-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LoNw1X4u91lSMlhsxFOn+Ew0LYlWA1FloRmmz09Iji/zrfWRGS92q1TPw54wUGFP oV5s+WYrMhBAiaxpfnLvrg== 0001191638-03-000167.txt : 20030214 0001191638-03-000167.hdr.sgml : 20030214 20030214081521 ACCESSION NUMBER: 0001191638-03-000167 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030214 FILED AS OF DATE: 20030214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LLOYDS TSB GROUP PLC CENTRAL INDEX KEY: 0001160106 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 000000000 STATE OF INCORPORATION: X0 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15246 FILM NUMBER: 03562484 BUSINESS ADDRESS: STREET 1: 71 LOMBARD ST CITY: LONDON EC3P 3BS UNITED KINGDOM STATE: X0 ZIP: 00000 MAIL ADDRESS: STREET 1: 71 LOMBARD STREET STREET 2: LONDON EC3P 3BS CITY: UNITED KINGDOM STATE: X0 ZIP: 00000 6-K 1 lloy14026k.txt 2002 RESULTS SECURITIES AND EXCHANGE COMMISSION Washington, D.C.20549 FORM 6-K Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 14 February 2003 LLOYDS TSB GROUP plc (Translation of registrant's name into English) 71 Lombard Street London EC3P 3BS United Kingdom (Address of principal executive offices) Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F..X..Form 40-F..... Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes .....No ..X.. If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________ Index to Exhibits Item No. 1 Regulatory News Service Announcement, dated 14 February 2003 re: 2002 Results Item No. 1 Lloyds TSB Group plc 2002 Results PRESENTATION OF RESULTS During 2002 the Group implemented a number of changes in accounting policies following the issue of new accounting standards and guidelines: Urgent Issues Task Force Abstract 33 - Obligations in Capital Instruments, FRS 17 - Retirement Benefits, FRS 19 - Deferred Tax, and detailed guidance from the Association of British Insurers (ABI) for best practice in the preparation of results using the achieved profits method of accounting. In accordance with the requirements of accounting standards, the Group has restated comparative figures to reflect these changes (page 44, note 1). In order to provide a clearer representation of the underlying performance, the results of the Group's life and pensions business include investment earnings calculated using longer-term investment rates of return and annual management charges based on unsmoothed fund values (page 48, note 5). The difference between the normalised investment earnings and the actual return ("the investment variance") together with the impact of changes in the economic assumptions used in the embedded value calculation (page 49, note 6) have been separately analysed and a reconciliation to the Group's profit before tax is given on page 15.
CONTENTS Page Performance highlights and Chairman's comments 1 Group Chief Executive's statement 2 Summary of results 6 Review of financial performance 7 Consolidated profit and loss account 11 Consolidated balance sheet 12 Other statements 13 Consolidated cash flow statement 14 Profit before tax by main businesses 15 Performance by sector 17 Income 32 Operating expenses 37 Number of employees 39 Credit quality 40 Capital ratios 42 Balance sheet information 43 Notes 44 Contacts for further information 52
FORWARD LOOKING STATEMENTS This announcement contains forward looking statements with respect to the business, strategy and plans of the Lloyds TSB Group, its current goals and expectations relating to its future financial condition and performance. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. 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 business and equity risk in its insurance businesses, changing demographic trends, unexpected changes to regulation or regulatory actions, changes in customer preferences, competition and other factors. Please refer to the latest Annual Report on Form 20-F of Lloyds TSB Group filed with the US Securities and Exchange Commission for a discussion of such factors. LLOYDS TSB GROUP 2002 RESULTS PERFORMANCE HIGHLIGHTS Results * Total income decreased by GBP11 million to GBP8,878 million. * Operating expenses increased by 3 per cent to GBP4,915 million. * Trading surplus decreased by 4 per cent to GBP3,963 million. * Profit before tax decreased by GBP554 million to GBP2,607 million. Excluding changes in economic assumptions and investment variance, profit before tax decreased by GBP516 million, or 13 per cent, to GBP3,504 million. * Profit attributable to shareholders decreased by 20 per cent to GBP1,781 million. * Earnings per share decreased by 21 per cent to 32.0p. * Economic profit decreased by 27 per cent to GBP821 million. * Post-tax return on average shareholders' equity 16.7 per cent. Excluding changes in economic assumptions and investment variance, post-tax return on average shareholders' equity was 23.0 per cent. * Total capital ratio 9.6 per cent, tier 1 capital ratio 7.8 per cent. * Final dividend of 23.5p per share, making a total of 34.2p for the year, an increase of 1.5 per cent. Achievements in 2002 include: * Total income, adjusted for investment variance, acquisitions and other specified items, increased by 2 per cent to GBP9,484 million (page 50, note 8). * Operating expenses, excluding the impact of acquisitions and the netting of operating lease depreciation, were flat at GBP4,580 million (page 50, note 8). * Customer lending grew by 9 per cent to GBP134.5 billion and customer deposits increased by 7 per cent to GBP116.3 billion. * Significant repositioning of UK Retail Banking to support customer franchise development and growth. * Improved market share in many key product areas, including personal lending, credit cards, life, pensions and long-term savings and, in the fourth quarter of 2002, mortgages. Commenting on the results Lloyds TSB Group chairman, Maarten van den Bergh said:- "Against a background of significant stockmarket turbulence and uncertainty in global economies, Lloyds TSB has produced a satisfactory underlying performance despite the reduction in Group profits. The Group's core businesses continued to perform well with good customer lending and deposit growth, and some strong market share gains, accompanied by rigorous cost control." Page 1 of 52 LLOYDS TSB GROUP GROUP CHIEF EXECUTIVE'S STATEMENT The trading environment of 2002 has been a substantial challenge for both the financial services industry and, within it, Lloyds TSB. In order to prosper in such a challenging environment it remains essential that the Lloyds TSB Group has in place a clearly defined strategy. To this end we remain committed to maximising shareholder value over time through leveraging world class leadership and management of our people to achieve our three strategic aims. We have made progress in a number of areas. The year has been characterised by some encouraging features but also by a number of issues which have adversely affected the profit and loss account. The encouraging side of the story is the growth in market share in personal loans, credit cards, general insurance, and life and pensions, and the fact that we sold more products to more people than we have ever done before, with a record net increase in products of 1.6 million compared with 1.3 million last year. Our improved cross-selling ratio of 2.5 products per customer remains industry leading. Customer lending increased by 9 per cent and customer deposits increased by 7 per cent. Our efficiency programme delivered benefits in 2002 in line with our forecasts resulting in a significant improvement in our underlying efficiency. Excluding the impact of acquisitions and operating lease depreciation, operating costs were flat in comparison with 2001, and there was a reduction in our headcount of over 4,000. At the same time we have continued to invest heavily in improving our service to customers. All these factors augur well for future sustainable growth. However, we have also had to absorb a number of significant hits to our profit and loss account. During the year we have experienced a reduction in profit of GBP952 million as a result of the adverse investment variance following the 24 per cent fall in the FT All Share Index during 2002. We have increased the Group's general provision by GBP50 million in respect of our business in Argentina and significantly increased our provisions in respect of certain US corporate customers as a result of their accounting and other irregularities. In addition, we have absorbed provisions totalling GBP205 million for redress to past purchasers of pensions and Abbey Life endowment and long-term savings products, much of which relates to policies written in the late 1980s and early 1990s. The Group has also experienced a reduction of GBP59 million in unit trust and asset management fees, largely as a result of stockmarket falls, a cost of GBP57 million to reflect the implementation of revised mortality assumptions in the Group's life businesses, and a GBP142 million reduction in income as a result of lower other finance income, following the adoption of Financial Reporting Standard 17. The overall impact of these issues meant that the Group's statutory pre-tax profits fell to GBP2,607 million from GBP3,161 million in 2001, and earnings per share fell by 21 per cent to 32.0p. Our post-tax return on equity was 16.7 per cent. Excluding changes in economic assumptions and investment variance, our post-tax return on equity was 23.0 per cent. Within our businesses, the performance of retail banking is now benefiting from the substantial investments we have made to reposition the business for profitable growth. Product sales were at an all time high during 2002 and the Group continues to grow its current account customer franchise in the light of intense competition. Scottish Widows, in line with the rest of the life assurance industry, has experienced difficult trading conditions as a result of the considerable fall in equity markets. However, we believe the long-term growth prospects for this sector of the market, and for Scottish Widows in particular, remain good. The long-term winners will be those with extensive customer franchises and distribution reach, augmented by economies of scale and strong brand power. Page 2 of 52 LLOYDS TSB GROUP We have these in abundance. Our market leading general insurance business has continued to prosper and delivered very strong profitable growth, with pre-tax profits increasing by 16 per cent, compared with 2001. In our wholesale markets and international banking businesses good growth has continued to be achieved in a number of our specialist businesses, although this growth has been offset by a significant increase in the level of corporate bad and doubtful debt provisions. Whilst overall credit quality continues to be robust, the Group does have a cautious outlook on a number of corporate sectors and exposures which has led to these higher levels of corporate provisioning. The economic situation in Argentina continues to be difficult and the outlook is likely to remain uncertain at least until after the new Argentine government takes office during 2003. During 2002 the Group increased its general provision for its exposure to Argentina by GBP50 million and the Group's total exposure to Argentina at the end of the year had been reduced to GBP190 million, net of provisions and charges, compared to GBP610 million a year ago. Against the volatile background, it is essential that we are not swayed from the successful implementation of our vision and strategic aims. As a Group we have a unifying vision whereby our first strategic aim is to be first choice for our customers because we understand and meet their needs more effectively than any of our competitors. It is a vision of a business where we truly create value for our customers; where our customers trust us enough to give us the privilege of looking after more of their business. It is a vision of a business where our staff understand the Group's strategy, understand what we are seeking to do, agree with it and know that what they do is vital to our future success. Our second strategic aim of being a leader in our chosen markets also links in to the customer. Market leaders earn higher returns and generate greater value, some of which can be passed on to the customer. Our third strategic aim of driving down day-to-day operational costs allows the Group to create headroom to invest for the future. Throughout the Group these three themes underpin the development of our businesses and in the last twelve months considerable progress has been made to meet these strategic aims and our world class aspirations. First choice for our customers The Group's strategy of maximising shareholder value over time can only be sustainably achieved by putting our customers at the heart of everything we do. Lloyds TSB's multi-channel banking infrastructure, including internet and telephony services, means that the Group can provide its customers with significant options in terms of both convenience and choice. The knowledge and expertise of our staff ensures that the Group provides comprehensive financial solutions to meet the needs of all of our customers. But the environment in which we work is changing rapidly as customer needs are evolving and as customers continue to seek greater value in terms of the benefits they receive from their products and services. Customers expect excellent customer service and error free operation of their banking arrangements. Those organisations that can develop a reputation for providing excellent customer service will retain existing customers and attract new ones. Over the last twelve months Lloyds TSB has made considerable progress in addressing customer service issues, and these improvements in customer service during 2002 have been a significant contributory factor to strong recruitment of new customers during the year and the improvement in the Group's cross selling rates. Page 3 of 52 LLOYDS TSB GROUP A leader in our chosen markets The Group continues to strengthen its market position in many of its key product areas despite high levels of competition throughout our business. In retail banking we continue to grow our customer franchise and during 2002 saw income growth of 5 per cent from our retail banking business. Our personal loan and credit card portfolios grew by 15 per cent and by 27 per cent respectively, again showing significant improvements in our market share. In Scottish Widows the second half of the year showed a good improvement in market share notwithstanding the very difficult stockmarket environment. In our general insurance business the Group further enhanced its UK market leadership position in the distribution of home and creditor insurance to deliver growth in premium and commission income of 19 per cent. Within asset finance, the Group has acquired First National Vehicle Holdings, Abbey National Vehicle Finance and the Dutton-Forshaw Group. These acquisitions have further enhanced the Group's leading position in UK motor finance. So, in most areas of our business, the Group continues to maintain and develop market leading positions to enable high levels of returns to be sustained, or improved. Driving down our day-to-day costs The Group is already amongst the leaders in cost efficiency. However, in a relatively low growth, low inflation and low interest rate macro-economic environment, cost control remains critically important. Augmented by our efficiency programmes the Group's control and focus on costs has meant that in 2002 costs, excluding the impact of acquisitions and operating lease depreciation, were held flat. Overall Group staff numbers decreased by 4,191 to 79,537 during 2002, after adjusting for an increase of 2,328 from acquisitions during the year. The Group will, of course, continue its significant programme of investment in improved efficiency, to support business growth. The Group continues to generate strong cashflows from its banking businesses and, excluding investment variance, the profit attributable to shareholders in 2002 was GBP2,496 million. The Board has decided to maintain the final dividend at 23.5p, to make a total for the year of 34.2p, an increase of 1.5 per cent. The Board is mindful of the level of dividend cover and, consequently, profit growth may not necessarily result in increases in dividend. The Board recognises the importance attached by shareholders to the Group's dividend. On a personal note, we announced in December last year that I will retire as Group Chief Executive on 31 May 2003, shortly after my 60th birthday. I have thoroughly enjoyed my time at Lloyds TSB and it has been a great privilege to lead this organisation as Chief Executive for the last six years. I am delighted to hand over the mantle to Eric Daniels, who shares my passion for this organisation, and my drive to create value for our customers and shareholders by providing excellent products and superior service. He will be supported by a fantastic team of over 79,000 people across the Group to whom my heartfelt thanks go for their help and support over the years. Page 4 of 52 LLOYDS TSB GROUP Lloyds TSB is an extremely successful organisation with strong returns on shareholders' equity and a first class efficiency ratio. However, the Group does operate in a world of greater competitive ferocity, greater regulation and a tough global economic environment, exacerbated by concerns over geo-political stability. The Group has continued to strive constantly to refresh existing and new revenue streams, build upon its financial and intellectual capital and optimally manage risk and cost. These are not easy times but we have three businesses, UK Retail Banking and Mortgages, Insurance and Investments, and Wholesale Markets and International Banking, all of which have considerable scope for sustainable profitable growth and which can build on the track record in income growth which the Group has seen over the last six years, with costs growing at a considerably slower pace. For any successful business to maintain and improve on such an excellent track record it is important to go forward with realism, confidence and excitement about the future. This, we do. Peter Ellwood Group Chief Executive Page 5 of 52 LLOYDS TSB GROUP 2002 RESULTS
SUMMARY OF RESULTS Increase 2002 2001 (Decrease) Results GBPm GBPm % Total income 8,878 8,889 - Operating expenses 4,915 4,776 3 Trading surplus 3,963 4,113 (4) Provisions for bad and doubtful debts 1,029 747 38 Profit before tax 2,607 3,161 (18) Profit attributable to shareholders 1,781 2,229 (20) Economic profit (page 47, note 2) 821 1,119 (27) Earnings per share (pence) 32.0 40.3 (21) Post-tax return on average shareholders' equity (%) 16.7 18.1 Shareholder value Closing market price per share (year-end) 446p 746p (40) Total market value of shareholders' equity GBP24.8bn GBP41.5bn (40) Dividends per share 34.2p 33.7p 1.5 Balance sheet Shareholders' equity 7,972 10,356 (23) Total assets 252,758 235,793 7 Net assets per share (pence) 141 184 (23) Risk asset ratios % % Total capital 9.6 8.8 Tier 1 capital 7.8 7.8
Page 6 of 52 LLOYDS TSB GROUP REVIEW OF FINANCIAL PERFORMANCE In 2002 the Group's profit before tax decreased by GBP554 million to GBP2,607 million from GBP3,161 million in 2001. Total income decreased by GBP11 million whilst operating expenses increased by GBP139 million, or 3 per cent. Excluding changes in economic assumptions, investment variance, endowment and pension related provisions, investment returns on the Group's pension scheme assets, the netting of operating lease depreciation and the impact of acquisitions, total income increased by 2 per cent whilst total costs, excluding the impact of acquisitions and operating lease depreciation, were held flat. Customer lending and deposits continue to grow well with further growth in market share being achieved in a number of our core markets. Customer lending grew by 9 per cent to GBP134.5 billion and customer deposits increased by 7 per cent to GBP116.3 billion. The Group net interest margin was 3.20 per cent, compared with 3.40 per cent in 2001. This reduction was more than compensated for by increased volumes, resulting in an increase of 5 per cent in net interest income. Profit attributable to shareholders was 20 per cent lower at GBP1,781 million and earnings per share decreased by 21 per cent to 32.0p. Shareholders' equity decreased by GBP2,384 million to GBP7,972 million following a reduction of GBP2,331 million in the value of the Group's pension schemes, largely caused by the significant reduction in equity market values (page 44, note 1). These pension scheme related movements are ignored for regulatory capital purposes and, excluding these market movements, shareholders' equity decreased by GBP53 million. The post-tax return on average shareholders' equity was 16.7 per cent, compared to 18.1 per cent in 2001. Excluding changes in economic assumptions and investment variance, post-tax return on average shareholders' equity was 23.0 per cent. Economic profit decreased by 27 per cent to GBP821 million. The post-tax return on average assets was 0.93 per cent, and the post-tax return on average risk-weighted assets was 1.61 per cent. Pre-tax profit from UK Retail Banking and Mortgages decreased by GBP33 million to GBP1,172 million, compared to GBP1,205 million in 2001. Excluding the impact of a reduction of GBP57 million in profits from the sale and leaseback of premises and the non-recurrence of certain provision releases in 2001, profit before tax increased by GBP96 million, or 9 per cent. There was strong growth in personal loans, up 15 per cent, and in credit card lending, up 27 per cent. Current account and savings and investment account balances, within Retail Banking, increased by 10 per cent. Overall, retail banking product sales were 6 per cent higher than in 2001. Costs remained tightly controlled and asset quality generally remains satisfactory, notwithstanding the general slowdown in economic activity within the UK. Provisions for bad and doubtful debts increased by GBP148 million to GBP563 million, as a result of volume related asset growth in the personal loan and credit card portfolios and a lower level of recoveries and releases than in 2001. Overall the arrears position was stable. An improved arrears position in personal lending was offset by a slight deterioration in the credit card portfolio. In the Mortgages business, gross new lending increased by 36 per cent to a record GBP19.0 billion, compared with GBP14.0 billion a year ago. Net new lending was GBP5.9 billion, compared with GBP3.9 billion in 2001, resulting in a market share of net new lending of 7.5 per cent. The Group's current mortgage pipeline is at record levels and its market share of net new lending in the second half of 2002, at 8.8 per cent, was considerably better than in the first half of the year. Net new lending in the second half of 2002 was GBP3.9 billion, compared with GBP2.0 billion in the first half of the year. The Group's market share of net new lending in the fourth quarter of 2002 was 10.0 per cent. Page 7 of 52 LLOYDS TSB GROUP Profit before tax, excluding changes in economic assumptions and investment variance, from Insurance and Investments decreased by GBP190 million, or 13 per cent, to GBP1,231 million, partly as a result of a GBP135 million increase in provisions for redress to past purchasers of endowment and pension products to GBP205 million, and a reduction of GBP55 million in benefits from experience variances and assumption changes, largely reflecting the implementation of revised actuarial mortality assumptions. Overall weighted sales in the Group's life, pensions and unit trust businesses were GBP767.6 million compared to GBP754.7 million last year, an increase of 2 per cent. This increase in weighted sales reflected a 7 per cent increase in weighted sales from life and pensions, partly offset by a 13 per cent reduction in weighted sales from unit trusts, largely caused by the continuing stockmarket volatility which has significantly reduced customer demand for equity-based ISA products. In the second half of 2002, weighted sales of GBP394.9 million were 10 per cent higher than the GBP358.9 million in the second half of 2001, and 6 per cent higher than the GBP372.7 million in the first half of 2002. Weighted sales from independent financial advisors rose by 25 per cent. There was further strong profit growth from the Group's general insurance operations. A 19 per cent growth in the combined premium income from underwriting and commissions from insurance broking led to an increase in profit before tax of GBP103 million, or 16 per cent, to GBP754 million. Wholesale Markets pre-tax profit decreased by GBP226 million, or 27 per cent, to GBP626 million, partly as a result of a substantial increase in provisions for bad and doubtful debts. Growth in customer lending, increased operating lease assets and the impact of acquisitions in the asset finance business resulted in a GBP174 million, or 9 per cent, increase in total income. Operating expenses increased by GBP202 million, again largely as a result of the asset finance acquisitions and higher operating lease depreciation. The provisions charge for bad and doubtful debts increased by GBP156 million. In 2002, provisions against Group loans and advances to certain large US corporate customers, caused by accounting and operational irregularities, totalled some GBP100 million. There was also an increase in provisions within the corporate lending portfolio, reflecting weak equity markets and the slowdown in economic activity in the UK. In the less favourable economic and trading environment, all the individual businesses continued to perform well. International Banking pre-tax profit was GBP22 million, or 6 per cent, higher at GBP379 million compared with 2001. Profits from New Zealand increased by 32 per cent to GBP218 million as a result of good growth in all core businesses. Our consumer finance business in Brazil, Losango Consumer Finance, performed well, notwithstanding difficult local economic circumstances, and increased pre-tax profits on a local currency basis by 14 per cent. After the impact of adverse exchange rate movements, which were partly hedged, Losango made a pre-tax profit of GBP40 million, compared with GBP43 million in 2001. The total Group charge for bad and doubtful debts was 38 per cent higher at GBP1,029 million, compared with GBP747 million in 2001. In UK Retail Banking the provisions charge increased by GBP125 million, or 28 per cent, to GBP564 million, largely as a result of volume related asset growth in the personal loan and credit card portfolios, which grew by 15 per cent and 27 per cent respectively. In Wholesale Markets the provisions charge increased by GBP156 million to GBP311 million, reflecting the higher provisions against certain large US customers and an increase in the provisions charge from the corporate lending portfolio, reflecting weak equity markets and the slowdown in economic activity in the UK. Page 8 of 52 LLOYDS TSB GROUP International Banking provisions decreased to GBP162 million from GBP183 million, as a result of lower specific provisions in Losango, our consumer finance business in Brazil, largely reflecting exchange rate movements. The Group's charge for bad and doubtful debts, expressed as a percentage of average lending, was 0.77 per cent compared to 0.62 per cent in 2001. At the end of the year provisions for bad and doubtful debts for the Group totalled GBP1,767 million, representing over 120 per cent of non-performing loans (2001: 120 per cent), and the level of non-performing loans increased to GBP1,414 million, compared with GBP1,222 million in December 2001, largely reflecting higher levels of non-performing lending in the corporate portfolio, and general portfolio growth throughout the Group. Importantly, non-performing lending as a percentage of total lending was unchanged at 1.0 per cent. The Group's customer lending portfolio continues to be heavily influenced by our high quality, relatively low risk, mortgage business and, as a result, the Group remains well positioned to withstand a continued economic slowdown. Since the October presidential election in Brazil the economic situation has somewhat stabilised. The Group reduced its total exposure to Brazil, net of provisions, to GBP1.9 billion during 2002, from GBP3.3 billion at the end of 2001, largely from not replacing maturing Government bonds. Economic activity in Brazil has remained reasonably robust and we believe this relative strength in the local economy, in conjunction with the significant International Monetary Fund support package which the newly elected president and incoming government have indicated they will support, should alleviate current concerns about the Brazilian economy. The economic situation in Argentina continues to be difficult and the outlook is likely to remain uncertain at least until after the new Argentine government takes office during 2003. In 2002 the Group increased its general provision relating to its exposure to Argentina by GBP50 million and the Group's total exposure to Argentina at the end of the year was some GBP190 million, net of provisions and charges, compared with GBP610 million at the end of 2001. The Group has now provided for some 50 per cent of its total exposure to Argentina. In common with a number of companies in the life assurance industry, the Group has been carrying out a review of the past sales of certain endowment based and long-term savings products. As a result the Group has made a provision of GBP165 million to cover its liability for redress to policyholders in respect of past sales made, primarily in the late 1980s and early 1990s, by the Abbey Life salesforce prior to its disposal by the Group in February 2000. The adequacy of the provision for redress to past purchasers of pension policies has been reviewed as lower stockmarket levels have increased the expected remaining cost of redress. The Group has made a final provision for this purpose of GBP40 million. The Group is also carrying out, in conjunction with the regulator, an investigation into the appropriateness of sales of a stockmarket related investment product, the Extra Income & Growth Plan. This investigation is expected to be completed during 2003, when the Group will be in a position to estimate the financial effect. The total capital ratio was 9.6 per cent and the tier 1 capital ratio was 7.8 per cent. Balance sheet assets increased by GBP17 billion, or 7 per cent, to GBP253 billion from GBP236 billion at the end of 2001. Loans and advances to customers increased by GBP11.5 billion, or 9 per cent. Risk-weighted assets increased by 13 per cent to GBP122 billion, from GBP108 billion at the end of 2001. At the end of December 2002, the Scottish Widows free asset ratio was an estimated 10.0 per cent, compared to 11.5 per cent at the end of 2001 (page 50, note 7). Page 9 of 52 LLOYDS TSB GROUP Scottish Widows' investment policy for the with-profit fund is determined, in conjunction with the views of the fund's investment advisors, taking into account the long-term commitments of the fund. From time to time investment policy necessitates the use of derivatives and other hedging instruments, and at the end of 2002 such instruments were held to provide some protection against the short-term volatility in the UK equity markets. The Group keeps its investment policy under review. The equity backing ratio for traditional with-profits policies at 31 December 2002 was 53 per cent (equities 40 per cent; property 13 per cent). Scottish Widows remains sufficiently well capitalised to be able to sustain further stockmarket falls without an injection of capital. During 2002 the Group has not needed to inject additional capital from outside the Group's insurance businesses into Scottish Widows. Scottish Widows is, however, well positioned to participate in a rapidly changing market and to support business growth, as well as maintaining prudent financial management. The Group may inject some capital into Scottish Widows if the level of the FTSE 100 index falls to, and remains at, approximately 3,000. At this FTSE 100 level the capital injection is unlikely to exceed GBP300 million. To optimise the financial management of the Group's life businesses Lloyds TSB Life was transferred into the ownership of Scottish Widows in December 2002. Page 10 of 52 LLOYDS TSB GROUP
CONSOLIDATED PROFIT AND LOSS ACCOUNT 2002 2001 GBPm GBPm Interest receivable: Interest receivable and similar income arising from debt securities 567 530 Other interest receivable and similar income 9,982 10,834 Interest payable 5,378 6,442 Net interest income 5,171 4,922 Other finance income 165 307 Other income Fees and commissions receivable 3,053 2,922 Fees and commissions payable (645) (602) Dealing profits (before expenses) 188 233 Income from long-term assurance business (303) (29) General insurance premium income 486 428 Other operating income 763 708 3,542 3,660 Total income 8,878 8,889 Operating expenses Administrative expenses 4,214 4,226 Depreciation 642 511 Amortisation of goodwill 59 39 Depreciation and amortisation 701 550 Total operating expenses 4,915 4,776 Trading surplus 3,963 4,113 General insurance claims 229 174 Provisions for bad and doubtful debts Specific 965 736 General 64 11 1,029 747 Amounts written-off fixed asset investments 87 60 Operating profit 2,618 3,132 Income from joint ventures (11) (10) Profit on sale of businesses - 39 Profit on ordinary activities before tax 2,607 3,161 Tax on profit on ordinary activities 764 875 Profit on ordinary activities after tax 1,843 2,286 Minority interests - equity 19 17 - non-equity 43 40 Profit for the year attributable to shareholders 1,781 2,229 Dividends 1,908 1,872 (Loss) profit for the year (127) 357 Earnings per share 32.0p 40.3p Diluted earnings per share 31.8p 39.9p
Page 11 of 52 LLOYDS TSB GROUP
CONSOLIDATED BALANCE SHEET 31 December 31 December 2002 2001 Assets GBPm GBPm Cash and balances at central banks 1,140 1,240 Items in course of collection from banks 1,757 1,664 Treasury bills and other eligible bills 2,409 4,412 Loans and advances to banks 17,529 15,224 Loans and advances to customers 134,498 123,059 Non-returnable finance (24) (124) 134,474 122,935 Debt securities 29,314 24,225 Equity shares 206 225 Interests in joint ventures 45 39 Intangible assets 2,634 2,566 Tangible fixed assets 4,096 3,365 Own shares 18 23 Other assets 5,263 4,468 Prepayments and accrued income 2,305 2,296 Post-retirement benefit asset - 356 Long-term assurance business attributable to the shareholder 6,228 6,366 207,418 189,404 Long-term assurance assets attributable to policyholders 45,340 46,389 Total assets 252,758 235,793 Liabilities Deposits by banks 25,443 24,310 Customer accounts 116,334 109,116 Items in course of transmission to banks 775 534 Debt securities in issue 30,255 24,420 Other liabilities 8,289 6,673 Accruals and deferred income 3,696 3,563 Post-retirement benefit liability 2,077 75 Provisions for liabilities and charges: Deferred tax 1,317 1,411 Other provisions for liabilities and charges 361 292 Subordinated liabilities: Undated loan capital 5,496 4,102 Dated loan capital 4,672 4,006 Minority interests: Equity 37 37 Non-equity 694 509 731 546 Called-up share capital 1,416 1,411 Share premium account 1,093 959 Merger reserve 343 343 Profit and loss account 5,120 7,643 Shareholders' funds (equity) 7,972 10,356 207,418 189,404 Long-term assurance liabilities to policyholders 45,340 46,389 Total liabilities 252,758 235,793
Page 12 of 52 LLOYDS TSB GROUP
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2002 2001 GBPm GBPm Profit attributable to shareholders 1,781 2,229 Currency translation differences on foreign currency net investments (3) (86) Actuarial losses recognised in post-retirement benefit schemes (3,299) (2,873) Deferred tax thereon 968 863 (2,331) (2,010) Total recognised gains and losses relating to the year (553) 133 Prior year adjustment at 1 January 2002 in respect of current year changes in (404) - accounting policy (page 44, note 1) Prior year adjustment in respect of the adoption of FRS 18 - 248 Total gains and losses recognised during the year (957) 381
HISTORICAL COST PROFITS AND LOSSES There was no material difference between the results as reported and the results that would have been reported on an unmodified historical cost basis. Accordingly, no note of historical cost profits and losses has been included.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 2002 2001 GBPm GBPm Profit attributable to shareholders 1,781 2,229 Dividends (1,908) (1,872) (Loss) profit for the year (127) 357 Currency translation differences on foreign currency net investments (3) (86) Actuarial losses recognised in post-retirement benefit schemes (2,331) (2,010) Issue of shares 77 194 Net decrease in shareholders' funds (2,384) (1,545) Shareholders' funds at beginning of year 10,356 10,024 Prior year adjustment at 1 January 2001 (page 44, note 1) - 1,877 Shareholders' funds at end of year 7,972 10,356
Page 13 of 52 LLOYDS TSB GROUP
CONSOLIDATED CASH FLOW STATEMENT 2002 2001 GBPm GBPm Net cash inflow from operating activities 5,394 9,927 Dividends received from associated undertakings 2 2 Returns on investments and servicing of finance: Dividends paid to equity minority interests (18) (17) Payments made to non-equity minority interests (43) (40) Interest paid on subordinated liabilities (loan capital) (463) (514) Interest element of finance lease rental payments - (1) Net cash outflow from returns on investments and servicing of finance (524) (572) Taxation: UK corporation tax (758) (682) Overseas tax (193) (147) Total taxation (951) (829) Capital expenditure and financial investment: Additions to fixed asset investments (46,830) (47,049) Disposals of fixed asset investments 45,507 40,530 Additions to tangible fixed assets (1,315) (1,157) Disposals of tangible fixed assets 359 285 Capital injections to life fund (140) (100) Net cash outflow from capital expenditure and financial investment (2,419) (7,491) Acquisitions and disposals: Additions to interests in joint ventures (21) (44) Acquisition of group undertakings (117) (180) Disposal of group undertakings and businesses - 40 Net cash outflow from acquisitions and disposals (138) (184) Equity dividends paid (1,903) (1,738) Net cash outflow before financing (539) (885) Financing: Issue of subordinated liabilities (loan capital) 2,120 742 Issue of ordinary share capital net of GBP62 million (2001: GBP185 million) charge in respect of the QUEST 77 194 Repayments of subordinated liabilities (loan capital) (55) (131) Minority investment in subsidiaries 167 - Capital element of finance lease rental payments (4) (20) Net cash inflow from financing 2,305 785 Increase (decrease) in cash 1,766 (100)
Page 14 of 52 LLOYDS TSB GROUP
PROFIT BEFORE TAX BY MAIN BUSINESSES Increase 2002 2001 (Decrease) GBPm GBPm % UK Retail Banking and Mortgages 1,172 1,205 (3) Insurance and Investments 1,231 1,421 (13) Wholesale Markets 626 852 (27) International Banking 379 357 6 Central group items 96 185 (48) Profit before tax, excluding changes in economic assumptions and investment variance 3,504 4,020 (13) Changes in economic assumptions (page 49, note 6) 55 - Investment variance (page 48, note 5) (952) (859) Profit before tax 2,607 3,161 (18)
2001 figures have been restated to incorporate efficiency programme related restructuring costs within business units, and the reclassification of emerging markets debt earnings from International Banking to Central group items.
YEAR END ASSETS BY MAIN BUSINESSES 2002 2001 GBPm GBPm UK Retail Banking 23,279 21,124 Mortgages 62,589 56,858 UK Retail Banking and Mortgages 85,868 77,982 Insurance and Investments* 9,161 9,270 Wholesale Markets 89,066 79,370 International Banking 21,779 21,407 Central group items 1,544 1,375 Total assets* 207,418 189,404 *excluding long-term assurance assets attributable to policyholders
Page 15 of 52 LLOYDS TSB GROUP
SEGMENTAL ANALYSIS UK Retail Banking Insurance and and Wholesale International Central Mortgages Investments Markets Banking group items Total Year ended 31 December 2002 GBPm GBPm GBPm GBPm GBPm GBPm Net interest income 3,340 74 1,158 745 (146) 5,171 Other finance income - - - - 165 165 Other operating income 1,076 1,876 975 374 138 4,439 Total income 4,416 1,950 2,133 1,119 157 9,775 Operating expenses 2,670 490 1,139 578 38 4,915 Trading surplus 1,746 1,460 994 541 119 4,860 General insurance claims - 229 - - - 229 Bad debt provisions 563 - 311 162 (7) 1,029 Amounts written-off fixed asset investments - - 57 - 30 87 Income from joint ventures (11) - - - - (11) Profit before tax* 1,172 1,231 626 379 96 3,504 Changes in economic assumptions - 55 - - - 55 Investment variance - (952) - - - (952) Profit before tax 1,172 334 626 379 96 2,607
UK Retail Banking Insurance and and Wholesale International Central Mortgages Investments Markets Banking group items Total Year ended 31 December 2001 GBPm GBPm GBPm GBPm GBPm GBPm Net interest income 3,102 80 1,096 749 (105) 4,922 Other finance income - - - - 307 307 Other operating income 1,135 2,006 863 345 170 4,519 Total income 4,237 2,086 1,959 1,094 372 9,748 Operating expenses 2,607 491 937 586 155 4,776 Trading surplus 1,630 1,595 1,022 508 217 4,972 General insurance claims - 174 - - - 174 Bad debt provisions 415 - 155 183 (6) 747 Amounts written-off fixed asset investments - - 15 7 38 60 Income from joint ventures (10) - - - - (10) Profit on sale of businesses - - - 39 - 39 Profit before tax* 1,205 1,421 852 357 185 4,020 Investment variance - (859) - - - (859) Profit before tax 1,205 562 852 357 185 3,161
*excluding investment variance and changes in economic assumptions Page 16 of 52 LLOYDS TSB GROUP PERFORMANCE BY SECTOR UK Retail Banking and Mortgages (covering the Group's UK retail businesses, providing banking and financial services to personal and small business customers; mortgages; private banking and stockbroking)
2002 2001 GBPm GBPm Net interest income 3,340 3,102 Other income 1,076 1,135 Total income 4,416 4,237 Operating expenses 2,670 2,607 Trading surplus 1,746 1,630 Provisions for bad and doubtful debts 563 415 Income from joint ventures (11) (10) Profit before tax 1,172 1,205 Efficiency ratio 60.5% 61.5% Total assets (period-end) GBP85.9bn GBP78.0bn Total risk-weighted assets (period-end) GBP54.2bn GBP48.3bn
Profit before tax from UK Retail Banking and Mortgages decreased by GBP33 million to GBP1,172 million, compared with GBP1,205 million in 2001. Strong growth in the Group's consumer lending portfolios and a focus on cost control were offset by the impact of a number of special items. These included a reduction of GBP57 million in profits from the sale and leaseback of premises and, in the mortgage, personal lending and credit card portfolios, the non-recurrence of provision releases totalling GBP72 million in 2001. Excluding these items pre-tax profits increased by 9 per cent. Total income increased by GBP179 million, or 4 per cent, to GBP4,416 million. Excluding the 2001 profits from the sale and leaseback of premises, total income grew by 6 per cent. Net interest income increased by GBP238 million, or 8 per cent, to GBP3,340 million. Personal loans and credit card lending increased by 15 per cent and 27 per cent respectively and, within Retail Banking, balances on current accounts and savings and investment accounts grew by 10 per cent. Mortgage balances outstanding increased by 10 per cent to GBP62.5 billion. Other income decreased by GBP59 million to GBP1,076 million. There was an improvement in income earned from credit and debit cards, and increased income from added value current accounts, but this was offset by a higher level of fees and commissions payable and a reduction of GBP57 million in profits from the sale and leaseback of premises, as the Group's strategy of converting much of its branch portfolio from freehold tenure to leasehold is almost complete. Page 17 of 52 LLOYDS TSB GROUP UK Retail Banking and Mortgages (continued) Operating expenses increased by GBP63 million, or 2 per cent, to GBP2,670 million during 2002, compared to GBP2,607 million in 2001. Staff numbers decreased by 3,329 to 47,895. The trading surplus increased by GBP116 million, or 7 per cent, to GBP1,746 million. Bad debt provisions increased by GBP148 million to GBP563 million, as a result of volume related asset growth in the personal loan and credit card portfolios and a lower level of recoveries and releases than in 2001. Excluding the impact of the non-recurrence of provision releases totalling GBP72 million in 2001, the provisions charge as a percentage of average lending for personal loans and overdrafts decreased to 3.73 per cent, from 3.88 per cent in 2001, and the charge in the credit card portfolio decreased to 3.52 per cent, from 3.60 per cent in 2001. Overall the arrears position remained stable.
Provisions for bad and doubtful debts by product 2002 2001 Charge as a percentage of average lending* % % Personal loans/overdrafts 3.73 3.88 Credit cards 3.52 3.60 Business Banking 1.22 1.05 Mortgages 0.00 0.01
*excluding the impact of the non-recurrence of provision releases totalling GBP72 million in 2001 UK Retail Banking has the responsibility for managing the core relationship with our current account customers and, therefore, acts as the principal gateway for the cross-sale of our full range of bancassurance products and services. As such it contributes significantly to the profitability of other businesses. There were good market share gains, particularly in customer deposits, credit cards and personal lending, and greater unit cost efficiencies, offset by the higher level of provisions for bad and doubtful debts. The Group is now starting to see the benefit of recent investments made in the strategic repositioning of the retail bank, which is well positioned to capture the benefits of future customer franchise development and growth. We continue to offer a comprehensive multichannel distribution service to our customers. In addition to our network of over 2,000 branches, lloydstsb.com, our internet banking system, continues to grow and remains one of the most visited financial websites in Europe. Over 450,000 product sales were achieved via the internet in 2002, more than four times the number achieved in 2001. Our telephone banking operation, comprising PhoneBank and PhoneBank Express, is one of the largest in the UK with over 3 million registered customers. Our telephone banking contact centres handled some 46 million calls in 2002, making extensive use of interactive voice recognition technology to improve efficiency and service. The retail bank continued to develop its strategy of building deeper customer relationships, particularly with our higher value customers, which has resulted in good growth in customer lending and deposit balances. Our relationship offers will be extended further in 2003 with the launch of the Premier Service, which has been successfully piloted in 2002, and the extension of our existing Personal Choice programme. Results from both of these programmes have already shown improved business flows and enhanced customer loyalty as we seek to meet a greater share of our customers' financial needs, supported by the application of our advanced customer relationship management tools. Page 18 of 52 LLOYDS TSB GROUP UK Retail Banking and Mortgages (continued) The recent launch of the Group's new, market leading, credit interest current account reflects the Group's continuing commitment to invest in developing its retail banking franchise by attracting new high quality customers, and rewarding both new and existing customers for using lower cost distribution channels. Business Banking continued to grow its customer franchise with customer deposits growing by 8 per cent to GBP9,412 million from GBP8,715 million in December 2001, and customer lending by 1 per cent to GBP5,487 million from GBP5,435 million in December 2001. Following the launch of the Group's unique segmentation strategy for the Business Banking market in 2001, roll-out to all existing customers is complete with customers now migrated to their choice of relationship offer. Underpinning these offers, and central to ensuring that our customers continue to grow their businesses successfully, is RouteMap, a suite of diagnostic tools to help and support customers. Use of success4business.com, our small business portal, also continues to grow. In March 2002, the Competition Commission's report, following its investigation into the supply of banking services to small and medium size enterprises (SMEs), was published by the government. The Group has implemented the remedies suggested by the Competition Commission and, as a result, it is likely that the annualised impact on profit before tax will be a reduction of some GBP150 million, based on the Group's forecast level of interest rates. Page 19 of 52 LLOYDS TSB GROUP
UK Retail Banking and Mortgages (continued) Mortgages 2002 2001 Gross new mortgage lending GBP19.0bn GBP14.0bn Market share of gross new mortgage lending 8.7% 8.7% Net new mortgage lending GBP5.9bn GBP3.9bn Market share of net new mortgage lending 7.5% 7.2% Mortgages outstanding (period-end) GBP62.5bn GBP56.6bn Market share of mortgages outstanding 9.3% 9.5%
Gross new lending increased by 36 per cent to a record GBP19.0 billion, compared with GBP14.0 billion a year ago. Net new lending increased to GBP5.9 billion resulting in a market share of net new lending of 7.5 per cent. Mortgage balances outstanding increased by 10 per cent to GBP62.5 billion. Mortgages remain a key recruitment vehicle in support of the Group's cross-sell targets and, during 2002, the Group's key objective in the mortgage business has been to achieve an appropriate balance between market share growth and profitability. Gross new mortgage lending of GBP19.0 billion during the year was a record for the Group, and the Group's market share of net new lending in the second half of 2002, at 8.8 per cent, was considerably better than in the first half of the year. Net new lending in the second half of 2002 was GBP3.9 billion, compared with GBP2.0 billion in the first half of the year. The Group's market share of net new lending in the fourth quarter of 2002 was 10.0 per cent. The Group continues to be one of the most efficient mortgage providers in the UK. C&G continues to benefit from mortgage sales distribution through the Lloyds TSB branch network, the IFA market and from the strength of the C&G brand. In addition C&G Teledirect, its internet and telephone operation, continued to perform strongly. Business levels sourced from intermediaries remain strong and, for the eighth consecutive year, C&G received a 5-star award from the Association of Independent Financial Advisors, an achievement unequalled by any UK financial services provider. A slightly improved arrears position and the beneficial effect of house price increases have meant that bad debt provisions remained at low levels. New provisions were offset by releases and recoveries resulting in a GBP1 million net provisions release for the year, compared with a net release of GBP24 million in 2001 which resulted from a release of GBP32 million of the Group's mortgage general provision. The quality of our mortgage lending continues to be satisfactory. The average indexed loan-to-value ratio on the C&G mortgage portfolio was 46 per cent and the average loan-to-value ratio for C&G mortgage business written during 2002 was 67 per cent. C&G has a policy of not exceeding a 95 per cent loan-to-value ratio on new lending. Page 20 of 52 LLOYDS TSB GROUP Insurance and Investments (the life, pensions and unit trust businesses of Scottish Widows and Abbey Life; general insurance underwriting and broking; and Scottish Widows Investment Partnership)
2002 2001 GBPm GBPm Net interest income 74 80 Other income 1,876 2,006 Total income 1,950 2,086 Operating expenses 490 491 Trading surplus 1,460 1,595 General insurance claims 229 174 Profit before tax* 1,231 1,421 Changes in economic assumptions 55 - Investment variance (952) (859) *excluding changes in economic assumptions and investment variance
2002 2001 GBPm GBPm Life, pensions and unit trusts Scottish Widows 573 585 Abbey Life (98) 175 475 760 General insurance 754 651 Operating profit from Insurance 1,229 1,411 Scottish Widows Investment Partnership 2 10 Profit before tax* 1,231 1,421 *excluding changes in economic assumptions and investment variance
Profit before tax from Insurance and Investments, excluding changes in economic assumptions and investment variance, decreased by GBP190 million, or 13 per cent, to GBP1,231 million, from GBP1,421 million in 2001. On the same basis, profit before tax from our life, pensions and unit trust businesses decreased by GBP285 million, or 38 per cent, to GBP475 million, partly as a result of a GBP135 million increase in provisions for redress to past purchasers of endowment and pension products, but also following a reduction of GBP55 million in benefits from experience variances and actuarial assumption changes. The market for medium and long-term investments continued to be adversely affected by the continued volatility in global stockmarkets. Total sales from the Group's life, pensions and unit trust businesses were GBP4,456.3 million, compared with GBP4,423.5 million in 2001, an increase of 1 per cent. Overall weighted sales were GBP767.6 million compared to GBP754.7 million last year, an increase of 2 per cent. This increase in weighted sales reflected a 7 per cent increase in weighted sales from life and pensions, partly offset by a 13 per cent reduction in weighted sales from unit trusts and equity-based ISAs, largely caused by the continuing volatility in global stockmarkets throughout 2002. In the second half of 2002, weighted sales of GBP394.9 million were 10 per cent higher than the GBP358.9 million in the second half of 2001, and 6 per cent higher than the GBP372.7 million in the first half of 2002. Page 21 of 52 LLOYDS TSB GROUP Insurance and Investments (continued) The Group's market share of the life, pensions and unit trusts market to September 2002 was 5.3 per cent, with a market share in the third quarter of 2002 of 5.9 per cent. By distribution channel, weighted sales from independent financial advisors rose by 25 per cent as a result of strong life and pensions sales. This compares with an increase of 11 per cent in the first half of the year, compared with the first half of 2001. Our share of the IFA market to September 2002 was 4.5 per cent, a significant improvement on the 3.8 per cent market share in 2001. In the branch network weighted sales were 7 per cent lower, as a result of the substantial reduction in sales of unit trusts, in comparison to a 10 per cent reduction in the first half of the year, compared with the first half of 2001. Scottish Widows remains the leading equity-based ISA provider in the UK as confirmed by the Investment Management Association (IMA) and the Group remains well placed in this sector of the market. A major programme to convert our unit trust range of some 80 funds into a range of Open Ended Investment Companies (OEICs) has now been completed and the resulting simpler range of mutual funds means that the Group is well positioned to take advantage of the likely changes in the market place, in particular the proposals outlined in the recently published Sandler report. Profit before tax from general insurance operations, excluding investment variance, rose by GBP103 million, or 16 per cent, to a record GBP754 million, mainly as a result of continued strong revenue growth from creditor and home insurance. With over 9 million general insurance policies in force, we estimate that the Group has market leadership positions in the distribution of home and creditor insurance. The principal focus of Scottish Widows Investment Partnership (SWIP) is the delivery of consistently superior investment performance. Pre-tax profits from SWIP for the year were GBP2 million compared with GBP10 million in 2001, the reduction in profitability being driven primarily by lower stockmarket levels and significant investment in new infrastructure to support future business growth. At the end of the year SWIP had GBP70 billion of funds under management out of Groupwide funds under management totalling GBP98 billion. Overall fund management performance in 2002 showed a significant improvement. SWIP's largest UK equity fund, the UK Growth Fund, has achieved a top quartile performance within its sector over six and twelve months. This improvement in performance is also reflected in each of SWIP's mainstream, actively managed, UK equity funds which have all achieved top quartile performance, over a twelve month period, within their sector. In addition, SWIP now has a total of 14 funds rated A and above by Standard and Poor's. A number of new products have been launched during the year, most notably the SWIP Global Liquidity Fund, one of the largest sterling Institutional Money Market Funds, and the UK Balanced Property Trust, an innovative closed-end commercial property fund. The Financial Services Authority has announced the abolition of the polarisation regime and the Group has been positioning itself to achieve competitive advantage in the new depolarised world. The Lloyds TSB Group has extensive interests in both the manufacture and distribution of long-term saving products. With Scottish Widows continuing to be the best recognised brand in the medium to long-term savings market and the actions already taken to improve choice by offering a range of externally managed funds alongside those offered by Scottish Widows Investment Partnership, the Group remains well placed to prosper in a depolarised world. In particular, Scottish Widows' unique multi-manager partnership with Frank Russell has been well received both in the IFA market and by our own customers. Page 22 of 52 LLOYDS TSB GROUP
Insurance and Investments (continued) 2002 2001 GBPm GBPm Total new business premium income Regular premiums: Life - mortgage related 35.0 24.7 - non-mortgage related 32.7 19.9 Pensions 212.7 232.8 Health 5.9 4.6 Total regular premiums 286.3 282.0 Single premiums: Life 1,531.8 1,684.2 Annuities 497.0 338.6 Pensions 1,060.2 718.2 Total single premiums 3,089.0 2,741.0 External unit trust sales: Regular payments 71.5 65.0 Single amounts 1,009.5 1,335.5 Total external unit trust sales 1,081.0 1,400.5 Weighted sales (regular + 1/10 single) Life and pensions 595.2 556.1 Unit trusts 172.4 198.6 Life, pensions and unit trusts 767.6 754.7 Weighted sales by distribution channel Branch network 350.6 376.2 Independent financial advisors 348.5 279.8 Direct 68.5 98.7 Life, pensions and unit trusts 767.6 754.7 Group funds under management GBPbn GBPbn Scottish Widows Investment Partnership 70 78 UK Wealth Management 10 11 International 18 20 98 109
Page 23 of 52 LLOYDS TSB GROUP
Insurance and Investments (continued) Life, pensions and unit trusts 2002 2001 GBPm GBPm New business income 398 358 Existing business - - expected return 273 307 - - experience variances (1) 37 - - assumption changes and other items 78 95 - - pension provisions (40) (70) - - Abbey Life endowment provision (165) - 145 369 Investment earnings 214 247 Life and pensions distribution costs (283) (255) 474 719 Unit trusts 90 141 Unit trust distribution costs (89) (100) 1 41 Profit before tax* 475 760 New business margin (life and pensions) 19.3% 18.5% *excluding changes in economic assumptions and investment variance
New business income increased by 11 per cent supported by a 7 per cent growth in weighted sales from life and pensions products, and an improved performance in the more profitable life products. The life and pensions new business margin, defined as new business income less distribution costs divided by weighted sales, increased to 19.3 per cent, from 18.5 per cent in 2001. The improvement largely arose from an improved product mix, particularly higher margin protection and regular premium life products. The new business margin improved in all distribution channels. Profit before tax from existing business fell by 61 per cent to GBP145 million, reflecting the GBP135 million increase in provisions for redress to past purchasers of endowment and pension products, and a reduction of GBP55 million in benefits from experience variances and actuarial assumption changes, largely reflecting the implementation of revised actuarial mortality assumptions. The expected return from existing business, which reflects the unwinding of the long-term discount rate applied to the expected cash flows from the Group's portfolio of in-force business, decreased by GBP34 million, or 11 per cent, to GBP273 million. This reduction reflects the lower value of in-force business at the beginning of the year, caused by the effect of lower stockmarkets on annual management charges. Page 24 of 52 LLOYDS TSB GROUP Insurance and Investments (continued) Life, pensions and unit trusts (continued) The Group has, along with other companies in the life assurance industry, been reviewing the past sales of certain endowment based and long-term savings products. As a result the Group has made a provision of GBP165 million to cover its liability for redress to policyholders in respect of past sales made, primarily in the late 1980s and early 1990s, by the Abbey Life salesforce prior to its disposal by the Group in February 2000. The adequacy of the provision for redress to past purchasers of pension policies has been reviewed as lower stockmarket levels have increased the expected remaining cost of redress. The Group has made a final provision for this purpose of GBP40 million. The Group is also carrying out, in conjunction with the regulator, an investigation into the appropriateness of sales of a stockmarket related investment product, the Extra Income & Growth Plan. This investigation is expected to be completed during 2003, when the Group will be in a position to estimate the financial effect. Page 25 of 52 LLOYDS TSB GROUP Insurance and Investments (continued)
General Insurance 2002 2001 GBPm GBPm Premium income from underwriting Creditor 107 110 Home 350 281 Health 44 45 Re-insurance premiums (15) (8) 486 428 Commissions from insurance broking Creditor 426 323 Home 44 41 Health 17 22 Other 160 142 647 528 Profit before tax* 754 651 *excluding investment variance
Profit before tax, excluding investment variance, from our general insurance operations, comprising both underwriting and broking activities, rose by GBP103 million, or 16 per cent, to GBP754 million. Total income increased to a record GBP1.1 billion. Premium income from underwriting increased by GBP58 million, or 14 per cent, largely as a result of higher home insurance income which increased by 25 per cent. Commissions from insurance broking increased by GBP119 million, or 23 per cent, largely as a result of higher levels of creditor insurance. New business sales of 2.8 million products were 6 per cent higher than last year with home, creditor and motor business all growing strongly, particularly through direct channels (direct mail, telephone, affinity and internet) where sales grew by 11 per cent. Overall income from creditor insurance increased by 23 per cent, reflecting higher personal sector loan and credit card volumes and an improved personal lending penetration rate. Home insurance income increased by 22 per cent, with sales volumes increasing by 7 per cent to 1.2 million policies. Claims were GBP55 million, or 32 per cent, higher at GBP229 million than in 2001. The overall claims ratio of 46 per cent was higher than in 2001 (40 per cent) largely as a result of increased property claims which reflected a 26 per cent growth in the home underwritten portfolio, and higher weather and flood related insurance claims. As a leading distributor of general insurance products, Lloyds TSB now has over 9 million policies in force and we estimate that the Group is a UK market leader in the distribution of home and creditor insurance. Page 26 of 52 LLOYDS TSB GROUP Wholesale Markets (banking, treasury, large value lease finance, long-term agricultural finance, share registration, venture capital, and other related services for major UK and multinational companies, banks and financial institutions, and medium-sized UK businesses; and Lloyds TSB Asset Finance)
2002 2001 GBPm GBPm Net interest income 1,158 1,096 Other income 975 863 Total income 2,133 1,959 Operating expenses 1,139 937 Trading surplus 994 1,022 Provisions for bad and doubtful debts 311 155 Amounts written-off fixed asset investments 57 15 Profit before tax 626 852 Efficiency ratio 53.4% 47.8% Total assets (period-end) GBP89.1bn GBP79.4bn Total risk-weighted assets (period-end) GBP52.9bn GBP45.4bn
Wholesale Markets pre-tax profit decreased by GBP226 million, or 27 per cent, to GBP626 million. The acquisitions during the year of First National Vehicle Holdings, Abbey National Vehicle Finance and the Dutton-Forshaw Group had a significant impact on the figures within Wholesale Markets. In 2002 these acquisitions contributed GBP101 million of income, and GBP102 million of operating expenses, including goodwill amortisation of GBP3 million, resulting in a loss before tax of GBP1 million. The acquisitions are expected to achieve substantial synergies in 2003 and beyond. Net interest income increased by GBP62 million resulting primarily from asset growth. Other income increased by GBP112 million, as an increase in operating lease rentals of GBP111 million, largely as a result of the asset finance acquisitions, and a higher level of insurance commission and corporate banking fees, were offset by a reduction in the realisations of venture capital gains, after record gains in 2001. Operating expenses increased by GBP202 million of which GBP102 million reflected the asset finance acquisitions, and a further GBP33 million reflected an increase in operating lease depreciation. The charge for provisions for bad and doubtful debts in Wholesale Markets increased by GBP156 million. The charge relating to the Group's corporate lending portfolio increased by GBP145 million largely as a result of provisions against the Group's loans and advances to certain large US corporate customers, which totalled some GBP100 million, and an increase in the provisions charge against the corporate lending portfolio, reflecting weak equity markets and the slowdown in economic activity in the UK. Amounts written-off fixed asset investments increased by GBP42 million, as a result of a GBP21 million write-down relating to operating irregularities on one specific securitisation issue, and portfolio growth related write-downs in the Lloyds TSB Development Capital investment portfolio. Page 27 of 52 LLOYDS TSB GROUP Wholesale Markets (continued) Assets grew by 12 per cent to GBP89 billion, an increase of GBP10 billion. Of this increase, some GBP5 billion resulted from a growth in debt securities, reflecting an increase in the Group's portfolio of asset backed securities, most of which were triple A rated, and GBP2.6 billion from an increase in customer lending. The Group's policy to grow its asset backed securities portfolio is conservative, only targeting high quality tranches of asset backed securities issues, concentrating on mainstream asset classes such as mortgages, credit cards, student loans and retail car loans. The portfolio allows the Group to provide a securitised asset funding service for its corporate clients and to participate in structured deals with a limited number of global financial institutions. The high level of recent growth in the portfolio largely reflects the development of the Group's capability in this market and, having now achieved a meaningful presence in the market, it is not intended that recent rates of portfolio growth will continue into 2003 and beyond. Our Treasury operations had another good year, however, primarily as a result of less favourable trading conditions, pre-tax profits decreased by 16 per cent to GBP196 million, compared with a record GBP233 million in 2001. The Group's risk-based activity in the derivatives markets continues to remain largely focused on straight cash based products in support of our customers' transactions. Lloyds TSB Leasing maintained its position as the largest "big ticket" leasing company in the UK and continued to develop its position as an established provider of operating leases within its chosen market sectors. Pre-tax profits were GBP60 million compared to GBP67 million in 2001. At the end of the year, Lloyds TSB Registrars' registration market share of FTSE 100 companies was 57 per cent, and its market leadership in employee share administration services continued to strengthen, having achieved market leadership in the new Share Incentive Plan market. Lower transactional activity, however, led to a reduction in pre-tax profits to GBP48 million, from GBP54 million in 2001. Lloyds TSB Development Capital achieved record levels of venture capital investment, however, in a difficult market for disposals, realisations of venture capital gains were GBP35 million lower than in 2001. During the year, Lloyds TSB Development Capital was named Private Equity House of the Year for 2001. Pre-tax profits in Lloyds TSB Asset Finance, which incorporates the Group's asset finance and receivables finance businesses, were GBP86 million, compared with GBP87 million in 2001. Lloyds TSB Commercial Finance and Alex Lawrie Factors continued to expand their customer base, including a new venture in Germany through an agreement with Bertelsmann Finanz. In April 2002 Lloyds TSB Asset Finance acquired First National Vehicle Holdings and Abbey National Vehicle Finance, both previously wholly owned subsidiaries of Abbey National plc, for a provisional cash consideration of GBP47 million. The premium on acquisition was GBP86 million. The businesses have been combined with Lloyds TSB autolease to create the leader in the UK contract hire and fleet management markets. In December 2002, the Group also acquired the Dutton-Forshaw Group, one of the leading motor dealer groups in the UK with 38 franchised dealerships representing 14 manufacturers, for a cash consideration of GBP49 million. Our CarSelect and Cars4Staff initiatives continue to expand rapidly through a range of channels, supplying new and used cars to Group staff, customers, and employees of our corporate customers. Over 5,000 cars were supplied during 2002. Page 28 of 52 LLOYDS TSB GROUP International Banking (banking and financial services overseas in three main areas: The Americas, New Zealand, and Europe and Offshore Banking)
2002 2001 GBPm GBPm Net interest income 745 749 Other income 374 345 Total income 1,119 1,094 Operating expenses 578 586 Trading surplus 541 508 Provisions for bad and doubtful debts 162 183 Amounts written-off fixed asset investments - 7 379 318 Profit on sale of Lloyds TSB Asset Management S.A. - 39 Profit before tax 379 357 Efficiency ratio 51.7% 53.6% Total assets (period-end) GBP21.8bn GBP21.4bn Total risk-weighted assets (period-end) GBP14.3bn GBP13.2bn
International Banking pre-tax profit was GBP22 million, or 6 per cent, higher at GBP379 million compared with 2001, despite a profit in 2001 of GBP39 million from the sale of the Group's Brazilian fund management business. Net interest income decreased by GBP4 million to GBP745 million as volume growth in New Zealand and Brazil was offset by the impact of adverse exchange rate movements. Other income increased by GBP29 million, or 8 per cent, to GBP374 million, as a result of profits on the sale and leaseback of premises totalling GBP32 million. Operating expenses reduced by GBP8 million as increased local currency costs in New Zealand, which supported higher business volumes, and in Argentina, were more than offset by favourable exchange rate movements. Provisions for bad and doubtful debts were GBP21 million lower, as a result of lower specific provisions in Losango, our consumer finance business in Brazil, largely reflecting exchange rate movements. Pre-tax profits from The National Bank of New Zealand increased by 32 per cent to GBP218 million as a result of asset growth across all business sectors, growth in the number of personal customers and higher levels of retail deposits and residential mortgages. Our consumer finance business in Brazil, Losango Consumer Finance, performed well, notwithstanding difficult local economic circumstances, and increased pre-tax profits on a local currency basis by 14 per cent. After the impact of adverse exchange rate movements, which were partly hedged, Losango made a pre-tax profit of GBP40 million, compared with GBP43 million in 2001. The Group's offshore banking operations increased their pre-tax profits by GBP3 million to GBP123 million. In Europe Private Banking, pre-tax profits were GBP24 million, compared to GBP20 million in 2001. Page 29 of 52 LLOYDS TSB GROUP International Banking (continued) Since the October presidential election in Brazil the economic situation has somewhat stabilised. The Group reduced its total exposure to Brazil, net of provisions, to GBP1.9 billion during 2002 (December 2001: GBP3.3 billion), largely from not replacing maturing Government bonds. Economic activity in Brazil has remained reasonably robust, and we believe this relative strength in the local economy, in conjunction with the significant International Monetary Fund support package which the newly elected president and incoming government have indicated they will support, should alleviate current concerns about the Brazilian economy. The economic situation in Argentina continues to be difficult and the outlook is likely to remain uncertain at least until after the new Argentine government takes office during 2003. In 2002 the Group increased its general provision relating to its exposure to Argentina by GBP50 million. The Group's total exposure to Argentina at the end of the year was reduced to some GBP190 million net of provisions and charges, compared to GBP610 million at the end of 2001. The Group has now provided for some 50 per cent of its total exposure to Argentina. In October 2001, the Group sold its Brazilian fund management and private banking business, including its subsidiary Lloyds TSB Asset Management S.A., to Banco Itau S.A., resulting in a profit on sale of GBP39 million. Page 30 of 52 LLOYDS TSB GROUP Central group items (earnings on surplus capital and the emerging markets debt investment portfolio, central costs and other unallocated items)
2002 2001 GBPm GBPm Accrual for payment to Lloyds TSB Foundations (33) (36) Other finance income 165 307 Pension scheme benefit augmentations - (82) Earnings on surplus capital and the emerging markets debt investment portfolio 2 63 Abbey National offer costs - (16) Central costs and other unallocated items (38) (51) 96 185
The four independent Lloyds TSB Foundations support registered charities throughout the UK that enable people, particularly disabled and disadvantaged people, to play a fuller role in society. The Foundations receive 1 per cent of the Group's pre-tax profit, averaged over three years, instead of the dividend on their shareholdings. In 2003 they will receive GBP33 million (2002: GBP36 million) to distribute to charities, making them in aggregate the largest independent grant giving body in the UK. Other finance income represents income from the expected return on the Group's pension fund assets less the charge for unwinding the discount on the pension fund liabilities. The significant reduction in income in 2002 reflects the combined impact of a reduction in the expected return on lower pension scheme assets as a result of the continuing weakness in global equity markets, and increased pension fund liabilities caused by the expected greater lifespan of pension scheme members. Earnings on surplus capital and the emerging markets debt investment portfolio largely reflect earnings on capital held at the Group centre, less the funding cost of Scottish Widows, and profits from the Group's investment portfolio of, largely, emerging markets debt securities. During the year the Group accelerated its disposal programme for these investments as a result of concerns over credit and liquidity risks, particularly in Latin America. Given the higher level of disposals the Group has decided to mark the portfolio to market in 2002 and in future reporting periods. This change had no profit impact in 2002. The Group does not expect to achieve similar levels of emerging markets debt portfolio contributions, which in 2002 totalled GBP103 million, in 2003 and beyond. Page 31 of 52 LLOYDS TSB GROUP INCOME Group net interest income Group net interest income increased by GBP249 million, or 5 per cent, to GBP5,171 million, despite a reduction of GBP290 million caused by a 20 basis point reduction in the net interest margin. Average interest-earning assets increased by 12 per cent to GBP162 billion. The 20 basis points decrease in the overall net interest margin, to 3.20 per cent, reflected a lower contribution from interest-free liabilities, caused by lower average interest rates, the continuing shift in the mix of average interest-earning assets towards high quality, but finer margin, corporate and wholesale lending, and the impact of adverse exchange rate movements on our higher margin Latin American businesses, which led to a 27 basis point reduction in the international net interest margin. The interest spread reduced by 6 basis points.
2002 2001 GBPm GBPm Net interest income 5,171 4,922 Average balances Short-term liquid assets 3,514 3,499 Loans and advances 143,621 132,655 Debt securities 14,683 8,791 Total interest-earning assets 161,818 144,945 Financed by: Interest-bearing liabilities 150,203 133,068 Interest-free liabilities 11,615 11,877 Average rates % % Gross yield on interest-earning assets 6.52 7.84 Cost of interest-bearing liabilities 3.58 4.84 Interest spread 2.94 3.00 Contribution of interest-free liabilities 0.26 0.40 Net interest margin 3.20 3.40
Note: Payments made under cash gift and discount mortgage schemes are amortised over the early redemption charge period, being a maximum of five years. If these incentives had been fully written off as incurred, group and domestic net interest income would have been GBP55 million higher in 2002 (2001: GBP14 million lower). The deferred element of the expenditure amounting to GBP201 million at 31 December 2002 (31 December 2001: GBP256 million) is included within prepayments and accrued income in the balance sheet. Page 32 of 52 LLOYDS TSB GROUP Domestic net interest income Domestic net interest income increased by GBP223 million, or 5 per cent, to GBP4,425 million, notwithstanding a reduction of GBP226 million caused by a 19 basis point reduction in the net interest margin. This represents 86 per cent of total group net interest income. Average interest-earning assets increased by GBP13.7 billion, or 11 per cent, to GBP134.9 billion. Average personal lending and mortgage balances grew by GBP6.7 billion and wholesale balances increased by GBP7.2 billion. The net interest margin decreased by 19 basis points reflecting a reduction in the contribution of interest-free liabilities and the continuing shift in the mix of average interest-earning assets towards high quality, but finer margin, corporate and wholesale lending. In UK Retail Banking and Mortgages there was a 4 basis point decrease in the net interest margin as continued gradual erosion of the mortgage margin was partly offset by a shift in the mix of retail business growth towards personal lending and credit cards. In Wholesale Markets there was an 18 basis point reduction caused by further growth in finer margin corporate lending. The interest spread reduced by only 3 basis points.
2002 2001 GBPm GBPm Net interest income 4,425 4,202 Average balances Short-term liquid assets 2,608 1,858 Loans and advances 123,633 114,992 Debt securities 8,661 4,394 Total interest-earning assets 134,902 121,244 Financed by: Interest-bearing liabilities 125,964 111,233 Interest-free liabilities 8,938 10,011 Average rates % % Gross yield on interest-earning assets 6.10 7.38 Cost of interest-bearing liabilities 3.02 4.27 Interest spread 3.08 3.11 Contribution of interest-free liabilities 0.20 0.36 Net interest margin 3.28 3.47
Page 33 of 52 LLOYDS TSB GROUP International net interest income Net interest income from international operations increased by GBP26 million, or 4 per cent, to GBP746 million. This represents 14 per cent of total group net interest income. Strong volume growth, particularly in New Zealand, was offset by the adverse effect of exchange rate movements. Average interest-earning assets on a local currency basis increased by 16 per cent but again this was partly offset by the adverse effect of exchange rate movements. The net interest margin reduced by 27 basis points as a result of lower margins in our Latin American businesses. In particular, the effect of adverse exchange rate movements had a significant impact on the contribution to the interest margin from our higher margin businesses in Brazil.
2002 2001 GBPm GBPm Net interest income 746 720 Average balances Short-term liquid assets 906 1,641 Loans and advances 19,988 17,663 Debt securities 6,022 4,397 Total interest-earning assets 26,916 23,701 Financed by: Interest-bearing liabilities 24,239 21,835 Interest-free liabilities 2,677 1,866 Average rates % % Gross yield on interest-earning assets 8.63 10.19 Cost of interest-bearing liabilities 6.51 7.76 Interest spread 2.12 2.43 Contribution of interest-free liabilities 0.65 0.61 Net interest margin 2.77 3.04
Page 34 of 52 LLOYDS TSB GROUP
Other income 2002 2001 GBPm GBPm Fees and commissions receivable: UK current account fees 579 573 Other UK fees and commissions 1,163 1,220 Insurance broking 647 528 Card services 414 332 International fees and commissions 250 269 3,053 2,922 Fees and commissions payable (645) (602) Dealing profits (before expenses): Foreign exchange trading income 173 158 Securities and other gains 15 75 188 233 Income from long-term assurance business (303) (29) General insurance premium income 486 428 Other operating income 763 708 Total other income 3,542 3,660
Other income decreased by GBP118 million, or 3 per cent, to GBP3,542 million, partly as a result of a GBP38 million reduction in income from the combined effect of changes in economic assumptions and the higher negative investment variance. Fees and commissions receivable increased by 4 per cent to GBP3,053 million, largely reflecting strong growth in income from insurance broking and card services. Other UK fees and commissions decreased by GBP57 million, or 5 per cent, from GBP1,220 million to GBP1,163 million as a result of a GBP59 million reduction in unit trust and asset management fees, which reflected the impact of the continued fall in the level of stockmarkets during 2002. There was also a GBP20 million increase in fees from large corporate and factoring activity reflecting increased transaction volumes. Insurance broking commission income increased by GBP119 million, compared with 2001, with continued strong growth in creditor insurance products. Income from credit and debit card services increased by GBP82 million, mainly as a result of higher merchant service charges and fees. UK current account fee income rose by GBP6 million, reversing the downward trend experienced in recent years; a GBP37 million increase in fee income from added value current accounts more than offset a reduction in service charges and unauthorised borrowing and other fees. Fees and commissions payable increased by GBP43 million against last year as a result of higher reciprocity fees and an increase in package costs relating to a number of products. Page 35 of 52 LLOYDS TSB GROUP Other income (continued) Dealing profits decreased by GBP45 million compared with 2001 as a result of a reduction of GBP60 million in gains from securities trading. Income from long-term assurance business decreased by GBP274 million however, excluding changes in economic assumptions, investment variance and the impact of a GBP135 million increase in provisions for redress to past purchasers of endowment and pension products, it was GBP115 million lower, partly reflecting a reduction of GBP55 million in benefits from experience variances and actuarial assumption changes. Other operating income increased by GBP55 million to GBP763 million. Increases of GBP25 million in earnings on the sale and restructuring of emerging markets debt investments and GBP111 million in operating lease rentals, largely as a result of the acquisition of First National Vehicle Holdings and Abbey National Vehicle Finance, were partly offset by a GBP35 million reduction in the realisation of venture capital gains by Lloyds TSB Development Capital and a reduction of GBP25 million in profits on the sale and leaseback of premises. Page 36 of 52 LLOYDS TSB GROUP OPERATING EXPENSES
Operating expenses 2002 2001 GBPm GBPm Administrative expenses: Staff: Salaries and profit sharing 1,758 1,776 National insurance 134 140 Pensions 318 347 Restructuring 105 69 Other staff costs 202 221 2,517 2,553 Premises and equipment: Rent and rates 280 261 Hire of equipment 18 18 Repairs and maintenance 131 115 Other 114 123 543 517 Other expenses: Communications and external data processing 446 483 Advertising and promotion 147 154 Professional fees 113 110 Other 448 409 1,154 1,156 Administrative expenses 4,214 4,226 Depreciation 642 511 Amortisation of goodwill 59 39 Total operating expenses 4,915 4,776 Efficiency ratio 55.4% 53.7% Efficiency ratio, excluding changes in economic assumptions and investment variance 50.3% 49.0%
Total operating expenses increased by GBP139 million, or 3 per cent, compared with 2001. Excluding the impact of acquisitions and operating lease depreciation, operating expenses were flat. Administrative expenses decreased by GBP12 million to GBP4,214 million. Staff costs fell by GBP36 million to GBP2,517 million and other expenses decreased by GBP2 million to GBP1,154 million. Depreciation rose by GBP131 million, reflecting an increase of GBP95 million in operating lease depreciation. Goodwill amortisation was GBP20 million higher. The efficiency ratio, excluding changes in economic assumptions and investment variance, was 50.3 per cent, compared to 49.0 per cent in 2001. Page 37 of 52 LLOYDS TSB GROUP Efficiency programme In February 2000 the Group announced the commencement of a substantial medium-term efficiency programme to improve the Group's overall efficiency, to maintain our continuing focus on operating costs and to support increasing levels of investment in the Group's businesses. The efficiency programme has been a major contributing factor to the net reduction in Group staff numbers of 4,191, after adjusting for an additional 2,328 staff following a number of acquisitions, against the targeted net reduction in staff numbers of 3,000 by the end of 2002. The Group remains committed to strict cost control and, largely as a result of the continuing efficiency initiatives, we expect that the Group's operating expenses in 2003, excluding the impact of acquisitions and operating lease depreciation, will grow by no more than the rate of inflation. This focus on cost control will be continued notwithstanding further significant investment throughout the business in 2003, to support increased business volumes, further improvements in productivity, and increases in investment in mandatory projects. These include projects such as the Universal Banking Service, anti-money laundering financial crimes programmes, and preparation for the forthcoming introduction of the Basel 2 capital accord. Page 38 of 52 LLOYDS TSB GROUP Number of employees (full-time equivalent) Staff numbers decreased by 1,863 to 79,537 during the year, notwithstanding an increase of 2,328 from acquisitions made during the year. Excluding the impact of acquisitions, staff numbers decreased by 4,191. This is significantly in excess of the targeted net reduction of 3,000 staff. Within UK Retail Banking staff numbers decreased by 3,513 as increases from planned improvements to customer service and a substantial increase in our branch sales activities have been more than offset by reductions of staff numbers in back office operations as part of the Group's efficiency programme. In Wholesale Markets staff numbers increased by 2,151 as a result of the asset finance acquisitions, but reduced by 114 on an underlying basis. In International Banking staff numbers decreased by 466.
31 December 31 December 2002 2001 UK Retail Banking* 44,184 47,697 Mortgages 3,711 3,527 Insurance and Investments 6,170 6,316 Wholesale Markets 11,385 9,234 International Banking 11,788 12,254 Other 2,299 2,372 Total number of employees (full-time equivalent) 79,537 81,400
*Although the costs of distributing mortgages and insurance through the Lloyds TSB network are allocated to the mortgage and insurance businesses, the number of employees involved in these activities in the network is included under UK Retail Banking. Page 39 of 52 LLOYDS TSB GROUP CREDIT QUALITY
Charge for bad and doubtful debts 2002 2001 GBPm GBPm UK Retail Banking 564 439 Mortgages (1) (24) Wholesale Markets 311 155 International Banking 162 183 Central group items (7) (6) Total charge 1,029 747 Specific provisions 965 736 General provisions 64 11 Total charge 1,029 747 Charge as % of average lending: % % Domestic 0.70 0.54 International 1.28 1.10 Total charge 0.77 0.62
The total charge for bad and doubtful debts increased to GBP1,029 million from GBP747 million. In UK Retail Banking the provisions charge increased by GBP125 million, from GBP439 million in 2001, to GBP564 million, as a result of volume related asset growth in the personal loan and credit card portfolios and a lower level of recoveries and releases. In Wholesale Markets the provisions charge increased by GBP156 million to GBP311 million from GBP155 million in 2001. Provisions against the Group's exposure to certain large US corporate customers totalled some GBP100 million, and there was also an increase in the provisions charge from the corporate lending portfolio, reflecting weak equity markets and the slowdown in economic activity in the UK. In International Banking provisions decreased by GBP21 million as a result of lower specific provisions in Losango, largely reflecting exchange rate movements. There was also an increase of GBP64 million in the Group's overall general provision reflecting a GBP50 million general provision charge relating to the Group's exposure to Argentina, and a more cautious outlook following the slowdown in economic growth in the UK. Non-performing loans increased to GBP1,414 million compared with GBP1,222 million in December 2001, largely reflecting higher levels of non-performing lending in the Group's corporate portfolio and general portfolio growth throughout the Group. In UK Retail Banking and Mortgages the overall arrears position remained stable. An improved position in personal lending and mortgages was offset by a slight deterioration in the credit card portfolio, largely reflecting the slowdown in economic growth in the UK. Non-performing lending represented 1.0 per cent of total lending, compared with 1.0 per cent in December 2001. Our lending portfolio remains heavily influenced by our high quality, relatively low risk, mortgage business and, as a result, we remain relatively well positioned to withstand any continued economic slowdown. Page 40 of 52 LLOYDS TSB GROUP
Movements in provisions for bad and doubtful debts 2002 2001 Specific General Specific General GBPm GBPm GBPm GBPm At 1 January 1,099 369 1,069 357 Exchange and other adjustments (55) (3) (15) 1 Adjustments on acquisition - 3 - - Advances written off (878) - (885) - Recoveries of advances written off in previous years 203 - 194 - Charge to profit and loss account: New and additional provisions 1,544 64 1,310 64 Releases and recoveries (579) - (574) (53) 965 64 736 11 1,334 433 1,099 369 1,767 1,468 Closing provisions as % of lending (excluding unapplied interest) Specific: Domestic 1,016 (0.8%) 848 (0.8%) International 318 (1.7%) 251 (1.5%) 1,334 (1.0%) 1,099 (0.9%) General 433 (0.3%) 369 (0.3%) Total 1,767 (1.3%) 1,468 (1.2%)
At the end of December 2002 provisions for bad and doubtful debts totalled GBP1,767 million. This represented 1.3 per cent of total lending (December 2001: 1.2 per cent). Non-performing lending increased to GBP1,414 million from GBP1,222 million in December 2001, largely reflecting higher levels of non-performing lending in the Group's corporate portfolio, and general portfolio growth throughout the Group. At the end of the year, total provisions represented over 120 per cent of non-performing loans (December 2001: 120 per cent). Page 41 of 52 LLOYDS TSB GROUP
CAPITAL RATIOS Risk asset ratios 31 December 31 December 2002 2001 GBPm GBPm Capital Tier 1 9,490 8,408 Tier 2 8,846 7,831 18,336 16,239 Supervisory deductions (6,588) (6,752) Total capital 11,748 9,487 Risk-weighted assets GBPbn GBPbn UK Retail Banking 22.7 19.6 Mortgages 31.5 28.7 UK Retail Banking and Mortgages 54.2 48.3 Insurance and Investments 0.2 0.2 Wholesale Markets 52.9 45.4 International Banking 14.3 13.2 Central group items 0.8 0.8 Total risk-weighted assets 122.4 107.9 Risk asset ratios Total capital 9.6% 8.8% Tier 1 7.8% 7.8% Post-tax return on average risk-weighted assets 1.61% 2.26%
At the end of December 2002 the risk asset ratios were 9.6 per cent for total capital and 7.8 per cent for tier 1 capital. During 2002, total capital for regulatory purposes increased by GBP2,261 million to GBP11,748 million. Tier 1 capital increased by GBP1,082 million, mainly from the issue of new tier 1 capital instruments. The total amount of embedded value earnings contained within the Group's tier 1 capital is now some GBP2.2 billion. Tier 2 capital increased by GBP1,015 million and supervisory deductions decreased by GBP164 million, as a result of a decrease in the Group's embedded value to GBP6,228 million, from GBP6,366 million in December 2001. Risk-weighted assets increased by 13 per cent to GBP122.4 billion and the post-tax return on average risk-weighted assets decreased to 1.61 per cent. Page 42 of 52 LLOYDS TSB GROUP BALANCE SHEET INFORMATION Total assets increased by GBP17 billion, or 7 per cent, to GBP253 billion. Loans and advances to customers increased by GBP11.5 billion, or 9 per cent, to GBP134.5 billion. Customer deposits increased by GBP7.2 billion, or 7 per cent, to GBP116.3 billion. This reflects growth of GBP3.0 billion, or 12 per cent, in current account balances and GBP4.3 billion, or 9 per cent, in savings and investment account balances. There was a switch of GBP3.7 billion from non-interest bearing current accounts to interest bearing current accounts to reflect the implementation of the proposed remedies of the Competition Commission's report into the supply of banking services to small and medium size enterprises.
31 December 31 December 2002 2001 GBPm GBPm Deposits - customer accounts Sterling: Non-interest bearing current accounts 2,211 6,008 Interest bearing current accounts 25,640 18,852 Savings and investment accounts 53,223 48,969 Other customer deposits 16,521 17,682 Total sterling 97,595 91,511 Currency 18,739 17,605 Total deposits - customer accounts 116,334 109,116 Loans and advances to customers Domestic: Agriculture, forestry and fishing 2,076 2,074 Manufacturing 3,373 3,321 Construction 1,482 1,309 Transport, distribution and hotels 4,696 4,440 Property companies 4,008 2,907 Financial, business and other services 8,352 8,736 Personal : mortgages 62,467 56,578 : other 14,931 12,784 Lease financing 7,285 7,552 Hire purchase 5,990 5,345 Other 3,397 2,992 Total domestic 118,057 108,038 International: Latin America 1,591 2,347 New Zealand 10,447 8,435 Rest of the world 6,202 5,651 Total international 18,240 16,433 136,297 124,471 Provisions for bad and doubtful debts* (1,766) (1,466) Interest held in suspense* (57) (70) Total loans and advances to customers 134,474 122,935
*figures exclude provisions and interest held in suspense relating to loans and advances to banks Page 43 of 52 LLOYDS TSB GROUP NOTES 1. Accounting policies and presentation During 2002 the Group has made a number of changes in accounting policy to implement the requirements of new accounting standards and guidelines. Comparative figures have been restated. The effect of these changes in policy, which were all implemented in the first half of the year, on the results for the year and comparative period is set out below. Urgent Issues Task Force Abstract 33 (UITF 33) UITF 33 was issued in February 2002 and is effective for accounting periods ending on or after 23 March 2002. Following its implementation the Group has reclassified EUR750 million (GBP482 million) of Perpetual Capital Securities as undated loan capital and the related cost is included within interest expense. Previously these securities were included within minority interests in the balance sheet and the cost was treated as a minority interest deduction. Financial Reporting Standard 19 (FRS 19) - Deferred Tax FRS 19 was issued in December 2000 and is effective for accounting periods ending on or after 23 January 2002. Following its implementation, the Group makes full provision for deferred tax assets and liabilities arising from timing differences between the recognition of gains and losses in the financial statements and their recognition in a tax computation. Previously provision was only made where it was considered that there was a reasonable probability that a liability or asset would crystallise in the foreseeable future. An adjustment has been made increasing shareholders' equity at 31 December 2001 by GBP40 million to reflect the revised policy. Financial Reporting Standard 17 (FRS 17) - Retirement Benefits FRS 17 replaces SSAP 24 and UITF 6 as the accounting standard dealing with post-retirement benefits. The Group has decided to implement the requirements of FRS 17 in 2002 to coincide with the triennial full actuarial valuations of the Group's pension schemes and because of the significant impact that implementation has on the Group's reported results. The new standard requires the Group to include the assets of its defined benefit schemes on its balance sheet together with the related liability to make benefit payments. The profit and loss account includes a charge in respect of the cost of accruing benefits for active employees, any benefit improvements and the cost of severances borne by the schemes; the expected return on the schemes' assets is included within other income less a charge in respect of the unwinding of the discount applied to the schemes' liabilities. Under SSAP 24 the profit and loss account included a charge in respect of the cost of accruing benefits for active employees offset by a credit representing the amortisation of the surplus in the Group's defined benefit schemes; a pension prepayment was included in the Group's balance sheet together with a provision in respect of post-retirement health care obligations. An adjustment has been made reducing shareholders' equity at 31 December 2001 by GBP236 million to reflect the revised policy. Page 44 of 52 LLOYDS TSB GROUP 1. Accounting policies and presentation (continued) Financial Reporting Standard 17 (FRS 17) - Retirement Benefits (continued) The amounts included in the Group's profit and loss account in 2002 are reflected in other finance income and administrative expenses, and are summarised as follows:
Other finance income 2002 2001 GBPm GBPm Expected return on scheme assets 817 844 Interest cost of scheme liabilities (652) (537) Other finance income 165 307 Administrative expenses 2002 2001 GBPm GBPm Defined contribution schemes 25 18 Defined benefit schemes 293 329 Pension costs 318 347
At 31 December 2002 a net pension deficit of GBP2,077 million was included in the Group's balance sheet, based upon actuarial valuations carried out at that date. This reflects a fall in the value of the schemes' assets caused by the significant reduction in equity market values. The valuations were prepared in accordance with the requirements of the accounting standard which seek to place a market value on the schemes' assets and liabilities at a point in time. As a result, these valuations are not indicative of the long-term funding position of the schemes which is assessed in the light of triennial formal actuarial valuations of the schemes. The last formal actuarial valuation of the Group's principal schemes was performed at 30 June 2002 and, whilst these valuations have yet to be finalised, they disclosed that the schemes remained satisfactorily funded although it is probable that it will be necessary to recommence employer's cash contributions shortly. These cash contributions, which are likely to be in the order of GBP150 million in 2003 and GBP300 million in 2004, do not affect the Group's profit and loss account as normal pension costs are already, under FRS 17, included within the Group's operating expenses. Investment variance In December 2001, the Association of British Insurers (ABI) published detailed guidance for the preparation of figures using the achieved profits method of accounting which are published as supplementary financial information accompanying the accounts of most listed insurance companies. The ABI guidance recommends the use of unsmoothed fund values to calculate the value of in-force business. To improve the comparability of the results of the Group's insurance operations with the supplementary financial information published by listed insurers the Group has changed the basis of its embedded value calculations to use unsmoothed fund values; previously the effect of investment fluctuations had been amortised in the profit and loss account over a two year period. An adjustment has been made reducing shareholders' equity at 31 December 2001 by GBP208 million to reflect the revised policy. Page 45 of 52 LLOYDS TSB GROUP 1. Accounting policies and presentation (continued)
The following tables show the impact of the changes in accounting policies: 2002 Investment Total UITF 33 FRS 19 FRS 17 Variance Adjustment GBPm GBPm GBPm GBPm GBPm Net interest income (31) (31) Other finance income 165 165 Other income (104) (104) Total income (31) 165 (104) 30 Operating expenses 323 323 Trading surplus (31) (158) (104) (293) Provisions/claims Joint ventures Profit before tax (31) (158) (104) (293) Tax (29) (47) (31) (107) Profit after tax (31) 29 (111) (73) (186) Minority interests (31) (31) Attributable profit - 29 (111) (73) (155)
2001 Original Investment Restated Results UITF 33 FRS 19 FRS 17 Variance Results GBPm GBPm GBPm GBPm GBPm GBPm Net interest income 4,944 (22) 4,922 Other finance income - 307 307 Other income 3,882 (222) 3,660 Total income 8,826 (22) 307 (222) 8,889 Operating expenses 4,324 452 4,776 Trading surplus 4,502 (22) (145) (222) 4,113 Provisions/claims 981 981 Joint ventures (10) (10) Profit on sale of business 39 39 Profit before tax 3,550 (22) (145) (222) 3,161 Tax 971 14 (43) (67) 875 Profit after tax 2,579 (22) (14) (102) (155) 2,286 Minority interests 79 (22) 57 Attributable profit 2,500 - (14) (102) (155) 2,229
Consequential adjustments have been made to the balance sheet to reflect these changes in accounting policy. Page 46 of 52 LLOYDS TSB GROUP
1. Accounting policies and presentation (continued) The prior year adjustment in respect of these changes can be summarised as follows; Actuarial losses recognised in post- retirement Adjustment to Impact on benefit Adjustment to shareholders' attributable schemes for shareholders' funds at profit for year year ended funds at ended 1 January 31December 31 December 31 December 2001 2001 2001 2001 GBPm GBPm GBPm GBPm FRS 19 Deferred tax 54 (14) - 40 FRS 17 Retirement benefits 1,876 (102) (2,010) (236) ABI guidance (53) (155) - (208) Total 1,877 (271) (2,010) (404)
2. Economic profit In pursuit of our aim to maximise shareholder value, we use a system of value based management as a framework to identify and measure value in order to help us make better business decisions. Accounting profit is of limited use as a measure of value creation and performance as it ignores the cost of the equity capital that has to be invested to generate the profit. We choose economic profit as a measure of performance because it captures both growth in investment and return. Economic profit represents the difference between the earnings on the equity invested in a business and the cost of the equity. Our calculation of economic profit uses average equity for the year and is based on a cost of equity of 9 per cent (2001: 9 per cent). Economic profit instils a rigorous financial discipline in determining investment decisions throughout the Group. It enables us to evaluate alternative strategies objectively, with a clear understanding of the value created by each strategy, and then to select the strategy which creates the greatest value.
2002 2001 GBPm GBPm Average shareholders' equity 10,672 12,338 Profit attributable to shareholders 1,781 2,229 Less: notional charge (960) (1,110) Economic profit 821 1,119
The notional charge has been calculated by multiplying average shareholders' equity by the cost of equity. Page 47 of 52 LLOYDS TSB GROUP
3. Earnings per share 2002 2001 Basic Profit attributable to shareholders GBP1,781m GBP2,229m Weighted average number of ordinary shares in issue 5,570m 5,533m Earnings per share 32.0p 40.3p Fully diluted Profit attributable to shareholders GBP1,781m GBP2,229m Weighted average number of ordinary shares in issue 5,597m 5,583m Earnings per share 31.8p 39.9p
4. Tax The effective rate of tax was 29.3 per cent (2001: 27.7 per cent). The lower effective rate of tax, compared with the standard tax rate of 30 per cent, is largely due to tax relief on payments to the QUEST to satisfy Save As You Earn options, non taxable gains on disposals of properties sheltered by capital losses, and tier one capital interest payments, partly offset by a higher effective rate of tax in the Group's life and pensions businesses in 2002. 5. Investment variance In accordance with generally accepted accounting practice in the UK, it is the Group's accounting policy to carry the investments comprising the reserves held by its life companies at market value. The reserves held to support the with-profits business of Scottish Widows are substantial and changes in market values will result in significant volatility in the Group's embedded value earnings, which are beyond the control of management. Consequently, in order to provide a clearer representation of the underlying performance, the results of the life and pensions business are separately analysed to include investment earnings calculated using longer-term investment rates of return, and annual management charges based on unsmoothed fund values. This investment variance represents the difference between the actual investment return in the year on investments backing shareholder funds and the expected return based upon the economic assumptions made at the beginning of the year, and the effect of these fluctuations on the value of in-force business. The effects of other changes in economic circumstances beyond the control of management are also reflected in the investment variance. The longer-term rates of return for the period are consistent with those used by the Group in the calculation of the embedded value at the beginning of the period, which were 8.00 per cent for equities and 5.25 per cent for gilts. Following changes in economic assumptions made at the end of 2002 (page 49, note 6), the longer-term rates of return for 2003 have been revised to 7.10 per cent for equities and 4.50 per cent for gilts. Page 48 of 52 LLOYDS TSB GROUP 5. Investment variance (continued) Lloyds TSB General Insurance also holds investments to support its underwriting business; these are carried at market value and gains and losses included within dealing profits. Consistent with the approach adopted for the life and pensions business, an operating profit for the general insurance business is calculated including investment earnings normalised using the same long-term rates of return. During 2002 the FTSE All-Share index fell by 24 per cent and this created an adverse investment variance totalling GBP952 million. This adverse variance should not represent a permanent impairment to the value of the Group's reserves which fluctuate as stockmarket values fluctuate. 6. Changes in economic assumptions In accordance with the Association of British Insurers' detailed guidance for the preparation of figures using the achieved profits method of accounting the Group has reviewed the way in which economic assumptions are set for the purposes of the embedded value calculations. The guidance requires that the assumptions should be reviewed at each reporting date. In order to comply with the guidance, and achieve greater comparability with other major insurers, the Group has adopted this approach.
The main economic assumptions have been revised at 31 December 2002 as follows: 2002 2001 % % Risk-adjusted discount rate (net of tax) 7.35 8.50 Return on equities (gross of tax) 7.10 8.00 Return on fixed interest securities (gross of tax) 4.50 5.25 Expenses inflation 3.30 3.00
The revised assumptions have resulted in a net credit to the profit and loss account in 2002 of GBP55 million. Page 49 of 52 LLOYDS TSB GROUP 7. Free Asset Ratio The free asset ratio is a common measure of financial strength in the UK for long-term insurance businesses. It is the ratio of assets less liabilities (including actuarial reserves but before the required regulatory minimum solvency margin) expressed as a percentage of the liabilities. It is derived from annual insurance returns which are due to be completed in March 2003, and have yet to be finalised. However, based on current expectations, at 31 December 2002 the free asset ratio for Scottish Widows plc was an estimated 10.0 per cent, compared with 11.5 per cent at 31 December 2001. This free asset ratio included some GBP400 million allowance for future profits (December 2001: nil). After adjusting for the inclusion of the required regulatory minimum solvency margin within liabilities, the Scottish Widows plc ratio was an estimated 5.5 per cent at 31 December 2002, compared with 6.6 per cent at 31 December 2001. 8. Income and expenses reconciliations To facilitate comparison of results, certain key financial information and commentaries have been considered excluding changes in economic assumptions, investment variance, pension and endowment provisions, the impact of investment returns on the Group's pension scheme assets, operating lease depreciation, and the impact of acquisitions. Reconciliations are detailed below.
2002 2001 GBPm GBPm Income, excluding changes in economic assumptions, investment variance, pension and endowment provisions, the impact of investment returns on the Group's pension scheme assets, operating lease depreciation and the impact of acquisitions 9,484 9,314 Changes in economic assumptions 55 - Investment variance (952) (859) Pension and endowment provisions (205) (70) Other finance income 165 307 Netting of operating lease depreciation 230 197 Acquisitions 101 - Total income 8,878 8,889 2002 2001 GBPm GBPm Expenses, excluding operating lease depreciation and the impact of acquisitions 4,580 4,579 Netting of operating lease depreciation 230 197 Acquisitions 105 - Total operating expenses 4,915 4,776
Page 50 of 52 LLOYDS TSB GROUP 9. Dividend A final dividend for 2002 of 23.5p per share (2001: 23.5p), will be paid on 7 May 2003, making a total for the year of 34.2p (2001: 33.7p), an increase of 1.5 per cent. Shareholders who have already joined the dividend reinvestment plan will automatically receive shares instead of the cash dividend. Shareholders who have not joined the plan and wish to do so may obtain an application form from Lloyds TSB Registrars, The Causeway, Worthing, West Sussex, BN99 6DA (telephone 0870 6003990). Key dates for the payment of the dividend are: Shares quoted ex-dividend. Shares purchased before this date 26 February qualify for the dividend Record date. Shareholders on the register on this date are 28 February entitled to the dividend Final date for joining or leaving the dividend reinvestment plan 9 April Final dividend paid 7 May 10. Other information The financial information included in this news release does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2002 were approved by the directors on 13 February 2003 and will be delivered to the registrar of companies following publication on 8 March 2003. The auditors' report on these accounts was unqualified and did not include a statement under sections 237(2) (accounting records or returns inadequate or accounts not agreeing with records and returns) or 237(3) (failure to obtain necessary information and explanations) of the Companies Act 1985. Results for the half-year to 30 June 2003 will be announced on 1 August 2003. Page 51 of 52 LLOYDS TSB GROUP CONTACTS For further information please contact:- Philip Hampton Group Finance Director Lloyds TSB Group plc 020 7356 1436 E-mail: philip.hampton@ltsb-finance.co.uk Michael Oliver Director of Investor Relations Lloyds TSB Group plc 020 7356 2167 E-mail: michael.oliver@ltsb-finance.co.uk Terrence Collis Director of Group Corporate Communications Lloyds TSB Group plc 020 7356 2078 E-mail: terrence.collis@lloydstsb.co.uk Copies of this news release may be obtained from Investor Relations, Lloyds TSB Group plc, 71 Lombard Street, London EC3P 3BS (from 28 March, 2003: 25 Gresham Street, London, EC2V 7HN). The full news release can also be found on the Group's website - www.lloydstsb.com. Information about the Group's role in the community and copies of the Group's code of business conduct and its environmental report may be obtained by writing to Public Affairs, Lloyds TSB Group plc, 71 Lombard Street, London, EC3P 3BS (from 28 March, 2003: 25 Gresham Street, London, EC2V 7HN). This information is also available on the Group's website. Page 52 of 52 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LLOYDS TSB GROUP plc (Registrant) By: M D Oliver Name: M D Oliver Title: Director of Investor Relations Date: 14 February 2003 -----END PRIVACY-ENHANCED MESSAGE-----