SEGMENTAL ANALYSIS

12 Months Ended

Dec. 31, 2019

Disclosure of entity's operating segments [text block] [Abstract]

Disclosure of entity's operating segments [text block]

NOTE 4: SEGMENTAL ANALYSIS

Lloyds Banking Group provides a wide range of banking and financial services in the UK and in certain locations overseas.

The Group Executive Committee (GEC) has been determined to be the chief operating decision maker for the Group. The Group’s operating segments reflect its organisational and management structures. The GEC reviews the Group’s internal reporting based around these segments in order to assess performance and allocate resources. GEC considers interest income and expense on a net basis and consequently the total interest income and expense for all reportable segments is presented net. The segments are differentiated by the type of products provided and by whether the customers are individuals or corporate entities.

The segmental results and comparatives are presented on an underlying basis, the basis reviewed by the chief operating decision maker. The effects of the following are excluded in arriving at underlying profit:

– market volatility and asset sales, including the effects of certain asset sales, the volatility relating to the Group’s own debt and hedging arrangements and that arising in the insurance businesses;

– the unwind of acquisition-related fair value adjustments and the amortisation of purchased intangible assets;

– restructuring costs, principally comprising severance costs, the costs of integrating newly acquired businesses, the cost of regulatory reform and the rationalisation of the non-branch property portfolio; and

– payment protection insurance.

For the purposes of the underlying income statement, operating lease depreciation (net of gains on disposal of operating lease assets) is shown as an adjustment to total income.

During 2019, the Group transferred Cardnet, its card payment acceptance service, from Retail into Commercial Banking and also transferred certain equity business from Commercial Banking into Central items. Comparative figures have been restated accordingly.

The Group’s activities are organised into three financial reporting segments: Retail; Commercial Banking; and Insurance and Wealth.

Retail offers a broad range of financial service products, including current accounts, savings, mortgages, motor finance and unsecured consumer lending to personal and small business customers.

Commercial Banking provides a range of products and services such as lending, transactional banking, working capital management, risk management and debt capital markets services to SMEs, corporates and financial institutions.

Insurance and Wealth offers insurance, investment and wealth management products and services.

Other includes income and expenditure not attributed to divisions, including the costs of certain central and head office functions and the Group’s private equity business, Lloyds Development Capital.

Inter-segment services are generally recharged at cost, although some attract a margin. In particular a profit margin is charged on the internal commission arrangements between the UK branch and other distribution networks and the insurance product manufacturing businesses within the Group. Inter-segment lending and deposits are generally entered into at market rates, except that non-interest bearing balances are priced at a rate that reflects the external yield that could be earned on such funds.

For the majority of those derivative contracts entered into by business units for risk management purposes, the business unit recognises the net interest income or expense on an accrual accounting basis and transfers the remainder of the movement in the fair value of the derivative to the central function where the resulting accounting volatility is managed where possible through the establishment of hedge accounting relationships. Any change in fair value of the hedged instrument attributable to the hedged risk is also recorded within the central function. This allocation of the fair value of the derivative and change in fair value of the hedged instrument attributable to the hedged risk avoids accounting asymmetry in segmental results and leads to accounting volatility, which is managed centrally and reported within Other.

	Retail £m			Commercial Banking £m			Insurance and Wealth £m			Other £m			Underlying basis total £m
Year ended 31 December 2019
Net interest income		8,807			2,918			112			540			12,377
Other income, net of insurance claims		2,014			1,422			2,021			275			5,732
Total underlying income, net of insurance claims		10,821			4,340			2,133			815			18,109
Operating lease depreciation1		(946	)		(21	)		–			–			(967	)
Net income		9,875			4,319			2,133			815			17,142
Operating costs		(4,760	)		(2,081	)		(982	)		(52	)		(7,875	)
Remediation		(238	)		(155	)		(50	)		(2	)		(445	)
Total costs		(4,998	)		(2,236	)		(1,032	)		(54	)		(8,320	)
Impairment (charge) credit		(1,038	)		(306	)		–			53			(1,291	)
Underlying profit		3,839			1,777			1,101			814			7,531
External income		13,109			3,394			1,740			(134	)		18,109
Inter-segment income (expense)		(2,288	)		946			393			949			–
Segment underlying income, net of insurance claims		10,821			4,340			2,133			815			18,109
Segment external assets		350,585			145,060			175,869			162,379			833,893
Segment customer deposits		252,056			145,122			13,677			10,465			421,320
Segment external liabilities		259,964			183,390			182,333			160,400			786,087
Analysis of segment underlying other income, net of insurance claims:
Current accounts		518			136			5			–			659
Credit and debit card fees		652			330			–			–			982
Commercial banking and treasury fees		–			248			–			–			248
Unit trust and insurance broking		9			–			197			–			206
Private banking and asset management		–			4			65			–			69
Factoring		–			103			–			–			103
Other fees and commissions		54			249			156			30			489
Fees and commissions receivable		1,233			1,070			423			30			2,756
Fees and commissions payable		(571	)		(321	)		(405	)		(53	)		(1,350	)
Net fee and commission income		662			749			18			(23	)		1,406
Operating lease rental income		1,225			25			–			–			1,250
Rental income from investment properties		–			–			191			–			191
Gains less losses on disposal of financial assets at fair value through other comprehensive income		–			(5	)		–			201			196
Lease termination income		–			12			–			–			12
Trading income		47			812			–			278			1,137
Insurance and other, net of insurance claims		206			72			2,216			(954	)		1,540
Other external income, net of insurance claims		1,478			916			2,407			(475	)		4,326
Inter-segment other income		(126	)		(243	)		(404	)		773			–
Segment other income, net of insurance claims		2,014			1,422			2,021			275			5,732
Other segment items reflected in income statement above:
Depreciation and amortisation		1,712			315			181			452			2,660
Increase in value of in-force business		–			–			825			–			825
Defined benefit scheme charges		108			43			19			75			245
Other segment items:
Additions to fixed assets		2,208			260			174			1,007			3,649
Investments in joint ventures and associates at end of year		4			–			–			300			304

1 Net of profits on disposal of operating lease assets of £41 million.

	Retail £m			Commercial Banking £m			Insurance and Wealth £m			Other £m			Underlying basis total £m
Year ended 31 December 20181
Net interest income		9,060			3,013			123			518			12,714
Other income, net of insurance claims		2,097			1,670			1,865			378			6,010
Total underlying income, net of insurance claims		11,157			4,683			1,988			896			18,724
Operating lease depreciation2		(921	)		(35	)		–			–			(956	)
Net income		10,236			4,648			1,988			896			17,768
Operating costs		(4,897	)		(2,191	)		(1,021	)		(56	)		(8,165	)
Remediation		(267	)		(203	)		(39	)		(91	)		(600	)
Total costs		(5,164	)		(2,394	)		(1,060	)		(147	)		(8,765	)
Impairment (charge) credit		(861	)		(71	)		(1	)		(4	)		(937	)
Underlying profit		4,211			2,183			927			745			8,066
External income		13,022			4,889			1,895			(1,082	)		18,724
Inter-segment income (expense)		(1,865	)		(206	)		93			1,978			–
Segment underlying income, net of insurance claims		11,157			4,683			1,988			896			18,724
Segment external assets		349,412			165,030			140,487			142,669			797,598
Segment customer deposits		252,808			148,635			14,063			2,560			418,066
Segment external liabilities		259,778			191,687			147,673			148,261			747,399
Analysis of segment underlying other income, net of insurance claims
Current accounts		503			142			5			–			650
Credit and debit card fees		660			332			1			–			993
Commercial banking and treasury fees		–			305			–			–			305
Unit trust and insurance broking		13			–			208			–			221
Private banking and asset management		–			5			92			–			97
Factoring		–			83			–			–			83
Other fees and commissions		52			253			163			31			499
Fees and commissions receivable		1,228			1,120			469			31			2,848
Fees and commissions payable		(601	)		(311	)		(418	)		(56	)		(1,386	)
Net fee and commission income		627			809			51			(25	)		1,462
Operating lease rental income		1,305			38			–			–			1,343
Rental income from investment properties		–			–			197			–			197
Gains less losses on disposal of financial assets at fair value through other comprehensive income		–			–			–			275			275
Lease termination income		–			7			–			–			7
Net trading income, excluding insurance		71			711			–			282			1,064
Insurance and other, net of insurance claims		247			356			2,146			(1,087	)		1,662
Other external income, net of insurance claims		1,623			1,112			2,343			(530	)		4,548
Inter-segment other income		(153	)		(251	)		(529	)		933			–
Segment other income, net of insurance claims		2,097			1,670			1,865			378			6,010
Other segment items reflected in income statement above:
Depreciation and amortisation		1,573			278			154			400			2,405
Decrease in value of in-force business		–			–			(55	)		–			(55	)
Defined benefit scheme charges		121			49			20			215			405
Other segment items:
Additions to fixed assets		2,092			208			223			991			3,514
Investments in joint ventures and associates at end of year		4			–			–			87			91

1	Restated, see page F-25.
2	Net of profits on disposal of operating lease assets of £60 million.

	Retail £m			Commercial Banking £m			Insurance and Wealth £m			Other £m			Underlying basis total £m
Year ended 31 December 20171
Net interest income		8,695			3,040			133			452			12,320
Other income, net of insurance claims		2,150			1,803			1,846			406			6,205
Total underlying income, net of insurance claims		10,845			4,843			1,979			858			18,525
Operating lease depreciation2		(947	)		(105	)		–			(1	)		(1,053	)
Net income		9,898			4,738			1,979			857			17,472
Operating costs		(4,847	)		(2,249	)		(1,040	)		(48	)		(8,184	)
Remediation		(633	)		(173	)		(40	)		(19	)		(865	)
Total costs		(5,480	)		(2,422	)		(1,080	)		(67	)		(9,049	)
Impairment (charge) credit		(710	)		(95	)		–			10			(795	)
Underlying profit		3,708			2,221			899			800			7,628
External income		12,606			3,181			1,883			855			18,525
Inter-segment income (expense)		(1,761	)		1,662			96			3			–
Segment underlying income, net of insurance claims		10,845			4,843			1,979			858			18,525
Segment external assets		350,051			177,763			151,986			132,309			812,109
Segment customer deposits		253,127			148,313			13,770			2,914			418,124
Segment external liabilities		258,246			224,918			157,824			121,978			762,966
Analysis of segment underlying other income, net of insurance claims:
Current accounts		572			135			5			–			712
Credit and debit card fees		640			312			1			–			953
Commercial banking and treasury fees		–			321			–			–			321
Unit trust and insurance broking		10			–			214			–			224
Private banking and asset management		–			5			93			–			98
Factoring		–			91			–			–			91
Other fees and commissions		95			273			184			14			566
Fees and commissions receivable		1,317			1,137			497			14			2,965
Fees and commissions payable		(636	)		(287	)		(380	)		(79	)		(1,382	)
Net fee and commission income		681			850			117			(65	)		1,583
Operating lease rental income		1,281			63			–			–			1,344
Rental income from investment properties		–			1			212			–			213
Gains less losses on disposal of available-for-sale financial assets		–			5			(3	)		444			446
Lease termination income		–			74			–			–			74
Trading income		26			481			–			(89	)		418
Insurance and other, net of insurance claims		6			(6	)		2,223			(96	)		2,127
Other external income, net of insurance claims		1,313			618			2,432			259			4,622
Inter-segment other income		156			335			(703	)		212			–
Segment other income, net of insurance claims		2,150			1,803			1,846			406			6,205
Other segment items reflected in income statement above:
Depreciation and amortisation		1,547			322			197			304			2,370
Increase in value of in-force business		–			–			(165	)		–			(165	)
Defined benefit scheme charges		149			53			25			132			359
Other segment items:
Additions to fixed assets		2,431			130			274			820			3,655
Investments in joint ventures and associates at end of year		12			–			–			53			65

1	Restated see page F-25.
2	Net of profits on disposal of operating lease assets of £32 million.

Reconciliation of underlying basis to statutory results

The underlying basis is the basis on which financial information is presented to the chief operating decision maker which excludes certain items included in the statutory results. The table below reconciles the statutory results to the underlying basis.

				Removal of:
	Lloyds Banking Group statutory £m			Volatility and other items1 £m			Insurance gross up2 £m			PPI £m		Underlying basis £m
Year ended 31 December 2019
Net interest income		10,180			379			1,818			–		12,377
Other income, net of insurance claims		8,179			(426	)		(2,021	)		–		5,732
Total income, net of insurance claims		18,359			(47	)		(203	)		–		18,109
Operating lease depreciation3					(967	)		–			–		(967	)
Net income		18,359			(1,014	)		(203	)		–		17,142
Operating expenses		(12,670	)		1,697			203			2,450		(8,320	)
Impairment		(1,296	)		5			–			–		(1,291	)
Profit before tax		4,393			688			–			2,450		7,531

				Removal of:
	Lloyds Banking Group statutory £m			Volatility and other items4 £m			Insurance gross up2 £m			PPI £m		Underlying basis £m
Year ended 31 December 2018
Net interest income		13,396			152			(834	)		–		12,714
Other income, net of insurance claims		5,230			107			673			–		6,010
Total income, net of insurance claims		18,626			259			(161	)		–		18,724
Operating lease depreciation3					(956	)		–			–		(956	)
Net income		18,626			(697	)		(161	)		–		17,768
Operating expenses		(11,729	)		2,053			161			750		(8,765	)
Impairment		(937	)		–			–			–		(937	)
Profit before tax		5,960			1,356			–			750		8,066

				Removal of:
	Lloyds Banking Group statutory £m			Volatility and other items5 £m			Insurance gross up2 £m			PPI £m		Underlying basis £m
Year ended 31 December 2017
Net interest income		10,912			228			1,180			–		12,320
Other income, net of insurance claims		7,747			(186	)		(1,356	)		–		6,205
Total income, net of insurance claims		18,659			42			(176	)		–		18,525
Operating lease depreciation3					(1,053	)		–			–		(1,053	)
Net income		18,659			(1,011	)		(176	)		–		17,472
Operating expenses		(12,346	)		1,821			176			1,300		(9,049	)
Impairment		(688	)		(107	)		–			–		(795	)
Profit before tax		5,625			703			–			1,300		7,628

1	In the year ended 31 December 2019 this comprises the effects of asset sales (gains of £214 million); volatility and other items (losses of £88 million); the amortisation of purchased intangibles (£68 million); restructuring (£471 million, comprising severance related costs, the integration of Zurich’s UK workplace pensions and savings business and costs associated with establishing the Schroders Personal Wealth joint venture); and the fair value unwind and other items (losses of £275 million).
2	The Group’s insurance businesses’ income statements include income and expenditure which are attributable to the policyholders of the Group’s long-term assurance funds. These items have no impact in total upon the profit attributable to equity shareholders and, in order to provide a clearer representation of the underlying trends within the business, these items are shown net within the underlying results.
3	Net of profits on disposal of operating lease assets of £41 million (2018: £60 million; 2017: £32 million).
4	Comprises the effects of asset sales (loss of £145 million); volatility and other items (gains of £95 million); the amortisation of purchased intangibles (£108 million); restructuring (£879 million, comprising severance related costs, the rationalisation of the non-branch property portfolio, the work on implementing the ring-fencing requirements and the integration of MBNA and Zurich’s UK workplace pensions and savings business); and the fair value unwind and other items (losses of £319 million).
5	Comprises the effects of asset sales (gain of £30 million); volatile items (gain of £263 million); liability management (loss of £14 million); the amortisation of purchased intangibles (£91 million); restructuring costs (£621 million, principally comprising costs relating to the Simplification programme; the rationalisation of the non-branch property portfolio, the work on implementing the ring-fencing requirements and the integration of MBNA); and the fair value unwind and other items (loss of £270 million).

Geographical areas

Following the reduction in the Group’s non-UK activities, an analysis between UK and non-UK activities is no longer provided.