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
2 August 2006
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, dated 2 August 2006
re: Interim Results
Lloyds TSB Group plc
Results for half-year to 30 June 2006
PRESENTATION OF RESULTS
The impact of International Financial Reporting Standards, and in particular the
increased use of fair values, has led to greater earnings volatility and, in
order to provide a more comparable representation of business performance, this
volatility has been separately analysed for the Group's insurance and banking
businesses (page 30, note 2). In addition, profits and losses on sale and
closure of businesses have been separately analysed in the Group's results. A
reconciliation of this basis of presentation to the statutory profit before tax
is shown on page 1. Certain commentaries separately analyse the impact, in the
second half of 2005, of customer redress provisions and the strengthening of
reserves for annuitant mortality.
For certain aspects of the Group's life assurance businesses, additional
financial information has been provided on an 'embedded value' basis.
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.
The 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 filed with the US Securities and Exchange Commission for a discussion of
such factors.
CONTENTS
Page
Profit analysis by division 1
Assets by division 1
Performance highlights 2
Summary of results 3
Group Chief Executive's statement 4
Group Finance Director's review of financial performance 7
Summarised segmental analysis 10
Divisional performance 12
- UK Retail Banking 12
- Insurance and Investments 15
- Wholesale and International Banking 19
Consolidated interim income statement - statutory 22
Consolidated interim balance sheet - statutory 23
Consolidated interim statement of changes in equity - statutory 24
Condensed consolidated interim cash flow statement - statutory 25
Condensed segmental analysis - statutory 26
Notes 28
Contacts for further information 41
PROFIT ANALYSIS BY DIVISION
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
GBPm GBPm % GBPm
UK Retail Banking
Before provisions for customer redress 713 699 2 771
Provisions for customer redress - - (150)
713 699 2 621
Insurance and Investments
Before strengthening of reserves for mortality 466 425 10 455
Strengthening of reserves for mortality - - (155)
466 425 10 300
Wholesale and International Banking 768 695 11 829
Central group items (195) (193) (231)
Profit before tax - excluding volatility and 1,752 1,626 8 1,519
profit on sale and closure of businesses
Volatility (page 30, note 2)
- Banking (2) (73) (51)
- Insurance (61) 131 307
- Policyholder interests 90 29 282
Profit on sale and closure of businesses (page - - 50
37, note 13)
Profit before tax 1,779 1,713 4 2,107
Taxation (543) (509) (756)
Profit for the period 1,236 1,204 1,351
Profit attributable to minority interests 22 12 50
Profit attributable to equity shareholders 1,214 1,192 1,301
Profit for the period 1,236 1,204 1,351
Earnings per share 21.7p 21.3p 23.3p
ASSETS BY DIVISION
30 June 30 June 31 December
2006 2005 Change 2005
GBPm GBPm % GBPm
UK Retail Banking 105,726 98,911 7 102,945
Insurance and Investments 82,636 77,978 6 80,148
Wholesale and International Banking 136,157 126,568 8 124,044
Central group items 1,248 2,649 (53) 2,617
Total assets 325,767 306,106 6 309,754
Page 1 of 41
PERFORMANCE HIGHLIGHTS
Unless otherwise stated, the analysis throughout this document compares the
half-year to 30 June 2006 with the half-year to 30 June 2005.
Results - statutory
- Profit before tax increased by GBP66 million, or 4 per cent, to GBP1,779
million.
- Profit attributable to equity shareholders increased by 2 per cent to
GBP1,214 million.
- Earnings per share increased by 2 per cent to 21.7p.
- Post-tax return on average shareholders' equity decreased to 23.5 per cent,
from 24.9 per cent.
- Total capital ratio 10.3 per cent, tier 1 capital ratio 7.4 per cent.
- Interim dividend maintained at 10.7p.
Results - excluding volatility
- Profit before tax increased by GBP126 million, or 8 per cent, to GBP1,752
million.
- Income growth of 6 per cent exceeded cost growth of 1 per cent. Cost:income
ratio improved to 50.6 per cent, from 53.0 per cent.
- Trading surplus increased by GBP260 million, or 11 per cent, to GBP2,552
million.
- Earnings per share increased by 7 per cent to 22.1p.
- Economic profit increased by 7 per cent to GBP773 million.
- Post-tax return on average shareholders' equity was broadly stable at 24 per
cent.
Key highlights
- Balanced and continuing trading momentum with income up 6 per cent and
trading surplus up 11 per cent, excluding volatility.
- Excellent cost control. Income growth, excluding volatility, of 6 per cent
exceeded cost growth of 1 per cent delivering widened positive jaws of 5
percentage points. Productivity improvement programme on track.
- Good trading performance in UK Retail Banking, with a more balanced sales
mix. Overall product sales volumes up 17 per cent. Income up 3 per cent,
costs reduced by 3 per cent resulting in trading surplus increasing by
8 per cent.
- Excellent growth in Scottish Widows with a 35 per cent increase in new
business weighted sales (bancassurance up 64 per cent; IFA sales up 25
per cent). Improved new business margin. Profit before tax, adjusting for
the impact of capital repatriation in 2005 and insurance grossing, increased
by 15 per cent.
- Continued strong trading momentum in Wholesale and International Banking
supported by a 22 per cent increase in cross-selling income. Income growth
of 8 per cent exceeded cost growth of 2 per cent; trading surplus increased
by 17 per cent.
- Impairment up 20 per cent; overall credit quality remains satisfactory.
- Capital ratios remain robust.
Page 2 of 41
SUMMARY OF RESULTS
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
GBPm GBPm % GBPm
Results - statutory
Total income, net of insurance claims 5,189 4,962 5 5,578
Operating expenses 2,610 2,583 (1) 2,888
Trading surplus 2,579 2,379 8 2,690
Impairment losses on loans and advances 800 666 (20) 633
Profit before tax 1,779 1,713 4 2,107
Profit attributable to equity shareholders 1,214 1,192 2 1,301
Earnings per share (page 38, note 15) 21.7p 21.3p 2 23.3p
Post-tax return on average shareholders' equity 23.5% 24.9% 26.3%
Results - excluding volatility*
Total income, net of insurance claims 5,162 4,875 6 5,195
Operating expenses 2,610 2,583 (1) 2,738
Trading surplus 2,552 2,292 11 2,457
Impairment losses on loans and advances 800 666 (20) 633
Profit before tax 1,752 1,626 8 1,824
Economic profit (page 38, note 14) 773 725 7 876
Earnings per share 22.1p 20.7p 7 23.5p
Post-tax return on average shareholders' equity 24.0% 24.1% 26.8%
Post-tax return on average risk-weighted assets 1.66% 1.73% 1.81%
Shareholder value
Closing market price per share (period end) 531.5p 473p 12 488.5p
Total market value of shareholders' equity GBP29.9bn GBP26.5bn 13 GBP27.4bn
Proposed dividend per share (page 40, note 18) 10.7p 10.7p 23.5p
30 June 30 June 31 December
2006 2005 Change 2005
Balance sheet - statutory GBPm GBPm % GBPm
Shareholders' equity 10,157 9,392 8 10,195
Net assets per share (pence) 178 165 8 180
Total assets 325,767 306,106 6 309,754
Loans and advances to customers 182,157 167,583 9 174,944
Customer deposits 136,465 130,550 5 131,070
Risk asset ratios
Total capital 10.3% 9.6% 10.9%
Tier 1 capital 7.4% 7.7% 7.9%
*results for the half-year to 31 December 2005 also exclude profit on sale and
closure of businesses, customer redress provisions and strengthening of reserves
for mortality.
Page 3 of 41
GROUP CHIEF EXECUTIVE'S STATEMENT
Lloyds TSB had a pleasing first half of the year, as we delivered a good level
of earnings growth despite the anticipated higher impairment losses in our
unsecured consumer portfolios. We have continued to show tangible progress
against the second phase of our strategy, which focuses on building customer
franchises for sustained growth. We have seen strong growth in sales, improved
levels of customer acquisition and success in deepening relationships. All
three divisions delivered strong trading surplus growth. As importantly, the
leading indicators for income and costs, as well as the record scores in
employee engagement and customer satisfaction, show that we are executing well
and point to continued growth in the future.
During the first half of 2006, we made good progress on the Groupwide
initiatives of improving productivity and better capital management. Our
productivity programme is on track to deliver significant benefits and our
quality programmes are enhancing our service to customers as well as delivering
efficiency gains. We have seen an improvement in our cost:income ratio from
53.0 per cent in the first half of 2005 to 50.6 per cent in 2006, excluding
volatility. This has been achieved at a time when we are continuing to invest
in our key growth franchises. We are managing our capital more efficiently, and
remain on track with plans we set out earlier this year in the areas of
securitisation, origination and distribution, and the additional repatriation of
capital from Scottish Widows. Our capital ratios remain robust.
We have continued to develop our risk framework, which is important as it allows
us to manage the risks as we grow the business. The deterioration in the
unsecured consumer lending environment, particularly reflecting the changes to
personal bankruptcy laws, that we highlighted earlier in the year, has led to an
increase in our impairment charge. We are, however, expecting greater stability
in the charge for retail impairments in the second half as the benefits of our
tightened credit criteria show through. Unsecured consumer lending represents
12 per cent of our customer lending and, given the corporate lending and
mortgage portfolios remain of high quality, our overall credit quality remains
satisfactory.
We have made a good start to 2006. We have delivered another half-year of good
growth and have continued with the successful implementation of our Group and
divisional strategies. We have three well balanced divisions and this allows
the Group to manage successfully through the differing parts of the economic
cycle and credit environment. We have achieved growth whilst maintaining a high
return on equity at 24.0 per cent.
The highlights of each division's performance, excluding volatility, are
summarised below:
The Retail Bank reported strong trading surplus growth, up 8 per cent,
underpinned by positive jaws of 6 per cent. Income increased 3 per cent whilst
costs were reduced by 3 per cent. Profit before tax grew by 2 per cent as the
increased charge for impairments impacted the results.
During the first half of 2006, there has also been substantial progress against
the priorities we have established for the Retail Bank. Sales volumes increased
by 17 per cent, and we have seen better growth in the higher value distribution
channels with sales in the branch channel up 31 per cent, and the telephony and
internet channels up 38 per cent. We are shifting our sales focus to the
product areas where we expect greatest future growth and are seeing good results
in bancassurance sales (up 64 per cent) and bank savings (up 10 per cent).
Page 4 of 41
Our efficiency improvements have been achieved at the same time as we have
invested further in the franchise, which is enabling us to develop new customer
offers and improve our processes. Both of these are supporting the improvements
in our customer satisfaction scores which are now at record high levels.
The Retail Bank has grown its customer franchise, with the recruitment of new
target current account customers up 65 per cent. The continued focus on
improving the levels of service quality and customer satisfaction is helping to
maintain our current low levels of customer attrition. Our productivity
programme is supporting the quality improvements and is enabling us to free up
more time to spend with our customers. So far it has generated the equivalent
of an additional 660 staff to serve customers.
In Insurance and Investments our underlying profit before tax increased by 15
per cent, underpinned by strong profitable growth across our bancassurance and
IFA distribution channels and we remain very well placed to benefit from the
anticipated growth in savings and investment business over the coming years.
The focus on profitable growth resulted in an improvement in the new business
contribution, on an embedded value basis, of 28 per cent, and the life and
pensions new business margin increased to 28.8 per cent, from 25.8 per cent.
Good improvements were also achieved in key individual product margins.
Scottish Widows remains strongly capitalised and, in addition to the payment of
the second annual dividend to the Group in March 2006, we again expect it to
make a further distribution to the Group later this year as we continue to
improve the capital efficiency of the business.
Total Scottish Widows sales increased by 35 per cent, and we made particularly
strong progress in our more profitable bancassurance channel, with a 64 per cent
increase in weighted sales reflecting the ongoing development of our product
offers and salesforce. We delivered very strong growth in investment sales,
with the sales of OEICs up 153 per cent, underpinned by the improvements we have
made in the OEIC product portfolio and higher levels of customer confidence in
the stock market. In addition to writing substantially higher levels of
business through the branch network, it is pleasing that we are also achieving
higher levels of sales from the Private Bank and to business customers. We have
seen continued strong growth in our IFA business, with a 25 per cent improvement
in weighted sales in the first half, due to our continued product and service
developments, as Scottish Widows maintained its position as a key distributor in
this market.
Our General Insurance business delivered another strong half, with profits up 21
per cent. The performance reflects the results of our investment in the
business, which is leading to improved customer service, reduced claims costs
and enhanced sales volumes to franchise customers.
In Wholesale and International Banking, we are continuing to see the benefits of
our investment for growth strategy, with a trading surplus increase of 17 per
cent. Our results show excellent progress in our core businesses and the
division delivered an 11 per cent improvement in profit before tax. The charge
for impairment losses on loans increased given, as expected, the lower level of
releases and recoveries in Corporate Markets, and a higher level of consumer
finance losses in the Asset Finance businesses.
The divisional results demonstrate the success of the new strategies in our
Business Banking and Corporate Markets businesses, which are providing the
engine for sustained growth. Despite the ongoing investments in staff, new
products and premises, we have again maintained our discipline of positive jaws,
with the rate of growth in income 6 per cent ahead of the growth in costs, as we
ensure we realise the benefits of recent higher levels of investment.
Page 5 of 41
The Corporate Markets businesses delivered another strong performance with a 20
per cent improvement in profits. The results demonstrate our successes in
deepening our relationships with customers, as we meet more of their needs
through a greater understanding of their businesses, and continuing to improve
our products and services. We were also delighted to be awarded the CBI
Corporate Bank of the Year Award, for the second year running, a tribute to the
hard work of our staff in this area. We continue to manage our lending
portfolios very closely, and asset quality remains strong.
In Business Banking, we have delivered strong profit growth of 25 per cent,
whilst also attracting new customers in both the start-up and switcher markets.
We have also been successful in winning a greater share of our customers'
business, which is reflected in good customer lending and deposit growth.
Summary
Turning to the second half of 2006, we expect to make further progress in each
of our strategic objectives, building stronger business franchises, improving
our efficiency and developing those defining skills and competencies that will
support our future growth plans. I firmly believe that great businesses are
based on strong customer franchises and we will continue to put the needs of the
customer at the heart of our business strategies, which will allow us to
continue to grow in the coming years.
Integral to our objectives is the development of a management team that is
committed to delivering success. We have continued to develop our leadership
team and now have an experienced senior management group. I am pleased that we
have again, in the last six months, attracted some very high calibre recruits,
who are committed to helping us grow the business and develop a high performance
culture across the organisation.
We take our commitment to the broader community very seriously and Lloyds TSB
staff have supported a wide range of community programmes throughout this
period, both in terms of financial support and through the giving of their time
and energy. We are also very proud of the work of the Lloyds TSB Foundations,
which make a major difference to the lives of many thousands of people each
year, and in February we gave a further GBP34 million in support of their
continued work.
Overall, we have made a good start to 2006, delivering good results whilst
continuing the successful implementation of our growth strategies across the
Group, and I look forward to reporting our further progress at the end of this
year. Finally, let me again take this opportunity to express my thanks to all
our staff across the Group. Their determination to serve our customers and
their support for the implementation of our growth strategy, are major factors
behind our progress and underpin our future success.
J Eric Daniels
Group Chief Executive
Page 6 of 41
GROUP FINANCE DIRECTOR'S REVIEW OF FINANCIAL PERFORMANCE
In the first half of 2006, statutory profit before tax was GBP1,779 million, an
increase of GBP66 million (4 per cent) compared to GBP1,713 million in the first
half of 2005. Profit attributable to equity shareholders increased by GBP22
million, or 2 per cent, to GBP1,214 million and earnings per share increased by
2 per cent to 21.7p.
To enable meaningful comparisons to be made with the first half of 2005, the
remaining income statement commentaries exclude the impact of volatility.
Continued earnings momentum
Profit before tax increased by GBP126 million, or 8 per cent, to GBP1,752
million, demonstrating continued momentum in all divisions. Revenue growth of 6
per cent exceeded cost growth of 1 per cent, with each division delivering a
widened gap between revenue growth and cost growth, on a like-for-like basis.
Our strategy to deepen customer relationships at the same time as improving
productivity has led to strong and increased levels of trading surplus growth in
each division. Earnings per share increased by 7 per cent to 22.1p and economic
profit also increased by 7 per cent to GBP773 million. The post-tax return on
average shareholders' equity remains strong and was broadly stable at 24.0 per
cent.
Balanced income growth
Overall income growth of 6 per cent reflects good progress in balance sheet
growth in both customer assets and liabilities, as well as increased fee income.
Group net interest income, excluding insurance grossing adjustments, increased
by GBP177 million, or 7 per cent, compared with the first half of last year.
Strong levels of customer lending growth in Business Banking and Corporate
Markets, and good growth in mortgages, increased banking average
interest-earning assets by GBP21 billion, or 11 per cent, to GBP211 billion.
Over the last 12 months, total assets increased by 6 per cent to GBP326 billion,
with a 9 per cent increase in loans and advances to customers. Strong growth in
corporate and small business lending, and good levels of growth in mortgages,
offset the expected slowdown in the rate of growth in unsecured personal
lending. Over the same period, customer deposits increased by 5 per cent to
GBP136 billion, largely as a result of good growth in current account credit
balances and saving balances in the retail bank.
The net interest margin from our banking businesses (page 32, note 4) decreased
slightly from 2.79 per cent in the first half of 2005 to 2.69 per cent in the
first half of 2006. Whilst individual product margins were broadly stable,
stronger growth in finer margin mortgage and corporate lending led to a negative
mix effect which accounted for 9 basis points of the fall in margin.
Other income, net of insurance claims and excluding insurance grossing
adjustments, increased by GBP93 million (4 per cent) to GBP2,347 million. Fees
and commissions receivable increased by 3 per cent to GBP1,518 million as a
result of higher income from strong growth in added value current account and
private banking fees, and an increase in Open-Ended Investment Company fees.
Page 7 of 41
Excellent cost control
The Group continues to invest significantly in improving levels of service
quality and processing efficiency, the benefits of which are seen in an
excellent cost performance. During the first half of 2006, operating expenses
increased by only 1 per cent to GBP2,610 million. Over the last 12 months, staff
numbers have fallen by 4,438 (6 per cent) to 65,167, largely as a result of
improved efficiency in back office processing centres and the reduction of
administration carried out in the branch network. These improvements in
operational efficiency have resulted in an improved cost:income ratio, 2.4
percentage points lower at 50.6 per cent.
The Group's programme of productivity improvement initiatives remains on track
to deliver net benefits of approximately GBP30 million in 2006 and approximately
GBP100-GBP150 million in 2007. During the first half of 2006 we invested just
over GBP60 million in a number of initiatives, funded by benefits of GBP50
million from initiatives launched in the last year.
Overall asset quality remains satisfactory
Impairment losses on loans and advances increased by 20 per cent to GBP800
million. In UK Retail Banking, impairment losses on loans and advances
increased by GBP86 million, or 16 per cent, to GBP632 million, reflecting more
customers, with higher levels of indebtedness, experiencing repayment
difficulties as well as higher levels of customer bankruptcies. As a result of
the improved quality of new business written during 2005, following the recent
tightening of credit criteria, and improvements in the Group's collection
procedures, we continue to expect greater stability in the level of retail
impairment in the second half of 2006. The rate of growth in the number of
customers filing for bankruptcy and IVAs does, however, remain a key factor in
the outlook for retail impairment. In Wholesale and International Banking, the
charge for impairment losses on loans and advances increased by GBP61 million to
GBP159 million, as a result of the high level of releases and recoveries in
Corporate Markets in the first half of 2005 which, as expected, were not
repeated in the first half of 2006, and a higher level of consumer finance
lending impairment in the Asset Finance business.
Our impairment charge expressed as a percentage of average lending was 0.88 per
cent, compared to 0.80 per cent in the first half of 2005 (page 35, note 9).
Impaired assets totalled GBP4,029 million, compared with GBP4,122 million at 31
December 2005, representing 2.1 per cent of total lending, down from 2.3 per
cent at 31 December 2005.
Capital position remains robust
At the end of June 2006, the total capital ratio was 10.3 per cent and the tier
1 ratio was 7.4 per cent. During the half-year, risk-weighted assets increased
by 5.5 per cent to GBP152.9 billion, reflecting strong growth in our mortgage
and Corporate Markets businesses. The Board has decided to maintain the interim
dividend at 10.7p per share.
We have also made good progress in our plans to improve the way in which the
balance sheet is managed, moving from a 'buy and hold' approach towards an '
origination and distribution' framework. Our preparations for the
securitisation of mortgage assets are well advanced and we anticipate the
completion of an initial securitisation tranche of approximately GBP5 billion in
the second half of 2006. This programme will be expanded in 2007 with the
planned securitisation programme totalling at least GBP10 billion.
Page 8 of 41
Scottish Widows continues to be one of the most strongly capitalised life
assurance companies in the UK. At the end of June 2006, the working capital
ratio of the Scottish Widows Long-Term Fund was an estimated 19.6 per cent (page
39, note 16) and the required risk capital margin was covered over 16 times.
We continue to examine opportunities to improve our capital efficiency and have
work in progress that we believe will allow Scottish Widows to repatriate
further capital to the Group, whilst maintaining a strong capital position. In
the second half of 2006 we expect additional capital repatriation of
approximately GBP400 million.
The Group's pension schemes accounting deficit totalled GBP2,799 million at the
end of June 2006 (GBP1,959 million net of deferred tax) as cash contributions to
the Group's defined benefit schemes exceeded the regular cost. The Group has
recently reached agreement with the Lloyds TSB Group pension schemes' trustees
to fund the schemes' actuarial funding deficit of GBP1.5 billion over a period
of 10 years. We also expect to continue to make additional voluntary
contributions and, if the Group's total deficit contributions remain at broadly
the same levels as in recent years, we would expect to see the accounting
deficit eliminated over a period of approximately 10 years, and the actuarial
funding deficit eliminated over approximately 6 years.
Delivering strong and balanced trading momentum
During the first half of 2006, the Group has delivered strong and balanced
trading momentum, with good sales growth, across all of the divisions.
Substantial improvements in productivity and operational efficiency have
resulted in excellent cost control and widened positive jaws. Asset quality
remains satisfactory, our post-tax return on equity remains high and we have a
robust capital position. As a result, we expect 2006 to be another good year
for the Group, with good levels of revenue growth, excellent cost control and
continued earnings momentum.
Helen A Weir
Group Finance Director
Page 9 of 41
SUMMARISED SEGMENTAL ANALYSIS
Insurance and Investments
Half-year to
30 June 2006
Excluding Wholesale
UK insurance Insurance and Central
Retail grossing Insurance and International group
Banking adjustment gross up+ Investments Banking items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest income 1,794 28 35 63 1,194 (209) 2,842
Other income 783 832 2,517 3,349 805 22 4,959
Total income 2,577 860 2,552 3,412 1,999 (187) 7,801
Insurance claims - (95) (2,544) (2,639) - - (2,639)
Total income, net of 2,577 765 8 773 1,999 (187) 5,162
insurance claims
Operating expenses (1,232) (312) 5 (307) (1,072) 1 (2,610)
Trading surplus (deficit) 1,345 453 13 466 927 (186) 2,552
Impairment losses on loans (632) - - - (159) (9) (800)
and advances
Profit (loss) before tax* 713 453 13 466 768 (195) 1,752
Volatility
- Banking - - - - - (2) (2)
- Insurance - (61) - (61) - - (61)
- Policyholder interests - - 90 90 - - 90
Profit (loss) before tax 713 392 103 495 768 (197) 1,779
Insurance and Investments
Half-year to
30 June 2005
Excluding Wholesale
UK insurance Insurance and Central
Retail grossing Insurance and International group
Banking adjustment gross up+ Investments Banking items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest income 1,711 35 159 194 1,084 (200) 2,789
Other income 801 781 4,892 5,673 759 21 7,254
Total income 2,512 816 5,051 5,867 1,843 (179) 10,043
Insurance claims - (108) (5,060) (5,168) - - (5,168)
Total income, net of 2,512 708 (9) 699 1,843 (179) 4,875
insurance claims
Operating expenses (1,267) (293) 19 (274) (1,050) 8 (2,583)
Trading surplus (deficit) 1,245 415 10 425 793 (171) 2,292
Impairment losses on loans (546) - - - (98) (22) (666)
and advances
Profit (loss) before tax* 699 415 10 425 695 (193) 1,626
Volatility
- Banking - - - - - (73) (73)
- Insurance - 131 - 131 - - 131
- Policyholder interests - - 29 29 - - 29
Profit (loss) before tax 699 546 39 585 695 (266) 1,713
*excluding volatility.
+the Group's income statement includes premiums receivable from policyholders
and the returns on investments held within the life funds and OEICs which are
shown within total income, and related deductions within interest expense and
insurance claims. There is no material impact upon the Group's profitability.
This segmental analysis separately identifies the impact of the insurance
grossing adjustment.
In the summarised segmental analysis above, the results of the Goldfish
business, which was sold in December 2005, have been transferred into Central
group items in order to allow a meaningful comparison of the results of UK
Retail Banking.
Page 10 of 41
SUMMARISED SEGMENTAL ANALYSIS (continued)
Insurance and Investments
Half-year to
31 December 2005
Excluding Wholesale
UK insurance Insurance and Central
Retail grossing Insurance and International group
Banking adjustment gross up+ Investments Banking items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest income 1,772 44 151 195 1,181 (193) 2,955
Other income 773 651 6,792 7,443 869 18 9,103
Total income 2,545 695 6,943 7,638 2,050 (175) 12,058
Insurance claims - (89) (6,929) (7,018) - - (7,018)
Total income, net 2,545 606 14 620 2,050 (175) 5,040
of insurance claims
Operating expenses (1,405) (314) (6) (320) (1,131) (32) (2,888)
Trading surplus (deficit) 1,140 292 8 300 919 (207) 2,152
Impairment losses on loans (519) - - - (90) (24) (633)
and advances
Profit (loss) before tax* 621 292 8 300 829 (231) 1,519
Volatility
- Banking - - - - - (51) (51)
- Insurance - 307 - 307 - - 307
- Policyholder interests - - 282 282 - - 282
Profit (loss) on sale and - - - - (6) 56 50
closure of businesses
Profit (loss) before tax 621 599 290 889 823 (226) 2,107
*excluding volatility and profit (loss) on sale and closure of businesses.
+the Group's income statement includes premiums receivable from policyholders
and the returns on investments held within the life funds and OEICs which are
shown within total income, and related deductions within interest expense and
insurance claims. There is no material impact upon the Group's profitability.
This segmental analysis separately identifies the impact of the insurance
grossing adjustment.
In the summarised segmental analysis above, the results of the Goldfish
business, which was sold in December 2005, have been transferred into Central
group items in order to allow a meaningful comparison of the results of UK
Retail Banking.
Page 11 of 41
DIVISIONAL PERFORMANCE
UK RETAIL BANKING
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
GBPm GBPm % GBPm
Net interest income 1,794 1,711 5 1,772
Other income 783 801 (2) 773
Total income 2,577 2,512 3 2,545
Operating expenses (1,232) (1,267) 3 (1,255)
Trading surplus 1,345 1,245 8 1,290
Impairment losses on loans and advances (632) (546) (16) (519)
Profit before tax, before provisions for customer 713 699 2 771
redress
Provisions for customer redress - - (150)
Profit before tax 713 699 2 621
Cost:income ratio, before provisions for customer 47.8% 50.4% 49.3%
redress
30 June 30 June 31 December
2006 2005 2005
Total assets GBP105.7bn GBP98.9bn 7 GBP102.9bn
Total risk-weighted assets GBP61.6bn GBP58.4bn 5 GBP60.4bn
Key highlights
- Income growth of 3 per cent and a reduction in costs of 3 per cent resulted
in an 8 per cent increase in trading surplus.
- Strong sales performance in each key distribution channel; overall product
sales up 17 per cent. Significant progress in the rebalancing of sales mix
towards a broader set of products, with an increased focus on non-lending
related revenue streams.
- Excellent progress in growing the current account customer franchise, with a
65 per cent increase in target customer current account recruitment.
- Good income growth, against the background of a significant decrease in
income from creditor insurance.
- Excellent cost control, with a clear focus on improving processing
efficiency and service quality. Positive jaws widened.
- Impairment charge up 16 per cent, reflecting market wide deterioration in
retail credit quality. Greater stability expected in the second half of
2006.
- Substantial improvements in levels of customer satisfaction and employee
engagement.
Page 12 of 41
UK RETAIL BANKING (continued)
During the first half of 2006 UK Retail Banking has made substantial progress in
increasing sales, and improving its sales effectiveness and operational
efficiency. Product sales increased by 17 per cent, with performance
improvement over a broad range of products, particularly in current accounts,
bank savings and OEICs. The retail bank has also continued to grow its customer
franchise, particularly in the recruitment of new target current account
customers, and has substantially improved levels of service quality, customer
satisfaction and cost efficiency.
Profit before tax from UK Retail Banking increased by GBP14 million, or 2 per
cent, to GBP713 million, as good levels of business growth were partly offset by
the impact of higher impairment losses. Increased income from the Group's
mortgage lending and customer deposit portfolios more than offset the impact of
lower levels of unsecured consumer lending and related insurance products.
Total income increased by GBP65 million, or 3 per cent, notwithstanding a
significant decrease in income from unsecured creditor insurance, whilst costs
fell by 3 per cent. The trading surplus increased by 8 per cent.
During the first half of 2006 significant progress has been made in re-balancing
the sales mix in the retail bank towards a broader set of products, with an
increasing focus on non-lending related income streams. Target customer current
account recruitment increased by 65 per cent, compared with the first half of
last year, and significant improvements have been made in the sale of added
value current accounts, bank savings products, bancassurance products and in the
level of retail bank customer introductions to our wealth management business.
Lloyds TSB remains a leader in the added value current account market, with over
4 million customers.
During the first half of the year, we have continued to deliver improved levels
of growth in branch based sales, particularly current accounts and savings and
investment products, whilst continued investment in our direct channel
capabilities has supported good levels of business growth. Branch network sales
rose by 31 per cent and product sales via the internet and telephone increased
by 38 per cent as customers are increasingly choosing to buy through direct
channels as well as through our branches. Our internet bank has 4 million
registered users and nearly 300 million transactions were processed through
internet banking in the first half of 2006, an increase of 37 per cent.
Gross new mortgage lending for the Group totalled GBP13.0 billion (2005H1:
GBP11.8 billion). Mortgage balances outstanding increased by 10 per cent to
GBP91.8 billion and net new lending totalled GBP3.4 billion, resulting in a
market share of net new lending of 6.7 per cent, as the Group focused on
maintaining returns in a competitive market. Personal loan balances outstanding
at the period end were GBP11 billion, a decrease of 1 per cent and credit card
balances totalled GBP7 billion, an increase of 3 per cent. The reduction in new
unsecured consumer lending reflects a slowdown in customer demand and the recent
tightening of credit criteria. Credit balances on current accounts and savings
and investment accounts increased by 6 per cent.
UK Wealth Management continues to make good progress. The Investment Portfolio
Service (IPS), launched in 2005, is attracting both existing and new clients.
Over half of our existing clients have moved across to IPS whilst new client
recruitment is up 143 per cent and new Funds Under Management have grown by 128
per cent compared to the first half of 2005. Wealth Protection sales have also
seen good growth and banking deposits are up over 20 per cent. This trend is
expected to continue as we roll out expansion plans which include making more
Private Bankers accessible to customers in key branch locations.
Page 13 of 41
UK RETAIL BANKING (continued)
Operating expenses remained very well controlled, decreasing by 3 per cent.
Significant improvements have been made in the rationalisation of back office
operations to improve efficiency, and this has led to a substantial improvement
in the levels of customer service and satisfaction. We continue to increase the
proportion of front office to back office staff and have substantially improved
our sales productivity.
Impairment losses on loans and advances increased by GBP86 million, or 16 per
cent, to GBP632 million, reflecting the impact of more customers, with higher
levels of indebtedness, experiencing repayment difficulties and higher levels of
customer bankruptcies. The impairment charge as a percentage of average lending
for personal loans and overdrafts increased to 6.18 per cent, from 5.82 per cent
in the first half of 2005, while the charge in the credit card portfolio
increased to 6.78 per cent, from 5.66 per cent. Overall, the impairment charge
as a percentage of average lending was 1.23 per cent, compared to 1.16 per cent
in the first half of last year. Over 99 per cent of new personal loans and 80
per cent of new credit cards sold during the first half of 2006 were to existing
customers, where the Group has a better understanding of an individual
customer's total financial position. The probability of default on new personal
loan and credit card business written has continued to reduce over the last six
months and dynamic delinquency measures remain in line with our expectations.
In Cheltenham & Gloucester (C&G), mortgage credit quality remains good and, as a
result, the impairment charge was unchanged at GBP6 million for the half-year.
The average indexed loan-to-value ratio on the mortgage portfolio was 44 per
cent (31 December 2005: 43 per cent), and the average loan-to-value ratio for
new mortgages and further advances written during the first half of 2006 was 64
per cent (2005: 64 per cent). At 30 June 2006, only 0.7 per cent of balances
had an indexed loan-to-value ratio in excess of 95 per cent (31 December 2005:
0.6 per cent).
Page 14 of 41
INSURANCE AND INVESTMENTS
Excluding volatility Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
GBPm GBPm % GBPm
Net interest income 28 35 (20) 44
Other income 832 781 7 806
Total income 860 816 5 850
Insurance claims (95) (108) 12 (89)
Total income, net of insurance claims 765 708 8 761
Operating expenses (312) (293) (6) (314)
Profit before tax, excluding strengthening of 453 415 9 447
reserves for mortality
Strengthening of reserves for mortality - - (155)
Insurance grossing adjustment 13 10 8
Profit before tax 466 425 10 300
Profit before tax analysis
Life, pensions and OEICs* 335 323 4 332
General insurance 114 94 21 115
Scottish Widows Investment Partnership 17 8 113 8
Profit before tax* 466 425 10 455
*excluding strengthening of reserves for mortality.
Key highlights
- Significantly improved profit performance. Profit before tax increased by 10
per cent to GBP466 million.
- Strong income growth. On a like-for-like basis, adjusting for the impact of
the GBP800 million capital repatriation in December 2005, income, net of
insurance claims, increased by 11 per cent, exceeding cost growth of 6 per
cent. On the same basis, profit before tax increased by 15 per cent.
- Strong sales performance. 35 per cent increase in Scottish Widows' new
business weighted sales.
- Excellent progress in increasing bancassurance sales, up 64 per cent,
with a very strong increase in the sale of OEICs.
- Good momentum maintained in sales through Independent Financial Advisers.
Sales increased by 25 per cent, reflecting excellent growth in the sales
of corporate pension products.
- Improved profitability. On an embedded value basis, life and pensions new
business contribution in Scottish Widows increased by 28 per cent and life
and pensions new business margin increased by 3 percentage points to 28.8
per cent. Good improvement in key individual product margins.
- Strong capital position of Scottish Widows maintained. Scottish Widows
continues to deliver improving capital efficiency and self-financing growth,
in addition to its regular dividend payment to the Group.
- Good progress with General Insurance's strategy to develop its manufacturing
business and build distribution capability. Clear focus on improving
underwriting, supply chain efficiency and claims management led to profit
before tax increasing by 21 per cent. Combined ratio improved 7 percentage
points to 78 per cent.
Page 15 of 41
INSURANCE AND INVESTMENTS (continued)
Profit before tax increased by GBP41 million, or 10 per cent, to GBP466 million.
In December 2005, Scottish Widows repatriated GBP800 million surplus capital to
the Group as part of a capital restructuring programme. This capital
repatriation has the effect of reducing investment earnings and increasing
funding charges by a total of GBP20 million in the first half of 2006. Adjusting
the first half of 2005 for this impact and excluding insurance grossing
adjustments, profit before tax increased by 15 per cent, income increased by 11
per cent and costs increased by 6 per cent.
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
Weighted sales (regular + 1/10 single) GBPm GBPm % GBPm
Life and pensions:
Savings and investment 73 72 1 72
Protection 24 30 (20) 27
Individual pensions 139 141 (1) 130
Corporate and other pensions 157 102 54 112
Retirement income 41 34 21 34
Life and pensions 434 379 15 375
OEICs 162 64 153 84
Life, pensions and OEICs 596 443 35 459
Bancassurance 210 128 64 146
Independent financial advisers 351 280 25 282
Direct 35 35 - 31
Life, pensions and OEICs 596 443 35 459
Overall, weighted sales in 2006 increased by 35 per cent reflecting, in
particular, strong growth in the sales of OEICs and corporate pension products.
Bancassurance sales improved significantly and were 64 per cent higher at GBP210
million, including excellent growth in the weighted sales of OEICs through the
branch network and to Lloyds TSB private banking clients. IFA sales grew 25 per
cent to GBP351 million, supported by significant product and service
enhancements in pensions and investments. Scottish Widows' overall market share
increased to an estimated 6.3 per cent, from 6.1 per cent in the first half of
2005.
Page 16 of 41
INSURANCE AND INVESTMENTS (continued)
Scottish Widows - profit before tax analysis* Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
Life and pensions (embedded value basis)+ GBPm GBPm % GBPm
New business contribution 125 98 28 126
Existing business 111 104 7 96
Investment earnings - normalised 76 87 (13) 99
Profit before tax, adjusted for capital 312 289 8 321
repatriation
OEICs 44 23 91 41
Profit before tax, adjusted for capital 356 312 14 362
repatriation
Impact of GBP800 million capital repatriation to - 20 18
Group
Profit before tax (life, pensions and OEICs) 356 332 7 380
New business margin (life and pensions) 28.8% 25.8% 33.6%
*excluding volatility and strengthening of reserves for mortality.
+includes the impact of the realistic valuation of liabilities within the
with-profits fund.
Adjusting for the impact of last year's capital repatriation, profit before tax
from the Group's life, pensions and OEICs business, on an embedded value basis,
increased by 14 per cent to GBP356 million. The Group's strategy to improve its
returns by focusing on more profitable, less capital intensive, business whilst
constantly seeking to improve process and distribution efficiency has led to a
28 per cent increase in new business contribution. As a result of improvements
in key individual product margins and strong sales of pensions and profitable
single premium investments, the life and pensions new business margin increased
to 28.8 per cent, compared with 25.8 per cent for the first half of 2005.
Scottish Widows Investment Partnership
Pre-tax profit from Scottish Widows Investment Partnership (SWIP) increased to
GBP17 million, compared with GBP8 million in 2005, reflecting increased revenues
from new business and improved market performance. SWIP won GBP3.8 billion of
gross new business in the first half of 2006, an increase of 51 per cent on
2005, and its assets under management increased by 11 per cent to GBP97 billion.
Groupwide funds under management increased by 7 per cent to GBP122 billion.
Page 17 of 41
Insurance and Investments (continued)
General insurance
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
GBPm GBPm % GBPm
Commission receivable 293 364 (20) 317
Commission payable (328) (374) 12 (321)
Underwriting income (net of reinsurance) 302 277 9 285
Other income 20 13 54 5
Net operating income 287 280 3 286
Claims paid on insurance contracts (net of (95) (108) 12 (89)
reinsurance)
Operating income, net of claims 192 172 12 197
Operating expenses (78) (78) - (82)
Profit before tax 114 94 21 115
Claims ratio 30% 37% 30%
Combined ratio 78% 85% 76%
Profit before tax from our general insurance operations increased by GBP20
million, or 21 per cent, to GBP114 million. Operating income, net of claims,
increased by 12 per cent whilst costs were flat. Good progress continues to be
made in implementing new platforms for underwriting and claims processes.
Net operating income improved by GBP7 million, or 3 per cent, as 9 per cent
growth in underwriting income was offset by a reduction in broking commissions,
particularly relating to creditor insurance, which were 20 per cent lower than
the first half of 2005 largely as a result of the slowdown in unsecured consumer
lending (page 33, note 6). In addition to the distribution agreement secured
with MORE TH>N in 2005, good progress continues to be made in building the
Group's corporate partnering capability with a new distribution agreement
secured with Argos during the first half of 2006, and the recently announced
arrangement with Pearl Group.
Excluding the impact of lower creditor insurance business, new sales through the
UK Retail Bank have been robust, with a 39 per cent increase in home insurance
new gross written premiums. Our presence in the small business insurance market
continues to improve with an increase of 12 per cent in new business gross
written premiums. Internet sales are becoming increasingly important and now
represent 34 per cent of direct sales volumes.
Claims fell by GBP13 million to GBP95 million, and the claims ratio improved to
30 per cent (2005H1: 37 per cent), reflecting further progress in re-engineering
the claims process, improvements in the cost effectiveness of the claims supply
chain and lower weather related claims. As a result, the combined ratio relating
to the underwriting business improved to 78 per cent (2005H1: 85 per cent).
Page 18 of 41
WHOLESALE AND INTERNATIONAL BANKING
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
GBPm GBPm % GBPm
Net interest income 1,194 1,084 10 1,181
Other income 805 759 6 869
Total income 1,999 1,843 8 2,050
Operating expenses (1,072) (1,050) (2) (1,131)
Trading surplus 927 793 17 919
Impairment losses on loans and advances (159) (98) (62) (90)
Profit before tax 768 695 11 829
Cost:income ratio 53.6% 57.0% 55.2%
Total assets GBP136.2bn GBP126.6bn 8 GBP124.0bn
Total risk-weighted assets GBP86.5bn GBP76.7bn 13 GBP80.1bn
Profit before tax by business unit
Corporate Markets 512 428 20 548
Business Banking 116 93 25 103
Asset Finance 100 107 (7) 112
International Banking and other businesses 40 67 (40) 66
768 695 11 829
Key highlights
- Profit before tax increased by 11 per cent, or GBP73 million, to
GBP768 million, despite a rise of GBP61 million in impairment losses
largely as a result of the level of releases and recoveries in the first
half of 2005 not being repeated.
- Strong income growth, up 8 per cent, supported by a 22 per cent increase in
cross-selling income and higher business volumes throughout the division.
- Widening of positive jaws. Income growth of 8 per cent exceeded cost
growth of 2 per cent. Continued investment in people and systems to
support new product capabilities.
- Continued strong trading momentum. Substantial increase in trading
surplus, up 17 per cent, to GBP927 million.
- Corporate asset quality remains strong.
- Further good progress in delivering the strategy to build an integrated
wholesale bank for corporate markets, with a 30 per cent increase in
Corporate Markets trading surplus.
- Continued strong franchise growth in Business Banking. 18 per cent growth
in trading surplus, and 25 per cent growth in profit before tax. Lloyds TSB
has retained its leading position as the bank of choice for start-up
businesses.
- Increased fee income and good cost control in Asset Finance, with trading
surplus up 7 per cent. However, higher levels of consumer finance
impairment resulted in a 7 per cent fall in profit before tax.
Page 19 of 41
WHOLESALE AND INTERNATIONAL BANKING(continued)
Wholesale and International Banking profit before tax increased by GBP73
million, or 11 per cent, to GBP768 million. Good trading momentum has continued
and significant progress in our strategy to leverage the Group's excellent
corporate and small business customer relationships continues to generate strong
income growth of 8 per cent. This exceeded cost growth of 2 per cent, leading to
a reduction in the cost:income ratio to 53.6 per cent, from 57.0 per cent last
year. Trading surplus increased by GBP134 million, or 17 per cent, to GBP927
million. There was strong profit growth in Corporate Markets and Business
Banking while Asset Finance saw good trading surplus growth, in a slower
consumer lending market, before higher impairment losses.
Net interest income increased by GBP110 million, or 10 per cent, reflecting
higher income from strong growth in customer lending and customer deposits in
Corporate Markets and Business Banking, and increased income from financial
markets interest rate products. Other income increased by GBP46 million, or 6
per cent, as a result of good levels of growth in financial markets product
sales and credit structuring. In addition, fee income throughout the division
benefited from volume growth across a broad range of customer activity. Costs
were 2 per cent higher at GBP1,072 million, as higher staff costs resulting from
our continuing investment in people, as we build up our Corporate Markets
product capability and expertise, were offset by further day-to-day operational
cost savings.
As expected, the charge for impairment losses on loans and advances increased by
GBP61 million to GBP159 million, as a result of the high level of releases and
recoveries in Corporate Markets in the first half of 2005 which were not
repeated in the first half of 2006, and a higher level of consumer finance
lending impairment in the Asset Finance business in the first half of 2006.
Corporate Markets
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
GBPm GBPm % GBPm
Net interest income 436 368 18 409
Other income 391 339 15 468
Total income 827 707 17 877
Operating expenses (320) (317) (1) (348)
Trading surplus 507 390 30 529
Impairment losses on loans and advances 5 38 (87) 19
Profit before tax 512 428 20 548
In Corporate Markets, profit before tax grew by 20 per cent, driven by strong
levels of income growth and good cost control. Income increased by 17 per cent,
supported by higher levels of cross-selling income. There has been significant
progress in the delivery of our strategy focused on improved origination and
distribution capabilities, balance sheet efficiency and value creation in the
mid-sized corporate business. Operating expenses increased by 1 per cent to
GBP320 million, as further investment in people, premises and systems was partly
offset by good progress in improving efficiency. The trading surplus increased
by 30 per cent. The net impairment credit reduced to GBP5 million, reflecting
the lower level of releases and recoveries, and profit before tax increased by
20 per cent.
Page 20 of 41
WHOLESALE AND INTERNATIONAL BANKING(continued)
Business Banking
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
GBPm GBPm % GBPm
Net interest income 289 269 7 282
Other income 124 121 2 127
Total income 413 390 6 409
Operating expenses (252) (254) 1 (273)
Trading surplus 161 136 18 136
Impairment losses on loans and advances (45) (43) (5) (33)
Profit before tax 116 93 25 103
Profit before tax in Business Banking grew by GBP23 million, or 25 per cent,
reflecting strong growth in business volumes and further improvements in growing
the Business Banking customer franchise. Strong income growth combined with
tight cost control led to an improvement of over 4 percentage points in the
cost:income ratio to 61.0 per cent. Costs remain well controlled and were 1 per
cent lower. Customer deposits rose by 7 per cent to GBP11.7 billion and customer
lending increased by 12 per cent to GBP8.6 billion. Business Banking continued
to develop and grow its customer franchise strongly, with customer recruitment
of over 62,000 during the first half of 2006, reflecting a market leading
position in the start-up market. We continue to be a strong performer in
attracting switchers to the Group with over 9,000 customers transferring their
banking arrangements to the Group from other banking providers during the first
half of the year.
Asset Finance
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 Change 2005
GBPm GBPm % GBPm
Net interest income 304 318 (4) 322
Other income 199 173 15 193
Total income 503 491 2 515
Operating expenses (285) (288) 1 (294)
Trading surplus 218 203 7 221
Impairment losses on loans and advances (118) (96) (23) (109)
Profit before tax 100 107 (7) 112
Profit before tax in Asset Finance decreased by 7 per cent to GBP100 million,
reflecting higher levels of consumer finance impairment losses, which offset the
continued development of the personal finance, asset-backed lending and contract
hire businesses. Income increased by GBP12 million, or 2 per cent, as good fee
income growth was partly offset by the impact of the tightening of lending
credit criteria. Costs were reduced by 1 per cent, leading to a 7 per cent
growth in the trading surplus. Lloyds TSB Commercial Finance has continued to
be a major presence in its market, with a 19 per cent market share measured by
client numbers, 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 share
of 17 per cent.
Page 21 of 41
CONSOLIDATED INTERIM INCOME STATEMENT - STATUTORY (unaudited)
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005+ 2005
GBPm GBPm GBPm
Interest and similar income 6,756 6,040 6,549
Interest and similar expense (3,962) (3,289) (3,629)
Net interest income 2,794 2,751 2,920
Fees and commission income 1,518 1,474 1,516
Fees and commission expense (430) (397) (445)
Net fees and commission income 1,088 1,077 1,071
Net trading income 1,194 3,536 5,762
Insurance premium income 2,329 2,210 2,259
Other operating income 423 556 584
Other income 5,034 7,379 9,676
Total income 7,828 10,130 12,596
Insurance claims (2,639) (5,168) (7,018)
Total income, net of insurance claims 5,189 4,962 5,578
Operating expenses (2,610) (2,583) (2,888)
Trading surplus 2,579 2,379 2,690
Impairment losses on loans and advances (800) (666) (633)
Profit on sale and closure of businesses - - 50
Profit before tax 1,779 1,713 2,107
Taxation (543) (509) (756)
Profit for the period 1,236 1,204 1,351
Profit attributable to minority interests 22 12 50
Profit attributable to equity shareholders 1,214 1,192 1,301
Profit for the period 1,236 1,204 1,351
Basic earnings per share 21.7p 21.3p 23.3p
Diluted earnings per share 21.5p 21.1p 23.1p
Dividend per share for the period* 10.7p 10.7p 23.5p
Dividend for the period* GBP602m GBP599m GBP1,316m
+restated.
*The dividend for the half-year to 30 June 2006 represents the interim dividend
for 2006 which will be paid and accounted for on 4 October 2006 (the dividends
shown for the half-year to 30 June 2005 and the half-year to 31 December 2005
represent the interim and final dividends for 2005 which were paid and accounted
for on 5 October 2005 and 3 May 2006 respectively).
Page 22 of 41
CONSOLIDATED INTERIM BALANCE SHEET - STATUTORY (unaudited)
30 June 30 June 31 December
2006 2005* 2005
Assets GBPm GBPm GBPm
Cash and balances at central banks 1,294 943 1,156
Items in course of collection from banks 1,814 1,716 1,310
Trading securities and other financial
assets at fair value through profit or loss 60,803 57,350 60,374
Derivative financial instruments 5,032 10,438 5,878
Loans and advances to banks 34,927 36,090 31,655
Loans and advances to customers 182,157 167,583 174,944
Available-for-sale financial assets 20,221 13,693 14,940
Investment property 4,856 3,906 4,260
Goodwill 2,377 2,472 2,373
Value of in-force business 2,929 2,923 2,922
Other intangible assets 50 25 50
Tangible fixed assets 4,281 4,185 4,291
Other assets 5,026 4,782 5,601
Total assets 325,767 306,106 309,754
Equity and liabilities
Deposits from banks 39,466 33,946 31,527
Customer accounts 136,465 130,550 131,070
Items in course of transmission to banks 707 725 658
Derivative financial instruments, trading and other
liabilities at fair value through profit or loss 7,611 10,467 6,396
Debt securities in issue 39,703 35,810 39,346
Liabilities arising from insurance contracts and 40,215 37,594 40,550
participating investment contracts
Liabilities arising from non-participating
investment contracts 22,489 19,049 21,839
Unallocated surplus within insurance businesses 573 524 518
Other liabilities 11,360 10,741 9,843
Retirement benefit obligations 2,799 3,010 2,910
Current tax liabilities 449 396 552
Deferred tax liabilities 1,337 1,169 1,145
Other provisions 307 315 368
Subordinated liabilities 11,693 12,067 12,402
Total liabilities 315,174 296,363 299,124
Equity
Share capital 1,427 1,420 1,420
Share premium account 1,243 1,162 1,170
Other reserves 397 372 383
Retained profits 7,090 6,438 7,222
Shareholders' equity 10,157 9,392 10,195
Minority interests 436 351 435
Total equity 10,593 9,743 10,630
Total equity and liabilities 325,767 306,106 309,754
*restated.
Page 23 of 41
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY - STATUTORY (unaudited)
Attributable to equity shareholders
Share capital Other Retained Minority
and premium reserves profits interests Total
GBPm GBPm GBPm GBPm GBPm
Balance at 1 January 2005 2,564 371 6,554 81 9,570
Movement in available-for-sale - 1 - - 1
financial assets, net of tax
Currency translation differences - - 14 - 14
Net income recognised directly in - 1 14 - 15
equity
Profit for the period - - 1,192 12 1,204
Total recognised income for the period - 1 1,206 12 1,219
Dividends - - (1,315) (16) (1,331)
Purchase/sale of treasury shares - - (19) - (19)
Employee share option schemes:
- value of employee services - - 12 - 12
- proceeds from shares issued 18 - - - 18
Changes in minority interests - - - 274 274
Balance at 30 June 2005 2,582 372 6,438 351 9,743
Movement in available-for-sale - 7 - - 7
financial assets, net of tax
Movement in cash flow hedges, net of - 11 - - 11
tax
Currency translation differences - (7) 10 - 3
Net income recognised directly in - 11 10 - 21
equity
Profit for the period - - 1,301 50 1,351
Total recognised income for the period - 11 1,311 50 1,372
Dividends - - (599) (21) (620)
Purchase/sale of treasury shares - - 37 - 37
Employee share option schemes:
- value of employee services - - 35 - 35
- proceeds from shares issued 8 - - - 8
Changes in minority interests - - - 55 55
Balance at 31 December 2005 2,590 383 7,222 435 10,630
Movement in available-for-sale - 2 - - 2
financial assets, net of tax
Movement in cash flow hedges, net of - 11 - - 11
tax
Currency translation differences - 1 (11) - (10)
Net income recognised directly in equity - 14 (11) - 3
Profit for the period - - 1,214 22 1,236
Total recognised income for the period - 14 1,203 22 1,239
Dividends - - (1,316) (17) (1,333)
Purchase/sale of treasury shares - - (41) - (41)
Employee share option schemes:
- value of employee services - - 22 - 22
- proceeds from shares issued 80 - - - 80
Changes in minority interests - - - (4) (4)
Balance at 30 June 2006 2,670 397 7,090 436 10,593
Page 24 of 41
CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT - STATUTORY (unaudited)
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm GBPm
Net cash provided by (used in) operating 7,364 6,428 (6,739)
activities
Cash flows from investing activities
Purchase of available-for-sale financial assets (12,306) (4,528) (5,580)
Proceeds from sale and maturity of 6,661 5,859 4,407
available-for-sale financial assets
Purchase of fixed assets (723) (645) (1,198)
Proceeds from sale of fixed assets 170 360 713
Acquisition of businesses, net of cash acquired (20) (23) (4)
Disposal of businesses, net of cash disposed 936 - (4)
Net cash (used in) generated by investing (5,282) 1,023 (1,666)
activities
Cash flows from financing activities
Dividends paid to equity shareholders (1,316) (1,315) (599)
Dividends paid to minority interests (17) (16) (21)
Proceeds from issue of subordinated liabilities - 802 559
Proceeds from issue of ordinary shares and 80 18 8
transactions in own shares held in respect of
employee share schemes
Repayment of subordinated liabilities (loan (250) - (232)
capital)
Capital element of finance lease rental payments - - (2)
Change in minority investment in subsidiaries - 274 55
Net cash used in financing activities (1,503) (237) (232)
Effects of exchange rate changes on cash and cash (39) (56) 36
equivalents
Change in cash and cash equivalents 540 7,158 (8,601)
Cash and cash equivalents at beginning of period 26,753 28,196 35,354
Cash and cash equivalents at end of period 27,293 35,354 26,753
Cash and cash equivalents comprise cash and balances at central banks (excluding
mandatory deposits) and amounts due from banks with a maturity of less than
three months.
Page 25 of 41
CONDENSED SEGMENTAL ANALYSIS - STATUTORY (unaudited)
Lloyds TSB Group is a leading UK-based financial services group, whose
businesses provide a wide range of banking and financial services in the UK and
in certain locations overseas. The Group's activities are organised into three
segments: UK Retail Banking, Insurance and Investments and Wholesale and
International Banking. Central group items includes the funding cost of certain
acquisitions less earnings on capital, central costs and accruals for payment to
the Lloyds TSB Foundations.
Services provided by UK Retail Banking encompass the provision of banking and
other financial services to personal customers, private banking, stockbroking
and mortgages. Insurance and Investments offers life assurance, pensions and
savings products, general insurance and asset management services. Wholesale
and International Banking provides banking and related services for major UK and
multinational companies, banks and financial institutions, and small and
medium-sized UK businesses. It also provides asset finance to personal and
corporate customers, manages the Group's activities in financial markets and
provides banking and financial services overseas.
During the first half of 2006, the bases adopted for allocating income and costs
between the different segments were consistent with those used in 2005 and set
out in the 2005 Annual Report and Accounts.
Half-year to Life,
30 June 2006 pensions, Wholesale
UK OEICs Insurance and Central
Retail General and asset and International group
Banking Insurance management Investments Banking items* Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Interest and similar 3,365 12 386 398 3,895 (902) 6,756
income*
Interest and similar (1,571) - (335) (335) (2,701) 645 (3,962)
expense*
Net interest income 1,794 12 51 63 1,194 (257) 2,794
Other income (net of fee 783 280 3,098 3,378 805 68 5,034
and commission expense)
Total income 2,577 292 3,149 3,441 1,999 (189) 7,828
Insurance claims - (95) (2,544) (2,639) - - (2,639)
Total income, net of 2,577 197 605 802 1,999 (189) 5,189
insurance claims
Operating expenses (1,232) (78) (229) (307) (1,072) 1 (2,610)
Trading surplus (deficit) 1,345 119 376 495 927 (188) 2,579
Impairment losses on loans (632) - - - (159) (9) (800)
and advances
Profit (loss) before tax 713 119 376 495 768 (197) 1,779
External revenue 3,978 601 3,620 4,221 3,852 169 12,220
Inter-segment revenue* 319 10 44 54 826 (1,199) -
Segment revenue 4,297 611 3,664 4,275 4,678 (1,030) 12,220
*Central group items on this and the following page includes inter-segment
consolidation adjustments within interest and similar income, and interest and
similar expense as follows: interest and similar income GBP(1,542) million
(2005H1: GBP(1,476) million; 2005H2: GBP(1,499) million) and interest and
similar expense GBP1,542 million (2005H1: GBP1,476 million; 2005H2: GBP1,499
million), there is no impact on net interest income. Similarly, Central group
items includes inter-segment revenue adjustments of GBP1,665 million (2005H1:
GBP2,031 million; 2005H2: GBP1,920 million).
Page 26 of 41
CONDENSED SEGMENTAL ANALYSIS - STATUTORY (unaudited) (continued)
Half-year to Life,
30 June 2005 pensions, Wholesale
UK OEICs Insurance and Central
Retail General and asset and International group
Banking Insurance management Investments Banking items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Interest and similar income 3,267 13 396 409 3,303 (939) 6,040
Interest and similar (1,537) (3) (212) (215) (2,219) 682 (3,289)
expense
Net interest income 1,730 10 184 194 1,084 (257) 2,751
Other income (net of fee 815 277 5,556 5,833 759 (28) 7,379
and commission expense)
Total income 2,545 287 5,740 6,027 1,843 (285) 10,130
Insurance claims - (108) (5,060) (5,168) - - (5,168)
Total income, net of 2,545 179 680 859 1,843 (285) 4,962
insurance claims
Operating expenses (1,281) (78) (196) (274) (1,050) 22 (2,583)
Trading surplus (deficit) 1,264 101 484 585 793 (263) 2,379
Impairment losses on loans (568) - - - (98) - (666)
and advances
Profit (loss) before tax 696 101 484 585 695 (263) 1,713
External revenue 3,856 656 5,928 6,584 3,433 (57) 13,816
Inter-segment revenue 405 13 160 173 861 (1,439) -
Segment revenue 4,261 669 6,088 6,757 4,294 (1,496) 13,816
Half-year to Life,
31 December 2005 pensions, Wholesale
UK OEICs Insurance and Central
Retail General and asset and International group
Banking Insurance management Investments Banking items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Interest and similar income 3,385 14 454 468 3,641 (945) 6,549
Interest and similar (1,594) (1) (266) (267) (2,460) 692 (3,629)
expense
Net interest income 1,791 13 188 201 1,181 (253) 2,920
Other income (net of fee 790 294 7,732 8,026 869 (9) 9,676
and commission expense)
Total income 2,581 307 7,920 8,227 2,050 (262) 12,596
Insurance claims - (89) (6,929) (7,018) - - (7,018)
Total income, net of 2,581 218 991 1,209 2,050 (262) 5,578
insurance claims
Operating expenses (1,416) (82) (238) (320) (1,131) (21) (2,888)
Trading surplus (deficit) 1,165 136 753 889 919 (283) 2,690
Impairment losses on loans (543) - - - (90) - (633)
and advances
Profit (loss) on sale and 76 - - - (6) (20) 50
closure of businesses
Profit (loss) before tax 698 136 753 889 823 (303) 2,107
External revenue 3,977 616 8,199 8,815 3,850 28 16,670
Inter-segment revenue 339 3 170 173 825 (1,337) -
Segment revenue 4,316 619 8,369 8,988 4,675 (1,309) 16,670
Page 27 of 41
NOTES
1. Accounting policies, presentation and estimates
These condensed consolidated interim financial statements as at and for the
half-year to 30 June 2006 have been prepared in accordance with International
Financial Reporting Standard IAS 34 Interim Financial Reporting. They do not
include all of the information required for full annual financial statements,
and should be read in conjunction with the Group's consolidated financial
statements as at and for the year ended 31 December 2005 ('2005 Annual Report
and Accounts') copies of which can be found on the Group's website at
www.investorrelations.lloydstsb.com/report_and_accounts.asp or are available
upon request from the Company Secretary's Department, Lloyds TSB Group plc, 25
Gresham Street, London EC2V 7HN.
Except as described below, the accounting policies, the significant judgements
made by management in applying them, and the key sources of estimation
uncertainty applied by the Group in these condensed consolidated interim
financial statements were the same as those applied by the Group in its 2005
Annual Report and Accounts. The preparation of interim financial statements
requires management to make judgements, estimates and assumptions that impact
the application of accounting policies and the reported amounts of assets,
liabilities, income and expense. Actual results may differ from these
estimates. There have been no significant changes in the bases upon which
estimates at 31 December 2005 have been determined. The Group has reviewed the
valuation of its pension schemes and has concluded that no adjustment is
required at 30 June 2006. In accordance with IAS 19 the valuations will be
formally updated at the year-end. Goodwill held in the Group's balance sheet is
tested (at least) annually for impairment in the second-half of the year. No
circumstances have arisen during the half-year to 30 June 2006 to require
additional impairment testing.
The Group has had no material or unusual related party or share-based payment
transactions during the half-year to 30 June 2006. Related party and
share-based transactions for the half-year to 30 June 2006 are similar in nature
to those for the year ended 31 December 2005. No significant events have
occurred between 30 June 2006 and the date of approval of these interim results.
A variety of contingent liabilities and commitments arise in the ordinary
course of the Group's banking business; there has been no significant change in
the volume or nature of such transactions during the half-year to 30 June 2006.
Full details of the Group's related party transactions for the year to 31
December 2005, share-based payment schemes and contingent liabilities and
commitments can be found in the Group's 2005 Annual Report and Accounts.
Page 28 of 41
1. Accounting policies, presentation and estimates (continued)
The following IFRS pronouncements relevant to the Group are applicable for the
year ending 31 December 2006:
Pronouncement Impact
Amendment to IAS 19 Actuarial Gains and Losses, The Group retains its existing accounting policy regarding
Group Plans and Disclosures the recognition of actuarial gains and losses.
Amendment to IAS 39 Financial Instruments: This amendment has not impacted the classification and
Recognition and Measurement - The Fair Value valuation of those financial assets that were designated into
Option the fair value through profit or loss category prior to 1
January 2006 as the Group is able to comply with the amended
criteria for those assets. Since 1 January 2006, the Group
is permitted to designate financial liabilities meeting the
criteria into the fair value through profit or loss category.
During the half-year to 30 June 2006, the Group designated
GBP1.5 billion of financial liabilities into this category.
This change has had no material impact on the Group's profit
for the half-year to 30 June 2006.
Amendment to IAS 39 Financial Instruments: Since 1 January 2006, all of the Group's financial guarantee
Recognition and Measurement and IFRS 4 Insurance contracts are accounted for as financial instruments. This
Contracts - Financial Guarantee Contracts change has had no material impact on the Group's financial
statements.
IFRIC Interpretation 4 Determining Whether an The Group has reviewed affected contracts at 1 January 2006
Arrangement Contains a Lease and the interpretation has had no material impact for the
Group.
To ensure consistency with the Group's accounting policies reported in the 2005
Annual Report and Accounts, the Group has restated the 30 June 2005 figures
previously reported in its 'Results for half-year to 30 June 2005' to:
- present the value of in-force life assurance business gross of
attributable tax (with a consequential adjustment to the tax charge) in
line with industry practice; this has had no net effect on the Group's
income statement or shareholders' equity, and
- allow for deferred tax on properties acquired as part of a business
combination and reclassify certain balance sheet items following revised
interpretations of the requirements of IFRS; this has resulted in a
reduction in shareholders' equity although there is no effect upon the
Group's income statement.
Page 29 of 41
1. Accounting policies, presentation and estimates (continued)
The effect of these changes is set out below:
Value of
As previously in-force Other
reported business adjustments Restated
GBPm GBPm GBPm GBPm
For the half-year to 30 June 2005
Profit before tax 1,676 37 - 1,713
Taxation (472) (37) - (509)
Profit for the year 1,204 - - 1,204
At 30 June 2005
Total assets 305,212 907 (13) 306,106
Shareholders' equity 9,475 - (83) 9,392
2. Volatility
Banking volatility
In accordance with IFRS, it is the Group's policy to recognise all derivatives
at fair value. The banking businesses manage their interest rate and other
market risks primarily through the use of intra-Group derivatives, with the
resulting net positions managed centrally using external derivatives. IFRS does
not, however, permit the intra-Group derivatives to be used in a hedge
relationship for reporting purposes. Although fair value accounting can have a
significant impact on reported earnings, it does not impact on the business
fundamentals or cash flows of the businesses. The Group has, therefore,
implemented an internal pricing structure that allows divisions to transfer to
Central group items the volatility associated with marking to market derivatives
held for risk management purposes. 'Banking volatility' is principally
comprised of the difference between the result that would be recognised on an
accrual accounting basis for derivatives held for risk management purposes and
their mark to market value. The Group has set up a central hedging function to
reduce the impact of this volatility by establishing, where possible, accounting
hedge relationships for the external derivatives.
During the first half of 2006, profit before tax included negative banking
volatility of GBP2 million (2005H1: negative GBP73 million). The significant
reduction in this source of volatility reflects the beneficial effect of rising
interest rates on the fair value of those derivatives for which hedge accounting
relationships have not been established.
Insurance volatility
Changes in market variables such as the performance and volatility of equity
markets and the level of interest rates, which are beyond the control of
management, can result in significant volatility in the profitability of the
Group's insurance businesses. As in previous years, in order to provide a
clearer representation of the underlying performance of the life and pensions
and general insurance businesses, the effect of these changes is separately
analysed within insurance volatility.
Page 30 of 41
2. Volatility (continued)
The Group's insurance businesses have substantial holdings of investments which
are accounted for at fair value with changes being reflected within the income
statement. The difference between the actual return on these investments
attributable to shareholders and the expected return based upon economic
assumptions made at the beginning of the period is included within insurance
volatility. In addition, the calculation of the value of in-force business
makes assumptions about future investment returns; to the extent that actual
experience is different the effect is also included within insurance volatility.
The main assumptions used in the calculation of the value of in-force business
at 30 June 2006 were as follows:
30 June 30 June 31 December
2006 2005 2005
% % %
Risk-adjusted discount rate (net of tax) 7.63 7.08 7.02
Return on equities (gross of tax) 7.27 6.83 6.72
Return on fixed interest securities (gross of tax) 4.77 4.23 4.12
Expenses inflation 3.98 3.59 3.79
Changes in stock market performance also affect the realistic valuation of the
guarantees and options embedded within products written in the Scottish Widows
With-Profits Fund, which is reflected in the Group's balance sheet.
Fluctuations in this valuation caused by market-related movements are also
included within insurance volatility.
During the first half of 2006, profit before tax included negative insurance
volatility of GBP61 million (2005H1: positive GBP131 million after restatement
for the effect of presenting the movements in the value of in-force business
gross of tax). Returns in the first half of 2005 benefited from rising stock
markets and falling gilt yields. Although equity values continued to rise in the
first half of 2006, this was less marked than in 2005 and the effect was more
than offset by rising gilt yields and a charge following the change in the
economic assumptions used to calculate the value of in-force business at 30 June
2006.
Policyholder interests volatility
As a result of the requirement contained in IFRS to consolidate the Group's life
and pensions businesses on a line by line basis, the Group's income statement
includes amounts attributable to policyholders which affect profit before tax;
the most significant of these items is policyholder tax. Under IFRS, tax on
policyholder investment returns is included in the Group's tax charge rather
than being offset against the related income, either increasing or decreasing
profit before tax with a corresponding change in the tax charge. In order to
provide a clearer representation of the underlying performance of the Group's
life and pensions businesses the impact of these items upon pre-tax profit has
been separately identified within volatility.
During the first half of 2006, profit before tax included positive policyholder
interests volatility of GBP90 million (2005H1: GBP29 million after restatement
for the effect of presenting the movements in the value of in-force business
gross of tax). The increase in policyholder interests volatility reflects the
fact that during the first half of 2005, the policyholder tax charge was reduced
through the use of substantial tax losses brought forward. In addition, during
the first half of 2006 there was an improved return from other policyholder
interests.
Page 31 of 41
3. Mortgage lending
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 2005
Gross new mortgage lending GBP13.0bn GBP11.8bn GBP14.2bn
Market share of gross new mortgage lending 8.1% 9.4% 8.8%
Net new mortgage lending GBP3.4bn GBP3.6bn GBP4.7bn
Market share of net new mortgage lending 6.7% 8.8% 9.3%
Mortgages outstanding (period-end)* GBP91.8bn GBP83.7bn GBP88.4bn
Market share of mortgages outstanding 9.0% 9.1% 9.1%
*excluding the effect of IFRS related adjustments in order to conform with
industry statistics.
4. Group net interest income
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm GBPm
Statutory basis
Net interest income 2,794 2,751 2,920
Average interest-earning assets, excluding reverse repos 220,710 195,975 207,556
Net interest margin 2.55% 2.83% 2.79%
Banking margin*
Net interest income 2,811 2,615 2,783
Average interest-earning assets, excluding reverse repos 210,639 189,205 199,240
Net interest margin 2.69% 2.79% 2.77%
*the Group's net interest income includes certain amounts attributable to
policyholders, in addition to the interest earnings on shareholders' funds held
in the Group's insurance businesses. To present the Group's banking net interest
margin these amounts, together with the related average interest-earning assets,
have been excluded.
Page 32 of 41
5. Other income
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm GBPm
Excluding volatility
Fees and commissions receivable:
UK current account fees 320 285 308
Other UK fees and commissions 590 497 544
Insurance broking 293 364 317
Card services 247 267 278
International fees and commissions 68 61 69
1,518 1,474 1,516
Fees and commissions payable (430) (397) (445)
Net fees and commissions income 1,088 1,077 1,071
Net trading income 1,141 3,525 5,334
Insurance premium income 2,329 2,210 2,259
Other operating income 401 442 439
Total other income* 4,959 7,254 9,103
Insurance claims (2,639) (5,168) (7,018)
Total other income, net of insurance claims* 2,320 2,086 2,085
Volatility
- Banking 46 (35) (10)
- Insurance (61) 131 301
- Policyholder interests 90 29 282
Total other income, net of insurance claims 2,395 2,211 2,658
*excluding volatility. For statutory reporting purposes, volatility totalling
GBP75 million in the first half of 2006 (2005H1: GBP125 million; 2005H2: GBP573
million) is included in total other income; comprising net trading income of
GBP53 million (2005H1: GBP11 million; 2005H2: GBP428 million) and other
operating income of GBP22 million (2005H1: GBP114 million; 2005H2: GBP145
million).
6. General insurance income
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm GBPm
Premium income from underwriting
Creditor 92 64 63
Home 213 220 221
Health 7 8 8
Reinsurance premiums (10) (15) (7)
302 277 285
Commissions from insurance broking
Creditor 163 229 167
Home 21 22 27
Health 6 8 7
Other 103 105 116
293 364 317
Page 33 of 41
7. Operating expenses
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm GBPm
Administrative expenses:
Staff:
Salaries 1,030 1,014 1,054
National insurance 80 78 76
Pensions 140 144 164
Other staff costs 156 134 191
1,406 1,370 1,485
Premises and equipment:
Rent and rates 154 145 160
Hire of equipment 7 6 7
Repairs and maintenance 78 70 66
Other 70 62 90
309 283 323
Other expenses:
Communications and external data processing 232 227 240
Advertising and promotion 89 112 95
Professional fees 100 97 119
Provisions for customer redress - - 150
Other 171 170 155
592 606 759
Administrative expenses 2,307 2,259 2,567
Depreciation 303 324 315
Impairment of goodwill - - 6
Total operating expenses 2,610 2,583 2,888
Cost:income ratio - excluding volatility, provisions for 50.6% 53.0% 52.7%
customer redress and the strengthening of reserves for
mortality*
Cost:income ratio - statutory basis* 50.3% 52.1% 51.8%
*total operating expenses divided by total income, net of insurance claims.
Page 34 of 41
8. Number of employees (full-time equivalent)
30 June 30 June 31 December
2006 2005 2005
UK Retail Banking 32,339 35,014 33,247
Insurance and Investments 6,133 6,027 6,128
Wholesale and International Banking 19,415 19,899 19,708
Other, largely IT and Operations 10,376 11,761 10,695
68,263 72,701 69,778
Agency staff (FTE) (3,096) (3,096) (2,981)
Total number of employees (full-time equivalent) 65,167 69,605 66,797
9. Impairment losses on loans and advances
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm GBPm
Impairment losses on loans and advances (see below) 801 670 632
Other credit risk provisions (1) (4) 1
800 666 633
Impairment losses on loans and advances
UK Retail Banking
Personal loans/overdrafts 387 352 304
Credit cards 239 188 208
Mortgages 6 6 7
632 546 519
Wholesale and International Banking 160 102 89
Central group items 9 22 24
Total charge 801 670 632
Charge as % of average lending: % % %
Personal loans/overdrafts 6.18 5.82 4.86
Credit cards 6.78 5.66 5.93
Mortgages 0.01 0.02 0.02
UK Retail Banking 1.23 1.16 1.03
Wholesale and International Banking 0.43 0.31 0.25
Total charge 0.88 0.80 0.71
In the analysis of impairment losses set out above, the losses attributable to
the Goldfish business, which was sold in December 2005, have been transferred
into Central group items in order to allow a meaningful comparison of the
results of UK Retail Banking.
Page 35 of 41
10. Capital ratios
30 June 31 December
2006 2005
Capital GBPm GBPm
Tier 1 11,322 11,478
Tier 2 10,430 10,447
21,752 21,925
Supervisory deductions (6,074) (6,160)
Total capital 15,678 15,765
Risk-weighted assets GBPbn GBPbn
UK Retail Banking 61.6 60.4
Insurance and Investments 3.2 2.6
Wholesale and International Banking 86.5 80.1
Central group items 1.6 1.8
Total risk-weighted assets 152.9 144.9
Risk asset ratios
Total capital 10.3% 10.9%
Tier 1 7.4% 7.9%
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 2005
Post-tax return on average risk-weighted assets 1.65% 1.79% 1.84%
Post-tax return on average risk-weighted assets* 1.66% 1.73% 1.81%
*excluding volatility, profit (loss) on sale and closure of businesses, customer
redress provisions and strengthening of reserves for mortality.
11. Retirement benefit obligations
The recognised liability has reduced by GBP111 million from GBP2,910 million at
31 December 2005 to GBP2,799 million at 30 June 2006, as cash contributions to
the Group's defined benefit schemes exceeded the regular cost.
The Group has recently reached agreement with the Lloyds TSB Group pension
schemes' trustees to fund the schemes' actuarial funding deficit of GBP1.5
billion over a period of 10 years. We also expect to continue to make additional
voluntary contributions and, if the Group's total deficit contributions remain
at broadly the same levels as in recent years, we would expect to see the
accounting deficit eliminated over a period of approximately 10 years, and the
actuarial deficit eliminated over approximately 6 years.
Page 36 of 41
12. Balance sheet information
30 June 30 June 31 December
2006 2005 2005
Deposits - customer accounts GBPm GBPm GBPm
Sterling:
Non-interest bearing current accounts 3,651 3,547 3,604
Interest bearing current accounts 40,687 37,100 37,976
Savings and investment accounts 62,322 59,315 60,522
Other customer deposits 16,808 18,455 16,809
Total sterling 123,468 118,417 118,911
Currency 12,997 12,133 12,159
Total deposits - customer accounts 136,465 130,550 131,070
Loans and advances to customers
Domestic:
Agriculture, forestry and fishing 2,253 2,191 2,299
Manufacturing 5,527 5,001 5,983
Construction 2,168 2,463 2,059
Transport, distribution and hotels 7,959 7,358 7,649
Property companies 10,292 7,095 8,267
Financial, business and other services 16,361 16,937 16,272
Personal : mortgages 91,703 83,950 88,528
: other 22,595 23,390 22,776
Lease financing 5,637 6,266 5,815
Hire purchase 5,154 4,980 4,853
Other 9,178 5,597 7,696
Total domestic 178,827 165,228 172,197
International:
Latin America 167 153 173
United States of America 1,909 1,989 1,984
Europe 2,665 1,704 1,927
Rest of the world 753 624 735
Total international 5,494 4,470 4,819
184,321 169,698 177,016
Allowance for impairment losses on loans and advances (2,164) (2,115) (2,072)
Total loans and advances to customers 182,157 167,583 174,944
13. Profit on sale of businesses
In December 2005, the Group announced the disposal of its Goldfish credit card
business and this, together with additional costs incurred in relation to
business closures or previous disposals, led to a net profit of GBP50 million
being recognised in the income statement for the half-year to 31 December 2005.
Page 37 of 41
14. Economic profit
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm GBPm
Statutory basis
Average shareholders' equity 10,417 9,662 9,831
Profit attributable to equity shareholders 1,214 1,192 1,301
Less: notional charge (465) (431) (446)
Economic profit 749 761 855
Excluding volatility, profit on sale and closure
of businesses, customer redress provisions and strengthening of
reserves for mortality
Average shareholders' equity 10,392 9,686 9,746
Profit attributable to equity shareholders 1,237 1,157 1,318
Less: notional charge (464) (432) (442)
Economic profit 773 725 876
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 (2005: 9 per cent).
15. Earnings per share
Statutory basis Half-year to Half-year to Half-year to
30 June 30 June 31 December
Basic 2006 2005 2005
Profit attributable to equity shareholders GBP1,214m GBP1,192m GBP1,301m
Weighted average number of ordinary shares in issue 5,602m 5,592m 5,598m
Earnings per share 21.7p 21.3p 23.3p
Fully diluted
Profit attributable to equity shareholders GBP1,214m GBP1,192m GBP1,301m
Weighted average number of ordinary shares in issue 5,655m 5,637m 5,641m
Earnings per share 21.5p 21.1p 23.1p
Excluding volatility, profit on sale and closure
of businesses, customer redress provisions and
strengthening of reserves for mortality
Profit attributable to equity shareholders GBP1,237m GBP1,157m GBP1,318m
Weighted average number of ordinary shares in issue 5,602m 5,592m 5,598m
Earnings per share 22.1p 20.7p 23.5p
Page 38 of 41
16. Scottish Widows - realistic balance sheet information
Financial Services Authority (FSA) returns for large with-profits companies now
include realistic balance sheet information. 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. The estimated position at 30
June 2006 is shown below, together with the actual position at 31 December 2005.
30 June 2006 (estimated) With-profits Long-term
fund fund
GBPbn GBPbn
Available assets, including support account 19.4 22.5
Realistic value of liabilities (18.2) (18.1)
Working capital for fund 1.2 4.4
Working capital ratio 6.2% 19.6%
Risk capital margin cover 5.1 times 16.2 times
31 December 2005 With-profits Long-term
fund fund
GBPbn GBPbn
Available assets, including support account 20.4 23.2
Realistic value of liabilities (19.3) (19.1)
Working capital for fund 1.1 4.1
Working capital ratio 5.5% 17.7%
Risk capital margin cover 3.6 times 11.9 times
Page 39 of 41
17. Tax
Under IFRS the Group is required to include in income tax expense the tax
attributable to UK life insurance policyholder earnings and its interests in
Open Ended Investment Companies (OEICs).
The effective tax rate of the Group, excluding the gross policyholder tax charge
and OEIC interests from profit before tax and the tax charge, was 27.7 per cent
(2005H1: 28.1 per cent) compared to the standard UK corporation tax rate of 30
per cent.
The effective tax rate including policyholder tax and OEIC interests was 30.5
per cent, compared to 29.7 per cent in the half-year to 30 June 2005.
A reconciliation of the charge that would result from applying the standard UK
corporation tax rate to profit before tax to the tax charge, including
policyholder tax and OEIC interests, is given below:
Half-year to Half-year to Half-year to
30 June 30 June 31 December
2006 2005 2005
GBPm GBPm GBPm
Profit before tax 1,779 1,713 2,107
Tax charge thereon at UK corporation tax rate of 30% 534 514 632
Factors affecting charge:
Disallowed and non-taxable items (30) (8) (39)
Overseas tax rate differences (8) (4) 3
Net tax effect of disposals and unrealised gains (11) (18) (41)
Policyholder tax and OEIC interests 49 27 196
Other items 9 (2) 5
Tax charge 543 509 756
18. Dividend
An interim dividend for 2006 of 10.7p per share (2005: 10.7p) will be paid on 4
October 2006. The total amount of this dividend is GBP602 million.
Shareholders who have already joined the dividend reinvestment plan will
automatically receive shares instead of the cash dividend. Key dates for the
payment of the dividend are:
Shares quoted ex-dividend 9 August
Record date 11 August
Final date for joining or leaving the dividend reinvestment plan 6 September
Interim dividend paid 4 October
On 3 May 2006, a final dividend for 2005 of 23.5p per share was paid to
shareholders. This dividend totalled GBP1,316 million.
Page 40 of 41
19. Other information
Results for the half-year ended 30 June 2006 were approved by the directors on 1
August 2006.
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 2005 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.
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
Sarah Pollard
Senior Manager, Investor Relations
Lloyds TSB Group plc
020 7356 1571
E-mail: sarah.pollard@ltsb-finance.co.uk
Mary Walsh
Director of Corporate Relations
Lloyds TSB Group plc
020 7356 2121
E-mail: mary.walsh@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.
A copy of the Group's corporate responsibility report may be obtained by writing
to Corporate Responsibility, Lloyds TSB Group plc, 25 Gresham Street, London
EC2V 7HN. This information together with the Group's code of business conduct
is also available on the Group's website.
Page 41 of 41
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: 2 August 2006