Interim Results - Part 2
Lloyds TSB Group PLC
27 July 2001
Part 2
LLOYDS TSB GROUP - BUSINESS AS USUAL
Insurance and Investments
(the life, pensions and unit trust businesses of Scottish Widows
and Abbey Life; general insurance underwriting and broking; and
Scottish Widows Investment Partnership)
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
Life, pensions and unit trusts
Scottish Widows 335 211 418
Abbey Life 100 73 96
435 284 514
General insurance 341 287 300
Operating profit from Insurance* 776 571 814
Scottish Widows Investment
Partnership 16 20 20
Total operating profit* 792 591 834
Short-term fluctuations in
investment returns (329) (38) (56)
(page 41, note 5)
Changes in economic assumptions - 127 -
(page 42, note 6)
Pension provision/stakeholder
pension related charge - - (180)
(page 42, note 7)
* including 'normalised' investment returns based on long-
term rates of investment return and excluding changes in
the economic assumptions applied to our long-term assurance
business, pension provision and stakeholder pension related
charge.
Operating profit, including investment returns based on long-
term rates of investment return, from Insurance and Investments
increased by 34 per cent to £792 million from £591 million.
Profit before tax from our life and pensions business increased
by £151 million, or 53 per cent, to £435 million, largely as a
result of the inclusion of Scottish Widows for the full half-
year, compared with only 4 months in the first half of 2000, and
a benefit of £22 million largely as a result of the planned
harmonisation of actuarial models between Scottish Widows and
other Group life companies.
Pre-tax profit from general insurance operations, comprising
underwriting and broking, rose by £54 million, or 19 per cent,
to £341 million, mainly as a result of continued strong revenue
growth. The Group has maintained its position as the leading
distributor of home insurance in the United Kingdom.
Page 16 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
Insurance and Investments (continued)
Life, pensions and unit trusts
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
New business 149 100 181
Existing business 245 168 314
Investment earnings 123 90 122
Life and pensions distribution
costs (116) (88) (137)
401 270 480
Unit trusts 96 73 84
Unit trust distribution costs (62) (59) (50)
34 14 34
Operating profit* 435 284 514
* including 'normalised' investment returns based on long-
term rates of investment return (page 41, note 5)
Over the last 12 months the growth in sales of Scottish Widows
products has significantly exceeded overall market growth, and
we expect to continue to grow market share for the remainder of
2001 and beyond. Scottish Widows are well on course to achieve
the full synergy savings and financial projections identified
following their acquisition in March 2000.
On a pro-forma basis, including Scottish Widows sales figures
for the full 6 months in the first half of last year, total
sales from the Group's life, pensions and unit trust businesses
were £2,501 million, an increase of 21 per cent compared with
£2,072 million in the first half of 2000. Weighted sales were
£395.8 million compared to £331.2 million in the first half of
2000. This 20 per cent increase reflects strong product sales
increases in each of the distribution channels.
There was strong growth in regular premium pension sales,
boosted by the launch of stakeholder pensions. This contributed
to a 47 per cent increase in overall regular premium product
sales. Single premium life and pension product sales increased
by 37 per cent and 48 per cent respectively and, despite a
general decline in the unit trusts and Individual Savings
Account (ISA) market, sales increased by 2 per cent. Scottish
Widows was recently confirmed by the Association of Unit Trusts
and Investment Funds providers (AUTIF) as the leading ISA
provider in the UK.
New business profits increased by 49 per cent and existing
business profits rose by 46 per cent, partly as a result of the
inclusion of Scottish Widows for the full half-year, compared
with only 4 months in the first half of 2000.
Page 17 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
Insurance and Investments (continued)
Existing business profits also benefited by £22 million, largely
as a result of the planned harmonisation of actuarial models
between Scottish Widows and other Group life companies. New
business performance in the second half of 2000 was helped by
the reinvestment of some demutualisation proceeds into company
pension schemes. In addition, it is standard practice for life
companies to regularly review the underlying assumptions that
support the embedded value calculations, taking into account the
latest experience in respect of customer lapse rates, expense
inflation, investment mix, mortality rates and other similar
items. It is our normal practice to undertake a full review in
December each year, which has historically led to some profit
and loss account benefit. In 2000 the review, together with
some tax related adjustments, resulted in a benefit of some
£100 million, on combined policyholders funds of over
£50 billion. These issues broadly accounted for the decrease in
profitability in the first half of 2001, compared to the second
half of 2000, however the underlying profitability of Scottish
Widows in the first half of 2001 improved by 3 per cent,
compared to the second half of last year.
Scottish Widows is well placed to take advantage of the
opportunities in the stakeholder pensions market and has been
designated as the stakeholder pensions provider for a number of
associations and employers. This gives Scottish Widows access
to more than 37,000 employers and 1,230,000 employees.
Over the last 12 months the integration of Scottish Widows
Investment Management and Hill Samuel Asset Management has been
completed. The principal focus of Scottish Widows Investment
Partnership (SWIP) is the delivery of consistent superior
investment performance. Having recently completed a review of
the investment philosophy, processes and systems, SWIP is now
creating a strong platform from which to deliver this.
Confidence in SWIP's ability to achieve this has been
demonstrated by the gain in recent months of more than 25 new
mandates covering a range of market sectors. Pre-tax profits
from SWIP for the half-year were £16 million compared with
£20 million in the first half of 2000, the reduction in
profitability being driven by lower stockmarket levels and the
loss of a number of mandates during the early period of business
integration. At the end of the half-year SWIP had £84 billion
of funds under management.
In the second half of 2000, the Group's results were adversely
affected by an increase in the pension provision of £100 million
for redress to past purchasers of pension policies, which raised
the total provisions made for this purpose to £902 million. At
30 June 2001 £776 million of the £902 million provision had been
used. We remain satisfied that no further provision is required
at this stage.
In 1998, a provision was made within Abbey Life for liabilities
under certain unit linked products with guaranteed annuity
options written in the mid-1960s to the mid-1980s and at 30 June
2001 this provision was £122 million. As part of the
acquisition of Scottish Widows by the Group in 2000, certain
measures were taken to protect shareholders from any likely
potential exposure to this issue. Scottish Widows has assets to
match its liabilities in respect of guaranteed annuity options.
Assets are held in such a way that should a change in interest
rates cause the guaranteed liabilities to increase then the
assets will also increase to reflect this. We continually
review the position and are satisfied that no further provision
is necessary.
Page 18 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
Insurance and Investments (continued)
Pro-forma
Half-year to Half-year Half-year to
30 June to 30 June 31 December
2001 2000 2000* 2000
£m £m £m £m
Total new business
premium income
Regular premiums:
Life
- mortgage related 11.3 11.1 12.4 12.5
- non-mortgage related 8.8 8.4 11.2 10.8
Pensions 104.0 46.5 59.4 58.7
Health 2.4 2.7 2.8 2.9
Total regular premiums 126.5 68.7 85.8 84.9
Single premiums:
Life 721.0 437.8 524.6 758.7
Annuities 140.6 126.1 151.5 201.0
Pensions 383.0 140.3 202.4 690.5
Total single premiums 1,244.6 704.2 878.5 1,650.2
External unit trust
sales:
Regular payments 35.4 50.6 52.0 40.3
Single amounts 1,094.6 1,003.8 1,055.8 895.3
Total external unit
trust sales 1,130.0 1,054.4 1,107.8 935.6
Weighted sales
(regular+ 1/10 single)
Life, pensions and
unit trusts 395.8 290.1 331.2 379.8
Weighted sales by
distribution channel:
Branch network 206.0 177.1 177.1 176.2
Independent
financial advisers 140.2 85.8 111.6 169.1
Direct 49.6 27.2 42.5 34.5
Life, pensions and
unit trusts 395.8 290.1 331.2 379.8
Group funds under £bn £bn £bn
management
Scottish Widows
Investment Partnership 84 89 87
UK Private Banking 12 12 12
International 21 25 23
117 126 122
* The Group disposed of the new business capability of Abbey
Life on 1 February 2000, weighted sales totalling £5.9 million
are excluded from first half of 2000 comparatives.
Page 19 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
Insurance and Investments (continued)
General Insurance
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
Premium income from
underwriting
Creditor 56 69 57
Home 132 108 120
Health 22 26 24
Re-insurance premiums (4) (3) (2)
206 200 199
Commissions from
insurance broking
Creditor 149 105 120
Home 18 17 17
Health 9 10 9
Other 84 59 61
260 191 207
Operating profit* 341 287 300
* including 'normalised' investment returns based on long-
term rates of investment return (page 41, note 5)
Operating profit, excluding short-term fluctuations in
investment returns, from general insurance operations,
comprising underwriting and broking, rose by £54 million, or
19 per cent, to £341 million.
Income from creditor insurance increased by 18 per cent,
reflecting higher personal sector loan volumes. Sales of
household policies increased by 17 per cent.
The overall increase in sales, together with renewal business,
produced a 36 per cent increase in commission income from
broking and a 3 per cent increase in earned premium income from
underwriting. Investment income increased by 7 per cent to £32
million.
Claims were £6 million, or 8 per cent, higher at £77 million
than in the first half of last year and the overall claims ratio
of 37 per cent was slightly higher than in the first half of
2000 (35 per cent). This reflected higher property claims in
line with rising volumes of new business, partly offset by lower
unemployment claims.
Page 20 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
Wholesale Markets
(banking, treasury, large value lease finance, long-term
agricultural finance, share registration, venture capital,
factoring and invoice discounting, and other related services
for major UK and multinational companies, banks and financial
institutions, and medium-sized UK businesses; and
Lloyds TSB Asset Finance).
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
Net interest income 503 425 475
Other income 447 277 344
Total income 950 702 819
Operating expenses 431 287 380
Trading surplus 519 415 439
Provisions for bad and doubtful
debts 68 34 60
Amounts written off fixed
asset investments 6 4 10
Profit before tax 445 377 369
Efficiency ratio 45.4% 40.9% 46.4%
Total assets (period-end) £75.9bn £61.7bn £65.7bn
Total risk-weighted assets
(period-end) £41.9bn £32.1bn £36.5bn
Wholesale Markets pre-tax profit increased by £68 million, or
18 per cent, to £445 million. Provisions for bad and doubtful
debts increased by £34 million to £68 million. Total assets
increased by 23 per cent and risk-weighted assets grew by
31 per cent as a result of strong asset growth in Corporate and
Commercial Banking and the inclusion of Chartered Trust from
September 2000. The acquisition of Chartered Trust had a
significant impact on the results of Wholesale Markets. In the
first half of 2001 Chartered Trust contributed £53 million net
interest income, after funding costs of £13 million, £89 million
other income, £116 million operating expenses, provisions for
bad and doubtful debts of £20 million and £6 million profit
before tax.
Corporate and Commercial Banking's continuing focus on quality
income growth ensured another strong performance. The charge
for bad and doubtful debt provisions remained at a low level but
was higher than in the first half of last year, which benefited
from a number of releases and recoveries. In the first half of
2001 Lloyds TSB was the number one arranger of syndicated loans
for large UK companies. Lloyds TSB Leasing maintained its
position as the largest 'big ticket' leasing company in the UK
and Lloyds TSB Registrars had another very successful half-year
with income growing by 18 per cent and pre-tax profit by
16 per cent to £29 million. At the end of the half-year our
registration market share of FTSE 100 companies stood at
60 per cent and market leadership has been established in the
fast growing and important market for employee share
administration services.
Page 21 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
Wholesale Markets (continued)
Lloyds TSB Development Capital had a good half-year, higher
realisations of venture capital investment gains contributed to
an increase in pre-tax profits from £8 million in the first half
of 2000 to £32 million in the first half of 2001. The
Agricultural Mortgage Corporation continued to expand its
activity in the provision of long-term finance to farmers.
Our Treasury achieved good income growth compared with the first
half of 2000 when higher short-dated funding costs reduced
income opportunities. The Group's activity in the derivative
markets continues to remain focused on straight cash based
products, but increasingly we are participating in equity linked
and interest rate options markets in support of other areas of
the Group, to assist risk management and product development.
On 1 September 2000 Chartered Trust joined the Group and has now
combined with Lloyds UDT to create Lloyds TSB Asset Finance and
consolidate the Group's position as market leader in the
independent provision of motor finance with a growing market
share. Lloyds TSB is also one of the leading contract hire
providers in the UK. In addition, we are now beginning to sell
new and used cars to our 16 million retail customers. After a
difficult period during 2000 and early 2001, the motor market
has started to show signs of recovery and we anticipate higher
levels of market activity in the second half of 2001 and beyond.
Trading conditions have been in line with our expectations at
the time of the acquisition and we are on track to achieve our
financial projections and anticipated cost synergies.
Page 22 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
International Banking
(banking and financial services overseas in four main areas: The
Americas, New Zealand, Europe and Offshore Banking; and Emerging
Markets Debt)
Half-year to Half-year to
30 June 31 December
2001 2000* 2000*
£m £m £m
Net interest income 384 380 373
Other income 234 226 218
Total income 618 606 591
Operating expenses 285 293 294
Trading surplus 333 313 297
Provisions for bad and
doubtful debts 57 34 81
Amounts written off fixed
asset investments - 18 -
Profit before tax 276 261 216
Efficiency ratio 46.1% 48.3% 49.7%
Total assets (period-end) £21.3bn £19.6bn £19.6bn
Total risk-weighted assets
(period-end) £13.4bn £12.1bn £12.4bn
* restated for the effect of FRS 18 (page 40, note 1)
International Banking pre-tax profit was £15 million, or
6 per cent, higher at £276 million compared with the first half
of 2000. Excluding the EMD portfolio, pre-tax profit from
International Banking represented 9 per cent of Group pre-tax
profit of which 4 per cent related to our New Zealand business,
4 per cent to our Europe and offshore banking operations and
1 per cent to Latin America.
Profits from New Zealand in local currency terms increased by
20 per cent as a result of asset growth across all business
sectors, growth in the number of personal customers and high
retail deposits. After adjusting for exchange rate movements,
pre-tax profits from The National Bank of New Zealand increased
by 10 per cent to £88 million. Our consumer finance business in
Brazil, Losango Consumer Finance, made a pre-tax profit of £22
million, unchanged from the first half of 2000.
International private banking and the Group's offshore banking
operations continued to perform well despite difficult equity
market conditions.
The Emerging Markets Debt portfolio contributed £65 million
compared with a contribution of £39 million in the first half of
2000. Following the implementation of Financial Reporting
Standard 18 (page 40, note 1) certain holdings of
uncollateralised bonds have been reclassified as debt
securities. Based on secondary market prices, the surplus of
market value over the restated net book value of the Emerging
Markets Debt investment portfolio was more than £400 million
(December 2000 restated: £400 million).
Page 23 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
Central group items
(earnings on surplus capital, central costs and other
unallocated items)
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
Accrual for payment to
Lloyds TSB Foundations (19) (18) (16)
Earnings on surplus capital,
central costs and other
unallocated items (10) 25 (109)
(29) 7 (125)
Abbey National offer costs (16) - -
The four independent Lloyds TSB Foundations support registered
charities throughout the UK that enable people, particularly
disabled and disadvantaged people, to play a fuller role in
society. The Foundations receive 1 per cent of the Group's pre-
tax profit, averaged over 3 years, instead of the dividend on
their shareholdings, making them the biggest independent grant
giving body in the UK. In the first half of 2001 the Group
accrued £19 million for payment to the Lloyds TSB Foundations,
compared with an accrual of £18 million in the first half of
2000.
Earnings on surplus capital, central costs and other unallocated
items, was £35 million lower than the first half of 2000, which
benefited from the high levels of surplus capital built up ahead
of the Scottish Widows acquisition and a lower funding cost
relating to its acquisition midway through the first half of
last year. Compared to the second half of 2000 there was an
improvement of £99 million partly as a result of surplus capital
starting to build up and as Group capital benefited from changes
in the interest rate yield curve.
Page 24 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
INCOME
Group net interest income
Group net interest income increased by £71 million, or
3 per cent, to £2,382 million, despite a reduction of
£14 million caused by a 3 basis point reduction in the
underlying net interest margin. Average interest-earning assets
increased by 9 per cent to £141 billion. There was further
growth in mortgages and other customer lending in the UK. The
net interest margin decreased to 3.41 per cent, a reduction of
18 basis points. The impact of the funding cost of Scottish
Widows represented 15 basis points of this 18 basis point
reduction, with the residual 3 basis point decrease in the
margin reflecting the increasingly competitive operating
environment.
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
Net interest income 2,382 2,311 2,276
Average balances
Short-term liquid assets 3,066 2,176 1,945
Loans and advances 130,681 119,770 124,709
Debt securities 6,939 7,548 5,879
Total interest-earning assets 140,686 129,494 132,533
Financed by:
Interest-bearing liabilities 128,552 115,909 120,760
Interest-free liabilities 12,134 13,585 11,773
Average rates % % %
Gross yield on interest-
earning assets 8.38 8.32 8.55
Cost of interest-bearing
liabilities 5.44 5.28 5.64
Interest spread 2.94 3.04 2.91
Contribution of interest-free
liabilities 0.47 0.55 0.51
Net interest margin 3.41 3.59 3.42
Net interest margin, excluding
funding cost of Scottish Widows 3.68 3.71 3.68
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 £13 million lower in the first half of 2001
(2000: first half £38 million lower, second half £27 million
lower). The deferred element of the expenditure amounting to
£255 million at 30 June 2001 (30 June 2000: £215 million, 31
December 2000: £242 million) is included within prepayments and
accrued income in the balance sheet.
Page 25 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
Domestic net interest income
Domestic net interest income increased by £41 million, or
2 per cent, to £2,031 million, notwithstanding a reduction of
£11 million caused by a 5 basis point reduction in the
underlying net interest margin. This represents
85 per cent of total group net interest income.
Average interest-earning assets increased by 9 per cent to £118
billion. There was further growth in mortgages and other
customer lending.
The net interest margin decreased by 21 basis points to
3.47 per cent, again partly reflecting the funding cost of
Scottish Widows, which caused a reduction of 16 basis points.
In addition, the increasingly competitive operating environment,
particularly for retail lending, caused an underlying reduction
of 5 basis points in the net interest margin.
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
Net interest income 2,031 1,990 1,966
Average balances
Short-term liquid assets 1,597 820 852
Loans and advances 113,394 103,247 108,437
Debt securities 3,113 4,783 2,991
Total interest-earning assets 118,104 108,850 112,280
Financed by:
Interest-bearing liabilities 107,639 96,599 101,813
Interest-free liabilities 10,465 12,251 10,467
Average rates % % %
Gross yield on interest-
earning assets 7.86 8.02 8.12
Cost of interest-bearing
liabilities 4.82 4.90 5.12
Interest spread 3.04 3.12 3.00
Contribution of interest-free
liabilities 0.43 0.56 0.48
Net interest margin 3.47 3.68 3.48
Net interest margin, excluding
funding cost of Scottish Widows 3.78 3.83 3.80
Page 26 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
International net interest income
Net interest income from international operations increased by
£30 million, or 9 per cent, to £351 million. This represents
15 per cent of total group net interest income.
Average interest-earning assets on a local currency basis
increased by 13 per cent, helped by growth in our New Zealand
mortgage portfolio, but this increase was partly offset by the
effect of exchange rate movements.
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
Net interest income 351 321 310
Average balances
Short-term liquid assets 1,469 1,356 1,093
Loans and advances 17,287 16,523 16,272
Debt securities 3,826 2,765 2,888
Total interest-earning assets 22,582 20,644 20,253
Financed by:
Interest-bearing liabilities 20,913 19,310 18,947
Interest-free liabilities 1,669 1,334 1,306
Average rates % % %
Gross yield on interest-
earning assets 11.10 9.88 10.93
Cost of interest-bearing
liabilities 8.60 7.22 8.43
Interest spread 2.50 2.66 2.50
Contribution of interest-free
liabilities 0.63 0.47 0.54
Net interest margin 3.13 3.13 3.04
Page 27 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
Other income
Other income increased by £434 million, or 23 per cent, to
£2,329 million. This represented 49 per cent of total income.
Excluding the impact of the Chartered Trust acquisition and a
full 6 months of Scottish Widows income compared with 4 months
in the first half of 2000, other income increased by
£301 million, or 17 per cent, to £2,033 million.
Fees and commissions receivable increased by 9 per cent
reflecting increased business volumes and strong growth in
income from insurance broking. Other UK fees and commissions
increased by 8 per cent, as a result of growth in all core UK
businesses and the impact of the acquisition of Scottish Widows.
Fees and commissions payable increased by £48 million against
the first half of 2000, largely as a result of the impact of the
Chartered Trust acquisition.
Income from long-term assurance business increased by
£134 million, as a result of the impact of the acquisition of
Scottish Widows. Other operating income increased to
£392 million from £188 million in the first half of 2000. This
reflects an increase in income from operating lease rentals,
partly as a result of the acquisition of Chartered Trust, from
£44 million in the first half of 2000 to £156 million in the
first half of 2001. There were also increases in the
realisation of venture capital gains within Lloyds TSB
Development Capital and higher earnings on the sale of Emerging
Market Debt investments.
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
Fees and commissions receivable:
UK current account fees 300 319 310
Other UK fees and commissions 613 565 606
Insurance broking 260 191 207
Card services 166 140 164
International fees and
commissions 130 133 133
1,469 1,348 1,420
Fees and commissions payable (271) (223) (256)
Dealing profits (before expenses):
Foreign exchange trading income 73 71 70
Securities and other gains 58 43 41
131 114 111
Income from long-term assurance
business 402 268 467
General insurance premium income 206 200 199
Other operating income 392 188 248
Total other income 2,329 1,895 2,189
Short-term fluctuations in
investment returns (329) (38) (56)
Changes in economic assumptions - 127 -
Pension provision/stakeholder
pension related charge - - (180)
Page 28 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
OPERATING EXPENSES
Operating expenses
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
Administrative expenses:
Staff:
Salaries and profit sharing 858 803 823
National insurance 71 65 66
Pensions (55) (51) (54)
Restructuring 7 13 34
Other staff costs 92 86 103
973 916 972
Premises and equipment:
Rent and rates 129 122 125
Hire of equipment 9 13 13
Repairs and maintenance 58 53 62
Other 55 48 61
251 236 261
Other expenses:
Communications and external
data processing 231 202 192
Advertising and promotion 89 87 80
Professional fees 51 50 76
Other 190 151 155
561 490 503
Total administrative expenses 1,785 1,642 1,736
Depreciation 259 154 210
Amortisation of goodwill 19 6 16
Total operating expenses 2,063 1,802 1,962
Efficiency ratio 43.8% 42.8% 43.9%
Exceptional restructuring costs 54 74 114
Abbey National offer costs 16 - -
Total operating expenses, on a business as usual basis,
increased by £261 million, or 14 per cent compared with the
first half of 2000. On a like-for-like basis, excluding
increased costs following the acquisitions of Scottish Widows
and Chartered Trust of £146 million, operating lease
depreciation of £47 million (2000 first half: £29 million), and
additional investments in revenue growth businesses, e-
commerce and real-time retail banking of £155 million (2000
first half: £79 million), costs increased by 2 per cent to
£1,715 million, from £1,677 million in the first half of last
year. Much of this increase has funded the 15 per cent growth
in sales volumes achieved in the first half of 2001.
Page 29 of 45
LLOYDS TSB GROUP - BUSINESS AS USUAL
Operating expenses (continued)
Half-year to Half-year to
30 June 31 December
2001 2000 2000
£m £m £m
Business as usual operating
expenses 2,063 1,802 1,962
Acquisitions/Operating lease
depreciation (193) (46) (136)
1,870 1,756 1,826
Incremental new revenue
investment (155) (79) (145)
Underlying operating expenses 1,715 1,677 1,681
The management of day-to-day operating costs continues to have a
strong emphasis in the Group, whilst at the same time we are
investing heavily in many key future growth areas of our
business. Our investments in e-commerce, wealth management, and
customer relationship management and segmentation programmes
will improve the quality of our sales and service and improve
our revenue growth prospects in 2001 and beyond. In the first
half of 2001, this incremental new revenue investment totalled
£155 million and we expect this to be approximately £300 million
for the full year 2001. In 2002 and beyond we expect the level
of this new revenue investment to reduce.
The exceptional restructuring costs of £54 million in support of
the group efficiency programme comprise mainly severance,
software and consultancy costs and the write-down of equipment.
In 2001 we expect full-year exceptional restructuring costs to
total about £200 million. Overall, the individual programmes
associated with these costs are expected to achieve payback
within 3 years.
Our strict focus on cost management, combined with the group
efficiency programme which is now beginning to deliver
substantial benefits, means that we expect business as usual
costs in the second half will grow significantly more slowly
than in the first half. Going forward we expect business as
usual costs to grow at a slower rate than our business as usual
revenues.
The efficiency ratio was 43.8 per cent, compared with
42.8 per cent in the first half of 2000, primarily as a result
of the incremental investments in support of our growth
strategies, and the acquisition of Chartered Trust.
Page 30 of 45
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