Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Conference Presentation (May 2004)
48 slides from Arthur J. Gallagher &'s conference presentation, May 7, 2004
Slide 1: Arthur J. Gallagher & Co. April 2004
Arthur J. Gallagher & Co. April 2004
Slide 2: Safe Harbor
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 services firm
Arthur J. Gallagher & Co. World’s fourth-largest insurance brokerage and risk management services firm Public since 1984 Market capitalization of $3.0 billion Shares outstanding of 90.8 million Dividend yield of 3.1% 52-week range – $23.35—$34.25 Traded NYSE as “AJG” As of 3/31/04, unless otherwise
Slide 5: Our Mission
Our Mission We are an international Sales and Marketing company that plans and administers cost-effective, differentiated property/casualty and human resource risk management programs as brokers, consultants and third-party administrators. Our mission is to: Provide superior, cost-effective risk man
Slide 6: Performance vs. S&P
Arthur J. Gallagher & Co Performance vs. S&P Arthur J Gallagher & Co [AJG] S&P 500 (SPX) March-99 March-00 March-01 March-02 March-03 March-04
Slide 7: Competitors and Marketplace
Arthur J. Gallagher & Co. Competitors and Marketplace COMPANY COMM/FEES U.S. / INT’L TARGET MARKET Marsh 55% / 45% 55% / 45% Full Spectrum Aon 65% / 35% 50% / 50% Full Spectrum Gallagher 70% / 30% 90% / 10% Full Spectrum Willis 70% / 30% 38% / 62% Full Spectrum Brown 95% / 5% 100% / 0% Small/Middle
Slide 8: Summary: Why Invest?
Arthur J. Gallagher & Co. Summary: Why Invest? 2003 cash flow from operations of $229 M 5-year average ROE of 31% is highest in peer group Highest dividend yield in peer group – 3.1% indicated in 2004
Slide 9: A Real Growth Story
Arthur J. Gallagher & Co. A Real Growth Story 1984 IPO (Restated for stock splits) Mar 31, 2004 Stock Price $ 1.72 $ 32.57 Market Cap $57 M $3.0 B Tangible Net Worth $23 M $395 M Annual Dividend/Share $ .03 $ 1.00 Including Dividend Reinvestment, Compound Annual Growth Rate of 18%
Slide 10: Long-term Goals
Arthur J. Gallagher & Co. Long-term Goals $1.9—$2.2 billion in revenues within five years 15% year-over-year earnings growth 30%+ annual return on Average Stockholders’ Equity
Slide 11: Culture Driven Success
Arthur J. Gallagher & Co. Culture Driven Success Sales and marketing driven Team-oriented Open “Small company” feel Client-focused Competitive No “C” players
Slide 12: 2003 Employee Survey Results
Arthur J. Gallagher & Co. 2003 Employee Survey Results 78% participation 96% understand the need to grow and are committed to helping grow the Company 92% AgreeCustomer is top priority 92% “I am proud to work for this Company” 90% of men and women felt they were treated with respect by co-workers 80
Slide 13: 2003 Achievements
Arthur J. Gallagher & Co. 2003 Achievements Record revenues of $1.3B and earnings of $146M Total Brokerage and Risk Management revenues increased 15% Total Brokerage and Risk Management pre-tax income increased 19% Validated organic hiring strategy
Slide 14: 2003 Achievements (continued)
Arthur J. Gallagher & Co. 2003 Achievements (continued) Returned $143M in cash to stockholders $81M of share repurchases or 2.9M shares $62M of dividends Paid off all corporate related debt Increased GAAP Book Value to $619M Maintained tangible net worth at nearly $400M
Slide 15: 2003 Achievements (continued)
Arthur J. Gallagher & Co. 2003 Achievements (continued) Reduced concentrations of non-liquid investments and off balance sheet items by $122M Navigated synfuel tax credit waters Improved transparency of financial reporting Early Adopted FIN 46 – Consolidation of Variable Interest Entities SFAS 123—A
Slide 16: Three Distinct Segments
Arthur J. Gallagher & Co. Three Distinct Segments Revenue Brokerage 69% Risk Management 25% Financial Services 6% Pretax Earnings Brokerage 79% Risk Management 20% Financial Services 1% Revenue excludes FIN 46 impact and investment write-offs Pretax earnings exclude investment write-offs (no impact
Slide 17: Brokerage Segment
Brokerage Segment Gallagher Gallagher’s largest business segment Acts as intermediary –no underwriting risk Niche driven Alternative market leaders Competition Marsh Aon Willis Top 20 distributors only control 25% of market (1) Merger opportunities abound (1) Business Insurance/JP Morgan
Slide 18: Brokerage Segment: A Strategic Consolidator
Brokerage Segment A Strategic Consolidator Geographic diversity; enhance or expand capabilities Over 122 acquisitions since 1986 in this segment Almost $460 million of 2003 revenue from acquired entities The rules: financial health, similar culture Gallagher is merger partner of choice
Slide 19: Brokerage Segment: Growth & Profits
Brokerage Segment Growth & Profits 2003 pretax margins of 19% 2003 growth in earnings per share of 24% Note: Amounts as originally reported
Slide 20: Brokerage Segment: Three Primary Operations
Brokerage Segment Three Primary Operations Retail Brokerage 62% (Jim Gault) Specialty Marketing & International 23% (Dave McGurn) Employee Benefits 15% (Jim Durkin)
Slide 21: Retail Brokerage Offices
Retail Brokerage Offices
Slide 22: Retail Brokerage Niches
Retail Brokerage Niches Agribusiness Aviation Construction Energy Global Risk Management Healthcare Higher Education Management Liability Marine Mergers & Acquisitions Personal Insurance Public Entity Real Estate General Commercial Habitational Hospitality Shopping Centers Religious/Nonprofit Restau
Slide 23: 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 24: Specialty Marketing & International
Specialty Marketing & International Offices, Joint Ventures & Alliances
Slide 25: Specialty Marketing & International Capabilities
Specialty Marketing & International Capabilities Reinsurance Brokerage International P&C Brokerage Programs/Program Administration CoverageFirst.com Wholesale Brokerage Captives/Rent-a-Captives
Slide 26: Specialty: High Growth & Profit Potential
Specialty Marketing & International High Growth & Profit Potential Reinsurance brokerage Programs and program administration International business Wholesale brokerage
Slide 27: Employee Benefits Offices
Employee Benefits Offices
Slide 28: 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 29: Employee Benefits: High Growth & Profit Potential
Employee Benefits High Growth & Profit Potential Niche marketing Cross-selling opportunities with Brokerage Services Merger and acquisition opportunities Assisting clients/prospects with four top priorities Controlling health and welfare costs Providing better retirement tools/information Benefits c
Slide 30: Risk Management Segment
Risk Management Segment Two Primary Operations Property/Casualty Claims Management “Gallagher Bassett” 91% (Rich McKenna) Medical Claims Management 9% (Jim Durkin) Fee revenues are primarily generated based on number of claims.
Slide 31: Risk Management: Growth & Profits
Risk Management Segment Growth & Profits 2003 pretax margin of 13% 2003 growth in earnings per share of 51% Note: Amounts as originally reported
Slide 32: Gallagher Bassett Offices
Gallagher Bassett Offices
Slide 33: Risk Management Capabilities
Risk Management Segment Capabilities 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 34: 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 35: Financial Services Segment
Financial Services Segment $858 Million of Cash & Investments* Investments Allocated to Financial Services Segment ($ 192 M) Cash Allocated to Brokerage Segment ($ 511 M) Cash Allocated to Risk Management Segment ($ 155 M) * As of March 31, 2004 – Cash & investments net of related investment borrowi
Slide 36: Financial Services Segment Assets
Financial Services Segment Assets at December 31, 2002 & 2003 Assets Under Management $298 $205 Asset Classes 12/31/03 Tax Adv. Asset Mgmt. Real Estate Other Low Income Housing $20M Alternative Energy $74M Trading Securities $5M Asset Alliance $51M Real Estate, incl HO $24M Bermuda Insurance $20M VC
Slide 37: Financial Services: Refocused Investing
Financial Services Segment Refocused Investing Tax advantaged – maximize through 2007 Asset management – monetize Real estate – optimize cash flows Venture capital – substantially exited in 2003
Slide 38: Why Invest?
Arthur J. Gallagher & Co. Why Invest?
Slide 39: Revenue Growth
Arthur J. Gallagher & Co. Revenue Growth Gross Revenues As Originally Reported ($ M) $606 $741 $910 $1,101 $1,304
Slide 40: Profitable Growth
Arthur J. Gallagher & Co. Profitable Growth Pretax Earnings As Originally Reported ($ M) $104 $125 $142 $186 $193
Slide 41: Rising Productivity
Arthur J. Gallagher & Co. Rising Productivity Revenue Per Employee As Reported $127,000 $137,000 $140,000 $155,000 $181,000
Slide 42: Increasing Shareholder Value
Arthur J. Gallagher & Co. Increasing Shareholder Value Diluted EPS As Originally Reported – Post Split 1/18/01 $.88 $1.05 $1.39 $1.41 $1.57
Slide 43: Earnings Before Investment Gains, Depreciation, Amortization and Stock Compensation
Arthur J. Gallagher & Co. Earnings Before Investment Gains (Losses), Depreciation, Amortization and Stock Compensation Expense (In millions) $74 $91 $129 $170 $203
Slide 44: Industry-Leading ROE
Arthur J. Gallagher & Co. Industry-Leading ROE Largest Positive Tangible Net Worth in Peer Group 5-Year Average ROE 19% Peers 5-Year Average ROE 31% Gallagher As of 12/31/03
Slide 45: Since 1990, $1.2 Billion Cash Flow from Ops
Arthur J. Gallagher & Co. Since 1990, $1.2 Billion Cash Flow from Ops Dividends Paid ($ 354 M) Shares Repurchased ($ 404 M) Reinvested in Operations ($ 445 M) Built a balance sheet with $4.35 in tangible net worth per share and no operating debt. As of 3/31/04
Slide 46: Dividends Per Share
Arthur J. Gallagher & Co. Dividends Per Share Average Annual Increase 20% * Indicated—On January 22, 2004, Gallagher’s Board of Directors declared a $0.25 per share quarterly dividend.
Slide 47: Summary: Why Invest?
Arthur J. Gallagher & Co. Summary: Why Invest? 2003 cash flow from operations of $229 M 5-year average ROE of 31% is highest in peer group Highest dividend yield in peer group – 3.1% indicated in 2004
Slide 48: Culture Driven Success
Culture Driven Success The Gallagher Way 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 Gallagher’s Shared Values? 1
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