Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Arthur J. Gallagher & Co. | d937496d8k.htm |
 Monday, June 1, 2015
Exhibit 99
2015 Annual Stockholders Meeting |
 Stockholders’
Meeting June 1, 2015
•
2015 Annual Meeting
•
Chairman’s Remarks
2014 Review
Closing Comments
•
Questions & Answers
2 |
 2015 Board of Directors
•
Sherry S. Barrat
•
William L. Bax
•
D. John Coldman
•
Frank E. English, Jr.
•
Elbert O. Hand
•
David S. Johnson
•
Kay W. McCurdy
•
Norman L. Rosenthal, Ph.D.
3 |
 Stockholders’
Meeting June 1, 2015
•
2015 Annual Meeting
4 |
 Stockholders’
Meeting June 1, 2015
•
2015 Annual Meeting
•
Chairman’s Remarks
2014 Review
5 |
 6
Information Regarding Forward-Looking Statements
This presentation contains “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. When used in this presentation,
the words “anticipates,” “believes,” “contemplates,” “see,” “should,” “could,” “will,” “estimates,” “expects,” “intends,”
“plans” and variations thereof and similar expressions, are intended to identify
forward-looking statements. Examples of forward-looking statements in
this presentation include, but are not limited to, statements regarding: (i) our debt levels and plans to borrow; (ii) the state of the
economy and our industry (including combined ratios for insurance companies, insurance rates,
P&C pricing, exposure units and the existence of a hard or firming market); (iii)
drivers and expected levels of organic growth; (iv) our pace of, and expected sources of funding for, acquisition
activity (including our pace of expansion outside the United States), as well as the
integration of recent acquisitions; (v) increasing productivity; (vi) the financial
condition of the company; (vii) total shareholder return; (viii) efficiencies and capabilities generated by system improvements;
(ix) the impact of expense reduction initiatives; and (x) the earnings impact of, and
developments relating to, our clean energy investments. Important factors that
could cause actual results to differ materially from those in the forward-looking statements include the following:
•
Changes in worldwide and national economic conditions , changes in premium rates and in
insurance markets generally, changes in the insurance brokerage industry’s
competitive landscape, changes in the regulatory environment, our inability to identify appropriate acquisition
targets at the right price, and the difficulties inherent in combining the cultures and
systems of different companies could impact (i) – (ix) above; and
•
Risks and uncertainties related to Gallagher’s clean energy investments – including
uncertainties related to political and regulatory risks, including potential actions by
Congress or challenges by the IRS eliminating or reducing the availability of tax credits under IRC Section 45
retroactively and/or going forward; the ability to maintain and find co-investors; the
potential for divergent business objectives by co- investors and other stakeholders;
plant operational risks, including supply-chain risks; utilities’ future use of, or demand for, coal; the market
price of coal; the costs of moving a clean coal plant; intellectual property litigation risks;
and environmental risks – could impact (x) above.
Please refer to Gallagher’s filings with the SEC, including Item 1A, “Risk
Factors,” of its Annual Report on Form 10-K for the fiscal year ended
December 31, 2014 for a more detailed discussion of these and other factors that could impact
its forward-looking statements. |
 7
Information Regarding Non-GAAP Measures
This presentation includes references to Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted
Revenues, Adjusted Operating Expense Ratio and Organic Growth, which are measures not in accordance with, or an alternative
to, the GAAP information provided herein.
- Gallagher believes that each of Adjusted EBITDAC and Adjusted EBITDAC margin, as defined below,
provides a meaningful representation of its operating performance and improves the comparability of
Gallagher’s results between periods by eliminating the impact of certain items that have
a high degree of variability.
is defined as earnings from continuing operations before interest, income taxes, depreciation,
amortization and the change in estimated acquisition earnout payables (EBITDAC), further adjusted to
exclude gains realized from sales of books of business, acquisition integration costs,
earnout related compensation charges, workforce related charges, lease termination related charges, New South Wales client run-off
costs, South Australia and claim portfolio transfer ramp up fees/costs, acquisition related
adjustments and the period-over-period impact of foreign currency translation, as applicable.
is defined as
Adjusted EBITDAC divided by Adjusted Revenues (defined below).
The most directly comparable GAAP measure for these non-GAAP earnings measures is net
earnings. For the Brokerage Segment, the Risk Management Segment, and the two segments on a combined basis, net earnings was
$156 million, $42 million and $198 million, respectively, in 2012, $205 million, $46 million
and $251 million in 2013, and $264 million, $41 million and $305 million, respectively, in 2014.
- Gallagher believes that Adjusted Revenues and Adjusted Operating Expense Ratio, each as defined below, provides stockholders and other interested persons with useful information that
will assist such persons in analyzing Gallagher’s operating results as they develop a
future outlook for Gallagher. Gallagher believes that Organic Growth provides a comparable measurement of revenue growth that is
associated with the revenue sources that will be continuing in 2015 and beyond.
Gallagher has historically viewed organic revenue growth as an important indicator when assessing and evaluating the performance of its
Brokerage and Risk Management segments. Gallagher also believes that using this measure allows
financial statement users to measure, analyze and compare the growth from its Brokerage and Risk Management segments in
a meaningful and consistent manner.
is defined as revenues, adjusted to exclude gains realized from sales of books of business, New
Zealand earthquake claims administration fees and South Australia ramp up fees.
is defined as operating expense, adjusted to eliminate lease termination and abandonment charges, acquisition related adjustments and integration costs, costs related to
New Zealand earthquake claims administration, South Australia and claim portfolio
transfer ramp up costs, and the impact of foreign currency translation, as applicable, divided by Adjusted Revenues.
is defined as organic change in commission and fee revenues (including supplemental and contingent commissions), and excludes the first
twelve months of net commission and fee revenues generated from acquisitions accounted
for as purchases and the net commission and fee revenues related to operations disposed of in each year presented. These commissions and fees are excluded from organic revenues in order to help
interested persons analyze the revenue growth associated with the operations that were a part
of Gallagher in both the current and prior year. In addition, change in organic growth excludes the period-over-period impact of
foreign currency translation. The amounts excluded with respect to foreign currency
translation are calculated by applying 2014 foreign exchange rates to the same periods in 2013.
The most directly comparable GAAP measure for Adjusted Revenues and Organic Growth is reported
revenues. For the Brokerage Segment, reported revenues were $533 million, $679 million, $783 million, $863 million, $946
million, $1,007 million, $1,114 million, $1,188 million, $1,276 million, $1,341 million,
$1,556 million, $1,827 million, $2,144 million and $2,914 million, in 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011,
2012, 2013 and 2014, respectively. The most directly comparable GAAP measure for Adjusted
Operating Expense Ratio is reported operating expense, which was $247 million and $534 million in 2008 and 2014, respectively,
for the Brokerage Segment and $126 million and $173 million in 2008 and 2014, respectively,
for the Risk Management Segment.
– For other reconciliations, please see the appendix at the back of this presentation and the examples set forth in "Reconciliation of
Non-GAAP Measures and supplemental quarterly financial data " on
Gallagher's Web site at www.ajg.com/IR. Earnings Measures Adjusted EBITDAC
Adjusted EBITDAC margin
Revenue and Expense Measures
Adjusted Revenues
Adjusted Operating Expense Ratio
Organic Growth
Reconciliations |
 8
Who We Are
•
Founded in 1927
•
Public
since
1984
–
30
years
ago
•
One of the World’s Leading Insurance Brokers **
•
World’s largest P&C third-party administrator **
3.1%
$
0.37
52-Week Range
$
49.46
Hi
$
42.97
Lo
Outstanding Shares
164.6M
Dividend Yield
2015 Q1 Dividend/Share
at January 29, 2015
* As of 12/31/14 unless otherwise indicated.
**
According
to
Business
Insurance.
*** Brokerage and Risk
Management adjusted revenue as of December 31, 2014.
$
3.6B+ Acquired Revenues –
2014
$
761.2M
$
7.7B
2014 Total Adjusted
Revenues***
Market Cap
650+
Employees
20,240
Sales/Service Offices –
30 Countries
NYSE
AJG
Key Facts*
Key Shareholder Data* |
 •
81% of revenue*
•
We sell insurance and consult on insurance programs
•
P&C and benefits
•
Retail and wholesale
•
Primarily middle-market commercial clients and individuals
•
78%
of
revenue
is
commissions
–
22%
is
fee-based
•
19% of revenue*
•
We adjust claims and help companies and carriers reduce their losses
•
Workers compensation, liability, managed care, property and auto
•
Modest amount of storm/quake claims
•
Primarily Fortune 1000 clients
•
90% of revenue from non-affiliated brokerage customers and their clients
Snapshot of Core Operations
*Brokerage and Risk Management adjusted revenue as of December 31, 2014.
9
Brokerage
Segment
Risk Management
Segment |
 Diverse Revenue Base
Risk Management
Brokerage
*Brokerage and Risk Management adjusted revenue as of December 31, 2014.
10
Wholesale
Retail-P/C
Retail-Benefits
Domestic
International
Property
Workers
Compensation
Liability
Domestic
International
60%
17%
23%
71%
4%
23%
77%
23%
65%
35% |
 Brokerage
Segment
–
2014
See important disclosures regarding Non-GAAP measures on Page 7.
11
(in $M) |
 12
(in $M)
Risk
Management
Segment
–
2014
See important disclosures regarding Non-GAAP measures on Page 7.
$604
$664
$550
$600
$625
$650
$675
2013
2014
Adjusted Revenues
10%
$95
$110
$80
$90
$100
$110
$120
2013
2014
Adjusted EBITDAC
16%
9.3%
9.5%
5.0%
7.0%
9.0%
11.0%
13.0%
2013
2014
Total Organic Growth
15.6%
12.0%
14.0%
16.0%
18.0%
20.0%
2013
2014
Adjusted EBITDAC Margin
$575
16.5% |
 13
Brokerage & Risk Mgmt Combined –
2014
(in $M)
See important disclosures regarding Non-GAAP measures on Page 7.
$2,754
$3,571
$2,400
$2,800
$3,200
$3,600
2013
2014
Adjusted Revenues
30%
6.0%
5.5%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2013
2014
Total Organic Growth
$605
$843
$500
$600
$700
$800
$900
2013
2014
Adjusted EBITDAC
39%
22%
24%
20.0%
21.0%
22.0%
23.0%
24.0%
2013
2014
Adjusted EBITDAC Margin |
 Adjusted Net Earnings from Clean Energy Investments
(in $M)
2009
2010
2011
2012
2013
2014
Excludes non-cash after tax gains of $14.1m and $5.8m from
re-consolidation accounting gains related to clean-energy
investments recorded in first quarters of 2014 and 2013, respectively.
14 |
 Dividends Per Share
*Indicated –
On January 29, 2015, Gallagher’s Board of Directors declared a $.37 per share
first-quarter 2015 dividend. 1984
2015
$1.48*
15 |
 2014 Was An Extraordinary Year!
See important disclosures regarding Non-GAAP measures on Page 7 and Page
14. Outstanding Brokerage &
Risk Management growth:
•
30% adjusted revenue growth
•
39% adjusted EBITDAC growth
•
21% adjusted EPS growth
•
163 bps margin improvement
Strong clean energy
contribution:
•
56% increase in adjusted net earnings
from 2013
•
$90.5m of adjusted net earnings
Record M&A growth:
$761m in acquired revenues
•
Crombie/OAMPS
•
Oval
•
Noraxis
+57 additional -
avg $4m in
revenue
All while accomplishing:
•
Global M&A integration
•
$945m secondary offering
•
$700m private placement
•
De-risking retirement plan
16 |
 Consistent Growth Strategy
17 |
 Consistent Growth Strategy –
Organic
18 |
 Driving Organic Growth –
Brokerage
Organic
Growth
Grow our
own
Hire
experienced
teams
Focus
into
Niches
Provide
Sales
training
Cross
Selling
Enhance carrier compensation
Global expansion
19
mgmt
tools
and |
 Driving Organic Growth –
Risk Management
Organic
Growth
Direct sales
force
Non-affiliated
insurance
brokers
Comm’l
Entities
Consistently
improving
Cross
selling
Alternate
Markets
Carriers
Product expansion
Global expansion
20
products &
services
Expertise,
Analytics,
Systems |
 Niche Expertise Teams -
Brokerage
Aviation & Aerospace
Automotive
Agribusiness
Real Estate
Manufacturing
Global Risks
Construction
Personal
Marine
Life Solutions
Life Sciences
Hospitality
Higher Education
Healthcare
Environmental
Entertainment
Energy
Private Equity
Professional Groups
Public Entity
Religious/Nonprofit
Restaurant
Scholastic
Technology/Telecom
Trade Credit
Transportation
21 |
 Brokerage & Risk Mgmt Organic Growth See important disclosures regarding Non-GAAP measures on Page 7. 22 |
 23
Commercial P&C Pricing Shows Flattening Cycle
CPI
135
Rates
98
Commercial
Rate
Index
reflects
the
cost
of
P&C
premiums
relative
to
the
year
2000.
Constructed
using
Counsel
of
Insurance Agents and Brokers (CIAB) data. CPI index uses data from the Bureau
of Labor Statistics. 80
90
100
110
120
130
140
150
160 |
 Gallagher Sales Culture Performs Through Any Pricing Cycle
2014 CIAB is
YTD as of 4Q.
Gallagher’s
Brokerage
Segment
Organic Growth
including
Supplemental
Commissions
See important disclosures regarding Non-GAAP measures on Page 7.
14.0%
16.0%
10.0%
2.0%
2.0%
5.0%
2.0%
-0.8%
-2.4%
-1.7%
3.1%
4.4%
5.6%
Gallagher
Organic
3.8%
19.8%
19.8%
8.1%
-4.1%
-8.0%
-5.2%
-12.1%
-11.0%
-5.4%
-5.6%
0.2%
4.4%
3.8%
CIAB
0.1%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Soft Market
Hard
Market
Flattening Market
Gallagher Organic
CIAB -
Change in Avg. Commercial Rates
24 |
 Flattening Rate Environment Is:
Better for Clients
Better for Carriers
Better for Brokers
25 |
 Rate & Economy Effect on Organic Growth
Insurance
Rates &
Economy
New Business
and Improved
Retentions
26
Economy
Rates
With 4% organic growth,
less than 1% is from rate
and economy combined
Of the 1% effect from rates and
economy, 1/3 is from rate and
2/3 is from economy |
 Consistent Growth Strategy –
M&A
27 |
 Annualized Revenues Acquired (in $M’s)
2014 –
Record Acquisition Revenue Growth
28 $- $100 $200 $300 $400 $500 $600 $700 $800 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Domestic Property & Casualty Foreign Property & Casualty Employee Benefits Risk Management |
 M&A Opportunities Continue
Limited
Consolidators
Gallagher Acquisition
Units
Gallagher’s
Core
Competency
Vast Pipeline
Domestic and
International Markets
Highly Fragmented
18,000+
agents/brokers
just in the U.S.
Baby boomers
looking for exit
strategy
Need Gallagher’s
Expertise
Culture
Proven
History of
Doing the
Deal
Ability to
Integrate
Gallagher
Retail P&C
Wholesale
Benefits
International
MGA
MGU
Captive
29 |
 Platforms In Place for Bolt-on M&A
30 |
 International Correspondent Broker Network
Client Capabilities in 140 Countries
31 |
 Integration Process
•
Timing depends on size
•
Larger
deals
–
15
to
18
months
•
Smaller
deals
–
6
to
12
months
Integration
HR & Accounting
Systems Combined
IT Conversion
Closing
Team Strategy & Analysis
Spread across three different operating
units in four separate country platforms
-
Retail, Benefits, Wholesale
32 |
 Productivity and Quality Initiatives
33 |
 Focus Continues:
Optimizing
Productivity
& Quality
Controlling
Headcount
Established
Offshore
Centers of
Excellence
Utilizing
Sourcing to
Manage
Expenses
Building
Productivity
Tools –
DMS and
Workflow
Standardizing
Processes and
Systems
Optimizing
Real Estate
Footprint
Investing in
Business
Intelligence
Leveraging
Sales Force
Management
Tools
Continue
to Improve
Productivity
and Quality
34 |
 Benefits Continue from Offshore Centers of Excellence
35 |
 Client-Facing Efforts
•
Processes deliver consistent client service
•
Technology and tools improve operating efficiencies
•
Staffed by dedicated service professionals that:
•
Generate client applications and proposals
•
Handle client requests
•
Improves turn-around time on client requests
•
Supports production teams
•
Can still customize for niche practice areas
•
Easy for new acquisition partners to utilize
Building Client Service Operations
36 |
 Behind the Scenes Efforts
Offshore Centers of Excellence Update
•
We now have more than 2,000 associates in four
locations
•
Utilized for processes such as:
•
Policy checking
•
Certificates of insurance
•
Auto ID cards
•
Renewal support
•
Accounting support
•
Substantially improved quality and reduced E&O costs
•
Easy for new acquisition partners to utilize
37 |
 38
Quality Metrics
Efficiency Improvements
Drive Quality
Reduced policy delivery from 30 to 10 days
Achieved 99% quality rate
Reduced certificate of insurance delivery
expense by 20+%
Improved quality rate to 99.5%
Single agency management system and
standardized processes across the network
Real-time, up-to-date, quality client data in
single repository for 24/7 producer access
Automated data capturing for proposal and
standardized templates for generation –
reducing production time by 80+%
Better and more timely information to clients for
renewal
Centralized
billing
to
clients
–
previously
done
in 90 location now done by two teams
Reduces time and errors while improving cash
flows and increasing cost savings on resources
Consolidated 5 regional accounting centers to
1 divisional accounting in Itasca
Standardizes and automates data processes,
improves report timing, reduces errors savings,
and generates savings on resources |
 39 Reduced Adjusted Operating Expense Ratio Brokerage Risk Management See important disclosures regarding Non-GAAP measures on Page 7. 27.0% 24.0% 23.0% 24.0% 25.0% 26.0% 27.0% 28.0% 2008 2014 20.8% 17.6% 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 2008 2014 |
 Brokerage & Risk Mgmt Adjusted EBITDAC Margin
See important disclosures regarding Non-GAAP measures on Page 7.
40 |
 41
AJG –
2014 Best Mid-Sized Broker
Reactions
Magazine
AJG Intl/Palm –
2014 Private
Sector Insurer of the Year
General Palace
AJG Intl/OIM –
2014
MGA of the Year
Insurance Post
AJG Benefits Team –
2014
Group Risk Adviser of the Year
Corporate Adviser
AJG –
2013 Ranked Top Ten Best Companies
for
Leaders
–
Chief
Executive
Magazine
AJG –
2013 Ins Broking CEO of the Year -
Reactions
Magazine
AJG Intl –
2013 Best Broker
M&A Deal of the Year
Reactions
Magazine
GB UK –
2013 Investor in People
UK National Standard
AJG U.K. Retail –
2013 Commercial Lines
Broker of the Year –
Insurance Times
AJG Intl/GCM –
2013 Best Latin
American/Caribbean Insurance Broker
Global Finance |
 Maintaining Culture
42 |
 43 |
 Recognized again in 2015 by Ethisphere as
One of the World’s Most Ethical Companies
44 |
 One of “America’s Best Employers”
as recognized by Forbes Magazine
•
Selected from 1,100 U.S.-based employers with
more than 2,500 domestic employees
•
Across 25 industry sectors, including insurance
•
Independent, anonymous survey of 20,000
employees who work for large companies
•
Focused on six categories:
1.
Atmosphere at work and potential for
development
2.
Image
3.
Working conditions
4.
Salary/wage
5.
Workplace
6.
Diversity.
45 |
 Why Invest?
You Believe Our Company Has:
Gallagher is well positioned for future growth
Right management
Unique culture
Proven growth strategy
Continuing M&A opportunities
Increasing productivity
Higher quality
Good use of leverage
Strong balance sheet
Excellent return to shareholders
46 |
 Why Invest? We Are Just Getting
Started
AJG
404%
S&P 500
86%
Source
for
data:
Bloomberg.
Total
returns
from
1/1/2000
–
12/31/2014
include
reinvestment
of
dividends.
47 |
 For
Additional Information: Marsha Akin
Director –
Investor Relations
Marsha_Akin@ajg.com
Phone: 630-285-3501 |
 49
Appendix: EBITDAC and Organic Growth Reconciliations
Brokerage Segment
Risk Management Segment
Corporate Segment
Total Company
Reconciliation of EBITDAC to Net Earnings
2014
2013
2014
2013
2014
2013
2014
2013
Net earnings
263.8
$
204.8
$
41.2
$
46.2
$
(1.6)
$
17.6
$
303.4
$
268.6
$
Provision (benefit) for income taxes
151.8
122.8
24.5
27.3
(212.3)
(144.2)
(36.0)
5.9
Interest
-
-
-
-
89.0
50.1
89.0
50.1
Depreciation
44.7
31.1
20.9
19.4
3.8
2.9
69.4
53.4
Amortization
186.7
122.7
2.8
2.5
-
-
189.5
125.2
Change in estimated acquisition earnout payables
17.5
2.6
-
(0.9)
-
-
17.5
1.7
EBITDAC
664.5
$
484.0
$
89.4
$
94.5
$
(121.1)
$
(73.6)
$
632.8
$
504.9
$
(Unaudited -
in millions except percentage data)
Information
Regarding Non-GAAP
Measures
-
Year
Ended
December
31,
2014
and
2013
Arthur J. Gallagher & Co.
Combined Brokerage & Risk
Brokerage
Segment
Risk Management Segment
Management Segments
Organic Revenues
2014
2013
2014
2013
2014
2013
Total Commissions and Fees
Commissions as reported
2,083.0
$
1,553.1
$
-
$
-
$
2,083.0
$
1,553.1
$
Fees as reported
595.0
450.5
644.6
589.0
1,239.6
1,039.5
Supplemental commissions as reported
104.0
77.3
-
-
104.0
77.3
Contingent commissions as reported
84.7
52.1
-
-
84.7
52.1
International performance bonus fees
-
-
18.7
20.0
18.7
20.0
Less commissions and fees from acquisitions
(640.3)
-
(4.1)
-
(644.4)
-
Less commissions and fees from disposed of operations
-
(8.5)
-
-
-
(8.5)
Less South Australia ramp up fees
-
-
-
(1.4)
-
(1.4)
Less New Zealand earthquake claims administration
-
-
-
(0.1)
-
(0.1)
Levelized foreign currency translation
-
9.7
-
(5.3)
-
4.4
Total organic commissions and fees
2,226.4
$
2,134.2
$
659.2
$
602.2
$
2,885.6
$
2,736.4
$
Total organic change in commissions and fees
4.3%
9.5%
5.5% |