Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Conference Presentation (February 2010)
36 slides from Arthur J. Gallagher &'s conference presentation, Feb 24, 2010
Slide 1: Investment Presentation February 2010
Investment Presentation February 2010 Exhibit 99.1
Slide 2: Forward-looking statements
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to, statements relating to our future results, areas of future revenue growth, anticipated contingent
Slide 3: Certain Non-GAAP Financial Measures
Certain Non-GAAP Financial Measures This presentation contains 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 – 90% U.S., 10% International • Largest Managing General Agent* • One of the fastest growing Lloyd’s brokers • Predominate focus on middle-market space Largest P/C third-party administrator* Adjusting WC, liabili
Slide 5: In February 2009 We Said
In February 2009 We Said We were well-positioned coming into 2009 EBITDAC – $291m in 2008 Roll-over of 2008 M&A into 2009 – $25m to $30m EBITDAC Cost-containment in 2009 – $25m to$30m EBITDAC Completed 4% workforce reduction in 2008 We would return cash to stockholders Strong history of dividends &
Slide 6: We Did What We Said
We Did What We Said Grew EBITDAC by $50m in 2009 up 17% Roll-over of M&A into – $25m to $30m EBITDAC Cost-containment in – $25m to $30m EBITDAC Liberty Mutual/Wausau integration – Approx. $10m in EBITDAC in 2009 Despite negative organic growth Maintained $1.28 dividend
Slide 7: In 2009 We Also
In 2009 We Also Hired production teams – U.S., London, Canada Regained ability to accept contingent commissions Completed $150m private debt placement at 5.85% rate Reduced middle and back-office workforce by another 4% Built 8 clean-energy facilities
Slide 8: Positioned Coming Into 2010
Positioned Coming Into 2010 Roll-over of M&A into – $12m to $15m EBITDAC – Includes Liberty Mutual/Wausau Cost containment – net $20m reduction in workforce costs Potential – up to $6m to $10m net earnings from clean energy facilities in 2010 and up to $40m from 2011 through 2019 Up to $10m in addit
Slide 9: Environment Still Challenged
Environment Still Challenged Headwinds Continue Soft P&C Insurance Market • CIAB – 5% to 6% average pricing decline in Still Seeing Economic Issues • Reduced payrolls, exposure units and claim counts • Lag effect in brokerage renewals Lower Investment Yields • Cash in no - yield, government - protec
Slide 10: Two Core Businesses
Two Core Businesses 2009 Revenues – $1.7 billion 2009 EBITDAC – $341 million Brokerage 74% (Selling Insurance) Risk Management 26% (Adjusting Claims) Brokerage 82% Risk Management 18% See important disclosures re g ardin g Non-GAAP measures on pa g e 3
Slide 11: Brokerage Segment
Brokerage Segment 2009 Revenues – $1.3 billion Retail 81% Mostly U.S. and Canada Wholesale 19% Mostly U.S. and U.K. See important disclosures re g ardin g Non-GAAP measures on pa g e 3 2009 EBITDAC – $280 million
Slide 12: Brokerage Segment Revenues
Brokerage Segment Revenues From Continuing Operations $600 $800 $1,000 $1,200 $1,400 8 % CAGR $864 $1,007 $1,114 $1,188 $1,276 $946
Slide 13: Brokerage Segment EBITDAC
Brokerage Segment EBITDAC from Continuing Operations* *See important disclosures re g ardin g Non-GAAP measures on pa g e 3 $150 $175 $200 $225 $250 $275 $300 $211 $280 $233 $228 $207 $193 7% CAGR
Slide 14: Brokerage Segment Focus
Drive top-line growth Domestic International Cost containment Stay in sweet spot Middle to upper commercial market Very niche-focused Brokerage Segment Focus
Slide 15: Niche/Practice Groups
Niche/Practice Groups Agribusiness Aviation & Aerospace Captive Consulting Construction Energy Entertainment Global Risks Habitational Healthcare Higher Education Hospitality Institutional Services Marine Manufacturing Personal Professional Groups Private Equity Public Entity Real Estate Religious/N
Slide 16: Growth – Domestic
Growth – Domestic Internal revenue drivers Hiring new producers wanting: • Access to our network, expertise and niches • Infrastructure support Growing our own producers through: • Two - year internship program • Career Launch program Cross-selling and utilization of our worldwide capabilities Compe
Slide 17: Growth – International
Organic Substantial London operations Hire experienced sales teams We can now handle about any type of business Opportunistic acquisitions/minority interests Gallagher Optimus Network Correspondent brokers and agents in more than 100 countries Stages of partnership to investment Growth – Internation
Slide 18: Gallagher Optimus Network
Gallagher Optimus Network
Slide 19: Growth – Acquisitions
Growth – Acquisitions Acquisitions 18,000 retail and wholesale brokerages and agencies* in the U.S. (P&C and Benefits) Many owned by baby boomers who need an exit strategy yet still want to be in the business Smaller number of consolidators *According to Hales & Co, Inc .
Slide 20: Current Gallagher U.S. 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 Current Galla g her U.S. Locations
Slide 21: Larger Cities Where We Aren't Located
Lar g er Cities Where We Aren’t Located Source for Acquisition Targets: ID MT WA CA 1,777 UT NV AZ NM TX 1,082 OK KS NE MN WI MO AR LA TN IL WV PA NY 1,425 NH ME MA CT NJ DE MD IA CO WY SD ND OR OH MI KY MS AL GA FL 1,079 SC NC VA VT RI IN AK HI DC Puerto Rico Virgin Islands Hales & Co., Inc. and D&
Slide 22: Growth by Acquisition
Growth by Acquisition Approx. 235 deals since 1985 Typical deal: $2 to $10 million in revenues 2 to 5 producers/staff of 10 to 20 EBITDAC margins between 25% - 30% 2008 – paid 6.3x EBITDAC 2009 – paid 5.8x EBITDAC Must fit into our sales culture! See important disclosures regarding Non-GAAP measures
Slide 23: Risk Management Segment
Risk Management Segment 2009 Revenues – $453 million Workers Compensation 69% Liability 27% Property 4% Domestic 85% International 15% See important disclosures regarding Non-GAAP measures on page 3 2009 EBITDAC – $61 million
Slide 24: Risk Management Segment Revenues
Risk Management Segment Revenues From Continuing Operations (In millions) $200 $250 $300 $350 $400 $450 $500 $550 8% CAGR $371 $401 $444 $465 $453 $346
Slide 25: Risk Management Segment – Focus
Growth Domestic International Client service High quality standards Technology Cost containment Risk Management Segment – Focus
Slide 26: RM Growth – Domestic
RM Growth – Domestic All organic Over 84% non-Gallagher clients Targeting Mainly Fortune 1000 companies Standard platform enables profitable service to smaller accounts Differentiation Network focused or dedicated – flexibility Client intimacy Quality standards Proprietary technology National worker
Slide 27: RM Growth – International
Fastest growing Revenues – 5 year CAGR of 12.4% In Australia, Canada, U.K. & New Zealand Largely public entity but leveraging U.S. expertise to penetrate commercial clients Global technology capabilities Standard claims process RM Growth – International
Slide 28: Risk Management Locations
AK HI AUSTRALIA NEW ZELAND SCOTLAND ENGLAND ID MT WA CA UT NV AZ N M TX OK KS NE MN WI M O AR LA TN IL W V PA NY NH ME MA CT NJ D E M D IA CO W Y SD ND OR OH MI KY MS AL GA FL SC NC VA VT RI IN ONTARIO Risk Management Locations
Slide 29: Corporate Segment
Corporate Segment Interest expense on debt – $8.8m/qrtr Corporate operating expense – $1m/qrtr Clean-Energy Facilities – potential of $6m to $10m net earnings in 2010 while operating under temporary regulatory permits and $40m/yr net earnings from 2011 through 2019 Combination of pretax income and t
Slide 30: Business Generates Cash
$0 $50 $100 $150 $200 $250 $300 $350 Cash Generation* EBITDAC Business Generates Cash* * See important disclosures regarding Non-GAAP measures on page 3 and see Exhibit (In millions) - Dividend
Slide 31: Uses of Cash
Uses of Cash Return cash to stockholders Pay dividends – $1.28/share and 5.4%* yield Repurchase shares but currently favor dividends Buy brokers Mix of cash and/or stock Currently 75% stock and 25% cash Neither segment needs substantial capital or cap-ex * At February 19, 2010
Slide 32: Prudent Balance Sheet
Global Insurance Broker Avg S&P 1000 (millions) 2009 2009 2009 Gallagher Prudent Balance Sheet Flexibility remains – $436m available line of credit capacity at December 31, 2009 See important disclosures regarding Non-GAAP measures on page 3 Total Debt $550 Stockholders' equity $893 Debt to Total Ca
Slide 33: Focusing on Priorities
Focusing on Priorities Top priorities: Driving growth Expense containment Servicing our clients • Helping them navigate troubled economy • Continuing to increase quality service levels • Expanding capabilities and options Return cash to stockholders
Slide 34: Questions & Answers
Questions & Answers
Slide 35: Short-cut To Understanding Cash Generation
$ millions 2005 2006 2007 2008 2009 Exhibit 1 Short-cut To Understanding Cash Generation (See GAAP cash flows in Statement of Cash Flows) See important disclosures re g ardin g Non-GAAP measures on pa g e 3 Brokerage & Risk Management EBITDAC from Continuing Operations (adjusted for unusual items) $
Slide 36: For Additional Information
For Additional Information Website: www.ajg.com Email: investor_relations@ajg.com Marsha Akin Marsha_Akin@ajg.com Phone: 630-285-3501
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