Interim Results - PART 1
LLOYDS TSB GROUP PLC
30 July 1999
Part 1
RESULTS FOR HALF-YEAR
TO 30 JUNE 1999
PRESENTATION OF RESULTS
In 1998 three factors had a significant impact on Lloyds TSB
Group's results on a statutory basis: the provision for redress
to past purchasers of pension policies, the disposal of a number
of businesses, and a reduced contribution from Emerging Markets
Debt. In order to facilitate comparisons, certain financial
information and commentaries were presented on a Continuing
Businesses basis which excluded the effect of these factors.
In the first half of 1999, the impact of these issues was not
significant and the Group's results have therefore been
presented on a statutory basis. The impact of the pension
provision and disposal gains has been excluded from 1998
figures, where appropriate, to facilitate performance
comparisons.
1999 INTERIM RESULTS HIGHLIGHTS
Comparisons with the first half of 1998, excluding the impact of
the £400 million pension provision and disposal gains announced
in the first half of 1998.
Profit before tax up 16 per cent to £1,853 million from
£1,596 million.
Income up 8 per cent to £3,926 million.
Operating expenses reduced by 2 per cent.
Trading surplus up 17 per cent to £2,251 million.
Efficiency ratio improved to 42.7 per cent from 46.5 per
cent in the first half of 1998.
Economic profit increased by 22 per cent to £962 million.
Earnings per share up 16 per cent to 24.2p.
Post-tax return on shareholders' equity 33.5 per cent.
UK Retail Financial Services profit up £190 million, or 17
per cent, to £1,324 million. This represents 71 per cent of
total Group profit.
Total capital ratio further strengthened to 12.2 per cent,
tier 1 capital ratio 9.9 per cent.
Interim dividend increased by 21 per cent to 8.1p per
share.
On 23 June 1999, the Group announced an agreement with
Scottish Widows providing for the transfer of Scottish Widows'
business to the Lloyds TSB Group.
Commenting on the results Lloyds TSB Group chairman, Sir Brian
Pitman, said:-
'Both in terms of growth and return, this was another successful
half-year. Average shareholders' funds grew by £1.1 billion, or
16 per cent, from a year ago and the post-tax return on the
enlarged equity rose to 33.5 per cent. This strong performance
enabled the board to increase the interim dividend by 21 per
cent.
We expect further progress in the second half of the year.'
SUMMARY OF RESULTS (Unaudited)
Half-year to Increase Half-year to
30 June (Decrease) 31 December
1999 1998 % 1998
SHAREHOLDER VALUE
Closing market price per
share 860p 839p 3 855p
Total market value of
shareholders' equity £46.8bn £45.6bn 3 £46.5bn
Dividends per share 8.1p 6.7p 21 15.5p
RESULTS (excluding the £m £m £m
1998 pension provision
and disposal gains)
Total income 3,926 3,634 8 3,844
Operating expense 1,675 1,706 (2) 1,766
Trading surplus 2,251 1,928 17 2,078
Provisions for bad and
doubtful debts 315 266 18 262
Profit before tax 1,853 1,596 16 1,735
Profit attributable to
shareholders 1,315 1,120 17 1,196
Economic profit (page 30,
note 2) 962 790 22 827
RESULTS (statutory basis) £m £m £m
Total income 3,926 3,234 21 3,844
Operating expenses 1,675 1,706 (2) 1,766
Trading surplus 2,251 1,528 47 2,078
Provisions for bad and
doubtful debts 315 266 18 262
Profit before tax 1,853 1,280 45 1,735
Profit attributable to
shareholders 1,315 924 42 1,196
Economic profit 962 587 64 830
PER SHARE p p p
Earnings (excluding the 24.2 20.8 16 22.1
1998 pension provision
and disposal gains)
Earnings (statutory basis) 24.2 17.2 41 22.1
Net assets 153 129 19 136
PERFORMANCE MEASURES % % %
Post-tax return on average
shareholders' equity 33.5 27.4 32.7
Post-tax return on average
assets* 1.81 1.37 1.68
Post-tax return on average
risk-weighted assets 3.19 2.42 2.90
BALANCE SHEET £m £m £m
Shareholders' equity 8,417 7,068 19 7,475
Total assets 173,361 163,168 6 167,997
RISK ASSET RATIOS % % %
Total capital 12.2 12.1 11.3
Tier 1 capital 9.9 9.1 8.7
* Assets exclude long-term assurance assets attributable to
policyholders.
GROUP CHIEF EXECUTIVE'S SUMMARY OF RESULTS
The Group continued to make very good progress in the first half
of 1999. Profit before tax on a statutory basis rose by £573
million, or 45 per cent, to £1,853 million from £1,280 million
in the first half of 1998, which included a £400 million pension
provision and disposal gains totalling £84 million. Earnings
per share increased by 41 per cent to 24.2p. The post-tax
return on assets improved to 1.81 per cent from 1.37 per cent
and the post-tax return on average risk-weighted assets, a key
measure of the efficient use of capital, improved to 3.19 per
cent, up from 2.42 per cent in the first half of 1998 and 2.90
per cent in the second half of 1998. Shareholders' equity rose
by 19 per cent to £8,417 million and we earned a post-tax return
of 33.5 per cent on the enlarged equity. Economic profit
increased by 64 per cent to £962 million.
Total income rose by 21 per cent while operating expenses were
further reduced by 2 per cent, producing a 47 per cent increase
in the trading surplus to £2,251 million. Customer lending and
deposits continued to grow and, despite intensifying
competition, we were able to improve the net interest margin by
7 basis points to 3.87 per cent.
Excluding the impact of the 1998 pension provision and disposal
gains, profit before tax rose by £257 million, or 16 per cent,
to £1,853 million from £1,596 million in the first half of 1998.
Total income increased by 8 per cent and there was a 17 per cent
increase in the trading surplus. Shareholders' equity increased
by 19 per cent, profit attributable to shareholders increased by
17 per cent and economic profit increased by 22 per cent, helped
by a reduction in the Group's cost of equity to 9 per cent from
10 per cent in 1998 (page 30, note 2).
Underlying operating expenses (page 25) have reduced by a
further £19 million bringing total costs saved since the merger
of Lloyds Bank and TSB Group and the integration of Lloyds Abbey
Life to £370 million. Further cost savings will be made in the
second half of the year to ensure achievement of the £400
million per annum cost savings promised by 1999, and we expect
reductions to continue in the year 2000. The efficiency ratio
improved further to 42.7 per cent from 46.5 per cent in the
first half of 1998 and 45.0 per cent in the second half.
The total charge for bad and doubtful debts (page 26) was 18 per
cent higher at £315 million, compared with £266 million in the
first half of 1998. The domestic charge increased to £260
million, or 0.60 per cent of average lending, from £183 million,
or 0.46 per cent of average lending, largely due to some
deterioration in the personal lending and credit card portfolios
in the first quarter of the year. Provisions overseas
decreased to £55 million from £83 million mainly as a result
of a lower provisions charge from the Losango consumer finance
business in Brazil. At the end of the half-year specific
provisions for bad debts for the Group totalled £1,864 million,
representing over 160 per cent of non-performing loans.
Excluding the impact of the £400 million pension provision made
in the first half of 1998, profit before tax from UK Retail
Financial Services (page 10), encompassing UK Retail Banking,
Mortgages, and Insurance and Investments, increased by £190
million, or 17 per cent, to £1,324 million. This represents 71
per cent of total Group profit (1998 first half: 68 per cent).
Pre-tax profit from UK Retail Banking (page 11) rose by £40
million, or 12 per cent, to £382 million. Good growth in
revenue and tight control of costs was partly offset by
increased bad debts, particularly in the first quarter of the
year.
Pre-tax profit from Mortgages (page 12) increased by £122
million, or 35 per cent, to £469 million. In the face of
aggressive competition during the first half of 1999, C&G
elected to maintain profitable growth rather than pursue
market share based on uneconomic pricing. The estimated
market share of net new lending was 7.0 per cent. The
efficiency ratio of the Group's total mortgage business
further improved to 20.1 per cent, from 25.5 per cent in the
first half of 1998.
Pre-tax profit from Insurance and Investments (page 13),
rose by £28 million, or 6 per cent, to £473 million, from £445
million, excluding the impact of the 1998 pension provision. A
strong performance in the general insurance business offset a
reduction of £11 million in the profit before tax from our
life and pensions businesses, largely caused by the change in
the embedded value discount rate from 12.5 per cent to 10 per
cent in 1998.
In Wholesale Markets, profit before tax was £8 million,
or 2 per cent, higher at £331 million. Total income
increased by 4 per cent to £584 million and, as a result of
lower costs in both Treasury and Corporate and Institutional
Banking, operating expenses fell by 6 per cent to £225 million,
producing a 12 per cent increase in the trading surplus.
In International Banking, profit before tax was £24 million
higher at £218 million compared with the first half of 1998
and £64 million, or 42 per cent, higher than in the second
half. In New Zealand we started to see the benefits of the
integration of Countrywide Bank and The National Bank of New
Zealand and profits were also up in the international private
banking and offshore banking operations. Profits from our Latin
American businesses held up well despite difficult local
economic conditions, particularly in Argentina and Colombia, and
our consumer finance business in Brazil, Losango Consumer
Finance, made a pre-tax profit of £13 million, compared with a
loss of £4 million in the first half of 1998.
The total capital ratio further strengthened to 12.2 per cent
and the tier 1 capital ratio increased to 9.9 per cent.
Balance sheet assets increased by £10 billion, or 6 per cent,
to £173 billion, as a result of further growth in
mortgages and other customer lending. Risk-weighted assets
decreased slightly to £83.0 billion from £83.3 billion at the
end of 1998 and the post-tax return on average risk- weighted
assets improved to 3.19 per cent, from 2.42 per cent in the first
half of 1998.
On 23 June 1999, the Group announced an agreement with Scottish
Widows providing for the transfer of Scottish Widows' business
to the Lloyds TSB Group. The transfer is subject to approval by
Scottish Widows members, satisfactory discussions with relevant
regulatory authorities and the sanction of the Court of Session.
The transfer is expected to be completed in early 2000.
Completion of the proposed transaction will bring together
Lloyds TSB's and Scottish Widows' life, pensions, unit trust and
fund management businesses and create a business capable of
achieving greater sales and lower unit costs. This is a further
manifestation of one of the Group's strategic aims to become a
leader in its chosen markets, and the addition of Scottish
Widows to the Lloyds TSB Group will enable the Group to achieve
this aim in the rapidly growing long-term savings and pensions
market. It will bring to the Group a powerful and leading
brand, and expertise and presence in the important Independent
Financial Adviser market.
On 28 June 1999 the national roll-out of the single Lloyds TSB
brand was completed following the enactment of the Lloyds TSB
Act 1998. This has brought together some 2,400 former Lloyds
and TSB branches under the Lloyds TSB name and has laid the
foundations for the generation of increased revenue from higher
sales, increased cost effectiveness from a simplified branch
network and the move towards a single IT platform, and material
service enhancements for our customers.
In addition to the move to the single Lloyds TSB brand, we have
continued to develop a number of alternative distribution
channels in order to offer the broadest possible range of access
points for our customers. PhoneBank, our telephone banking
operation, is now one of the largest in Europe with 1.3 million
customers. It handled some 8 million calls in the first half of
the year and was further enhanced with the launch, in March
1999, of PhoneBank Express which incorporates leading edge
interactive voice recognition systems. Our supermarket banking
operation, branded easibank, continues to expand and we now
have 15 branches in ASDA stores or large shopping centres. Our
personal customer Internet Banking Service, successfully
launched in November 1998, now has some 67,000 registered
customers and continues to register a further 350 customers a
day and, in March 1999, we successfully launched a new Internet
Banking Service for business customers.
In March 1999 the Group announced an agreement with Post Office
Counters Limited that allows personal customers of Lloyds TSB to
carry out straightforward banking transactions at over 15,500
post offices in England and Wales. This is a significant
enhancement to our customer service, allowing Lloyds TSB
customers access to deposit and withdrawal services throughout
England and Wales.
Outlook
Our governing objective to maximise shareholder value over time
is underpinned by our three strategic aims of being a leader in
our chosen markets, being first choice for our customers and
driving down our day-to-day operational costs through increased
effectiveness.
Despite greater competition in our market-place, particularly
from new entrants and single-line product providers, we have
delivered a strong performance in the first half of the year.
We expect to make further progress in the second half of the
year, particularly in our core UK Retail Financial Services
business.
The increase in the interim dividend of 21 per cent reflects the
confidence of the board in the prospects for the Group and the
continued strong internal generation of capital. The quality of
our earnings remains high, our efficiency ratio continues to
improve and we are well positioned to continue delivering value
for our customers, our staff and our shareholders.
Peter Ellwood
Group Chief Executive
CONSOLIDATED PROFIT AND LOSS ACCOUNT (Unaudited)
Half-year to Half-year to
30 June 31 December
1999 1998 1998
£m £m £m
Interest receivable:
Interest receivable and similar
income arising from debt
securities 217 240 286
Other interest receivable and
similar income 5,259 5,371 5,443
Interest payable 3,112 3,439 3,453
Write-down of finance lease
receivables - 32 -
Net interest income 2,364 2,140 2,276
Other income
Dividend income from equity shares 1 2 3
Fees and commissions receivable 1,237 1,159 1,188
Fees and commissions payable (214) (188) (200)
Dealing profits (before expenses) 107 100 97
Income from long-term assurance
business:
Income before pension provision 161 165 214
Pension provision - (400) -
General insurance premium income 190 158 177
Other operating income 80 98 89
1,562 1,094 1,568
Total income 3,926 3,234 3,844
Operating expenses
Administrative expenses 1,561 1,597 1,615
Restructuring provision - - 38
Total administrative expenses 1,561 1,597 1,653
Depreciation 108 109 109
Amortisation of goodwill 6 - 4
Depreciation and amortisation 114 109 113
Total operating expenses 1,675 1,706 1,766
Trading surplus 2,251 1,528 2,078
General insurance claims 84 74 72
Provisions for bad and doubtful debts
Specific 315 266 269
General - - (7)
315 266 262
Amounts written off fixed asset
investments 4 3 12
Operating profit 1,848 1,185 1,732
Income from associated undertaking 5 11 3
Profit on sale of businesses - 84 -
Profit on ordinary activities before
tax 1,853 1,280 1,735
Tax on profit on ordinary activities 536 349 533
Profit on ordinary activities after
tax 1,317 931 1,202
Minority interests (equity) 2 7 6
Profit for the period attributable
to shareholders 1,315 924 1,196
Dividends 437 359 845
Retained profit 878 565 351
CONSOLIDATED BALANCE SHEET (Unaudited)
30 June 30 June 31 December
1999 1998 1998
£m £m £m
Assets
Cash and balances at central
banks 689 801 1,073
Items in course of collection
from banks 2,111 2,607 1,728
Treasury bills and other
eligible bills 1,776 3,174 3,152
Loans and advances to banks 21,508 22,482 18,463
Loans and advances to
customers 99,620 89,033 95,556
Debt securities 11,999 11,274 12,428
Equity shares 216 232 204
Interests in associated
undertakings 25 27 25
Intangible assets 233 - 216
Tangible fixed assets 1,617 1,601 1,634
Own shares 11 28 21
Other assets 3,636 4,077 5,353
Prepayments and accrued income 2,523 2,667 2,469
Long-term assurance business
attributable to shareholders 2,317 1,678 1,983
148,281 139,681 144,305
Long-term assurance assets
attributable to policyholders 25,080 23,487 23,692
Total assets 173,361 163,168 167,997
Liabilities
Deposits by banks 15,606 17,315 17,091
Customer accounts 94,499 88,098 89,734
Items in course of
transmission to banks 902 1,188 800
Debt securities in issue 13,957 9,946 11,853
Other liabilities 5,731 7,559 8,390
Accruals and deferred income 3,223 3,347 3,163
Provisions for liabilities and
charges:
Deferred tax 1,261 522 1,227
Other provisions for
liabilities and charges 482 600 509
Subordinated liabilities:
Undated loan capital 1,577 1,493 1,518
Dated loan capital 2,584 2,503 2,503
Minority interests (equity) 42 42 42
Called-up share capital 1,381 1,377 1,379
Share premium account 151 93 101
Revaluation reserve (200) (219) (201)
Merger reserve 343 343 343
Profit and loss account 6,742 5,474 5,853
Shareholders' funds (equity) 8,417 7,068 7,475
148,281 139,681 144,305
Long-term assurance liabilities
to policyholders 25,080 23,487 23,692
Total liabilities 173,361 163,168 167,997
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (Unaudited)
Half-year to Half-year to
30 June 31 December
1999 1998 1998
£m £m £m
Profit attributable to shareholders 1,315 924 1,196
Currency translation differences on
foreign currency net investments 12 (52) 46
Total recognised gains and losses
relating to the period 1,327 872 1,242
HISTORICAL COST PROFITS AND LOSSES
There was no material difference between the results as reported
and the results that would have been reported on an unmodified
historical cost basis. Accordingly, no note of historical cost
profits and losses has been included.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Half-year to Half-year to
30 June 31 December
1999 1998 1998
£m £m £m
Profit attributable to shareholders 1,315 924 1,196
Dividends (437) (359) (845)
Retained profit 878 565 351
Currency translation differences on
foreign currency net investments 12 (52) 46
Issue of shares 52 170 10
Goodwill written back on sale of
businesses (page 31, note 5) - 131 -
Net increase in shareholders' funds 942 814 407
Shareholders' funds at beginning of
period 7,475 6,254 7,068
Shareholders' funds at end of period 8,417 7,068 7,475
PERFORMANCE BY SECTOR
Profit before tax by main businesses
Half-year to Half-year to
30 June 31 December
1999 1998 1998
£m £m £m
UK Retail Banking 382 342 453
Mortgages 469 347 393
Insurance and Investments 473 445 503
UK Retail Financial Services 1,324 1,134 1,349
Wholesale Markets 331 323 295
International Banking 218 194 154
Central group items (20) 61 (25)
Pension provision - (400) -
Write-down of finance leases - (32) -
Restructuring provision - - (38)
Profit before tax 1,853 1,280 1,735
1998 figures have been restated to take account of changes in
internal cost allocation.
UK Retail Financial Services
Total profit before tax, excluding the impact of the £400
million pension provision in the first half of 1998, from UK
Retail Financial Services encompassing UK Retail Banking,
Mortgages, and Insurance and Investments, increased by £190
million, or 17 per cent, to £1,324 million from £1,134 million
in the first half of 1998.
UK Retail Banking and Mortgages
Total profit before tax from UK Retail Banking and Mortgages
rose by £162 million, or 24 per cent, to £851 million. Total
income increased by 10 per cent and costs were reduced by 2 per
cent, giving a 24 per cent increase in the trading surplus. Bad
debt provisions increased by £47 million, or 25 per cent, to
£236 million, largely due to some deterioration in the personal
lending and credit card portfolios in the first quarter of the
year.
Half-year to Half-year to
30 June 31 December
1999 1998 1998
£m £m £m
Net interest income 1,633 1,482 1,552
Other income 423 389 434
Total income 2,056 1,871 1,986
Operating expenses 969 993 957
Trading surplus 1,087 878 1,029
Provisions for bad and doubtful
debts 236 189 183
Profit before tax 851 689 846
Profit before tax
UK Retail Banking 382 342 453
Mortgages 469 347 393
851 689 846
Efficiency ratio 47.1% 53.1% 48.2%
Total assets (period-end) £68.0bn £65.2bn £66.5bn
Total risk-weighted assets
(period-end) £44.6bn £42.7bn £44.0bn
UK Retail Banking
(the UK retail businesses of Lloyds TSB, providing banking and
financial services to personal and small business customers, and
Lloyds UDT)
Pre-tax profit from UK Retail Banking rose by £40 million, or 12
per cent, to £382 million.
On 28 June 1999 the national roll-out of the single Lloyds TSB
brand was completed following the enactment of the Lloyds TSB
Act 1998. This has brought together some 2,400 former Lloyds or
TSB branches under the Lloyds TSB name and has laid the
foundations for the generation of increased revenue from higher
sales, increased cost effectiveness from a simplified branch
network and the move towards a single IT platform, and material
service enhancements for our customers.
In addition to the move to the single Lloyds TSB brand, we have
continued to develop a number of alternative distribution
channels in order to offer the broadest possible range of access
points for our customers. Our telephone banking operation is
now one of the largest in Europe with 1.3 million customers. It
handled some 8 million calls in the first half of the year and
was further enhanced with the launch, in March 1999, of
PhoneBank Express, which incorporates leading edge interactive
voice recognition systems. Our supermarket banking operation,
branded 'easibank', continues to expand and we now have 15
branches in ASDA stores or large shopping centres. Our personal
customer Internet Banking Service, successfully launched in
November 1998, now has some 67,000 registered customers and
continues to register a further 350 customers a day.
In March 1999, following a pilot involving more than 800 post
offices, the Group announced an agreement with Post Office
Counters Limited that allows personal customers of Lloyds TSB to
carry out straightforward banking transactions at over 15,500
post offices in England and Wales.
Personal loans and credit card lending increased by 13 per cent
and balances on current accounts and savings and investment
accounts grew by 5 per cent, supported by the launch of a number
of new products. A new free-in-credit current account was
launched in January 1999 and the popularity of the Group's Added
Value accounts continued with Lloyds TSB now the market leader
in this area with 1.2 million accounts in operation. A new
range of credit cards was also successfully launched in the
first half of the year.
Business Banking attracted a record number of customers, helped
in particular by the launch in March 1999 of the new Internet
Banking Service for business customers, and by consolidating the
Group's position as a market leader in the recruitment of start-
up businesses. More than 55,000 new business customers chose
Lloyds TSB in the half-year. Profitability has again improved
with growth in both lending and deposits, and bad debts
continuing at a very low level.
Mortgages
(covering the Group's total UK mortgage business through
Cheltenham & Gloucester, Lloyds TSB, Lloyds TSB Scotland and C&G
Mortgage Direct)
Half-year to Half-year to
30 June 31 December
1999 1998 1998
Profit before tax £469m £347m £393m
Efficiency ratio 20.1% 25.5% 23.6%
Gross new mortgage lending £4.7bn £4.2bn £5.1bn
Market share of gross new mortgage
lending 9.6% 10.6% 10.3%
Net new mortgage lending £1.1bn £1.5bn £1.4bn
Market share of net new mortgage
lending 7.0% 14.7% 9.5%
Mortgages outstanding (period-end) £45.8bn £43.3bn £44.7bn
Market share of mortgages
outstanding 9.6% 9.7% 9.7%
Pre-tax profit from Mortgages increased by £122 million, or 35
per cent, to £469 million.
Competition for business increased dramatically during the first
half of 1999 as traditional lenders and new entrants to the
mortgage market competed aggressively for market share. During
this period C&G elected to maintain profitable growth rather
than pursue market share based on uneconomic pricing. This
strategy has resulted in strong half-year profits but a slight
reduction in the Group's market share of net new lending.
Although fixed and capped-rate mortgages remained popular, still
accounting for around two-thirds of total new lending, the
continuing reduction in bank base rates also stimulated renewed
customer interest in variable rate mortgages.
Against this background gross new lending was £4.7 billion,
compared to £4.2 billion a year ago, and net new lending was
£1.1 billion compared to £1.5 billion in the first half of last
year. This represented an estimated market share of net new
lending of 7.0 per cent.
C&G continues to benefit from mortgage sales distribution
through the Lloyds TSB branch network, the IFA market and from
the strength of the C&G brand. Once again the provision of a
first class service has been a significant factor with
independent financial advisers awarding C&G its fourth
consecutive 5-star rating in the 1998 Financial Adviser service
awards. Business levels sourced from intermediaries remain
strong.
Operating expenses continue to be kept under tight control and
the efficiency ratio of the Group's total mortgage business
improved to 20.1 per cent from 25.5 per cent in the first half
of 1998.
A relatively low arrears position and the beneficial effect of
house price increases have meant that bad debt provisions
remained at a low level, falling to £4 million from £13 million
in the first half of 1998. The provisions charge as a
percentage of annualised average lending reduced to 0.02 per
cent from 0.06 per cent in the first half of last year. The
quality of our mortgage lending remains very satisfactory and
arrears continue to be well below the industry average.
Insurance and Investments
(the life, pensions and unit trust businesses of Lloyds TSB
Life, Lloyds TSB Unit Trusts and Abbey Life; general insurance
underwriting and broking; UK private banking and retail
stockbroking; and Hill Samuel Asset Management)
Half-year to Half-year to
30 June 31 December
1999 1998 1998
£m £m £m
Life and pensions (including unit
trusts)
Bancassurance 103 103 161
Abbey Life 81 92 66
184 195 227
General insurance 228 191 230
Total profit from Insurance 412 386 457
Other businesses 61 59 46
Total profit before tax and pension
provision 473 445 503
Pension provision - 400 -
Profit before tax from Insurance and Investments increased by 6
per cent to £473 million from £445 million. This included £412
million from the insurance businesses, up 7 per cent from £386
million a year ago.
In the first half of 1998, the results were adversely affected
by a further pension provision of £400 million for redress to
past purchasers of pension policies, which raised the total
provisions made for this purpose to £700 million. We
continually review the adequacy of the existing total provision
of £700 million and, whilst it is impossible to be precise,
based on the information available at present we remain
satisfied that no further provision is necessary at this stage.
At 30 June 1999 £341 million of the £700 million provision had
been used.
UK Private Banking had another successful half-year. Income
growth was strong as a result of high levels of new business and
favourable equity markets. £0.9 billion of new funds were
gained in the first half and total funds managed and
administered now stand at some £12 billion.
Lloyds TSB Stockbrokers, one of the largest retail stockbrokers
in the UK, continued to perform well as a result of high
transaction levels and efficiency gains.
Insurance and Investments
Hill Samuel Asset Management saw good income growth, again
largely as a result of buoyant equity markets but also from a
number of new external business mandates gained. Funds under
management in Hill Samuel Asset Management now total
approximately £41 billion, up 11 per cent from £37 billion at
the end of 1998. It was announced on 15 July 1999 that Hill
Samuel Asset Management is to assume responsibility for the
investment management of Abbey Life's 70 funds and unit trusts,
currently managed by Abbey Life Investment Services. This will
increase the total funds under management at Hill Samuel Asset
Management to in excess of £50 billion.
Life and pensions (including unit trusts)
Half-year to Half-year to
30 June 31 December
1999 1998 1998
£m £m £m
Profit before tax*:
New business 53 74 49
Existing business 130 133 175
Investment earnings 17 22 14
Unit trusts 68 44 61
Distribution costs (84) (78) (72)
184 195 227
*excluding pension provision
Sales of life, pensions and unit trusts in our bancassurance
businesses rose by 15 per cent, with unit trusts and individual
savings accounts (ISAs) performing strongly. Single premium
ISA/PEP sales were 26 per cent up on the first half of 1998 and
new regular premium mortgage-related sales increased by 15 per
cent in the same period. Single premium unit trust sales
increased by 36 per cent.
In Abbey Life, weighted sales were down by 3 per cent. While
sales of life products increased by 8 per cent, the sales of
regular premium pensions and single premium unit trusts fell
back.
Despite the 11 per cent increase in combined weighted sales,
total life and pensions pre-tax profit decreased by £11 million
to £184 million. This was caused by three factors. First, the
change in the embedded value discount rate from 12.5 per cent to
10 per cent in 1998 reduced ongoing profits by £10 million in
the first half of 1999. Second, there is a continuing switch to
unit trusts and ISAs which are not accounted for on an embedded
value basis, resulting in lower profits in the first year of a
transaction. Third, the first half of 1998 benefited from the
harmonisation of actuarial bases following the merger of the
Hill Samuel and Abbey Life long-term assurance funds.
Half-year to Half-year to
30 June 31 December
1999 1998 1998
£m £m £m
Total new business premium income
and unit trust sales:
Regular premiums 69.5 72.9 70.6
Single premiums 408.2 334.1 396.2
Unit trusts 872.9 687.7 518.6
Weighted sales (regular + 1/10
single) 233.1 210.0 193.0
Bancassurance
Regular premiums:
Life - mortgage related 16.5 14.3 16.9
- non-mortgage related 4.7 4.9 4.8
Pensions 17.3 20.5 15.3
Health 2.6 1.8 2.3
Total regular premiums 41.1 41.5 39.3
Single premiums:
Life 198.4 187.0 211.7
Annuities 47.7 42.6 44.0
Pensions 34.5 16.7 33.1
Total single premiums 280.6 246.3 288.8
External unit trust sales:
Regular payments 38.5 37.9 33.6
Single amounts 793.0 583.8 435.0
Total external unit trust sales 831.5 621.7 468.6
Abbey Life
Regular premiums:
Life - mortgage related 4.2 3.4 4.0
- non-mortgage related 5.7 5.7 6.6
Pensions 17.7 21.6 19.8
Health 0.8 0.7 0.9
Total regular premiums 28.4 31.4 31.3
Single premiums:
Life 14.8 14.3 11.9
Annuities 58.9 50.2 51.1
Pensions 53.9 23.3 44.4
Total single premiums 127.6 87.8 107.4
External unit trust sales:
Regular payments 0.9 0.9 0.7
Single amounts 40.5 65.1 49.3
Total external unit trust sales 41.4 66.0 50.0
Total life funds under management 25,080 23,487 23,692
General Insurance
Half-year to Half-year to
30 June 31 December
1999 1998 1998
£m £m £m
Premium income from underwriting
Creditor 65 53 57
Home 98 82 96
Health 28 24 25
Other 1 1 1
Re-insurance premiums (2) (2) (2)
190 158 177
Commissions from insurance broking
Creditor 80 54 83
Home 18 18 20
Health 10 12 12
Other 42 51 46
150 135 161
Profit before tax 228 191 230
Pre-tax profit from general insurance operations, comprising
underwriting and broking, rose by £37 million, or 19 per cent,
to £228 million.
Income from creditor insurance increased by 36 per cent,
reflecting higher personal sector lending levels and higher loan
values as well as higher sales of business loan protection.
Sales of regular premium household and health insurance policies
by branches increased by 8 per cent. The overall increase in
sales, together with renewal business, produced an 11 per cent
increase in commission income from broking and a 20 per cent
increase in earned premium income from underwriting. Investment
income increased by 7 per cent to £34 million, mainly due to
good returns in the equity markets.
The overall claims ratio of 43.8 per cent was lower than in the
first half of 1998 (46.3 per cent) but higher than the claims
ratio in the second half of 1998 of 40.2 per cent. This
reflects the higher seasonal claims in the first half of the
year.
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