Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — FY2005 Earnings Presentation
54 slides from Lloyds Banking's earnings presentation, Feb 24, 2006
Slide 1: 2005 Annual Results
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2005 Annual Results 24 February 2006 Helen Weir Group Finance Director Investor Relations, Group Finance Division HAW - page 4
Slide 2: Headline results – comparable basis
CARE - CONTAINS PRICE SENSITIVE INFORMATION Headline results – comparable basis* 2004 2005 % Change Profit before tax £3,432m £3,726m 9 Earnings per share 42.6p 47.2p 11 Economic profit £1,417m £1,620m 14 Post-tax return on equity 22.2% 23.3% Dividend per share 34.2p 34.2p * excluding impact of vola
Slide 3: Overview – results highlights
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview – results highlights* • Continued earnings momentum • Accelerating revenue growth • Positive jaws: cost income ratio improved again • Satisfactory asset quality • Robust capital ratios • Post-tax return on equity remains strong * comparable basis
Slide 4: Headline results – comparable basis
CARE - CONTAINS PRICE SENSITIVE INFORMATION Headline results – comparable basis* £m 2004 2005 % Change Total income, after claims 9,489 10,172 7 Operating expenses (5,154) (5,356) (4) Trading surplus 4,335 4,816 11 Impairment (903) (1,090) (21) Trading profit 3,432 3,726 9 Customer redress provision
Slide 5: Impact of IFRS adjustments applied from 1/1/05
CARE - CONTAINS PRICE SENSITIVE INFORMATION Impact of IFRS adjustments applied from 1/1/05 £m Key Drivers UK Retail Banking (213) • Effective interest rates • Impairment Insurance & Investments (73) • FRS 27, including £45 million reserves for mortality Wholesale & International Banking 20 • Financi
Slide 6: Earnings momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION Earnings momentum* UKRB I&I W&IB Group £m £m % var £m % var £m % var £m % var Income 5,118 4 1,547 11 3,875 10 10,172 7 Costs (2,532) (1) (639) (5) (2,186) (7) (5,356) (4) Trading surplus 2,586 7 908 15 1,689 14 4,816 11 Impairment (905) (34) - (185) 20 (1
Slide 7: Income growth improving
CARE - CONTAINS PRICE SENSITIVE INFORMATION Income growth improving* £m 2004 2005 % Change Net interest income 4,901 5,203 6 Other income 4,751 5,116 Insurance claims (214) (197) Other income, net of claims 4,537 4,919 8 Total income, net of claims 9,438 10,122 7 Policyholder grossing adjustments 51
Slide 8: Good asset and deposit growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION Good asset and deposit growth* UK Retail Banking Wholesale & International Banking +10% £98.5bn +7% £89.9bn +7% £83.0bn £77.6bn £66.6bn £62.2bn 2004 2005 2004 2005 2004 2005 Average interest Average customer Average interest earning assets deposits earning
Slide 9: Net interest margin – stable
CARE - CONTAINS PRICE SENSITIVE INFORMATION Net interest margin – stable* Product margin 8 Funding effect (3) 2.89% 5bp 2004: 2.84% 2.80% 2005: 2.78% 2.80% 2.75% 2004H1 2004H2 2005H1 2005H2 * relating to the Group’s banking businesses, excluding impact of volatility, other IFRS adjustments applied f
Slide 10: Net interest income
CARE - CONTAINS PRICE SENSITIVE INFORMATION Net interest income* £m 2004 2005 % Change UK Retail Banking 3,228 3,307 2 Insurance & Investments† 94 101 7 Wholesale & International Banking 1,986 2,165 9 Central group items (407) (370) 4,901 5,203 6 Policyholder grossing adjustments 189 310 5,090 5,513
Slide 11: Other income, net of insurance claims
CARE - CONTAINS PRICE SENSITIVE INFORMATION Other income, net of insurance claims* £m 2004 2005 % Change UK Retail Banking 1,696 1,811 7 Insurance & Investments† 1,252 1,396 12 Wholesale & International Banking 1,544 1,710 11 Central group items 45 2 4,537 4,919 8 Policyholder grossing adjustments (
Slide 12: Strong cost control maintained
CARE - CONTAINS PRICE SENSITIVE INFORMATION Strong cost control maintained* £m 2004 2005 % Change UK Retail Banking 2,509 2,532 (1) Insurance & Investments† 573 607 (6) Wholesale & International Banking 2,047 2,186 (7) Central group items (12) (1) 5,117 5,324 (4) Policyholder grossing adjustments 37
Slide 13: Focus on costs
CARE - CONTAINS PRICE SENSITIVE INFORMATION Focus on costs Operational principles – Transforming group wide procurement • Simplify – Consolidation of back • Improve efficiency office processes • Leverage common – Organisational systems/processes delayering/ cross-group simplification Investor Relati
Slide 14: Focus on costs
CARE - CONTAINS PRICE SENSITIVE INFORMATION Focus on costs Financial principles • c. £40 million investment in 2005 • Self funding • c. £20-30 million net • Payback c. 2 years benefit in 2006 • Reinvest c. 50% of • c. £100-150 million benefits net benefit in 2007 Investor Relations, Group Finance Di
Slide 15: Income growth ahead of costs in all divisions
CARE - CONTAINS PRICE SENSITIVE INFORMATION Income growth ahead of costs in all divisions* Group Cost: 4% Income Ratio UK Retail Banking 1% 54.3% 11% 52.7% Insurance & Investments 5% Wholesale & 10% International Banking 7% 7% Group 4% Income Costs 2004 2005 * comparable basis – excluding impact of
Slide 16: Impairment losses on loans and advances
CARE - CONTAINS PRICE SENSITIVE INFORMATION Impairment losses on loans and advances* % of Average 2004 2005 Variance Lending £m £m % 2004 2005 UK Retail Banking 676 905 (34) 0.75 0.92 - Personal loans/overdrafts 473 585 (24) 4.20 4.76 - Credit cards 242 307 (27) 3.42 4.01 - Mortgages (39) 13 - (0.05
Slide 17: Impairment losses on loans and advances
CARE - CONTAINS PRICE SENSITIVE INFORMATION Impairment losses on loans and advances* % of Average 2004 2005 Variance Lending £m £m % 2004 2005 UK Retail Banking 676 905 (34) 0.75 0.92 - Personal loans/overdrafts 473 585 (24) 4.20 4.76 - Credit cards 242 307 (27) 3.42 4.01 - Mortgages (39) 13 - (0.05
Slide 18: Impairment losses – UK Retail Banking
CARE - CONTAINS PRICE SENSITIVE INFORMATION Impairment losses – UK Retail Banking* £126m £905m £64m £39m £715m £676m 2004 Mortgage Volume Asset 2005 provision growth quality release * comparable basis – excluding other IFRS adjustments applied from 1 January 2005 and discontinued operations Investor
Slide 19: New business – probability of default
CARE - CONTAINS PRICE SENSITIVE INFORMATION New business – probability of default Index Credit Cards 100 Personal Loans 5 4 4 4 5 5 4 5 4 04 4 5 05 5 4 5 04 05 04 4 04 05 5 05 -0 -0 -0 -0 -0 -0 -0 -0 l-0 -0 l-0 -0 -0 -0 -0 -0 p- p- n- n- b- b- n- n- ct ct ov ug ug ov pr pr ec ec ay ay ar ar Ju Ju Se
Slide 20: Asset quality – impaired assets
CARE - CONTAINS PRICE SENSITIVE INFORMATION Asset quality – impaired assets Impaired Assets Impaired Assets as a Percentage of Total Lending £4,122m 2.3% 2.3% £3,894m 2.1% £3,515m 1 January 30 June 31 December 1 January 30 June 31 December 2005 2005 2005 2005 2005 2005 Investor Relations, Group Fina
Slide 21: Maintaining high returns
CARE - CONTAINS PRICE SENSITIVE INFORMATION Maintaining high returns* Post-tax Return on Economic Profit Post-tax Return Risk-weighted Assets on Equity +14% 23.3% £1,620m 22.2% 1.98% 1.92% £1,417m 2004 2005 2004 2005 2004 2005 * comparable basis – excluding impact of volatility, other IFRS adjustmen
Slide 22: Capital ratios remain robust
CARE - CONTAINS PRICE SENSITIVE INFORMATION Capital ratios remain robust 1 January 31 December 2005 2005 • £1 billion in dividends received from Risk-weighted £131.8bn £144.9bn Scottish Widows assets Total capital 10.1% 10.9% • Sufficient retained ratio earnings to support expected risk-weighted Tie
Slide 23: Scottish Widows – strong capital management
CARE - CONTAINS PRICE SENSITIVE INFORMATION Scottish Widows – strong capital management 31 December 31 December 2005 Long-Term Fund (£bn) 2004 estimated Available assets, including support account 22.0 23.2 Realistic value of liabilities (17.8) (19.1) Net surplus 4.2 4.1 Working capital ratio 19.0%
Slide 24: Improving our balance sheet management
CARE - CONTAINS PRICE SENSITIVE INFORMATION Improving our balance sheet management • Moving from ‘buy and hold’ to ‘origination and distribution’ • During 2006, rolling mortgage securitisation programme • Over time, programme expanded to include other asset classes • Exploring ways to repatriate fur
Slide 25: Reducing the pension schemes' deficit
CARE - CONTAINS PRICE SENSITIVE INFORMATION Reducing the pension schemes’ deficit £m 2004 2005 IAS 19 pension deficit 3,075 2,910 Deferred tax (923) (873) IAS 19 pension deficit, net of tax 2,152 2,037 • During 2005, additional voluntary contributions of £220 million • Triennial valuation currently
Slide 26: 2005: a year of strong performance
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2005: a year of strong performance • Good customer franchise growth Continuing to build • Accelerating revenue growth earnings momentum • Positive jaws across all three divisions • PBT up 9%, economic profit up 14% • Product margins stable • Satisfactory a
Slide 27: 2005 Annual Results
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2005 Annual Results 24 February 2006 Eric Daniels Group Chief Executive Investor Relations, Group Finance Division HAW - page 32
Slide 28: Four key messages
CARE - CONTAINS PRICE SENSITIVE INFORMATION Four key messages • We have significant potential in our franchises • We can structurally improve our productivity • We can manage capital to fund growth • We are building the skills and financial strength to accelerate growth – in core businesses and from
Slide 29: Reminder: our strategy
CARE - CONTAINS PRICE SENSITIVE INFORMATION Reminder: our strategy Economic profit Phase Three Expand from strength Phase Two Build customer Phase One franchises Focus on core markets • Enhance earnings quality • Deepen relationships • Leverage • Maintain profitability • Improve productivity capabil
Slide 30: Our financial progress
CARE - CONTAINS PRICE SENSITIVE INFORMATION Our financial progress Income, £bn* PBT, £bn* 10.2 3.7 3.4 9.5 IFRS 3.2 3.1 3.4 9.0 9.2 comparable 8.9 '02 '03 '04 '05 '02 '03 '04 '05 Cost:income ratio, %* ROE, %* 55.1% 25.2% 54.3% 23.1% 23.5% 52.7% 53.5% 23.3% 51.9% 22.2% '02 '03 '04 '05 '02 '03 '04 '05
Slide 31: Our priorities for Phase 2
CARE - CONTAINS PRICE SENSITIVE INFORMATION Our priorities for Phase 2 Strategic priorities Financial goals for Phase 2 Build our franchise reach and • Strong revenue growth depth • A step change in operational efficiency Enhance our product capabilities • Enhanced capital efficiency and dividend ca
Slide 32: UK Retail Banking: driving growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION UK Retail Banking: driving growth Our objectives What we are doing in 2005-6 Grow income from existing • Growing sales volumes customer base • Changing product sales mix • Increasing direct channel Grow income from new sales customers • Increasing branch s
Slide 33: UK Retail Banking: sales volumes
CARE - CONTAINS PRICE SENSITIVE INFORMATION UK Retail Banking: sales volumes Improving branch … increasing direct … and driving target sales performance … channel sales … customer recruitment Indexed sales volumes as 2005 sales volume Indexed net a % of prior year period growth, % recruitment, targe
Slide 34: UK Retail Banking: sales productivity
CARE - CONTAINS PRICE SENSITIVE INFORMATION UK Retail Banking: sales productivity Increasing sales … and improving … to increase sales capacity … sales effectiveness … productivity 2004-2005 % change Indexed sales 145 Faxes • New strategic sales (15%) handled platform by 100 branches • Improved cust
Slide 35: UK Retail Banking: sales mix
CARE - CONTAINS PRICE SENSITIVE INFORMATION UK Retail Banking: sales mix Changing the overall product … to drive higher non-lending sales mix … income per customer Total retail product sales volumes H2 04-05 growth per customer, target customers 6.1% 41% 47% Non- lending 59% 53% Lending* 1.4% Lendin
Slide 36: UK Retail Banking: the demographic opportunity
CARE - CONTAINS PRICE SENSITIVE INFORMATION UK Retail Banking: the demographic opportunity Market risk-adjusted revenue growth to 2010: share by age and product <30 yrs 30 - 44 45 - 54 55 - 64 65+ yrs Current accounts Unsecured lending Mortgages Savings and investments 10% (7%) 40% 23% 34% <0 0-10%
Slide 37: UK Retail Banking: growth outlook
CARE - CONTAINS PRICE SENSITIVE INFORMATION UK Retail Banking: growth outlook • Against a weaker market in 2004 and 2005, we are improving the fundamentals of the business ̶ Improving customer acquisition ̶ Growing non-lending business ̶ Improving sales effectiveness ̶ Improving efficiency • Going f
Slide 38: W&IB: break-out growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: break-out growth Our objectives What we are doing in 2005-6 • Growing product capabilities • Driving cross sell Grow the Corporate Markets • Capturing relationship business headroom • Building asset distribution • Winning higher value customers Build
Slide 39: W&IB: 2005 performance
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: 2005 performance Business unit performance Profit before tax* (£m) 2004 2005 % Change Corporate Markets 732 958 31 Business Banking 153 206 35 Asset Finance 240 219 (9) International Banking 120 133 11 Wholesale & International +20% Banking * compara
Slide 40: W&IB: growing the Corporate Markets business
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: growing the Corporate Markets business … and increasing cross-sales to Growing in key product areas… corporate customers Income growth 2004-2005, % Cross-sell growth 2004-2005, % Derivatives 67% CMF cross- 27% Syndicated lending 34% sell revenue Acqu
Slide 41: W&IB: growing the Corporate Markets business
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: growing the Corporate Markets business Recent surveys show improving customer perception of our capabilities* % improvement 2004-5 • Excellent service + 100% Relationship quality • Creativity + 30% • Follow-up + 25% • Syndications + 66% Relationship
Slide 42: W&IB: moving Business Banking to growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: moving Business Banking to growth • Relationship managers back in branches Improving sales and service • Income generating contacts up • Improved customer satisfaction by 9% pts Growing the • Growing market share franchise • Gaining in switchers and
Slide 43: W&IB: 2005 cost growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: 2005 cost growth Around half of W&IB’s cost growth 2004-5 will deliver future profit growth – mainly in CMF and Business Banking 9.8% 3.0% ‘jaws’ 6.8% 1.4% 6.4% 1.3% ‘jaws’ 0.7% 3.4% W&IB Total Investment Frontline Investment in Underlying revenue W&
Slide 44: W&IB: growth outlook
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: growth outlook • We can continue our performance momentum – Step up our share of ‘lead’ relationships – Grow mid-market share in key regions – Build our product range – Accelerate revenue growth in Business Banking – Increase back office productivity
Slide 45: Insurance & Investments: accelerating growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION Insurance & Investments: accelerating growth Our objectives What we are doing in 2005-6 • Focusing on the most valuable IFA relationships Maximise distribution reach and improving service • Improving our bancassurance product range and sales effectiveness
Slide 46: I&I: Scottish Widows IFA performance
CARE - CONTAINS PRICE SENSITIVE INFORMATION I&I: Scottish Widows IFA performance Service improvements and more competitive products, will continue to drive sales and market share growth Weighted sales, £m Market share* +30% +10% 562 6.8% 5.7% 5.9% 432 392 2003 2004 2005 2003 2004 2005 * total LP&I m
Slide 47: I&I: bancassurance performance
CARE - CONTAINS PRICE SENSITIVE INFORMATION I&I: bancassurance performance Revised offers and salesforce development have delivered overall sales growth of 13%, with particular success in OEICs Overall weighted sales, £m OEIC sales, £m +13% 274 +77% 242 119 67 2004 2005 2004 2005 Investor Relations,
Slide 48: Insurance & Investments: growth outlook
CARE - CONTAINS PRICE SENSITIVE INFORMATION Insurance & Investments: growth outlook • Strong LP&I performance – growing market share in a growing market • We can continue to grow and improve profitability ̶ IFA - improved investment performance and product mix ̶ Bancassurance - simplified products,
Slide 49: Achieving a step change in productivity
CARE - CONTAINS PRICE SENSITIVE INFORMATION Achieving a step change in productivity Our ‘jaws’ discipline has delivered results Group cost:income ratio# Change in staff numbers (y/e FTE) UK GAAP IFRS 2003* 2004 2005 (1.6) (1.6) (1,209) (1,624) 55.1% 54.3% (3,188) 53.5% 52.7% Change in income per FTE
Slide 50: Achieving a step change in productivity
CARE - CONTAINS PRICE SENSITIVE INFORMATION Achieving a step change in productivity Strategic priorities What we are doing • Consolidating processes Leverage our scale • Applying ‘lean manufacturing’ Exploit our cost management • Transforming procurement skills • Simplifying management structure Mat
Slide 51: Working our capital harder
CARE - CONTAINS PRICE SENSITIVE INFORMATION Working our capital harder Strategic priorities What we are doing • Focusing on economic profitability at a customer Maximise capital efficiency in each business and product level • Further improving capital efficiency in Scottish Shift lower yield risk of
Slide 52: Phase 3: leveraging capabilities in new markets
CARE - CONTAINS PRICE SENSITIVE INFORMATION Phase 3: leveraging capabilities in new markets • We are building the right capabilities – Customer and sales skills – Manufacturing skills – Cost management skills – Capital management skills • In a consolidating global FS market, value creation will be d
Slide 53: Four key messages
CARE - CONTAINS PRICE SENSITIVE INFORMATION Four key messages • We have significant potential in our franchises • We are structurally improving our productivity • We are managing capital to fund growth • We are building the skills and financial strength to accelerate growth – in core businesses and
Slide 54: Forward looking statements
CARE - CONTAINS PRICE SENSITIVE INFORMATION Forward looking statements This document is a summary only of certain information contained in the announcement dated 24 February 2006 and should be read in conjunction with the full text of the announcement. This document contains forward looking statemen