Statutory profit before tax 3,886 3,621asfffffffs asfffffffs * Insurance and Investments includes ‘normalised’ investment returns based on long-term rates of investment return (page 28).
LloydsTSB.com. LloydsTSB.com is now consistently one of the most visited financial websites in Europe.
We earned record profits and earnings per share; and the dividend was increased by 15 per cent. At the same time, we are investing heavily in e-commerce and restructuring to enhance future earnings.
Over the five years since the merger between Lloyds Bank and TSB at the end of 1995 our share price rose by 114 per cent and gross dividends increased by 140 per cent. An investment of £1,000 in Lloyds TSB shares on 1 January 1996, with dividends reinvested, was worth £2,500 at the end of 2000, a compound growth rate of over 20 per cent per annum and more than 30 per cent better than an investment in the FTSE All Share index over the same period.
Few would deny that financial services is an industry in ferment. It is being transformed by increased competition, technology and consumer demand.
The scale of competition has changed dramatically in recent years. Consumers have more financial choices than ever.
The arrival of stakeholder pensions in the UK in 2001 is a further change that will benefit people who traditionally have had difficulty accessing a suitable pension. The internet will also grow in its reach and effect. It is already bringing transparency to all markets. Our task is to respond to customer needs more readily than ever.
We aim to continue to be a leader in creating value for shareholders by offering superior customer value, both in products and service, whether in the branch, on the telephone or via the web.
Scottish Widows – one of the most highly regarded names in life and pensions –
will greatly strengthen our hand in the rapidly growing long-term savings market. It will enhance not only the quantity but also the quality of our earnings by reducing our dependence on net interest income, where pressure on margins is growing. Chartered Trust will reinforce our leadership in motor vehicle finance. Both of these acquisitions have been successfully integrated with our existing business and we will realise substantial synergies over the next few years.
It heralded dramatic change in the use of technology, driven by the internet. It saw a significant increase in competition from both traditional players and new entrants, and it was marked by the increasing requirements of consumers who are rightly becoming more aware and more demanding. 2000 also saw strong Government interest in the industry with the Cruickshank report and the subsequent review by the Competition
Commission into the provision of banking services to small and medium-sized businesses. We were pleased to commit, with the other major banks, to partial funding of the Universal Bank, which we believe will be a useful contribution to providing banking facilities to all those who require them.
During the year we made further progress on our first strategic aim to be a leader in our chosen markets with the acquisition of
Management Account that will allow consolidation of all financial products into a single account.
currently makes pre-tax profits of some £300 million annually from wealth management in the UK and overseas, and believes that this can be doubled within four years of Create’s full market launch this summer.
In December 2000 the Group announced that it had agreed to form a joint venture between Goldfish, Centrica’s financial services brand, and evolvebank.com, Lloyds TSB’s standalone internet banking operation. The joint venture intends to offer a broad range of integrated financial services products from which customers can select to meet their individual needs.
In August 2000 the Group announced the creation of a new payments processing company – Intelligent Processing Solutions Limited (iPSL) – in conjunction with Unisys and Barclays. iPSL will handle all the Group’s cheque processing activities. With increased levels of electronic banking leading to a decline in the volume of cheques being processed, iPSL provides the economies of scale needed to offset the increasing unit cost of processing cheques.
It gives me great pleasure to close by paying tribute to Sir Brian Pitman, our Chairman, who will retire in April, not only for the significant help and guidance he has given to me during my four years as Group Chief Executive, but also for his unique contribution to the Lloyds TSB
TSB branch where, as of 1 May 2000, we are the last bank in town.
Lloyds TSB Live! has provided more than 900,000 secondary school children with opportunities to take part in drama, music and sport. Through ‘Quality in
and MasterCard payment systems and is the third largest credit card issuer in the UK.
At the end of 2000 over 2.0 million customers had registered to use the services of PhoneBank and the automated voice response service PhoneBank Express.
The Group’s relationships with major UK and multinational companies, banks and institutions, and medium-sized
The Group has also changed its presentation of assets held for leasing to customers under operating lease agreements. These assets are now included within tangible fixed assets and depreciation charged over their estimated useful economic lives.
The transfer of Scottish Widows’ business to the Lloyds TSB Group was completed on 3 March 2000 and the results of the
The total capital ratio was 9.0 per cent and the tier 1 capital ratio was 8.2 per cent. Balance sheet assets increased by £42 billion, or 24 per cent, to £218 billion from £176 billion at the end of 1999. £25 billion of this growth was represented by an increase in long-term assurance liabilities to policyholders following the acquisition of Scottish Widows. Loans and advances to customers increased by £12 billion, or 12 per cent. Risk-weighted assets increased by 11 per cent to £93.5 billion from £84.1 billion at the end of 1999.
Total profit before tax from UK Retail Banking and Mortgages rose by £25 million, or 2 per cent, to £1,682 million. Total income increased by 2 per cent and costs increased by 7 per cent, largely as a result of e-commerce investment costs and higher marketing costs. Bad debt provisions decreased by £93 million, or 22 per cent, to £332 million largely due to the good economic conditions during 2000, and a one-off benefit of £42 million arising from a change in methodology for retail provisioning to recognise more accurately the amount that the Group expects to recover.
Trading surplus 2,014 2,082 Provisions for bad and doubtful debts 332 425 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Profit before tax 1,682 1,657afffffffffffffffffffffffffff afffffffffffffffffffffffffff Profit before tax: UK Retail Banking 817 789 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 1,682 1,657afffffffffffffffffffffffffff afffffffffffffffffffffffffff Efficiency ratio 50.9% 48.4% Total assets (year-end) £71.3bn £64.3bn Total risk-weighted assets (year-end) £44.0bn £39.7bn
(the UK retail businesses of Lloyds TSB, providing banking and financial services to personal and small business customers; private banking; and stockbroking)
Pre-tax profit from UK Retail Banking rose by £28 million, or 4 per cent, to £817 million. Total income increased by 2 per cent, costs increased by 7 per cent largely as a result of e-commerce investment costs, and there was a reduction of 19 per cent in bad debt provisions. A significant element of the profitability of the Group’s insurance operations is also driven through the relationship we have with our substantial retail customer base.
A new wealth management strategy, based on providing a new set of products and services for more affluent customers, is now being implemented under a new brand ‘Create’. For these customers we will provide tailored independent advice, superior service and a choice of investment options from quality providers. Key elements will be our online share dealing and funds hypermarket, and a new Wealth Management Account that will allow consolidation of all financial products into a single account. The Create offer will be underpinned by access to the comprehensive broking services of Goldman Sachs
Against this competitive background, the Group achieved in excess of its natural market share of net new lending. Gross new lending increased by 7 per cent to £11.5 billion, compared with £10.7 billion a year ago, and net new lending was £4.6 billion, significantly higher than £2.8 billion last year. This represented an estimated market share of net new lending of 11.4 per cent, higher than our 9.8 per cent share of mortgages outstanding, and is particularly encouraging given that mortgages are key recruitment products for other retail products and services.
C&G continues to benefit from mortgage sales distribution through the Lloyds TSB branch network, the IFA market and from the strength of the C&G brand. Once again the provision of a first class service has been a significant factor with independent financial advisers awarding C&G its sixth consecutive 5-star rating in the 2000 Financial Adviser service awards. Business levels sourced from intermediaries remain strong.
Operating profit from Insurance* 1,407 851 Scottish Widows Investment Partnership: Scottish Widows 10 – Hill Samuel Asset Management 30 22 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
On a pro forma basis, weighted sales for the combined Lloyds TSB bancassurance and Scottish Widows life, pensions and unit trust businesses were £711.0 million, compared to £713.1 million in 1999. By distribution channel pro forma weighted sales in 2000 were £353.3 million from the branch network, £280.8 million from independent financial advisers and £76.9 million from direct channels, compared with £355.2 million, £296.5 million and £61.4 million respectively in 1999. In the second half of 2000, weighted sales increased by 19 per cent from £318.4 million in the second half of 1999 to £379.8 million. In 2001, we anticipate that our sales growth will exceed overall market growth.
From the date of acquisition, Scottish Widows products have been available throughout the Lloyds TSB branch network, as well as via independent financial advisers and directly from Scottish Widows itself. From August 2000, Scottish Widows has successfully been selling term assurance to Cheltenham & Gloucester customers.
The overall claims ratio of 35.1 per cent was lower than in 1999 (42.8 per cent). Claims were £27 million, or 16 per cent, lower at £142 million than in last year. This reflected the favourable impact on our creditor products of good economic conditions throughout the year, partly offset by the adverse weather conditions in the autumn.
(banking, treasury, large value lease finance, long-term agricultural finance, share registration, venture capital, factoring and invoice discounting, and other related services for major UK and multinational companies, banks and financial institutions, and medium-sized UK businesses; and Lloyds UDT)
Efficiency ratio 43.7% 41.0% Total assets (year-end) £65.7bn £61.5bn Total risk-weighted assets (year-end) £36.5bn £31.6bn
Lloyds TSB Registrars had another very successful year with income growing by 9 per cent and profit by 41 per cent to a record £45 million. During the year shareview.co.uk, our unique internet information service for shareholders, was successfully launched.
Chartered Bank, for a cash consideration of £614 million. The acquisition allowed the Group to consolidate its position as market leader in the independent provision of motor finance and become one of the leading contract hire providers in the UK.
At the end of December 2000 the Group’s provisionable exposure to Emerging Market economies which is included in loans and advances was £1,352 million (December 1999: £1,328 million) against which provisions of £803 million (December 1999: £799 million) were held, giving cover of 59 per cent (December 1999: 60 per cent). Based on secondary market prices, the surplus of market value over net book value of the total Emerging Markets Debt portfolio (including advances, unapplied interest and collateralised bonds held as investments) was more than £800 million (December 1999: £700 million).
The four independent Lloyds TSB Foundations support registered charities throughout the UK that enable people, particularly disabled and disadvantaged people, to play a fuller role in society. The Foundations receive 1 per cent of the Group’s pre-tax profit, averaged over 3 years, instead of the dividend on their shareholdings. In 2001 they will receive £34 million
The reduction in earnings on surplus capital, central costs and other unallocated items in 2000 reflects the incorporation, for the first time, of the funding cost of the purchase of Scottish Widows.
Historically it has been the Group’s practice for central income items such as the earnings on surplus group capital and the profit on the sale of investments to be allocated to business units for statutory reporting purposes. To avoid unnecessary volatility in business unit earnings, as a result of decisions at the Group Centre on the build up and use of surplus capital, these central income items will in the future be reported within central group items. The effect on 1999 figures, which have been restated, is an increase in central group items of £168 million offset by a commensurate reduction in business unit earnings.
Notes: a) Gross yield is the rate of interest earned on average interest-earning assets. b) Interest spread is the difference between the rate of interest earned on average interest-earning assets and the rate of interest paid on average interestbearing liabilities.
Domestic net interest income decreased by £198 million, or 5 per cent, to £3,956 million, reflecting the £258 million funding cost of Scottish Widows, and this represents 86 per cent of total group net interest income. Average interest-earning assets increased by 6 per cent to £111 billion. There was further growth in mortgages and other customer lending. The net interest margin decreased by 40 basis points to 3.58 per cent, again partly reflecting the funding cost of Scottish Widows, which caused a reduction of 23 basis points. In addition, the increasingly competitive operating environment, particularly for retail lending, and the higher cost of deposit products in a higher average interest rate environment caused an underlying reduction of 17 basis points in the net interest margin. During the year the Group had strong growth in a number of finer margin products, particularly mortgages and preferentially priced savings accounts. Excluding the funding cost of Scottish
Widows, the domestic net interest margin in the second half of 2000 was 3.80 per cent, compared with 3.83 per cent in the first half of the year.
Scottish Widows contributed £317 million of this increase. Excluding short-term fluctuations in investment returns in our insurance businesses, changes in the economic assumptions applied to our long-term assurance business, pension provisions and the stakeholder pension related charge in 2000, other income increased by £837 million, or 26 per cent, to £4,054 million.
Income from long-term assurance business: Income before pension provisions 715 329 Pension provisions (100) (102)
Trust of £117 million, and additional investments in revenue growth businesses and e-commerce of £224 million (1999: £44 million), costs increased by 1 per cent to £3,423 million, from £3,373 million in 1999, less than the underlying rate of inflation. Reduced costs in many areas were offset by higher staff costs, partly reflecting an increased accrual for profit sharing and millennium weekend overtime costs, increased advertising costs and a higher depreciation charge.
Scottish Widows, an increase of 1,775 staff following the acquisition of Chartered Trust and a reduction of 584 on the disposal of the new business capability of Abbey Life, staff numbers decreased by 2,768. Within UK Retail Banking staff numbers decreased by 287 despite improvements to customer service and a substantial increase in our call centre capacity.
The total charge for bad and doubtful debts decreased to £475 million from £588 million. The domestic charge decreased to £426 million from £500 million largely due to the good economic conditions during 2000, and a one-off benefit of £42 million arising from a change in methodology for retail provisioning to recognise more accurately the amount that the
The effective rate of tax was 28.6 per cent (1999: 30.4 per cent), compared with an average UK corporation tax rate for 2000 of 30 per cent (1999: 30.25 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, and gains on disposals of investments and properties sheltered by capital losses.
• the further streamlining of the branch network, combined with the expansion of lower cost delivery channels such as telephone banking and internet operations
Since the merger between Lloyds Bank and TSB five years ago, the Group’s share price has risen by 114 per cent. An investment of £1,000 in Lloyds TSB shares on 1 January 1996, with dividends reinvested in each year, was worth £2,500 at the end of 2000, a compound annual growth rate of over 20 per cent. On the same basis, an investment of £1,000 in the FTSE All-Share Index would be worth £1,916.
financial review managers, are responsible for establishing proper control frameworks within their businesses to ensure that the Group’s activities are conducted effectively but prudently, and within the parameters defined by Group Risk Management and
Risk’s responsibilities in respect of credit risk include the following: • Formulation of high level credit policies designed to ensure a balanced and managed approach to the identification and mitigation of credit risk. These policies provide a standard framework within which Group businesses structure their individual policies and rules. Group Risk reviews, approves and monitors credit policy documents established for individual businesses.
• Monitoring of scorecards. The Group utilises statistically-based decisioning techniques (primarily credit scoring and performance scoring) for its main consumer lending portfolios. Authorisations are determined by scorecards tailored to meet the needs of the particular business. Group Risk reviews and monitors new and material changes to scorecards.
• Control of cross-border exposures. Country limits are authorised and managed by a dedicated unit, using an in-house rating system which takes into account economic and political factors.
• Formulation of concentration limits on certain industries and sectors. Group Risk sets limits and monitors exposures to prevent over-concentration of risk.
Compliance and the managing directors of the Group’s principal business units. The Group’s policy is to optimise the stability of future net interest income, which is achieved by entering into hedging transactions using interest rate swaps and other financial instruments.
The table shown on page 73 in note 48b) provides an indication of the Group’s interest rate repricing profile at 31 December 2000, excluding the Group’s trading and insurance activities and after taking into account the off-balance sheet hedging transactions referred to above. Items are allocated to time bands by reference to the earlier of the next interest rate repricing date and the maturity date. It should be noted that retail assets are sometimes repaid before their contractual maturity dates, and GBSM’s hedging transactions take into account the likelihood of such prepayments.
The Group’s structural position at 31 December 2000 is set out on page 74 in note 48d). The position implies that a hypothetical increase of 10 per cent in the value of sterling against all other currencies would lead to a £170 million reduction in reserves. There would be no material impact upon the Group’s risk asset ratio.
To ensure that each business unit can meet its financial obligations as they fall due, the Group complies with the Financial
The activities of Group Risk include the approval from a risk perspective of all new products launched throughout the Group, with an objective of ensuring that the risks associated with new products are understood and managed by the business accordingly.
The Group conducts business in a range of regulated industries. Primary responsibility for ensuring that regulatory requirements are observed lies with a nominated compliance officer within each business unit, who reports directly to the head of the business unit. Additionally, all compliance officers have a reporting line to Group Compliance, which has responsibility for monitoring compliance standards and resources across the Group, and provides independent reporting and assessment to the group directors and the board.
and on exchange rate contracts was £1.3 billion (1999: £1.1 billion). To reduce credit risk the Group uses a variety of credit enhancement techniques such as netting and collateralisation, where security is provided against the exposure.
Minority interests (equity and non-equity) 34 40 42 33 552 aaaaaaasfff aaaaaaasfff aaaaaaasfff aaaaaaasfff aaaaaaasfff
INDEPENDENT NON-EXECUTIVE DIRECTORS Ewan Brown CBE* (** succeeding Mr Linaker) Chairman of Lloyds TSB Scotland A director since 1999. A non-executive director of Lloyds TSB Scotland since 1997. Executive director of Noble Grossart since 1971. Chairman of Dunedin Income Growth Investment Trust and the Court of Heriot-Watt University, and a non-executive director of Stagecoach Holdings. Aged 58.
Sheila M Forbes† A director of TSB Group since 1994. Chairs the board of governors of Thames Valley University and is a civil service commissioner. Head of personnel for Unigate from 1980 to 1988 and personnel director for Storehouse from 1988 to 1992. Director of human resources at Reed Elsevier (UK) from 1992 to 1996. Aged 54.
Chairman Joined Lloyds Bank in 1952. After a number of senior and general management appointments in Lloyds Bank and Lloyds Bank International, appointed a director and group chief executive of Lloyds Bank in 1983. Following the merger with TSB Group in 1995, became group chief executive of Lloyds TSB Group and then chairman in February 1997. Chairman of NEXT PLC and a non-executive director of Carlton Communications, The Carphone Warehouse Group and Tomkins. Aged 69.
EXECUTIVE DIRECTORS Peter B Ellwood Group Chief Executive Joined TSB Bank in 1989 as chief executive, retail banking. Appointed a director of TSB Group in 1990 and became group chief executive in 1992. Following the merger with Lloyds Bank in 1995, became deputy group chief executive of Lloyds TSB Group and then group chief executive in February 1997. Joined Barclays Bank in 1961 and after a number of senior and general management appointments, became chief executive of Barclaycard in 1985. Former chairman of Visa International. Aged 57.
Michael E Fairey Deputy Group Chief Executive Joined TSB Group in 1991 and held a number of senior and general management appointments in the Group before being appointed to the board in 1997 and deputy group chief executive in March 1998. Joined Barclays Bank in 1967 and held a number of senior and general management appointments before becoming managing director of Barclays Direct Lending Services in 1990. Aged 52.
A director of TSB Group since 1994. A non-executive director of Wolverhampton and Dudley Breweries. Joined M&G Group in 1963 and held a number of senior and general management appointments, including deputy chairman and group managing director from 1988 to 1994. Chairman of Fisons from 1994 to 1995. Aged 66.
Chairman of The Agricultural Mortgage Corporation A director since 1995, having been a director of Lloyds Bank since 1994. Managing director of The Blackmoor Estate, his family business. Chancellor of Southampton University since 1996. President of the Royal Geographical Society from 1997 to 2000. Aged 60.
Lawrence M Urquhart* Chairman of Scottish Widows Joined the board in 2000. Chairman of BAA and a non-executive director of Imerys SA. Joined Burmah Castrol in 1977 and held a number of senior and general management appointments in that company before becoming chief executive in 1985 until 1993 and chairman in 1990 until 1998. Former chairman of English China Clays. Aged 65.
Finance Limited, completed the acquisition of the whole of the issued share capital of Chartered Trust Group plc and ACL
Mr van den Bergh joined the board on 1 October 2000 and under the articles of association offers himself for election at the annual general meeting.
The profit and loss account includes a charge for charitable donations totalling £34,790,000 (1999: £31,581,000)
The Company’s policy is to agree terms of payment with suppliers and these normally provide for settlement within 30 days after the date of the invoice, except where other arrangements have been negotiated. It is the policy of the
Act 1985, is nil. The equivalent figure for the Lloyds TSB Group in the UK is 23. This bears the same proportion to the number of days in the year as the aggregate of the amounts owed to trade creditors at 31 December 2000 bears to the aggregate of the amounts invoiced by suppliers during the year.
Management Consultants were commissioned by the remuneration committee to conduct the review. In 2000 the package for executive directors comprised the following elements: Basic salary
The aim is to ensure that the responsibilities of the role are reflected in the salary and that salaries are competitively set in relation to other comparable companies.
Each executive director was eligible to earn an incentive award equal to 50 per cent of salary. The awards for the group chief executive and group finance director were entirely based on group performance. Other executive directors had part of their award based on group performance and the rest linked to the performance of the sector of the business for which they had responsibility. The awards were based on the attainment of predetermined targets relating to economic profit, revenue growth, expenses and customer service.
The remuneration commitee also considered the bonus opportunities available to executive directors, and has increased these to 75 per cent for executive directors and 100 per cent for the group chief executive, with effect from the performance year 2001. These higher bonus payments will only be payable for superior performance as measured by the achievement of stretching predetermined targets relating to economic profit and revenue growth.
Current directors who served during 2000: M A van den Bergh 63 5† 68 –
Column (b) is the additional capital value of column (a) which would arise if the pension were to be transferred to another pension scheme on the director’s leaving the company, based on factors supplied by the actuary of the relevant Group pension scheme in accordance with actuarial guidance note GN11, less (where paid) the director’s contributions. Column (c) is the aggregate pension entitlement based on pensionable service with the Company to 31 December 2000 but payable at normal retirement age.
C S Gibson-Smith 3,151 3,065 Lord Selborne 3,372 3,372 Dennis Holt 19,264 18,035 L M Urquhart 2,124 – A G Kane 78,865 73,458 M A van den Bergh 4,000 4,000
At Weighted options 1 January average granted, 2000 Exercised/ exercise exercised Market (or date of Granted lapsed At price at or lapsed price Amount of gain on exercise**
Scottish Widows loan capital At the end of the year, Mr Ross had an interest in £57,394 of Scottish Widows Group Limited floating rate unsecured loan notes 2008, issued during the year.
Non-beneficial interests Directors had non-beneficial interests as follows: 1. Mr Atkinson, Mr Ellwood, Mr Fairey, Mr Holt, Mr Kane, Mr Moore, Sir Brian Pitman, Mr Pritchard, Mr Ross and Mr van den Bergh together with some 70,000 other employees, were potential beneficiaries in the 749,896, 66,536 and 3,100,000 shares held at the end of the year by the Lloyds TSB qualifying employee share ownership trust, the TSB Group employee trust and the Lloyds TSB Group employee share ownership trust, respectively. 1,888,211, 2,574,721 and 3,100,000 shares, respectively, were held by these trusts at the beginning of the year. These holdings were 195,941, 18,489 and 3,100,000, respectively, on 15 February 2001. 2. At the end of the year, Mr Ellwood also had a non-beneficial interest in 7,000 shares held in another trust created during the year.
The directors are required by the Companies Act 1985 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the
Group’s risk management function, including internal audit and compliance. The audit committee also receives reports from the
Company’s auditors, PricewaterhouseCoopers, which include details of significant internal control matters that they have identified and has a discussion with the auditors at least once a year without executives present, to ensure that there are no unresolved issues of concern.
We have audited the financial statements on pages 42 to 45 and 49 to 76.
We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company and the Group’s circumstances, consistently applied and adequately disclosed.
General insurance claims 142 – 142 169 Provisions for bad and doubtful debts 16
Operating profit (loss) 3,909 (23) 3,886 3,747aafffffff aafffffff Loss on sale and closure of businesses 6 – (126)
at 31 December 2000 2000 1999* Note £ million £ million aaaffffffffffffffffffff aaaaaaaaffffffffffffffffffffffffff aaaaaaaaffffffffffffffffffffffffff
Other commitments 42,586 27,862 aaaaaaaaffffffffffffffffffffffffff aaaaaaaaffffffffffffffffffffffffff 42,589 27,876aafffffffffffffffffffffffffff aafffffffffffffffffffffffffff consolidated balance sheet * restated (note 1)
Amounts owed by group undertakings 1,233 860 Other debtors 42 47 Tax recoverable 16 34
Sir Brian Pitman P B Ellwood M K Atkinson Chairman Group Chief Executive Group Finance Director
Profit attributable to shareholders 2,724 2,514 Currency translation differences on foreign currency net investments (68) (33) aaaaaaaaffffffffffffffffffffffffff aaaaaaaaffffffffffffffffffffffffff
Total recognised gains and losses relating to the year 2,656 2,481aafffffffffffffffffffffffffff Prior year adjustment (note 1) (112)
Acquisitions and disposals: Acquisition of group undertakings (note 50e) (5,110) (27) Disposal of group undertakings and businesses (note 50g) 83 3
Net cash outflow before financing (70) (3,094) Financing: Issue of subordinated liabilities (loan capital) 952 2,769 Issue of preferred securities by subsidiary undertakings 509 – Issue of ordinary share capital net of £124 million
(1999: £205 million) contribution to the QUEST (note 29) 74 108 Repayments of subordinated liabilities (loan capital) (55) (228) Capital element of finance lease rental payments (4) (3)
Increase (decrease) in cash (note 50c) 1,406 (448)aafffffffffffffffffffffffffff aafffffffffffffffffffffffffff cash flow statement consolidated * restated (note 1)
Accounting policies are unchanged from 1999, except that the Group has implemented the requirements of Financial Reporting Standard 15 ‘Tangible Fixed Assets’; this has resulted in two changes. The Group’s freehold and long leasehold premises were previously included in the balance sheet at the last valuation on the basis of existing use value; they will now no longer be revalued, and a prior year adjustment has been made to restate the carrying value to historical cost. This has resulted in the carrying value of tangible fixed assets as at 1 January 1999 being reduced by £112 million and an equivalent adjustment being made against reserves. The effect of this change upon the Group’s profit and loss account is not significant. In addition, the Group has reassessed the useful economic lives and residual values of its freehold and long leasehold premises and with effect from 1 January 2000, the cost of these properties, after deducting the value of land, is being depreciated over 50 years. Previously it was considered that the residual values were such that depreciation was not significant. The effect of this change has been to increase the depreciation charge in 2000 by £8 million.
Assets, liabilities and results of group undertakings and joint ventures are included in the consolidated accounts on the basis of accounts made up to 31 December. In order to reflect the different nature of the shareholders’ and policyholders’ interests in the long-term assurance business, the value of long-term assurance business attributable to shareholders and the assets and liabilities attributable to policyholders are classified under separate headings in the consolidated balance sheet.
The useful economic life of the goodwill arising on each acquistition is determined at the time of the acquisition. In the case of the acquisition of Scottish Widows in 2000, in view of the strength of the Scottish Widows brand and the position of the business as one of the leading providers of life, pensions, unit trust and fund management products, the directors consider that it is appropriate to assign an indefinite life to the goodwill. This goodwill is not being amortised through the profit and loss account; however it is subjected to annual impairment reviews in accordance with Financial Reporting Standard 11 ‘Impairment of Fixed Assets and Goodwill’. Should any impairment be identified, it would be charged to the profit and loss account immediately.
Goodwill arising on all other acquisitions is amortised on a straight line basis over its estimated useful economic life, which does not exceed 20 years.
Interest income is recognised in the profit and loss account as it accrues, with the exception of interest on non-performing lending which is taken to income when received (see e).
Fees receivable from customers to reimburse the Group for costs incurred are taken to income when due. Fees relating to the ongoing provision of a service or risk borne for a customer are taken to income in proportion to the service provided or risk borne in each accounting period. Fees charged in lieu of interest are taken to income on a level yield basis over the period of the loan. Other fees receivable are accounted for as they fall due.
Deferred tax is provided at the appropriate rates of tax where there is a reasonable probability that a liability or asset will crystallise in the foreseeable future.
Contributions to the Group’s pension schemes are charged to the profit and loss account so as to spread the expected cost of pensions, calculated in accordance with actuarial advice, on a systematic basis over employees’ working lives. Pension arrangements for most of the staff in the UK and for the majority of those overseas are operated through defined benefit schemes funded by Group companies. The pension cost relating to these schemes is assessed in accordance with the advice of qualified actuaries, using the projected unit method. Variations from the regular cost are allocated by equal annual instalments over the average remaining service lives of current employees. Pension arrangements for staff joining Lloyds TSB Group Pension Scheme No. 1 (formerly the Lloyds Bank pension scheme) after 1 January 1996 and Lloyds TSB Group Pension Scheme No. 2 (formerly the TSB Group pension scheme) after 1 January 1998 are through money purchase elements of these schemes. Arrangements for pensions of certain staff employed overseas who are not included in funded schemes are made in accordance with local regulations and custom.
Premises and equipment held for letting to customers under operating leases are depreciated over the life of the lease to give a constant rate of return on the net investment, taking into account anticipated residual values.
Unguaranteed residual values in respect of both finance lease and operating lease assets are reviewed regularly and any impairments identified are charged to the profit and loss account.
Statutory audit 4 4 Due diligence and other audit-related work 7 4 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Operating profit from Insurance and Investments is further analysed as follows: £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Income from long-term assurance business 615 227afffffffffffffffffffffffffff afffffffffffffffffffffffffff Income from long-term assurance business is further analysed as follows: £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Current tax charge 1,005 866 Deferred tax 108 235 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 1,113 1,101afffffffffffffffffffffffffff afffffffffffffffffffffffffff The charge for tax on the profit for the year is based on an average UK corporation tax rate of 30 per cent (1999: 30.25 per cent).
Profit attributable to shareholders* £2,724m £2,514m Weighted average number of ordinary shares in issue during the year** 5,487m 5,445m Dilutive effect of options outstanding 58m 101m Diluted weighted average number of ordinary shares in issue during the year 5,545m 5,546m Earnings per share 49.6p 46.2p Diluted earnings per share 49.1p 45.3p *No adjustment was made to profit attributable to shareholders in calculating diluted earnings per share.
Other eligible bills 47 10 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 1,709 2,065afffffffffffffffffffffffffff afffffffffffffffffffffffffff Included above: Unamortised discounts net of premiums on investment securities 2 12
Lending to customers 103,368 92,194 Hire purchase debtors 5,172 3,674 Equipment leased to customers 8,122 8,448 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
At 31 December 90 100afffffffffffffffffffffffffff afffffffffffffffffffffffffff All interest held in suspense relates to loans and advances to customers.
notes to the accounts 18 Concentrations of exposure 2000 1999 £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Other securities: Other public sector securities 131 131 65 65 Bank and building society aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 13,882 14,080 14,184 14,328afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Due within 1 year 5,340 7,095 Due 1 year and over 8,542 7,089 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 13,882 14,184afffffffffffffffffffffffffff afffffffffffffffffffffffffff Unamortised discounts net of premiums on investment securities 409 771afffffffffffffffffffffffffff afffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 13,882 14,080 14,184 14,328afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Movements in investment Premiums securities comprise: and
At 31 December 2000 5,477 224 29 5,672afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Investment securities are those intended for use on a continuing basis in the activities of the Group and not for dealing purposes.
Lloyds TSB Commercial England †100% Credit factoring Finance Limited Lloyds TSB Leasing Limited England †100% Financial leasing Lloyds TSB Private Banking England †100% Private banking Limited The Agricultural Mortgage England †100% Long-term agricultural Corporation Plc finance The National Bank of New †100% Banking and financial New Zealand Limited Zealand services Lloyds TSB Bank (Jersey) Jersey †100% Banking and financial Limited services Lloyds TSB Scotland plc Scotland †100% Banking and financial services Lloyds TSB General Insurance England †100% General insurance Limited Scottish Widows Investment England †100% Investment Partnership Group Limited management Abbey Life Assurance England †100% Life assurance Company Limited Lloyds TSB Insurance England †100% Insurance broking Services Limited Lloyds TSB Life Assurance England †100% Life assurance and other Company Limited financial services Lloyds UDT Finance Limited England †100% Consumer credit, leasing and related services
Balance sheet amount at 3,037afffffffffffffffffffffffffff Balance sheet amount at 31 December 1999 771 785 479afffffffffffffffffffffffffff affffffffffffffffffffffffff affffffffffffffffffffffffffff 2,035afffffffffffffffffffffffffff £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Leases on which the commitment is due to expire in: 5 years or less but over 1 year 18 2 41 3 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 205 3 246 12afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Obligations under finance leases were: Equipment Equipment £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
In December 2000 the Group announced that it had agreed to form a joint venture between Goldfish, Centrica’s financial services brand, and evolvebank.com, Lloyds TSB’s standalone internet banking operation. Although the amounts are not yet determined, the Group is committed to invest capital into the venture equivalent to 30 per cent of its initial regulatory capital requirement and to provide funds to the venture to cover its lending for the first two years of operation.
The Group has also established the Lloyds TSB Qualifying Employee Share Ownership Trust (‘the QUEST’) for the purpose of delivering shares on the exercise of options under certain of the Group’s Save As You Earn (SAYE) share option schemes. During 2000, Lloyds TSB Group plc contributed £122 million to the QUEST, and the trustees subscribed for 30 million shares in the Company for a consideration of £193 million. (During 1999, Lloyds TSB Group plc contributed £210 million and the trustees subscribed for 30 million shares for a consideration of £257 million). At 31 December 2000, 1 million shares were held by the QUEST with a book value of £4 million, (1999: 2 million shares with a book value of £5 million), reflecting the exercise price of the options the shares are expected to be used to satisfy. Under the terms of the QUEST’s trust deed, the trustees have waived all but a nominal dividend on the shares they hold. The difference between the amount contributed by the Company and the book value of the shares held by the QUEST at 31 December 2000 has been charged to profit and loss account reserves.
Foreign exchange and interest rate contracts 2,688 2,742 Other assets 888 899 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 3,576 3,641afffffffffffffffffffffffffff afffffffffffffffffffffffffff 31 Prepayments and accrued income 2000 1999 £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
notes to the accounts 32 Long-term assurance business 2000 1999 £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
A margin over the long-term risk free rate of return is included within the discount rate to reflect the shareholders’ overall risk premium; other margins are not included in the profit recognition method. Allowance for tax is made using models which reflect the different tax regimes affecting different classes of product; no credit is taken in respect of any reduction in taxes deriving from expenses attributable to future business.
The assumptions for mortality and morbidity are derived from published tables adjusted for demographic differences of policyholders; those in respect of lapses are in line with the experience of the companies concerned.
Increase in value of long-term assurance business 4,275 291 Exchange and other adjustments 92 (5) Acquisitions (4,052) – Capital injections – (220) Dividends accrued 126 92 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
During 1999, the Financial Services Authority (FSA) published revised assumptions to be incorporated into the calculations of the continuing cost of redress to past purchasers of pension policies. These revised FSA guidelines were based on the assumption that the average life expectancy of pensioners had increased, and lower interest and inflation rates to be assumed in calculating the cost of redress. Applying these revised assumptions, the cost of redress was forecast to increase by £102 million and a further provision of this amount was made in 1999, increasing the total provision made for this purpose to £802 million at 31 December 1999. In 2000 the adequacy of the provision has again been reviewed in the light of the changes arising from SERPS adjustments, further experience and improved knowledge as to the number and size of compensation claims likely to be paid. The cost of redress is forecast to increase by £100 million and a provision of this amount has been made, bringing the total provision charged for this purpose to £902 million, of which £654 million had been used at 31 December 2000.
Technical provisions for linked liabilities 24,413 23,372 Fund for future appropriations and other liabilities 2,986 31 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 51,085 26,542afffffffffffffffffffffffffff afffffffffffffffffffffffffff 32 Long-term assurance business (continued)
Assets: denominated in sterling 126,033 111,076 : denominated in other currencies 40,864 38,361 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 166,897 149,437afffffffffffffffffffffffffff afffffffffffffffffffffffffff Liabilities: denominated in sterling 126,136 111,181
: denominated in other currencies 40,761 38,256 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 166,897 149,437afffffffffffffffffffffffffff afffffffffffffffffffffffffff 34 Deposits by banks 2000 1999 £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Repayable on demand 74,404 68,749 Other customer accounts with agreed maturity dates or periods of notice by residual maturity repayable: 3 months or less 21,064 20,063 1 year or less but over 3 months 3,522 2,544 5 years or less but over 1 year 1,331 1,360 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 100,738 92,851afffffffffffffffffffffffffff afffffffffffffffffffffffffff 36 Debt securities in issue 2000 1999 £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
This represents the Group’s obligations in respect of certain overseas pension schemes. Full actuarial valuations are carried out by independent actuaries every three years.
The Group’s general insurance subsidiaries maintain provisions for outstanding claims which represent the ultimate cost of settling all claims arising from events which have occurred up to the balance sheet date and these include provisions for the cost of claims notified but not settled and for claims incurred but not yet reported. In addition, in line with the requirements of the Insurance Companies (Reserves) Act 1995, claims equalisation provisions are maintained in relation to property, credit and suretyship business. The majority of provisions in respect of claims will be settled in the following year, although new provisions will then be required in respect of claims arising from that year. The level of the claims equalisation provision will be adjusted annually, taking into account the guidelines contained in the legislation, and such provisions will be held for as long as the Group continues to write the relevant types of general insurance business.
notes to the accounts 42 Subordinated liabilities Group Company aaaaffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffaaffffaaaaffffffffffffffffffffffffff aaaaffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffaaffffaaaaffffffffffffffffffffffffff £m £m £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff * Undated loan capital: † Primary Capital Undated Floating Rate Notes: Series 1 (US$750 million) 502 465 Series 2 (US$500 million) 335 310 Series 3 (US$600 million) 401 372
■ 55⁄8% Undated Subordinated Step-up Notes callable 2009 (E1,250 million) 774 766 † Undated Step-up Floating Rate Notes callable 2009 (E150 million) 94 93 ¶ 65⁄8% Undated Subordinated Step-up Notes callable 2010 405 405 ✜ Subordinated 5.57% Step-up Coupon Notes callable 2015 (¥20 billion) 117 120 ¶ 61⁄2% Undated Subordinated Step-up Notes callable 2019 266 266 113⁄4% Perpetual Subordinated Bonds 100 100 † 8% Undated Subordinated Step-up Notes callable 2023 199 199 ¶ 61⁄2% Undated Subordinated Step-up Notes callable 2029 198 198 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 3,391 3,294afffffffffffffffffffffffffff afffffffffffffffffffffffffff Dated loan capital: ‡ Eurocurrency Zero Coupon Bonds 2003 (¥3 billion) 15 15 15 15 § Subordinated Fixed Rate Bonds 2003 (NZ$165 million) 49 65 – – † Subordinated Floating Rate Notes 2004 20 25 – –
† Subordinated Floating Rate Notes 2005 – 25 – – § Subordinated Bonds 2005 – 16 – – § Subordinated Bonds 2006 (NZ$75 million) 22 24 – –
§ Subordinated Fixed Rate Bonds 2007 (NZ$150 million) 44 49 – – 51⁄4% Subordinated Notes 2008 (DM750 million) 240 237 – –
* In certain circumstances, these notes and bonds would acquire the characteristics of preference share capital. † These notes bear interest at rates fixed periodically in advance based on Interbank rates. ‡ Issued by a group undertaking under the Company’s subordinated guarantee and, in the case of the Eurocurrency Zero Coupon Bonds 2003, on-lent to the
Dated subordinated liabilities are repayable as follows: Group Company aafffffaaaaffffffffffffffffffffffffffaaaaaffffffffffffffffffffffffff aafffffaaaaffffffffffffffffffffffffffaaaaaffffffffffffffffffffffffff £m £m £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 1 year or less 5 5 – – 2 years or less but over 1 year 5 5 – – 5 years or less but over 2 years 573 594 15 15 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 4,119 3,199 512 511afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff 43 Non-equity minority interests
Non-equity minority interests comprise non-cumulative preferred securities issued by Group undertakings during the year as part of the funding for the Group’s acquisition of Scottish Widows (note 49)
Preference shares of e25 cents each 40 –afffffffffffffffffffffffffff afffffffffffffffffffffffffff 44 Called-up share capital (continued) 2000 1999 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Preference shares of ¥25 each 1,250 –afffffffffffffffffffffffffff afffffffffffffffffffffffffff During the year the Company reorganised its authorised preference share capital to provide flexibility for the Company to be able to issue preference shares denominated in sterling, US dollars, euro and yen, principally (but not exclusively) in connection with arrangements for raising additional capital for the Group as and when appropriate.
At 31 December 2000, options to acquire 149 million Lloyds TSB Group shares were outstanding under senior executives’ and savings-related share option schemes at prices ranging from 124p to 888p per share exercisable up to 2010.
At 31 December 2000 595 595afffffffffffffffffffffffffff afffffffffffffffffffffffffff Revaluation reserve: At 1 January 2000 – as previously reported (206) 4,131 Prior year adjustment (note 1) 206 –
Details of the principal group undertakings are given in note 22. In accordance with FRS 8, transactions or balances with group entities that have been eliminated on consolidation are not reported.
Information about the Group’s use of financial instruments and management of the associated risks is given on pages 29 to 33 in the financial review.
Exchange rate contracts: Spot, forwards and futures 187 4 1 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 282 15 4afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Interest rate contracts: Interest rate swaps 2,203 31 23 Forward rate agreements 20 – –
notes to the accounts b) Interest rate sensitivity gap analysis for the non-trading book
6 months 1 year 5 years or less or less or less Non3 months but over but over but over Over interest or less 3 months 6 months 1 year 5 years bearing Total
Total liabilities 112,453 9,504 3,884 3,002 5,207 26,326 160,376afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
Cumulative interest rate repricing gap (14,790) (17,463) (13,976) 10,017 11,612 – –afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff 6 months 1 year 5 years or less or less or less Non3 months but over but over but over Over interest or less 3 months 6 months 1 year 5 years bearing Total
Total assets 76,010 6,238 6,368 30,374 9,196 7,568 135,754afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Liabilities: Subordinated liabilities – loan capital – 46 – 685 5,762 – 6,493 Minority interests and shareholders’ funds – – – – – 8,524 8,524 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Total liabilities 103,160 3,930 2,419 3,132 6,281 23,464 142,386afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
Loans and advances to banks and customers 200 200 – – Debt securities and equity shares 8,322 8,322 6,075 6,214 Liabilities: Deposits by banks and customers 1,116 1,116 – – Debt securities in issue 1,283 1,283 10,977 10,971 Subordinated liabilities – – 6,493 6,667
New Zealand dollar 703 716 Euro (and component former currencies) 289 335 US dollar 194 160 Swiss franc 120 108 Other non-sterling 397 371 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Information about the management of market risk in the Group’s trading activities is given on page 31.
49 Acquisitions a) On 3 March 2000, the Group completed the transfer of the business of Scottish Widows’ Fund and Life Assurance Society to its wholly owned subsidiaries Scottish Widows plc and Scottish Widows Annuities Limited; the results of Scottish Widows have been consolidated in full from that date. The premium on acquisition of £1,870 million has been capitalised and the directors have determined that it has an indefinite useful life (see note 1c).
48 Derivatives and other financial instruments (continued) 48 Derivatives and other financial instruments (continued)
Prepayments and accrued income 189 (155) 34 Loans and advances to banks 160 – 160 Loans and advances to customers 632 – 632 Long-term assurance business attributable to shareholders – 4,052 4,052 Long-term assurance assets attributable to policyholders – 24,166 24,166 Fund for future appropriations (6,541) 6,541 – Technical provisions (18,084) 18,084 – Technical provisions for linked liabilities (3,062) 3,062 – Customer accounts (709) – (709) Accruals and deferred income (21) 9 (12)
Net assets acquired – 4,077 4,077afffffffffffffffffffffffffff afffffffffffffffffffffffffff Goodwill 1,870 aaaaaffffffffffffffffffffffffff 5,947afffffffffffffffffffffffffff Consideration 5,846 Costs of acquisition 101 aaaaaffffffffffffffffffffffffff 5,947afffffffffffffffffffffffffff As a mutual life assurance society, Scottish Widows prepared accounts under the modified statutory solvency basis; this is different to the Lloyds TSB Group accounting policy, which is set out in note 1o). The fair value adjustments above are required to: i) show the net assets of Scottish Widows in accordance with the Group’s accounting policy; and ii) reflect the fair value of assets and liabilities.
The Scottish Widows business is complex and whilst no further fair value adjustments are expected, in accordance with the requirements of paragraph 27 of Financial Reporting Standard 6, it is noted that the fair value of the net assets of Scottish Widows and the goodwill arising shown above are provisional.
c) On 28 April 2000 the Group’s French subsidiary, Lloyds Bank S.A. completed the purchase of the private client business of CPR Gestion Privée for a cash consideration of £27 million. The premium on acquisition of £27 million has been capitalised and will be written off to the profit and loss account over its estimated useful life of 20 years. There were no fair value adjustments made to the assets acquired. The results of this business have been consolidated in full from the date of acquisition, the effect on the results of the Group is not material.
notes to the accounts 50 Consolidated cash flow statement a Reconciliation of operating profit to net cash 2000 1999 inflow from operating activities £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
At 31 December 3,821 2,408afffffffffffffffffffffffffff afffffffffffffffffffffffffff d Analysis of changes in financing during Share capital the year (including premium and merger reserve)
At 1 January – – Effect of foreign exchange movements 6 – Cash inflow from financing 509 –
Net cash outflow 5,110 27afffffffffffffffffffffffffff afffffffffffffffffffffffffff f Acquisition of group undertakings 2000 1999 £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Net assets acquired: Loans and advances 2,827 – Long-term assurance business 4,052 – Other assets 168 1 Tangible fixed assets 375 – Deposits by banks, customer accounts and other liabilities (3,239) 4 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
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