Chairman's statement

Lloyds TSB has a very clear vision to be the best financial services organisation in the UK. In achieving this we aim to be a great place for our customers to do business; a great place for our people to work; and to generate good returns for our shareholders. Underlying these aims we also want to be valued by the communities where we operate through high ethical standards, respect for our stakeholders, community involvement and a commitment to corporate responsibility. I am very pleased to be able to report significant progress on our journey towards achieving this vision during 2007.

Achieving the vision

We have maintained strong business momentum through the year to deliver another good set of results with underlying profit before tax up 6 per cent in 2007 to £3,919 million. Against a turbulent backdrop, these results are achieved from a business that focuses tirelessly on the needs of customers and which, as a result, has a lower risk and a more predictable earnings stream. Our quality of earnings emerges from the strength of our three high quality businesses; our UK Retail Bank; our Wholesale and International Banking division; and our Insurance and Investments division which includes Scottish Widows.

Our confidence in our business model and its ability to increase earnings throughout the economic cycle led to our decision to increase the dividend by 5 per cent year on year. This is the first year in five that we have increased our dividend and supports our long term shareholder proposition; going forward, we expect to continue to grow our dividend whilst continuing to build dividend cover.

“We have maintained strong business momentum through the year.”

Customer focus

Our customers are critical to our success. Retaining and broadening these relationships and adding new customers are a key part of our strategy. This will not be achieved unless we are providing a high quality service and products that our customers want to buy and which provide good value for money. Success has been measured through high levels of customer satisfaction and customer advocacy and a strong sales performance. It is also measured through external recognition and I am pleased to report that our businesses have won a number of awards throughout 2007.

In the UK Retail Bank we were the market leader in new current account recruitment at the same time as being voted the most trusted bank in Britain for the seventh year running. In Wholesale and International Banking we were voted by Finance Directors as Corporate Bank of the Year at the Real Finance/CBI FDs’ Excellence Awards for the third year in succession. And in Insurance and Investments, Scottish Widows was voted Best Individual Pensions Provider by IFAs at the Financial Adviser Awards. All of these recognise our commitment to our customers and are the result of hard work and dedication from our employees who can justifiably be proud of what we have achieved.

Corporate responsibility

Lloyds TSB has a strong commitment to improving the quality of life of people in the communities where we work and I am proud of our achievements in this area.

Our major focus for support is through the four Lloyds TSB Foundations in England and Wales, Northern Ireland, Scotland and the Channel Islands. Our commitment is to provide 1 per cent of the Group’s pre-tax profits to the Foundations and in 2007 we gave £37 million to support their work. A further £37 million will be donated in 2008 bringing our total contributions since the Lloyds TSB merger to over £360 million, making Lloyds TSB one of the largest charitable donors in the UK. I would strongly encourage you to visit the website for the Lloyds TSB Foundations at www.lloydstsbfoundations.org.uk to look at some of the programmes we support and to see the difference we can make in helping disadvantaged people to live a fuller life in communities across the UK.

Our employees also support a wide range of community programmes, volunteering their time and energy to local causes and initiatives. I am particularly proud of the work we have done to support the Group’s 2007 charity partner, Barnardo’s, where to date almost £1 million has been raised, with fund raising initiatives continuing into 2008.

Our journey in response to the global issue of climate change reached a new milestone this year with the introduction of a new stretching target to reduce our CO₂ emissions by 30 per cent by 2012, based on 2002 levels. We are focusing particularly on energy consumption and efficiency and we recognise that a real behavioural change is required by all of our people to achieve this target. To support this change we have introduced a sustainability network, drawing on champions from across the Group, to raise awareness and support the initiatives that are required. It is my firm view that companies that develop the skills, resources and relationships to manage these challenges will thrive and prosper in the years ahead.

We cannot eliminate all CO₂ emissions so in 2007 we committed to become carbon neutral by offsetting those emissions that we cannot reduce. I am pleased to confirm that in 2007 we purchased sufficient carbon credits to achieve carbon neutrality.

In March 2007 we were the first organisation to become a domestic partner of the 2012 Olympic and Paralympic Games. This places Lloyds TSB at the heart of the most exciting world event to take place in the UK for many decades. Our vision for our partnership with London 2012 is ‘to inspire and support young people, communities and businesses all over Britain on their journey to the Olympic and Paralympic Games and beyond.’

The Games are much more than 16 days of competition. It is about the journey that young people take toward excellence and becoming the best and the legacy that we leave for them when the Games are over. These ideals very much resonate with our own vision and values and why we are proud to be involved.

Corporate governance

While the board of any company must ensure that a robust governance structure is in place, we are equally committed to fostering a culture throughout the organisation that values exemplary ethical standards, personal and corporate identity, teamwork, taking personal responsibility and respect for others. Our approach to governance is predicated on the belief that there is a link between high quality governance and the creation of shareholder value.

Our Group Chief Executive, Eric Daniels, has given real leadership to the Group. He and his executive have driven financial and operational success within a strong culture of teamwork and integrity. It is this work that has created the results that we have seen through 2007 and will ensure our continued success in future years.

The board’s ongoing renewal process has continued throughout the year and we are delighted to have appointed two new independent non-executive directors since the last annual general meeting. Philip Green was welcomed to the board on 10 May 2007. He brings valuable experience to the Group through a very successful business career across a number of different business sectors including his current role as Chief Executive of United Utilities and as the former Chief Executive of Royal P&O Nedlloyd. Sir David Manning will join us on 1 May 2008. Sir David has a long and distinguished career in the Foreign and Commonwealth Office where he was most recently Her Majesty’s Ambassador to the United States of America.

Gavin Gemmell left the board at the end of September, when he retired as chairman of Scottish Widows. I would like to thank Gavin for his significant contribution to the Group’s affairs and wish him well for the future.

Mike Fairey, Deputy Group Chief Executive, will retire in June, following a wonderful career with the Group spanning 17 years. Mike joined the TSB group in 1991, became a director of Lloyds TSB in 1997 and became Deputy Group Chief Executive in 1998. He has given both loyal service and wise counsel during these years and I will personally miss his contribution. I would like to thank Mike for all of his input over the years and wish him well for the future.

Outlook

As we look forward to 2008, we face the prospect of slowing global economic activity and all the associated challenges that this brings. Despite this our strategy remains unchanged. The progress made over the last four years means that we have a strong capital position from which we can continue to grow the business. We believe that our excellent customer proposition, based on high levels of service quality and committed customer relationships, leaves us well positioned to continue to grow our returns to shareholders through 2008 and in future years.

“We have a strong capital position from which we can continue to grow the business.”

I would like to thank all of our employees for their contribution to making 2007 such a successful year. It is the commitment, support and dedication of every one of our employees that makes so much difference. I look forward to continuing our journey together in the years ahead.

Sir Victor Blank
Chairman
21 February 2008