Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (September 2013)
60 slides from Arthur J. Gallagher &'s investor presentation, Sep 4, 2013
Slide 1: Investment Presentation August 2013
ARTHUR J. GALLAGHER & CO. Investment Presentation August 2013
Slide 2: Information Regarding Forward-Looking Statements
Arthur J. Gallagher & Co. 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,” “
Slide 3: Information Regarding Non-GAAP Measures
Arthur J. Gallagher & Co. Information Regarding Non-GAAP Measures This presentation includes references Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted Revenues, Adjusted Operating Expense Ratio, Organic Growth and Adjusted Cash Generation, which are measures not in accordance with, or an altern
Slide 4: Snapshot of Gallagher
Arthur J. Gallagher & Co. Snapshot of Gallagher Brokerage Segment 3/4 of revenue We sell insurance and consult on insurance programs P&C and benefits Retail and wholesale Risk Management Segment 1/4 of revenue We adjust claims and help companies reduce their losses Workers compensation, liability, m
Slide 5: Brokerage Segment Revenues
5 Arthur J. Gallagher & Co. Brokerage Segment Revenues 80% 20% International Domestic 51% 25% 24% Wholesale Retail-P/C Retail-Benefits
Slide 6: Risk Management Revenues
6 Arthur J. Gallagher & Co. 68% 27% 5% Liability Property Workers Compensation 79% 21% International Domestic Risk Management Revenues
Slide 7: Brokerage Segment – 1st Half 2013
7 Arthur J. Gallagher & Co. $854 $1,002 $750 $1,000 $1,250 1H 2012 1H 2013 Adjusted Revenues 17% $189 $232 $100 $150 $200 $250 1H 2012 1H 2013 Adjusted EBITDAC 23% Brokerage Segment –1st Half 2013 22.1% 23.2% 20.0% 21.0%22.0% 23.0% 24.0% 1H 2012 1H 2013 Adjusted EDITDAC Margin (in $M) 4.2% 5.4% 2.0%
Slide 8: Risk Management Segment – 1st Half 2013
8 Arthur J. Gallagher & Co. $279$308 $250$275 $300 $325 1H 2012 1H 2013 Adjusted Revenues 11% $45 $51 $40 $45 $50 $55 1H 2012 1H 2013 Adjusted EBITDAC 13% Risk Management Segment –1st Half 2013 16.0% 16.4% 15.0% 16.0% 17.0% 1H 2012 1H 2013 Adjusted EDITDAC Margin (in $M) 8.7% 10.6% 4.0% 6.0% 8.0% 10
Slide 9: Brokerage & Risk Mgmt Combined – 1st Half 2013
9 Arthur J. Gallagher & Co. $1,133 $1,310 $1,000 $1,250 $1,500 1H 2012 1H 2013 Adjusted Revenues 16% $234 $283 $150 $200 $250 $300 1H 2012 1H 2013 Adjusted EBITDAC 21% Brokerage & Risk Mgmt Combined –1st Half 2013 20.6%21.6% 19.0% 20.0% 21.0% 22.0% 1H 2012 1H 2013 Adjusted EDITDAC Margin (in $M) 5.3
Slide 10: Net Earnings from Clean Energy Investments
10 Arthur J. Gallagher & Co. -$4.8 $7.5 $3.9 $32.7 $37.3 -$10.0 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 2009 2010 2011 2012 1H 2013 Net Earnings from Clean Energy Investments (in $M)
Slide 11: Cash and Dividends
11 Arthur J. Gallagher & Co. Cash and Dividends Adjusted Cash Generation Dividends Declared as % of Adjusted Cash Generation $258 $292 $340 $100 $200 $300 $400 2010 2011 2012 53% 51% 49% 0% 25% 50% 75% 100% 2010 2011 2012 (in $M) See important disclosures regarding Non-GAAP measures on Page 3.
Slide 12: Dividends Per Share
12 Arthur J. Gallagher & Co. $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 Dividends Per Share * Indicated –On July 25, 2013, Gallagher’s Board of Directors declared a $.35 per share third quarter 2013 quarterly dividend. 1984 2013 $1.40*
Slide 13: Maintaining a Prudent Balance Sheet
13 Arthur J. Gallagher & Co. Maintaining a Prudent Balance Sheet Gallagher @ 06/30/20131 S&P 1000 2 Net Debt $805 Stockholders’ Equity $1,702 Net Debt to Total Capital 32% 28% Net Debt to Adjusted EBITDAC 1.5x 1.9x $’s in millions. 1. Using Gallagher’s TTM combined Brokerage and Risk Management adju
Slide 14: Environment, Economy, Carrier Position, Rates
14 Arthur J. Gallagher & Co. Environment Economy Carrier Position Rates
Slide 15: Cautiously Improving Economy
15 Arthur J. Gallagher & Co. Cautiously Improving Economy -4% -3% -2% -1% 0% 1% 2% 3% 4% 115,000 120,00 0 125,000 130,000 135,000 140,000 25 50 75 0% 2% 4% 6 % Source for data: Bureau of Economic Analysis Total Nonfarm Employees (in thousands) seasonally adjusted. Source for data: Bureau of Labor St
Slide 16: Firming Indicators for Carriers – Yet Ample Capacity Remains
16 Arthur J. Gallagher & Co. 118.3 93.8 103.4 90 95 100 105 110 115 120 $100 $200 $300 $400 $500 $600 $700 Source for calendar year combined ratio data: AM Best. Excludes certain large mortgage insurance and personal lines companies to better depict Gallagher’s primary markets. Firming Indicators fo
Slide 17: A Combined Ratio Isn't What It Once Was
17 Arthur J. Gallagher & Co. So, A 100 Combined Ratio Isn’t What It Once Was *2010 figures are a return on average surplus and exclude mortgage and financial guaranty insurers. Source: Robert P. Hartwig’s Insurance Information Institute presentation from 7/17/12 using A.M. Best and ISO data. ROE 7.6
Slide 18: Commercial P&C Pricing
18 Arthur J. Gallagher & Co. 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. Commercial P&C Pricing 80 90 100 110 120 130 140 150 160 CPI
Slide 19: Carrier Response – Rate Change
19 Arthur J. Gallagher & Co. -6.4% -5.2% -5.4% -2.9% -0.1% 0.9% 2.7% 4.4% 4.3% 3.9% 5.0% 5.2% 4.3% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% CIAB - Change in Average Commercial Rates Carrier Response – Rate Change
Slide 20: Gallagher View on Exposure Units and Market Rates
20 Arthur J. Gallagher & Co. Gallagher View on Exposure Units and Market Rates • Seeing some exposure increases across all lines • Not much hiring but our clients’ businesses are improving • Of total 5.9% organic growth in brokerage at 2Q 2103, approx 1% was from rate and the rest from solid new bus
Slide 21: July Renewal Rates Compared to First Half
21 July Renewal Rates LOWER than First Half 2012 Rates July Renewal Rates COMPARABLE than First Arthur J. Gallagher & Co. Half 2012 Rates July Renewal Rates HIGHER than First Half 2012 Rates Property 23% 22% 55% Workers Compensation 2% 3% 95% All Other Casualty 10% 30% 60% July Rate Changes in Compa
Slide 22: Firming Market Versus Classic Hard Market
22 Arthur J. Gallagher & Co. Firming Market Versus Classic Hard Market Average Commercial Premium Rate Changes by Account Size Source: The Council of Insurance Agents and Brokers (CIAB). Chart prepared by Barclays Research. Captions in the above chart were overlaid by Gallagher and do not necessaril
Slide 23: Firming Market Versus Classic Hard Market
23 Arthur J. Gallagher & Co. Firming Market Versus Classic Hard Market Classic Hard Market Firming Market Short-lived radical price increases Clients can’t get coverage Business forced chaotically into surplus lines Carriers’ urgent need to restore profitability Lack of capacity Moderate price incre
Slide 24: Current Environment
24 Arthur J. Gallagher & Co. Current Environment Better for Clients Better for Carriers Better for Brokers
Slide 25: Plan For Growth – Organic
25 Arthur J. Gallagher & Co. Plan For Growth – Organic Organic Growth Mergers and Acquisitions Growth Productivity and quality Maintain unique Culture
Slide 26: Driving Organic Growth
26 Arthur J. Gallagher & Co. Driving Organic Growth Organic Growth Enhance Carrier Compensation Global Expansion Grow Our Own Hire Experienced Teams Focus Into Niches Provide Sales Mgmt. Tools and Training Cross Selling
Slide 27: Driving Organic Growth
27 Arthur J. Gallagher & Co. Driving Organic Growth Organic Growth Enhance Carrier Compensation Global Expansion Grow Our Own Hire Experienced Teams Focus Into Niches Provide Sales Mgmt. Tools and Training Cross Selling
Slide 28: Driving Organic Growth
28 Arthur J. Gallagher & Co. Driving Organic Growth Organic Growth Enhance Carrier Compensation Global Expansion Grow Our Own Hire Experienced Teams Focus Into Niches Provide Sales Mgmt. Tools and Training Cross Selling
Slide 29: Simplified Organic Illustration
29 Arthur J. Gallagher & Co. Simplified Organic Illustration All figures on this slide are used only for illustration purposes and are not estimates of Gallagher’s future performance. $1.0m Subject to net impact of Other Revenue Drivers (-5%) +2% +2% Renewal Base Prior Year New Business Lost Busines
Slide 30: Organic Illustration – Other Revenue Drivers
30 Arthur J. Gallagher & Co. Organic Illustration – Other Revenue Drivers 1. Client opt in 2. Client M&A 3. Expand share of wallet 4. Cross selling in AJG 1. Client opt out 2. Client M&A 3. Client out-of-business 4. Client moves to self insurance model
Slide 31: Gallagher's Sales Culture Performs Throughout the Entire Cycle
31 Arthur J. Gallagher & Co. Gallagher’s Brokerage Segment Organic Growth including Supplemental Commissions. Gallagher’s Sales Culture Performs Throughout the Entire Cycle 14.0% 16.0% 10.0% 2.0% 2.0% 5.0% 2.0% -0.8% -2.4% -1.7% 3.1% 4.4% Gallagher Organic 5.2% 19.8% 19.8% 8.1% -4.1%- 8.0% -5.2% -12
Slide 32: Plan For Growth – M&A
32 Arthur J. Gallagher & Co. Plan For Growth – M&A Organic Growth Mergers and Acquisitions Growth Productivity and quality Maintain unique Culture
Slide 33: M&A Looking Forward – Opportunities Continue
33 Arthur J. Gallagher & Co. M&A Looking Forward – Opportunities Continue Limited Consolidators Gallagher Acquisition Units Gallagher’s Core Competency Vast Pipeline Domestic and International Markets Highly Fragmented 18,000 agents/brokers in the U.S. Baby boomers looking for exit strategy Need Gal
Slide 34: M&A – Integration Strength
34 Arthur J. Gallagher & Co. M&A – Integration Strength •Over 30 M&A “bird dogs” throughout the country •Use current internal Legal and Financial staff •Typical acquisition risk is spread over three operating divisions •Operating divisions split into regions that integrate through regional “pilots”
Slide 35: Current Gallagher U.S. Locations
35 Arthur J. Gallagher & Co. Current Gallagher U.S. Locations
Slide 36: Larger Cities With Expansion Potential
36 Arthur J. Gallagher & Co. Larger Cities With Expansion Potential Cities with population of 100,000+ where Gallagher has no presence.
Slide 37: International Correspondent Brokers
37 Arthur J. Gallagher & Co. International Correspondent Brokers Client Capabilities in More Than 140 Countries
Slide 38: Strong Acquisition Momentum
38 Arthur J. Gallagher & Co. $0 $50 $100 $150 $200 $250 $300 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H 2013* Strong Acquisition Momentum Annualized revenues acquired (in $Ms). Domestic Brokerage Heath Lambert [2011] / Bollinger [2013] Int’l Brokerage Risk Management *Reflects de
Slide 39: Bollinger - Overview
39 Arthur J. Gallagher & Co. Bollinger - Overview •The 21st largest insurance broker in the U.S. •Placed over $1 billion in insurance premiums annually •Operations in retail property and casualty, wholesale and program management, and employee benefits and consultancy •Over 500 employees •Eight offi
Slide 40: Bollinger – Acquisition Benefits
40 Arthur J. Gallagher & Co. Bollinger – Acquisition Benefits •Significantly expanded Northeastern operating footprint •Assimilating parallel operations into three core businesses •Sharing a primarily middle-market client focus •Adding strong production talent that builds on a successful sales team
Slide 41: Bollinger – Financial Highlights
41 Arthur J. Gallagher & Co. Bollinger –Financial Highlights •Expected to generate over $100m in annualized revenue •Across three business units: •Expected to generate approx $40m of annualized EBITDAC before integration costs of between $2m and $3m per quarter through 2014 •Structured as a tax-free
Slide 42: International Acquisition Deal Flow Continues
42 Arthur J. Gallagher & Co. International Acquisition Deal Flow Continues Contego Woodbrook Increased Ownership to Specialised Underwriting Underwriting 100% Broking UK UK Associates FirstCity Australia Partnership UK Property & Commercial Oxygen Risk & Benefits Reward Limited Insurance SKS UK Mana
Slide 43: Gallagher Heath Recap
43 Arthur J. Gallagher & Co. Gallagher Heath Recap Delivered $158m of revenue with 20% margin Positioned Gallagher in top 10 U.K. brokers Heath Lambert Added distribution network in U.K. locations outside Acq Integration London to be Added new retail capabilities to existing London Completed wholesa
Slide 44: Productivity and Quality
44 Arthur J. Gallagher & Co. Productivity and Quality ORGANIC GROWTH MERGERS AND ACQUISITIONS GROWTH PRODUCTIVITY AND QUALITY MAINTAIN UNIQUE CULTURE
Slide 45: Optimizing Productivity & Quality
45 Arthur J. Gallagher & Co. Optimizing Productivity Established & Quality Controlling Leveraging Utilizing Sales Force Sourcing to Management Manage Tools Improving Expenses Productivity and Quality Investing in Business DMS Intelligence Workflow Standardizing Real Estate Processes and Footprint Sy
Slide 46: Reasons for Offshore Centers of Excellence
46 Arthur J. Gallagher & Co. Reasons for Offshore Centers of Excellence Reduce Costs Foster Innovation Increase Speed to Market Focus on Core Improve Quality
Slide 47: Back Office Infrastructure – 2004
47 Arthur J. Gallagher & Co. Back Office Infrastructure – 2004 EMAIL Global Corporate Systems
Slide 48: Back Office – Today
48 Arthur J. Gallagher & Co. Back Office – Today GENERAL LEDGER CORPORATE INTRANET DATA WAREHOUSE EMAIL HR/ PAYROLL REAL ESTATE LEASING DOCUMENT MANAGEMENT T&E PLANNING
Slide 49: Current Front Office Activity
49 Arthur J. Gallagher & Co. Current Front Office Activity CRM – CUSTOMER RELATIONSHIP EXTERNAL CLIENT PROSPECTING TOOLS DATA Divisional Sales Systems CLIENT COMMUNICATION TOOLS Aa CENTRALIZED AGENCY SYSTEM INTERNAL BROKER SOCIAL MEDIA
Slide 50: Quality Metrics
50 Arthur J. Gallagher & Co. Quality Metrics Efficiency Improvements Drive Quality Reduced policy delivery from Achieved 98% quality rate 30 to 10 days Reduced certificate of insurance delivery Improved quality rate to 99% expense by 20% Implemented claims adjusters Realized 20% improvement on adjus
Slide 51: Reducing Adjusted Operating Expense Ratio
51 Arthur J. Gallagher & Co. Reducing Adjusted Operating Expense Ratio Brokerage Risk Management 21.0% 26.0% 20.3% 20.0% 25.2% 25.0% 19.0% 24.2% 18.0% 24.0% 17.2% 17.0% 16.0% 23.0% 1H 2008 1H 2011 1H 2013 1H 2008 1H 2011 1H 2013 See important disclosures regarding Non-GAAP measures on Page 3.
Slide 52: Relentless Focus on Quality & Customer Service
52 Arthur J. Gallagher & Co. Relentless Focus on Quality & Customer Service AJG – 2012 #1 Overall Client Satisfaction for Large Corporations – Greenwich Associates AJG Intl – 2012 Ins Broking Company of the Year – AJG Intl – 2012 Best Broker M&A Deal Reactions Magazine of the Year – Reactions Magazi
Slide 53: Culture
53 Arthur J. Gallagher & Co. Culture ORGANIC GROWTH MERGERS AND ACQUISITIONS GROWTH PRODUCTIVITY AND QUALITY MAINTAIN UNIQUE CULTURE
Slide 54: Maintain Unique Culture
54 Arthur J. Gallagher & Co. Maintain Unique Culture Teamwork People The Gallagher Way Core Values Performance-Based Culture Shared values at Arthur J. Gallagher & Co. are the rock foundation of the Company and our Culture. What is a Shared Value? These are concepts that the vast majority of the mov
Slide 55: One of the World's Most Ethical Companies
55 Arthur J. Gallagher & Co. One of the World’s Most Ethical Companies as Recognized by Ethisphere two years in a row 2013 WORLD’S MOST ETHICAL COMPANIES WWW.ETHISPHERE.COM 2012 WORLD’S MOST ETHICAL COMPANIES WWW.ETHISPHERE.COM Industry-leading commitment to ethics and dedication to integrity Chosen
Slide 56: A Top Ten Best Company for Leadership Development
56 Arthur J. Gallagher & Co. A Top Ten Best Company for Leadership Development As Recognized by Chief Executive Magazine – 2013 One of the Top Ten Best Companies Leadership Development 2013 Recognized for: High percentage of senior and mid-manager positions filled internally Formal leadership proces
Slide 57: Employee Engagement Survey Results
57 Arthur J. Gallagher & Co. Employee Engagement Survey Results Benchmark Gallagher When a customer is dissatisfied, I can usually correct the problem to his or her satisfaction. Average Top Quartile Total Producers Benchmark Gallagher How would you rate your Unit as a place to work compared to othe
Slide 58: Why Invest?
58 Arthur J. Gallagher & Co. Why Invest? MANAGEMENT ORGANIC PRODUCTIVITY STRONG BALANCE SHEET GREAT DIVIDENDS EXCELLENT RETURNS CULTURE MERGERS & ACQUISITIONS QUALITY LOW DEBT -100% -50%0% 50% 100% 150% 200% 250% 300% 350% 400% Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Ja
Slide 59: Questions & Answers
59 Questions & Answers For Additional Information Marsha Akin Director – Investor Relations Marsha_Akin@ajg.com Phone: 630-285-3501
Slide 60: Appendix: Adjusted Cash Generation for 2008 to 2012
60 Arthur J. Gallagher & Co. APPENDIX Adjusted Cash Generation for 2008 to 2012 2008 2009 2010 2011 2012 Earnings from continuing operations —Brokerage & Risk Management Segments Combined $ 132.4 $ 154.4 $ 166.8 $ 173.5 $ 198.3 Provision for income taxes 85.1 96.5 108.0 107.7 128.9 Depreciation 29.8
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