Legal & General Group Plc · LSE:LGEN
Legal & General — FY2012 Earnings Presentation
40 slides from Legal & General's earnings presentation, Mar 6, 2013
Slide 1: Year End Results
1 YEAR END RESULTS. A PRESENTATION FROM LEGAL & GENERAL 6 March 2013 EVERY DAY STEPPING UP FOR SHAREHOLDERS, CUSTOMERS AND SOCIETY MATTERS
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 uncerta
Slide 3: Nigel Wilson, Group Chief Executive
3 NIGEL WILSON GROUP CHIEF EXECUTIVE EVERY DAY MATTERS
Slide 4: Results Summary: Financial Highlights
4 RESULTS SUMMARY: FINANCIAL HIGHLIGHTS. 1. Earnings per share up 12% to 13.90p (2011: 12.42p) 2. Full year dividend up 20% to 7.65p per share (2011: 6.40p) 3. Operating profit up to £1,087m (2011: £1,053m) Operating profit from divisions up to £1,115m (2011: £1,058m) 4. Profit after tax up to £801m
Slide 5: Five Macro Trends. Five Corporate Responses
5 FIVE MACRO TRENDS. FIVE CORPORATE RESPONSES. Homogenous asset markets LGIM International Ageing populations Retirement Solutions ‘On the Go’ lifestyles Digital Solutions Welfare Reforms Protection Retrenching banks Direct investments
Slide 6: Results Summary: Accelerating Growth
6 RESULTS SUMMARY: ACCELERATING GROWTH. GROWING FLOWS GROWING STOCKS LGIM net flows up to £7.1bn (2011: £3.0bn) AUM up 9% to £406bn Individual Annuity sales up 26% to £132m AUM up 13% to £32bn Savings sales up 15% to £1.5bn AUA up 8% to £70bn UK Protection sales up 25% to £221m GWP up 6% to £1.3bn U
Slide 7: Strategic and Financial Evolution
7 STRATEGIC AND FINANCIAL EVOLUTION. 2009 2012 2013 and beyond CASH: CERTAINTY AND CASH PLUS ORGANIC GROWTH SUSTAINABILITY CASH PLUS ORGANIC GROWTH PLUS BOLT-ON ACQUISITONS • LGIM expansion into US, Gulf, Asia • Triangle of austerity creating • Substantial improvement in MI opportunities for growth
Slide 8: 1. LGIM International Expansion
8 1. LGIM INTERNATIONAL EXPANSION. TOTAL AUM £406bn £354bn STRATEGIC SUMMARY Product and geographic expansion: £205bn • US: Adding index to liability driven £111bn Investments (LDI) and active fixed, expand corporate de-risking, 2012 £36bn AUM $33bn 1995 2000 2005 2010 2012 • Gulf: Adding active fix
Slide 9: 2. Retirement Solutions
9 2. RETIREMENT SOLUTIONS. ANNUITIES AUM £32bn STRATEGIC SUMMARY £17bn Product and geographic expansion: • UK: Add enhanced annuities • Europe: Lead with Bulk Annuity capabilities 2006 2012 • US: Lead with Bulk Annuities, research individual businesses LDI AUM £64bn • Thought leadership in longevity
Slide 10: 3. Digital Solutions
10 3. DIGITAL SOLUTIONS. PROJECTED UK PLATFORM GROWTH STRATEGIC SUMMARY 600 • Industrial processes drive efficient scalable models Optimistic 500 24% CAGR £626bn • Platforms gaining economic scale from Workplace and post RDR 400 15% CAGR Realistic distribution £429bn Assets £bn • Online tools suppor
Slide 11: 4. Protection Market Leadership
11 4. PROTECTION MARKET LEADERSHIP. UK GROSS PREMIUMS £1,268m STRATEGIC SUMMARY £782m • UK: Increased digital engagement, expand link with housing £291m • Europe: Expand footprint building both Retail Protection and Group Protection 2001 2005 2012 Group Protection Retail Protection • US: Expand dist
Slide 12: 5. Direct Investments
12 5. DIRECT INVESTMENTS. STRATEGIC SUMMARY Sale and Leasebacks • National Football Centre, St Capacity and sector expansion: George’s Park at Burton-on-Trent • Development funding • Banking austerity has expanded opportunities • Attractive risk adjusted yield Income Partnerships • Joint venture wit
Slide 13: What We've Chosen Not To Do
13 WHAT WE’VE CHOSEN NOT TO DO. BUSINESS AREA LOGIC • Complexity of hedging US variable annuities • Capital efficiency Long term guaranteed interest rate • Did not invest in European businesses products • Euro sovereign, foreign exchange and economic risks • System integration difficult Buying pensi
Slide 14: Businesses We're Not Big In: But Should Be
14 BUSINESSES WE’RE NOT BIG IN: BUT SHOULD BE. BUSINESS AREA LOGIC ACTION International Passive Equity • Global homogenous customer market • Launch in US in 2013 • Regulatory approval received from US in • Asia in 2013 2012, Asia planned for 2013 • Accelerate growth in the Gulf and Asia Digital plat
Slide 15: Investment Discipline
15 INVESTMENT DISCIPLINE. “We seek economically attractive global opportunities, where we have management expertise, subject to statutory capital affordability.” Extensive LGIM LGIM: 6 economists, 20 person strategic risk team, plus a resources large pool of investment analysts FORWARD External Inpu
Slide 16: Capital Discipline
16 CAPITAL DISCIPLINE. • IMAP submission Nov 2012, economic capital in use Solvency 2 and ICA plus • Regulation to reflect economic reality • Strategic and financial discipline M&A • Clarity around financial targets • Strong returns above cost of capital • $735m to date US capital restructuring • Fu
Slide 17: Wadham Downing, Group CFO (Interim)
17 WADHAM DOWNING. GROUP CHIEF FINANCIAL OFFICER (INTERIM) FINANCIAL RESULTS: EXECUTION POWERS GROWTH EVERY DAY MATTERS
Slide 18: Strong Results: Strong Progress
18 STRONG RESULTS: STRONG PROGRESS. £m 2012 2011 Growth Earnings per share (basic) (pence) 13.90 12.42 Up 12% Profit after tax 801 721 Up 11% Operating profit 1,087 1,053 Up £34m Operating profit from divisions 1,115 1,058 Up £57m IFRS profit before tax 1,036 953 Up £83m Net cash generation 865 846
Slide 19: Growth Themes: Strong Progress
19 GROWTH THEMES: STRONG PROGRESS. • International net flows up 73% to £7.8 billion LGIM INTERNATIONAL • International AUM up 36% to £43 billion EXPANSION • LGIMA 39 external clients • Tate & Lyle annuity buy in £347 million Retirement RETIREMENT • BAE Systems longevity insurance for £3.2 billion li
Slide 20: Cash Focus Continues
20 CASH FOCUS CONTINUES. 2013 2012 2012 DIVIDEND DIVIDEND £m GUIDANCE GUIDANCE OP CASH STRAIN NET CASH TO GROUP % CASH Annuities 243 14 257 UK Protection c.620 c.590 240 (45) 195 525 88 Insured Savings 108 (62) 46 SUB TOTAL 591 498 With-profits c.55 c.50 52 52 US Protection 40 40 40 100 c.60 c.55 Eu
Slide 21: Strong Results: Few Surprises
21 STRONG RESULTS: FEW SURPRISES. Investment IFRS gains and IFRS profit/ Operational New Changes in losses, profit/ Tax (loss) cash business Net cash Experience valuation Non-cash international (loss) expense/ before All in £m generation strain generation variances assumptions items and other after
Slide 22: Growth in LGIM: Record Flows
22 GROWTH IN LGIM: RECORD FLOWS. FINANCIAL HIGHLIGHTS £m 2012 2011 GROWTH IN REVENUE Total revenue 446 417 12% £446m Total costs (203) (183) CAGR Operating profit 243 234 £316m Net cash generation 197 189 Gross flows (£bn) 34.2 32.8 2009 2010 2011 2012 Net flows (£bn) 7.1 3.0 Of which international
Slide 23: Growth in Annuities: Scale
23 GROWTH IN ANNUITIES: SCALE. FINANCIAL HIGHLIGHTS £m 2012 2011 UK ANNUITY ASSET GROWTH Operational cash generation 243 227 £32bn New business strain 14 35 £19bn Net cash generation 257 262 Operating profit 281 287 2008 2009 2010 2011 2012 Individual Annuities APE 132 105 Bulk Annuities APE 102 146
Slide 24: Execution Powers Growth: Retirement Solutions
24 EXECUTION POWERS GROWTH. RETIREMENT SOLUTIONS 2012: INDIVIDUAL ANNUITIES 76% EXTERNAL SOURCES 2012: GROWTH IN DIRECT INVESTMENT Internal 24% £1.2bn Direct £1,320m £0.6bn 4% IFA Tied 58% £0.0bn 14% 2010 2011 2012 LONGEVITY INSURANCE CONTRACT: 2013: EXECUTION PLANS BAE SYSTEMS 2000 PENSION PLAN Feb
Slide 25: Growth in Protection: Efficiency
25 GROWTH IN PROTECTION: EFFICIENCY. FINANCIAL HIGHLIGHTS £m 2012 2011 WORLDWIDE PROTECTION GROSS PREMIUMS Operating profit 359 314 £2,058m £1,860m Operational cash generation 279 270 £1,675m New business strain (45) (66) Net cash generation 234 204 Retail Protection APE 151 131 Group Protection APE
Slide 26: Execution Powers Growth: Protection
26 EXECUTION POWERS GROWTH. PROTECTION 2012: RETAIL PROTECTION, BENEFITS OF TECHNOLOGY 2012: LGA MARGIN AND MARKET SHARE PROGRESSION 2000 2006 2009 2010 2011/12 14.0% 12.0% 10.0% ONLINE NEW UW DIRECT REGULAR 8.0% PAPER CONNECT TERM ENGINE ONLINE RELEASES 6.0% 4.0% Underwriting 2.0% decision at 78% 0
Slide 27: Growth in Savings: Assets
27 GROWTH IN SAVINGS: ASSETS. FINANCIAL HIGHLIGHTS £m 2012 2011 NEW STYLE PRODUCTS APE GROWTH Operating profit 133 126 1,400 1,200 Operational cash generation 179 174 1,000 £1,240m 800 £911m New business strain (62) (63) £821m £m 600 Net cash generation 117 111 400 £467m 200 0 New business APE 1,456
Slide 28: Execution Powers Growth: Digital Solutions
28 EXECUTION POWERS GROWTH. DIGITAL SOLUTIONS 2012: PLATFORM ASSET GROWTH 2012: PROTECTION ENGAGEMENT HEALTHY LIVING £14.6bn IPS Workplace % A GR 45 C £4.8bn 2009 2010 2011 2012 2012: DEVELOPMENT OF ONLINE QUOTE AND BUY 2013: EXECUTION PLANS Extending Scale expect share of assets on platforms to dou
Slide 29: Capital Strength: Low Volatility
29 CAPITAL STRENGTH: LOW VOLATILITY. IGD SURPLUS: SENSITIVITY TO MARKET MOVEMENTS FINANCIAL HIGHLIGHTS £bn 2012 Group capital resources 7.2 Group capital requirement (3.1) IGD surplus 4.1 £3.8bn £4.0bn £4.0bn IGD coverage (%) 234 LGPL default provision 1.7 20% fall in equities 100 bp increase in 100
Slide 30: Mark Zinkula, LGIM CEO
30 MARK ZINKULA. LGIM CHIEF EXECUTIVE OFFICER LGIM: ACCELERATING MOMENTUM EVERY DAY MATTERS
Slide 31: Strong Track Record
31 31 STRONG TRACK RECORD. LGIM METRICS 2008 2009 2010 2011 2012 Operating Profit (£m) 172 172 206 234 243 Gross new business (external) (£bn) 31 32 33 33 34 Cost:income ratio (%) 45 46 46 44 46 Assets under Management (£bn) 264 315 354 371 406 Index - £bn 175 208 229 224 243 Non Index - £bn 89 107
Slide 32: Strategy for Defined Benefit
32 STRATEGY FOR DEFINED BENEFIT. RETIREMENT SOLUTIONS TOTAL LDI AUM (including derivatives*) STRATEGIC SUMMARY £199bn • Market trend to de-risk defined benefit £169bn schemes remains firmly in place £138bn • LGIM witnessing significant growth in £91bn £66bn LDI and active fixed income mandates despi
Slide 33: Growth from UK Defined Contribution
33 GROWTH FROM UK DEFINED CONTRIBUTION. RETIREMENT SOLUTIONS DEFINED CONTRIBUTION AUM STRATEGIC SUMMARY • This market is projected to grow significantly as corporations close Defined Benefit (DB) plans to future £25bn accrual and transition to Defined Contribution (DC) £21bn £20bn • The launch of an
Slide 34: LGIM International Expansion
34 LGIM INTERNATIONAL EXPANSION. INTERNATIONAL AUM STRATEGIC SUMMARY • US: Excellent fund performance and growing reputation driving a healthy pipeline for LDI and Active fixed £43bn income. Expanding product set to include index capability £32bn £30bn • Europe: Strong pipeline of mandates and enqui
Slide 35: Nigel Wilson, Group Chief Executive
35 NIGEL WILSON GROUP CHIEF EXECUTIVE
Slide 36: Long Term Demographic Trends Are Favourable
36 LONG TERM DEMOGRAPHIC TRENDS ARE FAVOURABLE. “The world is becoming grey. Over 60s rising from 600 million to 2 billion by 2050.” ASIA WORLD POPULATION GROWTH 1950-2050 EUROPE 6 0.8 5 0.7 0.6 4 0.5 Billions Billions 3 0.4 0.3 2 0.2 1 0.1 0 0 1950 1970 1990 2010 2030 2050 1950 1970 1990 2010 2030
Slide 37: The 'Triangle of Austerity'
37 THE ‘TRIANGLE OF AUSTERITY’. CREATES OPPORTUNITIES The ‘Triangle of Austerity’ is caused by: FISCAL AUSTERITY • Fiscal austerity: government finances under pressure • Banking austerity: deleveraging reduces lending • Regulatory austerity: policy forces ‘risk off’ We are well positioned because: •
Slide 38: UK Needs Effective Growth Policies
38 UK NEEDS EFFECTIVE GROWTH POLICIES. WE CAN PLAY A KEY ROLE IN ECONOMIC AND SOCIAL DEVELOPMENT DECLINING PERMANENT DWELLINGS STRATEGIC SUMMARY 450,000 400,000 • Housing: under supplied 350,000 and over priced 300,000 • Shortage of dwellings, 250,000 rather than mortgages 200,000 150,000 • Finance
Slide 39: Share Price and Dividend Performance
39 SHARE PRICE AND DIVIDEND PERFORMANCE. 8.80p SUMMARY 8.20p 7.65p • Macro trends create 6.40p opportunities for growth 4.75p 4.06p 3.84p • 5 strategic responses: LGIM International Retirement Solutions Digital Solutions 2.01 1.11 1.33 1.66 1.96 Protection 2008 2009 2010 2011 2012 2013 Analyst 2014
Slide 40: Thank You
40 THANK YOU.