Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (July 2004)
40 slides from Arthur J. Gallagher &'s investor presentation, Jul 30, 2004
Slide 1: Arthur J. Gallagher & Co. July 2004
Arthur J. Gallagher & Co. July 2004
Slide 2: Safe Harbor Statement
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 The presentation relating to this material may contain forward-looking statements. Forward-looking statements made by or on behalf of Gallagher are subject to risks and uncertainties, including but not limited to the fo
Slide 3: Non-GAAP Financial Measures
Non-GAAP Financial Measures Regulation G Disclosure This presentation includes certain non-GAAP financial measures as defined under rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”). As required by SEC rules, we have provided reconciliations of those measures to the most d
Slide 4: World's fourth-largest insurance brokerage and risk management services firm
Arthur J. Gallagher & Co. World’s fourth-largest insurance brokerage and risk management services firm Public since 1984 Market capitalization of $2.8 billion Shares outstanding of 91.9 million Dividend yield of 3.3% 52-week range – $24.64—$34.25 Traded NYSE as “AJG” As of 6/30/04, unless otherwise
Slide 5: Performance vs. S&P
Arthur J. Gallagher & Co Performance vs. S&P 350% 300% 250% 200% 150% 100% 50% 0% Arthur J Gallagher & Co [AJG] S&P 500 (SPX) June-99 June-00 June-01 June-02 June-03 June-04
Slide 6: Summary: Why Invest?
Arthur J. Gallagher & Co. Summary: Why Invest? $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 1999 Gross Revenue 2003 19 % CAGR $200 $150 $100 $50 $0 1999 Cash Flow from Ops 2003 33 % CAGR $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 1984 Dividends 2004 *$ 1.00 19 % CAG R 2003 cash flow from operations of $229
Slide 7: A Real Growth Story
Arthur J. Gallagher & Co. A Real Growth Story 1984 IPO (Restated for stock splits) June 30, 2004 Stock Price $ 1.72 $ 30.45 Market Cap $57 M $2.8 B Tangible Net Worth $23 M $428 M Annual Dividend/Share $ .03 $ 1.00 Including Dividend Reinvestment, Compound Annual Growth Rate of 18%
Slide 8: Long-term Goals
Arthur J. Gallagher & Co. Long-term Goals $2.0—$2.3 billion in revenues within five years 15% year-over-year earnings growth 30%+ annual return on Average Stockholders’ Equity
Slide 9: Culture Driven Success
Arthur J. Gallagher & Co. Culture Driven Success Sales and marketing driven Team-oriented Open “Small company” feel Client-focused Competitive No “C” players
Slide 10: 2003 Employee Survey Results
Arthur J. Gallagher & Co. 2003 Employee Survey Results 78% participation 96% understand the need to grow and are committed to helping grow the Company 92% AgreeCustomer is top priority 92% “I am proud to work for this Company” 90% of men and women felt they were treated with respect by co-workers 80
Slide 11: Three Distinct Segments
Arthur J. Gallagher & Co. Three Distinct Segments Revenue Pretax Earnings Brokerage 69% Brokerage 79% Financial Services 6% Risk Management 25% Financial Services 1% Risk Management 20% Revenue excludes FIN 46 impact and investment write-offs Pretax earnings exclude investment write-offs (no impact
Slide 12: Brokerage Segment
Brokerage Segment Gallagher’s largest business segment Acts as intermediary – no underwriting risk Niche driven Alternative market leaders (1) Business Insurance/JP Morgan
Slide 13: Brokerage Segment: A Strategic Consolidator
Brokerage Segment A Strategic Consolidator Geographic diversity; enhance or expand capabilities Over 125 acquisitions since 1986 in this segment Almost $460 million of 2003 revenue from acquired entities The rules: financial health, similar culture Gallagher is merger partner of choice
Slide 14: Brokerage Segment: Growth & Profits
Brokerage Segment Growth & Profits 1000 900 800 700 600 500 400 300 200 100 99 00 01 02 03 99 00 01 02 03 Revenue Pretax Earnings $383M $849M $72M $172M 180 160 140 120 100 80 60 40 20 0 20 % CAGR % CAGR 2003 pretax margins of 19% 2003 growth in earnings per share of 24% Note: Amounts as originally
Slide 15: Brokerage Segment: Three Primary Operations
Brokerage Segment Three Primary Operations Retail Brokerage 62% (Jim Gault) Employee Benefits 15% (Jim Durkin) Specialty Marketing & International 23% (Dave McGurn)
Slide 16: Retail Brokerage Offices
Retail Brokerage Offices G W ) VA mee Go a ' e) 2a! & 5 5 \ wy a ° 7 » 4 °o 5 9, 2, S 7 ; a 3 ® NG ~~ ° . aM N =) a ple. _ \ SS > ‘a a ,
Slide 17: Retail Brokerage Niches
Retail Brokerage Niches Agribusiness Public Entity Aviation Real Estate General Commercial Construction Habitational Energy Hospitality Global Risk Management Shopping Centers Healthcare Religious/Nonprofit Higher Education Restaurant Management Liability Scholastic K-12 Marine Transportation Merger
Slide 18: Retail Brokerage: High Growth & Profit Potential
Retail Brokerage High Growth & Profit Potential Niches – number and size Acquisitions and hiring Alternative market Captives Rent-a-captives Deductible plans Self-insurance
Slide 19: Specialty Marketing & International Offices
Specialty Marketing & International Offices, Joint Ventures & Alliances
Slide 20: Specialty Marketing & International Capabilities
Specialty Marketing & International Capabilities Reinsurance Brokerage International P&C Brokerage Programs/Program Administration CoverageFirst.com Wholesale Brokerage Captives/Rent-a-Captives
Slide 21: Employee Benefits Offices
Employee Benefits Offices G 5) \ : 7, a y 2 $ ° ad ‘4 oe ce ee ee, 5 3 ; ; y] ° &y © o a] ~— = yo 53 =a 5 ere S \ re ruN » ‘a % ,
Slide 22: Employee Benefits Capabilities
Employee Benefits Capabilities Employee Benefits Brokerage/Consulting Executive Benefits/ Financial Planning Healthcare Data Analysis/Benchmarking Human Resource Services Retirement Plan Services Compliance Consulting Employer Administrative Services Merger & Acquisition Analysis Business Continuati
Slide 23: Employee Benefits: High Growth & Profit Potential
Employee Benefits High Growth & Profit Potential Niche marketing Cross-selling opportunities with Brokerage Services Merger and acquisition opportunities Assisting clients/prospects with four top priorities Controlling health and welfare costs Providing better retirement tools/information Benefits c
Slide 24: Risk Management Segment
Risk Management Segment Two Primary Operations Property/Casualty Claims Management “Gallagher Bassett” 91% (Rich McKenna) Medical Claims Management 9% (Jim Durkin) Fee revenues are primarily generated based on number of claims.
Slide 25: Risk Management Segment: Growth & Profits
Risk Management Segment Growth & Profits 350 300 250 200 150 100 50 0 1999 2003 1999 2003 Revenue Pretax Earnings 45 40 35 30 25 20 15 10 5 0 $43M $322M 23% CAGR 15% CAGR 2003 pretax margin of 13% 2003 growth in earnings per share of 51% Note: Amounts as originally reported
Slide 26: Gallagher Bassett Offices
Gallagher Bassett Offices G
Slide 27: Risk Management Segment Capabilities
Risk Management Segment Capabilities Real-time Claims Reporting Managed Care Services Loss Control Services Recoveries (subrogation, salvage, etc.) Safety Programs Settlement Management Appraisal Services Education and Training Litigation Management Information Management
Slide 28: Risk Management: High Growth & Profit Potential
Risk Management Segment High Growth & Profit Potential Fortune 1000 companies Outsourcing of insurance co. claims departments Captives Program business Expanding global capabilities Enhancements in systems/processes related to: Electronic data storage Security Claims regulatory changes Access to inf
Slide 29: Financial Services Segment: Cash & Investments
Financial Services Segment $927 Million of Cash & Investments* Investments Allocated to Financial Services Segment ($190 M) Cash Allocated to Brokerage Segment ($583 M) Cash Allocated to Risk Management Segment ($154 M) * As of June 30, 2004 – Cash & investments net of related investment borrowings
Slide 30: Financial Services Segment: Assets Under Management
Financial Services Segment Assets at December 31, 2002 & June 30, 2004 Assets Under Management Asset Classes 6/30/04 $300 $250 $200 $150 2004 $ In millions $298 $190 $70 $60 $50 $40 $30 $20 $10 $0 Tax Adv. Asset Mgmt. Real Estate Other Low Income Housing $18M Alternative Energy $67M Asset Alliance $
Slide 31: Financial Services: Refocused Investing
Financial Services Segment Refocused Investing Tax advantaged – maximize through 2007 Asset management – monetize Real estate – optimize cash flows Venture capital – substantially exited in 2003
Slide 32: Why Invest?
Arthur J. Gallagher & Co. Why Invest?
Slide 33: Revenue Growth
Arthur J. Gallagher & Co. Revenue Growth Gross Revenues As Originally Reported ($ M) $1,400 $1,200 $1,000 $800 $600 $400 $200 1999 2000 2001 2002 2003 $606 $741 $910 $1,101 $1,304 19% CAGR
Slide 34: Profitable Growth
Arthur J. Gallagher & Co. Profitable Growth Pretax Earnings As Originally Reported ($ M) $200 $180 $160 $140 $120 $100 $80 $60 $40 1999 2000 2001 2002 2003 $104 $125 $142 $186 $193 18% CAGR
Slide 35: Rising Productivity
Arthur J. Gallagher & Co. Rising Productivity Revenue Per Employee As Reported $180 $170 $160 $150 $140 $130 $120 $110 $100 1999 2000 2001 2002 2003 $127,000 $137,000 $140,000 $155,000 $181,000 8% CAGR
Slide 36: Increasing Shareholder Value
Arthur J. Gallagher & Co. Increasing Shareholder Value Diluted EPS As Originally Reported – Post Split 1/18/01 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 1999 2000 2001 2002 2003 $.88 $1.05 $1.39 $1.41 $1.57 15% CAGR
Slide 37: Earnings Before Investment Gains, Depreciation, Amortization and Stock Compensation
Arthur J. Gallagher & Co. Earnings Before Investment Gains (Losses), Depreciation, Amortization and Stock Compensation Expense (In millions) $250 $200 $150 $100 $50 $0 1999 2000 2001 2002 2003 $74 $91 $129 $170 $203 27% CAGR
Slide 38: Since 1990, $1.3 Billion Cash Flow from Ops
Arthur J. Gallagher & Co. Since 1990, $1.3 Billion Cash Flow from Ops Dividends Paid ($376 M) Reinvested in Operations ($502 M) Shares Repurchased ($404 M) Built a balance sheet with $4.65 in tangible net worth per share and no operating debt. As of 6/30/04
Slide 39: Summary: Why Invest?
Arthur J. Gallagher & Co. Summary: Why Invest? $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 1999 Gross Revenue 2003 $200 $150 $100 $50 $0 1999 Cash Flow from Ops 2003 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 1984 Dividends 2004 19% CAGR 33% CAGR 19% CAGR 2003 cash flow from operations of $229 M 5-year ave
Slide 40: Culture Driven Success: The Gallagher Way
Culture Driven Success The Gallagher Way Shared values at Gallagher are the rock foundation of the Company and our Culture. What is a Shared Value? These are the concepts that the vast majority of movers and shakers in the Company passionately adhere to. What are some of Gallagher’s Shared Values? 1
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