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WTW lowers 2024 targets as inflation impacts earnings 

WTW has lowered its 2024 targets for earnings and operating margins as an increase in interest rates and decline in capital market returns hit income. 

Net income fell 16% to $US96 million ($145.96 million) in the second quarter as headwinds from inflation, prior-year book sales and investments negatively impacted. 

WTW now expects a 2024 adjusted operating margin of 22.5-23.5%, down from 23-24%. 

It also set a new 2024 adjusted earnings per share target of $US15.40-to-$US17, down from $US17.50-$US20.50 previously. That reflected "sizable” pension income headwinds, a modestly higher expected tax rate and lower adjusted operating margin. 

Wage inflation and the higher cost of travel had impacted margins. 

"There's no path that we could see towards our guidance, we want to be upfront with that,” WTW CEO Carl Hess said. 

WTW’s largest pension plan is in the UK which Mr Hess told analysts is “quite sensitive” to both interest rates and inflation because of indexation of UK pension liabilities. WTW now expects pension income to contribute as little as $US0.35 – down from as much as $US2.50 originally forecast – as interest rates and market returns create “significant headwinds to pension income dynamics”. 

"On the pension side, we just didn't see a path to pension income to be at the levels that we had thought it might be going to 2024 and we thought it was the time to take a look and revise the EPS target,” Mr Hess said. 

“These updates reflect our margin and earnings performance to date and...pension income headwinds that...we do not expect to subside.” 

WTW’s revenue jumped 6% to $US2.16 billion ($3.28 billion) in the second quarter. 

“As our strong organic revenue growth demonstrates, our strategic initiatives continue to gain traction in the marketplace…however headwinds from prior-year book sales, inflationary conditions and the costs of our investments negatively impacted our margins and earnings this quarter,” Mr Hess said.  

“This solid result reflected continued strong growth across our entire portfolio of businesses. We're very encouraged by the sustained top line momentum.” 

Mr Hess says WTW is “well-positioned to resume steady growth in margins, earnings and free cash flow from current levels”.  

Commercial rates were seeing single digit increases or even small decreases, he says, depending on local market conditions, and there was more stability in WTW’s global casualty portfolio, with relatively small rating increases being written. 

“Rate increases across many lines are moderating but there are definitely some lines that aren't seeing any abatement at present – US property probably being the most predominant one. Certainly in cat-exposed property, rate increases are still coming through.” 

Mr Hess said rates would not have a “major effect on our prospects” next year, 

“When rates skyrocket, our clients will just simply retain more risk to try and manage their budgets,” he said, adding that any very “sharp and sudden” recession might not be helpful to business although "even then that may drive demand for consulting projects that help to manage the changing conditions”.