Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (September 2008)
43 slides from Arthur J. Gallagher &'s investor presentation, Sep 4, 2008
Slide 1: Arthur J. Gallagher & Co. September 2008
G Arthur J. Gallagher & Co. September 2008
Slide 2: Safe Harbor Statement
Safe Harbor Statement Except for the historical information and discussions, certain statements contained herein relating to future results may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of ris
Slide 3: Certain Non-GAAP Financial Measures
Certain Non-GAAP Financial Measures • This presentation includes certain information that may be considered “non-GAAP financial measures” within the meaning of SEC regulations because it is derived from Gallagher’s consolidated financial information but is not required to be presented in financial s
Slide 4: About
About Arthur J. Gallagher & Co. • 4th Largest Insurance Broker * – Retail & Wholesale – 86% US; 14% International • 5th Largest Wholesaler* • Fastest Growing Lloyds Wholesaler (5 yrs) • Largest P&C Third Party Administrator – Adjusting WC, Liability & Property Claims – 2008 Business Insurance Reader
Slide 5: Two Core Businesses
Two Core Businesses • Revenues at 6/30/08 • EBITDA Earnings at 6/30/08 Brokerage 71% Brokerage 78% (i.e. Selling Insurance) Risk Management 29% Risk Management 22% (i.e. Adjusting Claims)
Slide 6: Organic Revenue Growth
Organic Revenue Growth Organic Growth 2004 2005 2006 2007 2008 June YTD AJG* 7.0% 4.0% 6.0% 5.0% 2.0% AJG Rank 1 2 2 1 2 Peer Group Avg. 3.2% 1.3% 3.9% 1.1% -0.2% Range -0.5% to 7.0% -4.3% to 4.3% 0.0% to 8.0% -3.4% to 5.0% -6.0% to 3.0% See important disclosures regarding Non-GAAP measures on page
Slide 7: Current Environment
Current Environment • Fighting a Headwind – Soft P&C Market (i.e. too much supply) • Some predict another 2+ years – Teetering Economy (i.e. slowing demand) • Business cutbacks • Slowing employee counts • Energy and wage inflation • U.S. and Even Global Recession
Slide 8: Brokerage Segment
Brokerage Segment – Business Mix • 6/30/08 Revenues Wholesale 23% Mostly U.S. and U.K. Retail 77% Mostly North America
Slide 9: Brokerage Segment Strategy
Brokerage Segment Strategy • Rapidly Expand – Domestic – Geographical – Expertise • Selectively Expand – International – Broaden Network Partners – Targeted Acquisitions • Profitability—Stay in Our Sweet Spot – Middle to Upper Commercial Market
Slide 10: Domestic Brokerage Expansion
Domestic Brokerage Expansion •Sell •Hire •Develop •Acquire
Slide 11: Domestic Brokerage Expansion
Domestic Brokerage Expansion •Sell •Hire •Develop •Acquire (In millions) $1,300 $1,100 $900 $700 $500 11% CAGR $656 $753 $830 $917 $1,004 $1,110 • Brokerage Segment Revenues From Continuing Operations excluding retail contingent commissions. • See important disclosures regarding Non-GAAP measures on
Slide 12: Domestic Expansion – Hire
Domestic Expansion – Hire •Producers that want to sell •Producers that want access to our network, expertise and niches •Producers that want to be supported by our infrastructure •Must fit into our culture!
Slide 13: Domestic Expansion—Hire
Domestic Expansion—Hire •Producers that want to sell •Producers that want access to our network, expertise and niches •Producers that want to be supported by our infrastructure •Must fit into our culture! “I joined Gallagher because I focus on Colleges and Universities and Gallagher has the best Hig
Slide 14: Domestic Expansion – Develop
Domestic Expansion – Develop •Internships •Career Launch •Must fit into our culture! Arthur J. Gallagher & Co.
Slide 15: Domestic Expansion—Develop
Domestic Expansion—Develop •Internships •Career Launch •Must fit into our culture! “I was an econ and stats major, but I thought I could sell too. I did my first year as an intern after my sophomore year. I was hooked!” “Many of Gallagher’s senior execs and field leaders came through the internship.
Slide 16: Domestic Expansion – Acquire
Domestic Expansion – Acquire •About 18,000 retail and wholesale brokerages and agencies* (P&C and Benefits) •Most owned by baby boomers •Small number of consolidators *According to Hales & Co, Inc. Arthur J. Gallagher & Co.
Slide 17: Domestic Expansion – Acquire
Domestic Expansion – Acquire •Gallagher has done over 200 deals in the last 23 years •Typical deal is $2 to $10 million in revenues •2 to 5 producers supported by a professional staff of 10 to 20 •Must fit into our culture!
Slide 18: Domestic Expansion – Acquire
Domestic Expansion – Acquire •Gallagher has done over 180 deals in the last 20 years •Typical deal is $2 to $10 million in revenues •2 to 5 producers supported by a professional staff of 10 to 20 •Must fit into our culture! “I had the relationships with many larger prospects, but I didn’t have the r
Slide 19: Mergers & Acquisitions
Mergers & Acquisitions • 2007 was a record year for acquisitions • 2008 acquisition pace continues – Growth led by retail operations Annualized Revenue Acquired (in millions) $100 $80 $60 $40 $20 $0 $23 $38 $83 $52 Retail $10 $16 $16 $6 Wholesale • 2005 • 2006 • 2007 • 2008 June YTD Number of Acquis
Slide 20: Where We Are – Retail Locations
Where We Are – Retail Locations
Slide 21: Where We Are Not
Where We Are Not • Larger cities where we don’t have a presence Source for Acquisition Targets: Hales & Co., Inc. and D&B Arthur J. Gallagher & Co.
Slide 22: International Expansion
International Expansion • Substantial London operation • Attract experienced teams • Opportunistic with acquisitions and joint ventures • Network of independent brokers in over 100 countries Arthur J. Gallagher & Co.
Slide 23: Brokerage – Supporting the Growth: Field
Brokerage – Supporting the Growth Field •Full-time training & career development teams •Full-time M&A teams •Full-time niche & product support teams Arthur J. Gallagher & Co.
Slide 24: Brokerage – Supporting the Growth: Back Office
Brokerage – Supporting the Growth Back Office • Centralized corporate systems – General Ledger, T&E, HR, Real Estate and Planning • Created supporting service centers – However, NOT client facing
Slide 25: Brokerage – Supporting the Growth
Brokerage – Supporting the Growth • Branch manager now can focus on: – Selling – Developing – Client service – Hiring – Acquiring – Strategy Arthur J. Gallagher & Co.
Slide 26: Brokerage – Profitable Growth: Soft Market Play Book
Brokerage – Profitable Growth “Soft Market Play Book” • Existing Plays – Headcount and Wage Controls (non-production layers) – Expense Management – Experienced Teams Must Quickly Deliver
Slide 27: Brokerage – Profitable Growth: New Plays
Brokerage – Profitable Growth “Soft Market Play Book” • New Plays – Leveraging Scale – Leveraging Technology – Centralizing and Shifting Work to Lower Cost Labor Locations Net Effect—Headcount reduction through attrition
Slide 28: Brokerage Segment – EBITDA Growth
Brokerage Segment – EBITDA Growth* (In millions) $260 $220 $180 $140 $100 12% CAGR $125 $224 * See important disclosures regarding Non-GAAP measures on Page 3. Arthur J. Gallagher & Co.
Slide 29: Risk Management Segment Strategy
Risk Management Segment Strategy • Domestic & International • Trend Towards Unbundling • Network vs. Dedicated Units • Profitability Arthur J. Gallagher & Co.
Slide 30: Risk Mgmt Segment – Revenues From Continuing Operations
Risk Mgmt Segment – Revenues From Continuing Operations* (In millions) $500 $400 $300 $200 $100 12% CAGR $250 $292 $346 $371 $401 $444 * See important disclosures regarding Non-GAAP measures on Page 3. Arthur J. Gallagher & Co.
Slide 31: Risk Mgmt – Domestic & International
Risk Mgmt – Domestic & International • Revenue growth is all organic • Targeting Fortune 1000 but standard platform enables profitable service to much smaller accounts as well • Differentiate through client intimacy, commitment to quality and technology • International presence largely public entity
Slide 32: Risk Mgmt – Unbundling Trend
Risk Mgmt – Unbundling Trend • A growing company has needs that can often best be met in alternative markets • We can tailor service to clients needs • Include on-site when appropriate • Hard markets accelerate the drive to alternative markets • Soft market has slowed pace but opportunities still ex
Slide 33: Risk Mgmt – Network Philosophy
Risk Mgmt – Network Philosophy • Leverage global technology and standard processes to provide service anywhere in the country • Broaden market opportunity to smaller clients where we don’t need to be on-site • Move to regional operations and to lower cost locations where possible Arthur J. Gallagher
Slide 34: Risk Mgmt Segment – EBITDA Growth
Risk Mgmt Segment – EBITDA Growth * (In millions) $80 $70 $60 $50 $40 $30 15% CAGR $37 $76 * See important disclosures regarding Non-GAAP measures on Page 3. Arthur J. Gallagher & Co.
Slide 35: Cash, Cash, Cash & Cash
Cash, Cash & Cash • Both Brokerage & Risk Management Businesses Generate Substantial Cash Flow • Neither Need Substantial Capital or Cap Ex
Slide 36: Short-cut To Understand Cash Flows
Short-cut To Understand Cash Flows (See GAAP cash flows in Statement of Cash Flows*) Brokerage & Risk Management Combined (in millions) 2004 2005 2006 2007 June YTD 2008 Pretax earnings from continuing operations before non-recurring items * $ 242 $ 228 $ 229 $ 248 $ 111 Non-cash expenses Amortizati
Slide 37: Cash, Cash, Cash & Cash
Cash, Cash & Cash • Pay Dividend – Long-cycle Industry – Shareholders need returns while holding • Buy Brokers • Repurchase Shares • Appropriate Debt Levels Arthur J. Gallagher & Co.
Slide 38: Cash Flows from Operations
Cash Flows from Operations • Cash flow from operations in 2007 exceeded $250M • “Free” cash flows are used for acquisitions and/or stock repurchases Cash Flow from Operations Summary (in millions) $300 $250 $200 $150 $100 $50 $0 2008 June YTD • Operating Cash Flows • Dividends * See important disclo
Slide 39: Uses of Cash
Uses of Cash – 2003 through 6/30/08 • Uses of Cash as Reported (in millions) $300 $250 $200 $150 $100 $50 $0 2008 June YTD • Cash Paid for Acquisitions (net of cash acquired) • Dividends Paid •Stock Repurchases
Slide 40: Capital Structure
Capital Structure • Debt offering in 2007 changed the capital structure – However, debt still at a conservative level – Flexibility remains with $450M line of credit capacity Dec 31, June 30, (millions) 2006 2007 2008 Debt—Corporate $—$ 400 $ 505 Debt—Investment 35 0 0 Total Debt 35 400 505 Stockhol
Slide 41: Our Goals are Simple
Our Goals are Simple • Here’s how we all win: – Target Revenue & EBITDA Growth of 15%/yr – Push Brokerage & Risk Mgmt margins to 20% – Control share count growth – Return cash to shareholders • Result—Stock price growth
Slide 42: Conclusion: Questions & Answers
Conclusion Questions & Answers
Slide 43: For Additional Information
For Additional Information Website: www.ajg.com Email: investor_relations@ajg.com Marsha_Akin@ajg.com Phone: 630-773-3800
Gallagher Arthur J & — Investor Presentation (September 2008) on 6ix