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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
Customer Deposits: £141.4bn
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
Customer Deposits: £9.1bn
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
Source: S&P Capital IQ
(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
Source: S&P Capital IQ
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)
Source: S&P Capital IQ
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
Source: S&P Capital IQ
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
Source: S&P Capital IQ
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
Source: S&P Capital IQ
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
Source: S&P Capital IQ
(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
18
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
Source: S&P Capital IQ
€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
(%
)
Total Debt/ EBITDA (x)
FINANCIAL FLEXIBILITY
19
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
Source: S&P Capital IQ
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