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Legal & General : Livestream presentation Q&A audio transcript


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ANNUAL RESULTS 2021 – 9th MARCH 2022



I’ll now open up the floor to questions. As some people are on video, we’re going to

hand round the mic. And if you just say your name so that people can hear online…


Andy here from Bank of America. Three from me, please. Firstly, it was on LGC. Great year for LGC, but just really wondered if you can tell us a little bit more about how much of LGC earnings are cash? How does cash compare to earnings? How much is just annual cash from things like CALA, mature investments? How much is disposal proceeds? How much marking up values? That’s my first question. Secondly is on LGR, great to see that we’re self-sustaining. What does that mean in terms of new business that you can write? You said you expect to be kind of self-sustaining in 2022 as well. How far can you push in terms of growth and still be self-sustaining? Are you able to push a little bit harder, even harder now? And thirdly is on the dividend. LGR: self- sustaining. LGC: I’m guessing starting to throw off more cash. Just really wondering what allows you to push from 5% growth up to 6% growth at the top end of the range? Is that feasible? Thanks.


Well, why don’t I start on the first one and leave the second one to you, Jeff? And, since the third one’s an easy one, I’ll answer the third question. I think the point you make on cash is very valid. We haven’t given, you know, total breakdown of cash in LGC. It’s quite a noisy year from LGC in that you’re asking for realisation events and proof points. And so we’ve come up with a whole bunch of proof points, as you can see from the slides, you can reverse engineer how much we got for each of those things and you’ll find that the absolute level of cash was greater than profits. But we don’t think that’s a fair indicator of where we intend to be because we will be investing for growth. Which covers your last point. You know, we very much see ourselves as a growth company and we very much want to invest for growth. We’ve got a much stronger balance sheet. We’ve got great scale already in our businesses, and there’s lots of opportunities for growth in the UK. Jeff, do you want to catch up?


Yeah, I mean, we do expect based on our outlook for 2022 to be self-sustaining. We’re not saying we’ll be self-sustaining every year. We still have the ambition £8 to 10bn. We always say this is lumpy business. But equally, you know, we’re talking about the amount of growth that we have in OSG that gives us a lot of headroom for additional

volume and a 4% strain. When you’re creating billions of extra OSG, that gives you a lot of headroom to write additional business. So you know we stand by the £8 to 10bn, £40 to £50bn, but that could be £7bn, £8bn as we’ve done in other years. It could be bigger in other years. We can manage for value. We’ve got the optionality for the back book, but, you know, we’re not limiting ourselves by any means if the business is there to be done.


I think on the other point, it’s sort of good news for shareholders in a sense that we’ve got much greater coverage over the dividend and a lot more capital. As Jeff has just highlighted, to invest right across the businesses and I know the four CEOs who were sitting in the front row here are all very enthusiastic capital investors for their particular business, and it’s great to have that competition for capital across the world, actually, not just here in the UK. And we’re expecting to originate new opportunities in America as well as the UK on a go forward basis. So I think, let’s not be greedy. 5% is a pretty attractive dividend. We’re on an amazing yield, and whether it’s 5 or 6, I don’t think it’s going to make a huge difference to the valuation of the company. I think there’s some other issues we’ve got to convince investors across the world that we are truly resilient and robust, as the evidence seems to suggest. Next questions.


Hi, it’s Andrew Crean from Autonomous. Can I do three questions as well? Firstly, is solvency II reform – you’ve always said it would be neutral, but it could potentially be positive. If you do get a windfall, I suspect you’re not likely to give a buy back. What would you do with the excess money or from higher interest rates, which you’ve just been flagging? I mean, is that likely to break your £8 to 10 billion BPAs upwards or what about other businesses? That’s the first question. Secondly, you’ve flagged the 20% plus ROE is on an IFRS basis, if you do it on own funds, I think the return is more like 10 to 12%. Could you just give us some thoughts around the differential there? And thirdly, when you’re creating the retail business, do you feel that you’ve got a weakness in D2C platforms? And if so, what would you want to do about that?


I’ll take the first if Jeff takes the second, and Bernie, would you like to answer the third question and explain why we’re going to create a world beating platform? I think the good news on solvency II reform is that after a mere six years, we’re finally making progress and it’s demonstrable progress. As you saw from the sensitivity slide; a 25 basis point increase in interest rates of which the governing Bank of England promised 4 for this year is worth 5% for each of the 25 basis points. We show a 19% increase if there’s a 100 basis point increase. We expect if we get a gain on solvency II coverage

ratio to be in the 5 to 7% range given the discussions that we’ve had which is positive and it’s good and it helps but that’s not a strategy changing difference for that. I think the good news is we have more headroom. Therefore we can take on more risks and some of the projects that we’ve got, it’s fair to say that Oxford and Manchester and these projects, people want to accelerate them rather than decelerate. They want us to lean in to these investment opportunities. And the more successful we are, the more opportunities we get. You know, John’s taking the whole Board up to Manchester to see the profound impact we’ve had, not just in Manchester itself in its current state, but also in the future, but in Alderley Park, which is an amazing Sci-Tech investment that we’ve got there, with over 230 start-ups on site, people are now visiting all these proof points that we have around the country, and that is doors leading to doors. So the extra capital that we have, we think we will deploy that for the long term, for the long term benefit for shareholders and hopefully at some point in the future that may give us further dividend headroom, but at the moment I think 5% is a really good number to have and it will stick to 5%. Jeff, do you want to take the second question?


Yeah, sure. Return on own funds, it’s another metric, I mean, that’s another way of looking at the business. Clearly, we can’t really compare like for like at this stage, and you know, there’s a difference in the metrics, new business being an obvious one for example – one gives you a profit on IFRS, one’s a strain on solvency II – then comes out over time. I think, the thinking will develop around some of these metrics as you say in your commentary previously. As IFRS 17 develops and solvency II thinking develops, we will develop these metrics. I mean what’s important for us on that metric in particular is the growth in OSG. I mean that’s what ultimately drives the answer and that’s what we’re showing and we believe there’s more upside in what we can do around that. The more we put capital to work the more it drives future OSG as the businesses grow.


I think just on OSG, that’s now one of the metrics we get measured on as an executive team for increasing the growth of the company. So we’ve added two solvency II metrics to the performance that all of us have to achieve. Digital…


Thank you for the question Andrew. What I’d say is our focus when it comes to retail savings is DC pensions. And we start from a really strong position there with one of the largest Master Trusts, LGIM being the biggest DC asset manager. And so we start with lots of customers, lots of assets under management, and we’ve got lots of opportunities to improve our retail platform. So yeah, that’s a key part of what we’re doing, bringing together the retail division. There’s lots underway, the team have done a really great job

so far. There is lots more to do and we’re pulling together all the expertise in technology, data, to deliver a significant improvement in that platform. And as we improve the platform, we’re confident that we can keep customer money for longer and LGIM and us can earn fees and retail can earn fees from that. So we see it as upside optionality, multiple years of investment in the platforms to become one of the best in the market is the aspiration – very firmly centered in DC pensions.


Thanks Bernie. I think the key point, Andrew, is that we have about 130 billion on the platform today, that’s going to rise to 300 billion. As we invest in all of these new asset classes and we hope the DC pension reform comes around in the way that we hope perhaps when the Chancellor speaks in a couple of weeks time that will give us a lot more opportunities to put more assets that are more relevant assets onto the platform itself. And so that we will have a multitude of LGIM products which are proving very successful in Europe, largely to wealth and retail investors. But we’d like to put more of those on the UK platform and achieve more revenue, more profits out of that for LGIM and indeed for the retail division.


Thanks. Alan Devlin from Goldman Sachs. A couple of questions, first of all on LGIM and the impact of higher interest rates. I’m thinking of the CEO of Allianz said that higher interest rates was great for their business. I just wonder, what you think the impact is on earnings and potentially net flows if interest rates continue to move higher given it is a fixed income solutions bias? And second question, just a follow up on the retail. Do you think merging the retail businesses, are most of the synergies going to be on the potential revenue synergies, or is it more of a kind of expansion of synergies, investing in them in the back office play? Thanks.


I think on the latter one, Bernie slightly answered that already. We’re going to have a much better, slicker customer journey and much more integrated across our platforms. You know, we’re very confident that we’ll get more revenue out of that. We don’t think this is a cost synergy. It’s a technology synergy, which I think Bernie articulated because we’ve got some outstanding teams; they’re all going to work together now much more closely. We’re pretty good at collaboration, but it’s sort of easier when your colleagues are sitting in the same room working on stuff together. And I think that’s been demonstrated across the group that this collaboration is a very important part. And Jeff gets a bit more hands-on on this than I do. On LGIM, I’ll have a go. If you want to add anything Michelle I’m more than pleased for you to do so. I mean, there’s just some maths around this – that we have a position in fixed income, which is a very attractive

position, but as rates go up, the revenue comes down. If you say it’s a one on one calculation, but LGIM is definitely a wide variety of assets. And increasingly those assets, as Jeff articulates and I’m sure Michelle can add a few comments on, we’ve got a much wider range of assets coming. Our anticipation is that one more than offsets the other, but we can’t predict exactly where our interest rates are going to go in the coming year. And at a group level, the interest effect is very positive, both on the balance sheet and on the P&L. But for LGIM, you know that diversification works sadly in the wrong way for LGIM. Set you up perfectly, Michelle.


Thanks, Nigel, it’s a really good question. And the answer is, it’s really difficult to predict where things are going to land. What I would say overall for LGIM is the underlying business mix is roughly a third fixed income, a third equity and a third other, including private assets. So depending on where things land that would actually have a more neutralised impact. Nigel’s right, the focus at the moment for our customers is on all of what’s going on sort of geopolitical mix, ESG mix and also clearly inflation as well as rates. You’re correct to say that there is an impact on LDI. It can though be positive as well as negative, depends on where the scheme is and its maturity, how close they are to buyout. And that will, as we’ve demonstrated with that virtuous circle that we have our ability to pass those schemes into buyout is actually really important. So overall, Nigel’s correct that the impact overall is actually not a huge impact for the business. But as an asset manager, you will know when markets behave as they do it makes my life much more difficult. Thanks.


It’s great to see so many hands shooting up as well, which is really nice. We’re going to be here for hours, Jeff.


Hey, morning it’s Louise Miles from Morgan Stanley. Can I get three questions please? Two on LGR and then one on CALA. So my first one is, it looks like in LGR, the UK PRT

  • it looks like you had about 20, 21% of the market share this year. In previous years, it’s been anywhere between 20 and 25, given the competitive landscapes in this market are you going to maintain margin and be at the kind of the closer end of 20% going forwards? So that’s the first one. The next one is on the financials and LGRI. Just trying to think about forecasting this going forwards. In 2021, there was like a £212 million change in the valuation assumptions. That number last year was about 300 million ish. Can you just give us a bit of colour of what actually went into this number? I’m just trying to think about obviously these things are really lumpy in nature, but just trying to think about how that’s forecasted going forwards. And then the final question I have is on

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Legal & General Group plc published this content on 14 March 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 March 2022 09:53:09 UTC.

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All news about LEGAL & GENERAL PLC

Analyst Recommendations on LEGAL & GENERAL PLC

Sales 2022 79 715 M
105 B
105 B
Net income 2022 2 011 M
2 646 M
2 646 M
Net Debt 2022 5 188 M
6 827 M
6 827 M
P/E ratio 2022 8,26x
Yield 2022 7,00%
Capitalization 16 405 M
21 588 M
21 588 M
EV / Sales 2022 0,27x
EV / Sales 2023 0,21x
Nbr of Employees 10 743
Free-Float 97,7%


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Technical analysis trends LEGAL & GENERAL PLC

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Trends Neutral Neutral Neutral

Income Statement Evolution



Mean consensus OUTPERFORM
Number of Analysts 17
Last Close Price
276,40 GBX
Average target price
324,39 GBX
Spread / Average Target 17,4%

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