Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — FY2018 Earnings Presentation
38 slides from Lloyds Banking's earnings presentation, Feb 20, 2019
Slide 1: 2018 Results
2018 RESULTS Presentation to analysts and investors | 20 February 2019
Slide 2: Full year results – Introduction
Full year results – Introduction António Horta-Osório Group Chief Executive 1
Slide 3: Significant business progress with strong start to the Group's latest strategic plan
Significant business progress with strong start to the Group’s latest strategic plan Statutory profit after tax (£bn) • Group will continue to Help Britain Prosper whilst delivering strong and sustainable returns 4.4 • Significant progress against strategic priorities 2.5 3.5 with increased investme
Slide 4: Strong financial performance with continued growth in profits and returns
Strong financial performance with continued growth in profits and returns Statutory profit after £4.4bn tax +24% • Statutory profit after tax of £4.4bn up 24%, with EPS 27% higher 5.5p Earnings per share +27% • Underlying profit up 6% at £8.1bn £8.1bn ‐ Net income of £17.8bn, 2% higher, with higher
Slide 5: UK economy remains resilient despite heightened uncertainty
UK economy remains resilient despite heightened uncertainty GDP and investment growth(1) CPI inflation and pay growth(1) (%) (%) 2 4 1 3 +1% 0 2 -1 1 -2 0 2016 2017 2018 2016 2017 2018 GDP Business investment CPI inflation Regular pay growth Interest rates and employment(1,2) • Economic growth remai
Slide 6: Clear strategic plan, delivering new sources of competitive advantage
Clear strategic plan, delivering new sources of competitive advantage and future proofing our business model • Number of deliverables achieved within first 12 months: OUR Helping Britain Prosper PURPOSE - Largest digital bank in UK with 15.7m digitally active users(1) and 74%(2) of products originat
Slide 7: Increased investment is enabling further customer enhancements and market leading returns
Increased investment is enabling further customer enhancements and market leading returns Market leading • Strong strategic progress enabled by unique, efficiency Freeing up customer focused business model Future proofing our capital for >£3.0bn business model strategic investment • Ability to deliv
Slide 8: Market leading efficiency creates capacity for increased investment
Market leading efficiency creates capacity for increased investment… Continued focus on BAU cost reduction Operating costs(1), £bn Net cost Cost:income Low 55.3 51.8 49.3 reduction to ratio (%)(1): 40s <£8bn in 2019 BAU Costs CAGR Selected examples: 2020 Exit rate -5% 9.4 Staff costs down 4% Future
Slide 9: Supporting further simplification and efficiency enhancements
…supporting further simplification and efficiency enhancements One of the largest transformation programmes in financial services(1), supported by increased investment in technology and people… Greater Technology spend, £bn; % of operating costs ‘Skills of the future’ training, cumulative hours (m)
Slide 10: Delivering further improvements to our customer proposition
…as well as delivering further improvements to our customer proposition Only provider serving all financial needs in one place Enhancements • Launched API-enabled Open Banking aggregation to internal functionality, while providing differentiated Single Customer >3m processes View of all banking and
Slide 11: A number of key opportunities exist in 2019
A number of key opportunities exist in 2019, building on our progress to date • Well positioned to accelerate strategic delivery: OUR Helping Britain Prosper - Open Banking aggregation functionality extended to all active PURPOSE mobile app customers and progressing towards >9m on Single Customer Vi
Slide 12: Summary – significant business progress with strong start to the Group's latest strategic plan
Summary – significant business progress with strong start to the Group’s latest strategic plan Statutory profit after tax • Significant progress against strategic priorities with (£bn) increased investment in the business • Strong financial performance with continued growth in profit and market-lead
Slide 13: Transformation update
Transformation update Zak Mian Group Director, Transformation 12
Slide 14: Progressing our transformation with tangible benefits delivered
Progressing our transformation with tangible benefits delivered Cyber defences Release cycles for simple Channel digital changes reduced technology Branch Telephony Digital API from 30 days to 2 days Multi-brand, omni-channel customer servicing platform >350 key hires(1) in Insight Cognitive and mac
Slide 15: Our mobile app
Our mobile app >2.3bn Customer logons(1) in 2018, +30% YoY 9.3m 22 Active mobile app users(2), Average customer +21% YoY logons per month(3) 74% 37% Products originated via Products originated via digital in 2018(4) mobile in 2018(4) 1 – Customer logons across Lloyds Bank, Halifax, Bank of Scotland
Slide 16: Delivering a leading customer experience and operational efficiencies
Delivering a leading customer experience and operational efficiencies Virtual assistants & automation Push notifications Tangible benefits delivered in 2018… Tangible benefits delivered in 2018 • Live to 3m customers • 30% adoption rate so far • 10 point increase in customer satisfaction • 80% posit
Slide 17: Our new Open Banking proposition
Our new Open Banking proposition 100% Mobile app customers(1) have access to Open Banking 36k Customers currently using LBG Open Banking functionality(2) 1 – Lloyds Bank, Halifax and Bank of Scotland customers excludes MBNA. 2 – As at 18 February 2019. 16
Slide 18: All your financial needs in one place
All your financial needs in one place >3m Customers currently able to view banking and insurance products, such as pensions and home insurance, in one place 165k Customers view their pension alongside banking products daily(1) >9m Customers able to view all of their financial products, including our
Slide 19: The future – digitally enabled multi-channel proposition
The future – digitally enabled multi-channel proposition 18
Slide 20: Full year results – Financials
Full year results – Financials George Culmer Chief Financial Officer 19
Slide 21: Strong financial performance with continued growth in profits and returns
Strong financial performance with continued growth in profits and returns • Underlying profit increased 6% to £8.1bn (£m) 2018 2017 Change Net interest income 12,714 12,320 3% • Net income increased 2% to £17.8bn Other Income 6,010 6,059 (1)% ‐ NII up 3% with increased margin of 2.93% Vocalink - 146
Slide 22: Net interest income up 3% with improved margin of 293 basis points
Net interest income up 3% with improved margin of 293 basis points Net interest income and banking net interest margin Net interest income and margin (£m) (£bn, %) 2.93% 2.93% 2.90% 3 2.86% (7)bps +11bps +3bps 2.93% 2.82% 2.74% 2.69% 2.8 +3% 489 183 12,714 2.6 12,320 2.4 (278) 5.9 6.4 6.3 6.4 5.8 5.
Slide 23: Asset pricing and mix: mortgage pricing remains competitive but margin resilient
Asset pricing and mix: mortgage pricing remains competitive but margin resilient Changing asset mix (Book size £bn, Gross margin %(1)) Mortgage book UK consumer finance 2.0% 1.9% 7.2% 7.0% • Mortgage pricing remains competitive 291 288 39 41 and focus remains on margin and risk 37 32 -12% 8 9 ahead
Slide 24: Liability pricing and mix: current account growth and prudent structural hedging programme
Liability pricing and mix: current account growth and prudent structural hedging programme Improving liability mix(1) Hedged balances(2) (Book size £bn, Gross margin %) (£bn) Hedge as % of 0.3% 0.4% 460 459 39% balance sheet 416 416 19 17 -11% 14 14 +2% 316 307 180 60 132 130 -1% 100 109 90 44 43 30
Slide 25: Resilient Other Income performance
Resilient Other Income performance Other Income (excluding Vocalink) (£bn) • Other Income of £6.0bn stable on recent years and H2 in line with prior year 3.1 3.2 3.1 3.0 2.9 2.9 • Divisional performance driven by ‐ Strong Insurance new business with higher H1 16 H2 16 H1 17 H2 17 H1 18 H2 18 workpla
Slide 26: Operating costs continue to provide competitive advantage despite increased strategic investment
Operating costs continue to provide competitive advantage despite increased strategic investment Operating costs(1) Operating costs(1) (£m) (£m) 8,184 8,165 -0.2% 1,141 1,235 8,184 51 8,165 775 +10% 201 882 82 (353) 6,268 6,048 -4% 2017 Cost Pay & Investment Other 2018 2017 2018 savings inflation &
Slide 27: 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) -13 -10 -7 • Gross AQR flat at 28bps with net AQR of 21bps up due to expected lower releases and write-backs 28 28 28 21 18 15 • Underlying credit portfolio remains stable 2016 2017 2018 Gross AQR
Slide 28: Conservative risk appetite and prudent economic scenarios driving lower IFRS 9 sensitivities
Conservative risk appetite and prudent economic scenarios driving lower IFRS 9 sensitivities Stage 2 loans and advances(1) (£bn) 38.3 38.3 • Prudent approach to IFRS 9 4.3 5.1 >30 days past due 4.9 Retail secured ‐ Stage 2 is largely up-to-date secured lending which is 1-30 days 6.6 Commercial class
Slide 29: Diversified, high quality portfolios with new to arrears stable
Diversified, high quality portfolios with new to arrears stable Mortgages and credit cards – new to arrears as proportion of total book • No deterioration in credit seen across mortgage 2.0% portfolio with new to arrears remaining low 1.5% • High quality mortgage book; low average LTV 44.1% 1.0% ‐ L
Slide 30: Significant improvement in statutory profit and returns
Significant improvement in statutory profit and returns • Statutory profit after tax of £4.4bn, up 24% (£m) 2018 2017 Change Underlying profit 8,066 7,628 6% ‐ Market volatility and asset sales includes £236m negative insurance volatility in Q4 Market volatility and asset sales (50) 279 - ‐ Restruct
Slide 31: Balance sheet – quality of the portfolio continues to improve
Balance sheet – quality of the portfolio continues to improve Loans and advances (£bn) • Loans and advances £444bn, stable in 2018 2018 267 21 51 64 39 444 ‐ Loan growth in targeted segments offsetting sale of the Irish mortgage portfolio 1 Jan 267 24 49 60 40 444 ‐ Open mortgage book broadly flat w
Slide 32: Strong capital build with capital ratios and targets maintained
Strong capital build with capital ratios and targets maintained Common equity tier 1 ratio (%) +210bps 1.95 0.25 0.25 0.03 • CET1 capital build of 210bps with CET1 14.8 13.9 (0.38) 13.9 ratio 13.9% post-dividend and buyback (1.2) (0.9) ‐ Total ordinary dividend 3.21p per share, up 5%, with a share b
Slide 33: Summary – significant business progress with strong start to the Group's latest strategic plan
Summary – significant business progress with strong start to the Group’s latest strategic plan Statutory profit after tax (£bn) • Significant progress against strategic priorities with increased investment in the business • Strong financial performance with continued growth in profit and market-lead
Slide 34: Appendix
Appendix , | I
Slide 35: Strong mortgage portfolio with continued low LTVs
Strong mortgage portfolio with continued low LTVs £289bn gross lending; total market share 21% and 19% of open book Dec 2018 Dec 2017 Dec 2010 Mainstream Buy to let Specialist Total Total Total(1) Average LTVs 42.5% 52.1% 45.8% 44.1% 43.6% 55.6% New business LTVs 63.1% 58.6% n/a 62.5% 63.0% 60.9% ≤
Slide 36: Opportunities for growth in targeted key segments
Opportunities for growth in targeted key segments Channels market share Digital new business volumes(1) 21% Branch new business volumes(1) 20% Number of branches(2) 22% Product market share Consumer credit card balances 25% PCA deposit balances 22% Mortgage balances (open book) 19% SME and small bus
Slide 37: Creating a market leading wealth proposition for customers
Creating a market leading wealth proposition for customers Clear rationale for strategic partnership between Mass Market two of UK’s strongest financial services businesses ‐ Digitally enabled direct Financial Planning & Unique client base Retirement offer Mass Affluent – Affluent Multi-channel dist
Slide 38: 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 the Group and its current goals and expectations relating to its future financial condition and p