The successful implementation of the Group’s strategy is the responsibility of all 70,000 staff employed by the Group. It is their approach to making Lloyds TSB a high performing organisation that has enabled the Group to make such good progress in 2004 and will ensure further progress over the next few years. We have a real opportunity to meet an increasing number of our customers’ needs and it is our staff who will make that happen. They are the day-to-day face of the Bank, the heart of all we do and the key to future success. I thank them for their efforts in 2004 and their continuing commitment. Lloyds TSB Group remains one of the UK’s largest corporate givers, principally through the excellent work of the independent Lloyds TSB Foundations who made grants to charities of over £27 million in 2004.
Branches. Lloyds TSB Group provides wide-reaching geographic branch coverage in England, Scotland and Wales, with some 2,200 branches of Lloyds TSB Bank, Lloyds TSB Scotland and Cheltenham & Gloucester as at the end of 2004.
Group net interest income from continuing operations increased by £176 million, or 4 per cent, and average interest-earning assets increased by 8 per cent to £170 billion. Strong consumer lending growth led to increases of £2.6 billion in average personal lending and credit card balances and £8.9 billion in average mortgage balances.
Operating expenses were well controlled throughout the business and as a result, excluding provisions for customer redress, increased by only £30 million, or 1 per cent, to £2,413 million compared with 4 per cent growth in income during the year.
Existing business: Expected return 300 283 Experience variances (41) (16) Assumption changes and other items (39) (75)
Structural interest rate risk can also arise from the wholesale banking books in the UK, where it is managed by Financial Markets in London, and internationally, where it 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 locally and centrally. Limits are issued to the international businesses on interest rate gaps or, where more appropriate, VaR.
The Group has defined high-level operations risk policies to seek to ensure a wide-ranging and consistent approach to the identification and management of operations risk and a standard methodology to ensure consistency in the identification, assessment and management of operations risk.
The Group has a corporate responsibility steering committee chaired by the deputy group chief executive and comprising the senior executives of those businesses most directly affected by SEE issues. The committee meets quarterly to recommend strategy and direction. The board reviews overall corporate responsibility performance annually and individual issues are subject to board discussion throughout the year. During 2003, the Group introduced a human rights policy and in 2004 has conducted a self-assessment audit that confirms compliance with the policy in all countries of operation.
Results and dividends The consolidated profit and loss account on page 59 shows a profit attributable to shareholders for the year ended 31 December 2004 of £2,421 million.
Also in accordance with the articles of association, Mr Gemmell, Mr Fairey and Dr Julius retire at the annual general meeting and offer themselves for re-election.
The directors and senior management are committed to maintaining a control-conscious culture across all areas of operation. This is communicated to all employees by way of published policies and procedures and regular management briefings. Key business risks are identified, and these are controlled by means of procedures such as physical controls, credit, trading and other authorisation limits and segregation of duties. In addition, there is an annual control self-assessment exercise under which the key businesses and head office functions review specific controls and attest to the accuracy of their assessments. The material controls covered by this assessment include risk management, organisational control, legal and regulatory, finance and information technology. As in previous years, this exercise was completed for the year ended 31 December 2004. All returns have been satisfactorily completed and appropriately certified. There are well established budgeting and forecasting procedures in place and reports are presented regularly to the board detailing the results of each principal business, variances against budget and prior year, and other performance data. Internal controls contain procedures which assist the board in identifying new and emerging risks.
Current directors At 1 January 2004 Granted Exercised/ Exercise periods who served (or later date of during lapsed during At 31 December Exercise during 2004 appointment) the year the year 2004 price From To Notes
The register of directors’ interests, which is open to inspection, contains full particulars of directors’ shareholdings and options to acquire shares in Lloyds TSB Group plc.
We read the other information contained in the annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the directors’ report, the chairman’s statement, the group chief executive’s review, the operating and financial review and prospects, the unaudited part of the directors’ remuneration report and the corporate governance statement.
Interests in joint ventures: 20 Share of gross assets 84 85 Share of gross liabilities (31) (31)
The charge for tax on the profit for the year is based on a UK corporation tax rate of 30 per cent (2003: 30 per cent).
Transport, distribution and hotels 6,753 4,741 Property companies 5,775 4,577 Financial, business and other services 12,103 9,652 Personal: Lease financing 6,387 6,470 Hire purchase 4,828 4,701
As published 6,781 225 Effect of a 1% increase in the discount rate (189) (26) Effect of a 1% reduction in the discount rate 213 30 Effect of a 1% reduction in the return on equities (84) (12)
Interest rate related contracts include interest rate swaps, forward rate agreements and options. An interest rate swap is an agreement between two parties to exchange fixed and floating interest payments, based upon interest rates defined in the contract, without the exchange of the underlying principal amounts. Forward rate agreements are contracts for the payment of the difference between a specified rate of interest and a reference rate, applied to a notional principal amount at a specific date in the future. An interest rate option gives the buyer, on payment of a premium, the right, but not the obligation, to fix the rate of interest on a future loan or deposit, for a specified period and commencing on a specified future date.
Operating profit 3,508 3,505 (Increase) decrease in prepayments and accrued income (721) 147 Increase (decrease) in accruals and deferred income 732 (226) Provisions for bad and doubtful debts 866 950 Net advances written off (854) (967) Insurance claims 224 236 Insurance claims paid (203) (231) Customer remediation provision 100 200 Customer remediation paid (105) (119) Amounts written off fixed asset investments 52 44 Income from long-term assurance business (715) (453) Net charge in respect of defined benefit schemes 267 286 Contributions to defined benefit schemes (374) (138) Interest on subordinated liabilities (loan capital) 601 622 Profit on disposal of investment securities (126) (47) Depreciation and amortisation 633 697 Other non-cash movements (3) (131)
Non-equity minority interests: Exchange and other adjustments 1 23 Repayment of capital to minority shareholders (132) – Minority share of profit after tax 42 47 Payments to minority shareholders (44) (81)
Loans and advances to banks 132 1,035 Loans and advances to customers 257 13,770 Debt securities and treasury bills 59 852 Intangible assets 10 189 Deposits by banks (42) (519) Customer accounts (327) (8,372) Debt securities in issue (111) (5,108) Subordinated liabilities – (206) Other net assets (liabilities) 9 (305) Goodwill written back on sale of businesses 3 181