Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Shareholder Meeting (May 2011)
58 slides from Arthur J. Gallagher &'s shareholder meeting presentation, May 11, 2011
Slide 1: 2011 Annual Stockholder's Meeting
2011 Annual Stockholder's Meeting iat Tuesday, May 10, 2011 } Portugaxss a s a ait Kazakt ‘ Azer Me, cass G@> Arthur). Gallagher & Co,
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
Stockholders’ Meeting May 10, 2011 2011 Annual Meeting Chairman’s Remarks §2010 Review • Questions & Answers
Slide 4: 2011 Board of Directors
2011 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
Stockholders’ Meeting May 10, 2011 • 2011 Annual Meeting
Slide 6: Stockholders' Meeting
Stockholders’ Meeting May 10, 2011 2011 Annual Meeting Chairman’s Remarks §2010 in Review
Slide 7: Information Regarding Forward-Looking Statements
Information Regarding Forward -Looking Statements This investment presentation contains “forward -looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this investment presentation, the words “anticipates,” “expects,” “believes,” “should,” “coul
Slide 8: Information Regarding Non-GAAP Measures
Arthur J. Gallagher & Co. Information Regarding Non-GAAP Measures In addition to reporting financial results in accordance with GAAP, this presentation provides information regarding EBITDAC, EBITDAC margin, Adjusted EBITDAC, Adjusted EBITDAC Margin, Diluted Net Earnings Per Share (As Adjusted) for
Slide 9: Two Core Businesses
Two Core Businesses Revenue – $1.8 billion EBITDAC – $365 million Brokerage Segment 74% Brokerage 82% Risk Management Segment 26% Risk Management 18% Year 2010 as reported. See important disclosures regarding Non-GAAP measures in Exhibits
Slide 10: Brokerage
Brokerage Segment Revenues – $1.3 billion Wholesale 21% Retail P/C 53% Mostly U.S. and U.K. Mostly U.S., Canadaand U.K. Retail-Benefits 26% U.S. and U.K. Year 2010 as reported
Slide 11: Risk Management Segment
Risk Management Segment Revenues – $462 million EBITDAC – $65 million Workers Domestic 83% Compensation 69% Property 4% Liability 27% International 17% Year 2010 as reported. See important disclosures regarding Non-GAAP measures.
Slide 12: A Perfect Storm for Insurance Brokers
A Perfect Storm for Insurance Brokers Years of soft insurance pricing Worst economic recession since the Great Depression Zero investment yields
Slide 13: Economy – GDP shrinks
Economy – GDP shrinks 5% 4% 3% 1.9% 2% 1% 0.0% 0% -1% -2% -3% -2.6% -4% 2007 2008 2009 U.S. Real GDP Annual Rates of Change Source for data: Bureau of Economic Analysis
Slide 14: U.S. Unemployment Skyrockets
U.S. Unemployment Skyrockets 10% 9.3% 9% 8% 7% 5.8% 6% 4.6% 5% 4% 3% 2% 2007 2008 2009 U.S. Unemployment Average Annual Rates. Source for data: Bureau of Labor Statistics
Slide 15: U.S. Employment Down Million Jobs
U.S. Employment Down 9 Million Jobs 140,000 137,983 138,000 136,000 134,383 134,000 132,000 129,320 130,000 128,000 126,000 YE 2007 YE 2008 YE 2009 Total Nonfarm Employees ( in thousands) . Source for data: Bureau of Labor Statistics
Slide 16: Short-Term Interest Rates Fall
Short-Term Interest Rates Fall 6.0% 5.0% 5.0% 480 bps decline 4.0% 3.0% 1.9% 2.0% 1.0% 0.2% 0.2% 0.0% 2007 2008 2009 2010 Average Annual Effective Fed Funds Rates. Source for data: Bloomberg
Slide 17: Commercial P&C Pricing Below Year 2000 Significantly Lagging Inflation
Commercial P&C Pricing Below Year 2000 Significantly Lagging Inflation Commercial Rate Index Pro-Forma at CPI Rate 100) 150 = 140 2000 130 126 (Year 120 Value 110 Index 100 90 91 00 01 2 03 4 5 6 7 8 9 0 00000010 QQQQQQQQQQQ 4th 4th 4th 4th 4th 4th th th th th 4 4 4 4th Commercial Rate Index reflect
Slide 18: Global P&C Market Shrinks
Global P&C Market Shrinks 5% 4.0% 4% 3% 1.5% 2% 1% 0% -1% -0.1% -0.8% -2% 2006 2007 2008 2009 Global P&C change in Premiums. Source for Data: Swiss Re’s “World Insurance” sigma studies (in real terms, ie adjusted for inflation)
Slide 19: But, Gallagher Sailed through the Economic Storm
But, Gallagher Sailed through the Economic Storm
Slide 20: Gallagher's Sales Culture Outperforms Economic Environment
Gallagher’s Sales Culture Outperforms Economic Environment Gallagher Organic CIAB Avg. Commercial Rate Declines 6.0% 3.0% 0.0% 0.0% -3.0% -2.0% -2.0% -6.0% -5.4% -5.6% -9.0% -12.0% -11.0% -15.0% 2008 2009 2010 Gallagher’s Brokerage Segment Organic Growth Year 2010 as reported. See important disclosu
Slide 21: Gallagher's Acquisition Program Fuels Growth
Gallagher’s Acquisition Program Fuels Growth Organic Revenue Growth from Acquisitions CIAB 9.0% 9.0% 7.0% 7.0% 6.0% 5.0% 6.0% 3.0% 3.0% 0.0% 0.0% 0.0% -3.0% -2.0% -2.0% -3.0% -6.0% -6.0% -5.4% -5.6% -9.0% -9.0% -12.0% -11.0% -12.0% -15.0% -15.0% 2008 2009 2010
Slide 22: Gallagher Grows Adjusted Revenue
Gallagher Grows Adjusted Revenue $2,500 4% CAGR $2,100 $1,782 $1,635 $1,719 $1,700 $1,300 $900 $500 Brokerage & Risk Management Adjusted Revenues from Continuing Operations—See Non–GAAP measures.
Slide 23: Gallagher's Workforce Discipline & Expense Reduction
Gallagher’s Workforce Discipline & Expense Reduction Brokerage Compensation Ratio Operating Expense Ratio 70% 61.4% 30% 60.1% 61.1% 60% 25% 20.8% 50% 20% 16.9% 16.6% 40% 15% 30% 10% 20% 10% 5% 0% 0% 2008 2009 2010 2008 2009 2010 See important disclosures regarding Non-GAAP measures.
Slide 24: Gallagher's Workforce Discipline & Expense Reduction
Gallagher’s Workforce Discipline & Expense Reduction Risk Management Compensation Ratio Operating Expense Ratio 70% 60.9% 30% 27.0% 60.4% 60.9% 60% 24.0% 23.5% 25% 50% 20% 40% 15% 30% 10% 20% 10% 5% 0% 0% 2008 2009 2010 2008 2009 2010 See important disclosures regarding Non-GAAP measures.
Slide 25: Gallagher Grows Adjusted EBITDAC
Gallagher Grows Adjusted EBITDAC $500 13% CAGR $400 $362 $347 $281 $300 $200 $100 $0 2008 2009 2010 Brokerage & Risk Management Adjusted EBITDAC from Continuing Operations—See Non– GAAP measures.
Slide 26: Gallagher Improves Adjusted EBITDAC Margins Brokerage
Gallagher Improves Adjusted EBITDAC Margins Brokerage 23% 21.9% 22% 21% 20% 19.0% 19% 18% 17% 16% 15% 2008 2010 See important disclosures regarding Non-GAAP measures.
Slide 27: Gallagher Improves Adjusted EBITDAC Margins Risk Management
Gallagher Improves Adjusted EBITDAC Margins Risk Management 16% 15.6% 15% 14% 12.6% 13% 12% 11% 10% 2008 2010 See important disclosures regarding Non-GAAP measures.
Slide 28: Gallagher Continues Acquisition Momentum
Gallagher Continues Acquisition Momentum Annualized Revenues Acquired From 2008 to 2010: $200 $166 • Completed 71 deals $145 $160 • $409m in annualized $120 $98 revenues • Highlighted by Liberty $80 Mutual/Wausau and GAB $40 Robins acquisitions $0 (In millions)
Slide 29: Risk Management M&A
Risk Management M&A • GAB Robins §Completed October 1, §Acquired TPA and managed care subsidiaries§Expect up to: $50 million of annualized revenues $10 million of EBITDAC by 2012 §Added over 400 talented employees§Excellent culture fit§Integration going as planned
Slide 30: Gallagher Continued to Invest in the Company
Gallagher Continued to Invest in the Company Positioned company for future expansion capacity Systems investment §Centralization §Global Systems §Centralized processes • Offshoring initiatives
Slide 31: Gallagher Continued Relentless Focus on Quality & Customer Service
Gallagher Continued Relentless Focus on Quality & Customer Service
Slide 32: Maintained Prudent Balance Sheet
Maintained Prudent Balance Sheet Global Insurance Gallagher @ Broker Avg. @ 12/31/2010 12/31/2010 S&P 1000 Total Debt $550 Stockholders’ Equity $1,107 Debt to Total Capital (Debt/(Debt + Equity)) 33% 38% 40% Debt to EBITDAC 1.5x 2.1x 2.8x $s in millions. Global Insurance Brokers’ ratios are adjusted
Slide 33: Gallagher's Stockholders Benefited
Gallagher’s Stockholders Benefited Total Returns January 2008—April 2011 AJG versus S&P 500 50% 47% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -3% -10% -15% -20% -25% -30% -35% -40% -45% -50% Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 AJG S&P 500 Source for da
Slide 34: The Power of Dividends
The Power of Dividends Price Only Dividends + 47% -3% 60% 60% 50% 50% 40% 40% 22% 30% 30% 20% 20% 10% 25% 10% 7% 0% 0% -10% -10% -20% -10% -20% AJG S&P 500 Source for Data: Bloomberg. Total Returns assume dividend reinvestment.
Slide 35: Cash Generation
Cash Generation Dividend Below 50% (In millions) $400 $300 $200 Dividend $100 $0 2008 2009 2010 See important disclosures regarding Non-GAAP measures.
Slide 36: On the Horizon.....
On the Horizon.....
Slide 37: Starting from a Strong Financial Position
Starting from a Strong Financial Position • Cash available for M&A §$100m available cash at 12/31/10 §Added $125m of new debt in February 2011 Debt still below 2x EBITDAC Significant flexibility remains §$500m in credit line See important disclosures regarding Non-GAAP measures.
Slide 38: Three Uses of Cash
Three Uses of Cash Re-invest in company – CapEx and acquisitions Dividends Repurchase shares – currently not anticipated
Slide 39: Brokerage Growth – Organic Drivers
Brokerage Growth – Organic Drivers Cross-selling and new business initiatives Recruiting new producers and teams §Domestically and Internationally Capitalize on niche expertise Developing our own – Internship program Focus on new niches Improving carrier compensation Implementing global sales manage
Slide 40: Brokerage Growth – Organic Drivers (cont)
Brokerage Growth – Organic Drivers (cont) • Opportunities from Healthcare Turmoil §Clients need help§We have the tools and resources §Many consulting opportunities for new/existing clients§Turmoil will continue with evolution of this bill Expanding program managers to utilize current distribution Bu
Slide 41: Acquisition Strategy – Brokerage
Acquisition Strategy – Brokerage • Unlimited opportunity §18,000 retail and wholesale brokerages and agencies* just in the U.S. (Retail P&C, Benefits and Wholesale) •Owned by baby boomers who need an exit strategy yet still want to be in the business •Need depth of capabilities to grow to the next l
Slide 42: Current Gallagher U.S. Locations
Current Gallagher U. S. Locations WA MT ME ND OR MN VT NH ID MA SD WI NY WY MI RI IA CT PA NE NJ NV OH UT IL DE CO IN WV MD KS VA CA MO KY NC OK TN AR AZ NM SC MS AL GA TX LA FL AK HI
Slide 43: Larger cities where we aren't located
Larger cities where we aren’t located WA MT ME ND OR MN VT NH ID MA SD WI NY WY MI RI IA CT PA NE NJ NV OH UT IL DE CO IN WV MD KS VA CA MO KY NC OK TN AR AZ NM SC MS AL GA TX LA FL AK HI
Slide 44: Acquisition Strategy – Brokerage (cont.)
Acquisition Strategy – Brokerage (cont.) • How we do it §Domestically looking for “tuck-ins” as well as stand alone platforms§International expansion Joint ventures Network of correspondent brokers source for future partners §Cultural fit is crucial
Slide 45: Acquisition Strategy – Brokerage (cont.)
Acquisition Strategy – Brokerage (cont.) • Long-term strategic value §Additional expertise for niches§Broaden geographic penetration §Additional leverage with markets, vendors, etc. Manage and monitor closely post acquisition to assure strategy meets return on capital targets
Slide 46: Acquisition Strategy – International Brokerage
Acquisition Strategy – International Brokerage • Solid acquisition activity in 2010 §FirstCity – London§Securitas – Brazil §SBA – Australia – now own 100%§Risk & Reward – U.K. employee benefits Global joint ventures are important Profit sharing Additional London flow through Huge geographic opportun
Slide 47: Gallagher Global Alliance
Gallagher Global Alliance
Slide 48: Brokerage Productivity & Expense Reductions
Brokerage Productivity & Expense Reductions Upgrading and consolidating agency systems Centralizing back office support Utilizing offshore centers of excellence Maintaining headcount controls Reducing real estate footprint Capitalizing on procurement/sourcing capabilities
Slide 49: Risk Management – Growth, Productivity & Expense Management
Risk Management – Growth, Productivity & Expense Management Attract and retain clients with superior value proposition §Unsurpassed claims handling capabilities and expertise§Superior outcomes§Industry -leading service experience§Industry -specific best practice solutions§Uniformly high levels of qu
Slide 50: Risk Management – Growth, Productivity & Expense Management (cont'd)
Risk Management – Growth, Productivity & Expense Management (cont’d) • Build on recent success in international markets §Target Australia, Canada, New Zealand & U.K.§Expand sales capacity and capability with a focus towards commercial sector§Leverage cross-selling opportunities with AJG Int’l and do
Slide 51: Corporate Segment Evolving
Corporate Segment Evolving Legacy investment era effectively behind us Clean-energy projects contributing §Viewed as cash generation vehicles§Earned $8 million after tax in 2010
Slide 52: Summary
Summary
Slide 53: Significant Headwinds
Significant Headwinds Economy – GDP shrinks U.S. Employment Down 9 Million Jobs 5% 140,000 4% 137,983 138,000 3% 1.9% 2% 136,000 134,383 1% 134,000 0.0% 0% 132,000 -1% 130,000 129,320 -2% -3% 128,000 -2.6% -4% 126,000 2007 2008 2009 YE 2007 YE 2008 YE 2009 Short -Term Interest Rates Fall Global P&C
Slide 54: Gallagher Sailed Through
Gallagher Sailed Through Gallagher Grows Adjusted Revenue Gallagher Grows Adjusted EBITDAC $2,500 $500 4% CAGR $2,100 13% CAGR $400 $362 $1,782 $347 $1,635 $1,719 $281 $1,700 $300 $1,300 $200 $900 $100 $500 2008 2009 2010 $0 2008 2009 2010 Gallagher Improves Adjusted Gallagher Continues Acquisition
Slide 55: Gallagher's Stockholders Benefited
Gallagher’s Stockholders Benefited Total Returns January 2008—April 2011 AJG versus S&P 500 50% 47% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -3% -5% -10% -15% -20% -25% -30% -35% -40% -45% -50% Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 AJG S&P 500 Source for da
Slide 56: Summary
Summary • Why own Gallagher? §Steady long-term growth §Strong cash flows §Prudent Balance Sheet §History of solid dividend yield shows confidence in future growth
Slide 57: Questions & Answers
Questions & Answers
Slide 58: 2011 Annual Stockholder's Meeting
2011 Annual Stockholder's Meeting ae Tuesday, May 10, 2011 wh ‘ ait Kazakt - Azer Me a G@> Arthur). Gallagher & Co, Zealand ti
Gallagher Arthur J & — Shareholder Meeting (May 2011) on 6ix