The second day of the Bank of America Merrill Lynch Insurance Conference. For those of you I haven't met, I'm Jay Cohen. I'm the Senior Property and Casualty Insurance Analyst here. Tough weather day, you guys are brave for making it out here. I appreciate it. Our first speaker is a first-time speaker at our conference. Dominic Casserley, CEO of Willis Group, has been in that position for about a year after spending almost 30 years at one company, McKinsey . When I say Dominic wrote the book on financial services, he actually wrote 2 books on financial services, and so his experience is deep and extensive. I'd love to have him share with us his views on Willis and where he's taking the company. Dominic?
Thank you, Jay. First of all, congratulations to everyone who's here. Getting here was a real achievement, and thank you for being here. Let me tell you what I'd like to do today, I want to talk a little bit about 2013 for Willis, and then focus most of my attention on what we see as growth opportunities for our group. Hopefully we'll have a good amount of time for Q&A after I've done that. That's the plan. I have to, first of all, go through these very important slides. I'm hoping you're all memorizing these because there will be a test afterwards. This one in particular is incredibly enlightening. Just a quick reminder of who we are. We are a global risk advisor and broker, going all the way back to 1828.
We're now a truly global firm with about 18,000 associates around the world, operating out of 400 offices. We are focused, obviously, we're a B2B business, and we provide market-leading products and services on risk management and risk transfer. We have all sorts of leading authorities on analytics, modeling, and managing risk in commerce and the intersection of commerce and extreme events like today. We operate literally practically anything you can imagine in the world of risk advisory and risk transfer in the corporate world, serving local companies and multinationals and obviously having a significant service to insurance companies through Willis Re. As you can see, the split of where we operate. About 40% of what we do comes from our North American retail, what we call retail activities, branch-based activities. The same, about 30%, to the rest of the world doing the same sort of activity.
About a third from our global businesses, which are our specialty insurance activities and Willis Re. What's the basic investment story? Why are we a growth stock? A growing company? We think that there are three elements which make us particularly attractive fundamentally. We operate fundamentally in growth markets. Because of the way the world works, a risk advisor and risk intermediary is involved in GDP growth, the growth of trade. We're obviously somewhat sensitive to inflation as values go up. Because of our health business in particular, which we'll come to in a second, we're obviously focused on all the demographic issues that are all too well documented. Aging populations, increasing demand for healthcare, et cetera.
The second growth aspect is that in the developing markets, where we have a significant footprint, over and above GDP growth, there is actually then penetration of insurance, which is increasing, and then penetration of broking of insurance. We get a triple whammy, if you like, in the developing markets, much more than GDP growth, and that's why our emerging or developing market businesses have all been growing double-digit on a consistent basis for a number of years, because that's the way those markets are performing and should be expected to continue. The other growth activity is that the world is becoming a riskier place. I'm not asking you to be a climate change advocate.
You just have to see that the combination of extreme weather events and more urbanization and the growing out of asset, particularly in some of the emerging markets, for instance, the Thai floods 18 months or so ago. The effect that has on world trade is very significant. Cyber risk, a new emerging, or has been emerging for a while now, problem for corporations around the world, and the health demand for increased healthcare around the world and the crises that it's creating in corporate funding. We have some attractive growth underpinnings to our firm. We're highly diversified. I told you we operate around the world. We have clients across all corporate segments, industries, and geographies. We are diversifying further. At the moment, we're about 86% P&C, 14% EB.
If you fast-forward the firm over the next few years, you would expect that EB percentage to increase as a percentage of the total. We generate good cash. We had $3.7 billion in revenues in 2013, over $550 million of operating cash flow, and strong 20% operating margins. What are the growth opportunities? We see a number. We obviously are trying to focus, as a growing company, on faster-growing geographies, industries, and sectors. We are prioritizing investment to those markets we think are going to grow faster than on average. That does not just mean, for instance, geographically, Asia and Latin America. It will mean within North America, finding those cities or those industries that we think will grow faster than others and prioritize investment towards them. Second big growth opportunity is connectivity across the business.
Historically, this industry has been quite siloed. We believe a big opportunity for Willis, and we think we're the best positioned to do this, is to truly project one Willis to our clients and deliver the full range of services and the cross-selling opportunities that come from that. We are taking advantage of new and existing insurance capital to bring it to new markets. We launched something called G360 in London during the year. It is the beginning of a trend for us of finding opportunities to bring new sources of capital into markets. Again, all under the heading of serving our clients better. We think that's a very interesting opportunity. As I said, we are exposed to the healthcare and demographic changes. I'll talk a bit more about this. Around the world, we see growing demand for increased benefits.
In some of our emerging markets, we see very robust demand for improved healthcare coverage, and that's an opportunity for us. In the United States, we have a big footprint in healthcare focused basically on companies of 5,000 employees or less. We're not trying to directly all the time compete in the very top of the market. We're active, for instance, with our own exchange, the Willis Advantage, which I'll talk about a little later. The whole healthcare debate and the dynamics around that in the United States, the Affordable Care Act, and outside the United States, the booming demand for better healthcare provision, we're right in the middle of that process. Finally, we do see inorganic opportunities to grow. We have a very disciplined process to this, which I'll talk about in a second.
We have an opportunity to buy a company called Gras Savoye, which is the number one broker in France, the sixth largest insurance market in the world, and has a significant footprint in Africa, the Middle East, and Eastern Europe. That is an option we need to decide whether to exercise in about a year's time. We have an expanding list of other inorganic options. We have a very disciplined net present value approach to this, very much focused on cash, cash out, cash in. We are turning down more opportunities than we are getting close to saying yes to, but we have an interesting pipeline. We see ourselves operating in growth parts of the world, in terms of sectors, trends, and geographies, and with a significant portfolio of growth opportunities. In that context, in July, we laid out some objectives.
We said over the medium term, we plan to deliver mid-teens total shareholder returns on an annual basis which would be driven by mid-single-digit organic revenue growth, a positive margin targeting 70 basis points plus spread to revenues, and flattening CapEx and pension funding. That would lead to improving cash generation, and we are very focused on cash as driving shareholder value. We believe those three things together would lead to improving cash generation, which would enable us to invest in the business for growth on an ongoing basis. Look at M&A opportunities, again, with that strict focus on value, generate a steadily rising dividend, and repurchase shares as relevant. That's what we laid out as the investment philosophy, which would deliver mid-teen TSR over the medium term on an annual basis. How did we do in 2013?
We delivered on our mid-single-digit organic growth promise or target. We actually made some revenue recognition changes in the last quarter, which meant that our like for like, if you like, organic growth was just over 5%, not that 4.9% number, but around 5%. Critically, all three of our segments grew well during the year. The growth was very well diversified. We kept our margin around 20%, but we did not actually achieve the 70 basis point target, and we've said that we wouldn't do so every quarter, this was our first two quarters after our July forecast. We're very comfortable with that. We made very specific investments for long-term growth, targeted investments around particular hiring of people and teams in particular areas where we want to grow. We did see the beginning of the flattening of CapEx and pension funding.
They were down mildly during 2013, the beginning of a trend we expect to continue. The result of that is we did grow our cash from operations during the course of the year, and cash on hand actually went up 60% year-on-year. What did we do? We did actually invest in the business. We made a number of steps to do that in terms of talent, improving connectivity, and investing in technology and systems. We were back in the M&A market. We made two acquisitions, one in the middle of the year and one actually right at the beginning of 2014, one in the U.K. and one in Hong Kong. Very focused acquisition specific asset with specialist capabilities. We were also divesting non-strategic assets, businesses which we think don't meet our criteria of growth and having unique positions in the marketplace.
We increased our dividend by over 7%, in line with our confidence about our medium-term cash flow generation capabilities. We announced a buyback of $200 million of stock over the course of the year as we felt that we want to, if you like, immunize the share count from employee stock option exercises, and we said that would be an ongoing plan into the future. We feel pretty good about 2013. We set the foundations for growth going forward, and we achieved many of the objectives we set out in terms of financial targets. What I want to do now is look forward, and I am going to talk about five areas.
Large corporate, some of the things we are doing in the large corporate space, the middle market and SME space, what we are doing in healthcare and benefits, the human capital and benefits space around the world, some medium-term activities around costs that we are going to start taking, and just come back to talk a bit about inorganic opportunities. Let me start by large corporate. There is a view out there that the large corporate market for risk advisors and brokers is fundamentally not a very attractive one because of fee pressure from large corporates who are very sophisticated, large procurement departments, et cetera. We actually see this a little differently. If you just look at the United States, and took $1 billion sales as the bottom cutoff point, a ctually, this market has been growing as companies grow into the segment.
Actually, commission and fees coming out of this segment of the market in North America has been growing quite robustly during that period. It is actually an important market. Now, it is a market where we have specific assets where we can build our market share around specific industries and specific products or specialist capabilities. For Willis, what we are going to be doing is targeting specific opportunities where we believe we can grow our position here. We think very importantly, the one Willis team approach, supported by a team-based compensation model, is critical, and that by bringing all of Willis to our clients, we can actually, in many cases, differentiate ourselves. We will be selectively investing in talent in this area.
We announced, for instance, a couple of weeks ago that John Merkovsky, who had been at Marsh for many years building their risk consulting business, is joining us or has joined us, and will be helping driving our positioning as the analytical broker in this space to further differentiate our offering. Willis has the track record and heritage of being a specialist insurance broker out of its heritage out of Lloyd's of London. Our positioning as these guys are the true deep experts who bring deep analytical insights is well understood by our client base, and we just continue to invest behind that. We're not trying here to go head to head with our friendly competitors at every client and every opportunity. We're going to be picking our spots where we believe we have a very high probability of winning.
Let me go to the other extreme, which is refining our approach to the small and middle market. This is not a huge proportion of our revenues today, l ess than 20% of our revenues today. We see an opportunity to drive profitability and growth out of this market segment. We naturally have a flow of clients of this size who come to Willis because of our brand name, because of our branch positioning around the world. They naturally come. They want to be served by a company of our stature. By the way, a number of them, even though they may not be enormous companies, are going global. The world has changed. It used to be you had to become enormous to go global.
As you know, with the world of the internet, the ability to start up companies in multiple locations very quickly, they need global support at a much earlier day. They come to Willis. Obviously, we're looking at a more cost-effective model to drive profitability out of these clients. For instance, in North America, we've decided to manage them as a separate practice with a national leadership driving the profitability of this business and then driving growth because we see it as a growth opportunity. We see the need and opportunity to use more insurance facilities to serve these clients, to simplify the placement model and actually importantly improve the proposition to our clients, is through facilities we believe we will get better terms and conditions for our clients.
In some parts of Europe, we've actually found the best way to serve this client base is through small regional brokers to whom we provide consultative and product services. We get a share of their revenues for providing them with support in the small local marketplace, and we see that in some countries as the best way forward. We will obviously divest businesses where we think we don't have a competitive advantage. We're excited about our opportunity to drive profits and growth out of this segment market by market. A few weeks ago, we announced a change in the way we're thinking about human capital and benefits, our employee benefits businesses around the world. We have over $500 million of revenue coming out of human capital and benefits around the world. This had been largely a geography by geography event.
What we've done is to create an overlay of a global human capital and benefits practice to coordinate the activities. There are reasons that these businesses are often run country by country because they're highly regulated and the healthcare system of Sweden doesn't look much like the healthcare system of North America. At the moment, who knows what it'll look like in a year or so. The history has been obviously quite different, therefore, a national approach to these markets has made sense. We're seeing much more opportunity now to coordinate globally, to have a best practice transfer, best learning transfer, and also because more and more clients are coming to us saying they want global management of their benefits packages. We announced that coordination activity led by Tim Wright, and we're excited about this.
As I said, we have over $500 million of revenue globally in this space, and as a proportion of the firm, we expect it to grow. We operate, as I said, below the top end of the market in this space. Sort of 5,000 lives and below is our sweet spot. Incredibly disaggregated market. Those clients are mostly served by regional and local brokers who are struggling in this space as the ACA run through, the complexities run through, to provide the level of support and coordination, and they're really struggling when the clients say, "We want to go global. How can you provide me with a global benefits coordination?" They really are struggling. We see a tremendous opportunity in that marketplace for a global and national player actually to take market share.
In Europe, our benefits business has been for a number of years growing faster than our property and casualty business. We see that opportunity to continue to invest behind that. If you're in China, let me tell you, the healthcare issues with the rising middle class and the level of healthcare provision in that country, the demands for healthcare provision are going to be enormous. Companies are going to need advice as to how they set up and which networks they should be tapping into. We see the opportunity over the next few years to double our revenues coming out of this attractive market through organic and inorganic growth. For that reason, we announced this global coordination activity. As I said, again, we're focusing on client segments and industries where we can win, where we think we have a unique proposition to make.
In the United States, our focus is healthcare. In some markets outside the United States, it will be pensions and healthcare, depending upon the regulatory environment. As I said, we're seeing multinationals around the world wanting more global coordination of their benefits programs and saying the country-specific firms that have been serving them can't provide the answer they want. We will see M&A opportunities in this space. For instance, Gras Savoye comes with a significant benefits activity in France, which would add to our capabilities. Everyone gets very excited about exchanges in the North American space, healthcare exchanges in North America. We launched in the summer, the Willis Advantage, which is the one exchange out there which combines a wellness capability. We believe the fundamental drivers of healthcare costs have to be to reduce the trend level of cost of actually providing healthcare to people.
They've got to get better. They've got to get healthier. We believe a wellness component to the program is very important. It's up and running. We've been out marketing for the second half of 2013. At this point, we're in discussions with about 600 prospects, half of whom are new to Willis Healthcare. They're new prospects to us. Just be clear, these are not things you turn on overnight. We are talking to people who may be targeting doing something in this space at the end of 2014 or maybe 2015 or maybe 2016. These are big changes in their relationship with their employees. These are multi-year discussions for many of these clients, and appropriately so. We've got a very robust pipeline. What's most important to us is that half of it is new clients.
This is not just moving from an old program, a Willis program, to a new Willis program. These are new clients coming to Willis because of this offering. Fourth topic I want to talk about is costs. I don't want to focus on the quarter-to-quarter managing T&E expense or whatever. I want to talk about some structural opportunities we see. I talked to you about one Willis, what we're calling Connecting Willis, bringing one face of Willis to our clients. Because of the history, by the way, this is a history of the industry, not a Willis specific issue. The history of the industry as being very siloed. No surprise to find that the systems infrastructure is quite siloed too.
As we move to a more unified face to our clients, we are seeing significant opportunities for rationalization of our systems and operations base to a much simpler model. We think that's going to create attractive cost and productivity opportunities over multiple years. That will enable us to free up some money to put more money behind client-facing systems, CRM, client portals, et cetera. It won't involve huge amounts of savings, but just a percentage of them can go to further improving our proposition to clients and the management of our pipelines and sales capability against our clients. The third item, which we think is very exciting, is further use of our lower cost locations. At this point, we have three. We have about 1,300 people sitting in Ipswich on the east coast of the United Kingdom, who provide a lot of support and analytics around the world.
700 sitting in Nashville, and about 1,800 in Mumbai. About 10% of our staff sits in Mumbai. We have a proven track record of being able to move roles, redesign processes, and move roles from high-cost locations to lower-cost locations. We know how to do this. We own all these locations. They are Willis-run. We haven't outsourced them. We have the in-house skills to know how to do this. At the moment, we have just over 20% of our total staff in Ipswich, Nashville, or Mumbai, and we see over the medium term, the opportunity to significantly increase that number, which will have significant implications for our costs. Together, we see these three structural activities creating opportunities for us to year by year lower the structural level of our costs. Last topic before we go to questions is inorganic opportunities.
We see inorganic opportunities as an opportunity to supplement our organic actions to again drive mid-teen shareholder returns. We were basically out of the market after a major acquisition that was made in 2008 in the United States, a company called HRH for over $2 billion. The combination of the global recession and some integration challenges at that time largely meant that we were focused on that opportunity. For the last year or so, a bit longer, we've been back in the market. I think people know that we are interested in the right assets that produce the right economics for us. We've seen a meaningful uptick in the number of transactions that we are evaluating. Let me be clear, we are not interested in buying volume for volume's sake.
We are interested in having companies join the Willis family, which are first of all, of high quality, have market leadership positions, or with our assets in that market could become market leaders, and are growth companies. We are a growing company. We want to buy growth if we're going to buy anything. We have a really strong focus on maintaining financial discipline. For me, that's around cash. What cash are we paying out? What cash are we getting back with an appropriate risk-adjusted discount rate, stress-tested up, down, and sideways? It is very easy to make, "earnings accretive acquisitions" in this space because you buy a lot of goodwill, it doesn't go through the P&L any longer.
You borrow at 6%, hey, presto, it's "earnings accretive." You may be destroying a lot of value along the way because you've overpaid for the asset, and the actual cash flows don't meet the cash you paid out on an appropriate basis. We're very focused on cash, cash out, cash in. The current focus that we're focused on, we're obviously interested in emerging markets assets. Again, if they fit our footprint and what we have in place already. I said to you human capital and benefits is interesting to us. Again, if we can get quality and market leadership positions in the client segments we're interested in. Reinsurance, we have a wonderful business in Willis Re, which has been outpacing its competition now for a number of years.
If we could find additive assets in the reinsurance space, which helps us to further accelerate our market share taking that has been taking place over the last few years, we could be interested in those. Very specialist core P&C businesses, particular industries, a broker which is very focused on a particular industry, a broker which is a leader in a particular capability. For instance, I talked to you about a company called Prime we bought in 2013. Prime was a specialist broker focused on the liability issues of lawyers in the United Kingdom. We were already in that market. They were in that market. We put ourselves together. We became a very, very strong competitor. Very specialist way to add capability. Those are the sort of assets we're particularly interested in. We will find opportunities to fill certain geographic gaps. Gras Savoye is a classic example.
We don't have the capability in France. Because of our relationship with Gras Savoye, that is the way we would fill that huge market in Europe. We believe that we are often a preferred buyer. We have a track record over many years of driving acquisitions. We've done a lot of acquisitions in the 1990s and 2000s and have shown that when people join Willis, they don't just disappear and never seen again. For instance, Steve Hearn, our Deputy CEO and Head of Willis Global, one of the three big segments of the company, joined us through acquisition in 2008. We've shown that you can join Willis through acquisition and have a very exciting career at our firm. That makes us a very attractive place for people to look at and joining an organization. That's why I think we're seeing such a rich pipeline of potential opportunities.
I want to reassure you, we look at those through very tough glasses. Brings me to the last comment before we go to Q&A. Gras Savoye. For those who don't know what Gras Savoye is, Gras Savoye is the leading French broker. About 2/3 of its revenues come from France, the rest come from Africa, Middle East, Asia, and a bit in Eastern Europe. It's a nice balance of developed and developing markets. It is the lead player in France and the lead player in Africa. We own about 30% today. We have the option to buy the rest. A decision we make in 2015 and actually execute in 2016. They had had a high-cost structure. They went through a cost restructuring in 2013, which we are very pleased with. Went extremely well.
They now have the opportunity to grow their revenues and EBITDA, and we're obviously helping them do that. Should we go forward, we want to be able to buy a company with some positive winds behind it with momentum, but after acquisition, we would obviously be able to add further to revenue and cost synergies to drive revenues and EBITDA growth. For us, Gras Savoye passes many of the qualitative tests of which we use to evaluate targets. It is a high-quality firm with a long pedigree. It has market leadership in multiple markets. It has emerging markets exposure. As I said, it has a significant human capital and benefits business, not just P&C, and it fills some geographic gaps for us or strengthens our position in some geographies.
However, we have an important quantitative test we need to do in 2015 about do we think that for the cash we would lay out for the other 70%, that the economics look attractive? Do we believe that the cash flows that we can see going forward from the combined entity will be attractive versus the cash we lay out? We are going to look at that very hard. Because we're working so closely with them, we sit on their board, we have total transparency on their economics. This is not an opaque situation for us. We have complete exposure to their economics as a board member. That's the summary of what I said. Five growth areas we're particularly excited about. Large corporates, middle market, SME, healthcare and benefits, medium-term cost restructuring opportunities, and careful inorganic opportunities.
With that, I have to click through these couple of slides regarding important disclosures regarding non-GAAP measures. We have a couple of pages of those. I think we're done. I'm very happy to take questions from anyone who would like to ask anything. The gentleman over there, I think.
With the acquisition of the company with the Middle East exposure, EMEA, are you looking at other emerging market areas? Obviously, those are the under-insured parts of the world with higher economic growth. Obviously future opportunities there. I guess when you look at those markets, can you give us a sense of how you evaluate them? Certainly they don't have the same legal structure and litigiousness that the U.S. has, and hence perhaps maybe their insurance needs will be less. How do you evaluate them in that context?
Well, first of all, to answer your question, yes, we are looking at other markets. We have two advantages in doing that. One, we're in all these markets already. We're insiders. When we entered these markets, we often did it through small acquisitions to begin with. Our businesses are local. We have locals running. If you go to our Italian office, it's full of Italians. If you go to our office in Colombia, it's run by Colombians. We are truly insiders in all those markets, so therefore we understand all the issues, the nuances, the regulatory issues, the way business is done around those markets. Therefore, when we look at growth, our primary option in all those markets is organic. Our first thing is how do we drive organic growth in every one of the emerging markets in which we're in?
When we look at inorganic opportunities, and I'll come back to you on how will these markets grow. When we look at inorganic opportunities, first of all, you do have to be very careful that you are buying quality, that the company we're looking at might meet all our compliance and other issues. We were looking at a company in a particular market recently, have just walked away because we felt uncomfortable about some of the compliance issues and how they would work in our culture. We have to be aware of all those. The good news is we're insiders, so we understand what's going on. We do see opportunities. The last thing obviously you have to be worried about is price.
With the sort of growth rates we're talking about, you can get some pretty scary PE multiples or price to EBITDA multiples, which you say, how's that going to work? We have a very tough filter. We still remain very interested because despite your comments about differences in the tort structure between these countries and the United States, if you just look at the level of insurance against assets, revenues, profits of the corporate sector in these markets as benchmarks, and look at how that has developed over time around the world as markets have matured, there is a growth path here. It may not reach United States levels, may not level out at United States levels, but there is a growth path to be expected.
As I said, on top of that, many of these markets were historically direct markets, insurance company to corporate, direct distribution. As the world has become more sophisticated and more complicated, those relationships are gradually breaking down. Corporates are saying, "My world's too complicated. I need more objective, independent advice, and I'm not sure the company that has been providing me coverage for the last decade is the right one to take me forward for the next decade." We're seeing fundamental growth, growth in the economies, gradual growth in penetration of insurance, and on top of that, growth of brokerage or advisory around that. That, for us, remains a secular trend which is going to continue for many, many years. That's why we're excited about it. Will the penetration of insurance get to the levels we know in the United States?
Frankly, not a problem in your or my lifetime. Okay? Next question.
Dominic, you talked a lot about growth. Is there a cyclical overlay that we should think about with respect to insurance and/or the broking of insurance, and how do we think about that today?
Of course, the topic that everyone gets so excited about is rates, insurance rates. We publish on our website, you can get our various views on where rates are going. We published our view on reinsurance rates one-one this year. There is a degree of cyclicality from that point of view. It's very well publicized, for instance, that Florida cat rates are well off this year. Windstorm rates are well off. Renewals, when they come through, which are mainly second quarter renewals, we expect in that space pricing to be softer. I'll tell you how we think about it. We, first of all, do all our planning and forecasting on the basis that rates go through the cycle. There is no such thing as a hard market. Right?
We believe the speed of capital movement means as soon as rates start to harden, you see capital coming quite quickly. Right? On basis, you should assume that rates are basically flat through the course of our planning. That's how we think about it. That broadly is true. We're so diversified that for every Florida cat to operate, I can point to another market where, in a geography far flung where rates are stronger. Right? Over time for us, in any particular year for us, there's some balancing going on. Through the cycle, we just assume don't bank on any hard markets because capital will come through. The other cyclicality for us is we are very exposed. We like inflation. We like inflation for two reasons. We like inflation because obviously the value of what we are insuring and helping people insure goes up.
Right? That leads to demand for more coverage. Secondly, because we have a chunk of our revenues in the past came from interest income, which flows straight to the bottom line. That's practically disappeared over the last few years. If you believe some point over the next few years, you tell me when, but over the next few years, we might see some pickup in inflation and some pickup in short-term interest rates. Doesn't have to be dramatic, just some. That produces a cyclical fall to our bottom line two ways. One, from our core revenues, because clients will need more coverage for more valuable assets. Secondly, because we will see interest income increase. With the moment we're at the cyclical bottom, I would argue, of both those things, unless you think we're going to go into a deflationary environment. Is that helpful?
Dominic, before I ask my question, I want everyone else to know that Aflac, which was scheduled to present right about now, couldn't make it in. They're coming in from Georgia, because of the weather, they couldn't make it in. We'll have an extended break, which is why we can go a little bit later with Dominic, which is great.