Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Conference Presentation (November 2004)
42 slides from Arthur J. Gallagher &'s conference presentation, Nov 10, 2004
Slide 1: Arthur J. Gallagher & Co., September 2004
Arthur J, Gallagher & Go, September 2004
Slide 2: Safe Harbor
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 The presentation relating to this material may contain forward-looking statements. Forward-looking statements made by or on behalf of Gallagher are subject to risks and uncertainties, including but not limited to the fo
Slide 3: Non-GAAP Financial Measures
Non-GAAP Financial Measures Regulation G Disclosure This presentation includes certain non-GAAP financial measures as defined under rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”). As required by SEC rules, we have provided reconciliations of those measures to the most d
Slide 4: World's fourth-largest insurance brokerage and risk management firm
Arthur J. Gallagher & Co. World’s fourth-largest insurance brokerage and risk management services firm Public since 1984 Market capitalization of $3.1 billion Shares outstanding of 92.4 million Dividend yield of 3.0% 52-week range – $26.74—$34.25 Traded NYSE as “AJG” As of 9/30/04, unless otherwise
Slide 5: Performance vs. S&P
Arthur J. Gallagher & Co Performance vs. S&P 350% 300% 250% 200% 150% 100% 50% 0% Arthur J Gallagher & Co [AJG] S&P 500 (SPX) Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04
Slide 6: Summary: Why Invest?
Arthur J. Gallagher & Co. Summary: Why Invest? $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 19% CAGR Gross Revenue 2003 $200 $150 $100 $50 $0 33% CAGR 1999 Cash Flow from Ops 2003 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 19% CAGR $1.00 1984 Dividends 2004 2003 cash flow from operations of $229 M 5-year av
Slide 7: A Real Growth Story
Arthur J. Gallagher & Co. A Real Growth Story 1984 IPO (Restated for stock splits) September 30, 2004 Stock Price $1.72 $33.13 Market Cap $57 M $3.1 B Tangible Net Worth $23 M $449.0 M Annual Dividend/Share $.03 $1.00 Including Dividend Reinvestment, Compound Annual Growth Rate of 18%
Slide 8: Long-term Goals
Arthur J. Gallagher & Co. Long-term Goals $2.0—$2.3 billion in revenues within five years 15% year-over-year earnings growth 30%+ annual return on Average Stockholders’ Equity
Slide 9: Culture Driven Success
Arthur J. Gallagher & Co. Culture Driven Success Sales and marketing driven Team-oriented Open “Small company” feel Client-focused Competitive No “C” players
Slide 10: 2003 Employee Survey Results
Arthur J. Gallagher & Co. 2003 Employee Survey Results 78% participation 96% understand the need to grow and are committed to helping grow the Company 92% AgreeCustomer is top priority 92% “I am proud to work for this Company” 90% of men and women felt they were treated with respect by co-workers 80
Slide 11: Three Distinct Segments
Arthur J. Gallagher & Co. Three Distinct Segments Revenue Brokerage 69% Financial Services 6% Risk Management 25% Pretax Earnings Brokerage 79% Financial Services 1% Risk Management 20% Revenue excludes FIN 46 impact and investment write-offs Pretax earnings exclude investment write-offs (no impact
Slide 12: Brokerage Segment
Brokerage Segment Gallagher’s largest business segment Acts as intermediary – no underwriting risk Niche driven Alternative market leaders (1) Business Insurance/JP Morgan
Slide 13: Brokerage: Contingent Commissions
Brokerage Segment Contingent Commissions Eliminated retail broker volume/profit-based contingents effective 1/1/05 $31.7—total contingent commissions through 9/30/04 $33 million—total contingent commissions for full year 2003 Subpoena received from Connecticut Attorney General Gallagher cooperating
Slide 14: Brokerage: Contingent Commission Revenues
Brokerage Segment Contingent Commission Revenues Nine Month Period Ended September 30, 2004 Revenues Approximate Number of Contingent commission revenue from: ($ in millions) Agreements Carriers Local contingent commission contracts and programs $22.8 535 160 Local managing general agent, managing g
Slide 15: Brokerage: A Strategic Consolidator
Brokerage Segment A Strategic Consolidator Geographic diversity; enhance or expand capabilities Over 130 acquisitions since 1986 in this segment Almost $460 million of 2003 revenue from acquired entities The rules: financial health, similar culture Gallagher is merger partner of choice
Slide 16: Brokerage: Growth & Profits
Brokerage Segment Growth & Profits 1000 900 800 700 600 500 400 300 200 100 $383M 20% CAGR $849M 99 00 01 02 03 Revenue 180 160 140 120 100 80 60 40 20 0 $72M 20% CAGR $172M 99 00 01 02 03 Pretax Earnings 2003 pretax margins of 19% 2003 growth in earnings per share of 24% Note: Amounts as originally
Slide 17: Brokerage: Three Primary Operations
Brokerage Segment Three Primary Operations Retail Brokerage 62% (Jim Gault) Employee Benefits 15% (Jim Durkin) Specialty Marketing & International 23% (Dave McGurn) As of 12/31/03
Slide 18: Retail Brokerage Offices
Retail Brokerage Offices 8
Slide 19: Retail Brokerage Niches
Retail Brokerage Niches Agribusiness Aviation Construction Energy Global Risk Management Healthcare Higher Education Management Liability Marine Mergers & Acquisitions Personal Insurance Public Entity Real Estate General Commercial Habitational Hospitality Shopping Centers Religious/Nonprofit Restau
Slide 20: Retail Brokerage: High Growth & Profit Potential
Retail Brokerage High Growth & Profit Potential Niches – number and size Acquisitions and hiring Alternative market Captives Rent-a-captives Deductible plans Self-insurance
Slide 21: Specialty Marketing & International: Offices, Joint Ventures & Alliances
Specialty Marketing & International Offices, Joint Ventures & Alliances
Slide 22: Specialty Marketing & International Capabilities
Specialty Marketing & International Capabilities Reinsurance Brokerage International P&C Brokerage Programs/Program Administration CoverageFirst.com Wholesale Brokerage Captives/Rent-a-Captives
Slide 23: Employee Benefits: Offices
Employee Benefits: Offices
Slide 24: Employee Benefits Capabilities
Employee Benefits Capabilities Employee Benefits Brokerage/Consulting Healthcare Data Analysis/Benchmarking Compliance Consulting Merger & Acquisition Analysis Actuarial Services Executive Benefits/ Financial Planning Human Resource Services Retirement Plan Services Employer Administrative Services
Slide 25: Employee Benefits: High Growth & Profit Potential
Employee Benefits High Growth & Profit Potential Niche marketing Cross-selling opportunities with Brokerage Services Merger and acquisition opportunities Assisting clients/prospects with four top priorities Controlling health and welfare costs Providing better retirement tools/information Benefits c
Slide 26: Risk Management Segment: Two Primary Operations
Risk Management Segment Two Primary Operations Property/Casualty Claims Management “Gallagher Bassett” 91% (Rich McKenna) Medical Claims Management 9% (Jim Durkin) Fee revenues are primarily generated based on number of claims. As of 12/31/03
Slide 27: Risk Management: Growth & Profits
Risk Management Segment Growth & Profits 350 300 250 200 150 100 50 0 15% CAGR $322M 1999 2003 Revenue 45 40 35 30 25 20 15 10 5 0 23% CAGR $43M 1999 2003 Pretax Earnings 2003 pretax margin of 13% 2003 growth in earnings per share of 51% Note: Amounts as originally reported
Slide 28: Gallagher Bassett Offices
Gallagher Bassett Offices ONTARIO SCOTLAND ENGLAND AUSTRALIA HAWAII
Slide 29: Risk Management Capabilities
Risk Management Segment Capabilities Real-time Claims Reporting Recoveries (subrogation, salvage, etc.) Appraisal Services Litigation Management Information Management Managed Care Services Loss Control Services Safety Programs Settlement Management Education and Training
Slide 30: Risk Management: High Growth & Profit Potential
Risk Management Segment High Growth & Profit Potential Fortune 1000 companies Outsourcing of insurance co. claims departments Captives Program business Expanding global capabilities Enhancements in systems/processes related to: Electronic data storage Security Claims regulatory changes Access to inf
Slide 31: Financial Services Segment: $963 Million of Cash & Investments
Financial Services Segment $963 Million of Cash & Investments* Investments Allocated to Financial Services Segment ($177 M) Cash Allocated to Risk Management Segment ($163 M) Cash Allocated to Brokerage Segment ($623 M) * As of September 30, 2004 – Cash & investments net of related investment borrow
Slide 32: Financial Services Segment: Assets
Financial Services Segment Assets at December 31, 2002 & September 30, 2004 Assets Under Management $300 $250 $200 $150 $298 $177 2002 2004 $ In millions Asset Classes 9/30/04 $70 $60 $50 $40 $30 $20 $10 $0 Low Income Housing $15M Alternative Energy $61M Asset Alliance $46M Real Estate, incl HO $22M
Slide 33: Financial Services: Refocused Investing
Financial Services Segment Refocused Investing Tax advantaged – maximize through 2007 Asset management – monetize Real estate – optimize cash flows Venture capital – substantially exited in 2003
Slide 34: Why Invest?
Arthur J. Gallagher & Co. Why Invest?
Slide 35: Revenue Growth
Arthur J. Gallagher & Co. Revenue Growth Gross Revenues As Originally Reported ($ M) $1,400 $1,200 $1,000 $800 $600 $400 $200 19% CAGR $606 $741 $910 $1,101 $1,304 1999 2000 2001 2002 2003
Slide 36: Profitable Growth
Arthur J. Gallagher & Co. Profitable Growth Pretax Earnings As Originally Reported ($ M) $200 $180 $160 $140 $120 $100 $80 $60 $40 18% CAGR $104 $125 $142 $186 $193 1999 2000 2001 2002 2003
Slide 37: Rising Productivity
Arthur J. Gallagher & Co. Rising Productivity Revenue Per Employee As Reported $180 $170 $160 $150 $140 $130 $120 $110 $100 8 % CAGR $127,000 $137,000 $140,000 $155,000 $181,000 1999 2000 2001 2002 2003
Slide 38: Increasing Shareholder Value
Arthur J. Gallagher & Co. Increasing Shareholder Value Diluted EPS As Originally Reported – Post Split 1/18/01 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 1 5% CAGR $.88 $1.05 $1.39 $1.41 $1.57 1999 2000 2001 2002 2003
Slide 39: Earnings Before Investment Gains (Losses), Depreciation, Amortization and Stock Compensation
Arthur J. Gallagher & Co. Earnings Before Investment Gains (Losses), Depreciation, Amortization and Stock Compensation Expense (In millions) $250 $200 $150 $100 $50 $0 2 7 % CAGR $74 $91 $129 $170 $203 1999 2000 2001 2002 2003
Slide 40: Since 1990, $1.4 Billion Cash Flow from Ops
Arthur J. Gallagher & Co. Since 1990, $1.4 Billion Cash Flow from Ops Dividends Paid ($399 M) Reinvested in Operations ($547 M) Shares Repurchased ($423 M) Built a balance sheet with $4.86 in tangible net worth per share and no operating debt. As of 9/30/04
Slide 41: Summary: Why Invest?
Arthur J. Gallagher & Co. Summary: Why Invest? $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 19 % CAGR Gross Revenue 2003 $200 $150 $100 $50 $0 33 % CAGR 1999 Cash Flow from Ops 2003 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 19% CAGR $1.00 Dividends cash flow from operations of $229 M 5-year average ROE of
Slide 42: Culture Driven Success: The Gallagher Way
Culture Driven Success The Gallagher Way Shared values at Gallagher are the rock foundation of the Company and our Culture. What is a Shared Value? These are the concepts that the vast majority of movers and shakers in the Company passionately adhere to. What are some of Gallagher’s Shared Values? 1
Gallagher Arthur J & — Conference Presentation (November 2004) on 6ix