Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — FY2002 Earnings Presentation
43 slides from Lloyds Banking's earnings presentation, Feb 14, 2003
Slide 1: 2002 Results
2002 Results 14 February 2003 Peter Ellwood Group Chief Executive
Slide 2: Performance Headlines - Statutory
Performance Headlines - Statutory • Profit before tax £2,607 million, down £554 million • Income £8,878 million, down £11 million • Operating expenses £4,915 million, up 3% • Return on equity 16.7%
Slide 3: 2002 Results - Underlying
2002 Results - Underlying • Income up 2% to £9,484 million • Costs flat • Customer lending up 9% to £135 billion • Customer deposits up 7% to £116 billion
Slide 4: Capital & Dividend
Capital & Dividend • Capital ratios satisfactory – Total 9.6% – Tier 1 7.8% • The Group may inject some capital into Scottish Widows if the level of the FTSE 100 index falls to approximately 3,000 • Final dividend 23.5p, total 34.2p, up 1.5%
Slide 5: Asset Quality
Asset Quality Total customer lending £134.5 billion Residential mortgages £62.5 billion Risk-weighted assets £122.4 billion Non-performing lending £1,414 million Total provisions £1,767 million Provisions cover over 120%
Slide 6: Market Share
Market Share 2002 2001 Added value current accounts 43% 38% Current accounts (18+ customers) 24% 24% Personal lending (balances) 14% 13% Credit cards (balances) 10% 9% Personal deposits 10% 10% Life & pensions (APE) 6% 6% Mortgages (gross new lending) 9% 9% Business banking (customers) 19% 19%
Slide 7: UK Retail Banking & Mortgages - key achievements
2002 Results UK Retail Banking & Mortgages - key achievements • Underlying profit before tax up 9% • Personal loan balances up 15% • Credit card balances up 27% • Savings balances up by 11% • Mortgage business grew strongly • Current account base grew
Slide 8: Insurance & Investments - key achievements
2002 Results Insurance & Investments - key achievements • New business income 11% ahead of of 2001 • Sales through IFAs up 25% • Life and pensions sales up 7% • Long-term savings remain a significant growth opportunity
Slide 9: Insurance & Investments - key achievements
2002 Results Insurance & Investments - key achievements • Our general insurance business continues to out-perform • Fee income from broking and underwriting up 19% • Profit up 16% to £754 million* • We continue to be the leading UK distributor of personal lines insurance with over 9 million policies
Slide 10: Wholesale & International Banking - key achievements
2002 Results Wholesale & International Banking - key achievements • Good asset growth • Strong profit growth in NBNZ - up 32% • Asset Finance division strengthened through acquisition • Continued focus on high quality assets
Slide 11: 2002 - a Challenging Year
2002 - a Challenging Year • Economic uncertainty • Stockmarket turbulence • Regulatory pressures • Competition
Slide 12: 2002 - a Challenging Year External Influences
2002 - a Challenging Year External Influences 2001 20 02e 20 03f 2004f GDP growth 2.0% 1. 7% 2.4% 2. 9% (real terms) Underlying retail prices 2.1% 2. 2% 2.6% 2. 3% (ex mortgage interest payments) Savings ratio 6.1% 5. 4% 4.4% 4. 8% (average) Consumer credit growth 10.7% 11 .3% 9.4% 7. 3% (stock, yea
Slide 13: 2002 - a Challenging Year Regulatory Pressures
2002 - a Challenging Year Regulatory Pressures • 10 substantial financial services reviews over the last 3 years alone • Introduction of price controls – Stakeholder pensions – SME current accounts • Markets fiercely competitive
Slide 14: Our Vision
Our Vision • A business which truly 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, agree with it and know that what they do is vital to our success
Slide 15: 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 16: First Choice for Customers
First Choice for Customers • Selling more products to more customers than ever before • Largest branch network in the UK • One of the largest telephone and internet banking operations in Europe • Advanced segmentation allowing us to offer more relevant products and services
Slide 17: Leader in Chosen Markets
Leader in Chosen Markets Market position 2002 2001 Personal loans 1 1 Home insurance 1 1 Current accounts (customers) 1 1 Added value current accounts (customers) 1 1 Motor finance 1 1 Business banking (number of customers) 3 3 Mortgages (balances outstanding) 3 3 Credit cards (cards in issue) 3 3 e
Slide 18: Driving Down Costs
Driving Down Costs • Achieved target to hold cost growth at a rate not exceeding inflation - underlying costs flat • Excluding acquisitions, staff numbers reduced by over 4,000
Slide 19: Intellectual Capital
Intellectual Capital • Source of competitive advantage • Investing to develop our people • Recruiting the best • Capturing the benefits
Slide 20: Summary
Summary • We will continue to capitalise on our strengths: – Strong franchise – Strong products – Improving service – Strong distribution capability – Strong brands • We will continue to focus on creating value for our customers to create value for our shareholders • We will continue to build strong
Slide 21: 2002 Results - Group Finance Director
2002 Results 14 February 2003 Philip Hampton Group Finance Director
Slide 22: Key Issues - 2002
Key Issues - 2002 • Financial performance • Disclosure issues and pensions • Capital
Slide 23: Group Profits and EPS
Group Profits and EPS Increase 2001 2002 (Decrease) £m £m % Reported pre-tax profit 3,161 2,607 (18) Taxation 875 764 Minority interests 57 62 Attributable profit 2,229 1,781 (20) Reported EPS (p) 40.3 32.0 (21) Post-tax return on equity (%) 18.1 16.7
Slide 24: Group Profits and EPS
Group Profits and EPS 2001 2002 £m £m Reported pre-tax profit 3,161 2,607 Changes in economic assumptions - (55) Investment variance 859 952 Profit before tax* 4,020 3,504 EPS* (p) 52.1 44.1 Post-tax return on equity* (%) 23.3 23.0 * excluding changes in economic assumptions and investment variance
Slide 25: Profit Before Tax by Main Business
Profit Before Tax by Main Business Increase 2001 2002 (Decrease) £m £m % UK Retail Banking and Mortgages 1,205 1,172 (3) Insurance & Investments 1,421 1,231 (13) Wholesale Markets 852 626 (27) International Banking 357 379 6 Central group items 185 96 Profit before tax* 4,020 3,504 (13) * excluding
Slide 26: Revenue Growth
Revenue Growth Increase 2001 2002 (Decrease) £m £m % Net interest income 4,922 5,171 5 Other finance income 307 165 Other income 3,660 3,542 (3) Total income 8,889 8,878 - Group net interest margin (%) 3.40 3.20
Slide 27: Business Volumes - 2002
Business Volumes - 2002 • Total customer lending increased by 9% to £134.5 billion – consumer credit up 17% to £14.9 billion – mortgage balances up 10% to £62.5 billion – commercial lending up 5% to £40.7 billion – international lending up 11% to £18.2 billion • Debt securities grew by 21% to £29.3
Slide 28: Net Interest Margin - 2002
Net Interest Margin - 2002 % 4.00 3.42 3.50 3.30 3.21 3.21 3.33 3.21 3.16 3.00 3.09 2.91 2.93 2.77 2.50 2.40 2.00 Q1 Q2 Q3 Q4 Group Domestic International
Slide 29: Operating Expenses
Operating Expenses 2001 2002 Increase £m £m % Administrative expenses 4,226 4,214 - Depreciation/amortisation 550 701 27 Total operating expenses 4,776 4,915 3
Slide 30: Cost Control
Cost Control • Costs, excluding impact of acquisitions and operating lease depreciation, were kept flat • Staff numbers, excluding acquisitions, reduced by 4,191 • We expect that the Group’s operating expenses in 2003, excluding the impact of acquisitions, will grow by no more than the rate of infla
Slide 31: Charge for Bad and Doubtful Debts
Charge for Bad and Doubtful Debts % of Average 2001 2002 Lending £m £m 2002 UK Retail Banking 439 564 2.95 Mortgages (24) (1) 0.00 Wholesale Markets 155 311 0.77 International Banking 183 162 1.24 Central group items (6) (7) Total charge 747 1,029 0.77
Slide 32: Asset Quality
Asset Quality • In Retail Banking and Mortgages, overall arrears position remained stable • Non-performing lending as a percentage of total lending, unchanged at 1.0% • Total provisions represent over 120% of non-performing lending
Slide 33: Argentina
Argentina • Economic situation continues to be difficult • General provision increased by £50 million • Total exposure reduced during 2002 from £610 million to £190 million, net of provisions and charges • Provisions represent some 50% of total exposure
Slide 34: Brazil
Brazil • Economic situation has somewhat stabilised • Total exposure, net of provisions and charges, reduced during 2002 from £3.3 billion to £1.9 billion • Domestic Government bond portfolio reduced to £550 million, sterling equivalent, from £1.4 billion a year ago
Slide 35: Disclosure
Disclosure • Segmental profit and loss accounts • Provisions charge by retail products • Embedded value economic assumption changes • FRS 17 related disclosures • Restructuring costs into business units • UK Retail Banking and Mortgages combined • EMD into central group items
Slide 36: Group Pension Schemes – P&L Account
Group Pension Schemes – P&L Account • Pension scheme income and costs included in profit and loss account 2001 2002 £m £m • Expected return on scheme assets 844 817 Interest cost of scheme liabilities (537) (652) Other finance income 307 165 • Pension costs 347 318
Slide 37: Group Pension Schemes - Balance Sheet
Group Pension Schemes - Balance Sheet • Net pension deficit of £2,077 million, included in balance sheet • Reduces shareholders’ equity to £7,972 million, but regulatory capital does not include FRS 17 market movements
Slide 38: Group Pension Schemes – Cash Flow
Group Pension Schemes – Cash Flow • Total fair value of the Group’s defined benefit schemes’ assets at 31 December 2002 was £9,083 million (December 2001: £11,126 million) • The triennial actuarial valuations, at 30 June 2002, indicate that the schemes remain satisfactorily funded, although employer
Slide 39: Capital
Capital • £0.9 billion tier 1, £1.2 billion tier 2 raised in 2002 • Satisfactory capital ratios – tier 1 7.8% (2001: 7.8%) – total 9.6% (2001: 8.8%) • Strong capital generation from banking business – high ROE – good quality earnings stream
Slide 40: Scottish Widows - Capital
Scottish Widows - Capital Estimated Equity Backing Free Asset FTSE 100 Ratio Ratio* 3,940 53% 10.0% The FTSE 100 index could fall to below 3,000 before the Group would need to inject capital into its life operations for solvency purposes. At this level the Group may need to inject up to £300 million
Slide 41: Economic Profit
Economic Profit £m 1,200 1,119 821 800 400 0 2001 2002
Slide 42: Delivering Value to Shareholders
Delivering Value to Shareholders
Slide 43: Forward Looking Statements
Forward Looking Statements This document is a summary only of certain information contained in the press announcement dated 14 February 2003 and should be read in conjunction with the full text of the announcement. This document contains forward looking statements with respect to the business, strat