SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
August 1, 2003
LLOYDS TSB GROUP plc
(Translation of registrant's name into English)
71 Lombard Street
London EC3P 3BS
United Kingdom
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F..X..Form 40-F.....
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes .....No ..X..
If "Yes" is marked, indicate below the file number
assigned to the registrant in connection with Rule
12g3-2(b): 82- ________
Index to Exhibits
Item
No. 1 Regulatory News Service Announcement, dated August 1, 2003
re: Interim Results
Lloyds TSB Group plc
Results for the half-year
to 30 June 2003
PRESENTATION OF RESULTS
In order to provide a clearer representation of the underlying performance of
the Group, the results of the Group's life and pensions business include
investment earnings calculated using longer-term investment rates of return and
annual management charges based on unsmoothed fund values (page 45, note 5).
The difference between the normalised investment earnings and the actual return
("the investment variance") together with the impact of changes in the economic
assumptions used in the embedded value calculation (page 45, note 6) have been
separately analysed and a reconciliation to the Group's profit before tax is
given on page 1.
CONTENTS
Page
Profit before tax by main businesses 1
Performance highlights and Chairman's comments 2
Group Chief Executive's statement 3
Summary of results 6
Review of financial performance 7
Consolidated profit and loss account 11
Consolidated balance sheet 12
Consolidated cash flow statement 13
Segmental analysis 14
Performance by sector 16
Income 30
Operating expenses 35
Number of employees 36
Credit quality 37
Capital ratios 39
Overview of consolidated balance sheet 40
Notes 43
Contacts for further information 48
FORWARD LOOKING STATEMENTS
This announcement contains forward looking statements with respect to the
business, strategy and plans of the Lloyds TSB Group, its current goals and
expectations relating to its future financial condition and performance. By
their nature, forward looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur in the future.
Lloyds TSB Group's actual future results may differ materially from the
results expressed or implied in these forward looking statements as a result of
a variety of factors, including UK domestic and global economic and business
conditions, risks concerning borrower credit quality, market related risks such
as interest rate risk and exchange rate risk in its banking business and equity
risk in its insurance businesses, changing demographic trends, unexpected
changes to regulation or regulatory actions, changes in customer preferences,
competition and other factors. Please refer to the latest Annual Report on Form
20-F of Lloyds TSB Group filed with the US Securities and Exchange Commission
for a discussion of such factors.
LLOYDS TSB GROUP 2003 INTERIM RESULTS
PROFIT BEFORE TAX BY MAIN BUSINESSES
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
UK Retail Banking and Mortgages
Before provisions for customer redress 631 622 619
Provisions for customer redress (200) - -
431 622 619
Insurance and Investments
Before provisions for customer redress 589 757 676
Provisions for customer redress (100) - (205)
489 757 471
Wholesale Markets 368 354 296
International Banking 235 231 150
Central group items 120 39 (35)
Profit before tax, excluding changes in economic
assumptions and investment variance 1,643 2,003 1,501
Changes in economic assumptions (page 45, note 6) (8) - 55
Investment variance (page 45, note 5) 42 (399) (553)
Profit before tax 1,677 1,604 1,003
2002 figures have been restated to incorporate efficiency programme related
restructuring costs within business units, the reclassification of emerging
markets debt earnings from International Banking to Central group items, and
changes in internal transfer pricing arrangements.
Page 1 of 48
LLOYDS TSB GROUP 2003 INTERIM RESULTS
PERFORMANCE HIGHLIGHTS
Results
- Profit before tax increased by GBP73 million, or 5 per cent, to
GBP1,677 million.
- Profit attributable to shareholders increased by 4 per cent to
GBP1,155 million.
- Earnings per share increased by 4 per cent to 20.7p.
- Post-tax return on average shareholders' equity 28.1 per cent.
- Total capital ratio 10.1 per cent, tier 1 capital ratio 8.1 per cent.
- Interim dividend of 10.7p per share (2002: 10.7p).
- Over the last twelve months, customer lending grew by 11 per
cent to GBP142 billion and customer deposits increased by 7 per cent
to GBP121 billion.
- The Group has improved its market share in many key product areas,
including mortgages, credit cards, bank savings, and life, pensions
and long-term savings.
Results, excluding changes in economic assumptions and investment variance
- Profit before tax decreased by GBP360 million, or 18 per cent, to
GBP1,643 million.
- Excluding a number of other significant items, pre-tax profits are
broadly unchanged.
- Profit attributable to shareholders decreased by 20 per cent to
GBP1,128 million.
- Earnings per share decreased by 20 per cent to 20.2p.
- Economic profit decreased by 19 per cent to GBP758 million.
- Post-tax return on average shareholders' equity 27.4 per cent.
Commenting on the results Lloyds TSB Group chairman, Maarten van den Bergh,
said:-
"Lloyds TSB has reported a 5 per cent growth in pre-tax profits during the first
half of 2003, reflecting a solid underlying performance and, in particular, the
absence of a significant negative investment variance arising from the weakness
in global stock markets, which affected the Group's results in 2002. The Group
has continued to grow its share of key markets, costs have remained tightly
controlled, and capital ratios remain satisfactory.
The Board is maintaining the interim dividend at 10.7p per share. The Board
recognises the importance attached by shareholders to the Group's dividend and
will continue to take each dividend decision on its merits at the time, taking
into account the Group's capital position and the Board's view of current
earnings and future prospects.
The Group continues to operate in a challenging economic environment. However
further progress is expected in the second half of the year."
Page 2 of 48
LLOYDS TSB GROUP
GROUP CHIEF EXECUTIVE'S STATEMENT
In the first half of 2003, Lloyds TSB's headline profit before tax increased by
5 per cent, compared with the first half of 2002. However, a number of
significant items, both favourable and unfavourable, affected this half-year's
profits which, on a like-for-like basis, were broadly unchanged. On the same
basis, revenues increased by 2 per cent, and costs were held flat.
The economic and regulatory environment in which the Group operates continues to
be challenging but, despite this, Lloyds TSB has improved its market share
performance in a number of key products and delivered good growth in both
customer lending and deposits. Margin erosion remains a concern, as does the
likely slowdown in UK consumer credit growth and continuing uncertainty in
global stock markets.
Over the past several periods, Lloyds TSB's results and financial performance
have been characterised by a high return on equity, an increased volatility in
earnings and modest growth in like-for-like profits. The Group's results for the
first half of 2003 are not dissimilar, as higher earnings from the sale of the
Group's emerging markets debt portfolio and the absence of a negative investment
variance offset by a GBP300 million provision for customer redress, led to the 5
per cent growth in headline earnings.
As a result of this view on performance, we have set a number of priorities to
manage the Group. Firstly, to manage the business portfolio and reduce earnings
volatility. Secondly, to maintain and build profitability and, thirdly, to
position the Group to deliver growth from within our retail, and corporate and
commercial customer franchises.
Managing the business portfolio
We are managing the Group around our core business units, for which we have set
criteria. Accordingly, the Group has announced a review of its strategic
options for The National Bank of New Zealand, and disposed of its French fund
management and private banking businesses.
Our emerging markets debt portfolio, which totalled GBP1.1 billion at the end of
2002, has now been sold, at a significant profit, as we accelerated the disposal
programme to take full advantage of improving secondary bond market trading
conditions. The Group's exposure in Latin America has continued to be reduced.
In the Group's life assurance businesses, we have reviewed profitability, design
and risk profile by individual product line to seek to improve the capital
efficiency and near-term cash profile. We are implementing a plan to focus new
business development on the more profitable, and capital efficient, areas. Our
objectives are to ensure no capital demands, for either solvency or business
growth purposes, are made to the Group for FTSE 100 levels above 3000; to run
the business to generate free cash flow; and ensure that new business exceeds
our minimum cost of equity hurdle rate.
Page 3 of 48
LLOYDS TSB GROUP
The equity content in both Scottish Widows' with-profits fund and shareholder
owned estate has been reduced, and the Group has improved its protection against
short-term volatility in UK equity markets by hedging part of its equity
portfolio into 2004. Scottish Widows remains one of the most strongly
capitalised life assurance companies in the UK.
In recent times, considerable changes in regulatory and public attitudes to both
the sale and performance of financial products, have had a major impact on the
financial services industry. We have been subject to these same factors and we
have experienced some lapses in our own sales processes. This has led to
unacceptable levels of customer dissatisfaction and the need for redress. We
have now put in place new sales management processes and incentive plans
designed to guide the organisation to build deep, long-term customer
relationships.
Maintaining and building profitability
We have undertaken a review of capital usage within the Group and we are
introducing an enhanced focus on economic capital management, supported by the
introduction of a more rigorous equity attribution model. The key financial
measures of performance will be economic profit growth and return on economic
equity. Our balance sheet is starting to reflect the impact of this renewed
focus on capital efficiency with the redeployment of capital resources to higher
return relationship businesses, for example in consumer lending. We have also
improved the capital efficiency in our life business, and reduced the Group's
portfolio of debt securities by 2 per cent.
The Group operates in a very competitive environment. Margins continue to
decline, albeit at a slower underlying rate as we focus on improving volumes and
the mix of our business, and we continue to expect further gradual product
margin erosion. To help offset this effect on our profitability, we aim to
deliver good levels of quality balance sheet growth, whilst keeping costs firmly
under control.
Whilst ensuring that we commit investment to growth businesses, cost control
will continue to have high priority throughout the Group. The increasing use of
straight through processing, and our introduction of a 6 sigma approach to
excellence in our key operational processes has started to improve our cost
effectiveness and customer service levels. The Group is also piloting, with
some initial success, limited outsourcing of processing and back office
operations.
Positioning the Group for growth
Today, all major business lines within the Group deliver satisfactory returns on
capital and no further large in-market acquisitions are currently anticipated
within the UK banking environment. The Group's fundamental challenge is
therefore to deliver organic growth.
Page 4 of 48
LLOYDS TSB GROUP
The Group has identified broad areas from which to deliver growth. We are a
significant player, with 20 per cent, or greater, shares in the UK personal and
small business markets combined with the largest multi-channel distribution
network in the UK. However, we still account for only 10 per cent of the total
economic profits of the UK financial services market. The opportunity is
therefore considerable, but realising it will require the Group to deliver a
consistently high performance, improve the use of its existing assets, and
ensure our resources are committed to growth businesses. We aim to capture
market share by leveraging our retail, and corporate and commercial customer
franchises, our distribution strength and our knowledge of our customers'
financial activity and requirements. On average, for example, our retail
customers spend twice as much on our competitors' products and services, as they
do on our own. This story is similar for our corporate and commercial customers
where, despite a strong blue-chip corporate franchise, we are currently
under-represented in the product purchases of these customers in a number of
profitable areas.
In the retail business, our focus on the opportunity within the core franchise
has already resulted in an increased market share of credit cards, bank savings
and mortgages, in some cases reversing the declining trends of recent years.
Lloyds TSB is a high performing business, with significant strengths in
distribution, brand management and its customer base, but our growth has slowed
in recent years. We are reviewing and actively managing the Group's portfolio
of businesses to focus on our core assets, whilst seeking to reduce earnings
volatility, and much has already been achieved in the first half of the year.
We aim to maintain our levels of profitability and a high return on economic
equity. We have identified a number of significant opportunities for growth
within our core businesses and, over the next few months, will be developing
detailed implementation plans. We already have evidence of the success of this
approach in our retail banking business, where like-for-like profits increased
by 12 per cent in the first half of 2003. Whilst recognising the substantial
economic, regulatory and competitive pressures we face, our key focus going
forward will be to build on these growth opportunities.
J. Eric Daniels
Group Chief Executive
Page 5 of 48
LLOYDS TSB GROUP 2003 INTERIM RESULTS
SUMMARY OF RESULTS
Half-year to Increase Half-year to
30 June (Decrease) 31 December
2003 2002 2002
Results GBPm GBPm % GBPm
Total income 4,934 4,597 7 4,281
Operating expenses 2,629 2,360 11 2,555
Trading surplus 2,305 2,237 3 1,726
Provisions for bad and doubtful debts 470 479 (2) 550
Profit before tax 1,677 1,604 5 1,003
Profit attributable to shareholders 1,155 1,113 4 668
Economic profit (page 43, note 2) 785 633 24 188
Earnings per share (pence) 20.7 20.0 4 12.0
Post-tax return on average shareholders' equity (%) 28.1 20.9 12.5
Results, excluding changes in economic
assumptions and investment variance
Profit before tax 1,643 2,003 (18) 1,501
Earnings per share (pence) 20.2 25.4 (20) 18.7
Post-tax return on average shareholders' equity (%) 27.4 26.5 19.6
Shareholder value
Closing market price per share (period-end) 430p 653p 446p
Total market value of shareholders' equity GBP24.0bn GBP36.5bn GBP24.8bn
Dividends per share 10.7p 10.7p - 23.5p
Balance sheet GBPm GBPm GBPm
Shareholders' equity 8,656 10,976 (21) 7,972
Net assets per share (pence) 153 194 (21) 141
Total assets 264,679 246,379 7 252,758
Loans and advances to customers 141,990 128,478 11 134,474
Customer deposits 121,433 113,787 7 116,334
Risk asset ratios % % %
Total capital 10.1 9.5 9.6
Tier 1 capital 8.1 7.8 7.8
Page 6 of 48
LLOYDS TSB GROUP
REVIEW OF FINANCIAL PERFORMANCE
In the first half of 2003 the Group's profit before tax increased by GBP73
million, or 5 per cent, to GBP1,677 million, from GBP1,604 million in the first
half of 2002. Total income increased by GBP337 million, or 7 per cent, to
GBP4,934 million whilst operating expenses increased by GBP269 million, or 11
per cent. The Group's results comparisons are however heavily influenced by the
impact of the GBP399 million negative investment variance in the first half of
2002 and, excluding investment variance and changes in economic assumptions,
profit before tax fell by 18 per cent, or GBP360 million, to GBP1,643 million,
compared with the first half of last year. A number of other significant items
affected the Group's results in the first half of 2003 including, particularly,
exceptional gains from the sale of the Group's emerging markets debt portfolio
and a GBP300 million provision for customer redress relating to past sales of
certain stock market investment and long-term savings products. Overall,
excluding special items, Group profits were broadly flat, compared with the two
previous half-years, as good growth in customer lending and deposits was offset
by further margin erosion, the impact of continuing stock market uncertainty on
revenues in the Group's life assurance and wealth management businesses, and
lower creditor insurance income in our general insurance business as a result of
the slowdown in the rate of growth in UK consumer credit. Excluding the impact
of acquisitions, operating lease depreciation and provisions for customer
redress, operating expenses were held flat.
In many of its key product areas the Group continued to grow its market share
and, as a result, customer lending and deposits continued to grow strongly.
Over the last 12 months, customer lending grew by 11 per cent to GBP142 billion
and customer deposits increased by 7 per cent to GBP121 billion. The Group net
interest margin was 3.01 per cent, compared with 3.27 per cent in the first half
of 2002. The implementation of the remedies proposed in March 2002 by the
Competition Commission's report, following its investigation into the supply of
banking services to small and medium size enterprises (SMEs), reduced the
Group's net interest margin in the first half of 2003 by some 10 basis points.
The strong growth in lending and deposit volumes, however, ensured that this
reduction in the Group net interest margin was more than compensated for by
volume growth, resulting in overall growth in net interest income of 1 per cent
compared with the first half of 2002.
Profit attributable to shareholders was 4 per cent higher at GBP1,155 million
and earnings per share increased by 4 per cent to 20.7p. Shareholders' equity
decreased by GBP2,320 million to GBP8,656 million, compared with GBP10,976
million at the end of the first half of 2002, following the reduction of
GBP2,331 million in the value of the Group's pension schemes during 2002.
Compared with the shareholders' equity of GBP7,972 million at the end of
December 2002 there has been an increase of GBP684 million, or 9 per cent,
during the first half of 2003. The post-tax return on average shareholders'
equity was 28.1 per cent, compared to 20.9 per cent in the first half of 2002,
and 12.5 per cent in the second half of 2002, and economic profit increased by
24 per cent to GBP785 million. These increases, compared with 2002, largely
reflect the reduction in shareholders' equity at the end of 2002 and also the
absence in the first half of 2003 of a negative investment variance. The
post-tax return on average assets was 1.14 per cent, and the post-tax return on
average risk-weighted assets was 1.91 per cent.
Page 7 of 48
LLOYDS TSB GROUP
Pre-tax profit from UK Retail Banking and Mortgages, excluding a GBP200 million
provision for customer redress, increased by GBP9 million, or 1 per cent, to
GBP631 million, compared with the first half of 2002. On the same basis, and
excluding the impact of the implementation of the Competition Commission's SME
remedies which reduced profits in the Group's business banking portfolio by some
GBP65 million, pre-tax profit from UK Retail Banking and Mortgages increased by
some GBP74 million, or 12 per cent, to GBP696 million. Notwithstanding the
general slowdown in growth in UK consumer credit lending there was strong growth
in credit card lending, up 26 per cent, and in personal loan balances
outstanding, up 8 per cent. Current account and savings and investment account
balances, within Retail Banking, increased by 9 per cent. Costs remained tightly
controlled and asset quality generally remains satisfactory. Provisions for bad
and doubtful debts increased by GBP65 million to GBP335 million, largely as a
result of volume related asset growth in the personal loan and credit card
portfolios, and a higher charge for fraud in the personal lending portfolios.
Overall, the arrears position was stable.
In the Mortgages business, gross new lending increased by 50 per cent to a
record GBP12.0 billion, compared with GBP8.0 billion in the first half of 2002.
Net new lending was GBP4.8 billion, compared with GBP2.0 billion in the first
half of 2002, resulting in an estimated market share of net new lending of 11.4
per cent. As a result of this strong growth in both gross and net new lending,
mortgage balances outstanding increased by 8 per cent to GBP67.3 billion, during
the first half of 2003.
Profit before tax, excluding changes in economic assumptions, investment
variance and a GBP100 million provision for customer redress, from Insurance and
Investments decreased by GBP168 million, or 22 per cent, to GBP589 million,
partly as a result of a reduction of GBP101 million in benefits from experience
variances and assumption changes, and lower normalised investment earnings.
Overall weighted sales in the Group's life, pensions and unit trust businesses
in the first half of 2003 were GBP366.6 million, compared to GBP372.7 million in
the first half of last year, a decrease of 2 per cent. This decrease in weighted
sales reflected a 5 per cent increase in weighted sales from life and pensions,
more than offset by a 22 per cent reduction in weighted sales from unit trusts,
largely caused by ongoing stock market uncertainty which continues to
significantly reduce customer demand for unit trust and equity-based ISA
products. Weighted sales from independent financial advisors rose by 36 per
cent, whilst sales through the branch network remained subdued and were 25 per
cent lower. In the Group's general insurance operations, continued growth in
household insurance income was offset by a 14 per cent reduction in creditor
insurance income, as a result of the general slowdown in growth in personal
lending.
Wholesale Markets pre-tax profit increased by GBP14 million, or 4 per cent, to
GBP368 million, as strong profit growth in Lloyds TSB Asset Finance and a
reduction in provisions for bad and doubtful debts more than offset the impact
of the introduction of the Competition Commission's SME report remedies, and
lower income from Treasury. Growth in customer lending and the impact of
acquisitions in the asset finance business resulted in a GBP66 million, or 6 per
cent, increase in total income. Operating expenses increased by GBP81 million,
again largely as a result of the asset finance acquisitions. The provisions
charge for bad and doubtful debts decreased by GBP43 million, despite a small
increase in provisions within the asset finance businesses reflecting portfolio
growth. In the first half of 2002, provisions against Group loans and advances
to certain large US corporate customers totalled some GBP70 million.
Page 8 of 48
LLOYDS TSB GROUP
International Banking pre-tax profit increased by GBP4 million, or 2 per cent,
to GBP235 million, notwithstanding a GBP15 million loss on the sale of the
Group's French wealth management businesses, and a GBP23 million profit on the
sale and leaseback of premises in the first half of 2002. Profits from The
National Bank of New Zealand increased by 34 per cent to GBP147 million as a
result of good growth in all core businesses, particularly mortgages and small
business banking. Pre-tax profits from the Group's Offshore and European Private
Banking operations, however, decreased as a result of lower volumes and stock
market related fee income. In a market affected by high interest rates, our
consumer finance business in Brazil, Losango, increased lending volumes and,
with the benefit of more favourable bond market conditions, the Group's
businesses in Brazil made a pre-tax profit of GBP46 million, compared with GBP32
million in the first half of 2002.
The total Group charge for bad and doubtful debts was 2 per cent lower at GBP470
million, compared with GBP479 million in the first half of 2002, and 15 per cent
lower than the GBP550 million charge in the second half of 2002. In UK Retail
Banking, the provisions charge increased by GBP68 million, or 25 per cent, to
GBP340 million, partly as a result of volume related asset growth in the
personal loan and credit card portfolios, which grew by 8 per cent and 26 per
cent respectively, but also as a result of a higher charge for fraud in the
personal lending portfolios. In Mortgages, an improved arrears position and the
beneficial effect of house price increases resulted in a GBP5 million provisions
release for the half-year. In Wholesale Markets, the provisions charge decreased
by GBP43 million to GBP108 million. International Banking provisions decreased
to GBP40 million, from GBP63 million in the first half of 2002, as a result of
the absence of an increase in general provisions relating to the Group's
exposure to Argentina. The Group's charge for bad and doubtful debts, expressed
as a percentage of average lending, was 0.66 per cent, compared to 0.75 per cent
in the first half of 2002.
During the first half of 2003 the Group accelerated the sale of its portfolio of
emerging markets debt investments to take full advantage of improving secondary
bond market conditions. Profits on bond sales, and certain closed foreign
exchange positions, in the first half of 2003 totalled some GBP295 million. The
Group does not expect to achieve any further contribution from the emerging
markets debt portfolio in the second half of 2003 and beyond.
The Group has carried out, in conjunction with the regulator, an investigation
into the appropriateness of certain sales of the Extra Income & Growth Plan, a
stock market related investment product sold in 2000 and 2001. This
investigation is now largely complete and the Group is in a better position to
quantify the financial effect. During the first half of 2003 there has also been
an increase in the level of complaints relating to Group sales and performance
of certain endowment based and long-term savings products. Whilst the Group
maintains provisions for customer redress in respect of past product sales, the
adequacy of these provisions has been reviewed in the light of ongoing
experience and the drawing to a conclusion of the Extra Income & Growth Plan
investigation. As a result, the estimated total cost of redress is forecast to
increase by some GBP300 million, largely reflecting sales of endowment based and
long-term savings products, and an additional provision of this amount has been
made. The adequacy of this provision will be kept under review.
Page 9 of 48
LLOYDS TSB GROUP
The total capital ratio was 10.1 per cent and the tier 1 capital ratio was 8.1
per cent. Risk-weighted assets increased by 4 per cent to GBP127.5 billion, from
GBP122.4 billion at the end of 2002. At the end of June 2003, the Scottish
Widows free asset ratio was an estimated 12.7 per cent, compared to 12.2 per
cent at the end of 2002 (page 46, note 7). The equity backing ratio for
traditional with-profits policies at 30 June 2003 was 48 per cent (equities 35
per cent; property 13 per cent). Scottish Widows remains one of the most
strongly capitalised life assurance companies in the UK; able to withstand
significant stock market falls without an injection of capital. The Group has
not injected additional capital from outside the Group's insurance businesses
into Scottish Widows, and does not expect to inject capital into Scottish Widows
unless the level of the FTSE 100 index falls to, and remains, below 3000.
The Group continues to generate strong profits from its operations and,
excluding investment variance and changes in economic assumptions, the profit
attributable to shareholders in the first half of 2003 was GBP1,128 million. The
Board has decided to maintain the interim dividend at 10.7p per share.
Page 10 of 48
LLOYDS TSB GROUP
CONSOLIDATED PROFIT AND LOSS ACCOUNT (unaudited)
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Interest receivable:
Interest receivable and similar income arising from
debt securities 245 278 289
Other interest receivable and similar income 4,764 4,868 5,114
Interest payable 2,438 2,589 2,789
Net interest income 2,571 2,557 2,614
Other finance income 17 85 80
Other income
Fees and commissions receivable 1,509 1,523 1,530
Fees and commissions payable (346) (306) (339)
Dealing profits (before expenses) 427 88 100
Income from long-term assurance business 175 23 (326)
General insurance premium income 261 235 251
Other operating income 320 392 371
2,346 1,955 1,587
Total income 4,934 4,597 4,281
Operating expenses
Administrative expenses 2,287 2,040 2,174
Depreciation 318 299 343
Amortisation of goodwill 24 21 38
Depreciation and amortisation 342 320 381
Total operating expenses 2,629 2,360 2,555
Trading surplus 2,305 2,237 1,726
General insurance claims 108 107 122
Provisions for bad and doubtful debts
Specific 466 451 514
General 4 28 36
470 479 550
Amounts written off fixed asset investments 24 39 48
Operating profit 1,703 1,612 1,006
Income from joint ventures (11) (8) (3)
Loss on sale of businesses (15) - -
Profit on ordinary activities before tax 1,677 1,604 1,003
Tax on profit on ordinary activities 489 462 302
Profit on ordinary activities after tax 1,188 1,142 701
Minority interests - equity 10 9 10
- non-equity 23 20 23
Profit for the period attributable to shareholders 1,155 1,113 668
Dividends 597 597 1,311
Profit (loss) for the period 558 516 (643)
Earnings per share 20.7p 20.0p 12.0p
Diluted earnings per share 20.6p 19.9p 11.9p
Page 11 of 48
LLOYDS TSB GROUP
CONSOLIDATED BALANCE SHEET
30 June 30 June 31 December
2003 2002 2002
(unaudited) (unaudited) (audited)
Assets GBPm GBPm GBPm
Cash and balances at central banks 857 717 1,140
Items in course of collection from banks 2,433 2,384 1,757
Treasury bills and other eligible bills 3,577 3,645 2,409
Loans and advances to banks 18,306 18,386 17,529
Loans and advances to customers 141,990 128,478 134,474
Debt securities 28,682 27,022 29,314
Equity shares 230 222 206
Interests in joint ventures 38 33 45
Intangible assets 2,615 2,646 2,634
Tangible fixed assets 3,974 3,806 4,096
Own shares 29 38 18
Other assets 5,631 4,768 5,263
Prepayments and accrued income 2,142 2,587 2,305
Post-retirement benefit asset - 319 -
Long-term assurance business attributable
to the shareholder 6,362 6,506 6,228
216,866 201,557 207,418
Long-term assurance assets attributable to policyholders 47,813 44,822 45,340
Total assets 264,679 246,379 252,758
Liabilities
Deposits by banks 23,882 22,091 25,443
Customer accounts 121,433 113,787 116,334
Items in course of transmission to banks 981 960 775
Debt securities in issue 34,498 31,495 30,255
Other liabilities 8,427 7,320 8,289
Accruals and deferred income 3,479 3,339 3,696
Post-retirement benefit liability 2,168 74 2,077
Provisions for liabilities and charges:
Deferred tax 1,271 1,399 1,317
Other provisions for liabilities and charges 532 282 361
Subordinated liabilities:
Undated loan capital 6,063 4,622 5,496
Dated loan capital 4,733 4,655 4,672
Minority interests:
Equity 47 33 37
Non-equity 696 524 694
743 557 731
Called-up share capital 1,417 1,415 1,416
Share premium account 1,121 1,093 1,093
Merger reserve 343 343 343
Profit and loss account 5,775 8,125 5,120
Shareholders' funds (equity) 8,656 10,976 7,972
216,866 201,557 207,418
Long-term assurance liabilities to policyholders 47,813 44,822 45,340
Total liabilities 264,679 246,379 252,758
Page 12 of 48
LLOYDS TSB GROUP
CONSOLIDATED CASH FLOW STATEMENT (unaudited)
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Net cash inflow from operating activities 4,670 4,235 1,159
Dividends received from associated undertakings 5 2 -
Returns on investments and servicing of finance:
Dividends paid to equity minority interests - (13) (5)
Payments made to non-equity minority interests (40) (20) (23)
Interest paid on subordinated liabilities (loan capital) (297) (231) (232)
Net cash outflow from returns on investments and
servicing of finance (337) (264) (260)
Taxation:
UK corporation tax (205) (329) (429)
Overseas tax (119) (90) (103)
Total taxation (324) (419) (532)
Capital expenditure and financial investment:
Additions to fixed asset investments (19,519) (23,866) (22,964)
Disposals of fixed asset investments 18,656 23,740 21,767
Additions to tangible fixed assets (346) (536) (779)
Disposals of tangible fixed assets 154 114 245
Capital injection to life fund - (140) -
Net cash outflow from capital expenditure
and financial investment (1,055) (688) (1,731)
Acquisitions and disposals:
Additions to interests in joint ventures (6) (6) (15)
Acquisition of group undertakings (1) (53) (64)
Net cash outflow from acquisitions and disposals (7) (59) (79)
Equity dividends paid (1,311) (1,306) (597)
Net cash inflow (outflow) before financing 1,641 1,501 (2,040)
Financing:
Issue of subordinated liabilities (loan capital) 532 1,145 975
Issue of ordinary share capital net of GBP3 million
(2002 first half: GBP56 million; second half: GBP6 million)
charge in respect of the QUEST 26 82 (5)
Repayments of subordinated liabilities (loan capital) (54) (48) (7)
Minority investment in subsidiaries - - 167
Capital element of finance lease rental payments (1) (3) (1)
Net cash inflow from financing 503 1,176 1,129
Increase (decrease) in cash 2,144 2,677 (911)
Page 13 of 48
LLOYDS TSB GROUP
SEGMENTAL ANALYSIS
Half-year to
30 June 2003 UK Retail
Banking Insurance
and and Wholesale International Central
Mortgages Investments Markets Banking group items Total
GBPm GBPm GBPm GBPm GBPm GBPm
Net interest income 1,719 39 574 406 (167) 2,571
Other finance income - - - - 17 17
Other income 558 771 518 177 288 2,312
Total income 2,277 810 1,092 583 138 4,900
Operating expenses 1,500 213 593 292 31 2,629
Trading surplus 777 597 499 291 107 2,271
General insurance claims - 108 - - - 108
Bad debt provisions 335 - 108 40 (13) 470
Amounts written off
fixed asset investments - - 23 1 - 24
Income from joint ventures (11) - - - - (11)
Loss on sale of businesses - - - (15) - (15)
Profit before tax* 431 489 368 235 120 1,643
Changes in economic
assumptions - (8) - - - (8)
Investment variance - 42 - - - 42
Profit before tax 431 523 368 235 120 1,677
Half-year to UK Retail
30 June 2002 Banking Insurance
and and Wholesale International Central
Mortgages Investments Markets Banking group items Total
GBPm GBPm GBPm GBPm GBPm GBPm
Net interest income 1,680 33 579 383 (118) 2,557
Other finance income - - - - 85 85
Other income 533 1,073 447 188 113 2,354
Total income 2,213 1,106 1,026 571 80 4,996
Operating expenses 1,313 242 512 277 16 2,360
Trading surplus 900 864 514 294 64 2,636
General insurance claims - 107 - - - 107
Bad debt provisions 270 - 151 63 (5) 479
Amounts written off
fixed asset investments - - 9 - 30 39
Income from joint ventures (8) - - - - (8)
Profit before tax* 622 757 354 231 39 2,003
Investment variance - (399) - - - (399)
Profit before tax 622 358 354 231 39 1,604
*excluding changes in economic assumptions and investment variance
Page 14 of 48
LLOYDS TSB GROUP
Segmental analysis (continued)
Half-year to UK Retail
31 December 2002 Banking Insurance
and and Wholesale International Central
Mortgages Investments Markets Banking group items Total
GBPm GBPm GBPm GBPm GBPm GBPm
Net interest income 1,742 41 597 367 (133) 2,614
Other finance income - - - - 80 80
Other income 543 792 528 186 36 2,085
Total income 2,285 833 1,125 553 (17) 4,779
Operating expenses 1,370 240 621 304 20 2,555
Trading surplus 915 593 504 249 (37) 2,224
General insurance claims - 122 - - - 122
Bad debt provisions 293 - 160 99 (2) 550
Amounts written off
fixed asset investments - - 48 - - 48
Income from joint ventures (3) - - - - (3)
Profit before tax* 619 471 296 150 (35) 1,501
Changes in economic
assumptions - 55 - - - 55
Investment variance - (553) - - - (553)
Profit before tax 619 (27) 296 150 (35) 1,003
*excluding changes in economic assumptions and investment variance
PERIOD END ASSETS BY MAIN BUSINESSES
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
UK Retail Banking and Mortgages 91,921 81,255 85,868
Insurance and Investments* 9,400 9,633 9,161
Wholesale Markets 92,148 87,823 89,547
International Banking 22,992 21,439 21,298
Central group items 405 1,407 1,544
Total assets* 216,866 201,557 207,418
*excluding long-term assurance assets attributable to policyholders
Page 15 of 48
LLOYDS TSB GROUP
PERFORMANCE BY SECTOR
UK Retail Banking and Mortgages
(covering the Group's UK retail businesses, providing banking and financial
services to personal and small business customers; mortgages; private banking
and stockbroking)
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Net interest income 1,719 1,680 1,742
Other income 558 533 543
Total income 2,277 2,213 2,285
Operating expenses:
Before provisions for customer redress 1,300 1,313 1,370
Provisions for customer redress 200 - -
1,500 1,313 1,370
Trading surplus 777 900 915
Provisions for bad and doubtful debts 335 270 293
Income from joint ventures (11) (8) (3)
Profit before tax 431 622 619
Profit before tax, before provisions for customer redress 631 622 619
Efficiency ratio, before provisions for customer redress 57.1% 59.3% 60.0%
Total assets (period-end) GBP91.9bn GBP81.3bn GBP85.9bn
Total risk-weighted assets (period-end) GBP57.7bn GBP51.2bn GBP54.2bn
Profit before tax from UK Retail Banking and Mortgages, before customer redress
provisions, increased by GBP9 million to GBP631 million, compared with GBP622
million in the first half of 2002 as a result of continued strong growth in the
Group's consumer lending portfolios, particularly mortgages and credit cards,
and a strict focus on cost control, which offset a reduction in income of some
GBP65 million in the Group's business banking portfolio, as a result of the
implementation of the Competition Commission's SME remedies. Excluding the
impact of these remedies and provisions for customer redress, profit before tax
from UK Retail Banking and Mortgages increased by 12 per cent, as a result of a
6 per cent growth in income and flat costs.
Total income increased by GBP64 million, or 3 per cent, to GBP2,277 million. Net
interest income increased by GBP39 million, or 2 per cent, to GBP1,719 million,
as growth in the mortgage and consumer credit portfolios more than offset the
impact of the Competition Commission's SME remedies. Personal loan and credit
card balances outstanding increased by 8 per cent and 26 per cent respectively
and, within Retail Banking, balances on current accounts and savings and
investment accounts grew by 9 per cent. Over the last 12 months, mortgage
balances outstanding increased by 15 per cent to GBP67.3 billion. Other income
increased by GBP25 million to GBP558 million. There was an improvement in income
earned from credit and debit cards, and increased income from added value
current accounts, but this was partly offset by a higher level of fees and
commissions payable.
Page 16 of 48
LLOYDS TSB GROUP
UK Retail Banking and Mortgages (continued)
Excluding provisions for customer redress, operating expenses decreased by GBP13
million, or 1 per cent, to GBP1,300 million during the first half of 2003,
compared to GBP1,313 million in the first half of 2002. The efficiency ratio
improved to 57.1 per cent, from 59.3 per cent in the first half of last year.
The trading surplus increased by GBP77 million, or 9 per cent, to GBP977
million.
Bad debt provisions increased by GBP65 million to GBP335 million, mainly as a
result of volume related asset growth in personal loan and credit card lending,
and a higher charge for fraud in the personal lending portfolio. The provisions
charge as a percentage of average lending for personal loans and overdrafts
increased to 4.44 per cent, from 3.82 per cent in the first half of 2002, while
the charge in the credit card portfolio decreased to 3.34 per cent, from 3.50
per cent in the first half of 2002. Overall the arrears position remained
broadly stable.
Provisions for bad and doubtful debts by product Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Personal loans/overdrafts 218 168 176
Credit cards 85 71 82
Business Banking 37 33 34
Mortgages (5) (2) 1
335 270 293
Charge as a percentage of average lending % % %
Personal loans/overdrafts 4.44 3.82 3.65
Credit cards 3.34 3.50 3.53
Business Banking 1.34 1.21 1.22
Mortgages (0.02) (0.01) 0.00
In UK Retail Banking, strategic focus has been placed on organic growth; a
number of programmes and initiatives are now underway, and are proving
successful. There is increased focus on quality; acquiring and retaining higher
value customers by meeting customer needs with tailored offers through a highly
segmented approach, and deepening relationships through the use of our
sophisticated customer relationship management capabilities. Day-to-day costs
remain tightly controlled, while exploratory work and pilot schemes continue to
assess the scope of outsourcing opportunities to further improve central
processing efficiencies.
Our multi-channel distribution, comprising a network of over 2,000 branches, one
of the largest telephone banking operations in the UK, and lloydstsb.com, our
internet banking system, one of the most visited financial websites in Europe,
offers extensive customer choice. The retail bank has continued to develop a
strategy of building deeper customer relationships, focusing product design to
support the retention and recruitment of higher value customers, whilst
retaining multi-channel functionality, and progressively meeting customer needs
through increased use of lower cost distribution channels.
Page 17 of 48
LLOYDS TSB GROUP
UK Retail Banking and Mortgages (continued)
The Group's internet bank continues to increase in popularity and customer
usage. In the first half of 2003 over 10 million bill payments or account
transfers were processed on-line. Product sales via the internet channel
continue to grow rapidly, with more than 60,000 product sales per month, up 80
per cent on the first half of 2002.
Within cards, supported by the launch of a number of segmented, competitive and
innovative product offers including the Create card and the Premier Credit Card,
strong growth was achieved both in new accounts and balances outstanding.
Market share grew to an estimated 11 per cent. A general slowdown in the rate
of growth of consumer credit in the UK led to a reduction in the rate of
personal loan volume growth, although balances outstanding increased by 8 per
cent in the year to 30 June 2003.
The launch of the Group's "Plus" range of interest-bearing current accounts has
supported the retention of high quality customers within the retail banking
franchise, as well as being positioned to attract new-to-brand customers through
a competitively priced offer, reflecting the use of lower cost distribution
channels. Supported by the launch of "Plus" in February 2003, customer
attrition rates have fallen by a fifth, reflecting improved levels of customer
satisfaction and the Group's improved range of segmented and targeted offers in
the personal market. Lloyds TSB has maintained its clear market leadership in
the added value current account market. Extensive work continues, to improve
levels of service and customer satisfaction, with a focus on continuous
performance improvement and innovation to meet customer needs and expectations.
Volatility in equity markets has continued to restrict short-term opportunities
within the UK wealth management business. Lloyds TSB continues to be well
positioned in this attractive market which has good long-term growth prospects,
however, with a range of segmented offers, including the launch of its new
Premier banking service for the "mass affluent".
Following a successful pilot, the Group is now proceeding with national roll-out
of Lloyds TSB energy and home telephone products. By leveraging the strategic
advantages offered by the Lloyds TSB customer base, distribution strength and
brand, the provision of Lloyds TSB branded gas, electricity and home telephone
services adds value to existing customer relationships, and provides an
opportunity for the Group to build new sustainable revenue streams.
Business Banking continued to grow its customer franchise, regaining leadership
in the start-up market, with customer deposits growing by 4 per cent to
GBP10,046 million, from GBP9,693 million in June 2002. Customer lending
increased slightly to GBP5,589 million, from GBP5,567 million in June 2002. In
March 2002, the Competition Commission's report, following its investigation
into the supply of banking services to small and medium size enterprises (SMEs),
was published by the government. The Group has implemented the remedies
suggested by the Competition Commission and, as a result of this issue, profit
before tax of Business Banking in the first half of 2003 was reduced by some
GBP65 million.
Page 18 of 48
LLOYDS TSB GROUP
UK Retail Banking and Mortgages (continued)
Mortgages Half-year to Half-year to
30 June 31 December
2003 2002 2002
Gross new mortgage lending GBP12.0bn GBP8.0bn GBP11.0bn
Market share of gross new mortgage lending 10.0% 8.3% 9.0%
Net new mortgage lending GBP4.8bn GBP2.0bn GBP3.9bn
Market share of net new mortgage lending 11.4% 5.8% 8.8%
Mortgages outstanding (period-end) GBP67.3bn GBP58.6bn GBP62.5bn
Market share of mortgages outstanding 9.4% 9.3% 9.3%
Gross new lending increased by 50 per cent to a record GBP12.0 billion, compared
with GBP8.0 billion in the first half of 2002 and GBP11.0 billion in the second
half of 2002. Net new lending increased to GBP4.8 billion resulting in a market
share of net new lending of 11.4 per cent. Over the last twelve months, mortgage
balances outstanding increased by 15 per cent to GBP67.3 billion.
The Group continues to be one of the most efficient mortgage providers in the UK
and Cheltenham & Gloucester's (C&G) total costs as a percentage of mortgage
assets were an annualised 0.5 per cent in the first half of 2003. 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. In addition, C&
G Teledirect, its internet and telephone operation, continued to perform
strongly, and business levels sourced from intermediaries remain strong.
A slight improvement in arrears and the beneficial effect of house price
increases have meant that bad debt provisions remained at low levels. New
provisions were more than offset by releases and recoveries resulting in a GBP5
million net provisions release for the half-year, compared with a net release of
GBP2 million in the first half of 2002. The quality of our mortgage lending
continues to be good. The average indexed loan-to-value ratio on the C&G
mortgage portfolio was 44 per cent and the average loan-to-value ratio for C&G
mortgage business written during the first half of 2003 was 65 per cent. C&G
has continued its policies of not exceeding a 95 per cent loan-to-value ratio on
new lending, and of avoiding significant exposure to the buy-to-let and
sub-prime mortgage markets.
Page 19 of 48
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
2003 2002 2002
GBPm GBPm GBPm
Life, pensions and unit trusts
Scottish Widows 194 308 280
Abbey Life 41 57 35
Provisions for customer redress (100) - (205)
135 365 110
General insurance 355 386 367
Operating profit from Insurance 490 751 477
Scottish Widows Investment Partnership (1) 6 (6)
Profit before tax * 489 757 471
Profit before tax, before provisions for customer redress* 589 757 676
*excluding changes in economic assumptions and investment variance
Profit before tax from Insurance and Investments, excluding changes in economic
assumptions, investment variance and provisions for customer redress, decreased
by GBP168 million, or 22 per cent, to GBP589 million, from GBP757 million in the
first half of 2002, partly as a result of a reduction of GBP101 million in
benefits from experience variances and assumption changes, and lower normalised
investment earnings. On the same basis, profit before tax from our life,
pensions and unit trust businesses decreased by GBP130 million, or 36 per cent,
to GBP235 million. The market for medium and long-term investments continued to
be adversely affected by uncertainties in global stock markets.
Total sales from the Group's life, pensions and unit trust businesses were
GBP1,992.2 million, compared with GBP2,138.7 million in the first half of 2002,
a decrease of 7 per cent. Overall weighted sales were GBP366.6 million compared
to GBP372.7 million in the first half of last year, a reduction of 2 per cent.
This decrease in weighted sales reflected a 5 per cent increase in weighted
sales from life and pensions, offset by a 22 per cent reduction in weighted
sales from unit trusts and equity-based ISAs.
The Group's estimated market share of the life, pensions and unit trusts market
in the first quarter of 2003 was 5.4 per cent, compared with 4.6 per cent in the
first quarter of 2002, and in life and pensions, market share in the first
quarter of 2003 increased to 6.4 per cent, compared with 5.2 per cent in the
comparable period of 2002. By distribution channel, weighted sales from
independent financial advisors (IFA) rose by 36 per cent as a result of strong
regular savings and pensions sales. Our share of the IFA market in the first
quarter of 2003 increased to 5.4 per cent, compared with 3.4 per cent in the
comparable period of 2002. In the branch network, weighted sales were 25 per
cent lower as a result of a significant reduction in the sales of single premium
investments.
Page 20 of 48
LLOYDS TSB GROUP
Insurance and Investments (continued)
Sales through the branch network were also affected in the first half of 2003 by
significant restructuring activity in the personal sector regulated salesforce,
to reflect lower levels of new business and improve cost efficiency. This led
to the reduction of almost one third of the regulated salesforce. Scottish
Widows remains one of the leading unit trust and equity-based ISA providers in
the UK, with a growing market share.
In 2001, Scottish Widows was one of the first companies to be accredited under
the "Raising Standards" quality mark, which aims to raise standards generally
throughout the insurance industry to create an environment which encourages
consumers to provide for their own future. In March 2003 Scottish Widows was
one of the first companies to gain re-accreditation under "Raising Standards",
confirming Scottish Widows' position at the forefront of industry-wide
initiatives to improve standards.
Profit before tax from general insurance operations, excluding investment
variance, decreased by GBP31 million, or 8 per cent, to GBP355 million as
continued revenue growth from home insurance was offset by lower levels of
creditor insurance reflecting the slowdown in growth in personal loans. With
over 9 million general insurance policies in force, we estimate that the Group
is the market leader in the distribution of home and creditor insurance.
The principal focus of Scottish Widows Investment Partnership (SWIP) is the
delivery of consistently superior investment performance. At the end of the
half-year SWIP had GBP73 billion of funds under management out of groupwide
funds under management totalling GBP99 billion. Overall fund management
performance continues to show a significant improvement. SWIP's largest UK
equity fund, the UK Growth Fund, has achieved a second quartile performance
within its sector over the last six months and top quartile over the last twelve
months. The improvement in performance is also reflected in each of SWIP's
mainstream, actively managed UK equity funds, which have all achieved above
median performance over six month and twelve month periods, with the GBP400
million UK Select Growth Fund being in the top quartile over the last twelve
months. In addition, SWIP now has a total of 18 funds rated A and above by
Standard & Poor's, with 5 new ratings awarded in the first half of 2003. The
pre-tax loss from SWIP for the half-year was GBP1 million compared with a profit
of GBP6 million in the first half of 2002, the movement reflecting lower income
as a result of lower equity markets and the impact of higher investment spend.
Page 21 of 48
LLOYDS TSB GROUP
Insurance and Investments (continued)
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Total new business premium income
Regular premiums:
Life - mortgage related 21.7 16.0 19.0
- non-mortgage related 28.0 14.0 18.7
Pensions 111.1 103.4 109.3
Health 3.2 2.9 3.0
Total regular premiums 164.0 136.3 150.0
Single premiums:
Life 438.3 816.6 715.2
Annuities 271.4 180.1 316.9
Pensions 597.0 440.5 619.7
Total single premiums 1,306.7 1,437.2 1,651.8
External unit trust sales:
Regular payments 22.0 40.2 31.3
Single amounts 499.5 525.0 484.5
Total external unit trust sales 521.5 565.2 515.8
Weighted sales (regular + 1/10 single)
Life and pensions 294.7 280.0 315.2
Unit trusts 71.9 92.7 79.7
Life, pensions and unit trusts 366.6 372.7 394.9
Weighted sales by distribution channel
Branch network 139.3 185.0 165.6
Independent financial advisors 197.5 145.4 190.0
Direct 28.9 31.6 36.3
International/Other 0.9 10.7 3.0
Life, pensions and unit trusts 366.6 372.7 394.9
Group funds under management GBPbn GBPbn GBPbn
Scottish Widows Investment Partnership 73 76 70
UK Wealth Management 10 11 10
International 16 18 18
99 105 98
Page 22 of 48
LLOYDS TSB GROUP
Insurance and Investments (continued)
Life, pensions and unit trusts
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
New business income 204 182 216
Existing business
- expected return 126 127 146
- experience variances - 18 (19)
- assumption changes and other items (21) 62 16
- provisions for customer redress (100) - (205)
5 207 (62)
Investment earnings 77 113 101
Life and pensions distribution costs (150) (136) (147)
136 366 108
Unit trusts 30 51 39
Unit trust distribution costs (31) (52) (37)
(1) (1) 2
Profit before tax* 135 365 110
Profit before tax, excluding provisions for
customer redress* 235 365 315
New business margin (life and pensions) 18.3% 16.4% 21.9%
*excluding changes in economic assumptions and investment variance
New business income increased by 12 per cent supported by a 5 per cent growth in
weighted sales from life and pensions products, and an improved performance in
the more profitable life products. The life and pensions new business margin,
defined as new business income less distribution costs divided by weighted
sales, increased to 18.3 per cent, from 16.4 per cent in the first half of 2002.
The improvement largely arose from an improved product mix, particularly
higher margin protection and regular premium life products.
Profit before tax from existing business, excluding provisions for customer
redress, fell by 49 per cent to GBP105 million. The expected return from
existing business, which reflects the unwinding of the long-term discount rate
applied to the expected cash flows from the Group's portfolio of in-force
business, decreased by GBP1 million, to GBP126 million. This reduction reflects
the lower value of in-force business at the beginning of the year and a lower
discount rate following the reduction made in December 2002, which offset a
lower level of restructuring costs.
Page 23 of 48
LLOYDS TSB GROUP
Insurance and Investments (continued)
General Insurance
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Premium income from underwriting
Creditor 52 54 53
Home 198 165 185
Health 22 22 22
Re-insurance premiums (11) (6) (9)
261 235 251
Commissions from insurance broking
Creditor 190 227 199
Home 14 19 25
Health 8 9 8
Other 77 78 82
289 333 314
Profit before tax* 355 386 367
*excluding investment variance
Profit before tax, excluding investment variance, from our general insurance
operations, comprising both underwriting and broking activities, decreased by
GBP31 million, or 8 per cent, to GBP355 million.
Premium income from underwriting increased by GBP26 million, or 11 per cent,
largely as a result of higher home insurance income which increased by 20 per
cent. Commissions from insurance broking, however, decreased by GBP44 million,
or 13 per cent, largely as a result of lower levels of creditor insurance,
reflecting the slowdown in growth in personal loans.
Sales from direct channels (direct mail, telephone, affinity and internet)
continue to grow strongly with 62 per cent of new home insurance policies and 84
per cent of new motor insurance policies being sold through direct channels in
the first half of 2003. Lloyds TSB Insurance's presence on the Automobile
Association and Hill House Hammond insurance panels generated an additional
40,000 policies.
Claims were GBP1 million higher at GBP108 million than in the first half of
2002. The overall claims ratio of 40 per cent was lower than in the first half
of last year (44 per cent) as portfolio growth exceeded the growth in claims.
With over 9 million policies in force as at 30 June 2003, an increase of 7 per
cent from 30 June 2002, Lloyds TSB is the largest distributor of personal lines
general insurance in the UK, and we estimate that the Group is the UK market
leader in the distribution of home and creditor insurance.
Page 24 of 48
LLOYDS TSB GROUP
Wholesale Markets
(banking, treasury, large value lease finance, long-term agricultural finance,
share registration, venture capital, and other related services for major UK and
multinational companies, banks and financial institutions, and medium-sized UK
businesses; and Lloyds TSB Asset Finance)
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Net interest income 574 579 597
Other income 518 447 528
Total income 1,092 1,026 1,125
Operating expenses 593 512 621
Trading surplus 499 514 504
Provisions for bad and doubtful debts 108 151 160
Amounts written off fixed asset investments 23 9 48
Profit before tax 368 354 296
Efficiency ratio 54.3% 49.9% 55.2%
Total assets (period-end) GBP92.1bn GBP87.8bn GBP89.5bn
Total risk-weighted assets (period-end) GBP53.8bn GBP49.7bn GBP53.0bn
Wholesale Markets pre-tax profit increased by GBP14 million, or 4 per cent, to
GBP368 million as strong profit growth in Lloyds TSB Asset Finance and a
reduction in provisions for bad and doubtful debts more than offset the impact
of the introduction of the Competition Commission's SME report remedies, and
lower income from Treasury.
Net interest income decreased by GBP5 million reflecting lower income in
Treasury but also as a result of a reduction of some GBP20 million following the
implementation of the Competition Commission's SME remedies. Other income
increased by GBP71 million, largely as a result of the acquisition of First
National Vehicle Holdings and Abbey National Vehicle Finance in April 2002, and
the Dutton-Forshaw Group in December 2002. Operating expenses increased by GBP81
million, compared with the first half of last year, of which GBP66 million
reflected the asset finance acquisitions.
The charge for provisions for bad and doubtful debts in Wholesale Markets
decreased by GBP43 million, despite a small increase in provisions within the
asset finance businesses reflecting portfolio growth. In the first half of
2002, provisions against Group loans and advances to certain large US corporate
customers totalled some GBP70 million. Amounts written off fixed asset
investments increased by GBP14 million.
Assets grew by 5 per cent to GBP92.1 billion, an increase of GBP4.3 billion,
reflecting growth in debt securities for structured transactions, and
relationship lending, in the second half of 2002, together with strong growth in
the asset finance businesses in the first half of 2003, partially offset by a
reduction in Treasury.
Page 25 of 48
LLOYDS TSB GROUP
Wholesale Markets (continued)
Treasury pre-tax profits decreased by 42 per cent to GBP68 million, compared
with GBP117 million in the first half of 2002 reflecting less favourable trading
conditions, lower money market income and finer margins on interest rate
derivatives.
Strategic Asset Finance, incorporating Lloyds TSB Leasing, remains one of the
UK's leading large-ticket lessors. In support of corporate customers, Capital
Markets improved market share in the UK loan syndications market, achieving
second place for the number and value of Lead Arranger roles for UK investment
grade companies.
Lloyds TSB Registrars' share of the registration market for FTSE 100 companies
was 57 per cent, and its market leadership in employee share administration
services was maintained. Shareview Dealing, a telephone and internet based
retail sharedealing service, was launched in March, and Votenow, an electronic
voting system for AGMs was successfully launched in April. However, low levels
of corporate transaction activity led to a reduction in pre-tax profits to GBP16
million, from GBP24 million in the first half of 2002.
Due to market conditions, Lloyds TSB Development Capital undertook significantly
lower levels of venture capital investment and, in a difficult market for
disposals, realisations of venture capital gains remained low. Pre-tax losses
were GBP3 million, compared to a loss of GBP8 million in the first half of last
year. However, record levels of new acquisition finance commitments were
achieved in the first half of 2003, with lower levels of provisions.
Pre-tax profits in Lloyds TSB Asset Finance, which incorporates the Group's
point-of-sale asset finance and receivables finance businesses, increased by 144
per cent to GBP66 million, compared with GBP27 million in the first half of last
year. This reflects, in part, the acquisition of First National Vehicle Holdings
and Abbey National Vehicle Finance in April 2002, and the Dutton-Forshaw Group
in December 2002. These businesses have been successfully integrated into Lloyds
TSB Asset Finance, where Lloyds TSB autolease is now the largest contract hire
operator in the UK, and expected synergies are on track with the Group's
original plans. We continue to grow market share in motor finance, in a buoyant
market.
The number of businesses using asset based finance continues to grow strongly,
and Lloyds TSB Commercial Finance and its specialist factoring division, Alex
Lawrie Factors, have been well positioned, growing market share in both invoice
discounting and factoring. Data from The Factors and Discounters Association
confirms Lloyds TSB Commercial Finance's market leadership position.
Page 26 of 48
LLOYDS TSB GROUP
International Banking
(banking and financial services overseas in three main areas: The Americas, New
Zealand, and Europe and Offshore Banking)
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Net interest income 406 383 367
Other income 177 188 186
Total income 583 571 553
Operating expenses 292 277 304
Trading surplus 291 294 249
Provisions for bad and doubtful debts 40 63 99
Amounts written off fixed asset investments 1 - -
250 231 150
Loss on sale of businesses (15) - -
Profit before tax 235 231 150
Efficiency ratio 50.1% 48.5% 55.0%
Total assets (period-end) GBP23.0bn GBP21.4bn GBP21.3bn
Total risk-weighted assets (period-end) GBP15.3bn GBP14.4bn GBP14.2bn
International Banking pre-tax profit increased by GBP4 million, or 2 per cent,
to GBP235 million, notwithstanding a GBP15 million loss on the sale of the
Group's French wealth management businesses, and a GBP23 million profit on the
sale and leaseback of premises in the first half of 2002.
Net interest income increased by GBP23 million, or 6 per cent, to GBP406 million
reflecting volume growth and exchange rate movements in New Zealand, together
with strong wholesale margins in Brazil. Other income decreased by GBP11
million, or 6 per cent, to GBP177 million reflecting lower equity market related
earnings in Offshore Banking and European Private Banking. Operating expenses
increased by GBP15 million, reflecting a combination of volume growth, local
inflation, and the impact of exchange rate movements. Provisions for bad and
doubtful debts were GBP23 million lower reflecting the absence of an increase in
the general provision in Argentina.
Pre-tax profits from The National Bank of New Zealand increased by 34 per cent
to GBP147 million as a result of asset growth across all business sectors, with
strong lending and deposit growth within the personal and small business
markets. In a market affected by high interest rates, our consumer finance
business in Brazil, Losango, increased lending volumes and, with the benefit of
more favourable bond market conditions, the Group's businesses in Brazil made a
pre-tax profit of GBP46 million, compared with GBP32 million in the first half
of 2002.
Page 27 of 48
LLOYDS TSB GROUP
International Banking (continued)
The Group's international wealth management businesses have been adversely
impacted by equity market volatility and depressed investor sentiment, although
the demand for services for UK expatriates working abroad remains strong.
Offshore Banking and European Private Banking pre-tax profits fell by GBP49
million to GBP55 million, compared with the first half of 2002, which benefited
from a GBP23 million profit on the sale and leaseback of premises.
The Group reduced its total exposure to Brazil, net of provisions, to GBP1.5
billion during the first half of 2003 (December 2002: GBP1.9 billion) largely
through the disposal of the remaining Brazilian component of the emerging
markets debt portfolio. The Brazilian Real appreciated 20.3 per cent in the six
months to 30 June 2003. Sentiment towards Brazil and Argentina has improved over
the period, but the economic situation continues to be difficult and the outlook
remains uncertain. The Group's total exposure to Argentina at the end of the
half-year was some GBP170 million, net of provisions and charges (31 December
2002: GBP190 million), despite the impact of an appreciation of the Peso during
the six months to 30 June 2003, largely reflecting emerging markets debt
portfolio sales, and the repayment of some offshore lending.
In May 2003 Lloyds TSB agreed the sale of its French fund management and private
banking businesses, including its subsidiaries, Lloyds Bank SA, Chaillot
Assurances SA and Capucines Investissements SA, to UBS (France) SA. The net
asset value of businesses sold was approximately GBP20 million and funds under
management were approximately EUR1 billion. A net loss of GBP15 million has been
included in the profit and loss account.
In June 2003, the Group announced that, following approaches, Lloyds TSB is
considering its options relating to The National Bank of New Zealand. The Group
is undertaking a strategic review so that potential offers for The National Bank
of New Zealand, as well as retention of the business, can be considered.
Page 28 of 48
LLOYDS TSB GROUP
Central group items
(earnings on surplus capital and the emerging markets debt investment portfolio,
central costs and other unallocated items)
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Accrual for payment to Lloyds TSB Foundations (16) (19) (14)
Other finance income 17 85 80
Earnings on surplus capital and the emerging markets debt
investment portfolio 140 (23) (82)
Central costs and other unallocated items (21) (4) (19)
120 39 (35)
The four independent Lloyds TSB Foundations support registered charities
throughout the UK that enable people, particularly disabled and disadvantaged,
to play a fuller role in society. The Foundations receive 1 per cent of the
Group's pre-tax profit, averaged over three years, instead of the dividend on
their shareholdings, making them in aggregate one of the largest independent
grant giving bodies in the UK. In the first half of 2003, the Group accrued
GBP16 million for payment to the Lloyds TSB Foundations.
Other finance income represents income from the expected return on the Group's
pension fund assets less the charge for unwinding the discount on the pension
fund liabilities. The significant reduction in income in the first half of 2003
reflects the combined impact of a reduction in the expected return on lower
pension scheme assets as a result of the continuing weakness in global equity
markets, and increased pension fund liabilities caused by the expected greater
lifespan of pension scheme members.
Earnings on surplus capital and the emerging markets debt investment portfolio
reflect earnings on capital held at the Group centre and profits from the
Group's investment portfolio of emerging markets debt securities. During the
first half of 2003 improved secondary bond market conditions allowed the Group
to sell its portfolio of emerging markets debt securities. Profits on bond
sales, and certain closed foreign exchange positions, in the first half of 2003
totalled some GBP295 million. The Group will not achieve any further
contribution from the emerging markets debt portfolio in the second half of 2003
and beyond.
Page 29 of 48
LLOYDS TSB GROUP
INCOME
Group net interest income
Group net interest income increased by GBP14 million, or 1 per cent, to GBP2,571
million, despite a reduction of GBP203 million caused by a 26 basis point
reduction in the net interest margin. The implementation of the Competition
Commission's SME report remedies reduced Group net interest income by GBP82
million, and the net interest margin by some 10 basis points, in the first half
of 2003. Average interest-earning assets increased by 9 per cent to GBP172
billion. Excluding the Competition Commission impact, the 16 basis points
decrease in the overall net interest margin reflected a lower contribution from
interest-free liabilities, partly caused by the fall in average interest rates,
and a reduction of 12 basis points in the interest spread. Compared with the
net interest margin in the second half of 2002, there was a reduction of 12
basis points, of which some 10 basis points represented the Competition
Commission impact. The mix effect from the higher levels of growth in the
mortgage portfolio and some mortgage margin erosion caused a 6 basis point
reduction. This was partly offset by a 2 basis point improvement in the margin
in the asset finance businesses.
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Net interest income 2,571 2,557 2,614
Average balances
Short-term liquid assets 3,177 4,079 2,959
Loans and advances 153,688 139,722 147,456
Debt securities 15,217 13,859 15,493
Total interest-earning assets 172,082 157,660 165,908
Financed by:
Interest-bearing liabilities 164,454 145,667 154,665
Interest-free liabilities 7,628 11,993 11,243
Average rates % % %
Gross yield on interest-earning assets 5.87 6.58 6.46
Cost of interest-bearing liabilities 2.99 3.58 3.58
Interest spread 2.88 3.00 2.88
Contribution of interest-free liabilities 0.13 0.27 0.25
Net interest margin 3.01 3.27 3.13
Note: Payments made under cash gift and discount mortgage schemes are amortised
over the early redemption charge period, being a maximum of five years. If these
incentives had been fully written off as incurred, group and domestic net
interest income would have been GBP35 million higher in the first half of 2003
(2002 first half: GBP23 million higher; second half: GBP32 million higher). The
deferred element of the expenditure amounting to GBP166 million at 30 June 2003
(30 June 2002: GBP233 million; 31 December 2002: GBP201 million) is included
within prepayments and accrued income in the balance sheet.
Page 30 of 48
LLOYDS TSB GROUP
Domestic net interest income
Domestic net interest income increased by GBP11 million, or 1 per cent, to
GBP2,188 million, notwithstanding a reduction of GBP196 million caused by a 30
basis point reduction in the net interest margin. This represents 85 per cent of
total group net interest income.
Average interest-earning assets increased by GBP14 billion, or 11 per cent, to
GBP144 billion. Average personal lending and mortgage balances grew by GBP10
billion and wholesale balances increased by GBP4 billion.
The net interest margin decreased by 30 basis points reflecting a reduction in
the contribution of interest-free liabilities and the impact of the
implementation of the remedies suggested by the Competition Commission,
following its investigation into the supply of banking services to small and
medium size enterprises (SMEs), together with a reduction of 16 basis points in
the interest spread. Compared with the net interest margin in the second half
of 2002, there was a reduction of 15 basis points, of which some 11 basis points
represented the Competition Commission impact. A slight reduction in the margin
earned on the mortgage portfolio was partly offset by a higher margin in the
asset finance businesses.
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Net interest income 2,188 2,177 2,248
Average balances
Short-term liquid assets 2,384 2,830 2,390
Loans and advances 131,812 119,950 127,256
Debt securities 10,202 7,889 9,420
Total interest-earning assets 144,398 130,669 139,066
Financed by:
Interest-bearing liabilities 140,362 121,305 130,547
Interest-free liabilities 4,036 9,364 8,519
Average rates % % %
Gross yield on interest-earning assets 5.75 6.14 6.06
Cost of interest-bearing liabilities 2.77 3.00 3.04
Interest spread 2.98 3.14 3.02
Contribution of interest-free liabilities 0.08 0.22 0.19
Net interest margin 3.06 3.36 3.21
Page 31 of 48
LLOYDS TSB GROUP
International net interest income
Net interest income from international operations increased by GBP3 million, or
1 per cent, to GBP383 million. This represents 15 per cent of total group net
interest income. Strong volume growth, particularly in New Zealand, was offset
by the adverse effect of exchange rate movements.
Average interest-earning assets increased by 3 per cent but were flat on a local
currency basis. The net interest margin reduced by 5 basis points as a result
of the sale of the Group's portfolio of emerging markets debt securities.
Compared with the net interest margin in the second half of 2002, there was an
increase of 9 basis points, reflecting stronger margins in our Latin American
businesses.
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Net interest income 383 380 366
Average balances
Short-term liquid assets 793 1,249 569
Loans and advances 21,876 19,772 20,200
Debt securities 5,015 5,970 6,073
Total interest-earning assets 27,684 26,991 26,842
Financed by:
Interest-bearing liabilities 24,092 24,362 24,118
Interest-free liabilities 3,592 2,629 2,724
Average rates % % %
Gross yield on interest-earning assets 6.51 8.71 8.55
Cost of interest-bearing liabilities 4.28 6.51 6.51
Interest spread 2.23 2.20 2.04
Contribution of interest-free liabilities 0.56 0.64 0.66
Net interest margin 2.79 2.84 2.70
Page 32 of 48
LLOYDS TSB GROUP
Other income
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Fees and commissions receivable:
UK current account fees 316 282 297
Other UK fees and commissions 569 583 580
Insurance broking 289 333 314
Card services 213 198 216
International fees and commissions 122 127 123
1,509 1,523 1,530
Fees and commissions payable (346) (306) (339)
Dealing profits (before expenses):
Foreign exchange income 149 82 91
Securities and other gains 278 6 9
427 88 100
Income from long-term assurance business 175 23 (326)
General insurance premium income 261 235 251
Other operating income 320 392 371
Total other income 2,346 1,955 1,587
Other income increased by GBP391 million, or 20 per cent, to GBP2,346 million.
Fees and commissions receivable decreased slightly to GBP1,509 million, largely
reflecting lower income from insurance broking and unit trust commissions,
partly offset by good growth in UK current account fees and card services. Other
UK fees and commissions decreased by GBP14 million, or 2 per cent, to GBP569
million as a result of a GBP26 million reduction in unit trust and asset
management fees, offset by an increase of GBP6 million in mortgage related fees.
There was also a GBP6 million increase in fees from large corporate and
factoring activity reflecting increased transaction volumes.
Insurance broking commission income decreased by GBP44 million, compared with
the first half of 2002, reflecting lower creditor insurance commissions
resulting from the slowdown in the rate of growth of personal loans. Income from
credit and debit card services increased by GBP15 million, mainly as a result of
higher merchant service charges and fees. UK current account fee income rose by
GBP34 million, reversing the downward trend experienced in recent years largely
as a result of an increase in fee income from added value current accounts.
Fees and commissions payable increased by GBP40 million against the first half
of last year as a result of higher reciprocity fees, increased dealer
commissions in Lloyds TSB Asset Finance, an increase in package costs relating
to a number of products, and higher costs relating to legal expenses and
valuation fee incentives supporting the strong mortgage growth.
Page 33 of 48
LLOYDS TSB GROUP
Other income (continued)
Dealing profits increased substantially by GBP339 million compared with the
first half of 2002 as a result of an increase of GBP67 million in foreign
exchange income and an increase of GBP272 million in gains from securities
trading, largely reflecting earnings from the portfolio of emerging markets debt
investments which, at the end of 2002, was reclassified as a trading portfolio.
In 2002, earnings from emerging markets debt investments were primarily reported
within other operating income. Income from long-term assurance business
increased by GBP152 million, largely reflecting the absence of the negative
investment variance reported in the first half of 2002. Excluding changes in
economic assumptions and investment variance, income from long-term assurance
business was GBP253 million lower, reflecting a reduction of GBP101 million in
benefits from experience variances and actuarial assumption changes, and a
GBP100 million provision for customer redress.
Other operating income decreased by GBP72 million to GBP320 million, reflecting
the reclassification of earnings on the emerging markets debt investment
portfolio in 2003 into dealing profits, and the non-recurrence of profits on the
sale and leaseback of premises which, in the first half of 2002, totalled GBP23
million. These decreases more than offset a GBP42 million increase following the
acquisition of the Dutton-Forshaw Group in December 2002, and higher operating
lease rentals following the acquisition of First National Vehicle Holdings and
Abbey National Vehicle Finance.
Page 34 of 48
LLOYDS TSB GROUP
OPERATING EXPENSES
Operating expenses
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Administrative expenses:
Staff:
Salaries and profit sharing 900 879 879
National insurance 72 71 63
Pensions 160 148 170
Restructuring 10 36 69
Other staff costs 113 94 108
1,255 1,228 1,289
Premises and equipment:
Rent and rates 142 137 143
Hire of equipment 10 10 8
Repairs and maintenance 63 59 72
Other 60 63 51
275 269 274
Other expenses:
Communications and external data processing 213 215 231
Advertising and promotion 86 81 66
Professional fees 53 41 72
Provisions for customer redress 200 - -
Other 205 206 242
757 543 611
Administrative expenses 2,287 2,040 2,174
Depreciation 318 299 343
Amortisation of goodwill 24 21 38
Total operating expenses 2,629 2,360 2,555
Efficiency ratio 53.3% 51.3% 59.7%
Efficiency ratio, excluding changes in economic assumptions,
investment variance and provisions for customer redress 48.6% 47.2% 51.3%
Total operating expenses increased by GBP269 million, or 11 per cent, compared
with the first half of 2002. Excluding the impact of acquisitions, which
increased operating expenses by GBP99 million in the first half of 2003 compared
to GBP22 million in the first half of 2002, and a GBP200 million provision for
customer redress, operating expenses were broadly flat.
Page 35 of 48
LLOYDS TSB GROUP
Operating expenses (continued)
Excluding provisions for customer redress, administrative expenses increased by
GBP47 million to GBP2,087 million. Staff costs were GBP27 million higher at
GBP1,255 million, and other expenses increased by GBP14 million to GBP557
million. Depreciation rose by GBP19 million, reflecting an increase of GBP22
million in operating lease depreciation, partly acquisition related. Goodwill
amortisation was GBP3 million higher. The efficiency ratio, excluding changes in
economic assumptions, investment variance and provisions for customer redress,
was 48.6 per cent, compared to 47.2 per cent in the first half of 2002.
The Group remains committed to strict cost control and, largely as a result of
continuing efficiency initiatives, we expect that the Group's operating expenses
in 2003, excluding the impact of acquisitions, operating lease depreciation and
provisions for customer redress, will grow by no more than the rate of
inflation. This focus on cost control will be continued notwithstanding further
significant investment throughout the business in 2003, to support increased
business volumes, higher levels of service quality, further improvements in
productivity, and increases in investment in mandatory projects. These include
projects such as the Universal Banking Service, anti-money laundering financial
crimes programmes and preparation for the forthcoming introduction of the Basel
2 capital accord.
Number of employees (full-time equivalent)
Staff numbers increased by 171 to 79,708 during the half-year.
Within UK Retail Banking and Mortgages staff numbers increased by 445,
reflecting planned improvements to customer service and a substantial increase
in our branch sales activities, partially offset by reductions of staff numbers
in back office operations. In International Banking staff numbers decreased by
220, partly as a result of the disposal of the Group's French wealth management
businesses.
30 June 31 December
2003 2002
UK Retail Banking and Mortgages 48,214 47,769
Insurance and Investments 6,129 6,170
Wholesale Markets 11,459 11,446
International Banking 11,507 11,727
Other 2,399 2,425
Total number of employees (full-time equivalent) 79,708 79,537
Page 36 of 48
LLOYDS TSB GROUP
CREDIT QUALITY
Charge for bad and doubtful debts
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
UK Retail Banking and Mortgages 335 270 293
Wholesale Markets 108 151 160
International Banking 40 63 99
Central group items (13) (5) (2)
Total charge 470 479 550
Specific provisions 466 451 514
General provisions 4 28 36
Total charge 470 479 550
Charge as % of average lending: % % %
Domestic 0.70 0.67 0.72
International 0.41 1.22 1.32
Total charge 0.66 0.75 0.80
The total charge for bad and doubtful debts decreased to GBP470 million from
GBP479 million. In UK Retail Banking the provisions charge increased by GBP68
million, from GBP272 million in the first half of 2002, to GBP340 million, as a
result of volume related asset growth in the personal loan and credit card
portfolios, but also as a result of a higher charge for fraud in the personal
lending portfolios. In Mortgages an improved arrears position and the beneficial
effect of house price increases resulted in a GBP5 million provisions release
for the half-year. In Wholesale Markets the provisions charge decreased by GBP43
million to GBP108 million from GBP151 million in the first half of 2002. In
International Banking, provisions decreased by GBP23 million as a result of the
absence of an increase in the general provision in Argentina.
Non-performing loans increased to GBP1,513 million compared with GBP1,414
million in December 2002, largely reflecting higher levels of non-performing
lending in the Group's corporate portfolio and general portfolio growth
throughout the Group. In UK Retail Banking and Mortgages the overall arrears
position remained stable. Non-performing lending represented 1.0 per cent of
total lending, unchanged from December 2002. Our lending portfolio remains
heavily influenced by our high quality, relatively low risk, mortgage business
and, as a result, we remain relatively well positioned to withstand any
continued economic slowdown.
Page 37 of 48
LLOYDS TSB GROUP
Movements in provisions for bad and doubtful debts
Half-year to Half-year to Half-year to
30 June 2003 30 June 2002 31 December 2002
Specific General Specific General Specific General
GBPm GBPm GBPm GBPm GBPm GBPm
At beginning of period 1,334 433 1,099 369 1,167 399
Exchange and other 12 - (38) 2 (17) (2)
adjustments
Advances written off (514) - (444) - (434) -
Recoveries of advances 87 - 99 - 104 -
written off in previous
years
Charge to profit and
loss account:
New and additional 769 4 756 28 788 36
provisions
Releases and recoveries (303) - (305) - (274) -
466 4 451 28 514 36
At end of period 1,385 437 1,167 399 1,334 433
1,822 1,566 1,767
Closing provisions as %
of lending (excluding
unapplied interest)
Specific:
Domestic 1,081 (0.9%) 899 (0.8%) 1,016 (0.8%)
International 304 (1.6%) 268 (1.5%) 318 (1.7%)
1,385 (0.9%) 1,167 (0.9%) 1,334 (1.0%)
General 437 (0.3%) 399 (0.3%) 433 (0.3%)
Total 1,822 (1.2%) 1,566 (1.2%) 1,767 (1.3%)
At the end of June 2003 provisions for bad and doubtful debts totalled GBP1,822
million. This represented 1.2 per cent of total lending (December 2002: 1.3 per
cent). Non-performing lending increased to GBP1,513 million from GBP1,414
million in December 2002, largely reflecting higher levels of non-performing
lending in the Group's corporate portfolio, and general portfolio growth
throughout the Group. At the end of the half-year, total provisions represented
over 120 per cent of non-performing loans (December 2002: 120 per cent).
Page 38 of 48
LLOYDS TSB GROUP
CAPITAL RATIOS
Risk asset ratios
30 June 31 December
2003 2002
GBPm GBPm
Capital
Tier 1 10,355 9,490
Tier 2 9,287 8,846
19,642 18,336
Supervisory deductions (6,786) (6,588)
Total capital 12,856 11,748
Risk-weighted assets GBPbn GBPbn
UK Retail Banking and Mortgages 57.7 54.2
Insurance and Investments 0.2 0.2
Wholesale Markets 53.8 53.0
International Banking 15.3 14.2
Central group items 0.5 0.8
Total risk-weighted assets 127.5 122.4
Risk asset ratios
Total capital 10.1% 9.6%
Tier 1 8.1% 7.8%
Half-year Half-year
to 30 June to 31 December
2003 2002
Post-tax return on average risk-weighted assets 1.91% 1.18%
At the end of June 2003 the risk asset ratios were 10.1 per cent for total
capital and 8.1 per cent for tier 1 capital.
During the first half of 2003, total capital for regulatory purposes increased
by GBP1,108 million to GBP12,856 million. Tier 1 capital increased by GBP865
million, mainly from retained profits. Tier 2 capital increased by GBP441
million, as a result of the issue of new tier 2 capital instruments. Supervisory
deductions increased by GBP198 million, as a result of an increase in the
Group's embedded value to GBP6,362 million, from GBP6,228 million in December
2002.
Risk-weighted assets increased by 4 per cent to GBP127.5 billion and the
post-tax return on average risk-weighted assets increased to 1.91 per cent.
Page 39 of 48
LLOYDS TSB GROUP
OVERVIEW OF CONSOLIDATED BALANCE SHEET
Review of balance sheet at 30 June 2003, compared to 31 December 2002
Assets
Total assets increased by GBP11,921 million, or 5 per cent, to GBP264,679
million, largely reflecting business growth.
Cash and balances at central banks reduced by GBP283 million, or 25 per cent,
from GBP1,140 million as cash balances held at the year end are usually high, to
cater for anticipated demand over the year-end holiday period. Treasury bills
and other eligible bills increased to GBP3,577 million from GBP2,409 million
reflecting liquidity management. Loans and advances to banks increased by GBP777
million to GBP18,306 million partly for liquidity management purposes, and
partly as a result of an increase in the value of collateral loans in treasury.
Loans and advances to customers increased by GBP7,516 million, or 6 per cent, to
GBP141,990 million. This growth in loans and advances to customers largely
reflects growth in UK retail lending, particularly the strong mortgage growth in
the first half of 2003.
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Loans and advances to customers
Domestic:
Agriculture, forestry and fishing 2,089 2,096 2,076
Manufacturing 3,572 3,626 3,373
Construction 1,634 1,376 1,482
Transport, distribution and hotels 4,915 4,574 4,696
Property companies 4,222 3,277 4,008
Financial, business and other services 8,351 8,480 8,352
Personal : mortgages 67,316 58,614 62,467
: other 15,762 14,093 14,931
Lease financing 6,940 7,372 7,285
Hire purchase 6,489 5,708 5,990
Other 3,499 3,092 3,397
Total domestic 124,789 112,308 118,057
International:
Latin America 1,470 1,914 1,591
New Zealand 11,939 9,866 10,447
Rest of the world 5,657 6,009 6,202
Total international 19,066 17,789 18,240
143,855 130,097 136,297
Provisions for bad and doubtful debts* (1,808) (1,565) (1,766)
Interest held in suspense* (57) (54) (57)
Total loans and advances to customers 141,990 128,478 134,474
*figures exclude provisions and interest held in suspense relating to loans and
advances to banks
Page 40 of 48
LLOYDS TSB GROUP
Assets (continued)
Debt securities decreased by GBP632 million to GBP28,682 million as a reduction
of GBP1.1 billion on sales of emerging market debt investments was partly offset
by increased holdings for liquidity management purposes.
Intangible fixed assets declined by GBP19 million to GBP2,615 million as
amortisation of GBP24 million and the reduction of GBP10 million due to the sale
of the Group's French wealth management businesses was partially offset by
positive exchange rate movements, principally relating to our New Zealand
business. Tangible fixed assets fell by GBP122 million to GBP3,974 million
reflecting depreciation of GBP318 million partially offset by net additions of
GBP196 million.
Other assets increased by GBP368 million to GBP5,631 million, largely as a
result of increases in mark-to-market balances in respect of derivatives, higher
settlement balances in treasury in respect of securities sales, and an increase
in card settlement balances.
Long-term assurance business attributable to the shareholder increased by GBP134
million to GBP6,362 million reflecting the after tax profit in the Group's life
assurance businesses for the year to date of GBP132 million, and a small
exchange gain from the life operations of The National Bank of New Zealand.
Liabilities
Deposits by banks have fallen by GBP1,561 million to GBP23,882 million as direct
borrowing from banks has been replaced by the issue of debt securities.
Customer deposits increased by GBP5,099 million to GBP121,433 million partly as
a result of growth of GBP1.4 billion in current account credit balances. Savings
and investment accounts grew by GBP3.0 billion, and currency deposits grew by
GBP1.0 billion reflecting strong growth in New Zealand.
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Deposits - customer accounts
Sterling:
Non-interest bearing current accounts 2,420 5,904 2,211
Interest bearing current accounts 26,815 21,673 25,640
Savings and investment accounts 56,195 50,975 53,223
Other customer deposits 16,242 17,395 16,521
Total sterling 101,672 95,947 97,595
Currency 19,761 17,840 18,739
Total deposits - customer accounts 121,433 113,787 116,334
Page 41 of 48
LLOYDS TSB GROUP
Liabilities (continued)
Debt securities in issue were up GBP4,243 million to GBP34,498 million partly as
a result of an increase in funding to replace deposits from banks, and higher
balances in structured finance transactions. In addition, debt securities in
issue in New Zealand increased by GBP0.7 billion to fund balance sheet
expansion.
Other liabilities increased by GBP138 million to GBP8,427 million. A lower
interim dividend accrual than that for the final dividend was offset by higher
settlement balances in respect of securities sales. Accruals and deferred income
reduced by GBP217 million to GBP3,479 million largely as a result of lower
interest payable. The post-retirement benefit liability increased by GBP91
million to GBP2,168 million as a result of the current year net pension cost. In
provisions for liabilities and charges, deferred tax fell by GBP46 million to
GBP1,271 million, largely reflecting a reduction arising from the sale of a
portfolio of finance leases. Other provisions for liabilities and charges
increased by GBP171 million to GBP532 million principally due to the
establishment of a new provision for customer redress, offset by a small
reduction in vacant leasehold property provisions in the UK.
Subordinated liabilities increased by GBP628 million to GBP10,796 million
largely as a result of a new issue of undated loan capital to fund balance sheet
expansion and replace existing issues approaching maturity.
Minority interests increased by GBP12 million to GBP743 million reflecting the
minority share of profit after tax, and positive exchange rate movements, partly
offset by the payment of dividends to minority shareholders.
Shareholders' funds were up GBP684 million to GBP8,656 million principally due
to retentions.
Page 42 of 48
LLOYDS TSB GROUP
NOTES
1. Accounting policies and presentation
Accounting policies are unchanged from 2002.
The Group has not revised the valuation of its pension schemes to
reflect the circumstances prevailing at 30 June 2003. In accordance
with FRS 17 the valuations will be formally updated at the year-end.
2. Economic profit
In pursuit of our aim to maximise shareholder value, we use a system of
value based management as a framework to identify and measure value in
order to help us make better business decisions. Accounting profit is
of limited use as a measure of value creation and performance as it
ignores the cost of the equity capital that has to be invested to
generate the profit. We choose economic profit as a measure of
performance because it captures both growth in investment and return.
Economic profit represents the difference between the earnings on
the equity invested in a business and the cost of the equity. Our
calculation of economic profit uses average equity for the half-year
and is based on a cost of equity of 9 per cent (2002: 9 per cent).
Economic profit instils a rigorous financial discipline in determining
investment decisions throughout the Group. It enables us to evaluate
alternative strategies objectively, with a clear understanding of the
value created by each strategy, and then to select the strategy which
creates the greatest value.
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Average shareholders' equity 8,301 10,748 10,590
Profit attributable to shareholders 1,155 1,113 668
Less: notional charge (370) (480) (480)
Economic profit 785 633 188
The notional charge has been calculated by multiplying average
shareholders' equity by the cost of equity. The reduction in average
shareholders' equity in the first half of 2003 largely reflects
actuarial losses in the Group's pension schemes recognised at the end
of 2002.
Page 43 of 48
LLOYDS TSB GROUP
3. Earnings per share
Half-year to Half-year to
30 June 31 December
2003 2002 2002
Basic
Profit attributable to shareholders GBP1,155m GBP1,113m GBP668m
Weighted average number of ordinary shares in issue 5,581m 5,562m 5,578m
Earnings per share 20.7p 20.0p 12.0p
Fully diluted
Profit attributable to shareholders GBP1,155m GBP1,113m GBP668m
Weighted average number of ordinary shares in issue 5,617m 5,601m 5,593m
Earnings per share 20.6p 19.9p 11.9p
4. Tax
The effective rate of tax was 29.2 per cent (2002 first half: 28.8 per
cent). The lower effective rate of tax, compared with the standard tax
rate of 30 per cent, is primarily due to tax relief on tier 1 capital
interest payments, and a lower effective rate of tax in the Group's
life and pensions businesses.
A reconciliation of the charge that would result from applying the
standard UK corporation tax rate to profit before tax to the tax charge
for the half-year, is given below:
Half-year to Half-year to
30 June 31 December
2003 2002 2002
GBPm GBPm GBPm
Profit on ordinary activities before tax 1,677 1,604 1,003
Tax charge thereon at UK corporation tax rate of 30% 503 481 301
Factors affecting charge:
Goodwill amortisation 5 4 5
Overseas tax rate differences 3 18 6
Non-allowable and non-taxable items (7) (24) (16)
Gains exempted or covered by capital losses 1 (6) (17)
Tax deductible coupons on non-equity minority interests (6) (6) (6)
Payments to employee trust - (10) (10)
Life companies rate differences (10) 5 39
Tax charge 489 462 302
Page 44 of 48
LLOYDS TSB GROUP
5. Investment variance
In accordance with generally accepted accounting practice in the UK, it
is the Group's accounting policy to carry the investments comprising
the reserves held by its life companies at market value. The reserves
held to support the with-profits business of Scottish Widows are
substantial and changes in market values will result in significant
volatility in the Group's embedded value earnings, which are beyond the
control of management. Consequently, in order to provide a clearer
representation of the underlying performance, the results of
the life and pensions business are separately analysed to include
investment earnings calculated using longer-term investment rates of
return, and annual management charges based on unsmoothed fund values.
This investment variance represents the difference between the actual
investment return in the year on investments backing shareholder funds
and the expected return based upon the economic assumptions made at the
beginning of the year, and the effect of these fluctuations on the
value of in-force business. The effects of other changes in
economic circumstances beyond the control of management are also
reflected in the investment variance. The longer-term rates of return
for the period are consistent with those used by the Group in the
calculation of the embedded value at the beginning of the period, which
were 7.10 per cent for equities and 4.50 per cent for gilts.
Lloyds TSB General Insurance also holds investments to support its
underwriting business; these are carried at market value and gains and
losses included within dealing profits. Consistent with the approach
adopted for the life and pensions business, an operating profit for the
general insurance business is calculated including investment earnings
normalised using the same long-term rates of return.
During the first half of 2003 the FTSE All-Share index rose by 4 per
cent and this created a positive investment variance totalling
GBP42 million.
6. Changes in economic assumptions
In accordance with the Association of British Insurers' detailed
guidance for the preparation of figures using the achieved profits
method of accounting the Group has reviewed the economic assumptions
used in the embedded value calculations. The guidance requires that
the assumptions should be reviewed at each reporting date.
The main economic assumptions were revised at 30 June 2003 as follows:
30 June 31 December
2003 2002
% %
Risk-adjusted discount rate (net of tax) 7.35 7.35
Return on equities (gross of tax) 7.10 7.10
Return on fixed interest securities (gross of tax) 4.50 4.50
Expenses inflation 3.50 3.30
Page 45 of 48
LLOYDS TSB GROUP
6. Changes in economic assumptions (continued)
At 30 June 2003 the review of the assumptions has led to an increase in
the rate of expense inflation to 3.50 per cent. This has resulted in a
charge to the profit and loss account in the first half of 2003 of
GBP8 million.
7. Free Asset Ratio
The free asset ratio is a common measure of financial strength in the
UK for long-term insurance businesses. It is the ratio of assets less
liabilities (including actuarial reserves but before the required
regulatory minimum solvency margin) expressed as a percentage of the
liabilities. At 30 June 2003, the free asset ratio of Scottish Widows
plc was an estimated 12.7 per cent, compared with 12.2 per cent at
31 December 2002. After adjusting for the required regulatory minimum
solvency margin, the Scottish Widows plc ratio, expressed as a
percentage of total assets, was an estimated 7.7 per cent at 30
June 2003, compared with 7.3 per cent at 31 December 2002.
8. Reconciliation of movements in shareholders' funds
Half-year to Year ended
30 June 31 December
2003 2002
GBPm GBPm
Profit attributable to shareholders 1,155 1,781
Dividends (597) (1,908)
Profit (loss) for the period 558 (127)
Currency translation differences on foreign
currency net investments 100 (3)
Actuarial losses recognised in post-retirement benefit schemes - (2,331)
Issue of shares 26 77
Net increase (decrease) in shareholders' funds 684 (2,384)
Shareholders' funds at beginning of period 7,972 10,356
Shareholders' funds at end of period 8,656 7,972
Page 46 of 48
LLOYDS TSB GROUP
9. Dividend
An interim dividend for 2003 of 10.7p per share (2002: 10.7p), will be
paid on 8 October 2003.
Shareholders who have already joined the dividend reinvestment plan
will automatically receive shares instead of the cash dividend.
Shareholders who have not joined the plan and wish to do so may obtain
an application form from Lloyds TSB Registrars, The Causeway, Worthing,
West Sussex, BN99 6DA (telephone 0870 6003990). Key dates for the
payment of the dividend are:
Shares quoted ex-dividend. Shares purchased before this date 13 August
qualify for the dividend
Record date. Shareholders on the register on this date are 15 August
entitled to the dividend
Final date for joining or leaving the dividend reinvestment plan 10 September
Interim dividend paid 8 October
10. Other information
Results for the half-year ended 30 June were approved by the directors
on 31 July 2003.
Statutory accounts for the year ended 31 December 2002 were delivered to
the registrar of companies. The auditors' report on these accounts was
unqualified and did not include a statement under sections 237(2)
(accounting records or returns inadequate or accounts not agreeing with
records and returns) or 237(3) (failure to obtain necessary information
and explanations) of the Companies Act 1985.
Page 47 of 48
LLOYDS TSB GROUP
CONTACTS
For further information please contact:-
Philip Hampton
Group Finance Director
Lloyds TSB Group plc
020 7356 1436
E-mail: philip.hampton@ltsb-finance.co.uk
Michael Oliver
Director of Investor Relations
Lloyds TSB Group plc
020 7356 2167
E-mail: michael.oliver@ltsb-finance.co.uk
Terrence Collis
Director of Group Corporate Communications
Lloyds TSB Group plc
020 7356 2078
E-mail: terrence.collis@lloydstsb.co.uk
Copies of this news release may be obtained from Investor Relations, Lloyds TSB
Group plc, 25 Gresham Street, London, EC2V 7HN. The full news release can also
be found on the Group's website - www.lloydstsb.com.
Information about the Group's role in the community and copies of the Group's
code of business conduct and its environmental report may be obtained by writing
to Public Affairs, Lloyds TSB Group plc, 25 Gresham Street, London, EC2V 7HN.
This information is also available on the Group's website.
Page 48 of 48
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LLOYDS TSB GROUP plc
(Registrant)
By: M D Oliver
Name: M D Oliver
Title: Director of Investor Relations
Date: August 1, 2003