Interim Results-Part 2
Lloyds TSB Group PLC
28 July 2000
PART 2
LLOYDS TSB GROUP
PERFORMANCE BY SECTOR
Profit before tax by main businesses
Half-year to Half-year to
30 June 31 December
2000 1999 1999
£m £m £m
UK Retail Banking 391 368 421
Mortgages 429 445 423
Insurance and Investments* 612 413 460
UK Retail Financial Services 1,432 1,226 1,304
Wholesale Markets 380 356 372
International Banking 263 223 221
Central group items (1) 36 83
Operating profit - excluding 2,074 1,841 1,980
short-term fluctuations in
investment returns, changes in
economic assumptions,
exceptional restructuring costs,
pension provision and loss on
sale and closure of businesses
Short-term fluctuations in
investment returns (page 36,
note 7) (59) 12 16
Changes in economic assumptions
(page 36, note 8) 127 - -
Exceptional restructuring costs
(page 36, note 9) (74) - -
Pension provision - - (102)
Loss on sale and closure of
businesses - - (126)
Profit before tax 2,068 1,853 1,768
* including 'normalised' investment returns based on long-term
rates of investment return (page 36, note 7)
1999 figures have been restated to take account of a number of
organisational changes and changes in internal cost allocation.
Historically it has been the Group's practice for central income
items such as the earnings on surplus Group capital and the
profit on the sale of investments to be allocated to business
units for statutory reporting purposes. To avoid unnecessary
volatility in business unit earnings, as a result of decisions
at the Group Centre on the build up and use of surplus capital,
these central income items will in the future be reported within
central group items. The effect on 1999 first half figures,
which have been restated, is an increase in central group items
of £53 million offset by a commensurate reduction in business
unit earnings.
Page 12 of 39
LLOYDS TSB GROUP
UK Retail Financial Services
Total profit before tax, excluding short-term fluctuations in
investment returns, changes in the economic assumptions applied
to our long-term assurance business and exceptional
restructuring costs, from UK Retail Financial Services which
encompasses UK Retail Banking, Mortgages, and Insurance and
Investments, increased by £206 million, or 17 per cent, to
£1,432 million from £1,226 million in the first half of 1999.
UK Retail Banking and Mortgages
Total profit before tax from UK Retail Banking and Mortgages
rose by £7 million, or 1 per cent, to £820 million. Total
income increased by 2 per cent and costs increased by 5 per
cent, largely as a result of e-commerce investment costs
totalling £40 million. Bad debt provisions decreased by
£13 million, or 6 per cent, to £197 million.
Half-year to Half-year to
30 June 31 December
2000 1999 1999
£m £m £m
Net interest income 1,477 1,452 1,491
Other income 557 542 548
Total income 2,034 1,994 2,039
Operating expenses 1,017 971 980
Trading surplus 1,017 1,023 1,059
Provisions for bad and doubtful
debts 197 210 215
Profit before tax 820 813 844
Profit before tax
Retail Banking 391 368 421
Mortgages 429 445 423
820 813 844
Efficiency ratio 50.0% 48.7% 48.1%
Total assets (period-end) £68.4bn £62.3bn £64.3bn
Total risk-weighted assets
(period-end) £42.0bn £38.6bn £39.7bn
Page 13 of 39
LLOYDS TSB GROUP
UK Retail Banking
(the UK retail businesses of Lloyds TSB, providing banking and
financial services to personal and small business customers;
private banking; and stockbroking)
Pre-tax profit from UK Retail Banking rose by £23 million, or
6 per cent, to £391 million. Total income increased by 4 per
cent, costs increased by 5 per cent largely as a result of e-
commerce investment costs, and there was a reduction of 2 per
cent in bad debt provisions.
Personal loans and credit card lending increased by 8 per cent
since the end of June 1999 and balances on current accounts and
savings and investment accounts grew by 11 per cent over the
same period, supported by the launch of a number of new
products. The popularity of the Group's Added Value current
accounts continued with Lloyds TSB maintaining its market
leadership in this area with over 1.7 million accounts in
operation. The Group also continues to maintain market-leading
positions in all of its core markets, including personal current
accounts, savings and business banking.
We have continued to develop a number of alternative
distribution channels in order to offer the broadest possible
range of access points for our customers in order to improve
service and to enhance revenue growth. PhoneBank, our telephone
banking operation, is one of the largest in Europe with 1.2
million customers. It handled some 7 million calls during the
half-year. PhoneBank Express, our leading edge interactive
voice recognition system, now has some 630,000 registered users.
Our supermarket banking operation, branded 'easibank', continues
to expand and we now have 18 branches in ASDA stores or large
shopping centres.
We continue to make substantial progress in the four main areas
of focus in our e-commerce strategy. We are on target for 1
million online customers of LloydsTSB.com by the end of this
year and we now have nearly 500,000 customers registered to use
our online banking service, 62 per cent of whom are using the
service at least once a week. We will launch our standalone
internet bank, evolvebank.com later this year in both Spain and
the UK.
We have also made substantial progress on a number of
initiatives for business customers. The Group has recently
launched Success4business.com, an internet portal designed to
help small business customers maximise opportunities in e-
commerce and LloydsTSBMarketplace, a trade facilitation web
service, which is currently being piloted, that allows suppliers
and buyers access to a secure e-enabled environment to conduct
business with a wide variety of companies within their specific
market place.
Major efficiency improvements are being achieved by using
internet and intranet technology throughout our business. Our
new e-procurement system has recently been launched throughout
the Group and staff can now make purchases from their desktop
PCs, saving substantial time and money as all purchases are made
using the Group's preferred suppliers with whom discounts have
been negotiated.
Page 14 of 39
LLOYDS TSB GROUP
UK Retail Banking (continued)
Internet customers generally tend to be high value customers
and, because access via the internet is so easy and offers new
ways of managing their finances, internet customers tend to
contact their bank more often once on the internet. We believe
that within 3-4 years we will see more customer contact via the
internet than via branches, even if only a minority of our
customers are banking on the internet by then. This will enable
us to understand much better, and interact more often with, our
most valuable customers. We are thus committed to being the
leader in this market - the latest step in this process being
the launch of a greatly enhanced website in July 2000.
On 20 July 2000 the Group announced a mobile banking offer, in
association with BT Cellnet, that will provide Lloyds TSB
customers with access to the Bank's internet banking service, as
well as a range of other online services, from November 2000.
The unique package will also include a free mobile banking
handset, a discounted mobile call tariff, free fixed line off
peak PC internet access and online shopping services. It is
anticipated that over the next two years a significant number of
customers will take advantage of this offer which forms a key
part of the Group's commitment to enable its customers to do
their banking where, when and how they choose.
On 24 July 2000 the Group announced that it is launching a £20
million joint venture with antfactory, a leading European e-
commerce investment company. The new joint venture, called
Valuefactory Ventures, aims to identify, invest in and develop
global new economy businesses as standalone, value-creating
companies. The focus will be on investment opportunities which
can benefit from the resources and capabilities of Lloyds TSB
and antfactory.
Business Banking continues to attract a substantial number of
new customers, and has further consolidated the Group's position
as a market leader in the recruitment of start-up businesses.
Some 62,000 new business customers chose Lloyds TSB during the
half-year. Revenue growth and profitability has again improved
and bad debts continued at a very low level.
UK Private Banking had another successful half-year. Profit
before tax increased by 15 per cent to £53 million, from
£46 million in the first half of 1999. £0.7 billion of new
funds were gained in the first half and total funds managed and
administered now stand at some £12.1 billion.
Lloyds TSB Stockbrokers, one of the largest retail stockbrokers
in the UK, continued to perform well as a result of high
transaction levels and efficiency gains. Pre-tax profit
increased to £12 million compared with £10 million in the first
half of last year.
Page 15 of 39
LLOYDS TSB GROUP
Mortgages
(covering the Group's total UK mortgage business through
Cheltenham & Gloucester, Lloyds TSB, Lloyds TSB Scotland,
Scottish Widows Bank and C&G Mortgage Direct)
Half-year to Half-year to
30 June 31 December
2000 1999 1999
£m £m £m
Profit before tax £429m £445m £423m
Efficiency ratio 23.7% 22.0% 23.1%
Gross new mortgage lending £5.4bn £4.7bn £6.0bn
Market share of gross new
mortgage lending 9.5% 9.4% 9.3%
Net new mortgage lending £2.1bn £1.1bn £1.7bn
Market share of net new
mortgage lending 10.7% 7.0% 7.8%
Mortgages outstanding
(period-end) £50.2bn £45.8bn £47.5bn
Market share of mortgages
outstanding 9.7% 9.6% 9.5%
Competition in the mortgage market was evident throughout the
half-year leading, as anticipated, to a lower net interest
margin which resulted in pre-tax profit from Mortgages
decreasing by £16 million, or 4 per cent, to £429 million from
the first half of 1999, but increasing by £6 million, or 1 per
cent, compared to the second half of 1999. In comparison to the
second half of last year margins were stable. The efficiency
ratio of the Group's total mortgage business was 23.7 per cent
compared with 22.0 per cent in the first half of 1999. The
Group continues to be one of the most efficient mortgage
providers in the United Kingdom.
Against the competitive background, the Group achieved in excess
of its natural market share of net new lending. Gross new
lending increased by 15 per cent to £5.4 billion, compared with
£4.7 billion a year ago, and net new lending was £2.1 billion,
significantly higher than £1.1 billion in the first half of last
year. This represented an estimated market share of net new
lending of 10.7 per cent, higher than our 9.7 per cent share
of mortgages outstanding. Our pipeline of new business
continues at high levels and we are confident that this will
translate into strong gross lending over the next few months.
C&G continues to benefit from mortgage sales distribution
through the Lloyds TSB branch network, the IFA market and from
the strength of the C&G brand. Once again the provision of a
first class service has been a significant factor with
independent financial advisers awarding C&G its fifth
consecutive 5-star rating in the 1999 Financial Adviser service
awards. Business levels sourced from intermediaries remain
strong.
A relatively low arrears position and the beneficial effect of
house price increases have meant that bad debt provisions
remained at a low level. New provisions were offset by releases
and recoveries resulting in a net credit of £5 million for the
half-year, compared with a charge of £4 million in the first
half of 1999. The quality of our mortgage lending remains very
satisfactory.
Page 16 of 39
LLOYDS TSB GROUP
Insurance and Investments
(the life, pensions and unit trust businesses of Scottish Widows
and Abbey Life; general insurance underwriting and broking; and
Scottish Widows Investment Partnership)
Half-year to Half-year to
30 June 31 December
2000 1999 1999
£m £m £m
Life and pensions
Scottish Widows (including
bancassurance) 230 103 131
Abbey Life 73 80 76
303 183 207
General insurance 289 218 243
Operating profit from Insurance* 592 401 450
Scottish Widows Investment
Partnership 20 12 10
Total operating profit* 612 413 460
Short-term fluctuations in
investment returns (page 36,
note 7) (59) 12 16
Changes in economic assumptions
(page 36, note 8) 127 - -
* including 'normalised' investment returns based on long-term
rates of investment return and excluding changes in the economic
assumptions applied to our long-term assurance business
Operating profit, including investment returns based on long-
term rates of investment return, from Insurance and Investments
increased by 48 per cent to £612 million from £413 million,
largely as a result of the inclusion, since 3 March 2000, of
Scottish Widows within our life and pensions business.
Profit before tax from our life and pensions business increased
by £120 million, or 66 per cent, to £303 million.
Weighted sales of life, pensions and unit trusts increased by
28 per cent as the sale, on 1 February 2000, of the new
business capability of Abbey Life was offset by the inclusion,
from 3 March 2000, of Scottish Widows.
Pre-tax profit from general insurance operations, comprising
underwriting and broking, rose by £71 million, or 33 per cent,
to £289 million, mainly as a result of continued strong
revenue growth and an improvement in our claims
experience. The Group has maintained its position as the
leading distributor of personal lines insurance in the United
Kingdom.
The merger of Scottish Widows Investment Management and Hill
Samuel Asset Management was completed on 30 June 2000, and the
enlarged asset management operation was launched under a new
brand, Scottish Widows Investment Partnership. The creation of
Scottish Widows Investment Partnership, with in excess of
£89 billion of funds under management, will enable the Group
to become a leading player in the asset management industry.
Pre-tax profit from investment management for the half-year was
£20 million, up 67 per cent from £12 million in the first half
of 1999.
Page 17 of 39
LLOYDS TSB GROUP
Insurance and Investments (continued)
Life and pensions (including unit trusts)
Half-year to Half-year to
30 June 31 December
2000 1999 1999
£m £m £m
New business 100 67 67
Existing business 187 127 133
Investment earnings 90 16 22
Life and pensions distribution costs (88) (48) (51)
289 162 171
Unit trusts 73 57 81
Unit trust distribution costs (59) (36) (45)
14 21 36
Operating profit* 303 183 207
* including 'normalised' investment returns based on long-term
rates of investment return (page 36, note 7)
Weighted sales of life, pensions and unit trusts increased by
28 per cent to £352.5 million from £275.2 million in the
first half of 1999 as a result of the inclusion, from 3 March
2000, of Scottish Widows. The withdrawal from sale of mortgage-
related endowment policies slowed the sales of regular premium
life policies.
Scottish Widows is now the sole assurance brand in the Group and
we expect to see a significant improvement in both branch sales
and in sales derived via independent financial advisers, in the
second half of the year.
In the second half of 1999, the Group's results were adversely
affected by an increase in the pension provision of £102 million
for redress to past purchasers of pension policies, which raised
the total provisions made for this purpose to £802 million. At
30 June 2000 £543 million of the £802 million provision had been
used. We remain satisfied that no further provision should be
made at this stage but will continue to review the adequacy of
this provision.
In addition, a £114 million provision was made within Abbey Life
in 1998 for liabilities under certain unit-linked products with
guaranteed annuity options written in the mid-1960s to the mid-
1980s. We continually review the adequacy of the provision at
Abbey Life and remain satisfied that no further provision is
necessary at this stage. Scottish Widows' approach to pensions
with the option of a guaranteed annuity rate is fully in
accordance with the contract terms of those policies and
Scottish Widows has assets to match its liabilities in respect
of guaranteed annuity options. Moreover, the assets are held in
such a way that should the liabilities increase then the assets
will also increase to reflect this.
Page 18 of 39
LLOYDS TSB GROUP
Insurance and Investments (continued)
Half-year to Half-year to
30 June 31 December
2000 1999 1999
£m £m £m
Total new business premium income
and unit trust sales:
Regular premiums 71.2 69.5 59.9
Single premiums 1,298.8 790.2 1,085.5
Unit trusts 1,057.7 911.9 858.3
Weighted sales (regular +
1/10 single) 352.5 275.2 290.0
Scottish Widows (including
bancassurance)
Regular premiums:
Life - mortgage related 11.1 16.5 14.9
- non-mortgage related 8.4 4.7 5.1
Pensions 44.4 17.3 10.9
Fund management 1.3 - -
Health 2.7 2.6 2.3
Total regular premiums 67.9 41.1 33.2
Single premiums:
Life 437.8 198.4 131.2
Annuities 126.1 47.7 54.0
Pensions 140.3 34.5 44.8
Fund management 572.9 382.0 697.0
Total single premiums 1,277.1 662.6 927.0
External unit trust sales:
Regular payments 50.6 38.5 38.2
Single amounts 1,003.8 832.0 792.5
Total external unit trust sales 1,054.4 870.5 830.7
Abbey Life
Regular premiums:
Life - mortgage related 0.4 4.2 5.1
- non-mortgage related 0.7 5.7 6.8
Pensions 2.2 17.7 14.4
Health - 0.8 0.4
Total regular premiums 3.3 28.4 26.7
Single premiums:
Life 3.5 14.8 32.2
Annuities 8.4 58.9 50.0
Pensions 9.8 53.9 76.3
Total single premiums 21.7 127.6 158.5
External unit trust sales:
Regular payments 0.1 0.9 1.5
Single amounts 3.2 40.5 26.1
Total external unit trust sales 3.3 41.4 27.6
Total life funds under management 49,910 25,080 26,542
Page 19 of 39
LLOYDS TSB GROUP
Insurance and Investments (continued)
General Insurance
Half-year to Half-year to
30 June 31 December
2000 1999 1999
£m £m £m
Premium income from underwriting
Creditor 69 65 71
Home 108 98 105
Health 26 28 27
Other - 1 -
Re-insurance premiums (3) (2) (3)
200 190 200
Commissions from insurance broking
Creditor 105 80 95
Home 17 18 17
Health 10 10 11
Other 59 42 54
191 150 177
Operating profit* 289 218 243
* including 'normalised' investment returns based on long-term
rates of investment return (page 36, note 7)
Operating profit, excluding short-term fluctuations in
investment returns, from general insurance operations,
comprising underwriting and broking, rose by £71 million, or 33
per cent, to £289 million.
Income from creditor insurance increased by 20 per cent,
reflecting higher personal sector loan values and higher sales
of business loan protection. Sales of household policies
increased by 8 per cent.
The overall increase in sales, together with renewal business,
produced a 27 per cent increase in commission income from
broking and a 5 per cent increase in earned premium income from
underwriting. Investment income increased by 7 per cent to £30
million.
The overall claims ratio of 35.0 per cent was lower than in the
first half of 1999 (43.8 per cent). Claims were £13 million, or
15 per cent, lower at £71 million than in the first half of last
year. This reflected lower weather related claims following a
mild winter, and lower unemployment claims.
Page 20 of 39
LLOYDS TSB GROUP
Wholesale Markets
(banking, treasury, large value lease finance, long-term
agricultural finance, share registration, venture capital,
factoring and invoice discounting, and other related services
for major UK and multinational companies, banks and financial
institutions, and medium-sized UK businesses; and Lloyds UDT)
Half-year to Half-year to
30 June 31 December
2000 1999 1999
£m £m £m
Net interest income 426 469 461
Other income 277 216 228
Total income 703 685 689
Operating expenses 285 275 289
Trading surplus 418 410 400
Provisions for bad and doubtful debts 34 50 25
Amounts written off fixed asset
investments 4 4 3
Profit before tax 380 356 372
Efficiency ratio 40.5% 40.1% 41.9%
Total assets (period-end) £61.7bn £62.3bn £61.5bn
Total risk-weighted assets
(period-end) £32.1bn £31.4bn £31.6bn
Wholesale Markets pre-tax profit increased by £24 million, or 7
per cent, to £380 million. Provisions for bad and doubtful
debts fell by £16 million to £34 million. Total assets were
flat and risk-weighted assets grew by 2 per cent.
Our Corporate and Financial Institutions' businesses, serving
the larger corporate market and financial institutions, achieved
record results. Corporate Banking's continuing focus on quality
income growth ensured another strong performance. Bad debt
provisions remained at a relatively low level. Lloyds TSB
Leasing maintained its position as the largest 'big ticket'
leasing company in the UK and Lloyds TSB Registrars further
consolidated its market leadership position and continued to
perform strongly as a result of higher corporate activity.
Commercial Banking, serving the commercial middle market,
continued to perform well, with revenue increases, tight cost
control and lower provisions, all contributing to the
achievement of record profits for the half-year. Agricultural
Mortgage Corporation continued to expand its activity in the
provision of long-term finance to farmers.
Higher short-dated funding costs resulted in slightly lower
income from Treasury sterling money market operations. The
Group's activity in the derivative markets continues to remain
focused on straight cash based products.
Page 21 of 39
LLOYDS TSB GROUP
International Banking
(banking and financial services overseas in four main areas: The
Americas, New Zealand, Europe and Offshore Banking; and Emerging
Markets Debt)
Half-year to Half-year to
30 June 31 December
2000 1999 1999
£m £m £m
Net interest income 379 368 366
Other income 194 199 179
Total income 573 567 545
Operating expenses 294 289 291
Trading surplus 279 278 254
Provisions for bad and doubtful
debts 16 55 33
Profit before tax 263 223 221
Efficiency ratio 51.3% 51.0% 53.4%
Total assets (period-end) £19.2bn £19.3bn £19.4bn
Total risk-weighted assets
(period-end) £11.7bn £11.7bn £11.6bn
International Banking pre-tax profit was £40 million, or 18 per
cent, higher at £263 million compared with the first half of
1999. Excluding the Emerging Markets Debt portfolio, pre-tax
profit increased by £19 million, or 9 per cent, to £220
million. Excluding the EMD portfolio, pre-tax profit from
International Banking represented 11 per cent of Group pre-tax
profit of which 4 per cent related to our New Zealand business,
5 per cent to our Europe and offshore banking operations and 2
per cent to Latin America.
Profits from New Zealand in local currency terms increased by 19
per cent. International private banking and the Group's
offshore banking operations both showed improvements over the
first half of 1999.
Our consumer finance business in Brazil, Losango Consumer
Finance, made a pre-tax profit of £22 million, compared with
a profit of £13 million in the first half of 1999.
The Emerging Markets Debt portfolio contributed £43 million,
which included a release of provisions of £36 million following
the repayment of debt by certain borrowers and some asset sales.
This compared with a contribution of £22 million in the first
half of 1999, which included a release of provisions of
£15 million.
At the end of June 2000 the Group's provisionable exposure to
Emerging Market economies which is included in loans and
advances was £1,350 million (December 1999: £1,328 million)
against which provisions of £849 million (December
1999: £799 million) were held, giving cover of 63 per cent
(December 1999: 60 per cent). Based on secondary market prices,
the surplus of market value over net book value of the total
Emerging Markets Debt portfolio (including advances, unapplied
interest and collateralised bonds held as investments) was more
than £700 million (December 1999: £700 million).
Page 22 of 39
LLOYDS TSB GROUP
Central group items
(earnings on surplus capital, central costs and other
unallocated items)
Half-year to Half-year to
30 June 31 December
2000 1999 1999
£m £m £m
Accrual for payment to Lloyds
TSB Foundations (18) (15) (16)
Earnings on surplus capital,
central costs and other
unallocated items 17 51 99
(1) 36 83
The reduction in earnings on surplus capital, central costs and
other unallocated items in the first half of 2000 reflects the
incorporation, for the first time, of the funding cost of the
purchase of Scottish Widows (page 12).
Page 23 of 39
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