Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — H1 2019 Earnings Presentation
39 slides from Lloyds Banking's earnings presentation, Jul 31, 2019
Slide 1: 2019 Half-Year Results
2019 HALF-YEAR RESULTS Presentation to analysts and investors | 31 July 2019
Slide 2: Agenda
António Horta-Osório Introduction Group Chief Executive Maximising Group Capabilities – Antonio Lorenzo Insurance & Wealth Group Director, Insurance & Wealth George Culmer Financial Update Chief Financial Officer Q&A 1
Slide 3: Introduction
Introduction António Horta-Osório Group Chief Executive 2
Slide 4: Strong strategic progress and good financial performance
Strong strategic progress and good financial performance • Strong strategic progress and the right strategy in the current OUR Helping Britain environment PURPOSE Prosper • Good financial performance supporting increased interim dividend • Continue to focus on prudent growth and reducing costs Best
Slide 5: Good financial performance with market leading efficiency and returns
Good financial performance with market leading efficiency and returns £2.2bn Statutory profit after tax (4)% • Statutory profit after tax of £2.2bn with strong RoTE of 11.5% Return on tangible 11.5% equity (0.6)pp • Robust underlying profit of £4.2bn £4.2bn ‐ Net income of £8.8bn, down 2% with resil
Slide 6: UK economy has remained resilient but uncertainty remains
UK economy has remained resilient but uncertainty remains Pay and employment (Index level, 3 month average, Jan 2016=100) 105 • Consumers remain well positioned 104 103.8 103 ‐ Employment continues to grow with real wages rising 102 102.0 at >1% per year 101 100 ‐ Consumption remains strong supporti
Slide 7: Significant transformation and unique operating model well positioned for the future
Significant transformation and unique operating model means the Group is well positioned for the future Stable core loan book with growth in targeted segments Significant reduction in operating costs(5) (£bn) (£bn) Cost:income: 55.3% 51.8% 49.3% 45.9% BAU vs 2010: -18% -28% -30% 9.6 2010(1) 269 24 5
Slide 8: We are half way through GSR3
We are half way through GSR3, with strong progress to date positioning us well to respond to the changing environment Multi-brand, multi- Data-driven Market leading Delivering for channel personalised efficiency customers distribution model experiences Market leading Top quartile Greater efficiency
Slide 9: We are Digitising the Group, delivering significant business outcomes
We are Digitising the Group, delivering significant business outcomes Top quartile technology spend globally with modular approach to transformation 19% >20% >70% Technology spend as % of operating costs YoY increase Spend on new capabilities and enhancement Cyber defences Virtual assistants managin
Slide 10: Delivering a Leading Customer Experience
By delivering a Leading Customer Experience, we are significantly improving customer satisfaction and deepening relationships Improving NPS(1) #1 UK digital bank +5% +5% 67 15.9m digitally active users 64 65 63 62 61 9.8m mobile app users Dec 2017 Dec 2018 May 2019 75% products originated digitally
Slide 11: Maximising Group Capabilities
By Maximising Group Capabilities, we are further integrating the benefits of our unique participation choices Building on early stages of Open Banking… Delivering lending growth Customer penetration Available to all mobile app users (9.8m) 100% Gross lending to UK £10bn businesses in H1 2019 £6bn c.
Slide 12: Alignment between strategic execution and financial returns
There is a clear alignment between strategic execution and financial returns Market leading efficiency £1.5bn Strategic investment in GSR3 to date; >£3bn by 2020 Greater Net cost reduction Sustainable investment 65 and superior capacity Customer NPS, >50% improvement returns since 2011 Improvement t
Slide 13: Summary – well placed to deliver sustainable, superior performance
Summary – well placed to deliver sustainable, superior performance Statutory profit after tax(1) • Strong strategic progress and the right strategy in the (£bn) current environment • Good financial performance supporting increased interim dividend 2.3 2.2 2.2 • Business model resilience reflected in
Slide 14: Maximising Group Capabilities – Insurance & Wealth
Maximising Group Capabilities – Insurance & Wealth Antonio Lorenzo Group Director, Insurance & Wealth 13
Slide 15: Strong financial performance in recent years
Strong financial performance in recent years +72% • Delivering growth in a number of product areas, 8,568 benefitting from increased investment 7,483 New business 4,984 premiums(1) (£m) • New business premiums up 72% vs. H1 2017: ‐ Step-up in auto enrolment contributions H1 2017 H1 2018 H1 2019 ‐ Gr
Slide 16: Uniquely positioned, integrated business targeting growth
Uniquely positioned, integrated business, targeting growth in a number of attractive markets Franchise Direct Intermediary • Comprehensive insurance proposition, providing all financial needs in one place - Supported by unrivalled multi-brand and multi- channel model, including the largest UK digita
Slide 17: Single Customer View and digital capabilities meet all financial needs
Our unique Single Customer View and digital capabilities enable us to meet all financial needs in one place Strong customer engagement PCAs Protection Currently available to >4m customers, up >1m in H1 2019; >9m by 2020 Home Savings 9m pension views alongside banking products insurance monthly, with
Slide 18: Capturing growth across a broad range of opportunities
Capturing growth across a broad range of opportunities Market position(1) Key growth initiatives Share New business CAGR Market share (Dec 2018) 2015-2018 ambitions • Wider access to corporate pensions Flow(2) LBG Market Flow market supported by single, integrated platform Corporate pensions (#3) 13
Slide 19: Transforming our Corporate Pensions offering
Transforming our Corporate Pensions offering Increasing business momentum Transforming customer experience Broadening panel reach(2) New business premiums Flow share Net Promoter Score (APE(1) £m) (%) Pre- 2015 749 10% 2015 -41 2015 5 Out of 15 2 2016 14 2016 777 2017 42 39 2015 10 Out of 15 2017 91
Slide 20: Creating a market leading wealth proposition
Creating a market leading wealth proposition A full service offering for LBG clients Supported by a number of key differentiators Partnership will provide a full service offering for Leveraging the strengths between two of the UK’s strongest financial LBG clients… services businesses… Market Mass Ma
Slide 21: Schroders Personal Wealth – aiming to become a top 3 financial planning business
Schroders Personal Wealth – aiming to become a top 3 financial planning business by end of 2023 A unique proposition… …in an attractive market… …well positioned to be top 3 Innovative product Referral channel allows for inflows A clear ambition… offering with wide from >1m LBG customers with a poten
Slide 22: Financial Update
Financial Update George Culmer Chief Financial Officer 21
Slide 23: Good financial performance with market leading efficiency and returns
Good financial performance with market leading efficiency and returns (£m) H1 2019 H1 2018 Change • Robust underlying profit of £4.2bn with reduction in Net interest income 6,145 6,344 (3)% costs more than offsetting lower income Other Income 3,100 3,124 (1)% • Net income down 2% at £8.8bn Operating
Slide 24: Net interest income down slightly with resilient margin
Net interest income down slightly with resilient margin of 290 basis points Net interest income and banking net interest margin Net interest income and margin (£m) (£bn, %) 2.93% 2.93% 2.90% 2.90% 3 2.93% (14)bps +8bps +3bps 2.90% 2.82% 2.8 (3)% 2.6 6,344 159 6,145 2.4 (18) 5.9 6.4 6.3 6.4 6.1 (340)
Slide 25: Asset pricing and mix: mortgage pricing 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 1.9% 1.8% 1.8% 7.1% 6.8% 6.7% 289 288 285 YoY 40 41 41 • Mortgage market remains very 34 32 30 -12% 8 9 9 competitive but Group mar
Slide 26: Liability pricing and mix
Liability pricing and mix: current account growth ahead of the market and prudent structural hedging programme Improving liability mix(1) Hedged balances(2) (Book size £bn, Gross margin %) (£bn) 0.4% 0.5% 0.5% Hedge as % of 461 459 461 balance sheet 37% 418 416 418 YoY 20 17 17 -15% 14 14 14 -1% 311
Slide 27: Resilient Other Income performance
Resilient Other Income performance Other Income (excluding Vocalink) (£bn) • Other Income £3.1bn in H1 in line with recent years • Divisional performance driven by 3.1 3.0 3.2 2.9 3.1 2.9 3.1 ‐ Strong Insurance new business, led by workplace pension income up c.50% ‐ Slightly lower Retail other inco
Slide 28: Costs provide competitive advantage and enable increased strategic investment
Costs continue to provide competitive advantage and enable increased strategic investment Total costs(1) Operating costs(1) (£m) (£m) -5% 4,018 4,024 3,906 4,281 660 719 37 752 +3% vs H1 18 55 395 473 477 +16% vs H1 17 (28) 4,049 (182) (114) 2,963 -5% vs H1 18 2,832 2,677 -10% vs H1 17 H1 2018 Cost
Slide 29: Credit quality remains strong
Credit quality remains strong reflecting a continued prudent approach to risk Asset quality ratio • Low risk book with over 75% of lending secured and (bps) underwriting discipline maintained ‐ >60% of lending in UK mortgages 34 27 30 26 ‐ Motor Finance predominantly secured and subject to 20 22 pru
Slide 30: Credit quality remains strong – Stage 3 books
Credit quality remains strong reflecting a continued prudent approach to risk Stable and well-covered Stage 3 books Balance sheet provision and underlying cash write-offs (£bn) Group Retail secured 24.3% 23.0% c.4 years 14.7% 14.7% 4.4 coverage 1.2 1.2 1.9% 1.9% 1.7% 1.7% 2017 2018 2019 Provision Ne
Slide 31: Statutory profit after tax of £2.2 billion despite increased below the line charges
Statutory profit after tax of £2.2 billion despite increased below the line charges (£m) H1 2019 H1 2018 Change • Statutory profit after tax of £2.2bn Underlying profit 4,194 4,234 (1)% ‐ Restructuring now largely comprises severance and non-branch property rationalisation Restructuring costs (182)
Slide 32: PPI activity significantly increased in the second quarter
PPI activity significantly increased in the second quarter PPI information requests received (Average per week, #k) • £550m charge in Q2 primarily driven by significant increase in PPI information request (PIR) volumes c.190 c.150 • PIRs are first stage in CMC complaints process c.70 • Historic run
Slide 33: Balance sheet – growth in targeted segments while optimising the portfolio
Balance sheet – growth in targeted segments while optimising the portfolio Prudent growth in targeted segments in Q2 (£bn) Open mortgage book SME & Mid Markets • Loans and advances £441bn, flat on Q1 ‐ Open mortgage book up £0.8bn on Q1 and expect to close 2019 in line with 2018 267 264 265 ‐ Loan g
Slide 34: Strong capital build with capital ratios and targets maintained
Strong capital build with capital ratios and targets maintained Common equity tier 1 ratio • CET1 capital build of 70bps with CET1 ratio (%) 14.0% post-dividend and buyback +70bps 0.97 0.05 0.12 14.6 ‐ Includes (33)bps impact of PPI and (11)bps 13.9 14.0 (0.33) (0.11) impact of IFRS 16 (0.61) ‐ Inte
Slide 35: Summary – well placed to deliver sustainable, superior performance
Summary – well placed to deliver sustainable, superior performance Statutory profit after tax(1) • Strong strategic progress and the right strategy in the (£bn) current environment • Good financial performance supporting increased interim dividend 2.3 2.2 2.2 • Business model resilience reflected in
Slide 36: Appendix
Appendix , | i
Slide 37: Good financial performance with market leading efficiency and returns
Good financial performance with market leading efficiency and returns (£m) Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 Net interest income 3,062 3,083 3,170 3,200 3,173 Other Income 1,594 1,506 1,400 1,486 1,713 Vocalink – 50 – – – Operating lease depreciation (254) (219) (225) (234) (245) Net income 4,
Slide 38: Opportunities for growth in targeted key segments
Opportunities for growth in targeted key segments Channels market share Digital new business volumes(1) 18% Branch new business volumes(1) 21% Product market share Consumer credit card balances 24% PCA deposit balances 22% Mortgage balances (open book) 19% SME and small business lending balances 19%
Slide 39: 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 pe