Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — FY2019 Earnings Presentation
41 slides from Lloyds Banking's earnings presentation, Feb 20, 2020
Slide 1: 2019 Results
2019 RESULTS Presentation to analysts and investors | 20 February 2020
Slide 2: Introduction, Retail Bank update, Financials
António Horta-Osório Introduction Group Chief Executive Vim Maru Retail Bank update Group Director, Retail Bank William Chalmers Financials Chief Financial Officer Q&A 1
Slide 3: Full year results – Introduction
Full year results – Introduction António Horta-Osório Group Chief Executive 2
Slide 4: Strategic progress alongside solid financial performance
Strategic progress alongside solid financial performance Underlying profit and statutory profit after tax (£bn) 8.1 • Group continues to Help Britain Prosper, whilst building 6.8 7.6 7.5 strategic advantage and delivering strong and sustainable returns 1.7 0.8 2.5 1.0 • Significant progress against
Slide 5: Solid financial performance in a challenging environment
Solid financial performance in a challenging environment £3.0bn Statutory profit after tax (33)% • Statutory PAT of £3.0bn impacted by PPI charges of £2.45bn £7.5bn • Underlying profit of £7.5bn with underlying RoTE of 14.8% Underlying profit (7)% - Net income of £17.1bn, 4% lower, with resilient NI
Slide 6: Growth in key segments
Growth in key segments Open mortgage book ahead of 2018 Focused on growth opportunity in Insurance and Wealth (£bn) (Open book AUA, £bn) +£3.5bn +£37bn2 266.6 270.1 104 67 2018 20191 2017 2019 SME lending growth ahead of market3 Personal current account growth ahead of market4 (Growth since start of
Slide 7: UK economy resilient in 2019 with some signs of improving outlook
UK economy resilient in 2019 with some signs of improving outlook GDP growth1,2 CPI inflation and pay growth2 (% growth vs. previous quarter) (%) 4 0.6 3 0.4 +c.2% 2 0.2 1 0.0 0 2014 2015 2016 2017 2018 2019 2016 2017 2018 2019 CPI inflation Regular pay growth Business and consumer confidence3,4 • E
Slide 8: Unique business model and increased investment creating competitive advantage
Unique business model and increased investment creating competitive advantage Creating competitive advantage OUR Helping Britain Prosper PURPOSE OUR Best bank for customers, AIM colleagues and shareholders OUR Digitised, simple, low risk, BUSINESS customer focused, UK financial MODEL services provid
Slide 9: Transforming the Group for success in a digital world
Transforming the Group for success in a digital world Targeted outcomes (2020) Progress to date Leading #1 UK digital bank 16.4m digitally active users Customer Maintain #1 branch network #1 branch network Experience More personalised customer propositions >£9bn balance growth in targeted segments1
Slide 10: 2019 strategic progress – Leading Customer Experience
2019 strategic progress – Leading Customer Experience All financial needs in one place Further improving customer satisfaction All channel Net Promoter Score +47% +3% >5m 58 X 61 63 Customers with Single Customer View capability 43 c.9m Customers with Single Customer View capability by end 2020 2011
Slide 11: 2019 strategic progress – Maximising Group Capabilities
2019 strategic progress – Maximising Group Capabilities Leading lender to SMEs Strong start for Schroders Personal Wealth SME lending balances (£bn)1 LBG Retail wealth referrals c.6pp increase in market share since 2010 +3.3% 2018 H1 H2 32 +23% +45% +33% 31 2019 28 New AuA generated through LBG Reta
Slide 12: 2019 strategic progress – Digitising the Group and Transforming Ways of Working
2019 strategic progress – Digitising the Group and Transforming Ways of Working Enhancing our cost track record Fintech collaboration to accelerate transformation FY 2017-FY 2019 cost:income ratio movement Selected examples UK peer average1 Cloud native next generation banking platform -0.4pp -3.3pp
Slide 13: Continued successful strategic execution is reinforcing competitive strengths
Continued successful strategic execution is reinforcing competitive strengths Delivering for Multi-brand, multi-channel Data-driven personalised >5m +3% customers Single Customer View Improvement in NPS distribution model experiences customers during GSR3 Tech spend as % of operating costs1 Sustaina
Slide 14: Significant ESG delivery, supported by Helping Britain Prosper plan
Significant ESG delivery, supported by Helping Britain Prosper plan A proven track record New ambitious goal Environmental • Raised >£2.8bn in green bonds for UK corporate issuers, more than any other UK bank We aim to help reduce the • One of the UK’s leading low emission fleet through Lex Autoleas
Slide 15: Retail Bank update
Retail Bank update Vim Maru Group Director, Retail Bank 14
Slide 16: Unique multi-brand, multi-channel strategy and strong franchise
Unique multi-brand, multi-channel strategy and strong franchise Over 26m retail customers are served by our iconic brands… Delivering on our strategic priorities #1 branch network Relationship Specialist Branch market share brands brands On track c.21% c.21% 2017 2020e …and extensive multi-channel s
Slide 17: Resilient financial performance despite a number of market headwinds
Resilient financial performance despite a number of market headwinds 0% • Stable income performance despite a number of Net income 9,902 9,875 market headwinds (£m) - Increased competition and back book erosion 2017 2019 - Regulatory changes +3bps Net interest - Fee income pressure 2.60% 2.63% margi
Slide 18: We are refocusing our physical presence to serving complex needs
We are refocusing our physical presence to serving complex needs Adapting to changing behaviours Refocusing on serving complex needs Customer-facing time spent serving complex needs 300 Start of GSR3 Digital +11% 200 c.50% 45% Customer channel interactions (indexed to 2014) 100 Branch 2017 2019 2014
Slide 19: Responding to changing customer preferences, digital is now our largest channel
Responding to changing customer preferences, digital is now our largest channel Continuing to see increasing levels of digital penetration Meeting all financial needs in one place Products originated via digital and mobile channels +3% Mobile app NPS 66.5 68.4 PCAs Protection +7pp 75% Home 68% Savin
Slide 20: Targeted propositions with increasing personalisation
Targeted propositions with increasing personalisation Greater understanding of our diverse customer base Driving growth through more tailored propositions High Complexity Low of needs 1.6m customers Deepen Retain Deliver Club Lloyds Strategy engagement relationships brilliant basics Club Saver 2.7x
Slide 21: We continue to see opportunities across the business
We continue to see opportunities across the business A leading, diversified franchise With a clear strategy across all businesses Market share and movement since FY17 • Retain channel specific strategy in mortgages Distinct channel strategy in - Intermediary channel participation influenced by marke
Slide 22: Full year results – Financials
Full year results – Financials William Chalmers Chief Financial Officer 21
Slide 23: Resilient underlying performance in a challenging environment
Resilient underlying performance in a challenging environment (£m) 2019 2018 Change Net interest income 12,377 12,714 (3)% • Net income down 4% at £17.1bn Other income (incl. Vocalink) 5,732 6,010 (5)% - NII 3% lower; stable AIEAs, resilient NIM Operating lease depreciation (967) (956) (1)% - Other
Slide 24: Net interest income lower; resilient margin of 2.88 per cent in 2019
Net interest income lower; Resilient margin of 2.88 per cent in 2019 Net interest income and banking net interest margin Quarterly net interest income and margin (£m) (£bn, %) 2.92% 2.91% 2.89% 2.88% 2.85% 2.93% (9)bps +3bps +1bps 3 2.88% (3)% 2.8 12,714 137 12,377 2.6 (419) (55) 3.2 2.4 3.1 3.1 3.1
Slide 25: Asset margins: Remain resilient in a competitive market
Asset margins: Remain resilient in a competitive market Changing asset mix (Book size £bn, Gross margin %1) Mortgage book UK consumer finance 1.8% 1.8% 1.7% 6.8% 6.7% 7.0%3 288 285 289 YoY 41 41 42 10 32 30 28 9 10 Motor - New4 • Resilient asset margin across key segments Back book 6 6 6 Motor - Use
Slide 26: Liability margins: Improving mix and structural hedge supporting resilient margin
Liability margins: Improving mix and structural hedge supporting resilient margin despite lower rates Improving liability mix1 Hedged balances (Book size £bn, Gross margin %2) (£bn) Hedge as % of 0.5% 0.5% 0.5% 459 461 454 39% YoY balance sheet 416 418 412 18 16 14 (20)% 14 14 14 (3)% 307 308 300 18
Slide 27: Other income challenging, but building resilience
Other income challenging, but building resilience Other Income (including Vocalink) (£bn) • Other income of £5.7bn, down 5% • Key drivers in 2019 1.4 1.6 1.6 1.3 - Commercial: softness in large corporates markets 1.3 activity - I&W: workplace pensions, GI growth, benefit from change Q4 2018 Q1 2019
Slide 28: Continued delivery on operating costs while maintaining strategic investment
Continued delivery on operating costs while maintaining strategic investment Total costs1 Operating costs1 (£m) (£m) 49.3% 48.5% C:I ratio: (0.8)pp (5)% 8,165 7,875 (4)% 8,765 1,447 1,528 68 882 +3% 109 869 8,320 (362) (105) (155) 5,836 (6)% 5,478 2018 Cost Pay & Investment & Other Remediation 2019
Slide 29: Efficiency opportunities driven by investment, flexibility and focus
Efficiency opportunities driven by investment, flexibility and focus • Strong track record of delivery Examples of cost saving initiatives - Operating costs from c.£10bn in 2010 to <£7.9bn in Automation 2019, with significant increases in investment Use of new technologies (e.g. robotics, AI) - Cost
Slide 30: Asset quality remains strong reflecting prudent approach to risk
Asset quality remains strong reflecting prudent approach to risk Asset quality ratio (bps) 37 • Gross AQR of 37bps, net AQR of 29bps 8 29 - Asset quality remains stable excluding two material 8 corporate cases 28 29 21 21 - Benefit from continued debt sales, write backs 2018 2019 • Stage 2 and 3 bal
Slide 31: Credit quality remains strong across all portfolios
Credit quality remains strong across all portfolios New to arrears as proportion of total book (%) • Strong credit performance across Mortgage portfolio, 1.5% new to arrears remain low - Low average LTV of <45%; average LTV of new business 1.0% c.64% and c.90% of portfolio has LTV 80%2 - Legacy bal
Slide 32: Statutory performance impacted by PPI
Statutory performance impacted by PPI (£m) 2019 20181 Change Underlying profit 7,531 8,066 (7)% • Statutory profit after tax down 33% Market volatility and asset sales 126 (50) - Restructuring: major projects completed, severance Fair value unwind and other2 (343) (427) 20% and initial costs for Sch
Slide 33: Growth in targeted segments with continued portfolio optimisation
Growth in targeted segments with continued portfolio optimisation Loans and advances • Loans and advances £440bn (£bn) - Open mortgage book ahead of prior year while focusing 2019 270 19 52 32 65 440 on margin and risk, particularly in intermediary channel - Continued high-quality growth in consumer
Slide 34: Tangible net asset value impacted by PPI and market movements
Tangible net asset value impacted by PPI and market movements TNAV per share year on year (pence) (2.2)p +1.1p • TNAV of 50.8p per share, down 2.2p in the year 7.6 x 0.6 x 54.1 53.0 (3.5) (1.6) 50.8 • Gross TNAV generation of 1.1p in 2019 (2.0) (3.3) - Pre-PPI statutory profit of 7.6p per share FY 2
Slide 35: Strong capital build excluding PPI charge
Strong capital build excluding PPI charge Common equity tier 1 ratio (%) +86bps +207bps C • Capital build 207bps pre-PPI, 86bps after PPI 0.20 C 16.0 C 0.18 1.80 • Pro forma CET1 13.8% after dividend (0.11) 0.34 (0.09) - Final ordinary dividend 2.25p per share; total 13.9 (1.21) 13.8 ordinary divide
Slide 36: Strategic progress alongside solid financial performance
Strategic progress alongside solid financial performance • Group continues to Help Britain Prosper, whilst building Guidance for 2020 strategic advantage and delivering strong and • NIM of 2.75 – 2.80% sustainable returns • Operating costs less than £7.7bn with cost:income • Significant progress aga
Slide 37: Appendix
LLOYDS Appendix 36
Slide 38: Quarterly P&L and key ratios – solid financial performance
Quarterly P&L and key ratios – solid financial performance (£m) Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Net interest income 3,102 3,130 3,062 3,083 3,170 Other Income 1,267 1,315 1,594 1,556 1,400 Operating lease depreciation (236) (258) (254) (219) (225) Net income 4,133 4,187 4,402 4,420 4,345 Ope
Slide 39: Mortgage portfolio LTV breakdown – continued low LTVs
Mortgage portfolio LTV breakdown – continued low LTVs Dec 20191 Dec 20181 Dec 20102 Mainstream Buy to let Specialist Total Total Total Average LTVs 43.6% 52.3% 44.0% 44.9% 44.3% 55.6% New business LTVs 65.2% 58.2% n/a 64.3% 62.5% 60.9% ≤ 80% LTV 85.1% 97.2% 91.9% 87.5% 88.3% 57.0% >80–90% LTV 12.0%
Slide 40: Market shares - opportunities for growth in targeted key segments
Market shares - opportunities for growth in targeted key segments Channels market share Digital new business volumes1 18% Branch new business volumes1 22% Product market share Consumer credit card balances 24% PCA deposit balances 22% Mortgage balances (open book) 19% SME and small business lending
Slide 41: Forward looking statements and basis of presentation
Forward looking statements and basis of presentation Forward looking statements This document contains certain forward looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, as amended, with respec