Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — H1 2006 Earnings Presentation
59 slides from Lloyds Banking's earnings presentation, Aug 2, 2006
Slide 1: 2006 Interim Results
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2006 Interim Results 2 August 2006 Sir Victor Blank Chairman Investor Relations, Group Finance Division HAW - page 1
Slide 2: Chairman’s overview
CARE - CONTAINS PRICE SENSITIVE INFORMATION Chairman’s overview • Deepening customer relationships to drive earnings growth • High quality, balanced set of businesses with increased trading momentum – widening jaws • Credit quality remains satisfactory • Robust capital position • Interim dividend ma
Slide 3: 2006 Interim Results
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2006 Interim Results 2 August 2006 Helen Weir Group Finance Director Investor Relations, Group Finance Division HAW - page 1
Slide 4: Headline results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Headline results* 2005H1 2006H1 % Change Profit before tax £1,626m £1,752m 8 Earnings per share 20.7p 22.1p 7 Economic profit £725m £773m 7 Post-tax return on equity 24.1% 24.0% Interim dividend per share 10.7p 10.7p * excluding volatility Investor Relatio
Slide 5: 2006 first half – continued progress
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2006 first half – continued progress • Continuing to build earnings momentum… …across each of our businesses • Sustaining high returns… …and driving growth • Maintaining a robust capital position… …while continuing to deliver returns to shareholders Invest
Slide 6: Headline results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Headline results* £m 2005H1 2006H1 % Change Total income, after claims 4,875 5,162 6 Operating expenses (2,583) (2,610) (1) Trading surplus 2,292 2,552 11 Impairment (666) (800) (20) Profit before tax 1,626 1,752 8 * excluding volatility Investor Relations
Slide 7: Balanced trading momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION Balanced trading momentum* UKRB I&I W&IB Group £m £m % var £m % var £m % var £m % var Income 2,577 3 765 8 1,999 8 5,162 6 Costs (1,232) 3 (312) (6) (1,072) (2) (2,610) (1) Trading surplus 1,345 8 453 9 927 17 2,552 11 Impairment (632) (16) - (159) (62) (8
Slide 8: Balanced trading momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION Balanced trading momentum* UKRB I&I W&IB Group £m £m % var £m % var £m % var £m % var Income 2,577 3 765 11 1,999 8 5,162 6 Costs (1,232) 3 (312) (6) (1,072) (2) (2,610) (1) Trading surplus 1,345 8 453 15 927 17 2,552 11 Impairment (632) (16) - (159) (62)
Slide 9: Good income growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION Good income growth* £m 2005H1 2006H1 % Change Net interest income 2,630 2,807 7 Other income 2,362 2,442 Insurance claims (108) (95) Other income, net of claims 2,254 2,347 4 Total income, net of claims 4,884 5,154 6 Insurance grossing adjustments (9) 8 4,
Slide 10: Good asset and deposit growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION Good asset and deposit growth UK Retail Banking Wholesale & International Banking +9% +15% £103.4bn £102.6bn £95.2bn +7% £19.9bn £89.5bn Unsecured £19.2bn £69.6bn £65.3bn Mortgages £76.0bn £83.5bn 2005H1 2006H1 2005H1 2006H1 2005H1 2006H1 Average interest
Slide 11: Net interest margin slightly lower
CARE - CONTAINS PRICE SENSITIVE INFORMATION Net interest margin slightly lower* (10)bp H1/H1 margin movement 2.79% 2.77% 2.69% Divisional mix (3)bp Product mix (6)bp Other (1)bp (10)bp 2005H1 2005H2 2006H1 * relating to the Group’s banking businesses, excluding volatility and reverse repos Investor
Slide 12: Net interest income
CARE - CONTAINS PRICE SENSITIVE INFORMATION Net interest income* £m 2005H1 2006H1 % Change UK Retail Banking 1,711 1,794 5 Insurance & Investments 35 28 (20) Wholesale & International Banking 1,084 1,194 10 Central group items (200) (209) 2,630 2,807 7 Insurance grossing adjustments 159 35 2,789 2,8
Slide 13: Other income, net of insurance claims
CARE - CONTAINS PRICE SENSITIVE INFORMATION Other income, net of insurance claims* £m 2005H1 2006H1 % Change UK Retail Banking 801 783 (2) Insurance & Investments 673 737 10 Wholesale & International Banking 759 805 6 Central group items 21 22 2,254 2,347 4 Insurance grossing adjustments (168) (27)
Slide 14: Excellent cost control
CARE - CONTAINS PRICE SENSITIVE INFORMATION Excellent cost control £m 2005H1 2006H1 % Change UK Retail Banking 1,267 1,232 3 Insurance & Investments 293 312 (6) Wholesale & International Banking 1,050 1,072 (2) Central group items (8) (1) 2,602 2,615 - Insurance grossing adjustments (19) (5) 2,583 2
Slide 15: Improving operational and processing efficiency
CARE - CONTAINS PRICE SENSITIVE INFORMATION Improving operational and processing efficiency Level of Activity Error Rate (transactions - indexed) (defects per million) 108 11,604 100 102 7,549 6,209 2004 2005 2006 2004 2005 2006H1 Estimate Number of Locations Costs per Transaction (indexed) 39 100 3
Slide 16: Productivity programme - key activities
CARE - CONTAINS PRICE SENSITIVE INFORMATION Productivity programme - key activities • Transforming group-wide – Centralised procurement activity procurement – Consolidated Wholesale operations • Consolidation of back – Integrating C&G savings system office processes – Lean Group manufacturing • Orga
Slide 17: Productivity programme on track
CARE - CONTAINS PRICE SENSITIVE INFORMATION Productivity programme on track £100-150m Financial principles Net benefit • Self funding £40m • Payback c. 2 years £(12)m • Reinvest c. 50% of benefits £(40)m 2005H2 2006H1 2006H2 2007 Investor Relations, Group Finance Division HAW - page 15
Slide 18: Income growth ahead of costs in all divisions
CARE - CONTAINS PRICE SENSITIVE INFORMATION Income growth ahead of costs in all divisions* Group UK Retail Banking 3% C:I ratio cost:income improved ratio 260bp (3)% 53.0% 11% 50.6% Insurance & Investments 6% Wholesale & 8% C:I ratio International improved Banking 2% 340bp 6% Group 1% Income Costs 2
Slide 19: Impairment losses on loans and advances
CARE - CONTAINS PRICE SENSITIVE INFORMATION Impairment losses on loans and advances % of Average 2005H1 2006H1 Variance Lending £m £m % 2005H1 2006H1 UK Retail Banking 546 632 (16) 1.16 1.23 - Mortgages 6 6 - 0.02 0.01 - Personal loans/overdrafts 352 387 (10) 5.82 6.18 - Credit cards 188 239 (27) 5.
Slide 20: New business – probability of default
CARE - CONTAINS PRICE SENSITIVE INFORMATION New business – probability of default Index Credit Cards 100 Personal Loans 4 4 05 5 06 04 04 4 05 05 5 05 5 06 4 5 5 5 6 4 5 5 6 l-0 -0 -0 -0 l-0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 n- p- n- b- n- p- n- b- ct ct ov ec ec ar ay ov ar pr ug ug pr Ju Ju Ja Fe Ja F
Slide 21: Arrears performance by vintage – credit cards
CARE - CONTAINS PRICE SENSITIVE INFORMATION Arrears performance by vintage – credit cards 10 11 12 1 2 3 4 5 6 7 8 9 th th th th th th th th th th th th on on on on on on on on on on on on M M M M M M M M M M M M Mar-04 Jun-04 Investor Relations, Group Finance Division HAW - page 19
Slide 22: Arrears performance by vintage – credit cards
CARE - CONTAINS PRICE SENSITIVE INFORMATION Arrears performance by vintage – credit cards 10 11 12 1 2 3 4 5 6 7 8 9 th th th th th th th th th th th th on on on on on on on on on on on on M M M M M M M M M M M M Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Investor Relations, Group Finance Division HAW - pag
Slide 23: Arrears performance by vintage – credit cards
CARE - CONTAINS PRICE SENSITIVE INFORMATION Arrears performance by vintage – credit cards 10 11 12 1 2 3 4 5 6 7 8 9 th th th th th th th th th th th th on on on on on on on on on on on on M M M M M M M M M M M M Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Investor Relations, Grou
Slide 24: W&IB – strong asset quality
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB – strong asset quality Impairment Charge Wholesale Credit Risk Overview • Stable corporate lending risk 5 159 profile – 60% of book rated low 22 or very low risk 34 • Underwriting criteria remain consistent and strong 98 • Continued benign conditions
Slide 25: Asset quality remains strong
CARE - CONTAINS PRICE SENSITIVE INFORMATION Asset quality remains strong Impaired Assets Impaired Assets as a percentage of Total Lending £4,122m 2.3% 2.3% £4,029m 2.1% £3,894m 30 Jun 2005 31 Dec 2005 30 Jun 2006 30 Jun 2005 31 Dec 2005 30 Jun 2006 Investor Relations, Group Finance Division HAW - pa
Slide 26: Maintaining high returns
CARE - CONTAINS PRICE SENSITIVE INFORMATION Maintaining high returns* Post-tax Return on Economic Profit Post-tax Return Risk-weighted Assets on Equity +7% £773m 24.1% 24.0% 1.73% 1.66% £725m 2005H1 2006H1 2005H1 2006H1 2005H1 2006H1 * excluding volatility Investor Relations, Group Finance Division
Slide 27: Capital ratios remain robust
CARE - CONTAINS PRICE SENSITIVE INFORMATION Capital ratios remain robust Risk-weighted Assets +9% 31 December 30 June 2005 2006 £152.9bn £144.9bn £139.9bn Total capital 10.9% 10.3% ratio Tier 1 ratio 7.9% 7.4% 30 Jun 2005 31 Dec 2005 30 Jun 2006 Investor Relations, Group Finance Division HAW - page
Slide 28: Scottish Widows – strong capital management
CARE - CONTAINS PRICE SENSITIVE INFORMATION Scottish Widows – strong capital management 30 June 31 December 2006 Long-Term Fund (£bn) 2005 estimated Available assets, including support account 23.2 22.5 Realistic value of liabilities (19.1) (18.1) Net surplus 4.1 4.4 Working capital ratio 17.7% 19.6
Slide 29: Improving our balance sheet management
CARE - CONTAINS PRICE SENSITIVE INFORMATION Improving our balance sheet management • Originate and distribute • Increased loan under- writing and syndication • Mortgage securitisation • c. £5 billion tranche in 2006H2 • Other securitisation • Other retail asset classes • Corporate lending options •
Slide 30: 2006 first half – continued earnings momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2006 first half – continued earnings momentum* • Strong sales growth, improving sales mix Continuing to build • Widening of positive jaws earnings momentum • PBT up 8%, economic profit up 7% • Product margins stable • Improving cost:income ratio Sustaining
Slide 31: 2006 Interim Results
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2006 Interim Results 2 August 2006 Eric Daniels Group Chief Executive Investor Relations, Group Finance Division HAW - page 1
Slide 32: Overview
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview • We are delivering Phase Two of our strategy: building strong customer franchises – All three divisions performing strongly – Leading indicators point to future growth – Group-wide initiatives delivering tangible results to enhance growth Investo
Slide 33: Our priorities for Phase Two
CARE - CONTAINS PRICE SENSITIVE INFORMATION Our priorities for Phase Two Strategic priorities Financial goals for Phase Two Build our franchise reach • Building strong revenue and depth growth • A step change in operational Enhance our product efficiency capabilities • Enhanced capital efficiency Im
Slide 34: Our financial progress
CARE - CONTAINS PRICE SENSITIVE INFORMATION Our financial progress* Income, £bn PBT, £bn 5.2 1.8 4.9 1.6 1.6 4.5 1.5 4.2 2003H1 2004H1 2005H1 2006H1 2003H1 2004H1 2005H1 2006H1 Cost:income ratio, % ROE, % 24.1 24.0 54.5 53.1 23.5 23.5 53.0 50.6 2003H1 2004H1 2005H1 2006H1 2003H1 2004H1 2005H1 2006H1
Slide 35: A strong set of well-balanced earnings
CARE - CONTAINS PRICE SENSITIVE INFORMATION A strong set of well-balanced earnings UK Retail Banking Building strong customer franchises… • Income up 3% • Trading surplus up 8% 2006 H1 PBT* • PBT up 2% • Strong sales volumes • Improving sales mix and rising customer advocacy Wholesale & Internationa
Slide 36: UKRB: driving growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION UKRB: driving growth Our objectives What we are doing in 2006 • Growing sales volumes in key Grow income from existing customer base channels • Recruiting more customers • Improving customer Grow income from new satisfaction customers • Rebalancing our sal
Slide 37: UKRB: improve productivity
CARE - CONTAINS PRICE SENSITIVE INFORMATION UKRB: improve productivity Improved processes cut …and drive increased branch sales times… sales productivity % change in time to complete Indexed sales volumes Open Equivalent (54%) to 660 extra current sales FTEs 145 account 131 100 Sell (25%) banking pr
Slide 38: UKRB: grow income from existing customers
CARE - CONTAINS PRICE SENSITIVE INFORMATION UKRB: grow income from existing customers Improved processes plus rising …deliver strong sales in customer satisfaction… key channels Percentage of customers ‘very satisfied’ with their bank* Sales volumes, indexed 2005H1=100 53 131 138 50 48 100 100 46 20
Slide 39: UKRB: grow income from new customers
CARE - CONTAINS PRICE SENSITIVE INFORMATION UKRB: grow income from new customers Improved processes plus …delivers higher target higher consideration… customer recruitment Current account consideration* Recruitment, indexed 2005H1=100 22% 243 19% 165 100 100 2005H1 2006H1 Target customers New Privat
Slide 40: UKRB: capturing our savings opportunity
CARE - CONTAINS PRICE SENSITIVE INFORMATION UKRB: capturing our savings opportunity Rebalanced 64% growth in 10% growth in bank sales mix bancassurance sales savings balances Total retail product sales APE, bancassurance sales, End-period bank savings volumes indexed 2005H1=100 balances, indexed 200
Slide 41: UKRB: establishing a platform for growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION UKRB: establishing a platform for growth Transitioning our …and increasing cost …delivers continued trading income streams… discipline… surplus growth Growth, % Growth, % Growth, % Up 9% Up 8% Up 2% Up 5% Up 3% Down 3% 2005H1 2006H1 2005H1 2006H1 2005H1 20
Slide 42: UKRB: growth outlook
CARE - CONTAINS PRICE SENSITIVE INFORMATION UKRB: growth outlook We are improving the fundamentals …to drive accelerated future of our franchise… profit growth • Attractive customer • Sales up demographics in our franchise • Customer acquisition up • Advocacy and easier account opening drive recruit
Slide 43: I&I: accelerating growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION I&I: accelerating growth Our objectives What we are doing in 2006 Maximise distribution reach • Improving our bancassurance product range and sales effectiveness • Focusing on the most Develop better products valuable IFA relationships and improving servic
Slide 44: I&I: accelerating growth momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION I&I: accelerating growth momentum* Accelerating income …plus controlled cost …delivers accelerating growth… growth… trading surplus growth Growth, % Growth, % Growth, % Up 15% Up 11% Up 6% Up 6% Up 4% Up 1% 2005H1 2006H1 2005H1 2006H1 2005H1 2006H1 * exclu
Slide 45: I&I: strong Scottish Widows sales across all channels
CARE - CONTAINS PRICE SENSITIVE INFORMATION I&I: strong Scottish Widows sales across all channels Strong sales growth in all …driven by improved products channels… and sales processes 2006H1 APE growth • Bancassurance market share boosted by – Improving network sales Up 64% effectiveness – Strong fr
Slide 46: I&I: improving Scottish Widows margins
CARE - CONTAINS PRICE SENSITIVE INFORMATION I&I: improving Scottish Widows margins Focus on improving product …has led to improved new profitability… business margins New business margin, life and pensions • Management focus on RAROC and product IRRs 28.8% • Shift towards higher margin 25.8% bancass
Slide 47: I&I: growth outlook
CARE - CONTAINS PRICE SENSITIVE INFORMATION I&I: growth outlook Our focus on profitability and leveraging our franchises is …and will drive accelerated showing results… future profit growth • Attractive customer • Bancassurance sales up demographics in our franchise strongly • Improved products and
Slide 48: W&IB: accelerating growth momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: accelerating growth momentum Our objectives What we are doing in 2006 • Growing and deepening relationships Grow the Corporate Markets • Building product capability and business increasing share of wallet • Building asset distribution capabilities Bu
Slide 49: W&IB: accelerating growth momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: accelerating growth momentum Accelerating income …plus strong …delivers accelerating growth… cost control… trading surplus growth Growth, % Growth, % Growth, % Up 17% Up 8% Up 6% Up 6% Up 5% Up 2% 2005H1 2006H1 2005H1 2006H1 2005H1 2006H1 Investor Re
Slide 50: W&IB: accelerating growth momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: accelerating growth momentum Strong PBT growth across W&IB - except in Asset Finance Profit before tax* (£m) 2005H1 2006H1 % Change Corporate Markets 428 512 20 Business Banking 93 116 25 Asset Finance 107 100 (7) * full IFRS basis, excluding volatil
Slide 51: W&IB: strengthening our franchise in Corporate Markets
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: strengthening our franchise in Corporate Markets 17% income growth achieved by winning more business from high value corporate customers and… ∆ 05H1 - 06H1 • CBI/Real Finance awards – Corporate Bank of the • Number of deals +16% Year for second year
Slide 52: W&IB: driving product capabilities and distribution
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: driving product capabilities and distribution Further product build* Increased cross-sell ratio • Acquisition Finance up 49% Cross-sell Income per RWA, 2004H1=100 • Debt capital markets income up 34% 14% • Derivatives income up 88% CAGR 131 117 Growi
Slide 53: W&IB: accelerating Business Banking growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: accelerating Business Banking growth We are growing our franchise, winning more of our customers’ business, improving our productivity ∆ 05H1 - 06H1 Winning new • Number of start-ups recruited Up 7% customers • Number of switchers recruited Up 9% Imp
Slide 54: W&IB: growth outlook
CARE - CONTAINS PRICE SENSITIVE INFORMATION W&IB: growth outlook Our strategy of growing and deepening our franchise shows …and will drive accelerated in our results… future profit growth • Share of ‘lead’ relationships up • Increasing market recognition • Commercial customer base and capabilities w
Slide 55: Our priorities for Phase Two
CARE - CONTAINS PRICE SENSITIVE INFORMATION Our priorities for Phase Two Strategic priorities Financial goals for Phase Two Build our franchise reach • Building strong revenue and depth growth Enhance our product • A step change in operational capabilities efficiency • Enhanced capital efficiency Im
Slide 56: Improving our productivity
CARE - CONTAINS PRICE SENSITIVE INFORMATION Improving our productivity Strategic priorities The impact in 2006 Group cost:income ratio 54.5% 53.1% 53.0% Leverage our scale 50.6% Exploit our cost management 2003H1 2004H1 2005H1 2006H1 skills Income per FTE (£) 78.2 69.9 Achieve best in class 62.7 eff
Slide 57: Working our capital harder
CARE - CONTAINS PRICE SENSITIVE INFORMATION Working our capital harder Strategic priorities What we are doing in 2006 • Focusing on economic Maximise capital efficiency in each business profitability at a customer and product level • From ‘buy and hold’ to Shift lower yield risk off our ‘origination
Slide 58: Summary
CARE - CONTAINS PRICE SENSITIVE INFORMATION Summary Economic Phase Three profit • We are delivering Phase Two of our strategy Expand from strength – All three divisions Phase Two performing strongly Build – Leading indicators point customer to future growth Phase One franchises – Group-wide initiati
Slide 59: Forward looking statements
CARE - CONTAINS PRICE SENSITIVE INFORMATION Forward looking statements This document is a summary only of certain information contained in the announcement dated 2 August 2006 and should be read in conjunction with the full text of the announcement. This document contains forward looking statements