Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Conference Presentation (February 2008)
42 slides from Arthur J. Gallagher &'s conference presentation, Feb 13, 2008
Slide 1: Arthur J. Gallagher & Co. January 2008
Exhibit 99.1 Arthur J.Gallagher & Co. January, 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 “forwardlooking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risk
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 – 88% US 12% International • 5th Largest Domestic Wholesaler • Fastest Growing Lloyds Wholesaler (5 yrs) • Largest P&C Third Party Administrator – Adjusting WC, Liability & Property Claims • More Background in Invest
Slide 5: Two Core Businesses
Two Core Businesses • 2007 Revenues* • 2007 Pretax Earnings* Brokerage 69% (i.e. Selling Insurance) Risk Management 27% (i.e. Adjusting Claims) Financial Services 4% *See important disclosures regarding Non-GAAP measures on page 3. Brokerage 74% Risk Management 26% Financial Services Arthur J.Gallag
Slide 6: Organic Revenue Growth
Organic Revenue Growth Organic Revenue Growth* 2004 2005 2006 YTD 2007*** AJG** 7.0% 4.0% 6.0% 5.0% AJG Rank 1 2 2 1 Peer Group Average 3.2% 1.3% 3.9% 1.4% Range -0.5% to 7.0% -4.3% to 4.3% 0.0% to 8.0% -3.4% to 5.0% * See important disclosures regarding Non-GAAP measures on page 3. ** Excludes reve
Slide 7: Current Environment
Current Environment • Fighting a Headwind – Soft P&C Market (i.e. too much supply) • Some predict another 2 to 4 years – Teetering Economy (i.e. slowing demand) • Business cutbacks? • Slowing employee counts? • Energy and wage inflation? • U.S. and Even Global Recession? Arthur J.Gallagher & Co.
Slide 8: Brokerage Segment – Business Mix
Brokerage Segment – Business Mix • 2007 Revenues Retail 80% Mostly North America See important disclosures regarding Non-GAAP measures on Page 3. Wholesale 20% Mostly U.S. and U.K. Arthur J.Gallagher & Co.
Slide 9: 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 Brokerage Segment Strategy Arthur J.Gallagher & Co.
Slide 10: Domestic Brokerage Expansion
•Sell •Hire •Develop •Acquire Domestic Brokerage Expansion Arthur J.Gallagher & Co.
Slide 11: Domestic Brokerage Expansion – Revenues
•Sell •Hire •Develop •Acquire Domestic Brokerage Expansion • Brokerage Segment Revenues From Continuing Operations excluding contingent commissions. • See important disclosures regarding Non-GAAP measures on page 3. (In millions) $500 $700 $900 $1,100 $1,300 11% CAGR $753 $830 $917 $1,004 $1,110 200
Slide 12: 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! Domestic Expansion - Hire Arthur J.Gallagher & Co.
Slide 13: 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! Domestic Expansion - Hire “I joined Gallagher because I focus on Colleges and Universities and Gallagher has the best H
Slide 14: Domestic Expansion - Develop
•Internships •Career Launch •Must fit into our culture! Domestic Expansion - Develop Arthur J.Gallagher & Co.
Slide 15: Domestic Expansion - Develop
•Internships •Career Launch •Must fit into our culture! Domestic Expansion - Develop “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 internshi
Slide 16: Domestic Expansion - Acquire
•Over 20,000 retail and wholesale brokerages and agencies (P&C and Benefits) •Most owned by baby boomers •Small number of consolidators Domestic Expansion - Acquire Arthur J.Gallagher & Co.
Slide 17: 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! Domestic Expansion - Acquire Arthur J.Gallagher & Co.
Slide 18: 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! Domestic Expansion - Acquire “I had the relationships with many larger prospects, but I didn’t have the r
Slide 19: Mergers & Acquisitions
Mergers & Acquisitions • AJG Three Year History – 2007 was a record year for acquisitions – Growth led by retail operations Annualized Revenue Acquired (In millions) $23 $10 $38 $16 $83 $16 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 Retail Wholesale 2005 2006 2007 Number of Acquisitions Closed Retail Wh
Slide 20: Where We Are – Retail Locations
Where We Are – Retail Locations ID MT WA CA UT NV AZ NM TX OK KS NE MN WI MO AR LA TN IL WV PA NY NH ME MA CT NJ DE MD IA CO WY SD ND OR OH MI KY MS AL GA FL SC NC VA VT RI IN AK HI Arthur J.Gallagher & Co.
Slide 21: Growth Opportunities
Growth Opportunities Source for Acquisition Targets: Hales & Co., Inc. and D&B Larger Cities Where We Are NOT ID MT WA CA 1,656 UT NV AZ NM TX OK KS NE MN WI MO AR LA TN IL 689 WV PA NY 1,429 NH ME MA CT NJ 706 DE MD IA CO WY SD ND 41 OR OH MI KY MS 105 AL GA FL SC NC VA VT RI IN AK 27 HI DC Arthur
Slide 22: International Expansion
•Substantial London operation •Attract experienced teams •Opportunistic with acquisitions •Network of independent brokers in over 100 countries International Expansion Arthur J. Gallagher & Co.
Slide 23: Brokerage – Supporting the Growth: Field
Arthur J. Gallagher & Co. Field •Full-time training & career development teams •Full-time M&A teams •Full-time niche & product support teams Brokerage – Supporting the Growth
Slide 24: Brokerage – Supporting the Growth: Back Office
Arthur J. Gallagher & Co. Back Office • Centralized corporate systems – General Ledger, T&E, HR, Real Estate and Planning • Created supporting service centers – However, NOT client facing • Branch manager now can focus on: – Sell - Develop - Client service – Hire - Acquire - Strategy Brokerage – Sup
Slide 25: Soft Market Play Book – Existing Plays
Arthur J. Gallagher & Co. “Soft Market Play Book” • Existing Plays – Headcount and Wage Controls (non-production layers) – Expense Management – Experienced Teams Must Quickly Deliver Brokerage – Profitable Growth
Slide 26: Soft Market Play Book – New Plays
Arthur J. Gallagher & Co. “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 Brokerage – Profitable Growth
Slide 27: Brokerage Segment – EBITDA Growth
Arthur J. Gallagher & Co. Brokerage Segment – EBITDA Growth* $125 $224 $100 $140 $180 $220 $260 2002 2007 (In millions) 12% CAGR * See important disclosures regarding Non-GAAP measures on page 3.
Slide 28: Risk Management Segment Strategy
Arthur J. Gallagher & Co. • Domestic & International • Trend Towards Unbundling • Network vs. Dedicated Units • Profitability Risk Management Segment Strategy
Slide 29: Risk Mgmt Segment – Revenues
Arthur J. Gallagher & Co. Risk Mgmt Segment – Revenues From Continuing Operations* * See important disclosures regarding Non-GAAP measures on page 3. (In millions) $100 $200 $300 $400 $500 12% CAGR $292 $346 $371 $401 $444 2003 2004 2005 2006 2007 $250
Slide 30: Risk Mgmt – Domestic & International
Arthur J. Gallagher & Co. • 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 but levera
Slide 31: Risk Mgmt – Unbundling Trend
Arthur J. Gallagher & Co. • 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 exist
Slide 32: Risk Mgmt – Network Philosophy
Arthur J. Gallagher & Co. • 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 onsite • Move to regional operations and to lower cost locations where possible Risk Mgmt – Network Philo
Slide 33: Risk Mgmt Segment – EBITDA Growth
Arthur J. Gallagher & Co. Risk Mgmt Segment – EBITDA Growth * $37 $76 $30 $40 $50 $60 $70 $80 2002 2007 (In millions) 15% CAGR * See important disclosures regarding Non-GAAP measures on page 3.
Slide 34: Cash, Cash & Cash
Arthur J. Gallagher & Co. Cash, Cash & Cash • Both Brokerage & Risk Management Businesses Generate Substantial Cash Flow • Neither Need Substantial Capital or Cap Ex
Slide 35: Short-cut To Understand Cash Flows
Arthur J. Gallagher & Co. Short-cut To Understand Cash Flows (See GAAP cash flows in Statement of Cash Flows*) Brokerage & Risk Management Combined (In millions) 2004 2005 2006 2007 Pretax earnings from continuing operations before non-recurring items *$ 242 $ 228 $ 229 $ 248 Non-cash expenses Amort
Slide 36: Cash, Cash & Cash
Arthur J. Gallagher & Co. Cash, Cash & Cash • Pay Dividend – Long-cycle Industry – Shareholders need returns while holding • Buy Brokers • Repurchase Shares • Modest Debt Levels
Slide 37: Cash Flows from Operations
Arthur J. Gallagher & Co. Cash Flows from Operations • Cash flow from operations in 2007 exceeded $250M • “Free” cash flows are used for acquisitions and/or stock repurchases $0 $50 $100 $150 $200 $250 $300 2004 2005 2006 2007 Cash Flow from Operations Summary (In millions) Operating Cash Flows Divi
Slide 38: Uses of Cash – 2002 through 2007
Arthur J. Gallagher & Co. Uses of Cash – 2002 through 2007 • Uses of Cash as Reported (In millions) $0 $50 $100 $150 $200 $250 $300 2002 2003 2004 2005 2006 2007 Cash Paid for Acquisitions (net of cash acquired) Dividends Paid Stock Repurchases
Slide 39: Capital Structure
Arthur J. Gallagher & Co. 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 1.5 NA Debt to EBITDA* 36% 4% Debt to Total Capital (Debt/(Debt + Equity)) 92 98 Shares Outstanding
Slide 40: Our Goals are Simple
Arthur J. Gallagher & Co. 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 41: Conclusion
Arthur J. Gallagher & Co. Conclusion •Questions & Answers
Slide 42: Website: www.ajg.com
Arthur J. Gallagher & Co. Website: www.ajg.com Email: investor_relations@ajg.com Marsha_Akin@ajg.com Phone: 630-773-3800 For Additional Information
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