Legal & General Group Plc · LSE:LGEN
Legal & General — FY2021 Earnings Presentation
52 slides from Legal & General's earnings presentation, March 2022
Slide 1: Delivering profitable, sustainable and inclusive growth
Delivering profitable, sustainable and inclusive growth 2021 Full year results £2,657m 20.5% Operating profit from divisions Return on equity 2020: £2,422m, +10% 2020: 17.3% 2019: £2,485m, +7% 2019: 20.4% 34.19p 18.45p Earnings per share Full year dividend 2020: 19.84p, +72% 2020: 17.57p, +5% 2019:
Slide 2: Forward looking statements
Forward looking statements • This document may contain ‘forward-looking statements’ with respect to the financial condition, performance and position, strategy, results of operations and businesses of the Company and the Group that are based on current expectations or beliefs, as well as assumptions
Slide 3: Delivering profitable, sustainable and inclusive growth
Delivering profitable, sustainable and inclusive growth Sir Nigel Wilson Chief Executive Officer
Slide 4: Strong financial performance in 2021
Strong financial performance in 2021 Strong Supported by a strong Driving strong profitability… balance sheet… shareholder returns £2,262m 187% 20.5% Operating profit1 Solvency II coverage ratio Return on equity 2020: £2,041m, +11% 2020: 175% 2020: 17.3% 2019: £2,131m, +6% 2019: 179% 2019: 20.4% 34.
Slide 5: Double-digit growth in operating profits delivered
Double-digit growth in operating profits delivered Very strong growth in LGC – up 68% on 2020 and 27% on 2019 £m 2020 2021 % LGRI1 1,229 1,154 (6) 10% LGC 275 461 68 13% 44% LGIM 407 422 4 LGRR1 322 352 9 16% LGI 189 268 42 17% Operating profit from continuing divisions1 2,422 2,657 10 Group costs &
Slide 6: L&G has delivered a strong and diversified set of financial results
L&G has delivered a strong and diversified set of financial results and is well positioned for further profitable growth 1. LGC is outperforming our capital markets ambition, delivering £461m of profit, and creating significant optionality for annuity front / back books 2. Our UK annuity business wa
Slide 7: We have delivered very strong performance over a decade
We have delivered very strong performance over a decade Operating profit from divisions1 (£m) Earnings per share2 (p) 9% CAGR 2,496 2,456 2,657 11% CAGR 34.19 2,231 28.66 2,034 24.74 1,902 23.10 1,702 21.22 1,483 19.84 1,329 16.70 18.16 1,277 15.20 1,109 13.84 12.42 2011 2012 2013 2014 2015 2016 201
Slide 8: The highly synergistic nature of our business model underpins strong ROE
The highly synergistic nature of our business model continues to underpin our strong ROE Providing asset management services Co-investing Creating Alternative assets Capital Investment Investment Management (LGC) (LGIM) Asset Asset management management services Structural and Creating services Prov
Slide 9: Combining Retail Retirement and Insurance businesses into a new Retail division
We are adding to those synergies by combining our Retail Retirement and Insurance businesses into a new Retail division Retail division: overview and rationale The UK Retail Retirement & Protection Landscape Operating Profit (£m) 2020 2021 % Accumulation Decumulation LGRR 322 352 9 Workplace Individ
Slide 10: What differentiates L&G from our global peers?
What differentiates L&G from our global peers? A unique ability to create and manage assets for clients, and which underpin our market leading retirement and protection solutions, delivering consistent and sustainable shareholder value Only global provider of end to end de-risking solutions LGRI, LG
Slide 11: L&G provides powerful asset origination and management capabilities
L&G provides powerful asset origination and management capabilities, and leading retirement and protection solutions FY21 Division Provision Description Operating Profit (£m) An alternative asset origination platform, originating assets for L&G LGC Asset Origination 461 and for third parties, and ge
Slide 12: Asset origination and management capabilities are a source of competitive advantage
Our asset origination and asset management capabilities are an important source of competitive advantage L&G Retirement & Asset Origination Protection Solutions LGC LGRI, Retail Asset Management Third Party Investors LGIM Our asset origination and asset management capabilities are highly attractive
Slide 13: LGC-originated assets are highly attractive to clients
LGC-originated assets are highly attractive to clients and provide a competitive advantage to our retirement businesses Sources of Patient Capital LGC Asset Origination Benefits Housing Profits within LGC L&G Annuity Portfolio LGRI, LGRR SME Finance + 50-200bps yield uplift in LGR External Fund Spec
Slide 14: LGC is growing its Alternative asset portfolio and profits
LGC is successfully growing its Alternative asset portfolio and profits. It had a very strong 2021 LGC Alternative AUM (£bn) LGC Operating profit (£m) 40% of total LGC assets: 461 Alternative asset portfolio £8.6bn Traded & Treasury portfolio 111 363 322 272 146 275 257 18% of total 134 LGC assets:
Slide 15: LGC has driven private markets capabilities in frontier sectors
LGC has been the driver in developing the Group’s private markets capabilities in frontier sectors Launch date of new private markets capabilities 2014 2015 2016 2017 2018 2019 2020 2021 Alt. credit Retirement Affordable Secure Income Renewable infra Build to Rent Data centres Suburban BTR Pemberton
Slide 16: Scaling up businesses of the future with a focus on Climate and SciTech
We are scaling up businesses of the future with a focus on Climate and SciTech 100% “GROWN UPS” LGC LGIM LGRI Retail 20% - 50% 100% “SCALE UPS” SciTech NTR Energy Cala ETF Pemberton Future Cities ADV1 DC / Retail Kao Data BTR Later Living LGIMA Pod Point2 SalaryFinance LGRA “START UPS” 3% - 20% 100%
Slide 17: Bold growth ambitions for LGC businesses
We have bold growth ambitions for LGC businesses CALA Affordable Homes Build to Rent Pemberton • Grown profits by 12x • Started in 2019, now has • 50/50 JV with PGGIM • Since inception in 2016, from £11m in 2013 to 1,600 homes in operation. committed AUM has £132m in 2021 Has grown profits from • 11
Slide 18: LGC is demonstrating strong value creation
LGC is demonstrating strong value creation MediaCity Inspired Villages Group Pod Point IPO Current Health • Long-standing JV with • We announced a 15 year • An electric vehicle • Current Health is a Peel Land & Property JV with Natwest Group (“EV”) charge point platform which supports Group, which h
Slide 19: Self-sustainability on the UK annuity portfolio
We achieved self-sustainability on the UK annuity portfolio (and for the Group as a whole) in both 2020 and 2021 UK annuity portfolio: self-sustainability 2020 2021 • We expect to achieve self- £bn UK UK sustainability again in 2022, annuity Total annuity Total driven by double digit growth portfoli
Slide 20: Expanding in Asia Pacific, where we have $138bn of AUM
We are expanding in Asia Pacific, where we have $138bn of AUM Our strategic growth drivers are highly relevant LGIM Asia-Pacific AUM ($bn) Strategic growth drivers 138 • Asia Pacific (APAC) asset management market to grow to Globalisation c$30trn by 20251. (LGIM APAC AUM $138bn) of asset • Increasin
Slide 21: Clear purpose and long-term commitment to Inclusive Capitalism and ESHG
We have a clear purpose, and a long-term commitment to Inclusive Capitalism and ESHG, with a focus on execution To improve the lives of our customers, build a better society for the long term and create value for our Our purpose shareholders. We use our long-term assets in an economically effective
Slide 22: Financial highlights: Positioned for growth
Financial highlights Positioned for growth Jeff Davies Chief Financial Officer
Slide 23: Strong financial performance, double-digit growth delivered
Strong financial performance, double-digit growth delivered Metric 2019 2020 2021 2019 % 2020 % Operating profit from continuing divisions (£m) 2,485 2,422 2,657 7 10 Discontinued operations (£m) 34 - Operating profit from divisions (£m) 2,496 2,456 2,657 6 8 Operating profit excluding mortality rel
Slide 24: LGR: Consistently delivering strong profits
LGR: Consistently delivering strong profits Financial Highlights 2020 2021 • Operating profit of £1,506m, reflecting: Operating profit (£m) 1,728 1,506 ‒ Release from operations up 8%, reflecting the - Retirement Institutional (LGRI) 1,229 1,154 scale of the business as prudential margins unwind fro
Slide 25: LGRI: Disciplined approach for value
LGRI: Disciplined approach for value • Robust 2021 volumes: £7.2bn of PRT across 57 Total Sales (£m) 2019 2020 2021 transactions, written at a strong new business margin of 9% UK PRT1 10,325 7,593 6,240 ‒ 69% of transactions were small scheme solutions. We leveraged technological innovation to drive
Slide 26: LGR assets: Diversified bond portfolio and direct investments
LGR assets: Diversified bond portfolio complemented by high quality direct investments LGR Bond Portfolio: £81.8bn (out of £89.9bn) LGR DI portfolio: £28.4bn, 32% of total LGR assets YE 2021 £81.8bn • Defensively positioned, high quality Direct investments portfolio. £3.4bn IFRS credit default by ty
Slide 27: LGC: Strong alternative asset performance
LGC: Strong alternative asset performance Financial Highlights 2020 2021 • Operating profit of £461m, up 68%, principally reflecting increased profits from our alternative asset portfolio Operating profit (£m) 275 461 – Alternative asset profits of £350m were driven by a - Alternative asset portfoli
Slide 28: LGC's Alternatives business generating attractive shareholder returns
LGC’s Alternatives business is generating attractive shareholder returns and creating valuable assets for us and for our clients • c£450m of investment in asset creation opportunities including: Capital ‒ a regeneration project in Sheffield 1 deployment ‒ the first acquisition by Suburban BTR ‒ init
Slide 29: LGIM: Profit growth from continued International expansion
LGIM: Profit growth from continued International expansion Financial Highlights 2020 2021 • Operating profit up 4% to £422m, reflecting increased revenues from flows and robust cost management Asset management revenue1 (£m) 956 1,012 • AUM up 11% to £1.4tn Asset management expenses1 (£m) (549) (590)
Slide 30: LGIM: Resilient AUM and positive flows
LGIM: Resilient AUM and positive flows underpinned by diverse asset exposure AUM progression from FY20 to FY21 (£bn) • Positive external net flows of £34.6bn driven by: – International flows of £29.5bn, representing 85% of the total, with broad-based contributions from the US, Europe, Asia and Japan
Slide 31: LGIM: Focus on value over volume
LGIM: Our focus on value over volume is starting to deliver results 2020 2021 • Rebound of ANNR in 2021, reflecting the focus on External and Internal net flows (£bn) 22.5 32.5 higher margin areas ahead of the quantum of flows, for example: Annualised net new revenue (ANNR)1 (£m) 2 28 ‒ £14m in mult
Slide 32: LGI: Continuing to support customers through difficult times
LGI: Continuing to support customers through difficult times Financial Highlights 2020 2021 • Operating Profit of £268m, up 42%, with 2020 and 2021 impacted by adverse mortality experience arising as a result of Operating profit (£m) 189 268 COVID-19 - UK 205 320 ‒ 2021 has seen strong new business
Slide 33: Robust Solvency II Balance sheet
Robust Solvency II Balance sheet Solvency II Balance Sheet (£bn) Key Sensitivities (%) YE 2021 SII ratio 187% 175% 187% 17.3 7.4 17.6 8.2 206% (+19%) Rates +100bps 9.9 9.4 Credit spread 200% (+13%) +100bps YE 2020 YE 2021 Risk Margin 194% (+7%) reduces 2/3rds Own Funds Capital Requirement Surplus •
Slide 34: Solvency II surplus analysis of change
Solvency II surplus analysis of change 103 (354) (1,063) 187% 727 (300) 1,636 175% 8,185 7,436 Surplus Operational External dividends Market Operating New business Debt redemption Surplus YE 2020 surplus (2020 Final + 2021 movements variances & M&A YE 2021 generation Interim) 34
Slide 35: Strong year on year growth in cash and capital
We continue to show strong year on year growth in cash and capital, making good progress against our ambitions Double-digit growth in 2021 cash and capital generation: • Cash generation1 up 12% year on year • Capital generation2 up 12% year on year Our Financial Ambitions & Progress to Date • Over t
Slide 36: In summary
In summary • We have delivered double- £2,262m 20.5% digit operating profit growth, and are confident in Operating profit1 Return on equity achieving our five year 2020: £2,041m, +11% 2020: 17.3% ambitions 2019: £2,131m, +6% 2019: 20.4% • Our balance sheet remains robust, with SII coverage at 187% a
Slide 37: Sustainable, ambitious, inclusive
Sustainable, ambitious, inclusive Sir Nigel Wilson Chief Executive Officer
Slide 38: A compelling investment case
A compelling investment case An established track record of consistent and profitable growth: between 2011-2021 we 1 delivered 11% CAGR in EPS, 11% CAGR in DPS and 7% CAGR in Book Value per Share A highly synergistic, diversified and growth-oriented business model, driving c20% ROE, and 2 strongly a
Slide 39: Delivering profitable, sustainable and inclusive growth
Delivering profitable, sustainable and inclusive growth 2021 Full year results £2,657m 20.5% Operating profit from divisions Return on equity 2020: £2,422m, +10% 2020: 17.3% 2019: £2,485m, +7% 2019: 20.4% 34.19p 18.45p Earnings per share Full year dividend 2020: 19.84p, +72% 2020: 17.57p, +5% 2019:
Slide 40: CALA Homes: We have grown profits by 12x since 2013
CALA Homes: We have grown profits by 12x since 2013… CALA Homes has grown significantly since L&G’s first investment in March 2013 Operating Proven track record of growth Homes* Revenue Profit • CALA has grown from a medium sized housebuilder to 10th largest in the UK by revenue • Year on year profi
Slide 41: Affordable Homes: Ambitious growth plans
Affordable Homes: Ambitious growth plans to be a £125m profit business by 2026 Homes Operating Revenue Proven track record of growth Completed* Profit • From a standing start, Affordable homes now has over 1,600 homes in operation • Continuing to grow operating profit, delivering £26m in 2021, up fr
Slide 42: Build to Rent: Developing over 11,000 homes
Build to Rent: We are developing over 11,000 homes with a Gross Development Value close to £4bn Urban BTR Total BTR Status Homes GDV* (£m) Homes GDV* (£m) Completed 2,732 937 Total BTR 11,354 3,781 Contracted / Under offer 2,909 1,222 Pipeline 3,367 1,016 In 2021 L&G: Total Urban 9,008 3,175 • Was t
Slide 43: Pemberton continues to raise funds and scale
Pemberton continues successfully to raise funds and scale Committed Revenue EBITDA Proven track record of growth AUM • Increased number of LPs from 11 in 2015 to 147 in 2021 • Developed core competencies to establish four strategies 2016 £1.1bn £9.5m £5.9m Key differentiating factors • Size and dept
Slide 44: Salary Finance: 10x Revenue growth over the past 3 years
Salary Finance: 10x Revenue growth over the past 3 years Future growth underpinned by expansion in US and continued UK success Employees Loan Book Gross Proven track record of growth Covered Size Revenue1 • #19 in Deloitte’s UK Tech Fast 50 with 4 consecutive years of near 100% revenue growth • Clie
Slide 45: Performance relative to Blackrock not reflected in valuation
Whilst we have performed well relative to Blackrock (a respected competitor) our performance has not been reflected in valuation Despite growing earnings and dividends at a similar rate of growth to Blackrock, coupled with faster growth in book value and a higher ROE, this has not been reflected in
Slide 46: Comparable characteristics to Blackstone but lower multiples
L&G has comparable financial characteristics to Blackstone, but trades on a fraction of its valuation multiples Despite growing earnings, book value and dividends, whilst delivering a 20%+ RoE, we are still trading at lower multiples than we did in 2013… EPS1 BVPS1 P/E 500 250 42.0 $8.14 £1.80 37.0
Slide 47: Comparable characteristics to Brookfield but lower multiples
L&G has comparable characteristics to Brookfield, but trades on lower valuation multiples Despite growing book value at a similar rate of growth to Brookfield, coupled with faster growth in earnings and dividends and a higher ROE, this has not been reflected in our valuation multiples… EPS1 BVPS1 P/
Slide 48: ESG at L&G: Ratings and collaborations
ESG at L&G: Ratings and collaborations The following slides provide a data-driven overview of environment, social and governance (ESG) activity at L&G. We demonstrate achievements to date, key metrics and some of our future commitments but these slides do not cover all ESG activity. Please refer to
Slide 49: ESG at L&G: Journey to net zero
ESG at L&G: Journey to net zero Commitments1 Date Achievements to date By the start of 2025, we will reduce portfolio greenhouse gas We reduced the greenhouse gas emission intensity of our proprietary assets by emission intensity by 18.5%2 and increase financing of low carbon 2025 Invest 17.0%3 comp
Slide 50: ESG at L&G: Building a better society
ESG at L&G: Building a better society What have we achieved so far Our affordable homes business now has a pipeline of 5,500 homes across the UK We established a multi-million pound charitable fund with the University College of London (UCL) to address UK health inequalities We support community cau
Slide 51: ESG at L&G: Growing our business responsibly
ESG at L&G: Growing our business responsibly What have we achieved so far Our employee satisfaction score is 76, remaining above pre-pandemic levels We improved ethnic minority representation on our Board in response to the Parker Review We continue to make progress in narrowing the Gender Pay Gap t
Slide 52: ESG at L&G: Growing our business responsibly
ESG at L&G: Growing our business responsibly LGIM Active Ownership Year ended 31 December 2019 2020 2021 Number of companies covered by our Climate Impact Pledge c.80 c.1,000 c.1,000 Number of company engagements from our Investment Stewardship team 739 891 773 Number of worldwide resolutions on whi