Higher expenses eat into Gallagher profit

Global broker Arthur J Gallagher made an after-tax profit of $144.1m (£91.5m) in 2011, down 17% on the $174.1m it made in 2010.

While total revenues for the year were up almost 15% to $2.1bn (2010: $1.9bn), total expenses increased 16% to $1.9bn (2010: $1.7bn).

However, earnings before interest, tax, depreciation, amortisation and change in acquisition earn-out payables (EBITDAC) for the year increased 9% to $357.6m (2010: $328.1m).

Despite the dip in group profit, Gallagher’s broking segment – the bulk of the business – enjoyed a 3% increase to $140.2m (2010: $135.5m). The risk management unit’s profit increased 6% to $33.3m (2010: $31.3m).

Gallagher achieved organic fees and commissions growth of 2.8% in 2011.

Gallagher also reported a dip in profits for the fourth quarter of 2011 alone. Profit after tax was $40.5m, down 26% on the $54.7m it reported in the same quarter of 2010. However, EBITDAC for the quarter jumped 55% to $91.5m (Q4 2010: $58.9m). Organic commissions and fees growth for the quarter was 4.9%.

Gallagher chief executive Patrick Gallagher praised his firm’s fourth-quarter performance. “We finished 2011 with strong momentum,” he said in a statement. “During the fourth quarter, both operating segments [brokerage and risk management] posted strong organic growth, improved adjusted EBITDAC margins and improved adjusted diluted net earnings per share.”

Gallagher was also upbeat about the coming year. “During the fourth quarter, we continued to see evidence of market firming and our customers’ businesses seem to be stabilising, even in these times of economic uncertainty,” he said. “As we move into 2012, our global team continues to execute on our plans and are delivering outstanding service to our clients in this changing environment.”

Gallagher is continuing to absorb last year’s acquisition of UK broker Heath Lambert – a process it expects to complete in 2013.