Gallagher profits up 75% during the first half of 2012 despite cost surge

Patrick Gallagher

The continuing integration of Heath Lambert cut Arthur J Gallagher’s profits by $8.1m (£5.2m) in the first half of 2012, a 270% jump from the $3m impact it had in the first half of 2011.

However, the rising integration costs did little to dampen a strong first-half performance at the US-based broking group.

Gallagher’s latest results show that the Heath Lambert integration generated negative EBITDAC (earnings before interest, tax, depreciation, amortisation and change in estimated acquisition earn-out payables) of $8.1m in the first half of 2012, compared with $3m in the first half of 2011.

Some $4.8m of the Heath Lambert integration expense was related to compensation, with the remaining $3.3m attributed to operating expenses. This compares with $1.2m and $1.8m respectively in the first half of 2011.

In the second quarter of 2012 alone, the integration generated $4.1m of negative EBITDAC, compared with $3m in the second quarter of 2011.

Gallagher completed its purchase of Heath Lambert in 2011. The company said the integration of the firm would continue to lower EBITDAC until its completion in 2013.

Solid results

The increased Heath Lambert integration costs come amid a 75% surge in net profit at group level. Gallagher’s profit jumped to $99.8m in the first half of 2012 (H1 2011: $56.9m).

Total revenues jumped 20% to $1.2bn (H1 2011: $993.5m). Within this, commissions grew 18% to $616.7m (H1 2011: $521.7m), fees increased 13% to $457.8m (H1 2011: $403.7m), supplemental conditions rose 23% to $33.7m (H1 2011: $27.5m) and contingent commissions by 19% to $29.3m (H1 2011: $24.7m).

EBITDAC increased by 31% to £209.5m (H1 2011: £159.7m).

In the brokerage segment alone, Gallagher’s profit increased 21% to $47.7m in the first half of 2012 (H1 2011: $61.8) on the back of a 19.1% increase in revenues to $858.8m (H1 2011: $721.1m).

Organic commissions and fees growth in the brokerage segment was 4.2%, taking organic commissions and fees to $682.6m (H1 2011: $654.9m). For the second quarter alone, organic growth was 5%, taking commissions and fees to $391.5m (H1 2011: $372.9m).

Arthur J Gallagher chief executive Patrick Gallagher (pictured) praised the results, saying: “We are well positioned to grow as the insurance rate environment improves and our customers continue to find ways to grow, even in an uncertain economy.

“Every day, more customers and prospects recognise the expertise and value of our high-quality and client-focused services.”

Arthur J Gallagher H1 2012 results in $m (compared with H1 2011)

  • Total revenues: 1,196.7 (993.5)
  • Commissions: 616.7 (521.7)
  • Fees: 457.8 (403.7)
  • Supplemental commissions: 33.7 (27.5)
  • Contingent commissions: 29.3 (24.7)
  • Net profit: 99.8 (56.9)
  • EBITDAC: 209.5 (159.7)