Arthur J. Gallagher & Co. · NYSE:AJG
Arthur J. Gallagher & — Gallagher Arthur J & — Investor Presentation (February 2007)
38 slides from Arthur J. Gallagher &'s investor presentation, Feb 8, 2007
Slide 1: Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co. JANUARY 2006
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 History of growth Financial flexibility Solid balance sheet Strong cash flows No corporate related debt; still maintaining a $450M credit facility Excellent producer development and retention Proven acquisition strategy 165 deals, 1986 through 12/31/06 Lean, yet ac
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 Innovative – created altern
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 2006 Revenues* Brokerage 69% Financial Services 5% Risk Management 26% 2006 Pretax Earnings* Brokerage 88% Financial Services (17)% Risk Management 29% *See important disclosures regarding Non-GAAP measures on page 3
Slide 11: Brokerage Segment
Brokerage Segment Domestic Retail Brokerage 55% Employee Benefit Brokerage 18% Wholesale, Reinsurance, & International Brokerage 27% Revenues as of 12/31/06 – 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 niche/practice groups
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 7 different industry-specific niche/practice groups
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 60% of business is from non-Gallagher sources
Slide 17: Reinsurance Brokerage
Reinsurance Brokerage “Gallagher Re” provides: P/C, 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 Operations in UK, US, Bermuda, S
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) $1,100 $559 $900 $700 $500 $300 $100 16% CAGR 2001 2006 Total Revenues* 15% CAGR $200 $150 $100 $50 $0 $103 $168 2001 2006 Pretax Earnings* 2006 pretax margins of 16% *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 Growth & Profits
Risk Management Segment Growth & Profits (in millions) $500 $400 $300 $200 $100 $0 12% CAGR $232 $401 2001 2006 Total Revenues* 2006 pretax margin of 14% $60 $50 $40 $30 $20 $10 $0 12% CAGR $29 $56 2001 2006 Pretax Earnings* *See important disclosures regarding Non-GAAP measures on Page 3
Slide 28: Financial Services Segment
Financial Services Segment Segment in run-off mode since 2002 In December, sold ownership in: Home office building Low income housing developer In January, sold 90% ownership in airplane leasing company Eliminated substantially all related debt Continue to monetize asset management business Current
Slide 29: Financial Services Net Assets and Financial Guarantees
Financial Services Segment Net Assets and Financial Guarantees* $400 $350 $300 $250 $200 $150 $100 $50 $362 $89 2002 2006* $60 $50 $40 $30 $20 $10 $0 Net Assets* Tax Adv Other Mgmt Asset Low Income Housing $3M Alternative Energy $43M Asset Alliance $28M Other $8M $ In Millions *As of 12/31/06
Slide 30: 2006 in Review
2006 in Review Brokerage Developed a new business model Revenue growth of 10%—pretax earnings growth of 31% Internal revenue growth of 6% Improved pretax margins by 2.5% Closed 11 acquisitions—annualized revenues of $54m Settled Multi-District Federal class action litigation Risk Management Revenue
Slide 31: Where We Are Going
Where We Are Going Revenue and pretax growth of 15% per year Target enterprise-wide margin expansion to 20+% Solid organic growth Maximize shareholder returns through dividends and stock repurchases
Slide 32: How We Make It Happen
How We Make It Happen Developing consistent growth through Hiring sales-oriented producers Strong internship program Active acquisition campaign Solid customer partnerships Ongoing operational efficiencies Disciplined capital allocation
Slide 33: Summary: Why Invest?
Summary: Why Invest? 22 Year Growth Story: 1984 IPO (Restated for stock splits) 12/31/06 Stock Price $1.72 $29.55 Market Cap $57 M $2.9 B Tangible Net Worth $23 M $334 M Annual Dividend/Share $.03 $1.24* *Indicated annual dividend
Slide 34: Summary: Why Invest? Revenues
Summary: Why Invest? Brokerage & Risk Management Revenues (In millions) From Continuing Operations* $1,600 $1,400 $1,200 $1,000 $800 $600 $400 15% CAGR $1,103 $961 $791 $1,470 $1,343 $1,232 2001 2002 2003 2004 2005 2006 * See important disclosures regarding Non-GAAP measures on page 3
Slide 35: Summary: Why Invest? Pretax Earnings
Summary: Why Invest? Brokerage & Risk Management Pretax Earnings (In millions) From Continuing Operations* $250 $200 $150 $100 $50 $156 $132 $184 $211 $193 $225 15 % CAGR 2001 2002 2003 2004 2005 2006 *See important disclosures regarding Non-GAAP measures on Page 3
Slide 36: Summary: Why Invest? Cash Flow Use
Summary: Why Invest? Since 1990, $1.9 Billion Cash Flow from Ops Dividends Paid ($642 M) Reinvested in Operations ($735 M) Shares Repurchased ($477 M) Balance sheet with $3.40 in tangible net worth per share and low corporate debt As of 12/31/06 Excludes cash payments made regarding special items di
Slide 37: Summary: Why Invest? Dividends Per Share
Summary: Why Invest? Dividends Per Share (restated for stock splits) $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $1.24* 19% Average Annual Increase Year 1986 2007 *Indicated – On January 18, 2007, Gallagher’s Board of Directors declared a $.31 per share quarterly dividend.
Slide 38: The Gallagher Way
“The Gallagher Way”, Robert E. Gallagher, 1984 Culture Driven Success 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
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