Willis Q1 profits plummet 83%

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Global broking group Willis made a profit of $34m in the first quarter of 2011, down 83% on the $204m it made in the same period of 2010.

The broker’s Q1 result was hit by a $97m charge resulting from its previously announced 2011 operational review and a $171m payment connected to the company’s debt refinancing.

During the quarter, Willis completed an $800m senior debt issue and repaid its previously-issued 12.875% senior notes. Specifically, the $171m charge comprised make-whole payments relating to the repurchase and redemption of the old senior notes and a write-off of unamortised debt issuance costs.

Bond issuers pay bondholders make-whole payments if they pay off bonds early. This is to reimburse bondholders for the interest payments they would have received if the bond had run its full course.

Despite the sharp drop in profit, Willis chief executive Joe Plumeri hailed the results as a “great start to the year” as the company had delivered what it said it would.

“In the first quarter of 2011, we completed the operational review and recorded most of the charge, and implemented growth initiatives,” Plumeri said in a statement. “We reduced the cost and extended the maturity profile of our debt through a very successful bond issue and repaid our most expensive debt.”

Willis’s total revenues for the first quarter of 2011 were $1bn, up 3.7% on the $972m it earned in Q1 2010. Organic growth in commissions and fees was 4%.

Willis expects the total pre-tax charge relating to the operational review during 2011 to be $130m, with the balance reported in the remaining three quarters.

The broker anticipates that the operational review will result in total cost savings of between $65m and $75m in 2011. The company also expects to achieve annualised cost savings of between $95m and $105m beginning in 2012.

Willis Q1 2011 highlights in $m (compared with Q1 2010)