INVESTOR PRESENTATION MAY 2017 Exhibit 99.1
Information Regarding Forward-Looking Statements This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements in this presentation include, but are not limited to, statements regarding: (i) the earnings impact of our clean energy investments; (ii) future dividends; (iii) improvements in our new business production; (iv) “tuck-in” M&A activity; (v) global brand recognition; (vi) completion of large UK M&A integration efforts and expense; (vii) the leveraging of internal resources across divisions and borders; (viii) our status as the premier provider of claims management services; (ix) our global presence in the claims space; (x) our ability to stay in front of improvements in technology; (xi) commercial P&C pricing; (xii) drivers and expected levels of our organic growth; (xiii) future M&A opportunities, including bolt-on acquisitions to our “platforms”; (xiv) increasing productivity and quality; (xv) our management team; (xvi) our use of leverage; (xvii) our balance sheet; and (xviii) our return to shareholders. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: declines in premiums or other adverse trends in the insurance industry; an economic downturn (including as a result of Brexit); changes in the US corporate tax code; competitive pressures in our businesses; failure to successfully or cost-effectively integrate recently acquired businesses; risks to our acquisition strategy, including continuing consolidation in our industry and increased interest in acquiring insurance brokers by private equity firms; our failure to attract and retain key executives and other personnel; risks arising from our international operations, including political and economic uncertainty and regulatory and legal compliance risk; concentration of large amounts of revenue with certain clients in our risk management segment; failure to apply technology effectively in our businesses; business continuity and cybersecurity risks; damage to our reputation; and failure to comply with regulatory requirements, including the FCPA, other anti-corruption laws, and data privacy laws. See page 1 of the CFO commentary as of April 27, 2017 for risks affecting (i) 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, 2016 for a more detailed discussion of these and other factors that could impact its forward-looking statements.
This presentation includes references to EBITDAC, Adjusted EBITDAC, Adjusted EBITDAC margin, Adjusted Revenues, Adjusted Operating Expense Ratio and Organic Revenue Growth, which are measures not in accordance with, or an alternative to, the GAAP information provided herein. Earnings Measures - Gallagher believes that each of EBITDAC, 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. EBITDAC is defined as net earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables. Adjusted EBITDAC is EBITDAC further adjusted to exclude gains realized from sales of books of business, acquisition integration costs related to large acquisitions, workforce related charges, lease termination related charges, acquisition related adjustments and the period-over-period impact of foreign currency translation, as applicable. Adjusted EBITDAC margin 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 two segments (Brokerage Segment & Risk Management Segment) on a combined basis, net earnings was $174 million, $199 million, $253 million, $306 million, $325 million, $414 million, $351 million and $426 million in 2011, 2012 , 2013, 2014, 2015, 2016, on a trailing twelve month basis as of 3/31/16 and on a trailing twelve month basis as of 3/31/17, respectively. For the Brokerage Segment, net earnings were $293 million and $369 million on a trailing twelve month (TTM) basis as of 3/31/16 and 3/31/17, respectively. For the Risk Management Segment, net earnings were $57 million and $57 million on a trailing twelve month (TTM) basis as of 3/31/16 and 3/31/17, respectively. Revenue and Expense Measures - 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 Revenue Growth provides a comparable measurement of revenue growth that is associated with the revenue sources that will be continuing in 2016 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. Adjusted Revenues is defined as revenues, adjusted to exclude gains realized from sales of books of business, acquisition integration costs for large acquisitions, workforce related charges, lease termination related charges, acquisition related adjustments, and the period-over-period impact of foreign currency translation, as applicable. Adjusted Operating Expense Ratio is defined as operating expense, adjusted to exclude the items listed above for Adjusted Revenues, as applicable, divided by Adjusted Revenues. Organic Revenue Growth. For the Brokerage segment, organic change in commission and fee revenues excludes the first twelve months of net commission and fee revenues generated from acquisitions 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 base commission and fee revenue organic growth excludes the period-over-period impact of foreign currency translation. For the Risk Management segment, organic change in fee revenues excludes the first twelve months of fee revenues generated from acquisitions and the fee revenues related to operations disposed of in each year presented. In addition, change in organic growth excludes the impact of run-off of the New South Wales Workers’ Compensation Scheme and other closed down operations and the period-over-period impact of foreign currency translation to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability or are due to the limited-time nature of these revenue sources. 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, $1,329 million, $1,544 million, $1,812 million, $2,126 million, $2,896 million, $3,324 million, $3,528 million and $879 million in 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015 , 2016 and the first quarter of 2017, respectively. Additionally, for the Brokerage Segment, reported revenues were $3,398 million and $3,581 million on a trailing twelve month (TTM) basis as of 3/31/16 and 3/31/17, respectively. For the Risk Management Segment, reported revenues were $729 million and $721 million on a trailing twelve month (TTM) basis as of 3/31/16 and 3/31/17, respectively. On a combined basis (Brokerage Segment & Risk Management Segment) reported revenues were $4,128 million and $4,302 million on a trailing twelve month (TTM) basis as of 3/31/16 and 3/31/17, respectively. The most directly comparable GAAP measure for Adjusted Operating Expense Ratio is reported operating expense, which was $247 million and $590 million in 2008 and on trailing twelve month (TTM) basis at 3/31/17, respectively, for the Brokerage Segment and $126 million and $172 million in 2008 and on trailing twelve month (TTM) basis at 3/31/17, respectively, for the Risk Management Segment. Reconciliations – For other reconciliations, please see the appendix at the back of this presentation and the examples set forth in "Non-GAAP Reconciliation and Supplemental Quarterly Data" on Gallagher's Web site at ajg.com/IR. Information Regarding Non-GAAP Measures
Who We Are Key Facts Key Shareholder Data 2.8% $0.39 52-Week Range*** $57.82 Hi $43.90 Lo Outstanding Shares 179.5M $4.3B Acquired Revenues – 1Q2017** $170.4M $9.9B 1Q2017 Total Adjusted Revenue** Dividend Yield*** 2017 Q2 Dividend/Share*** Market Cap*** 33 Employees 25,284 Founded in 1927 Public since 1984 One of the World’s leading insurance brokers* One of the World’s largest P&C third-party administrators* As of March 31, 2017 unless otherwise indicated * According to Business Insurance ** Brokerage & Risk Management adjusted revenue and annualized acquired revenue for the trailing twelve months ended March 31, 2017. *** as of May 9, 2017 Countries AJG NYSE
83% of revenue* We sell insurance and consult on insurance programs Property/Casualty and employee benefits Retail and wholesale Primarily middle-market commercial clients and individuals 78% of C&F revenue is commission – 22% is fee-based 17% 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 More than 90% of revenue* from non-affiliated brokerage customers and their clients Brokerage Segment Snapshot of Core Operations *Brokerage and Risk Management adjusted revenue for the year ended December 31, 2016. Risk Management Segment
Diverse Revenue Base Risk Management* Brokerage* * Brokerage and Risk Management adjusted revenue for the year ended December 31, 2016.
Brokerage Segment – TTM 3/31/17 (in $M) See important disclosures regarding Non-GAAP measures on Page 3.
(in $M) Risk Management Segment – TTM 3/31/17 See important disclosures regarding Non-GAAP measures on Page 3.
Brokerage & Risk Management – TTM 3/31/17 (in $M) See important disclosures regarding Non-GAAP measures on Page 3. 6% 9%
Adjusted Net Earnings from Clean Energy Investments (in $M) The adjustment referred to above excludes a non-cash after tax gain of $14.1m from a re-consolidation accounting gain, related to clean-energy investments, recorded in 2014. 2017 estimated adjusted clean-energy related net earnings attributable to controlling interests is the average of FY 2017 range given in CFO Commentary as of April 27, 2017 on our website. See “cautionary statement regarding forward looking statements” on page 1 of such CFO Commentary for a discussion of risks that could cause actual results to differ materially from this estimate.
Dividends Per Share *Indicated – On January 25, 2017, Gallagher’s Board of Directors declared a $0.39 per share first-quarter 2017 dividend. 1984 2017E $1.56*
First Quarter 2017 Business Highlights Brokerage & Risk Management growth: 7% adjusted revenue growth 12% adjusted EBITDAC growth 93 bps margin improvement 2.5% total organic growth M&A growth: $62.5m in annualized acquired revenues 12 additional: avg $5.2m rev Fair valuations Focus on tuck-in opportunities Clean energy: Reported first quarter 2017 adjusted net earnings in-line with guidance On track to deliver mid to high single digit increase in adjusted net earnings over 2016 All while accomplishing: Global M&A integration U.K. retail largely complete 2017 integration costs, in-line with guidance and less than 25% of 2016 costs. See important disclosures regarding Non-GAAP measures on Page 3 and Page 45.
Improving new business production Continuing tuck-in M&A Increasing global brand recognition Leveraging internal resources and processes across divisions To be premier provider of claims management services with superior outcomes Increasing global presence in claims space U.S. clients with global operations Expanding via M&A/new partners Staying in front of improving technology Increasing brand recognition globally Leveraging resources across borders BROKERAGE segment Where We’re Going Risk management Segment
Source for calendar year combined ratio data: AM Best. 2016 reflects data through the first nine months of 2016. Data excludes certain large mortgage insurance and personal lines companies. Indicators for U.S. P/C Carriers – Shallow Rate Environment Source for data : Total US P/C Industry from Best’s Statement File P/C US for 2001 – 9M2016. Prior to 2001, sources are A.M. Best and ISO via the Insurance Information Institute. Investment Yields Statutory Surplus ($Billions) Source for data : Total US P/C Industry from Best’s Statement File P/C US for 2004 – 9M2016. Prior to 2004, sources are A.M. Best and ISO via the Insurance Information Institute. Source for data : Total US P/C Industry from Best’s Statement File P/C US for 2001 – 9M2016. Prior to 2001, sources are A.M. Best and ISO via the Insurance Information Institute. Premium/Statutory Surplus Combined Ratios
CPI 140 Rates 92 Commercial P&C Pricing Shows Shallow Cycle 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.
Shows Shallow Pricing Cycle
Gallagher Sales Culture Performs Through Any Pricing Cycle Hard Market Shallow Market CIAB is the 4 quarter average. Gallagher’s Brokerage Segment Organic Growth excluding Contingent Commissions. See important disclosures regarding Non-GAAP measures on Page 3. CIAB
Shallow Rate Cycle Is Better for: CLIENTS CARRIERS & BROKERS
How We’re Getting There-Consistent Growth Strategy
Consistent Growth Strategy – Organic
Driving Brokerage Organic Growth
Niche Expertise Teams – Brokerage Aviation & Aerospace Automotive Affinity Real Estate Manufacturing Global Risks Construction Personal Marine Life Sciences Hospitality Higher Education Healthcare Environmental Entertainment Energy Private Equity Professional Groups Public Entity Religious/Nonprofit Restaurant Scholastic Technology/Telecom Trade Credit/ Political Risk Transportation Agribusiness Financial Institutions Life Solutions Insolvency Law Firms Mining
Driving Risk Management Organic Growth
Risk Mgmt Growth Focuses on Four Market Segments Alternative market participants Large commercial entities Public sector Entities Insurance carriers
Consistent Growth Strategy – M&A
Annualized Revenues Acquired (in $M’s) Acquisition Revenue Growth
M&A Opportunities Continue Vast Pipeline Domestic and international markets highly fragmented 18,000+ agents/ brokers just in the U.S. Need Gallagher’s expertise Baby boomers looking for exit strategy Acquisition Units Retail P&C Wholesale Benefits International MGA MGU Captive Limited Consolidators Core Competency Culture Proven history Ability to integrate
Platforms In Place for Bolt-on M&A
International Correspondent Broker Network Client Capabilities in over 150 Countries
Productivity and Quality Initiatives
Building Productivity Tools – DMS and Workflow Optimizing Real Estate Footprint Investing in Business Intelligence Leveraging Sales Force Management Tools Continue to Improve Productivity and Quality Utilizing Centers of Excellence HarmonizingSystems Utilizing Sourcing to Manage Expenses Standardizing Processes Focus Continues: Optimizing Productivity & Quality
Benefits Continue: From Centers of Excellence
Client-Facing Efforts Building Client Service Operations Process and deliver consistent client service Technology and tools improve operating efficiencies Staffed by dedicated service professionals that: Generate client applications and proposals Handle client requests Manage renewal cycles Improves turn-around time on client requests Supports production teams Can still customize for niche practice areas Easily integrated for new acquisition partners to utilize
Behind the Scenes Efforts Centers of Excellence Update We now have more than 2,500 associates in four locations Responsible for processes such as: Policy checking Policy issuance Certificates of insurance Renewal support Claims support Accounting support Substantially improved quality and reduced both operating and E&O costs Easy for new acquisition partners to leverage
Efficiency Improvements Drive Quality AND SERVICE 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% and reduced delivery time from 2 hours to 1 hour Standardized policy issuance for top 30 carriers and reduced issuance time from 12 to 3 days Improved carrier and retailer satisfaction 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 Offloaded routine work such as ordering reports, filing forms and paying bills from experienced Claims Adjusters to COE staff Allows Claims Adjusters to focus on timely and cost effective resolution of open claims Centralized billing to clients – previously done in 90 locations – thereby reducing costs Improved accuracy, speed and cash flows Consolidated 5 regional accounting centers to 1 divisional accounting center Standardizes and automates data processes, improves report timing, reduces errors, and generates savings on resources Quality Metrics on Target
Reduced Adjusted Operating Expense Ratio BROKERAGE RISK MANAGEMENT See important disclosures regarding Non-GAAP measures on Page 3.
Brokerage & Risk Mgmt Adjusted EBITDAC Margin See important disclosures regarding Non-GAAP measures on Page 3.
Relentless Focus on Quality and Customer Service America’s Best Employers – 2015 Forbes magazine Voted Best UK Broker for Service – 2015 Strategic Risk’s UK FTSE survey Best TPA in Casualty Claims Handling – 2015 ADVISEN Claims Satisfaction Survey UK Employee Benefits Consultancy of the Year – 2015 Workplace Savings and Benefits Magazine Corporate Champion for Board Gender Balance – 2015 Women’s Forum of New York Leadership 500 Excellence Award – 2015 HR.COM Best Companies for Leaders – 2016 Chief Executive Magazine UK Healthcare Adviser of the Year – 2016 UK Corporate Adviser Best UK Employee Benefit Consultant – 2016 Reward Guide VIB Awards Ceremony Shilling Named Best Member Communication Strategy – 2016 UK Corporate Adviser Artex Named Captive Manager of the Year – 2016 Workplace Captive Review Best Sales/Leadership Program (non-store/restaurant) – 2016 Leadership Excellence – part of HR.com
Maintaining Culture
Maintain Unique Culture THE GALLAGHER WAY CORE VALUES TEAMWORK PERFORMANCE-BASED CULTURE PEOPLE
One of the World’s Most Ethical Companies as Recognized by Ethisphere six years in a row Industry-leading commitment to ethics and dedication to integrity Chosen for: Promoting ethical business standards and practices Exceeding legal compliance standards Innovating to benefit the public Demonstrating that corporate citizenship is tied to company success
Why Invest? You Believe Our Company Has: Right management Unique culture Proven growth strategy Continuing M&A opportunities Increasing productivity/quality Good use of leverage Strong balance sheet Excellent return to shareholders Gallagher is well positioned for future growth
Source for data: Bloomberg. Total returns from 1/1/2000 – 3/31/2017 include reinvestment of dividends. 549% AJG S&P 500 124% WHY INVEST? WE ARE JUST GETTING STARTED!
For Additional Information: Ray_Iardella@ajg.com Vice President, Investor Relations Ray Iardella Phone: 630-285-3661
Appendix: EBITDAC and Organic Growth Reconciliations 15COR23863C Brokerage Segment Risk Management Segment Corporate Segment Total Company Reconciliation of EBITDAC to Net Earnings 1st Q 17 1st Q 16 1st Q 17 1st Q 16 1st Q 17 1st Q 16 1st Q 17 1st Q 16 Net earnings 78.1 $ 65.9 $ 14.3 $ 15.0 $ (24.6) $ (23.0) $ 67.8 $ 57.9 $ Provision (benefit) for income taxes 39.6 34.1 8.6 9.0 (63.7) (45.3) (15.5) (2.2) Interest - - - - 29.9 25.8 29.9 25.8 Depreciation 14.9 14.0 7.4 6.6 7.2 4.1 29.5 24.7 Amortization 63.6 58.9 0.7 0.4 - - 64.3 59.3 Change in estimated acquisition earnout payables 11.8 3.9 - - - - 11.8 3.9 EBITDAC 208.0 $ 176.8 $ 31.0 $ 31.0 $ (51.2) $ (38.4) $ 187.8 $ 169.4 $ Combined Brokerage & Risk Brokerage Segment Risk Management Segment Management Segments Organic Revenues 1st Q 17 1st Q 16 1st Q 17 1st Q 16 1st Q 17 1st Q 16 Total Commissions and Fees Commissions as reported 590.5 $ 566.0 $ - $ - $ 590.5 $ 566.0 $ Fees as reported 188.0 159.1 180.8 177.3 368.8 336.4 Supplemental commissions as reported 34.5 32.9 - - 34.5 32.9 Contingent commissions as reported 53.4 55.2 - - 53.4 55.2 International performance bonus fees - - 1.7 1.8 1.7 1.8 Less commissions and fees from acquisitions (50.7) - - - (50.7) - Less commissions and fees from disposed of operations - (4.3) - - - (4.3) Less fees from client run-off - - - - - - Levelized foreign currency translation - (14.9) - 0.5 - (14.4) Total organic commissions and fees 815.7 $ 794.0 $ 182.5 $ 179.6 $ 998.2 $ 973.6 $ Total organic change in commissions and fees 2.7% 1.6% 2.5%