Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — H1 2005 Earnings Presentation
50 slides from Lloyds Banking's earnings presentation, Jul 29, 2005
Slide 1: 2005 Interim Results
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2005 Interim Results 29 July 2005 Helen Weir Group Finance Director Investor Relations, Group Finance Division HAW 3
Slide 2: Headline results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Headline results* 2004H1 2005H1 % Change Profit before tax £1,605m £1,723m 7 Earnings per share 20.1p 22.1p 10 Economic profit £655m £728m 11 Post-tax return on equity 21.5% 21.9% Proposed dividend per share 10.7p 10.7p * comparable basis – excluding impac
Slide 3: Overview – continued earnings momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview – continued earnings momentum* • Good levels of franchise growth • Revenue growth of 5% exceeded cost growth of 3% Cost:income ratio improved • Asset quality remains satisfactory • Continued earnings momentum • Capital ratios remain robust • Retur
Slide 4: Profit before tax 2005H1 – comparable basis
CARE - CONTAINS PRICE SENSITIVE INFORMATION Profit before tax 2005H1 – comparable basis £46m £104m £1,723m £1,676m £(73)m £(124)m Comparable Banking Insurance Policyholder Other IFRS Statutory profit profit before tax volatility volatility tax volatility adjustments before tax from 1 January 2005 In
Slide 5: Impact of IFRS adjustments applied from 1/1/05
CARE - CONTAINS PRICE SENSITIVE INFORMATION Impact of IFRS adjustments applied from 1/1/05 £m Effective interest rates (IAS 39) (28) Loan impairment (IAS 39) Trading surplus 48 Impairment (159) (111) Equity/debt reclassification (IAS 32) (21) Lloyds TSB Development Capital (IAS 39) 27 Insurance (IFR
Slide 6: Earnings momentum in key divisions
CARE - CONTAINS PRICE SENSITIVE INFORMATION Earnings momentum in key divisions* £m 2004H1 2005H1 % Change UK Retail Banking 800 830 4 Insurance & Investments 376 400 6 Wholesale & International Banking 582 662 14 Central group items (153) (169) Profit before tax 1,605 1,723 7 * comparable basis – ex
Slide 7: Insurance & Investments
CARE - CONTAINS PRICE SENSITIVE INFORMATION Insurance & Investments Impact of policyholder grossing adjustments Comparable Policyholder Basis Gross-up £m 2004H1 2004H1 2004H1* Net interest income 134 85 49 Other income 3,617 2,892 725 Insurance claims (3,074) (2,959) (115) Total income, net of insur
Slide 8: Insurance & Investments
CARE - CONTAINS PRICE SENSITIVE INFORMATION Insurance & Investments Impact of policyholder grossing adjustments Comparable Policyholder 05H1/04H1 Basis Gross-up Change* £m 2005H1 2005H1 2005H1* % Net interest income 205 159 46 (6) Other income 7,057 6,312 745 3 Insurance claims (6,569) (6,461) (108)
Slide 9: Income
CARE - CONTAINS PRICE SENSITIVE INFORMATION Income* £m 2004H1 2005H1 % Change Net interest income 2,421 2,498 3 Other income 2,286 2,431 Insurance claims (115) (108) Other income, net of 2,171 2,323 7 insurance claims Total income, net of 4,592 4,821 5 insurance claims Policyholder grossing adjustme
Slide 10: Good asset and deposit growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION Good asset and deposit growth* UK Retail Banking Wholesale & International Banking +10% £96.1bn +8% £87.2bn +7% £81.5m £75.8m £65.2bn £60.9bn 2004H1 2005H1 2004H1 2005H1 2004H1 2005H1 Average interest Average customer Average interest earning assets deposi
Slide 11: Net interest margin – banking
CARE - CONTAINS PRICE SENSITIVE INFORMATION Net interest margin – banking* Overall rate of 2.89% decline in banking margin has slowed 2.80% considerably 2.75% 2004H1 2004H2 2005H1 * relating to the Group’s banking businesses, excluding impact of volatility, other IFRS adjustments applied from 1 Janu
Slide 12: Net interest income
CARE - CONTAINS PRICE SENSITIVE INFORMATION Net interest income* £m 2004H1 2005H1 % Change UK Retail Banking 1,602 1,612 1 Insurance & Investments† 49 46 (6) Wholesale & International Banking 971 1,035 7 Central group items (201) (195) 3 2,421 2,498 3 Policyholder grossing adjustments 85 159 2,506 2
Slide 13: Other income, net of insurance claims
CARE - CONTAINS PRICE SENSITIVE INFORMATION Other income, net of insurance claims* £m 2004H1 2005H1 % Change UK Retail Banking 794 908 14 Insurance & Investments† 610 637 4 Wholesale & International Banking 741 774 4 Central group items 26 4 2,171 2,323 7 Policyholder grossing adjustments (67) (149)
Slide 14: Strong cost control maintained
CARE - CONTAINS PRICE SENSITIVE INFORMATION Strong cost control maintained* £m 2004H1 2005H1 % Change UK Retail Banking 1,252 1,274 2 Insurance & Investments† 291 293 1 Wholesale & International Banking 998 1,052 5 Central group items (22) (22) 2,519 2,597 3 Policyholder grossing adjustments 10 - 2,
Slide 15: Income growth ahead of costs in all divisions
CARE - CONTAINS PRICE SENSITIVE INFORMATION Income growth ahead of costs in all divisions* Group Cost: 5% Income Ratio UK Retail Banking 2% 54.9% Insurance & 4% Investments† 53.8% 1% Wholesale & 6% International Banking 5% 5% Group 3% Income Costs 2004H1 2005H1 * comparable basis – excluding impact
Slide 16: Impairment losses on loans and advances
CARE - CONTAINS PRICE SENSITIVE INFORMATION Impairment losses on loans and advances* % of Average 2004H1 2005H1 Variance Lending £m £m % 2004H1 2005H1 UK Retail Banking 344 416 21 0.79 0.87 - Personal loans/overdrafts 236 269 14 4.34 4.45 - Credit cards 120 141 18 3.51 3.74 - Mortgages (12) 6 - (0.0
Slide 17: Impairment losses – UK Retail Banking
CARE - CONTAINS PRICE SENSITIVE INFORMATION Impairment losses – UK Retail Banking* £21m £416m £39m £344m £12m £356m 2004H1 Mortgage Volume Asset 2005H1 provision growth quality release * comparable basis – excluding impact of volatility, other IFRS adjustments applied from 1 January 2005 and discont
Slide 18: Asset quality – dynamic delinquency trends
CARE - CONTAINS PRICE SENSITIVE INFORMATION Asset quality – dynamic delinquency trends Index 150 Credit Cards 100 50 Personal Loans 0 04 4 4 04 04 05 4 5 4 04 04 4 05 05 04 4 5 05 -0 -0 -0 -0 -0 l-0 -0 -0 g- r- p- r- n- n- n- b- b- n- ov ct ec ay ay ar ar Ju Ap Ap Au Se Ja Ja Fe Fe Ju Ju O M M M N D
Slide 19: Impairment losses on loans and advances
CARE - CONTAINS PRICE SENSITIVE INFORMATION Impairment losses on loans and advances* % of Average 2004H1 2005H1 Variance Lending £m £m % 2004H1 2005H1 UK Retail Banking 344 416 21 0.79 0.87 Wholesale & International Banking 132 95 (28) 0.52 0.31 Total 476 511 7 0.68 0.63 * comparable basis – excludi
Slide 20: Asset quality – impaired assets
CARE - CONTAINS PRICE SENSITIVE INFORMATION Asset quality – impaired assets Impaired Assets Impaired Assets as a Percentage of Total Lending £3,894m £3,515m 2.1% 2.3% 1 January 2005 30 June 2005 1 January 2005 30 June 2005 Investor Relations, Group Finance Division HAW 22
Slide 21: Maintaining high returns
CARE - CONTAINS PRICE SENSITIVE INFORMATION Maintaining high returns* Post-tax Return on Economic Profit Risk-weighted Assets +11% £728m 1.92% 1.88% £655m 2004H1 2005H1 2004H1 2005H1 * comparable basis – excluding impact of volatility, other prospective accounting adjustments and discontinued operat
Slide 22: Capital ratios remain robust
CARE - CONTAINS PRICE SENSITIVE INFORMATION Capital ratios remain robust • Capital ratios remain robust: – total capital ratio 9.6% – tier 1 ratio 7.8% • First half impacts: – dividend timing – strong asset growth • Sufficient retained earnings to support expected risk-weighted asset growth Investor
Slide 23: Scottish Widows – strong capital management
CARE - CONTAINS PRICE SENSITIVE INFORMATION Scottish Widows – strong capital management 30/6/05 Long-Term Fund (£bn) 31/12/04 estimated Available assets, including support account 22.0 22.9 Realistic value of liabilities (17.8) (18.4) Net surplus 4.2 4.5 Working capital ratio 19.0% 19.5% Risk capita
Slide 24: Improving capital efficiency
CARE - CONTAINS PRICE SENSITIVE INFORMATION Improving capital efficiency • Economic capital disciplines • Optimising Scottish Widows capital – regular dividend stream – additional capital repatriation in 2005H2 Investor Relations, Group Finance Division HAW 26
Slide 25: Summary – continued earnings momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION Summary – continued earnings momentum • Good breadth of revenue growth • Strong cost control maintained • Satisfactory credit quality • Good earnings momentum • Improved returns Investor Relations, Group Finance Division HAW 27
Slide 26: 2005 Interim Results
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2005 Interim Results 29 July 2005 Eric Daniels Group Chief Executive Investor Relations, Group Finance Division HAW 29
Slide 27: 2005H1 - Key performance highlights - Group
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2005H1 - Key performance highlights* - Group • Continued earnings growth – PBT up 7% – Positive jaws across all three Divisions • Maintained high returns – Economic profit up 11% – ROE 21.9% • Good customer franchise growth – Market shares maintained or in
Slide 28: Opening our second chapter
CARE - CONTAINS PRICE SENSITIVE INFORMATION Opening our second chapter Priorities to guide our future growth • Deepen customer relationships • Improve our efficiency • Enhance Group capabilities and processes Investor Relations, Group Finance Division HAW 31
Slide 29: Overview of UK Retail Banking results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of UK Retail Banking results • Profit before tax* up by 4% • Positive ‘jaws’ – Income growth 5%* – Cost growth 2%* • Franchise growth – Customer deposits increased by 7% – Customer assets increased by 9% – Market shares maintained • Asset quality
Slide 30: Strategy in the Retail Bank
CARE - CONTAINS PRICE SENSITIVE INFORMATION Strategy in the Retail Bank Maintaining momentum in our retail franchise Our objectives … . . . What we are doing Implemented local markets Improved use of customer Acquire and retain data quality customers Improving our products Deepen customer relationsh
Slide 31: The opportunity within the franchise is large
CARE - CONTAINS PRICE SENSITIVE INFORMATION The opportunity within the franchise is large Increase number Increase Driver: of share of profitable wallet customers Marginal £700m PBT Impact* £250m Assumption: − Retention +1% pt − Share of wallet +6% pts − Acquisition +2% pts * total profit impact acr
Slide 32: The opportunity within the franchise is large
CARE - CONTAINS PRICE SENSITIVE INFORMATION The opportunity within the franchise is large Deepening relationships LTSB Current Account customers with the product and where they hold it Personal Loans Savings Life Assurance Mortgages Credit Cards % holding with Lloyds TSB % holding with competition o
Slide 33: UK Retail Banking
CARE - CONTAINS PRICE SENSITIVE INFORMATION UK Retail Banking Deepening customer relationships Quality of customer base Quality customer recruitment up 22% Service excellence Service quality at new record in H1 Easy to deal with Direct channel sales up 26% Customer understanding Improved information
Slide 34: UK Retail Banking
CARE - CONTAINS PRICE SENSITIVE INFORMATION UK Retail Banking Steps to capture higher share of franchise spend • Refresh and simplify product range • Simplify sales and service processes • Increase seller effectiveness Investor Relations, Group Finance Division HAW 37
Slide 35: Overview of Wholesale & International results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Wholesale & International results • Profit before tax* up by 14% • Positive ‘jaws’ – Income growth 6%* – Cost growth 5%* • Strong asset quality • High returns * comparable basis – excluding impact of volatility, other IFRS adjustments applied f
Slide 36: Overview of Wholesale & International results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Wholesale & International results Business Unit Performance Profit before tax* (£m) 2004H1 2005H1 Change Business Banking 77 98 +27% Corporate Markets 319 399 +25% Asset Finance 117 107 (9%) International Banking 70 51 (27%) Wholesale & Interna
Slide 37: Strategy in Wholesale & International
CARE - CONTAINS PRICE SENSITIVE INFORMATION Strategy in Wholesale & International Sustaining growth in our Wholesale franchises Our highest priorities … . . . What we are doing Improving the Business Growing the franchise and Banking franchise improving efficiency Winning new customers Growing the C
Slide 38: Wholesale & International: Business Banking
CARE - CONTAINS PRICE SENSITIVE INFORMATION Wholesale & International: Business Banking Improving the Business Banking franchise • Profit before tax* up by 27% • Customer lending up 11% • Customer deposits up 6% • Strong market share of start ups at 20% • Increased number of ‘switchers’ • Cost:incom
Slide 39: Wholesale & International: Corporate Markets
CARE - CONTAINS PRICE SENSITIVE INFORMATION Wholesale & International: Corporate Markets Growing the Corporate Markets business Growth in cross sales • Profit before tax* up by 25% +28% +27% • Significant improvement in customer coverage and market shares in key +20% segments • Early recognition thr
Slide 40: Overview of Insurance & Investments results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Insurance & Investments results • Profit before tax* up by 6% • Positive ‘jaws’ – Income growth 4%† – Cost growth 1%† • Business growth – Overall weighted sales up by 25% – Market share up from 4.9% to 6.2% • New business profitability improved
Slide 41: Strategy in Insurance & Investments
CARE - CONTAINS PRICE SENSITIVE INFORMATION Strategy in Insurance & Investments Building momentum in Insurance & Investments Our objectives … . . . What we are doing Maximise value from Delivered simplified product bancassurance suite Strengthen distribution capability Increasing IFA and direct sale
Slide 42: Overview of Insurance & Investments results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Insurance & Investments results Sales Performance – non IFA Channel Weighted Sales (£m) Market share +4% 163.1 156.3 4.9% 103.3 (6%) 4.7% Life & 109.8 Pensions 59.8 +29% OEICs 46.5 2004 H1 2005 H1 2004 H1 2005 H1 Investor Relations, Group Finan
Slide 43: Overview of Insurance & Investments results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Insurance & Investments results Sales Performance – IFA Channel Weighted Sales (£m) Market share +41% 280.0 7.1% 198.3 5.0% 2004 H1 2005 H1 2004 H1 2005 H1 Investor Relations, Group Finance Division HAW 46
Slide 44: Overview of Insurance & Investments results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Insurance & Investments results Growing contribution in General Insurance Profit before tax* (£m) Direct sales – Gross written premiums (£m) +8% +19% 80.6 94 87 67.8 2004 H1 2005 H1 2004 H1 2005 H1 * comparable basis – excluding impact of volat
Slide 45: Insurance & Investments
CARE - CONTAINS PRICE SENSITIVE INFORMATION Insurance & Investments Moving Forward • Scottish Widows – Capital position is strong – Up-streaming dividends to Group – Bancassurance performance improving – IFA performance strong • LTSB General Insurance is performing well – Investments supporting futu
Slide 46: Opening our second chapter
CARE - CONTAINS PRICE SENSITIVE INFORMATION Opening our second chapter Priorities to guide our future growth • Deepen customer relationships • Improve our efficiency • Enhance Group capabilities and processes Investor Relations, Group Finance Division HAW 49
Slide 47: Improving our efficiency
CARE - CONTAINS PRICE SENSITIVE INFORMATION Improving our efficiency* Positive ‘jaws’ and an improving cost:income ratio Positive ‘jaws’ Cost:income ratio Strategic cost management opportunities 5% 54.9% 53.8% • Manufacturing 3% • Further IT simplification • Group-wide procurement Income Costs 2004
Slide 48: Enhancing Group capabilities and processes
CARE - CONTAINS PRICE SENSITIVE INFORMATION Enhancing Group capabilities and processes • Optimising capital efficiency • Enhanced risk management framework • Building a high performance organisation Investor Relations, Group Finance Division HAW 51
Slide 49: Summary
CARE - CONTAINS PRICE SENSITIVE INFORMATION Summary • Delivering earnings growth* – All divisions showing revenue growth – Profits up 7% – ROE improved to 21.9% • Continued good progress in execution of organic growth strategies • Significant opportunities for growth * comparable basis – excluding i
Slide 50: Forward looking statements
Forward looking statements This document is a summary only of certain information contained in the announcement dated 29 July 2005 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