2002 Lloyds TSB Group Was Ranked: Challenging, Aligned to Shareholder Interests and Appropriate at the Time

annual report andLloyds TSBaccounts Group plc 2002 LLOYDS TSB GROUP 223 consumer creditup 17% to £14.9 billion Profit before tax Contents By main businesses Presentation of results 1 2002 highlights 2002 2001* During 2002 the Group £ million £ million implemented a number of 2 Chairman’s statement UK Retail Banking and Mortgages 1,172 1,205 changes in accounting policies following the issue of new 4 Group chief Insurance and Investments 1,231 1,421 executive’s review accounting standards and Wholesale Markets 626 852 guidelines: Urgent Issues Task 7 Our work in the International Banking 379 357 Force Abstract 33 – ‘Obligations community Central group items 96 185 in capital instruments’, FRS 17 – ‘Retirement benefits’, FRS 19 – Profit before tax, excluding changes 8 The businesses ‘Deferred tax’, and detailed of Lloyds TSB in economic assumptions and guidance from the Association investment variance 3,504 4,020 10 Financial review of British Insurers (ABI) for best Changes in economic assumptions 55 – practice in the preparation of 42 Five year Investment variance (952) (859) results using the achieved profits financial summary method of accounting. In Profit before tax 2,607 3,161 accordance with the 44 The board * Restated to reflect the implementation of UITF33, ‘Obligations in capital requirements of accounting 46 Directors’ report instruments’, FRS17, ‘Retirement benefits’, FRS19, ‘Deferred tax’ and detailed standards, the Group has guidance from the Association of British Insurers for best practice in the restated comparative figures to preparation of results using the achieved profits method of accounting. 48 Directors’ remuneration 2001 figures have been restated to incorporate efficiency programme related reflect these changes. 55 Corporate governance restructuring costs within business units, and the reclassification of emerging In order to provide a clearer markets debt earnings from International Banking to Central group items. representation of the underlying 57 Independent performance, the results of the auditors’ report Group’s life and pensions business include investment 58 Consolidated profit earnings calculated using longer- and loss account Our governing objective is to maximise term investment rates of return 59 Consolidated shareholder value over time and annual management charges based on unsmoothed fund balance sheet To meet our governing objective we aim: values. The difference between 61 Company balance sheet the normalised investment earnings and the actual return • 62 Other statements To be a leader in our chosen markets (‘the investment variance’) 63 Consolidated cash together with the impact of •To be the first choice for our changes in the economic flow statement 16 million customers assumptions used in the 64 Notes to the accounts embedded value calculation have been separately analysed and a 93 Information •To reduce day-to-day operating costs reconciliation to the Group’s profit for shareholders through increased effectiveness before tax is given on this page. Market leadership in personal finance During 2002, the Group increased its market share in both personal loans and credit card lending. Personal loan balances increased by 15 per cent to £8.6 billion, while more than 700,000 new credit cards were issued, leading to a growth of 27 per cent in credit card balances outstanding to £4.9 billion. 2002 highlights Results Achievements in 2002 Dividends per share include (pence) Total income Excluding changes in Total income 22.2 26.6 30.6 33.7 34.2 decreased by £11 million economic assumptions and adjusted for investment to £8,878 million. investment variance: variance, acquisitions and Operating expenses Profit before tax other specified items (see increased by 3 per cent decreased by £516 million, page 31), increased by to £4,915 million. or 13 per cent, to 2 per cent to £9,484 million. Trading surplus £3,504 million. Operating expenses decreased by 4 per cent Post-tax return on average excluding the impact of to £3,963 million. shareholders’ equity acquisitions and the netting was 23.0 per cent. of operating lease depreciation Profit before tax (see page 31), were flat at decreased by £554 million £4,580 million. to £2,607 million. Customer lending Profit attributable to grew by 9 per cent to shareholders £134.5 billion and customer decreased by 20 per cent deposits increased by to £1,781 million. 7 per cent to £116.3 billion. Earnings per share Significant repositioning decreased by 21 per cent of UK Retail Banking to to 32.0p. support customer franchise Economic profit development and growth. decreased by 27 per cent Improved market share to £821 million. in many key product areas, Post-tax return on average including personal lending, shareholders’ equity credit cards, life, pensions 16.7 per cent. and long-term savings and, Total capital ratio in the fourth quarter of 2002, 9.6 per cent, tier 1 capital mortgages. ratio 7.8 per cent. Final dividend of 23.5p per share, making a total of 34.2p for the year, an 2000 2001 2002 increase of 1.5 per cent. 1998 1999 LLOYDS TSB GROUP 1 customer deposit balancesup 7% to £116.3 billion Chairman’s statement the housing market and market share performances cost of responding to this consumer spending to fall in many of its key product government intervention is during 2003 although overall areas, and good growth in substantial and in 2003 the economic growth for the year customer lending and cost of implementing the is expected to be slightly deposits. During the year the findings of the Competition higher than the 1.7 per cent Group also achieved its target Commission’s ‘Report into the growth experienced in 2002. of an average 2.5 products supply of banking services per customer, whilst to small and medium-sized Our strategic aims maintaining its strict control enterprises’ is alone likely The Group remains totally on operational expenses with to be in the region of committed to maximising costs in 2002, excluding £150 million. Maarten van den Bergh shareholder value over time acquisitions and growth in This industry is already and our business units operating lease depreciation, immensely competitive. If the continue to be focused on the held flat, in part as a result of Government wishes to foster The turmoil surrounding the Group’s three strategic aims: the significant investment in greater competition within operating, regulatory and to be a leader in our chosen efficiency programmes made financial services it should stockmarket environment in markets, to be first choice for over the last three years. recognise that the level of which we operate has been our customers and to drive Profit before tax for the year, returns available must be unprecedented in recent times. down day-to-day operational however, fell by 18 per cent acceptable to both existing Whilst these issues have costs to enable us to further to £2,607 million, partly as and new competitors. had a direct effect on the invest in our business a result of a significant The Government’s Group’s results for 2002, and franchise. This is a strategy increase in provisions for bad interventions include the are likely to continue to have that is being well and doubtful debts but also removal of dividend tax credits an impact until some stability implemented and delivered, as a result of a number of – increasing corporate returns to global stockmarkets, and ensures that the Group special items including pension contributions – the they do not impact our long- continues to seek the additional provisions for cost of the Universal Bank term strategic goals, the optimum balance between redress to past purchasers of and the automation of benefits, fundamental strength of the short-term profit growth and certain pension and as well as more specific price Group or the way in which we investment in the future of endowment products and a controls in both the banking run our business. In the UK, the business, to create higher negative investment and pensions businesses. from where the Group derives sustainable long-term value variance of £952 million in If interference continues, the vast majority of its for all our stakeholders. our insurance businesses, there is a danger that one of earnings, the slowdown in reflecting the weakness of the UK’s great success stories economic growth has partly Our results equity markets. – the financial services been alleviated by the Notwithstanding the The high level of industry – will be less able to continued strength of the slowdown in the UK and all government interference in all compete on the world housing market and high major global economies, areas of our business has financial scene where the levels of consumer spending. Lloyds TSB continues to trade continued throughout 2002 really strong players will We expect levels of growth in satisfactorily, with strong and into 2003. The annual dominate in the future. 2 LLOYDS TSB GROUP Market leadership in home insurance With over 9 million policies in force, Lloyds TSB Insurance is one of the largest distributors of personal lines general insurance in the UK, with market leadership in the distribution of home and creditor insurance. Dividend superb commitment, and join the Board on 1 June Our future creating a workplace where 2003. We shall also bid The Group continues to The business environment staff understand their roles farewell to Kent Atkinson who generate strong cashflows in which we operate is and contribution, and retires, with our best wishes, from its banking businesses characterised by increasing continue to feel proud to at the annual general meeting and, excluding investment levels of competition, volatile work for Lloyds TSB. I know after more than 38 years variance, the profit attributable equity markets and the management and staff with the Group. He was to shareholders in 2002 was increasing government remain as committed as ever succeeded as Group Finance £2,496 million.

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