Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Conference Presentation (February 2005)
42 slides from Arthur J. Gallagher &'s conference presentation, Feb 3, 2005
Slide 1: Arthur J. Gallagher & Co. January 2005
Arthur J. Gallagher & Co. January 2005
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 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 92.1 million Dividend yield of 3.5%* (indicated as of Jan ‘05) 52-week range – $25.42—$34.25 Traded NYSE as “AJG” As of
Slide 5: Performance vs. S&P
Arthur J. Gallagher & Co Performance vs. S&P 350% 300% 250% 200% 150% 100% 50% 0% Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 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 2000 Gross Revenues 2004 $300 $250 $200 $150 $100 $50 $0 21% CAGR 34% CAGR 19% CAGR 2000 Cash Flow from Ops 2004 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 1985 Dividends 2005 $1.12* 2004 cash flow from
Slide 7: A Real Growth Story
Arthur J. Gallagher & Co. A Real Growth Story 1984 IPO (Restated for stock splits) December 31, 2004 Stock Price Market Cap Tangible Net Worth Annual Dividend/Share $1.72 $57 M $23 M$32.50 $.03$3.0 B $387 M $1.12* (indicated) Including Dividend Reinvestment, Compound Annual Growth Rate of 19% * On J
Slide 8: 2004 Achievements
Arthur J. Gallagher & Co. 2004 Achievements Record revenues of $1.5B and net earnings of $189 Total Brokerage and Risk Management revenues increased 11% Total Brokerage and Risk Management pretax earnings increased 14% Completed record 19 acquisitions Record dividend increase of 39%
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: Long-term Goals
Arthur J. Gallagher & Co. Long-term Goals $2.0 - $2.3 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 and committed to growth Open “Small company” feel Client-focused Competitive No “C” players Niche advantaged
Slide 12: Three Distinct Segments
Arthur J. Gallagher & Co. Three Distinct Segments Gross Revenues Brokerage 67% Financial Services 7% Risk Management 27% Pretax Earnings Brokerage 81% Financial Services (8%) Risk Management 26% Gross revenues exclude FIN 46 impact and investment gains Pretax earnings excludes investment gains (no F
Slide 13: Brokerage Segment
Brokerage Segment Gallagher’s largest business segment Acts as intermediary – no underwriting risk Niche driven Alternative market leaders
Slide 14: Brokerage Segment: Contingent Commissions
Brokerage Segment Contingent Commissions Effective 1/1/05, not entering into new volume/profit-based contingent agreements as retail broker $39.5M total contingent commissions through 12/31/04; $33.8M are retail volume/profit-based Received subpoenas and other requests for information from state att
Slide 15: Brokerage Segment: A Strategic Consolidator
Brokerage Segment A Strategic Consolidator Geographic diversity; enhance or expand capabilities Approximately 138 acquisitions in this segment from 1986 through 2004 The rules: financial health, similar culture Gallagher is merger partner of choice
Slide 16: Brokerage Segment: Growth & Profits
Brokerage Segment Growth & Profits 1000 900 800 700 600 500 400 300 200 100 00 01 02 03 04 $458M $968M 20% CAGR Gross Revenues 200 150 100 50 0 00 01 02 03 04 $92M $185M 20% CAGR Pretax Earnings 2004 pretax margins of 19% 2004 growth in diluted net EPS of 11% Note: Amounts as originally reported
Slide 17: Brokerage Segment: Three Primary Operations
Brokerage Segment Three Primary Operations Retail Brokerage 60% (Jim Gault) Employee Benefits 16% (Jim Durkin) Specialty Marketing & International 24% (Dave McGurn) As of 12/31/04
Slide 18: Retail Brokerage Offices
Retail Brokerage Offices
Slide 19: Retail Brokerage Niches
Retail Brokerage Niches Agribusiness Aviation Captives 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/Nonprof
Slide 20: 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 21: Specialty Marketing & International Offices
Specialty Marketing & International Offices, Joint Ventures & Alliances
Slide 22: 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 23: Employee Benefits Offices
Employee Benefits Offices
Slide 24: 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 25: 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 26: Risk Management Segment
Risk Management Segment Two Primary Operations Property/Casualty Claims Management “Gallagher Bassett” 93% (Rich McKenna) Medical Claims Management 7% (Jim Durkin) Fee revenues are primarily generated based on number of claims. As of 12/31/04
Slide 27: Risk Management Segment: Growth & Profits
Risk Management Segment Growth & Profits 400 350 300 250 200 150 100 50 0 1999 2004 15% CAGR Gross Revenues $373M 70 60 50 40 30 20 10 0 1999 2004 22% CAGR Pretax Earnings $60M 2004 pretax margin of 16% 2004 growth in diluted net EPS of 46% Note: Amounts as originally reported
Slide 28: Gallagher Bassett Offices
Gallagher Bassett Offices
Slide 29: Risk Management Segment 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 30: 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 31: Financial Services Segment
Financial Services Segment $888 Million of Cash & Investments* Investments Allocated to Financial Services Segment ($175 M) Cash Allocated to Brokerage Segment ($561 M) Cash Allocated to Risk Management Segment ($152 M) * As of December 31, 2004 – Cash & investments net of related investment borrowi
Slide 32: Financial Services Segment: Net Assets Under Management
Financial Services Segment Net Assets Under Management and Financial Guarantees $400 $350 $300 $250 $200 $150 $362 $191 2002 2004 $70 $60 $50 $40 $30 $20 $10 $0 Net Asset Classes 12/31/04 Tax Adv. Asset Real Other Mgmt. Estate Low Income Housing $16M Alternative Energy $60M Asset Alliance $48M Real
Slide 33: Financial Services Segment: Refocused Investing
Financial Services Segment Refocused Investing Tax advantaged – maximize through 2007 Asset management – monetize Real estate – optimize cash flows Venture capital – substantially exited in 2003
Slide 34: Why Invest?
Arthur J. Gallagher & Co. Why Invest?
Slide 35: Revenue Growth
Arthur J. Gallagher & Co. Revenue Growth 21% CAGR Gross Revenues As Originally Reported ($M) $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $741 $910 $1,101 $1,304 $1,522 2000 2001 2002 2003
Slide 36: Profitable Growth
Arthur J. Gallagher & Co. Profitable Growth 19% CAGR Pretax Earnings As Originally Reported ($M) $260 $240 $220 $200 $180 $160 $140 $120 $100 $125 $142 $186 $193 $236 2000 2001 2002 2003 2004
Slide 37: Rising Productivity
Arthur J. Gallagher & Co. Rising Productivity 11% CAGR Revenue Per Employee As Reported $200 $190 $180 $170 $160 $150 $140 $130 $120 $137,000 $140,000 $155,000 $181,000 $185,000 2000 2001 2002 2003 2004
Slide 38: Increasing Shareholder Value
Arthur J. Gallagher & Co. Increasing Shareholder Value Diluted Net EPS As Originally Reported – Post Split 1/18/01 $2.20 $2.00 18% CAGR $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $1.05 $1.39 $1.41 $1.57 $1.99 2000 2001 2002 2003 2004
Slide 39: Earnings Before Investment Gains, Depreciation, Amortization and Stock Compensation
Arthur J. Gallagher & Co. Earnings Before Investment Gains (Losses), Depreciation, Amortization and Stock Compensation Expense 26% CAGR (In millions) $300 $250 $200 $150 $100 $50 $91 $129 $170 $203 $237 2000 2001 2002 2003 2004
Slide 40: Since 1990, $1.4 Billion Cash Flow from Ops
Arthur J. Gallagher & Co. Since 1990, $1.4 Billion Cash Flow from Ops Dividends Paid ($422 M) Reinvested in Operations ($546 M) Shares Repurchased ($442 M) Built a balance sheet with $4.20 in tangible net worth per share and no operating debt. As of 12/31/04
Slide 41: Summary: Why Invest?
Arthur J. Gallagher & Co. Summary: Why Invest? $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 21% CAGR 2000 Gross Revenues 2004 $300 $250 $200 $150 $100 $50 $0 34% CAGR 19% CAGR 2000 Cash Flow from Ops 2004 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 1985 Dividends 2005 $1.12* 2004 cash flow from
Slide 42: Culture Driven Success: The Gallagher Way
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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