Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (October 2005)
43 slides from Arthur J. Gallagher &'s investor presentation, Oct 31, 2005
Slide 1: Arthur J. Gallagher & Co. October 2005
Arthur J. Gallagher & Co. October 2005
Slide 2: Safe Harbor Statement
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 The presentation relating to this material may contain forward-looking statements. Forward-looking statements made by or on behalf of Gallagher are subject to risks and uncertainties, including but not limited to the fo
Slide 3: Non-GAAP Financial Measures
Non-GAAP Financial Measures Regulation G Disclosure This presentation includes certain non-GAAP financial measures as defined under rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”). As required by SEC rules, we have provided reconciliations of those measures to the most d
Slide 4: World's fourth-largest insurance brokerage and risk management firm
Arthur J. Gallagher & Co. World’s fourth-largest insurance brokerage and risk management services firm Public since 1984 Market capitalization of $2.7 billion Shares outstanding of 95.2 million Dividend yield of 3.9% 52-week range – $34.25—$25.42 Traded NYSE as “AJG” As of 9/30/05, unless otherwise
Slide 5: Performance vs. S&P
Arthur J. Gallagher & Co Performance vs. S&P 350% 300% 250% 200% 150% 100% 50% 0% Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Arthur J Gallagher & Co [AJG] S&P 500 [SPX]
Slide 6: Summary: Why Invest?
Arthur J. Gallagher & Co. Summary: Why Invest? $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 20 % CAGR Total Revenues 2004 $300 $250 $200 $150 $100 $50 $0 34% CAGR 2000 Cash Flow from Ops 2004 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 19% CAGR 1985 Dividends 2005 $1.12 2004 cash flow from opera
Slide 7: A Real Growth Story
Arthur J. Gallagher & Co. A Real Growth Story 1984 IPO (Restated for stock splits) September 30, 2005 Stock Price $1.72 $28.81 Market Cap $57 M $2.7 B Tangible Net Worth $23 M $377 M Annual Dividend/Share $.03 $1.12 Including Dividend Reinvestment, Compound Annual Growth Rate of 19%
Slide 8: 2004 Achievements
Arthur J. Gallagher & Co. 2004 Achievements Record revenues of $1.4B and earnings from continuing operations of $188M Total Brokerage and Risk Management revenues increased 12% Total Brokerage and Risk Management pretax earnings increased 14% Completed record 19 acquisitions Record dividend increase
Slide 9: 2004 Achievements
Arthur J. Gallagher & Co. 2004 Achievements Returned $141M in cash to stockholders $56M of share repurchases or 1.8M shares $85M of paid dividends Increased GAAP Book Value to $761M Maintained tangible net worth at nearly $400M Navigated synfuel tax credit waters
Slide 10: 2005 Developments
Arthur J. Gallagher & Co. 2005 Developments Reached agreement with Illinois’ Attorney General and Insurance Department on 5/18/05 Sold two medical claims management operations Continue divestiture of Financial Services assets Resolved Headwaters dispute Froze defined benefit pension plan effective 7
Slide 11: Long-term Goals
Arthur J. Gallagher & Co. Long-term Goals $2.5—$3.0 billion in revenues within five years 15% year-over-year earnings growth 30%+ annual return on Average Stockholders’ Equity
Slide 12: Culture Driven Success
Arthur J. Gallagher & Co. Culture Driven Success Sales and marketing driven Team-oriented and committed to growth Open “Small company” feel Client-focused Competitive No “C” players Niche advantaged
Slide 13: Three Distinct Segments
Arthur J. Gallagher & Co. Three Distinct Segments Total Revenues Brokerage 67% Financial Services 8% Risk Management 25% Pretax Earnings Brokerage 82% Financial Services (8%) Risk Management 26% Total revenues from continuing operations exclude FIN 46 impact and investment gains Pretax earnings from
Slide 14: Brokerage Segment
Brokerage Segment Gallagher’s largest business segment Acts as intermediary – no underwriting risk Niche driven Alternative market leaders
Slide 15: Brokerage Segment: Contingent Commission Status
Brokerage Segment Contingent Commission Status Resolved issue without a lawsuit No unlawful conduct No longer accepting contingent commissions as a retail broker Must disclose compensation to clients Still working to get buy-in from other states
Slide 16: Brokerage Segment: A Strategic Consolidator
Brokerage Segment A Strategic Consolidator Geographic diversity; enhance or expand capabilities Approximately 146 acquisitions in this segment from 1986 through 9/30/05 The rules: financial health, similar culture Gallagher is merger partner of choice
Slide 17: Brokerage Segment: Growth & Profits
Brokerage Segment Growth & Profits 1000 900 800 700 600 500 400 300 200 100 $458M 19% CAGR $920M 00 01 02 03 04 Total Revenues 200 150 100 50 0 $89M 21% CAGR $186M 00 01 02 03 04 Pretax Earnings 2004 pretax margins of 20% 2004 growth in diluted net EPS of 12% Note: Amounts as originally reported for
Slide 18: Brokerage Segment: Three Primary Operations
Brokerage Segment Three Primary Operations Retail Brokerage 56% (Jim Gault) Employee Benefits 18% (Jim Durkin) Specialty Marketing & International 26% (Dave McGurn) As of 9/30/05
Slide 19: Retail Brokerage Offices
Retail Brokerage Offices
Slide 20: Retail Brokerage Niches
Retail Brokerage Niches Agribusiness Aviation Captives Claim Advocacy & Loss Control Construction Construction Project Solutions Energy Global Risk Management Healthcare Higher Education Management Liability Marine Mergers & Acquisitions Personal Insurance Public Entity Real Estate General Commercia
Slide 21: Retail Brokerage: High Growth & Profit Potential
Retail Brokerage High Growth & Profit Potential Niches – number and size Acquisitions and hiring Alternative market Captives Rent-a-captives Deductible plans Self-insurance
Slide 22: Specialty Marketing & International Offices & Strategic Alliances
Specialty Marketing & International Offices & Strategic Alliances
Slide 23: Specialty Marketing & International Capabilities
Specialty Marketing & International Capabilities Wholesale Brokerage International P/C Brokerage Programs/Program Administration Reinsurance Brokerage Captives/Rent-a-Captives CoverageFirst.com
Slide 24: Employee Benefits Offices
Employee Benefits Offices
Slide 25: Employee Benefits Capabilities
Employee Benefits Capabilities Employee Benefits Brokerage/Consulting Healthcare Data Analysis/Benchmarking Compliance Consulting Merger & Acquisition Analysis Actuarial Services Executive Benefits/ Financial Planning Human Resource Services Retirement Plan Services Employer Administrative Services
Slide 26: Employee Benefits: High Growth & Profit Potential
Employee Benefits High Growth & Profit Potential Niche marketing Cross-selling opportunities with Retail Brokerage Merger and acquisition opportunities Assisting clients/prospects with four top priorities Controlling health and welfare costs Providing better retirement tools/information Benefits com
Slide 27: Risk Management Segment
Risk Management Segment Gallagher’s Property/Casualty Claims Management Operation “Gallagher Bassett” – Rich McKenna World’s largest multiline, third-party administrator (Business Insurance magazine) Revenue growth is all organic Fee revenues are primarily generated based on number of claims Signifi
Slide 28: Risk Management Segment: Growth & Profits
Risk Management Segment Growth & Profits 350 300 250 200 150 100 50 0 16% CAGR $203M $346M 2000 2004 Total Revenues 60 50 40 30 20 10 0 24% CAGR $28M $58M 2000 2004 Pretax Earnings 2004 pretax margin of 17% 2004 growth in diluted net EPS of 47% Note: Amounts as originally reported for continuing ope
Slide 29: Gallagher Bassett Offices
Gallagher Bassett Offices ONTARIO SCOTLAND ENGLAND AUSTRALIA HAWAII
Slide 30: Risk Management Segment: Expertise
Risk Management Segment Expertise Real-time Claims Reporting Recoveries (subrogation, salvage, etc.) Appraisal Services Litigation Management Information Management Managed Care Services Loss Control Services Safety Programs Settlement Management Education and Training
Slide 31: Risk Management: High Growth & Profit Potential
Risk Management Segment High Growth & Profit Potential Fortune 1000 companies Outsourcing of insurance co. claims departments Captives Program business Expanding global capabilities Enhancements in systems/processes related to: Electronic data storage Security Claims regulatory changes Access to inf
Slide 32: Financial Services Segment: Cash & Investments
Financial Services Segment $1,035 Million of Cash & Investments* Investments Allocated to Financial Services Segment ($137 M) Cash Allocated to Risk Management Segment ($194 M) Cash Allocated to Brokerage Segment ($704 M) * As of 9/30/05 – Cash & investments net of related investment borrowings
Slide 33: Financial Services: Net Assets and Financial Guarantees
Financial Services Segment Net Asset s and Financial Guarant ees* $400 $350 $300 $250 $200 $150 $100 $362 $163 Net Assets* $70 $60 $50 $40 $30 $20 $10 $0 Tax Adv Asset Mgmt Real Estate Other Low Income Housing $16M Alternative Energy $50M Asset Alliance $47M Home Office Building $12M Other $12M $ In
Slide 34: Financial Services: Refocused Investing
Financial Services Segment Refocused Investing Tax advantaged – maximize through 2007 Asset management – monetize Real estate – optimize cash flows Sold Florida Community Development- 2Q 2005 Other Exited Venture Capital investments in 2003 Sold Bermuda Insurance Investment – 3Q 2005
Slide 35: Why Invest?
Arthur J. Gallagher & Co. Why Invest?
Slide 36: Revenue Growth
Arthur J. Gallagher & Co. Revenue Growth Total Revenues From Continuing Operations As Originally Reported ($ M) $1,600 $1,400 $1,200 $1,000 $800 $600 $400 20% CAGR $684 $836 $1,021 $1,221 $1,437 2000 2001 2002 2003 2004
Slide 37: Profitable Growth
Arthur J. Gallagher & Co. Profitable Growth Total Pretax Earnings From Continuing Operations As Originally Reported ($ M) $260 $240 $220 $200 $180 $160 $140 $120 $100 18% CAGR $121 $137 $185 $193 $237 2000 2001 2002 2003 2004
Slide 38: Rising Productivity
Arthur J. Gallagher & Co. Rising Productivity Total Revenue Per Employee As Originally Reported $200 $190 $180 $170 $160 $150 $140 $130 $120 7% CAGR $141,000 $137,000 $153,000 $179,000 $183,000 2000 2001 2002 2003 2004 Note: Amounts as originally reported for continuing operations
Slide 39: Increasing Shareholder Value
Arthur J. Gallagher & Co. Increasing Shareholder Value Diluted Earnings From Continuing Operations As Originally Reported – Post Split 1/18/01 $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 18% CAGR $1.02 $1.36 $1.41 $1.56 $2.01 2000 2001 2002 2003 2004
Slide 40: Earnings Before Investment Gains, Depreciation, Amortization and Stock Compensation
Arthur J. Gallagher & Co. Earnings From Continuing Operations Before Investment Gains (Losses), Depreciation, Amortization and Stock Compensation Expense (In millions) $300 $250 $200 $150 $100 $50 26% CAGR $88 $131 $169 $201 $236 2000 2001 2002 2003 2004 Note: Amounts as originally reported
Slide 41: Since 1990, $1.6 Billion Cash Flow from Ops
Arthur J. Gallagher & Co. Since 1990, $1.6 Billion Cash Flow from Ops Dividends Paid ($498 M) Reinvested in Operations ($626 M) Shares Repurchased ($444 M) Built a balance sheet with $3.96 in tangible net worth per share and no operating debt. As of 9/30/05
Slide 42: Summary: Why Invest?
Arthur J. Gallagher & Co. Summary: Why Invest? $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 20% CAGR 2000 Total Revenues 2004 $300 $250 $200 $150 $100 $50 $0 34% CAGR 2000 Cash Flow from Ops 2004 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 19% CAGR 1985 Dividends 2005 $1.12 2004 cash flow from o
Slide 43: Culture Driven Success
Culture Driven Success The Gallagher Way, Robert E. Gallagher – 1984 Shared values at Gallagher are the rock foundation of the Company and our Culture. What is a Shared Value? These are the concepts that the vast majority of movers and shakers in the Company passionately adhere to. What are some of
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