11th Dec 2006 07:01
Lloyds TSB Group PLC11 December 2006 149/06 11 December 2006 LLOYDS TSB - TRADING UPDATE Lloyds TSB Group plc will be holding discussions with analysts and investorsahead of its close period for the year ending 31 December 2006. This statementsets out the information that will be provided at those discussions. Lloyds TSB expects to deliver a strong trading performance for 2006 and tocontinue to achieve satisfactory profit growth. Results are expected to be inline with market expectations*. The Group is making considerable progress inthe delivery of its organic growth strategy and in the development of itscustomer franchises. This has resulted in good sales growth throughout theorganisation, positioning the Group to deliver stronger revenue growth over thenext few years. The Group's focus on improving productivity and efficiency,whilst continuing to invest in future business growth, has been maintained. Asa result, revenue growth remains well ahead of cost growth. Overall creditquality remains satisfactory. The Group has also continued to improve itscapital management disciplines. Continued progress in UK Retail Banking The Retail Bank continues to make good progress, with strong product salesgrowth now beginning to drive higher revenue growth. We continue to improve therecruitment of target current account customers. Good growth in savings andinvestment products, especially in bancassurance, has helped offset the expectedlower growth in unsecured consumer lending products, in part as a result oftightened credit criteria. We have continued to invest in improving customerservice whilst maintaining strong cost control, and expect full year costs inthe retail bank to be lower than in 2005. This will lead to a substantialimprovement in the division's cost:income ratio. Strong sales in Insurance & Investments In Insurance & Investments, sales of life, pensions and long-term savingsproducts through both the bancassurance and Independent Financial Adviserchannels have continued to be strong. The rate of sales growth in the secondhalf of the year is however expected to be lower than in the first half, whichbenefited from the impact of 'A' day. New business margins are expected to bestable year-on-year. In General Insurance, sales of home insurance productsthrough the branch network have been strong, and the claims ratio continues toimprove. Good trading momentum in Wholesale & International Banking In Wholesale & International Banking, good trading momentum has been maintainedas the division's strategy to leverage the Group's corporate and small businesscustomer relationships continues to generate good levels of income growth. Inaddition, we are continuing to grow our corporate and small business customerbase. In Corporate Markets we have continued to develop new revenue streams andincrease cross-selling revenues and we have maintained our market leading shareof new business start-ups in Business Banking. Revenue growth will exceed costgrowth despite further targeted investment being made in the enhancement of ourproduct and distribution capabilities. Strong Group cost performance The Group's strong cost performance has continued. Substantial efficiencyimprovements have resulted in further progress in reducing unit processingcosts, at a time when the Group has maintained significant investment inbuilding the business. Revenue growth will exceed cost growth in each divisionand at Group level, resulting in a further improvement in the Group's cost:income ratio. The Group's programme of efficiency improvements is progressingahead of plan and is now expected to deliver increased net benefits in 2006 ofover £40 million, and £100-150 million in 2007. Overall credit quality remains satisfactory Overall, Group asset quality remains satisfactory and we expect the Group'simpairment charge as a percentage of average lending for the full year to belower than in the first half of the year. We continue to expect the retail impairment charge in the second half of theyear to be no higher than in the first half, notwithstanding higher levels ofbankruptcies and Individual Voluntary Arrangements (IVAs). The rate of growthin bankruptcies has shown some early signs of moderating, however IVAs continueto increase. The quality of new unsecured consumer lending has continued toimprove and the Group has also made further improvements in collectionprocedures. In Wholesale, corporate and small business asset quality has remained strongwith no signs of deterioration in the overall quality of our lending. Thequality of new business remains good. Lower levels of corporate recoveries thanin 2005 and a higher level of retail lending impairment in our Asset Financebusiness mean that the full year increase in the impairment charge in Wholesale& International Banking will be similar to the rate of growth in the first halfof the year. Robust capital position The Group's capital ratios remain robust and, as anticipated, the rate ofrisk-weighted asset growth in the second half of 2006 is expected to be slowerthan in the first half. This has been supported by the Group's move towards an'origination and distribution' model of balance sheet management. Later thismonth the Group expects to complete a second residential mortgage-backedsecuritisation (RMBS) programme, bringing the total RMBS securitisations for thesecond half of 2006 to approximately £10 billion. The capital position ofScottish Widows remains strong and we expect to repatriate at least £400 millionof surplus capital to the Group before the end of 2006. Volatility In the first 10 months of 2006, the total positive volatility relating to theGroup's insurance and banking businesses was £176 million, largely reflectingthe strong performance of equity markets during the period. Group pension scheme Following recent changes in age discrimination legislation, the Group has ceasedto augment the pension entitlement of employees taking early retirement. Thischange has reduced the Group's pension liabilities by approximately £125 millionresulting in a similar one-off credit to the 2006 income statement. Ongoingcontributions by the Group, including additional voluntary contributions, areexpected to eliminate the actuarial funding deficit over approximately sixyears. Continuing to build our strong customer franchises and delivering on ourfinancial goals Eric Daniels, Group Chief Executive, said "We are delivering against ourfinancial goals whilst investing in longer-term growth. Across the Group we arecontinuing to build our customer franchises and expect this to generate higherrevenue growth in future years. We believe this, combined with substantialefficiency and service improvements, will ensure sustainable double-digiteconomic profit growth over time. The Group remains on track to deliver a verysatisfactory performance for 2006, and continues to invest to generate improvedlong-term earnings growth." *On 8 December 2006, the consensus of analysts' forecasts for profit before tax,excluding volatility, for the year ending 31 December 2006 was £3,690 million.This consensus, and the reference to the Group's performance, excludes theexpected pension scheme related credit of approximately £125 million. Trading update webcast details The Group Finance Director's briefing will be available as a live audio webcaston the Investor Relations website at www.investorrelations.lloydstsb.com and arecording will be posted on the website shortly after the briefing. Timetable 2006 results announcement 23 February 2007 Ex dividend date 7 March 2007 Dividend record date 9 March 2007 Dividend payment date 2 May 2007 All dates are provisional and subject to change. For further information:- Investor RelationsMichael Oliver +44 (0) 20 7356 2167Director of Investor RelationsE-mail: [email protected] Sarah PollardSenior Manager, Investor RelationsE-mail: [email protected] +44 (0) 20 7356 1571 MediaMary Walsh +44 (0) 20 7356 2121Director of Corporate RelationsE-mail: [email protected] FORWARD LOOKING STATEMENTS This announcement contains forward looking statements with respect to thebusiness, strategy and plans of the Lloyds TSB Group and its current goals andexpectations relating to its future financial condition and performance.Statements that are not historical facts, including statements about Lloyds TSBGroup's or management's beliefs and expectations, are forward lookingstatements. By their nature, forward looking statements involve risk anduncertainty because they relate to events and depend on circumstances that willoccur in the future. Lloyds TSB Group's actual future results may differmaterially from the results expressed or implied in these forward lookingstatements as a result of a variety of factors, including UK domestic and globaleconomic and business conditions, risks concerning borrower credit quality,market related risks such as interest rate risk and exchange rate risk in itsbanking businesses and equity risk in its insurance businesses, inherent risksregarding changing demographic developments, catastrophic weather and similarcontingencies outside Lloyds TSB Group's control, any adverse experience ininherent operational risks, any unexpected developments in regulation orregulatory actions, changes in customer preferences, competition, industryconsolidation, acquisitions and other factors. For more information on theseand other factors, please refer to Lloyds TSB Group's Annual Report on Form 20-Ffiled with the US Securities and Exchange Commission and to any subsequentreports furnished by Lloyds TSB Group to the US Securities and ExchangeCommission or to the London Stock Exchange. The forward looking statementscontained in this announcement are made as of the date hereof, and Lloyds TSBGroup undertakes no obligation to update any of its forward looking statements. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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