Legal & General Group PLC · LSE:LGEN
Legal & General — Goldman Sachs Conference 2013
24 slides from Legal & General's conference presentation, Jun 11, 2013
Slide 1: Convenient Lies, Inconvenient Truths, and Monetary Methadone
1 CONVENIENT LIES, INCONVENIENT TRUTHS, AND “MONETARY METHADONE”. A BUSINESS WITH A SOCIAL PURPOSE GOLDMAN SACHS CONFERENCE NIGEL WILSON, 11 JUNE 2013 EVERY DAY MATTERS
Slide 2: Financial Highlights
2 FINANCIAL HIGHLIGHTS. Full Year 2012: Growing Earnings, Growing Distribution • Earnings per share up 12% to 13.90p • Full year dividend up 20% to 7.65p per share • IFRS return on equity 15.5% Q1 2013: Strong Growth in All Areas • Operational cash up 13%, net cash up 19% • LGIM AUM up 9% to £441bn
Slide 3: Macro Trends Powering L&G Growth
3 MACRO TRENDS POWERING L&G GROWTH. Homogenous asset markets LGIM International Ageing populations Retirement Solutions ‘On the Go’ lifestyles Digital Solutions Welfare Reforms Protection Retrenching banks Direct investments
Slide 4: Economic Austerity Leads to Political Unemployment
4 ECONOMIC AUSTERITY LEADS TO POLITICAL UNEMPLOYMENT. Pre 2010 2012 2014 Sarkozy 55% 35% 34% Exit Elected 51% 30% 2014 Euro elections. Hollande 29% approval rating Senate and House of Obama 65% 50% Re-elected Representatives elections. 52% approval rating Sept 2013 Fed elections. Merkel 60% 63% 60%
Slide 5: UK Employment at New Highs
5 UK EMPLOYMENT AT NEW HIGHS. 1. Employment 30 “surprised” on the upside 29 2. Labour mobility and flexibility 28 27 millions 26 25 24 23 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 UK born Overseas born, UK national Overseas born, overseas national
Slide 6: L&G: A Simple Business in a Complex World
6 L&G: A SIMPLE BUSINESS IN A COMPLEX WORLD….. • “Club A” countries Concerns about… – Low growth but control of 2012: currency/interest rates • US fiscal cliff – UK, US, Japan, Germany? • Chinese ‘hard landing’ • Euro recession • “Club B” countries – Fiscally bankrupt, high unemployment, 2013: lack
Slide 7: Welfare Expectations
7 WELFARE EXPECTATIONS. CROWDING OUT WHEN WE NEED TO LEAN IN US government spending v revenue UK public sector expenditure on services % of GDP 2007-08 2011-12 % (£bn) (£bn) change 25 Discretionary Pensions 99 127 28 20 Interest Current taxes Welfare 90 115 28 15 Health 102 121 19 Healthcare 10 Educ
Slide 8: Long Term Demographic Trends Are Favourable for L&G
8 LONG TERM DEMOGRAPHIC TRENDS ARE FAVOURABLE FOR L&G. “The world is becoming grey. Over 60s rising from 600 million to 2 billion by 2050” WORLD POPULATION GROWTH 1950-2050 ASIA 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
Slide 9: Falling UK Dependency Ratios Boost Need for Retirement Solutions
9 FALLING UK DEPENDENCY RATIOS BOOST NEED FOR RETIREMENT SOLUTIONS. UK 2000 UK 2025 Dependency Ratio 1950 2030 (Est) Japan 12.2 1.8 Germany 7.1 2.1 Italy 8.0 2.3 France 5.8 2.4 UK 5.9 2.9 US 8.1 3.0 Sources: ONS, United Nations Population Division.
Slide 10: Sovereign Debt Is an Asset Bubble
10 SOVEREIGN DEBT IS AN ASSET BUBBLE. Negative real yields 4% 3% 2% 1% 0% January January January January January January January January 2006 2007 2008 2009 2010 2011 2012 2013 -1% -2% Real $ 10y yield Real £ 10y yield
Slide 11: S&P 500 v Shanghai Stock Exchange
Source: Datastream 100% 120% 140% 160% 0% 20% 40% 60% 80% 01/01/2010 01/03/2010 01/05/2010 01/07/2010 01/09/2010 01/11/2010 01/01/2011 01/03/2011 01/05/2011 01/07/2011 S&P 500 01/09/2011 01/11/2011 01/01/2012 01/03/2012 SHANGHAI SE 01/05/2012 01/07/2012 01/09/2012 01/11/2012 01/01/2013 01/03/2013 01
Slide 12: 3 Scenarios for QE
12 3 SCENARIOS FOR QE. 1. Optimists – “Bernanke” • QE has prevented negative output gap and deflation • It can be slowly withdrawn when private sector deleveraging finishes • Rates then rise gradually, inflation remains steady • Positive supply shocks necessary e.g. shale gas 2. Middle Way – “The Ra
Slide 13: The QE Glide Path – A Series of Nudges
13 THE QE GLIDE PATH – A SERIES OF NUDGES. Actions Progress and Timing Recent Fed speakers have suggested tapering of Nudge back and then curtail large scale asset asset purchases in the autumn and end QE early purchases 2014 Stop reinvestments of agency Mortgage Backed Securities (MBS) principal an
Slide 14: L&G Balance Sheet Management
14 L&G BALANCE SHEET MANAGEMENT. Sector Exposure - L&G Total Debt Portfolio Sovereign Exposure - L&G Total Debt Portfolio 2012 (%) 100% 90% 80% 45.0% 49% 70% 60% 50% 21.0% 40% 22% 30% 12.0% 20% 18% 14.0% 10% 5% 8.0% 6% 0% 2008 2012 UK USA Europe (ex-GIPS) GIPS Other Banks-Senior Banks - Subordinate
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: Policy Goals and Approaches
16 POLICY GOALS AND APPROACHES. • Productive use of ‘trapped liquidity’ and unproductive assets – Corporate cash surpluses, illiquid assets (e.g. housing) – Long-term equity culture • Facilitate investment – Infrastructure (physical, digital) – Grow savings/investments via incentivisation/compulsion
Slide 17: Direct Investments - Housing
17 DIRECT INVESTMENTS - HOUSING. • National Football Centre, St George’s Park at Burton- • £116m accommodation project on-Trent in Clapham for Imperial College • Sentinel Housing, private placement • University of Hertfordshire student accommodation project • Sentinel is a registered social housing
Slide 18: Transport and Infrastructure Investment
18 TRANSPORT AND INFRASTRUCTURE INVESTMENT. • Tesco distribution hub • Solaris direct debt at Reading investment • Financing of 4 operational UK ground mounted solar parks • Exchequer Partnership, • Gatwick Airport, bond bond investment investment • PFI construction and • Gatwick has performed maint
Slide 19: Global Battle for Connectivity
19 GLOBAL BATTLE FOR CONNECTIVITY.
Slide 20: Quixote Projects v Real Projects
20 QUIXOTE PROJECTS v REAL PROJECTS. High Speed Rail, £35bn cost CALA Nascot Grange, Watford Wind Farms, £3.2bn cost Bracknell Redevelopment LGIM Property Airport in the Estuary, £50bn cost UK Shale Gas BGS, 2010
Slide 21: Risk Sharing: Time for a New Beveridge Approach
21 RISK SHARING: TIME FOR A ‘NEW BEVERIDGE’ APPROACH. 1942: 5 Giants – “Want, Disease, Ignorance, Squalor, Idleness” “must be achieved by co-operation between the state and the individual” Compulsion via National Insurance and Contributory benefits, but…. “should not stifle incentive, opportunity, r
Slide 22: The Triangle of Austerity
22 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 23: Share Price and Dividend Performance
23 SHARE PRICE AND DIVIDEND PERFORMANCE. 9.30p SUMMARY 8.50p 7.65p • Macro trends create 6.40p opportunities for growth 4.75p 4.06p • 5 strategic responses: 3.84p LGIM International Retirement Solutions Digital Solutions 2.01 1.33 1.66 1.96 Protection 1.11 Direct Investments 2008 2009 2010 2011 2012
Slide 24: Economic Titans. Titans of Innovation.
24 ECONOMIC TITANS. Keynes Beveridge Bevan TITANS OF INNOVATION. Jobs Gates
Legal & General Group — Goldman Sachs Conference 2013 on 6ix