Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — FY2007 Earnings Presentation
55 slides from Lloyds Banking's earnings presentation, Feb 22, 2008
Slide 1: 2007 Results
GROUP RESULTS 2007 Results 22 February 2008
Slide 2: 2007 Results - Sir Victor Blank, Chairman
GROUP RESULTS 2007 Results 22 February 2008 Sir Victor Blank Chairman
Slide 3: Chairman's overview
Chairman’s overview • Excellent operating and financial performance • Lower risk, low volatility business model • Confident outlook for the business • Dividend increased 5% to 35.9p per share Significant growth potential
Slide 4: 2007 Results - Helen Weir, Group Finance Director
GROUP RESULTS 2007 Results 22 February 2008 Helen Weir Group Finance Director
Slide 5: Continuing to deliver a strong performance
Continuing to deliver a strong performance* 2006 2007 % Change Profit before tax £3,710m £3,919m 6 Earnings per share 46.9p 50.8p 8 Economic profit £1,690m £1,842m 9 Post-tax return on equity 25.1% 25.2% Dividend per share 34.2p 35.9p 5 * Excluding volatility, profit on sale of businesses, settlemen
Slide 6: Good overall performance
Good overall performance* £m 2006 2007 % Change Total income, after claims 10,679 11,161 5 Operating expenses (5,437) (5,472) (1) Trading surplus 5,242 5, 689 9 Impairment (1,555) (1,796) (15) Insurance grossing 23 26 Profit before tax 3,710 3,919 6 * Excluding volatility, profit on sale of business
Slide 7: Underlying performance even stronger
Underlying performance even stronger* Market £m 2006 2007 % Change dislocation 2007 % Change Total income, after claims 10,679 11,161 5 (188) 11,349 6 Operating expenses (5,437) (5,472) (1) – (5,472) (1) Trading surplus 5,242 5, 689 9 (188) 5,877 12 Impairment (1,555) (1,796) (15) (92) (1,704) (10)
Slide 8: Key performance drivers
Key performance drivers • Strong liability growth: continued asset momentum Income • Margin outlook improving • Continued strong cost disciplines Cost • Productivity programme ahead of expectations • Asset quality remains satisfactory Impairment • Retail impairments lower than 2006 • Capital efficie
Slide 9: Good customer lending and deposit growth
Good customer lending and deposit growth UK Retail Banking (£bn) Wholesale & International Banking (£bn) +6% 119.6 112.8 19.3 +8% +19% 19.3 92.6 +18% 82.1 75.7 77.7 72.3 20.3 20.2 61.2 93.5 100.3 55.5 61.8 2006 2007 2006 2007 2006 2007 2006 2007 Customer Lending Customer Deposits Customer Lending Cu
Slide 10: Net interest margin stabilising
Net interest margin stabilising % Year-on-year margin movement 2.88 2.90 Mix (9)bp 2.86 2.79 2.82 Product (2)bp 2.76 Funding 2bp (9)bp 2006H1 2006H2 2007H1 2007H2
Slide 11: UKRB: balanced income growth
UKRB: balanced income growth £m • 15% growth in bank savings +6% • c. 500,000 new/upgraded AVAs • 12% growth in wealth savings 65 5,580 70 32 51 13 86 5,263 Liability Driven Asset Driven £150 million £102 million 2006 Savings & AVA & Wealth Lending Lending Other 2007 Investment Other Growth Related
Slide 12: W&IB: components of income growth
W&IB: components of income growth £m +6% 101 (89) 285 16 (46) 4,479 (188) (10)% 4,291 4,212 +8% +18% 2006 Corporate Commercial Asset Inter- Registrars Market 2007 Markets Banking Finance national Dislocation
Slide 13: Continued momentum in Corporate Markets
Continued momentum in Corporate Markets £m +18% 96 1,912 (188) 46 63 80 1,724 1,627 2006 Large Sales- Develop- Products Market 2007 Corporate Risk ment Dislocation Management Capital
Slide 14: Limited exposure to market dislocation
Limited exposure to market dislocation Income statement Net residual exposure Gross exposure £m write-down 31 Dec 2007 31 Dec 2007 US sub-prime ABS – direct nil nil nil ABS CDOs – unhedged 89 130 130 – monoline hedged 25 – 470 – major bank cash collateralised – – 1,861 SIV – capital notes 22 78 78 –
Slide 15: Limited exposure to market dislocation
Limited exposure to market dislocation Income statement Net residual exposure Gross exposure £m write-down 31 Dec 2007 31 Dec 2007 Trading portfolio – ABS trading book 92 474 474 – secondary loan trading 20 665 863 – other assets* 32 3,895 3,895 144 * Primarily high quality senior bank and corporate
Slide 16: Limited exposure to market dislocation
Limited exposure to market dislocation AFS reserves Balance outstanding Available-for-sale assets adjustment (£m) 31 Dec 2007 (£bn) Cancara* (237) 8.3 – US sub-prime – nil – Alt-A – £619 million – CMBS – £1,355 million (100% AAA/Aaa) Student Loan ABS (101) 3.2 – US Government guaranteed Treasury ass
Slide 17: I&I: components of growth
I&I: components of growth* £m 2006 2007 % Change New business sales – PVNBP (£m) New business profit 346 326 (6) +7% Existing 10,424 business 339 370 9 9,740 511 Direct 613 Expected return 131 207 58 Bancassurance 3,421 +20% 4,096 816 903 11 Impact of capital repatriation 36 – IFA 5,706 +2% 5,817 85
Slide 18: I&I: focusing on more capital efficient growth
I&I: focusing on more capital efficient growth Capital intensity of new product sales (indexed) Return on Embedded Value 100 9.9% 9.3% 85 8.0% 2006 2007 2005 2006 2007
Slide 19: Income growth ahead of costs in all divisions
Income growth ahead of costs in all divisions* Group cost:income ratio UK Retail 6% C:I ratio Banking improved 3% 130bp 50.8% 49.0% 7% Insurance & Investments (2)% Wholesale & 2% C:I ratio International improved Banking 1% 60bp 5% Group 1% Income Costs 2006 2007 * Excluding volatility, insurance gro
Slide 20: Asset quality ratio has remained stable
Asset quality ratio has remained stable 2006 2007 Variance % of Average Lending Impairment £m £m % 2006 2007 UK Retail Banking 1,238 1,224 1 1.18 1.10 – Personal loans/overdrafts 740 679 8 5.85 5.32 – Credit cards 490 527 (8) 6.99 7.96 – Mortgages 8 18 (125) 0.01 0.02 Wholesale & International Banki
Slide 21: Asset quality ratio has remained stable
Asset quality ratio has remained stable 2006 2007 Variance % of Average Lending Impairment £m £m % 2006 2007 UK Retail Banking 1,238 1,224 1 1.18 1.10 Wholesale & International Banking 308 452 (47) 0.39 0.51 – Corporate Markets (18) 120 (0.03) 0.19 – Commercial Banking 93 99 (6) 0.67 0.60 – Asset Fi
Slide 22: A good quality property lending portfolio
A good quality property lending portfolio Commercial lending Residential lending • Through the cycle policy, • 56% Housing Associations supporting existing customer – local authority cash flows franchise • Larger residential property • Well spread nationwide companies portfolio • Indexed LTV – c 62%
Slide 23: Lending quality strong and consistent
Lending quality strong and consistent Customer lending, neither past due nor impaired £99.8bn £92.9bn £73.5bn 2.8% £60.0bn 3.7% 34.0% 99.6% 99.6% 36.3% £29.4bn £29.9bn 32.9% 30.0% 59.4% 62.9% 57.7% 60.8% 2006 2007 2006 2007 2006 2007 Retail – mortgages Retail – other Wholesale Good Satisfactory Lowe
Slide 24: Improving our returns
Improving our returns* Post-tax return Post-tax return on Economic on equity (%) risk-weighted assets (%) profit (£m) +10bp +4bp +9% 1,842 25.1 25.2 1.72 1.76 1,690 2006 2007 2006 2007 2006 2007 * Excluding volatility, profit on sale of businesses, settlement of overdraft claims and the pension sche
Slide 25: Capital ratios remain robust on a Basel I basis
Capital ratios remain robust on a Basel I basis Risk-weighted assets (£bn) Capital ratios +10% 31 Dec 31 Dec 172.0 2006 2007 156.0 Other +14% Total capital ratio 10.7% 11.0% W&IB 91.8 105.1 Tier 1 ratio 8.2% 8.1% UKRB 59.1 61.7 +4% 31 Dec 2006 31 Dec 2007
Slide 26: Improved capital position under Basel II
Improved capital position under Basel II Tier 1 & Total capital ratio 2.2% (0.9)% (1.5)% 11.0% 0.2% 11.0 (0.3)% 9.5% 8.1% 1.7% Basel I Risk Expected Collectively Other Basel II Weightings Losses Assessed Provisions Tier 1 ratio Total capital ratio At 31 December 2007
Slide 27: A strong funding profile
A strong funding profile • High, and growing, customer deposit base • Conservative wholesale funding profile Strong funding • Strong credit ratings; Moody’s Aaa and liquidity reaffirmed January 2008 profile • Consistent market presence • Significant headroom
Slide 28: A core funding base of customer deposits
A core funding base of customer deposits Funding base composition Increased percentage of customer December 2007 deposit funding Bank Deposits Current Accounts £247bn £228bn 16% 21% 37% Wholesale Funding 39% Debt Securities 21% 29% 13% Retail Customer Deposits 61% 63% Deposits Corporate/ Commercial
Slide 29: A consistent approach to funding
A consistent approach to funding Short term money market funding (£bn) UK bank 5 year senior CDS spreads Lloyds TSB Major UK Bank A 60 Major UK Bank B Major UK Bank C 68 50 55 40 47 30 30 20 11 12 10 9 6 0 2006 2007 30 Jun 2007 31 Dec 2007
Slide 30: Strong core business momentum
Strong core business momentum • Strong sales and revenue growth Continuing to build earnings • Substantially improved productivity momentum • Wide positive jaws • Continued satisfactory asset quality • Improving cost:income ratio • Improving return on risk-weighted assets Sustaining high returns • R
Slide 31: 2007 Results - Helen Weir, Group Finance Director
GROUP RESULTS 2007 Results 22 February 2008 Helen Weir Group Finance Director
Slide 32: 2007 Results - Eric Daniels, Group Chief Executive
GROUP RESULTS 2007 Results 22 February 2008 Eric Daniels Group Chief Executive
Slide 33: 2007 results in longer term context
2007 results in longer term context • Strong momentum • Significant growth potential • High quality sustainable earnings
Slide 34: Sustained income growth
Strong momentum Sustained income growth1 +6% £11.35bn +7% £10.68bn £9.94bn £9.20bn £8.92bn 2003 2004 2005 2006 2007 1. 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a full IFRS basis, excluding volatility, insurance grossing, one-off items and market disl
Slide 35: Strong income growth in all divisions
Strong momentum Strong income growth in all divisions1 UKRB W&IB I&I +6% +6% £5.58bn £5.26bn +7% £4.48bn £4.21bn £1.56bn £1.67bn 2006 2007 2006 2007 2006 2007 1. All figures exclude volatility, insurance grossing, the impact of surplus capital repatriation in I&I and market dislocation impact
Slide 36: Accelerating PBT growth
Strong momentum Accelerating PBT growth1 +13% £4.20bn +12% £3.71bn £3.36bn £3.33bn £3.06bn 2003 2004 2005 2006 2007 1. 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a full IFRS basis, excluding volatility, insurance grossing, one-off items and market disl
Slide 37: Accelerating economic profit growth
Strong momentum Accelerating economic profit growth1 +20% £2.03bn +12% £1.69bn £1.51bn £1.44bn £1.33bn 2003 2004 2005 2006 2007 1. 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a full IFRS basis, excluding volatility, insurance grossing, one-off items and
Slide 38: Significant growth potential: drivers of future profit growth
Significant growth potential Drivers of future profit growth Market growth Market share growth 9 2nd largest economic profit 9 We only have ~10% share of pool economic profit pool today 9 High levels of household 9 Gaining share across target financial wealth segments and products 9 Lowest unemploym
Slide 39: Significant growth potential: relationship-focused model
Significant growth potential Relationship-focused model High quality Low capital Low cost Low risk income needs 9 Recurring 9 Low 9 Lend to 9 Low revenue acquisition customers volatility streams costs we know over cycle 9 Strong 9 Economies 9 Through the cross-sell of scope cycle policy Sustained pr
Slide 40: UKRB: relationship-driven growth
High quality sustainable earnings UKRB: relationship-driven growth1 Where our profit Where our growth comes from comes from % of 2007 PBT Income growth (2005 – 07) Product- driven ~15% 11% 2% ~85% Relationship- Relationship Product driven 1. Internal estimates
Slide 41: UKRB: deep understanding of our customers
High quality sustainable earnings UKRB: deep understanding of our customers • c.18 million customer records in UKRB • We sell to need • We price to risk • 16 million transactions loaded per day • We have early warning indicators • Average of 2,100 data – about individual points for each current cust
Slide 42: UKRB: changing the mix
High quality sustainable earnings UKRB: changing the mix We identified a shift towards savings and investment… …and are capturing it Income growth (2005 – 07) UK Retail Banking: the demographic opportunity Market risk-adjusted revenue growth to 2010: share by age and product 16% <30 yrs 30-44 45-54
Slide 43: UKRB: establishing market leading positions
High quality sustainable earnings UKRB: establishing market leading positions Total sales volumes (millions) • #1 new customer acquisition +17% • #1 new credit card issuer 7.5 6.4 • #1 in added value accounts 5.1 • #1 provider of home insurance • #1 in personal loans 2005 2006 2007
Slide 44: UKRB: establishing market leading positions
High quality sustainable earnings UKRB: establishing market leading positions Growth in current accounts …and cross-sales at opening opened… Number of current accounts opened, 000’s Number of additional products purchased with current account1 +17% 1,035 1.21 882 0.84 583 0.52 2005 2006 2007 Dec-05
Slide 45: UKRB: low risk, relationship-focused lending
High quality sustainable earnings UKRB: low risk, relationship-focused lending Mortgages Unsecured • #1 in branch-based lending • 99% of loans to franchise customers • Low book and new LTVs • 89% of credit cards issued • No self-certification to franchise customers • Over 3 month arrears fell • Impa
Slide 46: W&IB: relationship-driven growth
High quality sustainable earnings W&IB: relationship-driven growth1 Where our profit Where our growth comes from comes from % of 2007 PBT Income growth (2005 – 07) Product- 21% driven ~30% 6% ~70% Relationship- driven Relationship Product 1. Internal estimates; excluding market dislocation
Slide 47: W&IB: growing the Commercial Banking franchise
High quality sustainable earnings W&IB: growing the Commercial Banking franchise Strong growth in • Record customer satisfaction cross-sales Indexed to 100 in 2006 • #1 in start-ups and net gainer of switchers +23% 123 • Cross-sales of Scottish 100 Widows products to commercial up 36% • Invoice disc
Slide 48: W&IB: growing the Corporate Banking franchise
High quality sustainable earnings W&IB: growing the Corporate Banking franchise Strong growth in cross-sales • Increase in mid-market share Indexed to 100 in 2005 of 2 per cent1 +46% 163 • Top rated relationship bank 112 • Increase in no. of relationship 100 managers and specialist sales forces 2005
Slide 49: W&IB: low risk, relationship-focused lending
High quality sustainable earnings W&IB: low risk, relationship-focused lending Risk profile for wholesale loans & advances to customers1 • 22% growth in wholesale loans & advances £73.5bn (13%) Other2 £60.0bn 25.0 Satisfactory • 97% classified as good +15% or satisfactory 21.8 Good quality • Focus o
Slide 50: I&I: relationship-driven growth
High quality sustainable earnings I&I: relationship-driven growth I&I products central to Group’s relationship businesses Example: Scottish Widows PVNBP1 • Retail Banking £10.4bn £9.7bn Direct • Private Banking £7.8bn +2% IFA • Commercial Banking • Corporate Banking 39% 35% +20% Bancassurance 27% 20
Slide 51: I&I: relationship-driven growth
High quality sustainable earnings I&I: relationship-driven growth Example: General Insurance Example: SWIP Home insurance sold through branch UKRB: new retail products (funds under network (GWP) management) +14% +46% £4.33bn £48m £42m £2.96bn £24m £1.40bn 2005 2006 2007 2005 2006 2007
Slide 52: Continuous productivity growth
High quality sustainable earnings Continuous productivity growth Cost:income ratio1 53.2% 53.5% 52.3% 50.8% 49.0% 2003 2004 2005 2006 2007 1. 2003-4 figures on a UK GAAP basis excluding discontinued operations. 2005-7 figures are on a full IFRS basis, excluding volatility, insurance grossing and one
Slide 53: Investing for future growth
High quality sustainable earnings Investing for future growth Investment themes Major projects • Improving access for • New internet platform our customers • ‘Your finances’ sales • Effectiveness in front capability of the customer • Up-skilling frontline staff • Enhancing products & services • Comm
Slide 54: We are well placed
We are well placed • Strong capital and funding position • Relationship-driven business model • Deep understanding of our customers • Through the cycle lending
Slide 55: 2007 results in longer term context
2007 results in longer term context • Strong momentum • Significant growth potential • High quality sustainable earnings