Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Shareholder Meeting (May 2013)
56 slides from Arthur J. Gallagher &'s shareholder meeting presentation, May 15, 2013
Slide 1: 2013 Annual Stockholders Meeting
2013 ANNUAL STOCKHOLDERS MEETING WEDNESDAY, MAY 15, 2013
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 15, 2013
Stockholders’ Meeting May 15, 2013 • 2013 Annual Meeting • Chairman’s Remarks ??2012 Review • Questions & Answers
Slide 4: 2013 Board of Directors
2013 Board of Directors • William L. Bax • Frank E. English, Jr. • Elbert O. Hand • David S. Johnson • Kay W. McCurdy • Norman L. Rosenthal, Ph.D. • James R. Wimmer
Slide 5: Tribute to James A. Gallagher, Jr. – Former CEO
Tribute to James A. Gallagher, Jr. – Former CEO Born on July 9, 1921 Attended Cornell University Enlisted in the Navy in 1942 Joined Gallagher in 1946 Former CEO Implemented uses of technology Instrumental in hiring Sterling Bassett Spearheaded Gallagher’s M&A initiatives Devoted family man and phil
Slide 6: Stockholders' Meeting May 15, 2013
Stockholders’ Meeting May 15, 2013 • 2013 Annual Meeting
Slide 7: Stockholders' Meeting May 15, 2013
Stockholders’ Meeting May 15, 2013 • 2013 Annual Meeting • Chairman’s Remarks ??2012 Review
Slide 8: 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 9: 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, Organic Growth and Adjusted Cash Generation, which are measures not in accordance with, or an alternative to, the GAAP info
Slide 10: Snapshot of Gallagher
Snapshot of Gallagher Brokerage Segment Risk Segment •3/4 of revenue • We sell insurance and consult on insurance programs • P&C and benefits • Retail and wholesale • 1/4 of revenue • We adjust claims and help companies reduce their losses • Workers compensation, liability, managed care, property an
Slide 11: Brokerage Segment Revenues
Brokerage Segment Revenues Retail-P/C/C Domestic 80% Wholesale 24% Retail- Benefits 25% International 20%
Slide 12: Risk Management Revenues
Risk Management Revenues Workers Compensation 68% Property 5% Liability 27% Domestic 79% International 21%
Slide 13: Brokerage Segment – 2012
Brokerage Segment – 2012 Adjusted Revenues $2,000 18% $1,824 $1,750 $1,549 $1,500 $1,250 2011 2012 Adjusted EBITDAC 22% $450 $415 $400 $350 $341 $300 2011 2012 Organic Growth in base commission & fees 6.0% 4.4% 4.0% 2.8% 2.0% 0.0% 2011 2012 Adjusted EDITDAC Margin 24.0% 23.0% 7% 22.0% 22.0% 21.0% 20
Slide 14: Risk Management Segment – 2012
Risk Management Segment – 2012 Adjusted Revenues 7% $575 563 $550 $527 $525 $500 $475 2011 2012 Adjusted EBITDAC 11% $100 $95 $90 90 $85 $81 $80 $75 2011 2012 Organic Growth in base fees 8.0% 7.0% 6.0% .7% 4.9% 5.0% 4.0% 2011 2012 Adjusted EDITDAC Margin 17.0% 16.0% 16.0% 15.4% 15.0% 14.0% 2011 2012
Slide 15: Brokerage & Risk Mgmt Combined – 2012
Brokerage & Risk Mgmt Combined – 2012 Adjusted Revenues 15% $2,500 2,387 $2,250 $2,076 $2,000 $1,750 2011 2012 Adjusted EBITDAC 20% $550 $500 $450 $422 $400 $350 2011 2012 (in $M) Organic Growth in base commissions & fees 6.0% . % 5.0% 4.0% 3.3% 3.0% 20% . 1.0% 2011 2012 Adjusted EDITDAC Margin 22.0
Slide 16: Net Earnings from Clean Energy Investments
Net Earnings from Clean Energy Investments $40.0 .7 $30.0 $20.0 $10.0 $7.5 $3.9 $0.0 -$4.8 -$10.0 2009 2010 2011 2012 (in $M)
Slide 17: Cash and Dividends
Cash and Dividends Adjusted Cash Generation $400 $358 $313 $300 $264 $200 $100 2010 2011 2012 Dividends Declared as % of Adjusted Cash Generation 100% 75% 51% 48% 47% 50% 25% 0% 2010 2011 2012 See important disclosures regarding Non?GAAP measures on Page 9. 17
Slide 18: Dividends Per Share
Dividends Per Share $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $1.40* 1984 2013 *Indicated – On January 24, 2013, Gallagher’s Board of Directors declared a $.35 per share first quarter 2013 quarterly dividend.
Slide 19: Maintaining a Prudent Balance Sheet
Maintaining a Prudent Balance Sheet Gallagher S&P 1000 Net Debt $694 Stockholders’ Equity $1,659 Net Debt to Total Capital 29% 27% Net Debt to Adjusted EBITDAC 1.4x 1.8x $s in millions. Using Gallagher’s TTM combined Brokerage and Risk Management EBITDAC as of 12/31/12. Net Debt as of 12/31/12 for G
Slide 20: Environment
Environment Economy Carrier Position Rates
Slide 21: Real GDP Growth, Jobs, Business Confidence, Short-term Rates
Real GDP Growth Jobs 4% 140,000 3% 2% 135,000 1% 130,000 0% ?1% ?2% 125,000 ?3% 120,000 ?4% 115,000 Source for data: Bureau of Economic Analysis Total Nonfarm Employees (in thousands) seasonally adjusted. Source for data: Bureau of Labor Statistics. Business Confidence Short?term Rates 75 6% 4% 2% 0
Slide 22: Firming Indicators for Carriers – Yet Ample Capacity Remains
Firming Indicators for Carriers – Yet Ample Capacity Remains 118.3 Combined Ratios 120 115 107.4 110 105 100 93.8 95 90 Source for calendar year combined ratio data: AM Best. Excludes certain large mortgage insurance and personal lines companies to better depict Gallagher’s primary markets. Catastro
Slide 23: So, A Combined Ratio Isn't What It Once Was
So, A 100 Combined Ratio Isn’t What It Once Was ROE 110.0 15.9% 105.0 ROE 7.6% 100.0 95.0 90.0 85.0 Combined Combined Ratio Ratio 80.0 1979 2010 Extrapolating from this analysis, a combined ratio in the low 90s is required to generate risk appropriate ROEs in the current environment * 2010 figures a
Slide 24: Carrier Response – Rate Change
Carrier Response – Rate Change . CIAB ?Change in Average U.S. Commercial Rates
Slide 25: Commercial P&C Pricing
Commercial P&C Pricing CPI 110 Rates 100 95 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.
Slide 26: Firming Market Versus Classic Hard Market
Firming Market Versus Classic Hard Market Classic Hard Market Firming Market 1999 2005 2012 Small Accounts Midsized Accounts Large Accounts Average Commercial Premium Rate Changes by Account Size Source: The Council of Insurance Agents and Brokers (CIAB). Chart prepared by Barclays Research. Caption
Slide 27: Firming Market Versus Classic Hard Market
Firming Market Versus Classic Hard Market Classic Hard Market Short?lived radical price increases Clients can’t get coverage Business forced chaotically into surplus lines Carriers’ urgent need to restore profitability Lack of capacity Firming Market Moderate price increases for an extended period o
Slide 28: Current Environment
Current Environment Better for Clients Better for Carriers Better for Brokers
Slide 29: Plan For Growth — Organic
Plan For Growth — Organic ’ MERGERS AND C GROWTH MAINTAIN a \\ UNIQUE PRODUCTIVITY “<Y) CULTURE | AND QUALITY “~
Slide 30: Driving Organic Growth
Driving Organic Growth Grow Our Provide Sales Focus Into Mgmt. Cross Niches Tools and Selling Hire Training Organic Experienced Teams Growth Enhance Carrier Compensation Global Expansion
Slide 31: Driving Organic Growth
Driving Organic Growth Grow Our Provide Sales Focus Into Mgmt. Cross Niches Selling Hire Training Organic Experienced Teams Growth Enhance Carrier Compensation Global Expansion
Slide 32: Driving Organic Growth
Driving Organic Growth Grow Our Provide Sales Focus Into Mgmt. Cross Niches Selling Hire Training Organic Experienced Teams Growth Enhance Carrier Compensation Global Expansion
Slide 33: 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 25.0% Hard Market Soft Market Firm Market 19.8% 19.8% 20.0% 16.0% 14.0% 15.0% 10.0% Gallagher 10.0% Organic 5.0% 8.1% 4.4% 5.0% 3.1% 2.0% 2.0% 2.0% ?08% . CIAB* 0.0% ?1.7% ?2.4% 4.4
Slide 34: Plan For Growth - M&A
Plan For Growth - M&A MERGERS AND gang AQUISITIONS GROWTH MAINTAIN US Z| UNIQUE PRODUCTIVITY “<Y) CULTURE AND QUALITY
Slide 35: Looking Forward – Opportunities Continue
M&A Looking Forward – Opportunities Continue Gallagher’s Vast Pipeline Gallagher Acquisition Limited Core 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 History of Internatio
Slide 36: Current Gallagher U.S. Locations
Current Gallagher U.S. Locations
Slide 37: Larger Cities With Expansion Potential
Larger Cities With Expansion Potential Cities with population of 100,000+ where Gallagher has no presence.
Slide 38: Gallagher International Offices and Correspondent Brokers
Gallagher International Offices and Correspondent Brokers Client Capabilities in More Than 140 Countries
Slide 39: Strong Acquisition Momentum
Strong Acquisition Momentum Domestic Brokerage Intl Brokerage $300 Heath Lambert Risk Management $250 $200 $150 $100 $50 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Annualized revenues acquired (in $Ms).
Slide 40: Gallagher Heath Update
Gallagher Heath Update Heath Lambert Acquired May 2011 Positions Gallagher among top 10 U.K. brokers Additional distribution network in 15 U.K. locations outside London Added new retail capabilities to existing London wholesale operation Executing: • Bolt?on acquisition strategy – Getting access to
Slide 41: Productivity and Quality
Productivity and Quality MERGERS AND _ AQUISITIONS > MAINTAIN <4 <a sem\ UNIQUE “PRODUCTIVITY @ CULTURE AND QUALITY
Slide 42: Optimizing Productivity & Quality
Optimizing Productivity & Quality Established shore Controlling ters of Headcoun cellence Utilizing Leveraging Sourcing Sales Force to Manage Management Improving Expenses Tools Productivity and Quality Building Investing in Productivity Business Tools – DMS Intelligence and Workflow Optimizing Stan
Slide 43: Reasons for Offshore Centers of Excellence
Reasons for Offshore Centers of Excellence Reduce Costs Foster Innovation Increase Speed to Market Focus on Core Improve Quality
Slide 44: Back Office Infrastructure – 2004
Back Office Infrastructure – 2004
Slide 45: Back Office — Today
Back Office — Today . ‘CORPORATE INTRANET. CEG). DATA WAREHOUSE Corporate Systems
Slide 46: Current Front Office Activity
Current Front Office Activity
Slide 47: Reducing Adjusted Operating Expense Ratio
Reducing Adjusted Operating Expense Ratio Brokerage 21.0% 20.8% 20.0% 19.0% 18.0% 17.0% 16.8% 16.7% 16.0% 2008 2011 2012 See important disclosures regarding Non?GAAP measures on Page 9. Risk Management 27.5% 27.0% 26.5% 25.5% 24.5% 24.2% 24.0% 23.5% 22.5% 2008 2011 2012
Slide 48: AJG Awards and Recognition
AJG – 2012 #1 Overall Client Satisfaction for Large AJG Intl – 2012 Best Broker Corporations – Greenwich M&A Deal of the Year – Associates Reactions Magazine Gallagher Singapore – 2012 Best Trade Credit AJG Intl – 2012 Ins Broking Insurance Broker – Asia/Pacific Company of the Year – Global Trade Re
Slide 49: Culture
Culture MERGERS AND — AQUISITIONS qa ORGANIC (Ce GROWTH MAINTAIN : UNIQUE PRODUCTIVITY AND QUALITY
Slide 50: Maintain Unique Culture
Maintain Unique Culture Performance-Based Culture:
Slide 51: One of the World's Most Ethical Companies
One of the World’s Most Ethical Companies as Recognized by Ethisphere Institute • 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- Demonstratin
Slide 52: 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 53: Momentum Into 2013
Momentum Into 2013 2012 Actions Closed 60 acquisitions with $231m of acquired revenue Completed 9 deals outside of the U.S. Heath Lambert integration efforts Favored cash in 4th quarter to fund M&A Clean energy investment activity 2013 Impact Incremental roll?in revenues of $134m Continuing our glob
Slide 54: Momentum Into 2013
Momentum Into 2013 2012 Actions Rolled out our first Private Health Exchange Consolidating agency management systems in our U.S. P&C operations Rolled out the Gallagher Bassett client?centric Analytical Workbench Sold and ramped up for a large account in Australia 2013 Impact Provides a critical cap
Slide 55: Why Invest?
Why Invest? Source for data: Bloomberg. Total returns from 1/1/2000 – 1/31/2013 include reinvesting all dividends at the ex?dividend date.
Slide 56: Our People
Our People teenie ++++e+e LEADING THE Way
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