Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Shareholder Meeting (May 2009)
49 slides from Arthur J. Gallagher &'s shareholder meeting presentation, May 12, 2009
Slide 1: Welcome to the Arthur J. Gallagher & Co. 2009 Annual Stockholders' Meeting
Exhibit 99.1 Welcome to the Arthur J. Gallagher & Co. 2009 Annual Stockholders’ Meeting Tuesday, May 12, 2009
Slide 2: Please turn off all cell phones and PDAs
Please turn off all cell phones and PDAs at this time. Thank you for your cooperation.
Slide 3: Stockholders' Meeting
Stockholders’ Meeting May 12, 2009 •2009 Annual Meeting •Chairman’s Remarks – 2008: Where We Are Now – Where We Are Going: Our Dominant Priorities – Questions & Answers •It’s All About The Culture
Slide 4: Safe Harbor
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Forward-looking statements made by or on behalf of Gallagher are subject to risks and uncertainties, including but not limited to the following: Gallagher’s commission revenues are highly dependent on premiums charged b
Slide 5: 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 6: Board of Directors: New in 2009
Board of Directors New in 2009 •Frank E. English, Jr. – Senior Advisor, Morgan Stanley, former Vice Chairman, Investment Banking
Slide 7: Board of Directors
Board of Directors • William L. Bax • T. Kimball Brooker, Ph.D. • Frank E. English, Jr. • Ilene S. Gordon • Elbert O. Hand • David S. Johnson • Kay W. McCurdy • Norman L. Rosenthal, Ph.D. • James R. Wimmer • Past CEO A. James Gallagher, Jr.
Slide 8: Stockholders' Meeting: 2009 Annual Meeting
Stockholders’ Meeting May 12, 2009 •2009 Annual Meeting
Slide 9: Stockholders' Meeting: Chairman's Remarks
Stockholders’ Meeting May 12, 2009 •2009 Annual Meeting •Chairman’s Remarks – 2008: Where We Are Now
Slide 10: Challenging Times
Challenging Times Merrill Lynch Lehman Bros Aon Wachovia Gallagher Fannie Mae Morgan Stanley Marsh Citibank Bank of America Brown AIG Bear Stearns Willis
Slide 11: Gallagher 2008 Results
Gallagher 2008 Results (in millions) 2008 2007 % Change Total revenues $1,645 $1,623 1% Brokerage/RM revenues $1,653 $1,558 6% Total EBITDA $266 $275 -3% Brokerage/RM EBITDA $291 $304 -4% See important disclosures regarding non-GAAP measures
Slide 12: But Brokers Held Up in 2008
But Brokers Held Up in 2008 2008 Total Returns Broker Basket vs. Major Indices 20% 10% 0% Broker Basket -8% -10% -20% -30% S&P 500 -37% -40% S&P 500 Financials Index -50% -55% -60% Mar ‘08 Jun ‘08 Sep ‘08 Dec ‘08 Broker Basket S&P 500 S&P 500 Financials Index *Total Returns assume re-investment of d
Slide 13: Gallagher Stood Out in 2008
Gallagher Stood Out in 2008 2008 Total Returns Gallagher vs. Major Indices 20% AJG 10% 13% 0% Broker Basket -8% -10% -20% -30% S&P 500 -37% -40% S&P 500 Financials Index -50% -55% -60% Mar ‘08 Jun ‘08 Sep ‘08 Dec ‘08 AJG Broker Basket S&P 500 S&P 500 Financials Index *Total Returns assume re-investm
Slide 14: Gallagher Still Holding Up Through 2009
Gallagher Still Holding Up Through 2009 Total Returns January 1, 2008 - May 7, 2009 Gallagher vs. Major Indices 20% 10% 0% AJG -6% -10% -20% Broker Basket -30% -19% -40% S&P 500 -36% -50% S&P 500 Financials Index -56% -60% -70% -80% Mar ‘08 June ‘08 Sep ‘08 Dec ‘08 Mar ‘09 AJG Broker Basket S&P 500
Slide 15: 2008 Gallagher vs. Brokers
2008 Gallagher vs. Brokers 2008 Total Returns Gallagher vs. Peer Group 15% AJG 13% 10% 5% 0% -5% -10% Peer Group -13% -15% Mar ‘08 Jun ‘08 Sep ‘08 Dec ‘08 AJG Peer Group *Total Returns assume re-investment of dividends. Peer group includes four publicly traded insurance brokers.
Slide 16: Gallagher vs. Brokers Since 1-1-08
Gallagher vs. Brokers Since 1-1-08 Total Returns January 1, 2008 - May 7, 2009 Gallagher vs. Peer Group 15% 10% 5% 0% AJG -5% -6% -10% -15% -20% -25% Peer Group -22% -30% -35% Mar ‘08 Jun ‘08 Sep ‘08 Dec ‘08 Mar ‘09 AJG Peer Group *Total Returns assume re-investment of dividends. Peer group includes
Slide 17: Why?
Why? •Business that generates cash •Prudent balance sheet •Long history of growth •Consistent return of cash to shareholders
Slide 18: Business Generates Cash
Business Generates Cash (In millions) Operating Cash Flows EBITDA $300 $250 $200 $150 $100 2003 2004 2005 2006 2007 2008
Slide 19: Business Generates Cash: $291 million of EBITDA in 2008
Business Generates Cash $291 million of EBITDA in 2008
Slide 20: Prudent Balance Sheet
Prudent Balance Sheet Global Insurance Gallagher Broker Avg. S&P 1000 ($ in 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+Equ
Slide 21: Brokerage Segment Revenues
Brokerage Segment Revenues* (in millions) $1,300 $1,188 10% CAGR $1,114 $1,100 $1,007 $917 $900 $830 $753 $700 $500 2003 2004 2005 2006 2007 2008 *From continuing operations excluding retail contingent commissions prior to 2006 See important disclosures regarding non-GAAP measures
Slide 22: Brokerage Segment EBITDA
Brokerage Segment EBITDA* (in millions) $250 $233 11% CAGR $229 $207 $200 $177 $164 $154 $150 $100 2003 2004 2005 2006 2007 2008 *From continuing operations excluding retail contingent commissions prior to 2006 See important disclosures regarding non-GAAP measures
Slide 23: Brokerage Segment Results 1st Quarter 2009
Brokerage Segment Results* 1st Quarter 2009 (in millions) Revenues up 12% EBITDA up 74% $56 $290 $300 $60 $258 $50 $275 $32 $40 $250 $30 $225 $20 1Q 08 1Q 09 1Q 08 1Q 09 *From continuing operations See important disclosures regarding non-GAAP measures
Slide 24: Risk Mgmt. Segment Revenues
Risk Mgmt. Segment – Revenues* (In millions) $550 11% CAGR $465 $444 $450 $401 $371 $346 $350 $292 $250 $150 2003 2004 2005 2006 2007 2008 *From continuing operations See important disclosures regarding non-GAAP measures
Slide 25: Risk Mgmt. Segment EBITDA
Risk Mgmt. Segment EBITDA* (In millions) $100 8% CAGR $73 $76 $75 $66 $66 $58 $49 $50 $25 $0 2003 2004 2005 2006 2007 2008 *From continuing operations See important disclosures regarding non-GAAP measures G 25
Slide 26: Risk Mgmt. Segment Results 1st Quarter 2009
Risk Mgmt. Segment Results* 1st Quarter 2009 (In millions) Revenues down 3% $116 $120 $112 $115 $110 $105 $100 1Q 08 1Q 09 EBITDA up 4% $19 $18 $18 $17 $17 $16 $15 1Q 08 1Q 09 *From continuing operations See important disclosures regarding non-GAAP measures G 26
Slide 27: Dividends Per Share
Dividends Per Share $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $1.28* 2009 1 8 % Average Annual Increase 1986 Year 2009 *Indicated On April 24, 2009, Gallaghers Board of Directors declared a $.32 per share Q2 09 quarterly dividend. G 27
Slide 28: Dividends Per Share
Dividends Per Share $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 18% As of 5/7/09 Yield is 6.1% $1.28* 2009 1986 *Indicated – On April 24, 2009, Gallagher’s Board of Directors declared a $.32 per share Q2 09 quarterly dividend. G 28
Slide 29: Dividends/Repurchases as % of Cash Flows
Dividends/Repurchases as % of Cash Flows 100% 90% 80% 70% 60% 50% 40% 30% Dividends / operating cash flows Repurchases / operating cash flows 51% 30% 15% 1% 0% 1% 59% 56% 50% 50% 45% 39% 2003 2004 2005 2006 2007 2008 2007 excludes share repurchases of $262m financed by debt See important disclosures
Slide 30: Stockholders' Meeting: Chairman's Remarks
Stockholders’ Meeting May 12, 2009 •Formal Annual Meeting •Chairman’s Remarks – 2008: Where We Are Now – Where We Are Going: Our Dominant Priorities G 30
Slide 31: Extremely Challenging Environment
Extremely Challenging Environment •Industry Headwinds Continue – Turbulent economy • Reduced investment yields • Many clients reducing payrolls, increasing retentions, claim counts decreasing – Soft commercial P/C insurance market • CIAB – 12% average pricing decline in 2008 • CIAB – 5% average pric
Slide 32: Excellent Start to 2009
Excellent Start to 2009 (in millions, except per share data) Revenues up 7% $425 $402 $400 $374 $375 $350 1Q 08 1Q 09 EBITDA up 50% $74 $75 $65 $49 $55 $45 $35 $25 1Q 08 1Q 09 EPS up 55% $0.34 $0.35 $0.30 $0.22 $0.25 $0.20 $0.15 $0.10 1Q 08 1Q 09 See important disclosures regarding non-GAAP measures
Slide 33: Executing Our Five Dominant Priorities
Executing Our Five Dominant Priorities •Increase our organic growth rate •Hire and retain the right people •Continue to acquire the best businesses in our industry •Align sales and service deliverables with pay •Increase productivity/increase margins G 33
Slide 34: Growth Initiatives: Domestic Organic
Growth Initiatives – Domestic •Organic – Selling additional lines to existing clients • Cross-selling – Supplemental commissions – Growing our own producers through • College Internship Program – Two-year summer internship program – 157 participants in 2008 – Expect more than 140 in 2009 • Career La
Slide 35: Growth Initiatives: Domestic Acquisitions
Growth Initiatives – Domestic •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. G 35
Slide 36: Growth by Acquisition
Growth by Acquisition • 225 acquisitions since 1985 • Typical deal: – $2 to $10 million in revenues – 2 to 5 producers/staff of 10 to 20 – EBITDA margins between 25%-30% – 2008: paid 6.3x EBITDA • Must fit into our sales culture! 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 2006 2007 2008 Median EBITDA Multiples
Slide 37: 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 VA MD KS MO CA KY NC TN AZ OK NM AR SC MS AL GA TX LA FL AK HI 37
Slide 38: Larger Cities Where We Aren't Located
Larger Cities Where We Aren’t Located WA 248 MT ME ND 57 113 41 OR MN VT 170 290 NH ID 57 WI NY 112 MA SD MI 67 1,429 627 37 308 506 CA WY RI 16 1,656 IA CT 84 PA NE 194 316 IN OH 883 NJ NV 127 UT 307 576 DE 706 97 IL 115 689 43 CO WV 187 KS 72 VA MD MO 298 167 275 DC 287 KY 25 197 NC AZ TN 388 OK 2
Slide 39: Growth – International
Growth – International •Gallagher Optimus Network – Correspondent brokers in more than 100 countries – Stages of partnership to investment •Opportunistic acquisitions/minority interests – SBA in Perth, Australia •Other International locations – Australia, Bermuda, Canada, Caribbean, U.K. G 39
Slide 40: Gallagher Optimus Network
Gallagher Optimus Network ARCTIC OCEAN PACIFIC OCEAN ATLANTIC OCEAN INDIAN OCEAN ARCTIC OCEAN PACIFIC OCEAN G 40
Slide 41: Growth – International
Growth – International • 13% of 2008 revenues were from international operations. • Gallagher is a global company. G 41
Slide 42: Rollover Impact of 2008 M&As in 2009
Rollover Impact of 2008 M&As in 2009 Pro-forma annual revenues acquired in 2008 $166m Impact to 2009 revenue $100m Typical EBITDA margin 25%-30% Rollover impact to 2009 EBITDA $25-$30m G 42
Slide 43: 2009 Expansion Opportunity
2009 Expansion Opportunity • Liberty Mutual/Wausau – closed 2/27/09 – Possible revenues of $70m – 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 or better i
Slide 44: Cost Containment
Cost Containment • Anticipate $25-$30 million of savings in 2009 • Expense saving initiatives: – Headcount reduction and wage controls (non-production) – Reduced temporary help – Centralizing and shifting work to lower-cost labor locations (non-client facing) – Centralized corporate systems – Elimin
Slide 45: Well-Positioned for Future
Well-Positioned for Future • Industry and economic headwinds continue • Coming into 2009 – EBITDA: $291m in 2008 – Rollover of ‘08 M&A into ‘09: $25-$30m EBITDA – Cost containment in 2009: $25-$30m EBITDA – Liberty Mutual/Wausau integration • Little EBITDA in 2009 but $25-30m+ in 2010 G 45
Slide 46: Questions & Answers
Questions & Answers G 46
Slide 47: Stockholders' Meeting
Stockholders’ Meeting May 12, 2009 •2009 Annual Meeting •Chairman’s Remarks – 2008: Where We Are Now – Where We Are Going: Our Dominant Priorities – Questions & Answers •It’s All About The Culture G 47
Slide 48: The Gallagher Way
The Gallagher Way Shared values at AJGCo. 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 AJGCo.’s Shared Values? 1. We are a Sales and Marketin
Slide 49: 2009 Annual Stockholders' Meeting
2009 Annual Stockholders’ Meeting Tuesday, May 12, 2009
Gallagher Arthur J & — Shareholder Meeting (May 2009) on 6ix