Final Results
Marsh & McLennan Co Inc
28 January 2004
News Release
Media Contacts: Investor Contact:
Barbara Perlmutter Jim Fingeroth Mike Bischoff
MMC Kekst and Company MMC
(212) 345-5585 (212) 521-4819 (212) 345-5470
MMC REPORTS STRONG FOURTH QUARTER AND YEAR-END RESULTS
Earnings Per Share Increases 23 Percent for Quarter, 15 Percent for Year
NEW YORK, NEW YORK, January 28, 2004-Marsh & McLennan Companies, Inc. (MMC)
today reported financial results for the quarter and year ended December 31,
2003.
Consolidated revenues in the fourth quarter increased 15 percent to $3 billion.
Net income grew 21 percent to $378 million, and earnings per share increased 23
percent to $0.70. For the year, consolidated revenues rose 11 percent to $11.6
billion. Net income grew 13 percent to $1.5 billion, and earnings per share
increased 15 percent to $2.82.
Jeffrey W. Greenberg, chairman, commented: 'MMC's strong results in 2003 were
driven by the excellent performance of our largest business, risk and insurance
services. Marsh's double-digit growth, adding $1 billion in revenues, was
broadly based across client segments, geographic regions, and risk specialties.
Marsh continues to extend its geographic reach, expertise, and service offerings
through a combination of internal growth and acquisitions. An improving economy,
free trade, globalization, and social change make risks larger and more complex,
creating greater need for Marsh's services in regions around the world.
'Mercer grew revenues in spite of a difficult consulting operating environment.
We successfully integrated Oliver Wyman with Mercer Management Consulting,
adding important capabilities to our risk and strategy consulting services. We
also made several other acquisitions to broaden our global retirement and
benefits consulting business. As economies around the world continue to revive,
a number of Mercer's practices are showing improved growth, and we see continued
demand worldwide for Mercer's retirement and benefits services. The recently
completed acquisition of Synhrgy HR Technologies brings Mercer a new platform
for employee benefits outsourcing in the United States.
'Late in the year, Putnam faced a major issue as a result of the discovery of
inappropriate market timing by a number of investment professionals who have now
left the firm. This activity had largely occurred several years earlier in
certain Putnam mutual funds. Market timing was also found in a small number of
shareholders' 401(k) accounts. We acted decisively, installing new leadership,
instituting new policies and procedures to strengthen compliance, and pledging
restitution to the shareholders of the Putnam funds. We continue to invest in
Putnam to strengthen its business. With MMC's support, Putnam's new leadership
team, headed by chief executive Ed Haldeman, is working to restore the
confidence of its investors, distribution partners, and employees. Putnam is
committed to delivering consistent, dependable, and superior investment
performance, is providing greater fund disclosure, and is reducing shareholder
costs. Investment management is a growing business around the world, and we
believe Putnam will be an important source of long-term growth for MMC.
'Marsh, Mercer, and Putnam operate in the large, growing global markets for
risk, benefits, and retirement services. Using our financial strength, we
continue to build our capabilities in each of our businesses through internal
growth and acquisitions. We have confidence in the company's prospects for
continued growth,' Mr. Greenberg concluded.
Risk and insurance services revenues in the fourth quarter rose 13 percent to
$1.8 billion, and operating income increased 10 percent to $400 million.
Underlying revenues, which exclude the effects of foreign exchange,
acquisitions, and dispositions, grew 10 percent. For the year, revenues rose 16
percent to $6.9 billion, a 13 percent increase on an underlying basis. Operating
income increased 18 percent to $1.8 billion. For the year, risk management and
insurance broking, which is approximately 75 percent of this sector's revenues,
grew 13 percent on an underlying basis. Reinsurance broking and services'
underlying revenues increased 21 percent, and related insurance services grew 5
percent.
Mercer's revenues in the fourth quarter increased 17 percent to $705 million,
and operating income rose 12 percent to $85 million. Underlying revenues grew 2
percent. For the year, revenues rose 15 percent to $2.7 billion, a 3 percent
increase on an underlying basis. Operating income increased 11 percent to $363
million. All of Mercer's practices reported underlying revenue growth in 2003.
Mercer's largest practice, retirement services, increased revenues modestly.
Health and group benefits revenues rose 4 percent. Mercer's businesses in
management and organizational change consulting grew revenues 3 percent.
Economic consulting reported a 12 percent increase in revenues.
Putnam's revenues in the fourth quarter grew 18 percent, and operating income
rose to $139 million. Average assets under management in the fourth quarter
increased to $259 billion from $249 billion in 2002. The year-over-year revenue
comparison was affected by such items as the growth in assets under management,
a contractual payment from Putnam's Italian joint venture partner, increased
underwriting and distribution fees, and the effect of a $20 million investment
write-down included in the fourth quarter of 2002. Putnam's 2003 fourth quarter
operating income includes net costs of $24 million related to estimated
potential restitution to the Putnam funds and compliance, legal, and
communications expenses. Putnam's partial settlement with the Securities and
Exchange Commission includes civil penalties yet to be determined, and
therefore, no provision has been made. For the year, Putnam's revenues declined
8 percent to $2 billion, and operating income declined 10 percent to $503
million.
Putnam's total assets under management on December 31, 2003 were $240 billion,
compared with $251 billion at year-end 2002. Mutual fund assets were $163
billion on December 31, 2003, and institutional assets were $77 billion,
compared with $164 billion and $87 billion, respectively, at year-end 2002. Net
redemptions in the fourth quarter were $54 billion, but the pace of redemptions
slowed significantly in January. Putnam's total assets under management on
January 26, 2004 were $241 billion.
Cash flow from MMC's operations continued to be strong throughout 2003. The
company repurchased 26.1 million shares of common stock for approximately $1.2
billion and paid $631 million in dividends to shareholders, representing the
41st consecutive year that annual dividends paid to shareholders have increased.
MMC also made discretionary contributions to its pension plans of $300 million
in the fourth quarter. Throughout the year, the company provided for a tax rate
of 34 percent. The change in the geographic mix of MMC's businesses and tax
planning with respect to international operations led to a decrease in the
year's tax rate to 33 percent, a rate that is expected to continue. Debt levels
of $3.4 billion are unchanged for the year. Over the past two years, MMC has
extended the maturity of almost half of its debt, increasing its financial
flexibility and locking in historically attractive borrowing costs.
MMC is a global professional services firm with annual revenues exceeding $11
billion. It is the parent company of Marsh Inc., the world's leading risk and
insurance services firm; Putnam Investments, one of the largest investment
management companies in the United States; and Mercer Inc., a major global
provider of consulting services. Approximately 60,000 employees provide
analysis, advice and transactional capabilities to clients in over 100
countries. Its stock (ticker symbol: MMC) is listed on the New York, Chicago,
Pacific, and London stock exchanges. MMC's website address is www.mmc.com.
This press release contains certain statements relating to future results, which
are forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such statements may include, without limitation,
discussions concerning revenues, expenses, earnings, cash flow, capital
structure, pension funding, financial losses and expected insurance recoveries
resulting from the September 11, 2001 attack on the World Trade Center in New
York City, and the adverse consequences arising from market-timing issues at
Putnam, including fines and restitution, as well as market and industry
conditions, premium rates, financial markets, interest rates, foreign exchange
rates, contingencies, and matters relating to MMC's operations and income taxes.
Such forward-looking statements are based on available current market and
industry materials, experts' reports and opinions, and long-term trends, as well
as management's expectations concerning future events impacting MMC.
Forward-looking statements by their very nature involve risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by any forward-looking statements contained herein include, in the
case of MMC's risk and insurance services and consulting businesses, the amount
of actual insurance recoveries and financial losses from the September 11 attack
on the World Trade Center or other adverse consequences from that incident.
Other factors that should be considered in the case of MMC's risk and insurance
services business are changes in competitive conditions, movements in premium
rate levels, the continuation of difficult conditions for the transfer of
commercial risk and other changes in the global property and casualty insurance
markets, natural catastrophes, mergers between client organizations, and
insurance or reinsurance company insolvencies. Factors to be considered in the
case of MMC's investment management business include changes in worldwide and
national equity and fixed income markets, actual and relative investment
performance, the level of sales and redemptions, and the ability to maintain
investment management and administrative fees at historic levels; and with
respect to all of MMC's activities, changes in general worldwide and national
economic conditions, the impact of terrorist attacks, changes in the value of
investments made in individual companies and investment funds, fluctuations in
foreign currencies, actions of competitors or regulators, changes in interest
rates or in the ability to access financial markets, developments relating to
claims, lawsuits and contingencies, prospective and retrospective changes in the
tax or accounting treatment of MMC's operations, and the impact of tax and other
legislation and regulation in the jurisdictions in which MMC operates.
Forward-looking statements speak only as of the date on which they are made, and
MMC undertakes no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which it is made or to reflect the
occurrence of unanticipated events. Please refer to Marsh & McLennan Companies'
2002 Annual Report on Form 10-K for 'Information Concerning Forward-Looking
Statements,' its reports on Form 8-K, and quarterly reports on Form 10-Q.
MMC is committed to providing timely and materially accurate information to the
investing public, consistent with our legal and regulatory obligations. To that
end, MMC and its operating companies use their websites to convey meaningful
information about their businesses, including the anticipated release of
quarterly financial results and the posting of updates of assets under
management at Putnam. Monthly updates of total assets under management at Putnam
will be posted to the MMC website the first business day following the end of
each month. Putnam posts mutual fund and performance data to its website
regularly. Assets for most Putnam retail mutual funds are posted approximately
two weeks after each month-end. Mutual fund net asset value (NAV) is posted
daily. Historical performance and Lipper rankings are also provided. Investors
can link to MMC and its operating company websites through www.mmc.com.
Marsh & McLennan Companies, Inc.
Consolidated Statements of Income
(In millions, except per share figures)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
Revenue:
Service Revenue $2,998 $2,625 $11,488 $10,373
Investment Income (Loss) 36 15 100 67
------- ------- ------- -------
Total Revenue 3,034 2,640 11,588 10,440
------- ------- ------- -------
Expense:
Compensation and Benefits 1,587 1,370 5,926 5,199
Other Operating Expenses 854 760 3,160 2,967
------- ------- ------- -------
Total Expense 2,441 2,130 9,086 8,166
------- ------- ------- -------
Operating Income 593 510 2,502 2,274
Interest Income 5 5 24 19
Interest Expense (48) (42) (185) (160)
------- ------- ------- -------
Income Before Income Taxes and Minority Interest 550 473 2,341 2,133
Expense
Income Taxes 164 158 773 747
Minority Interest Expense, Net of Tax 8 3 25 21
======= ======= ======= =======
Net Income $ 378 $ 312 $ 1,543 $ 1,365
======= ======= ======= =======
Basic Net Income Per Share $0.72 $0.58 $2.90 $2.52
======= ======= ======= =======
Diluted Net Income Per Share $0.70 $0.57 $2.82 $2.45
======= ======= ======= =======
Average Number of
Shares Outstanding - Basic 529 537 533 541
======= ======= ======= =======
Average Number of
Shares Outstanding - Diluted 543 550 548 557
Page 1 of 5
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Fourth Quarter
(Millions) (Unaudited)
Three Months Ended % Change Currency/
December 31, GAAP Underlying Acquisitions
2003 2002 Revenue Revenue Impact
Risk and Insurance Services
Risk Management and Insurance Broking $1,379 $1,201 15% 11% 4%
Reinsurance Broking and Services 148 130 14% 12% 2%
Related Insurance Services 248 236 5% 3% 2%
------ ------ ------ ------ ------
Total Risk and Insurance Services 1,775 1,567 13% 10% 3%
------ ------ ------ ------ ------
Investment Management 554 469 18% 18% -
------ ------ ------ ------ ------
Consulting
Retirement Services 296 283 4% (3)% 7%
Management and Organizational Change 134 76 77% 11% 66%
Health Care and Group Benefits 88 89 - (6)% 6%
Human Capital 104 85 22% 3% 19%
Economic 41 32 23% 21% 2%
------ ------ ------ ------ ------
663 565 17% 2% 15%
Reimbursed Expenses 42 39 10% 10% -
------ ------ ------ ------ ------
Total Consulting 705 604 17% 2% 15%
------ ------ ------ ------ ------
Total Revenue $3,034 $2,640 15% 10% 5%
====== ====== ====== ====== ======
Notes to Consolidated Statements of Income and Supplemental Information:
Underlying revenue measures the change in revenue, before the impact of
acquisitions and dispositions, using consistent currency exchange rates.
Related Insurance Services includes U.S. affinity, claims management,
underwriting management and MMC Capital businesses.
Investment income in 2002 includes the effect of an impairment charge of $20
million related to Putnam's investment in Fineco, compared with a modest
investment gain in 2003, and a decline at MMC Capital.
Interest income on fiduciary funds amounted to $23 million and $114 million for
the three months and twelve months ended December 31, 2003, respectively,
compared with $28 million and $118 million for the same periods of 2002.
Page 2 of 5
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
(Millions) (Unaudited)
Twelve Months Ended % Change Currency/
December 31, GAAP Underlying Acquisitions
2003 2002 Revenue Revenue Impact
Risk and Insurance Services
Risk Management and Insurance Broking $ 5,179 $ 4,411 17% 13% 4%
Reinsurance Broking and Services 775 632 23% 21% 2%
Related Insurance Services 914 867 5% 5% -
------ ------ ------ ------ ------
Total Risk and Insurance Services 6,868 5,910 16% 13% 3%
------ ------ ------ ------ ------
Investment Management 2,001 2,166 (8)% (8)% -
------ ------ ------ ------ ------
Consulting
Retirement Services 1,208 1,115 8% 1% 7%
Management and Organizational Change 449 280 60% 3% 57%
Health Care and Group Benefits 388 358 9% 4% 5%
Human Capital 379 340 11% 2% 9%
Economic 150 130 14% 12% 2%
------ ------ ------ ------ ------
2,574 2,223 16% 3% 13%
Reimbursed Expenses 145 141 3% 3% -
Total Consulting 2,719 2,364 15% 3% 12%
------ ------ ------ ------ ------
Total Revenue $11,588 $10,440 11% 6% 5%
====== ======
Notes to Consolidated Statements of Income and Supplemental Information:
Investment income (loss) includes realized and unrealized gains and losses from
investments recognized in the income statement, as well as other than temporary
declines in the value of 'available for sale' securities. MMC's investments may
include seed shares for mutual funds, direct investments and investments in
private equity funds. Costs related to the management of MMC's investments,
including incentive compensation partially derived from investment income and
loss, are recorded in operating expenses.
MMC's direct investment in AXIS is classified as an available for sale security.
As restrictions on the sale of AXIS shares expire, changes in fair value are
reflected on the Balance Sheet until realized. Trident II's investments are
carried at fair value, in accordance with investment company accounting. MMC's
proportionate share of the change in value of its investment in Trident II is
recorded as part of investment income (loss) in the Consolidated Statements of
Income.
On November 13, 2003, Putnam reached a partial agreement with the Securities and
Exchange Commission (SEC) related to market timing issues in Putnam's mutual
funds, which requires that Putnam make restitution to the funds and pay civil
penalties. Putnam has accrued the estimated costs for restitution and for other
costs related to the investigations of market timing. The amount of civil
penalties has not yet been determined and no accrual has been made. If an
agreement is reached with the SEC on the amount of civil penalties, or a
reasonable estimate of the civil penalties can be determined prior to the filing
of MMC's annual report on Form 10-K, the financial results for the year ended
December 31, 2003 will be adjusted to reflect that amount.
Page 3 of 5
Marsh & McLennan Companies, Inc.
Supplemental Information
(Millions) (Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
Operating Income Including Minority Interest
Expense:
Risk and Insurance Services $400 $365 $1,751 $1,490
Investment Management 139 100 503 560
Consulting 85 76 363 326
Corporate (39) (34) (140) (123)
------ ------ ------ ------
585 507 2,477 2,253
------ ------ ------ ------
Minority Interest Expense, Net of Tax, Included Above:
Risk and Insurance Services 4 3 13 10
Investment Management 4 - 12 11
------ ------ ------ ------
8 3 25 21
------ ------ ------ ------
Operating Income $593 $510 $2,502 $2,274
====== ====== ====== ======
Segment Operating Margins:
Risk and Insurance Services 22.5% 23.3% 25.5% 25.2%
Investment Management 25.1% 21.3% 25.1% 25.9%
Consulting 12.1% 12.6% 13.4% 13.8%
Consolidated Operating Margin 19.5% 19.3% 21.6% 21.8%
Pretax Margin 18.1% 17.9% 20.2% 20.4%
Effective Tax Rate 29.8% 33.4% 33.0% 35.0%
Shares Outstanding at End of Period 527 538
Potential Minority Interest Associated with the Putnam
Equity Partnership Plan Net of Dividend Equivalent
Expense Related to MMC Common Stock Equivalents $(1) $- $(1) $-
Page 4 of 5
Marsh & McLennan Companies, Inc.
Supplemental Information - Putnam Assets Under Management
(Billions) (Unaudited)
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
2003 2003 2003 2003 2002
Mutual Funds:
Growth Equity $ 46 $ 48 $ 48 $ 43 $ 45
Value Equity 43 42 42 36 40
Blend Equity 32 36 35 30 33
Fixed Income 42 45 46 46 46
------ ------ ------ ------ ------
Total Mutual Fund Assets 163 171 171 155 164
------ ------ ------ ------ ------
Institutional:
Equity 51 76 72 64 66
Fixed Income 26 25 24 22 21
------ ------ ------ ------ ------
Total Institutional Assets 77 101 96 86 87
------ ------ ------ ------ ------
Total Ending Assets $240 $272 $267 $241 $251
====== ====== ====== ====== ======
Assets from Non-US Investors $ 39 $ 39 $ 37 $ 33 $ 33
====== ====== ====== ====== ======
Average Assets Under Management:
Quarter-to-Date $259 $270 $260 $244 $249
====== ====== ====== ====== ======
Year-to-Date $258 $258 $252 $244 $279
====== ====== ====== ====== ======
Net New Sales/(Redemptions) including
Dividends Reinvested:
Quarter-to-Date $(53.7) $(2.7) $(3.0) $(1.3) $ 0.4
====== ====== ====== ====== ======
Year-to-Date $(60.7) $(7.0) $(4.3) $(1.3) $(10.3)
====== ====== ====== ====== ======
Categories of mutual fund assets reflect style designations aligned with
Putnam's various prospectuses. All quarter-end assets conform with the current
investment mandate for each product.
Page 5 of 5
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