Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (August 2006)
39 slides from Arthur J. Gallagher &'s investor presentation, Aug 7, 2006
Slide 1: Arthur J. Gallagher & Co.
G' Arthur J. Gallagher & Co.
Slide 2: Safe Harbor
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Except for the historical information and discussions contained herein, statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Slide 3: Certain Non-GAAP Financial Measures
Certain Non-GAAP Financial Measures This presentation includes certain information that may be considered “non-GAAP financial measures” within the meaning of SEC regulations because it is derived from Gallagher’s consolidated financial information but is not required to be presented in financial sta
Slide 4: Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co. World’s 4th Largest Insurance Brokerage and Risk Management Services Firm Brokerage – We sell a full range of property/casualty and employee benefit products and services, provide access to wholesale, reinsurance, captive and excess/surplus lines markets and provide general
Slide 5: Strengths
Strengths Unique corporate culture Excellent history of growth and strong cash flows Strong financial position – Solid balance sheet – Low corporate debt; $35m at 6/30/06 still maintaining a $450M credit facility Solid client retention Excellent producer development and retention Proven acquisition
Slide 6: Differentiators
Differentiators • Culture Driven Success – Client-first focus – Local company feel with global capabilities – Team-based approach – Committed to growth – Emphasis on professional development • Niche strategy – industry-focused practice groups • International network of brokers and agents • Innovativ
Slide 7: Client Base
Client Base Large Clients Mid-Market Clients Smaller Clients
Slide 8: Client Base
Client Base Brokerage Large Clients Mid-Market Clients Smaller Clients
Slide 9: Client Base
Client Base Brokerage Risk Management Large Clients Mid Market Clients Smaller Clients
Slide 10: Segments
Segments 2005 Revenues 2005 Pretax Earnings Brokerage 67% Brokerage 73% Financial Services 8% Risk Management 25% Financial Services (10%) Risk Management 37% See important disclosures regarding Non-GAAP measures on page 3
Slide 11: Brokerage Segment
Brokerage Segment Domestic Retail Brokerage 54% Employee Benefit Brokerage 18% Wholesale, Reinsurance, & International Brokerage 28% Revenues as of 6/30/06 – See important disclosures regarding Non-GAAP measures on Page 3
Slide 12: Domestic Retail Brokerage
Domestic Retail Brokerage We broker P/C insurance and risk shifting programs and provide risk management services for commercial, not-for-profit, institutional and governmental enterprises Organized geographically via profit centers Matrix of 25 different industry-specific practice units
Slide 13: Domestic Retail Brokerage
f Domestic Retail Brokerage .
Slide 14: Employee Benefit Brokerage
Employee Benefit Brokerage We broker employee health, welfare and retirement insurance programs and assist in communication, administration and compliance consulting services Organized geographically via profit centers Matrix of 8 different industry-specific practice units
Slide 15: Employee Benefit Brokerage
y Employee Benefit Brokerage ‘
Slide 16: Wholesale Brokerage
Wholesale Brokerage We provide access for hard-to-place coverages, including surplus lines, to over 10,000 independent P/C brokers and agents Organized geographically via profit centers Over 70% of business is from non-Gallagher sources
Slide 17: Reinsurance Brokerage
Reinsurance Brokerage ”Gallagher Re” provides: – Property/Casualty, Life, and A&H expertise – Executed primarily through Treaty, Facultative and Program reinsurance services – Expert product knowledge with multinational servicing capabilities – Advisory, analytical and technical resources Re-branded
Slide 18: International Brokerage
International Brokerage Our teams based in US, UK and Bermuda provide US and International clients with access to international and alternative markets Gallagher has an international network of independent brokers in 120 countries Gallagher believes in global partners “best available” broker in ever
Slide 19: Wholesale, Reinsurance and International Network
Wholesale, Reinsurance and International Network
Slide 20: Brokerage Segment: Growth Drivers
Brokerage Segment Growth Drivers Organic – Experienced hires and teams – Grow our own – Increase industry-specific practice units Strategic fit acquisitions – Geographic expansion – Expertise expansion Network-wide coordination Deep industry and product knowledge
Slide 21: Brokerage Segment: Profit Drivers
Brokerage Segment Profit Drivers Maximize client retention Align performance compensation Control operating expenses Leverage technology Commitment to quality
Slide 22: Brokerage Segment: Growth & Profits
Brokerage Segment Growth & Profits (in millions) 1100 900 700 500 300 100 17% CAGR $559 $972 2001 2005 Total Revenues* 200 150 100 50 0 14% CAGR $103 $135 2001 2005 Pretax Earnings* 2005 pretax margins of 17% * See important disclosures regarding Non-GAAP measures on Page 3
Slide 23: Risk Management Segment
Risk Management Segment “Gallagher Bassett” provides outsourced P/C claims payment and management services for self-insured clients as well as insurance companies that outsource their claims department We DO NOT chase catastrophe overflow claims One of the world’s largest claims administrators– Busi
Slide 24: Risk Management Segment
f Risk Management Segment .
Slide 25: Risk Management Segment: Growth Drivers
Risk Management Segment Growth Drivers Purely organic Unbundled trend International footprint Deep client intimacy Leverage technology
Slide 26: Risk Management Segment: Profit Drivers
Risk Management Segment Profit Drivers Maximize client retention Control operating expenses Leverage technology Commitment to quality
Slide 27: Risk Management Segment: Growth & Profits
Risk Management Segment Growth & Profits (in millions) 400 350 300 250 200 150 100 50 0 13% CAGR $232 $371 70 60 50 40 30 20 10 0 19% CAGR $29 $68 2001 2005 Total Revenues* Pretax Earnings* 2005 pretax margin of 18% 2005 growth in diluted net earnings per share from continuing operations of 10% *See
Slide 28: Financial Services Segment
Financial Services Segment Segment in run-off mode Expect to sell our 60% ownership in our home office building in 2006 Working on monetizing asset management business Current uncertainty with coal investments – Purchased financial hedge on 6/12/06 – Regardless, law expires end of 2007 Substantial r
Slide 29: Financial Services Segment: Net Assets and Financial Guarantees
Financial Services Segment Net Assets and Financial Guarantees* $400 $350 $300 $250 $200 $150 $100 $362 2002 $126 2006* $60 $50 $40 $30 $20 $10 $0 Net Assets* Tax Adv Asset HO Other Mgmt Bldg Low Income Housing $14M Alternative Energy $27M Asset Alliance $42M Home Office Building $12M Other $10M $ I
Slide 30: 2005 Recap
2005 Recap Resolved numerous legacy issues Brokerage revenues up 10%, 2% organic Risk Management revenues up 9%, all organic, and pretax margin at 18%, best in industry Maintained $450 million unsecured credit facility Jan 05 increased dividend 12% 10 acquisitions See important disclosures regarding
Slide 31: Second Quarter 2006 Highlights
Second Quarter 2006 - - Highlights Internal revenue growth of 9% in Brokerage and 10% in Risk Management* Combined - 12% revenue growth and 40% in pretax earnings* Increasing brokerage margins Improved client retention Strong new business June 06 bought financial hedge for oil price uncertainty and
Slide 32: Where We're Going
Where We’re Going Revenue and pretax growth of 15% per year Target enterprise-wide margin of 20+% Continue selective acquisition strategy Maintain solid, low-risk balance sheet Maximize shareholder returns through dividends and stock repurchases
Slide 33: How We Will Get There
How We Will Get There Focus on Profitable Growth - Strong Management Group - Solid Customer Partnerships - Energized Sales Team - Operational Controls - Disciplined Capital Allocation
Slide 34: Summary: Why Invest? Growth Story
Summary: Why Invest? 22 Year Growth Story: 1984 IPO (Restated for stock splits) 6/30/06 Stock Price $1.72 $25.34 Market Cap $57 M $2.5 B Tangible Net Worth $23 M $344 M Annual Dividend/Share $.03 $1.20* * Indicated annual dividend
Slide 35: Summary: Why Invest? Revenues
Summary: Why Invest? Brokerage & Risk Management Revenues From Continuing Operations* (In millions) $1,400 $1,200 $1,000 $800 $600 $400 16% CAGR $643 $791 $961 $1,103 $1,232 $1,343 * See important disclosures regarding Non-GAAP measures on page 3
Slide 36: Summary: Why Invest? Pretax Earnings
Summary: Why Invest? Brokerage & Risk Management Pretax Earnings (In millions) From Continuing Operations* $250 $200 $150 $100 $50 15% CAGR $99 $132 $156 $184 $211 $203 2000 2001 2002 2003 2004 2005 * See important disclosures regarding Non-GAAP measures on Page 3
Slide 37: Summary: Why Invest? Cash Flow from Operations
Summary: Why Invest? Since 1990, $1.7 Billion Cash Flow from Ops Dividends Paid ($580 M) Reinvested in Operations ($686 M) Shares Repurchased ($456 M) Balance sheet with $3.54 in tangible net worth per share and low corporate debt As of 6/30/06 Excludes cash payments made regarding special items dis
Slide 38: Summary: Why Invest? Dividends Per Share
Summary: Why Invest? Dividends Per Share (restated for stock splits) $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 * Indicated 19% Average Annual Increase $1.20*
Slide 39: Culture Driven Success
Arthur J. Gallagher & Co. Culture Driven Success The Gallagher Way, Robert E. Gallagher – 1984 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 ad
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