Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (February 2016)
46 slides from Arthur J. Gallagher &'s investor presentation, Feb 29, 2016
Slide 1: Investment Presentation
Investment Presentation FEBRUARY 2016
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: Who We Are
Who We Are Founded in 1927 Public since 1984 – 32 years ago One of the World’s Leading Insurance Brokers * World’s largest P&C third-party administrator * KEY FACTS 680+ Sales/Service Offices – 31 Countries $4.0+B 2015 Total Adjusted Revenues** 21,537 Employees $230.8M Acquired Revenues – 2015 KEY S
Slide 5: Snapshot of Core Operations
Snapshot of Core Operations BROKERAGE SEGMENT RISK MANAGEMENT SEGMENT 82% of revenue* We sell insurance and consult on insurance programs P&C and benefits Retail and wholesale Primarily middle-market commercial clients and individuals 77% of revenue* is commissions – 23% is fee-based 18% of revenue*
Slide 6: Diverse Revenue Base
Diverse Revenue Base BROKERAGE* RETAIL P/C 59% RETAIL BENEFITS 24% WHOLESALE 17% RISK MANAGEMENT* WORKERS COMPENSATION 69% LIABILITY 27% PROPERTY 4% *Brokerage and Risk Management adjusted revenue for the year ended December 31, 2015. DOMESTIC 64% INTERNATIONAL 36% DOMESTIC 81% INTERNATIONAL 19%
Slide 7: Brokerage Segment – 2015
Brokerage Segment – 2015 ADJUSTED REVENUES $3,500 $3,000 $2,500 $2,795 19% $3,317 TOTAL ORGANIC GROWTH 8.0% 6.0% 4.0% 2.0% 4.3% 3.6% 2015 ADJUSTED EBITDAC $1,000 $900 $800 $700 $600 (in $M) $710 22% $867 ADJUSTED EBITDAC MARGIN 27.0% 26.0% 25.0% 24.0% 23.0% 25.4% 26.1% See important disclosures rega
Slide 8: Risk Management Segment – 2015
Risk Management Segment – 2015 ADJUSTED REVENUES $750 $725 $700 $675 $650 $625 $660 10% $728 TOTAL ORGANIC GROWTH 13.0% 11.0% 9.0% 7.0% 5.0% 9.5% 11.3% ADJUSTED EBITDAC $140 $130 $120 $110 $100 $90 (in $M) $107 18% $126 ADJUSTED EBITDAC MARGIN 20.0% 18.0% 16.0% 14.0% 12.0% 16.1% 17.3% See important
Slide 9: Brokerage & Risk Management Combined – 2015
Brokerage & Risk Management Combined – 2015 ADJUSTED REVENUES $4,400 $4,000 $3,600 $3,200 $2,800 $3,455 17% $4,045 TOTAL ORGANIC GROWTH 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 5.5% 5.1% ADJUSTED EBITDAC $1,200 $1,100 $1,000 $900 $800 $700 $600 (in $M) $816 22% $993 ADJUSTED EBITDAC MARGIN 26.0% 25.0% 24.0% 23
Slide 10: Adjusted Net Earnings from Clean Energy Investments
Adjusted Net Earnings from Clean Energy Investments $120.0 $110.0 $100.0 $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 -$10.0 (in $M) -$4.8 $7.5 $3.9 $32.7 $63.7 $90.5 $100.9 Excludes non-cash after tax gains of $14.1m and $5.8m from re-consolidation accounting gains related to clean-en
Slide 11: Dividends Per Share
Dividends Per Share $1.52* $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 *Indicated – On January 28, 2016, Gallagher’s Board of Directors declared a $.38 per share first-quarter 2016 dividend.
Slide 12: 2015 Business Highlights
2015 Business Highlights Brokerage & Risk Management growth: 17% adjusted revenue growth 22% adjusted EBITDAC growth 92 bps margin improvement 5.1% total organic growth M&A growth: $230.8m in acquired revenues WGA—New England Platform +43 additional—avg $3.6m in revenue Returning to tuck-in opportun
Slide 13: Where We’re Going
Where We’re Going BROKERAGE SEGMENT RISK MANAGEMENT SEGMENT Improving new business production Continuing tuck-in M&A Increasing global brand recognition Completing large U.K. M&A integration Leveraging internal resources across divisions To be premier provider of claims management services with supe
Slide 14: Indicators for U.S. P/C Carriers – Shallow Rate Environment
Indicators for U.S. P/C Carriers – Shallow Rate Environment COMBINED RATIOS 120 115 110 105 100 95 90 118.3 93.8 97.0 PREMIUM/STATUTORY SURPLUS 1.6x 1.4x 1.2x 1.0x 0.8x 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
Slide 15: Commercial P&C Pricing Shows Shallow Cycle
Commercial P&C Pricing Shows Shallow Cycle 160 150 140 130 120 110 100 90 80 CPI 136 Rates 96 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 Statist
Slide 16: Shows Shallow Pricing Cycle
Shows Shallow Pricing Cycle 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% 5.2% 5.0% 4.4% 4.3% 4.3% 3.9% 3.4% 2.7% 2.1% 1.5% 0.9% 0.1% -0.1% -0.5% -0.7% -2.3% -2.9% -2.8% -3.1% -3.3% CIAB—Change in Average Commercial Rates
Slide 17: Gallagher Sales Culture Performs Through Any Pricing Cycle
Gallagher Sales Culture Performs Through Any Pricing Cycle 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Gallagher Organic CIAB—Change in Avg. Commercial Rates Hard Market Soft Market Shallow Market 19.8%19.8% 16.0% 14.0% 10.0% AJG 5.6% Organic 5.0% 8.1% 4. 4% 3.8% 3.8% 3.1% 2.0% 2.0% 2.0% 4
Slide 18: Shallow Rate Cycle Is Better for:
Shallow Rate Cycle Is Better for: CLIENTS CARRIERS & BROKERS
Slide 19: How We’re Getting There-Consistent Growth Strategy
How We’re Getting There-Consistent Growth Strategy
Slide 20: Consistent Growth Strategy – Organic
Consistent Growth Strategy – Organic
Slide 21: Driving Brokerage Organic Growth
Driving Brokerage Organic Growth
Slide 22: Niche Expertise Teams – Brokerage
Niche Expertise Teams – Brokerage Agribusiness Automotive Aviation & Aerospace Construction Energy Entertainment Environmental Global Risks Healthcare Higher Education Hospitality Life Sciences Life Solutions Manufacturing Marine Personal Private Equity Professional Groups Public Entity Real Estate
Slide 23: Driving Risk Management Organic Growth
Driving Risk Management Organic Growth
Slide 24: Risk Mgmt Growth Focuses on Four Market Segments
Risk Mgmt Growth Focuses on Four Market Segments PUBLIC SECTOR ALTERNATIVE ENTITIES MARKET PARTICIPANTS LARGE INSURANCE COMMERCIAL CARRIERS ENTITIES
Slide 25: Consistent Growth Strategy – M&A
Consistent Growth Strategy – M&A
Slide 26: 2015 – Acquisition Revenue Growth
2015 –Acquisition Revenue Growth 900 800 700 600 500 400 300 200 100 0 Domestic Property & Casualty Employee Benefits Foreign Property & Casualty Risk Management 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Annualized Revenues Acquired (in $M’s)
Slide 27: M&A Opportunities Continue
M&A Opportunities Continue Vast Pipeline Domestic and international markets highly fragmented 18,000+ agents/ brokers just in the U.S. Baby boomers looking for exit strategy Need Gallagher’s expertise Acquisition Units Retail P&C Wholesale Benefits International MGA MGU Captive Limited Consolidators
Slide 28: Platforms In Place for Bolt-on M&A
Platforms In Place for Bolt-on M&A
Slide 29: International Correspondent Broker Network
International Correspondent Broker Network Client Capabilities in 150 Countries
Slide 30: Productivity and Quality Initiatives
Productivity and Quality Initiatives
Slide 31: Focus Continues: Optimizing Productivity & Quality
Focus Continues: Optimizing Productivity & Quality Utilizing Controlling Offshore Headcount Centers of Excellence Leveraging Utilizing Sales Force Sourcing to Management Manage Tools Expenses Building Investing in Productivity Business Tools – DMS Intelligence Workflow Optimizing Standardizing Real
Slide 32: 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 33: Client-Facing Efforts
Client-Facing Efforts BUILDING CLIENT SERVICE OPERATIONS Process and deliver consistent client service Technology and tools improve operating efficiencies Staffed by dedicated service professionals that: Generate client applications and proposals Handle client requests Manage renewal cycles Improves
Slide 34: Behind the Scenes Efforts
Behind the Scenes Efforts OFFSHORE CENTERS OF EXCELLENCE UPDATE We now have more than 2,400 associates in four locations Utilized for processes such as: Policy checking Policy issuance Certificates of insurance Renewal support Claims support Accounting support Substantially improved quality and redu
Slide 35: Quality Metrics on Target
Quality Metrics on Target EFFICIENCY IMPROVEMENTS Reduced policy delivery from 30 to 10 days Reduced certificate of insurance delivery expense by 20+% Standardized policy issuance for top 30 carriers and reduced issuance time from 12 to 3 days Single agency management system and standardized process
Slide 36: Reduced Adjusted Operating Expense Ratio
Reduced Adjusted Operating Expense Ratio BROKERAGE 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% 16.0% 20.8% 17.3% RISK MANAGEMENT 28.0% 27.0% 26.0% 25.0% 24.0% 23.0% 27.0% 24.4% See important disclosures regarding Non-GAAP measures on Page 3.
Slide 37: Brokerage & Risk Mgmt Adjusted EBITDAC Margin
Brokerage & Risk Mgmt Adjusted EBITDAC Margin 25.0% 24.0% 23.0% 22.0% 21.0% 20.0% 19.0% 18.0% 20.4% 21.2% 22.1% 23.6% 24.5% 2011 2012 2013 2014 2015 See important disclosures regarding Non-GAAP measures on Page 3.
Slide 38: Ranked Highest in Customer Satisfaction among Brokers for Large Commercial Insurance
Ranked “Highest in Customer Satisfaction among Brokers for Large Commercial Insurance“1 SM According to the 2015 Large Commercial Insurance Study conducted by J.D. Power and in partnership with RIMS, Arthur J. Gallagher & Co. ranked highest in customer satisfaction among brokers in the large commerc
Slide 39: Relentless Focus on Quality and Customer Service
Relentless Focus on Quality and Customer Service Voted Best UK Broker for Service – 2015 STRATEGIC RISK’S UK FTSE SURVEY Best Companies for Leaders – 2015 CHIEF EXECUTIVE MAGAZINE America’s Best Employers – 2015 FORBES MAGAZINE Best TPA in Casualty Claims Handling – 2015 ADVISEN CLAIMS SATISFACTION
Slide 40: Maintaining Culture
Maintaining Culture
Slide 41: Shared Values and Culture
Arthur J. C ‘Shared values at Athur J. Gallagher & Co. are the rock foundation of the Company and our Culture, Maintain eee caries oma alsevacenomen 1. We are a Sales and Marketing Company dedicated to providing excellence in Risk Manage: rent Services to our clients We support one another We believ
Slide 42: One of the World’s Most Ethical Companies
One of the World’s Most Ethical Companies as Recognized by Ethisphere four 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 Demonstrati
Slide 43: Why Invest?
Why Invest? You believe our company has: Right management Unique culture Proven growth strategy Continuing M&A opportunites increasingng productivity Gallagher IS WELL positioned for future growth quality good use of leverage strong balance sheet Excellent return to shareholders
Slide 44: Why Invest? We Are Just Getting Started
Why Invest? We Are Just Getting Started 352% AJG 86% S&P 500 Source for data: Bloomberg. Total returns from 1/1/2000 – 12/31/2015 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, 2015 and 2014 (Unaudited—in millions except percentage data) Reconciliation of EBITDAC to Net Earnings Net earnings Provision (benefit) for income taxes Inte
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