Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Shareholder Meeting (May 2012)
59 slides from Arthur J. Gallagher &'s shareholder meeting presentation, May 8, 2012
Slide 1: Arthur J. Gallagher & Co.
ARTHUR J.
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 May 8, 2012
Stockholders’ Meeting May 8, 2012 •2012 Annual Meeting •Chairman’s Remarks ?2011 Review •Questions & Answers
Slide 4: 2012 Board of Directors
2012 Board of Directors • William L. Bax • Frank E. English, Jr. • Ilene S. Gordon • Elbert O. Hand • David S. Johnson • Kay W. McCurdy • Norman L. Rosenthal, Ph.D. • James R. Wimmer Also in attendance: • A. James Gallagher, Jr. – Former CEO
Slide 5: Stockholders' Meeting: 2012 Annual Meeting
Stockholders’ Meeting May 8, 2012 •2012 Annual Meeting
Slide 6: Stockholders' Meeting: 2011 in Review
Stockholders’ Meeting May 8, 2012 •2012 Annual Meeting •Chairman’s Remarks ?2011 in Review
Slide 7: Information Regarding Forward-Looking Statements
Information Regarding g g 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,” “expects,” “believes,” “contemplates,” “should,” “could,”
Slide 8: Information Regarding Forward-Looking Statements
Information Regarding g g 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,” “expects,” “believes,” “contemplates,” “should,” “could,”
Slide 9: Non-GAAP measures definitions
•Adjusted EBITDAC Margin Excluding Heath Lambert is defined as Adjusted EBITDAC further adjusted to exclude the EBITDAC associated with the acquired Heath Lambert operations divided by Adjusted Revenues, as further adjusted to exclude the revenues associated with the acquired Heath Lambert operation
Slide 10: Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co. • 73% of revenue • We sell insurance and consult on insurance programs • benefits and Brokerage Segment Retail P&C, wholesale • 26% of revenue • We adjust claims and help companies reduce their losses W k ti li bilit d Risk Management • Workers compensation, liability, mana
Slide 11: Brokerage Segment – 2011
Brokerage Segment – 2011 D ti 81% Domestic 53% Retail-P/C 25% Retail- Benefits 19% International 22% Wholesale
Slide 12: Risk Management Revenues – 2011
Risk Management Revenues – 2011 Workers 67% Compensation 78% Domestic 26% 7% Liability Property 22% International
Slide 13: Brokerage Segment 2011
Adjusted Revenues Brokerage Segment 2011 Adjusted EDITDAC Margin Excluding Heath Lambert 18% $1,320 $1,551 $1,200 $1,450 $1,700 22.8% 23.0% g $700 $950 2010 2011 22.4% 22.3% 22.5% $341 $400 Adjusted EBITDAC 22.0% 21.9% 18% $290 $ 200 $250 $300 $350 21.5% 21.8% 2010 2011 12 $150 2010 2011 (in $M) See
Slide 14: Risk Management 2011
Risk Management 2011 Adjusted EDITDAC Margin 19% $462 $300 $400 $500 16.3% 16.5% $200 2010 2011 15 6% 15.9% 15.8% 16.0% $72 $88 $80 $100 Adjusted EBITDAC 15.6% 15 3% 22% 15.5% $20 $40 $60 15.0% 15.3% 2010 2011 13 2010 2011 (in $M) See important disclosures regarding Non-GAAP measures on Page 8.
Slide 15: Brokerage & Risk Mgmt Combined – 2011
Brokerage & Risk Mgmt Combined – 2011 $2 500 Adjusted Revenues o e ge& s g Co b ed 0 Adjusted EDITDAC Margin Excluding Heath Lambert 18% $1,782 $2,100 $1 000 $1,500 $2,000 2,500 21.3% 21.5% g $500 1,000 2010 2011 20.8% 20.7% 21.0% $362 $428 $400 $500 Adjusted EBITDAC 20.3% 20.5% 18% $100 $200 $300 2
Slide 16: Maintaining a Prudent Balance Sheet
Maintaining a Prudent Balance Sheet Gallagher S&P 1000 Total Debt $685 Stockholders’ Equity $1,244 Net Debt to Total Capital 30% 27% Net Debt to Adjusted EBITDAC 1.2x 1.8x $’s in millions. Using Gallagher’s combined Brokerage and Risk Management EBITDAC. Net Debt for Gallagher reflects total debt ou
Slide 17: Dividends Per Share
Dividends Per Share $1.36* $1.00 $1.20 $0 60 $0.80 $ $0.40 0.60 $0.00 0.20 1984 2012 *Indicated – On January 26, 2012, Gallagher’s Board of Directors declared a $.34 per share first quarter 2012 quarterly dividend.
Slide 18: Total Stockholder Returns Since 1/1/2011
Total Stockholder Returns Since 1/1/2011 30% AJG 27% 20% 25% 5% 10% 15% S&P -5% 0% 9% -15% -10% 17 Source for data: Bloomberg. Total returns include reinvesting all dividends at the ex-dividend date.
Slide 19: Economy GDP Growing Back to 2007 Levels
Economy GDP Growing Back to 2007 Levels $12,500 $13,000 $11,500 $12,000 $11,000 $10,000 $10,500 2002 2003 2005 2006 2007 2008 2009 2010 2011 18 2001 2004 Real GDP in billons of chained 2005 dollars. Source for data: Bureau of Economic Analysis.
Slide 20: U.S. Jobs Recovering, but only to 2004 levels
U.S. Jobs Recovering, but only to 2004 levels 135,000 130,000 120,000 125,000 115,000 2002 2003 2005 2006 2007 2008 2009 2010 2011 19 2001 2004 Total Nonfarm Employees (in thousands) seasonally adjusted. Source for data: Bureau of Labor Statistics.
Slide 21: Short Term Rates
Short Term Rates NIL 3.9% 5.0% 5.0% 4% 5% 3.2% 3% 1.7% 1.1% 1.3% 1.9% 1% 2% 0.2% 0.2% 0.1% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20 Average Annual Effective Fed Funds Rates. Source for data: Bloomberg
Slide 22: Commercial P&C Pricing
Commercial P&C Pricing 160 140 150 CPI 130 110 120 130 90 100 Rates 91 80 21 Commercial Rate Index reflects the cost of P&C premiums relative to the year 2000. Constructed using Counsel of Insurance Agents and Brokers data.
Slide 23: Rate Environment
Rate Environment CIAB 0 1% 0.9% 0.0% 2.0% -2.9% -0.1% -2.0% 6 4% -6.0% -5.2% -5.4% -4.0% -6.4% -8.0% 22 Change in Average Commercial Rates.
Slide 24: U.S. P&C Industry Premiums Written Growing Again
U.S. PC Industry Premiums Written Growing Again 8.6% 9.7% 12% 4.5% 4.3% 3.3% 7% 0.0% -0.8% -1.9% 0.8% -3% 2% -3.8% -8% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 23 2011 Growth in net premiums written. Source for data: AM Best as of December 2, 2011. *Growth rate for 9 months 2011 compa
Slide 25: Brokerage During Recession
Brokerage During Recession Adjusted EDITDAC Margin Excluding Heath Lambert $1,170 $1,551 $1,200 $1,450 $1,700 22 4% 25.0% g $700 $950 2008 2011 22.4% 20.0% 22.5% $341 $400 Adjusted EBITDAC 19.0% 17.5% 15% CAGR $223 $ 200 $250 $300 $350 15.0% 2008 2011 24 $150 2008 2011 (in $M) See important disclosu
Slide 26: Risk Mgmt During Recession
Risk Mgmt During Recession Adjusted EDITDAC Margin 6% CAGR $465 $300 $400 $500 18.0% 20.0% $200 2008 2011 15.9% 16.0% $88 $80 $100 Adjusted EBITDAC 12.6% 12.0% 14.0% 14% CAGR $59 $20 $40 $60 10.0% 2008 2011 25 2008 2011 (in $M) See important disclosures regarding Non-GAAP measures on Page 8.
Slide 27: Brokerage & Risk Mgmt – During Great Recession
Brokerage & Risk Mgmt – During Great Recession $2 500 Adjusted Revenues g g g Adjusted EDITDAC Margin Excluding Heath Lambert 9% CAGR $1,635 $2,100 $1 000 $1,500 $2,000 2,500 25.0% g $500 1,000 2008 2011 20.7% 20.0% 22.5% $428 $400 $500 Adjusted EBITDAC 17.5% 17.2% 15% CAGR $281 $100 $200 $300 15.0%
Slide 28: Organic Growth
ORGANIC | GROWTH | a | MAINTAIN UNIQUE CULTURE AND QUALITY “4j
Slide 29: Plan For Growth — Organic
Plan For Growth — Organic ORGANIC {=e ela ea GROWTH} — MAINTAIN ate UNIQUE ITY 2) CULTURE
Slide 30: Gallagher's Sales Culture Overcomes Rate Environment
Gallagher s Sales Culture Overcomes 5.0% Gallagher Organic 8.1% 3.1% 5.0% 10.0% 2.0% 2.0% 2.0% -0.8% -2.4% -1.7% CIAB* 0.0% -4.1% -8 0% -5.2% -5.4% -5.6% CIAB 0.2% 10 0% -5.0% 8.0% -12.1% -11.0% -15.0% -10.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 30 Gallagher’s Brokerage Segment Organic Growt
Slide 31: Driving Organic Growth
Driving Organic Growth Grow Our Own Focus Provide Sales Mgmt Cross Organic G Hire Experienced Into Niches Mgmt. Tools and Training Selling Growth p Teams Enhance Carrier Compensation Domestic and International 31
Slide 32: Driving Organic Growth
Driving Organic Growth Grow Our Own Focus Provide Sales Mgmt Cross Organic G Hire Experienced Into Niches Mgmt. Tools and Training Selling Growth p Teams Enhance Carrier Compensation Domestic and International 32
Slide 33: Driving Organic Growth
Driving Organic Growth Grow Our Own Focus Provide Sales Mgmt Cross Organic G Hire Experienced Into Niches Mgmt. Tools and Training Selling Growth p Teams Enhance Carrier Compensation Domestic and International 33
Slide 34: Driving Organic Growth
Driving Organic Growth Grow Our Own Focus Provide Sales Mgmt Cross Organic G Hire Experienced Into Niches Mgmt. Tools and Training Selling Growth p Teams Enhance Carrier Compensation Domestic and International
Slide 35: Organic Illustration – Negative
Organic Illustration – Negative +10% (-5%) $1.0m $976k ~(-3%) ( ) (-4%) (-4%) Renewal New Lost Impact of Impact of Current Base Prior Year Business Business Year Revenue p Rate on Renewals p Exposure on Renewals 35 All figures on this slide are used only for illustration purposes and are not estimat
Slide 36: Organic Illustration – Flat
Organic Illustration – Flat +10% (-5%) (-2 5%) $1.0m $1.0m 0% ( ) 2.5%) (-2.5%) Renewal New Lost Impact of Impact of Current Base Prior Year Business Business Year Revenue p Rate on Renewals p Exposure on Renewals 36 All figures on this slide are used only for illustration purposes and are not estim
Slide 37: Organic Illustration – Growth
Organic Illustration – Growth +10% (-5%) +2% +2% $1.0m $1.09m 9% Renewal New Lost Impact of Impact of Current Base Business Prior Year Business Year Revenue p Rate on Renewals p Exposure on Renewals 37 All figures on this slide are used only for illustration purposes and are not estimates of Gallagh
Slide 38: Plan For Growth – M&A
Plan For Growth- M&A MERGERS AND MAINTAIN UNIQUE CULTURE
Slide 39: Strong Acquisition Momentum
Strong Acquisition Momentum $277m* $250 $150 $200 International $175m $ 50 $100 Domestic $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $102m 39 ($Ms) GAB Robins $45m *Annualized revenues acquired.
Slide 40: Strong International Acquisition Momentum
Strong International Acquisition MomentuS o g e o cqus o o e um 2011 2010 0 H thL b t 2008 Securitas RE First City Heath Lambert Lonmar (London Binder/Wholesales) Woodbrook Oxygen Insurance Managers Specialized Broking Associates Risk & Reward (Benefits) Underwriting Agencies 40
Slide 41: Acquisition Update
Acquisition Update Integration completed as planned in 2011 GAB Paid $24m for $45m of revenues, which contributes to $9m of annual EBITDAC as expected Increased margins to 20% through expense saves and synergies Robins Acquired All clients have been converted to our GB claim system (over 2.6m claims
Slide 42: M&A Looking Forward
M&A Looking Forward Limited Consolidators Numerous Specialties Gallagher’s Core C t Vast Pipeline Domestic and Competency International Markets Highly Fragmented Retail P&C Wholesale Culture 18,000 Agents/Brokers in the U.S. Benefits Gallagher Proven History Baby Boomers Looking for Exit Strategy In
Slide 43: Current Gallagher U.S. Locations
Current Gallagher U.S. Locations
Slide 44: Larger Cities With Expansion Potential
Larger Cities With Expansion Potential Cities with population of 100,000+ where Gallagher has no presence.
Slide 45: Gallagher Global Alliance
Gallagher Global Alliance
Slide 46: Productivity, Quality and Culture
Productivity, Quality and Culture
Slide 47: Productivity & Quality
Productivity Controlling Headcount Established Offshore Centers of & Quality Excellence Managing E Leveraging Sales Force Management Expenses Building Investing in Productivity Tools Improving Productivity and Quality Tools – DMS and Workflow Business Intelligence Standardizing Processes and Systems
Slide 48: Reasons for Offshore Centers of Excellence
Reasons for Offshore Centers of Excellence Reduce Costs 35% Foster Innovation 5% Increase Speed to Market 15% Focus on Core 25% Improve Quality 48 20%
Slide 49: Offshore Centers of Excellence Examples of Benefits
Offshore Centers of Excellence Examples of Benefits Efficiency Improvements Quality Improvements Reduce policy delivery from 30 to 10 days Achieve 98% quality rate Reduce Certificate of Insurance delivery expense by 20% Improved quality rate to 99% Implemented claims adjusters enhanced quality audit
Slide 50: Systems Achievements – IT 2004-2011
Systems Achievements – IT 2004-2011 Global Corporate Systems
Slide 51: IT Systems 2004-2011 Global Corporate Systems
IT Systems 2004-2011 Global Corporate Systems T&E General Ledger Corporate HR/Payroll Intranet 201014 Planning R l Email Document Mgmt Data Warehouse Real Estate Leasing 51
Slide 52: Current Systems Activity
Current Systems Activity CRM – Customer Centralized Relationship Agency System Internal Broker Social Media External Client Prospecting Client Communication Tools p g Tools 52
Slide 53: Adjusted Compensation Expense Ratios
Holding Adjusted Compensation g j pensation Expense Ratios Brokerage Risk Management See important disclosures regarding Non-GAAP measures on Page 8.
Slide 54: Reducing Adjusted Operating Expense Ratio
Reducing Adjusted Operating g j p g Expense Ratio Brokerage Segment Risk Management Segment 22.5% 25.0% 30.0% 20.8% 17 5% 16 8% 20.0% 27.0% 25 0% 27.5% 16.8% 15.0% 17.5% 23.7% 22.5% 25.0% 10.0% 12.5% 2008 2011 20.0% 2008 2011 54 See important disclosures regarding Non-GAAP measures on Page 8.
Slide 55: Awards and Recognition 2011
2011 Greenwich Excellence award for quality of service to large corporations 2011 Mid-Market Buyers Choice TPA Expertise Honoree – Business Insurance 2011 Commercial Broker of the Year (Heath Lambert) – Insurance Times 2011 Sources to the Community Underwriting Agency of the Year finalist (Australis
Slide 56: Maintain Unique Culture
Maintain Unique Culture ‘Sad vant et Gaucher 8. Cor ha ct ntiton of Comey and ute Strats x Shred Une’ Tea coreg bb aaj tte ove ana one Coen peroenany abate Wlancom Noes Scape 8 Go Sewer 1 Ware Cie una rat Company setae prveing mca ni Manage 2. Wenpotone ach Webneinone andr We tnedes and epee ty 2 Wa
Slide 57: Recognized by Ethisphere as One of the World's Most Ethical Companies
Gallagher Recognized by Ethisphere g g y phere as One of the World’s Most Ethical Companies in 2012 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 pu
Slide 58: Why Invest?
Why Invest? Source for data: Bloomberg. Total returns include reinvesting all dividends at the ex-dividend date.
Slide 59: Questions & Answers
Questions & Answers
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