Legal & General Group PLC · LSE:LGEN
Legal & General — H1 2022 Earnings Presentation
41 slides from Legal & General's earnings presentation, August 2022
Slide 1: Strength and growth: 2022 Half year results
Strength and growth 2022 Half year results £1,355m 21.3% 212% Operating profit from divisions Return on equity Solvency ratio H1 2021: £1,271m, +7% H1 2021: 22.0% H1 2021: 182% 19.28p 5.44p Earnings per share Interim dividend H1 2021 17.78p, +8% H1 2021: 5.18p, +5%
Slide 2: Forward looking statements
Forward looking statements This document may contain certain forward-looking statements relating to Legal & General, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature, forward-looking statements involve uncertainty becau
Slide 3: Strength and growth
reas General Strength and growth
Slide 4: Good financial performance and a strong balance sheet
Good financial performance and a strong balance sheet Strong Supported by a strong Driving strong profitability… balance sheet… shareholder returns £1,355m 212% 21.3% Operating profit from divisions Solvency II coverage ratio Return on equity H1 2021 £1,271m, +7% H1 2021: 182% H1 2021: 22.0% 19.28p
Slide 5: We have four strong divisions, operating at scale
We have four strong divisions, operating at scale H1 2022 operating profit by division H1 2022 Division Provision Description Operating Profit (£m) An alternative asset origination platform, originating assets for L&G LGC Asset Origination 263 and for third parties, and generating attractive shareho
Slide 6: The synergies between them underpin our 20%+ ROE
The synergies between them underpin our 20%+ ROE Providing asset management services Co-investing Creating Alternative assets Capital Investment Investment Management (LGC) (LGIM) Asset Asset management management Structural and services services Creating Providing Alternative capital synergies Cont
Slide 7: Collectively, these businesses have delivered good growth in operating profits
Collectively, these businesses have delivered good growth in operating profits, demonstrating resilience in volatile markets Operating profit from divisions £m H1 2021 H1 2022 % LGRI 525 560 7 LGC 250 263 5 LGIM 204 200 (2) Retail 292 332 14 Operating profit from divisions 1,271 1,355 7 Operating pr
Slide 8: Our business is aligned to six long-term growth drivers
Our business is aligned to six long-term growth drivers, providing immunity to a low / no economic growth environment Market Primary Growth drivers Strategic priorities opportunity divisions Ageing Be global leaders in pensions de-risking and retirement income solutions, LGRI, Retail, $57tn demograp
Slide 9: We are well positioned to navigate the prevailing market environment
We are well positioned to navigate the prevailing market environment Indicative impact of prevailing market conditions on L&G Normalising interest rates Widening credit spreads Rising inflation Solvency ratio up = greater capital optionality Annuity assets and Reduced DB scheme deficits = Reduced DB
Slide 10: We are on track to achieve or beat our cumulative cash and capital ambitions
We are on track to achieve or beat our cumulative cash and capital ambitions Illustrative growth in cash and capital Growth from 2020-2024 £bn 2020a 2021a 2022 2023 2024 2H 2022 to 2024 at Ambition 0% 1.5 3.2 5.1 6.8 8.5 Cumulative cash generation 5% 1.5 3.2 5.1 7.0 8.9 8.0 – 9.0 10% 1.5 3.2 5.2 7.1
Slide 11: We achieved self-sustainability on the UK annuity portfolio
We achieved self-sustainability on the UK annuity portfolio (and for Group) in 2020, 2021 and expect to do so again in 2022 UK annuity portfolio: self-sustainability UK annuity portfolio Group • We expect to achieve self- £bn sustainability again in 2022, 2020 2021 2022 2020 2021 2022 driven by doub
Slide 12: Our newly created Retail division has multiple growth opportunities
Our newly created Retail division has multiple growth opportunities across protection, retirement and fintech L&G Retail Multiple MultipleAttractive AttractiveMarkets Markets L&G Position Workplace DC stock expected to grow 140% over next 10 years from £515bn to c.15% Master Trust Workplace Savings
Slide 13: Our strategy is underpinned by a clear purpose and a focus on execution
Our strategy is underpinned by a clear purpose and a focus on execution To improve the lives of our customers, build a better society for the long term and create value Our purpose for our shareholders. We use our long-term assets in an economically effective and socially useful way to benefit every
Slide 14: L&G has a strong balance sheet and is well positioned to continue to deliver
L&G has a strong balance sheet and is well positioned to continue to deliver profitable growth 1. Our six long-term strategic growth drivers are as relevant today as they have ever been. They also help to immunise our business to a low / no growth economic environment 2. Year to date operating perfo
Slide 15: Financial highlights
Financial highlights Jeff Davies Chief Financial Officer
Slide 16: Strong financial performance
Strong financial performance Metric H1 2021 H1 2022 % Operating profit from divisions (£m) 1,271 1,355 7 Group debt costs (£m) (120) (108) Group investment projects & expenses (£m) (72) (87) Operating profit (£m) 1,079 1,160 8 Investment & other variances (£m) 241 207 Profit before tax (£m) 1,320 1,
Slide 17: LGRI: Consistently delivering strong profits
LGRI: Consistently delivering strong profits Financial Highlights H1 2021 H1 2022 • Operating profit of £560m, reflecting: ‒ The scale of the business as prudential Operating profit (£m) 525 560 margins unwind from the back book Investment and other variances (£m) 75 133 ‒ An effective ongoing asset
Slide 18: LGRI: Disciplined approach for value
LGRI: Disciplined approach for value Total Sales (£m) H1 2021 H1 2022 • Strong H1 2022 volumes: £4.4bn of global PRT across 25 transactions UK PRT1 2,965 3,715 • In the UK, continued momentum and financial discipline, despite US PRT 107 593 a competitive market: Other International PRT - 141 • LGRI
Slide 19: Annuity assets: Diversified bond portfolio complemented by high quality direct investments
Annuity assets: Diversified bond portfolio complemented by high quality direct investments Annuity Bond Portfolio: £73.2bn (out of £78.8bn) Annuity DI portfolio: £20.5bn, 26% of total assets H1 2022 • Defensively positioned, high quality portfolio. Direct investments £73.2bn £2.7bn IFRS credit defau
Slide 20: L&G invests primarily in investment grade credit
L&G invests primarily in investment grade credit. We adopt a prudent default assumption. Default experience has been low 99% Percentage of L&G’s bond portfolio that is investment grade 43bps L&G prudent annual IFRS default assumption 18bps Market-implied IFRS base default assumption <1bp Actual L&G
Slide 21: We have improved the quality of our portfolio as it has grown
We have improved the quality of our portfolio as it has grown. Investment variances are net positive Annuity bond portfolio 2007 Today Since 2007: • Our annuity book has more than Assets under management (£bn) 16.2 73.2 quadrupled in size % of assets that are investment grade 90 99 • The quality of
Slide 22: Our balance sheet is well positioned to absorb a significant credit event
Our balance sheet is well positioned to absorb a significant credit event, should it occur Indicative impact of a significant • We apply a potential credit stress scenario to our current credit event on L&G’s solvency ratio balance sheet. We assume a credit scenario broadly in line with 2001/2002: (
Slide 23: LGC: On track to achieve ambitious targets
LGC: On track to achieve ambitious targets Financial Highlights H1 2021 H1 2022 • Operating profit of £263m, up 5%, principally reflecting profits from our alternative asset portfolio Operating profit (£m) 250 263 • Alternative asset profits of £202m were driven by continued - Alternative asset port
Slide 24: LGIM: Resilient performance despite market volatility
LGIM: Resilient performance despite market volatility • Operating profit down 2% to £200m following significant moves Financial Highlights H1 2021 H1 2022 in interest rates, inflation and global equity markets impacting asset Asset management revenue1 (£m) 480 494 values in our Index, Fixed Income a
Slide 25: LGIM: Record net flows in volatile markets
LGIM: Record net flows in volatile markets AUM progression from FY21 to HY22 (£bn) • Record external net flows of £65.6bn driven by: – International flows of £34.5bn, representing (0.9) 53% of the total, reflecting deepening strategic 65.6 relationships with clients across Asia, Japan and (196.5) US
Slide 26: Retail: Robust Trading Performance
Retail: Robust Trading Performance Financial Highlights H1 2021 H1 2022 • Operating Profit of £332m, up 14%, driven by the on-going release from the growing UK protection and individual annuity Operating profit (£m) 292 332 portfolios, in addition to valuation uplifts in two of our retail - UK & US
Slide 27: Robust Solvency II Balance sheet
Robust Solvency II Balance sheet Solvency II Balance Sheet (£bn) Solvency II surplus analysis of change (£bn) 187% 212% (0.2) (0.1) 17.6 8.2 17.4 9.2 1.2 Own Funds (0.8) 0.9 Capital 9.4 Requirement 8.2 Surplus Rates: £1.0bn Other: £0.2bn 9.2 8.354 YE 2021 H1 2022 8.2 • Coverage ratio of 212% • Solve
Slide 28: In summary
In summary £1,160m 21.3% • We have delivered a strong set of results, and are confident in Operating profit Return on equity achieving our five year ambitions H1 2021: £1,079m, +8% H1 2021: 22.0% • Our balance sheet is strong and resilient to market events • For FY 2022 we expect to deliver: 212% £0
Slide 29: Strong and growing
Strong and growing Sir Nigel Wilson Chief Executive Officer
Slide 30: A compelling investment case
A compelling investment case An established track record of consistent and profitable growth: between HY11-HY22 we 1 delivered 11% CAGR in EPS, 11% CAGR in DPS and 8% CAGR in Book Value per Share A highly synergistic and growth-oriented business model, driving c20% ROE, and strongly 2 aligned to six
Slide 31: Strength and growth: 2022 Half year results
Strength and growth 2022 Half year results £1,355m 21.3% 212% Operating profit from divisions Return on equity Solvency ratio H1 2021: £1,271m, +7% H1 2021: 22.0% H1 2021: 182% 19.28p 5.44p Earnings per share Interim dividend H1 2021 17.78p, +8% H1 2021: 5.18p, +5%
Slide 32: Investment grade credit rarely defaults
Investment grade credit rarely defaults S&P Market Default Rates (%) Investment Grade Sub-IG Year AAA AA A BBB BB 2000 - - 0.3 0.4 1.2 2001 - - 0.3 0.3 3.0 2002 - - - 1.0 2.9 2003 - - - 0.2 0.6 2004 - - 0.1 - 0.4 2005 - - - 0.1 0.3 2006 - - - - 0.3 2007 - - - - 0.2 2008 - 0.4 0.4 0.5 0.8 2009 - - 0.
Slide 33: We have improved the quality of our portfolio as it has grown
We have improved the quality of our portfolio as it has grown. Our default experience is low and investment variances net positive Annuity bond portfolio ratings, credit default reserve and investment variance 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 H1-22 Annuity b
Slide 34: We have a high quality, diversified investment grade book
We have a high quality, diversified investment grade book Bond portfolio by rating Bond portfolio by geography Bond portfolio by asset type Bond portfolio by sector £73.2bn £73.2bn £73.2bn £73.2bn 93% of total 93% of total 93% of total 93% of total Annuity Annuity Annuity Annuity assets assets asset
Slide 35: Our BBB exposure is to high quality names
Our BBB exposure is to high quality names Annuity Portfolio: Top 10 BBB exposure Investment Counterparty Sector Country of Risk value (£m) 1 National Grid PLC Utilities UK 558 2 E.ON SE Utilities Germany 481 3 FGP TopCo Ltd Economic Infrastructure UK 343 4 CK Hutchison Holdings Ltd Economic Infrastr
Slide 36: Our Direct Investments are with high quality counterparties
Our Direct Investments are with high quality counterparties Annuity Portfolio: Top 15 Direct Investments by exposure* Year of Investment value Counterparty Sector Investment (£m) 1 HMRC Government 2016-2019 1,347 2 Amazon Communications & Technology 2016-2020 922 3 Other UK Government Government 201
Slide 37: 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 38: 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 39: 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 40: 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 41: 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
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