Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (March 2015)
46 slides from Arthur J. Gallagher &'s investor presentation, Mar 5, 2015
Slide 1: Investment Presentation
Investment Presentation FEBRUARY 2015
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: Founded in 1927
Founded in 1927 Public since 1984 – 30 years ago One of the World’s Leading Insurance Brokers * World’s largest P&C third-party administrator * Who We Are Key Facts 650+ Sales/Service Offices – 30 Countries 20,240 Employees $3.6B+ 2014 Total Adjusted Revenues** $761.2M Acquired Revenues – 2014 Key S
Slide 5: Snapshot of Core Operations
Snapshot of Core Operations 81% of revenue* We sell insurance and consult on insurance programs Brokerage P&C and benefits Retail and wholesale Segment Primarily middle-market commercial clients and individuals 78% of revenue is commissions – 22% is fee-based 19% of revenue* We adjust claims and hel
Slide 6: Diverse Revenue Base
Diverse Revenue Base Brokerage Retail-P/C Domestic 60% 65% Wholesale Retail-Benefits 35% International 17% 23% Risk Management Workers Domestic Compensation 77% 71% Property Liability International 4% 25% 23% *Brokerage and Risk Management adjusted revenue as of December 31, 2014.
Slide 7: Brokerage Segment – 2014
Brokerage Segment – 2014 Adjusted Revenues 35% Total Organic Growth $3,500 $2,907 8.0% $3,000 $2,500 $2,150 6.0% 5.5% $2,000 $1,500 4.3% $1,000 4.0% $500 2.0% $0 2013 2014 2013 2014 Adjusted EBITDAC Adjusted EBITDAC Margin 44% 26.0% $850 25.2% $733 $750 25.0% $650 23.8% 24.0% $550 $510 23.0% $450 $3
Slide 8: Risk Management Segment – 2014
Risk Management Segment – 2014 Adjusted Revenues 10% Total Organic Growth $675 $664 13.0% $650 11.0% 9.5% $625 9.3% $604 9.0% $600 $575 7.0% $550 5.0% 2013 2014 2013 2014 Adjusted EBITDAC Adjusted EBITDAC Margin 16% $120 20.0% $110 $110 18.0% 16.5% 16.0% 15.6% $100 $95 $90 14.0% $80 12.0% 2013 2014
Slide 9: Brokerage & Risk Mgmt Combined – 2014
Brokerage & Risk Mgmt Combined – 2014 Total Organic Growth Adjusted Revenues 30% 7.0% $3,571 6.0% $3,600 6.0% 5.5% $3,200 5.0% $2,754 4.0% $2,800 3.0% $2,400 2.0% 2013 2014 2013 2014 Adjusted EBITDAC Adjusted EBITDAC Margin 39% $900 $843 24.0% 24% $800 23.0% $700 22% $605 22.0% $600 21.0% $500 20.0%
Slide 10: Adjusted Net Earnings from Clean Energy Investments
Adjusted Net Earnings from Clean Energy Investments $120.0 $110.0 $90.5 $100.0 $90.0 $80.0 $57.9 $70.0 $60.0 $50.0 $40.0 $32.7 $30.0 $20.0 $7.5 $10.0 $3.9 -$4.8 $0.0 -$10.0 2009 2010 2011 2012 2013 2014 Excludes non-cash after tax gains of $14.1m and $5.8m from re-consolidation accounting gains rela
Slide 11: Dividends Per Share $1.48*
Dividends Per Share $1.48* $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 1984 2015 *Indicated – On January 29, 2015, Gallagher’s Board -quarter of Directors declared a $.37 per share first-quarter 2015 dividend.
Slide 12: 2014 Was An Extraordinary Year!
2014 Was An Extraordinary Year! Record M&A growth: Outstanding Brokerage & Risk $761m in acquired revenues Management growth: Crombie/OAMPS 30% adjusted revenue growth Oval 39% adjusted EBITDAC growth Noraxis 21% adjusted EPS growth +57 additional—avg $4m in 163 bps margin improvement revenue Strong
Slide 13: Consistent Growth Strategy
Consistent Growth Strategy ORGANIC GROWTH ) a al “PRODUCTIVITY C AND QUALITY \7 G] Arthur}. Gallagher & Co. 43
Slide 14: Consistent Growth Strategy – Organic
Consistent Growth Strategy – Organic
Slide 15: Driving Organic Growth – Brokerage
Driving Organic Growth – Brokerage Grow our Provide own sales Focus mgmt Cross into tools Selling Hire Niches and Organic experienced training teams Growth Enhance carrier compensation Global expansion
Slide 16: Driving Organic Growth – Risk Management
Driving Organic Growth – Risk Management Comm’l Consistently Direct sales Entities improving force products & services Cross Carriers selling Non-affiliated Expertise, insurance Organic Alternate Analytics, brokers Systems Growth Markets Product expansion Global expansion
Slide 17: Niche Expertise Teams—Brokerage
Niche Expertise Teams—Brokerage Agribusiness Manufacturing Automotive Marine Aviation & Aerospace Personal Construction Private Equity Energy Professional Groups Entertainment Public Entity Environmental Real Estate Global Risks Religious/Nonprofit Healthcare Restaurant Higher Education Scholastic H
Slide 18: Brokerage & Risk Mgmt Organic Growth
Brokerage & Risk Mgmt Organic Growth 8% 7% 6.3% 6% 5.5% 5% 4.8% 4% 3.6% 3% 2% 1% 0% 2011 2012 2013 2014 See important disclosures regarding Non-GAAP measures on Page 3.
Slide 19: Brokerage & Risk Mgmt Adjusted EBITDAC Margin
Brokerage & Risk Mgmt Adjusted EBITDAC Margin 25% 2 4% 23.6% 23% 22.1% 22% 21.1% 21% 20.3% 20% 19% 18% 2011 2012 2013 2014 See important disclosures regarding Non-GAAP measures on Page 3.
Slide 20: Indicators for US P/C Carriers – Flat Rate Environment
Indicators for US P/C Carriers – Flat Rate Environment Combined Ratios Premium/Statutory Surplus 1.6x 118.3 120 1.4x 115 110 1.2x 105 100 97.8 1.0x 93.8 95 0.8x 90 0.6x Source for calendar year combined ratio data: AM Best. Using 9 month 2014 data as of 01/29/15. 2012 and prior excludes certain larg
Slide 21: Commercial P&C Pricing Shows Flattening Cycle
Commercial P&C Pricing Shows Flattening Cycle 140 CPI 135 110 Rates 98 100 90 80 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 Statistics.
Slide 22: Shows Flattening Pricing Cycle
Shows Flattening Pricing Cycle 6.0% 5.2% 5.0% 5.0% 4.4%4.3% 4.3% 3.9% 4.0% 3.4% 2.7% 3.0% 2.1% 2.0% 1.5% 0.9% 1.0% 0.1% 0.0% -1.0% -0.1% -0.5% -0.7% -2.0% -3.0% -2.9% -4.0% CIAB—Change in Average Commercial Rates
Slide 23: Gallagher Sales Culture Performs Through Any Pricing Cycle
Gallagher Sales Culture Performs Through Any Pricing Cycle Gallagher Organic CIAB—Change in Avg. Commercial Rates Flattening Hard Market Soft Market Market 25.0% 19.8% 19.8% 20.0% 16.0% 14.0% 15.0% 10.0% 10.0% Gallagher 5.0% 5.6% Organic 8.1% 4.4% 3.8% 5.0% 3.1% 2.0% 2.0% 2.0% 4.4% -0.8% 3.8% 0.0% -
Slide 24: Flattening Rate Environment Is:
Flattening Rate Environment Is: Better for Clients Better for Carriers Better for Brokers
Slide 25: Rate & Economy Effect on Organic Growth
Rate & Economy Effect on Organic Growth With 4% organic growth, Of the 1% effect from rates and less than 1% is from rate economy, 1/3 is from rate and and economy combined 2/3 is from economy New Business and Improved Retentions Economy Insurance Rates & Economy Rates
Slide 26: Consistent Growth Strategy – M&A
Consistent Growth Strategy – M&A
Slide 27: 2014 – Record Acquisition Revenue Growth
2014 – Record Acquisition Revenue Growth $800 $700 $600 $500 $400 $300 $200 $100 $- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Domestic Property & Casualty Foreign Property & Casualty Employee Benefits Risk Management Annualized Revenues Acquired (in $M’s)
Slide 28: M&A Opportunities Continue
M&A Opportunities Continue Gallagher Limited Gallagher’s Vast Pipeline Core Acquisition Units Consolidators Competency Domestic and International Retail P&C Markets Highly Fragmented Wholesale Culture 18,000+ agents/brokers Benefits just in the U.S. Gallagher Proven International History of Doing th
Slide 29: Platforms In Place for Bolt-on M&A
Platforms In Place for Bolt-on M&A
Slide 30: International Correspondent Broker Network
International Correspondent Broker Network Client Capabilities in 140 Countries
Slide 31: Integration Process
Integration Process Spread across three different operating units in four separate country platforms - Retail, Benefits, Wholesale Timing depends on size Larger deals – 15 to 18 months Smaller deals – 6 to 12 months Integration IT Conversion HR & Accounting Closing Systems Combined Team Strategy & A
Slide 32: Productivity and Quality Initiatives
Productivity and Quality Initiatives
Slide 33: Focus Continues:
Focus Continues: Optimizing Established Offshore Controlling Productivity Centers of Headcount Excellence & Quality Leveraging Utilizing Sales Force Sourcing to Management Manage Tools Continue to Expenses Improve Productivity and Building Investing in Productivity Quality Business Tools – DMS Intel
Slide 34: 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 35: Client-Facing Efforts
Client-Facing Efforts Building Client Service Operations Processes deliver consistent client service Technology and tools improve operating efficiencies Staffed by dedicated service professionals that: Generate client applications and proposals Handle client requests Improves turn-around time on cli
Slide 36: Behind the Scenes Efforts
Behind the Scenes Efforts Offshore Centers of Excellence Update We now have more than 2,000 associates in four locations Utilized for processes such as: Policy checking Certificates of insurance Auto ID cards Renewal support Accounting support Substantially improved quality and reduced E&O costs Eas
Slide 37: Quality Metrics
Quality Metrics Efficiency Improvements Reduced policy delivery from 30 to 10 days Reduced certificate of insurance delivery expense by 20+% Single agency management system and standardized processes across the network Automated data capturing for proposal and standardized templates for generation –
Slide 38: Reduced Adjusted Operating Expense Ratio
Reduced Adjusted Operating Expense Ratio Brokerage Risk Management 22.0% 28.0% 20.8% 27.0% 21.0% 27.0% 20.0% 26.0% 19.0% 25.0% 18.0% 17.6% 24.0% 24.0% 17.0% 16.0% 23.0% 2008 2014 2008 2014 See important disclosures regarding Non-GAAP measures on Page 3.
Slide 39: Relentless Focus on Quality & Customer Service
Arthur J. Gallagher & Co. Relentless Focus on Quality & Customer Service AJG – 2014 Best Mid-Sized Broker Reactions Magazine AJG Intl/OIM – 2014 MGA of the Year Insurance Post AJG Benefits Team – 2014 Group Risk Adviser of the Year Corporate Adviser AJG Intl – 2013 Best Broker M&A Deal of the Year R
Slide 40: Maintaining Culture
Maintaining Culture MERGERS AND _ AQUISTIONS
Slide 41: Maintain Unique Culture
— Arthur J. Gallagher & Co. Maintain Unique Culture ‘Shared values at Artur J. Galagher &Co.arethe rock ound a he Company and out Cure Wats a Share Vl? These re concepts thal vast may ofthe movers a ahasrs nthe ‘Company pasonatlyoanare a What are sore of kabul. caagher& Gs Shared Vane? 1 Weare Sales
Slide 42: One of the World’s Most Ethical Companies
One of the World’s Most Ethical Companies as Recognized by Ethisphere three 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 Demonstrat
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 Gallagher is well positioned for future growth
Slide 44: Why Invest? We Are Just Getting Started
Why Invest? We Are Just Getting Started AJG 450% 404% 400% 350% 300% 250% 200% 150% S&P 500 100% 86% 50% 0% -50% -100% Source for data: Bloomberg. Total returns from 1/1/2000 – 12/31/2014 include reinvestment of dividends.
Slide 45: For Additional Information:
For Additional Information: Marsha Akin Director – Investor Relations Marsha_Akin@ajg.com 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—Year Ended December 31, 2014 and 2013 (Unaudited—in millions except percentage data) Brokerage Segment Risk Management Segment Corporate Segment Total Company Reconciliation of EBIT
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