Welcome, thank you all for standing by. At this time, all participants are on listen only mode. Questions can be taken at the end of the presentation. To ask a question, you can press star one. Today's call is being recorded. If you have any objections, you may disconnect at this point. Now I turn the meeting over to your host, Mr. Peter Poillon. Sir, you may begin.
Thank you, welcome to our first quarter 2015 earnings conference call, which is being hosted by Dominic Casserley, Chief Executive Officer of Willis Group Holdings. A webcast replay of the call, along with the slide presentation to which we'll be referring, can be accessed through our website. If you have any questions after the call, my direct line is +1-212-915-8084. Please note that we may make certain statements relating to future results, which are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those estimated or anticipated. These statements reflect our opinions only as of today's date, we undertake no obligation to revise or publicly update them in light of new information or future events.
Please refer to our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2014, subsequent filings, as well as our earnings press release for a more detailed discussion of the risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the investor relations section of our website. Please note that certain financial measures that we use on the call are expressed on a non-GAAP basis. Our GAAP results and GAAP to non-GAAP reconciliation can be found in our earnings press release and slides associated with this call. I'll now turn the call over to Dominic.
Welcome, thank you for joining our quarterly conference call. With me today are John Greene, our Chief Financial Officer, Steve Hearn, our Deputy CEO, Tim Wright, Head of Willis International, Todd Jones, Head of Willis North America. I'm delighted also to welcome Nicolas Aubert, CEO of Willis GB, to his first earnings call. As I did last quarter, I want to start with an overview of the key components of our value creation strategy. I'm pleased to say that our first quarter results once again saw all three pillars of our strategy in action. We aim to drive organic profit and cash flow growth through our diversified portfolio of risk advisory, brokerage, and human capital and benefits businesses. With growth coming from across the group. We are focused on delivering mid-single-digit organic revenue growth.
In parallel, we seek to manage our organic costs to create a healthy gain in organic margins. Group organic revenue growth of 3.4% was satisfactory given uneven conditions across the markets in which we operate. We saw underlying growth across all of our segments, with solid growth reported in many of our businesses. I will discuss this in detail in a moment. This quarter's results reveal great progress on our margin as we achieve 170 basis points of positive spread between our organic commissions and fees growth and our organic expense growth. This positions us well to achieve our stated goal of at least 130 basis points of average spread for the year. The second leg of our strategy is managing our targeted acquisitions to create value through stronger revenue performance and improved cash flow. During the quarter, our M&A strategy continued to make substantial contributions to our underlying growth.
As we look ahead, we remain optimistic that we can sustain growth through our announced acquisitions. We expect to close the Miller transaction in the middle of the year, subject to regulatory approvals. Just last week, we announced that we have made a firm offer to acquire the remaining 70% of Gras Savoye that we do not already own. We are extremely excited at the prospect of joining forces with both of these organizations. I will come back to discuss the Gras Savoye transaction at the end of our prepared remarks. Third, we continue to transform our financial performance with our Operational Improvement Program. This major initiative, announced on this call a year ago, is designed to deliver sustainable annual cost savings of $300 million beginning in 2018 with a gradual process of cost improvement each year up until then.
We will reinvest a minority of the savings generated, but expect that the program will add to our underlying and organic performance each year, as it started to do late last year and into this year. Since inception, the Operational Improvement Program has delivered about $21 million in cost savings. We are making steady progress, and everyone here remains optimistic that we will achieve our goals. As previously announced, we will provide a fuller update on the program during our second quarter earnings review. Combined, these three components of our strategy are intended to drive improved cash flow and shareholder value. Let me now turn to the quarter in more detail, starting with a discussion about Willis International.
Our international operations achieved underlying commissions and fees growth in excess of 20%, an outstanding result that includes the significant impact on the segment's revenues from the acquisitions of Max Matthiessen, Charles Monat, and the IFG pension and benefits businesses over the past 12 months. On an organic basis, International had another solid quarter, growing 5.3%. International saw very strong growth from Latin America, led by Brazil. Asia grew high single digits in the quarter, led by Global Wealth Solutions and strong marine business. Eastern Europe, which is dominated by 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. Western Europe grew low single digits, a good result considering the overall economic conditions across that market.
The Iberia region, Norway, and Ireland were the primary drivers in the quarter. Let's now take a look at Willis North America. Last quarter, you will remember that North America was down slightly. We told you that we expected to see improved performance in the first quarter. This occurred, with North America achieving organic growth of 4.7%. Looking at our results from a practice perspective, we saw single-digit growth from our largest practice, human capital, and double-digit growth in FINEX, our second-largest practice, and which includes our market-leading cyber business. 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. Our mergers and acquisitions business grew solidly during the quarter.
Rates during the 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. On to Willis Capital, Wholesale and Reinsurance, which is one of two new segments. It includes Willis Re, our capital markets business, our wholesale business, and a new unit called Willis Portfolio and Underwriting Services, which encompasses our programs and underwriting businesses. Overall, the segment's organic commissions and fees were up 1.3%. The performance reflects solid results in reinsurance in what is the most significant quarter for revenue in our reinsurance business. We saw declines in our wholesale business, but relatively flat growth elsewhere compared to last year. In reinsurance, we continued to grow our North American business at a double-digit rate, driven by continued new business success.
The business was further bolstered by favorable timing of $8 million of revenue that shifted from Q2 into Q1, a result that will have a mild impact on our growth in the second quarter. The growth in North America was offset by declines in the international and specialty reinsurance businesses, where we continue to see declining rates and consolidation driving lower demand. Willis Capital Markets delivered a good performance with a number of capital raising and advisory mandates completed. Finally, I'd like to discuss Willis GB, our other new segment comprising our Great Britain-based specialty and retail businesses. This segment is organized into four components, property and casualty, transport, financial lines, and the retail network. Organic commissions and fees grew 1.1% in the quarter. This performance reflects double-digit growth in financial lines.
We also saw mid-single-digit growth in property and casualty, dominated by double-digit growth in our U.K. large accounts. Transport was down low single digits in the quarter as growth in aviation was more than offset by a reduction in our marine book, reflecting continued low levels of new business. Retail networks were down, driven by continued decline in our commercial network due to the renegotiation of revenue terms with our network members and our insolvency business, which is sensitive to improving economic conditions. Good overall progress in the opening quarter to 2015. I'm going to ask John to take you through the numbers in a bit more detail. I will return to talk about acquisitions. John.
Thank you, Dominic. Good morning to those on the call. I will be working off the first quarter slide deck, which is available on our website. On slide three, you will see our traditional EPS walk. This shows we started 2015 with a solid performance, driven by a combination of revenue growth and continued progress against our expense management goals, including those of the operational improvement program. These two factors combined to drive organic margin expansion. On foreign exchange, during our last call, we indicated that if rates remained exactly where they were as of December 31st, FX would pressure our EPS by between $0.03 and $0.07 for the full year 2015. We also flagged that FX would pressure the first half of the year's results and would then ease in the second half. As you know, currency rates have moved since December 31st.
During the first quarter, the EUR declined 13% versus the dollar, while the GBP fell by 5%. That contributed to a $0.15 negative impact on EPS in the quarter. We expect the pressure from FX movements will abate in the second half of the year, actually reversing to a degree in the third quarter. If you assume no movements in foreign currency rates from March 31st, we now expect the full-year impact from FX to be a headwind of $0.10-$0.13 per share. Overall, we continue the trends from last quarter. Good organic revenue growth and returns from our M&A strategy, coupled with our cost management initiatives, created an $0.08 positive movement in EPS. Finally, our reported EPS includes the restructuring costs related to the operational improvement program. This amounted to $31 million, or $0.12 per share in the quarter.
That was partially offset by the $0.01 gain from an office sale. Turning to slide four, as a reminder, the difference between reported and underlying for each segment is foreign currency movement. The difference between underlying and organic is the net impact from acquisitions and disposals. Encouragingly, excluding the foreign exchange headwinds, we had commission and fee growth on both an organic and underlying basis across each segment during the quarter. FX headwinds are clear when you look at the difference in reported and underlying C&F growth in Willis GB, Willis CWR, and Willis International. This was driven primarily by the depreciation in the EUR against the dollar. Sterling and the Latin American currencies also contributed to a lesser degree. Two further points to note.
First, International's underlying results reflect the impact of the 2014 acquisitions of Max Matthiessen, Charles Monat, and the IFG business, adding about $38 million to revenue in the quarter. Second, North America's underlying results reflect revenue loss from portfolio management actions taken in 2014. In the current quarter, we sold our Omaha, Nebraska office. The result is reflected in other operating income as a $4 million gain. We have discussed our portfolio optimization over the past few quarters, and we now have largely completed those actions in North America. Let's turn to a walkthrough of our expenses on slide five. Here, you can see our cost management initiatives are gaining traction as we have kept our organic expense growth under 2%. Foreign currency movements favorably impacted total expenses by $48 million in the quarter. As you might expect, the biggest driver was the EUR depreciation against the dollar.
Underlying expenses grew by $40 million, of which $29 million related to our M&A activity. Included in this result were the initial costs associated with the proposed Gras Savoye acquisition amounting to about $4 million. We also saw the benefit of our operational improvement program. For the quarter, cost savings from the program totaled $10 million. We expect the quarterly savings from the program to increase, especially in the second half of the year. Program costs in the quarter totaled $31 million, reflecting termination benefits, parallel run costs, and professional fees. Overall, we continue to make strong progress against our goals for the program. Additionally, expenses in the quarter benefited from a $10 million increase in the pension expense credit. This is the result of actuarial gains and a freeze on pensionable salaries in the U.K. defined benefit plan implemented in March.
Slide six takes you through salary and benefit expense. On an organic basis, S&B was up 3.3% to $544 million. This was slightly above our global inflation expectation. It reflects a 1% increase in organic headcount, as well as inflationary pressure in Latin America and other markets significantly impacted by inflation or currency devaluation. We also had higher incentives in the quarter following strong performances in several businesses. Underlying S&B grew $34 million, or 6.4%, to $567 million. This includes a $17 million increase from M&A, roughly half the total growth in the quarter. Turning to slide seven, this shows our onshore and offshore FTE trends over the past 12 months on an organic basis. Our numbers reflect our continued focus on headcount management and on relocating FTEs to lower-cost regions.
As we've mentioned before, the parallel running of roles associated with the operational improvement program will mean temporary FTE growth in some quarters. Organic FTEs are therefore up around 1% year-over-year. Onshore, the number of FTEs is actually down about 300 over the same period. That means that the increase in organic FTEs is all within our low-cost offshore operation in Mumbai. Over the long term, this will optimize our cost structure while supporting our growth goals. On slide eight, you see our underlying EBITDA was $360 million in the first quarter, up nearly 6% year-over-year. The growth was broadly evenly split between organic sources and acquisitions. Overall, our underlying EBITDA performance reflects the positive impact of our acquisition strategy, combined with mid-single digit organic C&F growth and strong execution on our cost initiatives.
A year ago, in the first quarter of 2014, our underlying EBITDA grew $5 million year-over-year. The current quarter reflects a $20 million improvement. This illustrates the progress we're making. Let me briefly comment on our expectations for the remainder of the year. Overall, we are confident that we are well positioned to achieve our stated goals for the year. These include mid-single digit organic revenue growth, at least 130 basis point spread between organic C&F and expense growth, and approximately $55 million-$65 million of EBITDA from acquisitions, subject to the timing of Miller's closing. We also said the timing of the positive organic spread would be weighted to the second half of the year.
That is because, as Dominic mentioned in his commentary, we are facing uneven market conditions which affect the first quarter and will also impact the second quarter, and because we expect our operational improvement program savings will gather pace in the second half of the year. We will navigate these near-term headwinds and believe that we are on track to achieve our full-year targets. Before I turn it back to Dominic, I'd like to take a minute to walk you through some of the financials of our proposed acquisition of Gras Savoye on slide nine. On a US GAAP basis, Gras Savoye generated approximately EUR 370 million of revenues in 2014 and approximately EUR 65 million of EBITDA, producing a 17.6% margin. The two pie charts at the bottom of the slide break out Gras Savoye's revenues, first by geography and second by product line.
By geography, you observe a fairly even split between the three divisions of Paris, Regions, and International, including Africa. By product, while property and casualty is the majority of the business, you see that a sizable portion is in what we view as their high-growth human capital and benefits practice. Importantly, the company continues to have strong growth prospects. Q1 is historically Gras Savoye's biggest quarter by revenues, and in 2015, it continued to perform well, growing by strong mid-single digits. We expect its underlying margin will expand in 2015, and we see excellent opportunities to drive revenue synergies post-acquisition. From a financial perspective, we believe we've added substantially to our capabilities at a fair valuation given the momentum of the business in 2015. We expect the transaction to close by December 31st, subject to regulatory and worker councils' reviews.
If it closes at that time, we expect it to be $0.06-$0.08 dilutive on our reported EPS in 2016, mildly dilutive in 2017, and accretive in 2018. Excluding the impact of amortization expense, we see the transaction as being accretive in the range of $0.13-$0.17 per share in 2016. I'll turn the call back to Dominic to cover the strategic aspects of the transaction and wrap up the call.
Thank you, John. As I've discussed before, strategic acquisitions are a key aspect of our growth strategy, and we continue to make progress, having brought in high-quality businesses in 2014 to further strengthen our client proposition and our growth prospects. We have continued our progress on this strategy with the announcement of the proposed Miller and Gras Savoye transactions. I'd like to talk more about Gras Savoye and what it means for Willis. Take a look at slide 10. A reminder of some of what Gras Savoye would bring to the combined firm. A strong footprint in France, where it is the largest broker and where it holds a strong market share in French large accounts and enjoys a leading position in the mid-market sector.
The expertise and reach to serve multinationals, including in France, which is home to 31 of the Fortune Global 500, a number that ranks it fourth globally and first in Europe. Access to high-growth economies and insurance markets, including Central and Eastern Europe, the Middle East, and a comprehensive network of 42 offices in 31 countries across Africa. Strong property and casualty product capabilities and employee benefits products. In the graph, you see that our network of wholly owned country operations in a combined Willis Gras Savoye would double in size from 42 pre-acquisitions to 84. We believe this transaction would give us one of the largest wholly owned country networks in our industry, further enhancing Willis's ability to serve the needs of the multinational corporations around the world. Let me conclude with these points on the transaction and our strategy as a whole.
This union would be the next step in a long-standing relationship that has spanned decades. Over the decades, we have worked closely many times as a joint force to win business. We have strong ties and great relationships with the management team and many of the terrific Gras Savoye employees around the world. It is our belief that combining the entities into one fully integrated company will allow us to continue to add value to client offerings, provide great opportunities for employees of both firms, and help us to build shareholder value into the future. Finally, let me return to where we started, our strategy. As I said, you see all three pillars of our strategy in action in this quarter's results. Organic growth through our diversified portfolio, strategic M&A, and operational improvement.
It is this deliberate and determined approach that is enabling us to sustain good momentum overall in an external context of uneven economic performance and a challenging rate environment. Going forward, we remain confident in our prospects and believe we are well-positioned to achieve our stated goals for the year. The three elements of our strategy come together to drive growth in earnings, improve our margins, and increase cash flow, with the overall aspiration to bring value to our shareholders. Now, I'll turn the call over to question and answers. Over to the operator.
We will now begin the question and answer session. To raise questions over the phone, please press star one, and please unmute your line and record your name clearly when prompted. Your name is required to introduce your question. To cancel, please press star two. Our first question is from the line of Cliff Gallant from Nomura. Sir, your line is open. Please go ahead.
Great. Thank you. Just wanted to ask a little bit more about the 170 basis points spread you achieved this quarter between organic revenues and expenses. Were there any one-time items that might have been driving that? Because I noticed in your comments that you said that we were just beginning to see the operational improvements come into effect.
Yeah. Thanks, Cliff. Actually, looking at the balance of what happened. We certainly performed well on the top line. The organic growth coming in at 3.4, supplemented by the acquisition, certainly helped. We did have a movement, as Dominic mentioned in his commentary, of a particular reinsurance contract that historically is booked in the second quarter, booked in the first quarter. We actually had more on the expense side. We had more, what I'll say, pressure from the Gras Savoye due diligence costs that I mentioned, the $4 million. We also had about $3 million of cost related to Miller that came through. We expect a little bit more to come through when the transaction closes. No significant one-offs. There was a little bit of timing.
Yeah.
We're in a pretty good position, I think.
Given that performance and this first quarter performance, just wanted to confirm your statements that you still feel that the second half will be stronger than the first half.
Yes. We thought about those statements carefully. We gave annual guidance as part of the fourth quarter earnings call. We're going to stick with that earnings guidance and we're going to manage to it. If the top line continues and our expense base continues to be managed as we have, we see that we're going to deliver the 130 basis points and possibly a little bit of upside on that.
Great. Thank you very much.
Thank you. Shall we proceed to the next question, speakers? Our next question is from the line of Kai Pan from Morgan Stanley. Please go ahead. Your line is open.
Thank you. First question, just want to clarify, John, your comments on the full year impact foreign exchange. You said if the currency stay the same as the quarter ends, the foreign currency impact for the full year will be $0.10 to $0.13. Is that inclusive of the $0.15 negative impact, which imply in the remaining of the year you would have the benefit from it, or just from second quarter to fourth quarter of this year?
Yeah. Kai, thanks for that question. As we talked, $0.15 negative impact on the first quarter. The range I gave was a full year impact. We see, if rates remain exactly where they were as of March 31st, I want to emphasize that point because we do know that rates have moved in April a little bit. Actually, the euro strengthened marginally. If they were to remain exactly where they were as of March 31st, we would see that range of $0.13-$0.10.
For the full year?
For the full year.
Okay. That's great. The second question is on the.
The improvement happens in the third quarter. We see a pickup in the third quarter just based on the flow of the revenues coming through.
It'd be positive impact, actually improvement in the third quarter.
Yes.
Okay, great.
Yeah.
Second question on acquisition impact on the margin. You show pretty strong organic margin improvement, 120 basis points, but if you look at underlying margin improvements, only like 10, 20 basis points. I guess the difference between those two numbers are from some drag from the acquisition or dispositions could do. Talk a bit more about that and what's potential drag, if any, from the acquisition going forward, like Miller and Gras Savoye. Thank you.
Yeah. The organic obviously strips out the acquisition, so 12 months of acquisition revenue and expenses and operating income. The difference between organic and underlying, therefore, is the acquisitions. What we ended up buying are companies with margins that are slightly lower than what Willis has posted, and that results in a lower margin. We also paid a valuation when we bought those companies that reflected the margin rates that the companies had. Obviously, we're managing them, and we expect to drive some synergies over the longer term, but it's not going to happen immediately. That does impact it. There's also the impact of amortization that comes through. The difference between the net assets and the purchase price, that comes through and that impacts the underlying numbers.
If I could step in here and add to this. Remember, we're very focused on growing our cash flow and EBITDA. When we're buying businesses, what we're really focused on is their impact on our cash flow over time and growing our cash flow, which is a combination of the value of those franchises and the profits they're building today, and our ability to improve those over time. What we're already seeing is that the businesses we have bought continue to perform well when they're part of the Willis family, and we see significant revenue and cost synergies over time from many of them. We are really focused on the immediate and medium-term impact on cash flow generation. So far, everything is very positive.
Thank you so much.
Thank you. Our next question is from the line of Ryan Tunis from Credit Suisse. Your line is open. Please go ahead.
Hey, thanks, guys. Good morning. I think my first question is for John, and it's actually on the pension side. On the U.K. pension, I know the vast majority of pension contributions are coming from the U.K., I think the 10-K indicated you're currently negotiating a new funding arrangement with the plan's trustees. I think at least on a US GAAP basis, that plan looks overfunded. I guess I'm just curious, where are we in those negotiations? Could they have any real impact on cash flow going forward? Potentially, could they bring down that profit share above $900 million of EBITDA that you guys point to in the K? Thanks.
Thank you for the question. We're having ongoing conversations with the trustees, I really can't get into much detail in terms of the funding arrangement. The key impact for the quarter, however, was freezing the pension. Basically, the impact of that is participants' salary increases aren't reflected in the defined benefit calculation going forward upon their retirement or exit from the company. If you take a look at the balance sheet on page 12 of the press release, it shows that the pension benefit asset actually moved materially almost $300 million. That related to, frankly, the valuation as a result of freezing it. There will be some income benefit for Willis over the next seven, eight years in terms of amortization of what I'll say is expense or cost of the pension.
The actuarial deficit also changed materially as a result of freezing those pension benefits. We think that we're in a fairly good position in terms of where we are from an accounting and a business perspective. It's really important that we treat our people fairly and create a fair outcome for our people in terms of ensuring the pension is funded appropriately. There are those contingencies associated with the funding arrangements that were implemented about three years ago that we're looking to mitigate over time. We'll see how the conversations go with the trustees.
Got it. That's helpful. I guess switching back over to Gras real quick. On the guidance you guys gave us last week and then I guess reiterated this morning, I guess what are you guys assuming in terms of revenue growth or margin expansion there? I think you said you think you can grow margins in 2015. What's going into that guidance?
Let me turn that over to Tim Wright, who has been leading our discussions with Gras Savoye and led to the announcement last week. Tim?
Yep. Ryan, thanks for your question on Gras Savoye. A couple of things. You asked about the, I guess the momentum of the business in 2015, and then also what we see as future growth opportunities over time. I think as we said earlier, 2015, Gras Savoye will not be part of the group according to the plan. They will become part of the group at the beginning of 2016. We see positive momentum in both top line and bottom line and margin in Gras Savoye in 2015, as evidenced by a very strong first quarter, which as you know, is the largest quarter by far of Gras Savoye. I think it's about 40% of the revenues of Gras Savoye come in the first quarter. They have really positive momentum in the first quarter of 2015.
In terms of revenue opportunities over time, given the complementary nature of our two businesses, they are where we are not, the combination creates the opportunity for us to grow jointly as a result. We see substantial revenue opportunities over time once they're part of the group, bringing our collective capabilities to bear and combining our footprint. In terms of precise numbers, we're working through our plans with respect to what that would mean financially. It's too early to say. They won't be part of the group until the end of the year. We think there's significant incremental growth opportunity from the combination.
Understood. I just had one more quick one for John. Just in terms of how to think about the funding for this deal. I think in the slides you said transaction likely funded with debt. If you could just help us with that. I thought maybe in the last quarter, you were hoping it would mainly be cash and a letter of credit. I don't know if there's a change there. Just how are you thinking about funding mix, rating agency considerations, et cetera? Thanks.
Rates are actually at a fantastic level to fund a transaction like this with debt, and we're exploring options. The one option that is probably predominant at this time is a Eurobond, probably sometime in the fourth quarter. The order of magnitude could be somewhere between $500 million-$600 million. We're going to continue to explore other options. As you know, we have the RCF with an $800 million capability there. We haven't touched it. I don't think that's a good way to fund a long-term transaction. We'll look at our cash position when we get closer to closing and make a call. As I said, I think it'll be something between $500 million-$600 million. Where it stands right now, if EUR rates remain where they are, it might be a Eurobond.
Thanks very much.
Thank you. Our next question is from the line of Mark Hughes from SunTrust. Your line is open. Please go ahead.
Thank you very much. Good morning. The organic growth target for spread of 130 basis points, have you calculated on an underlying basis, given the profile of those acquisitions? What does that translate into for the spread growth there, again, on the underlying business?
Yeah. We gave guidance on an organic basis, and I'm a little bit hesitant right now to provide some additional or enhanced guidance on an underlying basis, given we're going to have some transaction costs coming through and the impact of amortization on these transactions. 130 basis points organic is pretty good. You know the pipeline in terms of the two significant transactions that we're going to close. I would say, use the data we've provided, and it should give you a pretty good indication of the underlying numbers.
Yeah, I think we're positive about where our underlying spread will move, but obviously the timing of when Miller closes and the big thing there, of course, is the accelerated amortization, which affects heavily the short-term underlying spread you see. That's why we're hesitant to give that. We've given clear guidance on what we think we can do organically. The timing around some of the closing of some of these transactions can have an effect on how the amortization flows through.
You talked about the positive impact of freezing the pension. The $10 million increase in pension benefit credit, that was part of that benefit. You saw some of that this quarter. Is that right?
We did, yes.
Okay. The volatility in the U.S., you had a very nice improvement this quarter. Seems like that's been pretty mobile. A lot of movement in those numbers. Do you think that'll stabilize? Were those some unique circumstances the last few quarters? Should we expect more consistency perhaps in North America?
Let me turn over to Todd Jones, just to give you a sense of what's going on in the States. Todd?
Yeah. Hey, Mark, thanks for the question. I think as we had talked about last quarter, we had some unique circumstances that we thought weren't going to repeat that impacted the quarter. Obviously we saw the business return to what we consider sort of more normal performance this quarter. As we look through the balance of the year, and I think we mentioned the rating environment continues to be a headwind, having just returned from RIMS. I don't think anything I heard there would suggest that rating environment is going to improve anytime in the near term. We're still very optimistic about the growth prospects of the business. Certainly, the industry strategy, we're very happy that construction came back to growth, and our human capital and benefits business performed well in the quarter as well. Still bullish on the full year.
We have got a lot of challenges from a rating environment, but we think we can continue to grow sustainably.
Thank you.
All right, our next question is from the line of Brian Meredith from UBS. Sir, your line is open.
Yeah. Thanks. A couple quick questions here for you. First, John, just on the tax rate, 22 and change in the quarter. Is that a good kind of go forward rate, or was it a little bit low given kind of mix of revenues and earnings in the quarter?
Well, it's lower than the guidance we gave. During the Q&A in the December call-
Yeah
related to the December results, I mentioned something around 25%.
In the quarter, we benefited from the mix of revenue as well as there was frankly a provision on our balance sheet that we were able to release. I would think in terms of the range of 25%, and obviously it's an important piece of the income statement that we continue to look at.
Okay. Just clarification on the $10 million pension benefit. That was all in this quarter. Did that favorably impact the other operating expenses? What's the GAAP impact we'll see here going forward from the freeze and the pension benefit kind of for earnings going forward?
The benefit is reflected in S&B. It's part of employee benefits.
Okay.
The $10 million is the year-over-year change. Some of that, as I said in my prepared script, related to, frankly, the actuarial view of our interest income or earnings from the pension, and the other piece had to do with the freeze. We can expect for the year, this first quarter here-
was better than, $10 million better. Going forward, the way we're looking at it's likely to repeat.
We should continue to see a $10 million benefit for the next several quarters?
Yeah. Thereabouts.
Okay.
It could be slightly more, could be slightly less.
Got you. Great. Then just on the revenue side, in the wholesale businesses, I know energy markets have been pretty weak. Gulf of Mexico energy. Will that impact the second quarter? When is that likely to impact results? Should we expect some pressure on organic revenue growth in that area as a result in the second quarter?
Let me start having Steve Hearn talk about that, and maybe Nicolas might want to add. Let me have Steve start talking about the energy outlook.
Yeah, sure. Thanks, Dominic. Energy is obviously something significant for Willis around the world. We talked about our Russian business earlier. It has impact there. It certainly has impact in our London business, in Nicolas' area, and in Todd's business, for that matter. What's going on in the energy markets is something we clearly follow very closely. One of the things, the way I think about this is, this doesn't necessarily correlate volatility in the energy market in terms of our earnings. In fact, we go back to previous energy crisis, the actual impact on our earnings was relatively negligible, with modest impact. It takes a long time for construction projects to actually stop and get mothballed. Construction continues to develop in the energy sector. Then obviously there's operational risk, which continues to be active. We're watching it closely.
Don't see anything particularly spiky. I think, and certainly at the moment, all of those businesses that I've mentioned have continued to perform well in the energy area. I don't know if there's any more anyone else would add.
No, I think we're done with that. We're done. That's fine.
Thank you.
Thank you. The next question is from the line of Joshua Shanker from Deutsche Bank. Sir, your line is open.
Yeah, good morning, everyone. I just wanted to talk about the growth rates a little bit on the different segments. It was mentioned that you had the -2% in Willis North America, followed by +4%. Last year you also had a large quarter at a +15% in Willis International. Now you have a +5%, and then you had the 2Q transaction that was earned, the 1Q transaction in 1Q in Willis Capital, Wholesale and Reinsurance. You also mentioned the impact of sanctions going forward for Willis International. I wonder if you can take the 1Q growth rate numbers and sort of give us a little bit of a thought on what might be a normalized version and whether you take the 1Q growth rates for the individual segments as close to normalized.
Thanks for your question. First of all, let me make the following overall point. We are deliberately building a diversified series of specialty businesses, right? Across where we compete. We're deep in all our markets geographically and in our product lines. We're real specialists who have leading market franchises. We therefore have a diversified portfolio of businesses, which at any one time, some are stronger than the others, which gives us confidence about the overall growth rate we can achieve from the group. Because we have strength and diversification. With that as background, let's focus first on Willis International, because we did have that very large 4Q last year, and have Tim just talk to us a bit about the Willis International story. Tim?
Thank you, Dominic. Hello, Josh. Just first of all, on the 4Q, 15% growth, we were very pleased with that, but we did call out that it benefited from some year-over-year comparables, and that actually if you excluded that, it was probably more like 11%, which we were still very pleased with. The full year number was more like 9% overall for the last year. Then again, if you filtered out that 4Q comparable, it's probably 7%, 7.5%. That gives you an indication of what the last year was. 1Q results at over 5% is in line with what we've seen in the past for the 1Q, and we'd be confident that puts us in a good place for the rest of the year.
On Russia, which you called out, obviously we have a fabulous business in Russia, a great market position, and have benefited from that in the past, and talked about that in the past. Clearly, the combination of sanctions which have restricted the capital markets and hence projects business, which is a large part of our portfolio, is a pressure. The decline of the ruble, apart from the FX impact, does impact asset values. We actually had a good
First quarter in Russia, but we do expect some pressure from that to come over the remainder of the year, but we still feel positive about the overall results of international for the full year.
Can Russia move you by 100 basis points in that segment?
Sorry, go ahead again.
Can Russia move you by 100 basis points one way or the other in that segment?
As Dominic said, in the same way that the group has the benefit of a portfolio effect, so does the international business. In any given year, we'll have some businesses that are performing very strongly and others that are a bit more challenged, and the portfolio effect helps us to average those out.
Josh, clearly another point on that segment. For 2016, the portfolio effect will be even stronger with the addition of Miller and the addition of Gras Savoye. Again, we're adding specialist capabilities in those markets, in Miller's very specialized position in the wholesale markets in London, but further diversifying our exposure to any one particular market. Where else would you like us to go, Josh? I think we've covered the U.S. quite carefully here.
The reinsurance transaction that you did in this quarter that was normally booked in 2Q, I assume that had some sort of impact and might be a slight drag on 2Q?
Yeah, I think we said that this is a reinsurance booking. Steve, do you want to talk a little bit more about that?
Do you have a number around that?
Yeah. As John mentioned in his prepared script, that's an $8 million number for us.
Is that right?
Pure timing, something that historically had always turned up in Q2, turned up in Q1, so we benefited for it and it will absolutely have an impact on Q2 for that segment, for sure.
Perfect. Thank you very much. Good luck with the remainder of the year.
Thanks. Thank you.
Thank you. Our next question is from Daniel Farrell from Piper Jaffray. Sir, your line is open.
Hi. Good morning. With some of the upcoming M&A, I was wondering if you could just remind us of what your tolerances are in terms of increases to debt leverage, and maybe you could just relate it to either a net debt to EBITDA and interest coverage. How do you think about where you can go on those measures?
Yeah. Let me start, then I'm going to hand it over to John. Our overall view on acquisitions overall, let me remind you, is that we are focused on specialized franchises, either geographically or by line of business. Secondly, very importantly, institutions and people, because what we're really buying is people here and their talents who really want to become part of Willis. That requires long-term conversations, not always as long as the decades we've been in conversation with Gras Savoye, but certainly for a long period of time. It largely leads us away from auctioned situations, but instead exclusive conversations. That's our philosophy. Once we have those assets, we then look obviously very carefully at our financial capability and flexibility.
You've heard John talk about obviously we're driving things from cash and cash flow, and then debt, either our revolver, which we tend not to think of as the appropriate source for long-term funding. The long-term markets, which at the moment are at an interesting set of levels. Then, of course, in that context, we then worry about our overall credit rating and our position with our creditors and the financial markets. We've broadly been operating within the context of remaining investment grade. That's our broad philosophy. Now let me hand over to John to give a bit more detail on that.
Yeah. Dan, the specifics around covenants. There's plenty of room on the covenants. From a debt to EBITDA standpoint, we were at 2.6 as of the end of the year. If we were to fund the Gras Savoye transaction with debt, that could go up to 2.9, then we see a horizon where it drops back down to 2.6 in a relatively short amount of time, so within 24 to 30 months. We're comfortable with that. Our bank covenants are between 3.25 and 3.5, depending on the particular nature of what's driving the EBITDA debt. We're well within threshold and we continue to manage it as Dominic mentioned.
Okay. Thank you very much.
Thank you. Our next question is from the line of Adam Klauber from William Blair. Sir, your line is open.
Hi. Good morning. Thanks. I'm not sure if you said, will Miller's be accretive next year?
We covered that on the previous call. From a Cash EPS, it definitely will be. I think for next year, we said, I don't have the details in front of me, but I think we said it was about neutral as our call.
Yeah.
Slightly up.
That's right.
On an underlying basis.
Yes.
Strongly positive from a Cash EPS basis and basically flat from an underlying basis, which includes the amortization.
Should it be margin accretive on an EBITDA or cash basis, do you think?
Flattish, I think, broadly.
Okay.
Yeah.
One follow-up on the difference between underlying operating margin and organic. As we think about modeling off that base. Excuse me. Should we think about modeling? First quarter this year, the underlying margin was 29.8, whereas organic operating margin was 30.7. What's our starting point? Is it 29.8 or the 30.7?
Yeah.
Could you just repeat that question so we're absolutely clear? When you say starting point, starting point for what? Just so we answer the question clearly.
When we're modeling for next year, we're thinking about will the margin increase from first quarter 2015 to first quarter 2016, should our starting point be the 29.8 or the 30.7?
Well, let me start by saying, the one piece of guidance we have given you, the only piece of guidance we have given you on margin, it relates to our organic margin or what's going to happen to our difference between our organic revenues and organic expenses, right? That we have said there will be a 130 basis points or more spread between those two numbers in 2015. As I think we tried to answer in an earlier question, translating that precisely into what happens to the underlying margin, while of course it will be supportive of the underlying margin significantly, the timing of acquisitions and when they come in and when the amortization starts to flow through, right?
Exactly how we fund those acquisitions, short-term versus long-term, and therefore what the debt cost will be, makes it a little harder to translate that immediately into what the underlying increase in margin will be in 2015 because of that reason. That's why when we gave you guidance on what would happen to spread between revenues and costs, we focused you on organic because of all the other complications which just flow through in timing issues, et cetera, on underlying.
Okay. Thanks.
Yeah.
Thank you. Our next question is from Mr. Bob Glasspiegel from Janney . Sir, your line is open.
Good afternoon, Willis. Two questions. First is on cash flow, which despite some pretty good EBITDA trends, the first quarter was negative $64 from operations versus plus $5. Anything timing-wise that impacted that?
Yeah. John, why don't you talk about the cash flow factor?
I will. Yeah. When we look at where we were 2014 to 2015, the difference was a deterioration of about $69 million, and there were largely four components driving that. There was the cash impact of the operational improvement program that was about $20 million. There were year-over-year increased contributions to the defined benefit plan of $16 million. There were translation impacts from operating income from the FX coming through, which amounted to about $20 million. The change in the balance sheet was the balance of about $10 million. That explains the operating cash flow year-over-year. In terms of the movements from December 31st to March 31st, the first quarter is a big quarter with incentive payments. We accrue as the year goes on, but actually the cash that goes out the door, a majority of it happens in the first quarter.
That's really the driver, the decrease in the cash, when you look at 12/31 to March 31st.
Okay. If I could just, one follow-up on Gras Savoye, recognizing that my math may be off because you don't give us enough details to get this fully. It looks like you're paying EV/EBITDA of about 12 times and a P/E of about 20 times and accepting earnings EPS dilution for cash flow positives. Gras Savoye looks like your equity and affiliates showed a decline for the quarter. I assume currency is the explanation between you saying that Gras Savoye had a good first quarter versus reporting a down in total for affiliates. The thrust of the question is, there's not much organic growth visible in earnings for Gras Savoye, and you're paying a very high valuation from a EPS perspective. Are we going to talk in terms of cash earnings instead of EPS going forward, given the dislocation of the two?
Okay. Let me start. I'm going to hand over to Tim, then I'm probably going to end up with John. Let me start with a generic point. We have been watching with some interest, some of the commentary around the price we're paying for Gras Savoye. Obviously, we're paying at the end of 2015 for this transaction. We would have thought the normal thing for people to do would be to be looking at either trailing 12 months, which would be 2015, or even forward-looking performance of the business. Occasionally, we've seen people taking the 2014 number and translating it into, which strikes me as a bit odd. We do not believe we're paying 12 times EBITDA for this business. Let me be very clear on that. Our calculations are nowhere near that sort of number.
In terms of the performance of the business, and how it's performing and outlook, let me hand over to Tim and then hand over to John to talk about Cash EPS, how we're thinking about that. Tim.
Thanks, Dominic, and hello, Bob. First thing to say is the way in which we calculated the price was broadly in line with the formula in our existing shareholder agreement, which is a document of public record. That is a formula that's based on a combination of revenue and EBITDA for 2014 and 2015. Obviously, by accelerating and making a firm offer now, we have taken a view on 2015, based on the experience at the beginning of the year and our best estimates for the remainder of the year.
Into that calculation, into your thinking, you should factor the fact that 2015 looks very good, as I said earlier, in all respects. We saw an improvement in 2014 in terms of revenue growth and margin expansion, and we see more of that from the experience of the fourth quarter, which is their largest-
First quarter.
First quarter, which is their largest. In terms of the associate line, you're absolutely right. The associate line is predominantly Gras Savoye. That was lower than you would expect given that forward momentum, due to FX, and the other performance of our other associates, which was principally around timing. You shouldn't join the dots on the associate line and 2015 performance to conclude that the performance is down, and therefore we overpaid.
John.
To might just add on the associate line. There was about $3 million of FX that hit that. You strip that out, and on an underlying basis, you're up about 8% there. Good performance in the quarter. In terms of Cash EPS and how we're thinking about the business. Looking at the past 12 months in terms of some of the things we did in terms of breaking out underlying and organic and reported and trying to create some symmetry there and consistency. The idea of adding a new metric in this year, I thought, would create, frankly, some confusion in the marketplace, and given the timing of the transactions and some non-cash items that are likely to happen, as we mentioned, the valuation reserve could be reversed at some point in the second half of the year.
My feeling was Cash EPS is definitely the right way to go, but not likely in 2015. Certainly for 2016 would seem to make a lot of sense with the Gras Savoye transaction and Miller coming in.
Thank you. You left Peter a lot of work to connect dots after the call. Thank you.
Thank you. Our next question is from Mr. Thomas Mitchell from Miller Tabak. Sir, your line is open.
Thank you. I just wanted to look at the restructuring costs, you may have gone over this before in concept, I just wanted to double-check it. As we model, since we're looking at a period that has roughly four years to run, maybe a little bit less for the Operational Improvement Program, it would seem to me that if you have a planned process for the restructuring costs, you might be able to give us an idea of what that would look like quarter by quarter, some sort of guidance on how that would look. Maybe the $31 million from this quarter is much higher than what it will be in the first quarter of 2018, it might be helpful in between to have some sort of indication of how that's expected to go.
Yeah. Thank you very much for that question. As I think we said, we are going to give you a pretty full update on how we see the Operational Improvement Program progressing and how we see it flowing through our financials in our second quarter earnings update in July, where we will address many of these issues. Frankly, not to preface that conversation, getting into quarter by quarter exactly how the restructuring expenses will flow as we look out into 2016 and 2017 is a little difficult to do, I think. We can do it at an annual level, the details of exactly when the particular parallel running and other costs will actually fall when we start looking out gets a little harder to be that precise looking two years ahead.
Bear with us, and we will give you a full update of where we are and how we see this flowing through our financials in July.
Okay. That's fine. My second question is, I think I understand it, but I want to double-check. Essentially, what you are giving us with organic is same store. It's the equivalent of same store results, which means that an acquisition, once it's actually been in the fold for 15 months, becomes part of the same store base, and a disposition obviously is moved out of the same store base, so that when we're looking at our organic numbers in the future, we don't really have to worry about what is the right number for the percentage. For instance, your percentage, once you have had an acquisition for over a year, your percentage changes in operating profit margin are going to be tied to what the same store base was, i.e., including Gras Savoye sometime, let's say, in 2017 and so on. Do I have that right?
You broadly do, right? I think the same store analogy is not a bad one. Let me hand over to John to make sure the precision of what we're doing in and out there is clear to you.
Thank you.
Yes. Tom, you are broadly right. It is same store concept. There's one nuance to the definition: after an acquisition is closed or a disposal, we pull the 12 months of activity from that acquisition out of organic so that we get a pure view for the 12-month window. After 12 months, it becomes part of organic. Logically that makes sense because you activate your integration activities, and it really becomes embedded within your operation.
Okay. That's great. Thank you very much.
Thank you. Our next question is from Jay Cohen from Bank of America, Merrill Lynch. Sir, your line is open.
Yeah. You may have addressed this with some of your earlier comments. You had mentioned in your prepared remarks, Dominic, facing uneven markets, I think that was the term you used in the first half. Those should get better in the second half. I wasn't quite sure what you were referring to.
I was just referring to the conditions, I think, Jay, that you are very familiar with, which is everyone knows that the reinsurance markets are interesting with consolidation in the large end, some pricing pressure around particularly Florida cat, the access of alternative capital. I think Todd talked about the fact that we've seen flattish rates slightly down, some things up in Willis North America, some things slightly down. Some markets we see aviation rates continue to be challenging, et cetera. We're seeing that. I don't think I necessarily said they're going to go away in the second half of the year. I don't think we are saying that at all. We continue to believe, and I think I've said many times on calls that we never budget or operate on the basis that we will be in a hard market.
We believe that what's going on in our markets, yes, there are ups and downs, across our diversified portfolio, that would be a mistake to budget or act on that basis. We are seeing for particulars of some of our segments, we're seeing some of that rate pressure, and you're seeing that in some of the relative growth rates between some of our segments. On the other hand, we benefit from some markets which are stronger and growing and harder than that, e.g., we continue to see good growth in our human benefits practice. In some of our Willis International markets, we continue to see good growth in our market share and in some pricing. That's what I meant.
I think I was trying to particularly signal that some of our segments during the course of the year are facing a year-on-year pricing differentials, which you're seeing in our results. Again, our diversified portfolio of specialty businesses gives us the ongoing ability to deliver single digit organic revenue growth.
Got it. Thanks for the clarification.
Okay, good. Thanks, Jay.
Thank you. Our next question is from Meyer Shields from KBW. Your line is open. Please go ahead.
Thank you. Just two quick questions if I can. One, I think this is for John. The $10 million savings on the pension, assuming that's a rough quarterly run rate, was that contemplated in the 130 basis point revenue expense spread?
Yeah. About half of it. We hadn't froze the pension, the U.K. pension at the time, and we didn't know for certain what the impact would be on that.
Okay. Second, I apologize, this is a little awkward, there's been some news obviously about some defections in London to a competitor, I don't want to get into the legal aspect of it, should we model some sort of revenue impact from that?
Well, obviously, I'm going to answer the second part of your question in a second. Obviously, we are somewhat constrained by the fact that we're in the middle of legal proceedings in this situation. Let me give you some general points, answer the specific. I don't intend to get into the details of the case, let me be very clear to everyone and to you listening that we will always pursue legal redress against individuals and companies where we believe unlawful action has compromised the interests of our clients, our staff, the carriers we work with, and our shareholders. We intend to pursue this particular case vigorously to trial for the maximum recovery. Secondly, we are committed to investing in and continually improving our offering to the fine art and jewelry and specie clients that you were talking about.
We've appointed a new global CEO of that business, Seth Peller. He's enthusiastically being supported by our organization and by associated organizations, we intend to grow that business very significantly. As to the overall size of the business we're talking about, it is, as part of the whole of Willis, very small.
Okay. That's very helpful. Thanks so much.
Thank you. Our next question is from Michael Nannizzi from Goldman Sachs. Sir, your line is open.
Thank you. Thanks for squeezing me in here. A couple really quick ones. I just wanted to confirm, I just want to make sure I have this right. We should be expecting a $0.02 tailwind to earnings for the remainder of the year from FX, is that right?
Yes.
Yes.
Okay.
Dominic, I'll take this one. The answer is yes, likely to be in the third quarter.
Okay. Got it. Okay. Then, as far as thinking about salary and benefits, just want to make sure I'm thinking about this right. The $8 million timing on the reinsurance contract in Willis North America, should we be thinking about taking that out when comparing salary and benefit growth to organic, or is there some salary and benefit element in that $8 million number?
No, I think we were referring to a revenue item, but let me have Steve clarify.
That's right, Dominic. It's an $8 million revenue.
Sure.
Which in the year, won't impact the year. It's gone from a quarter to a quarter.
Right. I guess my point is that if organic growth was 3.4%, and then if we back that out, then organic would be like 2.5%, 2.6% or something, versus the organic salary and benefit of 3.3%. Should we be thinking about it that way, and then should we expect that to sort of flip around in the second quarter, or is that not how we should be looking at it?
Yeah. Mike, I think the way I would look at it is, I would take a look at the total year and in a particular quarter, depending on the nature of the particular incentive plan and the geography, it could result in an increase in incentives recognized in that quarter. Then there's certain triggers when businesses achieve production awards beyond a certain level that create accelerators. The concept of trying to do this on a quarterly basis with a degree of precision, especially when you don't have the level of access that obviously folks in the company have, would be really hard.
Got it. Okay.
In terms of that $8 million issue, I'd look at that as a kind of total year. It doesn't change the total year dynamics. The reason we flagged it was we wanted to make sure you had a view in terms of what was driving the first quarter and give you some insight into the second quarter.
Great.
Let me just reiterate a couple of things that may have just got lost with the overlay of speech there. When John was confirming the $0.02 tailwind for FX over the course of the rest of the year, that was assuming March 31st rates, which is what you said, John, but that's what the assumption is there. Secondly, his general point that we do really try to get you focused on the trend in our cash flow, looking at it on an annual basis. Things move around each quarter, right? There are timing issues each quarter, which can affect numbers. We gave you guidance for the year, in terms of that spread, for instance. It will move around during the course of a quarter, based upon the timing of particular revenues being booked, particular expenses being booked. That's why we're trying to focus you on the annual number.
Got it. Great. All right. Sticking on cash just for a second. The $0.13-$0.17 for Gras Savoye, I'm guessing that that number, that's a Cash EPS number. That's including the impact of debt that you may use to fund it. Is that right?
Yes, that is correct.
That is right.
Can we get the clean number from Gras Savoye? Is that possible? We can probably figure out what the debt piece is, but can you provide the gross number from Gras Savoye?
Well, we've given you the 2014 number, right? For what the EBITDA number is for Gras Savoye in 2014.
Obviously, we believe it's growing, in 2015, as Tim outlined.
Yeah.
Obviously, by the time we get to the end of the year, we'll have clarity on what it's grown to, but we've given you as best as we can see, based upon the first quarter, that it's been growing quite nicely.
Okay. No, that's fine. I'll follow up offline. That's fine.
Yeah. Just one other point, Mike. If you do pull the financial statements filed in France by Gras Savoye to the regulator, you're going to see French GAAP numbers. Unless you're an expert in French GAAP to US GAAP, it'll be pretty hard to do. We tried to simplify that for you in the announcement of the transaction.
No, I'm sorry. I'll follow up later. I meant gross SS, not growth. I'll follow up with Peter afterwards. Thank you for that. Just last one, still on cash. Thinking about your cash coming in the door and then your cash going out the door for the next couple of years in terms of expenses and other items. Do you expect that there may be an opportunity to either reduce some of the debt that you plan to take out with Gras Savoye or return capital to shareholders in the form of reducing the share count, net over the next two to three years? Thank you.
I think our overall capital strategy remains the same, which is we continue to want to invest organically where that involves CapEx. Most obviously, that's a system spend appropriately. Targeted M&A. Committed to try and increase the dividend every year, which we've been doing. Finally trying to protect the share count from options exercises. We're going to take on more debt with Gras Savoye. As John said, we see over the next couple of years, despite that our debt to EBITDA number should come down as we grow. We will continue to be broadly pursuing that policy of investing in the business and driving our dividend and immunizing our share count. John, do you want to add to that?
Yeah. The only thing I would add, Mike, is we have a fairly efficient balance sheet from an equity shareholder standpoint, given the leverage level. We're also investment grade. At this point, the board is certainly committed to maintaining that rating. What we're trying to do is in the context of a low-rate environment, make sure we're making the best choices in terms of the capital structure of the balance sheet. If the rate environment changes, certainly our planning around the capital structure of the company will change. That's how I think about it.
Great. Thank you so much for the answers and for sticking around till late in this call. Appreciate it.
Thank you. We have one last question on queue. It's from Mr. Kai Pan of Morgan Stanley. Sir, your line is open. Please go ahead.
Thank you so much for taking the time. Two follow-ups. One on the buybacks. You did $15 million this quarter. Does it mean you're still on track to fulfill the $175 million for the full year? Is there any limitation to do buybacks while you have acquisition pending?
Yeah, we are on track. It just happened when we started the program. It's all we've done to date. We're still on track to do the program. We do have some limitations which we would keep an eye on in terms of if the price went through the roof on our stocks. Do you want to talk further about that, John?
The 175 that we talked about in February, that's what we intend to do. That'll offset the share creep, as Dominic mentioned. We did put some thresholds in terms of if the stock price goes over a certain level, then from a cash and capital management standpoint, it makes less sense to accelerate buybacks or continue buybacks. If that were the case, the buybacks would taper off.
Great. Last question for Dominic. Given the pending Miller and Gras Savoye two big deal transaction, do you see you would take a pause in term large-scale acquisitions? How do you think about risk of going through a big operation restructuring program while managing the two big integrations?
Yeah, it's a good question. Let me take the two parts. First of all, let me be clear. Our acquisition strategy is not, let's go out and buy stuff. It's are there interesting, specialized franchises which we think would fit well with our organization, and do we believe the people in those organizations want to be part of Willis? That's how we ended up sitting down some time ago, thinking through which franchises look particularly interesting and which groups of people did we think would blend particularly well into Willis. What you're seeing is the results of that work undertaken some time ago coming to fruition. I do not have on the horizon, obviously, anything of the same scale that we're thinking about in terms of an acquisition.
Secondly, in terms of the management of the business, the good news is that these are actually largely non-overlapping activities. If you think of the Miller integration, that obviously largely involves our management team in London. It is largely a London business and is deeply ingrained into our London businesses. You know that we're moving some people from Miller to Willis and vice versa, and that is deeply engaging those management teams. Meanwhile, the Gras Savoye acquisition involves a different management team, again, in complementary businesses, in this case, with hardly any overlap, which makes the integration challenges relatively low and all the upsides in terms of cross-selling and going to clients together all upside for people. The reaction internally is incredibly positive about the opportunities it creates internally within Gras Savoye and within Willis.
The operational improvement program cuts across elements of that, but not all elements at all, and we are very much engaged in making sure that the management of that process does not get intertwined or upset by the acquisition activities. It's sort of not involved in the Gras Savoye side at all. And with Miller, it's not really affecting the bits that are moving back and forth. So all in all, we are very comfortable of the way we're managing this.
Thank you very much, and good luck.
Thank you very much.
Thank you.
I think that was our last question. Is that right? I'd like to thank everybody for coming and joining our call. Reiterate that we are very excited about the growth potential and cash flow potential and shareholder value potential of the three parts of our strategy, organic growth, driving an organic margin development, driving value-added M&A, and the impact over time of our operational improvement program. We look forward to talking to you again in July. Thank you very much indeed.
Thank you. That concludes today's conference. Thank you all for participating. You may now disconnect.