Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Lloyds TSB Group — FY2004 Earnings Presentation
54 slides from Lloyds Banking's earnings presentation, Mar 4, 2005
Slide 1: 2004 Annual Results
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2004 Annual Results 4 March 2005 Helen Weir Group Finance Director Investor Relations, Group Finance Division HAW 1
Slide 2: Headline results – continuing operations
CARE - CONTAINS PRICE SENSITIVE INFORMATION Headline results – continuing operations* 2003 2004 % Change Profit before tax £3,062m £3,363m +10% Economic profit £1,329m £1,442m +9% Earnings per share 37.4p 41.8p +12% Dividends per share 34.2p 34.2p Post-tax return on equity 23.1% 23.5% * excluding in
Slide 3: Impact of major items
CARE - CONTAINS PRICE SENSITIVE INFORMATION Impact of major items Treatment £m Income Costs PBT in Presentation Sales of EMD bonds/ closed foreign exchange 295 - 295 positions in 2003 Consolidated Customer redress in single line provisions in 2003 (100) (200) (300) item (2003) Net impact 195 (200) (
Slide 4: Headline results – continuing operations
CARE - CONTAINS PRICE SENSITIVE INFORMATION Headline results – continuing operations* £m 2003† 2004 % Change Total income 9,071 9,434 4 Operating expenses 4,701 4,817 2 Trading surplus 4,370 4,617 6 General insurance claims 236 224 (5) Bad debt provisions 887 866 (2) Other (66) (52) Trading profit 3
Slide 5: Momentum in key divisions
CARE - CONTAINS PRICE SENSITIVE INFORMATION Momentum in key divisions* £m 2003† 2004 % Change UK Retail Banking 1,671 1,751 5 Insurance & Investments 665 785 18 Wholesale & International Banking - Wholesale 908 1,115 23 - International Banking 130 157 21 1,038 1,272 23 Central group items (193) (333
Slide 6: Good half on half growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION Good half on half growth* £m 2004H1 2004H2 % Change UK Retail Banking 818 933 14 Insurance & Investments 378 407 8 Wholesale & International Banking - Wholesale 510 605 19 - International Banking 106 51 (52) 616 656 6 Central group items (167) (166) - Prof
Slide 7: Improving momentum
CARE - CONTAINS PRICE SENSITIVE INFORMATION Improving momentum* UK Retail Banking Insurance & Investments +6% +27% +5% +18% +3% +10% H1 H2 03/04 H1 H2 03/04 Wholesale Group +11% +26% +23% +9% +19% +7% H1 H2 03/04 H1 H2 03/04 * profit before tax, excluding investment variance, changes in economic eco
Slide 8: Continuing operations – income
CARE - CONTAINS PRICE SENSITIVE INFORMATION Continuing operations – income* £m 2003† 2004 % Change Net interest income 4,864 4,920 1 Other finance income 34 39 15 Other income 4,173 4,475 7 Total income 9,071 9,434 4 * excluding investment variance, changes in economic assumptions, profit/loss on sa
Slide 9: Net interest income drivers by division
CARE - CONTAINS PRICE SENSITIVE INFORMATION Net interest income drivers by division* £m 2003† Volume Rate Other 2004 % Change UK Retail Banking 3,137 364 (329) 26 3,198 2 Insurance & Investments 81 17 1 - 99 22 Wholesale & International Banking 1,875 15 78 (2) 1,966 5 Central group items (229) - - (
Slide 10: UK Retail Banking franchise growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION UK Retail Banking franchise growth Period-end Balances (£bn) Mortgages Credit Cards Personal Loans +13% 80.1 +12% 7.5 +12% 10.7 70.8 6.7 9.6 2003 2004 2003 2004 2003 2004 Investor Relations, Group Finance Division HAW 10
Slide 11: Net interest income drivers by division
CARE - CONTAINS PRICE SENSITIVE INFORMATION Net interest income drivers by division* £m 2003† Volume Rate Other 2004 % Change UK Retail Banking 3,137 364 (329) 26 3,198 2 Insurance & Investments 81 17 1 - 99 22 Wholesale & International Banking 1,875 15 78 (2) 1,966 5 Central group items (229) - - (
Slide 12: Continuing operations – other income
CARE - CONTAINS PRICE SENSITIVE INFORMATION Continuing operations – other income* £m 2003 2004 % Change UK Retail Banking 1,533 1,639 7 Insurance & Investments 1,081 1,182 9 Wholesale & International Banking 1,561 1,641 5 Central group items (2) 13 4,173 4,475 7 * excluding investment variance, chan
Slide 13: Margins and return on risk-weighted assets
CARE - CONTAINS PRICE SENSITIVE INFORMATION Margins and return on risk-weighted assets* Net Interest Margin (%) Post-tax Return on Risk-weighted Assets (%) 2.07 1.87 1.90 1.95 3.06 2.94 2.95 2.84 2003H1 2003H2 2004H1 2004H2 2003H1 2003H2 2004H1 2004H2 * continuing operations, excluding investment va
Slide 14: Strong cost control
CARE - CONTAINS PRICE SENSITIVE INFORMATION Strong cost control* £m 2003 2004 % Change UK Retail Banking 2,383 2,413 1 Insurance & Investments 261 272 4 Wholesale & International Banking 2,048 2,090 2 Central group items 9 42 4,701 4,817 2 * continuing operations, excluding customer redress provisio
Slide 15: Income growth ahead of costs in all divisions
CARE - CONTAINS PRICE SENSITIVE INFORMATION Income growth ahead of costs in all divisions* UK Retail Banking Insurance & Wholesale & Group† Investments International 10% 5% 4% 4% 4% 2% 2% 1% Income Costs Income Costs Income Costs Income Costs * continuing operations, excluding investment variance, c
Slide 16: Cost:income ratio improvements
CARE - CONTAINS PRICE SENSITIVE INFORMATION Cost:income ratio improvements* UK Retail Banking (%) Wholesale & International (%) Group (%) 51.8 59.6 51.0 51.1 57.9 49.9 2003 2004 2003 2004 2003 2004 * continuing operations, excluding investment variance, changes in economic assumptions, loss on sale
Slide 17: Charge for bad and doubtful debts
CARE - CONTAINS PRICE SENSITIVE INFORMATION Charge for bad and doubtful debts* % of Average 2003 2004 Variance Lending £m £m % 2003 2004 UK Retail Banking 594 673 (13) 0.72 0.71 - Personal loans/overdrafts 430 473 (10) 4.25 4.20 - Credit cards 182 242 (33) 3.19 3.42 - Mortgages (18) (42) (0.03) (0.0
Slide 18: Asset quality – dynamic delinquency trends
CARE - CONTAINS PRICE SENSITIVE INFORMATION Asset quality – dynamic delinquency trends Indexed 120 Personal Loans 100 80 60 Credit Cards 40 4 De 3 04 03 4 4 04 03 04 04 4 03 3 03 04 4 04 3 4 0 -0 -0 -0 l-0 t-0 r-0 l-0 t- 0 v- n- p- b- n- p- g- c- c- n- g- ar ov ay No Ju Oc Ju Ap Oc Au De Au Ju Fe Ju
Slide 19: Asset quality – non-performing lending
CARE - CONTAINS PRICE SENSITIVE INFORMATION Asset quality – non-performing lending* Non-performing Lending NPL’s as a Percentage of Specific Provisions as a (£m) Total Lending (%) Percentage of NPL’s (%) 1,240 112 1,218 0.87 0.78 108 31 Dec 2003 31 Dec 2004 31 Dec 2003 31 Dec 2004 31 Dec 2003 31 Dec
Slide 20: Asset quality – non-performing lending
CARE - CONTAINS PRICE SENSITIVE INFORMATION Asset quality – non-performing lending* Non-performing Lending NPL’s as a Percentage of Specific Provisions as a (£m) Total Lending (%) Percentage of NPL’s (%) 0.87 112 1,240 0.82 110 1,218 0.78 108 1,140 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31
Slide 21: Economic profit and ROE improvements
CARE - CONTAINS PRICE SENSITIVE INFORMATION Economic profit and ROE improvements Economic Profit (£m)* Post-tax Return on Average Shareholders’ Equity (%) +9% 1,442 732 27.4 4.3 1,329 710 682 23.5 647 23.1 Impact of 2003H1 2003H2 2004H1 2004H2 2003 Disposals 2003 2004 * continuing operations, exclud
Slide 22: Capital position robust
CARE - CONTAINS PRICE SENSITIVE INFORMATION Capital position robust • Capital ratios remain strong: – tier 1 ratio : 8.9% – total capital ratio : 10.0% • Strong credit ratings maintained – Moody’s : ‘Aaa’ – S&P : ‘AA’ (negative outlook) – Fitch : ‘AA+’ • Sufficient retained earnings to support expec
Slide 23: Scottish Widows – capital strength
CARE - CONTAINS PRICE SENSITIVE INFORMATION Scottish Widows – capital strength • New business margin increased to 28.6% (2003: 25.8%) • Improved new business internal rate of return in each distribution channel • Free asset ratio increased to 17.0% • Scottish Widows has paid a 2004 dividend to Lloyd
Slide 24: Scottish Widows – strong realistic balance sheet
CARE - CONTAINS PRICE SENSITIVE INFORMATION Scottish Widows – strong realistic balance sheet With-Profits Long-Term Fund Fund £bn £bn Available assets, including support account 19.1 21.8 Realistic value of liabilities (18.1) (17.7) Net surplus 1.0 4.1 Working capital ratio 5.1% 19.0% Risk capital m
Slide 25: No material impact of IFRS implementation
CARE - CONTAINS PRICE SENSITIVE INFORMATION No material impact of IFRS implementation* 2005 • Effective interest rates £m • Life assurance Profit before tax: less than 5% • Goodwill • Equity to debt Attributable profit: less than 5% reclassification • Pensions Total capital: not material • Dividends
Slide 26: Implementation of Basel II
CARE - CONTAINS PRICE SENSITIVE INFORMATION Implementation of Basel II • Early implementation – 2007 • We expect lower risk-weighted assets – up to 20% over time – with a phased benefit introduction • CP05/3, published January 2005, states that there will be ‘no impact at all on the overall level of
Slide 27: Summary – key performance highlights
CARE - CONTAINS PRICE SENSITIVE INFORMATION Summary – key performance highlights • Good earnings momentum throughout the Group • Improved return on risk-weighted assets • Costs remain firmly under control • Asset quality remains strong • Capital ratios satisfactory, and sufficient to support planned
Slide 28: 2004 Annual Results
CARE - CONTAINS PRICE SENSITIVE INFORMATION 2004 Annual Results 4 March 2005 Eric Daniels Group Chief Executive Investor Relations, Group Finance Division HAW 31
Slide 29: Closing a chapter
CARE - CONTAINS PRICE SENSITIVE INFORMATION Closing a chapter Management priorities • To enhance the quality of earnings and reduce volatility • To maintain and build levels of profitability • To grow our business Source: Interim Results 1 August 2003 Investor Relations, Group Finance Division HAW 3
Slide 30: Closing a chapter
CARE - CONTAINS PRICE SENSITIVE INFORMATION Closing a chapter Good progress on all priorities • To enhance quality of earnings and reduce volatility – Building a better quality, more predictable set of businesses • To maintain and build levels of profitability Economic profit* (£m) • Economic profit
Slide 31: Focused on growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION Focused on growth Earnings story taking shape Profit before tax* • Profit up 9 % +11% • Positive jaws +7% – Income up 4% – Costs up 2% • All divisions ahead 2003H1 2003H2 2004H1 2004H2 * Continuing operations basis, excluding investment variance, changes i
Slide 32: Focused on growth
CARE - CONTAINS PRICE SENSITIVE INFORMATION Focused on growth All divisions performing Profit before tax (£m) UK Retail Banking Wholesale & International Insurance & Investments 933 878 818 656 793 616 550 407 488 378 345 320 2003 2003 2004 2004 2003 2003 2004 2004 2003 2003 2004 2004 H1 H2 H1 H2 H1
Slide 33: Opening a new chapter
CARE - CONTAINS PRICE SENSITIVE INFORMATION Opening a new chapter Priorities to guide future growth • Delivering growth – Deepen customer relationships – Improve our efficiency ratio – Enhance the Group’s capabilities Investor Relations, Group Finance Division HAW 36
Slide 34: Strategy in the Retail Bank
CARE - CONTAINS PRICE SENSITIVE INFORMATION Strategy in the Retail Bank Maintaining momentum in our retail franchise Our objectives … . . . What we are doing Implemented local markets Improved use of customer data Acquire and retain quality customers Improving our products Deepen customer relationsh
Slide 35: Overview of UK Retail Banking results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of UK Retail Banking results Growth in net quality customer recruitment Quality customer recruitment Quality customer attrition (Indexed: H1 2003 = 100) (Indexed: H1 2003 = 100) 141 111 113 100 100 89 88 82 2003H1 2003H2 2004H1 2004H2 2003H1 2003H
Slide 36: Overview of UK Retail Banking results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of UK Retail Banking results Strong growth in balances Mortgages Loans and Credit Cards Customer Deposits +13% +12% +7% 80 66 71 62 18 16 2003 2004 2003 2004 2003 2004 Period- Period-end balances (£bn (£bn)) Investor Relations, Group Finance Divis
Slide 37: Overview of UK Retail Banking results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of UK Retail Banking results Maintaining balance market shares 21.3 Current accounts 21.3 9.1 Personal deposits 9.3 9.5 Personal lending 9.2 12.7 Credit cards 12.6 Mortgages 9.2 net lending 8.2 December 2003 December 2004 Source: Bank of England,
Slide 38: Overview of UK Retail Banking results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of UK Retail Banking results Build on success of growth in direct channels Growth in internet banking Increased sales through direct channels 3.0 2.7 Number of sales (000s) 500 2.4 Number of users (m) 2.1 1.7 1.5 1.2 1.3 0 2003H1 2003H2 2004H1 200
Slide 39: Overview of UK Retail Banking results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of UK Retail Banking results Managing asset quality Charge for bad & doubtful debts (£m) • Strong retail lending profile 673 594 • Avoidance of high risk sectors: − sub-prime lending 344 − buy-to-let lending 329 • High proportion of in-franchise l
Slide 40: UK Retail Banking
CARE - CONTAINS PRICE SENSITIVE INFORMATION UK Retail Banking Deepening customer relationships to increase profitability Profitability* per customer Share of customer spend (Indexed: 100 = 2001) Share of wallet Lloyds TSB Competitors Assurance 120 Income Card 110 Investment 100 Loan Costs Mortgage 9
Slide 41: Strategy in Wholesale & International Banking
CARE - CONTAINS PRICE SENSITIVE INFORMATION Strategy in Wholesale & International Banking Sustaining growth in our Wholesale franchises Our objectives … . . . What we are doing Winning new customers Growing the Corporate Relationship deepening Markets business Investing in regional centres Broadenin
Slide 42: Overview of Wholesale & International results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Wholesale & International results Growing risk-weighted assets, returns and improving asset quality Risk Weighted Assets* (£bn) Internal customer risk ratings 71 64 63 65 100% 80% 25 22 60% 40% 67 70 20% 0% 2003H1 2003H2 2004H1 2004H2 2003 2004
Slide 43: Overview of Wholesale & International results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Wholesale & International results Growing the Corporate Markets business Total income (£m) Cross-selling income (£m) Corporate Banking +11% 1,390 1,255 +59% 175 Financial Markets 110 Structured Finance 2003 2004 2003 2004 Investor Relations, Gr
Slide 44: Overview of Wholesale & International results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Wholesale & International results Improving the Business Banking* franchise Profit before tax (£m) +22% 126 103 • Simplified propositions • Leveraged off Retail Bank franchise • Improved efficiency • Number 1 in start-up businesses 2003 2004 *
Slide 45: Wholesale & International
CARE - CONTAINS PRICE SENSITIVE INFORMATION Wholesale & International All businesses within division performing Growth in profit before tax (£m) 2004 vs 2003 Corporate Markets +25% Business Banking +22% Asset Finance +27% International Banking* +21% Total Wholesale & International Banking* +23% * Co
Slide 46: Strategy in Insurance & Investments
CARE - CONTAINS PRICE SENSITIVE INFORMATION Strategy in Insurance & Investments Building momentum in Insurance & Investments Our objectives … . . . What we are doing Maximise value from Delivered simplified product suite bancassurance Strengthen distribution capability Increasing IFA and direct sale
Slide 47: Overview of Insurance & Investments results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Insurance & Investments results Improving Life & Pensions new business profitability Life & Pensions new business Life & Pensions contribution (£m) new business margin (%) 188 28.6 25.8 155 2003 2004 2003 2004 Investor Relations, Group Finance
Slide 48: Overview of Insurance & Investments results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Insurance & Investments results Life & Pensions sales up across all channels Branch network (APE £m) IFA (APE £m) Direct (APE £m) +10% 426 386 +7% 173 161 +6% 57 54 2003 2004 2003 2004 2003 2004 Investor Relations, Group Finance Division HAW 51
Slide 49: Overview of Insurance & Investments results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Insurance & Investments results Growing share in Life & Pensions through all channels Market share in Life & Pensions Market share in Life & Pensions IFA channel non-IFA channel 8.9 7.8 6.7 7.0 2003 2004 2003 2004 Investor Relations, Group Fina
Slide 50: Overview of Insurance & Investments results
CARE - CONTAINS PRICE SENSITIVE INFORMATION Overview of Insurance & Investments results Growing contribution in General Insurance Profit before tax* (£m) Direct sales Gross written premiums (£m) +5% 160 +12% 145 153 129 2003 2004 2003 2004 * Excluding investment variance Investor Relations, Group Fi
Slide 51: Insurance & Investments
CARE - CONTAINS PRICE SENSITIVE INFORMATION Insurance & Investments Leveraging our distribution • Fastest growing retail market • Biggest opportunity to deepen relationships • Plays to our strengths – Distribution reach – Scottish Widows brand • Strong platform for Lloyds TSB Insurance Investor Rela
Slide 52: Extending Group capabilities
CARE - CONTAINS PRICE SENSITIVE INFORMATION Extending Group capabilities Central functions supporting the Group’s growth plans • Providing a framework for sustaining faster growth, through enhancing our competencies in: – Finance – Risk – Performance Management Investor Relations, Group Finance Divi
Slide 53: Summary
CARE - CONTAINS PRICE SENSITIVE INFORMATION Summary • Achieving growth with returns – Profits up 9% – Return on shareholders’ equity of 23.5% • Total shareholder return of 15% in 2004 • Clear priorities going forward Continuing operations basis, excluding investment variance, changes in economic ass
Slide 54: Forward looking statements
CARE - CONTAINS PRICE SENSITIVE INFORMATION Forward looking statements This document is a summary only of certain information contained in the announcement dated 4 March 2005 and should be read in conjunction with the full text of the announcement. This document contains forward looking statements w