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Aon PLC (AON) Q1 2019 Earnings Call Transcript

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Aon PLC  (NYSE: AON)
Q1 2019 Earnings Call
April 26, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and thank you for holding. Welcome to Aon Plc's First Quarter 2019 Earnings Conference Call. At this time, all parties will be in a listen-only mode until the question-and-answer portion of today's call. I would also like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time.

It is important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature, as defined by the Private Securities 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 anticipated. Information concerning risk factors that could cause such differences are described in the press release covering our first quarter 2019 results as well as having been posted on our website.

Now it is my pleasure to turn the call over to Greg Case, CEO of Aon Plc. You may now begin.

Greg Case -- Chief Executive Officer

Thank you, and good morning to everyone. Welcome to our first quarter 2019 conference call. Joining me today is our CFO, Christa Davies. In addition, we have our two Co-Presidents, Eric Andersen and Mike O'Connor, joining discussion and hopefully our Q&A session with their frontline perspective of Aon United at work. Similar to previous quarters, we posted a detailed financial presentation on our website as we focus our time on these quarterly calls to provide you more insight into the longer term view for the firm.

I'd like to start today by acknowledging the tremendous work of my Aon colleagues around the world. Their collective efforts continue to strengthen the firm and create long-term momentum, reflected some positive performance across our key metrics in the first quarter, including 6% organic revenue growth, reflecting a strong start to the year with an increased rate of growth across all solution lines, substantial operating margin expansion of 190 basis points, 8% operating income growth and double-digit or 11% growth in EPS, overcoming meaningful FX headwinds. Our strong start to 2019 is a direct reflection of initial success from the strategic actions we've progressively taken to drive Aon United.

As we've discussed previously, we've been laying the foundation for Aon United for over a decade, evolving our portfolio, investing in new content and capability and increasing our relevance with clients. In 2018, we took major steps to reinforce and amplify this progress through structural changes that broke down barriers and began to make it easier to deliver the best of the total firm to clients. One brand, one leadership team, one P&L to deploy capital against, one operating model under Aon Business Services, and most compelling, a more united global professional services firm, all focused on increasing our relevance and strengthen our ability to serve clients more effectively. We also organized focused teams of leaders so that they gave more time to value creation for client-driven solutions, that can then be applied more broadly and faster with similar clients or industries, with the formation and the development of our Enterprise Client Group, to lead Aon United efforts with our largest clients by identifying superior tailor-made solutions that address their specific business objectives. And our New Ventures Group to accelerate industry-leading innovation and scale our capabilities with greater speed to market.

During Q1, we announced our first commitment to develop our innovation portfolio with intellectual property solutions. As businesses recognize a paradigm shift from tangible to intangible assets, IP is more important than ever, with intangible assets now comprising the majority of assets on the balance sheet. Our clients need to both identify and manage risks surrounding business critical and proprietary data and develop and execute strategies for maximizing shareholder value from their IP portfolios. Beginning with the acquisition of 601 West in 2018, the IPS team has already developed a set of consulting, valuation and risk transfer offerings that establishes Aon as the trusted global authority in intellectual property asset class, an area of opportunity that we believe will be substantial for Aon over the long term.

With our strong start to 2019, we are truly in the era of Aon United. The foundation we have been putting in place combined with our more recent actions have already demonstrated accelerated revenue growth, as you can see from the improved trend of 3% in 2014 and 2015, 4% in 2016 and 2017, 5% in 2018, and now 6% to start the year in our largest quarter. And these actions will continue to be a driving factor reinforcing our goal of mid single-digit organic revenue growth or greater over the long term.

This improved growth outlook for the firm is predominantly driven by three key areas. First, as a baseline, we operate in core markets with attractive long-term growth globally. Risk continues to increase around the world in both magnitude and complexity. Healthcare has significant cost inflation in most geographies with deteriorating wellness. And many of the world's pension plans are underfunded with employees unprepared for retirement.

Our core businesses across these areas are characterized by high recurring revenue of approximately 85% in primarily non-discretionary markets with strong client retention rates of approximately 95% on average across the portfolio. As the world increasingly faces political and regulatory changes, or economic pressure, we find our clients needing our advice and core competencies even more as they navigate challenges and uncertainty across the topics of risk, retirement, and health. This view is reinforced by the data and analytics insight of our inpoint team, a team comprised of more than 300 data professionals across three innovation centers globally. Through unique insight into the global commercial P&C market, our team has developed a standardized dataset, which describes the size and segmentation of commercial lines insurance, unique in the market today. For example, our research which segments the global market in detail by product, industry and client size estimates the global premiums totaled approximately $625 billion in 2013, $730 billion in 2017, and will increase to nearly $900 billion by 2021, reflecting an increase in market growth rate, 205% annually. Using this proprietary data, we are identifying unique insights across solutions, industries, and geographies for clients and Aon, as well as prioritizing capital toward these highest growth opportunities.

Second, our strategic focus was reinforced by the divestiture of our outsourcing business in 2017, with proceeds from the transaction directed toward high growth areas of client need. In 2018, we delivered a record level of organic revenue across the portfolio, with that momentum continuing into the first quarter of 2019 drawn from many of the areas where we continue to invest heavily, delivering double-digit growth, including cyber security, transaction liability, delegated investment management, and voluntary benefits to name a few, while other areas of the business are just beginning to emerge, such as intellectual property and data and analytics applications. While many think of cyber in the traditional sense of risk transfer premium, we're working well beyond that with some of the technology industry's leading participants, with solutions like CyQu , a software assessment tool critical for implementing cyber resilience across their product portfolios.

And third, we are creating new opportunities with clients through our Aon United model. With a business partner approach, we're looking more effectively across geographies and solution lines to help clients in ways and improve their growth profile, reducing volatility, or strengthening their balance sheet. And while I've already noted colleagues working together to form the groups like our Enterprise Client Group and our New Ventures Group, I want to highlight the spirit of Aon United through two colleague examples, both of whom have already won accolades from clients as perennial players on the power broker list. It's not that Aon has more industry-recognized colleagues than anyone else, or the accolade itself where there are specific industry expertise, it's the underlying behavior they exemplified to solve unique solutions for clients. The first example highlights work within an autonomous vehicle start-up, where there was no loss data to model. With no protection, there was no future for this client. Our colleague was able to bring together capabilities across the firm, encompassing cyber and product liability, resulting in protection, capital and a future for the client.

My second example highlights the work of a colleague on an M&A transaction for our client. The seller was unwilling to identify specific major tax liabilities identified by the buyer, no solution, no deal. Working with colleagues across the firm to understand the risk, our colleague was able to bring 13 carriers together in one of the largest tax insurance programs ever placed, ultimately enabling the deal to get completed. Quite simply, this is the power of our colleagues, and our Aon United approach. Our clients are driving this and our colleagues are responding.

In summary, our results reflect increasing strength from our Aon United initiatives as highlighted by increasing growth. We continue to strengthen our firm through investments in industry-defining content and capability, while delivering strong financial results and increased value to our shareholders. Our team is excited about the future outlook for our firm, which is amplified by the considerable momentum we have built together.

With that overview, I'd like to turn the call over to Christa for her thoughts on our progress and long-term outlook for continued shareholder value creation, Christa?

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Thanks so much Greg, and good morning everyone. We delivered a strong operational and financial performance in Q1 to start the year. Q1 results were highlighted by strong organic revenue growth that translated into solid operational improvement, while funding significant investment across the firm and overcoming an unfavorable near-term impact from FX translation.

I'd like to further reflect on the quarter. First, organic revenue growth accelerated 6%, continued improvement compared to our historic trend as we deliver on our goal of mid-single digit or greater organic revenue growth over the long term. In addition to accelerating organic revenue growth, discipline around capital allocation continues to shape the portfolio toward our highest growth and return opportunities, as high by the divestiture of certain businesses in our talent practice after the close of the quarter. While financials were not disclosed, the divestiture of these businesses provides Aon with capital that can be reinvested while enabling the buyer to create value for clients.

Second, we delivered solid operational performance with total operating income growth of 8%, operating margin expansion of 190 basis points and double-digit earnings growth. As we noted in the earnings material, FX was modestly worse than previously anticipated due to a stronger US dollar, resulting in a significant net unfavorable impact of approximately $0.13 in the quarter or $38 million impact on operating income. Looking beyond 2019 and our restructuring initiatives, organic revenue growth, portfolio mix and ongoing productivity improvements are expected to drive continued operational performance and long-term core margin expansion annually, similar to the 70 basis points to 80 basis points of operating margin improvement achieved annually over the last decade.

We continue to successfully execute our restructuring initiatives with $45 million of incremental savings in the quarter before reinvestment, placing us well on track to deliver on our total cumulative savings of $500 million in 2019. These initiatives are driving expense savings near term, but more importantly, they are enabling growth of the firm as we unlock additional operating leverage through our Aon Business Services, single operating model.

In addition to core restructuring activities, another Aon United initiative I'd like to highlight is sales process standardization. As a firm that was initially built through acquisitions and then organized through our multiple businesses and segments, our colleagues routinely found it challenging and time-consuming to understand who our clients were and how best to serve them across Aon. With Aon United in the single operating model under ABS, our colleagues spent the last day standardizing our client-facing sales process. With global agreement from colleagues to cover every sales process across the firm, we undertook an in-depth process to dissect and reassemble very disparate sales data into one instance. We began with 1.3 million accounts and through mastering account data and clean-up, we eliminated more than 800,000 accounts, reducing the total to 500,000 client accounts in the standardized approach and process. Our client-facing colleagues are now more productive with increased time for clients as well as greater operating leverage through simplification of our sales process, a great example of our colleagues working together across the firm to drive long-term growth and operational leverage.

Lastly, free cash flow was $17 million for the quarter. Q1 is our seasonally smallest quarter from a cash flow standpoint, due primarily to incentive compensation payments, with results further impacted by approximately $85 million of net cash payments related to legacy litigation. As we think about cash flow generation going forward, we're focused on maximizing translation of accelerating revenue growth into the highest level of free cash flow through three ways, operating income growth, continued progress on working capital initiatives, and structural uses of cash winding down. 2018 was a peak year for cash usage as shown in our presentation Slide 24. It was the peak year for restructuring cash outlays and certain discretionary pension contributions. Declining uses of cash for restructuring, CapEx and pension collectively are expected to free up roughly $620 million of free cash flow by the end of 2020. This adds significant upside to a base of more than $1.45 billion of free cash flow in 2018 prior to any operating income growth or working capital improvements. Together, these three inputs give us confidence in our ability to deliver on our goal of double-digit annual growth in free cash flow over the long term. Further, we have the opportunity for substantial incremental debt as EBITDA grows. Restructuring costs wind down and pension liability improves, providing significant financial flexibility over the next few years to further invest in value creation or return of capital to shareholders. We are diligent about maximizing return on capital and make all the capital allocation decisions through this discipline. Share repurchase remains the highest return on capital investment today given our free cash flow valuation and outlook.

In summary, our Aon United initiatives continue to increase momentum as highlighted by our strong top and bottom line performance in the quarter, including significant investments to strengthen the long-term growth profile for our firm. Our disciplined approach to return on invested capital, combined with significant free cash flow growth and increased debt opportunity over the next few years provide financial flexibility to unlock significant shareholder value creation over the long term.

With that, I'll turn the call back over to the operator and we'd be delighted to take your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Speakers, our first question is from Dave Styblo of Jefferies. Your line is now open.

David Styblo -- Jefferies -- Analyst

Hi, good morning, thanks for the questions and congrats on the quarter.

Greg Case -- Chief Executive Officer

Thanks, Dave.

David Styblo -- Jefferies -- Analyst

Yeah, I just want to take a look back at the margins here for a second. And so the restructuring savings accounted for 140 basis points and a 190-basis point margin expansion year-over-year, which is at least about 50 basis points related to more core expansion and I think you guys have typically characterized that that's net of reinvestments in the business. So just want to make sure I've got those moving parts right. And then if you could directionally talk about maybe how large those reinvestments were this year? And if there is anything else impacting the margin line, including FX, did that affect the margin at all this quarter?

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Thanks so much for the question, Dave. As we think about it, it was a terrific margin expansion, total margin expansion in the quarter of 190 basis points. As you highlighted, we have been investing significantly back into the business in the high-growth, high-margin, high return on capital areas, that was significant in 2019 Q1, as it was for the whole year of 2018. And so what you're seeing with the restructuring savings of 140 basis points contributing and then your core, the core is really net of significant investments in the business and so we really think about this Dave as a 190 basis points of margin expansion.

And then, I did mention in my prepared remarks, for the last 10 years, we've delivered 70 basis points to 80 basis points a year of core margin expansion and we expect that trend going forward post the restructuring. So we're very excited about the margin expansion in the quarter and for the calendar year 2019 outlook.

David Styblo -- Jefferies -- Analyst

Sure. Okay, thanks. And then just on the reinsurance, maybe taking more of a longer-term approach and understanding how the sales organization is helping that business to whatever extent that might be, but obviously the business has been running in high-single digits organically for a year plus now, which obviously is quite strong relative to historical levels. Wondering if you can talk about if there is -- how durable that that business is? Oftentimes, when we see growth that high, we think of one-off items maybe being spiked out and helping it, but it's been consistent for a longer period of time at this juncture. So maybe if you could talk about some of the underpinnings in the market there from what you're seeing on the pricing side to capital -- the capital supply to demand?

Greg Case -- Chief Executive Officer

Dave, appreciate your raising the question, I think, actually it's appropriate really to talk even we'll talk reinsurance for sure even more broadly about really the drivers of growth in reinsurance, because they really are consistent across what's happening across the portfolio for Aon, we need to step back and think about it, reinsurance colleagues did a phenomenal job and have for quite some time in that core tricky business, the fact business and what we're doing on insurance-linked securities as well, but if you think about it consistent with Aon growth overall, the team is really doing a great job. The solution lines -- every solution line we have is up over the comparable period from the prior year. And it's the third consecutive quarter with Aon at 6%.

So there's a lot going on here, and it's not driven by one-offs, it's not driven by market conditions, it's driven by fundamentally sort of how we're approaching the market, frontline client leadership and the commitment really to Aon United and it really is bringing the best of our firm to our clients, innovative things are happening that haven't happened before. And we're strengthening our ability to scale that innovation more effectively across the firm. And as I described in my comments, in essence, if you think about the core markets we operate in, these are markets with high recurring revenues, strong client retention and fundamentally, the demand is up, and we still operate in a world in which we don't serve clients in a complete way, we as a industry and all of us have opportunities and we're trying to take advantage of that.

So these are core markets with great opportunity and then our investments that Christa just alluded to, both organic and by acquisitions, are really focused on higher growth demand areas from clients, cyber, IP, delegated, health, talent et cetera. And in the end, what happens here is, we're expanding markets and we're increasing relevance, and in doing so, we're winning more with clients, more with existing clients where our rollover is high -- at highest levels and improving. We are winning net new clients where new business generation is as high as it's been and improving, and again, we're back to kind of creating net new areas to serve clients. If they got mortgage, ACT, delegated, health exchanges, World Bank CAP on NBG and if you think about it, all of these areas really connect back to data and analytics. It's an absolutely vital piece of that overall equation, but maybe -- and again, just because this idea of growth is so fundamental to what we're doing, Eric and Mike, let's go through a couple of examples literally sort of bring to life what's really different and what's really driving the fundamental underlying growth.

Eric Andersen -- Co-President

Sure, Greg, why don't I kick it off for them and Mike can follow, but just staying with the reinsurance theme, one of the areas where we're really focusing our teams is being able to use our data and analytics capability to be able to provide actionable insight for our clients, whether insurance or reinsurance partners, and one of the key areas is by providing that insight, they are able to alter their strategy, they are able to look closely at their capital allocation capability around how they drive product in geographies et cetera and just maybe pick a simple example. We're working with one reinsurer who had some challenges in their property portfolio, and we were able to use our world-class capabilities along with our teams to be able to help them understand what was going on inside the portfolio and then make decisions around how they entered the market, where they entered the market and how they allocated capital toward those risks. So it affected their strategy as well as affected their capital allocation strategy, and honestly, created a great result for them.

Greg Case -- Chief Executive Officer

I mean fundamentally different kind of conversation that we've had before beyond the placement, it was about the corporate strategy of the firm.

Eric Andersen -- Co-President

Ultimately, the placement is the last thing that we're doing, it's all the work that's done upfront around helping them understand what the risks are and how it's working. And then how you allocate capital to those risks.

David Styblo -- Jefferies -- Analyst

Great, thanks for the insight. I'll step back for others.

Eric Andersen -- Co-President

Okay.

Greg Case -- Chief Executive Officer

Go ahead, Mike (inaudible)

Michael J. O'Connor -- Co-President

I mean Eric covered rest, so maybe I'll touch on other parts of our business and a recent example that I thought was quite good actually and I found it inspiring. We had a client in the technology services space, which we were serving across Risk & Health, doing a great job, great client, but the team stepped back in a really Aon United fashion and said, what's the biggest challenge this client has? And the biggest challenge this client has was talent. The growth of that firm, the growth of this client, the success of this client is going to depend on, can they actually attract and retain talent? So our team said, what can we do to help? And we rallied, we brought together colleagues from health, we brought together colleagues from talent and rewards, brought together the whole firm and sat with this client and said, what can we do differently? And we reached back and grabbed the data and analytics that we have in all these practice areas and said, can we use this to actually improve performance? And on the health side, last year, we rolled out a set of tools and we called Aon Architect, which we've built in our innovation center in Singapore and that doesn't happen without bringing together our actuarial team, our data scientists and our practitioners to say, can we pull together all the data, all of our experience from around the world and house it and use it? And what we ended up building was a cloud-based data-driven machine learning tool, which has an algorithm that draws upon all that data, that says if a client gives us sort of parameters that they want to build their health program around, can we optimize it? Can we actually improve it? And that's we brought to bear with this client. And with the click of a button, we can run thousands, even millions of simulations to come up with the optimal answer.

Now that's interesting. But what's even more interesting is we coupled that with an employee perception database. We went and did research around, we make changes to a health program, how will different populations of employees react? Will they be excited? Will they be actually annoyed or will they be indifferent? And that combination allowed us for this client to bring not only an optimized answer, but be able to show them how their employees would react at different levels of the organization and different populations of their employees. That was the insight they didn't have before and allowed them to improve the offering they had and have more impact with their colleagues.

We coupled that with our talent and rewards practice who said, listen, we've got to make sure that our rewards and recognition for this client remains competitive as they can be, we need to know what's going on in the market. We've got to think about what the investment they can make as a client. How can we best optimize that answer for their employees. We coupled that and improved health offering with improved rewards and recognition and this client was able to go to market with a more compelling offer to attract clients or attract employees into their firm and also retain them. And for me, it's just a great example of utilizing data and analytics to have real impact with the clients.

Greg Case -- Chief Executive Officer

That has been a little bit of extended answer but we want to give you a sense on sort of again back to the spirit of what we're trying to do with these calls, this is about the long-term future of the firm of what we're trying to accomplish. Fundamentally underpinning everything we're doing from a growth standpoint starts and stops with clients, and is really a much, much broader approach and picture than anything we've ever taken before. So hopefully that gives you some background.

David Styblo -- Jefferies -- Analyst

Sure. Thanks for the flavor on that.

Operator

Thank you. Our next question is from Elyse Greenspan of Wells Fargo. Your line is now open.

Elyse Greenspan -- Wells Fargo -- Analyst

Hi, good morning. My first question just on the free cash flow that you guys saw in the quarter, I know that Q1 is typically your low -- lower cash quarter, but you did have a legacy litigation-related payment. Was this contemplated when you guys have set kind of the double-digit growth on an adjusted free cash flow basis for the year? And you can just kind of give us the outlook on the growth trends over the remaining three quarters.

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Thanks Elyse. Yeah, we definitely are on track to double-digit free cash flow for the full year 2019 and legacy litigation was encompassed in that guidance, Elyse. And what we would say it's exactly what you said about Q1, it's our seasonally smallest quarter, we had big outflows of cash. We always have big outflows of cash in Q1 due to annual incentives and this quarter we had additional outflows of cash related to legacy litigation and restructuring. And so, what you see is we're on track to double-digit free cash flow for 2019. And we're really excited about the free cash flow growth over the course of '19, in particular in '19 and '20, given the declining uses of cash in restructuring, CapEx and pension at $620 million of free cash flow just in the next 18 months.

Elyse Greenspan -- Wells Fargo -- Analyst

Okay. And then in terms of organic, last quarter -- last Q1, sorry, there was some timing where some business and a few of your segments had shifted from the Q1 to Q2 , was there any kind of timing impact on organic this first quarter that we should think about when thinking about Q2 or any other quarters of the rest of the year?

Greg Case -- Chief Executive Officer

There really wasn't Elyse, as we described before, the fundamentals of the drivers of growth are what -- what we're talking about in terms of how we're interacting with clients and the things we're bringing to the table. So there is no -- there was nothing that affected in Q1.

Elyse Greenspan -- Wells Fargo -- Analyst

Okay, great. And then in terms of -- you guys mentioned you know you've done some acquisitions that have helped your organic growth. As we sit here today, can you just give us an updated view on the deal flow that you see out there and types of things and sizes and geographies of deals that you guys are looking at and contemplating?

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Yeah, I mean, Elyse, we are incredibly excited about our M&A pipeline. It is the largest we have had in the company's history. I think we -- I mentioned that on the Q4 call, and it is 100% focused on our highest revenue growth, highest margin, highest return on capital areas. It mirrors the area we have been investing in organically and inorganically in the last couple of years. So it's things like data and analytics, health and elective benefits, affinity, delegated investment management, cyber, intellectual property, and so we're incredibly excited about the M&A pipeline, Elyse. Having said that, we continue to be really disciplined about return on capital, and I would say on a return on capital basis, we -- that's exactly how we allocate cash across the firm. And share repurchase remains the highest return on capital across Aon. And so, we're very excited about the share repurchase outlook for Aon in the balance of the year.

Greg Case -- Chief Executive Officer

And these are really starting, Elyse, as we think about some of these opportunities. These are opportunities to bring in content capability that we can scale. This is back to kind of the data and analytics piece that we've talked about in terms of how we take this, and how we actually broaden it out from a client standpoint or actually we're seeing action now, we're seeing clients who've asked us for this kind of insight, and that's a direct response to that are some of these acquisitions that we've done to bring in content capability. And particularly, as you think about some of the things we've done in cyber, and things we've done on the health side and the talent side and the risk side, they've really started to make a difference. Again, just in the spirit of the call, a couple of examples sort of come around, I was thinking about -- Eric, we talked about a couple of days ago, maybe share with the group and --

Eric Andersen -- Co-President

Sure, Greg. There is a -- just a quick story just to underscore some of the points around how we're trying to globally integrate and use all the different solution lines to drive new outcomes for clients. We had a large European manufacturer who had a sizable Latin American presence, but was having volatile challenges around the pricing of their healthcare for their employees in Latin America. And we were able to use the European client leader, the Latin American teams, who then drew upon the global solution capabilities, and we were able to provide a solution that reduced the volatility and helped them better manage the outcome, with an added benefit of being able to actually collect the health data on their Latin employees, which will ultimately give them the tools that they need to improve wellness. And so that ability for our own employees to be able to work collectively like that really exciting for them and really gets them going, so it's been -- was a great example, I thought.

Greg Case -- Chief Executive Officer

Again, Elyse, trying to help you understand, this is really about content we scale, and when we scale it in response to client needs, that's -- and we are taking it approach it as fundamentally different around bringing colleagues together in unique groups. These are the kinds of outcomes driven by client. So, that's really what's driving our acquisition appetite.

Elyse Greenspan -- Wells Fargo -- Analyst

Okay, thank you very much.

Operator

Thank you. Our next question is from Greg Peters of Raymond James. Your line is now open.

Greg Peters -- Raymond James -- Analyst

Good morning. I'll take two questions. First, in your comments, you talked about organic growth driving margin expansion beyond 2019. I think you mentioned, if you look over the last 10 years, you have an annual average increase of 80 bps to 90 bps. I'm just curious, if you guys have a view about any type of structural ceiling that might exist on margin expansion, considering that many of your competitors are running at lower margins.

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Yeah. Thanks so much Greg, for the question. What I would say is, we see substantial margin expansion over the long term for Aon, really driven by three key things. The first is accelerating organic revenue growth, the second is the mix shift to higher growth, higher margin businesses. And the third is the productivity we're building into the business through the Aon operating model driven by ABS. And to your kind of margin ceiling question, one of the things that we're observing is as -- due to the investments we made in data and analytics, $400 million a year for the last 11 years now, we are getting greater operating leverage in the business because we're really driving greater value for clients, and dynamics is at the heart of that and these dynamic solutions are having a huge impact on clients in terms of the value they provide.

Greg Case -- Chief Executive Officer

If you really look back into it, Greg, and think about sort of the definition of client need, and how we respond to client need, in the examples that Eric and Mike have gone through today, are really non-traditional examples. There are sort of net move examples that are out there and they're very high value-added examples with content capability, that really create a way for us to add value in ways that clients recognize and frankly we get paid for, because we're adding meaningful value to clients. And for us, we think there -- this is a massive opportunity. Again, back to the growth drivers in the quarter, it's both kind of net new opportunities, we're creating new markets, if you think about what we did in mortgage, that's net new market. And what we're doing in cyber taking a $4 billion business and driving it forward to more about hopefully $10 billion, $20 billion, $30 billion, $40 billion, $50 billion, $100 billion business over time. This is a very, very substantial net new opportunity. So for us, as we add value to client -- with clients, we believe we're going to continue to be compensated forward, margins are going to continue to go up.

Greg Peters -- Raymond James -- Analyst

Okay. I realize your health business is a global business. And -- but it also -- in the US, there has been a lot of attention around the political arena and recently Medicare For All. And I'm curious about your perspective on the health business in North America. I know you guys have been a leader in a bunch of different initiatives, including private health insurance exchanges. And considering the political landscape is changing, I'm curious about your long-term perspective on that business.

Greg Case -- Chief Executive Officer

For us, health comes back as does everything else to clients and client need and then you think about, sort of what's really happening with all these different options, are we fundamentally addressing questions around our -- is the population becoming healthier and are we decreasing the per unit cost of healthcare? And really nothing is addressing that at this point in time. But if you think back to your broader question, start with Aon, we've got a -- the broadest set of solutions globally serving clients of all sizes, segments, industries, full spectrum of funding choices out there. As you said, roughly half our business is outside the US, including, frankly, very, very productive strong growth in areas that support clients today in existing single payer systems like the UK and Canada.

So let's assume that all happened, we've operated extremely successfully in those markets. Why? Because we're helping companies help their employees succeed and then do better on the health side and that demand is going to continue to, and we can succeed in that marketplace.

Our US business, as you could describe it, is really broken into two pieces, one addressing the question you're asking to specifically clients who advice and solutions for medical and dental and the other serving clients with advice and solutions around voluntary benefits, executive benefits, global benefits et cetera. So we see a tremendous opportunity to help clients help their colleagues or help their employees on this really, really difficult topic of health. We will always come back to if we can help clients inject choice, transparency, and accountability for their employees working to improve the situation and we are very confident that we're going to have success in whatever end state sort of that ends up.

I would also observe, if anything, this monumental and obviously would be monumental happened, the transition also creates massive client uncertainty and ambiguity, which we would be in the breach trying to help them sort through. So in the end, we are very confident in the end state and we're confident in the transition.

Greg Peters -- Raymond James -- Analyst

Great. Thanks for the answers.

Operator

Thank you. Our next question is from Mike Zaremski of Credit Suisse. Your line is now open.

Mike Zaremski -- Credit Suisse -- Analyst

Hey, good morning. Thanks. First, I have a follow-up, in terms of the intellectual property solutions and mortgage, which are areas that Aon is pioneering insurance demand for, what do you estimate is the size of insurance been for those lines of businesses today, and maybe you can help us frame how to think about their long-term potential size?

Greg Case -- Chief Executive Officer

We will start actually with intellectual property. I think it's a good one to start with, because again, back to the whole idea of sort of net new on the horizon. If you step back in time and think about kind of intellectual property, it has always been out there, but in 1975, it is 20% to 25% of the overall kind of assets on the balance sheet. Today, it's more like 80% plus. And if you ask the question, how has our industry responded, how we help clients think about that? And the answer is, it's actually quite, quite limited. This is why you back to kind of our New Ventures Group, identified this as a priority area, we've got assets around this, focused in ways we never had before. We're doing things to help clients understand them, how do they value their intellectual property, how do they think about it, how do they assess it?

We've also helped them understand sort of how to benchmark it and understand how they create value against it, and obviously, how do you protect it, around liability cover for patent copyright, trademark infringement et cetera. Thinking about IP as collateral, if it's truly an asset, how do you actually get value out of it? I think someone does something bad to you, if they steal it, how do you protect yourself against it? So for us, this is say we think a massive emerging opportunity largely underserved. And I want to be really clear, we've got -- we're in the market now, we've got clients -- ready-made clients sort of that we are actually doing real work with in a very meaningful way. Again, Eric and Mike, you guys are leading this already at the front-line, pick a couple that you think are interesting to talk about.

Michael J. O'Connor -- Co-President

Sure, Greg, maybe I'll start and then Eric, if you have any, you want to add on. I mean I think this, as Greg you noted, if you think about IP and step back, the reality is this is relevant to all our clients all around the world and when you actually start to engage with the clients around it, you realize that this needs to be top of the agenda for a lot of those clients and I just use one example. Very sophisticated financial services organization, we sat down and talked to them with our IP solutions team and it was really interesting, the dialog really was in two buckets, one was around offense and one was around defense. On offense, that firm is literally spending their time and their IP organization within it, just thinking about how do they actually define the spaces where the business can grow, how do they actually map the landscape? And we were really engaged in a strategy conversation. We were talking to them about what their current IP was, how strong their portfolio was, and where there was white space. And that to me is really interesting and building really strong client relationships. And that's all about their offense, how they get stronger as a firm, how they grow. Then we flip over and talked about defense. That team internally had a responsibility to that client to defend the IP they had, to basically make sure they were actually managing risk. And that quickly turned to how do we actually think about the risk they have. How do we quantify that with them and then ultimately do we transfer some of that?

And last year we stood up an industry-leading IP liability solution in London and the client quickly said this now is relevant. The capacity you brought, the sophistication of the underwriting community that you brought together is different than it has been in the past and it quickly led to we should transfer more risk and to me that's a perfect example of us engaging with clients in an Aon United way helping them play both offense and defense.

Eric Andersen -- Co-President

So again, (inaudible) Mike there, from that standpoint, how many companies around the world have this issue? We would say, most. What are the real solutions in the market today that help them address it? And they are minimal. And so we see this as a true kind of emerging area that we think could be substantial. Just quickly on mortgage, if you think about it, once upon a time, mortgage is sort of where funding originated in a certain way, we had some trauma in 2007, 2008, 2009, created some need. We came in and actually helped bring Insurance capital to bear on behalf of the US mortgage instrument, which is now the single largest financial instrument in the world and created what literally is over time, a market that's greater than $10 billion in premium, really phenomenal. And it was really on single-family, we are about to sort of roll that now in the multi-family, sort of in the next wave of that. So these are opportunities that bring real solutions, reduce volatility, bring real pricing insight into this marketplace and another example of where you can bring insurance-linked capital sort of to bear on behalf of the clients to reduce volatility or to improve operating performance.

Mike Zaremski -- Credit Suisse -- Analyst

Okay, that's helpful. And one follow-up, in February, the UK Financial Conduct Authority published their wholesale broking practice study and essentially OKed the industries' practices for the most part. Do you feel that will speed up the trend toward risk facilities?

Greg Case -- Chief Executive Officer

Yeah, we don't really look at it that way. In essence, we would -- the market overview, the work that was done frankly for us just reconfirmed what we see every day. This is a highly competitive market, a transparent market. Our focus, our objectives remain exactly the same. And that is to match capital with risk around the world in any way we can and that's traditional based capital from the insurance world, but also the non-traditional capital as well. And so for us, really didn't change our point of view in any way, shape or form. We are absolutely focused on helping clients understand, measure, and mitigate risk and bringing to bear solutions in anyway we can. So it really didn't change anything.

Mike Zaremski -- Credit Suisse -- Analyst

Thank you.

Operator

Thank you. Our next question is from Brian Meredith of UBS. Your line is now open.

Brian Meredith -- UBS -- Analyst

Yes, thank you. I'm just curious, Eric and Mike, I'm wondering if you could talk about what's going on in the commercial P&C market, clearly in US, there has been lot of discussion recently that things have kind of really picked up with respect to pricing in the US markets given some stress that Lloyds and other carriers. Are you seeing the same things and kind of what's your take on what's going on in the market right now, commercial market?

Greg Case -- Chief Executive Officer

Just quickly, Brian, I will come back on pricing, same conversation we've had really for the last number of quarters. When you think about pricing overall, as it relates to sort of the results for us and where we are, prices had minimal -- minimal marginal impact, if at all, really from the standpoint of sort of how it's affected us, this is really about market impact overall within its insured values and pricing on top of it, and the pricing piece has really been -- it's been marginal. The fundamentals of growth from our standpoint really have to do with the factors we talked about on the call today. It really is around sort of the underlying things we do with clients every day and that's really what's driving overall performance and sort of that's the overall market view. Eric and Mike, anything else you'd add to that?

Michael J. O'Connor -- Co-President

You know really I would add to it Greg as that we take a client by client approach and they look at their own risk portfolio and their own risk program, a lot of work goes into risk managing as opposed to risk transferring, but ultimately when they risk transfer, they make the best trades for them, that makes sense.

Eric Andersen -- Co-President

And I think the only thing I'd add to Eric is, we've enabled our field with data and analytics to basically dive deep into each client and be able to actually represent that effectively. And the second part is we have a global network, we will find the right solution to match capital's need wherever it is in the world.

Brian Meredith -- UBS -- Analyst

Great. And then Greg, my second question, I just noticed in the presentation, you talked about double-digit growth in China healthcare. Could you just give us a sense of where you are in China, how big is that as a percentage of your kind of overall business and kind of what are the opportunities there for you all?

Greg Case -- Chief Executive Officer

We -- there is a tremendous set of opportunities there, Brian, as you might expect. We've been in China for well over a decade, very successful joint venture sort of in China with our joint venture partner COFCO, and tremendous opportunity, and we're making substantial investments. In fact, our New Ventures Group is focused on China as one of the key areas we're looking at and we see the opportunities by the way on the risk side, we see the opportunities on the health side, on the talent side, on the retirement investments side.

So, it really is across the board. And while not a big part of the overall results today, we see tremendous promise going forward, much like intellectual property, not a big part of the results, but huge, huge upside and opportunity for us going forward. And China continues to be a big focus.

Brian Meredith -- UBS -- Analyst

Great, thank you.

Operator

Thank you . Our next question is from Josh Shanker of Deutsche Bank. Your line is now open.

Joshua Shanker -- Deutsche Bank -- Analyst

Yeah. Thank you. Good morning, everybody. Two questions were basically around the same area. I'm trying to just get a better sense of understanding how your working capital needs are going to change with regards to a cash flow over the next nine months and into the 2020 year and also looking at the market rally in the first quarter of the year, trying to see and how to think about contributions to pensions above expenses in the income statement?

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Sure, Josh. So firstly on working capital, we see opportunity for improved cash flow from working capital, as I stated previously, we got about $500 million of excess receivables and working capital sitting on our balance sheet. We do believe that we're going to get to working capital neutral over the long term until is about $500 million of excess cash coming from working capital over that period of time, so we do see the opportunity to improve cash flow from working capital, as no need for increased working capital, if that was really your question. And then on pensions, you can see on Page 24 of the presentation, our pension contributions are coming down significantly. You saw in 2018 which is the peak year of pension contributions, $252 million, they are coming down to $117 million in pension cash contributions by 2020. So substantial drop, and obviously if interest rates were to continue to rise, the impact of the discount rate, and you could see that come down even further.

Joshua Shanker -- Deutsche Bank -- Analyst

Okay, thank you.

Operator

Thank you. Our next question is from Andrew Molloy of Bank of America. Your line is now open.

Andrew Molloy -- Bank of America -- Analyst

Good morning and thank you for my question. My question follows Elyse's question really and it's really focused on financial and balance sheet policy. We've seen a pickup of debt financed M&A in the space recently and wanted to know your thoughts and philosophy on the M&A pipeline using balance sheet to finance the potential deal flow and commitment to the 2 to 2.5 leverage range that's in your presentation. Thank you.

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Great. Thanks so much for the question, Andrew. Our current investment grade rating is incredibly important to us. We do have opportunity for more debt as I mentioned in my prepared remarks, given growing EBITDA, or driven by growing revenue, operating leverage, disciplined expense management and decreased restructuring expense, keeping leverage levels the same. We think about the right leverage levels of debt to EBITDA in the 2.25 times on a GAAP basis, so we absolutely have the opportunity for increased debt as EBITDA grows, but leverage will remain the same. And as I mentioned in terms of how we utilize the substantial free cash flow we are going to generate, we're deploying that on return on capital basis and we're optimizing share repurchase, organic investment, and M&A based on return on capital. Share repurchase remains our highest return on capital opportunity across Aon given our free cash flow valuation in the firm.

Andrew Molloy -- Bank of America -- Analyst

Thank you.

Operator

Thank you. And our last question is from Sean Reitenbach of KBW. Your line is now open.

Sean Reitenbach -- KBW -- Analyst

Hi. Obviously, Aon has posted strong organic growth recently. Would organic growth and your margin expansion for that matter, be stronger without Brexit as an overhang?

Greg Case -- Chief Executive Officer

Sean, when we think about Brexit, it has tremendous obviously trauma and implications for our clients around the world and we've done -- gone to great pains and efforts to sort of protect them sort of in frankly whatever scenario. And if you know, then let us know what that's going to be, but we protected every scenario around that on behalf of our clients. It's been an added expense for us, no doubt about that, added at level investment and frankly has drawn attention from our senior leaders down to our front-line leaders in every way. But net-net, we want to be prepared for our clients and we're going to work through in every way we can. For us, specifically, we feel very good about our ability to work around that.

Sean Reitenbach -- KBW -- Analyst

Okay, thank you, that's helpful. And then finally, on share repurchases, have decelerated it looks like each quarter since first quarter '18. I know you have mentioned it as your highest return on capital investment. So just wondering what's driving the deceleration and whether you expect it to pick back up through the rest of 2019?

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Thanks for the question, Sean. We certainly do expect it to pick back up in the balance of the year. And if you think about Q1, it's our seasonally smallest cash flow quarter, we traditionally have big outflows of cash on our annual incentives in Q1 and in this Q1 specifically we had additional cash outflows on legacy litigation and restructuring. We are on track for double-digit free cash flow for 2019 and share repurchase remains our highest return on capital opportunity. So you'll see share repurchase pick up in the balance of the year.

Sean Reitenbach -- KBW -- Analyst

All right. Thank you very much.

Operator

Thank you. I would now like to turn the call back over to Greg Case for closing remarks.

Greg Case -- Chief Executive Officer

Just want to thank everybody for joining us this quarter and look forward to our discussion next quarter. Thanks very much.

Operator

Thank you. And that concludes today's conference. Thank you all for participating. You may now disconnect.

Duration: 51 minutes

Call participants:

Greg Case -- Chief Executive Officer

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

David Styblo -- Jefferies -- Analyst

Eric Andersen -- Co-President

Michael J. O'Connor -- Co-President

Elyse Greenspan -- Wells Fargo -- Analyst

Greg Peters -- Raymond James -- Analyst

Mike Zaremski -- Credit Suisse -- Analyst

Brian Meredith -- UBS -- Analyst

Joshua Shanker -- Deutsche Bank -- Analyst

Andrew Molloy -- Bank of America -- Analyst

Sean Reitenbach -- KBW -- Analyst

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