Edited Press Release
J Eric Daniels, Group Chief Executive, said: "
"By putting the processes that support the business model in place, we aredelivering improved results in the face of a more difficult operatingenvironment.
"When taken together with our advances in areas such as risk management, ourcustomer data analysis and the development of our people, we are building aframework to allow us to deliver higher performance both now and over the longerterm.
"During the first half of 2007, the Group has continued to make strongprogress and we have again delivered good growth and high returns. We arereporting a growth in profits of 15%, excluding volatility, and have achieved a27 per cent return on equity, as we continue the successful realisation of ourgrowth strategy.
"Over the last few years, the Group has established good earnings momentum,and this has been clearly evident in our recent results. We have deliveredimproved levels of revenue growth, whilst continuing to enhance our productivityand this is creating increased capacity for investment in building the business. Our capital management is strong and the Group's capital ratios remain robust.
"As a result of its increasing confidence in the Group's future earningsperformance, the Board has decided to increase the 2007 interim dividend by 5per cent to 11.2 pence per share. Going forward, the Board expects to grow thedividend, whilst continuing to build dividend cover.
"As I have stated previously, when developing our strategy, we identified thatour best opportunity was to grow our business by realising the considerablepotential within our existing franchises. We also believed there weresignificant opportunities to improve our productivity, and we could bettermanage our capital to fund our growth. By making progress against theseopportunities, we could accelerate the levels of earnings growth from our corebusinesses and maintain our high returns. Our results over the past severalperiods, and especially during the first half of the year, validate that we areworking on the right strategy, confirm that the core processes are in place andgive us greater confidence for the future.
"Our business model is based on developing deep, long-lasting relationshipswith our customers that allow us to generate a sustainable flow of high qualityearnings. Our commitment to customers is reflected not only in our improvedlevels of customer satisfaction over the past several years and the developmentof a range of new customer offers, but also in the way we seek to make a realdifference to customers. For instance, during the recent severe flooding in theU.K., our staff have worked proactively with customers to help and reassure themduring what has been a particularly challenging period.
"In the past few years, the Group has delivered a consistently improvingperformance, whilst maintaining our strong returns. In the first half of 2007,we have made further progress against our objectives and, excluding volatility,profit before tax rose by 15%, whilst economic profit rose by 31 per cent. Theperformance was underpinned by an improved rate of income growth, which rose to9%. Costs were again well controlled, up 6%, supporting good levels of businessinvestment, and this led to an increase in the trading surplus of 12%. Assetquality remains in very good shape.
"We have a long standing track record of improving the Group's efficiency andI am pleased that we have again made further progress as the cost:income ratio,excluding volatility and the settlement of overdraft claims, improved to 48.6per cent, from 50.6% in the first half of 2006. We are achieving this throughthe delivery of Groupwide initiatives such as centralising operations in GroupManufacturing, applying Lean and Sigma techniques to all our processes, and weare getting much smarter at leveraging our scale to reduce our procurementcosts. The efficiency benefits are creating greater capacity for investment tounderpin our future success.
"We have further enhanced our capital management programmes in support of ourbusiness objectives. Our redirection of capital towards more profitablebusiness and asset distribution initiatives are successfully supporting ourWholesale growth strategy, and we have continued our mortgage securitisationprogramme. We are managing our capital within Scottish Widows more effectivelyand, in addition to the
"The level of income and profit growth across each of the three operatingdivisions indicates that we have made good progress in building strongerrelationships with our customers. This is also reflected in the improvedcustomer satisfaction scores, the stronger level of new customer recruitment tothe Group, and the good sales growth as we are able to satisfy more of ourcustomers' financial services needs.
"In the Retail Bank, profit before tax grew by 13%, underpinned by 6 per centgrowth in income. Costs continue to be well managed, rising just 2 per centbefore the impact of the settlement of overdraft claims, and this allowed us todeliver good positive jaws. Our focus on improving the quality of our newlending, enhancements to our collections processes and better than assumedrecoveries, has resulted in the charge for impairments falling by 1%.
"The Retail Bank has made substantial progress against its objectives thisyear. We continue to focus on improving the quality of service received by ourcustomers, across all our distribution channels, and we are further extendingthe range of products and services we offer. During 2007, we introduced anumber of innovative offerings, including the extension of our Added ValueAccount range and the more recent launch of our Duo credit cards.
"We have had considerable success in our efforts to build the retailfranchise, and saw good growth in both assets, up 7%, and liabilities, up 8 percent. This was underpinned by excellent results in our leading indicators, suchas the increase in current account openings, up 25%, and the growth in salesvolumes of 16%, as we seek to win a greater share of our customers' financialservices spend.
"In Insurance and Investments, profit before tax, adjusted for the impact ofsurplus capital repatriation and excluding volatility and insurance grossing,rose by 11% and this was driven by income growth of 8%. We have continued toinvest in sales and service platforms and, thanks to continued productivityimprovements, the cost increase was maintained at 4%, which again allowed us todeliver wide positive jaws.
"One of the major successes of this business has been its relationship withthe distribution arms of the Retail Bank and Commercial Banking. In recentyears, we have delivered strong growth in Scottish Widows sales to our franchisecustomers and this year I am again pleased that we are reporting a furtherincrease of 16% in our sales of bancassurance products. In the IFA channel,sales increased by 1%, following record sales levels in the first half of lastyear.
"As a result of our continued focus on managing the efficient use of capitalin the business, we saw a further improvement in the new business margin as wecontinued to develop more capital efficient products to meet the needs of ourcustomers. Scottish Widows remains well capitalised, notwithstanding thepayment of more than
"Wholesale and International Banking delivered another strong performance,with income up 10% and profit before tax up 12%, as we continue to build our keybusinesses: Corporate Markets and Commercial Banking. We continue to invest forfuture growth in both these areas and notwithstanding the 5 per cent increase incosts, we again delivered positive jaws. We maintain robust management controlsover our asset portfolio, and wholesale asset quality remains strong.
"Our Corporate Markets business continues to perform very strongly anddelivered a 23% improvement in profit before tax. We have continued to investin this business in recent years, to allow us to develop the services andproduct range for our Corporate Banking clients, and this was rewarded with a 26per cent increase in income, a significant (32%) increase in cross-sales incomeand strong growth from Lloyds TSB Development Capital. We will be sustainingthis investment programme to ensure we can meet more of our customers' needs andto build on the broader revenue streams that have been established. We wereonce again delighted to be named the CBI Corporate Bank of the Year, for thethird year in succession, and we were recently named best U.K. Bank in theEuromoney Awards.
"The Commercial Banking performance was also strong, with profit before taxincreasing by 11%, reflecting increased business volumes. We continue toattract new customers, cementing our market-leading position in the start-upmarket and, in addition, we continue to attract higher numbers of the valuableswitcher accounts from competitors. The recent restructuring brought CommercialFinance, our factoring and invoice discounting unit, into the business and thisis now providing a co-ordinated market-leading approach for our customers.
"Whilst we have made considerable progress in building the business in recentyears, we also recognise that part of our success depends on the strength of thecommunities in which we operate. The Group has a long-established corporateresponsibility programme, which incorporates the Lloyds TSB Foundations. TheFoundations make a substantial difference to the many thousands of people theysupport through their donations, and in 2007 they received some
"In March of this year, the Group was also delighted to announce it was to bethe official banking and insurance partner to the
Order free Annual Report for
Visit
(END) Dow Jones Newswires
