Lloyds Banking Group Plc · LSE:LLOY

Lloyds Banking — HBOS — H1 2004 Earnings Presentation

59 slides from Lloyds Banking's earnings presentation, Jul 28, 2004

  1. Slide 1: Interim Results

    Interim Results 28th July 2004

  2. Slide 2: James Crosby, Chief Executive

    James Crosby Chief Executive

  3. Slide 3: HBOS Benchmarks

    HBOS Benchmarks „ Sub 40% cost:income ratio „ Self funding double digit growth „ 15-20% market shares potential „ Sustainable and improved returns

  4. Slide 4: 2004 Interims… Key Themes

    2004 Interims… Key Themes „ Earnings momentum „ Measured growth „ Improved efficiency „ Stable credit „ Higher shareholder returns

  5. Slide 5: 2004… Clear Choices

    2004… Clear Choices „ Capital… retention vs distribution „ Retail… prudence vs volume „ Insurance… manufacturing vs broking „ Investment… transparency vs opacity „ Corporate… quality vs quantity

  6. Slide 6: Today’s Agenda

    Today’s Agenda „ Financials „ Retail „ Corporate and Treasury „ International „ Insurance & Investment

  7. Slide 7: Mike Ellis, Group Finance Director

    Mike Ellis Group Finance Director

  8. Slide 8: Key Financials

    Key Financials % 30.06.04 30.06.03 Growth Profit Before Tax - PBT (£m) 2,161 1,781 21 PBT and Exceptional Items - PBTE (£m) 2,183 1,825 20 PBTE and Short Term Fluctuations ** (£m) 2,244 1,842 22 Underlying Earnings Per Share* (p) 38.7 32.4 19 Dividend Per Share (p) 10.8 10.3 5 ** Before Before excep

  9. Slide 9: Post-Tax Return On Mean Equity

    Post-Tax Return On Mean Equity 30.06.04 30.06.03 % % Group Return on Equity** 18.6 17.2 Group ‘Target’ Return on Equity** ** 19.1 17.4 Group ‘Adjusted Target’ Return on Equity*** *** 19.4 17.4 ** Before Before exceptional exceptional items items ** ** Before Before exceptional exceptional items item

  10. Slide 10: Financial Performance… Divisional PBTE

    Financial Performance… Divisional PBTE 30.06.04 30.06.03 % £m £m Growth Retail 972 827 18 Corporate 667 514 30 Treasury 137 109 26 Insurance & Investment 408 389 5 International 149 118 26 Group Items (150) (132) (14) Total 2,183 1,825 20

  11. Slide 11: Financial Performance… Group PBTE

    Financial Performance… Group PBTE 30.06.04 30.06.03 % £m £m Growth Net Interest Income 2,850 2,648 8 Non-interest Income* 1,853 1,567 18 Operating Expenses** (2,005) (1,913) 5 Operating Profit Before Provisions** 2,698 2,302 17 Provisions (578) (499) 16 Share of Profits Profits of of Associates Asso

  12. Slide 12: Group PBTE (excluding Insurance & Investment)

    Financial Performance… Group PBTE (excluding Insurance & Investment) 30.06.04 30.06.03 % £m £m Growth Net Interest Income 2,812 2,622 7 Non-interest Income* 1,352 1,074 26 Operating Expenses** (1,880) (1,790) 5 Operating Profit Before Provisions** 2,284 1,906 20 Provisions (578) (499) 16 Share of Pr

  13. Slide 13: Net Interest Income - Margin Trends

    Financial Performance… Net interest Income - Margin Trends Half Year Half Year Half Year Ended Ended Ended 30.06.04 31.12.03 30.06.03 % % % Retail 1.82 1.86 1.97 Corporate 1.92 1.91 2.01 Treasury 0.11 0.13 0.13 International 1.94 2.24 2.33 Group 1.68 1.72 1.82

  14. Slide 14: Non-interest Income

    Financial Performance… Non-interest Income (excl. Insurance & Investment) Half Year Half Year Ended Ended % 30.06.04 30.06.03 Growth £ £ Retail 479 395 21 Corporate* 670 533 26 Treasury 104 65 60 International* 99 81 22 Total* 1,352 1,074 26 ** Includes Includes amounts amounts written written off o

  15. Slide 15: Operating Expenses

    Financial Performance… Operating Expenses Half Year Half Year Ended Ended % 30.06.04 30.06.03 Growth £ £ Operating Expenses 2,027 1,957 4 Exceptional Items (22) (44) (50) 2,005 1,913 5 Goodwill Amortisation (52) (46) 13 Operating Lease Depreciation (203) (159) 28 Underlying Operating Expenses 1,750

  16. Slide 16: Underlying Operating Expenses

    Financial Performance… Underlying Operating Expenses Half Year Half Year Ended Ended % 30.06.04 30.06.03 Growth £ £ Retail 1,026 1,024 - Corporate 325 311 5 Treasury 52 40 30 International 124 124 - Group Items 98 86 14 1,625 1,585 3 Insurance & Investment 125 123 2 Total 1,750 1,708 2

  17. Slide 17: Provisions Charge

    Financial Performance… Provisions Charge 30.06.04 30.06.03 % of % of Average Average Customer Customer £m Advances £m Advances Retail 320 0.16 240 0.14 Corporate 241 0.33 232 0.35 International 17 0.09 27 0.18 Total 578 0.20 499 0.20

  18. Slide 18: Closing Provisions, Suspended Interest and NPAs

    Financial Performance… Closing Provisions, Suspended Interest and Non Performing Assets (NPAs) Provisions Provisions && Interest Interest NPAs NPAs as as % % Provisions in Provisions in Suspense Suspense Customer Customer of Customer & of Customer & Interest Interest as as % % ofof Advances Advances

  19. Slide 19: Insurance & Investment PBTE

    Financial Performance… Insurance & Investment PBTE 30.06.04 30.06.03 % £m £m Growth Net Interest Income 38 26 46 Non-interest Income* 501 493 2 Operating Expenses** (125) (123) 2 Operating Profit Before Provisions** 414 396 5 Share of Profits of Associates & JVs (6) (7) 14 Profit Before Tax and Exce

  20. Slide 20: Group Risk Weighted Assets & Capital

    Financial Performance… Group Risk Weighted Assets & Capital 30.06.04 31.12.03 £m £m Risk Weighted Assets 221,938 215,790 Tier 1 Capital 17,908 16,444 Tier 2 Capital 13,395 12,524 Total Deductions (5,353) (5,100) Total Capital 25,950 23,868 % % Tier 1 Capital Ratio 8.1 7.6 Total Capital Ratio 11.7 11

  21. Slide 21: Conclusion...

    Conclusion... „ Asset Growth „ Operating Income „ Operating Expenses „ Credit Quality „ Profitability „ Capital Strength „ RoE

  22. Slide 22: Andy Hornby, Chief Executive, Retail

    Andy Hornby Chief Executive, Retail

  23. Slide 23: More Profitable Growth

    More Profitable Growth „ Net interest income up 7% despite yield curve „ Non-interest income up 21% „ Net interest margin down just 4 bps on H2 2003 „ Operating costs up only 0.2% „ Cost:income Ratio down from 49.3% to 45.1%

  24. Slide 24: Strong “Jaws”

    Strong “Jaws” +9.7% +9.5% +0.2% Income Costs “JAWS”

  25. Slide 25: Volume Growth Still Strong

    Volume Growth Still Strong „ Net mortgage lending share of 17% „ 560,000 new bank accounts „ 770,000 new credit cards „ £6.1bn growth in savings/banking balances

  26. Slide 26: Margins Robust Despite LIBOR Related Funding Pressures

    Margins Robust Despite LIBOR Related Funding Pressures Movement in Margin Basis Points Net Interest Margin for H2 ended Dec 2003 186 Mortgages/Savings 2 Banking 5 Personal Lending (3 ) Credit Cards (2 ) Product Spreads 2 Wholesale Funding (5 ) Capital Earnings (1 ) Total (4) Net Interest Margin for

  27. Slide 27: Strong Momentum in Non-Interest Income

    Strong Momentum in Non-Interest Income „ Non-Interest Income up 21% „ Strong fee growth in all product categories – mortgages, banking, credit cards „ Fee Income benefiting from 3 years of book growth in current accounts and cards „ Strong trends will continue into 2005

  28. Slide 28: A Prudent Approach to Credit

    A Prudent Approach to Credit „ NPAs up marginally to 1.88% (Dec 2003 1.81%) „ NPA provisions cover stable at 40% (Dec 2003 40%) „ Net mortgage lending share reduced to 17% (2003 25%) „ Average mortgage book LTV 42% (Dec 2003 43%) „ Only 7.7% of mortgage book above 85% LTV „ Personal loan NPAs up to

  29. Slide 29: Ruthless Cost Controls

    Ruthless Cost Controls „ Costs up only 0.2% over H1 2003 „ Low cost scale IT systems drive productivity „ Significant central cost reductions „ Cost:income ratio 45.1% (H1 2003 49.3%) „ 3% cost target for 2004 will be beaten

  30. Slide 30: Retail Has Potential For Further Profitable Growth

    Retail Has Potential For Further Profitable Growth „ Long-term scope for 15%-20% share in all key markets „ LIBOR related funding pressures should ease in 2005 „ Strong momentum in non-interest income „ Further tightening of LTVs to protect asset quality „ Rigorous cost control Further reductions in

  31. Slide 31: George Mitchell, Chief Executive, Corporate

    George Mitchell Chief Executive, Corporate

  32. Slide 32: Corporate: Performance

    Corporate: Performance 6 Months 6 Months to June 04 to June 03 Net Interest Income (£m) 730 671 +9% Non-interest Income (£m) 676 543 +24% Operating Income (£m) 1,406 1,214 +16% Underlying Expenses** (£m) 325 311 +5% Cost:income Ratio (%) 26.9 29.8 PBTE (£m) 667 514 +30% ** Underlying Underlying expe

  33. Slide 33: Corporate: Volume and Margin

    Corporate: Volume and Margin 6 Months to June 04 Lending Growth (annualised) 9% RWA Growth (annualised) 13% Deposits Growth (annualised) 12% 6 Months 6 Months to June 04 to Dec 03 Net Interest Spread (bps) 170 166 Net Interest Margin (bps) 192 191

  34. Slide 34: Corporate: Provisions Charge

    Corporate: Provisions Charge % of Average £m Advances 6 months to June 2003 232 0.35 6 months to December 2003 211 0.30 6 months to June 2004 241 0.33

  35. Slide 35: Corporate: Non Performing Assets

    Corporate: Non Performing Assets £m % of Advances As at June 2003 1,352 1.97 As at December 2003 1,309 1.81 As at June 2004 1,260 1.67 Provisions as a % of NPAs As at June 2003 61% As at December 2003 65% As at June 2004 72%

  36. Slide 36: Treasury: Performance

    Treasury: Performance 6 Months 6 Months to June 04 to June 03 Net Interest Income (£m) 85 84 Net Interest Margin (bps) 11 13 Non-interest Income (£m) 104 65 Expenses (£m) 52 40 Cost:income Ratio (%) 27.5 26.8 PBTE (£m) 137 109

  37. Slide 37: Treasury: Credit Quality

    Treasury: Credit Quality Non performing assets as at: June 03 NIL December 03 NIL June 04 NIL Provisions charge for 6 months to: June 03 NIL December 03 NIL June 04 NIL

  38. Slide 38: Outlook

    Outlook „ Controlled asset growth „ Strong growth in non-interest income „ Tightly controlled costs „ Improving credit quality „ All leading to improved returns

  39. Slide 39: Colin Matthew, Chief Executive, International

    Colin Matthew Chief Executive, International

  40. Slide 40: H1 Results

    H1 Results Profit Before Tax and Exceptional Items June 2004 June 2003 % £149m £118m +26%

  41. Slide 41: H1 2004 - Australia

    H1 2004 - Australia „ Advances A$33.2bn (5% growth) „ Deposits A$12.5bn (6% growth) „ Net Interest Margin 2.07% (H2 03 2.17%) „ Operating Income A$537m (12% increase) „ Operating Expenses* A$251m (1.6% increase) „ Cost:income 46.2% (H1 03 50.4%) „ Provisions Charge A$30m (H1 03 A$46m) „ PBTE A$258m

  42. Slide 42: H1 2004 - Ireland

    H1 2004 - Ireland „ Advances €9.2bn (17% growth) „ Deposits €5.3bn (21% growth) „ Net Interest Margin 1.90% (H2 03 2.04%) „ Operating Income €129m (23% increase) „ Operating Expenses* €55m (15.8% increase) „ Cost:income 37.6% (H1 03 36.5%) „ Provisions Charge €9m (H1 03 €11m) „ PBTE €65m (H1 03 €58m

  43. Slide 43: Objectives - Australia

    Objectives - Australia „ Drive through integration of our four businesses „ Ensure continuation of business as usual growth „ Invest in and launch new initiatives across all our business lines „ Firmly establish our brands in the Customer Champion space

  44. Slide 44: Objectives - Ireland

    Objectives - Ireland „ No. 1 Business Bank by 2005 „ Driver of change in switching, transparency and transmission „ Expansion of retail franchise

  45. Slide 45: Phil Hodkinson, Chief Executive, Insurance & Investment

    Phil Hodkinson Chief Executive, Insurance & Investment

  46. Slide 46: First Half Results

    First Half Results Profits „ Reported PBTE up 5% to £408m „ Adjusted* PBTE up 16% to £451m – Insurance up 13% to £239m – Investment up 20% to £212m Sales „ Insurance up 12% to £840m „ Investment up 5% to £634m (up 6% in UK) ** After After adjusting adjusting for for £43m £43m household household ins

  47. Slide 47: Household Insurance Underwriting

    Household Insurance Underwriting Market Presence „ 17% growth in 1H 2004; 20% in 2003 „ 8% market share … top 5 player in 2003 „ “Best Direct Home and Contents Provider”* Shareholder Returns „ Low cost distribution „ Strong underwriting and claims management „ Weather event protection above £25m **

  48. Slide 48: Growth in Insurance Book

    Growth in Insurance Book Policies (millions) 10 8 6 4 2 0 2002 HY1 2002 HY2 2003 HY1 2003 HY2 2004 HY1 Repayment Household Motor Other

  49. Slide 49: Insurance Business Prospects

    Insurance Business Prospects Household „ Strong growth, up 17% with great opportunity to grow towards 15%+ market share Repayment „ Already at 15% market share and holding up resiliently in face of slow growth in loans market Motor „ Strong growth, up 36% and with First Alternative now on-stream, 10

  50. Slide 50: UK Investment Sales Growth

    UK Investment Sales Growth £m EPI 600 500 400 300 200 100 0 2001 2001 2002 2002 2003 2003 2004 HY1 HY2 HY1 HY2 HY1 HY2 HY1 Bancassurance UK Intermediary Wealth Management

  51. Slide 51: New Business Profitability

    New Business Profitability % EPI 40 30 20 10 0 Bancassurance Intermediary Wealth Overall Management 2001 2002 2003 2004

  52. Slide 52: With Profits Products – “Not An Issue”

    With Profits Products – “Not An Issue” „ Less than 3% of UK investment sales „ Equity backing ratio is 55%, temporarily hedged whilst markets remain uncertain „ Realistic balance sheet likely to be same or slightly stronger than statutory position

  53. Slide 53: Investment Business Prospects

    Investment Business Prospects Wealth Management „ Strong recovery in HNW demand; partnership continues to go from strength to strength Intermediary „ Opportunity to optimise balance between market share and profitability from position of strength Bancassurance „ Continues to perform; perfectly align

  54. Slide 54: Stakeholder Products

    Stakeholder Products Treasury Proposals HBOS Bancassurance „ 1.5% p.a. maximum „ 1.1% p.a. on average „ No front end charges „ No front end charges „ No exit penalties „ No exit penalties „ Balanced & smoothed „ Balanced & smoothed investment funds investment funds „ Simple, clear design „ Simple, c

  55. Slide 55: Profitable Momentum…

    Profitable Momentum… „ Multi-brand … Halifax, Clerical Medical, Insight, esure, SJPC … with appeal to different markets „ Multi-distribution … bancassurance, direct, intermediary and wealth management „ Scale … a significant player in key markets with low cost access to customers and efficiency „ Re

  56. Slide 56: Slide 56

  57. Slide 57: 2004 Interims… Key Themes

    2004 Interims… Key Themes „ Earnings momentum „ Measured growth „ Improved efficiency „ Stable credit „ Higher shareholder returns

  58. Slide 58: Questions and Answers

    Questions and Answers

  59. Slide 59: Slide 59

HBOS — H1 2004 Earnings Presentation on 6ix