ours ours Half Year Results 2017 14 March 2017
ours Disclaimer Certain statements included or incorporated by reference within this presentation may constitute “forward -looking statements” in respect of the group’s operations, performance, prospects and/or financial condition. ours By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. No responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this presentation should be construed as a profit forecast. This presentation does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in the company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares and other securities of the company. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Statements in this presentation reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this presentation shall be governed by English Law. Nothing in this presentation shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws. 2
ours Agenda ours 1. Introduction – Preben Prebensen, Group Chief Executive 2. Financial review – Jonathan Howell, Group Finance Director 3. Business update – Preben Prebensen, Group Chief Executive 4. Q&A 3
ours Introduction Strong performance across all business segments • Strong first half performance , with profit up in all business segments ours • Good performance in Banking with strong margins and low bad debt – Profits increased in Retail, Commercial and Property Finance – Slower loan book growth as we maintain our lending discipline • Securities and Asset Management supported by favourable market conditions • Good growth in earnings and continued dividend progression 4
ours Agenda ours 1. Introduction – Preben Prebensen, Group Chief Executive 2. Financial review – Jonathan Howell, Group Finance Director 3. Business update – Preben Prebensen, Group Chief Executive 4. Q&A 5
ours Financial highlights Strong first half performance • Strong performance across all business segments with AOP +21% to £134.2 million ours • Continued growth in earnings and strong returns , with AEPS +9% to 66.6p and RoE of 18.0% • Good capital position with CET1 ratio at 12.6% and total capital ratio at 15.3% • Progressive dividend growth with DPS +5% to 20.0p 6
ours Financial highlights Increased profitability across all segments • Strong profit growth in Banking, ours % across all three business segments £ million H1 2017 H1 2016 change – Retail Finance continued to grow 122.7 108.4 13% Banking with focus on disciplined lending – Growth in Commercial Finance Retail Finance 39.9 38.9 3% was driven by higher income – Property Finance strong profit Commercial Finance 36.5 33.5 9% growth supported by provision Property Finance 46.3 36.0 29% releases Securities 14.4 6.8 112% • Significant improvement in Securities benefiting from increased Asset Management 9.1 8.4 8% trading activity Group (12.0) (12.4) (3%) • Good progress in Asset Management supported by higher Adjusted operating profit 134.2 111.2 21% market levels 7
ours Income statement Earnings growth and ongoing investment • Income +14% to £378 million % ours – Increased income from lending £ million H1 2017 H1 2016 change businesses and Winterflood Operating income 378.3 331.6 14% • 11% increase in expenses reflects Adjusted operating expenses (226.8) (203.7) 11% continued investment in Banking and higher variable costs in Impairment losses (17.3) (16.7) 4% Winterflood Adjusted operating profit 134.2 111.2 21% • Low impairments benefiting from Profit attributable to shareholders 96.8 88.6 9% benign credit environment and provision releases Tax rate 26% 18% • 26% effective tax rate reflects full- Basic EPS 65.1p 59.7p 9% year impact of banking tax surcharge Adjusted EPS 66.6p 61.1p 9% RoE 18.0% 17.9% 8
ours Simple and transparent balance sheet Continued good access to funding markets Diverse funding sources High quality asset base ours £ billion £ billion 10 10 9.1 8.7 1.3 8 8 1.3 3 Deposits 1 4.9 6 Other assets 6 Secured 2 Treasury assets 4 4 Unsecured Loan book 6.5 1.4 Equity 2 2 1.3 1.1 0 0 31 January 2017 31 January 2017 • High quality loan book • Funding 133% of loan book – 14 months average maturity – Further diversified with issuance of £250 million bond and £175 million tier 2 capital – Predominantly secured with conservative LTVs • Borrow long, lend short • £1.3 billion treasury assets principally on – Term funding 76% of loan book deposit with BoE Notes 1 Other assets include securities assets and other assets. 2 In addition to and not included in the above, at 31 January 2017 the group held £100 Notes million (31 July 2016: £nil) of Treasury Bills drawn under the Funding for Lending Scheme 3 Includes both retail and corporate deposits . which are classified as high quality liquid assets. 9
ours Capital Overview Good capital position supporting our growth CET1 ratio 31 January 31 July % ours £ million 2017 2016 change Common equity tier 1 capital 938.8 901.4 4% Regulatory Minimum Total regulatory capital 1,142.7 925.4 23% 13.5% 7.0% 2 12.6% Risk weighted assets 7,456.0 6,682.5 12% • Good capital position important to support 31 July 2016 31 January 2017 growth while meeting regulatory requirements Total capital ratio – Profitable business supports CET1 capital generation Regulatory • Strong leverage ratio at 10.3% 1 Minimum 10.5% 2 15.3% • 12% increase in RWAs principally due to higher 13.8% risk weighting of property loans – c.1% 2 reduction in CET1 and total capital ratios • Added £175m tier 2 capital 31 July 2016 31 January 2017 Notes: 1 The leverage ratio is calculated as tier 1 capital as a percentage of total balance – Maintaining flexibility longer term sheet assets, adjusting for certain capital deductions, including intangible assets, and off balance sheet exposures. 2 Fully loaded basis FY19 including Pillar I and capital conservation buffer. Excludes Pillar 2a ICG add-on, currently 1.9% total capital and 1.1% CET1. 10
ours Banking Strong first half result • Income up 10% to £274.0 million % £ million H1 2017 H1 2016 change – Growth across all lending areas ours Operating income 274.0 248.7 10% – NIM broadly stable at 8.2% Adjusted operating expenses (134.0) (123.6) 8% • £134.0 million expenses up 8% Impairment losses (17.3) (16.7) 4% – Continued investment whilst focusing on cost control Adjusted operating profit 122.7 108.4 13% • Bad debt remains below historical Net interest margin 1 8.2% 8.3% levels – Benefits from benign environment Expense/income ratio 49% 50% and provision releases Bad debt ratio 2 0.5% 0.6% • Strong returns with 3.7% RoNLB Return on net loan book 3 3.7% 3.6% – Ahead of 3.4% long-term average RoE 23% 25% Notes: 1 Net interest and fees on average net loan book and operating leases. 2 Impairment losses on average net loan book and operating leases. 3 Adjusted operating profit on average net loan book and operating leases . 11
ours Banking Maintaining disciplined approach Loan book size by segment • 1.7% loan book growth maintaining disciplined approach to lending £ million ours 7,000 6,544 +1.7% 6,432 • Retail Finance increased 2.4% – UK motor finance market remains 6,000 competitive 1,505 +3.3% 1,457 – Continued expansion into Ireland 5,000 – Strong growth in premium finance 4,000 • Commercial Finance remained stable at £2.5 2,468 +0.2% 2,464 billion – Core asset finance seeing ongoing 3,000 competition , particularly in broker channel – Growth in specialist lending areas such as 2,000 green energy 2,571 +2.4% 2,511 1,000 • Property Finance increased 3.3% – Strong new business volumes partly offset 0 by higher repayments 31 July 2016 31 January 2017 Retail Finance Commercial Finance Property Finance 12
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