Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (February 2012)
54 slides from Arthur J. Gallagher &'s investor presentation, Feb 16, 2012
Slide 1: Arthur J. Gallagher & Co. Investment Presentation February 2012
ARTHUR J. GALLAGHER & CO. Investment Presentation February 2012
Slide 2: Information Regarding Forward-Looking Statements
2 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,” “expects,” “believes,” “contemplates,” “should,” “could,” “e
Slide 3: Information Regarding Non-GAAP Measures
3 Information Regarding Non-GAAP Measures This presentation includes references to Adjusted Revenues, Organic Growth, EBITDAC, Adjusted EBITDAC, Adjusted EBITDAC Margin, Adjusted EBITDAC Margin Excluding Heath Lambert and Cash Generation, which are measures not in accordance with, or an alternative
Slide 4: Arthur J. Gallagher & Co.
4 Arthur J. Gallagher & Co. Brokerage Segment •73% of revenue •We sell insurance and consult on insurance programs •Retail P&C, benefits and wholesale Risk Management Segment •26% of revenue •We adjust claims and help companies reduce their losses •Workers compensation, liability, managed care & pro
Slide 5: Brokerage Segment Revenues – 2011
Brokerage Segment Revenues –2011 81% 19% International Domestic 53% 25% 22% Wholesale Retail-P/C Retail-Benefits
Slide 6: Risk Management Revenues – 2011
Risk Management Revenues –2011 Workers Compensation 67% Property 26% Liability 7% Domestic 78% International 22%
Slide 7: Brokerage Segment – 2011
7 Brokerage Segment –2011$1,320 $1,551$700 $950 $1,200 $1,450 $1,700 2010 2011 Adjusted Revenues $290 $341 $150 $200$250 $300$350 $400 2010 2011 Adjusted EBITDAC 21.9% 22.4% 21.5% 21.8% 22.0% 22.3%22.5% 22.8%23.0% 2010 2011 Adjusted EDITDAC Margin Excluding Heath Lambert (in $M) See important disclo
Slide 8: Risk Management Segment – 2011
8 Risk Management Segment –2011 $462 $549 $200 $300$400$500 $600 2010 2011Adjusted Revenues$72 $88 $20 $40 $60 $80 $100 20102011Adjusted EBITDAC15.6% 15.9% 15.0%15.3% 15.5% 15.8% 16.0% 16.3% 16.5% 2010 2011 Adjusted EDITDAC Margin (in $M) 19% 22% See important disclosures regarding Non-GAAP measures
Slide 9: Brokerage & Risk Mgmt Combined – 2011
9 Brokerage & Risk Mgmt Combined –2011 $1,782 $2,100 $500 $1,000 $1,500 $2,000 $2,500 20102011 Adjusted Revenues $362 $428$100 $200 $300 $400 $500 2010 2011 Adjusted EBITDAC 20.3% 20.7% 20.0% 20.3% 20.5%20.8% 21.0% 21.3% 21.5% 2010 2011 Adjusted EDITDAC Margin Excluding Heath Lambert (in $M) 18% 18%
Slide 10: Maintaining a Prudent Balance Sheet
10 Maintaining a Prudent Balance Sheet$’s in millions. Using Gallagher’s combined Brokerage and Risk Management EBITDAC. Net Debt for Gallagher reflects total debt outstanding at 12/31/11 less $164m of cash on hand and available for general corporate purposes. Source for S&P 1000 data: Bloomberg as
Slide 11: Clean Energy Investments Summary
11 Clean Energy Investments Summary # ofPlants GAAP Net Carrying Value3 Est. QtrlyNet Earnings1 EarningsEnd Date 2009 Era Plants Operating -under long-term contracts (minority positions) 12 $ 8.9 $ 4.3 Idle-seeking long-term contracts and co-investors 2 1.5 n/a2 Total 2009 Era Plants 14 10.4 4.3 201
Slide 12: Dividends Per Share
12 Dividends Per Share $0.00$0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 *Indicated –On January 26, 2012, Gallagher’s Board of Directors declared a $.34 per share first quarter 2012 quarterly dividend. 1984 2012 $1.36*
Slide 13: Total Stockholder Returns Since 1/1/2011
13 Total Stockholder Returns Since 1/1/2011 -15% -10% -5% 0%5%10% 15% 20% 25% 30% AJG27% S&P9% Source for data: Bloomberg. Total returns include reinvesting all dividends at the ex-dividend date.
Slide 14: Economy – GDP
14 Economy –GDP $10,000 $10,500$11,000$11,500 $12,000 $12,500 $13,000 $13,500 2001 20022003 2004 2005 2006 2007 2008 2009 20102011 Real GDP in billons of chained 2005 dollars. Source for data: Bureau of Economic Analysis Growing Back to 2007 Levels 15 U.S. Jobs 115,000 120,000 125,000 130,000 135,00
Slide 15: U.S. Jobs
U.S. Jobs 140,000 [ Recovering, but only to 2004 levels | 135,000 130,000 125,000 120,000 115,000 <€
Slide 16: Short-Term Rates
16 Short-Term Rates 3.9%1.7%1.1% 1.3% 3.2% 5.0% 5.0%1.9%0.2% 0.2% 0.1% 0% 1%2% 3% 4% 5%6%2001 2002 2003 2004 200520062007 2008 2009 2010 2011 Average Annual Effective Fed Funds Rates. Source for data: Bloomberg NIL
Slide 17: Commercial P&C Pricing
17 Commercial P&C Pricing Commercial Rate Index reflects the cost of P&C premiums relative to the year 2000. Constructed using Counsel of Insurance Agents and Brokers data. 80 90100 110120130 140 150 160 CPI130 Rates91
Slide 18: Rate Environment – CIAB
18 Rate Environment –CIAB-6.4% -5.2% -5.4% -2.9% -0.1%0.9% 2.8% -8.0% -6.0%-4.0%-2.0% 0.0% 2.0% 4.0%Change in Avg. Commercial Rates
Slide 19: U.S. P&C Industry Premiums Written
19 U.S. PC Industry Premiums Written8.6% 15.0%9.7% 4.5% 0.0% 4.3% -0.8% -1.9% -3.8%0.8% 3.3% -8% -3% 2% 7%12%17% 20012002 2003 2004 2005 2006 2007 20082009 2010 2011* Growth in net premiums written. Source for data: AM Best as of December 2, 2011. *Growth rate for 9 months 2011 compared to 9 months
Slide 20: Brokerage – During Great Recession
Brokerage –During Great Recession $223$341 $150 $200$250$300 $350 $400 2008 2011Adjusted EBITDAC $1,170 $1,551 $700 $950$1,200 $1,450 $1,70020082011 Adjusted Revenues 10% CAGR 19.0% 22.4% 15.0% 17.5% 20.0% 22.5%25.0% 2008 2011 Adjusted EDITDAC Margin Excluding Heath Lambert (in $M) 15% CAGR See impo
Slide 21: Risk Mgmt – During Great Recession
21 Risk Mgmt –During Great Recession $465 $549 $200$300 $400 $500 $600 2008 2011 Adjusted Revenues $59 $88$20 $40 $60 $80 $1002008 2011 Adjusted EBITDAC 12.6% 15.9% 10.0% 12.0% 14.0%16.0% 18.0% 20.0% 2008 2011Adjusted EDITDAC Margin (in $M) 6% CAGR 14% CAGR See important disclosures regarding Non-GA
Slide 22: Brokerage & Risk Mgmt – During Great Recession
Brokerage & Risk Mgmt –During Great Recession $1,635$2,100 $500 $1,000 $1,500$2,000 $2,500 2008 2011 Adjusted Revenues$281 $428$100 $200 $300$400 $500 2008 2011Adjusted EBITDAC 17.2% 20.7% 15.0%17.5% 20.0%22.5% 25.0% 20082011 Adjusted EDITDAC Margin Excluding Heath Lambert (in $M) 9% CAGR 15% CAGR S
Slide 23: Total Stockholder Returns During Great Recession
23 Total Stockholder Returns During Great Recession Source for data: Bloomberg. Total returns include reinvesting all dividends at the ex-dividend date. -60%-40% -20% 0% 20%40% 60% 80% 100% AJG79% S&P0%
Slide 24: Plan For Growth
I Plan For Growth [ Z WeRGERS AND a) | MAINTAIN US || UNIQUE PRODUCTWITY ) CULTURE AND QUALITY 4)
Slide 25: Plan For Growth – Organic
25 Plan For Growth –Organic
Slide 26: Gallagher's Sales Culture Overcomes Rate Declines
Gallagher’s Sales Culture Overcomes10.0%2.0%2.0%5.0%2.0%-0.8%-2.4%-1.7%Gallagher Organic3.1%8.1%-4.1%-8.0%-5.2%-12.1%-11.0%-5.4%-5.6%CIAB*0.2%-15.0%-10.0%-5.0% 0.0%5.0%10.0%15.0%200320042005200620072008200920102011 Gallagher’s Brokerage Segment Organic Growth including Supplemental Commissions. See
Slide 27: Driving Organic Growth
27 Driving Organic GrowthOrganic Growth Enhance Carrier Compensation Domestic and International Grow Our Own Hire Experienced Teams Focus Into Niches Provide Sales Mgmt. Tools and Training Cross Selling
Slide 28: Driving Organic Growth
28 Driving Organic GrowthOrganic Growth Enhance Carrier Compensation Domestic and International Grow Our Own Hire Experienced Teams Focus Into Niches Provide Sales Mgmt. Tools and Training Cross Selling
Slide 29: Driving Organic Growth
29 Driving Organic Growth Organic Growth Enhance Carrier Compensation Domestic and International Grow Our Own Hire Experienced Teams Focus Into Niches Provide Sales Mgmt. Tools and Training Cross Selling
Slide 30: Driving Organic Growth
30 Driving Organic Growth Organic Growth Enhance Carrier Compensation Domestic and International Grow Our Own Hire Experienced Teams Focus Into Niches Provide Sales Mgmt. Tools and Training Cross Selling
Slide 31: Organic Illustration – Negative
31 Organic Illustration –Negative $1.0m $976k ~(-3%) +10% (-5%) (-4%) Renewal BasePrior Year New Business Lost Business Current Year Revenue (-4%) Impact of Rate on Renewals Impact of Exposure on Renewals All figures on this slide are used only for illustration purposes and are not estimates of Gall
Slide 32: Organic Illustration – Flat
32 Organic Illustration –Flat $1.0m $1.0m 0% +10% (-5%) (-2.5%) Renewal BasePrior Year Lost Business Current Year Revenue (-2.5%) All figures on this slide are used only for illustration purposes and are not estimates of Gallagher’s future performance. New Business Impact of Rate on Renewals Impact
Slide 33: Organic Illustration – Growth
33 Organic Illustration –Growth $1.0m $1.09m 9% +10% (-5%) +2% Renewal BasePrior Year Lost Business Current Year Revenue +2% All figures on this slide are used only for illustration purposes and are not estimates of Gallagher’s future performance. New Business Impact of Rate on Renewals Impact of Ex
Slide 34: Plan For Growth – M&A
Plan For Growth —- M&A MERGERS AND J AQuIsiTIons
Slide 35: Strong Acquisition Momentum
35 Strong Acquisition Momentum$0$50$100 $150$200$250$30020012002200320042005200620072008200920102011 ($Ms) International $175m Domestic $102m $277m* GAB Robins $45m *Annualized revenues acquired
Slide 36: Strong International Acquisition Momentum
36 Strong International Acquisition Momentum200820102011 •Oxygen Insurance Managers •Securitas RE •First City •Specialized Broking Associates •Risk & Reward (Benefits) •Health Lambert •Lonmar(London Binder/Wholesales) •WoodbrookUnderwriting Agencies
Slide 37: Acquisition Update
Acquisition Update •Integration completed as planned in 2011 •Paid $24m for $45m of revenues which contributes to $9m of annual EBITDAC as expected •Increased margins to 20% through expense saves and synergies •All clients have been converted to our GB claim system (over 2.6m claims) GABRobinsAcquir
Slide 38: M&A – Looking Forward
38 M&A –Looking ForwardLimitedConsolidators Numerous Specialties Gallagher’sCoreCompetency Vast Pipeline Domestic and International Markets Highly Fragmented 18,000 agents/brokersin the U.S. Baby boomers looking for exit strategy Need Gallagher’s Expertise Retail P&C Wholesale Benefits International
Slide 39: Current Gallagher U.S. Locations
39 Current Gallagher U.S. Locations
Slide 40: Larger Cities With Expansion Potential
40 Larger Cities With Expansion Potential Cities with population of 100,000+ where Gallagher has no presence
Slide 41: Gallagher Global Alliance
Gallagher Global Alliance
Slide 42: Productivity, Quality and Culture
Productivity, Quality and Culture
Slide 43: Productivity & Quality
Controlling Headcount Established Offshore Centers of Excellence Managing Expenses Building Productivity Tools –DMS and Workflow Standardizing Processes and Systems Reducing Real Estate Investing in Business Intelligence Leveraging Sales Force Management tools Improving Productivity and Quality Prod
Slide 44: Reasons for Offshore Centers of Excellence
44 Reasons for Offshore Centers of ExcellenceIncrease Speed to Market15%Foster Innovation5% Reduce Costs35%Focus on Core25% Improve Quality20%
Slide 45: Offshore Centers of Excellence Examples of Benefits
Offshore Centers of ExcellenceExamples of Benefits Efficiency Improvements QualityImprovements Reduce policy delivery from 30 to 10 days Achieve 98% quality rate Reduce certificateof insurance delivery expense by 20% Improvedquality rate to 99% Implemented claims adjusters enhancedquality audit prog
Slide 46: Systems Achievements – 2004-2011
46 IT Systems Achievements –2004-2011 Email 2004 Global Corporate Systems
Slide 47: Systems Achievements – 2004-2011
47 IT Systems Achievements –2004-2011 T&E General Ledger HR/Payroll Planning Document Mgmt Data Warehouse RealEstateLeasing Corporate Intranet Email 2004 2011 Global Corporate Systems
Slide 48: Current Systems Activity
48 Current Systems Activity Client Communication Tools CRM –Customer Relationship Centralized Agency System Internal BrokerSocial Media External Client Prospecting Tools
Slide 49: Reducing Adjusted Operating Expense Ratio
Reducing Adjusted Operating Expense Ratio20.8% 16.8%10.0% 12.5%15.0% 17.5%20.0% 22.5%25.0% 2008201127.0% 23.7% 20.0% 22.5%25.0% 27.5%30.0% 20082011 Brokerage Segment Risk Management Segment See important disclosures regarding Non-GAAP measures on Page 3.
Slide 50: Mark of Achievement
50 Mark of Achievement Award winner –British Insurance 2011 Greenwich Excellence award for quality of service to large corporations 2011 Mid-Market Buyers Choice TPAExpertise Honoree –Business Insurance 2011 Commercial Broker of the Year (Heath Lambert) –Insurance Times Underwriting Agency of the ye
Slide 51: 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 S
Slide 52: Why Invest?
52 Why Invest?Source for data: Bloomberg. Total returns include reinvesting all dividends at the ex-dividend date.
Slide 53: Questions & Answers
QUESTIONS &ANSWERS For Additional Information Marsha AkinDirector –Investor Relations Marsha_Akin@ajg.com Phone: 630-285-3501
Slide 54: Cash Generation for 2008 to 2011
54 Cash Generation for 2008 to 2011 See information regarding Non-GAAP financial measures on page 3. 2008 2009 2010 2011 Earnings from continuing operations–Brokerage & Risk Management Segments Combined $132.4 $154.4 $166.8 $173.5 Provision for income taxes 85.1 96.5 108.0 107.7 Depreciation 29.8 30
Gallagher Arthur J & — Investor Presentation (February 2012) on 6ix