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Willis revenues down despite organic growth

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Willis Group Holdings P.L.C. saw modest declines in total revenue and profits in the first quarter of 2015, despite positive organic growth in all four of its operating segments.

The London-based insurance broker reported total revenues of $1.09 billion through the first three months of 2015, down 0.9% from first-quarter revenue recorded a year ago.

During a conference call with investment analysts on Wednesday, Willis CEO Dominic Casserley said the year-over-year drop in total revenues in the company's Great Britain and capital, wholesale and reinsurance segment were offset by gains in its international and North America segments.

Willis International grew its total revenues in the first quarter by 1.1%, to $287 million, including a 5.3% increase in organic growth. Mr. Casserley said the segment's revenues were also aided by the company's acquisitions of Max Matthiessen A.B., Charles Monat Associates Ltd. and the IFG Group P.L.C.'s Irish pension and financial advisory businesses within the past year.

“On an organic basis, international had another very strong quarter, with significant growth in Latin America led by Brazil,” Mr. Casserley said. “Eastern Europe, which consists mainly of our Russian business, grew solidly. Expected headwinds from sanctions and economic conditions did not materialize in the quarter. However, we expect to face those headwinds throughout the remainder of the year.”

Total revenue for Willis North America rebounded after a fourth-quarter decline at the end of 2014, growing grew by half a percent in the first three months of 2015, including a 4.3% rise in organic growth.

“From an industry perspective, real estate and hospitality led the way with double-digit growth, while construction came in at low single digits, held back somewhat by declining surety revenues,” Mr. Casserley said. “Rates in the first quarter were a bit of a headwind in North America as weakening rates in the property business more than offset the slight strengthening noted in the casualty business.

Restructuring costs

Willis' first-quarter profits fell by 14.6% compared with results from 2014, to $210 million, due in part to a $23 million increase in total expenses. John Greene, Willis' chief financial officer, said the increase was driven mainly by restructuring costs tied to the company's Operational Improvement Program, which is expected to cut operating expenses by $300 million over the next three years.

“Our cost management initiative is gaining traction, as we've kept organic expense growth under 2%,” Mr. Greene said. “Cost savings from the OIP for the quarter totaled $10 million, and we expect the quarterly savings from the program to increase, especially in the second half of the year.”

The company's first-quarter organic expenses grew by 1.7% versus results from 2014, primarily due to costs associated with the recently proposed $598.1 million acquisition of Puteaux, France-based broker Gras Savoye & Cie.

Mr. Casserley said the transaction is expected to close by the end of the year.

“This union would be the next step in a long-standing relationship that has spanned decades,” Mr. Casserley said. “It's our belief that combining the entities into one fully integrated company will allow us to continue to add value to our planned offerings, provide opportunities for employees of both firms and build shareholder value.”