Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — H1 2002 Earnings Presentation
43 slides from Lloyds Banking's earnings presentation, Aug 2, 2002
Slide 1: 2002 Interim Results
2002 Interim Results 2 August 2002 Philip Hampton Group Finance Director
Slide 2: Key Issues - 2002 First Half
Key Issues - 2002 First Half • Impact of accounting policy changes • Business performance • Capital adequacy
Slide 3: Impact of Accounting Policy Changes (1)
Impact of Accounting Policy Changes (1) • Urgent Issues Task Force Abstract 33 – Reserve Capital Instruments • Financial Reporting Standard 19 – Deferred Tax • ABI guidance on achieved profit accounting – Short-term fluctuations in investment returns
Slide 4: Impact of Accounting Policy Changes (2)
Impact of Accounting Policy Changes (2) • Financial Reporting Standard 17 - Retirement Benefits – Removal of SSAP24 pension credit (2001H1: £63 million) – Income increases from expected return on pension fund assets less unwinding the discount on liabilities (income 2002H1: £85 million) – Expenses i
Slide 5: Group Post-tax Profit and EPS
Group Post-tax Profit and EPS 2001H1 2001H2 2002H1 £m £m £m Reported pre-tax profit 1,603 1,558 1,604 Taxation 445 430 462 Minority interests 27 30 29 Attributable profit 1,131 1,098 1,113 Reported EPS (p) 20.5 19.8 20.0 Return on equity (%) 18.7 17.5 20.9
Slide 6: Revenue Growth
Revenue Growth 2001H1 2001H2 2002H1 £m £m £m Net interest income 2,376 2,546 2,557 Other finance income 152 155 85 Other income 1,823 1,837 1,955 Total income 4,351 4,538 4,597 Total income, excluding short-term fluctuations 4,852 4,896 4,996 Group net interest margin (%) 3.41 3.39 3.27
Slide 7: Business Volumes - 2002 First Half
Business Volumes - 2002 First Half Over the last six months: • Total customer lending increased by 5% to £128.5 billion – consumer credit up 10% to £14.1 billion – mortgage balances up 4% to £58.6 billion – commercial lending up 2% to £39.6 billion – international lending up 8% to £17.8 billion • De
Slide 8: Operating Expenses
Operating Expenses 2001H1 2001H2 2002H1 £m £m £m Administrative expenses 2,059 2,167 2,040 Depreciation/amortisation 278 272 320 Total operating expenses 2,337 2,439 2,360 Restructuring costs 66 186 122
Slide 9: Charge for Bad and Doubtful Debts
Charge for Bad and Doubtful Debts Average % of Average 2002H1 Lending Lending £m £bn 2001H1 2002H1 UK Retail Banking 272 18.5 2.41 2.96 Mortgages (2) 56.4 0.01 (0.01) Wholesale Markets 151 40.1 0.38 0.76 International Banking 58 14.5 0.91 0.81 Total charge 479 129.5 0.55 0.75
Slide 10: Charge for Bad and Doubtful Debts
Charge for Bad and Doubtful Debts % of Average Lending 2001 2002H1 Group charge 0.62 0.75 General provision re Argentina (£55m) (£20m) 2 large US corporates (£30m) (£70m) Mortgages general provision release £32m - Underlying charge 0.57 0.61
Slide 11: Asset Quality
Asset Quality • Overall asset quality remains satisfactory • Overall arrears levels remain stable • No increase in non-performing lending • Total provisions represent over 120 per cent of non-performing lending
Slide 12: Profit Before Tax by Main Business
Profit Before Tax by Main Business 2001H1 2001H2 2002H1 £m £m £m UK Retail Banking 218 191 243 Mortgages 428 519 431 Insurance & Investments 767 718 785 UK Retail Financial Services 1,413 1,428 1,459 Wholesale Markets 413 465 355 International Banking 272 207 309 Central group items 72 2 2 Restructu
Slide 13: Profit Before Tax by Main Business
Profit Before Tax by Main Business 2001H1 2001H2 2002H1 £m £m £m UK Retail Banking 218 191 243 Mortgages 428 519 431 Insurance & Investments 767 718 785 UK Retail Financial Services 1,413 1,428 1,459 Wholesale Markets 413 465 355 International Banking 272 207 309 Central group items 72 2 2 Restructu
Slide 14: Profit Before Tax by Main Business
Profit Before Tax by Main Business 2001H1 2001H2 2002H1 £m £m £m UK Retail Banking 218 191 243 Mortgages 428 519 431 Insurance & Investments 767 718 785 UK Retail Financial Services 1,413 1,428 1,459 Wholesale Markets 413 465 355 International Banking 272 207 309 Central group items 72 2 2 Restructu
Slide 15: Profit Before Tax by Main Business
Profit Before Tax by Main Business 2001H1 2001H2 2002H1 £m £m £m UK Retail Banking 218 191 243 Mortgages 428 519 431 Insurance & Investments 767 718 785 UK Retail Financial Services 1,413 1,428 1,459 Wholesale Markets 413 465 355 International Banking 272 207 309 Central group items 72 2 2 Restructu
Slide 16: Profit Before Tax by Main Business
Profit Before Tax by Main Business 2001H1 2001H2 2002H1 £m £m £m UK Retail Banking 218 191 243 Mortgages 428 519 431 Insurance & Investments 767 718 785 UK Retail Financial Services 1,413 1,428 1,459 Wholesale Markets 413 465 355 International Banking 272 207 309 Central group items 72 2 2 Restructu
Slide 17: Profit Before Tax by Main Business
Profit Before Tax by Main Business 2001H1 2001H2 2002H1 £m £m £m UK Retail Banking 218 191 243 Mortgages 428 519 431 Insurance & Investments 767 718 785 UK Retail Financial Services 1,413 1,428 1,459 Wholesale Markets 413 465 355 International Banking 272 207 309 Central group items 72 2 2 Restructu
Slide 18: Profit Before Tax by Main Business
Profit Before Tax by Main Business 2001H1 2001H2 2002H1 £m £m £m UK Retail Banking 218 191 243 Mortgages 428 519 431 Insurance & Investments 767 718 785 UK Retail Financial Services 1,413 1,428 1,459 Wholesale Markets 413 465 355 International Banking 272 207 309 Central group items 72 2 2 Restructu
Slide 19: Capital Adequacy
Capital Adequacy • Satisfactory capital ratios – tier 1 7.8% – total 9.5% • Strong capital generation – high ROE – good quality earnings stream • Strong balance sheet – conservative lending profile – strong credit ratings
Slide 20: Scottish Widows - Capital
Scottish Widows - Capital Estimated Equity Backing Free Asset Life Fund FTSE 100 Ratio Ratio* Capital Injection 4,656 66% 12.4% 0 4,200 65% 11.5% 0 4,000 64% 10.0% 0 The FTSE 100 index could fall to below 3,500 before the Group would need to inject capital into its life operations. * before minimum
Slide 21: Capital and Life Solvency
Capital and Life Solvency • Scottish Widows uses no implicit items such as future profits in the calculation of its free asset ratio • The new with profits bond has been designed to reduce capital requirements • No significant amount of capital is needed to support planned new business growth • Lloy
Slide 22: 2002 Interim Results
2002 Interim Results 2 August 2002 Peter Ellwood Group Chief Executive
Slide 23: 2002 - A Challenging Year: External influences
2002 - A Challenging Year External influences Regulatory pressures
Slide 24: 2002 - A Challenging Year
2002 - A Challenging Year • Low consumer confidence in financial markets and services • Stock market volatility - FTSE down from start of year by 23% • Increase in bad and doubtful debts for small number of corporate exposures • Capital adequacy
Slide 25: 2002 - A Challenging Year
2002 - A Challenging Year 2000 2001 2002f 2003f GDP growth 3.1% 1.9% 1.8% 3.3% (real terms) Underlying retail prices 2.1% 2.1% 2.0% 2.1% (ex mortgage interest payments) Savings ratio 4.2% 6.2% 5.4% 4.9% (average) Consumer credit growth 10.2% 10.8% 10.4% 8.4% (stock, year end) Mortgage growth 8.4% 10
Slide 26: 2002 - A Challenging Year: Regulatory pressures
2002 - A Challenging Year Regulatory pressures • 10 substantial financial services reviews over the last two years alone • Introduction of price controls - stakeholder pensions and SME current accounts • Market fiercely competitive
Slide 27: Our Vision
Our Vision • A business which creates value for our customers • A business where our customers trust us to look after more of their financial affairs • A business where our staff understand our strategy and know that what they do is vital to our success
Slide 28: Our Strategic Aims
Our Strategic Aims 1st choice: customer value creation, customer trust Leader in chosen markets Create investment headroom by driving down costs World class: CRM managing change managing and leading our people = maximising shareholder value over time
Slide 29: First Choice for Customers
First Choice for Customers • Selling more products to more customers than ever before • Largest branch network in UK • One of the largest telephone and internet banking operations in Europe • Advanced segmentation allowing us to offer more relevant products and services
Slide 30: Leader in Our Chosen Markets
Leader in Our Chosen Markets Market position Personal Lending (balances outstanding) 1 Home Insurance 1 Current Accounts (number of customers) 1 Added Value Accounts (number of customers) 1 Motor Finance 1 Stakeholder Pensions 3 Business Banking (number of customers) 3 Mortgages (balances outstandin
Slide 31: Driving Down Costs
Driving Down Costs • Achieved target to hold cost growth at a rate not exceeding inflation - underlying costs down 1%
Slide 32: 2002 - Solid First Half Results
2002 - Solid First Half Results • Profit before tax £1,604m • Income up 6% to £4,597m • Costs up 1% to £2,360m • Trading surplus up 11% to £2,237m • ROE up to 20.9% • Underlying efficiency ratio improved to 45.6%
Slide 33: 2002 - Solid First Half Results
2002 - Solid First Half Results • Majority of the bad and doubtful debts increase due to two specific US corporate customers and Argentina • Increase in retail and commercial provisions broadly reflects volume growth • Arrears trends show no material deterioration
Slide 34: UK Retail Banking - key achievements
2002 - Solid First Half Results UK Retail Banking - key achievements • Repositioned business - seeing increased efficiencies and sustained profitable growth • Mortgages - good profit performance first half and market share growth expectations in second half • Credit Card and Personal Loan gains in m
Slide 35: Insurance & Investments - key achievements
2002 - Solid First Half Results Insurance & Investments - key achievements • New business profits ahead of first half of 2001 • Life and pensions sales up 12% • Long term savings remain a significant growth opportunity
Slide 36: Insurance & Investments
2002 - Solid First Half Results Insurance & Investments • The stock market collapse has had an impact - unit trust and ISA sales down 36% • The FTSE 100 could fall to below 3,500 before the Group would need to inject capital into its life operations
Slide 37: Insurance & Investments - key achievements
2002 - Solid First Half Results Insurance & Investments - key achievements • Our General Insurance business continues to out-perform • Income from broking and underwriting increased by 22% • Profit before tax increased by 17% • We are now the leading UK distributor of personal lines insurance with o
Slide 38: Wholesale & International - key achievements
2002 - Solid First Half Results Wholesale & International - key achievements • Good asset growth not at the expense of asset quality • Strong profit growth in NBNZ • Acquisition of First National Vehicle Holdings • Continued focus on high quality assets
Slide 39: Future Outlook: Organic growth
Future Outlook Organic growth remains our prime focus • Future income - innovation and segmentation • Future costs - restructuring benefits feeding through = • Good outlook for future profits
Slide 40: Future Outlook: Merger and acquisition prospects
Future Outlook Merger and acquisition prospects • Cross border transactions are inevitable over time • We remain well placed to participate in overseas expansion
Slide 41: Summary
Summary • We will continue to focus on our fundamental principles • We will deliver ongoing revenue benefits • We are well positioned for organic growth • We go forward with confidence, excitement and optimism
Slide 42: Delivering Value to Shareholders
Delivering Value to Shareholders
Slide 43: Forward Looking Statements
Forward Looking Statements This presentation is a summary only of certain information contained in the press announcement dated 2 August 2002 and should be read in conjunction with the full text of the announcement. This presentation contains forward looking statements with respect to the business,