a little bit more than that just probably a chance of loss of people billing time or things like that but having said that, we feel like we’ve done a lot of the good planning for that. And we feel like we’re well positioned. So, I’ll let Roger deal with more about that but the main message is, we feel pretty good about our progress at the moment.

And then finally and perhaps the most important of these four points is that we’ve really turned our focus to the future. Starting in January of 2011, we started talking to the organization about integration really being over at this point for the most part and we needed to start thinking about planning for who we were going to be as Towers Watson and taking advantage of the possibilities of the merger. And I’ll talk a little bit more about some of the strategy work we’ve done around that in a minute.

I guess, what I did was I skipped a slide. Well, this is what our revenues look like and I’ll come back and talk about this real quick. The size of the segments our benefits are 57% Risk and Financial Services, about a quarter of the business and Talent and Rewards about 17%. If we’d looked at these a few years ago, Talent and Rewards would have been a bigger percentage of the overall business. Talent and Rewards is something that you know, is the most cyclical that we have at the business. And of course it’s one of the reasons why we feel pretty good the Talent and Rewards is going to be one of the fastest growing areas we have going forward.

Distribution by revenue, the Americas are 59% that splits up about 50%, is the US and then the other 9% or so is Canada and Latin America. EMEA is about 35% of the, of the EMEA revenues about two thirds are in Pounds Sterling and about one third are in Euros, so you can see it’s very much dominated by the UK and then Asia Pacific around 6%, now we’ll get into this when we talk about the segments. One of the reasons that Asia Pacific is down at 6% is you don’t see defined benefit plans to the same extent there. So, Asia Pacific is about 3% of our Benefits segment. It’s about 10% or 11% of our RFS and Talent and Rewards segments.

So, I don’t know if I had this up when I was going through the four parts or not. But anyway, I went through the four things of where we are today. Some of the macro trends affecting our business, you know, government resources are really stretched today with the demands of the economic environment and the demographics of the ageing population. Ageing also puts a premium on productivity. So these are things that affect, you know, demand for our business and our advice for clients. Private employers are probably also required to stretch benefit dollars further to retain talent.

The continuing growth in the emerging economies is increasing well. Now, that has a couple of impacts on us. First, higher wealth leads to higher demand, for say, insurance, health, retirement benefits. We just had our board meeting in Shanghai a few ago, and we were talking with some of our folks from Asia Pacific. And one of the themes that came out was, we’re seeing more and more companies paying attention to benefits to strengthen their employee retention and engagement. And the benefit that we see and the most interesting is some sort of supplemental health insurance. So, this is a way for companies to maybe distinguish themselves and then shine a market and do something about the big turnover problems they have there. This is something though that we’re seeing around the world, Hong Kong, Malaysia, lot of places are seeing some interest in supplemental health insurance that goes there.

Now, we have down here employee engagement even more critical in the current environment. And we’re thinking about it’s even more critical in a service economy. Service has accounted for about 60% of economic activity in the OECD countries, and of course that’s a growing percent. So, this is the employee engagement where one of our large strength in Talent and Rewards, Julie will talk about that, that’s again something that drives to me for our services. So, we all know that as we go forward, this is probably a riskier and less predictable world with companies paying closer attention to investment and broader risk management, again which drives demand for our services.

Our clients are some of the largest in the world. In fact, we serve of the Fortune Global 500, we serve 75% of them, and we serve 75% of the FTSE 100. And as mentioning about our capabilities, but then when you think about our clients, these are companies that do face very complex issues on a large scale. And many of these issues really relate to how our company manages their people. And so, we’ve put a number of the things around here that they might have to deal with, you know, from the cost of retirement benefits to creating a high performance culture. But as you think about these things, whether it’s the cost to retirement benefits, whether it’s, you know, limited compensation benefits, creating a high performance culture. Basically, companies have to make trade-offs around the benefits, retaining talent and managing the budgets, and Towers Watson has the expertise to help companies navigate these choices.

Simultaneously, companies need effective risk and financial management. And in many ways effective risk and financial management goes hand in hand with effective people management. At Towers Watson, we have deep expertise in areas like reinsurance, financial modeling, investment strategies and enterprise risk management. So, we partner with our clients to help them understand the connections between what issues HR is thinking about and what issues the CFO is thinking about that. And Tricia Guinn will talk a little bit more about some of the specific things we do in Risk and Financial Services in a little bit.

For our biggest and the most, the largest issues we work with our clients, they usually don’t fit neatly into one box, I sort of mentioned here, here is the kind of things we do in Benefits or Talent and Rewards or Risk and Financial Services, but in fact it’s our job to understand our client’s industry, their business and their challenges holistically. And one way we do that is by leveraging our client development group which is really the face of Towers Watson to the client and then the face of the client to Towers Watson.

I’d like to ask Jim Foreman, who is the leader of the Americas to talk to you a little bit about how the client development group works. Jim?

Jim Foreman

Great, thanks, John, good morning everyone. Just John mentioned earlier that we’re pleased with our success post merger and a lot of that success came from I believe, our relentless focus on our clients. And we hear that pretty consistently in the market when we go and visit our clients. As we set up the structure for the company, we established obviously three very strong segments we’re going to hear from those folks later. But we also felt we needed a focus on the geographic presence of our clients. So, we set up a distinct group of people which we call the Client Development Group or the CDG which is made up of people in each of our markets, many of the members of the executive committee John, myself, have all passed through that function.

The people that are the managing consultants in the local markets, and we’ve attached Account Directors who are focused, as John mentioned the FTSE 75% of our clients in the Fortune 1,000, 75% our clients, those are the organizations that this group is focused on. Their responsibility is to understand what the segment’s products and services are and understand what the client’s needs are. We line that up and very proactively we’re able to take Towers Watson to market. Additionally this group is focused on client satisfaction and really understanding what the buying hubs are that are developing in each of our clients, for instance the investment consulting business we’re very focused obviously on the Chief Investment Officer, the finance function and a lot of the work that we do in the Benefits Segment, also is HR and finance related. So, this group is all over the world. It’s more prevalent in the Americas right now. But we’re looking to develop this much more in Asia Pacific as well as EMEA going forward.

So, we just want to give you a little sense of that this morning and obviously we’re happy to answer any questions as we go on. Thanks John.

John Haley

Thanks Jim. We wanted to make sure to talk about I think because we’ve touched in prior discussions on the Client Development Group a little bit. But in fact, this really is one of the great strengths of the organization and we think it’s one of the keys to our future. So, Jim would be pleased to take any more questions as we get into Q&A.

So, as we said that challenges facing companies are broad and expanding, thanks to globalization, expanding competition, free flows of capital labor, goods and services across borders, technology and a whole host of other factors. Our unique ability to help clients improve performance in this environment by managing the cost, by enhancing their workforce productivity and identifying and mitigating risk sets us apart. And our three segments give us a strong and relevant value proposition both now and into the future. These are some of the key services that we use today with our clients. So, you can see in Benefits, we work with Retirement Plans that is largely defined Benefits Plans that we’re talking about. We do work on defined contribution plans but it’s just there is not as much work to be done on them so even though we do a lot, it doesn’t count for us much on the revenue.

Health and Group benefits which is largely a US phenomenon but as I said, we’re seeing more interest in that around the world. And you know, it’s at the stage now where people are talking about it a lot not so much doing a lot, but we’re seeing that start to change to them, Technology Administration Solutions where we administer healthcare, retirement plans and compensation plans etcetera for our clients.

In Talent and Rewards, it’s really all about rewarding, retaining and engaging the employees so we have our executive comp, our talent management, our surveys. I mentioned earlier the importance of engagement in today’s world particularly in the service economy. And we have, Julie will touch on this later. But we have employee engagement survey group that I think we’re rightly proud of. We have the largest normative database in the world on employee engagement opinions. So, we can come out and provide employers with information that they really can’t get elsewhere.

And then in the Risk and Financial Services, we covered the insurance consulting, we’re really the dominant, we’re a wide player in insurance consulting. We have our investment services and our reinsurance brokerage. So, these are all areas that we feel are going to be growth areas for us in the future.

Let me talk to you next about positioning us as we go forward. When we announced the merger about, it was actually about two years ago, just over two years ago now, we knew we were going to be making an important strategic move in the industry. Over the last 18 months, the associates in Towers Watson have done a great job, I think on delivering on the promise of the merger and the results really have been terrific, in general we feel everything. I’d say, you know what, it’s better than what we thought it would be at the beginning. So, I think we had some realistic expectations. I don’t think our expectations were too low at all, but I do think that the associates at Towers Watson have really delivered them.

But as we got through on the integration, we knew what we really needed to think about was what’s the long term strategy and where are we going. And looking at what do we have that we like about where we are now. Well, we have a great plan and I think we have associates that are second to none. We have outstanding client relationships, we’re highly profitable we’re producing growth. We have a high touch business model which is focused on clients, Jim talked about the CDG, same thing is true with the people in this segments and we pride ourselves on our deep expertise.

As we look down the road though, while we continue to deliver solid results, a large part of our business is in mature markets. We need to continually evolve our business to serve the changing needs of our clients and stay ahead of the competition and we need to keep up with the advances in technology. So we have a growth strategy that’s helping us to do just that, positioning Towers Watson for continued profitable growth in the future.

And as we think about it and as we’ve been talking to our associates about it, we need to move the model on our overall business approach, business model so that we become more innovative. And historically, if we think about companies just as whole thing, Towers Watson has been way over on the side of pie touch and not so much on the creating innovation year after year.

Now, if I think back to what Towers Perrin or Watson Wyatt looked like 25 or 30 years ago, and I think about the firms today that came together to create Towers Watson, they’re vastly different. So, these are companies that have been able to innovate and have been able to develop new services overtime. But what are the things we’ve been thinking about because we’re just thinking about, because we’re just thinking about moving the needle sum is that in today’s environment, you have to be faster at that. And you have to develop innovation as a little bit more of a core competency. So, we don’t think we’re going to become the next Apple or LG, we have no aspirations in that area. But we do think we need to develop a little more capability around innovation.

So, in the end we define the strategy for growth that entails a balanced and multi-dimensional approach. We don’t think there is any one silver bullet given the complexity of our markets. At the same time, we think we have a strategy that’s going to give us a sharp focus. So, it has three main areas of focus that we’re calling our pillars, each of which we’re going to generate considerable value for our clients and our associates and support significant profitable growth.

The pillar one is the core and as we go through the segments, we’re going to talk more about building on these various pillars. But we think we have opportunity to expand our client base and services and capitalize on cross selling in our current business. For example, we have up here a particular focus on emerging markets, global challenges and high growth companies in the future. We talked about the tremendous representation we have in the FTSE 100 or in the Global 500 or in the Fortune 1,000 we have 75% or so. There are companies that don’t fall into any of those and yet they look alike and have a lot of the same problems as those. So, whether it’s some of the emerging markets, some of the high growth companies of the future, we think we can challenge them and pick up additional services – additional business there. We also think within each of our segments, there is ways we could expand what we’re doing that are using our already existing services.

We’re going to look at inorganic actions that’s pillar two. And when we think about inorganic in pillar two, we’re really thinking about ones that are not so much in businesses we’re already in – in business models we’re already in because we think that sort of part of pillar one we’ve always acquired I think. But we want to look at things as are there adjacencies that were – that we should be looking at or are there areas we’re already serving but there is different business models of the way you attack them. And so, we’re going to be, we’re going to be looking quite seriously that on a proactive disciplined way. This might be the kind of thing that no activity will occur in a given year and then we’ll have a couple of different things that will occur in another year. So, we don’t feel the need to do acquisitions every year but we want to have a disciplined approach to thinking about them.

And then finally, on ventures, we’re looking to build an internal capability to innovate and regularly build profitable new businesses. And as I said, we’re looking at this as something that we want to be a core competency of the organization. And one of the things we’re going to be looking at is something that takes a small group and works on this, this isn’t something that we want to try and get all 14,000 associates working on. But it is something where we want to try and pull ideas from all 14,000 associates and then look at turning them into new businesses by a small dedicated group.

So, looking to our definition of success, these are some of the goals we set for ourselves. First of all, an expanded core business with increased client wallet share and this is really all around what pillar one is. Our broader client base and geographic presence, new internal capability and innovate regularly build profitable new businesses, a more diverse portfolio of advice products and solutions with a strong pipeline of future new business. Exceptional talent engaged in Towers Watson success is see opportunities for development because of the different areas of growth. We’re looking for sustained revenue growth of 6% plus with the same or perhaps slightly lower profit margins from organic growth enabling us to continue investing in our associates and businesses. And we believe that this is what it will take for us to remain the undisputed leader in our businesses globally.

So, finally, we’re excited about the long-term growth strategy. We’re also very pleased with what we are today and I just wanted to leave you with these final thoughts. At Towers Watson we’re well positioned to grow. We have a strong financial position and we have the capabilities to help our clients deal with global issues.

I’d now like to turn things over to Gene Wickes, who will tell you a little bit more about the Benefits business. Gene?

Gene Wickes

Thank you John. So, you know, I’ll go through annual performance reviews and we always want to know what our boss is thinking, I get real nervous, maybe it’s just my nature. But I really judge how I’m doing as to whether John invites me to this meeting each year. Thank you, John. It’s a pleasure for me to be here. And the key reason, last year he says Gene, I’m not sure you’re coming back. Because I think as we’ve had discussions in the past from the Benefits business, recession is actually, the beginning of the recessions are very good for us. Our clients need all sorts of things done. We get a big boost in our revenue and then as the recession kind of gets in the middle and things start progressing out, we actually flattened out and we flattened out for a while because all the special projects we’ve been doing, the clients businesses are now picking up and they don’t have needs for us.

And I track kind of quarter to quarter, I know Paul did the same thing, we track quarter to quarter and I kept telling John, be patient, be patient because I’ve been through, you can see the color of my hair, I’ve been through several of these recessions, and they said, we’re going to come out of it. And the key is we grew 2% last year and it got better quarter by quarter. And it really was the view track at the quarter that I kept telling John, we’re coming out of it, we actually came out of the quarter, he says Gene, you can come back to the Analyst Meeting, which to me means Gene, you can keep paying your mortgage, that’s for me what’s the most important part is. I love seeing you but actually being able to come here means my mortgage and still get paid.

Benefits as John said, is 57% of the company’s revenues. It’s a very good business, it’s a business we’ve been in for well, we’re the oldest actuarial firm in the world. Watson’s & Sons started in 1878 and now I present to the young associates as we bring them on board. And one of them, I’m not sure, really cared about their careers, because they raised their hand and said, Gene, you remember, Ruben Watson, and the answer is no, I don’t remember Ruben Watson. But we’ve been in the business a long time and it’s a very good business for us. We like it, a very steady business. And as you can see the mix of the business, 65% of it is in the Americas, 32% in EMEA. And our business really tracks really where the commonwealth was.

So, much of our business comes out of kind of the UK nature, that’s where the actuaries really came from and started and you can see the countries that had strong DB plans of those who had the closest connections historically to the UK, and that’s where you can see why the mix of our business where it is. It’s a very mature business but we think very steady growth. We expect constant revenue growth this year of 2% to 5% with very strong margins. So, it’s a very good margin business, and one thing, we think we can continue to grow and build. And one of the nice things about it, there is a significant amount of annuity work and recurring clients.

From the business standpoint in Benefits, we’re made up of four lines of business. Retirement business, 71% of the business, Health and Group business, 15%, our Talents business that John talked a little bit about 11% and then we have the International Consulting Group which I’ll talk about.

What I want to do is go through each of the lines of business and give you more introduction and thoughts about each of the lines of business. Our retirement business, as I said, makes up 71% of the business. It’s established on the actuarial business. One of the things we as the firm had is we are largest employer of actuaries, what I mean by largest employer is largest firm size, we have more actuaries employed by Towers Watson than any other business in the world and that’s the combination of the business that Tricia has in the Risk and Financial services as well as Retirement, Health and Group. And I challenge you to have a more exciting company party the company is where we’re dominated by actuaries.

What’s interesting is Julie and I were having a discussion the other day and a number of the leaders in the Benefits business acting at our actuaries and Julie has more leaders in her Talent Rewards business that are actuaries I think than we actually have at benefits. So, you can see that we are dynamic and our personalities do cross and we do get into other businesses. We have strong client retention a large part is because of the focus on the relationships. What’s driving our market is really changed in workforce demographics and retirement patterns. And so, there is movement, in fact if you look at the world, the world is actually in a retirement crises.

Society is ageing we’ve not done a very good job taking care of it and it really is the focus, how do we take care as all of us get a little bit older is society. And that really is the area that we sit and play in. So, that’s our area that we have our thought leadership and we’re dealing in, which if you think about from that standpoint, what a great place to have a business. A great place to have a business where there is unbelievable social need. Our growth opportunities which I’ll talk more about fit in the de-risking of settlement solutions, our improved plan governance and we do have some other changes coming from a regulatory standpoint.

So, the retirement, because of the size of the firm, we’re the largest provider of actuarial services to the world’s 300 largest pension funds in the US where the actuaries, three of the four largest private pension funds. We provide, we’re the actuary the more of the Fortune 1,000 and any of our competitors, actually the more of the 30 of the P&I 300. So, if you go down line by, line by line, we sit in a very good business from a market share standpoint. And what’s the environment we’re facing, capital markets as all of you know, because you’re in this business are just as volatile it can be, that isn’t necessarily good for pension funds. So, our clients are sitting there with these very large pension funds. The markets are up and down, good thing for us is they need expertise to help them deal with it and that’s really the area that we’re sitting in.

One of the other challenges we have in the US, and you see it as the trends from our clients, healthcare cost continue to rise, and rise, and rise, and we just published a paper, Sol Cheaper (ph) and Steve Nice looking at the history of this, those increases in healthcare costs are actually putting more and more pressures on wages and on retirement benefits because employers only have so much that they can provide through the resource they’re giving to the employees. And that’s really one of the areas that we see tremendous pressure on the Retirement Plans as the employer looks and says, I can only spend so much, healthcare is taking a larger and larger portion that means, we need to do less and less and less on the retirement area.

What that means from a retirement standpoint is more and more plan design, so as they can come in each year, how do we design things and what do we do with them or where we are. We also see a lot more demand from the plan sponsors on planning governance. So, question is that that I’m asked and I’m sure one of you will ask the question today is, we continue to see a trend of our clients closing their plans. And I want to address a little bit about where we see some of that going and what we see what some of that. So, we do surveys all the time, we’re in the survey business. So we asked our clients or companies in the US, and this is the US focus, and I’ll talk about the UK. If you have an open plan, what are you planning on doing with it?

So, we just completed a survey, 49% of our clients said no action plans. We’re happy with the plans we have, we’re happy with where we are. 29% of those survey, again, these are the ones who have current open plans. 29% of them said, we’re looking potentially to modify the benefit for everyone. That’s translating said, we only had a limited budget and we’ve got to do some things to modify, so 29% said that. 15% said we’re looking at other alternatives, which primarily means defined contribution plans. So, you can see the trend continues, but it’s not continuing at a stampede rate, we continue to see companies look at what they’re doing. And 1% said, we’re thinking to terminate our plans.

So, question comes in if we terminate the plan, where do we see those going. And Paul asked me those questions a few months ago, we’ve had a lot of our clients who’ve frozen their plans. They’ve either closed them what’s closing means, no new entrants are going into them or some of them have frozen them altogether. And the question is what happens with a company when they close or freeze their pension plans. And I’ve used this graphic before, I have a client that I worked on, I have worked on for a number of years, in 1998, closed their plan and put a grandfather provision and so a year or two later the thing was totally frozen. That was 1998, John could calculate and tell you how many years ago that is, I need a calculator to do that because while I used to be able to do with my head.

So, 1998 they froze their plan. Their liabilities today are bigger than they were in 1998. I went back and said, okay, now I’m going to address those questions, I pulled their 10-K from ’98 and looked at the 10-K that they just filed and the liabilities are bigger today than they were then. Now part of the reason is because interest rates are lower and these liabilities are very sensitive to interest rates but they’re still dealing with the exact same issue, 13 years later that they were dealing with back then. And a key part of it is these liabilities have tremendous tales. So, someone who is 45 years of age, we’re going to pay them until they are into the retirement, so potentially 80, 90 even a 100. And those are the kind of liabilities that we’re dealing with these different companies.

So, even closing plan, while closing a plan, we’ll do is take off the tip but it doesn’t actually have much impact on the liabilities for at least 10 years as the younger participants who have very little liability, we get the retirees coming along. So that’s really as what we’re dealing with our clients. The focus is a little bit different though as they’re addressing through here they’ll become much more focused on risk management of liabilities, become more focused because of the things closing does is take much of the inflation impact at least in the US out of the liabilities but they have a different kind of focus of what they’re doing with the assets.

Now we do because of our nature, a lot of scenario planning. So, we’re asking the same question as you are, what’s happening or what are potential scenarios going forward. We look at Status Core, where we’re currently in the low interest rate environment. We have moderate funded status. So our clients, we’re very impacted by the recession and where the equity markets went. And we know accounting conversions is coming at some point where US GAAP is going to converge to the IFRS. But we’re looking at that to the point if you look at the other end, very strong market shift. If interest rates move 200 basis points, we could potentially see a big change in what our clients are doing.

So, let me talk a little bit about what we see. In today’s environment, Status Core, we think 80% to 90% of companies are going to stay where they are. Their asset mix, they’re generally the same they look a little bit about changing the asset mix and doing some de-risking with their assets. If interest rates shift a little bit, we’d see more of them get more active in some of that. And if we saw a change in interest rates of 200 basis points, we think we’d see a tremendous shift in the asset allocations of our clients, a shift in what they’re thinking towards, how they’re dealing with their plans. We actually think at that point, we might see a lot more activity into the buy-outs and the buy-ins that we’ve seen the UK and I’ll talk about that in a moment.

So, if you want to know where our business is going, open the paper and look to see where interest rates are going, that’s actually what we think is the best predictor. And that doesn’t mean, again that our business goes away, if you come back and look what it means is we’ll see a shift in what are clients are doing, a shift in the asset mix and in the work that we have for them. If you look at the UK, the UK is actually I think a good indicator of where things potentially could be going in the US. In the UK today, one fifth of UK de-bean members are occurring benefits. So, we’ve seen a lot of closures of the plans and now we’ve seen a lot of freezing in the plans. So, a plan on the UK is primarily for deferred and for pensioners.

What that means and what we potentially could see in the US is if you go along and look from 2000 to 2006, things were moving along and all of a sudden in 2008, we started seeing a lot of settlement activity in the UK where the plans had been closed or the plans had been frozen and then we saw a lot of activity going to the insurance companies and saying, we’d like either move our plan to you or what do we do. And you see the big blip in 2008 from essentially annuity purchases.

What then happened in 2009, as clients looked and said and interest rates had a lot to do with it, I don’t necessarily need to go to an insurance company and move my liabilities. What I could do is, that buys me insurance that keeps it inside my plan. And now, we’re seeing a lot of activity. One of the biggest risks we have in the pension plan is on the mortality side, life expectancy and life expectancy continues to increase and continues to improve and that’s tremendous pressure on these plans. And now we’re seeing a lot of activity with buying longevity swaps and doing other things so the plan can protect itself against mortality risks.

And if you go back and look at our financial results, remember the investment practice, we had the big spike in business, you can see where it’s coming from. We actually think if you go back and look at that pattern what I was talking about in the US in our scenario planning. If we moved over to the strong markets with the interest rate shifting, I would expect to see some kind of movement like this where activity changes and we would see a lot of special projects coming in with our clients.

One of the other things happening in the UK, if you’ll look at the UK going back, you can see the movement from participants setting and defining Benefit plans to participants setting and defining contribution plans, but the grey area is participants or employees in the UK having no retirement benefits at all. And that’s part of what the movement happened in the UK as we’re moving out of defined benefit plan but not even necessarily defining contribution, it was employer saying, we’re not going to provide anything. And one of the things we’ve seen in the UK now is legislation where the employers are going to legislated that they have to provide benefits. That they required to put automatic enrollment in and starting rolling those staff and pensions. So, beginning in 2012 going through 2017, we’re going to see a lot of impact there which we think will bring in the firm out of consulting and working with clients and you can see the impact of that’s going to have on the employers.

So, growth opportunity and retirements, number one growth opportunity for us is the market share. We believe, we can continue to expand and grow our market share. We have a good position but there is one of the things that I had discussions with our consultants. So if you look at our market share position in the US, and you’d say Gene, you know, you’re approaching 35% or 40% market share, can you grow it? The interesting thing about that is market share is really growing through relationships. They’re growing through getting to know the clients, getting to know and becoming a trust advisor.

And if we’re the actuary to 35% of the market that means we’re probably touching another 5% or 10% of the market because we keep our actuaries busy. So, they’re working hard on their clients and building relationships there, there is probably another 5% or 10% that they’re building relationships with. That means there is half the market we’re not even touching from a retirement standpoint, we’re not talking to them, we’re not building relationships with them. And I tell you, we’ve got a great opportunity to continue to build and grow market share. We think we can continue to grow and build this business because of that.

We have opportunities in the settlement side. And as I said, as the economic environment changes, we think it’s positive for our business. And there are lots of new laws and regulations. A lot of us don’t believe that government should be intruding so much into our business and knowing different things except actually there is no law that’s bad, that gets passed at least for a year or two, because any law or regulation that gets passed brings business to us because our client need to respond to it.

The next element of the Benefits segment is our Health and Group Benefits, which as John said is primarily or has primarily been a North America business except we’re now seeing expansion. Jim, can tell you, we have a nice business growing in Brazil. Brazil actually looks a lot like the US and we’re seeing this business grow there. We’re seeing this business now with the Asians continuing to start building and growing. So, we think Health and Group Benefits is one of our growth areas that we can continue to expand and grow. Lot of breadth and strength in the client relationships, so what are the benefits of having the segment together is those actuary relationship while we see and talk to the clients all of the time. One of things it does is get us the introduction end of the client and help us build the relationship. And you’ll see a lot of overlap in our businesses where we have the strong actuary relationship, it helps us introduce and continue to build the other services.

The other thing what the Health and Group Benefits that we have right now is we have a weak economy and we have ever rising healthcare costs. This is a tremendous challenge to our clients. If the business isn’t growing but the healthcare cost continue to go up, how do we deal with that and how do we go from there. Our offerings in the Health and Group Benefits practice is one of them we call our Fortune 1,000 which is kind of the focus of our business on planned management consulting, where we’re helping with the financial management, we’re helping them with the actuarial projections, the vendor selections, the enrolment.

So, it’s a good ongoing business that needs to be done year to year. We also have very nice specialty businesses in pharmacy, absence management on a lot of different areas. Large employer are doctors so we have a lot of doctors and nurses on staff helping our clients figure out how to deal with the lot of the issues they’re dealing with.

And another area we’re now focused on is in the mid-market. So, we’re looking at the mid-market which is primarily a brokerage relationship and trying to take our consulting at the higher level and see if we can help change that market into more of a consulting business. So, can we introduce and the company is going using brokers, a consulting type model. So, that’s one of the areas we were focusing. And when John talked about our pillar one and some of the businesses we’re looking at, this is one of our pillar one focuses. Also we have a very nice, RX purchasing collaborative as well as retirement medical transition services. So there is a lot of nice areas here where we can continue the growth.

So, as I talked about the surveys that we’re looking at, we went out just recently and if you read the newspaper Minneapolis, you actually saw us quoted in the survey, not necessarily the editorials, we’re surveying, we’re not offering opinions. Asking employers of how they’re reacting to healthcare reforms. 88% of the employers in the survey said that they’re planning on taking steps to respond to healthcare reform and excise tax, 56% of them said that they believe that they’re going to be subjects to the excise tax as under healthcare reforms.

So, there is a lot of work that still needs to be done through 2018 for that excise tax. Half of them said that they’re thinking their long-term healthcare strategy during 2012. More than three quarters said that they believe in healthcare or continue to be a key component of the benefits they are offering. And what I thought was very interesting was 78% said, we’re likely looking to see what others are doing and follow the lead. So, this is again an area that is unknown how healthcare reform is going to impact completely how about change the plans but they all anticipate changes.

So, the growth opportunities for us, weak economy, increases in healthcare costs, we have a lot of high value-added solutions. And globally we think that this is a great opportunity for us to grow. I was in Indonesia about, I don’t know, 8 or 9 months ago, healthcare was the number one issue with the Indonesian employers. And we went back and did surveys in there. And a key focus is on wellness. So, we had a lot of focus on wellness in the US and that’s now expanding globally and we can give these great opportunities for growth.

So, Technology Administration Solutions, another very stable and profitable growing business for us, our model is a little different than our competitors. And that’s one of the things as you go back and analyze us and compare us to our competitor, they want to see what we’re doing. We’re playing I think a very, very nice area at the administration business which I’ll talk about. Our focus is on quality and cost effectiveness. And I’m not saying that our competitors don’t focus on quality, but our focus in really on the high touch areas. Can we give an experience to our employer’s employees that really helped them move through?

So, if something goes out to bid and the client is looking to find the lowest cost solution, we won’t even respond to the RFT because that’s not us. So, if they’re coming back and saying we want to put something in place that gives a very high-touch experience to our employee that really is where we are. And our most effective business in here is what we call kind of the rebound RFT, someone has been outsourced for a long time, they want to change the way it’s done, that’s where we’re very effective coming in and proposing. We’ve been in this business for a long time, sometimes you’d scratch your head and say, wait a minute, I’ll spot the deal, both legacy firms that exited this, we did part of it but we continue to be in the business.

From a global standpoint, our largest businesses are in the US, UK and Germany, which are the largest outsourcing markets. Client retention is very strong. We will just name 2011 Global Outsourcing 100 list by the International Association of Outsourcing Professionals. So, it’s a very nice business that we can continue to grow, 836 clients with 7.4 million participants. So, we’re into this business in a big way.

So, let me talk about country by country in the US. We have a continually momentum of models, one of the things that Legacy Watson Wyatt had stayed in as we exited the part of the outsourcing business years ago, as we stayed in the co-sourcing business, which means that we write the programs for our clients to use. And we are the market leader by far in the DB, second in the market on the health and welfare. What’s also interesting, if you look at our outsourcing clients, the average 10 years routs in client of 7 years, so it’s a very sticky business, it’s a business that you can have clients. So, we have 37% of our clients for more than 10 years.

In the UK, we’ve doubled the size of the business in the last five years, 551 associates managing 1.2 members. We’re the second largest DB outsourcer and UK is one of the countries where we actually do a lot of DC Administration. One of the things with the UK is when a client converts to a DC plan it doesn’t separate it from the DB plan. DC sets in the same trust as the DB and the Benefits are intermingled. And so, we do a lot of DC Administration in the UK. And In Germany, we’re the largest pension fund outsourcer, focus number one as quality. And it isn’t just quality getting the numbers right, that’s quality with the employee experiences or calling into the call center as they’re asking their questions.

Flexibility, no two companies are alike. And our model is because of the clients we’re dealing with, we’ll build your custom solution. That’s probably the biggest difference to us and many of the other outsources as we don’t have a box you have to fit in. But, we actually customize everything. That can be an expensive proposition and that’s again why we said, depending on what clients are looking for me, we may or may not respond. Our focus is on customization, transparency and partnership.

So, the continuing of the benefits that we’re – we’ll do systems only. So, we build systems for clients that they run completely internally. We’ll do the systems and administration but we’ll use their call centers. So, we have a number of clients that have their own HR call center that we’ll do the system administration that fits into that or we’ll do the system administration and the service center that we have a very flexible continuing on the benefits.

I wanted to talk for just a minute kind of give you an idea of what we’re doing. CenturyLink it’s one of our outsourcing clients. In fact CenturyLink as an organization is a fairly new outsourcing client. So, CenturyLink acquired Embarq from Sprint. Sprint had been for years and years and years a legacy of Watson Wyatt outsourcing, a really co-sourcing client. So, we built their systems and Sprint ran the system internally. And when Embarq was acquired by CenturyLink, CenturyLink’s pension plans were fairly small. The Embarq plans were large. Then CenturyLink said, well why don’t we take the CenturyLink plans and put them in Embarq co-sourcing.

CenturyLink then about six months ago acquired Qwest and Qwest happens to have been Towers Watson outsourcing client since 1990. So, it’s one of those clients that Towers Watson interesting through both legacy firms. Towers Perrin and Watson Wyatt had done the outsourcing and CenturyLink has now moving the Embarq administration and the CenturyLink administration into Qwest which was much bigger than either of those to full outsourcing.

So, one of the things that shows is our business again is about relationships and the relationships that we’ve had for long periods belong very well onto here and it’s about the technology. So, when CenturyLink looked and said, what do we do with those Embarq plans, the technology that software played very well and when Qwest was acquired, the technology is now common between Qwest and between Embarq or now CenturyLink and they implemented and put the call center in there, very high quality, very complex, very difficult to move which is a good place that we playing.

So, the key drivers from TAS are the retention of the clients, high quality administration services, strong quality proposition. We continue to see changes in regulation which also helps us on the TAS side as we make changes to the plans. So, the international consulting group is the fourth line of business setting with benefits, is not something you see when we do the earnings call. We don’t necessarily break the numbers out. It’s a fairly small group but our international consulting group, 185 dedicated specialists holds data on 100 different countries. We have 97,000 plans setting a BenTrack which is our global benefits and compensation governance tool. What the international consulting group does is help us tie all the countries together.

So, their focus is on the multinational companies and a multinational company, one of our large clients might have operations in 50 different countries. In number of those countries, we have offices and we have operations and we service them on a local basis. But, one of the things that we’ve seen companies do as their governance model now, a large part Sarbanes-Oxley and other regulations said, you need to know what’s going on. So, we Towers Watson have benefit programs in lot of different countries and Roger periodically comes to me and says, Gene help. John and I have to sign a form. What all doing you in the Philippines, help me with this or help me in this country that, it is now a really big issue for the CFOs and CEOs to know what they are doing in each of the countries around the world. And our international consulting group is dedicated to helping us with that.

When Roger gives me the panic call, help, tell me what’s going on the Philippines, I give a panic call to somebody else and say, help. No, I actually don’t I probably know what’s going on the Philippines, it might be another countries he says that. Our group is dedicated to help us tie all of the local countries together as well as help us operate in the countries where we don’t have locals on the ground. So, it’s a group dedicate to the servicing of the multinationals.

Globalization of business is a big boost to the international consulting group. It really is how we tie all of the pieces together. Key focus of those groups now is the growing healthcare risk globally. So, it’s an area that this group is now helping us tie into as we go as well as maintaining data. So, we have clients who call and say, I am thinking or hoping operation in Turkey or in Russia or you name the country to help me. What do I do? This is the group that we bring in to help us tie all of it together.

So, at Towers Watson, we believe in benefits, we’re well positioned for future growth. Our growth will be outstanding from a standpoint of 20% per year would be a wonderful thing. Mid-single digits as I said early on is where we think the growth. It will be steady. It will be predictable and the most important part, it will be with strong margins. So, thank you.

John, I think we’re ready for break now.

John Haley

15 minutes.

Gene Wickes


Tricia Guinn

Thanks everyone and good morning. I also appreciate the opportunity to be here with you. I probably don’t has amazing equip as Gene. But, I’m delighted to have a chance to tell you what happening in the risk and financial segment. Today, what I’m going to do is first provide a profile of our business, talk about a little bit about fiscal ’11 results and our expectations for fiscal ’12. And then, I’ll give an overview of the segment. I’ll talk about the challenges that our clients are facing and what we’re doing to help them. Then, I’ll take a deeper dive through each of our three lines of business and I’ll give some examples of how we’re working across lines of business. And then, finally, I’ll discuss how we’re investing to continue to grow.

So, as John mentioned, risk and financials represents about a quarter of Towers Watson’s revenue and this slides show breakdown of our revenue by geography and line of business for fiscal ’11. EMEA our largest region with 51% of the revenue followed by the Americas and 9% in Asia-Pacific.

In terms of the distribution by line, risk consulting and software is little more than half of our revenue. Now, this distribution is going to change in fiscal ’12 and actually EMEA and RCS will both grow as a proportion of total when we get a full 12 months of our recent EMB acquisition included in our results.

After a challenging start to the year, we finished fiscal ’11 strongly and that resulted in positive revenue for the year as a whole and we improved on margins. In fiscal ’12 we plan to deliver overall and organic growth and to further improve our profitability while continuing to invest in future growth.

We’re expecting our NOI margin to be in the mid 20s and 8% to 12% constant currency revenue growth of which we expect organic growth to be in the 2% to 5% range. We have a strong base of recurring revenue in this segment and while it varied by service area more than half of this segment’s revenue is recurring and that gives us a stable foundation to grow from.

Over the longer-term we expect mid to high-single digit growth rates from the segment overall. It will vary somewhat by business and business conditions and this is all provided that the overall economic environment is not too volatile.

So, if I had to sum up the totality of what we do in our RFS in one sentence, it will be this that we help the countries around the world, improve their performance through effective risk, capital and investment management and we focus our services in three main areas. Risk consulting solutions and transactions, investing consulting solutions and finally software and analytical services.

We do this through the three lines of business shown in the slide which I’ll tell you more about in a few minutes and although each of these businesses has their individual areas of focus we see opportunities to both leverage of skills and as importantly our client relationship not only across these three lines but with other parts of Towers Watson as well through add value for our client and to differentiate ourselves from our competition.

The final point I would like to make is that we are very well known and respected brand in both insurance and pension with specialized expertise in providing advice and solutions to insurers through our risk consulting and software and reinsurance brokerage business and to owners of institutional assets through our investment business.

We see a good deal of opportunity for RFS. Our clients are facing a number of challenges where they are looking for help and I’ve organized these challenges based on our two main client basis that I just talked about, the insurers and reinsurers and institutional investors. So, let’s start with insurers and reinsurers.

Growth is key priority for many insurers however, achieving profitable growth in t he current environment is difficult and one area where companies need help is with improving their risk base to pricing and innovating in products. Insurers are also facing new solvency and financial reporting requirements.

Solvency in Europe, principal based approached in U.S. They need to help getting ready for these new regulations and this is generated demand for both software and consulting. The prospects of these new regulatory regimes along with number of other factors are also spurring M&A activity in the insurance industry and that’s an area where we provide advice.

Conditions in the property and casualty industry have been pretty challenging for us in the past few years. Now, due to the level of catastrophe losses this year we’re seeing pricing condition firm slightly which is good news for reinsurance brokerage business. We’re also seeing increased demand in capital market solutions and particularly by the catastrophe reinsurers.

And finally, low interest rates and volatile financial markets have challenged the balance side of many life insurance companies and they need help improving product design, pricing the options and guarantees that are embedded in their product and strengthening their overall asset management practices.

Now, let’s turn to institutional investors. The volatile global financial conditions that we’ve been experiencing along with regulatory and governance pressures that have made the management of large pools of institutional assets like pension plans, endowments and foundations be much more difficult. Those investors are seeking help with investment strategy, with portfolio design as well as manager selections. And some are even looking to outsource either all or part of the oversight of their portfolio to get access to more expertise, to get efficiencies and improve governance.

In addition, investment products have become quite complex and competition for return is very intense. The clients are looking for innovative solutions that will improve their overall returns well at the same time reducing their risk. In general, investors have had an increasing focus on risk management and many define benefit plans sponsors want to de-risk as their funding status improved much as Gene mentioned a little while and we’re helping with that.

On the defined contribution front, sponsors are looking to educate their employees. In fact, there was an article that we were quoted in the papers last week about helping employees take better ownership for their retirement security and educate them on their investment towards this.

So, what makes us special is that we understand these challenges and we focus our research and though leadership to develop the insights that will help clients to address these issues. Though leadership and innovation is really the basis of which we differentiate ourselves and compete. We’re not the low cost provider in most of what we do. When a client has an issue, we want to be top of mind. We want to have something insight for to say. So, we don’t do much in the way of pure advertising. Most of our marketing efforts are focused on disseminating our thought leadership.

So, let me sight just a few examples of this insurance and reinsurance arena. First, our North American life insurance CFO program, we’ve been running that for more than 10 years now and in the fall of last year, we found that the top challenge to life companies achieving their growth profit and risk objectives for the coming year were felt to be the economic environment and growing sales, but while these were the top challenges most of the clients didn’t feel well prepared to deal with that.

Within weeks of the Japanese earthquake and tsunami in March, we published a white paper on the implication for the insurance industry where we estimated that the insured losses would range from 20 to 45 billion, an estimate that held up well six months later.

Early this year, we conducted a survey of insurer investment management practices that found that interest rate uncertainty top the list of concerns that insurers were wrestling with on a one hand low interests and on the hand fears of inflation. Here are the few more examples from the investment area.

In our global investment matters publication, we shared our views on the state of investment management and we believe there is a broad acceptance that higher levels of uncertainties or the new norm and that investors will need to adopt strategies that are more flexible and adaptable to changing market condition.

We also conducted a survey in collaboration with the Financial Times and this confirmed the trend or alternative investments and one of the findings was that alternative assets managed on behalf of the world’s largest pension funds by the world’s largest asset managers grew 16% in 2010 to top $950 billion.

In Hong Kong, we’ve entered into the business to consumer arena through MPFeXPRESS and that’s a website and a publication that’s targeted at educating the participants in Hong Kong statutory defined contribution plan about that trend I mentioned earlier, savings for retirement and on their investment choices.

So, those are some examples of our thought leadership. Here are our serving offerings. In RFS we offer a wide range of services across our three lines of business that are responsive to these challenges. They are listed here on this slide but rather than going through this list, I’d like to talk about then in the context of some of our recent client work.

So, this slide shows a small example of our client. I’ll touch on just a few to illustrate what we do. First AkzoNobel. The AkzoNobel Investment Committee in the U.S. chose us for our advanced investment solutions offering. Now, last year when I met with you, I mentioned that one of the potential synergies for the Towers Watson merger was offering legacy Watson Wyatt investment consulting services to legacy Towers Perrin pension clients and that’s exactly what happened here. And in fact this work came to us directly without an RST because the client believe that they wouldn’t be able to find either a better solution or more talent any place else.

Next example is the Merchant Navy Officers Pension Fund. There was nine months review and it started with more than 30 organizations under consideration including some very large and well known asset managers. But, after that review we were appointed by Merchant Navy to a new delegated CIO role and we had a long standing relationship with Merchant Navy, but this took it to another level by giving us additional responsibility for the fund investment arrangements.

The client referred us because they were very happy with the work that we’ve been doing. They wanted continued access to our investment tools and our research and they valued our depths of knowledge across both the assets and liabilities of their plan.

Next, I’ll talk about ING. We don’t typically talk about client engagements that are underway. But, it’s well knows that ING is preparing for plan to IPO of its life insurance operations both in the U.S and globally and we’re there actuarial advisor. The Towers Watson merger was an important factor in winning this work. Legacy Watson Wyatt had great relationships and knowledge of the business and legacy Towers Perrin had a very fine credentials on self side of insurance transactions and that made us ING’s best choice.

Next, MetLife. MetLife has grown to be one of the world’s five largest life insurance group and acquisitions have played a large part in their development. Met has frequently turned to us for M&A help and the good example of that is that we worked on their acquisition of AIG’s American life insurance company and that transaction was substantial increased their profile in Japan and other non U.S. market. And why us for helping them, well Met valued our scale and our global reach in particular on this project.

Old Mutual. Old Mutual was an early adaptor of our risk aggregation software. They needed help preparing for Solvency 2 and they chose us for our unique combination of software and consulting. Our prior experience and relationship with Old Mutual coupled with our knowledge of Solvency 2 and the associated issues were also important factors.

Another opportunity that I mentioned last year was the flow to market and we saw that as a key growth opportunity for reinsurance brokerage business. Well since that time, we developed an aggressive marketing campaign. We hired senior reinsurance professionals with deep expertise in the Florida market and at this point, we’ve had several important wins in Florida, the first of which was Southern Oak.

Southern Oak was attracted to the breadth of ways that we could help them beyond just placing their reinsurance program and they were interested in partnering with – to strengthen their business and help them grow.

Swiss Re. Swiss Re is an example of the company where we have a very broad and diverse relationship and they are in fact our largest reinsurance market and we got strong relationships with their senior leadership both globally and in the U.S. It’s an important client beyond reinsurance also for our consulting and software and recently they purchased our RiskAgility, MoSes enterprise software which they’re also using to strengthen their financial modeling in preparation for Solvency 2.

And the final example I’ll give you is Chartis. Chartis is another example of a client where we have a very broad relationship and we help them in a variety of areas including economic capital, predictive modeling and catastrophe management and we also place a number of their reinsurance treaties.

On the last slide, I made several references to our software clients and software generates significant annuity revenue for us. It fosters long-term consulting relationships and it offers good potential for growth. The EMB acquisition which we completed in February of this year significantly strengthened our software business and we’re now the market leader with more than 25 products that are used by nearly 1,200 insurers and investors around the world. Software is about 5 to 10% of our segment revenue today and it’s been growing strongly.

Now, I’m going to take a deeper dive into each of our lines of business in the RFS segment. I’ll talk about the business model, the key differentiators, market trends and drivers and our main growth opportunities. And I’ll start with risk, consulting and software. This is primarily a time and expense consulting model. In this business about half of our revenue is recurring with the balance being project base. Software as I mentioned is important not only because it provides annuity revenue but also because it brings consulting opportunities.

What differentiates us from our competition is our unique combination of our technical expertise, our deep knowledge of the insurance industry and the fact that we have these leading software products. And that’s coupled with our one company approach for all our consultants around the world use common tools, methodologies et cetera.

Clients come to us for intellectual capital, the quality of our people and our reputation for professional excellence. We got strong ongoing client relationships even where we don’t have annuity revenue, we have annuity relationship where we provide a broad rate of services.

In addition, the scale of our business differentiates us in terms of our overall size, our global reach and the bench strength and that makes us – puts us in a pretty unique position to work with the multinationals on large complex global assignment.

I’ve already touched on some of the market trends that are driving demand for RCS, such pick up in M&A activity, regulatory change, demand for more sophisticated financial modeling. In addition, companies they focus on risk management, it’s not going away anytime soon. And companies are continuing their efforts to strengthen their enterprise risk management and that brings us opportunities as well for both consulting and software.

Finally, stronger financial and economic conditions are also important for driving demand in this business. So, these drivers are creating good opportunities for growth and RCS actually grew quite strongly in the second half of fiscal ’11. We’re seeing more opportunities to help companies improve their financial regulatory reporting as well as their risk management. We continue to have opportunities for actual valuation and due diligence work in connection with M&A and restructuring activity in the insurance industry.

We see opportunities for our software products and related consulting to help clients with pricing, reserving and capital management. Asia is an opportunity for growth for us and finally we see opportunities to bring a broader range of services to our insurance company client base and particularly in areas like insurance management consulting and enterprise risk management.

RCS is the business where we probably had the greatest amount of integration work to do and a fair share of challenges immediately after the merger and that impacted our business performance in the later part of fiscal ’10 and the first half of fiscal ’11. But, we’ve now worked through those and as I mentioned the business is performing strongly. We had both organic growth as well as overall growth and strengthened profitability in the second half of fiscal ’11 and we’re going into fiscal ’12 with good momentum in this business.

In investment, our business model is one about adding value to our clients and having them recognize it. Again, where are not the low-cost providers. Our revenue is mostly retainers and value added fees. We’ve got a strong base of annuity revenue in this business with about two thirds of our revenue being recurring. Overtime, we see our business mix shifting to higher responsibility work and that’s higher fee work as well. And finally, we’ve got a strong client base of large organizations with complex investment needs and that too provides us stable foundation for this business.

How do we distinguish ourselves? Well, we provide tailored value added advice and that’s particularly valued by the large client market. We’ve got one of the largest global research teams and that underpins our ability to provide the best advice to our clients.

We’re independent. Our revenue comes from our clients only. And like much of the segment, we are recognized for our intellectual capital, our thought leadership that what really differentiates us. And finally, our business has tremendous scale. We’ve got $2.1 trillion of assets under advisement in this business and that’s get us access, better fees and influence with asset managers.

In terms of drivers of demand, the first is the possible recovery and pension plan funding which we believe will lead to increase demand for de-risking services. In terms of kind of what is continued low interest rate environment and the volatile equity market that is driving demand today for alternative investment. Growing wealth in Asia is another driver where the institutional investors there are seeking – they need help figuring out what to do with our rolling pools of assets.

Finally, as the institutional investors are focused more and more on managing risk, improving governance, managing cost as well and getting access to better expertise, we’re seeing a trend towards fiduciary management.

Our near term growth opportunities include continuing to pursue the Towers Watson merger synergies those offering these services to an expanded pension client base in the U.S. as well as to our insurance industry client. We also expect continued strong growth in Asia as we tap in to the growing wealth in that region. We see the potential to expand our fiduciary management service particularly in the U.S. and U.K. market and we see more opportunities for hedge execution and pension plan de-risking services.

This business had a slight decline in revenue in fiscal ’11 and that was partly due to some market pressures and partly due to some integration challenges and restructuring that we did in the business. Going into fiscal ’12, although we are facing a more competitive market particularly in the fiduciary management space, we have many strengths to build from including our market position and our intellectual capital.

In this business, we are increasing our focus on sales and we do expect overall growth from the business in fiscal ’12 led by continuing strong growth in Asia Pac and good growth in the U.S. as well.

Our third line of business is the brokerage business and here our revenue is primarily commissions on reinsurance premiums. Most of the reinsurance purchases are repeated year after year. So, this business has our highest content of annuity business on the order of 90% and this results in a stable and profitable business.

We distinguish ourselves as the only real full service alternative to the big three brokers. We provide in depth analytic, not only in this business but also leveraging the capabilities of the risk consulting and software business. We’ve got a great trusted advisor relationship with large number of clients. We’re known for our ability to complete complex and difficult deals that sometimes competitors have not been able to complete and finally, we’re also well known for our client service which is excellent.

Several factors are driving demand for this business including strengthening P&C pricing, significant catastrophe losses earlier this year, greater interest in alternative risk financing. Also, that continued consolidation among brokers as a result of solidifying our position as the most credible alternative to the big three.

Our growth opportunities include integrating our brokerage consulting and software capabilities to gain new clients, exploiting our positioning as I’ve mentioned several times as the alternative to the big three. We also see opportunities to continue to grow in Florida and to enter other new markets where we believe we’re well qualified to gain share. Continental Europe as another growth priority for us.

The brokerage business is stable and as I mentioned recurring revenues, are 90% on that order. In recent years the market conditions have not been particularly favorable for P&C insurance companies or brokers and that’s affected us particularly in North America. Our European business although has done very well despite the challenging market.

Looking ahead to fiscal ’12, we’re seeing signs of improving conditions and to take advantage of this and position our business for growth, we are focusing on sales, strategy and sales management. We’re adding to our talent base in this business and we’re exploiting our unique ability to provide an integrated brokerage consulting and software offering.

We also have opportunities to work across our lines of business and I’ll just highlight one or two. Investment and retirement have got close relationship in many markets. I talked about the work that we’re doing in pension plan de-risking that’s really joint across the two businesses. The investment business allows us to be much more credible in enterprise risk management for the insurance industry because we now have expertise on both sides. So, the balance sheet and I talked a lot about brokerage and RCS.

So, let’s get to one. The EMB acquisition which we concluded in February was important to our business. The integration is going really well. We’re seeing the benefits of this already. We got this expanded portfolio or software. It nearly doubled the size our P&C consulting population. They had a great track record of innovation which we are intending to build on and a number of the leaders of the former EMB business have taken on leadership positions in our combined business.

I mentioned investing to grow. Towers Watson and its predecessors have a history of investing for growth and we’re continuing the tradition because much of the growth and the good things we see happening in our business today are the result of investments that we’ve made a number of years ago and we firmly believe the things that we invest in today are what’s going to drive our long-term success.

So, here is a list of our priorities for our current investment priorities. The first is around sales management and execution because much as Gene said, we see opportunities to grow market share across all our business with a focus here and I’ve mentioned many of the other areas so far.

I’ll just touch on the last one about hiring. We’re not only looking to add talent in the brokerage business but really in all three lines to fill skill gaps, to expand our geographic presence and to support our overall growth objective.

So, finally just I’d like to leave you with a couple of thoughts. First is that the RFS business is strong, the business fundamentals are good. We’ve got many strengths to build on. We see significant market opportunities that will drive profitable growth in fiscal ’12 and beyond. We offer a broad range of solutions and that really differentiates us from traditional brokerage and consulting firms and finally we’re placing a priority on accelerating innovation in the business and driving profitable growth.

So, thanks very much for your attention and I’ll now turn it over to Julie.

Julie Gebauer

Thank you. Tricia. I really appreciate the opportunity to talk with you this morning about our talent and reward segment. It’s a good business. It’s a strong business. It’s an exciting business. It set grow pretty fast over the next several years.

Right now, it stands at 17% of firm revenues as you heard earlier today. It’s split across three lines of business with greatest contribution to the business from North America. But, meaningful contributions as well from Asia Pacific at 12% and EMEA at over a quarter of our revenue.

On a constant currency basis, our revenues are the same as they were in fiscal ’10. However, if you adjust our revenues after divesting a number of our clients and our revenues to pay governance and independent board advisory consultancy, our revenue growth was 8% and that growth was accelerating throughout the years starting of the first quarter at roughly but increasing to about 14% in the fourth quarter.

With our current mix of and the various levels of demand that we see in the different regions of the world, we do expect to see continued growth about in the same range from 6 to 9% is what we’re expecting for fiscal ’12. Importantly, while we see that growth, we will continue to maintain the improvement in bottom line results that we saw during this past fiscal year.

Last year we saw net operating income margin in the range of 20%, improved over the prior fiscal year where it was less than 10%. And again, we expect to maintain that strong bottom line in this fiscal year as well.

Now, for those of you who have been following our business for some time, you know that this is the segment that has a greatest volatility not only for us but for the industry as a whole and you might expect to see that. But I will highlight that as move forward, we expect that volatility to moderate somewhat not disappear but moderate because we’re expecting to see a different mix of big project work in ongoing program management work and we expect to enter into more multiyear agreement. Today, we probably have less than 10% of that magical phrase annuity revenue in our business. But, we would expect that to change over the coming year and years.

Now because our work is related to what I believe is an increasingly important factor in business success people we do expect long-term growth to be in the mid to high-single digits. In TAS global economies, it’s going to be lower than that. In strong global economies, it will be higher than that. Regardless of the economic situation we do expect as I already said to maintain strong margins.

This is a pretty straight forward one. Our focus is on helping organizations improve business performance, drive stronger business performance by gaining a competitive advantage through their people. Whether they are focused on business growth, innovation or cost management people are an important of the business equation for most organizations. To drive growth and innovation, companies are looking to find and engage very talented employees. To reduce cost companies are focused on improving employee productivity or managing labor cost. And to maintain strong performance, organizations are looking to monitor outcomes in these areas on an ongoing basis and have effective ongoing processes like performance management and succession planning.

Now, companies often maintain internal resources to address some of these issues. But they also look for external providers to help in a couple of areas. One to provide deep expertise and external perspective and another to provide research, benchmarking data and support in processes and technology.

Now, our business portfolio includes consulting services to address the former of those and a range of portfolio of products to address the latter of those needs. Our consulting in the areas of executive compensation and reward talent and communication, our product portfolio includes product in the area of data services, surveys and technology.

Our strategy is to have sufficient scale in each of those areas so that we can provide deep technical solutions for companies that are looking for those point solutions, but as well bridge across the area so that we can deliver integrated solution.

And as the world evolve to more sophisticated ongoing processes, we’re evolving from what I mentioned already that’s primary project based business that one we’re also supporting the ongoing management of programs like performance management and pay reviews through our benchmarking audit and technology.

The market demand for the past six months has been particularly strong for talent and reward across those consulting end products. We expect that demand to remain high over the next 12 to 24 months. First of all, we’re seeing companies globally reporting difficulty attracting and retaining critical skilled employees.

The last survey we conducted of 1,200 employers around the world show that 65% of companies are reporting difficulty attracting employees with critical skills and 49% are reporting difficulty in retaining those employees. The greatest difficulty reported in China and India, not surprising Brazil right behind that. But still, significant difficult in the U.S. and Western Europe as well.

At the same time, employees are reporting that what they thing is important to them in their job and what they think can be achieved at their current employer has a gap and this creates the need for benchmarking for analytics to evaluate alignment, effectiveness, competitiveness of reward and talent program. It also creates a need for potentially redesigning and implementing new program.

Another need relates to optimizing labor cost whether to improvement in productivity or through just keeping labor cost in line. Here again, a need for benchmarking, monitoring outcomes and potentially redesigning programs.

A third demand driver, particularly in Asia comes through the next round of globalizations as companies move from strong local position to regional or global expansion. They are looking for helping workforce strategy, change management and implementation of new reward program.

M&A activities are important driver for us because we help in implementation, support, integration support, change management, communication. And around the world what we’re seeing is executive looking for HR functions to deliver more for less and in that regard they are looking for benchmarks to evaluate where they stand. They are looking for help in establishing new organization design and they are looking for better technology solution.

And then, finally as I’ve mentioned as the overall management of people program becomes more complex, organization are looking for help in monitoring how they are doing in this area and helping in managing those programs outright.

Now as a demand for services remains strong competition does too but as Gene often likes to say, good competition is good for us as it really helps us rise to a higher level as well. In talent and reward, we see quite a variety of competitors as you all probably well know our traditional multiservice firms, competitors like AonHewitt, Mercer and Hay globally compete with us. Then there are specialty firms in a number of the areas where we operate. Listed here are some of the competitors that we see in the HR technology space as well as executive compensation and employee surveys. These organization don’t have breadth of offerings. They focus mainly on the one area listed there.

At the same time, we’re seeing the big four and management consultancies move downstream into the people business as well. So, the competitors are out there and the competitors are good. But, I actually quite enjoy stacking up Towers Perrin relative to this range of competitors because I believe we have a value propositions of the market that position us really well, will enable us to win more than our fair share of opportunities there by growing market share in a growing market, a good place to be.

The four key attributes that make us different from all the competitors on the prior page. I’ll start with our significant debt in each of our areas of practice. For companies looking for technical solutions, we go very deep. All of our practice areas have sufficient scale and in most instances we’re big – as big or bigger that the boutique firms that operate in the same area.

Second we cover a range of services that enables us to provide complete solutions for our clients not just the deep technical answers. And our service offering, I believe is more extensive than any of the multiservice firms that – with which we compete.

Third, everything we do start with data and research. We mind and extensive data base that includes compensation levels, employee attitudes, cultural norms, labor availability, attrition rates, you name it about the human capital and we probably got it. And we mind this data so that we can provide fact based advice to our clients.

And our fourth area of differentiation is around our global reach. We are in as many places as any of our competitors and even where we are not, we have access to knowledge and data that will help our clients understand how to operate in that location. That’s how when the markets looking at us to potentially buy from us have said, we are different board also different as a business to our competitors.

We’ve organized and established a business model that I believe enables us to deliver strong revenues but as well a better and more consistence bottom line. Some of the ways we’ve done this first of all to open a global resource center in Minova (ph) to handle some of our technology development processes and our data management process.

We have also developed easy ways to link solutions across the range of services so that our cost of sale is generally lower. The opportunity for multiyear contract is very significant. You’ll see when I talk a little bit more about the specific services that we offer, how we intent to do that and we’re starting to see a different mix of that big project, big strategic project work with business as usual support.

I want to turn to each of our lines of business and look at those a little bit more closely. Executive compensation comprises about 23% of the segment revenue and contributes a very strong profit margin. Most of the work that we do in this business is charged on the time-and-expense basis given the nature of the work as you can imagine, we require a strong quadrant of very senior-level consultant and there is some leverage to mid level and junior level consultant.

Relationship in this area are long-term and they are trusted adviser in nature and therefore, it’s important for us to create institutional relationship as well strong relationships that are personal and based on the personal individual advice that our consultants provide.

To that end, our size and our global reach make us very different as I would say a sea of boutiques compete for business in this area for most opportunities. We have dedicated teams of research specialists so that we can provide in depth analysis on legislative regulatory accounting issues unlike many of our competitors and we can do that in all key jurisdictions around the world. We have our competitive compensation database unlike most of our competitors and our ability to link to other solutions for executives around things like succession planning and communication is also another key differentiator for us.

In this business, demand is driven partly by corporate governance requirement, ongoing reviews of executive pay program are necessary. Regulatory activities also driving demand here and the interest of shareholder activist groups are also importantly getting clients to purchase services in this area. And then finally, as companies change their priorities, there is additional demand as we work to align pay programs with those priorities.

We see growth areas in a lot of – we see a lot of opportunities for growth here. The Towers Watson distribution channel, our clients are one of the most powerful. We can introduce our executive pay services to existing clients where we don’t provide these services and as well existing clients are looking for new ways to ensure that their pay is appropriately aligned with their strategy and with the competitive marketplace.

We’re also focused on the growing management side, consulting in this area. And then finally, we’re seeing executive pay become of greater importance in emerging markets and like we’ve done historically where executive pay has emerged as a new service in markets like Germany and Japan, we expect we are in a very strong position to capture those emerging markets.

Now, our consulting approach reflects the client for us focus that has been mentioned a number of times. We have protocol that enable us to work with both management and compensation committees around the world or both. However, near the beginning of this past fiscal year, we had a number of our clients who are concerned about objectivity and independence of advice. So, I should say the appearance of objectivity and independence of advice and in response to that we did spinoff a number of our clients and consultants to pay governance aboard focus consultancy and have focused on both board consulting and management consulting sense then.

Even after that, we have two charts up here that show the market share for a number of consultancies of the S&P 1,500. For committee consultants, you can see that we are number two only behind Fred Cook at 10% market share there. At January 1, 2010, we would have been in the number one position but with this spinoff to pay governance we moved to number two. But, we’re really believe this is a stable position and feel quite good about our position there.

If you look at the subset of those organizations in the S&P 1,500, you have duel consultancies for management and the board. We are by far in the lead with 38% market share there. Importantly, our market share with the FTSE 100 Index 30 and other large organizations, it’s very similar around the world.

Our range of services in executive compensation starts with strategy and goes all the way through to design of executive pay program and if you look of these 12 boxes, there are seven of them that we can tick off and say these are service that organizations would require on an annual basis. From pay alignment, pay for performance, metrics calibration, CD&A support, say on pay shareholder engagement, governance and benchmarking. The other five are more project base.

As of today, most of the work that we do is contracted on an annual basis. We see great opportunity for moving this to more annuity type work. Just to highlight a couple of these things, around CD&A best practices we’re seeing much more request for support as companies prepare for their proxy disclosures and want to make sure that they understand the best practices in this area and they have – that they are conveying the right messages.

Say on pay shareholder engagement, we took the initiative to develop a survey tool so that our clients can gather input from shareholders. So, they can understand what shareholders might expect not around pay practices and we implemented this even before the regulations were effective.

We show an extract from some of the work that we do. This is an annual diagnostic tool that helps companies quantitatively demonstrate how executive compensation programs are or not performance orientated. It helps organizations troubleshoot plan weakness and help a comp committee determine if incentive programs are working as intended.

What it does is flocks with all of our data the level of realizable pay relative to the performance of the organization and we demonstrate where alignment occurred. This just one example of a great tool that we can provide to our clients on an ongoing basis in executive compensation. So, here for the line of business overall, we see strong demand globally. We have a great position from which to leverage and we have an opportunity to really drive annuity revenue.

Our next line of business in talent and rewards is rewards, talent and communication. This is another consulting focus line of business. It’s a largest of our lobs with 40s of our revenue. By enlarge, our work here is charged on a time-and-expense basis. However, we are seeing an increase in fixed fee arrangements as well. The work is more leveraged in this line of business and it is an executive compensation but we still have senior level consultants who are important to the work, the projects can be leveraged to more mid level and junior consultants as well. Much of the work we do is project based here. May not be quite as much opportunity to move to annuity work in this line of business though there are some opportunities.

Our differentiators here are very similar to what they are in the executive compensation line of business. It starts with our depth and our breadth, our scale is significant. We have great depth of research, experts and though leaders across everything that involved in this line of business. Demand for this line of business is particularly strong right now including in the mature markets but with a specially strong demand in Asia Pacific and parts of Latin America.

The new war for talented people is really driving this demand as is globalization in those parts of the world. Another demand driver here is changes in benefit programs where there is need to communicate and manage change and we’re working very closely with our colleagues and Gene segment to deliver on that.

M&A also drive significant demand as I already mentioned. Some of our biggest opportunities for growth here too come from that opportunity to leverage the clients where we don’t do work with those warm introduction and linking our services across the consulting areas with other solutions and there is a big focus in this line of business, our leadership development and manger capabilities where we’re seeing great demand and significant projects emerging on implementing globally consistent reward and carrier frameworks.

Our work in rewards, talent and communication falls into two buckets, large-scale projects that links other services and smaller scale ongoing program management, the vast majority being in those large-scale projects. Those full scale – those large-scale projects include big projects to develop and implement workforce strategies aligned with top business priorities. Implementation of new carrier frameworks, designing and implementing new global job architecture, evaluating the riskiness of incentive plan design, strategy to enhance sales effectiveness, evaluating and implementing employee value propositions and employment grants.

These projects often extend for six months to 18 months and they involve senior practitioners but also enable us to deploy mid level and junior staff on the ground and can incorporate diagnostic tools as well for this great leverage.

In this categories also M&A support where we have companies do a broad variety of things around integration. We practice this on ourselves when we came to Towers Watson, I might add. But, some of the things that we do in this area are to determine the skills required of leadership and align leadership with the new direction at the merged firm. We help build and sustain a corporate culture that’s aligned with the business strategy of the organization.

We create communication and messaging frameworks that help with the integration and support employee engagement along the way. We work to help organization maintain their focus on business performance as we’re going through integration exercises. At the same time, we can conduct side by side analysis of compensation program for both entities and bring those compensation programs together as quickly as possible and we also help bring HR functions together and integrate HR technologies with regard to M&A.

The second category is related to ongoing management programs in this area and they include such things as ongoing wellness education. We’ve also developed some innovative gaming solutions that are deployed to educate employees on benefits and on the importance of an organization’s mission.

We also developed auto tool around talent management programs and processes that help organization identify gap in these areas and these are intended to be down on an annual basis. Again smaller, we are trying to build somewhat of an annuity base for this business as well.

For rewards, talent and communication we’ll see this – we’ll continue to see the largest scale project based nature of this work with some mitigation through the ongoing program management. Big opportunity for us here is for us to reduce cost of sale though by linking these services with other services in talent and rewards.

Our last line of business is data surveys and technology. This is more of a product base business than a consulting business. The product here includes publishing benchmarking reports and technology applications, as well as conducting employee surveys. All of the services in this line of business lend themselves to multi-year service arrangements as well the work can be accomplished with central resources. I mentioned the Manila centre that we established, that’s to support this line of business.

There’s also often a steep cost of entry. Our competitors will have a tough time competing with us here, whether it's to create a very significant benchmarking database or develop software price of entry steep and we feel like we hold a strong competitive position because of that. I should note though after the development of those initial products, the leverage in this business is quite significant.

We distinguish ourselves in this market primarily because of our consulting wrapped around these products. While we believe that our products are strong in and of themselves, that deep HR domain expertise enables us to really differentiate ourselves. Our aggregation of data is so comprehensive; I believe it is second to none. We have data for example on compensation for 9 million incumbents around the world from over 25,000 organizations.

We have talent and reward practices on over 1,000 organizations. We have information on the HR function and structure of the HR function within 500 global organizations. We survey four million people a year, and on account of that we have a database that holds 200 million data points on employee attitudes around the world.

Importantly, we take this data and we provide sophisticated – we use sophisticated analytics to turn it into insight that helps organizations act on it. Demand is strong. We’re seeing more and more interest in benchmarking. Technology is a big growing – a growing area in this area and as with our consulting solutions, there’s great opportunity to introduce these services to other Towers Watson clients. At the same time we’re seeing big pickup in demand in all of these areas in and of themselves.

Quickly on data compensation. Data source is – we are one of the top in the world we believe with these source for this. We cover all sectors; we cover over 100 countries, get great expertise. We have a different range of products, the basic view publish reports for any size organization to tap into all the way to very premium executive type reports that are customized.

Our methodology importantly ensures that companies are making relevant and meaningful comparisons of compensation data. We’re not just handling a pile of data for organizations to figure it out on their own.

Our employee survey business, as I mentioned, includes us surveying more than four million employees each year. We mostly focus on employee engagement surveys. The reason we do so is because that’s a measure of employee attitudes that has a very significant correlation to business outcomes. The chart shown on this page provides an example of the type of research we do that correlates operating margins with levels of employee engagement. And you can see there’s quite significant difference in business outcomes for organizations that do have highly engaged employees.

We do surveys for all sorts of organizations, custom surveys that cover hundreds of executives to test culture all the way to very large companywide surveys, the largest of which we did cover 400,000 employees last year.

We maintain benchmarking norms. 250 of them are regularly used by our clients. We have another 120 sitting on the shelf – 220, excuse me that is sitting on the shelf that are waiting for organizations to use.

We apply sophisticated analytics so that companies can take these data that we produce and turn them into actions. And because of the other the consulting services that we offer, we're really able to help organizations take actions from these survey results and we think that's an important distinguishing feature for us.

In the area of technology we have three main products. The first things the online total rewards statements and portal, sites that help provide information to company’s employees about the value of their reward program. The second is ours HR Portal support, where we customize SharePoint site for HR. In fact for the past two years, we have been Microsoft only acknowledged partner in this area and over the past 12 months alone we’ve completed 60 implementations in this area with the number of organizations that actually have licenses to SharePoint and then the number of those can be that aren’t using in to its full extent we believe there’s great opportunity for growth there.

So the last area is pretty important. It’s our integrated talent and rewards software, which has eight modules for the administration of talents and rewards program. The modules range from pay review processes to compensation planning, performance management, success in planning and learning management. We have over 350 clients for who at least one model is implemented and this is deployed. We think there’s great opportunity for us to extend those two second or third modules.

Importantly our software was evaluated by Versant & Associates (ph) recently along with about 40 other organizations. And we're really pleased that we moved into top 10 ranking by Versant and our – they expect us to continue to improve. Our developed roadmap calls for upgrades every six months. Version 7 will be released this week and includes major enhancements in our user interfaces and our succession planning model. And even before that release Versant rated us relative to all of these competitors shown on this page and this chart shows where we land for our customer satisfaction and willingness to recommend and we’re up there in the right-hand corner which is a really nice place to be in this space.

I’ve mentioned the lot of the opportunities for growth for this segment, but we’re not waiting for it to come for us. We’re aggressively marketing our position through innovations like iPad applications, participation in HR and technology compensates, through research and publications and partnerships with academics like John Budrow (ph).

So I hope these past 30 minutes have given you a bit of a better understanding of this segment and it has helped you to see why I think this is an exciting segment for us. I think we have a compelling value proposition for clients through our combination of consulting products. With our depth and breadth, we have the flexibility to meet client needs that call for deep technical expertise and solutions, as well as broad integrated solutions. And even with the uncertainty in the economy in parts of the world, there are many demands for our services. The growth opportunities are significant. The areas that we’ll be focusing on significantly as I mentioned several times tapping into the Towers Watson client base working with Jim and the CDG (inaudible) and linking our solutions.

While the competition is stiff, we have a really strong position and differentiators that really matter to our clients. And as we focus on a different business model than most of our competitors, we believe we'll be able to continue to deliver strong bottom-line results that allow us to invest in our associates and our business as we grow.

Thank you for listening.

Roger Millay

Okay. So now we'll finish up with some numbers. I think they've had agreed to review of – overall view of the business from John, great review of the businesses. I know you guys have been sitting for a while, but now we'll do some numbers. Fortunately, I think we have some good numbers to talk about, so going to make your last half hour hopefully a little more bearable.

I want to step back to start with and review why we're still in the integration period here back to the expectations that we said – as John said now over two years ago for where we thought we could take the merged company, where we could take Towers Watson. Good to report again over two years in that we’re really ahead of all the key goals that we set.

So from a revenue point of view, we’re targeting being a $3 billion plus company. You might remember back then it was a little bit of an unstable environment, difficult to predict where we were going to be and you’ve heard a lot about the execution that we've had in this business and so we’re now running at about $3.3 billion looking at the last fiscal year.

From my margin, I tend to combine the margin perspective with the synergy perspective. So when we kicked off the deal, we talked about 120 million of cost takeouts. That was comprised of $80 million of cost synergies. That was net cost synergies plus $40 million of savings from folks that we expect to retire from legacy Towers parents, so $120 million.

If you look at where we are now, the last fiscal year at 18.9% adjusted EBITDA margins, kind of the range that we’ve been in, kind of that mid-18% range up to around 19%. We thought that we were on a pro forma basis going into the merger at about say 15% to 15.5% EBITDA margins, again, combined before we merged.

So you look at improvement in margin of about 350 basis points in that time period. That translates into about $115 million compared to the $120 million. At this point we know we’re not completed with integration. We have more cost to come out, but we’re really pleased obviously with the performance that we've had, the dollars that we've taken out of the system, and again I look at the margins because that more clearly where you can see it. I think folks talk all the times about projects, dollars coming out here and there, sometimes you can't find them. I think it's pretty clear we find them.

Looking now at the 2011 highlights, John ran through the slide with you so I want totally drill it. I think I have a couple more points here to make. First and going back and I think in the discussions of the business you’ve heard some of the pieces that drove the turn in revenues for us. We probably had pretty good timing relative to this deal although maybe it didn't feel like it at the time with doing the merger, focused on integration at a time where the constant currency revenues of the business were shrinking.

Again, I'm comfortable with the time, but the lift that we've gotten over the last year has really I think helped us and as we look at the competitive environment we think now we’re performing very well and really I think above market. That really became a parent in the first half of the last fiscal year, fiscal 2011. I think you heard some of the tidbits. Gene mentioned international I recall earlier in the year; that's one of the first things that we saw turn up. I think talent and rewards probably Julie mentioned it in that first half of fiscal 11 we saw a turn up.

I think we were telling you guys in the first and second quarters that we started to see a sequential momentum even though it wasn't evident in the overall constant currency comparisons and we were predicting revenue growth in the second half. Again, John mentioned that it was quite rewarding to see that come through and then ultimately the growth for the year was above what we had forecast internally in 2% growth for the year. So we’re quite pleased with that, quite pleased to end the year with all of the segments growing and all of the segments showing margin improvement, significant margin improvement, in the number of races over the prior year.

We heard a bit and in fact I had a page on EMB from Tricia. I'm not sure Gene mentioned it, but we had the Aliquant acquisition as well in the TAS business. I think it’s from our point of view looking get back with all of the integration challenge that we had also being able to add these nice new complements to a couple of our lines of business I think was a great accomplishment.

So we took on a lot, I think we executed well, it was a great year and we generated very strong free cash flow something that I know you look back a year and I think in the analyst community there was some kind of question about where we really were going to be from free cash flow point of view and then there was a lot of interest when the free cash was very strong during the year. We ended up with $470 million.

And just to remind you, again, this was a bit of an unusual year from a free cash point of view, because we only paid six months of bonuses because the transaction closed in the middle of the fiscal year, but last September again be paid a six-month bonus for the first bonus for legacy Towers Watson. This year in September we paid a full year of bonuses. So that $470 million is higher than the run rate going forward, again, primarily because of the bonus dynamics.

As far as deployment of free cash, again, I mentioned the acquisitions. John talked a bit about pillar two, the kinds of things that we think about in acquisitions. This is a really nice one. I think it's not really I guess there are tuck-ins technically, but they were tuck-ins that really added some great capabilities to two of our lines of business. So they are very attractive transactions.

We also reinvested we initiated a share repurchase program during the year. Started buying back shares in the summer, brought back about a 0.5 million shares during the fiscal year.

So what’s the foundation for the results? Again, I think you’ve heard a lot about that. I go back and I show just thinking about this page this morning and I think that I really should have put the prior probably nine months in this graph. I think that's really when the keys, perhaps the keys, to the results we’re seeing today we’re really established and that was the planning that we did for integration prior to announcing the deal and then really I think retrospectively the tremendous work that the team did prior to closing.

We really worked as I think are very effective combined team even when we were Towers Watson. And I think with that good work done, we knew on January 4th, Monday, January 4th when we came in and we were Towers Watson, we knew why exactly what we wanted to do and the teams were set loose.

Teams effectively really had already been in place and so I think – and again John mentioned some of this in his discussion of integration, but to me the most striking thing in retrospect was over a six-month period effectively we reoriented the business operations of the company. That was the key and many of you saw in the margin numbers and then discussions about synergies and of course that was a part of the rationalization of overlapping management process came through the margins that was great taken as integration effectiveness, but I think really the most powerful piece of that was that from the summer of 2010 we had a business organization that we could unleash on the market understanding what Towers Watson was, understanding some of the that the segment leaders talked about for growth. We had a CDG organization, and I think the results that we saw in constant currency growth, the organic growth in the second half of fiscal 2010 was really driven by that success and integration in the prior 15 to 18 months.

Also, John mentioned that we’ve been working to rationalize systems. Unfortunately, we’re not able to do that quite as quickly. We’ve really been working on the again since July of 2009. We hired Accenture in September of 2009. We had a team put together and an initiative that started up really post closing. We've redesigned the systems of the company. I was pleased in August to say that we had kicked off the pilot of the new systems in Canada on August 1st. We’re now in the building process for that new system. We feel very good about the design and the initial implementation and importantly the disciplines that we have around implementation which we’re now going to take those disciplines and roll that system out around the world. The next stop will be the U.S. and then the U.K. in the March quarter.

Importantly on the financial and I'll mention this and give a little more context on the financial elements of integration and the integration cost. We do now see and we have seen if you look back to the first six months, nine months of the merger, you see that the integration cost line of our P&L is now running at a lower level than it was in the first couple or three quarters. We do expect as we go through this fiscal year, you will continue to see that decline. That's going to be a lump line or occasionally kind of transactions that happened that drive perhaps a multi-million dollar expense in a particular quarter but the trend will be down as you look at the quarters of fiscal 2012.

Just looking at some of the numbers in the transaction integration line, the middle column there which is the column through June 30, 2011, the $188 million that that column totals to if you go back to our 10-Qs you look at the P&L, that's what we've charged through that line to-date. $38 million of that is transaction costs, most of that is from the Towers Watson merger. A bit of it actually does relate to EMB and Aliquant, but again most of it is was incurred back in the late 2009 or early 2010 timeframe.

The rest is really the cost that we've incurred in integration activities and there are a number of lines and broken out here are the big categories. Clearly, IT for us is a huge category of spend and it was a huge category of opportunity. Again, two different legacy systems, both were global on different platforms but when you looked at and this is really the early work that we did. When you looked at the underlying functionality they were real opportunities to tighten processes around the world and to enhance the functionality of the system.

And so one of the reasons that if you go back that the cost in the IT side is a little less higher than we expected it to be. We thought early on we would probably end up on one platform or the other. What we actually are doing now is we’re going onto Oracle, but we’re transitioning to a new version of Oracle and legacy Towers Perrin was on Oracle. So it's a comprehensive ERP program, something we think the company will benefit from in enhanced operations and the place where we’re able to take, you know, I know we talk about intellectual capital in the businesses. I’ll overplay this a little bit. But to say, in the corporate functions, you know, we’re trying to add, take advantage of the intellectual capital we had in processes in the two companies pick the best or then pick the lessons that we had learned and enhance even further.

So, expensive project, we’ll get good benefits out of it and it’s the key to getting synergies in the corporate function. So, costs will be coming out of finance, cost will be coming out of the HR and out of IT as a result of this program. We expect about another $50 million of spend over the final fixed quarters of integration in the IT software and hardware area. The hardware area is really the rationalization of servers, the rationalization of managing PCs, laptops around the company. Again, cost take out opportunity but an efficiency opportunity for the company.

We expect a little bit more severance we had $38 million that was spent early on. $10 million to $15 million more going forward, again, that’s the result of the corporate function rationalization. The real estate story, I think from my point of view is one of the real great stories of the integration. Real estate to us is not just a cost line, it’s the vehicle through which we get teams working together. And as you looked around the world where we had in some cases, two offices in a city and in some cases multiple offices. And in the New York area, I don’t know, I think it was four or five offices.

And real estate and moving fast on real estate and be effective again it was a lever for effectiveness on integration. We did early on, so about 80% of the people who were in those cities where real estate action to be take about 80% of the people knew what action was going to be taken as of 12/31/10. We’re taking those actions now. You see continuing spend, $19 million through June 30, another 10 to 15 to come. We have some big cities yet to execute on. The range is probably actually even a little bit kind of above 50, maybe a little below 10. It depends on the actions that we take but we think we’re in a good spot in real-estate and we’ll continue to execute well there I think.

In the other areas, that would be, and we’ve talked about this some in the context of taxes, we’re rationalizing the legal entity structure around the world. We use lawyers to help us to do that. In the HR side, we do have, Julie talked about Talent and Rewards, we do have other systems that we use to manage in the HR space, we’re rationalizing those. So, we’ve spent $21 million in the other category, we expect another $10 million to $20 million. Of this $75 million to $105 million yet to come, we think about three quarters of that will be incurred in fiscal year ’12, the remainder in the last couple of quarters of integration.

Now, moving more to balance sheet topics, this was early on the share unlock overhang from the Class B shares, B1 through B4 was an area of great interest of the market when we closed the transaction. It seems a while ago now, but early on we had 12.8 million shares in the Class B1s, the unlock of the Class B1s was January of this year. And you may recall probably will recall if you’ve followed our story that we did a secondary last year at about this time. And we also had a repurchase program, a tender offer that we executed in the summer of 2010 to manage down the B1 risk, we got it down to about 5.5 million shares.

And although we were ready to take more actions to manage the Class B overhang, this year the stock is traded quite favorably and consistently and stably. So, we haven’t taken other actions. We feel good about where we are right now. We continue to look at opportunities, there may be transactions that make sense are relative to the B2s through B4s. But we now consider it more in context of what are we looking to do with our free cash and what are the optimum ways to do that. So, there may be more to come here but we think we’re in a pretty stable position relative to managing the overhang.

Further on the balance sheet, we’re always talking a lot about cash. We ended June, so the June quarter is really our peak cash period generally because we pay bonuses in September we build cash through the year. So, we had $573 million of cash in short term investments at June 30. We did pay bonuses, actually last week. As a result of that, we drew about $75 million on our revolving line of credit. And we have about $300 million remaining in cash. But again, a lot of our cash is located outside of the US and is somewhat trapped or at least, that a minimum there are cash implications or tax implications of bringing that cash back.

We’ll continue to move forward now, build cash through the year again, up until bonus time next year. We will in the next year be paying down the $99 million of notes that resulted from the tender offer of the Class B1 shares last year. We are also this year re-financing our revolving credit agreement, the bank facility that we did in conjunction with the merger, $0.5 billion that closed again in the January period of 2010. It is a three year deal. As it’s typical, we started to look at refinancing this deal in conjunction with about the one year anniversary. And we expect over the next few months we will renew that facility in roughly the same structure that we have today about $0.5 billion.

One area on the balance sheet that’s generated a fair amount of interest since we closed the transaction is the crude retirement benefits and the associated liability. I think it was actually a bit of a surprise to people even though it wasn’t bedded in the S4 filing that we did prior to the merger, that we had over $1 billion in that line, that liability line when we closed the transaction. We’re now down to $785 million, there were probably three key drivers of that reduction. First as we looked at our major benefits plans and to rationalize those plans for the merged company, we have reduced some benefits in the big areas. So, when we revalue those plans, the liability was lower. We are making payments against those liabilities.

One of the key elements, three key elements of that liability line is the non-qualified pension plans which are not funded and our paid out when people retire in lump sum that maybe a one year lump sum and maybe a multi-year lump sum but they are accelerated payments. So we did have a lot of retirements in fiscal 2010, calendar 2010. And as a result we are making payments under that non qualified pension plan and that’s bringing the liability down somewhat. Also similar story for the retiree health liability, it’s been restructured, the benefits will be lower. But again, through the next few years, we’ll be paying down that liability. Finally, and as Tricia mentioned, the investment environment has become more volatile but we had a good year in fiscal 2011. So, when we revalued at the end of fiscal year, our investment results were up and that dropped the liability as well.

Otherwise stepping back from a free cash generation point of view and an investment point of view, we have really the same three priorities. John, talked about the strategic growth areas, one of those being acquisitions. But other areas around innovation, around ventures, we want to realize, now we’re in a position to realize the strategic growth opportunities of Towers Watson and we’ll invest in those. Second, there has perhaps been a little nuance leaning and how we will distribute cash to shareholders. We still do lean to repurchase programs. But we did bump the dividend up, we announced in August, so now we’re up to $0.10 per quarter per share, 33% increase. And we’re referencing now a 10% payout ratio as a level that we’ll consider annually based on the results and expected results. And we may see continuing enhancements of the dividend depending on results relative to that 10% payout ratio.

Not a lot on this page, but really just to set up page to say that, our margins now, that range of mid 18%, last year at 18.9% for EBITDA margins are historically high margins. So, if you compare back now, this is comparing back to Legacy Watson Wyatt as a public company. If you compare back to the 2007, 2009 timeframe, Watson Wyatt was in the 16% to 17% range. If you go back to the fiscal years, three fiscal years before that, Legacy Watson Wyatt was in the 13% to 14% EBITDA margin range. So, we feel good about how we’re managing the company. We’re also sensitive to not constraining the company and the growth opportunities relative to the push for margins. But we think we’re in a really nice spot and really relative to the merger in a spot where our future savings maybe available through invest and growth. And at the same time we can declare victory on the goals that we had for the merger. So, historically we think from a margin point of view, we’re in a really nice spot here.

Turning to guidance, this page highlights, really repeats the guidance that we gave for Q1. So, old news, we won’t say much about this page other than the top line guidance, the revenue guidance is reflective of that mid-single digit kind of range that we think makes sense for our company at this point in time. The margin guidance that we gave around 18% reflects the fact that this is a seasonally soft quarter. The second and third quarters will be stronger as we saw last year. Again, on the Tax line, given the surge that we saw in the US business in the second half of the fiscal year, we pushed the tax rate guidance and the tax rate that we realized for fiscal year ’11 was elevated. So, now we’re looking at 37% to 38%. And we’re showing nice, we expect nice growth on the EPS line versus last year.

So, the new news is the specifics on fiscal year ’12 guidance. Again, to remind you, through the integration period, we will be talking about adjusted levels of earnings both on the EPS line and on the EBITDA line. We will continue to separate out the integration costs and we will continue to separate the amortization of the intangible assets as well as the RSU costs, so similar adjustments to that we’ve had in the last couple years.

We expect revenues in the range of $3.4 billion or $3.5 billion, again we view that as the continuation of the mindset that we had for first quarter guidance, mid single digit levels of growth. Adjusted diluted EPS, in the range of $4.85 to $5. Adjusted EBITDA margin, around 18.5%, that reflects a little bit of a decrease from last year to 18.9%. You may remember that we talked midyear, we had a couple of legal settlements, that some legal reserves came back on the in our reserve side, not something that we project year to year. So, you know, we think this is fairly comparable performance for fiscal ’12 to where we were in fiscal ’11.

Tax rate the same as for the quarter, from a free cash point of view, I mentioned that the run rate really when you true up for the bonus payments is lower, this range of $275 million to $300 million, reflects that. It also reflects the fact that our guidance for CapEx, in this term I’m using CapEx to mean purchases or functions and equipment that you see in the cash flow statement. We think that level will be a bit higher with all the IT spend this year at around $100 million. So, if you adjust for those two items, and then if you pull out the cost that we’re incurring on the integration side, you get a sense of where we really think we are from an ongoing free cash generation point of view and you get numbers clearly above the $275 to $300 we’ve guided for this year. So, free cash will be higher once we get through the integration period is the bottom line to that comment.

From a shares point of view, should we complete the share repurchase program, the $100 million program that we’re in the middle of now? In the next couple of months, probably we’ll be rounding up to $73 million, so 72 point something million shares will be the average for the year. From and FX point of view, we’ve continued the guidance. I recall after the last call, I was giving commentary how conservative we were on FX and gee the rates looked at 160 for the pound, we looked relative to 163 or 164 where the market was, you know, that was too conservative, same for the Euro, and now here we are, now we look like actually we’ve got a bit of a stretch. So, you know, we do tend to keep these pretty round numbers and keep them for a while just because it’s too hard to think about. So, we think we’re at pretty reasonable levels for the year.

So, that’s the guidance for the year. Finally, really, just to talk about the long term and I think again, it’s really the sum of everything that you’ve heard. I think you’ve seen and can understand our perspective now on the breadth and depth of the business portfolio, how it’s been enhanced and the opportunity that creates. At the same time, the stability of the revenue stream is still there. So, you know, from my point of view that makes a really nice business to be the CFO of stable base growth opportunity and a team very focused on that.

We will continue to be very disciplined from an operating point of view. I think one of the striking things to me, I didn’t mention it earlier. But I think we talked about integration and the phases of integration, it was very striking to me the degree to which the whole company really embraced, the margin goals and the cost management goals that we had and I think that’s really one of the keys. People get it in the company, and they go after it and manage it well. So, I think we’ll continue to have that kind of disciple and it to drive strong margins. And finally, the profile, the business is just one, when you manage the margins well, you get good free cash, which gives us the flexibility to look at growth for the future and to look at returning cash to shareholders.

So, thank you very much. And with that, I think we’ll turn it over to questions.

Question-and-Answer Session

John Haley

Great, thanks Roger. By the way, one of my favorite days is Analyst Day, Roger, do you want to stay up here, because you’ll probably get most of the questions. Roger and I meet with a lot of you, all throughout the year. But we get the chance to see the talented team we work with all the time. So, it’s great for you guys to get a chance to see that. So, let’s open it up to questions. Shawn (ph)?

Unidentified Analyst

Thank you for taking my questions. I want to just start out as the question maybe more for Gene. Is just how do you expect to longer term get kind of that 6% revenue growth, what are the components of that? And where do you feel that you were originally from 2011 fiscal year ’11 to where you expect to be in the future?

Gene Wickes

If you go back and look at the makeup of the business, with 71% essentially sitting in retirement, I dream about such percentage of growth on retirement but I’m not sure it’s going to be there and John will challenge me on that. But if you look at the 15%, we essentially have a Health and Group, both of those should grow much more rapidly than the 5% or 6%. And so, if we get low double digits in health and Group in long term, with a smaller growth in Retirement, I think we’ll get to the mid single digits.

Unidentified Analyst

How confident are you that the retirement will really remain positive and how do you expect that to be going on for a long time in the future?

Gene Wickes

Then I got to be careful, as long as my career is here. I actually feel confident for the period. And part of it, we’ve had a discussion, as long as I’ve been in this business, I was going to challenge in the Retirement business and everybody said, and it continued to grow and we’ve continued to whether it continued to grow. In Europe, where we’ve seen closure of most of the plans, because right now the Retirement business probably our highest growth. These plans are still big but they still have a lot of action that needs to be taken care of. And I think for a foreseeable future, you’ll continue to see it. That’s why I put that chart up there even if a plan closes for a extended period of time, there is a lot of work for these to be done.

I also think when you see the pendulum swing, these plans will be closed. Nobody knows what things are going to look like in 10 or 15 years, and when you see in the UK, 55% of companies have no retirement benefits at all. They have real issues with people migrating through the workforce. And I think you’re going to see in a period, companies wake up and say, we still need retirement issues. I actually think, we’re in a period today where most of the employees have Retirement Benefits, 10 or 15 years from now when lot of these plans were still there, there’ll be a look at to how I would I deal with these issues. So, I do think we’ve got solid growth on Retirement and much better prospects for growth in Health and Group and Talents where I think we’re underweighted compared to the market we have market opportunities.

Unidentified Analyst

Thank you, two questions. Could you talk about the plans for innovation, what that really means from a practical perspective they’ll be looking to add capability and just how we should see that play out?

John Haley

Yeah, so, as we thought about intervention, we think we have lots of ideas, we got 14,000 associates that we have out there, they’re all pretty attuned to the market and always coming up with lots of different ideas about it. But we think as an organization, we probably do too many different things in terms of, we actually have people with the fair amount of free and try this and that. And we don’t actually put organizational muscle behind the few that we probably push ahead.

So, what we’re thinking about is something where we had to, a small group that will try to take all the clients sensing and the ideas that we have throughout the organization and let’s say we have maybe, you know, picking the number 300 then in the course of the year, we’ll actually take about 30 of them or so and do a libelous pilot testing on those to say which of those should we actually pursue and then we may take two or three that we actually put some organizational muscle behind.

But, what we’ll do is, we’ll put bigger bets on some of these ones we want to do and we’ll probably stop investing in some that they don’t have a good future life. We don’t see this is something where we’re going to be asking all 14,000 associates to get involved and this might be a small group of 30 or so, and anyone time that’s working on these.

Unidentified Analyst

And then Roger, could you talk a bit about where you’re expecting margin compression versus expansion in 2012 across the various different clients?

Roger Millay

Again, I think. So, the main area that is we think there’s going to be some change in year-over-year is really in some of the corporate expenses and what comes through in the insurance expenses. Otherwise, we’re looking for the business units to be at the level that they were in fiscal 2011 or slightly above. So, it is one of the of matters of the of the company that the segment leaders know, we are looking to sustain or increase margin. So, I think lower or particular places.

Unidentified Analyst

Question to Tricia, the 2% to 5% organic growth, what percent are you looking, the project base obviously there are lot of projects, many organization, is there a couple big projects that happening in fiscal ‘11 and we need to think about and what you’re assuming for like insurance M&A or whatever big insurance projects as we’re looking to fiscal ‘12?

Tricia Guinn

Okay. With the scope and size of our business, we’ve always got large projects going on. So, I can’t point any particular projects that were, you know, kind of dominated our results for last year. And I assume that you’re talking about the RCF business in particular because that’s the one that’s got the biggest project oriented component. Much as I noted about 18 months ago, we expected insurance M&A activity to pickup, we have seen it picks up, we’re involved in a number of private transactions, we’re also involved in a number of IPOs, once ever happened like AIA, out in Asia. And then, as I mentioned IMG and others that are kind of in process around the world. We still see the conditions being strong for insurance M&A.

Earlier this year, I thought that perhaps of the results of the speed of catastrophes that in the P&C arena, M&A activity might actually kind of take a bid of high aides because the management would need to address, capital management need coming out of that. What we’re actually seeing a fair amount of activity both on the P&C side as well as the light slide. And in the P&C side in particular you’ve got number of companies are trading the loan book value. So, in addition to regulatory change, you’ve got other factors that I eluded to like that that are continuing to drive M&A activity.

So, we do expect it will be important in fiscal ‘12, there’s always a certain amount of insurance M&A activity, and insurance is relatively unconsolidated compare to other financial sectors like banking. But it’s not the only driver growth certainly for the business.

Unidentified Analyst

I had a question for Julie, with regards to Talent and Reward two parts to it. The first part would be, you know, that is the most cyclically sensitive part of the overall portfolio businesses that you have.

Can you discuss anything that you might be seeing in the current business that is reflective of the concerns about on coming macro softness? And what were some of, during the last downturn, what were some of the early indicators that things could be softening? That’s a shorter term question.

The longer term question is, can you talk a little bit about the emerging competition within the space, particularly, you know, if you’ve got McKenzie coming in on the one hand from a high end strategic end. And then you have, you know, companies like Success Factors and Toleyo (ph) trying to increase their focus in terms of being more strategic as well?

Julie Gebauer

Thanks for those questions. In terms of what we’re seeing in the current business environment, we do see strong demand over the next six to nine months. And I guess, the danger is that there may be softer budget set for HR function because HR is our primary buyer as company thinks about the uncertainty in the next calendar year.

That said, we don’t think we depth as far, really the uncertainty is as great this time as it might have been a 24 months ago. And we think that the demand drivers that we’re seeing around talent attraction and retention are not only in the emerging economies, but in some of the areas that where the economies are less stable right now.

We’ll be ready to respond if we start seeing a downturn and I guess our business is responsive to changes unemployment rate as well as accountability and those are the sort of the indicators that we’d be looking at.

Longer term regarding the competition, this area has always attracted very significant competition and we’ve seen the big four, and the management consultancies attempting to move into the space at least over the last five years. And we’ve seen the boutiques, the specialty firms playing in the space for even a greater period of time.

Our strategy as I mentioned is about debts envelope and we think that our position relative to any of these competitors is quite strong. The general management consultancies in the big four haven’t operated in HR arena for the decade that we have and so our experience and our expertise we think positions us nicely relative to them. And then again the breath being able to provide complete solutions connecting across the range of offerings really positions us well against the boutiques.

Unidentified Analyst

Hi, this is Gene. I’ve got two real quick ones. One just on slide 25, you talk about the different scenarios, the status co versus strong market shifts. And I’m just wondering, how should I think about, how that would impact revenue growth for the group if we actually see rates eventually rise and the average funded status improves significantly for the majority of DV plans. And then secondly also you mentioned sort of recession revenue cycle for the group, to where are we in that and I’m guessing, we’re talking about growth and revenues next year. So, we’re not fully at the recession where revenue started to flatten out. So, make on that commentary and that will be helpful.

Gene Wickes

Yeah, if you look at the scenarios if we get movements in interest rates, we’ll have a lot of clients interested in changing their asset mixes, changing their whole risk management, I’ll open the scenario up. So if we’ve got the movement, I would expect, a pretty good size pop in revenue and special projects, long term what that could mean is we would have more clients settle their liabilities, it’s a long term, there could be, I’ll walk us through the fewer plans, one of the short intermediary period, I would expect we saw that in UK, I’ll try to put that one chart up there from UK, you could see the big profit activity that happened in the margin when the settlement started coming in.

So, that was the purpose for putting in. And there’s a long term look at, so we have more plan settled and where does the business go at that point. Whether we have a double dip in the recession is an interesting thing, so we had a deep recession, if you look at our results two or three years ago, we had a pretty good increase in revenue growth and the Retirement business and then we flatten out.

We’re starting to come back a little bit, clients are doing some things, the volatility in the markets, but our clients haven’t build the big base of employees, so it’s one of the Julie’s business is the strongest that is right now because clients are having a harder time hiring, they’re not sure that the special projects will be going to a deep recession again or there because the clients haven’t gotten back to the point where they really increase their employment. Well, I think, it’s going to, for me, the way I would project it would be more status co going forward, which should see a nice consistency in the business as opposed to a big pop from special projects and the decline.

Unidentified Analyst

Hi John. Could you give us a little update on your thoughts on revenue synergies, you know, coming into the merger was, it’s very, lot of excitement that.

Unidentified Company Representative


Unidentified Analyst

And I know that, I know that it can be be hard to measure, it’s tough to know, business roughly got was revenue synergy, but how well do you think you have done over the past year there and some updating thoughts on expectations going forward?

John Haley

Okay, great. Actually I’m going to let Jim Foreman to take that question.

Jim Foreman

Thanks. You’re right it has been difficult to quantify what we’ve done, but we’ve put a plan in place across the world, where we manage against 10 things, we talked about Tricia highlighted this morning.

For instance selling investment consultant services to legacy Towers Perrin clients or selling pass services legacy Tower Perrin clients, so we actually track that over the last probably nine months. I think a lot of the revenue growth that you saw on the second half of our last fiscal year, as a result of us, actually aligning against the market opportunities as well as taking advantage of the internal cross selling that we did.

So, we thought that we could probably generate an extra $80 million in the first year of Towers Watson in the first fiscal year, you know, we’re right about in that range again together when Tricia talked about an act so, no bill investment consulting when, but we think we got that as a result of the combination of the two organizations, but you’re never exactly sure.

We think going forward that there’s a huge opportunity, again with the market opportunity presenting itself with some positive economic trends, low capture even more of our share as a result of the structure that we setup internally. The client development group, their primary goal, you think of them as a broad sales force.

In North America, you know, 175 people dedicated to understanding the three segments business and going out prospectively to our current client base as well as identifying prospects and we mainly focus those resources on large companies, we called them target market organizations, inside each of the segments they’ve got a sales team dedicated in some cases to the mid market, some specialty businesses that might require a different kind of a sale.

So, that combination of the client development group looking at our portfolio services. Now that we know the company better, I can foresee that synergy number continue to expand over the next couple of quarters.

Unidentified Analyst

Okay. Thanks, Jim.

Unidentified Analyst

Both Gene and Tricia. The big property causality insurance brokers have been talking probably for ever about cross selling property casualty and benefits products. Is that market changing, in another words, is cross selling becoming more ligament and it’s so to that represent one of the adjacency that we’ve been talking about?

John Haley

Address that first Tricia.

Tricia Guinn

I will, the big PC brokers are talking about that from the retail side, right? Because then they’ve got that distribution channel into the large corporate market across both brokerage and consulting. Our brokerage business is primarily a reinsurance brokerage business. So, that’s not an area where we currently have had a focused.

That said, so back to your question, what’s review on, what’s really going on here.

Today we’ve seen little going on and then most of the competition, the consulting and brokerage businesses are quite separate and that’s one of the things I think distinguishes Towers Watson that our CDG, you know, both across all the segment and we’re very much oriented towards finding those linkages just Julie pointed out and leveraging the strength of the four organizations.

Gene Wickes

Also think when you look at the risks, the risks are still very specialized. So, when you got a company who as an overall list officer looking at you, soon as you get into pension risk or somebody other, you go right deep into the specialty. And at that point it’s more important who the actuary as it’s imposed to the property casualty broker is, so that’s what most of the work will do.

Unidentified Analyst

I was going to ask you, if you can give us some update thoughts on total potential cost synergies. I mean, if we look at or maybe relative to the incremental spend that is left. It looks like its roughly 50% of what you spent so far, you’ll spend going forward here, can we think of that roughly in terms of the additional cost that you could take out?

Unidentified Company Representative

Yeah, there is probably not paraballism there because from a spend point of view, you know, when you a see it really – kind of that timing diagram chart. The spend is more spread of the three year period and more of the benefits came out early on and so, IT cost, the additional real estate cost those were not areas that kind of relatively drove about a lot of savings.

So, I’d say that savings relative to spend is going to decreasing as we get to the end here, you know, savings now are probably, you know, you may remember early on we set about $40 million of savings on the functional areas, the corporate areas, we’ve realized some of that, some of that very intentionally early on because I was part of the rationalization of the management overlap.

But also as we’ve gone through the last 20 months now as you’re doing these things when you have turnover you don’t replace positions. So, you know, we’ve realized probably, you know, close to 50%, I would say if the corporate synergies and so that gives you some sense of, you know, perhaps roughly the savings that remain.

Unidentified Analyst

Hi, John. Just quick question on just the new client development group if I may? What is the ongoing investment in the group, what’s the size of the group and should we think of this as a sort of layer of incremental SG&A?

John Haley

No, we shouldn’t think of this really as an incremental layer of SG&A. I’m going to ask Jim to talk about that and also Paul Morris to talk about it from the Europe, Middle East Africa. Jim you want to start off?

Jim Foreman

Sure, so right now in the Americas this group already exists and its part of the business model that you’ve seen. And many of the people in that function also that time, so they’re not just sales people, they work with their client, they may be embedded in a project.

And so on each day we look at the market opportunity to decide should we add incrementally a person to that business, but there’s needed to be a revenue story attached to that. So, I don’t think we’ll see any kind of new SG&A profitable growth should come from the continued investment in this group. So, it’s already embedded in the run rate, many of the people are billing time, and so the actual cost is sometimes neutralize by the billable time that these folks have that shows up in each of the segments. And Paul can talk a little bit about what we foresee happening in the other two regions where this is much less mature. And we think there’s a real opportunity for us to capture more revenue.

Paul Morris

Yeah, that’s right. We’re still in the developmental stages of our kind of development group and EMEA and even more South Asia pacific. In EMEA, we’ve got about 25 members of the client development group, but remember that spread across 15 countries.

So, it’s a fairly small group relative to the signs of our target market that we’re developing. We’re not going to make huge investment and getting load the people into that group over the next 12 months or so. My view is that we’ve got to get the right people in that group and have a real ROI focus on that. So, to the extent we can source town, the sales focus, it’s very good, operating across the spectrum of our business, we’re going to build that group. But that’s going to be very much of an ROI basis where the people coming in and there have got to be proven at building our business and working with our clients.

Unidentified Analyst

Okay. Thanks.

John Haley

And then just let me add one another thing to that, I mean, it’s the experience we’ve seen in North America too. It’s not that these functions don’t happen right in new organization. And so to the extent should people and have them specialize in doing that, you actually free up the time of people in the segments to spend more time with clients and billing them. And so rather than big and additional cost actually it’s a more efficient way to operate.

Unidentified Analyst

Okay that makes sense. I did have second question that was more on the supply of talent. When you look at your projected revenue growth rates overtime, do you see an adequate supply of talent across businesses both from internal sourcing, you know, college recruits or takeaways from competition?

Unidentified Company Representative

I think in general, we feel pretty good about our ability to find the folks we need recognizing that, we’re looking to hire people who really in best that the top talent that out there. And so that’s always, you know, it’s always hard to find them and keep them. But we feel pretty good we’ve had a pretty good track record of the last year, in terms of the hiring.

We’re expecting to add about in total about 5% to our population this year. Now some of that will be that reflects some of the acquisitions we did in P&L account, but still it’s good 4% or so anyway. And you know, we feel pretty confident about the ability to do that.

Unidentified Analyst

A question for Roger. In terms of the remaining integration spend of $75 million to $105 million. How much of that is going to be capitalized versus expensed? And then, how should we think about an ongoing CapEx rate above and beyond this year?

Unidentified Company Representative

Right. So to 75 to 105 is not equipment basis to the 188. So, that would be all through the P&L on that integration cost line. The capitalization fee, so I referenced that the spend for fiscal ‘12 were, you know, furniture acquisition that sort of, it’s not like furniture but furniture and equipment will be a little bit higher and I think it’s roughly $20 million or so higher. But it’s embedded in the $100 million of CapEx that we’ve guided for fiscal ‘12.

From an ongoing point of view and I apologize for mixing my matrix a little bit here. But, I didn’t, I don’t think I talked about this bullet point. But, post integration I think the company will run in the 2.5% to 3% range when you look at the combination of both acquisition to equipment as well as software capitalization. That’s roughly were like you see Watson Wyatt ran and I think, you know, Towers Watson will run in about the same place.

We may have a depth actually in the first couple of years post integration just because of the concentration of activity with that year.

Unidentified Analyst

Right. And I was wondering if I could ask a follow on with regards to the operating margins, you know, we’re going to have this dip coming up this year, given that all the integration spend is going to, primarily going to be spent in this next 12 months then it drops off materially. How should we think about the margins on a go forwarded basis, should we expect leverage, I mean, we’re going to have a bump when we get to fiscal ‘13 I’m assuming. And then ongoing leverage from that point for there is a level that you just stay, it doesn’t make sense to go above and beyond that?

Unidentified Company Representative

Yeah, so, you know, we really haven’t established internally the target for longer term margins. I think, you know, generally what we’re saying is, 18.5% to 19% range that we settled in at this point in time, make sense for where we are, there are cost savings coming out, you know, the hope is that we do have opportunities to reinvest those savings to grow the business.

So, maybe the stable range once we get through integration is around this same range where we are now. But I think, you know, yet to come, I think we’re kicking off a lot in the company as John talked about strategically and so yet to come so, there’s potential upside, we’ll talk again in the year.

Unidentified Analyst

Hi, this is a question for John and for Roger. The question is, why is the company’s current capital structure the appropriate one? I think you and your team do a terrific job of outlining the strong annuity like revenue streams of the business. I think if you look at the, your closest pierce both of them run with different, but leverage balance sheets.

If you think about the cost of debt right now for the business like yours even the modest level, it would be very attracted particular an after tax basis, like to presume more share repurchases, dividends or acquisitions as you see appropriate.

I don’t think anyone hear what abdicates we wouldn’t certainly abdicate an aggressively leverage balance sheet for professional services business. But, I think there’s a difference between where you are today and what might be considered to more efficient structure. So, I’d be curious if your, what your thoughts on that topic? Thanks.

Roger Millay

Yeah, I’ll start, so John has thoughts on this too. You know, I would say this is kind of my answer, because that for right now where we are. I think there’s one we agree with you that for a professional services where we’re not going to be a highly leveraged firm.

I think the greatest opportunity for where we are and it’s really I think kind of the importance of being this stage of the development of Towers Watson, or the opportunities that John outlined and that our business leaders talked about.

And I think flexibility quite frankly is really valuable in that situation. So, I highly value that, I want to be able to take advantage of the opportunities as they come along and I don’t want to be constraint by, you know, a higher level of leverage, that’s not to say as we move in that Towers Watson maybe modestly might be a little bit more leverage then Watson Wyatt was, but I think flexibility to me is very important then more the things we’re emphasizing.

John Haley

Yeah, I fundamentally agree with that, I mean, I think where we are today is just a function of having come out of the merger, you know, we try to do some buyback the shares and we didn’t get as much take up as we might hoped, I’m not sure that we’re at the long term capital structure that we’ll have. But, we’re letting everything settle at the movement.

Unidentified Analyst

I had a question about pushed towards innovation and adventurously described. Do you think that is, you know, you’re hoping to achieve a lower level of employee associate turnover as a result or do you find people wanting to go out and strike it on their own and then internally do you have any sort of percentage of revenue target that you might say, you know, we’d like to generate 5%, 10% of revenue from services development last few years or something like that?

Unidentified Company Representative

Yeah, no actually it didn’t have anything to do with employee turnover anything like that. We went through and did a strategy study earlier this year and we had BCG helping us. And they, you know, they do a great job and help you think through these things. But one of the things they identified was a chance to maybe have innovation be a more important driver in just developing new businesses. And we certainly felt that, I mean, we work cooperatively on the strategy studies, it’s not just what they tell you. But, we think that we probably need to be a little faster and to take advantage of some more, those who we think that could lead to some real revenue increases, now ECG estimates a lot more then retail. So, you know, if you listen to them that would be a couple of a billion probably. But, we think a lot more modestly then that.

Unidentified Analyst

Hi, you talked about increasing head counts like organically about 4%, could you talk about the concentrations of where you expect that head count increase to come usually in professional services firms that’s the indicators of the biggest areas of opportunity the company sees in front of it?

John Haley

Yeah, so, that’s like 12 we have projected and benefits that will grow about 3%. Now that’s a little bit, that has a little bit from our client, although it’s not, that’s not the biggest deal in terms of that. RFS is grown slightly grown about 10% and they have the EMB deal in there. So, in the RFS, RCS is scheduled to grow at about 13% and then investment about 11%. But 13% would probably down below 10%. I think Tricia, back if we took EMB out of there.

And then the Talent and Rewards is growing about 7% in terms of numbers of employees. So, this is just, you know, just our projections at the moment for where we think we’ll end up, but that gives you a sense as to where they’d be coming from. That ends up at about 5% overall and that’s what I was just saying just roughly it’s probably 1% or so is due to some of the acquisitions so that I got to 4. Do we have any?

Okay, well, thank you very much. We have lunch is next door. And we look forward to you joining us there. Again thanks very much for your participation.

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