Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (February 2014)
57 slides from Arthur J. Gallagher &'s investor presentation, Feb 12, 2014
Slide 1: Investment Presentation
Exhibit 99.1 ARTHUR J. GALLAGHER & CO. Investment Presentation February 2014
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,” “estimat
Slide 3: Information Regarding Non-GAAP Measures
Information Regarding Non-GAAP Measures This presentation includes references 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. Earn
Slide 4: Snapshot of Gallagher
Snapshot of Gallagher Brokerage Segment 78% of revenue* We sell insurance and consult on insurance programs P&C and benefits Retail and wholesale Risk Management Segment 22% of revenue* We adjust claims and help companies and carriers reduce their losses Workers compensation, liability, managed care
Slide 5: Brokerage Segment Revenues
Brokerage Segment Revenues Retail-P/C 56% Domestic 77% Wholesale 18% Retail-Benefits 26% International 23%
Slide 6: Risk Management Revenues
Risk Management Revenues Workers Compensation 68% Domestic 77% Property 4% Liability 28% International 23%
Slide 7: Brokerage Segment – 2013
Brokerage Segment – 2013 Adjusted Revenues $2,250 $2,000 $1,750 $1,500 $1,824 17% $2,139 Organic Growth in base commissions & fees 6.0% 5.0% 4.0% 3.0% 4.4% 2012 2013 5.6% Adjusted EBITDAC $550 $450 $350 $250 (in $M) 24% $511 $413 2012 2013 Adjusted EBITDAC Margin 25.0% 24.0% 23.0% 22.0% 21.0% 22.7%
Slide 8: Risk Management Segment – 2013
Risk Management Segment – 2013 Adjusted Revenues $625 $600 $575 $550 $525 $563 8% $610 Organic Growth in fees 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 4.0% 9.3% Adjusted EBITDAC $100 $95 $90 $85 $80 $75 (in $M) $90 $96 6% Adjusted EBITDAC Margin 20.0% 15.0% 10.0% 5.0% 0.0% 16.0% 15.8% See important disclosure
Slide 9: Brokerage & Risk Mgmt Combined – 2013
Brokerage & Risk Mgmt Combined – 2013 Adjusted Revenues $2,800 $2,600 $2,400 $2,200 $2,387 15% $2,749 Organic Growth in base commissions & fees 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 4.0% 6.0% Adjusted EBITDAC $700 $600 $500 $400 (in $M) $503 21% $607 Adjusted EBITDAC Margin 23.0% 22.0% 21.0% 20.0% 19.0% 21.
Slide 10: Net Earnings from Clean Energy Investments
Net Earnings from Clean Energy Investments $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
Slide 11: Dividends Declared as % of Cash Flows from Operating Activities
Dividends Declared as % of Cash Flows from Operating Activities 100% 75% 50% 25% 0% 62% 52%
Slide 12: Recap – What we delivered in 2013
Recap – What we delivered in 2013 What we said What we did Improve organic growth in Brokerage Organic growth increased from 4.0% & Risk Management in 2012 to 6.0% in 2013 M&A pipeline extremely full and look A record $385m in acquired revenues for partners that help build out includes our 2 largest
Slide 13: Recap – What we delivered in 2013
Recap – What we delivered in 2013 What we said What we did Heath integration completed in 3Q Complete Heath integration as planned Enhanced client service capabilities GB – IT investments without margin like analytics workbench while contraction maintaining margins Nearly double 2013 clean energy To
Slide 14: Dividends Per Share
Dividends Per Share $1.44* $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 1984 2014 *Indicated – On January 23, 2014, Gallagher’s Board of Directors declared a $.36 per share first-quarter 2014 dividend.
Slide 15: Maintaining a Prudent Balance Sheet
Maintaining a Prudent Balance Sheet Gallagher @ S&P 1000 2 12/31/2013 1 Net Debt $1,291 Stockholders’ Equity $2,086 Net Debt to Total Capital 38% 27% Net Debt to Adjusted EBITDAC 1.8x 1.9x $‘s in millions. 1. Using Gallagher’s 2013 Brokerage and Risk Management acquisition run-rate adjusted EBITDAC.
Slide 16: Environment
Environment Economy Carrier Position Rates
Slide 17: Improving US Economy
Improving US Economy Real GDP Growth 4% 3% 2% 1% 0% -1% -2% -3% Source for data: Bureau of Economic Analysis 140,000 135,000 130,000 125,000 120,000 115,000 Jobs Total Nonfarm Employees - Dec. values (in thousands) seasonally adjusted. Source for data: BLS Short-term Rates 6% 4% 2% 0% Average Annual
Slide 18: UK Economy on the Rebound
UK Economy on the Rebound Real GDP Growth 6% 4% 2% 0% -2% -4% -6% Source for data: UK Office for National Statistics 31,000 30,000 29,000 28,000 27,000 26,000 Jobs Source: UK Office for National Statistics (in thousands) Reflects year end values except 2013 is as of November. Short-term Rates 6% 4%
Slide 19: Indicators for US P/C Carriers – Stable Rate Environment
Indicators for US P/C Carriers – Stable Rate Environment Combined Ratios 118.3 120 115 110 105 100 95 90 93.8 103.4 95.7 Source for calendar year combined ratio data: AM Best. Using 9 month 2013 data as of 01/20/14. 2012 and prior excludes certain large mortgage insurance and personal lines companie
Slide 20: Stable Rate Environment
Stable Rate Environment Better for Clients Better for Carriers Better for Brokers
Slide 21: Plan For Growth – Organic
Plan For Growth – Organic ORGANIC GROWTH MEASURED AND ACQUISITIONS GROWTH PRODUCTIVITY AND QUALITY MAINTAIN UNIQUE CULTURE
Slide 22: Driving Organic Growth
Driving Organic Growth Grow Our Provide Own Sales Focus Mgmt. Cross Into Tools Selling Hire Niches Experienced and Organic Training Teams Growth Enhance Carrier Compensation Global Expansion
Slide 23: Driving Organic Growth
Driving Organic Growth Grow Our Provide Own Sales Focus Mgmt. Cross Into Tools Selling Hire Niches Experienced and Organic Training Teams Growth Enhance Carrier Compensation Global Expansion
Slide 24: Driving Organic Growth
Driving Organic Growth Grow Our Provide Own Sales Focus Mgmt. Cross Into Tools Selling Hire Niches Experienced and Organic Training Teams Growth Enhance Carrier Compensation Global Expansion
Slide 25: Simplified Organic Illustration
Simplified Organic Illustration +10% +2% (-5%) +2% Subject $1.0m SEE to net NEXT impact of PAGE Other Revenue Drivers Renewal New Lost Impact of Impact of Other Current Base Business Business Rate on Exposure Revenue Year Prior Year Renewals on Drivers Revenue Renewals All figures on this slide are
Slide 26: Organic Illustration – Other Revenue Drivers
Organic Illustration – Other Revenue Drivers 1. Client opt in 2. Client M&A 3. Expand share of wallet 4. Cross selling in AJG 1. Client opt out 2. Client M&A 3. Client out-of-business 4. Client moves to self insurance model
Slide 27: Commercial P&C Pricing
Commercial P&C Pricing 160 150 140 130 120 110 100 90 80 CPI 134 Rates 98 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 Statistics. 4th Q00 3rd Q 0
Slide 28: Carriers Have Been Getting Rate Increases
Carriers Have Been Getting Rate Increases 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 5.0%5.2% 4.4%4.3% 4.3% 3.9% 3.4% 2.7% 0.9% -0.1% -2.9% -5.2%-5.4% -6.4% CIAB—Change in Average Commercial Rates 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012 1Q 2013 2Q 201
Slide 29: Gallagher’s Sales Culture Performs Throughout the Entire Cycle
Gallagher’s Sales Culture Performs Throughout the Entire Cycle Gallagher Organic CIAB—Change in Avg. Commercial Rates Hard Market Soft Market Firm Market 25.0% 19.8% 19.8% 20.0% 16.0% 14.0% 15.0% 10.0% Gallagher 10.0% Organic 5.0% 4.4%5.6% 8.1% 3.1% 5.0% 2.0% 2.0% 2.0% -0.8% 4.4% CIAB -1.7% 4.3% 0.0
Slide 30: Plan For Growth – M&A
Plan For Growth – M&A ORGANIC GROWTH MEASURED AND ACQUISITIONS GROWTH PRODUCTIVITY AND QUALITY MAINTAIN UNIQUE CULTURE
Slide 31: M&A Looking Forward – Opportunities Continue
M&A Looking Forward – Opportunities Continue Gallagher Limited Gallagher’s Vast Pipeline Core Acquisition Units Consolidators Competency Domestic and International Retail P&C Markets Highly Fragmented Wholesale Culture 18,000 agents/brokers Benefits in the U.S. Gallagher Proven International History
Slide 32: Strong Acquisition Momentum
Strong Acquisition Momentum $400 $350 $300 $250 $200 $150 $100 $50 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Domestic Brokerage Int’l Brokerage 2011 Heath Lambert; 2013 Bollinger and Giles Risk Management Annualized revenues acquired (in $Ms). 32
Slide 33: Current Gallagher U.S. Locations
Current Gallagher U.S. Locations
Slide 34: Larger Cities With Expansion Potential
ities with population of 100,000+ where Gallagher has no presence. Larger Cities With Expansion Potential
Slide 35: International Correspondent Brokers
International Correspondent Brokers Client Capabilities in More Than 140 Countries
Slide 36: Strong International M&A
Strong International M&A Heath Lambert Giles Group of Companies All others $200 $150 $100 $50 $0 2010 2011 2012 2013 Annualized revenues acquired (in $Ms) 36
Slide 37: International Expansion
International Expansion Position Gallagher as a top 5 U.K. broker Strengthen Gallagher’s retail distribution platform and underwriting footprint in the U.K. Expanding scale outside London Results of Complement and strengthen niche practice Gallagher focus groups – Alesco energy build out on Internat
Slide 38: Bollinger and Giles Summary
Bollinger and Giles Summary Integrated across three business units—retail P&C, Bollinger benefits and wholesale On track to generate approx $40m of annualized August 2013 EBITDAC in 2014 before integration costs Combined parallel operations into five core Giles businesses – retail P&C, healthcare, u
Slide 39: Productivity and Quality
Productivity and Quality MERGERS AND ACQUISITIONS ORGANIC GROWTH PRODUCTIVITY AND QUALITY GROWTH MAINTAIN UNIQUE CULTURE
Slide 40: Optimizing Productivity & Quality
Optimizing Productivity Established & Quality Controlling Building Productivity Tools – DMS and Workflow Optimizing Real Estate Footprint Established Offshore Centers of Excellence Building Productivity Tools – DMS and Workflow Utilizing Sourcing to Manage Expenses Leveraging Utilizing Sales Force S
Slide 41: Reasons for Offshore Centers of Excellence
Reasons for Offshore Centers of Excellence Foster Innovation Reduce Costs Increase Speed to Market Improve Quality Focus on Core
Slide 42: Offshore Centers of Excellence Update
Offshore Centers of Excellence Update Began the initiative in 2005 with 6 associates in one offshore location We now have more than 1700 associates in four locations Back and Utilized for processes such as: Middle Office Policy checking Processes Certificates insurance Auto ID cards IT support Accou
Slide 43: Back Office Infrastructure – 2004
Back Office Infrastructure – 2004 Global Corporate Systems Email
Slide 44: Back Office – Today
Back Office – Today GENERAL LEDGER DATA WAREHOUSE EMAIL HR/PAYROLL REAL ESTATE LEASING T&E PLANNING DOCUMENT MANAGEMENT Corporate intranet Global Corporate Systems
Slide 45: Current Front Office Activity
Current Front Office Activity CRM – CUSTOMER RELATIONSHIP DATA EXTERNAL CLIENT PROSPECTING TOOLS CENTRALIZED AGENCY SYSTEM INTERNAL BROKER SOCIAL MEDIA CLIENT COMMUNICATION TOOLS Divisional Sales Systems
Slide 46: Single Division-Wide Agency System
Single Division-Wide Agency System Single Agency System Real-time, single point of access for all data Lower costs Strengthens internal controls by reducing number of tools and processes Consistent data Automated, streamlined financial reporting with standard metrics M&A integration & training is ea
Slide 47: Productivity Advances in 2013
Productivity Advances in 2013 Benefits of “Quiet” Projects Sourcing Global sourcing programs into Australia, U.K. and India Negotiated savings in IT, software and telecom Sourcing rebate collection Real Estate Consolidated operations in London and moved to new location Consolidation of U.S. location
Slide 48: Quality Metrics
Quality Metrics Efficiency Improvements Drive Quality Reduced policy delivery from 30 to 10 Achieved 98% quality rate days Reduced certificate of insurance delivery Improved quality rate to 99% expense by 20% Implemented claims adjusters enhanced Realized 20% improvement on adjuster quality audit pr
Slide 49: Reducing Adjusted Operating Expense Ratio
Reducing Adjusted Operating Expense Ratio Brokerage 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% 16.0% 20.8% 16.7% Risk Management 28.0% 27.0% 26.0% 25.0% 24.0% 23.0% 27.0% 23.9% See important disclosures regarding Non-GAAP measures on Page 3. 49
Slide 50: AJG – 2013 Ins Broking
AJG – 2013 Ins Broking CEO of the Year ? AJG Intl – 2013 Best Broker M&A Deal Reactions Magazine of the Year – Reactions Magazine AJG Risk Mgmt – 2013 AJG – 2013 Ranked Top Ten Best Companies Risk Mgmt Provider of for Leaders – Chief Executive Magazine the Year – Midcontinent Oil & Gas Awards GB UK
Slide 51: Culture
Culture MERGERS AND ACQUISITIONS GROWTH ORGANIC GROWTH PRODUCTIVITY AND QUALITY MAINTAIN UNIQUE CULTURE
Slide 52: Maintain Unique Culture
Maintain Unique Culture Shared values at Arthur J. Gallagher & Co. are the rock foundation of the Company and our Culture. What is a Shared Value These are concepts that the vast majority of the movers and shakers in the Company passionately adhere to. What are some of Arthur J. Gallagher & Co.’s Sh
Slide 53: One of the World’s Most Ethical Companies
One of the World’s Most Ethical Companies as Recognized by Ethisphere 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 Demonstrating that corporate ci
Slide 54: A Top Ten Best Company for Leadership Development
A Top Ten Best Company for Leadership Development As Recognized by Chief Executive Magazine – 2013 Recognized for: ‰High percentage of senior and mid-manager positions filled internally ‰Formal leadership process ‰Commitment to leadership development program
Slide 55: Why Invest? You Believe Our Company Has:
Why Invest? You Believe Our Company Has: Right management Unique culture Proven growth strategy Continuing M&A opportunities Increasing productivity Higher quality Prudent debt Strong balance sheet Excellent return to shareholders Gallagher is well positioned for 2014 and beyond
Slide 56: Why Invest We Are Just Getting Started
MANAGEMENT ORGANIC PRODUCTIVITY STRONG BALANCE SHEET EXCELLENT RETURNS GREAT DIVIDENDS CULTURE MERGERS & ACQUISITIONS QUALITY PRUDENT DEBT Why Invest We Are Just Getting Started AJG 386% S&P 500 64% Source for data: Bloomberg. Total returns from 1/1/2000 – 12/31/2013 include reinvestment of dividend
Slide 57: Questions & Answers
Questions & Answers For Additional Information: Marsha Akin Director – Investor Relations Marsha_Akin@ajg.com Phone: 630-285-3501
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