Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — HBOS — H1 2003 Earnings Presentation
52 slides from Lloyds Banking's earnings presentation, 2003
Slide 1: Slide 1
Slide 2: Interim Results 2003 - James Crosby
Interim Results 2003 James Crosby Chief Executive
Slide 3: Slide 3
Slide 4: Mike Ellis, Group Finance Director
Mike Ellis Group Finance Director
Slide 5: Key Financials
Key Financials Restated* % 30.06.03 30.06.02 Growth Profit before tax and exceptional items £m 1,825 1,507 21 Underlying earnings per share**(p) 32.4 27.9 16 Interim dividend (p) 10.3 9.8 5 Post-tax return on Mean equity***(%) 17.2 16.3 6 * restated to reflect changing to unsmoothed asset values for
Slide 6: June 2002 Comparative Figures
June 2002 Comparative Figures As As (*) Reported Adjustments Restated £m £m £m Profit & Loss Account Profit before tax & exceptionals 1,578 (71) 1,507 Profit before tax 1,509 (71) 1,438 Profit after tax 1,079 (55) 1,024 Profit attributable to shareholders 996 (48) 948 Balance Sheet Total Assets 325,
Slide 7: Financial Performance: Divisional profit
Financial Performance ……. Divisional profit before tax and exceptional items Restated 30.06.03 30.06.02 % £m £m Growth Retail 833 671 24 Insurance & Investment 389 309 26 Business Banking 177 153 16 Corporate Banking 398 323 23 Treasury 109 128 (15) BankWest 48 40 20 Group Items (129) (117) (10) Tot
Slide 8: Financial Performance: Group profit
Financial Performance… Group profit before tax and exceptional items Restated 30.06.03 30.06.02 % £m £m Growth Net interest income 2,648 2,294 15 Non-interest income^ 1,567 1,296 21 Operating expenses* (1,913) (1,733) 10 Operating profit before provisions* 2,302 1,857 24 Provisions (499) (379) 32 Sh
Slide 9: Net interest income - Margin trends
Financial Performance… Net interest income - Margin trends Half Year Half Year Half Year Ended Ended Ended 30.6.03 30.6.02 31.12.02 % % % Retail 1.96 2.02 1.96 Business Banking 2.76 3.01 2.89 Corporate Banking 1.75 1.72 1.81 Treasury 0.13 0.18 0.16 BankWest 2.20 2.14 2.12 Group (gross of securitisat
Slide 10: Operating Expenses
Financial Performance… Operating Expenses Half Year Half Year Half Year Ended Ended Ended 30.06.03 30.06.02 31.12.02 £m £m £m Operating Expenses 1,957 1,802 1,960 Exceptional items (44) (69) (84) 1,913 1,733 1,876 Goodwill amortisation (46) (42) (44) Operating lease depreciation (159) (124) (165) Un
Slide 11: Underlying Operating Expenses
Financial Performance… Underlying Operating Expenses Half Year Half Year Half Year Ended Ended Ended 30.06.03 30.06.02 31.12.02 £m £m £m Retail 993 957 999 Insurance & Investment 125 89 107 Business Banking 277 245 270 Corporate Banking 107 87 92 Treasury 39 43 46 Other 167 146 153 Total 1,708 1,567
Slide 12: Merger Synergies
Merger Synergies H1 2003 P&L Impact Net revenue Cost benefits savings Total £m £m £m Retail 33 48 81 Insurance & Investment 3 5 8 Corporate Banking 68 1 69 Business Banking 17 1 18 Treasury 8 12 20 Group Services - 54 54 Total 129 121 250
Slide 13: Provision for bad debt charge
Financial Performance… Provision for bad debt charge Half Year Ended Half Year Ended Half Year Ended Year Ended 30.06.03 30.06.02 31.12.02 31.12.02 % of % of % of % of average average average average customer customer customer customer £m advances £m advances £m advances £m advances Retail 239 0.14
Slide 14: Closing Provisions, Suspended Interest and NPAs
Financial Performance… Closing Provisions, Suspended Interest and Non Performing Assets (NPAs) Provisions & interest NPAs as % Provisions in suspense Customer of Customer & interest as % of Advances NPAs Advances in suspense NPAs £bn £m % £m % As at 30.06.03 Retail Residential Mortgages 161.1 1,889
Slide 15: Group Risk Weighted Assets & Capital
Financial Performance… Group Risk Weighted Assets & Capital Half Year Year Ended Ended 30.06.03 31.12.02 £m £m Risk Weighted Assets 204,261 187,142 Tier 1 Capital 16,310 14,788 Tier 2 Capital 11,170 8,803 Total deductions (4,590) (4,064) Total Capital 22,890 19,527 % % Tier 1 Capital Ratio 8.0 7.9 T
Slide 16: Post-tax Return on Mean Equity
Financial Performance… Post-tax Return on Mean Equity Half year ended Half year ended Half year ended Year ended 30.06.03 30.06.02 31.12.02 31.12.02 (Restated) % % % % Based on monthly average equity Group “target” post tax RoE 17.3 18.3 16.7 17.5 Short-term fluctuations in investment returns (0.1)
Slide 17: Divisional Post-tax Return on Mean Equity
Financial Performance… Divisional Post-tax Return on Mean Equity Half year Half year Half year Year ended ended ended ended 30.06.03 30.06.02 31.12.02 31.12.02 (Restated) % % % % Retail 23 20 21 20 Insurance & Investment 13 18 15 16 Business Banking 15 15 14 15 Corporate Banking 19 19 18 19 Treasury
Slide 18: Conclusion
Conclusion... Stable Margins Tight Cost Control Sound Credit Quality Growing Non Interest Income
Slide 19: A formula that's hard to replicate - Andy Hornby
A formula that ’s hard that’s to replicate Andy Hornby Chief Executive, Retail
Slide 20: Hard to Replicate: The Results Formula
Hard to Replicate… The Results Formula Strong Volume Growth Profits up 24.1% Improving Cost Stable Income Ratios Margins Income up 14.8% Tight Cost Control Costs up Strong Asset Quality 3.8%
Slide 21: Hard to Replicate: Operating Performance
Hard to Replicate… Operating Performance 25% net lending Profits up 24.1% Cost:Income Ratio Net Interest Margin down from 53.6% to 48.4% Stable at 196bps Income up 14.8% Operating costs down 0.6% on H2 2002 Costs up NPAs stable at 1.80% 3.8%
Slide 22: Hard to Replicate: Brand Proposition
Hard to Replicate… Brand Proposition Simple value for money products Powerful brands – 5 mortgage brands – No. 1 UK Savings/Bancassurance brand Fair pricing to new & existing customers – back book pricing largely eliminated Aggressive, populist marketing Multi-channel distribution reach –
Slide 23: Hard to Replicate: Cost credentials
Hard to Replicate… Cost credentials Annual cost growth limited to 3% Merger synergies driving productivity – £150m of cost synergies by end 2004 Investment in low cost scale IT systems – single customer view, single back end system for each product tier Volume growth converting straight to p
Slide 24: Hardest to Replicate: The culture
Hardest to Replicate… The culture Micro-management of daily sales trends Focus on constantly increasing productivity levels Minimal management layers Local branch-based bonus schemes Share options for all
Slide 25: Hard to Replicate: The Results Formula
Hard to Replicate… The Results Formula Strong Volume Growth Profits up 24.1% Cost:Income Ratio down Margins stable from 53.6% to 48.4% at 196bps Income up 14.8% Costs down 0.6% on H2 2002 NPA’s stable Costs up at 1.80% 3.8%
Slide 26: Quality Growth Delivering Improved Returns - George Mitchell
Quality Growth Delivering Improved Returns George Mitchell Chief Executive, Corporate Banking
Slide 27: Key Figures
Key Figures 6 months to June 03 Lending growth 10% Net interest margin 175 bps Cost:income ratio 15.7% Provisions charge 36 bps Profit before tax £398m Post tax ROE 19%
Slide 28: Credit Quality
Credit Quality
Slide 29: Credit
Credit Manufacturing Technology Investment trusts Power Telecoms Airlines
Slide 30: Credit: provisioning and sector breakdown
Credit Provisioning for 6 months to June 03 £m % Specific 157 90 General 17 10 Total 174 100 Sector breakdown £m % Manufacturing 46 26 Technology 29 17 Investment trusts 22 13 Power 22 13 Telecoms 14 8 Other 41 23 174 100
Slide 31: Credit: Property
Credit: Property Largest sector accounting for around 30% of the Division’s loans (6% of HBOS’s loans) % Property Investment 61 Housing Associations 17 Housebuilders 9 Property Development 13 Over 80% of development figure is either pre-let, pre-sold or has some form of corporate recourse Spec
Slide 32: Quality Growth Delivering Improved Returns
Quality Growth Delivering Improved Returns
Slide 33: Credentials for Profitable Growth - Phil Hodkinson
Credentials for Profitable Growth Phil Hodkinson Chief Executive, IID
Slide 34: First Half Results
First Half Results Financial Performance Profits up 26% to £389m Insurance up 12% to £213m Investment up 49% to £176m Operational Performance Insurance sales up 20% to £747m Investment sales up 3% to £606m (11% in UK) New business profitability improved
Slide 35: Repayment Insurance
Repayment Insurance Sales = £433m in first half (+13%) – Driven by growth in loans & credit cards – Group business (75%) and 3rd party business (25%) Capabilities – Scale (2nd largest in UK market) – Integrated platform across all business – “Through the cycle” experience
Slide 36: Household Insurance
Household Insurance Underwriting in-house from next year – Capabilities already in place and proven – One-off £76m timing impact in 2004 – Attractive shareholder returns Competitive advantages – Scale (one of the largest in UK market) – Low acquisition costs – High quality underwriting
Slide 37: Motor Insurance
Motor Insurance Sales = £89m in first half (+82%) – Driven by quality of distribution … esure, Halifax and Sainsbury’s brands – Over 600,000 policies, ahead of schedule Capabilities – State of the art underwriting, customer service and claims mgt systems – Peter Wood and team!
Slide 38: UK Investment Market: 2002
UK Investment Market : 2002 Sales Share 1. Standard Life £1,433m 12.9% 2. Aviva £1,298m 11.7% 3. HBOS £1,095m 9.9% 4. Legal & General £811m 7.3% 5. Prudential £781m 7.0% 6. Lloyds TSB £768m 6.9% 7. Aegon £588m 5.3% 8. Abbey National £539m 4.9% 9. AXA £511m 4.6% 10. Zurich £488m 4.4%
Slide 39: Investment Results
Investment Results UK sales up 11% to £565m EPI – Bancassurance up 34% – UK Intermediary down 2% – Wealth Management down 17% – New business profitability improved Profits up 49% to £176m – bounce back from last year’s market fall – lower margins from existing business
Slide 40: Investment Credentials
Investment Credentials Distribution: – Diverse range of channels and customers – Access to UK’s No. 1 savings franchise – Simple transparent fee based products Focus on profitability: – Economic pricing for with profits business – Not chasing growth at any price – Continuing to invest in the fut
Slide 41: Delivering our promise - Colin Matthew
Delivering our promise Colin Matthew Chief Executive, Business Banking
Slide 42: Business Banking
Business Banking Financial Performance Profits up 16% to £177m Operating income up 15% Expenses up 13%, and levelling out - 3% up on H2 02 Operating Performance Strong lending growth, up 15% to £26.7bn Strong deposits growth, up 24% to £15.3bn Cost-income ratio falling, to 54.1% Return
Slide 43: Growth Across the Balance Sheet
Growth Across the Balance Sheet Strong increases in both advances and deposits In particular, deposits up 43% in 18 months Current accounts up 40% in twelve months Business customers up 16% in the half year 105,000 new business accounts in the half year Expansion of banking teams in Engl
Slide 44: Cost Growth Slows
Cost Growth Slows Cost growth only 3% against second half of 2002 Major component is staff costs, and new business recruitment has now been completed Cost:income ratio is being driven down
Slide 45: Credit Quality Remains Strong
Credit Quality Remains Strong Good mix of business sectorally and geographically - UK 75% Overseas 25% Property exposure principally for investment property lending Bad debt charge falling - 30bps vs 35bps NPAs falling as a % of advances (now 2.19%) Maintain credit quality despite increase
Slide 46: Margins Remain Attractive
Margins Remain Attractive Increased competition is putting some pressure on margins Business mix changes through the new business hunters impacting on margins Margins from this business remain attractive (276bps)
Slide 47: We Are Delivering Our Potential and Our Promise
We Are Delivering Our Potential and Our Promise Experience-led competitive advantage New business hunters are performing strongly Track record of market firsts – rate beating deposit products We are the largest gainer from SME switching Cross sales to other divisions growing rapidly Ahea
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Slide 49: Interim Results 2003 Questions & Answers
Interim Results 2003 Questions & Answers
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