Lloyds Banking Group Plc · LSE:LLOY

Lloyds Banking — HBOS — FY2002 Earnings Presentation

51 slides from Lloyds Banking's earnings presentation, 2003

  1. Slide 1: HBOS plc

  2. Slide 2: Preliminary Results 2002

    Preliminary Results 2002 James Crosby Chief Executive

  3. Slide 3: Today's Agenda

    Today’s Agenda „ A strategy for shareholders „ Financial Review „ Retail „ Corporate „ Insurance & Investment „ Outlook

  4. Slide 4: A strategy for shareholders

    A strategy for shareholders „ Differentiated strategy „ Outstanding execution „ Real competitive advantage „ Shareholder value „ “The growth payback”

  5. Slide 5: HBOS Credentials

    HBOS Credentials „ Business balance „ Financial strength for growth „ Solid credit quality „ Low cost advantage „ Sustainable pricing - broadly stable margins „ Substantial merger synergies to come „ Increasing ROE – target 20% in 2004

  6. Slide 6: Delivering on promises

    Delivering on promises „ Meeting targets – in sales, costs, merger synergies and capital ratios „ Meeting expectations – in margins, in credit quality and in market shares

  7. Slide 7: Mike Ellis, Group Finance Director

    Mike Ellis Group Finance Director

  8. Slide 8: Key Financials

    Key Financials % 31.12.02 31.12.01 Growth Profit before tax 3,062 2,515 22 & exceptional items £m Underlying earnings 56.1 47.7 18 per share* (p) Dividends (p) 29.4 28.0 5 Group Target post tax 17.9 16.8 return on mean equity**(%) * Before exceptional items and goodwill amortisation ** Before except

  9. Slide 9: December 2001 Comparative Figures

    December 2001 Comparative Figures As Embedded As Reported FRS 19 UITF 33 Value (*) Restated £m £m £m £m £m Profit & Loss Account Profit Profit before before tax tax & & exceptionals exceptionals 2,853 2,853 -- (18) (18) (320) (320) 2,515 2,515 Profit Profit before before tax tax 2,630 2,630 -- (18)

  10. Slide 10: Financial Performance: Divisional Overview - PBTE

    Financial Performance ……. Divisional Overview - PBTE Restated Restated 31.12.02 31.12.02 31.12.01 31.12.01 % % £m £m £m £m Growth Growth Retail Banking 1,426 1,205 18 Insurance & Investment 589 472 25 Business Banking 307 306 - Corporate Banking 681 523 30 Treasury 231 169 37 BankWest 75 80 (6) Grou

  11. Slide 11: Financial Performance: Group Overview

    Financial Performance… Group Overview Restated 31.12.02 31.12.01 % £m £m Growth Net interest income 4,770 4,155 15 Non-interest income*^ 2,673 2,263 18 Operating expenses* (3,609) (3,331) 8 Operating profit before provisions* 3,834 3,087 24 Provisions (832) (608) 37 Share of profits of associates &

  12. Slide 12: Net Interest Income - Margin Trends

    Financial Performance… Net Interest Income - Margin Trends 2002 2001 % % Retail Banking 2.04 2.15 Business Banking 3.04 3.04 Corporate Banking 1.83 1.69 Treasury 0.17 0.21 BankWest 2.13 2.20 Group (including trading assets) 1.71 1.74 Group (excluding trading assets) 1.86 1.87

  13. Slide 13: Operating Expenses

    Financial Performance… Operating Expenses 31.12.02 31.12.01 % £m £m Growth Operating Expenses 3,762 3,505 7 Exceptional items (153) (174) 3,609 3,331 8 Goodwill amortisation (86) (68) Operating lease depreciation (289) (210) Underlying operating expenses 3,234 3,053 6

  14. Slide 14: Retirement Benefits

    Retirement Benefits £m SSAP 24 Charge - 2002 92 FRS17 Charge - 2002 122 FRS17 Charge - 2003 (Forecast) 150 Net pension liability at 31.12.02 795

  15. Slide 15: Merger Synergies

    Merger Synergies Expected Run P&L Impact Rate from In 2002 Jan 2005 £m £m Retail Banking 90 210 Insurance & Investment (9) 65 Corporate Banking 74 150 Business Banking (19) 120 Treasury 14 45 Group Services 59 210 HBOS Group 209 800

  16. Slide 16: Provision for bad debt charge

    Financial Performance… Provision for bad debt charge 31.12.02 31.12.01 % of % of average average customer customer £m advances £m advances Retail Banking 373 0.25 281 0.22 Business Banking 147 0.70 125 0.69 Corporate Banking 295 0.74 196 0.65 Other 17 - 6 - 832 0.38 608 0.33

  17. Slide 17: Closing Provisions, Suspended Interest and Non Performing Assets

    Financial Performance… Closing Provisions, Suspended Interest and Non Performing Assets (NPAs) NPAs as % Provisions Provisions & Year End Year of Year End & interest in Customer End Customer interest in suspense as Advances NPAs Advances suspense % of NPAs As As at at 31.12.02 31.12.02 £m £m % £m %

  18. Slide 18: Post-tax Return on Mean Equity

    Financial Performance… Post-tax Return on Mean Equity 31.12.02 31.12.01 Divisional post-tax RoE: % % Retail Banking 20.4 18.8 Insurance & Investment 16.7 16.0 Business Banking 15.4 16.4 Corporate Banking 19.4 17.8 Treasury 21.3 15.9 BankWest 13.8 16.2 18.6 17.4 Amortisation of Goodwill (0.7) (0.6) G

  19. Slide 19: Group Risk Weighted Assets & Capital

    Financial Performance… Group Risk Weighted Assets & Capital 31.12.02 31.12.01 Risk Weighted Assets £m 187,142 157,532 Tier 1 Capital £m 14,788 12,415 Tier 2 Capital £m 8,803 7,700 Total deductions £m (4,064) (3,357) Total Capital £m 19,527 16,758 Tier 1 Capital Ratio % 7.9 7.9 Risk Asset Ratio % 10.

  20. Slide 20: Financial Performance: Group Target RoE of 20% in 2004

    Financial Performance „ Asset growth and stable margins „ Merger synergies „ Sound credit quality „ Tight cost control „ Financial Strength Group Target RoE of 20% in 2004

  21. Slide 21: Profit Momentum - Andy Hornby

    Profit Momentum Andy Hornby Chief Executive, Retail

  22. Slide 22: Delivering Profitable Growth

    Delivering Profitable Growth % 2002 v 2001 20 20 +18.3% 15 15 +10.5% 10 10 5 5 +2.3% 0 0 Income Income + + £354m £354m Costs Costs + + £44m £44m Profits Profits + + £221m £221m

  23. Slide 23: The Virtuous Circle Still Works

    The Virtuous Circle Still Works Strong Volumes Cost Income Ratio Margin Decline down from Only 6bps 56.7% to 52.5% (ex IF) Cost Growth Only 2.3% Stable Credit Quality

  24. Slide 24: Strong Volume Growth

    Strong Volume Growth „ Net mortgage lending share 29% „ 1.3m new bank accounts „ 1.2m new credit cards accounts „ Personal loans up 31% „ Bancassurance new business up 66%

  25. Slide 25: Broadly Stable Margins

    Broadly Stable Margins Movement in Margin: Basis Points Net Interest margin for year ended 31.12.01 215 Add: Credit Cards 3 Consumer Finance 2 Banking 1 Capital Earnings 1 Less: Intelligent Finance (5) Wholesale Funding (6) Mortgages (3) Savings (4) Net Interest Margin for year ended 31.12.02 204

  26. Slide 26: Exceptionally Strong Asset Quality

    Exceptionally Strong Asset Quality Overall „ Total NPAs down from 2.14% of advances to 1.84% „ NPA provisions coverage up from 39% to 43% Mortgages „ Arrears declined from 1.49% to 1.08% of balances „ Average loan to value for mortgage book down to 43% from 45% Banking/Consumer Credit „ Banking NPAs

  27. Slide 27: Stringent Cost Control

    Stringent Cost Control „ Operating costs up 2.3% (target 3%) „ Excluding IF & performance bonuses, costs down by 1.3% „ £62m of merger related cost synergies „ Cost income ratio falls from 56.7% to 52.5%

  28. Slide 28: The Virtuous Circle Continues to Turn

    The Virtuous Circle Continues to Turn Volume Growth „ Consumer affordability still strong „ Highly incentivised and productive salesforce Stable Margins „ Back book migration almost complete „ Base rate moves help margin management Strong Credit Quality „ No relaxation in applicant LTVs and credit s

  29. Slide 29: Targets for 2003

    Targets for 2003 „ Net mortgage lending greater than share of stock „ Over one million new bank accounts and credit cards „ Reaffirm position as the UK’s No 1 bancassurer „ Cost growth limited to 3% „ Further significant improvement in cost income ratio Further improvement in ROE

  30. Slide 30: Return Led Growth - George Mitchell

    Return Led Growth George Mitchell Chief Executive, Corporate Banking

  31. Slide 31: Return Led Growth

    Return Led Growth „ Strong controlled growth „ Robust margins Improved Returns „ Efficiency gains „ Sound credit quality

  32. Slide 32: Strong But Controlled Growth

    Strong But Controlled Growth „ Lending growth of 25%, slowing as targeted „ Continuing to operate in markets we know „ Increasing level of sell down

  33. Slide 33: Robust margins

    Robust margins „ Further increase in net interest margin 2001 1.69 % 2002 1.83 % „ Less competition „ Avoiding commodity business

  34. Slide 34: Efficiency Gains

    Efficiency Gains „ A further reduction in our cost : income ratio 2001 17.1 % 2002 15.5 % 2003 lower still

  35. Slide 35: Sound Credit Quality

    Sound Credit Quality „ Predominantly old economy „ Country risk averse „ Workout philosophy „ Bad debt charge as % of average advances 0.74% (0.65%, 2001) „ NPAs as % of closing advances 1.61% down from 1.69% (2001)

  36. Slide 36: Improved Returns

    Improved Returns „ 35% growth in net interest income „ 34% increase in non-interest income „ 30% growth in profits „ Increased post-tax Return on Equity 2001 17.8% 2002 19.4%

  37. Slide 37: Prospects

    Prospects „ Further controlled growth with no change in risk appetite „ Good margin outlook „ More efficiency gains „ Stable credit conditions Sustained/higher ROE

  38. Slide 38: Strength & Opportunity - Phil Hodkinson

    Strength & Opportunity Phil Hodkinson Chief Executive, Insurance and Investment

  39. Slide 39: IID: Strength and Opportunity

    IID : Strength and Opportunity „ Insurance – low risk, strong cash flow, high growth – weakened competition, growing demand – never better placed than today „ Investment – distribution power, scale, financial strength – very tough short term trading conditions – attractive market growth opportunitie

  40. Slide 40: Financial Results: IID

    Financial Results : IID „ Profits up 25% to £589m (2001 : £472m*) – Return on equity = 16.7% „ Insurance: – Profits up 15% to £400m – Income up 12%, expenses up less than 1% – Underwriting loss ratios remained stable „ Investment: – Profits up 52% to £189m (2001: £124m*) – Underlying profits up 32%

  41. Slide 41: Investment: Underlying growth

    Investment : Underlying growth 2002 2001 £m £m Reported Profit 189 124 - short term investment fluctuations 412 324 - economic assumption changes (90) (60) Underlying performance 511 388

  42. Slide 42: IID: Improved Disclosure

    IID : Improved Disclosure „ Separate Insurance and Investment results „ Unsmoothed and smoothed earnings „ Underlying long term performance „ Source of profits and balance sheet split „ Modified statutory solvency results „ New business profitability by channel „ Return on equity v internal rate of

  43. Slide 43: Operational Results: Insurance

    Operational Results : Insurance „ Sales up 25% „ Household sales up 10%: – driven by growth in mortgage business, now covering almost 1 in 10 UK households „ Repayment sales up 27%: – driven by growth in loans and credit cards, and continued success in third party business „ Motor sales up 79%: – dr

  44. Slide 44: Prospects: Insurance

    Prospects : Insurance „ Strong fundamentals – brands, distribution, customers, service and efficiency „ Excellent trading environment – firm rates, competitors weak, strong demand „ Business momentum – sales, low risk, cash flow, profits „ HBOS never more advantaged than today

  45. Slide 45: Operational Results: Investment

    Operational Results : Investment „ Sales up 11% overall (EPI) „ Bancassurance sales up 66%: – improved productivity and high sales quality. Now No. 1 bancassurer in UK „ Intermediary sales down 5%: – clear value strategy and improved pricing „ Wealth management sales down 25%: – tough investment mar

  46. Slide 46: Prospects: Investment

    Prospects : Investment „ Strong fundamentals – brands, distribution, scale, financial strength, simple value products and efficient operations „ Operating environment – Bancassurance: positive outlook (e.g. Sandler) – Intermediary: clear value strategy – SJPC: well positioned for de-polarisation – I

  47. Slide 47: IID: Strength and Opportunity

    IID : Strength and Opportunity „ Insurance – low risk, strong cash flow, high growth – weakened competition, growing demand – never better placed than today „ Investment – distribution power, scale, financial strength – very tough short term trading conditions – attractive market growth opportunitie

  48. Slide 48: Slide 48

  49. Slide 49: HBOS in 2002

    HBOS in 2002 „ HBOS credentials reinforced – Balance, financial strength, sound credit quality, stable margins „ Targets achieved – Sales, market shares, merger synergies, costs „ Strategy that delivers in tough times

  50. Slide 50: HBOS Prospects

    HBOS Prospects „ Challenging environment „ Strong competitor in every market „ Powerful momentum everywhere „ Driving revenue much harder than costs „ Increasing returns „ 20% ROE target reaffirmed

  51. Slide 51: Slide 51

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