Final Results - Pre-tax Profit Up 20%, Part 3
Lloyds TSB Group PLC
11 February 2000
PART 3
LLOYDS TSB GROUP
INCOME
Group net interest income
Group net interest income increased by £385 million, or 9 per
cent, to £4,801 million. Average interest-earning assets
increased by 6 per cent to £124 billion. There was further
growth in mortgages and other customer lending in the UK. The
net interest margin improved by 7 basis points, to 3.86 per
cent, as an 18 basis point increase in the domestic net interest
margin to 3.99 per cent (page 24) was offset by a reduction in
the international net interest margin (page 25).
1999 1998
£m £m
Net interest income 4,801 4,416
Average balances
Short-term liquid assets 1,985 2,438
Loans and advances 117,303 110,010
Debt securities 5,038 4,990
Total interest-earning assets 124,326 117,438
Financed by:
Interest-bearing liabilities 107,631 102,169
Interest-free liabilities 16,695 15,269
Average rates (excluding write-down of % %
finance leases)
Gross yield on interest-earning assets 8.46 9.66
Cost of interest-bearing liabilities 5.31 6.75
Interest spread 3.15 2.91
Contribution of interest-free
liabilities 0.71 0.88
Net interest margin 3.86 3.79
Note: Payments made under cash gift and discount mortgage
schemes are amortised over the early redemption charge period,
being a maximum of 5 years. If these incentives had been fully
written off as incurred, group and domestic net interest income
would have been £11 million lower in 1999 (1998: £60 million
higher). The deferred element of the expenditure amounting to
£176 million at 31 December 1999 (31 December 1998: £165
million) is included within prepayments and accrued income in
the balance sheet.
Page 23 of 42
LLOYDS TSB GROUP
Domestic net interest income
Domestic net interest income increased by £391 million, or 10
per cent, to £4,172 million and represents 87 per cent of total
group net interest income.
Average interest-earning assets increased by 4 per cent to £105
billion. There was further growth in mortgages and other
customer lending.
The net interest margin increased by 18 basis points to 3.99 per
cent. Despite the continuing competitive pressure on many
products, customer lending and deposits continued to grow and
there was a further improvement in the mix of our assets as we
continue to focus on the retail side of our business.
1999 1998
£m £m
Net interest income 4,172 3,781
Average balances
Short-term liquid assets 985 1,199
Loans and advances 100,323 95,418
Debt securities 3,272 3,533
Total interest-earning assets 104,580 100,150
Financed by:
Interest-bearing liabilities 89,515 86,210
Interest-free liabilities 15,065 13,940
Average rates (excluding write-down of % %
finance leases)
Gross yield on interest-earning assets 7.72 8.94
Cost of interest-bearing liabilities 4.36 5.96
Interest spread 3.36 2.98
Contribution of interest-free
liabilities 0.63 0.83
Net interest margin 3.99 3.81
Page 24 of 42
LLOYDS TSB GROUP
International net interest income
Net interest income from international operations decreased by 1
per cent to £629 million, representing 13 per cent of total
group net interest income. The difficult economic conditions in
Latin America created a reduction in customer receivables
outstanding to £2,558 million at the end of December 1999,
compared with £2,939 million at the end of December 1998.
Average interest-earning assets increased by 14 per cent,
reflecting the impact of the mortgage portfolio acquired in
September 1998 on the purchase of Countrywide Bank in New
Zealand, which more than offset the reduced lending volumes in
Latin America. As a result of the finer margins earned in
Countrywide, where the lending portfolio is predominantly
mortgages, and lower margins on the higher quality business
being written in Losango, the international net interest margin
decreased to 3.19 per cent.
1999 1998
£m £m
Net interest income 629 635
Average balances
Short-term liquid assets 1,000 1,239
Loans and advances 16,980 14,592
Debt securities 1,766 1,457
Total interest-earning assets 19,746 17,288
Financed by:
Interest-bearing liabilities 18,116 15,959
Interest-free liabilities 1,630 1,329
Average rates % %
Gross yield on interest-earning assets 12.34 13.82
Cost of interest-bearing liabilities 9.98 10.99
Interest spread 2.36 2.83
Contribution of interest-free
liabilities 0.83 0.84
Net interest margin 3.19 3.67
Page 25 of 42
LLOYDS TSB GROUP
Other income
Other income increased by £111 million, or 4 per cent, to £3,173
million, excluding the impact of pension provisions. This
represented 40 per cent of total income.
Fees and commissions receivable increased by 6 per cent
reflecting increased business volumes and strong growth in
income from insurance broking. Other UK fees and commissions
increased by 8 per cent, helped by a 37 per cent
increase in unit trust commissions. International fees and
commissions increased in local currency terms, but this increase
was largely offset by the effect of exchange rate movements.
Fees and commissions payable increased by £38 million compared
with 1998, largely as a result of higher dealer commissions paid
for the introduction of new consumer finance business and higher
interchange fees for card services.
Income from long-term assurance business fell by £50 million,
excluding the impact of the pension provisions, largely as a
result of the one-off benefits in 1998 from the change in the
embedded value discount rate from 12.5 per cent to 10 per cent
and the harmonisation of actuarial bases following the merger of
the Hill Samuel and Abbey Life long term assurance funds, and
the continuing switch within single premium business from life
products to unit trusts and ISAs (page 17). Higher volumes
produced a strong increase in general insurance premium income.
Other operating income was reduced as a result of lower gains on
the realisation of venture capital investments.
1999 1998
£m £m
Dividend income from equity shares 3 5
Fees and commissions receivable:
UK current account fees 611 579
Other UK fees and commissions 1,060 982
Insurance broking 327 296
Card services 249 242
International fees and commissions 250 248
2,497 2,347
Fees and commissions payable (426) (388)
Dealing profits (before expenses):
Foreign exchange trading income 133 112
Securities and other gains 82 85
215 197
Income from long-term assurance
business:
Income before pension provisions 329 379
Pension provisions (102) (400)
227 (21)
General insurance premium income 390 335
Other operating income 165 187
Total other income 3,071 2,662
Page 26 of 42
LLOYDS TSB GROUP
OPERATING EXPENSES
Operating expenses
1999 1998
£m £m
Administrative expenses:
Staff:
Salaries and profit sharing 1,500 1,495
National insurance 125 126
Pensions (108) (105)
Restructuring 20 36
Other staff costs 180 184
1,717 1,736
Premises and equipment:
Rent and rates 250 267
Hire of equipment 33 36
Repairs and maintenance 107 98
Other 100 109
490 510
Other expenses:
Communications and external data
processing 406 372
Advertising and promotion 113 128
Professional fees 90 105
Other 324 361
933 966
Administrative expenses 3,140 3,212
Restructuring provision - 38
Total administrative expenses 3,140 3,250
Depreciation 221 218
Amortisation of goodwill 12 4
Total operating expenses 3,373 3,472
Efficiency ratio (excluding pension
provisions) 42.3% 46.4%
Efficiency ratio (statutory basis) 42.8% 49.1%
Total operating expenses were reduced by £99 million, or 3 per
cent, compared with 1998. Operating expenses included further
expenditure of £41 million in preparation for the Year 2000 and
EMU (1998: £104 million).
The efficiency ratio, excluding pension provisions, improved
further to 42.3 per cent from 46.4 per cent a year ago and
59 per cent at the time of the merger of Lloyds Bank and TSB in
1995.
Page 27 of 42
LLOYDS TSB GROUP
Operating expenses (continued)
Underlying Group operating expenses
At the time of the Lloyds Bank and TSB Group merger in December
1995, the Group announced a cost savings target of £350 million
per annum by 1999. This target was increased in December 1996
to £400 million per annum by 1999 following the acquisition of
the minority shareholding in Lloyds Abbey Life and the
subsequent integration of the Lloyds Abbey Life businesses.
The table below shows the progress the Group has made to date in
its cost reduction programme. The 1995 pro forma cost base for
the enlarged Group was £3,850 million per annum. This original
base figure has subsequently been adjusted to take account of
acquisitions and non-merger related disposals, to ensure that
the appropriate monitoring and tight control took place so that
the necessary cost synergies were captured.
Pro forma
1999 1995
£m £m
Total operating expenses 3,373 3,850
Acquisitions
Losango (51) -
Banco Anglo Colombiano (29) -
Countrywide (61) -
Bank of Scotland registration businesses (5) -
Non-merger related disposals
Schroder Munchmeyer Hengst - (62)
International Factors - (23)
Black Horse Agencies - (121)
Underlying operating expenses 3,227 3,644
After excluding the impact of non-merger related disposals,
which have reduced the Group's 1995 pro forma cost base to a
revised base figure of £3,644 million, total costs saved since
the merger of Lloyds Bank and TSB Group and the integration of
Lloyds Abbey Life, excluding subsequent acquisitions, total £417
million per annum, exceeding the £400 million per annum cost
reduction target.
During 1999 a further £44 million of restructuring costs,
arising from the merger of Lloyds Bank and TSB Group and the
integration of Lloyds Abbey Life, were charged against the
restructuring provisions totalling £500 million made in 1995 and
1996. These restructuring provisions have now been fully used.
Page 28 of 42
LLOYDS TSB GROUP
Number of employees (full-time equivalent)
In 1999 staff numbers fell by 1,140 to 76,056. Within UK Retail
Banking staff numbers decreased by 429 but in Insurance
and Investments numbers of staff increased to reflect increased
business volumes in the bancassurance business. In Wholesale
Markets staff numbers decreased in Commercial Financial Services
and Treasury Division. In International Banking there were lower
staff numbers in Brazil and New Zealand.
Since the merger of Lloyds Bank and TSB Group at the end of
1995, there has been an underlying reduction of 16,724 staff of
which 4,823 relate to staff employed in businesses sold and
11,901 to reductions in our ongoing businesses.
31 31
December December
1999 1998
UK Retail Banking* 43,771 44,200
Mortgages 3,669 3,694
Insurance and Investments 7,041 6,742
UK Retail Financial Services 54,481 54,636
Wholesale Markets 7,865 8,024
International Banking 13,049 13,870
Other 661 666
Total number of employees (full-time
equivalent) 76,056 77,196
*Although the costs of distributing mortgages and insurance
through the Lloyds TSB network are allocated to the mortgage and
insurance businesses, the number of employees involved in these
activities in the networks is included under UK Retail Banking.
Page 29 of 42
LLOYDS TSB GROUP
CREDIT QUALITY
Charge for bad and doubtful debts
1999 1998
£m £m
Domestic:
UK Retail Banking 428 312
Mortgages (3) 24
Insurance and Investments - (4)
Wholesale Markets 76 31
Total domestic 501 363
International Banking 87 165
Total charge 588 528
Specific provisions 588 535
General provisions - (7)
Total charge 588 528
Charge as % of average lending: % %
Domestic 0.57 0.45
International 0.59 1.34
Total charge 0.57 0.56
The domestic charge for bad and doubtful debts increased to £501
million from £363 million, largely due to some deterioration at
the beginning of 1999 in the personal lending and credit card
portfolios, and higher provisions in our asset finance business,
Lloyds UDT, mainly as a result of higher arrears and the decline
in the residual value of second-hand cars. Provisions overseas
decreased to £87 million from £165 million, mainly as a result
of a reduced provisions charge from the Losango Consumer Finance
business in Brazil.
The Group's charge for bad and doubtful debts, expressed as a
percentage of average lending, was 0.57 per cent compared
to 0.56 per cent in 1998.
Non-performing loans fell to £1,088 million from £1,188 million
in December 1998 and represented 1.0 per cent of total
lending, down from 1.2 per cent in December 1998.
Page 30 of 42
LLOYDS TSB GROUP
Movements in provisions for bad and doubtful debts
1999 1998
Specific General Specific General
£m £m £m £m
At 1 January 1,792 365 2,123 370
Exchange and other adjustments (4) (4) (32) 2
Advances written off (744) - (959) -
Recoveries of advances written
off in previous years 130 - 125 -
Charge (release) to profit and
loss account:
New and additional provisions 1,087 7 999 3
Releases and recoveries (499) (7) (464) (10)
588 - 535 (7)
At 31 December 1,762 361 1,792 365
2,123 2,157
Closing provisions as % of
lending (excluding unapplied
interest)
Specific:
Domestic 773 (0.9%) 761 (0.9%)
International 989 (6.6%) 1,031 (7.3%)
1,762 (1.7%) 1,792 (1.8%)
General 361 (0.3%) 365 (0.4%)
Total 2,123 (2.0%) 2,157 (2.2%)
At the end of December 1999 provisions for bad and doubtful
debts totalled £2,123 million. This represented 2.0 per cent of
total lending.
The level of specific provisions reduced to £1,762 million. Non-
performing lending fell to £1,088 million from £1,188 million in
December 1998 as a result of repayments of principal and write-
offs during the year. At the end of the year, specific
provisions represented over 160 per cent of non-performing
loans.
Page 31 of 42
LLOYDS TSB GROUP
CAPITAL RATIOS
Risk asset ratios
31 31
December December
1999 1998
£m £m
Capital
Tier 1 8,460 7,280
Tier 2 6,838 4,386
15,298 11,666
Supervisory deductions (2,588) (2,213)
Total capital 12,710 9,453
£bn £bn
Risk-weighted assets
UK Retail Banking 16.6 15.8
Mortgages 24.0 22.5
Insurance and Investments 0.1 0.2
UK Retail Financial Services 40.7 38.5
Wholesale Markets 32.8 33.9
International Banking 10.7 10.9
Total risk-weighted assets 84.2 83.3
Post-tax return on average risk-weighted
assets 3.02% 2.67%
Risk asset ratios
Total capital 15.1% 11.3%
Tier 1 10.0% 8.7%
In 1999 total capital increased by £3,257 million to £12,710
million. Tier 1 capital rose by £1,180 million,
mainly from retained profits. Tier 2 capital increased by
£2,452 million and supervisory deductions increased by £375
million, resulting from growth in the insurance business. The
strong growth in the Group's capital ratios reflects both the
strong internal generation of capital and the raising of some
£2.4 billion of further loan capital in anticipation of the
completion of the Scottish Widows acquisition.
Risk-weighted assets increased to £84.2 billion and the post-tax
return on average risk-weighted assets, a key measure of the
efficient use of capital, improved to 3.02 per cent, from 2.67
per cent in 1998.
At the end of December 1999 the risk asset ratios further
improved to 15.1 per cent for total capital and to 10.0 per cent
for tier 1 capital. Excluding the impact of the additional tier
2 capital raised for the Scottish Widows acquisition the Group's
total capital ratio would have been 12.3 per cent.
Page 32 of 42
LLOYDS TSB GROUP
BALANCE SHEET INFORMATION
Total assets
Total assets increased by £8 billion, or 5 per cent, from the
end of 1998 (page 9) and loans and advances to customers
increased by £7 billion. There was further growth in mortgage
lending and other customer lending.
31 31
December December
Deposits - customer accounts 1999 1998
£m £m
Sterling:
Non-interest bearing current
accounts 6,012 5,710
Interest bearing current
accounts 17,461 15,418
Savings and investment accounts 41,330 40,838
Other customer deposits 14,696 15,329
Total sterling 79,499 77,295
Currency 13,352 12,439
Total deposits - customer
accounts 92,851 89,734
Loans and advances to customers
Domestic:
Agriculture, forestry and
fishing 2,183 2,052
Manufacturing 3,262 2,987
Construction 754 671
Transport, distribution and hotels 3,540 3,308
Property companies 2,303 2,304
Financial, business and other
services 6,614 5,029
Personal : mortgages 47,451 44,660
: other 10,092 9,570
Lease financing 8,848 8,445
Hire purchase 3,674 3,701
Other 1,698 1,577
Total domestic 90,419 84,304
International:
Latin America 2,558 2,939
New Zealand 7,659 7,310
Rest of the world 4,159 3,207
Total international 14,376 13,456
104,795 97,760
Provisions for bad and doubtful
debts* (2,067) (2,099)
Interest held in suspense* (100) (105)
Total loans and advances to
customers 102,628 95,556
* Figures exclude provisions and interest held in suspense
relating to loans and advances to banks
Page 33 of 42
LLOYDS TSB GROUP AND SCOTTISH WIDOWS GROUP
ACQUISITION OF SCOTTISH WIDOWS
On 22 December 1999 the members of Scottish Widows voted in
favour of a proposal providing for the transfer of Scottish
Widows' business to the Lloyds TSB Group. The transfer, which
is subject to the sanction of the Court of Session in Edinburgh,
is expected to be completed on 3 March 2000.
The results of the Scottish Widows' business will be
consolidated in full with effect from 3 March 2000; however in
order to provide an indication of the historic performance of
the enlarged Group, pro forma financial information is shown on
pages 34 to 37. This information has been prepared on the
assumption that Scottish Widows had been part of the Lloyds TSB
Group since 1 January 1998 and using the accounting policies and
practices adopted by the Lloyds TSB Group in the preparation of
the 1999 accounts.
PRO FORMA SUMMARY OF RESULTS FOR THE ENLARGED GROUP
1999 1998 Increase
(Decrease)
RESULTS (excluding pension provisions £m £m
and loss/profit on sale and closure
of businesses)
Income from long-term assurance
business 826 885 (7)
Total income 8,170 7,669 7
Operating expenses 3,391 3,478 (3)
Trading surplus 4,779 4,191 14
Provisions for bad and doubtful debts 588 528 11
Profit before tax 4,027 3,516 15
Profit attributable to shareholders 2,836 2,445 16
PER SHARE p p
Earnings (excluding pension
provisions and loss/profit on sale
and closure of businesses) 52.1 45.3 15
Earnings (statutory basis) 48.5 41.6 17
Net assets 161 138 17
PERFORMANCE MEASURES % %
Post-tax return on average
shareholders' equity 31.3 31.7
Post-tax return on average risk-
weighted assets 3.17 2.83
BALANCE SHEET £m £m
Long-term assurance business
attributable to shareholders 6,107 5,467 12
Long-term assurance assets
attributable to policyholders 49,284 44,277 11
Shareholders' equity 8,947 7,604 18
Page 34 of 42
LLOYDS TSB GROUP AND SCOTTISH WIDOWS GROUP
PRO FORMA LIFE, PENSIONS AND UNIT TRUSTS RESULTS
1999 1998
£m £m
Profit before tax - Scottish Widows
(excluding exceptional annuity charge)
New business 171 159
Existing business 186 173
Investment earnings 321 310
Life and pensions distribution costs (145) (136)
533 506
Unit trusts 20 6
Unit trust distribution costs (18) (6)
2 -
535 506
Profit before tax for Scottish Widows was £535 million in 1999
compared with £506 million in 1998, an increase of 6 per cent,
excluding a £36 million exceptional charge required to
strengthen reserves as a result of revised Financial Services
Authority guidelines for the life expectancy of annuitants.
During 1999, following a detailed review of the amount expected
to be needed to meet Scottish Widows policy liabilities,
Scottish Widows decided to strengthen the level of assets
backing certain classes of policy by a total of some £300
million. This has the effect of reducing the level of the
surplus assets of Scottish Widows and, as a result, will reduce
the acquisition price to be paid by Lloyds TSB upon completion
of the purchase. The mix of the portfolio backing the surplus
assets has also been changed during the year and there is now a
higher proportion of fixed income and gilt-edged securities and
a lower proportion of equities. This creates a better quality,
but slightly lower level, of sustainable investment earnings.
Both these issues have the effect of reducing ongoing investment
earnings for Scottish Widows and 1998 comparisons have therefore
been restated to reflect these changes.
Lloyds Scottish Pro forma
TSB Widows Total
1999 1999 1999 1998
£m £m £m £m
Pro forma profit before
tax*:
New business 134 171 305 282
Existing business 260 150 410 481
Investment earnings 43 321 364 346
Life and pensions
distribution costs (99) (145) (244) (223)
338 497 835 886
Unit trusts 138 20 158 111
Unit trust distribution
costs (81) (18) (99) (69)
57 2 59 42
395 499 894 928
*excluding pension
provisions
Page 35 of 42
LLOYDS TSB GROUP AND SCOTTISH WIDOWS GROUP
PRO FORMA NEW BUSINESS PERFORMANCE
Pro forma new business Lloyds Scottish
performance TSB Widows Total
1999 1999 1999 1998
£m £m £m £m
Life premiums (equivalised) 106.8 122.6 229.4 212.3
Pension premiums
(equivalised) 210.2 294.7 504.9 479.0
Unit Trust premiums
(equivalised) 248.2 65.1 313.3 218.0
Total premiums (equivalised) 565.2 482.4 1,047.6 909.3
Total new premium income for Scottish Widows increased by 29 per
cent in 1999 to £3.32 billion. Weighted sales increased by 20
per cent from £402 million to £482 million.
Weighted sales for the combined Lloyds TSB and Scottish Widows
businesses increased by 15 per cent from £909.3 million in 1998
to £1,047.6 million in 1999. There was particularly strong
growth in unit trusts, PEPs and ISAs with weighted sales growing
by 44 per cent.
Scottish Widows Investment Management
During 1999 funds under management at Scottish Widows Investment
Management increased by some £5 billion, or 15 per cent, to
£36 billion as a result of rising equity markets, new premiums
on Scottish Widows life, pensions and unit trust policies and a
number of new external business mandates gained. Funds managed
on behalf of third parties represented £3 billion of the total
funds under management at the end of 1999.
Page 36 of 42
LLOYDS TSB GROUP AND SCOTTISH WIDOWS GROUP
1999 1998
£m £m
Scottish Widows
Regular premiums:
Life - mortgage related 22.5 19.3
- non-mortgage related 31.3 32.0
Pensions 71.5 72.5
Fund management 41.4 36.3
Total regular premiums 166.7 160.1
Single premiums:
Life 688.1 522.2
Annuities 344.9 361.0
Pensions 337.6 351.0
Fund management 1,136.3 936.2
Total single premiums 2,506.9 2,170.4
External unit trust sales:
Single amounts 650.7 244.1
Total external unit trust sales 650.7 244.1
Total life funds under management 22,742 20,585
Pro forma Lloyds TSB and Scottish Widows
Regular premiums:
Life - mortgage related 63.2 57.9
- non-mortgage related 53.6 54.0
Pensions 131.8 149.7
Fund management 41.4 36.3
Health 6.1 5.7
Total regular premiums 296.1 303.6
Single premiums:
Life 1,064.7 947.1
Annuities 555.5 548.9
Pensions 547.1 468.5
Fund management 2,215.3 1,912.2
Total single premiums 4,382.6 3,876.7
External unit trust sales:
Regular payments 79.1 73.1
Single amounts 2,341.8 1,449.3
Total external unit trust sales 2,420.9 1,522.4
Total life funds under management 49,284 44,277
Pro forma Lloyds TSB and Scottish Widows
Total new business premium income and unit
trust sales:
Regular premiums 296.1 303.6
Single premiums 4,382.6 3,876.7
Unit trusts 2,420.9 1,522.4
Weighted sales (regular + 1/10 single) 1,047.6 909.3
Page 37 of 42
LLOYDS TSB GROUP
NOTES
1. Accounting policies
Accounting policies are unchanged from 1998, except that the
Group has implemented the requirements of Financial Reporting
Standard 12 Provisions, Contingent Liabilities and
Contingent Assets; the effect has not been significant.
2. Economic profit
In pursuit of our aim to maximise shareholder value, we use a
system of value based management as a framework to identify
and measure value in order to help us to make better business
decisions. Accounting profit is of limited use as a measure
of value creation and performance as it ignores the cost of
the equity capital that has to be invested to generate the
profit. We choose economic profit as a measure of
performance because it captures both growth in investment and
return. Economic profit represents the difference between
the earnings on the equity invested in a business and the
cost of the equity. Our calculation of economic profit uses
average equity for the year and is based on a cost of equity
of 9 per cent (1998: 10 per cent).
Economic profit instils a rigorous financial discipline in
determining investment decisions throughout the Group. It
enables us to evaluate alternative strategies objectively,
with a clear understanding of the value created by each
strategy, and then to select the strategy which creates the
greatest value.
3. Earnings per share
Basic 1999 1998
Profit attributable to shareholders £2,514m £2,120m
Weighted average number of ordinary
shares in issue 5,445m 5,400m
Earnings per share 46.2p 39.3p
Fully diluted
Profit attributable to shareholders £2,514m £2,120m
Weighted average number of ordinary
shares in issue 5,546m 5,506m
Earnings per share 45.3p 38.5p
4. Tax
The effective rate of tax was 30.4 per cent (1998: 29.3 per
cent), compared with an average UK corporation tax rate for
1999 of 30.25 per cent (1998: 31.0 per cent). The higher
effective rate of tax in 1999 reflects a combination of
factors which reduced the effective rate of tax in 1998
including the absence of a tax charge on the profit on the
sale of certain businesses and a reduction in the deferred
tax liability associated with the one-off write-down of
finance leases as a result of the reduction in the
corporation tax rate.
Page 38 of 42
LLOYDS TSB GROUP
5. Sale and closure of businesses 1999 1998
£m £m
Provision for closure of Lloyds TSB Securities
Services (tax: nil) (28) -
Provision for sale of Abbey Life new business
capability (tax: nil)
(including £80 million in respect of goodwill
previously written off to reserves, and other
asset write-offs) (98) -
Profit on sale of International Factors Limited
(tax: nil) - 158
Profit on sale of Universal Credit Limited
(tax: nil) - 24
Profit on sale of TSB Factors Limited (tax: nil) - 3
Loss on sale of Black Horse Agencies Group
(after charging goodwill of £131 million
previously written off to reserves) (tax: nil) - (101)
(126) 84
6. Efficiency programme
Additional opportunities have been identified that will
enable the Group to reduce its overall cost base. The cost
reductions, together with the expected revenue growth, are
such that by 2002 we expect that the Group's efficiency ratio
will be below 35 per cent, and we forecast further progress
thereafter. The start of this efficiency programme will
require a restructuring charge of up to £200 million in 2000.
The extensive programme will result in lower overall staffing
levels, but the impact of this will be mitigated by our
natural staff turnover, with underlying staff numbers in
2000, excluding the acquisition of Scottish Widows, reducing
by some 3,000.
The main features of the efficiency programme, which is
primarily focused on non-customer facing activities, will
be: -
the centralisation of computer operations
the further consolidation of all our large scale processing
operations and support functions including the complete
removal of all back office processing from branches
the introduction of internet and intranet technology to
further automate processing activities
the further streamlining of the branch network, combined
with the expansion of lower cost delivery channels such as
telephone banking and internet operations
the further reduction of our purchasing costs
the rationalisation of non personal banking activities,
through the progressive sharing and consolidation of
operational functions.
Page 39 of 42
LLOYDS TSB GROUP
7. Year 2000
Lloyds TSB recognised the far-reaching implications of the
Year 2000 problem and the Group's policy was always to ensure
that our systems and business processes were Year 2000
compliant.
The successful implementation of the Group's Year 2000
century date change programme represented the culmination of
many years work and this comprehensive programme has ensured
the continued progress of the Group's systems, processes and
infrastructure through and beyond the century date change.
Costs incurred to the end of 1999 were £161 million.
8. Economic and Monetary Union
In preparing for the initial decision that the UK should opt-
out of Economic and Monetary Union, all the relevant
business units in the Group successfully managed the
conversion process at the beginning of January 1999, to
ensure a smooth transition to the single currency. The Group
now provides euro accounts and enables customers to make and
receive payments in euro. Costs incurred to the end of
December 1999 were £38 million.
9. Dividend
The board recommends a final dividend for 1999 of 18.5p per
share (1998: 15.5p), making a total for the year of 26.6p
(1998: 22.2p), an increase of 20 per cent.
Shareholders who have already joined the dividend
reinvestment plan will automatically receive shares instead
of the cash dividend. Shareholders who have not joined the
plan and wish to do so may obtain an application form from
Lloyds TSB Registrars, The Causeway, Worthing, West Sussex,
BN99 6DA (telephone 01903 502541). Key dates for the payment
of the final dividend are:
Shares quoted ex-dividend. Shares purchased before this date
qualify for the dividend 21 February
Record date. Shareholders on the register on this date
are entitled to the dividend 25 February
Final date for joining or leaving the dividend reinvestment
plan for th final dividend 5 April
Dividend paid 3 May
Page 40 of 42
LLOYDS TSB GROUP
10. Other information
The financial information included in this news release does
not constitute statutory accounts within the meaning of
section 240 of the Companies Act 1985. Statutory accounts
for the year ended 31 December 1999 were approved by the
directors on 10 February 2000 and will be delivered to the
registrar of companies following publication on 4 March 2000.
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.
Results for the half-year to 30 June 2000 will be announced
on 28 July 2000.
Page 41 of 42
LLOYDS TSB GROUP
CONTACTS
For further information please contact:-
Kent Atkinson
Group Finance Director
Lloyds TSB Group plc
020 7356 1436
E-mail: kent.atkinson@ltsb-finance.co.uk
Michael Oliver
Director of Investor Relations
Lloyds TSB Group plc
020 7356 2167
E-mail: michael.oliver@ltsb-finance.co.uk
Geraldine Davies
Director of Corporate Communications
Lloyds TSB Group plc
020 7356 2078
E-mail: daviesg1@lloydstsb.co.uk
Copies of this news release may be obtained from Investor
Relations, Lloyds TSB Group plc, 71 Lombard Street, London EC3P
3BS (telephone 020 7356 1273).
Information about the Group's role in the community and copies
of the Group's code of business conduct and its environmental
report may be obtained by writing to Public Affairs, Lloyds TSB
Group plc, 71 Lombard Street, London EC3P 3BS.
The full news release can also be found on the Internet at
http://www.lloydstsbgroup.com.
Page 42 of 42
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