Welcome, thank you all for standing by. At this time, all participants will be on a listen-only mode until the question-and-answer session for today's conference. At that time, to ask a question from the phone lines, you will press star one on your touchtone phone. I'd also like to inform all participants that today's conference is being recorded. If you have any objection, you may disconnect at this time. I would now like to turn today's conference over to Mr. Peter Poillon. Thank you. Sir, you may begin.
Thank you, welcome to our fourth quarter 2013 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 a 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, 2012, for the year ended December 31, 2013, which we expect to file by the end of February, 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 we use on the call are expressed on a non-GAAP basis. Our GAAP results and GAAP to non-GAAP reconciliations 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. By now, you've had a chance to read the news release that we put out last night and have a copy of our slides at the ready. With me today are Michael Noonan, Chief Financial Officer, Steve Hearn, our Deputy CEO and Head of Willis Global, Tim Wright, Head of Willis International, and Todd Jones, Head of Willis North America. As usual, we will be happy to answer your questions after Mike and I offer our introductory remarks. Let me turn to an overview of our results. This quarter, we continued making steady progress in growing our top line, delivering 3.7% organic growth, a number that looks even better when given some added context. You know from our press release that we had some revenue recognition adjustments that reduced organic growth for the quarter.
If you exclude those adjustments, we actually achieved organic growth of 4.8%. We are pleased with that growth, as it is on top of the 7.5% we delivered in the fourth quarter of 2012. Our full-year number for organic commissions and fees growth was 4.9%. All of our business contributed well to that performance, with Global at 5.6%, North America at 4.9%, and International at 4.1%. If you exclude those fourth quarter adjustments I just mentioned, organic growth for the year was 5.1%. All in all, our associates around the globe did a great job delivering consistent growth in 2013. Our team is hard at work building on that success in 2014 and beyond. We'll talk about some of the things we're doing in that regard later in my remarks. Specifically on the fourth quarter.
Our reported GAAP earnings were $0.37 per diluted share. Adjusted earnings were $0.42. That $0.05 difference relates to an increase in the valuation allowance on our deferred tax asset, which Mike will dive into during his remarks. Our adjusted earnings per share of $0.42 compares to $0.45 a year ago. We have to remind you, for the last time, I'm happy to say that that isn't an apple-to-apples comparison for how we did in the quarter. Had we accrued our bonuses during 2012 instead of amortizing retention awards, those fourth quarter 2012 adjusted earnings would have been $0.07 lower, or $0.38, versus the $0.42 we achieved in the fourth quarter of 2013. Let's spend a few minutes looking at each of the businesses in some detail. I'll start with Willis North America.
North America achieved organic growth in commissions and fees of 5.8% in the fourth quarter and 4.9% for the full year 2013. This was a significant improvement over the previous year, for which Todd Jones and his team deserve a lot of credit. North America has offered its challenges over the years, but this is the fifth consecutive quarter of growth in North America. Looking back at 2013, the business has grown very consistently throughout the year. A revenue recognition adjustment increased fourth quarter commissions and fees by approximately $5 million, or about 160 basis points of the organic growth. Beyond that, North America's growth was again largely driven by new business wins and also helped by improved retention. Rates during the year remained positive.
In the fourth quarter, to this early point in 2014, we are seeing a leveling out of rates in North America and even some declines in some areas. We estimate that about 50 basis points of our growth in the fourth quarter of 2013 was attributable to overall rate improvement. Growth in North America was well distributed geographically, with good results in the Metro New York, New Jersey area and the West, Atlantic, and Midwest regions. We also recorded good growth across a number of industries and practices, including financial services, real estate, and mergers and acquisitions. We also continue to see good growth in our construction practice. In our human capital practice, organic growth was flat in the fourth quarter, affected in part by seasonality. Having said that, there's a good story evolving with human capital and benefits for Willis.
With organic growth of nearly 6% in 2013, the practice performed very well, and we are confident about our ability to grow it further. As we discussed with you on the last call, the Willis Advantage, our healthcare exchange designed around our mid-size corporate plans, has attracted interest among current clients and prospects alike. We are now engaged in discussions with about 600 prospects for our exchange, of which about half are new to the practice. We believe that the opportunity for growth in this business, both inside the U.S. and outside, is substantial. We recently announced the launch of our global human capital and benefits practice under Tim Wright, in addition to his Willis International duties, that brings together all of our efforts in this space under one roof.
You should expect to see a coordinated global strategy aimed at delivering the very best of Willis to our clients and increasing our share of this large and growing market. Let's now move to Willis International. Willis International grew 3% in the fourth quarter, bringing organic growth for the full year to 4.1%. However, that doesn't really tell the full story of International's growth this quarter, as a revenue recognition adjustment in China reduced commissions and fees by $15 million. Excluding the impact of that adjustment, International's organic growth would have been 510 basis points higher, or 8.1%. This was truly an outstanding result from the international team. Let me provide a little detail on the regions that comprise that business. In Western Europe, we had a very good quarter, with high single-digit growth driven by strong new business and solid retention.
This is a laudable result given the generally weak economic conditions in the countries where we have a big footprint. The positive results were spread across the region, with Denmark, Germany, and Italy leading the way. In Eastern Europe, we recorded low double-digit growth, primarily driven by a strong performance in Russia. Latin America grew solidly once again, with low double-digit organic growth. Strong growth in Chile and Venezuela, as well as moderate growth in Brazil, were drivers in the quarter. Now, Asia was down in the quarter due to the adjustment in China that I mentioned earlier. The adjustment aside, however, Asia's underlying performance was very good, with strong double-digit growth. A number of businesses in the region performed well, with very good results in Hong Kong and Singapore.
Australasia, which I had the pleasure of visiting in November, had another solid quarter, with mid-single-digit growth and positive results in both Australia and New Zealand. You've heard us talk in the past about challenges we've experienced in Australasia, but I saw firsthand how the team is working to put those issues behind them. Finally, in the U.K., our business was down very low single digits in the quarter as our effort to reshape that business under David Martin continues. You might have read our recent announcement in which we have combined under David our U.K. retail operations with our specialties division, which will now come under Willis Global. We expect this powerful combination to drive greater client value and cross-selling opportunities, thereby accelerating the performance of our business in the U.K. Let's now focus on Willis Global, which comprises Willis Re, Specialty, Placement, and Willis Capital Markets & Advisory.
Willis Global recorded organic growth of 1.4% in the fourth quarter and full-year growth of 5.6%. We all knew that the fourth quarter was going to be challenging for Global, given how Willis Capital Markets & Advisory saw so much of its 2012 deal flow coincidentally come to fruition in the final quarter of that year with over $12 million of revenues. As we shared with you before, WCMA is a lumpy business. It has a very healthy pipeline, but the timing of the major transactions they work on is not ours to control. If you exclude WCMA from Global's results, the businesses grew at 4.6%. This was largely driven by the specialty businesses, which grew mid-single digits on the back of strong growth in property and casualty and construction and financial and executive risks. These results were partially offset by declines in marine and energy and aerospace.
Willis Re was down very low single digits. It was almost flat in its seasonally smallest quarter. North America and International reinsurance were down slightly, partially offset by an increase in specialty reinsurance. The fourth quarter sees few renewals in reinsurance, so that rate movement that you read about had minimal impact on the quarter's results. We expect that lower rates will bring some varying headwinds in 2014. I would expect that North America property cat, typically renewing in the second quarter, to be most affected. Our 1st View report, which we published in January and which is available on our website, offers a detailed discussion on our views of rates in the reinsurance market.
Looking at our full-year 2013 results, I'm satisfied with improvements we've made company-wide, both financially and operationally, which are in line with many of the targets that we laid out at our investor conference in July. We achieved solid mid-single digit organic growth across all three of our segments. The first time we've done that since 2006. While expense growth outpaced revenue growth, we feel good about how and where we've deliberately invested in the best people, systems, and in positioning our firm for the long term. Importantly, our cash flow from operations grew to more than $560 million. As we said in July, it's not our expectation that we hit the targets we set every quarter, rather that we achieve them on average over the medium term.
All of the changes we put in place in the second half of 2013, changes which we continue to announce and implement, are designed to do just that. I also feel very good about the progress we've made on our strategic initiatives. As you saw in our news release yesterday, I discussed some of the important changes we've made, many made since we convened on our last earning call in November. Across the company, our associates can feel the pace quickening. Our clients are beginning to see a more Connected Willis serving their needs. We've also announced some acquisitions that we believe improve our position in certain markets, acquisitions that we expect will be cash flow generative. We've also announced divestitures of non-strategic or underperforming assets. These are things we told you we'd do back in July, and that work continues.
Most gratifying to me is the enthusiasm I see for these changes among our clients and throughout the Willis organization. It makes me all the more confident about the direction in which we're heading. With that, I'll turn it over to Mike to discuss the rest of financial results. I'll return later with final comments before turning it over to you for questions.
Thank you, Dominic, good day, everyone. In reviewing the numbers, all comparisons are made to Q4 2012 and full year 2012, unless otherwise stated. As noted in other earnings calls this year, our change in the compensation policy to bonus accrual distorts the comparison to prior periods' expenses, and therefore to prior periods' EPS and operating margin. This quarter, that difference was about $15 million, or $0.07 per diluted share and 180 basis points of operating margin. I'll walk through those impacts as we go through the numbers. I will also be referring to the slide presentation frequently that we posted to our website. As Dominic mentioned, we delivered organic commissions and fee growth of 3.7% across the group. As you can see on slide three, North America led the way with 5.8% growth, International grew 3%, and Global grew 1.4% in its seasonally smallest quarter.
Total organic growth was negatively impacted by 110 basis points from two adjustments we made to conform our revenue recognition policy across the company. First, in North America, we adjusted C&F up by $5.3 million. Previously, we had accounted for our personal lines direct bill business on a cash basis because it comprises a large volume of low-value policies. However, through better quality underlying data, we are now able to move this to an accruals basis in line with the rest of the group. Second, in International, we adjusted C&F down by $14.7 million in China. We have been continuing to recognize revenue on the accepted local GAAP basis used by our China operation since we acquired it. As that business has grown and matured, we have now aligned this revenue recognition with the rest of the group.
Let me now turn to the financial results for the quarter on page four of the presentation. Our adjusted EPS came in at $0.42 this quarter, compared to $0.38 last year after normalizing Q4 2012 with a change in our remuneration policy. On the same basis, operating income was basically flat at $150 million, our adjusted operating margin declined 100 basis points. These results reflect strong operating performance in Willis North America and International. They also reflect lower adjusted tax rate for the group. Offsetting these results were lower operating income in Global, higher average shares outstanding, a higher loss from our associates line. Global's performance was impacted by a number of things. First was a change to bonus accounting. Second was the lower revenue from Willis Capital Markets, which Dominic mentioned. Third was a small decrease in reinsurance revenue.
Fourth were investments in personnel for our reinsurance and placement organizations. For the group in the quarter, foreign exchange movements had a positive $0.01 per share impact on EPS. Let's take a look at some of the metrics for all of 2013, which you can see on slide five. Full year results showed solid organic C&F growth of 4.9%. After normalizing 2012 results for the change in compensation policy, adjusted EPS increased $0.26 to $2.64 from $2.38. On the same basis, operating income grew modestly from $704 million to $730 million. Looking at the adjusted operating margin, it declined 20 basis points to 20%. It's important, I think, to look at our results in this retrospective view, which is how we analyze them internally. Seen in this way, we achieved good revenue growth in excess of 5% and EPS growth of approximately 11%.
We're mindful, however, that our expenses grew 5.7% on an underlying basis, which served to compress our margin by 20 basis points. To drill down into the expense numbers in more detail, please turn to slide six. Underlying growth in total operating expenses in Q4 was 9.9%. On a like-for-like comparison of our expense base, that number shows growth of 7.6% after adjusting for the change in compensation policy. That expense growth was higher than the first three quarters, which averaged close to 5%. Let me talk for a few minutes about the drivers of that fourth quarter growth. First, salaries and benefits. Slide seven reminds us of the quarterly impact of changing our compensation policy.
As we said before, our S&B expense for all of 2012 would have been $48 million higher had we been accruing for annual cash bonuses as we are doing now, instead of amortizing retention awards. The impact to the fourth quarter 2012 was $15 million. Turning to slide eight, you see that underlying S&B expense increased 10.7%, of which 320 basis points stemmed from the change in remuneration policy. On a like-for-like comparison, underlying S&B expense was up 7.5%. This was above our recent S&B growth, which has ranged from 4%-6% over the past three quarters. The main drivers of that growth you've heard us talk about on recent calls. First, a combination of headcount increasing by about 3% since the start of 2013. Second, the impact of annual salary increases.
Third, increased production incentives that accompany the growth in commissions and fees that we have been reporting. The headcount growth has been strategically directed at regions and products where we see growth opportunities, such as emerging and developing markets, reinsurance operations, and in placement facilities. Most of the headcount growth came in the second half of the year. In addition, beyond the normal growth factors I've mentioned, we boosted our 401(k) match in North America, thereby adding to benefit expenses. In doing that, we accrued a full year increase in the fourth quarter. Like many companies, we also incurred higher medical costs in North America due to increased claims. In International, we hired some proven producers in key markets that had sign-on incentives as part of the deal. Added together, those three items elevated S&B by approximately $10 million or 180 basis points.
On slide nine, you will see the quarterly comparison of our other operating expenses. On an underlying basis, this grew 7.1% in the quarter. The growth in this area was driven primarily by higher professional fees, marketing, and business development expenses. Depreciation expense for the quarter was $26 million, up from $20 million last year and above recent trends, driven by costs associated with a number of IT projects that came online during the quarter. In addition, we wrote off $2 million of unamortized balances of systems and other assets we replaced. Recall that our initial expected run rate for depreciation in 2013 was $24 million to $25 million per quarter. This typically happens. Some projects were delayed in coming online, so the run rate was lower until this quarter. All this activity, of course, affects our operating margins.
Looking at them on the apples-to-apples basis that I referred to earlier, the first quarter operating margin was down 50 basis points. The second quarter was flat, the third quarter was up 100 basis points, and the fourth quarter was down 100 basis points. The four quarters together resulted in the full year 2013 operating margin being down 20 basis points compared to 2012. Looking ahead, we expect quarterly variability again in 2014. While the variability is expected, we are focused squarely on delivering what we laid out last year, 70 basis points of spread between revenue growth and expense growth on average over the medium term. On taxes. The reported tax rate this quarter was 29% because we took a further valuation allowance against our North American deferred tax asset.
We established that valuation allowance back in Q4 2012 when we recorded the goodwill impairment charge that put our U.S. operations in a three-year cumulative loss position. The impact of that valuation allowance was a higher tax provision of $9 million or $0.05 per share this quarter, representing the entire reconciliation between reported and adjusted EPS. You should note, as we have said before, that the additional tax expense is non-cash, and it will turn around sometime in 2015 as part of the entire valuation allowance, which will reverse when Willis North America records enough income to emerge from the three-year cumulative loss corridor. When that occurs, we will report a lower or even negative book tax expense. After adjusting out the impact from the increased valuation allowance, the fourth quarter tax rate was 21%, which was in line with our expectations.
For 2014, our tax rate should fall between 22% and 24%, but that range is very sensitive to the geographic mix of income. It is worth stating again that the quarterly tax rates could vary meaningfully from the full-year rate. In 2013, the overall tax rate was 20% on an adjusted basis, but the quarterly rate ranged as low as 19% in Q1 and as high as 24% in Q3. Moving now to the associates line. The fourth quarter of 2013 showed a loss of $11 million, compared to a loss of $7 million a year ago. That is slightly better than what we had anticipated as the cost of completing the operational review at Gras Savoye came in a little lower than expected. For the full year 2013, the associates line was zero instead of a full year loss of $1 million-$3 million that we anticipated.
For 2014, we expect the associates line to return to a profit in the range of $10 million to $15 million. Seasonality of income should be consistent with prior years, meaning the majority of Gras Savoye income will be recorded in the first quarter, followed by flat to net operational losses in the associates line over the remainder of the year. Let me wrap up with some comments on the balance sheet and cash flow. As shown on slide 10, we ended the fourth quarter with $796 million of cash, up $173 million from September 30th and almost $300 million from last year. Total debt outstanding at year-end was $2.3 billion, down slightly from last year. At year-end, our $800 million revolver was undrawn. Cash generated from operations during 2013 was $561 million, up $36 million from 2012.
The fourth quarter contribution to that was $195 million, down slightly from Q4 last year due to changes in working capital. Other points to highlight include our CapEx spend in 2013 was $112 million, down from $135 million in 2012, mostly due to project timing. For 2014, we expect capital expenditures to come in between $120 million and $135 million. Finally, employee option exercises added $155 million to the cash balance in 2013. Thanks again for your patience as I've walked through these numbers. With that, I'll turn the call back to Dominic.
Thanks, Mike. I want to follow on to Mike's conversation about our cash balances. We told you at our investor conference that we will use our cash in ways that we think are in the best interest of our shareholders. That could encompass a range of possibilities, including investing selectively into the company to drive growth. We did that in 2013 as we made hires in growing businesses and regions and improved our technology and analytics. This was obviously reflected in our expense growth. Second, strategic acquisitions. We cautiously did some of that in 2013 and already this year. We expect that to be part of our rhythm. Third, increased dividends. We've increased our dividend now for the past three years, with the increase announced yesterday being our largest since 2006. This indicates the confidence we have in our business strategies and our ability to drive strong cash flow.
Finally, share buybacks. As you saw in our release, the buyback we announced yesterday is intended to offset the increase in shares outstanding from employee option exercises in 2013. It's our intention that we will continue this practice moving forward. With that, let's now turn to the next part of this call by answering your questions. Operator, may we please begin the Q&A?
Okay. We do have quite a few questions online. Jay Gelb with Barclays, your line is open.
Thank you and good morning. First, just wanted to touch base on organic revenue growth, 5% for the year. You mentioned a few headwinds largely driven around P&C insurance and reinsurance pricing. I'm thinking the economy recovering could be partially offsetting that. Just trying to get your perspective on whether 5% organic revenue growth is still a decent run rate for the company overall.
Hi, Jay. How are you? Good to hear from you. As you know, we don't give guidance on our major line items. We continue with what we said in July. Our expectations for this company are mid-single digit revenue growth and a 70 basis point spread to expenses. That's what we said in July, it is still our expectation for the company over the medium term.
Okay. On the positive operating leverage, that's good to hear that you're still upbeat about your ability to achieve that. If we look at the full year, the adjusted margin actually declined by 20 basis points. To what extent is your comfort on the ability to expand margins? Keeping in mind we're starting off of a lower than expected base in 2013.
Yeah. It's obviously the right question. I'm very comfortable with this. We're focused, as you know, on driving cash flow, and we need to be driving cash flow at a good clip over the medium term. That has to be a combination of steady revenue growth. We simply cannot drive the cash flow we need unless we are growing, as I said, in the mid-single digit revenue number on a sustained basis. You just don't get the cash flow growth over a sustained period unless you're able to do that. But in order to also do that, mid-single digits without some operating leverage does not deliver the cash flow we want. I'm very comfortable that we have been deliberately investing. The expense growth you saw, which resulted in a 20 basis point decline in margin for the group over the year, is not the result of random expense growth.
It is a result of very deliberate decisions we have made to invest in growth for the medium term. I'm very comfortable that now that we have a steady revenue momentum, and we are investing to continue that revenue momentum, that our ability to create that operating leverage is well in place. Obviously, legitimately, it's ours to prove. I'm very comfortable.
All right. Thank you.
Our next question comes from Bob Glasspiegel with Janney. Your line is open.
Good morning, Dominic and all. With the 20 basis points decline in year one, I think you articulated 70 basis points over five years unevenly or 350 basis points by the fifth year. Does that mean you have to do 90 basis points a year for four years to catch up, or was 2013 a reset year in your mind?
Look, I said I don't want to get tied to 70 exactly, right? I think we actually said a minimum of 70, right?
Right.
We're going to aim to deliver the right growth over the medium term to deliver. Again, what I'm really focused on here, what we all collectively are really focused on, which is growing cash flow. Okay? You can do the math, right? If you do the math, if our revenue growth was to slip, we'd actually have to get an even bigger margin increase. That's why we're so focused on making sure our revenues keep clicking along. If our revenues keep clicking along with the right spread, we can get the performance. We have to do both, and that's why we've been investing for the medium term here. If I were you, I wouldn't get very focused on it's exactly 70 basis points multiplied by X years, and you get the number, right? Obviously, we position that as a number we need to achieve.
We're really focused on growing our cash flow. That's the number I want us to see growing every year.
Well, I'm with you on cash flow. Moving to that, I was wondering if you could go through sort of the three legs of pension, what was the balance sheet adjustment year in, what's the funding changes prospectively from roughly $150 million drag it's been over the next three to five years, perhaps, and is there an EPS pickup from less headwind in 2014 from pension?
Mike.
All right. Thank you, Bob. I'll make a couple of points to address those questions. First, pension funding should be down modestly in 2014, but I think the benefit of good asset returns and higher discount rates more apparent in 2015. The reason I say that, and reason for the delay, is that we have to go through a process with the independent trustees in the U.K., and our funding agreement with the trustees will be renegotiated during 2014. In 2013, we made cash contributions into our pension plans of about $150 million, of which $100 million was related to the U.K. We will see some benefit in 2014, but I would consider it to be modest. Again, with the apparent benefit coming more in 2015.
With respect to the P&L impact from some of the changes that we have going forward, the annual pension expense in 2014 will decrease probably between $5 million and $10 million. I think the first point that you asked was related to the accumulated or the OCI loss that we have in the stockholders' equity section of the balance sheet. The year-over-year change in that was a positive $160 million. We improved it by $160 million, of which $120 million was related to our pension activity.
Thank you for the complete answers.
Okay. Next question is from Thomas Mitchell with Miller Tabak.
This actually looks like you had a pretty good quarter when we take everything out. One of the issues that we focus on is growth in revenues per share concomitant with flat or rising operating margins as a key to stock performance. We're interested in your outlook, given your statement about buying back the added shares due to stock options, whether that means that we might have double-digit increases in revenues per share in 2014 if we combine mid-single-digit growth in revenues with recouping the 5% dilution that we had from fourth quarter to fourth quarter due to shares outstanding.
Yeah. Well, obviously, Thomas, that slightly depends on what happens with options exercises during 2014. What I think we've laid out is a process where it is our intention to sort of immunize, if you like, the stock creep over time by buying back shares based on option exercises. Whether we will do that on a concurrent basis or look at the end of each year and decide, okay, we had option exercise of X in 2014, that means we need to buy back Y in 2015, we need to look into. We clearly understand that some of the metrics you were talking about, revenues per share, obviously, EPS, et cetera, are affected by our share count.
What we're saying to you, I think very clearly, is that we do not want as a group to be issuing equity, which is obviously the most expensive form of capital that we could issue. We don't want to be issuing equity by chance. If we ever have to issue equity, and please do not take that as a prediction that we will, but if we ever want to issue, we want to do that on a deliberate basis rather than having it drip out year-by-year by accident, if you like, or by the exercising of options. That's how we think about that.
Thank you very much.
The next question comes from Michael Nannizzi, Goldman Sachs.
I guess one thing I'm trying to reconcile a bit, I guess, the idea that revenues grow faster than expenses will expand margin. I mean, that makes sense. It looks like this quarter you invested for growth, which weighed on margins. I'm just trying to understand, is that something you expect to do, whether it's hiring people or paying upfront bonuses to bring teams on or whatever that is. How should we think about margin improvement if that activity continues? Does that mean it's a matter of you reaching scale in these particular initiatives for that margin improvement to kind of follow through?
Well, Mike, it's an excellent question because if we were to tell you that we were planning to continue to invest in hiring people ahead of revenues forever, that would be a bad answer in terms of what happened to our margin. We said very clearly that you have to look over the medium term. This particular quarter, we had a series of investments, which I think Mike laid out in some detail, in particular businesses. Obviously, we hope they will drive, it's our plan, that they will continue to drive revenue growth and that we will be able to manage our expenses. That's our plan. While continuing to invest, but manage our expenses to create a gap over the medium term of those 70 basis points per annum average that we've talked about.
We are fully cognizant that a growth policy which repeated the fourth quarter of 2013 on an ongoing basis would produce a very unpleasant result over time, right? We fully understand that.
How should we think then about a payback period, if that's the right way? Because it sounds like that's how we should maybe think about it is, you will occasionally make investments where you see some greenfield opportunity or some runway for improvement. You'll do your ROI math, you'll make the investment, and then you'll kind of look to see that growth follow after. How should we think about that return period for investments that you made this quarter, for example?
I would like to be able to tell you that it's an investment like some big project of building a bridge for a city or something, and here's the return.
It is the result of multiple investments. By the way, we've been investing throughout 2013, right? We've been investing throughout 2013. We just had a series of negotiations with opportunities come to fruition in the fourth quarter, in a sort of clump, if you like. We are investing throughout 2013, and we will continue to invest throughout 2014. The trick, of course, is to be able to free up other expenses so that we have space for those investments. That's what we are obviously focused on, making sure that as we invest in new capabilities, new analytics, new systems, new teams, we're also taking costs out of the installed base to free up space for those investments. If I were you, I wouldn't think about it of, oh, there's a blip in investment in a quarter. What's the payback?
This is a continuous investment in our client-facing capabilities. We are obviously looking very hard at taking costs out of the rest of the organization to create productivity improvements to allow us to make those investments.
Got it. Thanks. Just any update on Gras Savoye? Could we get an update also on just kind of the operating performance that they've experienced this quarter? Thanks.
Yeah. Gras Savoye generally, I think we're very pleased with the progress Gras Savoye is making. As you heard from Mike, they have now completed the operational review, made some very important changes in their operating model and their expense base. That is done. We now are therefore focused on assisting them and helping them grow the top line, so that when we come to make our decision, which as you know, is really the spring of next year, we want to be looking at not only a more productive, but also a growing asset. If we make that decision and it fully becomes a member of the Willis family, we will obviously hope to be able to rev up that revenue growth even more because we'll really be able to work with them as a member of the family.
That will be the case for the investment. We definitely are very pleased with the progress that Gras Savoye made in 2013, completely on target in terms of the cost restructuring. Now that team is focused on taking that more productive base and growing the revenues in their core markets, which we know are obviously France, the sixth largest insurance market in the world, in Africa, the Middle East, parts of Eastern Europe, and one or two assets in Asia. We are obviously trying to help them do that.
Great. Thank you.
Our next question is Mark Hughes with SunTrust. Your line is open.
Thank you very much. Good morning. Could you give us a little insight into how Global is shaping up for the first quarter reinsurance, given the puts and takes there, how is organic perhaps trending? Then in the capital markets business, how's the backlog and the [Advisory business] there?
Let me hand over to Steve Hearn, the Head of our Global business, to talk about that.
Thanks, Dominic. Hi, Mark. I guess the question is partly what happened in Q4 in terms of Willis Re, and is that going to continue? I think, as Mike said, quite clearly, we had a small decrease in our reinsurance revenue. In fact, Q4 is very much our smallest quarter for Willis Re, with just over 10% of our annual revenue. We're very dominant in international reinsurance markets, as I'm sure you know, which makes Q1 a particularly big quarter for us, and Q2 quite a large quarter. We actually had a very good Q4 in 2012 for Willis Re, so we had that issue as well in terms of 2013. Down a tiny bit of money in Q4. Full year, we again smashed our two peer competitors in terms of growth rate and margin.
We had a great year in Willis Re, and frankly, I see nothing different in terms of where we move forward. Dominic said, repeat it, we don't give forward-looking guidance, but we do see continued strong performance from Willis Re. I guess in there probably in your question as well is impact of new capital and maybe what's happening there and what impact will that have on the rating environment. It will have an impact on rating environment. It certainly is a headwind at 1/1. Refer you, as we said, to the website to get more detail at 1st View from our reinsurance colleagues. There are a whole host of other things impacting the reinsurance world.
An absence of significant reinsured losses obviously being the most critical, interest rates, economic growth, M&A, and fundamentally lots of higher retentions from insurers. It's also an enabler for us. Clients need advice when insurers are retaining more. They often look to the intermediary, but particularly the analytical and consultative reinsurance broker to help them, and we're very well placed in that regard. We feel good about Willis Re. Second question in terms of capital markets. I'd categorize Q4 2012 as great, and Q4 2013 was good, in fact, above our budget. As we keep saying, Willis Capital Markets is a lumpy business. That is a lumpy sector and a lumpy business.
Yes, of course, some of the pipeline that we might have hoped would turn up in Q4, we hope will turn up in Q1 and moving forward, we can't be certain of that. We are absolutely doing everything we can to maximize what is a very strong pipeline. Feel very good about that business in the future.
Thanks for that color. On the flat human capital performance in the fourth quarter, was that new business, rates, retention? What accounted for that?
Let me turn over to Todd Jones to talk about. We're talking about human capital in Willis North America, right, specifically. Our human capital and benefits business outside Willis North America continues to grow very nicely. Todd, why don't you talk about that particular quarter?
Mark, it was really a function more of sort of the seasonality in that business. I think as we look at where that business is, Dominic had mentioned for the full year, the 6% organic growth and what we see both in terms of the activity pipelines and new business that it's generating feel great about its prospects in 2014 and got an awful lot accomplished in 2013 to set us up for a good 2014 as well.
Thank you.
Our next question is Brian Meredith with UBS.
Yeah, a couple questions. Actually, Todd, I just want to follow on to that one. Does the ACA or some of the issues going on there have any impact on your human capital business and kind of what's growth prospects because the clients may be indecision and sort of buying and stuff?
Yeah. Brian, it absolutely does. Dominic had mentioned, he gave you some stats around activity for the Willis Advantage, which includes our existing client base that are interested in sort of fully understanding the exchange model, not just our model, but the models that exist outside of Willis. Then the prospect activity obviously has been off the charts. We've been spending a tremendous amount of time kind of in the education game, I'd say. We continue to see that as an opportunity into 2014. It's clearly, as you know, a very evolving subject. I suspect it's going to kind of continue to evolve, I should say, both from the provider side, the carrier side, and the intermediary. We'll continue to stay poised to try and take advantage of it. We're focused on that mid-market segment. We think we've got a very unique proposition there.
We're excited about where we're heading. Yeah, it creates
To your initial question, a tremendous amount of opportunity for sure.
Great, thanks. The second question, maybe with respect to investment spending, is it possible to give us kind of what your CapEx budget is for 2014?
Yes. I think, Brian, I mentioned on the call between $120 million and $135 million.
Got you.
in 2014.
Okay. Excellent. Thank you.
Meyer Shields with KBW, your line is open.
Thanks. Good morning. Two quick questions if I can. One, Mike, you talked earlier about an increased 401 match in the fourth quarter that accounted for the full year increase. Should we expect that to be more evenly distributed in 2014?
Yes. It'll be distributed evenly in each of the first, well, the 4 quarters during 2014. Yes.
Okay. Is that just a North American issue or does it go beyond that?
No, it's a North America issue. It's not only within Todd's business. It also has some implications for our Global business that has a presence in North America as well, but it's much more concentrated in our North America retail business.
Okay. Do you have an estimate for what the actual growth in share count is likely to be before the offsetting impact of repurchases?
A lot of that depends on how many options get exercised during 2014, which we don't know. To answer your question, what we're looking to do basically with the announced share buyback is to reduce the outstanding count by about five million shares from where it is today. The difference between what that result gets and where we end up will relate to the option exercises that take place during 2014, which Dominic mentioned. Our goal is to immunize against those as well, but that would be handled outside of what we announced in the $200 million buyback.
Fantastic. Thank you.
Alex Lopez.
Good morning.
Good morning.
I guess this is directed to Steve. Steve, I was wondering if you can give us a progress report on some of the top-line initiatives for Willis Global, specifically Global 360, Global Solutions, i.e., catering to the larger accounts, and also your cross-sell initiatives.
Okay. Thanks, Alex. We have others, but I can certainly comment on those three. 360, we have operational on our London specialty portfolio. As you know, that's providing new capacity, additional capacity in terms of our London specialty book. We're operating with a carrier at the moment and intend to have other carriers join us. In fact, we have a healthy pipeline of capacity interested in operating specifically on G 360 in London. In fact, have consideration in terms of extending that capability elsewhere around the world. We're taking our time. We're being very thoughtful in terms of the way that we're going about this. We, as I say, have a healthy supply, but we need to be sure it's a sustainable supply and provides positive outcome sustainably for our customer base. We feel good about where we are and watch this space.
We expect further announcements in due course. In terms of Global Solutions, which you'll recall is about increasing our penetration of the largest accounts in the world, not just a feature of Willis Global, it's actually a feature of Willis, following the work that we did on strategy last year, the initiation of what we now describe as Connecting Willis, which is working with Willis International, Willis North America, and Willis Global in terms of getting our industry geography and broking colleagues to work much closer together in terms of providing better outcomes for our customers. Again, I feel very good about where we've got to there in terms of progress. We've made five global industry appointments, half a dozen global product appointments, and are now rolling out that strategy around the entire organization.
In fact, next week in Atlanta, we'll be doing it to North American Leadership Group. Good progress there. Your final point, I think, is cross-selling, which is something we do every day that we possibly can, and again, of course, goes back to that Connecting Willis strategy.
Great. Thank you.
Next question is Joshua Shanker with Deutsche Bank.
Yeah. Good morning, everyone. Thank you for taking my question. I just wanted to go back to the topic of investments versus personnel a little bit. Obviously, I don't want to put words in your mouth. A year ago, you said that you could add personnel through changing personnel, that you wouldn't need to net add personnel to get the scale you need to grow. Is that still the case?
Thanks for your question. We did add about 3% to our headcount during 2013 very selectively. That's a mixture of different things. It's investments in some of our highest margin businesses, which you've heard us talk about. It's also, we've increased our headcount in Mumbai, which is our processing and analytical center we have where we've basically been moving roles from high cost locations into the Mumbai base. That can actually have, over time, a positive impact on our cost base. I've said all along to you that we are a growing company. Okay? We need to be a growing company, and we're trying to grow our top line by mid-single digits.
We grew our revenues at 5%, we grew our headcount at 3%. My expectation is as we drive our productivity improvements we will continue to see, as I hope, a strong revenue growth and productivity effects, which will start to mean that we're able to drive that revenue growth without driving headcount at exactly the same pace. During the year, we grew by 3%. As I say, that's a mixture of multiple different things. Many of them are key people to drive revenues going forward, others hiring people to enable us to manage our overall expenses. Again, I want to emphasize that our focus is on growing our cash flow every year, right? Because that is what we believe drives shareholder value. We're very much focused on that metric.
I'm totally sympathetic with the cash flow argument. I'm just trying to understand a little better. Should we expect probably to net add personnel in 2014?
I would not be surprised if we did.
Okay. I appreciate the candid answers. Thank you very much and good luck in the next year.
Thanks very much. Thank you.
There are no other questions from the phone lines at this time, sir.
Thanks very much. Well, thank you very much everybody for taking part in our call. We greatly appreciate your interest in our firm, and we look forward to talking to you about our progress in 2014.
This does conclude the conference for today. All participants may disconnect at this time. Thank you.