STRATEGIC UPDATE 21 February 2018
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Presentation to analysts and investors | 21 February 2018
Transforming the Group for success in a digital world
António Horta-Osório Group Chief Executive
1 Solid foundations underpinning our customer centric business model
Distinctive competitive strengths Best-in-class customer Highly efficient experience Cost:income Ratio1, FY20172 Differentiated multi-brand, multi- Customer NPS 62 56% channel customer propositions 47% 43
Market leading efficiency Peer 2011 2017 Avg. Largest digital bank, branch reach and customer franchise Strong profitability Capital generative Statutory RoTE, FY20172 Cumulative capital generation3 2015 – 20172 Prudent, low risk participation 8.9% c.545 bps choices with strong capital position 6.3% c.400 bps
Rigorous execution and management discipline Peer Peer Avg. Avg.
1 – As stated by major UK banking peers. 2 – Lloyds Banking Group figures as of Dec 2017 and peer group as at 9M 2017. 3 – Pre-dividend capital generation, excluding acquisitions (peers annualised). 2
Largest digital bank in the UK, delivering market leading experience
Customer needs met via digital, % 68% £1bn investment in 61% digital announced digitally active customers 54% >13m Largest digital bank in the UK 40% 32% 209m digital visits per month
1 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 #1 rated UK mobile app since 2015
Forrester mobile banking app score (2017)2 • “Excels at usability”: easy enrolment/ login, 76 seamless navigation, context-sensitive help function 65 62 • “Outstanding marketing and sales functionality”: Leading tailored product offers, comparison tools, third-party functionality offers • “Wide range of touchpoints”: mobile-optimised website, SMS interactions, Facebook Messenger
LBG UK Global • “Excellent cross-channel guidance”: branch average average appointment scheduling function 1 – Forrester UK Mobile Banking, 2015, 2016, 2017. 2 – Forrester: UK Mobile Banking Benchmark, 2017; Global Mobile Banking Benchmark, 2017 3 Changing customer behaviour and expectations create opportunities
Evolving customer needs and expectations… …require a proactive response
Increasing personalisation • Richer interactions, better understanding of customer needs
• Deeper customer engagement Connected, seamless experience • More personalised propositions
Safety and security • New channels to serve customers and guide to propositions that serve their needs
Convenience and ease • Harnessing value from data
• Safe, secure and trusted online environment Simpler products with greater transparency • Increased productivity and process automation
4
Building on our solid foundations to future proof our business
Strategic priorities Developing new sources of competitive advantage
Differentiated multi-brand, multi-channel customer propositions with data-driven customer experience
Market leading efficiency through tech- enabled productivity improvements Largest digital bank, branch reach and customer franchise with leading integrated propositions Prudent, low risk participation choices with strong capital position
Rigorous execution and management discipline focusing on key skills of the future
5 More than £3bn strategic investment to deliver a significant transformation
LEADING CUSTOMER EXPERIENCE MAXIMISING GROUP CAPABILITIES • #1 UK digital bank, with Open Banking • £6bn loan growth in start-ups, SME and functionality Mid Market businesses • #1 Branch network, serving complex needs • Sole integrated UK banking and insurance provider targeting >1m new pensions • Data-driven and personalised customer customers and £50bn AuA growth propositions
DIGITISING THE GROUP TRANSFORMING WAYS OF WORKING
• End to end transformation covering • More than half of transformation more than 70% of our cost base delivered through Agile methodology • Simplification and progressive • Biggest ever investment in our People modernisation of IT and data with 50% increase in colleague training architecture and development to 4.4m hours p.a.
6
Continuing to deliver greater value for shareholders
Group Strategic Review 2 (2015-2017) Group Strategic Review 3 (2018-2020)
Increased investment c.£1bn investment in digital >£3.0bn strategic investment
Market leading £1.4bn simplification run-rate savings <£8.0bn operating costs in 2020, including efficiency increased strategic investment <45% underlying CIR exiting 2019 Low 40s CIR exiting 2020, including remediation
Growth in under represented areas and maintain Growth in key targeted segments Sustainable and low market leadership in key retail areas risk growth c.35bps AQR through-the-cycle and <30bps in c.40bps AQR through-the-cycle plan period
14.0%-15.0% statutory RoTE from 2019 13.5%-15.0% statutory RoTE in 2019 Superior returns and Strong growth in statutory profit lower cost of equity c.12% CET1, plus c.1% management buffer c.13% CET1, plus around 1% management buffer
Strong capital generation and 170-200bps pre-dividend CET1 capital generation per annum attractive capital Progressive and sustainable ordinary dividend return policy Flexibility to return surplus capital 7 Committed to Helping Britain Prosper
Delivering on our purpose Increasing our support going forward 20181 20202
>700,000 34% Lending to first time buyers £10bn £30bn individuals, businesses of senior roles now and charities trained in held by women. Up People digital skills during 2017 from 29% in 2014 Individuals, businesses and charities trained in digital skills 700k 1.8m
>440,000 Growth in assets managed in retirement start-up businesses and investment products3 £8bn £50bn supported since 2014 >£47bn Businesses 15% of lending to first time Growth in net lending to start-up, SME buyers since 2014 £2bn £6bn increase in SME net lending since and Mid Market businesses the start of 2014, compared to a market that has grown by 1% >£72m Charities supported by our £100m donated to the Groupʼs Communities commitment to the Groupʼs independent 2,500 7,500 independent charitable charitable Foundations Foundations since 2014 Largest Percentage of senior roles held by 36% 40% corporate tax payer in the women UK in 2015 and 2016 Percentage of roles held by Black, 8.9% 10% Asian and Minority Ethnic colleagues 1 – Year end target. 2 – Cumulative from 2018. 3 – Growth in assets under administration in our open books. 8
Evolving our business model and transforming the Group for success in a digital world
Our purpose Our strategic priorities Our ambition Helping Britain Prosper Maximising Digitising Group the Group capabilities Our aim Best bank for customers, Transforming colleagues and shareholders the Group for success in a digital world
Our business model Digitised, simple, low risk, customer focused, UK financial Transforming services provider ways of working
9 Delivering our transformation
Juan Colombás Chief Operating Officer
10
Delivery model leveraging our structural advantages
…are enhanced by our recent Our structural advantages… …and our delivery model organisational changes…
Single geography All critical components of Investment management is now transformation under one umbrella… organised around customer journeys with priorities frequently reviewed Transformation Simple operating model Faster delivery of change for customers through Agile approach
Centralised management Channels IT & Ops Cross-functional, co-located teams focused on transformation agenda People Transformation expertise …for better coordination and end-to-end Focus on outcomes not initiatives accountability
11 Larger transformation programme with significantly increased strategic investment
Focus on efficiency enabling increased investment And delivering a leading customer experience Total strategic investment, £bn
+40% >£3bn strategic investment
>£3.0bn +25% Maximising Group capabilities
Leading customer GSR1 GSR2 GSR3 experience 2011-14 2015-17 2018-20 Digitising the Group £8.7bn £8.2bn <£8bn
Transforming ways Operating cost base1 of working
1 – Operating cost at period-end; 2014 for GSR1, 2017 for GSR2 and 2020 for GSR3. 12
Business and Transformation leads
Leading personal customer Digitising the Group Maximising Group experience & Transforming ways of working capabilities
Vim Maru Jakob Pfaudler Zaka Mian Jen Tippin Antonio Lorenzo David Oldfield Group Director, Group Director, Group Director, Group People & Chief Executive, Group Director, Retail Community Banking Transformation Productivity Director Scottish Widows and Commercial Banking Group Director, Insurance & Wealth
13 Leading personal customer experience
Vim Maru Jakob Pfaudler Group Director, Retail Group Director, Community Banking
14
Leading personal customer experience
GSR3 priorities Key outcomes (2020)
Build on our market leading digital financial UK digital bank, with services experience Open Banking #1 functionality
Tailor and leverage multi-channel model in line Branch network, with evolving customer needs and behaviours serving complex #1 needs
Use enhanced capabilities to meet customersʼ Market opportunity in expectations for increasingly personalised £30-40bn under represented propositions customer segments
15 Leading brands and customer franchise that differentiate us in a competitive market
Differentiated brand proposition Extensive customer engagement3
Iconic brands serving over 27m retail customers1 72% of customers used two or more channels in 2017
209m digital 320m debit card visits transactions per month per month
18m branch 6m calls visits answered Efficiently delivering market leading awareness levels in per month per month the UK2
1 – Unique active Lloyds, Halifax, and BoS customers plus primary active MBNA customers. 2 – IPSOS, Nielsen, 2017. 3 – 72% based on active PCA customers. Monthly statistics based on Q4 2017 average. 16
A track record of delivering increasing customer satisfaction
Simpler product range1 Improved customer journeys Higher customer satisfaction
PCA Customer NPS3 59 62 Reduction in new Rated mobile account 40% #1 43 business range opening journey2
Savings Reduction in customer 2011 2014 2017 Reduction in effort in digital PCA 40% 80% opening journey since products Total incoming retail complaints4 2011 -70% Overdraft variants For mortgage <15 30 1 agreement in principle mins through digital channels 2011 2014 2017 1 – 2014-17. 2 – eBenchmarkers, 2017. 3 – Day to day usage across channels. 4 – Absolute incoming retail complaints excluding PPI and CMC. 17 Significant competitive advantage from multi-channel model
Simple needs migrating to digital channels Multi-channel model critical Customer channel interactions Simple product needs met Value of multi-channel Indexed to 20141 Volume, %2 Market customers relative to share3 1.4x single channel 200 Digital Customers preferring a 42 150 >75% F2F interaction for first 70 Digital 25% banking relationship4 4 100 Telephony Customers preferring 60% branch for their first Branch 5 50 53 3 Telephony mortgage 28 Branch 20% LBG market share of 0 21% mortgage needs met 20152014 2016 2017 2014 2017 through branches
1 – Digital: Visits to desktop site or mobile app; Telephony: Calls via IVR or human agent; Branch: Visits excludes self-service. 2 – Excludes MBNA, Mortgages, Insurance and direct mail. 3 – BoE, CML, eBenchmarkers, GfK and internal reporting. Simple products market share based on PCA, Savings, Cards and Loans, excludes MBNA. 4 – GfK's Financial Research Survey, Dec 2017, respondents who opened their first current account in the previous 12 months, 1,210 respondents. 5 – GfK's Financial Research Survey, Dec 2017 638 respondents likely to take their first mortgage in the next 12 months. 18
Opportunity to tailor and leverage multi-channel model in line with evolving customer needs and behaviours
Branch network Compelling strategic agenda Branch-first Digital-firstDigital • F2F for complex customers customerscustomers customer needs • Tailored channels to Comple • Differentiated formats customer needs x needs Complex Branches Remote needs advice Telephony • Ability to integrate across • Focused on trouble channels shooting and support Telephony Mobile • Powered by AI and Simple branches machine learning needs Post Digital • Ambitious vision for Office role of branches
Alternative channels Digital bank Remote advice • Optimised cost to • Next generation mobile • Integrated with branch • Home and branch serve branches and telephony • Click-to-call • Extended Post Office • Secure and convenient • Mortgages, Insurance offer top rated mobile app and Businesses
19 Physical distribution optimised for purpose, efficiency and reach
Focusing on complex needsOptimising cost to serve Maintaining reach Customer-facing time on complex needs1 Branch and telephony costs per customer Branch market share indexed2 c.30% c.60% 100 21% 21% c.15% 20% 81 45% <70 34%
33 2014 2017 2020 2014 2017 2020 2014 2017 2020
1 – Branch colleagues customer facing time - Kiran (2014), Finalta (2017) observation studies; complex needs include mortgage appointments, moments of truth and other enquiries/appointments that customers find complex. 2 – Direct and Property costs per primary active customer. 3 – CACI. 20
Well placed for future evolution of Open Banking
Greater protections for Customers can begin Implications Customers benefit sharing their data for customersʼ data from enhanced included products online security More customer control Customer Jan 2018 Jun 2018 Dec 2018 Jun 2019 Dec 2019 impact Regulatory change New innovations in Strong products and Open Banking launched GDPR becomes Customer services Includes transactional data law Authentication and payment APIs PSD2 technical Only large UK bank ready standard A focus on expected to apply responsible data PSD2 becomes law use and security Transactional data Payment initiation
Notes – API: Application programming interface. PSD2: Payment Services Directive 2 GDPR: General Data Protection Regulation. 21 Remain #1 UK digital bank with Open Banking functionality
LBGʼs leading position Making Open Banking work for our customers
1. Largest digital financial Everything in one place services provider with multi- • Aggregated view of brand, multi-channel customerʼs financial offering and strong Innovative tools holdings from across customer relationships the market place • Enhanced servicing (e.g. nudges and card 2. Leading digital functionality controls) and continuing innovation • Personalised insights New propositions • Everyday controls 3. Secure and trusted by • Exploring 3rd party (real-time notifications) customers vs. third parties1 networks and journeys 4. Customer convenience: they want account Security a shared priority aggregation from their main • APIs will ensure the bank2 highest levels of security
1 – Harris Interactive Concept Express Open Banking Evaluation, Nov 2017. 2 – GFK Account Aggregation Survey, 2017. 22
Use enhanced capabilities to meet customersʼ expectations for increasingly personalised services
Demand for personalisation Enhanced capabilities Opportunity
We have a diverse customer GSR3 capabilities will allow us to • Enhanced customer experience base with varying needs1: respond, from one-size-fits-all to a for all customers • 57% own or mortgage home vs tailored service which better meets the 43% rent2 individual needs • We will deliver growth through data- • More than 60% digitally active driven and personalised propositions • 15% over 70 years old Digitised customer journeys • 11% donʼt use cash • Micro-segmentation of our customer base identified 10m customers where we are under represented Customers have increasing Enhanced data capabilities with a market share of 17%, below expectations for personalised our natural market share and relevant experiences • Opportunity of c.£30-40bn Leading digital servicing additional customer balances from under represented personal customer segments
1 – 60% based on 4Q17 Active PCA Lloyds, Halifax, Bank of Scotland customers; 15% based on December 2017 Primary Active Lloyds, Halifax, Bank of Scotland customers; 11% based on 3Q17 sampled Lloyds, 23 Halifax, Bank of Scotland active PCA customers. 2 – CACI Limited 2017, GfK, UK population. Leading personal customer experience
GSR3 priorities Key outcomes (2020)
Build on our market leading digital financial UK digital bank, with services experience Open Banking #1 functionality
Tailor and leverage multi-channel model in line Branch network, with evolving customer needs and behaviours serving complex #1 needs
Use enhanced capabilities to meet customersʼ Market opportunity in expectations for increasingly personalised £30-40bn under represented propositions customer segments
24
Digitising the Group & Transforming ways of working
Zaka Mian Jen Tippin Group Director, Transformation Group People & Productivity Director
25 Digitising the Group & Transforming ways of working
GSR3 priorities Key outcomes (2020)
Digitise more customer journeys end-to-end and scale of cost base up transformation to include our Central Functions covered by journey >70% transformation
Simplification and progressive modernisation through targeted investment in technology, data, and innovation Up to Change resource efficiency 30% improvement More agile ways of working and continued focus on technology-enabled productivity improvement
increase in training Build key skills of the future and greater in-house and development to capabilities 50% 4.4m hours p.a.
26
Scaling up our transformation to digitise the Group end-to-end and transform our ways of working
Digitising the Group & Transforming ways of working
Creating the largest UK digital bank Broader and deeper digital Enhancing digital capabilities and undertaking transformation Customer Journey Transformation 1.0 to improve experience and business efficiency Simplification and progressive Building digital foundations modernisation of our IT and data - Mobile account opening journey1 #1 architecture Creating a scalable digital platform providing choice and convenience for More agile and more efficient ways 3.3 Digital only complaints per ʻ000 users 1.4 customers of working
1m 5m Mobile users 9m Investing to build key skills of the future with greater in-house 0.7bn 1.5bn Group secure–site logins2 3.0bn capabilities
2011 2014 2017 2020+ 1 – eBenchmarkers. 2 - Includes all logons to LBG secure-sites. 27 Broader and deeper digital transformation, leveraging improved technology and data capabilities
Broader and deeper transformation… …leveraging improved capabilities GSR2 GSR3 +40% End-to-end digitisation, including End-to-end Enhanced channel more activities along the value >£3bn transformation chain (e.g. control functions and technology operations) Strategic investment
Upgraded data and ~20 additional customer More customer journeys, including: applied sciences ~50 journeys • Financial planning and 16 covered retirement • Home insurance claims Simplified Journeys transformed1 IT infrastructure
Central ~15 enterprise journeys, with functions manual processes re-engineered Accelerated >70% digitised across central functions innovation ~12% Cost base transformed2
1 – Includes customer and enterprise journeys. 2 – Operating cost base covered by journey transformation. 28
Making continuous improvements to everyday banking by leveraging emerging technologies
Using applied sciences to transform both customer experience and operational effectiveness 20 - 40% ~45 seconds increase in customer satisfaction ~20% less time spent per call for Greater convenience through in-app messaging reduction in errors authentication Use of intelligent automation to Instant authentication via voice streamline delivery of customer biometrics, click-to-call outcomes Customer
rd Bank 1/3 ~10% ~20% more colleague capacity created increase in first resolution rates reduction in manual compliance effort Automated voice and chat-bots matching Coaching prompts for colleagues using speech and Greater efficiency in compliance activities customer need with agent skill text analytics on “next best resolution” during call using automated speech to text and analytics 29 Simplification and progressive modernisation of our IT architecture
Targeted simplification and “at scale” exploitation of new tech-enabled opportunities
• API enabled channel to Channel Cyber defences leverage FinTech and technology Branch Telephony Digital API exploit Open Banking
• Insight powered customer experiences Multi-brand, omni-channel customer servicing platform • Selectively upgrade core Cognitive and machine learning systems but avoid “big- Insight and bang” solution data Enterprise data hub • Transformed software Core Systems Single Customer development processes e.g. Banking, Mortgage, Pensions, etc. View with greater automation
• Cost and agility Software as a Cloud In-house improvements by Infrastructure Service hosting hosting leveraging hybrid cloud and software as a service New capabilities Enhancement Simplification 30
More agile and more efficient ways of working
Moving from waterfall… …to Agile in more than half of our change activity
Up to Change resource 1 Sequential approach with fixed Iterative approach with short efficiency requirements defined at outset development sprints 30% improvement
2 Limited user feedback prior to Continuous customer feedback end product testing through test and learn
Change delivered 3 Temporary teams from Cross-functional, co-located >50% specialist areas and enduring teams through Agile
Initiative focused with Outcome focused with Agile 4 management accountable teams fully accountable Increase in Agile 3.5x coaches >9 months average delivery time <6 month delivery with monthly releases
31 Biggest ever investment in our People to build key skills of the future
Investing in People to create lasting competitive advantage
Academies to develop skills for specialist roles Increase in training 50% and development Leadership programmes to role model ways of working Upskill and to 4.4m hours p.a. retrain Clearer career progression routes
Enhanced workforce analytics Reduction in 30% external resources in Change Targeted recruitment campaigns Attract top Faster recruitment and on-boarding process talent and Increase in digital experience designers specialist Simpler structure fostering individual development 2x resource and robotics/AI engineers Aligned graduate and apprenticeship programmes
32
Long-term enhancements to our business and competitive position
Structural upgrade to our business Strong position to compete
Improved capabilities Strengthening our competitive advantages Cost:income ratio1, %
Upgraded data architecture Disruptor c.35% Data-driven customer experience aspiration Enhanced channel technology
Low 40s E2E journey transformation Tech-enabled productivity Applied sciences improvements UK banks c.55% Single customer view Leading integrated propositions Scalable infrastructure EU banks c.55%
Agile change Key skills of the future Global banks c.70% Upskilled workforce
1 – Cost:income ratios as reported (latest disclosure). Disruptor aspiration: based on marketplace lenders; UK: RBS, Santander UK, Barclays, HSBC; EU: BBVA, Santander Group, UniCredit, Intesa, Nordea, Swedbank, ING, KBC, Caixabank, Sabadell, Societe Generale, Credit Agricole; Global: Citigroup, JP Morgan, Bank of America, Morgan Stanley, Goldman Sachs, Credit Suisse, UBS, Deutsche Bank, BNP Paribas. 33 Digitising the Group & Transforming ways of working
GSR3 priorities Key outcomes (2020)
Digitise more customer journeys end-to-end and scale of cost base up transformation to include our Central Functions covered by journey >70% transformation
Simplification and progressive modernisation through targeted investment in technology, data, and innovation Up to Change resource efficiency 30% improvement More agile ways of working and continued focus on technology-enabled productivity improvement
increase in training Build key skills of the future and greater in-house and development to capabilities 50% 4.4m hours p.a.
34
Maximising Group capabilities
Antonio Lorenzo David Oldfield Chief Executive, Scottish Widows Group Director, Commercial Group Director, Insurance & Wealth Banking
35 Maximising Group capabilities – Insurance & Wealth Antonio Lorenzo Chief Executive, Scottish Widows Group Director, Insurance & Wealth
36
Maximising Group capabilities: Insurance & Wealth
GSR3 priorities Key outcomes (2020)
Capture the Corporate Pensions opportunity, leveraging the Zurich acquisition and Group strengths New pension >1m customers
Offer customers a single home for their banking and insurance needs
Financial Planning & Retirement open Drive growth across intermediary and relationship £50bn book AuA growth1 channels through a strong distribution model
1 – Includes Wealth, excludes longstanding products. 37 Insurance & Wealth business with diversity and scale
Unique business model Integral part of Lloyds Banking Group
Iconic Group brands Underlying profit £0.9bn in 2017 (12% of Strength across our Retirement & General Group) Protection core markets Investment Insurance
Cumulative 1 >9m £145bn Scale player dividends paid to Customers AuA £5.9bn Group since 2011
Unrivalled multi- Franchise Direct Intermediary channel distribution Underlying return on tangible equity Successful 16% GSR2 selected re-platforming £2.5bn 5 star in 2017 achievements of our Home bulk annuity deals Financial Adviser Insurance business since launch service rating
1 – Figures exclude Zurich acquisition. 38
Meeting customersʼ Financial Planning & Retirement needs in a growing market
Significant market opportunity… …which we will start to capture during GSR3 Market AuA, Financial Planning & Retirement products, £tn1
CAGR
+5% 3.0 Double-digit new business income growth 2.4 2.1 across Financial Planning & Retirement
Grow income in General Insurance and Protection
2017 2020 2025 These increases will more than offset Drawdown Corporate pensions reductions in longstanding products Individual annuities Investments2 Individual pensions
1 – Provider results, ABI, Compeer, Fundscape, HMRC, Investment Association, Money Management and Spence Johnson. 2 – Investments includes stocks & shares ISAs, unwrapped funds and direct equities. Markets shown where LBG participates. 39 Capturing the Corporate Pensions opportunity, leveraging the Zurich acquisition and Group-wide capabilities
Market opportunity Key initiatives and outcomes
Corporate Pension AuA Integrating Zurich platform to increase projected to grow at 11% scale, enhance capabilities and reach Increase in pensions CAGR between 2017-20251 into new, growing segments >1m customers
Leveraging our corporate client Auto-enrolment and relationships to provide retirement higher contributions2 solutions Corporate Pensions new business market Customer preference for 15% share by 20201 Digitising employer and employee digitised services increases (10% in 2017) customer interaction journeys to enhance customer experience
1 – Internal projections based on provider results and data from the ABI and Spence Johnson. 2 – Total minimum contributions levels, including employer and staff contributions: up to 40 05/04/2018: 2%; 06/04/2018 – 05/04/2019: 5%; 06/04/2019 onwards: 8%
Offering customers a single home for their banking and insurance needs
Our Single Customer View… …brings our Insurance proposition to Retail digital customers
Unrivalled level of engagement with customers
>13m Digitally active users rated UK mobile 16 Average visits per month #1 app since 20151 Significantly higher than standalone insurers
Deeper understanding of our customersʼ insurance needs
• Offer data-driven, bespoke Financial Planning & Retirement, General Insurance and Protection propositions with seamless service
•Providegreater convenience for customers through our leading distribution network and multi-channel approach
1 – Forrester UK Mobile Banking, 2015, 2016, 2017. 41 Strong distribution model to drive growth across Intermediary and Relationship channels
We are investing in each channel to grow our business
Launch Open Market Option (OMO) annuity, allowing customers of any pension provider to buy a Scottish Widows annuity Individual annuities market 15% share1, a 5pp Intermediary Enter the on-platform pension and investment market, increase providing access to a fast growing customer segment
Enhance digital journeys for intermediaries
Connect franchise holdings via Single Customer View
Increase in Relationship Provide a comprehensive range of advice and guidance solutions Franchise Home for pensions & investments (Franchise and Direct) >2x Insurance and Protection needs Embed Home and Life insurance solutions in the Franchise met2 customer journey
1 – Market share of new business, based on internal projections and ABI data. 2 – Needs met originating in branch and via Connect mortgages, based on internal projections 42
Maximising Group capabilities: Insurance & Wealth
GSR3 priorities Key outcomes (2020)
Capture the Corporate Pensions opportunity, leveraging the Zurich acquisition and Group strengths New pension >1m customers
Offer customers a single home for their banking and insurance needs
Financial Planning & Retirement open Drive growth across intermediary and relationship £50bn book AuA growth1 channels through a strong distribution model
1 – Includes Wealth, excludes longstanding products. 43 Maximising Group capabilities - Commercial Banking
David Oldfield Group Director, Commercial Banking
44
Maximising Group capabilities – Commercial Banking
GSR3 priorities Key outcomes (2020)
Growth in net Digitise propositions and support lending needs to drive lending to Start- growth in SME and Mid Markets £6bn ups, SMEs and Mid Markets
Upgrade propositions to deepen relationships with Global Products Corporates and Financial Institutions >70% digitised
Maintain market Increase the productivity of our Relationship Managers leading RoRWA – through investment in data and analytics 2.8% in 2017
45 Solid foundations and simple model delivering best-in-class returns
Simple, low risk, relationship-led and UK-focused model Strong track record of delivery (GSR2)
Targeted growth Retail Commercial Banking Simple Business Mid Global Financial SME and Mid Market segmentation SMEs Banking Markets Corporates Institutions +£4bn net lending
Disciplined Transaction Investment in digital Lending Markets participation Banking Active clients on >12k CB Online Comprehensive Digital Relationship coverage Self-serve Management Simplification Accounts opened Delivering best-in-class returns (FY2017)1 >16k through the new digital onboarding process RoRWA Cost:income ratio Capital discipline 2.8% 46% RWA reduction Peer Avg.2 1.2% 65% £17bn
1 – LBG figures for FY17 and peer average for 9M17 2 – Peer average refers to RBS (Commercial and NatWest Markets), Barclays (Corporate & IB) and Santander UK (Commercial and Global Corporate Banking) 46
Transforming our propositions to meet our clientsʼ evolving needs
Wide ranging client needs…. …supported through our key GSR3 themes
Seamless multi-channel engagement Invest and grow In SME and Mid Markets For simple Fully digital self-serve • Digitise client experience needs they • Increase self-serve want Flawless servicing • Improve product range Digital integration with accounting systems Deepen Relationships in GC and FI • Enhance payment and cash management • Upgrade liquidity and working capital propositions Relationship Manager support • Maintain returns discipline For complex Customised propositions needs they Real-time relevant sector insight Increase Productivity want Of Relationship Managers Digital integration with enterprise systems • Focus on high value client interactions • Deliver valuable insight
47 Invest and grow in SME and Mid Markets
In GSR3 we will...
Digital origination of simple loans, with online servicing Faster time to loan sanction and cash draw down Digitise client Loans serviceable experience Enhance digital offering in FX, Rates and deposits 100% online Transform transaction and banking journeys end-to-end
SME conversion Upgrade trade and working capital propositions rate in Markets Improve 2x Leverage Open Banking to broaden client reach products from product range online channels Expand loan product range with flexible funding options
Straight-through-processing and automation Decision time for Simplify <2hrs onboarding Transform onboarding for corporate clients across the simple lending and servicing Group
48
Deepen relationships in Global Corporates and Financial Institutions
In GSR3 we will...
Modernisation of capabilities to expand client offering Broaden Payments Address more liquidity needs and provide more financing Cash management solutions 1 in 3 mandates won & Cash (from 1 in 8) Management Continue to invest in trade and asset finance platforms
Integrate bulk FX payment capability Straight-through- Improve processing of Markets Improve electronic Rates and Repo capabilities >90% international products payments Simplify operations and systems to drive efficiency gains
Create Have the Relationship Manager at the heart of our model Increase in seamless 25% e-traded volumes client A client coverage led model supported by product and (FX and Rates) experience delivery teams
49 Make the Relationship Manager role more productive with more time spent on value adding activity
Clients want … Through our Relationship Managers we will deliver…
Frictionless multi-channel A trusted partner providing valuable insight and engagement and flawless creating strategic conversations servicing Proactive client interaction offering customised propositions Customised propositions 50% increase in RM time spent on more Timely, relevant insight complex, value adding activity adding tangible value Underpinned by…
Automated processes and self-serve capability Connected cross-Group and external data Group API architecture Applied sciences for sophisticated analytics
50
We can work across the Group to bring joined up solutions
Strong cross-divisional collaboration will drive deeper relationships with Commercial clients Focus going forward
Retail & Branch servicing Maximising Group Franchise distribution Community Bank Commercial cards capabilities to target General Insurance Merchant acquiring profitable growth Protection Motor finance Financial Planning Contract hire & Retirement International payments Wealth leads Business Banking Diversifying further our Insurance & Commercial sources of income Wealth Banking
Extracting further Corporate pensions synergies through Bulk annuities deeper relationships ALM / Securitisation Longer term lending 51 Maximising Group capabilities – Commercial Banking
GSR3 priorities Key outcomes (2020)
Growth in net Digitise propositions and support lending needs to drive lending to Start- growth in SME and Mid Markets £6bn ups, SMEs and Mid Markets
Upgrade propositions to deepen relationships with Global Products Corporates and Financial Institutions >70% digitised
Maintain market Increase the productivity of our Relationship Managers leading RoRWA – through investment in data and analytics 2.8% in 2017
52
Financial projections and targets
George Culmer Chief Financial Officer
53 Clear strategy that will underpin the delivery of superior returns and create greater value for shareholders
Transforming the Group for success in a digital world Sustainable and low risk growth OUR Helping Britain PURPOSE Prosper
Market leading efficiency
Best bank for OUR customers, colleagues AIM and shareholders Superior returns and lower cost of equity
Digitised, simple, low OUR risk, customer focused, BUSINESS UK financial services Strong capital generation and MODEL provider >£3bn strategic investment attractive capital return policy
54
Sustainable and low risk growth – Opportunities for growth in targeted key segments
Strong franchise across key channels and products Further growth opportunities
Channels market share • Organic growth in targeted key segments: Digital new business volumes1 22% Branches market share 21% - Financial Planning & Retirement open book assets under administration Product market share Consumer credit card balances 25% - Start-up, SME and Mid Market lending Current account volumes 25% - Targeted growth in consumer lending segments Mortgage balances (open book) 20% Retail deposit balances 19% - Will continue to balance volume and margin SME and small business balances 19% considerations in mortgages Mid Market main bank relationships 17% • Inorganic growth: Consumer loan balances2 15% Black Horse car finance balances 14% - Consider ʻbolt-onʼ acquisitions in segments Home insurance GWP 12% and/or capabilities where appropriate 3 Corporate pensions (flow ) 10% + Zurich - Innovation growth opportunities through Commercial payment volumes (flow) 7% Average market strategic partnerships and FinTech engagement 3 Individual pensions & drawdown (flow ) 3% share4: 19% • No change to prudent risk appetite Channels Retail Commercial Banking Insurance & Wealth
1 – Volumes across PCAs, loans, savings, cards and home insurance. 2 - Comprises unsecured personal loans, overdrafts, and Black Horse retail lending balance share. 3 - Annualised Premium Equivalent new business. Corporate Pensions previously disclosed as stock market share of a smaller addressable market. 4 – Average market share calculated for core financial services products. Market data sources: ABI, BoE, CACI, eBenchmarkers, Experian pH, FLA, Spence Johnson, UK Finance. All market shares as at FY17 except individual pensions & drawdown (9M17). 55 Sustainable and low risk growth – Cost of risk expected to remain low, with through the cycle guidance improved
Cost of risk to remain low Reflecting our low risk business model
Asset quality ratio (net), bps • Low risk business model underpinned by prudent participation choices and portfolio de-risking -5bps - Over 95% of assets in UK (AA rated) c.40 c.35 - Secured assets represent over 2/3 of portfolio; average mortgage LTV of 43.6% <30 - Unsecured consumer portfolio c.6% of loans, 18 compared to c.4% in 2014 15 14 - Stringent underwriting criteria with targeted balance growth in recent years - Run off assets now c.£9bn, down 95% from peak, and just c.2% of loans 20152016 2017 2018-20 GSR2 New - Limited exposure to high volatility business lines guidance guidance • Asset quality ratio of c.35bps (prev. c.40bps) through the cycle and <30bps in the plan period, with lower Through the cycle releases and write backs than FY17
56
Market leading efficiency – Targeting further absolute cost reductions, creating capacity for strategic investment
Further absolute cost reductions Outlook Operating cost1 trajectory, £bn • Proven track record of delivering cost reductions; 10.0 8.7 cost base reduced by c.£2bn since 2011 8.2 <8.0 • Targeting operating costs of <£8.0bn in 2020, more than offsetting inflation
• Focus on efficiency allows for increased investment; >£3bn strategic investment over next three years 2011 2014 2017 2020 - >40% increase compared to the prior plan period Further cost:income ratio improvements Cost:income ratio, % • Cost:income ratio will now include remediation, as well as operating costs with increased investment
2017 46.8 51.8 - Remediation costs expected to reduce significantly below 2017 levels
Low 40s • Targeting further improvements in cost:income ratio 2020 exiting 2020 - Low 40s exiting 2020, compared with 51.8% in 2017, with reductions every year Reported cost:income ratio Incl. remediation2 1 – Operating costs exclude operating lease depreciation. Includes TSB (2011 and 2014) and MBNA (2017). 2 – Calculated as (operating costs + remediation costs) / net income. Remediation previously referred to as other conduct 57 Superior returns and lower cost of equity – Targeting strong statutory profit growth
Continued strong statutory profit progression Closing the gap to underlying PBT Statutory profit before tax, £bn • Statutory PBT has increased significantly since 2011 and now accounts for 62% of underlying PBT 2.5 2.1 • Targeting further strong statutory profit growth, driven by targeted growth, resilient NIM, low risk business 4.7 3.1 model, and lower operating and remediation costs 5.3 4.2 3.5 4.2 • Below the line items to reduce significantly 1.8 1.6 0.4 - PPI costs to cease in August 2019 due to -0.6 industry deadline 3.4 - Post this deadline, only volatility, restructuring, amortisation of purchased intangibles and fair -3.8 value unwind will remain below the line 2011 12 151413 16 2017 • Expect an effective tax rate of around 25% in 2020
PPI & remediation Statutory PBT - Reported
58
Superior returns and lower cost of equity – Targeting improved returns on a higher capital base
Higher capital base Improved returns on a higher capital base Post-capital return CET1 ratio1
Around 1% 13.013.012.8 13.9 mgmt. buffer 10.3 7.1 7.6 8.1 • Targeting improved statutory RoTE of 14.0% - c.13% 15.0% from 2019 on a higher capital base
20171615141312112010 Target • Targeting higher CET1 ratio of c.13%, plus a management buffer of around 1% Impact of higher capital base fully absorbed Return on tangible equity, % 13.5 – 15.0% 14.0 – 15.0% • Excluding the impact of higher capital requirements, RoTE would be up to 90bps higher Up to >90bps 90bps
Existing Higher 2018-19 New guidance capital base uplift guidance
1 – Pro-forma for Insurance dividend. 2016 post-MBNA (0.8%). 2017 post announced share buy back. 59 Superior returns and lower cost of equity – Delivering superior shareholder returns
Simple, differentiated business model
Clear participation choices with low UK focus complexity Lower cost Re-shaped and de-risked Lower impairments, lower volatility and of equity business lower cost of funding
Positive operating leverage allowing Market leading efficiency Higher for higher investment capacity RoTE
Strengthened capital base Prudent and stronger bank Superior shareholder Scale of transformation Enhanced customer experience returns
60
Strong capital generation and attractive capital return policy – Capital generative business model with clear framework for capital return
Consistent capital generation Enabling superior shareholder returns
Pre-dividend capital generation per annum, bps1
• Business model remains strongly capital generative 2012-2017 c.180 average - Continue to target 170-200bps per annum, pre- dividend
• Improved profitability provides capacity for growth and ability to absorb capital headwinds while still delivering consistent capital generation GSR3 target 170-200 • Clear framework for capital return to shareholders:
- Progressive and sustainable ordinary dividend
Peer average c.130 - Will continue to return surplus capital by an (2015-2017) appropriate means, with current preference for share buy-backs
1 – Excluding acquisitions. Annualised average for peers 61 Closing comments
António Horta-Osório Group Chief Executive
62
Transforming the Group for success in a digital world
Our purpose Our strategic priorities Our ambition Helping Britain Prosper Maximising Digitising Group the Group capabilities Our aim Best bank for customers, Transforming colleagues and shareholders the Group for success in a digital world
Our business model Digitised, simple, low risk, customer focused, UK financial Transforming services provider ways of working
63 Appendix
64
Speakersʼ biographies
Vim Maru Jakob Pfaudler Zaka Mian Group Director, Retail Group Director, Community Banking Group Director, Transformation
Vim was appointed Group Director, Retail in Jakob was appointed Group Director, Zak joined the Group in 1989 as a Business September 2017. Community Banking in September 2017. Analyst in IT and has carried out multiple roles involving Retail CIO, Head of IT He joined the Group in June 2011 as From 2015 to 2017 he was Chief Operating Architecture and leading the Digital Managing Director, Customer Products and Officer for the Retail Bank and prior to this Transformation programme. was appointed to the Group Executive he was Managing Director of Asset Finance. Committee in August 2013. Vim is also a UK Other previous roles include Chief Operating He was appointed Group Director, Digital Finance Board member, leading on Retail Officer for Wealth & International, Managing and Transformation in 2016 and his Banking. Director International Retail and International responsibilities increased in September 2017 Banking and Wholesale Banking Operations as the Group Director, Transformation. He is Previously Vim worked for over 12 years at Director. responsible for the digital transformation of Santander, in a range of roles in Corporate the Group, including all IT and business Strategy, Mergers & Acquisitions, the Life JakobjoinedtheGroupin2004havingspent change, and ensuring we are ready to meet Division and most recently held the position six years with McKinsey & Co, in their the future expectations of our customers. of Director, Retail Products. London office. Prior to McKinsey, Jakob spent time with Goldman Sachs and Oliver Zak has a Computer Science degree from Vim holds an Economics degree from the Wyman. York University. London School of economics and is a member of the Institute of Chartered He has a PhD in Theoretical Physics from Accountants. Oxford University.
65 Speakersʼ biographies
Antonio Lorenzo Jennifer Tippin Chief Executive, Scottish Widows and David Oldfield Group People and Productivity Director Group Director, Insurance and Wealth Group Director, Commercial Banking
Jen was appointed as Group People and Antonio was appointed Chief Executive, David was appointed as Group Director, Productivity Director in July 2017 and is Scottish Widows and Group Director, Commercial Banking in September 2017 responsible for leading the people function Insurance at the end of 2015 and during responsible for supporting corporate clients and managing the Groupʼs cost base. 2017 he also assumed responsibility for the from SMEs through Mid Markets to Global Wealth Division. Corporates and Financial Institutions. Prior to her current role, Jen held the roles of Group Customer Services Director and Antonio joined the Group in 2011 from David started his career with Lloyds Bank 31 Managing Director, Retail Business Banking. Santander to lead the Groupʼs strategic years ago on the graduate programme and review and subsequent programme of has held a number of key leadership roles Graduating from Oxford University, Jen reducing non-core assets and exiting across all Divisions of the Group. enjoyed a career spanning multiple international locations. He subsequently held Immediately prior to his current role he was industries, including banking, engineering the role of Group Director, Consumer Group Director Retail and Consumer and the airline sector. Jen is a non-executive Finance & Group Corporate Development, Finance, responsible for the Lex Autolease director on the board of Lloyds Bank leading the divisionʼs growth strategy whilst and Black Horse Brands, Retail branch Corporate Markets and the Kent Community completing the sale of TSB. networks, Telephone Banking, and Retail NHS Foundation Trust. Business Banking and UK Wealth He is Group Executive Sponsor for businesses. Emerging Talent. David is a Fellow of the Chartered Institute of Bankers. He is also Group Executive Sponsor for Disability.
66
Forward looking statement
Forward looking statement This document contains certain forward looking statements with respect to the business, strategy, plans and /or results of Lloyds Banking Group and its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about Lloyds Banking Group's or its directors' and/or management's beliefs and expectations, are forward looking statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that will or may occur in the future. Factors that could cause actual business, strategy, plans and/or results (including but not limited to the payment of dividends) to differ materially from forward looking statements made by the Group or on its behalf include, but are not limited to: general economic and business conditions in the UK and internationally; market related trends and developments; fluctuations in interest rates, inflation, exchange rates, stock markets and currencies; the ability to access sufficient sources of capital, liquidity and funding when required; changes to the Group's credit ratings; the ability to derive cost savings and other benefits including, but without limitation as a result of any acquisitions, disposals and other strategic transactions; changing customer behaviour including consumer spending, saving and borrowing habits; changes to borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability, instability as a result of the exit by the UK from the European Union (EU) and the potential for other countries to exit the EU or the Eurozone and the impact of any sovereign credit rating downgrade or other sovereign financial issues; technological changes and risks to the security of IT and operational infrastructure, systems, data and information resulting from increased threat of cyber and other attacks; natural, pandemic and other disasters, adverse weather and similar contingencies outside the Group's control; inadequate or failed internal or external processes or systems; acts of war, other acts of hostility, terrorist acts and responses to those acts, geopolitical, pandemic or other such events; changes in laws, regulations, accounting standards or taxation, including as a result of the exit by the UK from the EU, or a further possible referendum on Scottish independence; changes to regulatory capital or liquidity requirements and similar contingencies outside the Group's control; the policies, decisions and actions of governmental or regulatory authorities or courts in the UK, the EU, the US or elsewhere including the implementation and interpretation of key legislation and regulation together with any resulting impact on the future structure of the Group; the ability to attract and retain senior management and other employees and meet its diversity objectives; actions or omissions by the Group's directors, management or employees including industrial action; changes to the Group's post-retirement defined benefit scheme obligations; the extent of any future impairment charges or write-downs caused by, but not limited to, depressed asset valuations, market disruptions and illiquid markets; the value and effectiveness of any credit protection purchased by the Group; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions of competitors, including non-bank financial services, lending companies and digital innovators and disruptive technologies; and exposure to regulatory or competition scrutiny, legal, regulatory or competition proceedings, investigations or complaints. Please refer to the latest Annual Report on Form 20-F filed with the US Securities and Exchange Commission for a discussion of certain factors together with examples of forward looking statements. Except as required by any applicable law or regulation, the forward looking statements contained in this document are made as of today's date, and Lloyds Banking Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements. The information, statements and opinions contained in this document do not constitute a public offer under any applicable law or an offer to sell any securities or financial instruments or any advice or recommendation with respect to such securities or financial instruments.
© Lloyds Banking Group and its subsidiaries 67