Lloyds Banking Group Plc · LSE:LLOY

Lloyds Banking — HBOS — FY2003 Earnings Presentation

66 slides from Lloyds Banking's earnings presentation, Feb 25, 2004

  1. Slide 1: Preliminary Results

    Preliminary Results 25th February 2004

  2. Slide 2: James Crosby, Chief Executive

    James Crosby Chief Executive

  3. Slide 3: 2003 Key Characteristics

    2003 Key Characteristics „ Market Share gains „ Improved efficiency „ Improved profits

  4. Slide 4: 2004… A Clear Agenda

    2004… A Clear Agenda „ Full synergy realisation „ 5% cost growth „ Self-funding double digit growth „ Benchmark ROE

  5. Slide 5: Sustainable Returns and Growth

    Sustainable Returns and Growth „ Significant consolidation „ Regulatory change „ Scale advantage „ Peers focused ex-UK „ HBOS market share benchmarks

  6. Slide 6: Today's Agenda

    Today’s Agenda „ Financials „ Retail „ IID „ Corporate „ Business and International

  7. Slide 7: Slide 7

  8. Slide 8: Mike Ellis, Group Finance Director

    Mike Ellis Group Finance Director

  9. Slide 9: Key Financials

    Key Financials % 31.12.03 31.12.02 Growth Profit before tax and exceptional items (£m) 3,885 3,062 27 Underlying earnings per share*(p) 68.5 56.1 22 Dividend (p) 30.9 29.4 5 Group “Target” Post-tax return on mean equity**(%) 17.7 17.5 * before exceptional items and goodwill amortisation ** before ex

  10. Slide 10: Financial Performance: Divisional Profit

    Financial Performance… Divisional profit before tax and exceptional items 31.12.03 31.12.02 % £m £m Growth Retail 1,698 1,426 19 Insurance & Investment 887 589 51 Business Banking 404 307 32 Corporate Banking 826 681 21 Treasury 239 231 3 BankWest 113 75 51 Group Items (282) (247) (14) Total 3,885 3

  11. Slide 11: Group Profit Before Tax And Exceptional Items

    Financial Performance… Group Profit Before Tax And Exceptional Items 31.12.03 31.12.02 % £m £m Growth Net interest income 5,459 4,770 14 Non-interest income* 3,359 2,673 26 Operating expenses** (3,968) (3,609) 10 Operating profit before provisions** 4,850 3,834 26 Provisions (1,025) (832) 23 Share o

  12. Slide 12: Group PBTE excluding Insurance & Investment

    Financial Performance… Group PBTE (excluding Insurance & Investment) 31.12.03 31.12.02 % £m £m Growth Net interest income 5,404 4,720 14 Non-interest income* 2,260 1,925 17 Operating expenses** (3,713) (3,413) 9 Operating profit before provisions** 3,951 3,232 22 Provisions (1,025) (832) 23 Share of

  13. Slide 13: Net Interest Income - Margin Trends

    Financial Performance… Net Interest Income - Margin Trends 2003 2002 % % Retail 1.90 1.99 Business Banking 2.65 2.95 Corporate Banking 1.71 1.77 Treasury 0.12 0.17 BankWest 2.13 2.07 Group 1.77 1.83

  14. Slide 14: Non-interest Income

    Financial Performance… Non-interest Income 2003 2002 % £m £m Growth Retail 809 721 12 Business Banking 662 576 15 Corporate Banking 560 445 26 Treasury 157 125 26 BankWest 104 78 33 Total 2,292 1,945 18

  15. Slide 15: Operating Expenses

    Financial Performance… Operating Expenses 2003 2002 % £m £m Growth Operating Expenses 4,087 3,762 9 Exceptional items (119) (153) (22) 3,968 3,609 10 Goodwill amortisation (97) (86) 13 Operating lease depreciation (344) (289) 19 Underlying operating expenses 3,527 3,234 9

  16. Slide 16: Underlying Operating Expenses

    Financial Performance… Underlying Operating Expenses 2003 2002 % £m £m Growth Retail 2,019 1,956 3 Business Banking 574 515 11 Corporate Banking 222 179 24 Treasury 92 89 3 BankWest 180 138 30 Other 185 161 15 3,272 3,038 8 Insurance & Investment 255 196 30 Total 3,527 3,234 9

  17. Slide 17: Provision For Bad Debt Charge

    Financial Performance… Provision For Bad Debt Charge 31.12.03 31.12.02 % of average % of average customer customer £m advances £m advances Retail 536 0.30 373 0.25 Business Banking 133 0.49 147 0.70 Corporate Banking 338 0.70 295 0.72 Other 18 - 17 - Total 1,025 0.39 832 0.38

  18. Slide 18: Closing Provisions, Suspended Interest and NPAs

    Financial Performance… Closing Provisions, Suspended Interest and Non Performing Assets (NPAs) Provisions & interest NPAs as % Provisions in suspense Customer of Customer & interest as % of Advances NPAs Advances in suspense NPAs £bn £m % £m % As at 31.12.03 Retail Residential Mortgages 176.0 2,056

  19. Slide 19: Insurance & Investment PBTE

    Financial Performance… Insurance & Investment PBTE 31.12.03 31.12.02 % £m £m Growth Net interest income 55 50 10 Non-interest income* 1,099 748 47 Operating expenses** (255) (196) 30 Operating profit before provisions** 899 602 26 Share of profits of associates & JVs and (12) (13) (8) Profit on disp

  20. Slide 20: Group Risk Weighted Assets & Capital

    Financial Performance… Group Risk Weighted Assets & Capital Year Year Ended Ended 31.12.03 31.12.02 £m £m Risk Weighted Assets 215,790 187,142 Tier 1 Capital 16,444 14,788 Tier 2 Capital 12,524 8,803 Total deductions (5,100) (4,064) Total Capital 23,868 19,527 % % Tier 1 Capital Ratio 7.6 7.9 Total

  21. Slide 21: Profit Momentum

    Profit Momentum... „ Strong Asset Growth „ Growing importance of non-interest income „ Tight Cost Control „ Stable Credit Conditions „ Real Momentum

  22. Slide 22: Slide 22

  23. Slide 23: Andy Hornby, Chief Executive, Retail

    Andy Hornby Chief Executive, Retail

  24. Slide 24: Another Year of Profitable Growth

    Another Year of Profitable Growth „ Strong volumes – 25% net lending – 55% growth in bank account balances – 21% increase in credit card balances „ Net Interest Margin 190bps (199bps 2002) „ NPAs stable at 1.80% „ Operating costs up 3.2% „ Cost Income Ratio down from 52.5% to 47.8% „ RoE up to 23% f

  25. Slide 25: Strongly Positive Jaws

    Strongly Positive “JAWS” +13.2% +10% +3.2% Income Costs “JAWS”

  26. Slide 26: Potential For 15%-20% Share Of Stock In All Retail Markets

    We Have Potential For 15% - 20% Share Of Stock In All Retail Markets New Business Share Market Share of Stock 2003 2003 Savings 19% 1 16% 1 Mortgages 25% 1 23% 1 Banking 25% 1 12% 4 Personal Loans 13% 1 10% 2 Credit Cards 22% 2 14% 3 Bancassurance* 35% 1 15% 3 Small Business Banking* 10% 5 4% 5 ** E

  27. Slide 27: Focusing On Mortgage Segments With The Right Risk/Reward

    We Are Focusing On Mortgage Segments With The Right Risk/Reward Profile bilit y ost Profi ta ll in t ed Ove ra Term Si ze/ Cross E xp ec / Ma rg sale s Unit C Risk Los s Target Target Share Share First First Time Time Overweight Buyer Overweight Buyer Mainstream Mainstream HomeMover HomeMover Overwe

  28. Slide 28: Credit Quality Strong

    Credit Quality Strong Secured asset quality very strong „ Arrears stable at 1.1% of book (2002 1.1%) „ Average LTV on book stable at 43% „ Average LTV new business 61% (2002 63%) Unsecured asset quality strong but we are vigilant „ Credit card NPAs 9.4% (2002 8.4%) „ Unsecured loans NPAs 11.8% (2002

  29. Slide 29: Cost Control Remains Rigorous

    Cost Control Remains Rigorous „ Cost growth 3.2% in 2003 „ £150m of cost synergies by end of 2004 „ Investment in low-cost scale IT systems „ Cost income ratio 47.8% (2002 52.5%) „ 3% cost target re-affirmed for 2004

  30. Slide 30: Retail Has Strong Potential For Further Profitable Growth

    Retail Has Strong Potential For Further Profitable Growth „ Scope for 15% - 20% share in all key markets „ Further tightening of LTVs to protect asset quality „ Movement of IF into profitability „ Continue to contain annual cost growth to 3% „ Further reductions in cost income ratio Further increase

  31. Slide 31: Slide 31

  32. Slide 32: Phil Hodkinson, Chief Executive, IID

    Phil Hodkinson Chief Executive, IID

  33. Slide 33: 2003 Results

    2003 Results Profits „ PBTE up 51% to £887m „ Insurance up 11% to £445m „ Investment up 134% to £442m „ New business profitability meets 25% EPI target Sales „ Insurance up 19% to £1,594m GWP „ Investment flat overall, UK up 5% to £1,150m EPI

  34. Slide 34: Insurance Profits

    Insurance Profits Profits* 1H 2H Growth 2002 191 209 +9% 2003 213 232 +9% Sales** 1H 2H Growth 2002 575 634 +10% 2003 658 725 +10% ** PBTE PBTE including including esure esure ** ** GWP GWP excluding excluding motor motor insurance insurance

  35. Slide 35: Investment Profits

    Investment Profits Profits* 1H 2H Growth 2002 288 223 -23% 2003 193 223 +16% FTSE 1H 2H Growth** 2002 5,123 4,080 -20% 2003 3,840 4,252 +11% ** PBTE PBTE based based on on long long term term assumptions assumptions ** ** Growth Growth based based on on average average FTSE FTSE 100 100

  36. Slide 36: UK Investment Market

    UK Investment Market 2003 Results Sales Share* Growth =1. Aviva £1,150m 12.0% -11% =1. HBOS £1,150m 12.0% +5% 3. Standard Life £990m 10.3% -29% 4. Legal & General £794m 8.3% -2% 5. Prudential £728m 7.6% -17% Lloyds TSB and Abbey have yet to declare their 2003 results; 2002 sales were £768m and £539m

  37. Slide 37: UK Market Share

    UK Market Share 15.0% 12.5% 10.0% 7.5% 5.0% 2000 2001 2002 2003 Aviva HBOS Standard Life L&G Prudential

  38. Slide 38: Investment Strategy

    Investment Strategy Cornerstones „ Low cost distribution and access to customers „ Competitive “no load” products „ Single efficient customer service platform 2003 Progress „ Efficiency improvements of 25% on track by 2005 „ Successful integration of RAM acquisition „ With profit business now only 1

  39. Slide 39: Insurance Market

    Insurance Market „ HBOS personal lines market share circa 8%* Market Market Growth In Product Position Share 2003 Repayment Top 3 15% +9% Household Top 5 8% +20% Motor Top 15 2½% +69% „ Key competitors are Norwich Union and RBS with double our market share today ** Market Market growth growth in in

  40. Slide 40: esure's Development

    esure’s Development Policies in-force (000’s) 1,000 800 600 400 200 0 2001 2002 2003 2004

  41. Slide 41: Insurance Strategy

    Insurance Strategy Cornerstones „ Low cost access to retail bank customers „ Distribution which lends itself to better risks „ Value for money products and service 2003 Progress „ The launch of First Alternative „ Single efficient platform for repayment insurance „ In-house underwriting of household

  42. Slide 42: Prospects for 2004

    Prospects for 2004 Insurance „ Further opportunities to increase share and profit „ £76m one-off from household underwriting „ esure expected to move into profitability Investment „ Further improvements in returns are possible given power of distribution and scale „ Market stability should benefit S

  43. Slide 43: Slide 43

  44. Slide 44: George Mitchell, Chief Executive, Corporate Banking

    George Mitchell Chief Executive, Corporate Banking

  45. Slide 45: Corporate Banking 2003 Highlights

    Corporate Banking 2003… Highlights 2003 2002 Lending growth 11% 25% Deposit growth 43% 23% Net interest margin 171bps 177bps Net interest spread 148bps 146bps Cost:income ratio 16.1% 15.5% Provisions charge 70bps 72bps Profit before tax £826m £681m Post tax RoE 19% 19%

  46. Slide 46: Corporate Banking 2003 Credit Quality

    Corporate Banking 2003… Credit Quality Non Performing Assets £m % of Advances December 2003 838 1.65 June 2003 906 1.81 December 2002 709 1.56

  47. Slide 47: Corporate Banking 2003 Credit Quality: Provisions

    Corporate Banking 2003… Credit Quality Provisions Sector £m % Manufacturing 135 40 Power 38 11 Telecoms 38 11 Technology 35 10 Shipping 21 6 Other 71 22 338 100

  48. Slide 48: Treasury 2003 Highlights

    Treasury 2003… Highlights 2003 2002 Profit before tax £239m £231m Net interest income £174m £200m Net interest margin 12bps 17bps Non interest income £157m £125m Cost:income ratio 27.8% 27.5% Post tax RoE 20% 22% Provisions charge 0 £4m

  49. Slide 49: New Corporate Banking

    “New” Corporate Banking Comprises „ Corporate Banking (except Australia) „ Business Banking (except Australia, Ireland & The Direct Business Bank) „ Treasury 2 + 2 + 2 = more than 6!

  50. Slide 50: New Corporate Banking Strategy

    “New” Corporate Banking Strategy „ No change „ High value – continue to avoid commodity business „ Mid value – continue to grow our SME business „ Treasury – continue to focus on high quality earnings

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  52. Slide 52: Colin Matthew, Chief Executive, Strategy and International Operations

    Colin Matthew Chief Executive, Strategy and International Operations

  53. Slide 53: Business Banking Highlights… Payback Time

    Business Banking Highlights… Payback Time „ Profit before tax of £404m, up 32% (2002 £307m) „ Net interest income of £739m, up 18% „ Non-interest income of £662m, up 15% „ Net interest margin 2.65% (2002 2.95%) „ Operating expenses up 11% (2002 up 25%) „ Cost:income ratio 53.0% (2002 55.7%) „ Total

  54. Slide 54: Business Banking… Growth

    Business Banking… Growth „ Advances £30.7bn, up 32% „ Deposits £17.2bn, up 40% „ Self funding ratio 53% (2002 50%) „ UK customer numbers over 350,000 up by 28% „ Achieved 6% target UK SME market share one year early „ Record profits in Australia and Ireland

  55. Slide 55: Business Banking… Credit Quality

    Business Banking… Credit Quality „ NPAs of £606m (2002 £513m) „ NPAs as a % of Advances 1.97% (2002 2.21%) „ Bad Debt Charge as a % of Advances 0.49% (2002 0.70%) „ Provisions as a % of Advances 1.21% (2002 1.48%)

  56. Slide 56: Business Banking Delivering Throughout and Well Placed For Growth

    Business Banking Delivering Throughout and Well Placed For Continuing Growth Within Retail, Corporate and International Divisions

  57. Slide 57: HBOS International Operations: Australia, Ireland

    HBOS International Operations Australia Ireland

  58. Slide 58: HBOS International Operations… Australia

    HBOS International Operations… Australia An integrated platform for future growth Brisbane Perth Adelaide Sydney BankWest BOS International (Australia) Melbourne Capital Finance Australia St. Andrew’s Insurance Australia

  59. Slide 59: HBOS International Operations… BankWest

    HBOS International Operations… BankWest „ Profit before tax A$267m, up 25% (2002 A$213m) „ Net interest income up 15% „ Non interest income up 14% „ Net interest margin 2.13% (2002 2.07%) „ Operating expenses up 10% „ Cost:income ratio 58.2% (2002 60.7%) „ Total Provisions A$42m (2002 A$38m) „ Advan

  60. Slide 60: HBOS International Operations… Ireland

    HBOS International Operations… Ireland „ Aims to be the No.1 Business Bank in Ireland by 2005 „ Established retail mortgage business Belfast Galway Dublin Limerick Waterford Cork

  61. Slide 61: International Operations… Growth

    International Operations… Growth „ Replicating the HBOS UK customer champion model „ Strong population and GDP growth „ Familiar regulatory and political culture Population Population % % Growth Growth GDP GDP % % Growth Growth 1.4 1.4 77 1.2 1.2 66 1.0 1.0 55 0.8 0.8 44 0.6 0.6 33 0.4 0.4 22 0.2 0.

  62. Slide 62: Australia… 2004 Objectives

    Australia… 2004 Objectives „ Formation of HBOS Australia „ Reduce platforms and overlap to achieve significant synergies „ Corporate, Retail, Asset Finance and IID „ Strong organic growth through retail and commercial markets / assets and deposits

  63. Slide 63: Ireland… 2004 Objectives

    Ireland… 2004 Objectives „ Driver of change in switching, transparency and transmission „ Progress towards being Ireland’s No.1 Business Bank by 2005 „ Expansion of retail franchise

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  65. Slide 65: Summary

    Summary „ 2003 – Strong Results „ 2004 – Clear Agenda „ Sustainable Returns And Growth

  66. Slide 66: Slide 66

HBOS — FY2003 Earnings Presentation on 6ix