LLOYDS TSB GROUP 85 information for shareholders financial calendar 2002 15 February Results for 2001 announced 27 February Ex-dividend date for 2001 final dividend 1 March Record date for final dividend 3 April Final date for joining or leaving the dividend reinvestment plan for the final dividend 17 April Annual general meeting in Edinburgh 1 May Final dividend paid 2 August Results for half-year to 30 June 2002 announced 14 August Ex-dividend date for 2002 interim dividend 16 August Record date for interim dividend 11 September Final date for joining or leaving the dividend reinvestment plan for the interim dividend 9 October Interim dividend paid
The Better Payment Practice Code A copy of the code and information about it may be obtained from: The Department of Trade and Industry, 1 Victoria Street, London SW1H 0ET.
The Group has 1.8 million internet banking customers and LloydsTSB.com is one of the most visited financial services websites in Europe.
chairman’s statement various investments we have made to grow our businesses. On a statutory basis, however, after taking into account a number of special items including negative short-term fluctuations in investment returns of £648 million, profit before tax for the year fell by 8 per cent to £3,550 million. We are under no illusion that we will need to continue to do well to achieve our shareholder value objectives and in so doing underpin our governing objective of maximising value for shareholders over time.
our strategic aims To support this objective our three strategic aims are clear: to be a leader in our chosen markets; to be first choice for our customers; and to drive down our day-to-day operating costs. This takes energy and it takes creativity; values which Lloyds TSB has in abundance.
During the year, we were pleased to welcome DeAnne Julius as a nonexecutive director and Eric Daniels as Group Executive Director, UK Retail Banking, and we look forward to April 2002, when Gavin Gemmell will become a non-executive director and chairman of our Scottish Widows subsidiary.
Sir Brian Pitman, my predecessor as Chairman, retired in April and tribute was paid to him in last year’s report for his unique contribution to the Lloyds TSB Group and British banking. I have pleasure in reiterating our special thanks for the significant part he played in this organisation’s development.
our future The Lloyds TSB Group is in good shape. We have a number of very strong divisions, all of which are substantial businesses in their own right and which continue to make a very significant contribution to the Group’s overall earnings. We have developed the building blocks on which to grow our business and, notwithstanding the economic slowdown, continuing stockmarket volatility and the very competitive environment likely to be experienced in the UK in 2002, we are confident that we will continue to maximise value for our shareholders.
The Lloyds TSB Group benefits by having a total clarity of strategy. Our governing objective is to maximise shareholder value over time and the three strategic aims by which we have managed our business over recent years remain as relevant today as they have ever been.
a leader in our chosen markets We strengthened our position in the life and pensions market following the acquisition of Scottish Widows and we are seeing a growth in
market share in what has been a troubled market in 2001. The acquisition of Chartered Trust has also given us market leadership in the asset finance business. We are now close to our overall objective of being in the top three in every market and business in which we operate.
There is clear evidence that market leaders enjoy higher returns than other players.
driving down our day-to-day costs We have continued to demonstrate our ability in this area by restricting cost growth to a lower level than income growth and by seeing absolute costs in the second half of 2001 at a lower level than in the first half of the year. In 2002 we will continue with our aim to drive down day-to-day costs and to help achieve this objective we are expanding our efficiency programme, with the objective of keeping 2002 business as usual cost growth to no more than the rate of inflation.
following the substantial fall in the FTSE All-Share index. If these short-term investment fluctuations were excluded, our statutory profits would have increased by 6 per cent.
This good performance has been achieved against a background of significant change both internally and externally. Internally, the change and investment programmes in retail banking in particular have led to a lower retail banking profit figure in 2001, but with these programmes now largely behind us we are confident of robust profit growth in 2002. Our provisions were heavily influenced by an increase of £100 million in support of our exposure to the ongoing difficulties in Argentina, which we have taken as a prudent and precautionary measure. Asset quality remains good, our total non-performing debt is at similar levels to that seen last year and we remain well positioned to combat any potential downturn in the economy.
Going forward, we have no shred of complacency. Our restless pursuit of perfection means we are cognisant of the challenges facing us – of the need to grow short-term profits whilst continuing to invest for the future; of the need to continue to develop our people and to get ever closer to understanding and meeting the needs of our customers; and of the need to maintain asset quality, grow quality income and optimally manage our costs. The organic opportunities for continued robust growth in the Group are very real, and we go forward with confidence to turn those opportunities into reality.
That is why we have the largest community investment programme in the UK.
Many of our staff are parents and see education as crucial to their children’s development. To reflect this, we have made education a key focus of our community involvement. We support school management in their efforts to raise standards through Quality in
Education, a self-assessment and improvement programme using the EFQM Excellence Model. Working in partnership with local education authorities, local learning and skills councils and professional teacher associations, we have introduced Quality in Education to nearly 4,000 schools so far. And the programme carries the active endorsement of both the Department for Education and Skills and the Cabinet Office.
and personal customers of Lloyds TSB Bank are able to withdraw cash, check balances and obtain mini statements through 4,350 cashpoints at branches and external locations around the country. In addition, they have access to a further 32,400 cash machines via LINK in the UK and to cash machines worldwide through the VISA and MasterCard networks.
products. At the end of 2001, client funds under management totalled some £11 billion.
Colombia and 6 other countries. In addition there are private banking and investment operations in the United States and the Bahamas.
• Europe. International Wealth Management covers services to wealthy individuals outside their country of residence. The business is conducted through Switzerland and through four other countries overseas. There are additional private and corporate banking operations in Spain and France.
financial review accounting policies and presentation Accounting policies are set out on pages 61 to 63. During the year, the Group implemented the requirements of
financial review summary of group results The Group’s business as usual operating profit rose by £267 million, or 6 per cent, to £4,462 million from £4,195 million in 2000, a good performance against a weakening economic backdrop in the UK and other global economies, particularly in Argentina, and the impact on our business of lower stockmarkets. Total income on a business as usual basis increased by 10 per cent and even after allowing for the acquisition of businesses last year, the underlying growth in income was a very satisfactory 7 per cent. Total costs increased by 9 per cent but acquisitions accounted for 5 per cent of this increase. The remaining increase of 4 per cent primarily financed the increased sales volumes achieved during the year. Overall retail banking product sales were 14 per cent higher than in 2000.
Despite intense competition in the mortgage market, pre-tax profit from Mortgages increased by £66 million, or 7 per cent, to £955 million from £889 million in 2000. The Group’s key objective during 2001 has been to grow its mortgage lending prudently but profitably. As a result of this focus net new lending was lower than the Group’s natural market share but profitability improved strongly. Gross new lending increased by 22 per cent to £14.0 billion, compared with £11.5 billion a year ago. Net new lending was £3.9 billion resulting in an estimated market share of net new lending of 7.1 per cent. Net new lending in the second half of 2001 was £2.1 billion, compared with £1.8 billion in the first half of the year. The Group continues to be one of the most efficient mortgage providers in the United Kingdom.
The total capital ratio was 9.2 per cent and the tier 1 capital ratio was 8.4 per cent. Balance sheet assets increased by £18 billion, or 8 per cent, to £237 billion from £219 billion at the end of 2000. Loans and advances to customers increased by £9 billion, or 7 per cent. Risk-weighted assets increased by 16 per cent to £108.8 billion from £94.0 billion at the end of 2000.
Over the last few years, a substantial amount of investment has been made to develop our revenue growth initiatives and underpin the future profitability of our core retail financial services businesses. Much of this investment has been completed, all initiatives have clearly defined payback periods and strong growth across all areas of UK Retail
CRM programme is now fully operative and independent benchmarking has confirmed that we are now truly world class in the deployment of CRM throughout the Group. Our CRM systems, supported by a suite of predictive modelling tools, are beginning to generate substantially more sales leads than ever before and our in-branch information systems have materially enhanced the ability of our staff to identify individual customers’ needs and to fulfil those needs.
Pre-tax profit from UK Retail Banking decreased by £143 million, or 18 per cent, to £633 million. The last few years have seen a significant period of transition within UK Retail Banking as the Group has proactively repositioned the business for future development and growth, in the increasingly competitive and regulated environment in which the
The Group has also continued to develop and remodel many product offers to help maintain market-leading positions in most of its core markets, including personal current accounts, savings and business banking. The popularity of the
During 2001, our online product and service functionality has continued to grow and customers can now undertake a broad range of banking services online. Total online sales during the year exceeded 110,000 products and these included personal loans, savings accounts, mortgages, credit cards and a wide range of insurance products. During 2002 we expect to widen further the range of products available online to include added value current accounts, overdrafts and travel money, and see further significant increases in online product sales. Our telephone banking operation, comprising PhoneBank and PhoneBank Express, our leading edge interactive voice recognition system, is one of the largest in Europe and now has 2.5 million customers. PhoneBank and PhoneBank Express handled some 25 million calls during 2001.
Gross new mortgage lending £14.0bn £11.5bn Market share of gross new mortgage lending 8.7% 9.6% Net new mortgage lending £3.9bn £4.6bn Market share of net new mortgage lending 7.1% 11.3% Mortgages outstanding (year-end) £56.6bn £52.7bn Market share of mortgages outstanding 9.5% 9.8%
Despite intense competition in the mortgage market, pre-tax profit from Mortgages increased by £66 million, or 7 per cent, to £955 million from £889 million in 2000. The Group’s key objective is to grow its mortgage lending prudently but profitably. As a result of this focus, net new lending was lower than the Group’s natural market share but profitability improved strongly. Gross new lending increased by 22 per cent to £14.0 billion, compared with £11.5 billion a year ago, and net new lending was £3.9 billion resulting in an estimated market share of net new lending of 7.1 per cent. Net new lending in the second half of 2001 was £2.1 billion, compared with £1.8 billion in the first half of the year, and our pipeline of new business at the end of 2001 should give the Group a good start to 2002.
Mortgages are also a key recruitment product for other retail products and services as we typically sell over 3.5 additional products, primarily insurance, alongside the sale of a mortgage. In 1996 only one in eight Lloyds Bank customers and one in six TSB customers, who took out a mortgage, did so with the Group. One in four of all our customers with a mortgage now have their mortgage with the Group. This is a significant indicator of the success of the Group’s mortgage strategy.
brand. In addition C&G Teledirect, its internet and telephone operation, continued to perform strongly. Business levels sourced from intermediaries remain strong.
On a proforma basis, including Scottish Widows sales figures for the full 12 months of 2000, total sales from the Group’s life, pensions and unit trust businesses were £4,423.5 million, compared with £4,742.8 million in 2000. Overall weighted sales were £754.7 million compared to £711.0 million last year, an increase of 6 per cent. New business performance in 2000 was helped by the reinvestment of some demutualisation proceeds into company pension schemes.
There was strong growth in regular premium pension sales, boosted by the launch of stakeholder pensions. This contributed to a 65 per cent increase in life and pensions regular premium product sales. Single premium life and pensions product sales increased by 8 per cent but, following a general market decline in the unit trusts and Individual
Savings Account (ISA) markets, unit trust sales decreased by 31 per cent. Nevertheless, Scottish Widows was, during 2001, confirmed by the Association of Unit Trusts and Investment Funds providers (AUTIF) as the leading ISA provider in the UK and the Group remains well positioned in this sector of the market.
Operating profit 914 798afffffffffffffffffffffffffff afffffffffffffffffffffffffff New business margin (life and pensions) 20.7% 18.5%
Profit before tax from existing business increased by 9 per cent from £466 million to £506 million. The expected return from existing business increased by £40 million, or 12 per cent, to £374 million. This reflects the unwinding of the long-term discount rate applied to the expected cash flows from the Group’s portfolio of in-force business.
In 1998, a provision was made within Abbey Life for liabilities under certain unit linked products with guaranteed annuity options written in the mid-1960s to the mid-1980s. The total provision charged for this purpose is £152 million and, at 31 December 2001, £79 million remained outstanding. We remain confident this provision will be sufficient to cover these liabilities.
Weighted sales by distribution channel: Independent financial advisers 279.8 254.9 280.7 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Life, pensions and unit trusts 754.7 669.9 711.0afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff £bn £bn aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffffff
Premium income from underwriting increased by £29 million, or 7 per cent, largely as a result of higher home insurance sales which increased by 23 per cent. Commissions from insurance broking increased by £130 million, or 33 per cent, as a result of higher levels of creditor insurance and growth in all major product lines. There was a £22 million increase in other broking commissions reflecting a benefit of £30 million resulting from a one-off change in broking commission arrangements.
New business sales of 2.7 million products were 10 per cent higher than last year with home, creditor and motor business all growing strongly. Overall income from creditor insurance increased by 23 per cent, reflecting higher personal sector loan volumes. Sales of home insurance policies increased by 23 per cent to 1,124,000. Overall sales from the branch network increased by 4 per cent and direct channels, comprising direct mail, telephone and internet, increased by 23 per cent.
Claims were £32 million, or 23 per cent, higher at £174 million than in 2000. The overall claims ratio of 40 per cent was higher than last year (35 per cent) reflecting higher property claims in line with rising volumes of new business, partly offset by lower creditor insurance claims.
Net interest income 1,094 900 Other income 862 621 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Profit before tax 937 746afffffffffffffffffffffffffff afffffffffffffffffffffffffff Efficiency ratio 43.4% 43.9% Total assets (year-end) £79.4bn £66.4bn Total risk-weighted assets (year-end) £45.4bn £36.5bn
Chartered Trust, operating expenses increased by £16 million of which £13 million was in respect of increased operating lease depreciation. Other costs in the year were therefore held flat.
Our Treasury operations achieved good profitable growth as interest rates fell. 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’
Net interest income 764 753 Other income 463 444 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Trading surplus 666 610 Provisions for bad and doubtful debts – Normal coverage 122 115 – General provision re Argentina 55 – Amounts written off fixed asset investments 45 18 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Profit before tax 444 477afffffffffffffffffffffffffff afffffffffffffffffffffffffff Efficiency ratio 45.7% 49.0% Total assets (year-end) £22.1bn £19.6bn Total risk-weighted assets (year-end) £13.9bn £12.4bn
New Zealand business, 4 per cent to our Europe and offshore banking operations, and 2 per cent to the Group’s combined Emerging Markets Debt portfolio and Latin American businesses.
Net interest income increased by £11 million, or 1 per cent, to £764 million. Volume growth in New Zealand and Brazil was largely offset by the impact of adverse exchange rate movements. Other income increased by £19 million, or 4 per cent, to £463 million as an increase in Emerging Markets Debt asset sales of £51 million and a £10 million increase in fee income from New Zealand were partly offset by adverse exchange rate movements of £24 million and a reduction of £19 million in fee income from the Group’s overseas wealth management businesses, reflecting lower stockmarket values.
Government debt. In addition, as a measure of prudence, we have increased the Group’s general provision by £55 million as a precautionary measure to take account of the potential impact of pesification and any ongoing credit difficulties in Argentina. Largely as a result of this general provision, total provisions for bad and doubtful debts in International Banking increased by £62 million to £177 million.
On 31 December 2001 the Group’s total exposure to Argentina was some £715 million. The Group’s local balance sheet in Argentina had assets totalling £465 million, approximately two-thirds of these were dollar denominated.
Profits from New Zealand in local currency terms increased by 17 per cent as a result of asset growth across all business sectors, growth in the number of personal customers and higher retail deposits. After adjusting for exchange rate movements, pre-tax profits from The National Bank of New Zealand increased by 13 per cent to £165 million.
Our consumer finance business in Brazil, Losango Consumer Finance, made a pre-tax profit of £43 million, compared with £41 million in 2000.
Group: Net interest income £m 4,944 4,587 Average interest-earning assets £m 144,945 131,022 Gross yield on interest-earning assets % 7.84 8.44
c) Net interest margin is net interest income as a percentage of average interest-earning assets. d) The analysis of net interest income by domestic and international operations shown above is based on the location of the office recording the transaction, except for lending by the international business booked in London.
Fees and commissions payable (602) (479) Dealing profits (before expenses): Foreign exchange trading income 158 141 Securities and other gains 121 84
Insurance broking commission income increased by £130 million compared to 2000 with continued strong growth in creditor insurance products. Income from credit and debit cards increased by £28 million, mainly as a result of higher merchant service charges and fees. However, UK current account fee income fell by £56 million; a £28 million increase in fee income from added value current accounts was more than offset by a £51 million fall in unauthorised borrowing fees and a £40 million reduction in service charges, as part of the Group’s programme to make its customer proposition more competitive.
Dealing profits in 2001 increased by £54 million compared with 2000 reflecting benefits from opportunities created from managing certain exposures arising within the Group’s insurance businesses, an improved performance from
Trust of £289 million, operating lease depreciation of £78 million (2000: £65 million), and additional investments in revenue growth businesses, e-commerce and real-time banking of £235 million (2000: £224 million), costs increased by 4 per cent to £3,489 million, from £3,358 million in 2000. Much of this increase has funded the 14 per cent growth in retail banking sales volumes achieved during the year. The efficiency ratio improved to 42.9 per cent.
In February 2000 the Group announced a significant efficiency programme designed to support the Group’s strategic aim of driving down day-to-day operating costs to improve overall efficiency and finance ongoing high levels of investment in growth businesses. The programme is spread over four years and annualised cost benefits are on track, with the targeted £75 million per annum achieved in 2001. Exceptional restructuring costs totalling £217 million were charged to the 2001 profit and loss account, and comprise mainly severance, software write-off and consultancy costs.
Insurance and Investments 6,378 6,352 Wholesale Markets 8,980 8,451 International Banking 12,305 12,392 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
total provisions for bad and doubtful debts Following the implementation of FRS 18 (page 61, note 1) uncollateralised bonds previously included in loans and advances have now been reclassified as debt securities. This reduces significantly the level of provisions held. 2000 comparatives have been restated accordingly.
In 2001, total capital for regulatory purposes increased by £1,230 million to £10,039 million. Tier 1 capital increased by £1,219 million, mainly from retained profits and the issue of tax efficient capital instruments. Tier 2 capital increased by £109 million and supervisory deductions increased by £98 million.
Risk-weighted assets increased to £108.8 billion and the post-tax return on average risk-weighted assets, a key measure of efficient use of capital, was 2.53 per cent on a statutory basis and 3.20 per cent on a business as usual basis.
financial review profit on sale of Lloyds TSB Asset Management S.A.
Banking and mortgage activities represent the most significant element of the Group’s business in terms of profit, assets and exposure to risk. These activities are entered into in both the UK and overseas and principally comprise the Group’s core business of lending and deposit taking, involving a full range of personal and corporate customers.
Interest rate risk in the wholesale banking books in the UK is managed by Lloyds TSB Group Treasury, and internationally is managed by an authorised local treasury operation in each overseas centre. The levels of exposure within these books are controlled and monitored within approved limits, both locally and centrally by Group Risk.
Active management of the book is necessary to meet customer requirements and changing market circumstances.
Group’s Balance Sheet Management (GBSM) department. GBSM reports to an Asset and Liability Committee under
The Group‘s insurance activities also result in market risk, which can be categorised into two broad types: direct investment market risk on surplus assets held in excess of liabilities; and indirect market risk arising from any mismatch between assets held to back the liabilities themselves.
Direct investment market risk is derived from two portfolios: the surplus in the life businesses; and an investment portfolio within the general insurance business. Investment is undertaken in accordance with Group approved policy.
Under UK GAAP the assets are shown at market value and gains and losses are recognised in the profit and loss account.
Structural foreign exchange risk arises from the Group’s investments in its overseas operations. The structural position is managed after having regard to the currency composition of the Group’s risk-weighted assets, the objective being to limit the effect of exchange rate movements on the published risk asset ratio.
The Group’s significant involvement in the London money market and other financial centres, together with the strength of the Group’s earnings and balance sheet, are important factors in assuring the continued availability of wholesale funds at competitive rates.
• Communication and provision of general guidance on operational risk related issues, including regulatory changes and developments in the measurement and management of operational risk, to promote best practice throughout the Group.
• Independent verification by Group Audit of the effectiveness of risk control within business units.
Changes in economic assumptions applied to long-term assurance business – 127 – 123 –
five year financial summary £m £m £m £m £m aaaaaaasfff aaaaaaasfff aaaaaaasfff aaaaaaasfff aaaaaaasfff
Deposits by banks and customers and debt securities in issue 157,846 136,623 123,668 119,389 114,284
Post-tax return on average shareholders’ equity 23.5% 28.1% 30.0% 29.7% 34.5%
Chairman Joined the Group in 2000 as deputy chairman and was appointed chairman in 2001. Joined the Royal Dutch/Shell Group of companies in 1968 and after a number of senior and general management appointments in that group, became group managing director in 1992. Appointed president of Royal Dutch Petroleum Company and vice chairman of the committee of managing directors of the Royal Dutch/Shell Group in 1998 and continued in these roles until 2000. A non-executive director of Royal Dutch Petroleum Company and BT Group. Aged 59.
David P Pritchard Group Executive Director, Wholesale and International Banking Joined TSB Group in 1995 as group treasurer. Seconded to the Securities and Investments Board as head of supervision & standards, markets & exchanges, from 1996 to 1998. Appointed to the board in 1998. Held senior and general management appointments with Citicorp from 1978 to 1986 and Royal Bank of Canada from 1986 to 1995. A non-executive director of The London Clearing House. Aged 57.
Christopher S Gibson-Smith† A director since 1999. Chairman of National Air Traffic Services and a non-executive director of Powergen. Managing director of BP from 1997 to 2001, having held senior and general management appointments in the UK, USA, Canada and Europe, since joining that company in 1970. Aged 56.
The Earl of Selborne KBE FRS§ 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
Mr Linaker and Sir Brian Pitman retired at the annual general meeting in April 2001 and Mr Holt left the board on 31 August 2001. Mr Urquhart will retire at the annual general meeting in 2002.
Opportunity; campaigns to improve opportunities for women and ethnic minorities in the work place. The Group is a member of the Employers’ Forum on Disability in support of employment of people with disabilities. This recognises the need for ensuring fair employment practices in recruitment and selection, and the retention, training and career development of disabled staff.
published by the Department of Trade and Industry regarding the making of payments to suppliers. A copy of the code and information about it may be obtained from the address shown on page 85.
The group chief executive has a maximum incentive opportunity of 100 per cent of his salary, and each of the other executive directors can earn an incentive equal to 75 per cent of their salary. These awards are based on group performance, and for 2001 included the attainment of predetermined targets relating to revenue, business as usual operating profit and economic profit.
Group’s efficiency ratio to 37 per cent by the end of 2002 and a return on equity of 28 per cent by the end of 2002. No payment will be made under the plan unless both these minimum targets are met.
However, the full grant of options will only become exercisable if
At end of 2001 Lloyds TSB Group was ranked sixth for the year.
Ranking position % of option against comparator group which may be exercised aaaaaaasfffffffffffffffffffffaaaaaffffff aaaaaasfffffffffffffffffffffaffffffaaaaffffff 10 or below Nil – options not exercisable
During the year, a share retention plan was adopted, specifically to facilitate the recruitment of Mr Daniels, who was based in the
The executive directors may participate in the staff profit sharing and ‘sharesave’ schemes, which were approved by shareholders, on the same basis as other employees.
Executive directors are, like most other employees, entitled to pensions based on salary and length of service with the Group, with a maximum pension of two thirds of final salary.
At (or date of At (or date of 31 December appointment 31 December appointment Shares 2001 if later) 2001 if later)
J E Daniels Exercisable – – Not exercisable – 907,780 907,780 694p 694p
A G Kane* Exercisable 171,547 171,547 312p Not exercisable 157,784 310,721 715p 34,759 655p
D P Pritchard Exercisable – – Not exercisable 176,591 340,096 707p 36,374 655p 127,131 733p
Options were not exercisable because they had not been held for the period required by the relevant scheme or the performance conditions had not been met.
None of those who were directors at the end of the year had any other interest in the capital of the Company or its subsidiaries and there were no changes in their beneficial interests between 31 December 2001 and 14 February 2002. The register of directors’ interests, which is open to inspection, contains full particulars of directors’ shareholdings and options to acquire shares in the Company.
United Kingdom Law and Accounting Standards. Our responsibilities, as independent auditors, are established in the
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’s and the Group’s circumstances, consistently applied and adequately disclosed.
Exceptional restructuring costs 5 217 188 Total administrative expenses 3,774 3,566
Amounts written off fixed asset investments 6 60 32 aaaaaaaaffffffffffffffffffffffffff aaaaaaaaffffffffffffffffffffffffff
Profit on ordinary activities after tax 2,579 2,755 Minority interests: equity 17 13 aaaaaaaaffffffffffffffffffffffffff aaaaaaaaffffffffffffffffffffffffff
Retained profit 43 628 1,023aafffffffffffffffffffffffffff aafffffffffffffffffffffffffff Earnings per share 12 45.2p 49.3p Diluted earnings per share 12 44.8p 48.8p * restated (see note 1)
– share of gross assets 281 14 – share of gross liabilities (242) (5)
Subordinated liabilities: Undated loan capital 40 3,651 3,391 Dated loan capital 40 4,006 4,119
Minority interests: Called-up share capital 42 1,411 1,396 Share premium account 43 959 595
Amounts owed by group undertakings 1,369 1,233 Other debtors 47 42 Tax recoverable 29 16
reconciliation of movements in shareholders’ funds for the year ended 31 December 2001 2001 2000* £ million £ million aaaaaaaaffffffffffffffffffffffffff aaaaaaaaffffffffffffffffffffffffff
Net cash inflow from operating activities (note 49a) 9,927 7,474 Dividends received from associated undertakings 2 2 Returns on investments and servicing of finance: Dividends paid to equity minority interests (17) (12) Payments made to non-equity minority interests (62) (36) Interest paid on subordinated liabilities (loan capital) (492) (442) Interest element of finance lease rental payments (1) (1)
Net cash outflow from returns on investments and servicing of finance (572) (491)
consolidated cash flow statement for the year ended 31 December 2001
During the year the Group has also adopted Financial Reporting Standard 17 ‘Retirement Benefits’. In accordance with the transitional arrangements of the standard in accounts for the year ended 31 December 2001, supplementary disclosures only are required and these are set out in note 45c. The Group has also implemented the requirements of the British Bankers’ Association’s revised Statement of Recommended Practice on Derivatives, although the effect has not been significant.
In addition, the Group has implemented the requirements of the Urgent Issues Task Force’s Abstract 32 ‘Employee benefit trusts and other intermediate payment arrangements’. This has had no effect on the consolidated Group figures, but the balances relating to the Lloyds TSB Group Qualifying Share Ownership Trust have now been included on the Company’s balance sheet. Due to the immateriality of the amounts involved, comparatives for 2000 have not been restated.
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 shareholder’s and policyholders’ interests in the long-term assurance business, the value of longterm assurance business attributable to the shareholder and the assets and liabilities attributable to policyholders are classified under separate headings in the consolidated balance sheet. Details of transactions entered into by the Group which are not eliminated on consolidation are given in note 44.
Paragraph 28 of Schedule 9 to the Companies Act 1985 requires that all goodwill carried on the balance sheet should be amortised. In the case of the goodwill arising on the acquisition of Scottish Widows, the directors consider that it is appropriate to depart from this requirement in order to comply with the over-riding requirement for the accounts to show a true and fair view. If this goodwill was amortised over a period of 20 years, profit before tax for the year ended 31 December 2001 would be £94 million lower (2000: £78 million lower), with a corresponding reduction in reserves of £172 million (2000: £78 million); intangible assets on the balance sheet would also be £172 million lower (2000: £78 million lower).
Debt securities, apart from those held for dealing purposes, are stated at cost as adjusted for the amortisation of any premiums and discounts arising on acquisition, which are amortised from purchase to maturity in equal annual instalments, less amounts written off for any permanent diminution in their value. Debt securities acquired in exchange for advances to countries experiencing payment difficulties are included in the Group’s portfolio of investment securities at an amount based on the market value at the date of exchange as adjusted for the amortisation of discount on acquisition. Equity shares, apart from those held for dealing purposes, are stated at cost less amounts written off for any permanent diminution in their value.
Where appropriate, provision is made for the effect of future policy terminations based upon past experience.
Derivatives used in the Group’s non-trading activities are taken out to reduce exposures to fluctuations in interest and exchange rates and include exchange rate forwards and futures, currency options together with interest rate swaps, forward rate agreements and options. These derivatives are accounted for on an accruals basis, in line with the treatment of the underlying items which they are hedging. Interest receipts and payments on hedging interest derivatives are included in the profit and loss account so as to match the interest payable or receivable on the hedged item.
notes to the accounts 2 Segmental analysis Profit on ordinary activities before tax 2001 2000*
Life and pensions segmental profit 868 750 Items separately disclosed: Short-term fluctuations in investment returns (602) (67) Changes in economic assumptions – 127 Stakeholder pension related charge – (80) Pension provisions (70) (100)
Total gross income 12,871 2,977 15,848afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Profit on ordinary activities before tax 2,984 566 3,550afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
Staff costs 1,985 1,888 Other administrative expenses 1,572 1,490 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 3,557 3,378afffffffffffffffffffffffffff afffffffffffffffffffffffffff The average number of persons on a headcount basis employed by the Group during the year was as follows: aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 82,952 79,695afffffffffffffffffffffffffff afffffffffffffffffffffffffff The above staff numbers exclude 5,450 (2000: 6,152) staff employed in the long-term assurance business. Costs of £168 million (2000: £199 million) in relation to those staff are reflected in the valuation of the long-term assurance fund.
Statutory audit 4 4 Due diligence and other audit-related work 13 7 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
6 Amounts written off fixed asset investments 2001 2000* £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
9 Tax on profit on ordinary activities 2001 2000* £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
A reconciliation of the reported tax charge for the year to the charge that would result from applying the standard UK corporation tax rate to profit before tax is given below: £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Tax charge at UK corporation tax rate of 30% 1,065 1,158 Change in non-allowable provisions (14) 3 Goodwill amortisation 8 10 Overseas tax rate differences 21 14 Non-allowable items 17 13 Gains covered by capital losses brought forward (39) (14)
Effective rate afffffffffffffffffffffffffff afffffffffffffffffffffffffff 10 Profit for the financial year attributable to shareholders
†No adjustment was made to profit attributable to shareholders in calculating diluted earnings per share.
Lending to banks 1,616 565 Deposits placed with banks 13,610 14,731 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Total loans and advances to banks 15,226 15,296 Provisions for bad and doubtful debts (2) (6)
Total loans and advances to customers 124,471 115,942 Provisions for bad and doubtful debts (1,466) (1,420) Interest held in suspense (70) (90)
At 31 December 2001 CARS 4 held £124 million (2000: £400 million) of receivables, matched by non-returnable finance of the same amount.
Exchange and other adjustments (15) 1 4 (2) Adjustments on acquisition – – 45 4 Advances written off (885) – (745) – Recoveries of advances written off in previous years 194 – 165 – Charge (release) to profit and loss account: New and additional provisions
Non-performing lending comprises: Accruing loans on which interest is being placed in suspense 843 855 Loans accounted for on a non-accrual basis 379 404 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Transport, distribution and hotels 4,440 3,836 Property companies 2,907 2,470 Financial, business and other services 8,736 9,295 Personal: mortgages 56,578 52,659
Investment securities: aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 10,989 11,203 6,395 6,814afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff
During 2001 the Group established Goldfish Holdings Limited, a joint venture with Centrica plc for the provision of a broad range of financial services products through Goldfish Holdings Limited’s wholly owned subsidiary, Goldfish Bank Limited. By 31 December 2001, the Group had contributed £44 million of capital to the venture.
In the year ended 31 December 2001 £27 million (2000: £4 million) of fees payable to iPSL have been included in the Group’s administrative expenses and £6 million (2000: £1 million) of charges to iPSL have been included in the Group’s income. The Group has also prepaid £8 million (2000: £7 million) of fees in respect of 2002 and this amount is included in prepayments and accrued income; in addition at 31 December 2001 iPSL owed £1 million (2000: £2 million) to the Group, which is included in other assets.
On an historical cost basis, shares in group undertakings would have been included at cost of £6,066 million (2000: £6,066 million).
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 TSB Asset Finance England †100% Consumer credit, Division Limited leasing and related services Black Horse Limited England †100% Consumer credit, leasing and related services
23 Intangible fixed assets Net Cost Amortisation book value £m £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
At 31 December 2001 2,640 74 2,566afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff 24 Tangible fixed assets Operating lease
Balance sheet amount of premises comprises: Leaseholds 50 years and over unexpired 36 22 Leaseholds less than 50 years unexpired 268 256 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 740 768afffffffffffffffffffffffffff afffffffffffffffffffffffffff Land and buildings occupied for own activities 664 691
Capital expenditure contracted but not provided for at 31 December 2001 amounted to £137 million (2000: £33 million), of which £125 million (2000: £28 million) relates to assets to be leased to customers under operating leases.
29 Prepayments and accrued income 2001 2000 £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Net tangible assets of life companies including surplus 3,985 4,128 Value of other shareholder’s interests in the long-term assurance business 2,589 2,421 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 6,574 6,549afffffffffffffffffffffffffff afffffffffffffffffffffffffff Movements in the embedded value balance have been as follows: £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Acquisitions – 4,052 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 6,574 6,549afffffffffffffffffffffffffff afffffffffffffffffffffffffff c Analysis of income from long-term assurance business
Income from long-term assurance business included in the profit and loss account can be divided into those items comprising the operating profit of the business and other items. Included within operating profit are the following items: New business contribution: this represents the value recognised at the end of the year from new business written during the year after taking into account the cost of establishing technical provisions and reserves.
Distribution costs: this represents the actual cost of acquiring new business during the year and includes commissions paid to independent financial advisors and other direct sales costs.
Income from long-term assurance business after tax 115 441 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
At 31 December 203 352afffffffffffffffffffffffffff afffffffffffffffffffffffffff *In some cases, rather than pay cash compensation directly into the customer’s personal pension plan, the Group has guaranteed to ‘top up’ the customer’s pension income on retirement, to the level that they would have received under the relevant occupational scheme.
The economic assumptions are based upon a long-term view of economic activity and are therefore not adjusted for market movements which are considered to be short-term. This approach is considered to be the most appropriate given the long-term nature of the portfolio of products. The principal economic assumptions, which have been used consistently throughout 2001 and 2000, are as follows: % aaaaaffffffffffffffffffffffffff
• Current tax legislation and rates have been assumed to continue unaltered, except where future changes have been announced. The UK corporation tax rate used for grossing up was 30% (2000: 30%). The investment earnings have been grossed up at a composite longer term tax rate of 17% (2000: 17%).
Premises and equipment 16 20 Other assets 2,448 2,510 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Assets: denominated in sterling 133,558 126,753 : denominated in other currencies 56,592 41,275 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 190,150 168,028afffffffffffffffffffffffffff afffffffffffffffffffffffffff Liabilities: denominated in sterling 133,661 127,267
: denominated in other currencies 56,489 40,761 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 190,150 168,028afffffffffffffffffffffffffff afffffffffffffffffffffffffff *restated (see note 1)
Exchange and other adjustments – 6 – – (1) 5 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
notes to the accounts 40 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) 516 502 Series 2 (US$500 million) 344 335 Series 3 (US$600 million) 412 401 113⁄4% Perpetual Subordinated Bonds 100 100
‡ 105⁄8% Guaranteed Subordinated Loan Stock 2008 100 100 – –
✠ § Subordinated Fixed Rate Bonds 2011 (NZ$100 million) 28 – – –
* In certain circumstances, these notes and bonds would acquire the characteristics of preference share capital. † These notes bear interest at rates fixed periodically in advance based on London Interbank rates. ‡ Issued by a group undertaking under the Company’s subordinated guarantee and, in the case of the Eurocurrency Zero Coupon Bonds 2003, on-lent to the
Dated subordinated liabilities are repayable as follows: Group Company aaaaaaaaaaaaafff aaaaaaaaaaaaafff £m £m £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 1 year or less 5 5 – – 2 years or less but over 1 year 63 5 15 – 5 years or less but over 2 years 753 573 249 15 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 4,006 4,119 413 512afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff 41 Non-equity minority interests
†These securities constitute limited partnership interests in Lloyds TSB Capital 2 L.P., a Jersey limited partnership in which Lloyds TSB (General Partner) Limited, a wholly owned subsidiary, is the general partner. Non-cumulative income distributions accrue at a fixed rate of 7.834 per cent per annum up to 7 February 2015; thereafter they will accrue at a rate of 3.50 per cent above a rate based on the yield of specified UK government stock.
Authorised: Sterling Ordinary shares of 25p each 1,728 1,728 Limited voting ordinary shares of 25p each 20 20 Preference shares of 25p each 44 44 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 1,792 1,792afffffffffffffffffffffffffff afffffffffffffffffffffffffff US dollars US$m US$m
Preference shares of €25 cents each 40 40afffffffffffffffffffffffffff afffffffffffffffffffffffffff Japanese yen ¥m ¥m
Preference shares of ¥25 each 1,250 1,250afffffffffffffffffffffffffff afffffffffffffffffffffffffff Limited voting Ordinary ordinary shares of shares of 25p each 25p each Total £m £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Issued and fully paid: Issued to the QUEST (note 27) 12 – 12 Issued under employee share schemes 3 – 3 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Share premium account: Premium arising on issue of shares 364 364 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
At 31 December 2001 5,894afffffffffffffffffffffffffff Merger reserve: At 1 January 2001 and 31 December 2001 343 –afffffffffffffffffffffffffff afffffffffffffffffffffffffff Profit and loss account: At 1 January 2001 – as previously reported 7,403 2,657 Prior year adjustment (note 1) 287 –
Loans and credit card transactions: Directors and connected persons 7 1,343 10 119 b Group undertakings
Certain administrative properties used by Scottish Widows are owned by the long-term assurance funds. During 2001 Scottish Widows paid rent to the long-term assurance funds amounting to £4 million (2000: £3 million). In addition, at 31 December 2001, the long-term assurance funds owned 31 million ordinary shares in the Company (2000: 31 million shares).
There was a net credit in respect of pension costs for the Group in 2001 of £108 million (2000: credit of £105 million), which included a credit of £126 million (2000: credit of £121 million) relating to Lloyds TSB Group Pension Schemes No’s 1 and 2.
Contribution rates to other schemes have been adjusted to take account of surpluses and deficiencies.
The Group operates a number of schemes which provide post-retirement health care benefits to certain employees, retired employees and their dependent relatives. The principal scheme relates to former Lloyds Bank staff and under this scheme the Group has undertaken to meet the cost of postretirement healthcare for all eligible former employees (and their dependants) who retired prior to 1 January 1996. For retirements subsequent to this date, the Group will meet a reducing proportion of the cost until 31 December 2004, after which date the only obligation will be in respect of the pre 1 January 1996 retirements. The cost of providing all post-retirement health care benefits is charged to the profit and loss account on a systematic basis over the employees’ working lives; the provision represents the unfunded obligation and is based on valuations of the Group’s liability by qualified actuaries.
The last full valuations of the schemes were carried out as at 30 June 1999; interim reviews were performed at 30 June 2001 and these have been updated to 31 December 2001 by qualified independent actuaries. The last full valuations of other Group schemes were carried out on a number of different dates; these have been updated to 31 December 2001 by qualified independent actuaries or, in the case of the Scottish Widows Retirement Benefits Scheme, by a qualified actuary employed by Scottish Widows.
Market values of scheme assets: Fixed interest securities 1,835 5.1 aaaaaffffffffffffffffffffffffff
Market value of assets 11,126 Present value of scheme liabilities (10,618)
Having considered a range of possible outcomes, the Group currently expects that the most likely outcome is that the balance in the Additional Account available for this purpose will be sufficient to meet the cost of the enhanced benefits payable to the guaranteed annuity option policyholders, as well as other contingencies. This cost, currently estimated to be approximately £1.4 billion, will be paid out over many years as policies mature. In the event that the amount in the Additional Account proves, over time, to be insufficient, the shortfall will be met by the Group. At this time, no provision is considered necessary for such risk.
Options purchased 1,208 23 – Options written 1,023 – 19 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 94,703 2,069 2,165afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Interest rate contracts: Interest rate swaps 290,129 3,484 3,438 Forward rate agreements 48,002 57 64 Options purchased 3,539 17 – Options written 2,229 – 8 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 378,289 3,564 3,510afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Equity contracts 2,768 443 59afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Effect of netting (3,388) (3,388)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 2,981 164 68afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Effect of netting (39) (39)
aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 137 31afffffffffffffffffffffffffff afffffffffffffffffffffffffff Notional Fair values principal aaaaaffffffffffffffffffffffffffffffffffffffffaaaaaffffffffffffffffffffffffffss amount Positive Negative aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Exchange rate contracts: Spot, forwards and futures 296 4 4 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 374 9 11afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff Interest rate contracts: Interest rate swaps 2,466 96 35 Forward rate agreements 134 – –
As at 31 December 2001 £m £m £m £m £m £m £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Assets: Treasury bills and other eligible bills 2,709 37 26 4 6 – 1,630 4,412 Loans and advances to banks 11,311 1,621 1,076 142 289 452 333 15,224 Loans and advances to customers 74,361 5,252 8,798 28,497 7,108 (1,353) 272 122,935 Debt securities and equity shares 2,545 1,662 718 1,940 4,168 (6) 13,423 24,450 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Cumulative interest rate repricing gap (13,179) (22,892) (21,778) 6,983 10,765 – – –afffffffffffffffffffffffffff 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 Trading or less 3 months 6 months 1 year 5 years bearing book Total
Cumulative interest rate repricing gap (14,906) (18,267) (14,659) 8,665 10,314 – – –afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff afffffffffffffffffffffffffff The table above does not take into account the effect of interest rate options used by the Group to hedge its exposure; details of options are given in note 47a).
As at 31 December 2001 Trading book Non-trading book aaaaaaaafaaaaffffffffffffffffffffffffff aaaaaaaafaaaaffffffffffffffffffffffffff
Debt securities and equity shares 13,423 13,423 11,027 11,269 Liabilities: Deposits by banks and customers 1,582 1,582 131,844 131,813 Debt securities in issue 1,187 1,187 23,233 23,266 Subordinated liabilities – – 7,657 8,084
As at 31 December 2000* Trading book Non-trading book aaaaaaaafaaaaffffffffffffffffffffffffff aaaaaaaafaaaaffffffffffffffffffffffffff
Structural currency exposures The Group’s main overseas operations are in New Zealand, the Americas and Europe. Details of the Group’s structural foreign currency exposures are as follows: Functional currency of Group operation £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
New Zealand dollar 748 703 Euro (and component former currencies) 286 289 US dollar 147 194 Swiss franc 104 120 Other non-sterling 438 397 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Total 1,723 1,703afffffffffffffffffffffffffff afffffffffffffffffffffffffff Non-structural currency exposures All foreign exchange exposures in the non-trading book are transferred to the trading area where they are monitored and controlled.
On 21 November 2001 the Group’s subsidiary, Lloyds TSB Commercial Finance Limited, acquired the issued share capital of CashFriday Limited, a provider of funding and payroll services to the UK temporary recruitment sector. The consideration was approximately £10 million, satisfied by £1 million of cash and the issue of £9 million of short-term loan notes. The premium on acquisition of £8 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.
Operating profit 3,521 3,857 Increase in prepayments and accrued income (411) (121) (Decrease) increase in accruals and deferred income (439) 830 Provisions for bad and doubtful debts 747 541 Net advances written off (691) (580) General insurance claims 174 142 General insurance claims paid (178) (146) Amounts written off fixed asset investments 60 32 Income from long-term assurance business (193) (615) Transfer from long-term assurance business 155 104 Interest on subordinated liabilities (loan capital) 493 490 Interest element of finance lease rental payments 1 1 Depreciation and amortisation 550 386 Other non-cash movements (395) (266)
Net cash inflow from operating activities 9,927 7,474afffffffffffffffffffffffffff afffffffffffffffffffffffffff b Analysis of cash as shown in the balance sheet 2001 2000 £m £m aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Cash and balances with central banks 1,240 1,027 Loans and advances to banks repayable on demand 2,443 2,794 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff 3,683 3,821afffffffffffffffffffffffffff afffffffffffffffffffffffffff The Group is required to maintain balances with the Bank of England which, at 31 December 2001, amounted to £156 million (2000: £142 million).
Net cash (outflow) inflow before adjustments for the effect of foreign exchange movements (100) 1,406 Effect of foreign exchange movements (38) 7 aaaaaffffffffffffffffffffffffff aaaaaffffffffffffffffffffffffff
Net assets acquired: Loans and advances – 2,827 Long-term assurance business – 4,052 Other assets 15 168 Tangible fixed assets – 375 Deposits by banks, customer accounts and other liabilities (13) (3,239)
•To reduce day-to-day operating costs through increased effectiveness 2 Chairman’s statement 4 Group Chief Executive’s review 7 Our community 8 The businesses of Lloyds TSB
Individual Savings Accounts (ISAs) The Company provides a facility for investing in Lloyds TSB shares through an ISA. For details please contact Lloyds TSB Private Banking ISAs, Freepost, PO Box 149, Haywards Heath, West Sussex RH16 3BR. Telephone 0845 7418418.