Lloyds Banking Group plc

Morning, everyone, and thank you for joining our 2022 full year results presentation. I'll begin today with an overview of our performance in 2022, including an update on the good start we've made one year into our strategic transformation, as well as outlining what you can expect over the next 12 months. William will then provide the usual detail on our numbers, and we'll have plenty of time for Q&A at the end. So let me begin on slide three. Similar to my update at the half year, I'll start with five key messages I'd like you to take away from today. First, our purpose of helping Britain prosper is core to everything we do. With this in mind, we've taken significant action to provide support to our customers and colleagues through a period of increased uncertainty. We delivered a robust financial performance in 2022 with increased capital returns supported by strong income growth. Although the macroeconomic environment has changed significantly, we remain confident that our strategy is the right one, delivering positive outcomes for all our stakeholders. We've made a good start to our strategic transformation, with 2022 largely focused on mobilizing the businesses and laying the foundations for our future success. Our investment is fundamental to the prospects of the group, and we are already seeing early evidence of delivery. And finally, our confidence in our strategy is reflected in an enhanced financial outlook, particularly as we build through the plan. This includes upgrading our medium term return on tangible equity and capital generation targets. So with that, I'll now turn to slide four to briefly outline how we've delivered for our stakeholders in 2022. Customers and clients are at the heart of our business. In a year where the environment has proven more challenging due to increases in the cost of living, I'm extremely proud of the support we have provided. We've leveraged our digital strengths to provide our customers with the ability to take greater control of their finances. Over 5,000 customers access our digital financial resilience tools every day, and over 5 million have accessed our new credit worthiness app. We've also invested in deep capabilities to help customers build financial resilience and support them with tailored products and plans if they're unable to make ends meet. This includes training more than 4,600 colleagues to provide financial assistance where it's needed. As a result, we've put in place around 250,000 personalized plans, helping individuals and businesses with their finances. Despite the more challenging economic environment, we've not seen a meaningful increase in the total number of customers needing this enhanced support. This highlights the resilience of our customer base as we enter 2023. Our colleagues are critical to providing the support, and we've also made significant efforts to help our people through changes to pay and working practices. In 2022, we provided early cost of living support for colleagues through a one-off payment, whilst many colleagues received a further payment in December. Towards the end of the year, we also made an early announcement on the 2023 pay deal, providing certainty for our people. Core to our purpose is our focus on building an inclusive society. To that end, we've provided over £2 billion of funding to the social housing sector and lent over £14 billion to first-time buyers in 2022, helping more than 60,000 customers get on the housing ladder. At the same time, I'm proud of the fact that we provide around 30% of basic bank accounts in the UK. Alongside this, we've delivered race education training to all colleagues, provided focused support for black entrepreneurs, financed high-speed internet in less privileged communities, and supported agricultural clients in their efforts to build financial resilience. We've also made progress in supporting the transition to net zero. This includes our commitment to responsible investment with Scottish Widows, launching a carbon calculator for SMEs and our innovative new partnership with Octopus Energy, which will enable customers to make their homes more energy efficient. We've also provided over £13 billion of green and sustainable lending in 2022 and developed our first group climate transition plan. The latter includes important industry firsts, such as our commitment to not directly finance any new oil or gas fields. So there's a lot going on. And as ever, we're targeting our efforts in areas we can make the biggest difference whilst creating opportunities for profitable growth. We've published our environmental and social sustainability reports this morning, and you'll find a lot more information in there. Turning now to a brief overview of our financial and business performance on slide five. The group delivered a robust financial performance during 2022. Net income was up 14% compared to the prior year, whilst operating costs increased by 6%, in line with expectations. Stable BAU costs highlight our ongoing cost discipline, which is particularly important in an inflationary environment. We delivered a return on tangible equity of 13.5% and generated 245 basis points of capital. This enabled an increased ordinary dividend of 2.4 pence per share alongside a share buyback of up to £2 billion. As you'll hear in my remarks on our strategic progress, we're delivering continued business momentum and seeing real franchise growth. This is alongside improving levels of employee engagement and progress on our diversity goals. Turning to our strategy on slide six. Our purpose-driven strategy has three distinct pillars. First, driving revenue growth and diversification across four key areas that cover our consumer and commercial franchises. Second, strengthening the group's cost and capital efficiency, building on our strong foundations. And third, building a powerful enabling platform that combines people, technology, and data to support our ambitions. The combination of these priorities will enable the group to deliver on our purpose, attract and retain the best talent, and grow profitably with our customers. In turn, this will enable us to deliver higher, more sustainable returns and capital generation across both the short and long term. Now, turning to slide seven to look at how the changing environment reinforces our strategy. It is a year since William and I set out the group's new strategy. The operating environment has changed significantly over the last year. And as I mentioned earlier, our customers are facing a more challenging outlook than we had anticipated. This also presented challenges for us as we have focused on supporting our customers and ensuring they remain financially resilient. We've also continued to see shifts in our customer behavior to be more digital. Given the Group's financial strength, it is more important now than ever to deliver the purpose-driven strategy we set out last year. It will enable us to further differentiate how we serve our customers as they start to recover from these economic challenges, whilst we can also strengthen and diversify the Group's earnings. In some cases, we've stretched our ambition even further, such as adding an additional £0.2 billion of cost-saving targets for 2024. Our ongoing commitment to our strategy is reflected in the scale of the investment. £3 billion of incremental strategic spend over the first three years of the plan, or £4 billion over five. In 2022, we delivered £0.9 billion of this incremental investment. Turning to our strategic progress on slide eight. As we set out a year ago, we have a purpose-driven strategy focused on driving revenue growth and diversification, strengthening cost and capital efficiency, and maximizing the potential of our people, technology, and data. We have an ambitious strategy for a five-year transformation of the group, with clear deliverables and the financial benefits increasing as we move through the plan. 2022 was a foundational year and we've taken significant action as we've invested for growth and accelerated our efficiency initiatives. We've also reorganized the group to accelerate the pace of transformation and have seen good early evidence of delivery across our initiatives. So I'm confident we are well-placed to deliver our strategy going forward. I'll set out some highlights of our progress shortly, but first on slide nine, I'll highlight some of the initial financial benefits. You'll recall that when we presented our strategy, we highlighted an expectation that the growth initiatives will provide £0.7 billion of additional revenues per annum by 2024 and £1.5 billion by 2026, split 50-50 between interest and other income. As I'll highlight on the coming slides, we've made good initial progress. And as we deepen our customer relationships further over the coming years, we expect to build momentum that will support higher, more sustainable revenues that extend beyond the current rate cycle. In addition, we achieved 0.3 billion pounds of gross cost savings in the year, which supported a stable BAU cost base. As mentioned, we've identified further cost savings in 2024 that will partially mitigate the impact from inflation and create investment capacity. We expect an inflection point in 2024 where the benefits from our strategic initiatives will positively contribute to the bottom line in 2025 and beyond, as reflected in our financial guidance. I'll now briefly highlight progress across our four priority growth areas, and I'll start with consumer on slide 10. We've made good progress on building deeper customer relationships, as well as innovating and broadening our product offerings, whilst improving the ease with which our customers can access them. We've invested in driving improved levels of personalization and digitization, resulting in a 15% increase in daily log-ons, as well as reaching 20 million digitally active customers, two years ahead of schedule. This enables the group to reduce costs and drive deeper customer engagement. In 2023, we will continue to personalize and digitize our consumer offering, supporting our ambition to meet more of our existing customers' needs. This morning, we announced the acquisition of Tusca, a vehicle management and leasing company focused on electric and low emission vehicles. This will further develop our motor business in a way that is clearly aligned with our purpose and sustainability ambitions and supports our growth ambition in SME. In 2022, our mass affluent business, supported by targeted campaigns, increased banking balances by over 5%. We've also launched new tailored banking products, including credit card and package bank accounts. Our direct consumer investment capability has been enhanced, aided by the completion of the Embark acquisition. This was previously a gap in our product capabilities, and we expect both D2C and ready-made investment options to launch in 2023. Our mass affluent offering will be launched in earnest this year with customers experiencing a differentiated digital first model. We also expect an expansion of our banking offering, providing value-added products, services, and benefits for customers. Looking now at progress on commercial on slide 11. Our ambition in SME is to build a diversified digital first business. This is a multi-year journey, and in 2022, we've laid strong foundations and shown positive growth, including more than 20% growth in new merchant services clients. We're also broadening our product capabilities through strategic FinTech partnerships where appropriate. For example, our invoice discounting partnership provides a solution that allows clients to better manage cash flows. In 2023, we'll take further steps to improve our digital offering with new onboarding propositions, enhanced functionality, and insights for clients. Our corporate and institutional offering has made good progress within the targeted parameters that were outlined in February last year. We are also investing in product capabilities that support our clear cash, debt, and risk management offering. This includes upgrading our rates digital product offering and delivering the first phase of our new FX platform. And finally, we've strengthened our originate to distribute capabilities, delivering our milestone-first strategic co-investment partnership. These strengthened capabilities further improve the group's capital efficiency. In 2023, we expect to extend the scale of our originate to distribute offering alongside maintaining our clear sector focus and further improving product capabilities. Having highlighted just some of the progress in our growth businesses, I'll now look at our clear commitment to the enablers on slide 12. Maintaining discipline with regards to cost and capital efficiency is critical to our strategy. In 2022, we increased customer engagement and service options through our digital channels, enabling us to optimize our cost to serve by, for example, closing around 200 branches and increasing automation of operational processes. With regards to capital efficiency, we continue to demonstrate RWA discipline whilst pursuing growth in capital light, fee generating businesses, and enhancing our originate to distribute capabilities. In 2023, we will also conclude the triennial pension review, which is expected to demonstrate the significant advances we've made. Our people efforts in 2022 have included refreshing the leadership team, establishing our new operating model to deliver the strategy, and driving greater efficiency, for example, by reducing our office footprint by 12% as we adapt to new ways of working. We've continued to invest in future data capabilities, as well as decommissioning 5% of legacy applications and reducing our data center footprint by 10%. This brings new capabilities to supplement our strategy, as well as greater team efficiency. I'll now finish these remarks on slide 13. So I hope that was a helpful update. I'm pleased with our strategic progress, particularly in the face of a changing external backdrop. Looking forward, it is our intention to provide you with regular deep dive sessions over the course of this year and into the first half of 2024. You'll find more detail on these sessions in the appendix. As you know, our strategy is underpinned by a robust financial framework and a clear link to how strategic initiatives contribute to the delivery of higher, more sustainable returns and capital generation. Based on our strategic progress, future plans and the changes to the macroeconomic forecasts, we are today enhancing our financial guidance. William will provide you with more detail shortly, but at a headline level, we're now targeting a return on tangible equity of 13% in 2024 and greater than 15% by 2026. Both are around three percentage points higher than last year. This in turn drives higher capital generation, and we're now targeting circa 175 basis points in 2024, increasing to greater than 200 basis points by 2026. I believe that these targets reflect a compelling proposition for our shareholders, and they demonstrate our confidence in the future. Thank you for listening. I'll now hand over to William for the financials. Thank you, Charlie.

Thank you, Charlie, and good morning everyone again, and thanks again for joining. As Charlie said, the group delivered a robust financial performance in 2022, based on continued strength in the customer franchise. Net income of 18 billion is up 14% versus 2021, supported by a higher net interest margin of 294 basis points, 4% growth in other income, and a low operating lease depreciation charge. We remain committed to efficiency. Operating costs of 8.8 billion are in line with our guidance. This includes stable BAU costs alongside higher planned strategic investment and the costs of the new businesses. Asset quality meanwhile is strong. The observed impairment story has not materially changed in the quarter. The full year impairment charge of 1.5 billion includes the impact of the revised economic outlook emerging during the year. Together, their strong performance delivered statutory profit after tax of 5.6 billion and a return on tangible equity of 13.5%. Tangible net assets per share at 51.9 pence, around 5.6 pence in the year, although up 2.9 pence in Q4. Robust earnings alongside a modest reduction in risk-weighted assets and significant insurance dividends have driven strong capital build of 245 basis points in 2022. Let me now turn to slide 16 to look at the ongoing development of our customer franchise during the year. Our mortgage portfolio continued to grow in 2022. Balances are up 3.7 billion in the year, including 1.2 billion open book growth in the fourth quarter. Credit cards are up 0.5 billion in the year, although flat in the fourth quarter. Motor finance is up 0.3 billion in 2022, including 0.1 billion in Q4. The order book is strong, albeit the business remains impacted by the ongoing global supply chain issues affecting the industry. Commercial banking balances, meanwhile, are up 1.2 billion during the year. This continues to be led by attractive growth opportunities within corporate and institutional and FX. FX partly being offset by repayments of government support scheme loans, predominantly in our small and medium businesses franchise. On the other side of the balance sheet, retail deposits are up 2.4 billion in the year. This includes current accounts up 2.5 billion in 2022, although down 1.7 billion in Q4, given some customers switching balances and seasonality. Commercial deposits are down 3.7 billion in the year, including 6.4 billion in the fourth quarter. We saw some short-term placements from Q3 and CIB reverse in the final quarter, as we had expected, alongside the impact of management pricing actions and seasonal effects. Here in the year, we've also seen assets under management growth within insurance of over 8 billion of net new money. I'll now turn to slide 17 and the strong net interest income performance in a little more detail. NII of $13.2 billion is up 18% on the prior year. AIEAs at $452 billion are up $7 billion or 2%, largely due to the $6 billion growth in average mortgage balances. The full year margin of 294 basis points is up 40 basis points on 2021. This benefited significantly from the base rate changes through the year and structural hedge reinvestment, outweighing mortgage pricing pressures. The Q4 margin of 322 basis points is up 24 basis points in the quarter. The margin is driven by base rate movements, but bear in mind that deposit pricing has lagged base rate changes, and therefore some of this will unwind in H1. The mortgage rollover pressure increased to eight basis points in Q4, and this indeed will continue across 2023. Looking forward, we now expect average interest-earning assets to be broadly stable in 2023. We should see low single-digit growth in the core businesses being largely offset by reductions in the closed mortgage book and government support scheme loans within commercial. I should also note that Q1 will see a modest reduction in customer lending given our exit from a legacy mortgage book in January. So putting all this together, we now expect the net interest margin to be greater than 305 basis points in 2023. This is below Q4's exit rate given the impact of the mortgage book refinancing, deposit repricing actions, and higher funding costs. These will more than offset the expected higher hedge earnings Within 2023, the headwinds will impact our numbers more in the first half, while the hedge benefit is back-ended. While this suggests the margin is likely to dip in H1 before stabilising for the rest of the year, we do expect the margin to be above 300 basis points at all times. Let me now turn to slide 18 and look at our interest rate sensitivity in a little more detail. The group remains positively exposed to rising rates. We expect a 25 basis point parallel shift to benefit interest income by about 150 million in year one. As ever, this is illustrative and based on the same assumptions as before, notably the 50% deposit pass-through. As you know, pass-through could differ from the 50% illustration and that makes a meaningful difference to our sensitivity. As always, published sensitivity does not assume asset spread compression, for example, in mortgages. With that, let me move on to look at the individual asset portfolios, starting with mortgages on slide 19. The open mortgage book grew 6.3 billion during the year, including 1.2 billion during the fourth quarter. The back book is now around 47 billion, down 25% over the year. Customers are refinancing their mortgages in the context of a higher rate environment, and indeed, we are actively supporting them in this process. As you know, mortgage pricing has been competitive over the course of 2022. Completion margins were around 60 basis points for the year and around 50 basis points in Q4. The mortgage margin picture is now better and more stable than a few months ago. However, the effects of the remaining low margin October business still awaiting completion will continue to impact Q1. More broadly, we're forecasting mortgage new business margins in the year to be below the 75 to 100 basis points that we talked about last February. With that said, we do still see mortgages as attractive from returns and from an economic value perspective. Let me now turn to our other asset books on slide 20. Consumer finance balances are 1.4 billion higher than 2021 and essentially flat in the fourth quarter. We've seen a recovery in credit card spend resulting in balances up 0.5 billion in the year, largely in the first half. As mentioned, motor finance growth remains impacted by the issues affecting the whole sector. Commercial banking lending is up 1.2 billion in the year. As discussed earlier, attractive growth opportunities within the corporate institutional business alongside FX impacts have been partly offset by clients repaying their COVID loans. Let's move to the other side of the balance sheet on slide 21. Total customer deposits of 475 billion are down 1 billion in the year due to lower commercial balances. Retail current accounts are up 2.5 billion in 2022, further supporting our hedge capacity. The Q4 reduction of 1.7 billion in part reflected a movement to savings offers, both internal and external. Retail relationship accounts are at 1.8 billion in the year, including 0.6 billion in Q4, as customers have begun to seek higher returns on their deposits. Commercial deposits, meanwhile, are down 3.7 billion. This includes 6.4 billion in Q4, partly reflecting the outflows of short-term CIB deposits that we flagged at Q3. Aggregate deposits are around 65 billion higher than at the end of 2019. This deposit growth, of course, increases hedgeable balances. We'll turn to this on the next slide. Structural hedge capacity has built in recent periods based on deposit growth alongside increased eligibility of our existing deposits. This includes a further 5 billion addition in the fourth quarter to 255 billion. The nominal hedge balance is now fully invested. The weighted average duration of the hedge remains around three and a half years, in line with the last few quarters, a little below the neutral position of around four years. We have around 35 billion of maturities in 2023, weighted to the second half. This gives us significant flexibility looking forward. We saw gross hedge income of 2.6 billion in 2022. Again, as we look forward, we expect this to be around 0.8 billion higher in 2023 and a similar increase again in 2024. This roll of the hedge into a higher rate environment is an increasingly powerful income driver for us as we go forward. Now, moving to other income on slide 23. Other income of 5.2 billion is 4% higher than in 2021. We are building confidence in our growth potential across the franchise. 2022, including Q4, retail saw improved current account and credit card performance in the context of recovering activity. Likewise, commercial OI saw improving transaction banking and financial markets activity. Meanwhile, insurance, pensions and investments benefited from assumption and methodology changes in the year, most notably as product persistency beat our expectations. After adjusting for this in GI weather events, insurance other income was slightly up in 2022 from increased new business income in workplace pensions, bulk annuities and protection. The fourth quarter result of 1.4 billion was largely supported by those same trends as well as the net benefit from assumption changes and weather claims in insurance. Looking forward, leaving aside IFRS 17, we continue to expect other income to develop depending upon customer activity levels supported by our ongoing investments in the business. To touch briefly on IFRS 17. As you know, IFRS 17 is an accounting change, which impacts the phasing of profit recognition for insurance contracts, but not the cash flows. Under IFRS 17, new business income and associated costs, alongside most one-off assumption changes and some volatility, will now be deferred to a new contractual service margin liability, termed the CSM. That's going to be on the balance sheet, and these items, the CSM, will then be recognized over the period the service is provided through the unwind of that liability. This will have a neutral longer-term impact on the group's financial results, although near-term reported other income is expected to be lower. If we applied this standard to 2022, other income would have been circa 500 million lower, although this impact includes lower than or rather larger than usual in-year assumptions charges or change benefits. The run rate impact is likely to be closer to 300 to 400 million as we've set out previously. There will also be impacts on the below the line volatility items and TNAV from IFRS 17. I'll touch on TNAV shortly. Moving on, the group has maintained its focus on efficiency during 2022. Let me talk more about this on slide 24. Operating costs of 8.8 billion are in line with guidance. This is up 6% on the prior year, driven by planned investment and the costs associated with new businesses. Alongside, BAU costs were stable in the context of material inflationary pressures. Remediation costs of £255 billion are significantly lower than prior year and reflect a number of pre-existing programmes. The charge of £166 million in Q4 includes £50 million for HPOS Reading. Our cost-income ratio for 2022, including remediation, was 50.4%. Looking forward, we now expect 2023 operating costs to be around £9.1 billion. We are not immune from inflation, but we maintain our rigorous approach to efficiency. Consequently, we will absorb a significant part of incremental inflationary pressures in 2023 through increasing the targeted savings that we announced last year, as Charlie discussed. Looking now at impairment on slide 25. Asset quality remains strong. We are seeing stable observed asset performance across the portfolios. The impairment charge for the year of 1.5 billion is equivalent to an asset quality ratio of 32 basis points, in line with guidance. This includes a 595 million net MES charge for the updated macroeconomic assumptions alongside a 915 million underlying charge. The full year charge pre-MES is equivalent to 20 basis points. The charge in the fourth quarter of 465 million includes 82 million for updated MES driven by HPI reductions and a slightly weaker GDP outlook at Q4. Pre-MES, the quarterly charge of 383 million includes a long-standing single-name commercial charge. Excluding this would leave a quarterly asset quality ratio of 26 basis points. This includes the roll-forward of the Stage 1 provision into a more adverse economic environment, which of course does not represent actual defaults. As a result of the provision billed in the year, largely in the third quarter, our stock of ECLs has increased to 5.3 billion. It's worth noting in this context that our stage three balances have remained flat during H2 and 93% of our stage two balances are up to date. Based on the group's Q4 macroeconomic scenarios, we now expect the net asset quality ratio for 2023 to be around 30 basis points. As part of this discussion, I'll now look briefly at the group's Q4 economic assumptions on slide 26. Our outlook, as Charlie said, is for a mild recession and continued low unemployment in the UK. We now assume base rate has peaked at 4% and starts to fall early 2024. That settles then at 3% as inflation is brought under control. Unemployment is expected to peak at 5.3% in 2025, while we assume an HPI decline of around 7% this year. That implies a peak to trough fall of circa 12%. As usual, we present the full set of economics and associated ECL provisions in our appendix. As we progress into 2023, it may be that things are looking a little better versus where we were at Q4. We'll obviously keep an eye on that. Moving on, I'll now turn to slide 27 to look at our retail portfolio. Our retail customers are resilient. Portfolio benefits from our low-risk approach and conservative underwriting standards. Early warning indicators remain benign. While arrears trends in some areas have increased very slightly, they are doing so from a low base and they remain modest. Almost 70% of our lending book is mortgages. Within this book, customer household incomes average 75,000 and the average loan-to-value is 41.6%. Only 1.4% of balances have an LTV above 90%. Customers have a lot of equity in their homes, protecting both the customers and the group. Fixed rate mortgage maturities in 2023 have attracted a lot of attention. Over 85% of our maturing customers have been affordability tested to rates of at least 6.6%, well above current levels. Only around 1% of our refinancing customers are on LTV above 85%. Let me now turn to slide 28 in commercial. We're seeing significant resilience within our commercial portfolio. We see stable SME overdraft and corporate revolving credit facility utilization in the year. Average debtor days in our invoice financing business remain below historical levels. Commercial portfolio has evolved in line with the group's conservative risk appetite. Around 90% of SME lending is secured while around 75% of commercial exposure is to investment grade clients. Our commercial real estate exposure has been significantly de-risked in recent years. The portfolio has an average LTV of 41% and 89% have an LTV of 60 or below. Moving on, I'll turn to slide 29 to look briefly at the below the line items. Following the reporting changes of a year ago, restructuring now reflects only M&A and integration costs. The volatility line includes 148 million of negative insurance volatility, largely driven by the higher interest rates. This line also includes the usual fair value unwind and amortization of purchase intangibles. Taken together, the statutory profit after tax of 5.6 billion and the return on tangible equity of 13.5% represent, as said, a robust performance. Looking forward, and based on the guidance we've given, we expect the ROTE to be around 13% in 2023. I'm now going to pause for a moment on tangible book value. As you can see, TNAV per share of 51.9 pence is down 5.6 pence in the year, although up 2.9 pence in Q4. In line with what we said at Q3 2021, the IFRS 17 accounting change is expected to result in a mid single digit pence per share reduction in TNAV on implementation at the start of this year. Looking forward, the direction of tangible book value should be positive and should have momentum. The IFRS 17 impact will unwind into TNAV as the CSM unwinds. The negative movements in 2022 driven by interest rates reducing the cash flow hedge reserve are expected to unwind in line with structural hedge maturities and rates movements. Furthermore, as we grow the business and the pension asset builds, TNAV will also benefit. And alongside, our practice of distributing any excess capital via buybacks will further support tangible book value per share. So taken together, you can see that post IFRS 17, we anticipate material structural headwinds to the TNAV to be realized over the coming years. Now, turning to slide 30 and looking at risk-weighted assets and capital developments during the year. Capital generation in 2022 of 245 basis points was strong. Underpinning this, RWAs of £211 billion were down £1 billion in the year, excluding the regulatory changes on 1 January 2022. Lending growth has been more than offset by model reductions reflecting underlying credit performance and ongoing portfolio optimisation. Healthy banking profitability led the capital generation, supplemented by £400 million in dividends from the insurance business. We also benefited from impairment transitional relief and a lower than usual effective tax rate. Importantly, our strong capital generation enabled the group to make significant pension contributions, including an additional 400 million at the end of Q4. Added together, the total of 2.2 billion of pension contributions this year puts us in a very good position for the latest actuarial valuation process. The group's capital position enables the board to announce a final ordinary dividend of 1.6 pence per share, making a total of 2.4 pence, up 20% on 2021. Alongside, a buyback programme of 2 billion means the group will distribute a total of up to 3.6 billion, equivalent to greater than 10% of our market cap. The closing seed T1 ratio of 14.1% is also very strong and ahead of our ongoing target of 13.5%. Looking forward, we expect capital generation of around 175 basis points in both 2023 and 2024. This is below the outcome in 2022, reflecting the exceptional benefits in that year that I just mentioned. Nevertheless, it still represents a very healthy level of capital generation going forward. As shown today, the board is fully committed to shareholder returns. We will maintain our progressive and sustainable ordinary dividend policy while considering excess capital distributions at each year end just as we normally do. Let me now bring this together on slide 31 where I'll summarize our guidance. The group faces the future with confidence. For 2023, we now expect the margin to be greater than 305 basis points. Operating costs to be around 9.1 billion. The asset quality ratio to be circa 30 basis points. And the return on tangible equity to be circa 13%. As mentioned, we also now expect capital generation of around 175 basis points in each of 2023 and 2024. As Charlie mentioned, we're also today enhancing our medium-term targets. Based on both profit developments and expectations of a rising TNAV, as I've mentioned, we expect the return on tangible equity to be circa 13% in 2024 and greater than 15% by 2026. We've also enhanced our 2026 capital generation guidance to greater than 200 basis points. Our revised guidance reflects the changing shape of the environment, the development of our plan, and our financials. We expect to deliver higher levels of capital generation alongside ensuring lower other claims on our capital, including pensions. While staying focused on our purpose and our customer objectives, our updated guidance is positive news for shareholders. That concludes my comments for today. Thank you very much indeed for listening. I'll now hand back to Charlie to wrap up before Q&A. Thanks, Ray.

Thanks, William. So, as you've heard, the group delivered a strong performance in 2022. Our purpose-driven business and financial strength enabled the group to provide significant support to customers and colleagues. Alongside, the group's robust financial performance underpins our increased capital returns. Our strategy is reaffirmed as the best way to serve our purpose and support our stakeholders, as well as put the group on a higher, more diversified growth trajectory. We've made a good start. Finally, we're enhancing our guidance over the short and medium term as we progress towards delivering higher and more sustainable returns for our shareholders. That wraps up our comments for this morning. Thank you very much for listening. We now have plenty of time for Q&A, so let me hand over to Douglas, who will coordinate the Q&A. Douglas.