Lloyds Banking Group plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — FY2006 Earnings Presentation
59 slides from Lloyds Banking's earnings presentation, Feb 23, 2007
Slide 1: 2006 Results
2006 Results 23 February 2007 Sir Victor Blank Chairman
Slide 2: Chairman’s overview
Chairman’s overview • High quality, balanced set of businesses • Increased trading momentum • Good balance sheet growth • Increased focus on non-lending products • Higher income growth in UK Retail Banking • Productivity programme extended • Credit quality remains satisfactory • Robust capital posit
Slide 3: 2006 Results – Helen Weir, Group Finance Director
2006 Results 23 February 2007 Helen Weir Group Finance Director
Slide 4: Good underlying results
Good underlying results* 2005 2006 % Change Profit before tax £3,450m £3,713m 8 Earnings per share 44.2p 46.9p 6 Economic profit £1,601m £1,692m 6 Post-tax return on equity 25.5% 25.1% Total dividend per share 34.2p 34.2p Total shareholder return 10.9% 24.8% * excluding volatility and the pension sc
Slide 5: 2006 – continued progress
2006 – continued progress • Continuing to deliver good earnings progress… …across each of our businesses • Sustaining high returns… …and driving growth • Maintaining a robust capital position… …while continuing to deliver returns to shareholders AND • Higher income growth in the second half
Slide 6: Underlying results – strong positive jaws
Underlying results – strong positive jaws* £m 2005 2006 % Change Total income, after claims 10,070 10,697 6 Operating expenses (5,321) (5,429) (2) Trading surplus 4,749 5,268 11 Impairment (1,299) (1,555) (20) Profit before tax 3,450 3,713 8 * excluding volatility and the pension schemes related cre
Slide 7: Accelerating income growth in the second half
Accelerating income growth in the second half* £m 2006H1 % Change 2006H2 % Change Total income, after claims 5,162 6 5,535 7 Operating expenses (2,610) (1) (2,819) (3) Trading surplus 2,552 11 2,716 11 Impairment (800) (20) (755) (19) Profit before tax 1,752 8 1,961 8 * excluding volatility and the
Slide 8: Balanced trading momentum across each division
Balanced trading momentum across each division* UKRB I&I W&IB £m £m % Change £m % Change £m % Change Income 5,263 4 1,596 12 4,212 8 Costs (2,476) 2 (646) (6) (2,264) (4) Trading surplus 2,787 10 950 15 1,948 14 Impairment (1,238) (16) - (308) (64) Profit before tax 1,549 5 950 15 1,640 8 * excludin
Slide 9: Good income growth
Good income growth* £m 2005 2006 % Change Net interest income 5,434 5,626 4 Other income 4,828 5,256 Non-life insurance claims (197) (200) Other income, net of claims 4,631 5,056 9 Total income, net of claims 10,065 10,682 6 Insurance grossing adjustments 5 15 10,070 10,697 6 * excluding volatility
Slide 10: Good asset and deposit growth
Good asset and deposit growth UK Retail Banking Wholesale & International Banking +7% +17% £104.7bn £107.2bn £97.6bn £19.7bn +6% £91.8bn £19.4bn £71.0bn +8% £66.7bn £61.0bn £56.6bn £78.2bn £85.0bn 2005 2006 2005 2006 2005 2006 2005 2006 Average Interest Average Customer Average Interest Average Cust
Slide 11: Net interest margin slightly lower
Net interest margin slightly lower* Year-on-year Margin Movement 3.16 3.07 Mix (8)bp 3.11 3.03 2.97 (11)bp 3.00 Product (2)bp Funding (1)bp (11)bp 2005H1 2005H2 2006H1 2006H2 * relating to the Group’s banking businesses, excluding volatility, Products and Markets and other
Slide 12: UKRB: income growth driven by liabilities
UKRB: income growth driven by liabilities Strong savings and bancassurance growth £68m £50m £5,263m £33m £49m £89m £(83)m £5,057m Liability Driven Asset Driven £171 million £(15) million 2005 Savings & AVA and Wealth Lending Lending Other 2006 Investment Other Growth Related (incl Other Growth Curre
Slide 13: I&I: components of growth
I&I: components of growth* £m 2005 2006 % Change New Business Sales (PVNBP) New business +24% £9,740m profit 254 346 36 £961m Existing business 226 339 50 £7,842m Other £1,030m £3,421m Expected return 209 167 (20) Bancassurance £2,114m +62% 689 852 24 Impact of capital IFA £5,358m repatriation 38 -
Slide 14: Strong EEV new business profit growth
Strong EEV new business profit growth 2006 New New business PVNBP business profit £m % Change margin Change £m % Change Life and pensions 7,020 6 4.1% +60bp 287 24 OEICs 2,720 124 2.2% +30bp 59 156 Total 9,740 24 3.6% +40bp 346 36
Slide 15: I&I: drivers of strong margin growth
I&I: drivers of strong margin growth Life & Pensions OEICs 2005 Margin 3.5% 1.9% Product Mix (0.2)% (0.2)% • Lower protection sales Price/Cost • Higher leverage of fixed costs Management 0.8% 0.5% • New corporate pensions platform • Withdrawal/re-pricing in uneconomic sectors 2006 Margin 4.1% 2.2%
Slide 16: W&IB: components of income growth
W&IB: components of income growth +8% £52m £12m £25m £4,212m £230m +1% +7% £3,893m +15% 2005 Corporate Business Asset International 2006 Markets Banking Finance /Other
Slide 17: W&IB: diversifying Corporate Markets revenue streams
W&IB: diversifying Corporate Markets revenue streams +15% £61m £1,814m £34m £41m £46m £48m £1,584m 2005 Sales & Debt Acquisition Large Other 2006 Structuring Capital Finance Corporate Markets
Slide 18: Excellent cost control
Excellent cost control* £m 2005 2006 % Change UK Retail Banking 2,522 2,476 2 Insurance & Investments 607 646 (6) Wholesale & International Banking 2,181 2,264 (4) Central group items 24 51 5,334 5,437 (2) Insurance grossing adjustments (13) (8) 5,321 5,429 (2) * excluding pension schemes related cr
Slide 19: W&IB: investing for growth
W&IB: investing for growth 8.2% Invest to grow 3.8% 1.1% 1.4% 0.3% 1.0% W&IB W&IB Investment in Investment Investment Underlying Revenue Cost Growth Infrastructure in CM Staff in Efficiency W&IB Cost Growth Growth
Slide 20: Productivity programme key activities
Productivity programme key activities • 60% spend handled via centre of excellence Leverage scale and dedicated • 93% of spend with top 1,000 suppliers expertise in procurement • Renegotiation of major contracts • Number of sites reduced by 25% since 2004 Transform manufacturing and processing effic
Slide 21: Productivity programme ahead of schedule
Productivity programme ahead of schedule … ... and extended to include 2008 benefits Financial Principles Net Benefit £250m • Self funding £142m £125m • Payback c. 2 years £47m • Reinvest c. 50% of gross benefits £(40)m £(95)m 2005 2006 2007 2008
Slide 22: Income growth ahead of costs in all divisions
Income growth ahead of costs in all divisions* Group UK Retail 4% C:I ratio Cost:Income Ratio Banking improved (2)% 290bp 52.8% 12% 50.8% Insurance & Investments 6% Wholesale & 8% C:I ratio International improved Banking 4% 220bp 6% Group 2% Income Costs 2005 2006 * excluding volatility. Also exclud
Slide 23: Impairment losses on loans and advances
Impairment losses on loans and advances 2005 2006 Variance % of Average Lending £m £m % 2005 2006 UK Retail Banking 1,065 1,238 (16) 1.09 1.18 - Mortgages 13 8 0.02 0.01 - Personal loans/overdrafts 656 740 (13) 5.33 5.85 - Credit cards 396 490 (24) 5.80 6.99 Wholesale & International Banking 188 308
Slide 24: Insolvency trends slowing
Insolvency trends slowing Number of Individual Insolvencies in England and Wales Market 35,000 • Higher levels of insolvency 30,000 Total Insolvencies – Rapid take-up of IVAs 25,000 • Recent slowdown in IVA growth rate 20,000 Bankruptcies Lloyds TSB 15,000 • Lloyds TSB experience consistent with mar
Slide 25: Arrears performance by vintage – loans
Arrears performance by vintage – loans Month 2 Month 4 Month 6 Month 8 Month 10 Month 12 Month 14 Month 16 Month 18 Month 20 Month 22 Month 24 Mar 04 Jun 04 Sep 04 Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06
Slide 26: Arrears performance by vintage – credit cards
Arrears performance by vintage – credit cards Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Mar 04 Jun 04 Sep 04 Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06
Slide 27: Step change in collections effectiveness
Step change in collections effectiveness • 25% reduction in proportion of cards % card balances 1 cycle down between 1 to 4 cycles delinquent • Increased customer contact All banks • Cost of collections reduced Outbound Customer Contacts Lloyds TSB Inbound Calls 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 20
Slide 28: Asset quality remains strong
Asset quality remains strong Impaired Assets as a Impaired Assets Percentage of Total Lending (3)% £4,122m £4,029m 2.3% £4,006m 2.1% 2.0% 31 Dec 2005 30 Jun 2006 31 Dec 2006 31 Dec 2005 30 Jun 2006 31 Dec 2006
Slide 29: Scottish Widows – strong capital generation
Scottish Widows – strong capital generation £m 2005 2006 New business strain including required capital (287) (283) Expected in-force capital release 652 716 Expected capital generated 365 433 Annual dividend (200) (206) Expected capital generated after annual dividend 165 227 Risk capital margin co
Slide 30: Capital ratios remain robust
Capital ratios remain robust Risk-weighted Assets +8% £156.0bn 31 December 31 December £144.9bn 2005 2006 Other W&IB £80.1bn +15% £91.8bn Total capital 10.9% 10.7% ratio Tier 1 ratio 7.9% 8.2% UKRB £60.4bn (2)% £59.1bn 2005 2006
Slide 31: Reducing the pension schemes’ deficit
Reducing the pension schemes’ deficit £m 2005 2006 Difference Net defined benefit scheme deficit 3,294 2,099 (1,195) Unrecognised actuarial (gains)/losses (485) 263 Other retirement benefit schemes 101 100 Recognised balance sheet deficit 2,910 2,462 (448) Deferred tax (873) (739) IAS 19 pension def
Slide 32: Improving our balance sheet management
Improving our balance sheet management Active management of balance sheet Rigorous application of economic for optimum risk/return profit metric in decision-making • Mortgage securitisation of > £10 billion • EP driving loan pricing in UKRB − UK’s largest RMBS • EP driving business decisions in Busi
Slide 33: Capital outlook – introduction of Basel II
Capital outlook – introduction of Basel 2 • Credit risk waiver application submitted in December 2006 • Preparations well advanced with parallel running during 2007 • Satisfactory capital ratios to be maintained throughout the transition • No ‘investment in subsidiaries’ deduction expected from tier
Slide 34: 2006 – continued earnings momentum
2006 – continued earnings momentum • Strong sales growth, improving sales mix Continuing to build earnings • Accelerating Retail revenue momentum • Widening of positive jaws • Double-digit trading surplus growth • Improving cost:income ratio • Satisfactory asset quality Sustaining high returns • ROE
Slide 35: 2006 Results – Eric Daniels, Group Chief Executive
2006 Results 23 February 2007 Eric Daniels Group Chief Executive
Slide 36: 2006 results: building earnings momentum
2006 results: building earnings momentum • Building momentum − Two divisions, W&IB and I&I, continue to grow strongly − UKRB building momentum • Improving productivity − Positive Jaws in every Division − Lower unit costs and better sales and service − Continuing to invest in future growth • Slowing
Slide 37: Our financial progress: consistently improving performance
Our financial progress: consistently improving performance Income growth* Expenses growth* 7% 6% 6% 4% 3% 2% 0% 0% 2002-03 2003-04 2004-05 2005-06 2002-03 2003-04 2004-05 2005-06 PBT* ROE* £3.7bn 25.2% 25.5% 25.1% £3.4bn £3.5bn £3.2bn 23.1% 23.5% £3.1bn 2002 2003 2004 2005 2006 2002 2003 2004 2005 2
Slide 38: A business model for high quality, sustained growth
A business model for high quality, sustained growth Income Expense Profitability Sustained growth Sustained growth Sustained growth Our comes from comes from strong comes from capital belief continuous customer franchises efficiency productivity growth Acquire customers Leverage a broad set Rigorous
Slide 39: A business model for high quality, sustained growth
A business model for high quality, sustained growth Building strong customer franchises Increasingly More satisfied motivated Sales growth Income growth customers employees Employee engagement1 Customer satisfaction2 Sales3 Income4 132 117 116 UK FS 105 Norm 100 100 100 100 2003 2004 2005 2006 2003
Slide 40: A business model for high quality, sustained growth
A business model for high quality, sustained growth Continuous productivity growth Applying ‘Sigma’ …together with Reducing Improving reduces error ‘Lean’, we are doing unit costs cost:income ratio rates… more for less DPMO1 Number of FTEs2 Group Ops unit cost3 Cost:income ratio4 42,711 (Jan 2004) 7
Slide 41: A business model for high quality, sustained growth
A business model for high quality, sustained growth Growing our investment Investing in growth and returns Investment expenditure1 Invest to Invest to protect accelerate 112 returns and growth High raise growth Narrow Medium ‘Jaws’ ‘Jaws’ Return Invest only Invest only in to fix the prof
Slide 42: A business model for high quality, sustained growth
A business model for high quality, sustained growth Income Expense Profitability Acquire customers Leverage a broad set Rigorously apply Our and deepen of productivity economic profit focus relationships in core disciplines across discipline at every franchises the Group level Our goal Consistent, s
Slide 43: Well balanced Group with strength in all Divisions
Well balanced Group with strength in all Divisions UKRB • Income up 4% 2006 PBT1 • Cost:income down 3pp • Trading surplus up 10% Wholesale & International • PBT up 5% W&IB UKRB • Income up 8% £1,640m £1,549m 40% of total 37% of total • Cost:income down 2pp • Trading surplus up 14% I&I £950m Insuranc
Slide 44: UKRB: driving growth
UKRB: driving growth Our objectives What we did in 2006 • Improved customer Grow income from existing satisfaction customer base • Improved sales capability • Rebalanced sales mix Grow income from new • Acquired new customers customers • Innovated with new product and service offers • Improved our s
Slide 45: UKRB: moving beyond satisfying customers
UKRB: moving beyond satisfying customers Our customer satisfaction scores …but we want to move beyond are improving… satisfying customers Branch ‘touch’ scores1 NPV per customer (stylised) 107 100 2002 2003 2004 2005 2006 Dissatisfaction Satisfaction Advocacy Now #1 for branch satisfaction Today: am
Slide 46: UKRB: driving growth and efficiency
UKRB: driving growth and efficiency …has helped drive sales and Improving our branch processes… improve efficiency Sales per branch FTE1 • Average sales time reduced, 142 to below the European average 100 • Improved ability to cross-sell at account opening • Roles clearly defined to staff 2005 2006
Slide 47: UKRB: capturing our savings opportunity
UKRB: capturing our savings opportunity Innovative product Rebalanced sales Savings growth and service offers mix Examples UKRB sales volumes Growth (2005-2006) • ‘Save the change’ 62% 53% 51% 58% 65% • 8% Monthly Saver Non- Lending • Guaranteed 11% Investment Account • Simplified OEIC range Lending
Slide 48: UKRB: where we are focusing to drive future growth
UKRB: where we are focusing to drive future growth • Success in retail banking requires simultaneous delivery across multiple dimensions: – Customer advocacy – Sales and service culture – Balanced and growing product mix – Efficient, low-cost processes • We have developed strong foundations to deliv
Slide 49: I&I: accelerating growth
I&I: accelerating growth Our objectives What we did in 2006 • Improved our bancassurance product range and sales Leverage our distribution effectiveness strength • Focused on the most valuable IFA relationships and improved service Continue to develop better • Simplified bancassurance products produ
Slide 50: I&I: leveraging our distribution strength
I&I: leveraging our distribution strength Increasingly Improved Helping to motivated customer drive higher employees satisfaction sales Employee engagement1 Customer satisfaction2 Sales3 174 144 IFA 128 110 100 100 100 Bancassurance 2003 2004 2005 2006 2003 2004 2005 2006 2003 2004 2005 2006 1 Emplo
Slide 51: I&I: improved productivity delivering returns
I&I: improved productivity delivering returns Operational Improved Stronger improvements product returns profitability DPMO1 IRRs2 PBT per FTE3 162 10,834 136 3,467 100 100 2003 2004 2005 2006 2003 2004 2005 2006 2003 2004 2005 2006 1 End of year Defects Per Million Opportunities = Sigma for Scottis
Slide 52: I&I: where we are focusing to drive future growth
I&I: where we are focusing to drive future growth • Making the most of our distribution reach – in the core bank franchises and the IFA channel • Further tailoring products – to meet the needs of customers in different channels • Further improving our productivity – both within I&I and through lever
Slide 53: W&IB: continued growth momentum
W&IB: continued growth momentum Our objectives What we did in 2006 • Built product and sales capability Grow the Corporate Markets to deepen customer relationships business • Developed asset distribution capabilities Build on the growth • Continued strength in startups momentum in Business • Improve
Slide 54: W&IB: driving Corporate Markets growth
W&IB: driving Corporate Markets growth Broader product Delivered more and sales Improved sales mix productively capabilities Income Income per FTE • We have invested in (indexed to 100) (indexed to 100) extending our product capabilities 115 – Leveraged securitisation 100 114 +24% – Structured depos
Slide 55: W&IB: growing higher return Corporate Markets businesses
W&IB: growing higher return Corporate Markets businesses We are accelerating growth in our …redirecting capital towards highest return businesses… higher returns Corporate Markets RWAs Higher FMD growth £65bn Large £56bn 34% High 28% RAROC Commercial RWA growth (2005-06) 41% Medium SAF 48% RAROC AFU
Slide 56: W&IB: Business Banking’s model for continued success
W&IB: Business Banking’s model for continued success More Rising Driving Improving Growing motivated customer customer productivity PBT employees satisfaction acquisition Employee Customer Switcher Cost:income PBT4 (£m) engagement1 satisfaction2 recruitment3 ratio4 18,800 247 71% 112 106 100 8,500 1
Slide 57: W&IB: where we are focusing to drive future growth
W&IB: where we are focusing to drive future growth • Focusing on the most valuable customer segments – mid market - i.e. SME and mid-corporate clients • Investing in a broader range of products and skills – to serve the increasingly sophisticated needs of these customers • Deepening relationships wi
Slide 58: Summary: what these results indicate for the future
Summary: what these results indicate for the future • Building strong revenue momentum • Growing and deepening our franchises A business model for high quality, sustained • Enhancing efficiency growth • Growing investment • Strengthening capital disciplines
Slide 59: Forward looking statements
Forward looking statements This document is a summary only of certain information contained in the announcement dated 23 February 2007 and should be read in conjunction with the full text of the announcement. This document contains forward looking statements with respect to the business, strategy an