US – US-based Watson Wyatt & Co., which is merging with its European affiliate, saw profits at its benefits group slip more than five percent in the second quarter.

It said net operating income at the division fell to $15.78m from $16.72m a year before, a decline of 5.6%. Revenues at the arm, which represent 57% of total revenues, rose one percent to $99.8m. It said the revenue growth was “largely due to retirement work for new clients”.

It also reported that total headcount across all business units has fallen. The number of ‘associates’ fell to 3,700 at December 31 2004 from 3,890 a year earlier, a drop of almost five percent.

The Washington-based firm, which last month said it would buy the 80% of UK-based Watson Wyatt LLP that it doesn’t already own for around $451m, also foresaw “modest” growth in retirement revenues in the next quarter.

The group’s total second-quarter income from continuing operations rose to $11.1m from $10.8m a year before. Total revenues rose to $175.8m from $170.4m.

“The increase was driven by steady growth in the retirement business and double-digit growth in the human capital consulting and international segments,” the firm said.

Looking ahead to the third quarter, Watson said it expects revenue to be up 1% to 2%. This was “largely due to modest growth in retirement revenues and stronger growth in human capital consulting” that would be offset by a decline in its technology solutions group.

"We are in an exciting period, as we finalize our proposed business combination with Watson Wyatt LLP," said John Haley, president and chief executive.

"The company's strong results this quarter tell us we have a powerful business model, and we look forward to leveraging our combined resources even more effectively across the globe."