Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (February 2006)
48 slides from Arthur J. Gallagher &'s investor presentation, Feb 13, 2006
Slide 1: Arthur J. Gallagher & Co.
G) Arthur J. Gallagher & Co.
Slide 2: Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Except for the historical information and discussions contained herein, statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Slide 3: 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 4: Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co. World’s 4th Largest Insurance Brokerage and Risk Management Services Firm – 3 rd Largest in U.S. Brokerage – We sell a full range of property/casualty and employee benefit products and services, provide access to wholesale, reinsurance, captive and excess/surplus lines mark
Slide 5: Strengths
Strengths Unique corporate culture Excellent history of growth and strong cash flows Strong financial position – Solid balance sheet – No corporate debt (but maintain a $450 M credit facility) Solid client retention Excellent producer development and retention Proven acquisition competency – 154 dea
Slide 6: Differentiators
Differentiators Culture Driven Success – Client-first focus – Local company feel with global capabilities – Team-based approach – Committed to growth – Emphasis on professional development Niche strategy – industry-focused practice groups International network of brokers and agents Innovative – crea
Slide 7: Market Position
Market Position Smaller Clients Large Clients Mid-Market Clients
Slide 8: Market Position
Market Position Smaller Clients Large Clients Mid-Market Clients Brokerage
Slide 9: Market Position
Market Position Smaller Clients Large Clients Mid Market Clients Risk Management Brokerage
Slide 10: Segments
Segments Brokerage 67% Risk Management 25% Financial Services 8% See important disclosures regarding Non-GAAP measures on page 3 2005 Revenues Risk Management 25% Financial Services (3%) Brokerage 78% 2005 Pretax Earnings
Slide 11: Brokerage Segment
Brokerage Segment Revenues as of 12/31/05 – See important disclosures regarding Non-GAAP measures on Page 3 Domestic Retail Brokerage 57% Wholesale, Reinsurance, & International Brokerage 25% Employee Benefit Brokerage 18%
Slide 12: Domestic Retail Brokerage
Domestic Retail Brokerage We broker P/C insurance and risk shifting programs and provide risk management services for commercial, not-for-profit, institutional and governmental enterprises Organized geographically via profit centers Matrix of 25 different industry-specific practice units
Slide 13: Domestic Retail Brokerage: Growth Drivers
Domestic Retail Brokerage Growth Drivers Organic – Experienced hires & teams – Grow our own “Tuck-in” acquisitions – Geographic expansion – Expertise expansion Network-wide coordination Deep industry and product knowledge
Slide 14: Domestic Retail Brokerage: Profit Drivers
Domestic Retail Brokerage Profit Drivers Maximize client retention Align performance compensation Control operating expenses Leverage technology Commitment to quality
Slide 15: Domestic Retail Brokerage
Domestic Retail Brokerage
Slide 16: Employee Benefit Brokerage
Employee Benefit Brokerage We broker employee health, welfare and retirement insurance programs and assist in communication, administration and compliance consulting services Organized geographically via profit centers Matrix of 8 different industry-specific practice units
Slide 17: Employee Benefit Brokerage: Growth Drivers
Employee Benefit Brokerage Growth Drivers Organic – Experienced hires & teams – Grow our own “Tuck-in” acquisitions – Geographic expansion – Expertise expansion Network-wide coordination Cross-selling Deep industry knowledge
Slide 18: Employee Benefit Brokerage: Profit Drivers
Employee Benefit Brokerage Profit Drivers Maximize client retention Align performance compensation Control operating expenses Leverage technology Commitment to quality
Slide 19: Employee Benefit Brokerage
Employee Benefit Brokerage
Slide 20: Wholesale Brokerage
Wholesale Brokerage We provide access for hard-to-place coverages, including surplus lines, to over 10,000 independent P/C brokers and agents Organized geographically via profit centers Over 80% of business is from non- Gallagher sources
Slide 21: Wholesale Brokerage: Growth Drivers
Wholesale Brokerage Growth Drivers Organic – Experienced hires & teams – Grow our own “Tuck-in” acquisitions – Geographic expansion – Expertise expansion Network-wide coordination Deep industry knowledge
Slide 22: Wholesale Brokerage: Profit Drivers
Wholesale Brokerage Profit Drivers Maximize client retention Align performance compensation Control operating expenses Leverage technology Commitment to quality
Slide 23: Reinsurance Brokerage
Reinsurance Brokerage “Gallagher Re” provides: – Property/Casualty, Life, and A&H expertise – Executed primarily through Treaty, Facultative and Program reinsurance services – Expert product knowledge with multinational servicing capabilities Re-branded in 2005 Hubs in UK, US, Bermuda, Singapore and
Slide 24: Reinsurance Brokerage: Growth Drivers
Reinsurance Brokerage Growth Drivers • Organic – Experienced hires & teams – Grow our own ‘Strategic fit’ acquisitions Global coordination Advisory, analytical & technical resources
Slide 25: Reinsurance Brokerage: Profit Drivers
Reinsurance Brokerage Profit Drivers Maximize client relationships Align performance compensation Control operating expenses Leverage technology Commitment to quality
Slide 26: International Brokerage
International Brokerage Our teams based in US, UK & Bermuda provide US and International clients with access to international and alternative markets Gallagher has an international network of independent brokers in 120 countries Gallagher believes in global partners - “ best available” broker in eve
Slide 27: International Brokerage: Growth Drivers
International Brokerage Growth Drivers Hire respected teams in UK and Bermuda Expand international network Leverage captive skills
Slide 28: International Brokerage: Profit Drivers
International Brokerage Profit Drivers Maximize client retention Align performance compensation Control operating expenses Leverage technology Commitment to quality
Slide 29: Wholesale, Reinsurance & International Network
Wholesale, Reinsurance & International Network
Slide 30: Risk Management Segment
Risk Management Segment “Gallagher Bassett” provides outsourced P/C claims payment and management services for self-insured clients as well as insurance companies that outsource their claims department We DO NOT chase catastrophe overflow claims One of the world’s largest multi-line, claims TPA – Bu
Slide 31: Risk Management Segment: Growth Drivers
Risk Management Segment Growth Drivers Purely organic Unbundled trend International footprint Deep client intimacy Leverage technology
Slide 32: Risk Management Segment: Profit Drivers
Risk Management Segment Profit Drivers Maximize client retention Control operating expenses Leverage technology Commitment to quality
Slide 33: Risk Management Segment
Risk Management Segment
Slide 34: Financial Services Segment
Financial Services Segment Segment in run-off mode Selling our 60% ownership in our home office building Working on monetizing asset management business Optimize coal investments through 2007 when law expires Substantial reductions since 2002 Future cash flows will be used to buy brokers, pay divide
Slide 35: Financial Services Segment
$362 $155 $100 $150 $200 $250 $300 $350 $400 Financial Services Segment $0 $10 $20 $30 $40 $50 $60 Low Income Housing $15M Alternative Energy $43M Asset Alliance $44M Home Office Building $12M Other $14M $ In Millions *As of 12/31/05 Tax Adv Asset Mgmt HO Bldg Other Net Assets and Financial Guarante
Slide 36: Resolved Numerous Legacy Issues
Resolved Numerous Legacy Issues: Settled significant open litigation Resolved most contingent related matters Sold two medical claims management operations Continued divestiture of non-core investments Reorganized reinsurance operations – Gallagher Re Reorganized international operations Froze defin
Slide 37: Growth
Growth Brokerage revenues up 10%, 2% organic Risk Management revenues up 9%, all organic 10 brokerage acquisitions, 2006 looks promising See important disclosures regarding Non-GAAP measures on Page 3
Slide 38: Profits
Profits Risk Management pretax margin at 18%, best in industry Brokerage margins strained, but poised for recovery New hires, profitable but margin dilutive as expected New sourcing initiatives beginning to show results
Slide 39: Strong balance sheet and cash flows
Strong balance sheet and cash flows No debt, but maintain $450 M unsecured credit facility Continue to reduce non-core investments 12% increase in dividend in Jan 05 (another 7% in Jan 06)
Slide 40: Where We're Going
Where We’re Going Continue to build the world’s best brokerage and risk management organization Revenue and pretax growth of 15% per year Target enterprise-wide margin of 20+% Maintain solid, low-risk balance sheet Maximize shareholder returns through dividends and stock buy-backs
Slide 41: How We Will Get There - Brokerage
How We Will Get There – Brokerage Hire experienced producers and teams Expand grow-our-own producer program Acquire talented independent brokers Streamline supporting staff Commitment to quality Expense discipline
Slide 42: How We Will Get There - RM
How We Will Get There – RM Expand domestic network Leverage international locations Drive down operating costs Continue to enhance quality
Slide 43: Summary: Why Invest? Growth Story
Summary: Why Invest? 21 Year Growth Story: 21 Year Growth Story: Stock Price $1.72 $30.88 Market Cap $57 M $3.0 B Tangible Net Worth $23 M $351 M Annual Dividend/Share $.03 $1.20* *Indicated annual dividend 1984 IPO (Restated for stock splits) 12/31/05
Slide 44: Summary: Why Invest? Revenues
Summary: Why Invest? Brokerage & Risk Management Revenues From Continuing Operations* * See important disclosures regarding Non-GAAP measures on page 3 (In millions) $400 $600 $800 $1,000 $1,200 $1,400 $791 $961 $1,103 $1,232 $1,343 $643
Slide 45: Summary: Why Invest? Pretax Earnings
$99 $132 $156 $184 $211 $203 $50 $100 $150 $200 $250 Summary: Why Invest? Brokerage & Risk Management Pretax Earnings From Continuing Operations* (In millions) *See important disclosures regarding Non-GAAP measures on Page 3
Slide 46: Summary: Why Invest? Balance sheet and cash flow
Balance sheet with $3.67 in tangible net worth per share and no operating debt. Reinvested in Operations ($631 M) Dividends Paid ($525 M) Shares Repurchased ($444 M) As of 12/31/05 Summary: Why Invest? Since 1990, $1.6 Billion Cash Flow from Ops
Slide 47: Summary: Why Invest? Dividends Per Share
Summary: Why Invest? Dividends Per Share *Indicated (restated for stock splits) $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.20*
Slide 48: Culture Driven Success
Arthur J. Gallagher & Co. Culture Driven Success 1. We are a Sales and Marketing Company dedicated to providing excellence in Risk Management Services to our clients. 2. We support one another. We believe in one another. We acknowledge and respect the ability of one another. 3. We push for professio
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