Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Shareholder Meeting (May 2008)
68 slides from Arthur J. Gallagher &'s shareholder meeting presentation, May 13, 2008
Slide 1: Welcome to the Arthur J. Gallagher & Co. Annual Stockholders' Meeting
Welcome to the Arthur J. Gallagher & Co. Welcome to the Arthur J. Gallagher & Co. Annual Stockholders’ Meeting Tuesday, May 13, 2008 Exhibit 99.1
Slide 2: Please turn off all cell phones and PDAs
Please turn off all cell phones and PDAs at this time. Thank you for your cooperation. Please turn off all cell phones and PDAs at this time. Thank you for your cooperation.
Slide 3: Stockholders' Meeting
Stockholders’ Meeting Stockholders’ Meeting Formal Annual Meeting Financial Results – 10-Year Review Financial Results – 1st Quarter 2008 Segment Highlights Questions & Answers May 13, 2008
Slide 4: New Faces
New Faces New Faces Walter D. Bay hired as Corporate Vice President, General Counsel and Secretary April Hanes-Dowd hired as Assistant Vice President and Assistant Secretary Norman L. Rosenthal, Ph.D., elected to Board of Directors
Slide 5: Board of Directors
Board of Directors Board of Directors William L. Bax T. Kimball Brooker, Ph.D. Ilene S. Gordon Elbert O. Hand David S. Johnson Kay W. McCurdy Norman L. Rosenthal, Ph.D. James R. Wimmer Past CEO —— A. James Gallagher, Jr.
Slide 6: Board of Directors
Board of Directors Board of Directors Gary P. Coughlan – Appointed September 2000 – Chaired Audit Committee Retiring
Slide 7: Formal Annual Meeting
Formal Annual Meeting
Slide 8: Stockholders' Meeting: Financial Results
Stockholders’ Meeting Stockholders’ Meeting Formal Annual Meeting Financial Results – May 13, 2008
Slide 9: Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Except for the historical information and discussions, certain statements contained herein relating to future results may constitute “forw
Slide 10: Certain Non-GAAP Financial Measures
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 requi
Slide 11: Financial Results 2007
Financial Results 2007 Financial Results (in millions, except per share and employee data) See important disclosures regarding non-GAAP measures Total revenues $1,623.3 $1,470.1 $153.2 10% Pretax earnings from continuing operations before retail contingent commission litigation and medical plan char
Slide 12: Financial Results 2007
Financial Results 2007 Financial Results (in millions, except per share and employee data) Change % Earnings from continuing operations $154.6 $128.4 $26.2 20% Earnings (loss) from discontinued operations ($15.8) $0.1 ($15.9) NMF Net earnings $138.8 $128.5 $10.3 8% Diluted earnings from continuing o
Slide 13: Financial Results — Brokerage & Risk Management
Financial Results — 2007 Brokerage & Risk Management Financial Results — Brokerage & Risk Management (in millions, except per share and employee data) *Before retail contingent commission litigation and medical plan charge See important disclosures regarding non-GAAP measures Total revenues $1,557.7
Slide 14: 2007 Recap
2007 Recap 2007 Recap Brokerage * – Revenue growth of 9% – EBITDA growth of 10% – Closed 21 acquisitions, annualized revenues of $99M Risk Management * – Revenue growth of 16% – Pretax margins of 15% – International revenue growth of 41% Financial Services – Nearing end of investment disposal proces
Slide 15: Companywide, we produced approximately $208 million in new business in 2007
Companywide, we produced approximately $208 million, excluding acquisitions, in new business in 2007! Companywide, we produced approximately $208 million, excluding acquisitions, in new business in 2007!
Slide 16: Our Five Dominant Priorities
Our Five Dominant Priorities Our Five Dominant Priorities Increase our organic growth rate Align sales and service deliverables with pay Increase productivity/increase margins Hire and retain the right people Continue to acquire the best businesses in our industry
Slide 17: Current Environment
Current Environment Current Environment Intense competition in P/C market (too much supply) Unstable economy (slowing demand) Industry Facing Two Headwinds
Slide 18: Intense Competition in P/C Market
Intense Competition in P/C Market Intense Competition in P/C Market In 2007, U.S. P/C industry experienced its first decline in net premiums written since 1943 A.M. Best Co., April 2008 Average commercial premium down 13.5% in 1st Quarter 2008 CIAB Quarterly Market Report, April 2008
Slide 19: Unstable Economy
Unstable Economy Unstable Economy Recession Is Here, Economist Declares Boston Globe , March Chaos on Wall Street CNNMoney.com , March The Last Days of Bear Stearns Fortune , April Delta, Northwest Lose Combined $10.5B on High Fuel, Charges AP, April S&P Sees Increased Chance of U.S. Bank Downgrades
Slide 20: Corporate Growth Initiative
Corporate Growth Initiative Corporate Growth Initiative Hire Develop Acquire Result: Sales Growth
Slide 21: Corporate Growth Initiatives: Performance-Driven Culture
Corporate Growth Initiatives Corporate Growth Initiatives New employee performance appraisal/goal-setting process Aligns individual/team performance with Gallagher’s Dominant Priorities Launched in February, rolling out companywide in 2008 Classroom and/or online training for all managers/employees
Slide 22: Corporate Growth Initiatives: Training and Development
Corporate Growth Initiatives Corporate Growth Initiatives College Internship Program – 146 participants in 2007 – Expect 160 in 2008 Corporate Training – Classroom and online, instructor-led programs – Learning Management System: dramatically expands employee training options and tracks programs com
Slide 23: Corporate Growth Initiatives: Acquisitions
Corporate Growth Initiatives Corporate Growth Initiatives Completed a record 21 acquisitions in 2007, annualized revenues of $99M Completed 11 acquisitions in 1st Quarter 2008, annualized revenues of $31M Completed 3 acquisitions to-date in 2nd Quarter 2008 Pipeline is at record levels Acquisitions
Slide 24: Corporate Infrastructure Initiatives
Corporate Infrastructure Initiatives Corporate Infrastructure Initiatives Targeted headcount reduction of 400 support positions companywide through attrition by year-end 2008 Centralized Systems – General ledger/accounts payable – Travel and expense program – Technology – HR – Real estate and planni
Slide 25: Corporate Infrastructure Initiatives: IT Platform Overhaul
Corporate Infrastructure Initiatives Corporate Infrastructure Initiatives Replatforming of data center, global network and corporate IT infrastructure nearing completion Enhances operating efficiencies, streamlines processes, and improves expense and human resource management worldwide Supports fast
Slide 26: Financial Results – 10-Year Review
Stockholders’ Meeting Stockholders’ Meeting Formal Annual Meeting Financial Results – 10-Year Review May 13, 2008
Slide 27: Total Revenues UP 168%
Total Revenues UP 168% Total Revenues (in millions) $603.3 $603.3 $1,619.2 UP 168% See important disclosures regarding non-GAAP measures
Slide 28: Pretax Earnings from Continuing Operations UP 226%
Pretax Earnings from Continuing Operations UP 226% Pretax Earnings from Continuing Operations Before Retail Contingent Commission Matters (in millions) $62.6 $62.6 $204.2 UP 226% See important disclosures regarding non-GAAP measures
Slide 29: Earnings from Continuing Operations UP 179%
Earnings from Continuing Operations UP 179% Earnings from Continuing Operations Before Retail Contingent Commission Matters (in millions) $54.6 $54.6 $152.1 UP 179% See important disclosures regarding non-GAAP measures
Slide 30: Total Revenues Per Employee UP 45%
Total Revenues Per Employee UP 45% Total Revenues Per Employee $123,000 $123,000 See important disclosures regarding non-GAAP measures $178,000 UP 45%
Slide 31: Annual Dividends Per Share UP 254%
Annual Dividends Per Share UP 254% Annual Dividends Per Share $.35 $.35 $1.24 UP 254%
Slide 32: Stock Price Per Share UP 119%
Stock Price Per Share UP 119% Stock Price Per Share As of December 31 $11.03 $11.03 $24.19 UP 119%
Slide 33: Total Returns with Dividends Reinvested UP 281%
Total Returns with Dividends Reinvested UP 281% Total Returns with Dividends Reinvested As of December 31 CAGR of 14% $1,000 $1,000 $3,806 UP 281%
Slide 34: Company Capitalization UP 234%
Company Capitalization UP 234% Company Capitalization As of December 31 $779M $779M $2.6B UP 234%
Slide 35: Cash Flows from Operations
Cash Flows from Operations Cash Flows from Operations Cash flows from operations in 2007 exceeded $250M “Free” cash flows used for acquisitions, stock repurchases and dividends See important disclosures regarding non-GAAP measures $0 $50 $100 $150 $200 $250 $300 Cash Flows from Operations Summary (I
Slide 36: Uses of Cash – 2002 through 2007
Uses of Cash – 2002 through 2007 Uses of Cash – 2002 through 2007 Uses of Cash as Reported (in millions) $0 $50 $100 $150 $200 $250 $300 Cash Paid for Acquisitions (net of cash acquired) Dividends Paid Stock Repurchases
Slide 37: Capital Structure
Capital Structure Debt offering in 2007 changed the capital structure – Debt remains at a conservative level – Flexibility remains with $450M line of credit capacity 1.5 NA Debt to EBITDA* 36% 4% Debt to total capital (Debt/[Debt + Equity]) Shares outstanding Stockholders' equity Total debt (in mill
Slide 38: 24-Year Growth Story
Arthur J. Gallagher & Co. Stock Price $1.72 $24.19 Market Cap $57M $2.2B Total Debt — $400M Stockholders Equity $23M $716M Annual Dividend/Share $.03 $1.28 * Including Dividend Reinvestment, Compound Annual Growth Rate of 18% Dec 31, 2007 1984 IPO Arthur J. Gallagher & Co. * Indicated annual dividen
Slide 39: Financial Results – 1st Quarter
Stockholders’ Meeting Stockholders’ Meeting Formal Annual Meeting Financial Results – 10-Year Review Financial Results – 1st Quarter May 13, 2008
Slide 40: Financial Results 1st Quarter 2008
Financial Results 1st Quarter 2008 Financial Results 1st Quarter 2008 Total revenues $375.8 $375.0 $0.8 — (in millions, except per share data) Change % See important disclosures regarding non -GAAP measures Earnings from continuing operations $16.3 $21.3 ($5.0) NMF Diluted earnings from continuing o
Slide 41: Segment Results – 1st Quarter 2008
Segment Results – 1st Quarter 2008 Segment Results – 1st Quarter 2008 — — 8% 8% Pretax margin — — 12% 12% EBITDA margin 13% $3.7 $28.5 $32.2 EBITDA 24% $.03 $.10 $.13 Earnings per share 10% $1.7 $17.8 $19.5 Pretax earnings 11% $25.2 $232.8 $258.0 Total revenues % Change (17%) (3%) 18% 15% EBITDA mar
Slide 42: 1st Quarter 2008 Overview
1st Quarter 2008 Overview 1st Quarter 2008 Overview Brokerage – 1% organic revenue growth in a very soft market – Closed 11 acquisitions, annualized revenues of $31M – Revenue growth of 11% – EBITDA growth of 13% – EBITDA margin of 12% Risk Management – Revenue growth of 9% – International revenue g
Slide 43: Strategic Exit from Gallagher Re
Discontinued Operations Discontinued Operations Decision made in December 2007 Announced in January 2008 Reclassified as discontinued operations in 4th Quarter 2007 earnings release All Gallagher Re sales are completed Strategic Exit from Gallagher Re
Slide 44: Segment Highlights
Stockholders’ Meeting Stockholders’ Meeting Formal Annual Meeting Financial Results – 10-Year Review Financial Results – 1st Quarter 2008 Segment Highlights May 13, 2008
Slide 45: Two Core Businesses
Arthur J. Gallagher & Co. Arthur J. Gallagher & Co. 2007 Pretax Earnings* 2007 Total Revenues* *See important disclosures regarding non-GAAP measures Brokerage 69% Risk Management 27% Financial Services 4% Risk Management 26% Financial Services Brokerage 74% Two Core Businesses
Slide 46: Brokerage Segment Business Mix
Brokerage Segment Business Mix Brokerage Segment Business Mix 2007 Revenues Retail 80% Mostly North America Wholesale 20% Mostly U.S. and U.K. See important disclosures regarding non-GAAP measures
Slide 47: Brokerage Segment
Brokerage Segment $753 $1,110 1,000 1,200 1,400 $154 $224 Brokerage Segment •2007 EBITDA margin of 20% Total Revenues * EBITDA* *See important disclosures regarding non-GAAP measures (in millions)
Slide 48: Brokerage Segment Strategy
Brokerage Segment Brokerage Segment Rapidly Expand – Domestic – Geographical – Expertise Selectively Expand – International – Broaden Network Partners – Targeted Acquisitions Profitability – Stay in Our Sweet Spot – Middle to Upper Commercial Market Strategy
Slide 49: Retail P/C Acquisitions
Retail P/C Acquisitions Retail P/C Acquisitions InterNational Insurance Group, Ltd. Fishermans Insurance Services, Inc. Lowndes Lambert Group Canada, Ltd. Melton Insurance Associates, Inc. Tropp & Company Woods & Grooms, Inc. Carpenter, Cammack & Associates, Inc. Spanjers Insurance Agency, Inc. Ceda
Slide 50: Retail Employee Benefits
Retail Employee Benefits Retail Employee Benefits Employee Benefits Brokerage/Consulting Actuarial Services/Predictive Modeling Healthcare Data Analysis and Claims Benchmarking Pharmacy/Rx Consulting Services Legislative Compliance Support Employee Communications Tools/Resources Executive Benefits/F
Slide 51: Retail Employee Benefits Acquisitions
Retail Employee Benefits Acquisitions Financial Profiles, Inc. Elite Benefits Insurance Marketing Services, Inc. The Producer’s Choice, Inc. Strategic Health Plans Corporation BIS Insurance Services, Inc. C&B Consulting Group, Inc. Intermountain Financial Benefits Retail Employee Benefits Acquisitio
Slide 52: Wholesale
Wholesale Wholesale U.S. wholesale operation 5th-largest wholesale insurance broker in 2007, according to Business Insurance magazine Fastest-growing Lloyd’s of London wholesaler (5 years)
Slide 53: Wholesale Acquisitions
Wholesale Acquisitions Wholesale Acquisitions ISG International, Inc. Robert A. Schneider Agency, Inc. AVRECO Leicht General Agency
Slide 54: International Strategic Alliance Network
International Strategic Alliance Network International Strategic Alliance Network Non-owned network of leading independent brokers – Offers flexibility in choosing best broker for client – Account can be moved if not handled properly More than 100 countries around the world Combined with Gallagher o
Slide 55: Risk Management Segment
Risk Management Segment Risk Management Segment Revenue growth is all organic Targeting Fortune 1000 companies; standard platform also enables profitable service to much smaller accounts Differentiate through client intimacy, commitment to quality and technology International presence largely public
Slide 56: Risk Management Segment
Risk Management Segment Risk Management Segment A growing company has needs that can often best be met in alternative markets We can tailor service to clients’ needs Include on-site when appropriate Hard markets accelerate the drive to alternative markets Soft market has slowed pace, but opportuniti
Slide 57: Risk Management Segment Capabilities
Risk Management Segment Risk Management Segment 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 Capabilities
Slide 58: Risk Management Segment
Risk Management Segment Risk Management Segment $292 $444 $0 $100 $200 $300 $400 $500 Total Revenues * *See important disclosures regarding non-GAAP measures (in millions) $49 $76 $0 $20 $40 $60 $80 $100 EBITDA * •2007 EBITDA margin of 17%
Slide 59: A Growth Company
Arthur J. Gallagher & Co. Arthur J. Gallagher & Co. A Growth Company
Slide 60: Brokerage & Risk Management: Total Revenues
Brokerage & Risk Management Brokerage & Risk Management $1,045 $1,175 $1,288 $1,406 $1,554 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 (in millions) * See important disclosures regarding non-GAAP measures Total Revenues from Continuing Operations*
Slide 61: Brokerage & Risk Management: Pretax Earnings
Brokerage & Risk Management $175 $208 $199 $226 $244 $50 $100 $150 $200 $250 $300 Brokerage & Risk Management * See important disclosures regarding non-GAAP measures Pretax Earnings from Continuing Operations* (in millions)
Slide 62: Brokerage & Risk Management: EBITDA
Brokerage & Risk Management $203 $244 $237 $271 $300 $50 $100 $150 $200 $250 $300 $350 * See important disclosures regarding non-GAAP measures Brokerage & Risk Management EBITDA* (in millions)
Slide 63: Dividends Per Share
Dividends Per Share $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 Dividends Per Share (restated for stock splits) * Indicated annual dividend for 2008 $1.28*
Slide 64: Our Goals Are Simple
Our Goals Are Simple Our Goals Are Simple Target revenue and EBITDA growth of 15%/YR Push Brokerage and Risk Management margins to 20% Control share count growth Return cash to shareholders
Slide 65: Here's How We Are Going to Win
Here’s How We Are Going to Win Here’s How We Are Going to Win Increase our organic growth rate Align sales and service deliverables with pay Increase productivity/increase margins Hire and retain the right people Continue to acquire the best businesses in our industry Our Five Dominant Priorities Re
Slide 66: The Gallagher Way
The Gallagher Way The Gallagher Way 1. We are a Sales and Marketing Company dedicated to providing excellence in Risk Management Services to our clients. 2. We support one another. We believe in one another. We acknowledge and respect the ability of one another. 3. We push for professional excellenc
Slide 67: Questions & Answers
Questions & Answers Questions & Answers
Slide 68: Annual Stockholders' Meeting
Annual Stockholders’ Meeting Tuesday, May 13, 2008
Gallagher Arthur J & — Shareholder Meeting (May 2008) on 6ix