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
04 March, 2005
LLOYDS TSB GROUP plc
(Translation of registrant's name into English)
5th Floor
25 Gresham Street
London
EC2V 7HN
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, 04 March, 2005
re: Final Results
LLOYDS TSB GROUP PLC - 2004 RESULTS
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 and general insurance
businesses include investment earnings calculated using longer-term investment
rates of return (page 33, note 15). 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 33, note 16), the profit/loss on the sale of a number of
overseas businesses in 2003 and 2004 (page 34, note 17) and the trading results
of businesses sold in 2003 have been separately analysed and a reconciliation to
the Group's profit before tax is shown on page 1.
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.
CONTENTS
Page
Profit before tax by division 1
Performance highlights 2
Profit before tax by half-year 3
Performance highlights - continuing operations 4
Summary of results 5
Group Chief Executive's statement 6
Group Finance Director's review of financial performance 9
Segmental analysis 12
Divisional performance 13
- UK Retail Banking 13
- Insurance and Investments 16
- Wholesale and International Banking 19
Consolidated profit and loss account 21
Consolidated balance sheet 22
Consolidated cash flow statement 23
Notes 24
Contacts for further information 37
LLOYDS TSB GROUP
PROFIT BEFORE TAX BY DIVISION
Increase
2004 2003 (Decrease)
GBPm GBPm %
UK Retail Banking
Before provisions for customer redress 1,751 1,671 5
Provisions for customer redress (100) (200)
1,651 1,471 12
Insurance and Investments
Before provisions for customer redress 785 665 18
Provisions for customer redress (12) (100)
773 565 37
Wholesale and International Banking (continuing operations) 1,272 1,038 23
Central group items (page 26, note 4) (333) (12)
Profit before tax from continuing operations* 3,363 3,062 10
Changes in economic assumptions (page 33, note 16) (2) (22)
Investment variance (page 33, note 15) 147 125
Loss on sale of businesses in 2004 (15) -
Discontinued operations in 2003 - 1,183
Profit before tax 3,493 4,348 (20)
*excluding changes in economic assumptions, investment variance and (loss) profit on sale of businesses
2003 figures have been restated to reflect changes in the Group's segmental
analysis following the introduction, in 2004, of the management of the Group's
distribution channels as profit centres and other changes in internal pricing
arrangements. These changes have not resulted in any restatement to Group
profit before tax.
YEAR END ASSETS BY DIVISION
2004 2003
GBPm GBPm
UK Retail Banking 101,615 90,541
Insurance and Investments* 10,225 9,844
Wholesale and International Banking 112,968 101,286
Central group items 271 263
Total assets* 225,079 201,934
*excluding long-term assurance assets attributable to policyholders
Page 1 of 37
LLOYDS TSB GROUP
PERFORMANCE HIGHLIGHTS
Key achievements - continuing operations
- The Group has improved its profits in each division. Strong
earnings momentum continued into the second half of 2004.
- Good franchise growth with customer lending up by 14 per cent
to GBP154 billion and customer deposits up by 5 per cent to GBP122 billion.
- Costs remain firmly under control. Income growth exceeded cost
growth in each division and at Group level.
- Strong credit quality, with improved trends in provisions for
bad and doubtful debts.
- Capital ratios remain satisfactory. Lloyds TSB Bank's 'triple
A' credit rating from Moody's was reaffirmed in November 2004.
Results - continuing operations excluding investment variance, changes in
economic assumptions and profit/loss on sale of businesses
- Profit before tax increased by GBP301 million, or 10 per cent, to
GBP3,363 million.
- Earnings per share increased by 12 per cent to 41.8p.
- Economic profit increased by 9 per cent to GBP1,442 million.
- Post-tax return on average shareholders' equity 23.5 per cent.
- Post-tax return on average risk-weighted assets increased from
1.87 per cent to 1.95 per cent.
Results - statutory
- Profit before tax decreased by GBP855 million, or 20 per cent, to
GBP3,493 million, reflecting the impact of businesses disposed in 2003 which
contributed GBP1,183 million last year.
- Profit attributable to shareholders decreased by GBP833 million,
or 26 per cent, to GBP2,421 million.
- Earnings per share decreased by 26 per cent to 43.3p.
- Post-tax return on average shareholders' equity 24.3 per cent.
- Total capital ratio 10.0 per cent, tier 1 capital ratio 8.9 per
cent.
- Dividend maintained. Final dividend of 23.5p per share, making
a total of 34.2p for the year (2003: 34.2p)
Page 2 of 37
LLOYDS TSB GROUP
PROFIT BEFORE TAX BY HALF-YEAR
2004 2004
H1 H2 Increase
GBPm GBPm %
UK Retail Banking
Before provisions for customer redress 818 933 14
Provisions for customer redress - (100)
818 833 2
Insurance and Investments
Before provisions for customer redress 378 407 8
Provisions for customer redress - (12)
378 395 4
Wholesale and International Banking 616 656 6
Central group items (167) (166)
Profit before tax from continuing operations* 1,645 1,718 4
Changes in economic assumptions 7 (9)
Investment variance (72) 219
(Loss) profit on sale of businesses (16) 1
Profit before tax 1,564 1,929 23
*excluding changes in economic assumptions, investment variance and (loss) profit on sale of businesses
Page 3 of 37
LLOYDS TSB GROUP
PERFORMANCE HIGHLIGHTS - CONTINUING OPERATIONS
Key achievements - UK Retail Banking
- Profit before tax, excluding customer redress provisions,
increased by 5 per cent to GBP1,751 million. On the same basis,
income growth of 4 per cent exceeded cost growth of 1 per cent.
- Strong balance growth in mortgages, credit cards and personal loans.
- Mortgage balances increased by 13 per cent to GBP80.1 billion.
- Credit card balances increased by 12 per cent to GBP7.5 billion.
- Personal loan balances increased by 12 per cent to GBP10.7 billion.
- 20 per cent increase in quality customer current account recruitment.
- Good asset quality, with arrears position remaining satisfactory.
Key achievements - Insurance and Investments
- Profit before tax, excluding customer redress provisions,
changes in economic assumptions and investment variance, increased by 18 per
cent to GBP785 million.
- Good progress in strategy to increase value of new business.
- New business contribution in Scottish Widows increased by 21 per cent.
- Life and pensions new business margin increased to 28.6 per cent, from
25.8 per cent in 2003.
- 9 per cent increase in life and pensions sales, increasing the
Group's market share to 7.5 per cent; 10 per cent growth in sales through the
IFA distribution channel.
- Good progress with Lloyds TSB Insurance's strategy to develop
its manufacturing business and increase focus on direct channels, which
generated 12 per cent growth in new business sales.
- Strong capital position. Scottish Widows has paid a dividend
of GBP200 million to Lloyds TSB.
Key achievements - Wholesale and International Banking
- Profit before tax, excluding impact of business disposals,
increased by 23 per cent to GBP1,272 million. All major businesses
performing well.
- Good progress in delivering the strategy to build an integrated
wholesale bank.
- 11 per cent increase in Corporate Markets income.
- Income growth of 5 per cent exceeded cost growth of 2 per cent.
- Asset quality remains strong.
Page 4 of 37
LLOYDS TSB GROUP
SUMMARY OF RESULTS
Increase
2004 2003 (Decrease)
GBPm GBPm %
Results - continuing operations*
Total income 9,422 9,152 3
Operating expenses 4,917 4,901 -
Trading surplus 4,505 4,251 6
Provisions for bad and doubtful debts 866 887 (2)
Profit before tax 3,363 3,062 10
Economic profit 1,442 1,329 9
Earnings per share (pence) 41.8 37.4 12
Post-tax return on average shareholders' equity (%) 23.5 n/a
Results - statutory
Total income 9,567 9,908 (3)
Operating expenses 4,917 5,173 (5)
Trading surplus 4,650 4,735 (2)
Provisions for bad and doubtful debts 866 950 (9)
Profit before tax 3,493 4,348 (20)
Profit attributable to shareholders 2,421 3,254 (26)
Economic profit (page 32, note 12) 1,525 2,493 (39)
Earnings per share (pence) (page 32, note 13) 43.3 58.3 (26)
Post-tax return on average shareholders' equity (%) 24.3 38.5
Balance sheet
Shareholders' equity 9,977 9,624 4
Net assets per share (pence) 176 170 4
Total assets 279,843 252,012 11
Loans and advances to customers 154,240 135,251 14
Customer deposits 122,062 116,496 5
Risk asset ratios % %
Total capital 10.0 11.3
Tier 1 capital 8.9 9.5
Shareholder value
Closing market price per share (year-end) 473p 448p
Total market value of shareholders' equity GBP26.5bn GBP25.1bn
Dividends per share 34.2p 34.2p
*excluding investment variance, changes in economic assumptions and (loss) profit on sale of businesses
Page 5 of 37
LLOYDS TSB GROUP
GROUP CHIEF EXECUTIVE'S STATEMENT
2004 was a good year for Lloyds TSB and, in many respects, marks the closing of
one chapter and the opening of another.
During the past two years, we worked on a three point plan:
- to enhance the quality, and decrease the volatility, of our earnings
- to maintain our good returns, and
- to achieve growth.
I am pleased to report that we have made good progress on each of these
priorities and, in doing so, we have also addressed many of the concerns of our
shareholders, which centred on the adequacy of our capital, the sustainability
of the dividend and the achievement of growth whilst continuing to deliver
strong returns.
Our results in 2004 reflect a higher quality of earnings. The five Latin
American businesses that we sold had impacted adversely on our performance,
incurring losses amounting to more than GBP200 million over the five years to
2003, equivalent to a negative return on equity of some 28 per cent. In
addition, the earnings lost from the strategic sale of our businesses in New
Zealand and Brazil were replaced within a year, as the Group's organic growth
strategy continued to deliver.
The work that we have done to allocate our capital more efficiently, as well as
the management of our quality and costs, has allowed us to maintain high returns
whilst we focused the organisation on delivering growth. Pleasingly, we are
starting to demonstrate better growth across all of our divisions and key
businesses.
In the Retail Bank, income growth exceeded cost growth, we maintained or grew
market share in most of the major product categories and we improved the depth
of customer relationships. We used the year to put in place a more competitive
product set and a new operating model, whereby we now manage the branch network
on what we term a 'local markets' basis. In essence, we have returned the
branch to being part of the local community and given branch managers greater
authority to manage profitability and run their areas as businesses. We
recognise that the needs of customers vary by community and, by organising in
this way, we believe that we will be both more responsive and effective which
will, in turn, result in faster growth. In our test markets, we achieved higher
growth in quality customer recruitment and a greater improvement in customer
satisfaction than in the rest of the branch network, and this is now starting to
deliver an improved sales performance. The new model was extended to the entire
branch network in the second half of 2004.
In Wholesale Banking, each of the major businesses made good progress in
acquiring and deepening customer relationships and all delivered year-on-year
profit improvements in excess of 20 per cent. The new management team
strengthened our competitive position with enhanced product offerings and more
proactive calling efforts. This renewed customer focus and better alignment of
relationship and product managers resulted in a 25 per cent uplift in earnings
in the Corporate Markets franchise. Business Banking and Asset Finance also
performed strongly, supported by good income growth and strong cost control.
Page 6 of 37
LLOYDS TSB GROUP
In Insurance and Investments, our new business contribution in Scottish Widows
increased by 21 per cent as we successfully focused on more profitable, and more
capital efficient business lines. The sales of life and pensions products in
the branches were encouraging, although we lagged in unit trust sales. During
2004, supported by the launch of a simplified suite of bancassurance products in
the second half of the year, we increased our market share of non-IFA life and
pensions sales from 7.8 per cent to 8.9 per cent. Overall, life and pensions
product sales increased by 9 per cent. In Lloyds TSB Insurance, increased
investment resulted in strong growth in sales through direct channels and we
maintained our market leading position in home insurance distribution.
In addition to the considerable progress in the divisions, we also used the year
to enhance the effectiveness of the Corporate Centre, with the appointment of
new directors in the Risk, Audit, Human Resources and Finance functions. This
has enabled us to strengthen the operating disciplines across the Group, which
provide the framework for us to grow in a sustained fashion.
We are only just beginning to unlock the growth potential of the Lloyds TSB
franchise. During 2004, customer satisfaction ratings reached record levels,
employee engagement scores rose to their highest level ever, credit quality
remained strong and our financial disciplines guided the Group to exceed
expectations in terms of financial performance. This gives us a solid
underpinning for the future. We still have much to do in terms of improving our
execution but I believe we can continue to deliver income growth in a controlled
and sustainable way, due to the progress made by the divisions and improvements
in our operating processes achieved during 2004.
As we look to the future, we are opening a new chapter focused primarily on
growth. We will continue to focus our efforts on our core markets and build our
skills to sustain superior performance. Our new priorities are designed to
leverage our strengths in those markets and they are:
- to materially deepen customer relationships, meeting more of our
customers' needs and winning a greater share of their business. In the last
year and a half, we have put in place many of the pieces to build stronger
relationships; across all of our divisions we have enhanced service performance
and we have introduced improved product ranges. We have also introduced local
markets in the Retail Bank and built up strong regional centres in the Wholesale
Bank. Our task is now to integrate these pieces so that our customers enjoy
better value and view us as the place to bring more of their business.
- to improve our efficiency, growing our top line whilst improving the
productivity of our cost base, using the discipline of 'positive jaws'. As our
income grows, we will continue to increase our investment to improve our
customer satisfaction ratings and our efficiency, through further development of
our quality performance, automation, straight-through processing and the more
effective leveraging of our Groupwide cost base.
- to continue to enhance the Group's capabilities and processes to
support faster growth. In Finance, we will further develop our capital
management disciplines and our understanding of the key drivers of economic
profit growth at a more granular level. In Risk, we will continue to build our
skill base to enable us to grow with less volatility in our earnings and to take
advantage of the strategic benefits of Basel II. In Human Resources, we are
developing our people to perform to their full potential and to create the high
performance organisation necessary to achieve our goals.
Page 7 of 37
LLOYDS TSB GROUP
Looking back on the year, we achieved our three point plan and are now making
marked progress on the elements of the Group's balanced scorecard. Our capital
position is in good shape, with the impact of recent accounting changes
incorporated into our plans, and we achieved growth and higher quality earnings.
Our staff are engaged and the achievement of these favourable results is due
to their commitment and dedication to serving our customers.
I look forward to seeing continued growth and progress against our revised set
of priorities in 2005 and beyond.
J Eric Daniels
Group Chief Executive
Page 8 of 37
LLOYDS TSB GROUP
GROUP FINANCE DIRECTOR'S REVIEW OF FINANCIAL PERFORMANCE
In 2004 the Group's statutory profit before tax was GBP3,493 million, a decrease
of GBP855 million compared to GBP4,348 million in 2003. This decrease was
attributable to the impact in 2003 of the profit on the sale and trading results
of a number of overseas businesses, which contributed GBP1,183 million. For the
same reason, profit attributable to shareholders decreased by GBP833 million, or
26 per cent, to GBP2,421 million and earnings per share decreased by 26 per cent
to 43.3p.
To enable meaningful comparisons with 2003, it is appropriate to exclude the
impact of these 2003 disposals, together with the investment variance and
changes in economic assumptions in the Group's life assurance businesses. On
this basis, as a result of earnings growth in each business unit, profit before
tax increased by GBP301 million, or 10 per cent, to GBP3,363 million. Earnings
per share increased by 12 per cent to 41.8p and economic profit increased by 9
per cent to GBP1,442 million. The post-tax return on average shareholders'
equity was 23.5 per cent and the post-tax return on average risk-weighted assets
increased to 1.95 per cent, from 1.87 per cent in 2003.
Group net interest income (page 26, note 5) from continuing operations increased
by GBP176 million, or 4 per cent, and average interest-earning assets increased
by 8 per cent to GBP170 billion. Strong consumer lending growth led to increases
of GBP2.6 billion in average personal lending and credit card balances and
GBP8.9 billion in average mortgage balances.
The Group net interest margin from continuing operations decreased by 11 basis
points to 2.89 per cent, after adjusting for the impact of a change in the
middle of 2004 in the Group's wholesale liquidity and funding strategy towards
the use of more capital efficient reverse repurchase agreements, which have been
excluded from the net interest margin calculation (page 26, note 5). This
margin reduction reflected the impact of changes in business mix and lower
margins in the Group's credit card, personal lending and mortgages portfolios as
a result of competitive pressures. During the second half of 2004, however, we
started to see a slowdown in the rate of margin erosion in a number of retail
product areas. There has also been further substitution of net interest income
for fee income in certain product lines.
Strong growth in loans and advances to customers and banks, partly offset by a
reduction in debt securities, led to an 11 per cent increase in total assets to
GBP280 billion. The Group's strategy to increase retail lending, particularly in
mortgages, credit cards and personal loans, was reflected in a 14 per cent
increase in loans and advances to customers to GBP154 billion. Customer deposits
increased by GBP6 billion, or 5 per cent, to GBP122 billion, largely as a result
of strong growth in current account credit balances which was supported by
further progress in the take-up of added value current accounts.
Page 9 of 37
LLOYDS TSB GROUP
Other income from continuing operations, excluding investment variance and
changes in economic assumptions, increased by GBP89 million to GBP4,463 million
(page 27, note 6). Prior year comparisons are, however, further distorted by the
impact of the sale, in 2003, of the Group's portfolio of emerging markets debt
bonds and certain closed foreign exchange positions and customer redress
provisions. Excluding these items, other income increased by 7 per cent. Fees
and commissions receivable increased by 5 per cent to GBP3,124 million as a
result of higher income from the strong volume growth in credit and debit card
services, partly as a result of the acquisition of the Goldfish credit card
portfolio in September 2003, an increase in mortgage related fees, reflecting
the growth in new mortgage lending during the year, and an increase in fees from
large corporate business and asset based lending, as a result of growing
customer transaction volumes.
Income from long-term assurance business, excluding the impact of customer
redress provisions, increased by 32 per cent to GBP590 million as a result of
significantly improved profitability in the Scottish Widows life and pensions
business. There was also a GBP50 million increase in gains on the sales of
assets, largely the realisation of venture capital investments.
Operating expenses on a continuing operations basis, excluding the impact of
customer redress provisions, continued to be tightly controlled and increased by
only 2 per cent to GBP4,817 million (page 35, note 20). Significant improvements
have been made in processing and operational efficiency and the Group has
continued to expand its programme of offshoring a number of its processing and
back office operations to India. As a result of this constant focus on
day-to-day operating cost control, the Group's cost:income ratio improved to
51.1 per cent, from 52.5 per cent in 2003 (page 28, note 7). Revenue growth
exceeded cost growth in each division and at Group level.
Much of the Group's new retail lending during 2004 has been to existing
customers where the Group has a better understanding of each individual
customer's total financial position and this, in conjunction with a relatively
benign economic environment and increased corporate liquidity, has led to credit
quality remaining strong throughout the Group. Notwithstanding substantial
growth in loans and advances to customers, the provisions charge for bad and
doubtful debts within the Group's continuing operations was 2 per cent lower
than in 2003 and, as a result, the Group's provisions charge expressed as a
percentage of average lending improved to 0.59 per cent, compared to 0.66 per
cent in 2003 (page 29, note 9). Non-performing lending was GBP1,240 million
representing 0.8 per cent of total lending, down from 0.9 per cent at 31
December 2003.
During 2004 there has been an increase in the level of complaints relating to
past 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. As a result, an additional provision of GBP112
million has been made.
Page 10 of 37
LLOYDS TSB GROUP
The Group's capital position remains satisfactory. At the end of 2004, the
total capital ratio was 10.0 per cent and the tier 1 capital ratio was 8.9 per
cent. Risk-weighted assets increased by 12 per cent to GBP132.2 billion,
reflecting strong growth in consumer lending and mortgages, higher lending in
Corporate Markets and the acquisition of a UK corporate loan portfolio from
Danske Bank which added risk-weighted assets of some GBP2.0 billion. The Group
continues to plan for risk-weighted asset growth of mid-to-high single digits
over the next few years, and expected profit retentions are sufficient to
support this level of risk-weighted asset growth within the Group's current
capital management policy. Profit retentions for 2004 totalled GBP507 million.
Scottish Widows continues to be one of the most strongly capitalised life
assurance companies in the UK. We remain satisfied with the overall capital
position of Scottish Widows when calculated using the Financial Services
Authority's (FSA) new 'realistic' basis of balance sheet reporting, and the
first Individual Capital Assessment under the new FSA regime has been completed
and shows that our capital requirements are well covered. At the end of
December 2004 the working capital ratio of the Scottish Widows Long-Term Fund,
applying the FSA's new realistic basis, was an estimated 19.0 per cent (page 34,
note 18). The required risk capital margin was covered over 9 times. Scottish
Widows has also paid a 2004 dividend of GBP200 million to Lloyds TSB reflecting
the start of an expected regular dividend stream.
Recognising the Group's high existing dividend payout ratio, and reflecting a
desire to maintain capital flexibility to continue making value enhancing
acquisitions, such as the acquisition of Danske Bank's UK corporate loan
portfolio in December 2004, the Board has decided to maintain the final dividend
at 23.5p per share to make a total for the year of 34.2p per share. This
represents a dividend yield for shareholders of 7.2 per cent, calculated using
the 31 December 2004 share price of 473p.
Helen A Weir
Group Finance Director
Page 11 of 37
LLOYDS TSB GROUP
SEGMENTAL ANALYSIS
Year ended Wholesale
31 December 2004 Insurance and Central
UK Retail and International group Continuing Discontinued
Banking Investments Banking items operations operations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest income 3,198 99 1,966 (343) 4,920 - 4,920
Other finance income - - - 39 39 - 39
Other income 1,639 1,170 1,641 13 4,463 - 4,463
Total income 4,837 1,269 3,607 (291) 9,422 - 9,422
Operating expenses 2,513 272 2,090 42 4,917 - 4,917
Trading surplus (deficit) 2,324 997 1,517 (333) 4,505 - 4,505
General insurance claims - 224 - - 224 - 224
Bad debt provisions 673 - 193 - 866 - 866
Amounts written off fixed
asset investments - - 52 - 52 - 52
Profit (loss) before tax* 1,651 773 1,272 (333) 3,363 - 3,363
Changes in economic
assumptions - (2) - - (2) - (2)
Investment variance - 147 - - 147 - 147
Profit (loss) on sale of - - (15) - (15) - (15)
businesses
Profit (loss) before tax 1,651 918 1,257 (333) 3,493 - 3,493
Year ended Wholesale
31 December 2003+ Insurance and Central
UK Retail and International group Continuing Discontinued
Banking Investments Banking items operations operations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest income 3,137 81 1,875 (349) 4,744 511 5,255
Other finance income - - - 34 34 - 34
Other income 1,533 981 1,561 299 4,374 142 4,516
Total income 4,670 1,062 3,436 (16) 9,152 653 9,805
Operating expenses 2,583 261 2,048 9 4,901 272 5,173
Trading surplus 2,087 801 1,388 (25) 4,251 381 4,632
General insurance claims - 236 - - 236 - 236
Bad debt provisions 594 - 306 (13) 887 63 950
Amounts written off fixed
asset investments - - 44 - 44 - 44
Share of results of joint (22) - - - (22) - (22)
ventures
Profit (loss) before tax* 1,471 565 1,038 (12) 3,062 318 3,380
Changes in economic
assumptions - (22) - - (22) - (22)
Investment variance - 125 - - 125 - 125
Profit on sale of businesses - - - - - 865 865
Profit (loss) before tax 1,471 668 1,038 (12) 3,165 1,183 4,348
*excluding profit/loss on sale of businesses, changes in economic assumptions and investment variance
+restated (page 24, note 1)
Page 12 of 37
LLOYDS TSB GROUP
DIVISIONAL PERFORMANCE
UK RETAIL BANKING
2004 2003+
GBPm GBPm
Net interest income 3,198 3,137
Other income 1,639 1,533
Total income 4,837 4,670
Operating expenses:
Before provisions for customer redress 2,413 2,383
Provisions for customer redress 100 200
2,513 2,583
Trading surplus 2,324 2,087
Provisions for bad and doubtful debts 673 594
Share of results of joint ventures - (22)
Profit before tax 1,651 1,471
Profit before tax, before provisions for customer redress 1,751 1,671
Cost:income ratio, before provisions for customer redress 49.9% 51.0%
Total assets (year-end) GBP101.6bn GBP90.5bn
Total risk-weighted assets (year-end) GBP60.5bn GBP54.1bn
+restated (page 24, note 1)
Profit before tax from UK Retail Banking increased by GBP180 million, or 12 per
cent, to GBP1,651 million, compared to GBP1,471 million in 2003, supported by
continued strong growth in the Group's consumer lending portfolios, partly
offset by lower product margins, higher current account credit balances,
improved current account fee income, tight cost control and lower provisions for
customer redress. Excluding the impact of provisions for customer redress,
profit before tax in UK Retail Banking increased by 5 per cent, with income
growth of 4 per cent and cost growth of 1 per cent.
During 2004, we completed the restructure of our retail branch network through
the establishment of 165 profit centred local markets. Initially, we
particularly focused on developing our business in the London and South East
markets where Lloyds TSB is currently under represented. Good progress has been
made, and in our test markets, we achieved higher growth in quality customer
recruitment, and greater improvement in levels of customer satisfaction than
elsewhere in the branch network, and this is now starting to deliver an improved
sales performance.
Page 13 of 37
LLOYDS TSB GROUP
UK Retail Banking (continued)
In 2004, market shares were increased or maintained in most key product areas
including gross and net new mortgage lending, personal loans and credit cards.
Income, profit and economic profit per customer all improved during 2004. Strong
growth in volumes was achieved with personal loans outstanding at 31 December
2004 of GBP10.7 billion, an increase of 12 per cent during the year, and card
balances of GBP7.5 billion, an increase of 12 per cent. Gross new mortgage
lending increased by 9 per cent to a record GBP26.3 billion, compared with
GBP24.2 billion in 2003. Net new lending increased to GBP9.3 billion resulting
in a market share of net new lending of 9.2 per cent, and mortgage balances
outstanding increased by 13 per cent to GBP80.1 billion. Credit balances on
current accounts and savings and investment accounts increased by 7 per cent.
Within personal loans, key initiatives have been the increased use of
behavioural and risk-based pricing, leveraging our customer relationship
management capabilities to enable the Group to deliver more competitive pricing
to better quality customers and to price by distribution channel within our
existing customer base. 99 per cent of new personal loans, and 75 per cent of
new credit cards, sold during 2004 were to existing customers, where the Group
has a better understanding of an individual customer's total financial profile.
The Group has also continued to avoid sub-prime lending. Dynamic delinquency
measures, on a rolling 12 month basis, show an improving position for new
business written. We have also continued to rationalise back office operations
to improve efficiency and levels of customer service and satisfaction.
Operating expenses were well controlled throughout the business and as a result,
excluding provisions for customer redress, increased by only GBP30 million, or 1
per cent, to GBP2,413 million compared with 4 per cent growth in income during
the year.
The bad debt provisions charge increased by GBP79 million, or 13 per cent, to
GBP673 million. GBP37 million of this increase reflected the acquisition in
September 2003 of the Goldfish credit card and personal lending portfolios with
the remainder reflecting volume related asset growth in personal loan and credit
card lending. The provisions charge as a percentage of average lending for
personal loans and overdrafts fell to 4.20 per cent, from 4.25 per cent in 2003,
while the charge in the credit card portfolio increased to 3.42 per cent, from
3.19 per cent in 2003. In the mortgages business, there was a net provision
release of GBP42 million (2003: GBP18 million release), reflecting the
continuing low level of losses in a climate of rising house prices and
historically low interest rates. Overall, the provisions charge as a percentage
of average lending was 0.71 per cent, compared to 0.72 per cent in 2003, and the
arrears position remained satisfactory.
C&G continues to focus on prime lending market segments, and has maintained its
policy of not exceeding a 95 per cent loan-to-value ratio on new lending. The
average indexed loan-to-value ratio on the C&G mortgage portfolio was 41 per
cent (31 December 2003: 43 per cent), and the average loan-to-value ratio for C&
G new mortgages and further advances written during 2004 was 62 per cent (2003:
62 per cent). At 31 December 2004, 88 per cent of C&G mortgage balances had an
indexed loan-to-value ratio of less than 80 per cent and only 0.3 per cent of
balances had an indexed loan-to-value ratio in excess of 95 per cent.
Page 14 of 37
LLOYDS TSB GROUP
UK Retail Banking (continued)
Customers are increasingly choosing to buy via direct channels and continued
investment in our direct channel capabilities has supported good levels of
business growth. Our internet bank now has 3 million registered users and, in
2004, 1.2 million product sales were achieved through the internet, an increase
of 39 per cent compared to 2003. Over 400 million transactions were processed
through internet banking, an increase of 60 per cent on 2003. Sales through
direct channels now represent 50 per cent of total sales.
Lloyds TSB remains a leader in the added value current account market, with over
4 million customers. Quality customer current account recruitment increased by
20 per cent, compared with 2003, whilst quality current account attrition was 11
per cent lower, reflecting improvements made in levels of process quality,
customer service and customer satisfaction.
Page 15 of 37
LLOYDS TSB GROUP
INSURANCE AND INVESTMENTS
2004 2003+
GBPm GBPm
Life and pensions new business income 419 396
Life and pensions distribution costs (231) (241)
New business contribution 188 155
Existing business
- expected return 300 283
- experience variances (41) (16)
- assumption changes and other items (39) (75)
220 192
Provisions for customer redress (12) (100)
Development costs (11) (13)
Investment earnings 167 153
Profit before tax (life and pensions)* 552 387
Unit trusts 75 62
Unit trust distribution costs (22) (38)
Profit before tax (unit trusts) 53 24
Profit before tax (life, pensions and unit trusts)* 605 411
General insurance* 160 153
Scottish Widows Investment Partnership 8 1
Profit before tax* 773 565
Profit before tax, excluding provisions
for customer redress* 785 665
New business margin (life and pensions) 28.6% 25.8%
*excluding changes in economic assumptions and investment variance
+restated (page 24, note 1)
Profit before tax from Insurance and Investments, excluding changes in economic
assumptions, investment variance and customer redress provisions, increased by
18 per cent to GBP785 million, from GBP665 million in 2003. On the same basis,
profit before tax from our life, pensions and unit trust businesses increased by
GBP106 million, or 21 per cent, to GBP617 million. The Group's strategy to
improve its profit mix by focusing on more profitable, less capital intensive,
business whilst constantly seeking to improve process and distribution
efficiency has led to a 21 per cent increase in new business contribution to
GBP188 million. As a result of this improved capital efficiency, strong sales of
pensions and single premium investments, and a reduced emphasis on certain lower
return products such as stakeholder pensions, the life and pensions new business
margin increased to 28.6 per cent, from 25.8 per cent in 2003.
Profit before tax from existing business, excluding provisions for customer
redress, increased by GBP28 million, or 15 per cent, to GBP220 million. The
expected return from existing business, which largely reflects the unwinding of
the long-term discount rate applied to the expected cash flows from the Group's
portfolio of in-force business, was GBP17 million, or 6 per cent, higher at
GBP300 million.
Page 16 of 37
LLOYDS TSB GROUP
Insurance and Investments (continued)
During 2004, there was a net charge of GBP80 million from changes in actuarial
assumptions and experience variances, compared to a net charge of GBP91 million
in 2003. Higher margins, lower distribution costs and an improved stock market
performance led to a significant improvement in the profit before tax from unit
trusts, despite a reduction in the level of unit trust sales.
Pre-tax profit from Scottish Widows Investment Partnership (SWIP) increased to
GBP8 million, compared with GBP1 million in 2003, reflecting improved market
performance and increased revenues from new business. SWIP won a record GBP2.1
billion of gross new business in 2004 and increased its assets under management
by 6 per cent to GBP82 billion. The investment performance of fixed income and
property remained strong in 2004. Corporate composite bonds outperformed the
market in the three year period to 31 December 2004, and the principal property
unit-linked funds have performed in the top quartile in each of the last three
years. UK and European equity performance has shown steady improvement over 2004
and UK equities within SWIP's largest institutional funds have been
significantly ahead of the benchmark in the second half of 2004. SWIP has
introduced a new simplified fund range to support Lloyds TSB's bancassurance
offer.
2004 2003
GBPm GBPm
Weighted sales (regular + 1/10 single)
Life and pensions 656.7 601.7
Unit trusts 86.4 131.7
Life, pensions and unit trusts 743.1 733.4
Weighted sales by distribution channel
Branch network 238.9 278.8
Independent financial advisers 431.6 391.6
Direct 72.2 61.6
Other, including International 0.4 1.4
Life, pensions and unit trusts 743.1 733.4
Group funds under management GBPbn GBPbn
Scottish Widows Investment Partnership 82 77
UK Wealth Management 13 11
International 13 15
108 103
Overall, weighted sales in 2004 increased to GBP743.1 million, compared to
GBP733.4 million in 2003 with 10 per cent growth in IFA sales to GBP431.6
million. Direct sales grew by 17 per cent to GBP72.2 million, while branch
network sales were 14 per cent lower at GBP238.9 million largely reflecting the
wider market trend of lower single premium unit trust sales. In life and
pensions, supported by growth in all channels, weighted sales increased by 9 per
cent to GBP656.7 million, resulting in an increase in the Group's estimated
market share to 7.5 per cent, from 7.0 per cent in 2003. Through the branch
network and direct channels, the Group's market share increased to 8.9 per cent,
from 7.8 per cent in 2003, whilst the Group's market share in the IFA market
improved to 7.0 per cent, from 6.7 per cent in 2003.
Page 17 of 37
LLOYDS TSB GROUP
Insurance and Investments (continued)
General insurance
2004 2003+
GBPm GBPm
Premium income from underwriting
Creditor 114 104
Home 442 410
Health 27 43
Reinsurance premiums (29) (22)
554 535
Commissions from insurance broking
Creditor 377 351
Home 30 30
Health 19 16
Other 160 207
586 604
Profit before tax* 160 153
*excluding investment variance
+restated (page 24, note 1)
Profit before tax, excluding investment variance, from our general insurance
operations increased by GBP7 million, or 5 per cent, to GBP160 million.
Continued progress in improving levels of business retention and higher product
margins led to premium income from underwriting increasing by GBP19 million, or
4 per cent. Home insurance income increased by 8 per cent. Insurance broking
commission income decreased by GBP18 million as a GBP26 million increase in
income from creditor insurance was offset by a GBP47 million reduction in other
commissions, reflecting lower profit sharing income. There was a significant
improvement in broking income from creditor insurance in the second half of the
year, partly reflecting improvements in personal loan and credit card
penetration rates.
The business strategy to increase investment in more cost efficient distribution
through direct channels is starting to create a shift from face-to-face channels
towards direct channels. As a result gross written premiums from new policies
sold through direct channels increased by 12 per cent in 2004. Gross written
premiums for new policies sold via the internet increased by 37 per cent.
Claims fell by GBP12 million to GBP224 million, compared to 2003, and the claims
ratio fell to 38 per cent compared with 42 per cent in 2003, reflecting benign
weather conditions and improved leverage of the supply chain. The combined ratio
relating to the underwriting business was 83.2 per cent in 2004.
Page 18 of 37
LLOYDS TSB GROUP
WHOLESALE AND INTERNATIONAL BANKING
2004 2003+
GBPm GBPm
Net interest income 1,966 1,875
Other income 1,641 1,561
Total income 3,607 3,436
Operating expenses 2,090 2,048
Trading surplus 1,517 1,388
Provisions for bad and doubtful debts 193 306
Amounts written off fixed asset investments 52 44
Profit before tax - continuing operations* 1,272 1,038
(Loss) profit on sale of businesses (15) 865
Trading results of businesses sold in 2003 - 318
Profit before tax 1,257 2,221
Cost:income ratio* 57.9% 59.6%
Total assets (year-end) GBP113.0bn GBP101.3bn
Total risk-weighted assets (year-end) GBP71.1bn GBP62.8bn
*excluding (loss) profit on sale of businesses and trading results of discontinued operations
+restated (page 24, note 1)
Wholesale and International Banking profit before tax, excluding profit/loss on
sale of businesses and trading results of discontinued operations, increased by
GBP234 million, or 23 per cent, to GBP1,272 million, from GBP1,038 million in
2003. On the same basis income growth of 5 per cent exceeded cost growth of 2
per cent, leading to an improvement in the cost:income ratio to 57.9 per cent.
Our focus on cross-selling and capital efficiency has led to an increase in the
post-tax return on average risk-weighted assets to 1.42 per cent compared with
1.23 per cent in 2003. In Wholesale, there was strong profit growth in Corporate
Markets, Business Banking and Asset Finance, in addition to a reduction in
provisions for bad and doubtful debts.
Excluding the trading results of businesses sold in 2003 net interest income
increased by GBP91 million, or 5 per cent, reflecting higher income from
improved margins in Corporate Banking and the Asset Finance businesses, and
strong growth in customer lending in Asset Finance. Other income increased by
GBP80 million, partly as a result of a GBP50 million increase in gains on the
sales of assets, largely the realisation of venture capital investments by
Lloyds TSB Development Capital. Costs were tightly controlled, 2 per cent higher
at GBP2,090 million, reflecting higher staff related costs and increased
investment spend within Corporate Markets, partially offset by lower operating
lease depreciation within Asset Finance.
Page 19 of 37
LLOYDS TSB GROUP
Wholesale and International Banking (continued)
The charge for provisions for bad and doubtful debts decreased by GBP113 million
to GBP193 million. The charge in Wholesale fell by GBP68 million to GBP232
million, as a result of a decrease in provisions from the corporate lending
portfolio, partially offset by higher charges in the Asset Finance business. In
International Banking there was a credit of GBP39 million mainly reflecting a
GBP30 million release from the general provision against the Group's exposures
in Argentina.
We continue to deepen customer relationships, and the creation of an integrated
regional sales structure, bringing together product specialists with
relationship managers, has already started to generate positive results, with a
59 per cent increase in cross-selling income within Corporate Markets, including
an 86 per cent increase in Financial Markets cross-selling income to GBP69
million in 2004. In Corporate Markets, which incorporates Corporate Banking,
Structured Finance and Financial Markets, profit before tax grew by 25 per cent
from GBP504 million in 2003 to GBP631 million, reflecting an increase in the
contribution from both relationship and transactional business driven by a
combination of higher income and a reduction in provisions.
In December 2004, we agreed the acquisition of a UK corporate loan portfolio
from Danske Bank comprising some 110 relationships, with total assets of GBP1.2
billion and risk-weighted assets of some GBP2.0 billion. The transaction is
expected to enable us to deepen the relationships we have with a number of our
existing corporate customers and acquire some important new corporate
relationships to support the growth within our Corporate Markets businesses.
Profit before tax in Business Banking grew by GBP23 million, or 22 per cent, to
GBP126 million reflecting good growth in customer income and tight control of
costs. Customer deposits rose by 3 per cent to GBP10.3 billion and customer
lending increased by 9 per cent to GBP6.0 billion. Business Banking continued to
grow its customer franchise, with net customer recruitment of some 12,000 during
the year, regaining leadership in the start-up market with a share of 22 per
cent in 2004.
Profit before tax in Lloyds TSB Asset Finance increased by 27 per cent to GBP202
million, compared with GBP159 million in 2003, largely reflecting the continued
profitable development of the motor and leisure, and contract hire businesses.
In the personal and retail finance business, new business volumes have increased
by some 9 per cent, increasing market share. Lloyds TSB Commercial Finance have
retained market leadership, measured by client numbers, with a 19 per cent
market share, and the motor and leisure business continues to be the largest
independent lender in the UK motor and leisure point of sale market with a
market share of 20 per cent.
In International Banking, profit before tax, excluding the loss on sale of
businesses and trading results of discontinued operations, increased by GBP27
million, or 21 per cent, to GBP157 million, reflecting a GBP45 million reduction
in provisions, including a GBP30 million general provision release in Argentina.
During 2004, the Group completed the sale of its businesses in Panama,
Guatemala, Honduras, Argentina and Colombia resulting in a net loss on disposal
of GBP15 million.
Page 20 of 37
LLOYDS TSB GROUP
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Continuing Discontinued
operations operations Total
2004 2003 2003 2003
GBPm GBPm GBPm GBPm
Interest receivable:
Interest receivable and similar income
arising from debt securities 423 389 63 452
Other interest receivable and similar
income 9,972 8,484 1,213 9,697
Interest payable 5,475 4,129 765 4,894
Net interest income 4,920 4,744 511 5,255
Other finance income 39 34 - 34
Other income
Fees and commissions receivable 3,124 2,987 112 3,099
Fees and commissions payable (744) (688) (34) (722)
Dealing profits (before expenses) 271 525 35 560
Income from long-term assurance
business 715 436 17 453
General insurance premium income 554 535 - 535
Other operating income 688 682 12 694
4,608 4,477 142 4,619
Total income 9,567 9,255 653 9,908
Operating expenses
Administrative expenses 4,284 4,229 247 4,476
Depreciation and amortisation 633 672 25 697
Total operating expenses 4,917 4,901 272 5,173
Trading surplus 4,650 4,354 381 4,735
General insurance claims 224 236 - 236
Provisions for bad and doubtful debts
Specific 953 883 63 946
General (87) 4 - 4
866 887 63 950
Amounts written off fixed asset
investments 52 44 - 44
Operating profit 3,508 3,187 318 3,505
Share of results of joint ventures - (22) - (22)
(Loss) profit on sale of businesses (15) - 865 865
Profit on ordinary activities before tax 3,493 3,165 1,183 4,348
Tax on profit on ordinary activities 1,004 931 94 1,025
Profit on ordinary activities after 2,489 2,234 1,089 3,323
tax
Minority interests - equity 26 22 - 22
- non-equity 42 47 - 47
Profit for the year attributable to
shareholders 2,421 2,165 1,089 3,254
Dividends 1,914 1,911
Profit for the year 507 1,343
Earnings per share 43.3p 58.3p
Diluted earnings per share 43.0p 58.1p
Page 21 of 37
LLOYDS TSB GROUP
CONSOLIDATED BALANCE SHEET
31 December 2004 31 December 2003
GBPm GBPm
Assets
Cash and balances at central banks 1,078 1,195
Items in course of collection from banks 1,462 1,447
Treasury bills and other eligible bills 92 539
Loans and advances to banks 23,565 15,547
Loans and advances to customers 154,240 135,251
Debt securities 25,194 28,669
Equity shares 215 458
Interests in joint ventures 53 54
Intangible assets 2,425 2,513
Tangible fixed assets 4,181 3,918
Other assets 3,220 3,944
Prepayments and accrued income 2,573 1,918
Long-term assurance business attributable to the shareholder 6,781 6,481
225,079 201,934
Long-term assurance assets attributable to policyholders 54,764 50,078
Total assets 279,843 252,012
Liabilities
Deposits by banks 39,738 23,955
Customer accounts 122,062 116,496
Items in course of transmission to banks 631 626
Debt securities in issue 27,217 25,922
Other liabilities 6,619 7,007
Accruals and deferred income 3,866 3,206
Post-retirement benefit liability 2,231 2,139
Provisions for liabilities and charges:
Deferred tax 1,473 1,376
Other provisions for liabilities and charges 417 402
Subordinated liabilities:
Undated loan capital 5,852 5,959
Dated loan capital 4,400 4,495
10,252 10,454
Minority interests:
Equity 46 44
Non-equity 550 683
596 727
Called-up share capital 1,419 1,418
Share premium account 1,145 1,136
Merger reserve 343 343
Profit and loss account 7,070 6,727
Shareholders' funds (equity and non-equity) 9,977 9,624
225,079 201,934
Long-term assurance liabilities to policyholders 54,764 50,078
Total liabilities 279,843 252,012
Page 22 of 37
LLOYDS TSB GROUP
CONSOLIDATED CASH FLOW STATEMENT
2004 2003
GBPm GBPm
Net cash inflow from operating activities 3,469 772
Dividends received from joint ventures and associated undertakings 2 5
Returns on investments and servicing of finance:
Dividends paid to equity minority interests (24) (14)
Payments made to non-equity minority interests (44) (81)
Interest paid on subordinated liabilities (loan capital) (606) (600)
Net cash outflow from returns on investments and servicing (674) (695)
of finance
Taxation:
UK corporation tax (656) (598)
Overseas tax (107) (186)
Total taxation (763) (784)
Capital expenditure and financial investment:
Additions to fixed asset investments (10,088) (35,420)
Disposals and maturities of fixed asset investments 9,732 36,281
Additions to tangible fixed assets (1,183) (778)
Disposals of tangible fixed assets 243 287
Net cash (outflow) inflow from capital expenditure and (1,296) 370
financial investment
Acquisitions and disposals:
Additions to interests in joint ventures - (12)
Acquisition of group undertakings and businesses (16) (1,106)
Disposal of group undertakings and businesses (25) 2,382
Net cash (outflow) inflow from acquisitions and disposals (41) 1,264
Equity dividends paid (1,913) (1,908)
Net cash outflow before financing (1,216) (976)
Financing:
Issue of subordinated liabilities (loan capital) 699 533
Cash proceeds from issue of ordinary share capital and transactions
in own shares held in respect of employee share schemes 11 32
Repayment of subordinated liabilities (loan capital) (764) (75)
Repayment of minority investment in subsidiaries (132) -
Capital element of finance lease rental payments (1) (1)
Net cash (outflow) inflow from financing (187) 489
Decrease in cash (1,403) (487)
Page 23 of 37
LLOYDS TSB GROUP
NOTES
1. Accounting policies and presentation
Accounting policies are unchanged from 2003.
From the beginning of 2004 the Group changed its UK branch and other
distribution networks from cost centres to profit centres and, consequently,
amended the internal commission arrangements between these networks and the
insurance product manufacturing businesses within the Group. The effect of this
change has been to redistribute income from the insurance segments to UK Retail
Banking and, to a lesser extent, to Wholesale. In addition, certain costs
previously included in Central group items were reallocated to divisions. The
2003 segmental analysis has been restated to reflect these changes.
2. Future accounting developments
International Financial Reporting Standards ('IFRS')
From 1 January 2005, the Group has been using International Financial
Reporting Standards (IFRS) as its primary financial reporting framework. The
Group will report IFRS results for the first time in its interim report for the
six months to 30 June 2005 and in its 2005 annual report. Comparative
information in these reports will be fully reconciled to reported UK GAAP
numbers.
As a 2005 first-time adopter of IFRS, the Group is required to prepare an
opening balance sheet as at 1 January 2004. Most accounting policy adjustments
to apply IFRS retrospectively will be made against retained earnings in this
opening balance sheet. However, transitional adjustments relating to those
standards for which restated comparatives are not required will be made on 1
January 2005. Restated comparatives are not required for IAS 32 'Financial
Instruments: Disclosure and Presentation', IAS 39 'Financial Instruments:
Recognition and Measurement' and IFRS 4 'Insurance Contracts'.
A Steering Committee has been overseeing the adoption of IFRS for the Group and
has closely monitored developments in IFRS and the impact for the Group's
accounting policies and financial position. Work streams evaluated the impact
of specific accounting changes and undertook significant work during 2004
including technical analysis, development of IFRS-compliant solutions and
project management of necessary systems and process changes. The Group has been
preparing its internal management accounts using IFRS since 1 January 2005.
The overall impact on net assets and earnings up to 1 January 2005 is not
expected to be significant. Current indications for 2005 are that, excluding
the effects of derivative and equity valuations introduced with IAS 39 and FRS
27, the overall impact of these accounting and regulatory changes will reduce
the earnings of the Group, both before and after goodwill amortisation, by less
than 5 per cent, and that the Group's regulatory capital position will not be
materially affected.
Page 24 of 37
LLOYDS TSB GROUP
2. Future accounting developments (continued)
FRS 27 'Life Assurance'
In July 2004, the UK Accounting Standards Board ('ASB') issued an
exposure draft of a new accounting standard setting out changes to the way in
which life assurance business is accounted for. It was initially proposed that
the standard would become effective in 2004, however many of the respondents to
the exposure draft argued that this was unrealistic. After discussion the ASB
agreed to defer mandatory implementation of the resulting accounting standard
(FRS 27) until 2005. This was on the basis that leading members of the life
assurance and bancassurance sectors (including Lloyds TSB) committed both to
adopt the requirements of FRS 27 in 2005, although technically not applicable to
those reporting under IFRS, and to disclose certain additional information
relating to their life assurance operations this year. These disclosures will
be contained in the Group's 2004 annual report and accounts.
As a result of the implementation of FRS27 in 2005 the Group is required to
exclude from the value of in-force business recognised in the balance sheet any
amounts that reflect future investment margins, and measure the liabilities of
the Scottish Widows with-profits fund in accordance with the Financial Services
Authority's realistic capital regime, subject to certain specified adjustments.
3. Mortgage lending
2004 2003
Gross new mortgage lending GBP26.3bn GBP24.2bn
Market share of gross new mortgage lending 9.0% 8.7%
Net new mortgage lending GBP9.3bn GBP8.3bn
Market share of net new mortgage lending 9.2% 8.2%
Mortgages outstanding (year-end) GBP80.1bn GBP70.8bn
Market share of mortgages outstanding 9.1% 9.1%
Page 25 of 37
LLOYDS TSB GROUP
4. Central group items
2004 2003+
GBPm GBPm
Accrual for payment to Lloyds TSB Foundations (31) (31)
Other finance income 39 34
Funding cost of acquisitions less earnings on capital (342) (345)
Profit on sale of emerging markets debt portfolio and
certain closed foreign exchange positions - 295
Central costs and other unallocated items 1 35
(333) (12)
+restated (page 24, note 1)
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
Lloyds TSB Group's pre-tax profit after adjusting for gains and losses on the
disposal of businesses and pre-tax minority interests, averaged over three
years, instead of the dividend on their shareholdings. In 2004, the Group
accrued GBP31 million for payment to the Lloyds TSB Foundations.
During 2003 improved secondary bond market conditions allowed the Group to sell
its remaining portfolio of emerging markets debt securities. Profits on these
bond sales, and certain closed foreign exchange positions, in 2003 totalled
GBP295 million.
5. Group net interest income
2004 2003
GBPm GBPm
Continuing operations
Net interest income 4,920 4,744
Average interest-earning assets, excluding reverse repos 170,225 158,167
Net interest margin (%) 2.89 3.00
During the second half of 2004 the Group net interest margin was significantly
affected by the impact of a change in the Group's wholesale funding and
liquidity strategy towards the use of more capital efficient funding
instruments. Instruments held for liquidity purposes that were classified as
trading instruments have been replaced by reverse repurchase agreements which
historically have been treated as banking book items. In order to preserve
comparability in the Group's published net interest margin these reverse repos
have been excluded from average interest-earning assets. This change to a more
capital efficient funding and liquidity strategy has no significant impact on
Group net interest income. On a similar basis, the net interest margin for the
first half of 2004 was 2.95 per cent and average interest-earning assets
totalled GBP166,320 million. Average interest-earning assets for 2004 exclude
GBP8.8 billion of reverse repos (2004 first half: GBP3.5 billion; 2004 second
half: GBP13.9 billion).
Page 26 of 37
LLOYDS TSB GROUP
6. Other income
2004 2003
GBPm GBPm
Fees and commissions receivable:
UK current account fees 637 623
Other UK fees and commissions 1,243 1,173
Insurance broking 586 604
Card services 520 439
International fees and commissions 138 148
3,124 2,987
Fees and commissions payable (744) (688)
Dealing profits (before expenses):
Foreign exchange income 178 223
Securities and other gains 85 289
263 512
Income from long-term assurance business 578 346
General insurance premium income 554 535
Other operating income 688 682
Total other income - continuing operations* 4,463 4,374
Investment variance 147 125
Changes in economic assumptions (2) (22)
Discontinued operations - 142
Total other income 4,608 4,619
*excluding investment variance and changes in economic assumptions
Page 27 of 37
LLOYDS TSB GROUP
7. Operating expenses
2004 2003
GBPm GBPm
Administrative expenses:
Staff:
Salaries 1,793 1,675
National insurance 140 137
Pensions 338 342
Other staff costs 276 277
2,547 2,431
Premises and equipment:
Rent and rates 274 271
Hire of equipment 17 17
Repairs and maintenance 129 123
Other 110 114
530 525
Other expenses:
Communications and external data processing 439 411
Advertising and promotion 163 160
Professional fees 141 118
Provisions for customer redress 100 200
Other 364 384
1,207 1,273
Administrative expenses 4,284 4,229
Depreciation 589 633
Amortisation of goodwill 44 39
Total operating expenses - continuing operations 4,917 4,901
Discontinued operations - 272
Total operating expenses 4,917 5,173
Cost:income ratio 51.4% 52.2%
Cost:income ratio* 51.1% 52.5%
*continuing operations, excluding investment variance, changes in economic assumptions,
customer redress provisions and sale of emerging markets debt bonds/certain closed foreign exchange
positions in 2003
8. Number of employees (full-time equivalent)
31 December 31 December
2004 2003
UK Retail Banking 43,732 44,295
Insurance and Investments 5,538 5,775
Wholesale and International Banking 18,973 19,827
Other 1,742 1,712
Total number of employees (full-time equivalent) 69,985 71,609
Page 28 of 37
LLOYDS TSB GROUP
9. Charge for bad and doubtful debts
2004 2003
GBPm GBPm
UK Retail Banking
Personal loans/overdrafts 473 430
Credit cards 242 182
Mortgages (42) (18)
673 594
Wholesale and International Banking - continuing operations 193 306
Central group items - (13)
Total charge - continuing operations 866 887
Discontinued operations - 63
Total charge 866 950
Specific provisions 953 946
General provisions (87) 4
Total charge 866 950
% %
Charge as % of average lending:
Personal loans/overdrafts 4.20 4.25
Credit cards 3.42 3.19
Mortgages (0.06) (0.03)
UK Retail Banking 0.71 0.72
Wholesale and International Banking - continuing operations 0.37 0.60
Total charge - continuing operations 0.59 0.66
Closing provisions as % of lending 2004 2003
(excluding unapplied interest) GBPm GBPm
Specific:
Domestic 1,282 (0.8%) 1,132 (0.9%)
International 101 (1.9%) 181 (2.8%)
1,383 (0.8%) 1,313 (0.9%)
General 280 (0.2%) 382 (0.3%)
Total 1,663 (1.0%) 1,695 (1.2%)
Page 29 of 37
LLOYDS TSB GROUP
10. Capital ratios
31 December 31 December
2004 2003
GBPm GBPm
Capital
Tier 1 11,725 11,223
Tier 2 8,800 8,935
20,525 20,158
Supervisory deductions (7,252) (6,898)
Total capital 13,273 13,260
Risk-weighted assets GBPbn GBPbn
UK Retail Banking 60.5 54.1
Insurance and Investments 0.2 0.2
Wholesale and International Banking 71.1 62.8
Central group items 0.4 0.6
Total risk-weighted assets 132.2 117.7
Risk asset ratios
Total capital 10.0% 11.3%
Tier 1 8.9% 9.5%
2004 2003
Post-tax return on average risk-weighted assets 2.01% 2.63%
Post-tax return on average risk-weighted assets - continuing operations* 1.95% 1.87%
*excluding investment variance, changes in economic assumptions and (loss) profit on sale of businesses
During 2004, total capital for regulatory purposes increased by GBP13 million to
GBP13,273 million. Tier 1 capital increased by GBP502 million, mainly as a
result of profit retentions, and tier 2 capital decreased by GBP135 million
largely due to the reduction in the Group's general bad debt provision. There
was an increase in supervisory deductions of GBP354 million, mainly as a result
of an increase of GBP300 million in the long-term assurance business
attributable to the shareholder to GBP6,781 million, from GBP6,481 million in
December 2003.
Page 30 of 37
LLOYDS TSB GROUP
11. Balance sheet information
31 December 31 December
2004 2003
GBPm GBPm
Deposits - customer accounts
Sterling:
Non-interest bearing current accounts 3,277 3,115
Interest bearing current accounts 30,471 27,266
Savings and investment accounts 57,260 55,990
Other customer deposits 19,241 17,605
Total sterling 110,249 103,976
Currency 11,813 12,520
Total deposits - customer accounts 122,062 116,496
Loans and advances to customers
Domestic:
Agriculture, forestry and fishing 2,076 2,025
Manufacturing 3,292 3,211
Construction 1,877 1,497
Transport, distribution and hotels 6,753 4,741
Property companies 5,775 4,577
Financial, business and other services 12,103 9,652
Personal : mortgages 80,065 70,750
: other 22,833 20,139
Lease financing 6,387 6,470
Hire purchase 4,828 4,701
Other 5,321 3,351
Total domestic 151,310 131,114
International:
Latin America 125 557
United States of America 2,385 2,681
Europe 1,587 1,981
Rest of the world 516 623
Total international 4,613 5,842
155,923 136,956
Provisions for bad and doubtful debts* (1,662) (1,677)
Interest held in suspense* (21) (28)
Total loans and advances to customers 154,240 135,251
*figures exclude provisions and interest held in suspense relating to loans and advances to banks
Page 31 of 37
LLOYDS TSB GROUP
12. Economic profit
2004 2003
GBPm GBPm
Average shareholders' equity 9,956 8,460
Profit attributable to shareholders 2,421 3,254
Less: notional charge (896) (761)
Economic profit 1,525 2,493
Economic profit represents the difference between the earnings on the equity
invested in a business and the cost of the equity. The notional charge has been
calculated by multiplying average shareholders' equity by the cost of equity
used by the Group of 9 per cent (2003: 9 per cent).
13. Earnings per share
2004 2003
Basic
Profit attributable to shareholders GBP2,421m GBP3,254m
Weighted average number of ordinary shares in issue 5,590m 5,581m
Earnings per share 43.3p 58.3p
Fully diluted
Profit attributable to shareholders GBP2,421m GBP3,254m
Weighted average number of ordinary shares in issue 5,625m 5,599m
Earnings per share 43.0p 58.1p
14. Tax
The effective rate of tax was 28.7 per cent compared to an effective rate of tax
of 23.6 per cent in 2003, and the standard UK corporation tax rate of 30 per
cent.
A reconciliation of the charge that would result from applying the standard UK
corporation tax rate to profit before tax to the tax charge, is given below:
2004 2003
GBPm GBPm
Profit on ordinary activities before tax 3,493 4,348
Tax charge thereon at UK corporation tax rate of 30% 1,048 1,304
Factors affecting charge:
Goodwill amortisation 9 9
Overseas tax rate differences (14) (9)
Net tax effect of disposals (12) (276)
Tax deductible coupons on non-equity minority interests (12) (12)
Life companies rate differences (16) 16
Other items 1 (7)
Tax charge 1,004 1,025
Page 32 of 37
LLOYDS TSB GROUP
15. 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, and general insurance businesses are separately analysed
to include investment earnings calculated using longer-term investment rates of
return. 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
7.45 per cent for equities and 4.85 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 2004 there was a positive investment variance of GBP147 million, largely
as a result of a rise in the FTSE All Share Index during the year.
16. 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 31 December 2004 as follows:
31 December 31 December
2004 2003
% %
Risk-adjusted discount rate (net of tax) 7.40 7.60
Return on equities (gross of tax) 7.17 7.45
Return on fixed interest securities (gross of tax) 4.57 4.85
Expenses inflation 3.76 3.80
Page 33 of 37
LLOYDS TSB GROUP
17. Profit/loss on sale of businesses
During 2004, the Group disposed of its businesses in Panama,
Guatemala, Honduras, Colombia and Argentina, and a net loss of GBP15 million was
recognised in the profit and loss account. During 2003, the Group disposed of a
number of its overseas businesses and, as a result, a net profit of GBP865 million
was recognised in the profit and loss account in 2003. An itemised breakdown is
provided below.
2004 2003
GBPm GBPm
Panama, Guatemala and Honduras (1) -
Colombia (20) -
Argentina 6 -
French wealth management businesses - (15)
Brazilian businesses - (41)
The National Bank of New Zealand - 921
(15) 865
18. Scottish Widows - realistic balance sheet
Financial Services Authority (FSA) returns for large with-profits companies will
include realistic balance sheet information for the first time this year. The
information included in FSA returns concentrates on the position of the
with-profits fund. However, under the Scottish Widows demutualisation
structure, which was court approved, the fund is underpinned by certain assets
outside the with-profits fund and it is more appropriate to consider the
long-term fund position as a whole to measure the realistic capital position of
Scottish Widows. Estimated positions at 31 December 2004 are shown below.
With-profits fund Long-term fund
GBPbn GBPbn
Available assets, including support account 19.1 22.0
Realistic value of liabilities (18.1) (17.8)
Working capital for fund 1.0 4.2
Working capital ratio 5.1% 19.0%
Risk capital margin cover 2.4 times 9.3 times
In prior years the free asset ratio has been used as a key measure of financial
strength for long-term insurance businesses. Recent FSA rule changes mean that
free asset ratios are no longer directly comparable and, as a result, the
working capital ratio and risk capital margin cover measures provide a more
comparable and meaningful measure of financial strength. On a comparable basis
with 2003 the free asset ratio (assets less liabilities, as a proportion of
liabilities) of Scottish Widows plc would have increased by some 3.4 per cent to
an estimated 17.0 per cent.
Page 34 of 37
LLOYDS TSB GROUP
19. Reconciliation of movements in shareholders' funds
2004 2003
GBPm GBPm
Profit attributable to shareholders 2,421 3,254
Dividends (1,914) (1,911)
Profit for the year 507 1,343
Currency translation differences on foreign currency net investments (11) 118
Actuarial losses recognised in post-retirement benefit schemes (166) (4)
Issue of shares 10 45
Movements in relation to own shares 10 (2)
Goodwill written-back on sale of businesses 3 181
Net increase in shareholders' funds 353 1,681
Shareholders' funds at beginning of year 9,624 7,943
Shareholders' funds at end of year 9,977 9,624
20. Income and expenses reconciliation
To facilitate comparisons with prior periods, certain income and expense
comparisons have been made excluding discontinued operations, changes in
economic assumptions, investment variance, customer redress provisions and the
sale of emerging markets debt bonds and certain closed foreign exchange
positions. Reconciliations are detailed below:
2004 2003
GBPm GBPm
Income, excluding discontinued operations, changes in economic assumptions, 9,434 8,957
investment variance, customer redress provisions, and the sale of emerging markets
debt bonds and certain closed foreign exchange positions
Discontinued operations - 653
Changes in economic assumptions (2) (22)
Investment variance 147 125
Customer redress provisions (12) (100)
Sale of emerging markets debt bonds and certain closed foreign exchange positions - 295
Total income 9,567 9,908
2004 2003
GBPm GBPm
Expenses, excluding discontinued operations and customer redress provisions 4,817 4,701
Discontinued operations - 272
Customer redress provisions 100 200
Total operating expenses 4,917 5,173
Page 35 of 37
LLOYDS TSB GROUP
21. Dividend
A final dividend for 2004 of 23.5p per share (2003: 23.5p), will be paid on 4
May 2005, making a total for the year of 34.2p (2003: 34.2p).
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 16 March
Record date 18 March
Final date for joining or leaving the dividend reinvestment plan 6 April
Final dividend paid 4 May
Annual general meeting 5 May
22. Other information
The financial information included in this news release does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
Statutory accounts for the year ended 31 December 2004 were approved by the
directors on 3 March 2005 and will be delivered to the registrar of companies
following publication on 2 April 2005. 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.
A report on Form 20-F will be filed with the Securities and Exchange
Commission in the United States.
Page 36 of 37
CONTACTS
For further information please contact:-
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 37 of 37
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: 04 March, 2005