Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — FY2000 Earnings Presentation
33 slides from Lloyds Banking's earnings presentation, Feb 16, 2001
Slide 1: 2000 Results - Kent Atkinson, Group Finance Director
Kent Atkinson Group Finance Director 2000 Results 16 February 2001 1
Slide 2: Profit Before Tax
PROFIT BEFORE TAX 1999 2000 Increase £m £m % Business as usual operating profit 3,821 4,246 11 Short-term fluctuations in investment returns 28 (119) Changes in economic assumptions - 127 Exceptional restructuring costs - (188) Pension provisions (102) (100) Stakeholder pension related charge - (80)
Slide 3: Short-Term Fluctuations in Investment Returns
SHORT-TERM FLUCTUATIONS IN INVESTMENT RETURNS 2000 Investment returns £m Normalised earnings on £4.7bn estate 272 (based on 8.0% return on equities and 5.25% return on gilts) Actual earnings 153 Short-term fluctuations in investment returns (119) Page 3 3
Slide 4: Scottish Widows - P&L Impact
SCOTTISH WIDOWS - P&L IMPACT March - December 2000 Reported Adjustments Adjusted £m £m £m Net interest income 23 23 Funding cost (258) (258) (235) - (235) Other income 317 109 426 Total income 82 109 191 Operating expenses 105 (59) 46 (Loss)Profit before tax (23) 168 145 Page 4 4
Slide 5: Scottish Widows - Impact on Group Margin
SCOTTISH WIDOWS - IMPACT ON GROUP MARGIN 2000 2000 1999 Net Interest Net Interest Net Interest Income Margin Margin £m % % Group 4,587 3.49 3.86 Scottish Widows Bank (23) - - Funding cost of Scottish Widows 258 0.20 - Group excluding Scottish Widows 4,822 3.69 3.86 Page 5 5
Slide 6: Domestic Net Interest Margin
DOMESTIC NET INTEREST MARGIN % 4.5 4.00 3.97 4.0 3.83* 3.80* 3.68 3.5 3.48 3.0 1999H1 1999H2 2000H1 2000H2 *excluding Scottish Widows funding cost Page 6 6
Slide 7: Charge for Bad and Doubtful Debts
CHARGE FOR BAD AND DOUBTFUL DEBTS Average % of Average 2000 Lending Lending £m £bn 1999 2000 UK Retail Banking 345 15.2 2.94 2.27 Mortgages (13) 50.1 (0.01) (0.03) Wholesale Markets 94 29.3 0.27 0.32 Total domestic 426 94.6 0.57 0.45 International Banking 49 15.5 0.60 0.32 Total charge 475 110.1 0.5
Slide 8: Profit Before Tax by Main Business
PROFIT BEFORE TAX BY MAIN BUSINESS 1999 2000 Increase £m £m % UK Retail Banking 789 817 4 Mortgages 868 865 Insurance and Investments 873 1,447 66 UK Retail Financial Services 2,530 3,129 24 Wholesale Markets 728 749 3 International Banking 444 501 13 Central group items 119 (133) Business as usual
Slide 9: Investing to Improve Efficiency - Restructuring Costs: Cost/Benefit
INVESTING TO IMPROVE EFFICIENCY – RESTRUCTURING COSTS: COST/BENEFIT 2000 2001 2002 2003 2004 £m £m £m £m £m Investment costs (188) (200) (130) (60) - Benefits, annualised 38 75 145 320 410 Average payback period for these investments is three years Page 9 9
Slide 10: Investing to Improve Efficiency - Group Efficiency Programme
INVESTING TO IMPROVE EFFICIENCY – GROUP EFFICIENCY PROGRAMME • Centralisation of computer operations • Consolidation of large scale processing operations and support functions • Further streamlining of the branch network and expansion of lower cost delivery channels • The further reduction of purcha
Slide 11: Ratios to Average Risk-Weighted Assets
RATIOS TO AVERAGE RISK–WEIGHTED ASSETS* 1998 1999 2000 % % % Net interest income 5.51 5.74 5.19 Other income 3.90 3.86 4.59 Total income 9.41 9.60 9.78 Operating expenses 4.34 4.10 4.26 Trading surplus 5.07 5.50 5.52 General insurance claims 0.19 0.20 0.16 Provisions for bad and doubtful debts 0.68
Slide 12: Economic Profit
ECONOMIC PROFIT £m 2,200 2,142 2,000 1,949 1,882 1,772 1,800 1,634 1,600 1,417 1,400 1,200 1,000 1998 1999 2000 Statutory basis Business as usual basis Page 12 12
Slide 13: Peter Ellwood, Group Chief Executive - 2000 Results
Peter Ellwood Group Chief Executive 2000 Results 16 February 2001 1
Slide 14: Outlook for the Financial Services Sector
OUTLOOK FOR THE FINANCIAL SERVICES SECTOR • 2000 was a watershed year for the financial services sector: – dramatic change in use of technology, driven by the internet – significant increase in competition – greater consumer empowerment – strong Government interest • These forces will continue to sh
Slide 15: Lloyds TSB - Delivering Value to Shareholders
LLOYDS TSB - DELIVERING VALUE TO SHAREHOLDERS • Our Governing Objective remains to maximise shareholder value and we seek to double value every three years over time • Our immediate target is based on delivering total shareholder returns in the top quartile of a group of 17 major financial services
Slide 16: Business as Usual Results - 2000
BUSINESS AS USUAL RESULTS - 2000 • Revenue growth of 8% • Costs increased by 10%, largely as a result of acquisitions, additional e-commerce expenditure and investments in growth markets • Efficiency ratio of under 44%, one of the lowest ratios in the world for a financial services group of our size
Slide 17: Business Volumes - 2000
BUSINESS VOLUMES - 2000 • We increased our total customer lending by 12% to £114 billion – strong growth in mortgage balances, up 11% to £53 billion – strong growth in consumer credit, up 10% to £11 billion – strong growth in commercial lending, up 16% to £38 billion • We increased our savings balan
Slide 18: Revenue Growth
REVENUE GROWTH* £m 8,641 +8% 8,002 3,217 4,054 +26% (40%) (47%) 4,785 4,587 ** –4% (60%) (53%) 1999 2000 Net interest income Other income * business as usual basis ** after deduction of £258m of funding costs of Scottish Widows Page 6 6
Slide 19: Changes in Group Net Interest Income
CHANGES IN GROUP NET INTEREST INCOME 2000 v 1999 £m Change due to volume growth 276 Change due to margin reduction (200) Net benefit 76 Change due to exchange rate movements (16) Change due to Scottish Widows funding (258) Reduction in Group net interest income (198) Page 7 7
Slide 20: Underlying Operating Expenses Remain Under Tight Control
UNDERLYING OPERATING EXPENSES REMAIN UNDER TIGHT CONTROL 1999 2000 £m £m Total operating expenses (statutory) 3,417 3,952 16% Exceptional restructuring costs - (188) Business as usual expenses 3,417 3,764 10% Acquisitions - (117) 3,417 3,647 7% Incremental new revenue investment (44) (224) Underlyin
Slide 21: Investing for Growth - Incremental Investment in E-Commerce and Growth Businesses
INVESTING FOR GROWTH – INCREMENTAL INVESTMENT EXPENDITURE IN E–COMMERCE AND GROWTH BUSINESSES 2000 2001 Payback £m £m Years E–commerce 150 150 4 Wealth Management 34 100 3 Customer Relationship Management 40 75 3 224 325 Page 9 9
Slide 22: Revenue Growth - Good Progress Made
REVENUE GROWTH - GOOD PROGRESS MADE • Leadership in our chosen markets and implementation of customer focused strategies underpin our revenue growth ambitions: – Customer Relationship Management and segmentation programmes – Scottish Widows acquisition completed – Wealth Management programme launche
Slide 23: Revenue Growth - Customer Relationship Management (CRM)
REVENUE GROWTH - CUSTOMER RELATIONSHIP MANAGEMENT (CRM) • We have developed an enhanced model of CRM, involving the real time delivery of detailed customer information to our front line staff • In an extensive pilot this new model delivered a 12% increase in sales, as well as an improvement in custo
Slide 24: Revenue Growth - Our Policy of Segmentation Is Working
REVENUE GROWTH - OUR POLICY OF SEGMENTATION IS WORKING • Value added fee based accounts increased from 1.4m to 2m • Telephone banking customers increased from 1.6m to 2m • Growth in Personal Choice customers from 600,000 to 850,000 • Growth in commercial and business banking segmented offers • We ac
Slide 25: Revenue Growth - Maintained and Built on Strong Market Position
REVENUE GROWTH - WE HAVE MAINTAINED AND BUILT ON OUR STRONG MARKET POSITION Market share Market share Market share 1999* 2000H1* 2000* Mortgages (stock) 9.5% 9.7% 9.8% Mortgages (new) 7.4% 10.7% 11.4% Household insurance 7.2% 7.4% 7.4% Personal savings 8.2% 8.3% 8.4% Business Banking 19.0% 20.0% 20.
Slide 26: Revenue Growth - Scottish Widows Is Performing Well
REVENUE GROWTH - SCOTTISH WIDOWS IS PERFORMING WELL • Proforma new business premium income in the second half of 2000 was 19% ahead of the second half of 1999 • We remain on track to deliver the £60 million cost synergies by 2003 • We have successfully launched our stakeholder pension product range.
Slide 27: Revenue Growth - Wealth Management
REVENUE GROWTH - WEALTH MANAGEMENT • We have a substantial number of customers within our core franchise who meet our new Wealth Management criteria • Create - our new wealth management offer - will provide a range of tailored services to high net worth customers from summer 2001 • The offer will be
Slide 28: Revenue Growth - E-Commerce Strategy
REVENUE GROWTH - E-COMMERCE STRATEGY • LloydsTSB.com has in excess of 1.2 million registered customers, and is now consistently one of Europe’s most visited financial websites • Our online customers have a better risk profile, hold 30% more products, have household income levels that are 25% higher
Slide 29: Mergers & Acquisitions Strategy - Offer for Abbey National
MERGERS & ACQUISITIONS STRATEGY - OFFER FOR ABBEY NATIONAL • The proposed acquisition is consistent with our UK strategy and creates value for shareholders through: – strengthening our position in our chosen markets – improving the offer to Abbey National customers – increasing income – driving down
Slide 30: Mergers and Acquisitions Strategy
MERGERS AND ACQUISITIONS STRATEGY • The intense competition in retail financial services means that further industry consolidation is inevitable over time • We believe the combination of Lloyds TSB and Abbey National will create a stronger partner for an overseas alliance • We continue to explore va
Slide 31: Short Term Outlook - 2001
SHORT TERM OUTLOOK - 2001 • Our business as usual costs will continue to be tightly controlled • We will continue to exercise strict control over asset quality • We anticipate strong sales growth • We will continue to invest to reduce costs and increase revenue Page 19 19
Slide 32: Lloyds TSB - Delivering Value to Shareholders
LLOYDS TSB - DELIVERING VALUE TO SHAREHOLDERS • 2000 was a watershed year for the financial services sector • The only companies which will survive, prosper and win will be those with a strong focus on the customer, integrated multi-channel distribution capability, unit cost leadership and trusted b
Slide 33: This document has been issued by Lloyds TSB Group plc
This document has been issued by Lloyds TSB Group plc (“Lloyds TSB”). Other than the information on slides 17 and 18 relating to the offer for Abbey National plc (the “Offer”), the contents of this document have been approved by Lloyds TSB Bank plc for the purposes of section 57 of the Financial Ser