Transition to IFRS
Lloyds TSB Group PLC
26 May 2005
LLOYDS TSB GROUP PLC
TRANSITION TO IFRS
RESTATEMENT OF 2004 FINANCIAL INFORMATION FROM
UK GAAP AND IMPLEMENTATION OF FRS 27
CONTENTS
Page
Introduction 1
Overview 2
Consolidated IFRS income statements 7
Consolidated IFRS balance sheets 8
Summarised IFRS segmental information 10
Changes in accounting policies : key differences from UK GAAP 11
Special purpose audit report 18
Appendices
1. Basis of preparation 20
2. Provisional IFRS accounting policies 22
FORWARD LOOKING STATEMENTS
This document contains forward looking statements with respect to the business,
strategy and plans of the Lloyds TSB Group and its current goals and
expectations relating to its future financial condition and performance.
Statements that are not historical facts, including statements about Lloyds TSB
Group's or management's beliefs and expectations, are forward looking
statements. By their nature, forward looking statements involve risk and
uncertainty because they relate to events and depend on circumstances that will
occur in the future. Lloyds TSB Group's actual future results may differ
materially from the results expressed or implied in these forward looking
statements as a result of a variety of factors, including UK domestic and global
economic and business conditions, risks concerning borrower credit quality,
market related risks such as interest rate risk and exchange rate risk in its
banking businesses and equity risk in its insurance businesses, inherent risks
regarding changing demographic developments, catastrophic weather and similar
contingencies outside Lloyds TSB Group's control, any adverse experience in
inherent operational risks, any unexpected developments in regulation or
regulatory actions, changes in customer preferences, competition, industry
consolidation, acquisitions and other factors. For more information on these
and other factors, please refer to Lloyds TSB Group's Registration Statement on
Form 20-F filed with the US Securities and Exchange Commission and to any
subsequent reports furnished by Lloyds TSB Group to the US Securities and
Exchange Commission or to the London Stock Exchange. The forward looking
statements contained in this document are made as of the date hereof, and Lloyds
TSB Group undertakes no obligation to update any of its forward looking
statements.
LLOYDS TSB GROUP - TRANSITION TO IFRS
INTRODUCTION
Up to 31 December 2004, the Group prepared its financial statements in
accordance with UK Generally Accepted Accounting Principles ('UK GAAP'). On 1
January 2005, the Group, in common with other listed entities within the
European Union ('EU'), implemented International Financial Reporting Standards
('IFRS'). This document sets out the impact of these changes upon the Group's
financial position and reconciles the restated comparatives to previously
published 2004 UK GAAP financial information. In addition, in accordance with
an undertaking given to the UK Accounting Standards Board during 2004, the Group
has adopted the requirements of the UK Financial Reporting Standard ('FRS') 27 "
Life Assurance", which has the effect of changing the accounting for certain
Scottish Widows insurance contracts.
Comparative information for 2004 has been restated to take into account the
requirements of all of the standards except for IAS 32 "Financial Instruments:
Disclosure and Presentation", IAS 39 "Financial Instruments: Recognition and
Measurement" and IFRS 4 "Insurance Contracts". These three standards have been
implemented with effect from 1 January 2005 and the opening balance sheet at
this date has been adjusted accordingly. In accordance with the requirements of
IFRS, 2004 comparative information has not been restated for the effects of FRS
27.
Provisional accounting policies that the Group proposes to adopt in the
preparation of its 2005 half-year and full-year results are also provided.
These provisional accounting policies are in accordance with all standards and
related interpretations that have been endorsed for use by the EU, and with all
extant accounting standards and interpretations issued by the IASB.
Further standards and interpretations may be issued that could be applicable for
financial years ending in 2005 or later but with the option for earlier
adoption. The Group's first annual IFRS financial statements may, therefore, be
prepared in accordance with different accounting policies to those used in this
document and, as a result, the financial information in this document could be
subject to change.
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LLOYDS TSB GROUP - TRANSITION TO IFRS
OVERVIEW
From 1 January 2005, the Group has been using IFRS as its primary financial
reporting framework. Although the move to IFRS significantly changes the timing
of earnings recognition in financial results, it is important to note that there
is no IFRS impact on business fundamentals and cash flows, the development of
our organic growth strategies, or the Group's capital management policies.
Whilst IFRS implementation is likely to result in greater earnings volatility in
the future, the Group will endeavour to ensure that comparable underlying
business performance and trends are clearly identified on an ongoing basis.
2004 EARNINGS RESTATEMENT
In accordance with the requirements of IFRS, revised results for 2004 include
only those adjustments for standards implemented with effect from 1 January 2004
(i.e. they exclude adjustments for standards which have been implemented with
effect from 1 January 2005). The key changes to the 2004 profit and loss
account arising as a result of IFRS are:
• Profit before tax increased by £2 million to £3,495 million.
• Profit attributable to equity shareholders decreased by £29 million,
or 1 per cent, to £2,392 million.
• Earnings per share decreased by 1 per cent to 42.8 pence.
The changes to earnings reflect the accounting treatment of goodwill, leasing,
employee share option schemes and certain aspects relating to the Group's
insurance businesses.
1 JANUARY 2005 - BALANCE SHEET RESTATEMENT
The key changes as a result of adopting IFRS and FRS 27, compared with the
Group's balance sheet on 31 December 2004 under UK GAAP, are:
• Shareholders' equity reduced by £405 million to £9,572 million.
• Total assets increased by £12,154 million to £291,997 million.
• Total capital ratio increased to 10.1 per cent and tier 1 capital
ratio decreased to 8.2 per cent, compared to 10.0 per cent and 8.9 per cent
respectively under UK GAAP at 31 December 2004.
The most significant changes to the Group's balance sheet reflect changes in
life assurance and dividend accounting; and the grossing up of certain lending,
deposit and derivative balances.
2005 EARNINGS IMPACT
Current indications are that the overall impact of the adoption of IFRS,
excluding the volatility introduced by the requirements of IAS 39 and FRS 27,
will be to reduce the Group's 2005 reported earnings per share by approximately
6 per cent. On a similar basis, profit attributable to shareholders and
earnings per share, before goodwill amortisation, are expected to be reduced by
approximately 7 per cent.
Key changes reflect the introduction of the use of effective interest rates, the
reclassification of certain securities from equity to debt, and the impact of
discounting on levels of loan loss impairment.
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LLOYDS TSB GROUP - TRANSITION TO IFRS
Income statement
2004 Increase
UK GAAP IFRS* (Decrease)
£m £m £m
Total income, net of claims 9,343 9,679 336
Operating expenses (4,917) (5,297) 380
Trading surplus 4,426 4,382 (44)
Profit before tax 3,493 3,495 2
Profit attributable to shareholders 2,421 2,392 (29)
Earnings per share (pence) 43.3p 42.8p
Post-tax return on average
shareholders' equity (%) 24.3% 22.6%
Profit before tax under IFRS for the year ended 31 December 2004, at £3,495
million, was broadly unchanged from that previously reported under UK GAAP. The
effect of IFRS 3 which requires that goodwill is no longer amortised but is
subject to an annual impairment test, and the beneficial impact of changes in
the accounting treatment for certain aspects of Scottish Widows' business, in
particular the unit trust operations, where up-front commissions are now spread
over the life of the related transactions, were largely offset by changes in
lease accounting, which result in a greater proportion of profit being deferred,
and an increased charge in respect of employee share option schemes. Profit
attributable to shareholders and earnings per share were 1 per cent lower at
£2,392 million and 42.8 pence respectively, reflecting an increase in the
deferred tax provision in Scottish Widows. Excluding the impact of goodwill,
profit before tax was £42 million, or 1 per cent, lower.
Although the effect of the adoption of IFRS upon the Group's profit before tax
and earnings in 2004 is not significant, the requirement to consolidate the
results of our life assurance business on a line-by-line basis rather than as a
single line item has resulted in a substantial increase in total income, with a
compensating increase in insurance claims. Going forward, in order to provide a
clearer representation of business performance, insurance claims will be
deducted from total income.
A summarised analysis of the changes that have been made is set out below.
Movement in Movement in
total income, profit before
net of claims tax
2004 2004
£m £m
Consolidation of life assurance 405 (4)
business and other entities
Accounting for leasing business (19) (32)
Employee benefits (39) (25)
Unit trust income recognition 31 31
Cessation of goodwill amortisation - 44
Other adjustments (42) (12)
336 2
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LLOYDS TSB GROUP - TRANSITION TO IFRS
Balance sheet and shareholders' equity
The overall effect of the adoption of IFRS upon the Group's balance sheet is set
out below. Shareholders' equity has reduced by £405 million, or 4 per cent,
compared to the position at 31 December 2004 under UK GAAP, while total assets
have increased by £12.2 billion, or 4 per cent.
31 December 2004 1 January 2005 Increase
UK GAAP IFRS* (Decrease)
£m £m £m
Balance sheet
Shareholders' equity 9,977 9,572 (405)
Net assets per share (pence) 176 169
Total assets 279,843 291,997 12,154
Risk asset ratios % %
Total capital 10.0 10.1
Tier 1 capital 8.9 8.2
The principal cause of the reduction in shareholders' equity arises from changes
in accounting for certain aspects of the Group's life assurance businesses.
IFRS 4 introduces a definition of an insurance contract which differs from that
under UK GAAP. For contracts meeting this new definition IFRS permits the
continued use of UK GAAP, however investment contracts not meeting the revised
definition must be accounted for as financial instruments under IAS 39. As a
result, the value of in-force business previously recognised in respect of these
investment contracts can no longer be carried on the Group's balance sheet.
This resulted in a reduction in shareholders' equity at 1 January 2005 of £836
million.
For those contracts meeting the new definition of insurance business, the Group
has amended its previous UK GAAP accounting policy to comply with the
requirements of FRS 27. As a result, the value of in-force business relating to
these contracts no longer includes the benefit of future investment margins, and
also includes the realistic valuation of options and guarantees within the
with-profits fund; this has resulted in a further reduction in shareholders'
equity at 1 January 2005 of £230 million.
Other factors that led to a reduction in shareholders' equity are:
• The accounting treatment of derivative contracts. All derivatives,
including those entered into for risk management and balance sheet management
purposes, must now be carried in the Group's balance sheet at fair value. The
Group has established a number of hedging relationships which comply with the
requirements of IAS 39 in order to mitigate income statement volatility,
however, the initial fair value adjustment has resulted in a reduction in
shareholders' equity of £192 million.
* Includes IAS 32, IAS 39 and IFRS 4, together with the impact of FRS 27.
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LLOYDS TSB GROUP - TRANSITION TO IFRS
• Changes in the accounting treatment of leases, which have the effect
of deferring the timing of income recognition on finance leases and accelerating
depreciation on some operating lease assets. This has led to a reduction in
shareholders' equity of £268 million.
• Changes in provisioning methodology used in the calculation of loan
loss impairment to reflect the impact of discounting on expected cash flows from
impaired lending. This reduced shareholders' equity by £221 million.
These reductions in shareholders' equity have been largely offset by the effect
of moving from an accruals to a payments basis of accounting for dividends which
increased shareholders' equity by £1,315 million.
A summarised analysis of the changes that have been made is set out below.
Movement in
shareholders'
equity
£m
Changes to insurance accounting
3/4 arising from IFRS 4 (836)
3/4 arising from FRS 27 (230)
(1,066)
Accounting for derivatives (192)
Accounting for leasing business (268)
Impairment (221)
Dividends 1,315
Other 27
(405)
Total assets at 1 January 2005 increased by £12.2 billion, compared to the 31
December 2004 UK GAAP position. The increase principally reflects a £10.2
billion grossing up of lending, deposit and derivative balances which under UK
GAAP could be offset against each other. The consolidation of Open Ended
Investment Companies, unit trusts and other entities, and changes to the
accounting for the Group's insurance business increased assets by £2.6 billion.
The Group's risk-weighted assets were broadly unchanged. The total capital
ratio at 1 January 2005 was 10.1 per cent, broadly unchanged from 31 December
2004 whilst, largely as a result of the IFRS 4 and FRS 27 related reduction in
the value of in-force insurance business, the tier 1 capital ratio reduced
from 8.9 per cent to 8.2 per cent.
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LLOYDS TSB GROUP - TRANSITION TO IFRS
2005 impact
The effect of the full implementation of IFRS and FRS 27 on the Group's 2005
earnings will depend upon a number of factors such as business mix, rate of
growth and market conditions. The increased use of fair values is likely to
lead to greater volatility, particularly in the results of the Group's life
assurance businesses. Excluding this volatility, the application of effective
interest rates, the reclassification of certain securities issued by the Group
from minority interests to debt, and the impact of discounting on levels of loan
loss impairment, are likely to result in some reduction in profits.
Current indications are that the overall impact will be to reduce the Group's
reported earnings per share (before volatility), compared with those that would
have been reported under UK GAAP, by approximately 6 per cent. Excluding
goodwill amortisation, earnings per share (before volatility) are expected to
reduce by 7 per cent. Profit before tax (before volatility) is expected to be
approximately 8 per cent lower, additionally reflecting the inclusion of coupon
payments on preferred securities now being treated as an interest expense rather
than minority interests. This likely reduction in earnings in 2005 is almost
entirely due to changes in the timing of income and expense recognition in the
Group's financial statements.
Page 6
LLOYDS TSB GROUP - TRANSITION TO IFRS
CONSOLIDATED IFRS INCOME STATEMENTS
Year ended Half-year ended
31 December 2004 30 June 2004 31 December 2004
£m £m £m
Interest income 10,707 4,907 5,800
Interest expense (5,597) (2,389) (3,208)
Net interest income 5,110 2,518 2,592
Insurance premium income 6,070 2,843 3,227
Fees and commissions receivable 3,054 1,448 1,606
Fees and commissions payable (844) (424) (420)
Net fee and commission income 2,210 1,024 1,186
Net trading income 5,036 816 4,220
Other operating income 875 445 430
Total income 19,301 7,646 11,655
Insurance claims (9,622) (3,074) (6,548)
Total income, net of insurance claims 9,679 4,572 5,107
Administrative expenses (4,659) (2,230) (2,429)
Depreciation (638) (319) (319)
Total operating expenses (5,297) (2,549) (2,748)
Trading surplus 4,382 2,023 2,359
Impairment losses on loans and advances (866) (442) (424)
Operating profit 3,516 1,581 1,935
Loss on disposal of businesses (21) (13) (8)
Profit before tax 3,495 1,568 1,927
Taxation (1,036) (442) (594)
Profit for the year 2,459 1,126 1,333
Profit attributable to minority interests 67 32 35
Profit attributable to equity shareholders 2,392 1,094 1,298
2,459 1,126 1,333
Basic earnings per share 42.8p 19.6p 23.2p
Diluted earnings per share 42.5p 19.5p 23.0p
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LLOYDS TSB GROUP - TRANSITION TO IFRS
CONSOLIDATED IFRS BALANCE SHEETS
1 January 31 December 30 June 1 January
2005 2004 2004 2004
£m £m £m £m
Assets
Cash and balances at central banks 1,078 1,078 892 1,195
Items in the course of collection from banks 1,462 1,462 1,879 1,447
Treasury bills and other eligible bills 92 142 539
Trading securities 10,645
Derivative financial instruments 9,263
Other financial assets at fair value 46,208
through profit or loss
Loans and advances to banks 31,851 31,848 34,305 22,142
Loans and advances to customers 161,162 155,318 142,209 136,113
Debt securities 43,485 44,007 45,885
Equity shares 27,323 25,362 25,625
Available-for-sale financial assets 14,593
Investment property 3,776 3,776 3,501 3,551
Interests in joint ventures 53 53 53 54
Goodwill 2,469 2,469 2,507 2,513
Value of in-force business 1,890 2,913 2,955 2,879
Intangible assets 28 28 43 41
Deferred tax asset - - - 54
Fixed assets 4,180 4,180 4,062 3,944
Other assets 3,339 8,960 8,370 7,495
Total assets 291,997 282,985 270,287 253,477
Page 8
LLOYDS TSB GROUP - TRANSITION TO IFRS
CONSOLIDATED IFRS BALANCE SHEETS (continued)
1 January 31 December 30 June 1 January
2005 2004 2004 2004
£m £m £m £m
Equity and liabilities
Deposits from banks 39,723 39,723 37,569 23,947
Customer accounts 126,349 119,811 116,357 114,501
Items in course of transmission to banks 631 631 765 626
Derivative financial instruments 10,334
and other trading liabilities
Liabilities to customers under investment contracts 16,361
Debt securities in issue 28,728 28,770 28,564 27,458
Insurance contract liabilities 36,725 52,289 49,349 49,028
Unallocated surplus within insurance business 426 1,362 410 339
Other liabilities 8,476 14,866 13,171 12,310
Deferred tax liabilities 15 214 12 -
Other provisions 270 211 153 216
Retirement benefit obligations 3,075 3,075 3,116 3,172
Subordinated liabilities:
- Undated loan capital 6,613 5,852 5,850 5,959
- Dated loan capital 4,598 4,400 3,933 4,495
11,211 10,252 9,783 10,454
Other long-term borrowings 20
Total liabilities 282,344 271,204 259,249 242,051
Equity
Share capital 1,399 1,419 1,419 1,418
Share premium account 1,145 1,145 1,144 1,136
Other reserves 371 343 343 343
Retained profits 6,657 8,243 7,512 7,747
Shareholders' equity 9,572 11,150 10,418 10,644
Minority interests 81 631 620 782
Total equity 9,653 11,781 11,038 11,426
Total equity and liabilities 291,997 282,985 270,287 253,477
Page 9
LLOYDS TSB GROUP - TRANSITION TO IFRS
SUMMARISED IFRS SEGMENTAL INFORMATION
Year ended 31 December 2004
Wholesale
Insurance and Central
UK Retail and International Group
Banking Investments Banking Items Total
£m £m £m £m £m
Net interest income 3,228 283 2,006 (407) 5,110
Other income 1,696 10,745 1,558 45 14,044
Total income 4,924 11,028 3,564 (362) 19,154
Insurance claims - (9,622) - - (9,622)
Total income, net of insurance claims 4,924 1,406 3,564 (362) 9,532
Operating expenses (2,609) (622) (2,078) 12 (5,297)
Trading surplus (deficit) 2,315 784 1,486 (350) 4,235
Impairment losses on loans and advances (676) 3 (193) - (866)
Profit (loss) before tax* 1,639 787 1,293 (350) 3,369
Volatility - 147 - - 147
Loss on sale of businesses - - (21) - (21)
Profit (loss) before tax 1,639 934 1,272 (350) 3,495
* excluding volatility and loss on sale of businesses
Half-year ended 30 June 2004
Insurance and Central
UK Retail and International Group
Banking Investments Banking Items Total
£m £m £m £m £m
Net interest income 1,602 134 983 (201) 2,518
Other income 794 3,617 751 26 5,188
Total income 2,396 3,751 1,734 (175) 7,706
Insurance claims - (3,074) - - (3,074)
Total income, net of insurance claims 2,396 677 1,734 (175) 4,632
Operating expenses (1,252) (301) (1,018) 22 (2,549)
Trading surplus (deficit) 1,144 376 716 (153) 2,083
Impairment losses on loans and advances (344) - (98) - (442)
Profit (loss) before tax* 800 376 618 (153) 1,641
Volatility - (60) - - (60)
Loss on sale of businesses - - (13) - (13)
Profit (loss) before tax 800 316 605 (153) 1,568
* excluding volatility and loss on sale of businesses
In addition to the restatements required to reflect the implementation of IFRS,
the segmental analysis has also been restated to reflect changes in the way
earnings on capital and certain costs have been allocated.
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LLOYDS TSB GROUP - TRANSITION TO IFRS
CHANGES IN ACCOUNTING POLICIES: KEY DIFFERENCES FROM UK GAAP
The changes in financial information noted above are as a result of the Group
changing its accounting policies to comply with the requirements of IFRS and the
UK accounting standard FRS 27. Significant changes to the Group's previous UK
GAAP accounting policies are set out below.
Accounting policy changes effective from 1 January 2004 and which impact 2004
comparatives:
Consolidation (IAS 27 and SIC-12)
IFRS requires line-by-line consolidation for all items of income and
expenditure; consequently, the Group is no longer permitted to report the
results and balances of the life assurance business as one line items. Instead
these amounts are broken down into their constituent parts and allocated to the
appropriate lines. As a result, in the income statement premiums receivable
from policyholders and the returns on policyholder investments are now shown
within total income, and a deduction is included for the related insurance
claims expense. Although this represents a significant presentational change,
there is no overall impact upon the Group's profitability. A further
presentational change concerns the treatment within the income statement of
movements in the value of in-force business.
Under UK GAAP, movements in the value of in-force business, together with the
other components of the embedded value, were presented in the profit and loss
account grossed up at the underlying rate of corporation tax. Under IAS 12
movements in the value of in-force business will now be presented net of tax;
there is no impact upon attributable profits. Additional impacts of IAS 12
include changes to the measurement of the Scottish Widows' deferred tax assets
and liabilities, and the inclusion of tax payable on the policyholders'
investment returns within the tax charge.
IFRS also requires consolidation of several entities that the Group was not
required to consolidate under UK GAAP including companies supporting the Group's
securitisation conduits, which facilitate customers' own securitisations, and
Open Ended Investment Companies (OEICs) and unit trusts where the Group, through
the Scottish Widows life funds, has a controlling interest.
These changes have reduced the Group's profit before tax for the year ended 31
December 2004 by £4 million and increased shareholders' equity at 31 December
2004 by £13 million.
Leasing (IAS 17)
IFRS requires income from finance leases to be credited to the income statement
to give a constant pre-tax rate of return on the net investment in the lease; UK
GAAP required a constant post-tax rate of return. In addition, IFRS requires
depreciation on operating lease assets to be charged on the same basis as for
other tangible fixed assets, which for the Group is a straight-line basis.
Under UK GAAP depreciation was charged so as to give a constant rate of return
on the leased asset.
The effect of these changes is to reduce profit before tax for the year ended 31
December 2004 by £32 million and reduce shareholders' equity at 31 December
2004 by £268 million.
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LLOYDS TSB GROUP - TRANSITION TO IFRS
Employee benefits (IFRS 2, IAS 19)
IFRS 2 requires that a cost is recognised in the financial statements for all
options granted under executive and employee Save-As-You-Earn ('SAYE')
share-option schemes. The total cost recognised represents the fair value of
the options (determined using an option valuation model) at the grant date, as
adjusted for the expected number of forfeitures and, for executive schemes, the
number of options for which the non-market performance target will not be met.
The resulting cost is spread on a straight line basis over the period to
vesting. This results in an increase in the cost recognised in the Group's
income statement.
The Group has applied the requirements of FRS 17, Retirement Benefits, in its UK
GAAP financial statements since 2002. The requirements of that standard are
broadly similar to those of IAS 19, Employee Benefits; the application of IAS 19
has therefore had no significant impact on the Group's profit before tax for the
year ended 31 December 2004. The Group has elected to apply the corridor
approach to determine the treatment of actuarial gains and losses arising during
the year as permitted under IAS 19. This means that to the extent that the
cumulative gains or losses remain within a corridor, defined as the greater of
10 per cent of the scheme assets or liabilities, they are not reflected in the
accounts. If the cumulative gains or losses exceed the corridor, the excess is
charged or credited to the income statement on a straight line basis over the
average remaining service lives of those employees who are members of the
schemes. The effect of this has been to derecognise the actuarial losses
charged to reserves in 2004 under UK GAAP in the restated figures.
The overall effect of the changes in accounting for employee benefits is to
reduce profit before tax for the year ended 31 December 2004 by £25 million,
principally representing the additional cost of the Group's SAYE share option
schemes. Shareholders' equity at 31 December 2004 increased by £95 million
largely as a result of the reversal of the actuarial losses charged against
reserves in 2004 under UK GAAP.
Capitalisation of software (IAS 38)
Under UK GAAP the Group's accounting policy has been that only software costs
relating to separable new systems have been capitalised within tangible fixed
assets. Under IFRS, both external and directly related internal costs relating
to enhancements that lead to additional system functionality are also now
capitalised.
The effect of this change is to reduce profit before tax for the year ended 31
December 2004 by £12 million, as the effect of additional software capitalised
during the year under IFRS, treated as an intangible asset, is more than offset
by an increased amortisation charge reflecting the impact of additional software
capitalised as at 1 January 2004. Shareholders' equity at 31 December 2004 is
increased by £19 million equivalent to the post tax value of the additional
software capitalised at that date.
Investment management fees (IAS 18)
Under IFRS the Group will move from immediate recognition of up-front fees
received for investment management services to recognising them on a
straight-line basis over the estimated lives of the investment contracts.
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LLOYDS TSB GROUP - TRANSITION TO IFRS
The effect of this change has been to increase the Group's profit before tax for
the year ended 31 December 2004 by £31 million. Shareholders' equity at 31
December 2004 is reduced by £37 million.
Goodwill (IFRS 3 and IAS 36)
Under UK GAAP the Group's accounting policy has been to amortise goodwill
arising on acquisitions after 1 January 1998, with the exception of goodwill
which arose on the acquisition of Scottish Widows. Under IFRS all goodwill
recognised in the UK GAAP balance sheet at 1 January 2004 is carried forward
without adjustment in the balance sheet and is now subject to impairment testing
annually, or more frequently if events or circumstances indicate that it might
be impaired.
The effect of this change is to increase profit before tax for the year ended 31
December 2004 by £44 million and shareholders' equity at 31 December 2004 by
£41 million.
Dividends (IAS 10)
Under IFRS equity dividends declared after the balance sheet date may not be
included as a liability at the balance sheet date. The effect of this change is
to increase shareholders' equity at 31 December 2004 by £1,315 million, the
amount of the 2004 final dividend.
Depreciation (IAS 16)
IFRS requires property, plant and equipment to be depreciated from the date of
acquisition. Under UK GAAP, long leasehold and freehold properties have been
depreciated only since 1 January 2000 and therefore it is necessary to adjust
their carrying values to reflect the depreciation that would have been charged
from the date of acquisition to 1 January 2000.
The effect of this change is to reduce shareholders' equity at 31 December 2004
by £47 million; the impact on the Group's profit before tax for the year ended
31 December 2004 is not significant.
Claims equalisation provision (IAS 37)
The claims equalisation provision in respect of the Group's general insurance
business, established under law to minimise volatility in incurred claims, is
not permitted under IFRS.
The effect of this change has been to increase the Group's profit before tax for
the year ended 31 December 2004 by £10 million. Shareholders' equity at 31
December 2004 increased by £43 million.
Accounting policy changes effective from 1 January 2005 and which do not affect
2004 comparatives:
Fees integral to effective yield (IAS 18, IAS 39)
Fees and commissions that are an integral part of the effective yield on a
financial instrument, and direct incremental costs associated with its
origination, are included in the calculation of the effective interest rate and
recognised over the expected life of the instrument, or a shorter period if
appropriate. The effective interest rate is the rate that exactly discounts the
expected future cash receipts or payments over the expected life of the
financial instrument to the net carrying value of the instrument.
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LLOYDS TSB GROUP - TRANSITION TO IFRS
As a result the recognition of up-front fees and costs that were recognised when
received, or incurred, under UK GAAP, for example those related to loan
origination, are now deferred and the recognition of fee income typically
charged at the end of an agreement, for example early redemption charges on
mortgages, brought forward.
The effect of this change has been to increase shareholders' equity at 1 January
2005 by £22 million.
Loan impairment (IAS 39)
IFRS adopts an incurred loss model for impairment losses on loans and provides
guidance on the measurement of impairment. A provision is raised for losses in
respect of exposures that are known to be impaired. The required provision is
calculated by comparing the book value of the loans with the net present value
of the expected future cash flows from the loans discounted at their effective
interest rates or, as a practical expedient for variable rate loans, using
observable market prices. Exposures found not to be impaired are placed into
pools of similar assets with similar risk characteristics to be collectively
assessed for losses that have been incurred, but are not yet identified. For
such exposures, the required provision is estimated on the basis of historical
loss experience for assets with credit risk characteristics similar to those in
the collective pool, adjusted based on current observable data. As the
discounting effect on the provisions unwinds, the resulting income is reflected
within net interest income.
Although many of these principles are similar to those followed by the Group
under UK GAAP, the requirement to discount the expected cash flows at the
original effective interest rate when determining the provisioning requirement
has resulted in an increase in provisions of £314 million at 1 January 2005,
which, after tax, has resulted in a reduction in shareholders' equity of £221
million. This is not a reflection of any change in credit quality as there has
been no change in the level of expected cash recoveries.
Netting (IAS 32)
IFRS prohibits financial assets and financial liabilities from being offset
unless there is a legal right of set-off and the asset and liability are in
practice normally settled on a net basis. In the banking business, this will
result in the grossing-up on the balance sheet of certain assets and liabilities
subject to set-off arrangements that were presented net under UK GAAP.
As a result of this change, at 1 January 2005 balance sheet footings have been
increased by £10.2 billion principally reflecting the grossing up of corporate
loans and deposits and inter-bank derivative balances, which although subject to
set-off arrangements, will not be settled on a net basis.
Derivatives, hedging and investment securities (IAS 39)
The Group enters into derivative contracts for both trading purposes and to
hedge exposures arising from within the banking book. Under UK GAAP trading
derivatives were carried at fair value but hedging derivatives were accounted
for on the same basis as the underlying hedged item, mainly on an accruals
basis. IAS 39 requires that all derivative contracts are carried at fair value
on the Group's balance sheet and movements in their fair value are reflected in
the income statement; this results in a mismatch between the accounting and the
underlying economics where the Group has hedged its economic risk resulting from
the different treatment of the derivative and the underlying hedged position.
Page 14
LLOYDS TSB GROUP - TRANSITION TO IFRS
The Group has not changed the way it hedges its economic exposures as a result
of the implementation of IFRS, but the Group seeks to mitigate the resulting
income statement volatility by the application of hedge accounting. The Group
uses two of the permitted kinds of hedge accounting: fair value and cash flow
hedge accounting. The Group makes greater use of fair value hedge accounting
which seeks to match, in the income statement, changes in the fair value of the
hedged risk with the changes in the fair value of the related derivatives. Cash
flow hedge accounting is being used to a lesser extent; adjustments reflecting
the movements in the fair values of the derivatives concerned are made to a
separate reserve in equity and recycled to the income statement when the hedged
cash flows affect income.
IFRS contains detailed requirements for designation and documentation of hedge
relationships and testing their effectiveness. To the extent that a hedge is
ineffective, the impact is immediately reflected in the income statement.
Although the Group intends to mitigate the volatility arising from the
requirement to fair value all derivatives as far as possible, this will be a
source of increased volatility in the income statement in 2005 and beyond. An
adjustment has been made at 1 January 2005 to measure all derivatives at their
fair value and to reflect the establishment as at that date of compliant hedging
relationships. The overall effect has been to reduce shareholders' equity by
£192 million.
Under UK GAAP debt securities held for continuing use in the business were
classified as investment securities and carried in the balance sheet at cost
less any provisions for permanent diminution in value. IAS 39 introduces
strict requirements to be met before debt securities can be carried at amortised
cost and the Group has determined that it does not meet these. Accordingly debt
securities previously classified as investment securities have been reclassified
as available-for-sale and valued at their fair values at 1 January 2005. Equity
shares may not be carried at cost under IAS 39 and these have also been
reclassified as available-for-sale. The effect of this reclassification has
been to increase shareholders' equity at 1 January 2005 by £28 million.
Going forward, movements in the fair values of these available-for-sale
securities will be reflected in equity and the cumulative gain or loss recycled
through the income statement upon disposal or impairment.
Insurance (IFRS 4, IAS 39)
IFRS 4, which introduces a revised definition of an insurance contract, applies
to insurance contracts as well as investment contracts with discretionary
participation features. Such investment contracts entitle the holder to receive
additional discretionary benefits (bonuses) depending on performance and are
referred to as participating investment contracts.
Investment contracts that are not within the scope of IFRS 4 are accounted for
as financial instruments under IAS 39. The principal effects of this change on
the accounting for non-participating investment contracts is the removal of that
portion of the embedded value which represents the value of in-force business
relating to those contracts, the recognition of an asset for deferred
acquisition costs, and the deferral of up-front fees received for investment
management services; deferred acquisition costs and deferred up-front fees are
amortised over the period of the provision of investment management services.
Page 15
LLOYDS TSB GROUP - TRANSITION TO IFRS
For those contracts within the scope of IFRS 4, accounting practices are largely
unchanged except for the modifications introduced by FRS 27 which is dealt with
separately below.
The effect of this change is to reduce shareholders' equity at 1 January 2005 by
£836 million.
Accounting for insurance business is an area which is currently subject to
review by the IASB and further changes are expected in the future, although the
exact timing and form that these changes may take remains uncertain.
Life assurance (FRS 27)
Following the implementation of FRS 27, the Group excludes from the value of
in-force business recognised in the balance sheet any amounts that reflect
future investment margins and measures the liabilities of the Scottish Widows
With-Profits Fund in accordance with the realistic capital regime of the
Financial Services Authority. This basis includes a realistic valuation of
guarantees and options embedded within products written by the With-Profits
Fund. The principal effect of these new requirements is on the measurement of
the in-force business, as the valuation of the With-Profits Fund on a realistic
basis reduces the expected income to the shareholder from that fund. Changes in
the valuation are reflected in the income statement and because this is market
related it is inherently volatile.
The effect of these changes has been to reduce shareholders' equity at 1 January
2005 by £230 million.
Equity to debt reclassification (IAS 32)
The classification of the majority of the Group's capital and subordinated debt
instruments will continue to follow their UK GAAP treatment, however, the
limited voting ordinary shares will be reclassified as debt. This is because
under the terms of the agreement with the four Lloyds TSB Foundations, which are
the holders of the limited voting ordinary shares, the Group is committed to
making an annual payment, equivalent to 1 per cent of the consolidated pre-tax
profit, averaged over three years. In addition, the Group's preferred
securities, which were treated as non-equity minority interests under UK GAAP,
will be reclassified as debt because the coupon payment is not discretionary.
Distributions on these securities will be shown as interest expense rather than
as minority interests.
The effect of these reclassifications is to reduce shareholders' equity by £20
million and minority interests by £550 million at 1 January 2005; long-term
borrowings increase by £570 million.
Derecognition of financial liabilities (IAS 39)
Under IFRS a financial liability may only be removed from the balance sheet
after it has been settled, it has expired or alternatively the debtor has been
legally released from the liability, either by process of law or by the
creditor. Upon adoption of IFRS, certain financial liabilities in respect of
which amounts had been released to the profit and loss account under UK GAAP on
the basis that the likelihood of their settlement was remote have been
remeasured as at 1 January 2005 to reflect the entire legal obligation.
Page 16
LLOYDS TSB GROUP - TRANSITION TO IFRS
At 1 January 2005 the effect of the remeasurement is to increase liabilities by
£184 million which, after tax, has resulted in a reduction in shareholders'
equity of £131 million.
Helen A Weir
Group Finance Director
26 May 2005
The financial information presented contains details of the transitional
adjustments required to restate the Group's financial information under IFRS.
Future presentation of restated financial information may be in a different
format. The transitional adjustments presented have been calculated on the
basis of the specific facts of the transaction and should not be used as
indicators of future adjustments between UK GAAP and IFRS that will be required.
Page 17
LLOYDS TSB GROUP - TRANSITION TO IFRS
SPECIAL PURPOSE AUDIT REPORT OF PRICEWATERHOUSECOOPERS LLP TO LLOYDS TSB GROUP
PLC (THE 'COMPANY') ON ITS INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS')
FINANCIAL INFORMATION
We have audited the accompanying consolidated IFRS balance sheets of Lloyds TSB
Group plc and its subsidiaries (the 'Group') as at 1 January 2004 and 31
December 2004, the related consolidated IFRS income statement for the year ended
31 December 2004, the 1 January 2005 balance sheet and transition adjustments
relating to the adoption of IAS 32, IAS 39 and IFRS 4 set out on pages 7, 8 and
9 and the associated IFRS 1 reconciliations and consolidated IFRS statement of
changes in equity for the year ended 31 December 2004 set out on pages 35 to 42
prepared in accordance with the basis of preparation and the provisional
accounting policies set out on pages 20 to 34 (hereinafter referred to as the '
IFRS financial information').
In addition to the above noted opening and year end balance sheets, full year
income statement and associated IFRS reconciliations, included with the
financial information set out on pages 7, 8 and 9 are the half-year balance
sheet, half-year income statements and associated IFRS reconciliations. We have
not audited the half-year balance sheet, half-year income statements and
associated IFRS reconciliations and these are not covered by this opinion and do
not form part of the above defined IFRS financial information.
The IFRS financial information has been prepared by the Group as part of its
transition to IFRS and to establish the financial position, and results of
operations of the Group to provide the comparative financial information
expected to be included in the first complete set of consolidated IFRS financial
statements of the Group for the year ended 31 December 2005.
Respective responsibilities of Directors and PricewaterhouseCoopers LLP
The Directors of the Company are responsible for the preparation of the
consolidated IFRS financial information which has been prepared as part of the
Group's transition to IFRS. Our responsibilities, as independent auditors, are
established in the United Kingdom by the Auditing Practices Board, our
profession's ethical guidance and the terms of our engagement. Under the terms
of engagement we are required to report to you our opinion as to whether the
IFRS financial information has been prepared, in all material respects, in
accordance with the basis of preparation and provisional accounting policies set
out on pages 22 to 34.
This report, including the opinion, has been prepared for, and only for, the
Company for the purposes of assisting with the Group's transition to IFRS and
for no other purpose. To the fullest extent permitted by law, we do not, in
giving this opinion, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
We read the other information contained in this document and consider its
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the above defined IFRS financial information.
Page 18
LLOYDS TSB GROUP - TRANSITION TO IFRS
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the UK
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the IFRS financial
information. It also includes an assessment of the significant estimates and
judgements made by the directors in the preparation of the IFRS financial
information, and of whether the accounting policies are appropriate to the
Group's circumstances and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the IFRS financial
information is free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the IFRS financial information.
Emphasis of matter
Without qualifying our opinion, we draw your attention to the fact that the IFRS
financial information may require adjustment before its inclusion as comparative
information in the Group's first set of IFRS financial statements for the year
ended 31 December 2005. This is because Standards currently in issue and
adopted by the EU are subject to interpretation issued from time to time by the
International Financial Reporting Interpretations Committee (IFRIC) and further
Standards may be issued by the International Accounting Standards Board (IASB)
that will be adopted for financial years beginning on or after 1 January 2005.
Additionally, without qualifying our opinion, IFRS is currently being applied in
the United Kingdom and in a large number of other countries simultaneously for
the first time. Furthermore, due to a number of new and revised Standards
included within the body of Standards that comprise IFRS, there is not yet a
significant body of established practice on which to draw in forming opinions
regarding interpretation and application. Accordingly, practice is continuing
to evolve. At this preliminary stage, therefore, the full financial effect of
reporting under IFRS as it will be applied and reported on in the Group's first
IFRS financial statements for the year ended 31 December 2005 may be subject to
change.
Opinion
In our opinion, the accompanying IFRS financial information comprising the
consolidated IFRS balance sheets as at 1 January 2004 and 31 December 2004, the
related consolidated IFRS income statement for the year ended 31 December 2004,
the 1 January 2005 balance sheet and transition adjustments relating to the
adoption of IAS 32, IAS 39 and IFRS 4, set out on pages 7, 8 and 9 and the
associated IFRS 1 reconciliations and consolidated IFRS statement of changes in
equity for the year ended 31 December 2004 set out on pages 35 to 42, have been
prepared, in all material respects, in accordance with the basis of preparation
and the provisional accounting policies set out on pages 20 to 34, which
describe how IFRS have been applied under IFRS 1 and the policies expected to be
adopted when the directors of the Company prepare the first complete set of IFRS
financial statements of the Group for the year ended 31 December 2005.
PricewaterhouseCoopers LLP
Chartered Accountants
Southampton
26 May 2005
Page 19
LLOYDS TSB GROUP - TRANSITION TO IFRS
Appendix 1
BASIS OF PREPARATION
The financial information has been prepared under the historical cost
convention, as modified by the revaluation of investment properties,
available-for-sale financial assets, financial assets at fair value through
profit or loss and all derivative contracts, on the basis of International
Financial Reporting Standards ('IFRS') as endorsed by the EU. IFRS comprises
accounting standards prefixed IFRS issued by the International Accounting
Standards Board ('IASB') and those prefixed IAS issued by the IASB's predecessor
body as well as interpretations issued by the International Financial Reporting
Interpretations Committee and its predecessor body.
Further standards and interpretations may be issued that could be applicable for
financial years ending in 2005 or later accounting periods but with the option
for earlier adoption. The Group's first annual IFRS financial statements may,
therefore, be prepared in accordance with different accounting policies to those
used in the preparation of the financial information in this document. IFRS is
also being applied in the EU and other countries for the first time and practice
on which to draw in applying the standards is still developing. Consequently,
the financial information in this document could be subject to change.
The EU endorsed version of IAS 39 relaxes some of the hedge accounting
requirements and prohibits the designation of financial liabilities at fair
value through profit or loss. The Group has not taken advantage of any of the
relaxed hedge accounting requirements and does not designate any financial
liabilities at fair value through profit or loss. Consequently, the financial
information herein has also been prepared in accordance with all extant
accounting standards and interpretations issued by the IASB.
The financial information has also been prepared in accordance with FRS 27 which
requires liabilities to life assurance policyholders to be measured on a
realistic basis and which excludes future investment margins from the value of
in-force business. As noted in the table below, FRS 27 is applied from 1
January 2005 without restating 2004 comparatives.
The rules for first time adoption of IFRS are set out in IFRS 1 First-time
Adoption of International Financial Reporting Standards. IFRS 1 requires us to
determine our IFRS accounting policies and apply these retrospectively to
determine our opening balance sheet position under IFRS at the date of
transition. Details of the provisional IFRS accounting policies are set out in
Appendix 2. IFRS 1 allows a number of mandatory exceptions and voluntary
exemptions and the impact of each mandatory exception and the voluntary
exemptions that the Group chooses to apply are outlined below.
Page 20
LLOYDS TSB GROUP - TRANSITION TO IFRS
Mandatory exception Impact for LTSB
Estimates The Group's estimates at the date of transition are consistent
with those under UK GAAP.
Assets held for sale and discontinued The Group has no transactions prior to 1 January 2005 that are
operations affected by the transitional requirements of IFRS 5 "Non-current
Assets Held for Sale and Discontinued Operations".
Derecognition of financial instruments Financial instruments derecognised before 1 January 2004 have not
been re-recognised by the Group under IFRS.
Hedge accounting IFRS compliant hedge accounting is applied by the Group from 1
January 2005.
Voluntary exemption
Business combinations By electing to apply IFRS 3 "Business Combinations" on a
prospective basis from 1 January 2004, the Group has not restated
past acquisitions and mergers. Goodwill previously written off
to reserves has not been reinstated and no additional intangible
assets have been recognised in this regard.
Under UK GAAP, the Group has recognised all cumulative actuarial
gains and losses and elects to apply this treatment at the date
Employee benefits of transition to IFRS.
Cumulative translation adjustment The Group has opted to reset the cumulative translation
difference on adoption of IFRS to zero.
Comparatives for financial instruments and The Group has chosen not to restate comparatives for IAS 32 and
designation of financial assets IAS 39, but to reflect the impact of these standards through
adjustments to shareholders' equity as at 1 January 2005. At
this date the Group has designated various financial assets as at
fair value through profit or loss or as available-for-sale. The
Group has applied UK GAAP to financial instruments and hedging
transactions for its 2004 comparatives.
Share-based payments The Group has elected to apply IFRS 2 to equity instruments that
were granted before 7 November 2002.
Insurance contracts The Group has chosen not to restate its comparatives for IFRS 4
and will apply previous UK GAAP. FRS 27 has been applied from 1
January 2005 and comparatives have not been restated.
Page 21
LLOYDS TSB GROUP - TRANSITION TO IFRS
Appendix 2
PROVISIONAL IFRS ACCOUNTING POLICIES
This appendix sets out the accounting policies that the Group expects to apply
from 1 January 2005; full details of the Group's previous accounting policies
can be found on pages 65 to 68 of the 2004 annual report.
(a) Consolidation
The assets, liabilities and results of Group undertakings are included in the
financial statements on the basis of accounts made up to the reporting date.
Group undertakings include all entities over which the Group has the power to
govern the financial and operating policies which generally accompanies a
shareholding of more than one half of the voting rights. The existence and
effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the Group controls another entity. Group
undertakings are fully consolidated from the date on which control is
transferred to the Group; they are de-consolidated from the date that control
ceases. Intra-Group transactions, balances and unrealised gains and losses on
transactions between Group companies are eliminated.
(b) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group's share of the identifiable net assets of the acquired entity at
the date of acquisition. Goodwill is recognised as an asset at cost and is
tested at least annually for impairment. If an impairment is identified the
carrying value of the goodwill is written down immediately through the income
statement and is not subsequently reversed. At the date of disposal of a Group
undertaking, the attributable amount of goodwill is included in the calculation
of the profit or loss on disposal.
Goodwill arising on acquisitions prior to 1 January 2004, the date of transition
to IFRS, has been retained at the balance sheet amount at that date and has been
tested for impairment at that date. Goodwill previously written off directly to
reserves under UK GAAP has not been reinstated and will not be included in
calculating any subsequent profit or loss on disposal.
(c) Revenue recognition
Interest income and expense are recognised in the income statement for all
interest-bearing financial instruments, including loans and advances, using the
effective interest method. The effective interest method is a method of
calculating the amortised cost of a financial asset or liability and of
allocating the interest income or interest expense. The effective interest rate
is the rate that exactly discounts the estimated future cash payments or
receipts over the expected life of the instrument or, when appropriate, a
shorter period, to the net carrying amount of the financial asset or financial
liability. When calculating the effective interest rate, the future cash flows
are estimated after considering all the contractual terms of the instrument but
not future credit losses. The calculation includes all amounts paid or received
by the Group that are an integral part of the overall return, direct incremental
transaction costs related to the acquisition, issue or disposal of a financial
instrument and all other premiums or discounts. Once a financial asset or a
group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognised using the rate of interest used
to discount the future cash flows for the purpose of measuring the impairment
loss (see i).
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LLOYDS TSB GROUP - TRANSITION TO IFRS
Fees and commissions which are not an integral part of the effective interest
rate are generally recognised when the service has been provided. Loan
commitment fees for loans that are likely to be drawn down are deferred
(together with related direct costs) and recognised as an adjustment to the
effective interest rate on the loan. Loan syndication fees are recognised as
revenue when the syndication has been completed and the Group retains no part of
the loan package for itself or retains a part at the same effective interest
rate for all interest-bearing financial instruments, including loans and
advances, as for the other participants.
The Group receives investment management fees in respect of services rendered in
conjunction with the issue and management of investment contracts where the
Group actively manages the consideration received from its customers to fund a
return that is based on the investment profile that the customer selected on
origination of the instrument. These services comprise an indeterminate number
of acts over the lives of the individual contracts and, therefore, the Group
recognises these fees on a straight-line basis over the estimated lives of the
contracts.
Revenue recognition policies specific to life assurance and general insurance
business, except for investment management fees as noted above, are detailed
below (see q).
(d) Trading securities, available-for-sale financial assets and other financial
assets at fair value through profit or loss
Debt securities and equity shares acquired principally for the purpose of
selling in the short term or which are part of a portfolio which is managed for
short-term gains are classified as trading securities and recognised in the
balance sheet at their fair value. Gains and losses arising from changes in
their fair value are recognised in the income statement in the period in which
they occur.
Other financial assets at fair value through profit or loss are designated as
such by management upon initial recognition. Such assets are carried in the
balance sheet at their fair value and gains and losses recognised in the income
statement in the period in which they occur. Financial assets are only
designated as at fair value through profit or loss when doing so results in more
relevant information because it eliminates or significantly reduces the
inconsistent treatment that would otherwise arise from measuring the assets or
recognising gains or losses on them on a different basis.
The fair value of assets traded in active markets is based on current bid
prices. If the market is not active the Group establishes a fair value by using
valuation techniques. These include the use of recent arm's-length
transactions, reference to other instruments that are substantially the same,
discounted cash flow analysis, option pricing models and other valuation
techniques commonly used by market participants.
Debt securities and equity shares, other than those classified as trading
securities or at fair value through profit or loss, are classified as
available-for-sale and recognised in the balance sheet at their fair value.
Gains and losses arising from changes in the fair value of investments
classified as available-for-sale are recognised directly in equity, until the
financial asset is either sold, becomes impaired or matures, at which time the
cumulative gain or loss previously recognised in equity is recognised in the
income statement. Interest calculated using the effective interest method is
recognised in the income statement; dividends on available-for-sale equity
instruments are recognised in the income statement when the Group's right to
receive payment is established.
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LLOYDS TSB GROUP - TRANSITION TO IFRS
Purchases and sales of securities and other financial assets at fair value
through profit or loss are recognised on trade date, being the date that the
Group is committed to purchase or sell an asset.
(e) Loans and advances to banks and customers
Loans and advances to banks and customers are accounted for at amortised cost
using the effective interest method, except those which the Group intends to
sell in the short term and which are accounted for at fair value, with the gains
and losses arising from changes in their fair value reflected in the income
statement.
(f) Sale and repurchase agreements
Securities sold subject to repurchase agreements ('repos') are reclassified in
the financial statements as assets pledged when the transferee has the right by
contract or custom to sell or repledge the collateral; the counterparty
liability is included in deposits from banks or customer accounts, as
appropriate. Securities purchased under agreements to resell ('reverse repos')
are recorded as loans and advances to banks or customers, as appropriate. The
difference between sale and repurchase price is treated as interest and accrued
over the life of the agreements using the effective interest method. Securities
lent to counterparties are also retained in the financial statements.
Securities borrowed are not recognised in the financial statements, unless these
are sold to third parties, in which case the obligation to return them is
recorded at fair value as a trading liability.
(g) Derivative financial instruments and hedge accounting
All derivatives are recognised at their fair value. Fair values are obtained
from quoted market prices in active markets, including recent market
transactions, and using valuation techniques, including discounted cash flow and
options pricing models, as appropriate. Derivatives are carried in the balance
sheet as assets when their fair value is positive and as liabilities when their
fair value is negative.
The method of recognising the movements in the fair value of the derivatives
depends on whether they are designated as hedging instruments, and if so, the
nature of the item being hedged. Derivatives may only be designated as hedges
provided certain strict criteria are met. At the inception of a hedge its terms
must be clearly documented and there must be an expectation that the derivative
will be highly effective in offsetting changes in the fair value or cash flow of
the hedged risk. The effectiveness of the hedging relationship must be tested
throughout its life and if at any point it is concluded that it is no longer
highly effective in achieving its objective the hedge relationship is
terminated.
Page 24
LLOYDS TSB GROUP - TRANSITION TO IFRS
The Group designates certain derivatives as either: (1) hedges of the fair value
of the interest rate risk inherent in recognised assets or liabilities (fair
value hedges); or, (2) hedges of highly probable future cash flows attributable
to recognised assets or liabilities (cash flow hedges). These are accounted for
as follows:
(1) Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair
value hedges are recorded in the income statement, together with the changes in
the fair value of the hedged asset or liability that are attributable to the
hedged risk. If the hedge no longer meets the criteria for hedge accounting,
changes in the fair value of the hedged risk are no longer recognised in the
income statement; the adjustment that has been made to the carrying amount of a
hedged item is amortised to the income statement over the period to maturity.
(2) Cash flow hedges
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in equity. The gain or
loss relating to the ineffective portion is recognised immediately in the income
statement. Amounts accumulated in equity are recycled to the income statement
in the periods in which the hedged item affects profit or loss. When a hedging
instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time
remains in equity and is recognised when the forecast transaction is ultimately
recognised in the income statement. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in equity is
immediately transferred to the income statement.
Changes in the fair value of any derivative instrument that is not part of a
hedging relationship are recognised immediately in the income statement.
Derivatives embedded in other financial instruments are treated as separate
derivatives when their economic characteristics and risks are not closely
related to those of the host contract and the host contract is not carried at
fair value through profit or loss. These embedded derivatives are measured at
fair value with changes in fair value recognised in the income statement.
(h) Offset
Financial assets and liabilities are offset and the net amount reported in the
balance sheet when there is a legally enforceable right of set-off and there is
an intention to settle on a net basis, or realise the asset and settle the
liability simultaneously.
(i) Impairment
(1) Assets accounted for at amortised cost
At each balance sheet date the Group assesses whether, as a result of one or
more events occurring after initial recognition, there is objective evidence
that a financial asset or group of financial assets has become impaired.
Evidence of impairment may include indications that the borrower or group of
borrowers are experiencing significant financial difficulty, default or
delinquency in interest or principal payments, or the debt being restructured to
reduce the burden on the borrower.
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LLOYDS TSB GROUP - TRANSITION TO IFRS
If there is objective evidence that an impairment loss has been incurred, a
provision is established which is calculated as the difference between the
balance sheet carrying value of the asset and the present value of estimated
future cash flows discounted at that asset's original effective interest rate.
For the Group's portfolios of smaller balance homogenous loans, such as the
residential mortgage, personal lending and credit card portfolios, provisions
are calculated for groups of assets taking into account historic cash flow
experience. For the Group's other lending portfolios, provisions are
established on a case by case basis. If an asset has a variable interest rate,
the discount rate used for measuring the impairment loss is the current
effective interest rate. The calculation of the present value of the estimated
future cash flows of a collateralised asset or group of assets reflects the cash
flows that may result from foreclosure less the costs of obtaining and selling
the collateral, whether or not foreclosure is probable.
If there is no objective evidence of individual impairment the asset is included
in a group of financial assets with similar credit risk characteristics and
collectively assessed for impairment. Segmentation takes into account the type
of asset, industry, geographical location, collateral type, past-due status and
other relevant factors. These characteristics are relevant to the estimation of
future cash flows for groups of such assets as they are indicative of the
borrower's ability to pay all amounts due according to the contractual terms of
the assets being evaluated. Future cash flows are estimated on the basis of the
contractual cash flows of the assets in the group and historical loss experience
for assets with similar credit risk characteristics. Historical loss experience
is adjusted on the basis of current observable data to reflect the effects of
current conditions that did not affect the period on which the historical loss
experience is based and to remove the effects of conditions in the historical
period that do not exist currently. The methodology and assumptions used for
estimating future cash flows are reviewed regularly by the Group to reduce any
differences between loss estimates and actual loss experience.
If, in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment
was recognised, such as an improvement in the borrower's credit rating, the
provision is adjusted and the amount of the reversal is recognised in the income
statement.
When a loan or advance is uncollectable, it is written off against the related
provision once all the necessary procedures have been completed and the amount
of the loss has been determined. Subsequent recoveries of amounts previously
written off decrease the amount of impairment losses recorded in the income
statement.
(2) Available-for-sale assets
The Group assesses at each balance sheet date whether there is objective
evidence that an available-for-sale asset is impaired. In addition to the
factors set out above, a significant or prolonged decline in the fair value of
the asset below its cost is considered in determining whether an impairment loss
has been incurred. If an impairment loss has been incurred, the cumulative loss
measured as the difference between the original cost and the current fair value,
less any impairment loss on that asset previously recognised, is removed from
equity and recognised in the income statement. If, in a subsequent period, the
fair value of a debt instrument classified as available-for-sale increases and
the increase can be objectively related to an event occurring after the
impairment loss was recognised, the impairment loss is reversed through the
income statement. Impairment losses recognised in the income statement on
equity instruments are not reversed through the income statement.
Page 26
LLOYDS TSB GROUP - TRANSITION TO IFRS
(j) Investment property
Property held for long-term rental yields and capital appreciation within the
long-term assurance funds is classified as investment property. Investment
property comprises freehold and long leasehold land and buildings and is carried
in the balance sheet at fair value. Fair value is based on active market prices,
adjusted, if necessary, for any difference in the nature, location or condition
of the specific asset. If this information is not available, the Group uses
alternative valuation methods such as discounted cash flow projections or recent
prices on less active markets. These valuations are reviewed annually by an
independent valuation expert. Investment property being redeveloped for
continuing use as investment property, or for which the market has become less
active, continues to be measured at fair value. Changes in fair values are
recorded in the income statement.
(k) Fixed assets
Fixed assets are included at cost less depreciation. Land is not depreciated.
Depreciation on other assets is calculated using the straight-line method to
allocate the difference between the cost and the residual value over their
estimated useful lives, as follows:
- Freehold/long and short leasehold premises: shorter of 50 years or the
remaining period of the lease
- Leasehold improvements: shorter of 10 years or the remaining period of the
lease
- Fixtures and furnishings: 10-20 years.
- Other equipment and motor vehicles: 3-8 years.
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
Assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. In the event that an
asset's carrying amount is determined to be greater than its recoverable amount
it is written down immediately.
(l) Leases
(1) As lessee
The leases entered into by the Group are primarily operating leases. Operating
lease rentals are charged to the income statement on a straight-line basis over
the period of the lease.
When an operating lease is terminated before the end of the lease period, any
payment made to the lessor by way of penalty is recognised as an expense in the
period of termination.
(2) As lessor
Assets leased to customers are classified as finance leases if the lease
agreements transfer substantially all the risks and rewards of ownership to the
lessee; all other leases are classified as operating leases. When assets are
held subject to a finance lease, the present value of the lease payments is
recognised as a receivable within loans and advances to banks and customers.
Finance lease income is recognised over the term of the lease using the net
investment method (before tax) reflecting a constant periodic rate of return.
Page 27
LLOYDS TSB GROUP - TRANSITION TO IFRS
Operating lease assets are included within fixed assets at cost and depreciated
over the life of the lease after taking into account anticipated residual
values. Operating lease rental income is recognised on a straight line basis
over the life of the lease.
(m) Borrowings
Borrowings are recognised initially at fair value, being their issue proceeds
net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost using the effective interest method.
Preference shares and other instruments which carry a mandatory coupon or are
redeemable on a specific date are classified as financial liabilities. The
coupon on these instruments is recognised in the income statement as interest
expense.
(n) Pensions and other post-retirement benefits
The Group operates a number of post-retirement benefit schemes for its employees
including both defined benefit and defined contribution pension plans. A
defined benefit scheme is a pension plan that defines an amount of pension
benefit that an employee will receive on retirement, dependent on one or more
factors such as age, years of service and salary. A defined contribution plan
is a pension plan into which the Group pays fixed contributions; there is no
legal or constructive obligation to pay further contributions.
Full actuarial valuations of the Group's principal defined benefit schemes are
carried out every three years with interim reviews in the intervening years;
these valuations are updated to 31 December each year by qualified independent
actuaries, or in the case of the Scottish Widows Retirement Benefits Scheme, by
a qualified actuary employed by Scottish Widows. For the purposes of these
annual updates scheme assets are included at their fair value and scheme
liabilities are measured on an actuarial basis using the projected unit credit
method adjusted for unrecognised actuarial gains and losses. The defined
benefit scheme liabilities are discounted using rates equivalent to the market
yields at the balance sheet date on high-quality corporate bonds that are
denominated in the currency in which the benefits will be paid, and that have
terms to maturity approximating to the terms of the related pension liability.
The resulting net surplus or deficit is included in the Group's balance sheet.
Surpluses are only recognised to the extent that they are recoverable through
reduced contributions in the future or through refunds from the schemes.
The Group's income statement includes the current service cost of providing
pension benefits, the expected return on the schemes' assets, net of expected
administration costs, and the interest cost on the schemes' liabilities.
Actuarial gains and losses arising from experience adjustments and changes in
actuarial assumptions are not recognised unless the cumulative unrecognised gain
or loss at the end of the previous reporting period exceeds the greater of 10%
of the scheme assets or liabilities. In these circumstances the excess is
charged or credited to the income statement over the employees' expected average
remaining working lives. Past-service costs are charged immediately to the
income statement, unless the changes are conditional on the employees remaining
in service for a specified period of time (the vesting period). In this case,
the past-service costs are amortised on a straight-line basis over the vesting
period.
Page 28
LLOYDS TSB GROUP - TRANSITION TO IFRS
The costs of the Group's defined contribution plans are charged to the income
statement in the period in which they fall due.
(o) Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans.
The value of the employee services received in exchange for equity instruments
granted under these plans is recognised as an expense over the vesting period of
the instruments, with a corresponding increase in equity. This expense is
determined by reference to the fair value of the number of equity instruments
that are expected to vest. The fair value of equity instruments granted is
based on market prices, if available, at the date of grant. In the absence of
market prices, the fair value of the instruments at the date of grant is
estimated using an appropriate valuation technique, such as a Black-Scholes
option pricing model. The determination of fair values excludes the impact of
any non-market vesting conditions, which are included in the assumptions used to
estimate the number of options that are expected to vest. At each balance sheet
date, this estimate is reassessed and if necessary revised. Any revision of the
original estimate is recognised in the income statement over the remaining
vesting period, together with a corresponding adjustment to equity.
(p) Income taxes, including deferred income taxes
Current income tax which is payable on taxable profits is recognised as an
expense in the period in which the profits arise.
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax is
determined using tax rates that have been enacted or announced by the balance
sheet date that are expected to apply when the related deferred tax asset is
realised or the deferred tax liability is settled.
Deferred tax assets are recognised where it is probable that future taxable
profit will be available against which the temporary differences can be
utilised. Deferred tax is provided on temporary differences arising from
investments in subsidiaries and associates, except where the timing of the
reversal of the temporary difference is controlled by the Group and it is
probable that the difference will not reverse in the foreseeable future. Income
tax payable on profits, based on the applicable tax law in each jurisdiction, is
recognised as an expense in the period in which those profits arise. The tax
effects of losses available for carry forward are recognised as an asset when it
is probable that future taxable profits will be available against which these
losses can be utilised. Deferred tax related to fair value re-measurement of
available-for-sale investments and cash flow hedges, which are charged or
credited directly to equity, is also credited or charged directly to equity and
is subsequently recognised in the income statement together with the deferred
gain or loss.
Deferred and current tax assets and liabilities are offset when they arise in
the same tax reporting group and where there is both a legal right of offset and
the intention to settle on a net basis or to realise the asset and settle the
liability simultaneously.
Page 29
LLOYDS TSB GROUP - TRANSITION TO IFRS
(q) Insurance
The Group undertakes both life assurance and general insurance business. The
general insurance business issues insurance contracts only. The life assurance
business issues insurance contracts and investment contracts.
Insurance contracts are those contracts which transfer significant insurance
risk. As a general guideline, the Group defines as significant insurance risk
the possibility of having to pay benefits on the occurrence of an insured event
which are at least 5% more than the benefits payable if the insured event were
not to occur. Investment contracts are those contracts which carry no
significant insurance risk.
A number of insurance and investment contracts contain a discretionary
participation feature which entitles the holder to receive, as a supplement to
guaranteed benefits, additional benefits or bonuses that are likely to be a
significant portion of the total contractual benefits and whose amount or timing
is contractually at the discretion of the Group and based on the performance of
specified assets. Contracts containing a discretionary participation feature
are referred to as participating contracts.
The Group applies UK generally accepted accounting principles for insurance and
participating investment contracts modified, as necessary, to comply with the
requirements of IFRS. For insurance and participating contracts issued by the
life assurance business, this includes continued application of the embedded
value basis of accounting although, as described below, the underlying contracts
are presented separately from the value of in-force life assurance business in
respect of those contracts. Investment contracts that are non-participating are
accounted for as financial instruments.
(1) Life assurance business
(i) Accounting for life insurance contracts and participating investment
contracts
The majority of the life insurance contracts issued by the Group are long-term
life assurance contracts. The Group also issues life insurance contracts to
protect customers from the consequences of events (such as death, critical
illness or disability) that would affect the ability of the customer or their
dependents to maintain their current level of income. Guaranteed benefits paid
on occurrence of the specified insurance event are either fixed or linked to the
extent of the economic loss suffered by the policyholder.
Premiums
Premiums received in respect of life insurance contracts and participating
investment contracts are recognised as revenue when due and are shown before
deduction of commission. Benefits are recorded as an expense when they are
incurred.
Liabilities - life insurance contracts or participating investment contracts
which are not unit-linked
A liability for contractual benefits that are expected to be incurred in the
future is recorded when the premiums are recognised. The liability is
calculated by estimating the future cash flows over the duration of in-force
policies and discounting them back to the valuation date allowing for
probabilities of occurrence. The liability will vary with movements in interest
rates and with the cost of life assurance and annuity benefits where future
mortality is uncertain. Assumptions are made in respect of all material factors
affecting future cash flows, including future interest rates, mortality and
costs.
Page 30
LLOYDS TSB GROUP - TRANSITION TO IFRS
Liabilities - life insurance contracts or participating investment contracts
which are unit-linked
Allocated premiums in respect of unit-linked contracts that are either life
insurance contracts or participating investment contracts are recognised as
liabilities. These liabilities are increased or reduced by the change in the
unit prices and are reduced by policy administration fees, mortality and
surrender charges and any withdrawals and include any amounts necessary to
compensate the Group for services to be performed over future periods. The
mortality charges deducted in each period from the policyholders as a group are
considered adequate to cover the expected total death benefit claims in excess
of the contract account balances in each period and hence no additional
liability is established for these claims. Revenue consists of fees deducted
for mortality, policy administration and surrender charges. Interest or changes
in the unit prices credited to the account balances and excess benefit claims in
excess of the account balances incurred in the period are charged as expenses in
the income statement.
Value of in-force life assurance business
The Group recognises as an asset the value of in-force life assurance business
in respect of life insurance contracts and participating investment contracts.
The asset, which represents the present value of future profits expected to
arise from these contracts, is determined by projecting the future surpluses and
other net cash flows arising from life insurance contract and participating
investment contract business written by the balance sheet date but excluding any
future investment margins, using appropriate economic and actuarial assumptions,
and discounting the result at a rate which reflects the Group's overall risk
premium attributable to this business. The asset in the consolidated balance
sheet and movements in the asset in the income statement are determined and
shown on a net of tax basis.
Unallocated surplus
The Group has an obligation to pay policyholders a specified portion of all
interest and realised gains and losses arising from the assets backing
participating contracts. Any amounts not yet determined as being due to
policyholders are recognised as a liability which is shown separately from other
liabilities.
Realistic liabilities
Liabilities of the Group's with-profits life fund, including guarantees and
options embedded within products written by that fund, are stated at their
realistic values in accordance with the Financial Services Authority's realistic
capital regime.
(ii) Accounting for non-participating investment contracts
All of the Group's non-participating investment contracts are unit-linked.
These contracts are accounted for as financial liabilities whose value is
contractually linked to the fair values of financial assets within the Group's
unitised investment funds. The value of the unit-linked financial liabilities
is determined using current unit prices multiplied by the number of units
attributed to the contract holders at the balance sheet date. Their value is
never less than the amount payable on surrender, discounted for the required
notice period where applicable.
Page 31
LLOYDS TSB GROUP - TRANSITION TO IFRS
The element of premiums and claims in respect of non-participating investment
contracts which is invested on behalf of the contract holder is excluded from
the income statement, with all movements in the contract holder liability and
related assets recorded in the balance sheet. Details of the basis of revenue
recognition for the related investment management fees are set out above (see
c).
Directly incremental commissions that vary with and are related to either
securing new or renewing existing non-participating investment contracts are
capitalised as an intangible asset; all other costs are recognised as expenses
when incurred. This asset is subsequently amortised over the period of the
provision of investment management services and is reviewed for impairment in
circumstances where its carrying amount may not be recoverable. If the asset is
greater than its recoverable amount it is written down immediately.
(2) General insurance business
The Group both underwrites and acts as intermediary in the sale of general
insurance products. Underwriting premiums are included, net of refunds, in the
period in which insurance cover is provided to the customer; premiums received
relating to future periods are deferred and only credited to the income
statement when earned. Where the Group acts as intermediary, commission income
is included in the income statement at the time that the underwriter accepts the
risk of providing insurance cover to the customer. Where appropriate, provision
is made for the effect of future policy terminations based upon past experience.
The underwriting business makes provision for the estimated cost of claims
notified but not settled and claims incurred but not reported at the balance
sheet date. The provision for the cost of claims notified but not settled is
based upon a best estimate of the cost of settling the outstanding claims after
taking into account all known facts. In those cases where there is insufficient
information to determine the required provision, statistical techniques are used
which take into account the cost of claims that have recently been settled and
make assumptions about the future development of the outstanding cases. Similar
statistical techniques are used to determine the provision for claims incurred
but not reported at the balance sheet date.
(3) Liability adequacy test
At each balance sheet date liability adequacy tests are performed to ensure the
adequacy of insurance and participating investment contract liabilities. In
performing these tests current best estimates of future contractual cash flows
and claims handling and administration expenses, as well as investment income
from the assets backing such liabilities, are used. Any deficiency is
immediately charged to profit or loss by establishing a provision for losses
arising from liability adequacy tests.
(4) Reinsurance
Contracts entered into by the Group with reinsurers under which the Group is
compensated for losses on one or more contracts issued by the Group and that
meet the classification requirements for insurance contracts are classified as
reinsurance contracts held. Insurance contracts entered into by the Group under
which the contract holder is another insurer (inwards reinsurance) are included
with insurance contracts.
Page 32
LLOYDS TSB GROUP - TRANSITION TO IFRS
The benefits to which the Group is entitled under its reinsurance contracts held
are recognised as reinsurance assets. These assets consist of short term
balances due from reinsurers as well as longer term receivables that are
dependent on the expected claims and benefits arising under the related
reinsured insurance contracts. Amounts recoverable from or due to reinsurers
are measured consistently with the amounts associated with the reinsured
insurance contracts and in accordance with the terms of each reinsurance
contract. Reinsurance liabilities are primarily premiums payable for
reinsurance contracts and are recognised as an expense when due.
The Group assesses its reinsurance assets for impairment on the same basis as
for financial assets held at amortised cost (see i).
(r) Foreign currency translation
(1) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in sterling, which is the Company's functional and
presentation currency.
(2) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the income
statement, except when deferred in equity as qualifying cash flow hedges.
Translation differences on non-monetary items, such as equities held at fair
value through profit or loss, are reported as part of the fair value gain or
loss. Translation differences on non-monetary items, such as equities
classified as available-for-sale financial assets, are included in the fair
value reserve in equity.
(3) Group companies
The results and financial position of all the Group entities (none of which has
the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:
(i) assets and liabilities for each balance sheet presented are translated at
the closing rate at the date of that balance sheet;
(ii) income and expenses for each income statement are translated at average
exchange rates (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the transactions); and
(iii) all resulting exchange differences are recognised as a separate component
of equity.
On consolidation, exchange differences arising from the translation of the net
investment in foreign entities are taken to shareholders' equity. When a
foreign operation is sold, such exchange differences are recognised in the
income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Page 33
LLOYDS TSB GROUP - TRANSITION TO IFRS
(s) Provisions
Provisions are recognised in respect of present obligations arising from past
events where it is probable that outflows of resources will be required to
settle the obligations and they can be reliably estimated.
The Group recognises provisions in respect of vacant leasehold property where
the unavoidable costs of the future obligations exceed anticipated rental
income.
Contingent liabilities are possible obligations whose existence depends on the
outcome of uncertain future events or those present obligations where the
outflows of resources are uncertain or cannot be measured reliably. Contingent
liabilities are not recognised in the financial statements but are disclosed
unless they are remote.
(t) Dividends
Dividends on ordinary shares are recognised in equity in the period in which
they are paid.
Further appendices containing detailed reconciliations of financial information
contained within this document are available on the Group's website at
www.investorrelations.lloydstsb.com.
Page 34
contacts
For further information please contact:-
Michael Oliver
Director of Investor Relations
Lloyds TSB Group plc
020 7356 2167
E-mail: michael.oliver@ltsb-finance.co.uk
Mary Walsh
Director of Corporate Relations
Lloyds TSB Group plc
020 7356 2121
E-mail: mary.walsh@lloydstsb.co.uk
Page 35
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