Legal & General Group PLC · LSE:LGEN
Legal & General — H1 2019 Earnings Presentation
38 slides from Legal & General's earnings presentation, December 2019
Slide 1: Half year results
2019 Half year results Improving lives through Inclusive Capitalism December 2019 LEGAL & GENERAL GROUP PLC LEGAL & GENERAL GROUP PLC | HALF YEAR RESULTS | AUGUST 2019
Slide 2: Financial highlights
Financial highlights Operating profit from divisions Earnings per share Return on equity £1,186m 14.74p 20.2% (H1 2018: £1,059m) (H1 2018: 13.00p) (H1 2018: 20.3%) +12% +13% Book value SII operational surplus generation Interim dividend £8.7bn, 146p £0.8bn 4.93p (H1 2018: £7.7bn, 129p) (H1 2018: £0.
Slide 3: An established track record of consistent growth
An established track record of consistent growth Operating profit from divisions1 (£m) Earnings per share (p) 11% CAGR 2011 - 2018 2,231 10% CAGR 2011 - 2018 2,034 24.74 1,902 23.10 1,702 21.22 1,483 18.16 1,277 1,329 16.70 1,109 1,186 15.20 13.84 14.74 12.42 1,059 13.00 2011 2012 2013 2014 2015 201
Slide 4: We have growing and profitable businesses
We have 5 growing and profitable businesses Continuing Operating Profit from divisions (£m) CAGR H1 H1 Division Business 2016 2017 2018 % Growth opportunity % 2019 2018 716 832 651 Pension Risk • UK market: £25-30bn p.a. 30% market share LGRI +13 524 361 +45 • US market: $25-30bn p.a. 3% market shar
Slide 5: We have strong new business growth
We have strong new business growth Division Business Product 2016 2017 2018 CAGR % H1 2019 H1 2018 9,140 Pension Risk 6,630 LGRI Global bulk annuity premiums (£m) 3,948 +17 6,677 735 Transfer (PRT) 43.5 42.6 Investment 29.2 LGIM Management External net flows (£bn) +21 60.3 14.6 2,359 Capital 1,450 L
Slide 6: A collaborative business model creating value for shareholders
A collaborative business model creating value for shareholders Retirement Building client (PRT & Solutions) Structuring relationships expertise Providing seed capital Providing Manufacturing Providing asset management Capital SII-eligible assets Contributing services captive AUM Structural and capit
Slide 7: Financial Highlights
LEGAL & GENERAL GROUP PLC | HALF YEAR RESULTS | AUGUST 2019 Financial Highlights LEGAL & GENERAL GROUP PLC
Slide 8: Financial highlights: consistent delivery in 2019
Financial highlights: consistent delivery in 2019 Metric H1 2019 H1 2018 % Operating profit from continuing divisions (£m) 1,167 1,009 16 Discontinued operations (£m) 19 50 n/a Operating profit from divisions (£m) 1,186 1,059 12 Group debt costs (£m) (108) (97) (11) Group investment projects & expen
Slide 9: LGR: Consistently delivering strong results
LGR: Consistently delivering strong results Financial Highlights H1 2019 H1 2018 • Operating profit of £655m, up 36%, reflecting: - Strong performance from back book; run-off of Release from operations (£m) 303 275 prudential margins New business surplus (£m) 185 23 - Record UK PRT volumes of £6.3bn
Slide 10: LGR: Diversified portfolio, high quality assets
LGR: Diversified portfolio, high quality assets LGR Asset portfolio LGR bond portfolio maintaining overall credit quality and high sectorial diversification 2018 2019 H1 £63.0b £72.1bn LGR bond portfolio sector split (%) n Consumer services and goods 18 Utilities 17 75% 74% 20% 20% Sovereigns, Supra
Slide 11: LGR: UK-listed corporate credit is a relatively small proportion of our bond portfolio
LGR: UK-listed corporate credit is a relatively small proportion of our bond portfolio Geographically Diversified Portfolio UK-listed corporate credit RoW, 7% (ex. Sovereigns), 23% • 23% of LGR’s bond portfolio is invested in UK-listed corporate credit, excluding Europe, 12% Sovereigns • c.50% of th
Slide 12: LGR: Largest direct investments by exposure
LGR: Largest direct investments by exposure1 Valuation Investment Sector Year invested (£m) 1 HMRC and DW P Buildings2 Government 2016-2019 1,570 2 Places For People Social Housing 2014 312 3 London Gateway Transportation 2011 300 4 The Rolls Building, EC4, Secretary of State Office 2014 284 5 F&C C
Slide 13: LGIM: Financials
LGIM: Financials Financial Highlights H1 2019 H1 2018 • Operating profit up 1% to £205m • AUM over £1.1tn, driven by external net flows of £60bn, Asset management revenue1 (£m) 434 414 5.9% of opening AUM, with continued diversification across Asset management expenses1 (£m) (230) (213) channels, re
Slide 14: LGC: Financials
LGC: Financials Financial Highlights H1 2019 H1 2018 • Operating profit of £173m, in line with H1 2018 on a similar asset base with a different mix of early and Operating profit (£m) 173 172 mature stage DI - Direct Investments 99 104 Direct Investments assets, up 31.6% to £2.6bn - Traded portfolio
Slide 15: LGC: Ambition
LGC: Ambition Our aim is to make investments in new assets which generate stable returns for shareholders, create assets for LGR, and desirable assets for LGIM Potential fee income Development returns for LGIM through Management Development on shareholder fund and asset LGIM LGC capital management F
Slide 16: LGI: Financials
LGI: Financials Financial Highlights H1 2019 H1 2018 • New business up 9% to £178m across the division Net release from operations (£m) 170 157 • Gross written premiums up 4% in the UK, US up 5% on a USD basis to $670m Operating profit (£m) 134 154 • UK Operating Profit lower due to prior year - UK
Slide 17: Solvency II balance sheet: We maintain a significant Solvency II surplus
Solvency II balance sheet: We maintain a significant Solvency II surplus Solvency II balance sheet 188%1 171%1 £14.8bn £6.9bn £14.2bn £5.9bn • Solvency II surplus of £5.9bn • Coverage ratio of 171% • Core tier 1 Own funds of £11.1bn (78%) £7.9bn £8.3bn Own Funds Capital Requirement Surplus YE 2018 H
Slide 18: Movement in the surplus: Significantly impacted by dividend timing
Movement in the surplus: Significantly impacted by dividend timing Solvency II Surplus analysis of change (£bn) 7.5 188% 171% SII surplus in H2 benefits from: • H2 OSG from backbook 7.0 0.7 • Disposals 0.8 • Potential mortality 0.4 release (c.£0.2bn) 6.5 0.2 0.3 0.2 0.1 Net of: 0.7 6.0 0.3 • 2019 in
Slide 19: Solvency Capital Requirement: Our economic exposure to rates is low
Solvency Capital Requirement: Our economic exposure to rates is low Solvency Capital Requirement (FY18) Other Other Operational 2% Underwriting 5% 7% Other Market Mortality 5% Currency 8% 3% • Primary exposures are to Longevity & Credit Property 8% • Economic interest rate exposure is low Equity • P
Slide 20: New PRT business: Highly capital generative and c.5 year pay back
New PRT business: Highly capital generative and c.5 year pay back Cumulative surplus generation1 from £10bn of new UK PRT business (£m) • Payback on new PRT business 1,200 is c.5 years 1,000 • £10bn of UK PRT new business will generate: 800 • A c.4% strain in year 1 600 Payback c.5 years • OSG of c.
Slide 21: Growth in OSG provides capacity for dividend progression and new business investment
Growth in OSG provides capacity both for dividend progression and new business investment Operational Surplus Generation & Usage, £bn CAGR1 • OSG is growing strongly and faster than 19% the dividend: each year our capacity to invest in new business grows 1.5* • Investment in new business is 1.4 11%
Slide 22: Delivering Inclusive Capitalism
LEGAL & GENERAL GROUP PLC | HALF YEAR RESULTS | AUGUST 2019 Delivering Inclusive Capitalism LEGAL & GENERAL GROUP PLC
Slide 23: We are growing share in exciting markets and expanding into new, adjacent opportunities
We are growing share in exciting markets and expanding into new, adjacent opportunities Our strategy is aligned to our 6 structural growth drivers L&G Market size & growth market Growth drivers Market opportunity share L&G new business opportunity 2018 2023e (%) UK PRT 30 £30bn £150bn cum. Maintain
Slide 24: We are growing share in exciting markets and expanding into new, adjacent opportunities
We are growing share in exciting markets and expanding into new, adjacent opportunities Our strategy is aligned to our 6 structural growth drivers L&G market Market size & growth Growth drivers Market opportunity L&G new business opportunity share (%) 2018 2023e UK DC AUM 19 £397bn £641bn Maintain l
Slide 25: We are replicating our UK business model abroad
We are replicating our UK business model abroad We operate in 85% of the global DB pensions market Synergies Mkt % DB DB Market L&G size mkt L&G Status Asset Retirement Presence (£tn) Insured PRT Capital Insurance Mgt Solutions A market leader in asset UK 2.2 8 ✔ management, LDI, PRT & DC Leader in
Slide 26: We are growing our PRT business and LGIM internationally
We are growing our PRT business and LGIM internationally International PRT Premiums (£m) International LGIM AUM (£bn) Volumes doubled in size in 3 years AUM doubled in size in 3 years 789 343 £41bn 629 258 £30bn 543 228 £48bn 178 £52bn 347 £172bn 1 2016 2017 2018 YTD 19 2016 2017 2018 H1 2019 US Ire
Slide 27: Delivering Inclusive Capitalism
Delivering Inclusive Capitalism Our ambition is to Between 2011 – 2015 we 2020 onwards: replicate this performance achieved a 10% growth Delivering on our out to 2020: in EPS global ambition 11% achieved to end 2018 • Achieve global leadership in pensions de-risking • Provide a suite of products to
Slide 28: ESG approach
LEGAL & GENERAL GROUP PLC | HALF YEAR RESULTS | AUGUST 2019 ESG approach LEGAL & GENERAL GROUP PLC
Slide 29: ESG approach: Delivering Inclusive Capitalism
ESG approach: Delivering Inclusive Capitalism Our businesses act in a way that is both economically and socially useful, delivering inclusive capitalism, and are aligned to 6 structural growth drivers: Growth drivers ESG alignment example L&G progress “Inclusive £54bn corporate DB pension deficit in
Slide 30: Inclusive Capitalism naturally align to ESG principles
Inclusive Capitalism naturally align to ESG principles Our ESG approach considers: 1. Our operations 2. Our £95.0bn asset portfolio1 3. Our influence as a leading global asset manager with more than £1.1tn AUM Examples of ESG metrics Environmental Social Governance Ranked 4th among global insurers f
Slide 31: ESG example in action: Future Cities – Cardiff
ESG example in action: Future Cities – Cardiff Investing in real assets, real jobs, real skills, resulting in real wage increases Regenerating the heart of the Welsh capital Investment Value £400m People benefitting 10,000 In September 2015, Legal & General entered into a joint venture partnership w
Slide 32: Appendix
LEGAL & GENERAL GROUP PLC | HALF YEAR RESULTS | AUGUST 2019 Appendix LEGAL & GENERAL GROUP PLC
Slide 33: Debt instruments summary
Debt instruments summary Debt Redemption Profile (£m)1 Rating Type Entity / Instruments Moody’s S&P 800 Financial L&G Assurance Strength Aa3 AA- 600 Society Ltd Rating 400 L&G Finance plc / Instrument A2 A Senior 200 Credit Ratings L&G Group plc / A3 BBB+ 0 Tier 2 2 2 2020 2021 2025 2026 2027 2028 2
Slide 34: Debt instruments: Solvency II instrument features
Debt instruments: Solvency II instrument features Tier 2 Restricted Tier 1 Tier 3 S&P/Moody’s eligible Subordination • Senior only to equity • Senior to Tier 1 • Senior or pari-passu to Tier 2 • Perpetual callable: Min 5 years to call • Dated callable or bullet : Min 10 years to • Repayable or redee
Slide 35: LGC: Asset creation
LGC: Asset creation Creation of real assets to support LGR’s growing annuity business and provide third party opportunities for LGIM Affordable Housing • Source and develop shared ownership and affordable rented homes • Create matching adjustment eligible assets for LGR’s growing annuity business •
Slide 36: LGC: L&G Homes
LGC: L&G Homes Build to sell • Combined operations of LGC build to sell businesses • In CALA, c.1,100 units sold in H1 2019 with 90 active sites • Revenues of £401m in H1 2019, despite current market environment Rental sector • Affordable Homes: Secured first four schemes, with c.300 new homes. Pipe
Slide 37: LGC: Future Cities
LGC: Future Cities New Developments • Cardiff Central Square: Providing a transport interchange, 318 build to rent apartments and 100,000 sq ft of office space. • Bath: 5.5 acre riverside site at Bath North Quays; L&G’s first urban later living community Renewable Infrastructure • Together with NTR,
Slide 38: LGC: SME Finance - Principal investing to drive economic progress
LGC: SME Finance - Principal investing to drive economic progress Strong growth in AUM Commitment to investing in (and revenue) at start-ups via expert Pemberton managers Committed AUM HY2017 HY2018 HY2019 Opening up access for DC investors into a strongly growing asset class 38 LEGAL & GENERAL GROU
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