Lloyds Banking Group plc

Thank you. Good morning, everyone, and thank you for joining our 2020 half-year results presentation. It is a shame that we can't gather in person today, but I am pleased that we are still able to hold this virtual event. I will give an overview of our response to the coronavirus crisis and how our strategic transformation to date has positioned the group well to face the evolving environment. I will then hand over to William to run through the financials and we will have time for questions at the end. Before I start, I would like to again thank my colleagues from all across the room. They have maintained their exemplary dedication and professionalism in the face of significant personal and professional challenges, whilst remaining absolutely focused on supporting our customers. As you will have seen, I recently announced my intention to step down as Group Chief Executive by the end of June next year. Until then, I remain wholly focused on my responsibilities, and I am committed to delivering the remainder of GSR3. I will present the full year results in February, while my success will update the markets on the next stage of the group strategy in due course. I will turn first to our response to the crisis on slide two. We are now several months into the pandemic and while progress has been made on reducing the immediate threat of the virus within the UK, the crisis is still having a significant impact on people and businesses across the UK. As a result, our core purpose of helping Britain prosper and our strategic aim of being the best bank for customers, colleagues and shareholders are now more important than ever before. I am proud to say that we have offered unwavering support to our customers over this period and have been quick to respond to their evolving needs, including through the facilitation of more than £9 billion of government-backed lending for businesses and granting more than £1.1 million payment holidays for our retail customers. The efforts of our colleagues to enable this support have been enormous, and in March, we enhanced our support for colleagues by providing job security during the most uncertain of times and also made a range of awards for frontline colleagues in June. In line with the easing of some lockdown restrictions, we have started to see the UK economy return to growth with some signs of recovery in the group's core markets. This recovery has largely been driven by consumers as opposed to the slower recovery we are seeing in commercial sectors. As a group which has around 75% of its lending to prime UK retail customers, we are well positioned to benefit from this recovery. Having said that, we are conscious that longer-term uncertainty over the pace and extent of the UK's economic recovery remains. and we have seen a deterioration in the outlook since we last presented to you in April. This has had a meaningful impact on our internment charge in the second quarter, as William will explain shortly. Despite this uncertainty, the group is well positioned to meet future challenges and seize further opportunities, benefiting from our existing competitive advantages, our positioning, ongoing investment in digital and our overall strategic transformation. We were the first bank to recognize the power of digital by creating a standalone division across the whole bank in 2013 with an executive director reporting to the chief executive. Our digital offering continues to go from strength to strength with customer trends that were using this channel accelerating and further recognition for our market-leading digital options. From a financial perspective, the actions that we have taken over the last nine years to strengthen our balance sheets, such as the sale of non-products, the removal of net wholesale debt, the more even matching of our loans and deposits, position us well to weather the inevitable impact of the crisis. Our strong balance sheet and capital position will enable us to continue supporting customers in times of need, while also remaining focused on the future and reinforcing our competitive advantages. Turning to our strategic progress on slide three. While the crisis has required decisive action in response to short-term challenges, we are now approaching the end of TSR3, and remain committed to delivering against our longer-term conditions. I would like to highlight some of the benefits of our investment, which have been evident during the last few months. We remain the largest digital bank in the UK and have now reached 17 million digitally active users, and this growth is supported by record levels of customer satisfaction, even in a period of increased demand. Our digital NPS increased by 8% in the first half of the year, and both this and our mobile app NPS reached all-time high scores. Despite this, our multi-channel model has remained invaluable for those customers who require face-to-face interaction, and around 90% of our branches have remained open through the lockdown. We also remain committed to delivering cost efficiencies and continually creating capacity to invest in the business. This level of investment has enabled us to respond quickly to new challenges, such as using robotics to process around 98% of bounce-back loan applications, with money credited into customers' accounts, mostly within 24 hours, and significantly improving colleague capacity when it was needed most. Finally, we continue to serve a wider range of our customer financial needs than ever before. We have delivered significant market share gains in a number of our insurance and wealth business lines since we updated you on our progress this time last year. We continue to see significant new opportunities in financial planning and retirement, with a significant increase in customer deposits in the first half, providing opportunities to further support these customers with their varying financial needs. Our ambitious wealth joint venture, Schroeder's Personal Wealth, also continues to make good progress. In the first half of the year, Schroeder's Personal Wealth launched 11 regional hub offices that support its decentralized model, allowing clients to receive a more personal and local experience. The business retains the ambition of becoming a top-three financial planning business by the end of 2023. While the crisis has resulted in some delays to the rollout of our unique single customer view capability due to the deferral of some discretionary strategic steps, we have added another 1 million customers in the first quarter and this will continue to grow. We continue to see our ability to offer our customers all of their financial needs in one place as a distinct competitive advantage. Moving to slide four, and looking beyond GSR3, the organization is mindful of the longer-term impact of the crisis and is well-positioned to respond to them. We are starting to see the emergence of new trends and the acceleration of others, as you can see on the slide. While some of these are likely to prove challenging for the whole of our industry, others represent great opportunities for a business that is as engaged and customer-focused as ours. As a result of our long-run transformation, the group is built upon strong foundations which will support our response. These include our strong financial position, our unique business model which harnesses the strength of multi-channels and multi-brands, a willingness to adopt new ways of working to the use of technology and greater collaboration with external technology partners, and a truly differentiated franchise. I have spoken about our virtuous circle in the past and continue to see that as a cornerstone of our competitive position. These foundations lead the group well equipped to provide a compelling offering for our customers and colleagues in the future, while also enabling long-term superior and sustainable returns. While I will not be leading the next phase of our development, the timing of the arrival of the new Chairman and of my retirement will ensure no loss in momentum in driving forward our strategic transformation to which the Board is fully committed.

Turning now to the Group's financial performance on slide 5.

The group's financial performance in the first half of 2020 has been impacted by the low rate environment, as well as depressed customer activity and a significant deterioration in the economic outlook. We have maintained our rigorous approach to cost management, and total costs are down 4%, including BAU costs down 6%. However, despite the continued cost reduction, pre-provision operating profit is down 26% as a result of the challenging revenue environment. We took an impairment charge of 3.8 billion pounds in the first half, largely due to the worsening of our forward-looking economic assumptions, and this is despite our current experience, which remains relatively benign. Statutory profit after tax of only 19 million pounds has clearly been significantly impacted by this impairment charge. The group's balance sheet remains very strong, and CET1 at 14.6% on a transitional basis is very comfortably above our capital requirements. As I have mentioned, the economy has deteriorated since Q1, and although we are seeing some recent signs of recovery, uncertainty remains. As you can see on slide six, Customer spending fell sharply in March and April, but has gradually picked up and is now broadly in line with pre-crisis levels. Similarly, loan demand fell at the start of the lockdown period, and while personal loan applications remain at about 70% of normalized levels, we have seen more of a recovery in mortgages and motor finance, which have reached pre-COVID levels. The UK consumer is being prudent, and rightly so. William will go through the balance sheet in detail shortly, but we have seen customers paying down unsecured debts while building savings balances. All of this is within an environment of low rates, low inflation, and only modestly falling house prices. The recovery has been slower in commercial sectors, particularly in the key impacted sectors, such as hotels, leisure, and transport. Our SME and business banking clients have seen credit turnover increasing since the low point in May, although in total they remain 10% below pre-crisis levels, while the impacted sectors are still 27% below. I will now turn to slide seven to look at how we are helping Britain recover and how supporting our key stakeholders is clearly in the best interest of sustainable shareholder value creation. We have an opportunity to build a stronger bank while supporting a resilient economy with a more sustainable future. We will do this by working with our key stakeholders in order to develop cultural financial resilience, and help businesses recover from the challenging operating environment, while also helping to finance the UK's green recovery. We will also accelerate the work already underway to transform our ways of work with a strong focus on talent and diversity, and thereby retain and attract the best talent within the group. All of these actions, and many more, will mean that we are able to help Britain recover while simultaneously building a stronger bank. This is clearly aligned with the best interest of the group and our shareholders. In conclusion, going to slide eight, the group has strong foundation, and as you have heard me say many times before, our unique competitive strength positioned the group well for the future. Our business model superior efficiency, and track record of consistent and sustainable delivery will continue to drive ever lower costs with increased and sustained investment in the business and a better customer experience as a continuous outcome. It is this virtuous circle that you have heard me talk about before, which means that we are well-positioned to deliver long-term, superior, and sustainable returns. Our updated 2020 guidance reflects the group's proactive response to the challenging economic environment and is based on our current macroeconomic assumptions. Activity in the group's core markets has begun to recover, but the impact of lower rates and economic fragility will continue for at least the rest of the year. We therefore expect the margin in the second half to be broadly stable on the Q2 level at circa 240 basis points, resulting in a full year margin of circa 250 basis points. Operating costs will be below $7.6 billion, and impairment to be between $4.5 and $5.5 billion. We expect risk-weighted assets in 2020 to be flat to modestly up versus H1. While the economic outlook remains highly uncertain, the Group's financial strength and business model will ensure that we can continue to support our customers and the wider UK economy through the crisis and beyond. This is fully aligned with the Group's long-term strategic goals and in the best interest of our shareholders. I will now hand over to William, who will run through the financial in detail.