Lloyds Banking Group Plc ADR

Company Overview

Business Model: Lloyds Banking Group plc is a leading UK-centric financial services provider, primarily engaged in retail and commercial banking, alongside long-term savings, protection, and investment management. The Group serves individual and business customers through a multi-brand strategy, including Lloyds Bank, Halifax, Bank of Scotland, and Scottish Widows. Distribution channels encompass the largest branch network and digital banking presence in the UK. Revenue generation is diversified across these core activities, with a focus on deepening customer relationships and enhancing financial resilience.

Market Position: Lloyds Banking Group plc holds a leading position in the UK financial services market. It operates the largest digital bank in the UK within its Retail division. In the Insurance, Pensions and Investments segment, the Group ranks number one in Home Insurance new policy share, number two in UK defined contribution Workplace provision, and holds a top three position for Individual Annuities provision, with annualised annuity payments exceeding £0.9 billion.

Recent Strategic Developments:

• Retail: Focused on improving digital experience through a mobile-first strategy, delivering market-leading products, and meeting consumer duty expectations within a prudent risk appetite. Strategic investments and increased data utilization aim to deepen consumer relationships, deliver personalized propositions, broaden intermediary offerings, and enhance customer experience and operational efficiency.
• Commercial Banking: Investing in digital capabilities and product development to deliver an enhanced customer experience via a digital-first model and an expanded client proposition, targeting diversified capital-efficient growth and supporting customers' transition to net zero.
• Insurance, Pensions and Investments: Significant investment to develop the business, including investment propositions for the Mass Affluent strategy, digitisation, innovating intermediary propositions, and accelerating the transition to a low carbon economy.
• Capital Allocation: The Board announced an intention to implement an ordinary share buyback of up to £1.7 billion for 2024, expected to complete by 31 December 2025. A £2.0 billion ordinary share buyback program for 2023 was completed in November 2024, repurchasing approximately 3.7 billion (c.6 per cent) ordinary shares.
• Strategic Divestment: An agreement was entered into with Rothesay Life plc for the planned sale of the Group’s in-force bulk annuity portfolio in the second half of 2025, subject to High Court approval.

Geographic Footprint: Lloyds Banking Group plc's operations are predominantly UK-based, where its earnings are primarily generated. The Group also has international operations and credit exposure in other regions.

• Europe: Maintains a deposit-taking subsidiary (Lloyds Bank GmbH) and an investment firm subsidiary in Berlin, Germany. Lloyds Bank GmbH also operates a branch in the Netherlands. A separate branch of Lloyds Bank plc is maintained in Berlin. Scottish Widows Europe operates an entity in Luxembourg.
• United States: Lloyds Bank Corporate Markets plc maintains a branch, and Lloyds Bank maintains a representative office. Lloyds Securities Inc. operates as a US broker-dealer.
• Asia: Mentioned as a region where the Group has some credit exposure.

Cross-Border Operations:

• International Subsidiaries: Key international entities include Lloyds Bank GmbH (Germany, with a branch in the Netherlands), Scottish Widows Europe (Luxembourg), Lloyds Bank Corporate Markets plc (US branch), and Lloyds Securities Inc. (US).
• Regulatory Compliance: International operations are subject to multi-jurisdictional regulatory oversight, including EU and German regulations (Bundesanstalt für Finanzdienstaufsicht (BaFin) and Deutsche Bundesbank), Luxembourg regulations (Commissariat aux Assurances (CAA)), and US regulations (Federal Reserve Board, Financial Industry Regulatory Authority (FINRA), Commodity Futures Trading Commission (CFTC), National Futures Association (NFA)).
• Sanctions Compliance: The Group engages in a limited amount of business with counterparties in countries designated by the US State Department as state sponsors of terrorism (including Iran, Syria, Cuba, and North Korea). As of 31 December 2024, the value of business relating to such states represented less than 0.01 per cent of total assets, and revenues were less than 0.001 per cent of total income, net of insurance claims and changes in insurance and investment contract liabilities. Specific transactions involving entities linked to the Government of Iran and Commercial Bank of Syria were conducted in compliance with UK sanctions legislation and relevant authorizations.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin (Total income, after net finance expense in respect of insurance and investment contracts / Total Revenue): 52.5% (2024), 52.6% (2023)
• Operating Margin (Profit before tax / Total Revenue): 17.4% (2024), 21.2% (2023)
• Net Margin (Net Income / Total Revenue): 13.1% (2024), 15.6% (2023)

Investment in Growth:

• Capital Expenditures: £1,901 million in lease liabilities and £666 million in capital expenditure relating to investment properties (as of 31 December 2024).
• Strategic Investments: Ongoing strategic investments are focused on business growth, including enhancing digital capabilities, developing investment propositions for the Mass Affluent strategy, and accelerating the transition to a low carbon economy.

Currency Impact Analysis:

• The Group's consolidated financial statements are expressed in British pounds.
• Changes in foreign exchange rates, particularly with respect to the US dollar and the Euro, may materially affect the Group’s financial position and forecasted earnings.
• A foreign exchange translation loss was incurred following the US Dollar AT1 capital instrument redemption in June 2024.
• The Group manages its Insurance business exposures to foreign currency exchange rate movements within the Insurance, Pensions and Investments division.
• The majority of the Group's cash and cash equivalents are held in Sterling.

Business Segment Analysis

Retail

Financial Performance:

• Revenue (Underlying income, net of operating lease depreciation): £9,995 million (-8% YoY)
• Operating Margin (Underlying profit before tax / Underlying income, net of operating lease depreciation): 31.9%
• Key Growth Drivers: Growth in UK Motor Finance, driven by the acquisition of Tusker in 2023 and higher average rental values. Strong application volumes in UK mortgages in the first half of the year. Increased demand for new credit cards and higher spend. Organic balance growth and lower repayments in UK unsecured loans and overdrafts following a securitisation in Q4 2023. Growth in the European retail business.

Product Portfolio:

• Offers current accounts, savings, mortgages, credit cards, unsecured loans, motor finance, and leasing solutions.
• The UK Motor Finance portfolio increased to £16.4 billion in 2024, partly due to the acquisition of Tusker in 2023.
• Securitisations of primarily legacy UK mortgages, totaling £2.0 billion of gross loans and advances, were undertaken in 2024.

Market Dynamics:

• Operates the largest digital bank in the UK with a mobile-first strategy.
• Maintained robust risk management, strong affordability and indebtedness controls, and a prudent risk appetite.
• Observed reductions in new to arrears and flows to default across UK mortgages and unsecured portfolios in 2024.
• UK Motor Finance saw a slight increase in new to arrears, returning to pre-COVID-19 levels, and increased flows to default driven by a rise in Voluntary Terminations as used car prices fell.
• The credit card portfolio is characterized as a prime book.
• The UK mortgages portfolio is well-positioned with low arrears and a strong loan-to-value (LTV) profile, actively managed with robust affordability and credit controls.

Geographic Revenue Distribution:

• United Kingdom: Primary market for all Retail products (mortgages, credit cards, unsecured loans, motor finance).
• European Business: Contributed to growth in "Other" loans and advances.

Commercial Banking

Financial Performance:

• Revenue (Underlying income, net of operating lease depreciation): £5,253 million (-4% YoY)
• Operating Margin (Underlying profit before tax / Underlying income, net of operating lease depreciation): 45.7%
• Key Growth Drivers: Client franchise growth resulting from strategic investment and higher levels of client activity, which drove markets performance.

Product Portfolio:

• Provides lending, transactional banking, working capital management, debt financing, and risk management services to small and medium businesses, corporate, and institutional clients.
• Business and Commercial Banking lending decreased by £3,315 million, including £1.6 billion in repayments of government-backed lending.
• Corporate and Institutional Banking balances increased by £2,373 million, driven by strategic growth, notably in infrastructure lending.
• The UK Real Estate portfolio had £9.3 billion in committed drawn lending (net of £3.1 billion protected by Significant Risk Transfer securitisations) and £2.8 billion in undrawn facilities, primarily to investment-grade corporate customers.

Market Dynamics:

• Maintains a focused approach to credit underwriting and monitoring standards, proactively managing exposures to higher-risk and cyclical sectors.
• Credit quality remains broadly stable and resilient, with robust credit strategies and policies within risk appetite tolerances.
• The UK Real Estate portfolio is heavily weighted towards investment real estate (c. 91%), with c. 91% of these exposures having an LTV of less than 70% and an average LTV of 45%.
• Limited speculative commercial development lending is undertaken.
• Early support is provided to customers in difficulty through Watchlist and Business Support frameworks.

Geographic Revenue Distribution:

• United Kingdom: Primary market for Commercial Banking activities, including UK Real Estate.

Insurance, Pensions and Investments

Financial Performance:

• Revenue (Underlying income): £1,156 million (+7% YoY)
• Operating Margin (Underlying profit before tax / Underlying income): 19.0%
• Key Growth Drivers: An increase of £79 million in underlying income, primarily driven by higher net general insurance income.

Product Portfolio:

• Offers insurance, investment, and pension management products and services.
• Total Assets under administration (AuA) are £232 billion (excluding Wealth).
• Holds a significant in-force bulk annuity portfolio, which is subject to an agreed sale to Rothesay Life plc in H2 2025.

Market Dynamics:

• Holds a number one ranking in Home Insurance new policy share, a number two ranking in UK defined contribution Workplace provision, and a top three position for Individual Annuities provision.
• Strategic focus includes developing investment propositions to support the Group’s Mass Affluent strategy, digitisation, innovating intermediary propositions, and accelerating the transition to a low carbon economy.

Geographic Revenue Distribution:

• No specific geographic revenue distribution is provided for this segment.

International Operations & Geographic Analysis

Revenue by Geography: The Group's operations are predominantly UK-based, and an analysis between domestic and foreign operations is not provided in the filing.

International Business Structure:

• Subsidiaries:
  • Lloyds Bank GmbH (Germany, with a branch in the Netherlands)
  • Scottish Widows Europe (Luxembourg)
  • Lloyds Bank Corporate Markets plc (US branch)
  • Lloyds Securities Inc. (US)
• Joint Ventures: No material information explicitly stated in the filing.
• Licensing Agreements: No material information explicitly stated in the filing.

Cross-Border Trade:

• Export Markets: No material information explicitly stated in the filing.
• Import Dependencies: No material information explicitly stated in the filing.
• Transfer Pricing: The Group's international tax strategy includes transfer pricing policies and documentation requirements for inter-company transactions.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases:
  • In 2024, the Group completed a share buyback program of up to £2.0 billion, authorized in respect of 2023, repurchasing approximately 3.7 billion (c.6 per cent) ordinary shares.
  • For 2024, the Board announced its intention to implement an ordinary share buyback of up to £1.7 billion, expected to be completed by 31 December 2025.
• Dividend Payments:
  • For 2024, the Board recommended a final ordinary dividend of 2.11 pence per share, which, combined with the interim ordinary dividend of 1.06 pence per share, totals 3.17 pence per share, representing a 15 per cent increase compared to 2023.
  • Total capital return in respect of 2024 is projected to be up to £3.6 billion, equivalent to approximately 9 per cent of the Group’s market capitalization value as of 14 February 2025.
• Future Capital Return Commitments: The Group maintains a progressive and sustainable ordinary dividend policy while retaining flexibility to return further surplus capital through share buybacks or special dividends.

Balance Sheet Position:

• Cash and Equivalents: £62,705 million (Cash and balances at central banks) as of 31 December 2024.
• Total Debt: £80,923 million as of 31 December 2024, comprising £70,834 million in debt securities in issue at amortised cost and £10,089 million in subordinated liabilities.
• Net Cash Position: Not explicitly stated in the filing.
• Credit Rating: Not explicitly stated in the filing.
• Debt Maturity Profile: As of 31 December 2024, the Group had £9,531 million in dated subordinated liabilities, with £4,750 million maturing in less than five years. It also had £75,464 million of outstanding debt securities in issue, with £61,610 million maturing in less than five years.

Cash Flow Generation:

• Operating Cash Flow: Not explicitly stated for the consolidated Group in the provided filing.
• Free Cash Flow: Not explicitly stated in the filing.
• Cash Conversion Metrics: Not explicitly stated in the filing.

Currency Management:

• The majority of the Group's cash and cash equivalents are held in Sterling.
• The Group utilizes collateralized derivative hedges to manage market risk arising from mismatches between liabilities and assets.
• Foreign exchange translation losses can occur, as seen with the US Dollar AT1 capital instrument redemption in June 2024.

Operational Excellence

Production & Service Model: Lloyds Banking Group plc employs a multi-brand, multi-channel service delivery model. Services are offered through well-recognized brands such as Lloyds Bank, Halifax, Bank of Scotland, and Scottish Widows. The Group leverages the largest branch network in the UK alongside a significant digital banking presence. The Retail division operates the largest digital bank in the UK, pursuing a mobile-first strategy to enhance customer experience. Commercial Banking is also transitioning to a digital-first model to improve customer engagement. The Group relies on a range of third-party suppliers to support its strategic initiatives and operational delivery.

Global Supply Chain Architecture: Key Suppliers & Partners:

• Third-Party Suppliers: The Group utilizes various third-party suppliers to support its strategy, acknowledging the operational risks associated with these relationships.
• Reinsurers: The Group has credit exposure to reinsurers, and contracts held with reinsurers amounted to £10,527 million in 2024. A significant agreement was entered into with Rothesay Life plc regarding the Group’s in-force bulk annuity portfolio.
• Manufacturing Partners: Not applicable for a financial services group.
• Technology Partners: Not explicitly named, but the Group's reliance on IT systems and increasing sophistication of cyber threats highlight the importance of technology partnerships.

Facility Network:

• Manufacturing: Not applicable for a financial services group.
• Research & Development: The Group undertakes research and development activities, but specific details on R&D centers or their global network are not provided in the filing.
• Distribution: The Group maintains the largest branch network in the UK and a robust digital banking infrastructure, serving as primary distribution channels.

Operational Metrics:

• Employee Count: 61,228 employees (full-time equivalent) as of 31 December 2024, a reduction of 1,341 from 62,569 at 31 December 2023.
• Cost:income ratio: 64.4% in 2024, an increase from 58.1% in 2023.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: The Group utilizes its extensive branch network and digital banking platforms for direct customer engagement and sales across its Retail and Commercial Banking segments.
• Channel Partners: The Retail division aims to broaden its intermediary offering to enhance market access.
• Digital Platforms: A mobile-first strategy in Retail and a digital-first model in Commercial Banking underscore the importance of online sales channels and e-commerce initiatives.

Customer Portfolio: Enterprise Customers:

• The Commercial Banking division serves a diverse client base, including small and medium businesses, as well as corporate and institutional clients.
• Strategic Partnerships: No material information explicitly stated in the filing.
• Customer Concentration: The Group monitors and controls concentration risks across single obligors, related groups of obligors, customer types, products, industrial sectors, and geographic locations, particularly within the UK. The Board Risk Committee regularly monitors the Group’s largest credit limits.

Regional Market Penetration:

• United Kingdom: The Group maintains a strong market penetration across all its business segments in the UK, serving individual and business customers.
• Growth Markets: The Retail segment noted growth in its European retail business. The Commercial Banking segment focuses on strategic growth within its client franchise.

Competitive Intelligence

Global Market Structure & Dynamics

Industry Characteristics: The UK financial services market, and other markets where Lloyds Banking Group plc operates, are highly competitive, with intensifying competition expected. This is driven by competitor behavior, new market entrants (including new retail banks and non-traditional financial services providers), evolving customer needs, technological advancements (e.g., digital banking, buy now pay later models), and regulatory actions. Increased competition in the mortgage and consumer credit markets has led to lower yields. The growth of the shadow banking sector globally also presents indirect risks through interconnectedness and asset price volatility.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: The Group faces competition from established financial service providers, as well as new entrants, including non-financial companies and technology firms with strong brand recognition. The filing does not name specific competitors.

Regional Competitive Dynamics: The UK banking market is subject to intervention by UK Government competition authorities, including the Competition and Markets Authority (CMA) and the Financial Conduct Authority (FCA), which can impact the competitive landscape and the Group's relative position.

Risk Assessment Framework

Strategic & Market Risks

Global Market Dynamics:

• Macroeconomic Conditions: The Group is highly exposed to general macroeconomic conditions, particularly in the UK, but also in the Eurozone, the US, and Asia. Weak or unstable economic conditions can lead to reduced economic activity, increased unemployment, higher cost of living, and increased insolvency rates, impacting loan repayments and asset values.
• Interest Rate Volatility: The Group's businesses are inherently subject to risks from fluctuations and increased volatility in interest rates, inflation rates, credit spreads, and foreign exchange rates, which significantly impact net interest margin and asset valuations.
• Inflation: Elevated global inflation levels and uncertainty regarding future interest rate paths pose risks of economic instability, potential recession, or renewed inflationary pressures. Rising global protectionism could exacerbate inflation.
• Geopolitical Risks: Political and geopolitical developments, such as conflicts in the Middle East, the war in Ukraine, US-China tensions over Taiwan, and increasing trade protectionism, can significantly affect the wider economic environment, commodity and energy markets, global supply chains, and the financial condition of the Group’s customers and counterparties.
• Technology Disruption: The rapid development of financial services technologies, including artificial intelligence (AI) and new business models like "buy now pay later," presents risks of disruption and requires continuous adaptation.
• Customer Concentration: The Group faces risks from concentrations of exposures to single obligors, related groups, specific customer types, products, industrial sectors, or geographic locations, particularly within the UK.

Operational & Execution Risks

Global Supply Chain Vulnerabilities:

• Supplier Dependency: Reliance on a range of third-party suppliers exposes the Group to operational risks arising from their internal processes, people, and systems. Failure to manage these risks could lead to service disruptions, financial harm, or regulatory actions.
• Regional Disruptions: Past events like the COVID-19 pandemic and the Russian invasion of Ukraine have demonstrated the vulnerability of global supply chains to large-scale disruptions, impacting energy prices and economic stability.
• Trade Restrictions: Increasing global protectionism, including import tariffs and re-shoring efforts, can lead to upward pressure on inflation and complicate policy responses.

Financial & Regulatory Risks

Currency & Financial Risks:

• Foreign Exchange: Changes in foreign exchange rates, particularly for the US dollar and Euro, can materially and adversely affect the Group’s financial position and earnings.
• Interest Rate Risk: Fluctuations in interest rates impact the net interest margin and can lead to significant declines in property and vehicle prices, increasing impairment charges.
• Credit & Liquidity: The Group is dependent on confidence in wholesale funding markets and customer deposits. Constraints on liquidity, increased funding costs, or high withdrawal levels could adversely affect profitability or solvency. A reduction in credit ratings could significantly increase borrowing costs and limit market access.
• Credit Risk: Inherent risks in borrower and counterparty credit quality, exacerbated by concentrations in residential mortgages, commercial real estate, and vehicle financing, can lead to increased impairment losses, especially with rising interest rates and cost-of-living pressures.
• Regulatory & Compliance Risks: The Group is subject to extensive legislation and oversight in the UK, EU, and US. Adverse legal or regulatory developments, including changes in prudential requirements, conduct issues, data protection, and product governance, could materially affect business operations and financial performance.
• Multi-Jurisdictional Compliance: Regulatory divergence between the UK and EU post-Brexit, and evolving requirements in other jurisdictions, increase compliance costs and potential barriers to cross-border financial services trade.
• Trade Regulations: Failure to comply with applicable anti-money laundering, counter-terrorist financing, anti-bribery, fraud, and sanctions regulations in various jurisdictions can result in significant fines, penalties, and reputational damage.
• Tax Regulations: Risks associated with changes in taxation rates, applicable tax laws, misinterpretation of tax laws, and disputes with tax authorities could lead to additional tax charges, penalties, and adverse financial impacts.

Geopolitical & External Risks

Country-Specific Risks:

• Political Risk: Domestic political instability (e.g., UK general election) and international political developments (e.g., US-China relations, Middle East conflicts) can influence economic policy, trade relations, and overall market conditions.
• Economic Risk: High levels of government debt and fiscal spending pressures from ageing populations and climate change in advanced economies raise risks of economic instability.
• Regulatory Changes: General changes in government, central bank, or regulatory policy, or shifts in regulatory regimes, can influence investor decisions, market structures, product offerings, and increase operational costs.

Innovation & Technology Leadership

Research & Development Focus: Global R&D Network: No material information explicitly stated in the filing regarding specific R&D centers or their global network. Innovation Pipeline: The Group is investing in new initiatives and programs, including developing investment propositions for its Mass Affluent strategy, digitisation, innovating intermediary propositions, and accelerating the transition to a low carbon economy.

Intellectual Property Portfolio: Patent Strategy: The Group acknowledges the risk that its intellectual property (such as trade names) may not be adequately protected. No specific patent strategy or portfolio details are provided. Licensing Programs: No material information explicitly stated in the filing. IP Litigation: No material information explicitly stated in the filing.

Technology Partnerships: Strategic Alliances: No material information explicitly stated in the filing. Research Collaborations: No material information explicitly stated in the filing.

Leadership & Governance

Executive Leadership Team

International Management Structure: The Group Executive Committee acts as the chief operating decision maker, reviewing internal reporting across segments to assess performance and allocate resources, reflecting the Group’s organizational and management structures.

Board Composition: The Board comprises a Chair (independent on appointment), independent non-executive directors, and executive directors, bringing a wide range of experience. The Board meets regularly, holding 10 meetings in 2024. Key responsibilities include approving financial statements, dividends, long-term objectives, strategies, and risk management frameworks. All directors are subject to annual re-election by shareholders. Sarah Legg is designated as the Audit Committee financial expert, and all Audit Committee members qualify as independent under US Exchange Act and NYSE standards. The Group confirms compliance with the UK Corporate Governance Code 2018. The Remuneration Committee and Nomination and Governance Committee include the Chair, with other members being independent non-executive directors, which differs from NYSE standards requiring entirely independent committees.

Regulatory Environment & Compliance

Multi-Jurisdictional Regulatory Framework: Primary Regulatory Environments:

• United Kingdom: Regulated by the Financial Conduct Authority (FCA) for market conduct and consumer protection, and the Prudential Regulation Authority (PRA) for prudential supervision and financial stability. The Bank of England (BoE) oversees financial stability, and HM Treasury sets economic policy. Other bodies include the UK Financial Ombudsman Service (FOS), British Bankers Resolution Service (BBRS), Financial Services Compensation Scheme (FSCS), UK Competition and Markets Authority (CMA), UK Information Commissioner’s Office (ICO), and Payment System Regulator (PSR).
• Germany: Lloyds Bank GmbH and an investment firm subsidiary are subject to EU and German regulations, supervised by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and Deutsche Bundesbank.
• Netherlands: The branch of Lloyds Bank GmbH is subject to EU and German regulations and supervised by BaFin and Deutsche Bundesbank.
• Luxembourg: Scottish Widows Europe is regulated by Commissariat aux Assurances (CAA).
• United States: The Company and its US-operating subsidiaries are overseen by the Federal Reserve Board as a financial holding company. Lloyds Securities Inc. is regulated by FINRA, and Lloyds Bank Corporate Markets plc is regulated by the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) for swap activities.

Cross-Border Compliance:

• Export Controls: The Group must comply with trade and economic sanctions, including primary and secondary sanctions, which are subject to change.
• Sanctions Compliance: Policies and procedures are in place to detect and prevent transactions related to sanctions targets and prohibited jurisdictions. Failure to comply can result in fines and penalties.
• Anti-Corruption: The Group has adopted policies and procedures to prevent money laundering, terrorist financing, bribery, tax evasion, human trafficking, modern day slavery, and wildlife trafficking.
• Data Protection: Compliance with the UK Data Protection Framework and European Banking Authority (EBA) Guidelines on ICT and Security Risk Management is required to safeguard customer and employee data.

International Tax Strategy:

• Transfer Pricing: The Group's international tax strategy includes inter-company pricing policies and documentation requirements.
• Tax Treaties: No material information explicitly stated in the filing.
• BEPS Compliance: No material information explicitly stated in the filing.

Environmental & Social Impact

Global Sustainability Strategy: Environmental Commitments:

• Climate Strategy: The Group has set ambitions across its own operations, supply chain, and lending and investments to support decarbonization in line with limiting global warming to 1.5°C. This includes financed emissions targets for lending as part of its membership in the Net Zero Banking Alliance.
• Carbon Neutrality: The Group's ambitions align with the UK’s Net Zero Strategy and international climate pledges (e.g., Glasgow Climate Pact, COP28, COP29).
• Renewable Energy: No material information explicitly stated in the filing.

Regional Sustainability Initiatives:

• United Kingdom: The Group's climate ambitions are aligned with the UK's Net Zero Strategy and international climate agreements.
• Supply Chain: The Group's decarbonization ambitions extend to its supply chain.
• Financed Emissions: The Group calculated emissions for 96% of Bank assets in scope of the Partnership for Carbon Accounting Financials (PCAF) methodology. Estimated financed emissions for the sovereign bond portfolio for the period ended 31 December 2023 were 1.9 MtCO2e. Scottish Widows' carbon footprint for 2023 was 64.7 tCO2e/£m, a reduction from its 2019 baseline of 116.1 tCO2e/£m.

Social Impact by Region:

• Community Investment: The Group recognizes the need for a 'just transition' to a net zero economy, aiming to ensure that disadvantaged members of society are not disproportionately affected, and leverages insights from external memberships like the Financing Just Transition Alliance.
• Labor Standards: The Group addresses social issues including tackling inequality, improving financial inclusion, working conditions, workplace health, safety, employee wellbeing, workforce diversity and inclusion, data protection, human rights, and supply chain management. It has a Code of Ethics and Responsibility for all employees and is implementing an evolved approach to colleague engagement and collective representation in 2025.

Currency Management & Financial Strategy

Multi-Currency Operations: Currency Exposure:

Hedging Strategies:

• Transaction Hedging: The Group utilizes collateralized derivative hedges to manage market risk arising from mismatches between liabilities and assets. It also reduces credit risk exposure by using master netting agreements and obtaining collateral in the form of cash or highly liquid securities for derivative transactions.
• Translation Hedging: No material information explicitly stated in the filing.
• Economic Hedging: No material information explicitly stated in the filing.