Lloyds Banking Group plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — H1 2007 Earnings Presentation
54 slides from Lloyds Banking's earnings presentation, Jul 31, 2007
Slide 1: 2007 Interim Results
GROUP RESULTS 2007 Interim Results 31 July 2007 Sir Victor Blank Chairman
Slide 2: Chairman's overview
Chairman’s overview • Broad based revenue and earnings growth • Accelerating profit momentum; improving returns • Strong profit growth in each division • Well positioned to deliver double-digit economic profit growth • Interim dividend increased by 5%
Slide 3: 2007 Interim Results - Group Finance Director
GROUP RESULTS 2007 Interim Results 31 July 2007 Helen Weir Group Finance Director
Slide 4: Delivering a strong performance
Delivering a strong performance* 2006H1 2007H1 % Change Profit before tax £1,750m £2,010m 15 Earnings per share 22.1p 26.9p 22 Economic profit £772m £1,008m 31 Post-tax return on equity 24.0% 27.0% Interim dividend per share 10.7p 11.2p 5 * excluding volatility
Slide 5: Delivering double-digit profit growth in each division
Delivering double-digit profit growth in each division Insurance & Wholesale & UK Retail Banking Investments* International Banking +12% +13% £863m £803m £768m £713m +11% £499m £451m 2006H1 2007H1 2006H1 2007H1 2006H1 2007H1 * excluding volatility, and impact of surplus capital repatriation to Group
Slide 6: Delivering growth AND returns
Delivering growth AND returns Post-tax Return Post-tax Return on Post-tax Return on Equity* Risk-weighted Assets* on EEV* 300bp 27bp 120bp 27.0% 1.93% 10.7% 24.0% 9.5% 1.66% 2006H1 2007H1 2006H1 2007H1 2006H1 2007H1 * excluding volatility
Slide 7: Strong positive jaws
Strong positive jaws* £m 2006H1 2007H1 % Change Total income, after claims 5,160 5,607 9 Operating expenses (2,610) (2,760) (6) Trading surplus 2,550 2,847 12 Impairment (800) (837) (5) Profit before tax 1,750 2,010 15 * excluding volatility
Slide 8: Strong positive jaws – underlying results
Strong positive jaws – underlying results* £m 2006H1 2007H1 % Change Total income, after claims 5,152 5,585 8 Operating expenses (2,615) (2,714) (4) Trading surplus 2,537 2,871 13 Impairment (800) (809) (1) 1,737 2,062 19 Settlement of overdraft claims – (36) Impact of 2007 Finance Act – (28) Insura
Slide 9: Strong trading momentum – across each division
Strong trading momentum – across each division UKRB I&I* W&IB £m % Change £m % Change £m % Change Income 2,727 6 812 8 2,198 10 Costs (1,261) (2) (325) (4) (1,125) (5) Trading surplus 1,466 9 487 11 1,073 16 Impairment (627) 1 – (182) (14) 839 18 487 11 891 16 Settlement of overdraft claims (36) – –
Slide 10: Good asset and deposit growth
Good asset and deposit growth UK Retail Banking Wholesale & International Banking +6% +17% £119.6bn £109.4bn £103.4bn £102.6bn £19.4bn +7% £19.9bn +6% £74.7bn £69.6bn £59.0bn £62.5bn £83.5bn £90.0bn 2006H1 2007H1 2006H1 2007H1 2006H1 2007H1 2006H1 2007H1 Average Interest Average Customer Average Int
Slide 11: Net interest margin reduced
Net interest margin reduced % H1-on-H1 Margin Movement 3.16 3.07 3.03 Mix (7)bp 2.97 2.87 Product (7)bp (16)bp Funding (2)bp (16)bp 2005H1 2005H2 2006H1 2006H2 2007H1
Slide 12: UKRB: income growth
UKRB: income growth +6% £41m £2,727m £45m £20m £4m £(3)m £43m £2,577m Liability Driven Asset Driven £67 million £42 million 2006H1 Savings & AVA & Wealth Lending Lending Other 2007H1 Investment Other Growth Related (incl Other Growth Current Insurance Insurance) Account Fees
Slide 13: UKRB: focusing on more profitable business areas
UKRB: focusing on more profitable business areas Breakdown of Savings Growth Product Net Interest Margin (indexed) +9% £57.3bn £52.4bn 221 £14.5bn +2% C&G Deposits £14.2bn 170 £4.7bn +18% Wealth Management £4.0bn 100 Bank Savings £34.2bn £38.1bn +11% 2006H1 2007H1 C&G Wealth Bank Deposits Management
Slide 14: W&IB: components of income growth
W&IB: components of income growth +10% £47m £(36)m £192m £(4)m £2,198m £1,999m +8% (8)% +26% 2006H1 Corporate Commercial Asset International 2007H1 Markets Banking Finance /Other
Slide 15: W&IB: developing Corporate Markets revenue streams
W&IB: developing Corporate Markets revenue streams +26% £42m £919m £76m £42m £32m £727m 2006H1 Large Sales-Risk Development Products 2007H1 Corporate Management Capital
Slide 16: I&I: components of growth
I&I: components of growth* £m 2006H1 2007H1 % Change New Business Sales (PVNBP) New business profit 165 180 9 +8% £5,372m Existing £4,969m business 181 194 7 Direct +43% Expected Bancassurance £1,841m +16% £2,138m return 69 108 57 415 482 16 Impact of capital repatriation 15 – IFA £2,929m +1% £2,950
Slide 17: I&I: focusing on more profitable segments
I&I: focusing on more profitable segments New Business Sales (PVNBP) New Business Margins (indexed) 4% 5% 156 59% 55% 100 37% 40% 2006H1 2007H1 IFA Bancassurance Other IFA Bancassurance
Slide 18: Excellent cost management
Excellent cost management £m 2006H1 2007H1 % Change UK Retail Banking 1,232 1,261 (2) Insurance & Investments 312 325 (4) Wholesale & International Banking 1,072 1,125 (5) Central group items (1) 3 2,615 2,714 (4) Insurance grossing adjustments (5) 10 Settlement of overdraft claims – 36 2,610 2,760
Slide 19: Productivity programme remains on track
Productivity programme remains on track... ... to deliver £250 million pa net benefits in 2008 £250m £142m £95m £125m £114m £42m £72m £47m £(40)m 2005 2006 2007H1 2007 2008 Gross Benefits Investment Net Benefits
Slide 20: Income growth ahead of costs in all divisions
Income growth ahead of costs in all divisions* Group Cost:Income Ratio UK Retail 6% C:I ratio Banking improved 2% 160bp 50.8% 48.6% 8% Insurance & Investments 4% Wholesale & 10% C:I ratio International improved Banking 5% 240bp 8% Group 4% Income Costs 2006H1 2007H1 * excluding volatility, insurance
Slide 21: Impairment losses on loans and advances
Impairment losses on loans and advances 2006H1 2007H1 Variance % of Average Lending £m £m % 2006H1 2007H1 UK Retail Banking 632 627 1 1.23 1.15 – Mortgages 6 5 17 0.01 0.01 – Personal loans/overdrafts 387 352 9 6.18 5.60 – Credit cards 239 270 (13) 6.78 8.14 Wholesale & International Banking 159 182
Slide 22: Improving insolvency trends
Improving insolvency trends Insolvency Trends Total Indexed Industry Insolvencies Total Lloyds TSB Insolvencies Industry Bankruptcies Industry IVAs 2005 2006 2007 We are experiencing a more favourable insolvency trend than the industry Source: Insolvency Service (seasonally adjusted, data for Englan
Slide 23: Arrears performance by vintage – loans
Arrears performance by vintage – loans Arrears % 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 Sep 06 Dec 06 Mar 07
Slide 24: Arrears performance by vintage – credit cards
Arrears performance by vintage – credit cards Arrears % 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 Sep 06 Dec 06 Mar 07
Slide 25: Asset quality remains satisfactory
Asset quality remains satisfactory Impaired Assets as a Impaired Assets Percentage of Total Lending £4,029m £4,049m £4,006m 2.1% 2.0% 2.0% 30 Jun 2006 31 Dec 2006 30 Jun 2007 30 Jun 2006 31 Dec 2006 30 Jun 2007
Slide 26: Capital ratios remain robust
Capital ratios remain robust Risk-weighted Assets Capital Ratios +5% 30 Jun 30 Jun £160.7bn 2006 2007 £152.9bn Other Total capital ratio 10.3% 10.4% W&IB £86.5bn £96.1bn Tier 1 ratio 7.4% 8.1% UKRB £61.6bn £59.6bn 30 Jun 2006 30 Jun 2007
Slide 27: Improving our balance sheet management
Improving our balance sheet management • Rigorous application of economic profit in decision making • Mortgage securitisation of > £3 billion • Capital repatriation programme in Scottish Widows – £600 million in 2007H1, £2.3 billion overall • Good progress on Basel II implementation
Slide 28: Disposal of Abbey Life
Disposal of Abbey Life Proforma Impact (30/6/07) +104% (assuming £963m capital repatriation to Group) £977m £941m Disposal gain c £290m* £673m Tier 1 ratio +17bps Total capital ratio +67bps IFRS European Cash Net Asset Embedded Consideration Value Value * less accrued profits prior to completion, an
Slide 29: Improving our balance sheet management
Improving our balance sheet management • Rigorous application of economic profit in decision making • Mortgage securitisation of > £3 billion • Capital repatriation programme in Scottish Widows – £600 million in 2007H1, £2.3 billion overall • Good progress on Basel II implementation
Slide 30: Delivering accelerating profit momentum
Delivering accelerating profit momentum • Strong sales; improved revenue growth Continuing to build earnings • Substantially improved productivity momentum • Wide positive jaws • Strong profit growth in each division • Improving cost:income ratio • Improving return on risk-weighted assets Sustaining
Slide 31: 2007 Interim Results - Group Chief Executive
GROUP RESULTS 2007 Interim Results 31 July 2007 Eric Daniels Group Chief Executive
Slide 32: 2007H1 results in longer term context
2007H1 results in longer term context Delivering on our strategy Confidence in future delivery • Improved top line growth – Still big opportunity in our franchises • Structurally improving productivity – Positive jaws and investment in future growth • Double-digit economic profit growth – Key to str
Slide 33: Strong momentum across all three Divisions
Strong momentum across all three Divisions UKRB • Income up 6% 2007H1 PBT* • Costs up 2% • Trading surplus up 9% Wholesale & International • PBT up 18% W&IB UKRB • Income up 10% £891m £839m 40% of total 38% of total • Costs up 5% • Trading surplus up 16% I&I £487m Insurance & Investments • PBT up 16
Slide 34: Improved income growth
Improved income growth Income (£m)* +9% +7% 5,607 5,160 4,802 4,450 4,190 2003H1 2004H1 2005H1 2006H1 2007H1 * 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a Full IFRS basis. All figures exclude volatility
Slide 35: Sustained productivity improvement
Sustained productivity improvement Cost:income ratio (%)* 54.5 53.8 53.1 50.6 48.6 2003H1 2004H1 2005H1 2006H1 2007H1 * 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a Full IFRS basis. All figures exclude volatility and settlement of overdraft claims
Slide 36: Accelerating profit growth
Accelerating profit growth PBT (£m)* +15% +13% 2,010 1,750 1,645 1,553 1,476 2003H1 2004H1 2005H1 2006H1 2007H1 * 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a Full IFRS basis. All figures exclude volatility
Slide 37: Consistently high returns
Consistently high returns RoE (%)* 27.0 23.5 23.5 24.0 23.1 2003H1 2004H1 2005H1 2006H1 2007H1 * 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a Full IFRS basis. All figures exclude volatility
Slide 38: Double digit economic profit growth
Double digit economic profit growth Economic profit (£m)* +31% +15% 1,008 772 710 647 674 2003H1 2004H1 2005H1 2006H1 2007H1 * 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a Full IFRS basis. All figures exclude volatility
Slide 39: Strong returns to shareholders
Strong returns to shareholders Total shareholder returns TSR Avg. annual annual dividend Index, equivalent1 yield (03–06) 30/6/03 = 100 176 Lloyds TSB 15.3% 7.7% 157 Other large 11.7% 4.2% UK banks2 100 06/03 06/04 06/05 06/06 06/07 Source: Bloomberg 1 as at 30 June 2007; 2 arithmetic average of Bar
Slide 40: Dividend growth restored
Dividend growth restored Past policy: Future policy: maintain strong dividend progressive strong dividend • Grow into our dividend • Grow our dividend – Build stable, – Leverage stable, predictable, lower risk predictable, lower risk business model business model – Focus on capital – Continue to foc
Slide 41: Delivering on our strategy
Delivering on our strategy Delivering what we said • We have significant potential in our franchises • We can structurally improve our productivity • We can manage capital to fund growth • We can put in place the capabilities and processes to achieve and sustain growth Still significant opportunitie
Slide 42: Realising the potential in our franchises
Realising the potential in our franchises Example: extending and deepening the franchise, especially in higher value AVAs Extending: Deepening: # new accounts 2005 H1 cohort, % (indexed to 100) +25% customers with AVA 209 18% 26% AVAs 167 19% 13% 107 110 100 13% 6% 9% Traditional 94% 91% 87% 81% 74%
Slide 43: Realising the potential in our franchises
Realising the potential in our franchises Example: capturing the savings and investment opportunity within our franchise I&I bancassurance sales1 Net inflows of savings balances2 (indexed to 100) (indexed to 100) 172 129 100 100 2003H1 2004H1 2005H1 2006H1 2007H1 2003H1 2004H1 2005H1 2006H1 2007H1 1
Slide 44: Realising the potential in our franchises
Realising the potential in our franchises Example: growing Wholesale businesses through new product areas and improved cross sell Corporate & Commercial businesses income (indexed to 100) 174 148 Products & 132 53 Markets • Wholesale (CAGR: 21%) 108 35 45 cross-sell1 100 up 47% 25 25 since 2005 Trad
Slide 45: Structurally improving our productivity
Structurally improving our productivity Example: managing expenses and improving customer service • Reduced error rates through extending ‘sigma’ 75,509 # FTEs1 • Extended ‘lean’ 107 manufacturing programme 100 Customer 66,012 satisfaction2 • Estimated annual cost savings: £250–350 million 2003H1 20
Slide 46: Structurally improving our productivity
Structurally improving our productivity Example: more efficient branch processes driving sales performance UKRB # staff UKRB sales / sales staff (indexed to 100) (indexed to 100) 100 86 117 Sales staff 21% 100 35% Non-sales 79% 65% staff 2005H1 2007H1 2005H1 2007H1
Slide 47: Structurally improving our productivity
Structurally improving our productivity Example: investing in people and productivity in Corporate Markets Corporate Markets # staff Corporate Markets income per (indexed to 100) front office staff (indexed to 100) 105 116 100 100 Front office 44% 53% Back office 56% 47% 2005H1 2007H1 2005H1 2007H1
Slide 48: Investing in our businesses
Investing in our businesses Continuing to invest in our …and investing in people business… Investment1 Examples (indexed to 100) • 42% increase in Corporate 132 Markets front office staff since 2004 • 150% increase in branch staff accredited to perform sales roles since November 2006 100 • 19% incre
Slide 49: Managing capital to fund growth
Managing capital to fund growth Example: capturing the Savings & Investments opportunity drives capital efficient growth # of UKRB sales (m) UKRB RWAs (£bn)1 +48% 3.7 +2% 59.6 58.4 2.5 59% Non–lending 44% Lending 56% 41% 2005H1 2007H1 2005H1 2007H1 1 post 2007 securitisation. Pre-securitisation: 200
Slide 50: Managing capital to fund growth
Managing capital to fund growth Example: redirecting capital towards more profitable business in Wholesale and maintaining risk profile Corporate & Commercial Corporate & Commercial businesses RWAs businesses assets 34% 34% Higher return 70% 70% Lower risk 35% 42% Medium return 19% 21% Medium risk 3
Slide 51: Managing capital to fund growth
Managing capital to fund growth Example: Scottish Widows has achieved profitable growth and capital release Focus on more capital efficient distribution channels SW product IRRs APE sales1 (£m) (indexed to 100) 254 +39% Bancassurance 665 Bancassurance 480 (+87% growth) 160 IFAs 100 IFAs & Direct (+2
Slide 52: Headroom for growth
Headroom for growth • Improving customer service Strong customer franchises • Understanding and meeting customer needs • Increasing sales capacity Continuous • Applying ‘lean’ and other productivity techniques productivity growth • Creating room for increased investment • Active balance sheet manage
Slide 53: 2007H1 results in longer term context
2007H1 results in longer term context Delivering on our strategy • Improved top line growth • Structurally improving productivity • Double-digit economic profit growth • Growing a strong dividend Confidence in future delivery
Slide 54: Forward looking statements
Forward looking statements This document is a summary only of certain information contained in the announcement dated 31 July 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 and pl