Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — H1 2003 Earnings Presentation
27 slides from Lloyds Banking's earnings presentation, Aug 1, 2003
Slide 1: 2003 Interim Results
2003 Interim Results 1 August 2003 Philip Hampton Group Finance Director
Slide 2: Headline results – 2003H1
Headline results – 2003H1 2002H1 2003H1 £m £m % Profit before tax excluding investment variances etc 2,003 1,643 (18) Investment variances etc (399) 34 Profit before tax 1,604 1,677 5 • Decline in profits, excluding investment variance and changes in economic assumptions, of £360 million mainly a re
Slide 3: Major items affecting earnings trend
Major items affecting earnings trend 2002H1 2003H1 £m £m Customer redress provisions - (300) Actuarial adjustments 80 (21) Competition Commission impact - (85) Major provisions for corporates and Argentina (90) - Sale & leaseback profits/loss on disposal 23 (15) FRS 17 income 85 17 Bond/forex Bond/f
Slide 4: Provisions for customer redress
Provisions for customer redress • A provision of £300 million has been made in respect of past sales of the Extra Income & Growth Plan and certain endowment based and long-term savings products • £200 million allocated to UKRB & Mortgages, within operating expenses • £100 million deduction from inco
Slide 5: Key performance issues – 2003H1
Key performance issues – 2003H1 • Equity market related income remains subdued • Good growth in customer lending and customer deposits • Improved market share in many key product areas, including mortgages, credit cards, bank savings, life and pensions • Underlying margin erosion may be easing • Cos
Slide 6: Revenue
Revenue 2002H1 2002H2 2003H1 £m £m £m Net interest income 2,557 2,614 2,571 Other finance income 85 80 17 Other income 1,955 1,587 2,346 Total income 4,597 4,281 4,934 Total income* 4,996 4,984 5,000 * excluding changes in economic assumptions, investment variance and provisions for customer redress
Slide 7: Business volumes – 2003 first half
Business volumes – 2003 first half Over the last six months: • Total customer lending increased by 6% to £142 billion – consumer credit up 6% to £15.8 billion – mortgage balances up 8% to £67.3 billion – commercial lending up 3% to £41.7 billion • Debt securities reduced by 2% to £28.7 billion • Cus
Slide 8: Net interest margin – half-yearly trends
Net interest margin – half-yearly trends % 3.50 3.36 3.21 3.27 3.06 3.00 3.13 3.01 2.84 2.79 2.70 2.50 2002H1 2002H2 2003H1 Group Domestic International
Slide 9: Net interest margin
Net interest margin 2002H1 2002H2 2003H1 % % % Group margin 3.27 3.13 3.01 Competition Commission impact - - 0.10 3.27 3.13 3.11 Difference from 2003H1 (16)bps (2)bps Analysis (excluding CC impact): UKRB & Mortgages (13)bps (6)bps Wholesale (2)bps 3bps International (1)bps 1bps
Slide 10: Operating expenses
Operating expenses 2002H1 2002H2 2003H1 £m £m £m Operating expenses 2,360 2,555 2,629 Acquisitions (22) (83) (99) Operating lease depreciation (112) (118) (109) Provisions for customer redress - - (200) 2,226 2,354 2,221
Slide 11: Charge for bad and doubtful debts
Charge for bad and doubtful debts % of Average 2002H1 2002H2 2003H1 Lending £m £m £m 2003H1* UKRB & Mortgages 270 293 335 0.80 Wholesale Markets 151 160 108 0.52 International Banking 63 99 40 0.54 Central group items (5) (2) (13) - Total charge 479 550 470 0.66 * annualised
Slide 12: Basel II – likely implications
Basel II – likely implications • Lloyds TSB intends to migrate to the advanced IRB approach for credit risk • Our input to QIS3 suggests a significant overall reduction in risk weighted assets – indicatively 20% • 50% of ‘investment in subsidiaries’ to be deducted from tier 1 capital; 50% from tier
Slide 13: Capital
Capital • £0.5 billion tier 2 raised in first half of 2003 • Capital ratios strengthened – tier 1 8.1% (2002: 7.8%) – total 10.1% (2002: 9.6%) • Strong capital generation from banking business – high ROE – good quality earnings stream – high distribution ratio leads to focus on building tier 1 ratio
Slide 14: Scottish Widows
Scottish Widows • One of the most strongly capitalised life assurance companies in the UK Revised business plan with objective to: – reduce earnings volatility – ensure no near term capital demands are made to the Group for FTSE 100 levels above 3000 – generate free cash flow in 2004
Slide 15: Economic equity
Economic equity • Important discipline to fight for capital, internally and externally • Improved economic equity attribution model – optimise use of risk adjusted capital – improve resource allocation on a risk/reward basis • Key financial drivers will be: – return on economic equity – growth in ec
Slide 16: Summary
Summary • High returns • Improved quality of earnings • Challenge of growth
Slide 17: 2003 Interim Results
2003 Interim Results 1 August 2003 Eric Daniels Group Chief Executive
Slide 18: First half results
First half results • Headline profits up 5% • Like-for-like profits broadly unchanged
Slide 19: Current position
Current position • Lloyds TSB is a high return business • However, we have not delivered strong growth • Our earnings have been subject to a high degree of volatility
Slide 20: Key management priorities
Key management priorities • To manage the business portfolio, and reduce earnings volatility • To maintain and build levels of profitability • To position the Group for growth
Slide 21: Managing the business portfolio
Managing the business portfolio • Strategic review of all businesses • Reduce earnings volatility • New parameters in our life assurance businesses • Improving the sales processes
Slide 22: Maintain and build levels of profitability
Maintain and build levels of profitability • Improving capital management • Enhanced focus on economic equity • Economic profit growth the key financial driver • Cost efficiency a high priority
Slide 23: To position the Group for growth
To position the Group for growth • Opportunity to grow existing franchises • Leveraging our strengths • Significant share in key relationship areas • Smaller market shares in other consumer products, and commercial and corporate markets
Slide 24: Realising the opportunity
Realising the opportunity • All about performance • Making the most of our assets • Committing resources to growth businesses
Slide 25: Execution is the key
Execution is the key • We believe that the opportunities for growth are real and tangible • We recognise the external, economic and regulatory challenges • Over the last few years our growth has been moderate • Results depend on execution
Slide 26: Summary
Summary • We have made progress – reduced earnings volatility – focused on core businesses and capital management – set parameters for life and pensions business • Going forward – framework for growth – business strategies under way • Progress report on 6 October
Slide 27: Forward looking statements
Forward looking statements This document is a summary only of certain information contained in the press announcement dated 1 August 2003 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