Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Conference Presentation (February 2009)
38 slides from Arthur J. Gallagher &'s conference presentation, Feb 24, 2009
Slide 1: Investment Presentation February 2009
Exhibit 99.1 Investment Presentation February 2009
Slide 2: Safe Harbor
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Except for the historical information and discussions contained herein, statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
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 sta
Slide 4: Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co. Among the world’s top 5 insurance brokers * Retail & Wholesale – 89% US; 11% International Largest MGA manager* Fastest growing Lloyd’s wholesaler (5 yrs) Predominate focus on middle market space Largest P&C third party administrator* Adjusting WC, liability & property clai
Slide 5: Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co. •GAAP •EBITDA •Cash
Slide 6: Extremely Challenging Environment
Extremely Challenging Environment Headwinds Continue Soft P&C Insurance Market CIAB — 12% average pricing decline in Turbulent Economy - Deteriorated in 4Q 08 Clients reducing payrolls, increasing retentions, claim counts decreasing Reduced Investment Yields Moved cash to no-yield, government-protec
Slide 7: Cost Containment
Cost Containment Anticipate $25 - $30 million of savings in 2009 Expense saving initiatives: Headcount reduction & wage controls (non-production) Reduced Temporary Help Centralizing and shifting work to lower cost labor locations (non-client facing) Centralized corporate systems Eliminated most non-
Slide 8: Two Core Businesses
Two Core Businesses 2008 Revenues - $1.7b 2008 EBITDA - $291m Brokerage 72% Brokerage 80% (Selling Insurance) Risk Management 28% Risk Management 20% (Adjusting Claims) See important disclosures regarding Non-GAAP measures on
Slide 9: Simple Business Generates Cash
Simple Business – Generates Cash Operating Cash Flows EBITDA (In millions) $300 $250 $200 $150 $100 2003 2004 2005 2006 2007 2008 * See important disclosures regarding Non-GAAP measures on Page 3.
Slide 10: Prudent Balance Sheet
Prudent Balance Sheet Global Insurance Gallagher Broker Avg S&P 1000 (millions) 2008 2008 2008 Total Debt $532 Stockholders’ equity $739 Debt to Total Capital (Debt/(Debt + Equity)) 42% 42% 46% Debt to EBITDA* 2.0 2.2 3.5 Including Unfunded Pension Liability Debt to Total Capital (Debt/(Debt + Equit
Slide 11: Uses of Cash
Uses of Cash Return cash to shareholders Pay dividends Repurchase shares but currently favor dividends Buy brokers Mix of cash and/or stock Neither segment needs substantial capital or cap-ex
Slide 12: Dividends Per Share
Dividends Per Share $1.28* $1.40 $1.20 $1.00 $0.80 $0.60 18% Average Annual Increase $0.40 $0.20 $0.00 Year *Indicated – On January 29, 2009, Gallagher’s Board of Directors declared a $.32 per share 1Q 09 quarterly dividend
Slide 13: Dividends Per Share
Dividends Per Share $1.28* $1.40 $1.20 $1.00 $0.80 $0.60 18% As of 2/20/09 Yield is 7.7% $0.40 $0.20 $0.00 Year *Indicated – On January 29, 2009, Gallagher’s Board of Directors declared a $.32 per share 1Q 09 quarterly dividend
Slide 14: Dividends/Repurchases as % of cash flows
Dividends/Repurchases as % of cash flows 100% Average Dividends / operating cash flows Repurchases / operating cash flows 90% 80% 70% 51% 60% 30% 1% 15% 0% 50% 1% 56% 59% 40% 50% 50% 45% 39% 30% 2003 2004 2005 2006 2007 2008 2007 excludes share repurchases of $262M financed by debt. See important di
Slide 15: Use Cash to Buy Brokers
Use Cash to Buy Brokers 2008 was a record year for acquisitions 2009 expect to continue at slower pace Annualized Revenue Acquired (in millions) $150 $150 $100 $83 $50 $38 $23 $10 $16 $16 $16 $0 Retail Wholesale 2005 2006 2007 2008
Slide 16: Growth by Acquisition
Growth by Acquisition Over 220 deals since 1985 Typical deal: 8.0 $2 to $10 million in revenues 7.5 7.0 2 to 5 producers/staff of 10 to 20 6.5 EBITDA margins between 25% - 30% 6.0 2008 – paid 6.3x EBITDA 5.5 5.0 4.5 2006 2007 2008 Must fit into our sales culture! Median EBITDA Multiples See importan
Slide 17: Roll-over Impact of 2008 M&A in 2009
Roll-over Impact of 2008 M&A in 2009 Pro-Forma Annual Revenues Acquired in 2008 $166 m Impact to 2009 Revenue $100 m Typical EBITDA margin 25%-30% Rollover impact to 2009 EBITDA $25 — $30m
Slide 18: 2009 Expansion Opportunity
2009 Expansion Opportunity Liberty Mutual/Wausau — closes approx 3/1/09 Possible revenues of $70m to $90m Approx 125 new producers and 140 support/mgmt staff 26 states predominately in Midwest & East/Southeast Approx 18 new locations with “tuck ins” into 42 existing offices Break even in 2009 but ac
Slide 19: Brokerage Segment
Brokerage Segment 2008 Revenues - $1.2 b - 2009 EBITDA - $233 m Retail 80% Mostly U.S. and Canada Wholesale 20% Mostly U.S. and U.K. See important disclosures regarding Non-GAAP measures on Page 3
Slide 20: Brokerage Segment Revenues
Brokerage Segment Revenues From Continuing Operations* $1,300 $1,188 10% CAGR $1,114 $1,100 $1,007 $917 $900 $830 $753 $700 $500 2004 2005 2006 2007 2008 *Excluding retail contingent commissions prior to 2006 See important disclosures regarding Non-GAAP measures on Page 3
Slide 21: Brokerage Segment EBITDA
Brokerage Segment EBITDA* $250 $233 $228 11% CAGR $207 $200 $177 $164 $154 $150 $100 2003 2004 2005 2006 2007 2008 *Excluding retail contingent commissions prior to 2006 See important disclosures regarding Non-GAAP measures on Page 3
Slide 22: Brokerage Segment Focus
Brokerage Segment Focus Growth Domestic International Cost containment Stay in sweet spot Middle to upper commercial market
Slide 23: Growth - Domestic
Growth - Domestic Organic Hiring new producers wanting: Access to our network, expertise and niches Infrastructure support Growing our own producers thru: Two-year internship program Career Launch program Acquisitions 18,000 retail and wholesale brokerages and agencies* in the U.S. (P&C and Benefits
Slide 24: Current Gallagher U.S. Locations
Current Gallagher U.S. Locations WA MT ME ND OR MN VT NH ID MA SD WI NY WY MI RI IA CT PA NE NJ NV OH UT DE IL IN CO WV MD KS VA CA MO KY NC TN AZ OK NM AR SC MS AL GA TX LA FL AK HI
Slide 25: Larger Cities where we aren't located
Larger Cities where we aren’t located Source for Acquisition Targets: Hales & Co., Inc. and D&B WA 248 MT ME ND 57 113 41 OR MN VT 170 290 57 NH ID NY 112 MA SD WI MI 67 1,429 627 37 308 506 CA WY RI 16 IA CT 84 1,656 PA NE 194 316 IN OH 883 NJ NV 127 UT 307 576 DE 706 97 IL 115 689 43 CO WV 187 KS
Slide 26: Growth - International
Growth - International Organic Substantial London operations Hire experienced sales teams Opportunistic acquisitions/minority interests Gallagher Optimus Network Correspondent brokers and agents in over 100 countries Stages of partnership to investment
Slide 27: Gallagher Optimus Network
Gallagher Optimus Network
Slide 28: Risk Management Segment
Risk Management Segment • 2008 Revenues - $465m 2008 EBITDA - $58m Workers Domestic 84% Compensation 69% Liability 27% Property 4% International 16% See important disclosures regarding Non-GAAP measures on Page 3
Slide 29: Risk Mgmt Segment Revenues
Risk Mgmt Segment — Revenues From Continuing Operations (In millions) $550 11% CAGR $465 $444 $450 $401 $371 $346 $350 $292 $250 $150 2003 2004 2005 2006 2007 2008 See important disclosures regarding Non-GAAP measures on Page 3
Slide 30: Risk Mgmt Segment EBITDA
Risk Mgmt Segment - - EBITDA $100 8% CAGR $76 $73 $75 $66 $66 $58 $49 $50 $25 $0 2003 2004 2005 2006 2007 2008 See important disclosures regarding Non-GAAP measures on Page 3
Slide 31: Risk Management Segment - Focus
Risk Management Segment - Focus Growth Domestic International Client service High quality standards Technology •Cost containment
Slide 32: RM Growth - Domestic
RM Growth - Domestic All organic Over 86% non-Gallagher clients •Targeting Mainly Fortune 1000 Standard platform enables profitable service to smaller accounts Differentiation Network focused or dedicated - flexibility Client intimacy Quality standards Proprietary technology
Slide 33: RM Growth - International
RM Growth - International Fastest growing Revenues - 3 year CAGR of 24% In Australia, Canada, UK & New Zealand Largely public entity but leveraging US expertise to penetrate commercial clients Global technology capabilities Standard claims process
Slide 34: Summary
Summary Top priority – servicing our clients Helping them navigate troubled economy Continuing to increase quality service levels Expanding capabilities and options
Slide 35: Summary
Summary Well positioned coming into 2009 EBITDA - $291 in 2008 Roll over of ‘08 M&A into ‘09 - $25m - $30 EBITDA Cost containment in 2009 - $25 - $30m EBITDA Liberty Mutual/Wausau integration Little EBITDA in 2009 but $30m+ in 2010 Return to shareholders Strong history of dividends & repurchases
Slide 36: Questions & Answers
*Questions & Answers
Slide 37: Exhibit: Short-cut To Understand Cash Flows
Exhibit 1 Short-cut To Understand Cash Flows (See GAAP cash flows in Statement of Cash Flows*) $ millions 2003 2004 2005 2006 2007 2008 Brokerage & Risk Management EBITDA from Continuing Operations (adjusted for unusual items) 232 277 266 273 304 291 Stock compensation expense 9 16 16 25 19 18 Capit
Slide 38: For Additional Information
For Additional Information •Website: www.ajg.com • Email: investor_relations@ajg.com •Marsha Akin Marsha_Akin@ajg.com Phone: 630-773-3800
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