Business Context and Reporting Period
This Form 6-K filing by Lloyds Banking Group plc, dated June 28, 2010, incorporates by reference a Statement of Computation of Ratio of Earnings to Fixed Charges. The document serves as Exhibit 12 to the company's Registration Statement on Form F-3 (File No. 333-167844). The financial data presented covers the fiscal years 2005 through 2009.
Key Financial Metrics
The filing focuses on the company's ability to cover fixed charges, primarily interest expenses, rather than providing a full income statement or balance sheet. Key metrics for the most recent reported year (2009) include:
- Profit Before Tax: £1,042 million
- Total Fixed Charges: £19,866 million
- Interest Expensed and Capitalised: £19,730 million
- Ratio of Earnings to Fixed Charges: 1.09
- Share of Losses from Joint Ventures/Associates: £752 million
The filing does not provide specific values for revenue, operating cash flow, net profit margins, total debt principal, or liquidity ratios.
Material Changes Versus Prior Period
Comparing 2009 to 2008, the company experienced significant shifts in its fixed charge coverage profile:
- Fixed Charges Increase: Total fixed charges rose by approximately 92%, from £10,352 million in 2008 to £19,866 million in 2009. This was driven primarily by a near doubling of interest expensed and capitalised (from £10,277 million to £19,730 million).
- Profitability Decline: Profit before tax decreased from £760 million in 2008 to £1,042 million in 2009. However, the 2008 figure was restated to reflect the adoption of IFRS 2 Share-based Payment.
- Joint Venture Impact: The share of losses from joint ventures and associates increased significantly to £752 million in 2009, compared to a negligible £4 million loss in 2008.
- Coverage Ratio Stability: Despite the surge in fixed charges, the ratio of earnings to fixed charges remained relatively stable, moving from 1.08 in 2008 to 1.09 in 2009.
Guidance, Outlook, and Risks
The filing text does not contain forward-looking guidance, management commentary on future outlook, or specific risk factors beyond the financial data presented. However, the notes highlight the following contingencies and accounting treatments:
- Accounting Restatements: Profit before tax figures for 2008 and prior years were restated due to the amendment to IFRS 2 Share-based Payment adopted in 2009.
- Preference Shares: There are no preference shares accounted for as equity; all are accounted for as debt, meaning preference dividends are included within interest costs.
- Rental Expense Estimation: Fixed charges include an estimated interest component within rental expenses, calculated as 30% of total rental expenses.
Important Facts for Investor Verification
- Verify the full 2009 Annual Report on Form 20-F to understand the context of the £19.8 billion in fixed charges and the specific drivers of the interest expense increase.
- Confirm the details of the IFRS 2 restatement impact on 2008 and prior year profitability figures.
- Investigate the nature of the £752 million share of losses from joint ventures and associates in 2009 to assess potential contagion risks.
- Review the company's current liquidity position and capital adequacy ratios, as this filing only addresses earnings coverage of fixed charges.