Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Conference Presentation (May 2005)
44 slides from Arthur J. Gallagher &'s conference presentation, May 27, 2005
Slide 1: May 2005
May 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 $2.7 billion Shares outstanding of 93.2 million Dividend yield of 3.9 52-week range – $28.06—$33.96 Traded NYSE as “AJG” As of 3/31/05, unless otherwise i
Slide 5: Performance vs. S&P
Arthur J. Gallagher & Co Performance vs. S&P 350% 300% 250% 200% 150% 100% 50% 0% Arthur J Gallagher & Co [AJG] S&P 500 (SPX) Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05
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 21% CAGR Total Revenues 2004 $300 $250 $200 $150 $100 $50 $0 34% CAGR Cash Flow from Ops 2004 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 19% CAGR Dividends 2005 $1.12 2004 cash flow from operations of $2
Slide 7: A Real Growth Story
Arthur J. Gallagher & Co. A Real Growth Story 1984 IPO (Restated for stock splits) March 31, 2005 Stock Price $1.72 $28.80 Market Cap $57 M $2.7 B Tangible Net Worth $23 M $310 M Annual Dividend/Share $.03 $1.12 Including Dividend Reinvestment, Compound Annual Growth Rate of 19%
Slide 8: 2004 Achievements
Arthur J. Gallagher & Co. 2004 Achievements Record revenues of $1.4B and earnings from continuing operations of $188M Total Brokerage and Risk Management revenues increased 12% Total Brokerage and Risk Management pretax earnings increased 14% Completed record 19 acquisitions Record dividend increase
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: 2005 Developments
Arthur J. Gallagher & Co. 2005 Developments Resolved Headwaters dispute Sold two medical claims management operations Sold Florida Community Development investment Reserved for state insurance investigation Froze defined benefit pension plan effective 7/1/05 Reached agreement with Illinois’ Attorney
Slide 11: 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 12: 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 13: Three Distinct Segments
Arthur J. Gallagher & Co. Three Distinct Segments Total Revenues Brokerage 67% Financial Services 8% Risk Management 25% Pretax Earnings Brokerage 82% Financial Services (8%) Risk Management 26% Total revenues from continuing operations exclude FIN 46 impact and investment gains Pretax earnings from
Slide 14: Brokerage Segment
Brokerage Segment Gallagher’s largest business segment Acts as intermediary – no underwriting risk Niche driven Alternative market leaders
Slide 15: Brokerage: Contingent Commission Chronology
Brokerage Segment Contingent Commission Chronology October 2004—effective 1/1/05, not entering into new volume/profit-based contingent agreements as retail broker Received subpoenas and other requests for information from state attorneys general and state regulatory authorities Q4 2004—conducted int
Slide 16: Brokerage: A Strategic Consolidator
Brokerage Segment A Strategic Consolidator Geographic diversity; enhance or expand capabilities Approximately 140 acquisitions in this segment from 1986 through 3/31/05 The rules: financial health, similar culture Gallagher is merger partner of choice
Slide 17: Brokerage: Growth & Profits
Brokerage Segment Growth & Profits 1000 900 800 700 600 500 400 300 200 100 $458M 19% CAGR $920M 00 01 02 03 04 Total Revenues 200 150 100 50 0 $89M 21% CAGR $186M 00 01 02 03 04 Pretax Earnings 2004 pretax margins of 20% 2004 growth in diluted net EPS of 12% Note: Amounts as originally reported for
Slide 18: Brokerage: Three Primary Operations
Brokerage Segment Three Primary Operations Retail Brokerage 59% (Jim Gault) Employee Benefits 17% (Jim Durkin) Specialty Marketing & International 24% (Dave McGurn) As of 3/31/05
Slide 19: Retail Brokerage Offices
Retail Brokerage Offices
Slide 20: Retail Brokerage Niches
Retail Brokerage Niches Agribusiness Aviation Captives Construction Construction Project Solutions Energy Global Risk Management Healthcare Higher Education Management Liability Marine Mergers & Acquisitions Personal Insurance Public Entity Real Estate General Commercial Habitational Hospitality Sho
Slide 21: 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 22: Specialty Marketing & International Offices
Specialty Marketing & International Offices, Joint Ventures & Alliances
Slide 23: 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 24: Employee Benefits Offices
Employee Benefits Offices
Slide 25: 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 26: 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 27: Risk Management Segment
Risk Management Segment Gallagher’s Property/Casualty Claims Management Operation “Gallagher Bassett” – Rich McKenna World’s largest multiline, third-party administrator (Business Insurance magazine) Revenue growth is all organic Fee revenues are primarily generated based on number of claims Signifi
Slide 28: Risk Management: Growth & Profits
Risk Management Segment Growth & Profits 350 300 250 200 150 100 50 0 16% CAGR $203M $346M 2000 2004 Total Revenues 60 50 40 30 20 10 0 24% CAGR $28M $58M 2000 2004 Pretax Earnings 2004 pretax margin of 17% 2004 growth in diluted net EPS of 47% Note: Amounts as originally reported for continuing ope
Slide 29: Gallagher Bassett Offices
Gallagher Bassett Offices
Slide 30: Risk Management Expertise
Risk Management Segment Expertise 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 31: 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 32: Financial Services Segment: Cash & Investments
Financial Services Segment $889 Million of Cash & Investments* Investments Allocated to Financial Services Segment ($171 M) Cash Allocated to Risk Management Segment ($140 M) Cash Allocated to Brokerage Segment ($578 M) * As of March 31, 2005 – Cash & investments net of related investment borrowings
Slide 33: Financial Services: Net Assets Under Management
Financial Services Segment Net Assets Under Management and Financial Guarantees $400 $350 $300 $250 $200 $150 $362 $187 2002 2005 Net Asset Classes 3/31/05 $70 $60 $50 $40 $30 $20 $10 $0 Tax Adv. Asset Mgmt. Real Estate Other Low Income Housing $16M Alternative Energy $61M Asset Alliance $47M Real E
Slide 34: Financial Services: Refocused Investing
Financial Services Segment Refocused Investing Tax advantaged – maximize through 2007 Asset management – monetize Real estate – optimize cash flows Sold Florida Community Development investment in Q2 2005 Venture capital – substantially exited in 2003
Slide 35: Financial Services: Headwaters Dispute
Financial Services Segment Headwaters Dispute February 05 – Utah jury awarded damages against AJGFS of $175M with a possible additional $120M May 05 – AJGFS reached settlement with Headwaters Payments of $50M in May 05 and $70M by January 06 Annual royalty for 2005 through 2007 up to a maximum of $2
Slide 36: Why Invest?
Arthur J. Gallagher & Co. Why Invest?
Slide 37: Revenue Growth
Arthur J. Gallagher & Co. Revenue Growth Total Revenues From Continuing Operations As Originally Reported ($ M) $1,600 $1,400 $1,200 $1,000 $800 $600 $400 21% CAGR $685 $842 $1,023 $1, 226 $1,447 2000 2001 2002 2003 2004
Slide 38: Profitable Growth
Arthur J. Gallagher & Co. Profitable Growth Total Pretax Earnings From Continuing Operations As Originally Reported ($ M) $260 $240 $220 $200 $180 $160 $140 $120 $100 18% CAGR $122 $140 $184 $192 $235 2000 2001 2002 2003 2004
Slide 39: Rising Productivity
Arthur J. Gallagher & Co. Rising Productivity Total Revenue Per Employee As Originally Reported $200 $190 $180 $170 $160 $150 $140 $130 $120 7% CAGR $141,000 $138,000 $153,000 $180,000 $185,000 2000 2001 2002 2003 2004 Note: Amounts as originally reported for continuing operations
Slide 40: Increasing Shareholder Value
Arthur J. Gallagher & Co. Increasing Shareholder Value Diluted Earnings From Continuing Operations As Originally Reported – Post Split 1/18/01 $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 18% CAGR $1.02 $1.38 $1.41 $1.56 $1.99 2000 2001 2002 2003 2004
Slide 41: Earnings Before Investment Gains, Depreciation, Amortization and Stock Compensation
Arthur J. Gallagher & Co. Earnings From Continuing Operations Before Investment Gains (Losses), Depreciation, Amortization and Stock Compensation Expense (In millions) $300 $250 $200 $150 $100 $50 26% CAGR $89 $128 $168 $200 $235 2000 2001 2002 2003 2004 Note: Amounts as originally reported
Slide 42: Since 1990, $1.4 Billion Cash Flow from Ops
Arthur J. Gallagher & Co. Since 1990, $1.4 Billion Cash Flow from Ops Dividends Paid ($445 M) Reinvested in Operations ($538 M) Shares Repurchased ($442 M) Built a balance sheet with $3.32 in tangible net worth per share and no operating debt. As of 3/31/05
Slide 43: 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 Total Revenues 2004 $300 $250 $200 $150 $100 $50 $0 34% CAGR Cash Flow from Ops 2004 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 19% CAGR $1.12 Dividends 2004 cash flow from operations of $277 M
Slide 44: 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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