Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (September 2010)
37 slides from Arthur J. Gallagher &'s investor presentation, Sep 8, 2010
Slide 1: Investment Presentation August 2010
Investment Presentation August 2010 Presented by: J. Patrick Gallagher, Jr. Chairman, President and CEO Douglas K. Howell CFO Arthur J. Gallagher & Co.
Slide 2: Information Regarding Forward-Looking Statements
Information Regarding Forward-Looking Statements This investment presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this investment presentation, the words “anticipates,” “expects,” “believes,” “should,” could,”
Slide 3: Information Regarding Non-GAAP Measures
Information Regarding Non-GAAP Measures This presentation contains information regarding EBITDAC, a non-GAAP measure. Gallagher defines this measure as earnings from continuing operations before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payabl
Slide 4: Who is Arthur J. Gallagher & Co?
Who is Arthur J. Gallagher & Co? •Among the world’s 5 largest insurance brokers* Retail & Wholesale – 88% U.S., 12% International •Predominate focus on middle-market space •Global capabilities •Largest Managing General Agent* •Benefits Division received Reader’s Choice Silver Circle Award* •One of t
Slide 5: Who We Are – Two Core Businesses
Who We Are – Two Core Businesses 2009 Revenues – $1.7 billion Brokerage Segment 74% Risk Management Segment 26% 2009 EBITDAC – $341 million Brokerage 82% Risk Management 18% See important disclosures regarding Non-GAAP measures on page 3
Slide 6: Brokerage Segment
Brokerage Segment 2009 Revenues – $1.3 billion Wholesale 19% Mostly U.S. and U.K. Retail-P/C 55% Mostly U.S. and Canada Retail-Benefits 26% U.S. and U.K.
Slide 7: Brokerage Segment Revenues From Continuing Operations
Brokerage Segment Revenues From Continuing Operations $1,500 $1,250 $1,000 $750 $500 $250 8% CAGR $1,276 $1,188 $1,114 $1,007 $946 1st Half $651 2005 2006 2007 2008 2009 2010
Slide 8: Brokerage Segment EBITDAC
Brokerage Segment EBITDAC $325 $275 $225 $175 $125 $75 6% CAGR $280 $228 $233 $207 $193 1st Half $143 2005 2006 2007 2008 2009 2010 See important disclosures regarding Non-GAAP measures on page 3
Slide 9: Brokerage Segment Focus
Brokerage Segment Focus •Drive top-line growth Domestic International •Cost containment •Stay in sweet spot Middle to upper commercial market Over 85% is niche-driven
Slide 10: Brokerage Segment Differentiators
Brokerage Segment Differentiators •Primarily middle-market focused Main competitors are regional brokers Greater capabilities •Expertise •Wider scope of coverages •International •Claims Access to markets •Team-oriented sales culture
Slide 11: Growth – Domestic
Growth – Domestic •Internal revenue drivers Cross-selling and new sales initiatives •Retail P/C, Benefits, Wholesale, Intl •SalesForce.com •Single agency system •Cross-selling 2010—retail •Sales goal 2010 Niche expertise Recruiting new producers and sales teams Growing our own producers through •Two
Slide 12: Growth – International
Growth – International •Strong growth •Organic Substantial London and Australia operations Hire experienced sales teams We can now handle about any type of business •Opportunistic acquisitions/minority interests FirstCity – London Securitas – Brazil SBA – Australia – now own 100% CGM Gallagher – Car
Slide 13: Growth – Acquisitions
Growth – Acquisitions •Acquisitions 18,000 retail and wholesale brokerages and agencies* just in the U.S. (P&C, Benefits and Wholesale) •Owned by baby boomers who need an exit strategy yet still want to be in the business •Need depth of capabilities to grow to the next level Small number of consolid
Slide 14: Growth by Acquisition
Growth by Acquisition •Approx. 245 deals since 1985 •Typical deal: $2 to $10 million in revenues to 5 producers/staff of 10 to 20 EBITDAC margins between 25%—30% 2008 – paid 6.3x EBITDAC 2009 – paid 5.8x EBITDAC 1H 2010 – paid 6.0x EBITDAC •Must fit into our sales culture! 8.0 7.5 7.0 6.5 6.0 5.5 5.
Slide 15: Current Gallagher U.S. Locations
Current Gallagher U.S. Locations WA MT ME ND OR MN VT NH ID MA SD WI NY WY MI RI IA CT PA NE NJ NV OH UT DE CO IL IN WV MD KS VA CA MO KY NC OK TN AR AZ NM SC MS AL GA TX LA FL AK HI
Slide 16: Larger cities where we aren't located
Larger cities where we aren’t located Source for Acquisition Targets: Hales & Co., Inc. and D&B WA 188 MT ME ND 27 42 24 OR MN 124 208 VT NH ID 15 62 MA SD NY 39 WI MI 352 WY 35 882 9 228 364 CA RI IA CT 56 1,214 PA NE 152 188 IN 517 NJ NV 92 OH UT 222 DE 446 67 IL 461 72 524 32 CO WV 137 KS 52 VA M
Slide 17: Gallagher Optimus Network
Gallagher Optimus Network
Slide 18: Risk Management Segment
Risk Management Segment 2009 Revenues – $453 million 2009 EBITDAC – $61 million Workers Compensation 69% Property 4% Liability 27% Domestic 85% International 15% See important disclosures regarding Non-GAAP measures on page 3
Slide 19: Risk Management Segment Revenues From Continuing Operations
Risk Management Segment Revenues From Continuing Operations $525 $450 $375 $300 $225 $150 $75 6% CAGR $465 $453 $444 $401 $371 1st Half $222 2005 2006 2007 2008 2009 2010
Slide 20: Risk Management Segment EBITDAC
Risk Management Segment EBITDAC $120 $100 $80 $60 $40 $20 $0 2006 2007 2008 2009 2010 $76 $66 $58 $61 1st Half $35 See important disclosures regarding Non-GAAP measures on page 3
Slide 21: Risk Management Segment – Focus
Risk Management Segment – Focus •New leadership – Scott Hudson •Growth Domestic International •Client service Highest quality standards Technology •Cost containment
Slide 22: RM Growth – Domestic
RM Growth – Domestic •All organic •Over 84% non-Gallagher clients •Targeting Mainly Fortune 1000 companies Standard platform enables profitable service to smaller accounts •Differentiation Network focused or dedicated – flexibility Client intimacy Quality standards Proprietary technology National wo
Slide 23: RM Growth – International
RM Growth – International •Strong growth Revenues – 5-year CAGR of 12.4% •Australia, Canada, U.K. & New Zealand •Largely public entity but leveraging U.S. expertise to access commercial clients •Global technology capabilities •Standard claims process
Slide 24: Risk Management Locations
Risk Management Locations AK SCOTLAND ONTARIO ENGLAND WA MT ME ND OR MN VT NH ID MA SD WI NY W MI Y CT RI NE IA PA NJ NV D UT OH IL E IN W M CO HI KS M V VA D CA O KY NC TN AZ OK N AR M SC MS AL GA AUSTRALIA TX LA FL NEW ZEALAND
Slide 25: Corporate Segment
Corporate Segment •Interest expense on debt – $8.9m/qrtr •Corporate operating expense – $1m/qrtr •Clean-Energy Facilities – potential of $6m to $10m net earnings in 2010 while operating under temporary regulatory permits and up to $40m/yr net earnings from 2011 through 2019 Combination of pretax inc
Slide 26: Business Generates Cash
Business Generates Cash (In millions) Cash Generation* EBITDAC $350 $300 $250 $200 $150 $100 $50 $0 2005 2006 2007 2008 2009 2010 1st Half - Dividend *See important disclosures regarding Non-GAAP measures on page 3 and see Exhibit 1
Slide 27: Uses of Cash
Uses of Cash •Return cash to stockholders Pay dividends – $1.28/share and 5.2%* yield Repurchase shares but currently favor dividends •Buy brokers Mix of cash and/or stock Currently 75% stock/25% cash •Neither segment needs substantial capital or cap-ex *At August 31, 2010
Slide 28: Prudent Balance Sheet
Prudent Balance Sheet Global Insurance Gallagher Broker Avg. S&P 1000 ($ millions) 2009 2009 2009 Total Debt $550 Stockholders’ Equity $893 Debt to Total Capital (Debt/(Debt + Equity)) 38% 39% 41% Debt to EBITDAC* 1.6x 2.0x 3.6x Including Unfunded Pension Liability Debt to Total Capital 39% 45% 42%
Slide 29: Company Recap
COMPANY RECAP
Slide 30: Continue to Grow Revenues
Continue to Grow Revenues* $2,000 $1,700 $1,400 $1,100 $800 $500 7% CAGR $1,729 $1,653 $1,558 $1,408 $1,316 1st Half $873 2005 2006 2007 2008 2009 2010 *Brokerage & Risk Management Revenues
Slide 31: Continue to Grow EBITDAC
Continue to Grow EBITDAC* $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 4% CAGR $341 $304 $291 $266 $273 1st Half $178 2005 2006 2007 2008 2009 2010 *Brokerage & Risk Management EBITDAC See important disclosures regarding Non-GAAP measures on Page 3
Slide 32: Mid-2010 Update
Mid-2010 Update •M&A Slow start 1st half 2010 domestically, but activity increasing Good 1st half internationally •Announced FirstCity acquisition in London – $30m revenues •Strong presence in Fin/Pro coverage •Acquired remaining 60% of SBA in Australia •New energy team – London/Brazil/Houston •Repl
Slide 33: Environmental Challenges Continue
Environmental Challenges Continue •Global economic weakness Reduced payrolls, exposure units and claim counts Lag effect of brokerage renewals •P/C market pricing issues 2nd Q average price declines of 6% to 7% Carrier competition continues especially on new business •Lower investment yields
Slide 34: Looking Forward
Looking Forward •Organic revenue Cross-selling Clients need added capabilities •Complexity of business risks •Healthcare reform Carrier compensation •M&A revenue Full pipeline •Improve productivity Technology Offshoring initiatives •Control costs •Harvest cash from clean energy efforts •Maintain cul
Slide 35: Questions & Answers
Questions & Answers
Slide 36: Exhibit: Short-cut To Understanding Cash Generation
Exhibit 1 Short-cut To Understanding Cash Generation (See GAAP cash flows in Statement of Cash Flows) $ millions 2005 2006 2007 2008 2009 1H 2010 Brokerage & Risk Management EBITDAC $ 213 $ 273 $ 304 $ 291 $ 340 $ 178 Stock compensation expense 16 25 19 18 16 7 Capital expenditures (23) (33) (41) (3
Slide 37: For Additional Information
For Additional Information •Website: www.ajg.com •Email: investor_relations@ajg.com •Marsha Akin Marsha_Akin@ajg.com •Phone: 630-285-3501
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