Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (September 2011)
47 slides from Arthur J. Gallagher &'s investor presentation, Sep 8, 2011
Slide 1: Investment Presentation
Investment Presentation August 2011
Slide 2: Information Regarding Forward-Looking Statements
Information Regarding Forward-Looking Statements This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this presentation, the words “anticipates,” “expects,” “believes,” “should,” “could,” “estimates,” “expect
Slide 3: Information Regarding Non-GAAP Measures
Information Regarding Non-GAAP Measures This presentation includes references to EBITDAC, Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted Revenues and Organic Growth, which are performance measures not in accordance with, or an alternative to, the GAAP information provided herein. Earnings Measu
Slide 4: Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co. • Brokerage Segment—74% of Revenue We sell insurance and consult on insurance programs Retail P&C, benefits and wholesale • Risk Management Segment—26% of Revenue We adjust claims and help companies reduce their losses Workers Comp, liability, managed care & property Modest
Slide 5: Brokerage Segment Revenues
Brokerage Segment Revenues Retail P/C Mostly U.S., Canada, and U.K. Domestic 76% %% 9% J Year 2011 estimated
Slide 6: Risk Management Segment Revenues
Risk Management Segment Revenues
Slide 7: Strong Start—First Half 2011: Brokerage Segment
Strong Start—First Half 2011 Brokerage Segment Adjusted Revenues $ 750 1H2011 1H2010 (in $M) See important disclosures regarding Non-GAAP measures on Page 3. Adjusted EBITDAC
Slide 8: Strong Start—First Half 2011: Risk Management Segment
Strong Start—First Half 2011 Risk Management Segment $ 275 Adjusted Revenues 1H2011 1H2010 (in $M) See important disclosures regarding Non-GAAP measures on Page 3. Adjusted EBITDAC
Slide 9: Strong Start—First Half 2011: Combined
Strong Start—First Half 2011 Brokerage & Risk Management Combined 19.7% 1H2011 Adjusted Revenues (in $M) See important disclosures regarding Non-GAAP measures on Page 3. Adjusted EBITDAC
Slide 10: Corporate Segment—Clean Energy Update
Corporate Segment—Clean Energy Update Gallagher owns 42% of Chem-Mod, LLC. Chem-Mod is a multi-pollutant reduction venture that owns technologies to reduce harmful emissions from coal fired power plants. When The Chem-Mod™ Solution is used in refined coal plants placed in service by December 31, 201
Slide 11: Maintaining a Prudent Balance Sheet
Maintaining a Prudent Balance Sheet Gallagher S&P 1000 Total Debt $710 Stockholders’ Equity $1,203 Net Debt to Total Capital 35% 30% Net Debt to Adjusted EBITDAC 1.5x 1.7x G $s in millions. Gallagher data as of 06/30/2011. Source for S&P 1000 data: Bloomberg as of 08/19/11. Gallagher’s ratios reflec
Slide 12: Cash Generation
Cash Generation Three Uses of Cash • M&A Dividends—below 50% of cash generation • Repurchase shares—currently not anticipated $ 400 Dividend ($Ms) See important disclosures regarding Non-GAAP measures on Page 3 and on page 47. G
Slide 13: Looking Forward
Looking Forward View of operating environment Plan for growth
Slide 14: Economy – GDP
Economy – GDP Real GDP in billons of chained 2005 dollars. Source for data: Bureau of Economic Analysis
Slide 15: U.S. Jobs
U.S. Jobs 140,000 T Lost Decade of Job Growth 135,000 130,000 JL 125,000 120,000 115,000 YE 2001 YE 2002 YE 2003 YE 2004 YE 2005 YE 2006 YE 2007 YE 2008 YE 2009 YE 2010 Aug-11 Total Nonfarm Employees ( in thousands) seasonally adjusted. Source for data: Bureau of Labor Statistics G
Slide 16: Short-Term Rates
Short-Term Rates •EBHttE 6.0% 5.0% 4.0% 3.0% 2.0% 4 1.0% \ 0.0% 3.9% 1.7% 1.1% hl.4% 1.9% 0.2% 0.2% 0.1% r r Hi i 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1H Average Annual Effective Fed Funds Rates. Source for data: Bloomberg G
Slide 17: Commercial P&C Pricing Well Below Year 2000 Significantly Lagging Inflation
Commercial P&C Pricing Well Below Year 2000 Significantly Lagging Inflation
Slide 18: Commercial P&C Pricing Stabilizing?
Commercial P&C Pricing Stabilizing?
Slide 19: Global P&C Market Growing Again
Global P&C Market Growing Again
Slide 20: Plan For Growth—Future Drivers
Plan For Growth—Future Drivers Organic A Growth Mergers and Acquisitions Growth Productivity and Quality Maintain W Unique Culture G
Slide 21: Plan For Growth—Future Drivers
Plan For Growth—Future Drivers Organic A Growth Mergers and Acquisitions Growth Productivity and Quality Maintain W Unique Culture
Slide 22: Gallagher’s Sales Culture Overcomes
Gallagher’s Sales Culture Overcomes •Gallagher Organic -a-ClAB—Change in Avg. Commercial Rates 12.0% 9.0% 6.0% 3.0% 0.0% -3.0% -6.0% -9.0% -12.0% ?15.0% 2003 2004 2005 2006 2007 2008 2009 2010 1Q 2Q 2011 2011 Gallagher’s Brokerage Segment Organic Growth including Supplemental Commissions. See import
Slide 23: Grow Our Own
Grow Our Own Driving Organic Growth Hire Experienced Teams Focus Into Niches Provide Sales Mgmt. Tools and Training Cross Selling Organic Growth Enhance Carrier Compensation Domestic and International
Slide 24: Driving Organic Growth
Driving Organic Growth Grow Our Own Hire Experienced Teams Focus Into Niches Provide Sales Mgmt. Tools and Training Cross Selling Organic Growth Enhance Carrier Compensation Domestic and International
Slide 25: Driving Organic Growth
Driving Organic Growth Grow Our Provide Own Sales Focus Mgmt. Cross Into Tools Selling Hire Niches Experienced and Organic Training Teams Growth Enhance Carrier Compensation Domestic and International
Slide 26: Driving Organic Growth
Driving Organic Growth Grow Our Provide Own Sales Focus Mgmt. Cross Into Tools Selling Hire Niches Experienced and Organic Training Teams Growth Enhance Carrier Compensation Domestic and International
Slide 27: Plan For Growth—Future Drivers
Plan For Growth—Future Drivers Organic A Growth Mergers and Acquisitions Growth Productivity and Quality Maintain W Unique Culture
Slide 28: Strong Acquisition Momentum
Strong Acquisition Momentum
Slide 29: Strong Acquisition Momentum
Strong Acquisition Momentum 13 acquisitions for $211m annualized revenues in 1H 2011 ? Domestic $48m International $163m Strong international activity • Oxygen Insurance Managers Securitas RE First City Specialized Broking Associates Risk & Reward (Benefits) Woodbrook Underwriting Agencies Heath Lam
Slide 30: M & A—Looking Forward
M & A—Looking Forward Vast Pipeline Domestic and International Markets Highly Fragmented 18,000 agents / brokers in the U.S. Baby boomers looking for exit strategy Need Gallagher’s Expertise Numerous Specialties Retail P&C Wholesale Benefits International MGA MGU Captive Limited Consolidators Arthur
Slide 31: Current Gallagher U.S. Locations
Current Gallagher U.S. Locations
Slide 32: Larger Cities With Expansion Potential
Larger Cities With Expansion Potential Cities with population of 100,000+ where Gallagher has no presence
Slide 33: Gallagher Global Alliance Creates Pipeline
Gallagher Global Alliance Creates Pipeline
Slide 34: Plan For Growth—Future Drivers
Plan For Growth—Future Drivers Organic Growth Mergers and Acquisitions Growth productivity & quality Maintain Unique Culture
Slide 35: Productivity & Quality
Productivity & Quality Established Offshore Centers of Excellence Controlling Headcount Reducing Real Estate Leveraging Sales Force Management Tools Investing in Business Intelligence Improving Productivity and Quality Standardizing Processes and Systems Managing Expenses Building Productivity Tools
Slide 36: Relentless Focus on Quality & Customer Service
Relentless Focus on Quality & Customer Service EMPLOYEE BENEFIT CONSULTANT W THE BRITISH I INSURANCE AWARDS \ WINNER &S G 20 0 5 THIRD-PARTY CLAIMS ADMINISTRATOR—PROPERTY/CASUALTY Winner of 2011 Greenwich Excellence Awards in U.S. Large Corporate Insurance Brokerage SBA Gallagher -ANZZIIF 2011 “Sour
Slide 37: Plan For Growth—Future Drivers
Plan For Growth—Future Drivers Organic Growth Mergers and Acquisitions Growth Productivity and quality Maintain W Unique Culture
Slide 38: Maintain Unique Culture
Maintain Unique Culture People Core Values G
Slide 39: Why Invest?
Why Invest? You believe in Gallagher’s Organic growth opportunities M&A opportunities Productivity and quality gains resulting in margin improvement Experienced management team Focus on culture Solid financial foundation
Slide 40: Why Invest?
Why Invest? You like Gallagher’s return to stockholders Outperformed the S&P 500 in total returns over last decade Outperformed the S&P 500 in total returns since the Great Recession ?Consistent dividend growth since 1984
Slide 41: Total Returns January 1, 2000—August 31, 2011
Total Returns January 1, 2000—August 31, 2011 AJG versus S&P 500 200% 175% 150% 125% 100% 75% 50% 25% 0% -25% -50% -AJG ? S&P 500 Source for data: Bloomberg. Total returns assume dividend reinvestment.
Slide 42: Total Returns since the Great Recession
Total Returns since the Great Recession January 1, 2008—August 31, 2011 AJG versus S&P 500 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% -50% -10% Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 -AJG ?S&P 5
Slide 43: Paying Dividends
Paying Dividends Dividends Per Share $1.32 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 Year 1984 ,v~” 2011 Indicated—On July 21, 2011, Gallagher’s Board of Directors declared a $.33 per share 3Q ‘11 quarterly dividend ff^™
Slide 44: Questions & Answers
Questions & Answers
Slide 45: For Additional Information
For Additional Information Marsha Akin Director—Investor Relations Marsha_Akin@ajg.com Phone: 630-285-3501
Slide 46: Appendix
Appendix
Slide 47: Arthur J. Gallagher & Co. Cash Generation for 2008 to 2010
Arthur J. Gallagher & Co. Cash Generation for 2008 to 2010 (Unaudited—in millions ) 2008 2009 2010 Earnings from continuing operations—Brokerage & Risk Management Segments Combined Provision for income taxes Depreciation Amortization Change in estimated acquisition earnout payables EBITDAC—Brokerage
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