Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — H1 2018 Earnings Presentation
35 slides from Lloyds Banking's earnings presentation, Aug 1, 2018
Slide 1: 2018 Half-Year Results
2018 HALF-YEAR RESULTS Presentation to analysts and investors | 1 August 2018
Slide 2: Highlights
Highlights António Horta-Osório Group Chief Executive 1
Slide 3: Strong and sustainable earnings continue to demonstrate the strength of the business model
Strong and sustainable earnings continue to demonstrate the strength of the business model • Significant business progress with strong start to the Group’s latest strategic plan ‐ Successful delivery of key initiatives including Open Banking, the planned integration of Zurich and MBNA and launch of
Slide 4: Financial performance – strong and sustainable statutory performance
Financial performance – strong and sustainable statutory performance £9.0bn Net income +2% • Strong statutory profit of £2.3bn up 38% Cost:income ratio (incl. 47.7% ‐ Net income up 2% with increased NII and stronger Other Income in remediation) (4.2)pp Q2; NIM increased to 293bps Cost:income ratio (
Slide 5: UK economy remains resilient
UK economy remains resilient Employment rate(1) and GDP growth CPI inflation and pay growth(2) (%) (%) 4 62 7 2 61 5 0 3 60 (2) 1 59 (4) (1) (6) 58 (3) (8) 57 2007 2009 2011 2013 2015 2017 2007 2009 2011 2013 2015 2017 GDP growth (lhs) Employment rate (rhs) CPI inflation BoE estimates of Basle III T
Slide 6: Cost discipline enables greater investment capacity and increased returns
Cost discipline enables greater investment capacity and increased returns Market leading Freeing up efficiency capital for >£3.0bn Higher NPS scores strategic investment Improvement to Statutory Greater customer RoTE investment experience 14-15% capacity from 2019 Future proofing our End-to-end busi
Slide 7: Cost discipline enables greater investment capacity and increased returns
Cost discipline enables greater investment capacity and increased returns Market leading efficiency position Cost:income ratio(1), % 51.9 Low 40s incl. Market leading 47.7 remediation Freeing up efficiency capital for >£3.0bn 45.8 44.9 Higher NPS scores strategic investment H1 2017 H1 2018 2020 (Exi
Slide 8: Cost discipline enables greater investment capacity and increased returns
Cost discipline enables greater investment capacity and increased returns Improved customer experience NPS(1) Market leading 61 Freeing up efficiency capital for >£3.0bn Higher NPS scores strategic investment 40 Improvement to Statutory Greater customer RoTE investment experience 14-15% capacity 201
Slide 9: Transformational strategy targeting significant customer and business enhancements
Transformational strategy targeting significant customer and business enhancements DIGITISING THE GROUP MAXIMISING GROUP CAPABILITIES • End to end transformation covering more • £6bn loan growth in start-ups, SME and than 70% of our cost base Mid Market businesses • Simplification and progressive •
Slide 10: Strategic Progress
Strategic Progress Juan Colombás Chief Operating Officer 9
Slide 11: Transformational strategy targeting significant customer and business enhancements
Transformational strategy targeting significant customer and business enhancements DIGITISING THE GROUP MAXIMISING GROUP CAPABILITIES • End to end transformation covering more • £6bn loan growth in start-ups, SME and than 70% of our cost base Mid Market businesses • Simplification and progressive •
Slide 12: Digitising the Group – simplification and progressive modernisation of IT and data architecture
Digitising the Group – simplification and progressive modernisation of IT and data architecture Increasing spend in technology H1 2018 example initiatives • Significantly increasing technology spend, • Enhancing machine learning capabilities – Savings up c.20% in FY18 solution resulting in 56% accur
Slide 13: Leading customer experience – #1 UK digital bank with Open Banking functionality
Leading customer experience – #1 UK digital bank with Open Banking functionality Continued growth across digital channels • Largest digital bank in the UK with 13.8m digitally active Digitally active users, million customers and 9.8m mobile users +8% • Only major UK bank compliant with Open Banking
Slide 14: Leading customer experience – #1 branch network, serving complex needs
Leading customer experience – #1 branch network, serving complex needs Maintaining our branch reach • Re-shaping our branch network as a source of competitive Branch market share (March 2018) and movement since Dec 2012(3) advantage to respond to changing customer demand, while +1.8pp -3.1pp +0.3pp
Slide 15: Maximising Group capabilities – sole integrated UK banking and insurance provider
Maximising Group capabilities – sole integrated UK banking and insurance provider • More than £9bn FP&R open book AuA growth Delivering growth in FP&R - Increase supported by stronger net flows, and H1 2018 FP&R open book AuA growth(3), £bn accelerated transfer of Zurich assets 9.3 - Targeting £50bn
Slide 16: Financial Results
Financial Results George Culmer Chief Financial Officer 15
Slide 17: Strong financial performance with continued growth in profits and returns
Strong financial performance with continued growth in profits and returns (£m) H1 2018 H1 2017 Change • Underlying profit increased 7% to £4.2bn Net interest income 6,344 5,925 7% Vocalink – 146 – • Net income increased 2% to £9.0bn Other Income 3,124 3,202 (2)% ‐ NII up 7% with improved margin of 2
Slide 18: Net interest income increase driven by improved margin and AIEA growth
Net interest income increase driven by improved margin and AIEA growth Net interest income and margin • Net interest income up 7% to £6.3bn driven by an (£bn, %) 2.90% 2.93% 3 improved margin of 2.93% and higher AIEAs 2.82% 2.74% 2.69% ‐ Lower funding and deposit costs more than offset 2.8 mortgage
Slide 19: Asset margin and mix – mortgage pricing remains competitive but margin resilient
Asset margin and mix – mortgage pricing remains competitive but margin resilient given active management Mortgage book (Book size £bn, Gross margin %) • Mortgage pricing remains competitive – some 2.3% 1.9% increases in recent months 301 301 CAGR 293 291 289 • Overall book margin resilient; down <40
Slide 20: Asset margin and mix – Group margin benefiting from mix and growth in under represented segments
Asset margin and mix – Group margin benefiting from mix and growth in under represented segments • Growth in high margin consumer finance portfolio UK consumer finance(1) (Book size £bn, Gross margin %) ‐ Cards up at 24% CAGR since 2014 with gross margin 9.3% 7.1% c.9%; £8bn MBNA credit card portfol
Slide 21: Liability margin and mix – improving mix with focus on current accounts
Liability margin and mix – improving mix with focus on current accounts; further opportunity to reprice Group deposits, enhance the mix and grow the book Improving liability mix(1) (Book size £bn, Gross margin %) (0.2)% 0.4% CAGR • Increased margin due to pricing changes and mix 423 418 413 416 418
Slide 22: Structural hedge – prudent approach and increased contribution to earnings
Structural hedge – prudent approach and increased contribution to earnings given increase in current account balances Hedged balances(1) Structural hedge balance as % of balance sheet in line with (£bn) Hedge as % of disclosed UK peers(2) 456 460 461 37% £89bn balance sheet £171bn £149bn 323 316 311
Slide 23: Resilient Other Income performance with good Q2
Resilient Other Income performance with good Q2 Other Income (excluding Vocalink) (£bn) • Other Income of £3.1bn broadly stable in recent years with robust divisional performance • Good Q2 performance of £1.7bn driven by 3.1 3.0 3.2 2.9 3.1 ‐ Strong insurance new business with higher workplace pensi
Slide 24: Reduction in BAU costs creates capacity for increased investment
Reduction in BAU costs creates capacity for increased investment Operating costs Above the line investment spend (£m) (£m) 59% 60% +0% 1,159 +16% 4,018 135 34 4,024 997 46 +14% 686 602 (209) 395 473 +20% H1 2017 Cost Pay & Invest- Other H1 2018 H1 17 H1 18 savings inflation ment Investment expensed
Slide 25: Credit quality remains strong reflecting a continued prudent approach to risk
Credit quality remains strong reflecting a continued prudent approach to risk Asset quality ratio (bps) • Gross AQR lower at 27bps with net AQR up due to lower releases and write-backs -10 -7 -13 • Underlying credit portfolio remains stable with 28 28 27 no overall deterioration in credit risk indic
Slide 26: Credit quality – diversified, high quality £290bn UK mortgage portfolio
Credit quality – diversified, high quality £290bn UK mortgage portfolio Mortgage portfolio quality Geographically diversified mortgage portfolio(1) (%) (£bn) 56.4 53.3 49.2 46.1 Lloyds 43% 43% 14% 44.0 43.6 43.5 81.9 86.4 89.0 89.5 88.8 70.4 Rest of 59.6 50% 40% 10% market 2012 2013 2014 2015 2016 2
Slide 27: Credit quality – consumer finance portfolio benefits from conservative underwriting
Credit quality – consumer finance portfolio benefits from conservative underwriting and prudent assumptions Credit cards – new to arrears as proportion of total book (%) • Prime credit card book with conservative risk appetite 2.0% ‐ No deterioration seen across the portfolio 1.5% ‐ New to arrears f
Slide 28: Significant growth in statutory profit and returns
Significant growth in statutory profit and returns • Statutory profit after tax of £2.3bn, up 38% (£m) H1 2018 H1 2017 Change • Market volatility and other items includes £105m Underlying profit 4,234 3,952 7% loss on sale of Irish mortgage portfolio Volatility and other items (190) (37) – • Restruc
Slide 29: Balance sheet – targeted loan growth while continuing to optimise the portfolio
Balance sheet – targeted loan growth while continuing to optimise the portfolio Loans and advances AIEAs (£bn) (£bn) • Loans and advances of £442bn 444 442 39 38 ‐ Open mortgage book in line with year end; 99 97 continue to expect book growth in 2018 39 40 435 436 ‐ Continued high-quality growth in
Slide 30: Strong capital build with increased interim ordinary dividend
Strong capital build with increased interim ordinary dividend Common Equity Tier 1 (%) +121bps 1.11 0.08 0.25 0.04 15.1 • Pro forma CET1 capital build of 121bps 0.01 14.5 13.9 (0.28) (0.57) ‐ CET1 ratio of 15.1%, 14.5% post-dividend ‐ Includes capital benefit from sale of Irish mortgages • Capital b
Slide 31: Summary
Summary António Horta-Osório Group Chief Executive 30
Slide 32: Continued progress – business model is delivering strong and sustainable profits and returns
Continued progress – business model is delivering strong and sustainable profits and returns Statutory profit before tax (£bn) • Significant business progress with strong start to the Group’s latest strategic plan 3.1 2.5 2.5 • Strong and sustainable financial performance with continuing growth in s
Slide 33: Appendix
Appendix , | i
Slide 34: Mortgage LTVs – further improvement in the first half of 2018
Mortgage LTVs – further improvement in the first half of 2018 Jun 2018 Dec 2017 Dec 2016 Dec 2010 Mainstream Buy to let Specialist Total Total Total Total(1) Average LTVs 41.7% 52.2% 46.2% 43.5% 43.6% 44.0% 55.6% New business LTVs 63.2% 57.6% n/a 62.3% 63.0% 64.4% 60.9% ≤ 80% LTV 87.7% 94.1% 88.6% 8
Slide 35: Forward looking statements and basis of presentation
Forward looking statements and basis of presentation Forward looking statements This document contains certain forward looking statements with respect to the business, strategy, plans and /or results of Lloyds Banking Group (the “Group”) and its current goals and expectations relating to its future