Legal & General Group Plc · LSE:LGEN
Legal & General — FY2011 Earnings Presentation
36 slides from Legal & General's earnings presentation, Mar 14, 2012
Slide 1: Every Day Matters. Preliminary results 2011
1 EVERY DAY MATTERS. Preliminary results 2011 14 March 2012
Slide 2: Forward looking statements
2 Forward looking statements. This document may contain certain forward-looking statements relating to Legal & General Group, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature forward- looking statements involve uncertai
Slide 3: Preliminary Results 2011: Financial highlights
3 Preliminary Results 2011. Financial highlights: All business divisions increased sales, cash and profit. 1. Operational cash ahead 12% to £940m 2. Net cash ahead 11% to £846m, net cash per share 14.52p 3. Sales up 7% to £1.9bn 4. Operating profit up 5% to £1,056m 5. ROE 14.5% 6. EEV operating prof
Slide 4: Full year dividend up 35%
4 Full year dividend up 35%. 9 8 7 6.40p Up 35% 6 5 Up 24% 4.75p 4 3.84p 4.74 3 3.42 2.73 2 1 1.11 1.33 1.66 0 2009 2010 2011 Sustainable, diversified and growing cashflow coupled with unwind of dividend cover should result in superior dividend growth Dividend cover 2.25x in 2011, 2.72x in 2010
Slide 5: Cash: 13% growth in operational cash
5 Cash: 13% growth in operational cash, net cash increased by £610m. Operational cash generation 2007 – 2011 (£m) 940 13% CAGR: 840 726 654 580 2007 2008 2009 2010 2011 Net cash generation £m 236 320 699 760 846
Slide 6: Continued progress in diversification of cash generation
6 Continued progress in diversification of cash generation. Source of net cash generation 2009-2011 2009 2010 2011 £699m £760m £846m LGIM and 22% Savings £154m 30% 35% £230m £300m Annuities 52% 38% 31% Annuities Housing and Protection Savings Investment management International Group capital and fin
Slide 7: Group results: All operating divisions increased profit
7 Group results: All operating divisions increased profit. £m 2011 2010 Operational cash generation 940 840 New Business strain (94) (80) Net cash generation 846 760 IFRS Profit Risk 561 560 Savings 128 115 Investment management 234 206 International 137 102 Group capital and financing 52 58 Investm
Slide 8: Linkage between 2011 operational cash, profits and earnings
8 Linkage between 2011 operational cash, profits and earnings. Operational New Net cash Experience Changes in Non- Investment IFRS Tax IFRS cash business generation variances valuation cash gains and profit/ expense/ profit/ generation strain assumptions items losses, (loss) (credit) (loss) internat
Slide 9: Dividends from subsidiaries increased 47% to £701m
9 Dividends from subsidiaries increased 47% to £701m. Dividends supporting 2011 2010 cash generation Net cash Dividend Dividend Net cash Dividend Dividend £m £m % of cash £m £m % of cash Risk 451 429 500 89 300 60 Savings 111 68 Investment management 189 150 79 162 132 81 International 51 51 100 44
Slide 10: Risk strategy
10 Risk strategy. To build strong customer propositions across our markets whilst delivering improving risk adjusted returns. Scale: Reduced unit operating costs STRONG Distribution: Expanded our footprint PROTECTION Technology: Increased straight through processing and improved customer FRANCHISE e
Slide 11: Business review – Risk
11 Business review – Risk. Financial highlights £m 2011 2010 Operational cash generation 482 439 New business strain (31) (10) Net cash generation 451 429 Experience variances, assumption changes, tax and other variances 110 131 Operating profit 561 560 Asset related investment variance 172 102 IFRS
Slide 12: Annuities: Solid performance on all metrics
12 Annuities: Solid performance on all metrics. Financial highlights £m 2011 2010 Operational cash generation 227 229 New business surplus 35 60 Net cash generation 262 289 Individual annuity new business APE 105 117 Bulk annuity new business APE 146 90 Total annuity new business APE 251 207 Longevi
Slide 13: Annuities: High potential
13 Annuities: High potential. New Annuity Business (£bn) – Potential UK market enormous UK Market (£1,000bn plus) Maturing DC pension pots increasing 3 DB pension schemes derisking 2 – DB de-risking strong reputation and 1 full offering: 0 Investment de-risking (e.g. LDI) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Slide 14: Housing and Protection: Strong performance on all metrics
14 Housing and Protection: Strong performance on all metrics. Financial highlights £m 2011 2010 Operational cash generation 255 210 New business strain (66) (70) Net cash generation 189 140 Protection new business APE 177 175 Protection new business EEV margin (%) 9.3 6.4 Protection gross premiums 1
Slide 15: Housing and Protection: Attractive market
15 Housing and Protection: Attractive market. Protection Gross Premiums (£m) Strong franchise - No. 1 in IP, No.2 in GP 1,400 • Scale and quality of in-force book delivers strong cash flows, operating 1,200 cash up 21% to £255m, net cash up 1,000 35% to £189m • High quality products and efficient IT
Slide 16: Savings strategy
16 Savings strategy. To build a sustainable and growing asset accumulation business, which generates an increasing cash contribution to the Group. GROWTH IN Scale in assets under administration is critical to success. ASSETS UNDER Sustained a healthy cash generation from the in-force book. ADMINISTR
Slide 17: Business review – Savings: Strong performance on all key metrics
17 Business review – Savings: Strong performance on all key metrics. Financial highlights £m 2011 2010 Operational cash 174 138 New business strain (63) (70) Net cash generation 111 68 Experience variances, assumption changes, tax and other variances 17 47 Operating profit 128 115 Asset related and
Slide 18: A transformed business: 2008-2011
18 A transformed business: 2008-2011. Assets under administration (£bn) Net cash generation (£m) 111 64 65 55 46 68 29 2008 2008 2009 2010 2011 -23 2008 2009 2010 2011 IFRS operating profit (£m) New business strain (£m)¹ 128 115 5.5% 4.2% 161 2.7% 2.8% 50 77 70 63 7 2008 2009 2010 2011 2008 2009 201
Slide 19: Auto enrolment, workplace savings and RDR opportunities
19 Auto enrolment, workplace savings and RDR opportunities. 1. 133 new workplace schemes secured in 2011 with over 94,000 people up from 102 schemes and around 24,000 people in 2010 – customers include Marks & Spencer and General Electric– more completed, but not yet announced 2. Unit costs in workp
Slide 20: LGIM strategy
20 LGIM strategy. To continue to focus on diversifying by growing our core active management capability and our defined benefit pensions de-risking solutions alongside our market leading index tracking business. Lead the market in providing derisking solutions to UK pension plans UK PRIORITIES Conti
Slide 21: Business review – Investment Management
21 Business review – Investment Management: Delivery on all key metrics. Financial highlights £m 2011 2010 IFRS Operating profit 234 206 Total revenue 417 378 Total costs (183) (172) Net cash generation 189 162 Average ad valorem fee margin (bps) 10.9 10.7 Average expense margin (bps) 5.3 5.5 Gross
Slide 22: Outlook: Deepen customer relationships in UK and accelerate growth in international
22 Outlook: Deepen customer relationships in UK and accelerate growth in international. 1. Provide additional products to existing 3,000+ pension clients 2. Deliver growth and investment expertise to Annuities (£28.4bn) and Savings (£65bn) businesses 3. Continue excellent growth in LDI and Fixed Inc
Slide 23: International strategy
23 International strategy. To focus on return on equity and measured growth by leveraging our bancassurance and UK expertise. Maintained growth and momentum on core term products by active USA PRIORITIES distribution management (LGA) Continue to focus on capital management EUROPE Increased NBVA in N
Slide 24: Business review – International
24 Business review – International. Financial highlights £m 2011 2010 USA 104 85 Europe (Netherlands and France) 41 26 Egypt, the Gulf and India (8) (9) Operating profit 137 102 New Business APE 154 146 Net cash generation 51 44
Slide 25: LGA has accelerated growth
25 LGA has accelerated growth. L&G America: gross written premiums ($m) 2005 - 2011 6% CAGR: 597 638 689 734 765 778 836 2005 2006 2007 2008 2009 2010 2011 • 900,000 active policies • Sustainable and growing ordinary dividend • APE up 39% to $111m (2010 $50m; 2011 $55m; 2012 $60m) • No. 6 provider o
Slide 26: Value creation: Across life businesses and IFRS style businesses
26 Value creation: Across life businesses and “IFRS style” businesses. Generation of embedded value (£m) 2008 2009 2010 2011 Total UK NBVA pre tax 265 305 333 376 International NBVA pre tax 32 23 44 65 Total 297 328 377 441 UK Net Generation of VIF pre tax 500 89 71 88 £m 2008 2011 LGIM profits 172
Slide 27: 2011 EEV, cash and operating profit
27 2011 EEV, cash and operating profit. FY 2011 EEV Cash Op. profit FY 2010 EEV Cash Op. profit Generation (IFRS) Generation (IFRS) £m Pps* £m £m £m Pps* £m £m IFRS LGIM 1,552 27 189 234 1,354 23 162 206 Savings investments 155 3 22 23 142 2 15 21 GI and Other risk 154 2 23 32 123 2 (6) (11) 1,861 3
Slide 28: UK experience and assumption changes: 2007-11
28 UK experience and assumption changes: 2007-11. £496m positive since 2007. IFRS net of tax (£m) 2007 2008 2009 2010 2011 Cumulative Experience variances 115 (33) 112 77 10 281 Operating assumption changes (137) (10) 178 58 19 108 Other 33 25 46 3 - 107 11 (18) 336 138 29 496 Note: Excludes Interna
Slide 29: Balance sheet: Link between cash, balance sheet and IGD
29 Balance sheet: Link between cash, balance sheet and IGD. IGD Surplus¹ (£m) At 1 January 2010 3,148 At 1 January 2011 3,745 Operational cash generation 940 New business strain (94) Dividends (376) Experience variances and assumption changes 29 Group Investment projects (41) Investment variance² (1
Slide 30: £1.8bn growth in Shareholder assets in the last 2 years
30 £1.8bn growth in Shareholder assets in the last 2 years. Shareholder Assets £m 2010 Opening shareholder assets 4,167 Opening group capital and financing assets (incl. LGAS and LGPL shareholder assets) 3,656 Opening shareholder assets in other subsidiaries 1,688 2011 Opening shareholder assets 5,3
Slide 31: Cash and profit generation progress
31 Cash and profit generation progress. 2009 2010 2011 Op. Net Op. Net Op. Net Strain Strain Strain Cash Cash Cash Cash Cash Cash Annuities 235 129 364 229 60 289 227 35 262 Protection 203 (79) 124 216 (70) 146 232 (66) 166 Insured savings 58 (77) (19) 77 (70) 7 101 (63) 38 In-force cash generation
Slide 32: Delivering on our strategy
32 Delivering on our strategy. Strategic Goal Progress in 2011 Extended leadership in risk: RISK: Maintain leadership • Annuities highest new business (£251m APE + £70m LI) • £1.1bn T&N scheme, plus longevity insurance • Individual Protection, No1 in mkt, APE +11% (Mkt -2%) • GI premiums, 7 yr high
Slide 33: Delivering on our strategy
33 Delivering on our strategy. Strategic Direction Progress in 2011 Strong Growth in Cash Flow: NEW METRICS: • Operational Cash CAGR of 13% over 5 years Focus on cash and certainty of • High visibility of future flows delivery • Leading Industry change in reporting Robust Balance sheet and risk mana
Slide 34: Conclusion: Strategy continues to deliver
34 Conclusion: Strategy continues to deliver. • Economic, market and regulatory uncertainty persists • 2012 is a year of substantial change for the industry • Consistent delivery across key metrics • Cash generation remains strong • L&G has substantial momentum and capital strength • Capability to g
Slide 35: Impact of adjustment to smoothed return on key metrics
APPENDIX 35 Impact of adjustment to smoothed return on key metrics: for GCF cash and Libor benchmarked bonds. £m Under new policy Under original policy Operating profit 1,056 1,108 Operational cash generation 940 978 Net cash generation 846 884 Investment variance (97) (149) Pre-tax operating profit
Slide 36: Linkage between 2010 operational cash, profits and earnings
36 Linkage between 2010 operational cash, profits and earnings. Operational New Net cash Experience Changes in Non- Investment IFRS Tax IFRS cash business generation variances valuation cash gains and profit/ expense/ profit/ generation strain assumptions items losses, (loss) (credit) (loss) interna