INTRODUCTION TO LLOYDS BANK - DerTreasurer · Lloyds Bank UK Business Bank of the Year for 12...

INTRODUCTION TO

LLOYDS BANK

LLOYDS HISTORY

3

1765

Foundation of

Lloyds Bank and

opening of first

Private Banking

branch in

Birmingham

Several

acquisitions to

broaden

international

footprint of the

Group

1995

Merger with Trustee

Savings Bank

Groupwide international

Network of offices in 45

countries

2000

Lloyds TSB purchases

Pensions and

Investment Company

‘Scottish Widows’

2009

Lloyds TSB acquires Halifax

Bank of Scotland

2009

Following the financial

crisis, 43.4% of all

Lloyds TSB shares

are bought by the

British Gouverment

2013

Divestment due to

partial state

ownership Sale

of Trustee Savings

Bank

2015

Global Corporates

office in Singapore is

opened

2015

Local German Trade

Finance Team

established

2014

Partial state

ownership obliges

Lloyds to reshape

business portfolio.

Non-core assets

reduced by more than

£140bn +

International presence

reduced from more

than 30 countries to

seven

LLOYDS BANKING GROUP AT A GLANCE

4

BR

AN

DS

K

PI

KE

Y F

AC

TS

INSURANCE

3.7m home insurance

customers

H1 2016

Underlying Profit*: £446m

Scottish Widows

Operating since 1815

Over 6m people hold a

Scottish Widows

manufactured product

Colleys

Largest property valuation and

surveying business in the UK

430,000 instructions in 2014

RETAIL BANKING

Halifax

~ 18 million customers

160 years of experience,

today 660 branches in UK

Bank of Scotland

Second oldest bank in the UK

Lloyds Bank

>1,000 branches in the UK

250 years of history

>30m UK Customers

H1 2016

Underlying Profit*: £1,548m

Customer Deposits: £271.3bn

COMMERCIAL BANKING

Banking >80% of the

FTSE 100

H1 2016

Underlying Profit*: £1,236m


Lloyds Bank

UK Business Bank of the Year

for 12 consecutive years

Committed to backing 100,000

start ups

LDC

Leading Mid Market Private

Equity House in the UK

Over 25,000 employees and

£2bn equity investments held

in over 80 UK businesses

CONSUMER FINANCE

UK’s top fleet

management provider

H1 2016

Underlying Profit*: £690m


Lex Autolease

>40,000 customers – growing

fleet up to 330,000 vehicles

Responsible for 1 in 28 of the

UK’s new car vehicles

registered

Blackhorse

Network of 5,000 motor

dealers

Financing 1m customers,

worth £ 1.7bn per annum

*Underlying Profit = Statutory profit adjusted for certain items as detailed in the Basis of Preparation; Calculation: NII + Other Income less Operating Costs, Operating Lease depreciation and

Impairments

LLOYDS BANKING GROUP AT A GLANCE

5

KEY FACTS & OPERATIONAL PERFORMANCE RECENT PRESS & AWARDS

Euromoney 2015

Awards for Operational

Excellence

Business Product

Innovation of the Year

2015

Bank of the

Year 2015

Business Bank of the

Year 2005 - 2016

Best Bank for Treasury &

Cash Management

in the UK 2015 and 2016

Best Developed

Markets Bank 2015

EMEA Structured Finance House

of the Year 2015

#1 Large Corporate UK

Cash Management 2016

Lloyds Banking Group Highlights H1 2016

Strong balance sheet and liquidity position:

Total Capital Ratio of 21.8% and CET1 Ratio of

13.0% (after dividend)

Liquidity Coverage Ratio >100%; eligible assets

increase to £142bn (FY 2015: £123bn)

Robust underlying profit of £4.2bn (H1 2015: £4.3bn)

with return on required equity of 14.0% (H1 2015: 16.2%)

Statutory profit before tax more than doubled to £2.5bn

Strong net interest margin of 2.74% (H1 2015: 2.62%)

Market leading Cost Income Ratio of 47.8%

UK PEER SENIOR BANK OPCO RATINGS COMPARISON(1)

HSBC

AA-

Aa2

AA-

RBS

BBB+

A3

BBB+

Barclays

A A2

A-

Santander

UK

A

A1

A

Lloyds

A+ A1

A

Standard

Chartered

A+

Aa3

A

S&P Moody’s Fitch

Bloomberg, September 2016, in £ billion

MARKET CAPITALISATION COMPARISON (EUROPEAN BANKS)

6.9

Com

merz

bank

Unic

redit

12.3

Deuts

che B

ank

15.5

50.0

BN

P

50.4

HS

BC

116.3

Sta

ndard

Chart

ere

d

21.8

RB

S

24.1

Barc

lays

29.6

ING

37.5

UB

S

42.8

Llo

yd

s B

an

k

43.7

Santa

nder

20.9

Cre

dit S

uis

se

20.6

Cre

dit A

gricole

VALUE CREATION FROM SUSTAINABLE

WORKING CAPITAL MANAGEMENT

0%

5%

10%

15%

20%

25%

30%

>0<=5 >5<=10 >10<=15 >15<=20 >20<=25 >25<=30 >30<=35 >35<=40 >40

Germany Western Europe

MANAGING WORKING CAPITAL IS A CHALLENGE

7

1 %

2 % 8

Only 1% of German companies

achieved consistent year on year

efficiency improvements

82% of German companies decreased in

efficiency more than once over 5 years

Pro

port

ion o

f th

e p

opula

tio

n

Average number of days movement in the Cash Conversion Cycle

Source: S&P Capital IQ

Note: Based on analysis of 2,100 companies headquartered in the Western Europe

Cash Conversion Cycle Annual Movement 2011-15 Sustained Efficiency?

65% of German companies moved more than

10 days on average each year

CORPORATE-GERMANY: GROWTH DYNAMICS

8

Comparing growth trends: Revenues and Working Capital


(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012 2013 2014 2015

%

Working Capital growth has de-coupled from growth in revenues

Revenue

growth

Working Capital

growth

Δ –4 days

50

55

60

65

70

75

80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Days

UNFOLDING THE WORKING CAPITAL COMPOSITION

9

Long-term evolution of ‘Days Outstanding’

Lloyds Bank analysis


Whilst inventory levels are fairly stable, companies collect receivables quicker, but also experience pressure to pay

sooner

Inventory days

A/P days

A/R days

Most efficient

Cash Conversion Cycle

Δ1 day in A/P

days = €237m

SECTOR VIEW

10 Source: S&P Capital IQ

Cash cycles indicate a significant tie-up of capital across sectors

A/R Days A/P Days Cash Conversion Cycle

0

20

40

60

80

100

120

140

3y Avg

0

20

40

60

80

100

120

140

3y Avg

0

20

40

60

80

100

120

140

3y Avg

0

20

40

60

80

100

120

140

3y Avg

Days Days Days Days

(40)

(20)

0

20

40

60

80

3y Avg

Days

RETAIL CAPITAL GOODS AUTO HEALTHCARE MEDIA & TELECOM

Note: Graphs show 3-year averages for each respective industry

Media & Telecom Capital Goods Healthcare

Auto Retail

0

40

80

120

160

(120) (80) (40) 0 40 80 120 160 200 240 280

Revenues (

€ b

n)

Cash Conversion Cycle (Days)

DOES SIZE MATTER?

11

Comparing company size (Total Revenues) with the Cash Cycle

Note: Graph excludes Volkswagen and C.H. Boehringer (CCC: 395 days)


Leverage scale (and bargaining power) to achieve a shorter cash conversion cycle…and release capital

CCC > 40 days:

130/201 companies

KEY TO SUSTAINABLE IMPROVEMENTS

12

A comprehensive approach is required to ensure benefits are sustained. Successful businesses have detailed and

automated MI, robust processes, defined working capital responsibilities and a focus on embedding skills

12

Developments in analytical capabilities now enable companies to have access to real-time reporting and KPIs on working

capital, including invoice level customer and supplier payment performance. This enhanced management information is

being used to drive greater visibility and focus

Cash and working capital has to be a business priority and a permanent agenda for boards and senior management 1

Exclusively finance led initiatives fail. Working capital is driven cross-functionally. Successful working capital

improvement programmes require broad engagement across the business and strong board and commercial sponsorship 2

Responsibility and accountabilities for key areas of working capital are defined clearly. Business unit and individual

performance management targets are utilised across the key cash cycle phases to focus on performance improvement 4

Greater focus on working capital training and embedding skills across the organisation. Helping commercial teams

understand the impact of potential changes in working capital 5

6 Well defined working capital policies, including the incorporation of cash and working capital profiles in business /

investment cases. Enhanced review and challenge of cash and working capital in the annual planning cycle

3

THE BUSINESS CASE FOR WORKING CAPITAL

-5

0

5

10

15

20

25

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35

Avera

ge C

ash C

onvers

ion C

ycle

Average Cash From Operations as a % of Revenue

Telecommunication Services

Utilities

Information Technology

Energy

Industrials

Consumer Discretionary

Consumer Staples

Materials

Healthcare

A strong relationship

indicated by 98% probability Top 10% vs. lowest 10% cash

conversion cycle

2 X Cash Flow

13

Doubling Working Capital Productivity Coincides with a Jump in Labour Productivity

Industry in which working capital

productivity doubled

Average improvement in

labour productivity (%)

Computers 59

Construction equipment 57

Industrial gases 40

Air Conditioners 38

Automobiles 36

Source: Boston Consulting Group

A Driver of Long Term Cash Flow..

..And Broader Efficiency

0

60

120

180

240

2010 2011 2012 2013 2014 2015

0

60

120

180

240

2010 2011 2012 2013 2014 2015

0

60

120

180

240

2010 2011 2012 2013 2014 2015

VALUE CREATION – DISCOUNTED CASH FLOWS

14

EBITDA ∆ Net W/C Capex


Note: Graphs show the total (i.e. sum) respective figure of all German companies with more than €500m revenue, excl. financials (Total: 201)

Tax

2010 - 2015 2010 - 2015 2010 - 2015

€bn €bn €bn

Analysis: Free Cash Flow

0

60

120

180

240

2010 2011 2012 2013 2014 2015

(5)

0

5

10

15

20

2010 2011 2012 2013 2014 2015

0

60

120

180

240

2010 2011 2012 2013 2014 2015

0

60

120

180

240

2010 2011 2012 2013 2014 2015

VALUE CREATION – DISCOUNTED CASH FLOWS

15

EBITDA ∆ Net W/C Capex


Note: Graphs show the total (i.e. sum) respective figure of all German companies with more than €500m revenue, excl. financials (Total: 201)

Tax

2010 - 2015 2010 - 2015 2010 - 2015 2010 - 2015

€20bn

€bn €bn €bn €bn

Note: Positive Value = Outflow

Consider Working Capital flows as important value driver besides EBITDA, Capex and Tax

Analysis: Free Cash Flow

VALUE CREATION – CAPITAL RETURNS

16

ROCE EBIT


INVESTED CAPITAL

€bn €bn

Muted economic growth and the ready access to (cheap) debt have depressed returns

Analysis: Return on Capital Employed

Note: Numbers in graphs all German companies with more than €500m revenue, excl. financials (Total: 201)

0

20

40

60

80

100

120

140

160

2010 2011 2012 2013 2014 2015

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2010 2011 2012 2013 2014 2015

= /

Note: Average ROCE Note: Total EBIT Note: Total Invested Capital

0

200

400

600

800

1,000

1,200

1,400

1,600

2010 2011 2012 2013 2014 2015

Total Debt: +37%

Total Equity: +27%

(5%)

0%

5%

10%

15%

20%

25%

30%

0x 1x 2x 3x 4x 5x 6x 7x 8x 9x 10x

RO

CE

(%

)

Total Debt/ EBITDA (x)

FINANCIAL FLEXIBILITY

17

ROCE vs Total Debt/ EBITDA

Note: Graph adjusted to remove outliers | Business (Capex + Acquisitions) and Shareholder (Dividends + Share-Buybacks) allocation figures 3yr total 2013-2015


(5%)

0%

5%

10%

15%

20%

25%

30%

0x 1x 2x 3x 4x 5x 6x 7x 8x 9x 10x

RO

CE

(%

)



18




€419bn

Business

€116bn

Shareholders

Capital allocation (3yr. cumulative)

(5%)

0%

5%

10%

15%

20%

25%

30%

0x 1x 2x 3x 4x 5x 6x 7x 8x 9x 10x

RO

CE

(%

)



19




Capital allocation policy drives flexibility for strategic actions

€419bn

Business

€116bn

Shareholders

SBB: +33% CAGR (2012-2015)

Capital allocation (3yr. cumulative)

CONCLUSIONS

20

Size does not (necessarily) matter – operating efficiency does

Effective W/C management supports sustainable Cash Flow generation

W/C is a source of value creation for the firm & its shareholders

Disciplined (working) capital allocation facilitates overall financial flexibility

IMPORTANT NOTICE

21

This presentation, its contents and any related communication (altogether, the “Presentation”): (i) does not constitute or form part of any offer to sell or an invitation to subscribe for, hold or

purchase any securities or any other investment; (ii) shall not form the basis of or be relied on in connection with any transaction, contract or commitment whatsoever; (iii) is provided for

information purposes only and is not intended to form, and should not form, the basis of any investment decision; (iv) is not and should not be treated as investment research, a research

recommendation, an opinion or advice; (v) is confidential and has been prepared by, and is subject to the copyright of, Lloyds Bank plc or its affiliates (together, “Lloyds Bank”); (vi) is based on

public information, and is in summary form and therefore may not be complete; (vii) may refer to future events which may or may not be within the control of Lloyds Bank, and its group

companies, and its or their directors, officers, employees, associates and Lloyds (altogether, “Lloyds Persons”), and no representation or warranty, express or implied, is made as to whether or not

such an event will occur; (viii) is subject to change at any time and Lloyds Bank is under no obligation to inform any person of any such change; (ix) may only be sent to recipients who may lawfully

receive it in accordance with applicable law, regulation and rule of regulatory body (“Laws”); and (x) is not being distributed to and must not be passed on to the general public in the U.K., and may

only be distributed in the U.K. to persons who are investment professionals within the meaning of Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) order 2005 (the

“Order”), or are persons falling within Article 49(2)(a) to (d) of the Order (all such persons being “Relevant Persons”), is directed only at Relevant Persons and must not be acted on or relied on by

persons who are not Relevant Persons.

Securities services offered in the United States are offered by Lloyds Securities Inc. (“LSI”), a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the U.S.

Financial Industry Regulatory Authority. LSI services are provided only in the United States.

Lloyds Bank has exercised reasonable care in preparing this Presentation (and in confirming that where any information or opinion in this Presentation is from or based on a third party source, that

the source is accurate and reliable), however, no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of the facts contained in this Presentation by

Lloyds Persons. This Presentation may refer to future events which may or may not be within the control of Lloyds Persons, and no representation or warranty, express or implied, is made as to

whether or not such an event will occur. To the fullest extent permitted by Laws, Lloyds Persons accept no responsibility for and shall have no liability for any loss (including without limitation

direct, indirect, consequential and loss of profit), damages, or for any liability to a third party however arising in relation to this Presentation (including without limitation in relation to any

projection, analysis, assumption and opinion in this Presentation). Lloyds Bank reserves the right to terminate discussions with any recipient in its sole and absolute discretion at any time and

without notice.

By accessing, viewing, attending or reading this Presentation, and by not immediately returning or deleting it, or leaving, you confirm and represent that: (a) you understand and agree to the

contents of this important notice; (b) you are a person that may lawfully receive this Presentation in accordance with Laws applicable to you including those of the jurisdiction in which you are

located; (c) if you are not located in the U.S., you are not a U.S. Person, as defined in SEC Rule 902 of Regulation S under the U.S. Securities Act 1933, as amended; (d) if you are located in the U.K.,

you are a Relevant Person; (e) you consent to delivery of this document by electronic transmission; (f) you have or will conduct your own independent enquiries and obtain professional legal,

regulatory, tax and accounting advice as appropriate in relation to the contents of this Presentation; (g) any transaction which you may subsequently enter into will only be on the basis of your

enquiries and advice, your own knowledge and experience, and on the basis of the documents that relate specifically to that transaction; (h) you will keep this Presentation strictly confidential and

will not transmit or distribute this Presentation, or any reproduction or translation it, in whole or in part, of this Presentation, to any person without Lloyds Bank’s prior written consent; and (g) you

will not use this Presentation to the detriment of Lloyds Bank or for any matter other than in relation to the transaction contemplated in this Presentation.

Lloyds Bank may engage in transactions in a manner inconsistent with any opinion in this Presentation. Lloyds Bank trades or may trade as principal in the securities or related derivatives included

in this Presentation (“Relevant Securities”), and may have proprietary positions in, and/or may make markets in, Relevant Securities. Lloyds Persons may have an interest in any securities or

financial product mentioned in this Presentation.

Lloyds Bank and Lloyds Bank Commercial Banking are trading names of Lloyds Bank plc. Lloyds Bank and Lloyds Bank Commercial Banking are trading names of Bank of Scotland plc. Lloyds Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no. SC327000. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration numbers 119278 & 169628, respectively

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