Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (September 2016)
46 slides from Arthur J. Gallagher &'s investor presentation, Sep 7, 2016
Slide 1: Investor Presentation September 2016
Investor Presentation September 2016
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,” “believes,” “contemplates,” “see,” “should,” “could,” “will,”
Slide 3: Information Regarding Non-GAAP Measures
Information Regarding Non-GAAP Measures This presentation includes references to Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted Revenues, Adjusted Operating Expense Ratio and Organic Growth, which are measures not in accordance with, or an alternative to, the GAAP information provided herein. E
Slide 4: Who We Are
Who We Are Founded in 1927 Public since 1984 – 32 years ago One of the World’s leading insurance brokers* One of the World’s largest P&C third-party administrators* KEY FACTS 33 22,228 Countries Employees $4.2B $177.7M 2016 TTM Total Acquired Revenues – TTM** Adjusted Revenue** KEY SHAREHOLDER DATA
Slide 5: Snapshot of Core Operations
Snapshot of Core Operations BROKERAGE SEGMENT RISK MANAGEMENT SEGMENT 83% of revenue* We sell insurance and consult on insurance programs P&C and benefits Retail and wholesale Primarily middle-market commercial clients and individuals 79% of C&F revenue is commission – 21% is fee-based 17% of revenu
Slide 6: Diverse Revenue Base
Diverse Revenue Base BROKERAGE* RETAIL P/C 58% RETAIL BENEFITS 25% WHOLESALE 17% DOMESTIC 65% INTERNATIONAL 35% RISK MANAGEMENT* WORKERS’ COMPENSATION 67% LIABILITY 29% PROPERTY 4% DOMESTIC 84% INTERNATIONAL 16% * Brokerage and Risk Management adjusted revenue for the trailing twelve months (TTM) en
Slide 7: Brokerage Segment – TTM 6/30/16
Brokerage Segment – TTM 6/30/16 ADJUSTED REVENUES $3,600 10% $3,400 $3,200 TOTAL ORGANIC GROWTH $3,000 $3,130 $3,446 6/30/15 6/30/16 5.0% 4.0% 3.0% 2.0% 1.0% 4.4% 3.3% 0.0% 6/30/15 6/30/16 ADJUSTED EBITDAC $1,000 12% $900 $800 $700 $818 $914 (in $M) 6/30/15 6/30/16 ADJUSTED EBITDAC MARGIN 27.0% 26.0
Slide 8: Risk Management Segment – TTM 6/30/16
Risk Management Segment – TTM 6/30/16 ADJUSTED REVENUES $725 3% $700 $675 $696 $717 6/30/15 6/30/16 TOTAL ORGANIC GROWTH 13.0% 11.0% 9.0% 7.0% 5.0% 3.0% 12.2% 5.1% 6/30/15 6/30/16 ADJUSTED EBITDAC $130 8% $120 $110 $100 $116 $124 (in $M) 6/30/15 6/30/16 ADJUSTED EBITDAC MARGIN 18.0% 17.0% 16.0% 15.0
Slide 9: Brokerage & Risk Management – TTM 6/30/16
Brokerage & Risk Management – TTM 6/30/16 ADJUSTED REVENUES $4,500 9% $4,000 $3,500 $3,000 $3,825 $4,163 6/30/15 6/30/16 ADJUSTED EBITDAC $1,100 11% $1,000 $900 $800 $933 $1,039 (in $M) 6/30/15 6/30/16 TOTAL ORGANIC GROWTH 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 6.0% 3.6% 6/30/15 6/30/16 ADJUSTED EBITDAC MARG
Slide 10: Adjusted Net Earnings from Clean Energy Investments
Adjusted Net Earnings from Clean Energy Investments $120.0 $110.0 $100.0 $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $7.5 $3.9 -$4.8 $32.7 $63.7 $90.5 $100.9 $115.0 $0.0 -$10.0 (in $M) 2009 2010 2011 2012 2013 2014 2015 2016E The adjustment referred to above excludes a non-cash after tax g
Slide 11: Dividends Per Share
Dividends Per Share $1.52* $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 1984 2016E *Indicated – On July 27, 2016, Gallagher’s Board of Directors declared a $.38 per share third-quarter 2016 dividend.
Slide 12: First Half of 2016 Business Highlights
First Half of 2016 Business Highlights Brokerage & Risk Management growth: 8% adjusted revenue growth 11% adjusted EBITDAC growth 72 bps margin improvement 3.1% total organic growt Clean energy growth: $46.5m of adjusted net earnings 18% increase in adjusted net earnings over first half 2015 On trac
Slide 13: Where We’re Going
Where We’re Going Improving new business production Continuing tuck-in M&A Increasing global brand recognition Completing large U.K. M&A integration Leveraging internal resources and processes across divisions To be premier provider of claims management services with superior outcomes Increasing glo
Slide 14: Indicators for U.S. P/C Carriers – Shallow Rate Environment
Indicators for U.S. P/C Carriers – Shallow Rate Environment COMBINED RATIOS 120 118.3 115 110 105 100 97.1 95 92.3 PREMIUM/STATUTORY SURPLUS 1.6x 1.4x 1.2x 1.0x 0.8x 0.6x Source for calendar year combined ratio data: AM Best. Data excludes certain large mortgage insurance and personal lines companie
Slide 15: Commercial P&C Pricing Shows Shallow Cycle
Commercial P&C Pricing Shows Shallow Cycle 160 150 140 130 120 110 100 90 80 CPI 137 Rates 94 Commercial Rate Index reflects the cost of P&C premiums relative to the year 2000. Constructed using Counsel of Insurance Agents and Brokers (CIAB) data. CPI index uses data from the Bureau of Labor Statist
Slide 16: Shows Shallow Pricing Cycle
Shows Shallow Pricing Cycle 6.0% 5.2% 5.0% 4.4% 4.3% 3.9% 4.3% 4.0% 3.4% 2.7% 2.1% 2.0% 1.5% 0.9% 0.1% 0.0% -0.1% -0.5% -0.7% -2.0% -2.3% -2.8% -2.9% -3.1% -4.0% -3.3% -3.7%-3. 9% -6.0% CIAB—Change in Average Commercial Rates
Slide 17: Gallagher Sales Culture Performs Through Any Pricing Cycle
Gallagher Sales Culture Performs Through Any Pricing Cycle Gallagher Brk Organic CIAB—Change in Avg. Commercial Rates 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 2001 2004 2007 2010 2013 1H2016 Soft Market Hard Market Shallow Market 19.8% 19.8% 14.0% 16.0% 10.0% AJG Brk 5.6% Organic 5.0% 8
Slide 18: Shallow Rate Cycle Is Better for:
Shallow Rate Cycle Is Better for: CLIENTS CARRIERS & BROKERS
Slide 19: How We’re Getting There-Consistent Growth Strategy
How We’re Getting There-Consistent Growth Strategy
Slide 20: Consistent Growth Strategy – Organic
Consistent Growth Strategy – Organic
Slide 21: Driving Brokerage Organic Growth
Driving Brokerage Organic Growth
Slide 22: Niche Expertise Teams – Brokerage
Niche Expertise Teams – Brokerage Affinity Manufacturing Agribusiness Marine Automotive Personal Aviation & Aerospace Private Equity Construction Professional Groups Energy Public Entity Entertainment Real Estate Environmental Religious/Nonprofit Global Risks Restaurant Healthcare Scholastic Higher
Slide 23: Driving Risk Management Organic Growth
Driving Risk Management Organic Growth
Slide 24: Risk Mgmt Growth Focuses on Four Market Segments
Risk Mgmt Growth Focuses on Four Market Segments PUBLIC SECTOR ALTERNATIVE ENTITIES MARKET PARTICIPANTS LARGE INSURANCE COMMERCIAL CARRIERS ENTITIES
Slide 25: Consistent Growth Strategy – M&A
Consistent Growth Strategy – M&A
Slide 26: Acquisition Revenue Growth
Acquisition Revenue Growth $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 Domestic Property & Casualty Employee Benefits Foreign Property & Casualty Risk Management 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1H2016 Annualized Revenues Acquired (in $M’s)
Slide 27: M&A Opportunities Continue
M&A Opportunities Continue Vast Pipeline Domestic and international markets highly fragmented 18,000+ agents/ brokers just in the U.S. Baby boomers looking for exit strategy Need Gallagher’s expertise Acquisition Units Retail P&C Wholesale Benefits International MGA MGU Captive Limited Consolidators
Slide 28: Platforms In Place for Bolt-on M&A
Platforms In Place for Bolt-on M&A
Slide 29: International Correspondent Broker Network
International Correspondent Broker Network Client Capabilities in 150 Countries
Slide 30: Productivity and Quality Initiatives
Productivity and Quality Initiatives
Slide 31: Focus Continues: Optimizing Productivity & Quality
Focus Continues: Optimizing Productivity & Quality Utilizing Controlling Offshore Headcount Centers of Excellence Leveraging Utilizing Sales Force Sourcing to Management Manage Tools Expenses Building Investing in roductivity Business ools – DMS Intelligence d Workflow Optimizing Standardizing Real
Slide 32: Benefits Continue: From Offshore Centers of Excellence
Benefits Continue: From Offshore Centers of Excellence Reduce Costs Foster Innovation Increase Speed to Market Focus on Core Improve Quality
Slide 33: Client-Facing Efforts
Client-Facing Efforts BUILDING CLIENT SERVICE OPERATIONS Process and deliver consistent client service Technology and tools improve operating efficiencies Staffed by dedicated service professionals that: Generate client applications and proposals ?Handle client requests ?Manage renewal cycles Improv
Slide 34: Behind the Scenes Efforts
Behind the Scenes Efforts OFFSHORE CENTERS OF EXCELLENCE UPDATE We now have more than 2,500 associates in four locations Responsible for processes such as: Policy checking Policy issuance Certificates of insurance Renewal support Claims support Accounting support Substantially improved quality and r
Slide 35: Quality Metrics on Target
Quality Metrics on Target EFFICIENCY IMPROVEMENTS Reduced policy delivery from 30 to 10 days Reduced certificate of insurance delivery expense by 20+% Standardized policy issuance for top 30 carriers and reduced issuance time from 12 to 3 days Single agency management system and standardized process
Slide 36: Reduced Adjusted Operating Expense Ratio
Reduced Adjusted Operating Expense Ratio BROKERAGE 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 2008 6/30/16 TTM 28.0% 27.0% 26.0% 25.0% 24.0% 23.0% RISK MANAGEMENT 27.0% 24.5% 2008 6/30/16 TTM See important disclosures regarding Non-GAAP measures on Page 3.
Slide 37: Brokerage & Risk Mgmt Adjusted EBITDAC Margin
Brokerage & Risk Mgmt Adjusted EBITDAC Margin 25.0% 24.0% 23.0% 22.0% 21.0% 20.0% 19.0% 18.0% 20.4% 21.2% 22.1% 23.6% 24.5% 24.9% 2011 2012 2013 2014 2015 6/30/16 TTM See important disclosures regarding Non-GAAP measures on Page 3.
Slide 38: Brokers for Large Commercial Insurance
Brokers for Large Commercial Insurance“1 According to the 2015 Large Commercial Insurance StudySM conducted by J.D. Power and in partnership with RIMS, Arthur J. Gallagher & Co. ranked highest in customer satisfaction among brokers in the large commercial insurance space. The study focused on 8 fact
Slide 39: Relentless Focus on Quality and Customer Service
Relentless Focus on Quality and Customer Service Best UK Employee Benefit Consultant – 2016 REWARD GUIDE VIB AWARDS CEREMONY Best Companies for Leaders – 2016 CHIEF EXECUTIVE MAGAZINE UK Healthcare Adviser of the Year – 2016 UK CORPORATE ADVISER Shilling Named Best Member Communication Strategy – 20
Slide 40: Maintaining Culture
Maintaining Culture
Slide 41: Unique Culture
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Slide 42: One of the World’s Most Ethical Companies
One of the World’s Most Ethical Companies as Recognized by Ethisphere five years in a row Industry-leading commitment to ethics and dedication to integrity Chosen for: Promoting ethical business standards and practices Exceeding legal compliance standards Innovating to benefit the public Demonstrati
Slide 43: Why invest?
Why invest? You believe Our Company Has: Right management Unique culture Proven growth strategy Continuing M&A opportunities Increasing productivity Higher quality Good use of leverage strong balance sheet Excellent return to shareholders
Slide 44: Why Invest? We Are Just Getting Started
Why Invest? We Are Just Getting Started 457% AJG 105% S&P 500 Source for data: Bloomberg. Total returns from 1/1/2000 – 8/29/2016 include reinvestment of dividends.
Slide 45: For Additional Information:
For Additional Information: Ray Iardella Marsha Akin VP – Investor Relations Director – Investor Relations Ray_Iardella@ajg.com Marsha_Akin@ajg.com Phone: 630-285-3661 Phone: 630-285-3501
Slide 46: Appendix: EBITDAC and Organic Growth Reconciliations
Appendix: EBITDAC and Organic Growth Reconciliations Arthur J. Gallagher & Co. Information Regarding Non-GAAP Measures—Six Months Ended June 30, 2016 and 2015 (Unaudited—in millions except percentage data) Brokerage Segment Risk Management Segment Corporate Segment Total Company Reconciliation of EB
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