Shareholder meetings

Good morning, everyone, and welcome to the Lloyds Banking Group 2023 Annual General Meeting. As I said before, I'm still Robin Budenberg, Chair of the Group, and it's a privilege to be here in the very great city of Glasgow this morning. Given our long-standing relationship with Glasgow's industrial past, and investment in its enterprising future, I'm really pleased to be holding our AGM here for the first time since 2011. I'm also pleased to see so many of our shareholders present in person, and I know we also have a large number joining via the webcast. So, welcome to you all as well.

The AGM is an important annual event for Lloyds Banking Group. Not only does it provide us with a platform to speak to all our shareholders, but it also gives each of you the opportunity to ask us questions. Lloyds Banking Group has over two million shareholders, many of whom are individual investors, which means that the AGM holds particular significance as an opportunity for us to engage directly with you. As I said before, the Question and Answer session will take place after updates from me, Charlie Nunn, and Amanda Mackenzie, Chair of our Responsible Business Committee. I'm sorry that some of the people that had to leave are not here to listen to what Amanda will have to say. After the Q&A has finished, we will conduct the formal requirements of the meeting, including voting on the proposed resolutions.

So, turning to the business of the meeting. I will share a few reflections on the performance of Lloyds Banking Group over the last year, including how we continued to deliver on the Group's purpose of Helping Britain Prosper and supported our customers in a challenging economic environment.

I will begin, however, by outlining a few changes we made to our Board in 2022. In August, Scott Wheway joined the Board as a Non-Executive Director and in September he became Chair of Scottish Widows Group. Scott brings outstanding experience in the retail, insurance and banking sectors, and both the Group and Scottish Widows are already benefiting from this. Thank you to Sophie O'Connor who so ably held the role of interim Chair of Scottish Widows before Scott assumed the role. We also announced the appointment of Cathy Turner as a Non-Executive Director and a Member of the Remuneration Committee from November last year. Cathy has strong non-executive and financial services experience and, like Scott, we are already benefiting from her input as a member of the Board. At this point, I'd like to thank all our Board members. Their guidance, input and contributions are greatly valued by me, by Charlie and by our management team. In a year when we announced a new strategy and navigated an unpredictable external environment, their support has been hugely important.

Sarah Legg and Catherine Woods, who are other Non-Executive Directors, send their sincere apologies. They were unable to attend today for extremely good reasons.

Turning to an overview of the Group's performance last year. Overall we've made good progress in maximising the potential of our people, technology and data. These are critical enablers for the strategy we launched in February 2022. We committed then to transform our organisation, creating higher, more sustainable contribution for all stakeholders and driving revenue growth and diversification across all our main business areas. In 2022, we saw a robust financial performance, with early evidence of strategic delivery. Our net income was £18 billion, up 14% on 2021, supported by continued recovery in customer activity and the interest rate environment. We're a beneficiary of rising interest rates, and our net interest income was up 18%, driven by the recovery of our net interest margin and increased lending to our customers. Our other income, which includes the income we earn from some of our products in wealth and insurance, was up 4% at £5.2 billion. This income grew across all business lines and is an important part of our strategy to diversify our revenue, on which Charlie will reflect further in his speech.

You will have seen that our results for 2022 included a further £50 million remediation charge in relation to HBOS Reading. Our focus continues to be on providing a resolution and closure for those impacted. We continue to cooperate with Sir David Foskett and the independent Re-Review Panel, who are progressing well with their re-review and, following their introduction of the Fixed Sum Award, have now completed assessments on more than half of the cases. In addition, we continue to provide all the assistance and resource required as Dame Linda Dobbs continues her independent review. As in previous years, we've shared on our website a Shareholder Update, giving the latest position on matters relating to HBOS Reading.

Although our new strategy is targeting growth, cost discipline remains a core focus for us and an important part of our competitive advantage. In 2022, we reported operating costs of £8.8 billion, in line with our guidance, and reflecting stable business-as-usual costs and increased strategic investment. Our statutory profit before tax for the full year was £6.9 billion, broadly flat year on year, despite a net impairment charge of around £1.5 billion, which was partly driven by a revised economic outlook.

And so, I hope you agree that these figures show good business momentum. This robust performance underpinned our strong capital generation of 245 basis points for the year. Our Core Tier 1 capital ratio, which is the key measure of our capital strength, finished the year at 14.1%, well above our ongoing target of around 13.5%. During a time when there has been considerable uncertainty in the banking sector, it's worth reminding ourselves of the balance sheet and the strength of that balance sheet that we have at Lloyds Banking Group. In turn, this enables us to return capital to shareholders, which we know is a very important part of our investment case. In total, we have announced capital returns of up to £3.6 billion, more than 10% of the Group's market valuation at year end. This included a total ordinary dividend of 2.40 pence per share, up 20% on 2021.

Remuneration is an important topic, especially in today's economic environment. We recognised early, last year, that some of our colleagues might face challenges and we have been very focused on supporting them. We were among the first organisations to make a payment to our colleagues to help with increases in the cost of living. This meant a payment of £1,000 to the vast majority of our colleagues in August 2022, with an additional £500 payment in December 2022 for many of our colleagues at lower pay grades. For this year, we have also implemented pay increases of between 8 and 13%, with the majority of additional spend on pay directed to around 43,000 of our lowest-paid colleagues, which we believe is the right thing to do. There were no pay increases for the Executive Directors this year, and variable awards were carefully assessed against the financial, customer and ESG-related measures agreed at the beginning of the year. It's also worth noting that our current Directors' Remuneration Policy, approved at the 2020 Annual General Meeting, was due for review this year. The Remuneration Committee has undertaken a comprehensive review over several months to consider whether any changes should be recommended to shareholders. In the light of our renewed strategy, the Group is looking to implement a new Directors’ Remuneration Policy this year to align executive remuneration more closely with our longer-term strategic objectives. This will include a return to a long-term incentive plan. The Remuneration Committee believes that the new long-term incentive plan will deliver stronger alignment with our strategic objectives. The plan will support a more demanding performance culture, directly linking vesting outcomes to delivery of the strategy and the realisation of its benefits for shareholders. This is consistent with incentive arrangements for most of our peers, and we consulted on our proposals with a broad range of shareholders and other key stakeholders, who expressed support for alignment between business strategy, performance and executive remuneration outcomes. The policy reflects that the transition to a low carbon economy is at the core of our strategy and aligns with our corporate purpose of Helping Britain Prosper.

As a bank with more than 26 million customers, we have a financial relationship with half of all adults in the UK. Coupled with the fact that we have more private shareholders than any other UK stock market listed company, we play an integral role in our financial system and, we believe, are a unique force for Helping Britain Prosper, helping our customers, colleagues, and communities in a year when many have been hit by significant inflationary pressures. For example, we trained more than 4,500 colleagues to provide additional financial assistance to our customers, when and where it is needed. We proactively contacted 5.5 million customers to let them know that we are here to help. We contacted more than 200,000 of our mortgage customers to provide support with rising interest rates. And across the organisation we put in place around 250,000 personalised plans, helping individuals and businesses with their finances. For our business customers, we also got in touch with over 550,000 of those most impacted by the increased cost of living, to offer sector-specific support measures. As well as contacting and speaking to our customers in order to better understand the challenges they're facing due to the increased cost of living, we have proactively designed and deployed a range of measures to provide practical help. For example, by offering reduced payment plans, or payment holidays, on mortgages, motor finance, credit card and loans. We've offered 230,000 people an interest-free overdraft buffer, and helped 110,000 to consolidate their debt into a single, more manageable loan. And for customers in acute financial difficulty, we have offered a hold on their account, pausing all interest and fees for 30 days, whilst they obtain further advice.

Since Charlie's appointment in August 2021, we've seen meaningful change across the Group.

We've launched a new strategy, restructured our organisation with new business units and platform-enabled ways of working, and put in place a new dynamic leadership team with strong diversity of knowledge and expertise across financial services and digital. This has been, and continues to be, a pivotal period of investment in the future of Lloyds Banking Group.

To conclude, 2022 was a challenging year in several ways. Inflation, cost of living and interest rate rises have had a significant impact on individuals and businesses alike. We anticipate that the repercussions of this will mean 2023 will remain difficult for many of our customers. To me, this backdrop demonstrates the importance of operating as a purpose-led organisation. I am immensely proud of how Lloyds Banking Group colleagues have supported customers and made a positive contribution to our communities, while at the same time delivering a robust performance for you, our shareholders. We are well under way with delivering against our strategy, which will deliver higher and more sustainable returns for our shareholders. And underpinning this progress are our strong financial foundations. However, it is the continued efforts and dedication of our colleagues that makes all this possible. So, I really would like to finish by thanking every single one of them for their contribution.

And, with that, I will hand over to Charlie.

Thank you, Robin, and good morning, everyone. It was great to be with you at last year's AGM and have the chance to hear and answer your questions. A lot has happened in the past 12 months, so I'll share an update on what we've been up to, how I see the outlook for 2023, and why, like Robin, I'm excited for the future of Lloyds Banking Group.

It's an immense privilege, responsibility and opportunity to be the CEO of a bank which is so intrinsically entwined with the lives of its customers and communities. We have the ability and potential to change the lives of millions of people across the UK, from helping someone to buy their first, next or forever home, to enabling a small business to become more sustainable and play their part in the transition to net zero. Last year, I spoke about our new strategy, much of which is focused on how Lloyds Banking Group will invest, grow and become more sustainable, in order to better support the evolving needs of our customers and ensure we are Helping Britain Prosper. We're making good progress against our strategic priorities, and I'll talk you through some highlights shortly.

First, as Robin said a moment ago, we know that many individuals and families are experiencing pressures due to the cost of living environment, and the bank as a whole has mobilised to better understand and mitigate the challenges our customers face. We are proactively identifying and supporting those who need it most, reaching out to over 200,000 mortgage customers most affected by rising interest rates and a further 550,000 business customers. And, through financial tools and health-checks, increasing the numbers of customers with a meaningful financial buffer - that's enough deposits to cover three months of essential spend - to nearly 10 million people by the end of 2022. Just some of the ways we are committed to help increase resilience of our customers.

May I now reflect on our financial results for last year. Robin has already provided a high-level overview of our financial performance in 2022, so I won't repeat that, aside from echoing his view that this constitutes a strong performance across the business. I'd like to provide some further insights around both the key indicators and outputs which pertain to our performance, and the very real positive impact we have across the UK. 

In our Retail business, we continued to build on our open mortgage portfolio, growing by £6.3 billion in 2022. Consumer finance lending was also up. This positive trend was echoed in the commercial part of our business, where we saw balances up by £1.2 billion, led by our Corporate and Institutional businesses, where we see attractive opportunities for growth. And in Pensions and Insurance, we reported more than £8 billion of net new assets under administration.

Let me provide a little more detail on how these numbers show what they mean for our customers. We helped 64,000 first-time buyers move onto the property ladder. 95,000 start-ups and small businesses banked with us for the first time. We provided £2.1 billion in funding for the social housing sector, supporting access to safe, good-quality homes for those on the lowest incomes. This is part of £15 billion we've provided in financing to the social housing sector since 2018. And we made significant contributions to the transition to a low carbon economy, becoming the first major UK bank to no longer provide direct project finance to new greenfield oil and gas developments, providing over £13 billion of green and sustainable lending, and publishing our first Group Climate Transition Plan. Amanda will go into this in more detail on the relevant activity shortly.

It's important to note the efforts of our colleagues in making all of this possible. They are by the side of our customers in the key moments and when supporting their everyday banking needs. This has enabled us to achieve our high customer satisfaction objectives, exceeding our targets for 2022.

Turning to our results for the first quarter of this year, released earlier in the month, we see a solid financial performance. Net income of £4.7 billion was up 15% on the previous year, supported by net interest margin of 322 basis points, growth in other income and a continued low operating lease depreciation charge. Operating costs of £2.2 billion were up 5% on the first quarter of 2022. This reflects our continued strategic investment, alongside inflationary effects on the cost base. We remain committed to market-leading efficiency and are on target to achieve our cost guidance of around £9.1 billion for 2023. Asset quality is resilient. The impairment charge of £243 million is equivalent to an asset quality ratio of 22 basis points, supported by a small release relating to an improved macroeconomic outlook versus Q4.

Statutory profit after tax for Q1 was £1.6 billion, and the return on tangible equity was 19.1%. This drove strong capital generation of 52 basis points, even after taking the full £800 million fixed pension contribution.

The performance we see across the Group, and our capital strength, which Robin spoke about, provides the solid footing from which we can make progress on our growth-oriented strategy. Despite sector uncertainty in the US and Europe, we remain resilient in our liquidity and capital, and confident in delivering on the strategic ambitions. This time last year, I outlined my aspirations for Lloyds Banking Group to be on a path that leads to higher revenue growth by meeting a broader, interconnected range of our customers' needs, as well as more diversified revenues.

Let me share an update on what we have achieved in the first year of this five-year plan. In 2022, at a headline level, we delivered £900 million of incremental strategic investment. This included broadening our product offering, expanding in areas where we are under-represented, and investing in technology that will improve customer experience. For example, we have seen a 15% increase in daily log-ons and earlier this year the Group reached 20 million digitally-active customers. That's two years ahead of our schedule. Building a compelling offering for the mass affluent customer segment is also an important part of our strategy. Later this year, we will launch our new digital-first proposition, and we have already increased by more than 5% the savings and investments of this segment of customers. The acquisition of Embark Group, which we completed in early 2022, has further strengthened our offering to these customers. This year, we began rolling out a simple, direct-to-consumer investment offering through our Lloyds Bank, Halifax and Bank of Scotland apps. Embark is also helping us support intermediaries, independent financial advisers more than ever – an important part of our growth strategy.

And we're also making significant progress in growing our life and critical illness insurance market through Scottish Widows, which has also attracted £6 billion of net workplace pension flows, taking our total assets under administration to £197 billion. This year, we will launch an enhanced intermediary proposition for life and critical illness insurance, as we look to achieve our ambition of becoming a top three home insurance and workplace pensions provider.

In our commercial business, we are investing in product capabilities, for example, by delivering the first phase of our new FX platform. We've already seen some early benefits from this investment, including around 20% growth in our FX trading percentage share of wallet. In addition, we're looking to broaden the services we can offer our customers through strategic fintech partnerships, such as the one with Satago for invoice discounting, helping customers better manage their cash flows.

Alongside our full year results, we announced the acquisition of Tusker, a market-leading, vehicle leasing company that provides electric and ultra-low emissions vehicles via salary sacrifice schemes. This acquisition supports our ambitions of growing our Transport business, whilst achieving our net zero emissions target by 2050. More broadly, and as part of this support for the green transition, we delivered £8 billion of sustainable financing to businesses last year, which constitutes over half of our 2024 target.

Overall I'm pleased with our progress so far, particularly in light of the challenges in our operating environment. Our unique business model and competitive strengths provide a solid foundation from which to grow, whilst continuing to deliver strong shareholder returns. I'm confident that we'll continue to build momentum in delivering on our purpose and strategy, meeting evolving customer needs in more pertinent and integrated ways.

Building a strong, inclusive society is at the heart of our purpose. And as one of the UK's leading mortgage providers and biggest lenders for house building and development, we know that we have an important part to play in providing greater access to safe, affordable and sustainable housing. At present, there is a chronic undersupply of genuinely affordable housing in the UK, with over one million households on waiting lists for social homes in England, Scotland and Wales. Meanwhile, housing associations need over £100 billion to finance net zero requirements on their existing buildings, integral to the UK's transition to a low carbon economy, which could help reduce fuel poverty and create more zero energy homes. Through our sector-first Housing Sustainability Finance Framework, we're keeping sustainability at the forefront of new builds and retrofits which we finance. Last month, in partnership with the charity Crisis, we called for one million more social homes to be built over the next decade. This is a defining issue for the housing market, and we believe Lloyds   Banking Group can play a significant role in addressing these structural, economic and sustainable challenges in a way that is aligned with our commercial objectives.

In summary, I believe that our purpose-driven strategy and financial standing reinforces confidence in the ability of Lloyds Banking Group to support our customers, colleagues and communities, whilst delivering robust financial performance for shareholders, which includes shareholder distributions of up to £3.6 billion in 2022. We are well under way with transforming our digital-first customer propositions to deliver our growth targets, aligned with our purpose of Helping Britain Prosper. We are committed to building a more sustainable and inclusive future for people and businesses, making a particular difference in housing, climate transition and improving customers' financial resilience. Whilst we continue to operate in uncertain times, and this is undoubtedly a challenging period for customers, we remain resilient and continue to provide proactive support. We're confident about delivering on the strategic priorities set out at our 2022 Full Year Results, and we see a clear pathway to higher and more sustainable capital returns, which we are on track to achieve.

I'd like to end by thanking all of our colleagues for their dedicated efforts over the past year, enabling us to support and deliver for all of those we serve.

May I now hand over to Amanda Mackenzie, Chair of our Responsible Business Committee. 

Thank you, Charlie and Robin, and good morning, everyone. Today I will outline a little more detail on the progress of the Responsible Business agenda, which is at the core of our purpose of Helping Britain Prosper. Whilst there is always much to be done, I hope, as shareholders, you can take pride in the examples that bring our work to life and be reassured by the ambition of our future plans.

One of the biggest areas of discussion as a committee has been to oversee the progress towards becoming a truly purpose-driven organisation. Last year, we identified key areas which support our purpose and where we can deliver most material impact, which, because of our scale, can help resolve some of the key economic, social and environmental challenges that the UK is facing.

In our 2022 Colleague Survey, 92% of colleagues felt that delivering on our purpose will help us grow the business profitably. A number which has not only increased significantly but which is a powerful demonstration of doing well by doing good.

As you would expect, we also discussed the impact of the cost of living increases, for our people and our customers, about which Robin and Charlie have already spoken.

We had quarterly updates on colleague engagement activity and culture, which included ongoing colleague listening and learning with my fellow board members.

We continued to make progress in increasing the representation of women as well as Black, Asian and Minority Ethnic colleagues in senior roles. By the end of 2022, these have increased to 39.4% and 10.2% respectively. The latest FTSE Women Leaders Review report confirmed that women are also represented in over 40% of our combined executive committee and their direct reports, which means the recommendation set out by the review is met. And in April this year, we announced a further goal to double the representation of colleagues with a disability by 2025. This is a demonstration of our continued focus to build an inclusive organisation not only because it is right but in order to be more successful.

Moving on to sustainability, last year I talked about how critical an issue the climate crisis is, and, as you would hope, playing our part to tackle it is more important than ever. Given our scale and reach, our influence is significant in supporting and accelerating the UK's transition to a low carbon economy. Our strategy prioritises key areas that will support our ambitions to achieve 100% net zero in our own operations by 2030. We also aim to achieve net zero in our supply chain and our financing and investment activities by 2050. In our own operations, a great example of both action and ambition can be seen in the transformation of our Halifax office, which alone has been responsible for 10% of our gas consumption. We've now installed a ground source heat pump to replace the gas boiler there, requiring us to dig two boreholes 305 metres deep - that's almost a quarter of the way up Ben Nevis, but underground.

In respect of our financed emissions, where we have significant leverage, we've now published emission reduction targets for 2030 across seven of our highest-emitting sectors. Our target for the Oil and Gas sector, for example, covers all three scopes of emissions and aims to halve absolute emissions by 2030. We have set several lending and investment targets. For our corporate and institutional clients, £7.9 billion last year of a 2024 target of £15 billion. In addition, we achieved £3.5 billion in green mortgage lending, £2.1 billion in financing for plug-in hybrid and electric vehicles and, by the end of last year, had achieved £17.5 billion in discretionary investment in funds that are focused on companies who are less carbon-intensive or actively developing climate solutions.

All our targets are brought together in the first Group Climate Transition Plan, published in February. We expect to evolve and iterate our plan in the future as we work together with all our stakeholders.

We're also mindful of biodiversity loss and the interrelationship with climate to which we must respond. Our partnership with the Woodland Trust has facilitated the planting of over three million trees to date, and, with farmland accounting for 70% of land use in the UK, through our new partnership with the Soil Association we're funding a programme of bespoke, on-farm consultancy for 1,000 of our largest agricultural customers across the UK. This will identify financial and environmental advantages for their land. Another vital part of land use is that of housing, which Charlie has already mentioned. In 2022, we have provided £2.1 billion of new funding to the social housing sector, of which £1 billion is sustainable or sustainability-linked, and since 2018 we have supported now the building of an estimated 35,000 new homes. We're further strengthening our work in this space through our recently announced two-year strategic partnership with Crisis, which aims to tackle the shortage of good-quality, affordable homes in the UK. I have no doubt that our colleagues' passion and dedication for Crisis will be every bit as impressive as for previous charities with whom we've partnered so successfully.

As you've heard from Robin and Charlie this morning, much has been achieved in 2022, and I would like to thank them for their leadership across this agenda and thank all our Lloyds colleagues for their tireless efforts and commitment. Rhetoric is cheap and easy. Actions are tough and take time.

So, as we continue to move forward in 2023, as a Committee we will continue reviewing and seeing the proof that our purpose and our culture is being embedded, listening to our colleagues, and, importantly, overseeing our Consumer Duty plan. We will continue to review progress against our inclusion and diversity aspirations and rigorously support our sustainability plans. The strong foundations we have laid will continue to shape how we do business to create a more sustainable and inclusive future.

Thank you for your support. Every single day is an opportunity to live up to our purpose. It's a huge privilege. We will endeavour to live up to the responsibility that comes with it, so that Lloyds Banking Group will continue to support the UK for generations to come.

Thank you very much.