Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — H1 2004 Earnings Presentation
48 slides from Lloyds Banking's earnings presentation, Jul 30, 2004
Slide 1: 2004 Interim Results
2004 Interim Results 30 July 2004 Helen Weir Group Finance Director
Slide 2: Headline results
Headline results Statutory As a result of the impact of business sales and a negative investment variance: • Profit before tax decreased by £118 million, or 7% • Earnings per share decreased by 6% to 19.4p Continuing operations* • Profit before tax increased by £174 million, or 12% • Earnings per sh
Slide 3: Impact of 2003 major items
Impact of 2003 major items Treatment £m Income Costs PBT in Presentation Sales of EMD bonds/ closed foreign exchange 295 - 295 positions in 2003 Consolidated in single line Customer redress (100) (200) (300) item provisions in 2003 Net impact 195 (200) (5) Notional interest on Increase in NBNZ/Brazi
Slide 4: Headline results – continuing operations
Headline results – continuing operations* £m 2003H1† 2004H1 Variance (%) Total income 4,390 4,595 5 Operating expenses 2,284 2,363 3 Trading surplus 2,106 2,232 6 General insurance claims 108 121 12 Bad debt provisions 430 442 3 Other (35) (24) Net impact of one-offs (5) - Profit before tax† 1,528 1
Slide 5: Continuing operations – divisional performance
Continuing operations – divisional performance £m 2003H1† 2004H1 Variance (%) UK Retail Banking 793 818 3 Insurance & Investments 345 378 10 Wholesale & International Banking - Wholesale 428 510 19 - International Banking 60 106 77 488 616 26 Central group items (93) (167) (80) Net impact of one-off
Slide 6: Continuing operations – revenue
Continuing operations – revenue* £m 2003H1† 2004H1 Variance (%) Net interest income 2,348 2,438 4 Other finance income 17 19 Other income 2,025 2,138 6 Total income* 4,390 4,595 5 * excluding investment variance, changes in economic assumptions, loss on sale of businesses, customer redress provision
Slide 7: Net interest income drivers by division
Net interest income drivers by division* £m 2003H1† Volume Rate Other 2004H1 Variance (%) UK Retail Banking 1,515 186 (129) 17 1,589 5 Insurance & Investments 39 9 2 - 50 28 Wholesale & International Banking 898 16 58 (5) 967 8 Central group items (104) - (1) (63) (168) (62) Mix variance - (39) 39 -
Slide 8: UK Retail Banking growth
UK Retail Banking growth Period-end Balances (£bn) Mortgages Credit Cards Personal Loans +13% 76.3 70.8 67.3 +12% 10.0 9.6 9.0 +31% 7.2 6.7 5.5 2003H1 2003H2 2004H1 2003H1 2003H2 2004H1 2003H1 2003H2 2004H1
Slide 9: Net interest margin – half-yearly trends
Net interest margin* – half-yearly trends UKRB (5)bps % I&I 1bp W&IB 1bp Group (3)bps 3.21 3.08 3.03 2.92 2.89 2002H1 2002H2 2003H1 2003H2 2004H1 * continuing operations
Slide 10: Continuing operations – other income
Continuing operations – other income* £m 2003H1 2004H1 Variance (%) UK Retail Banking 741 767 4 Insurance & Investments 547 582 6 Wholesale & International Banking 750 785 5 Central group items (13) 4 - 2,025 2,138 6 * excluding investment variance, changes in economic assumptions, loss on sale of b
Slide 11: Continuing operations – operating expenses
Continuing operations – operating expenses* £m 2003H1 2004H1 Variance (%) UK Retail Banking 1,154 1,193 3 Insurance & Investments 133 133 - Wholesale & International Banking 991 1,015 2 Central group items 6 22 - 2,284 2,363 3 * excluding investment variance, changes in economic assumptions, loss on
Slide 12: Income growth ahead of costs
Income growth ahead of costs* UK Retail Insurance & Wholesale & Group† Banking Investments International Banking Trading Surplus 6% 10% 12% 6% Growth 8% 6% 5% 4% 3% 3% 2% 0% Income Costs Income Costs Income Costs Income Costs * continuing operations, excluding investment variance, changes in economi
Slide 13: Cost:income ratio improvements
Cost:income ratio improvements* UK Retail Banking (%) Wholesale & International (%) Group† (%) 60.1 59.1 57.9 51.2 52.0 51.6 51.4 50.9 50.6 2003H1 2003H2 2004H1 2003H1 2003H2 2004H1 2003H1 2003H2 2004H1 * continuing operations, excluding investment variance, changes in economic assumptions, (loss) p
Slide 14: Charge for bad and doubtful debts
Charge for bad and doubtful debts* % of Annualised 2003H1 2004H1 Variance Average Lending £m £m % 2003H1 2004H1 UK Retail Banking 298 344 15 0.75 0.76 Personal loans/overdrafts 218 236 8 4.44 4.34 Credit cards 85 120 41 3.34 3.51 Mortgages (5) (12) (0.02) (0.03) Wholesale & International Banking 145
Slide 15: Good mortgage asset quality
Good mortgage asset quality Average Loan-to-Value Percentage of C&G mortgage balances with indexed loan-to-value above 80% 21.3% 67% 65% 64% 65% 16.7% 16.7% New mortgage business 11.7% 11.4% Portfolio, indexed 46% 44% 43% 42% 2002H2 2003H1 2003H2 2004H1 Dec 2000 Dec 2001 Dec 2002 Dec 2003 Jun 2004
Slide 16: Asset quality – non-performing lending
Asset quality – non-performing lending* Non-performing Lending NPL’s as a Percentage of Specific Provisions as a (£m) Total Lending (%) Percentage of NPL’s (%) 1,395 1.0 108 112 1,218 1,225 0.9 93 0.8 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 2003 2003 2004 2003 2003 2004 2003 2
Slide 17: Economic profit and ROE
Economic profit and ROE Economic Profit (£m)* Post-tax Return on Average Shareholders’ Equity (%) +10% 710 27.4 4.5 22.9 23.5 647 2003H1 2004H1 2003H1 Impact of 2003H1 2004H1 Disposals * continuing operations, excluding investment variance, changes in economic assumptions and loss on sale of busines
Slide 18: Risk capital returns improved
Risk capital returns improved Risk-weighted Assets* (£bn) Return on Average Risk-weighted Assets* +4% 1.95% 122.8 116.2 117.7 0.7 Other 0.7 0.8 1.89% 64.5 1.86% W&IB 62.8 +3% 63.6 57.6 51.9 54.1 UKRB +6% 30 Jun 2003 31 Dec 2003 30 Jun 2004 2003H1 2003H2 2004H1 * continuing operations, excluding inve
Slide 19: Strong capital ratios
Strong capital ratios Tier 1 Ratio (%) Total Capital Ratio (%) 11.3 10.6 10.1 9.5 9.5 8.1 Jun 2003 Dec 2003 Jun 2004 Jun 2003 Dec 2003 Jun 2004
Slide 20: Capital position robust
Capital position robust • £0.7 billion tier 2 raised in July 2004 • Capital ratios remain strong • Strong credit ratings maintained – Moody’s – ‘Aaa’ – S&P – ‘AA’ (negative outlook) – Fitch – ‘AA+’ • Sufficient retained earnings to support expected risk-weighted asset growth
Slide 21: Scottish Widows - capital
Scottish Widows - capital • Free asset ratio improved to an estimated 14.0% (31 December 2003: 13.6%) • Realistic balance sheet position is strong • On a market consistent basis, we estimate that available capital is more than three times the risk capital margin • We do not expect Scottish Widows to
Slide 22: Impact of accounting changes
Impact of accounting changes • FRED34 – insurance accounting • International Accounting Standards – Insurance accounting – Dividends – Pensions accounting – Financial instruments IFRS conversion project is making good progress
Slide 23: Implementation of Basel II
Implementation of Basel II • Early implementation – 2007 • We expect a lower capital requirement – up to 20% over time • Phased benefit introduction • EU Consolidated Banking Directive contains no requirement to deduct ‘investment in life subsidiaries’ from tier 1 capital
Slide 24: Summary – key performance highlights
Summary – key performance highlights • Good growth in customer lending and customer deposits with increases in market share • Some margin erosion in retail business • Costs remain firmly under control • Asset quality remains strong • Capital ratios strong
Slide 25: 2004 Interim Results
2004 Interim Results 30 July 2004 Eric Daniels Group Chief Executive
Slide 26: Context
Context Earnings story taking shape • Recent past: First half-year result* 2004 (£m) – High returns, but no growth +8% 1,645 • Growth over last two halves and maintained returns 1,528 • Going forward: – Better balanced growth – Stronger top line 2003 H1 2004 H1 • continuing basis: excludes investmen
Slide 27: Management priorities
Management priorities • To manage business portfolio and reduce earnings volatility • To maintain and build levels of profitability • To grow our business Interim Results 1 August 2003
Slide 28: Manage the business portfolio
Manage the business portfolio Business disposals are helping us to focus on our core franchise and reduce earnings volatility – Sale of Panama and 1999 – 2003: Guatemala – Average return on equity: completed (28.6)% – Sale of Argentina – Combined losses of and Colombia £220m announced
Slide 29: Maintain and build profitability
Maintain and build profitability We are managing the balance sheet more efficiently Risk-weighted Assets* (£bn) Return on Average Risk-weighted Assets* 1.95 123 116 118 1.89 1.86 2003H1 2003H2 2004H1 2003H1 2003H2 2004H1 * continuing operations, excluding investment variance, changes in economic ass
Slide 30: Maintain and build profitability – International
Maintain and build profitability Economic profitability by business (RAROC minus Ke) Economic profitability by component business area International Corporate Argentina Offshore Banking Banking Private Rest of Colombia America Corporate Consumer Business Scottish Banking Financial Markets Asset Fina
Slide 31: Maintain and build profitability
Maintain and build profitability Sigma scores and coverage improving Re-works per million June December June 2003 2003 2004 UK Retail Bank 2,125 1,747 990 Other 58,723 25,948 21,818 80 80 81 Percentage of transactions 46 under 29 measurement 13 Other Retail Bank
Slide 32: Product Customer Focus
Accelerating profitable growth Our strategic focus Product Customer Focus Focus
Slide 33: Accelerating profitable growth
Cur re nt acc ou n ts 22% Per son al le ndi ng 14% C re dit card s 11% Mo r tgag es Sav Gen i ng s 9% 8% eral insu r an ce 8% L ife , et c. Source: BBA/Internal data (October 2003) B us 6% ines s 19% C om mer Larg cial 15% e co rpor G lo ate 10% ba l cor p ora t e 7% 'Big -tick et ' l Re c eas i ng
Slide 34: Accelerating profitable growth
Accelerating profitable growth Three divisions, three stories – UK Retail Banking Maintain momentum – Wholesale & Int. Banking Build momentum – Insurance & Investments Recover
Slide 35: Maintaining momentum in the retail bank
Maintaining momentum in the retail bank Our objectives What have we done • Acquire and retain quality • Reorganised branch customers network • Deepen customer • Made each local market relationships profit accountable • Grow economic profit • Rolled out segmented faster than the market customer offer
Slide 36: UK Retail Bank – balance market share trends
UK Retail Bank Balance market share trends June December June Mortgages: 2003 2003 2004 Net lending 11% 6% 10% Gross new lending 10% 8% 9% Credit cards 11% 13% 13% Overdrafts 13% 13% 13% Loans 8% 9% 9% Current accounts 22% 21% 22% Personal deposits 10% 9% 9% Source: Bank of England, British Bankers
Slide 37: UK Retail Bank – customer recruitment and attrition
UK Retail Bank We are improving our recruitment and retention of quality customers and our service is improving Quality customer recruitment and attrition Channel touch scores 120 Indexed rate of change in quality account recruitment / attrition 110 113 110 Channel Service Index 70 100 89 90 88 80 5
Slide 38: UK Retail Bank – relationship intensity
UK Retail Bank Relationship intensity is driving higher customer satisfaction, lower attrition and enhanced profitability Customer service index Relative customer attrition Incremental profit per rate customer 65 1 (annualised equivalent) +£31 Index 0.5 +£9 60 0 Jan 2004 Jun 2004 2004 H1 2004 H1 Non
Slide 39: UK Retail Bank – internet and telephony customers
UK Retail Bank Number of internet and telephony customers continue to increase and there is good growth in direct sales 494 4.5 446 4.1 Number of registered users (m) 390 Number of sales (000s) 3.1 2.7 2.4 2.1 147 67 69 2003H1 2003H2 2004H1 2003H1 2003H2 2004H1 Telephone Internet Telephone Internet
Slide 40: Building wholesale banking momentum
Building wholesale banking momentum Our objectives What have we done • Develop revenue streams • Increased focus on by increasing share of relationship value by wallet changing measurement of success • Improve customer transition through the • Increased customer-facing offers staff • Investing in re
Slide 41: Wholesale & International
Wholesale & International Corporate Relationship Banking Financial Markets Income from Income (£m) Cross-selling (£m) +10% 303 +80% 32 275 148 130 18 146 154 2003H1 2004H1 2003H1 2004H1 Net interest income Other income Continuing operations basis
Slide 42: Wholesale & International – all businesses contributing
Wholesale & International All businesses contributing to growth Growth in profit before tax £m H1 2004 on H1 2003 Wholesale Bank* 22% Business Banking 19% Asset Finance 46% International Banking 77% Total Wholesale & International Banking 26% * includes Corporate Banking and Financial Markets; conti
Slide 43: Recovery in Insurance & Investments
Recovery in Insurance & Investments Our objectives What have we done • Make bancassurance work • Developed channel- specific tailored products • Continue developing the IFA channel • Strengthened sales force and processes • Manage the capital intensity of business • Greater focus on new business pro
Slide 44: Insurance & Investments – new business margin
Insurance & Investments Improvement in new business margin New Business Premiums New Business Contribution New Business Margin (£m) (£m) (%) 367 355 74 69 23.4 24.3 2003H1 2004H1 2003H1 2004H1 2003H1 2004H1 Life and pensions Unit trusts
Slide 45: Insurance & Investments – sales momentum
Insurance & Investments Sales momentum building during the first half Branch Network (£m) IFA (£m) Direct (£m) +29% 112 +9% 87 64 59 +55% 21 13 2004Q1 2004Q2 2004Q1 2004Q2 2004Q1 2004Q2
Slide 46: Insurance & Investments – direct insurance sales
Insurance & Investments Growth in direct insurance sales Telephone and Internet Sales Direct Sales as a percentage of Gross Written Premiums £m total sales* 53.7 +9% 69.7 47.1 64.1 2003H1 2004H1 2003H1 2004H1 * excluding creditor insurance
Slide 47: Results overview
Results overview • One year into the strategy • Well advanced in: – Managing down volatility – Building returns • Beginning to grow • Profits up 8% Continuing operations basis: excludes investment variance, changes changes in economic assumptions, loss on sale of businesses and includes £57 million
Slide 48: Forward looking statements
Forward looking statements This document is a summary only of certain information contained in the announcement dated 30 July 2004 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