Business Context and Reporting Period
This Form 6-K filing by Lloyds Banking Group plc, dated May 13, 2011, serves to incorporate by reference a Statement of Computation of Ratio of Earnings to Fixed Charges into the company's Registration Statement on Form F-3. The financial data presented covers the fiscal years 2006 through 2010, with a primary focus on the 2010 results.
Key Financial Metrics
The filing provides specific data regarding earnings, fixed charges, and coverage ratios for the period 2006–2010. It does not provide data on revenue, cash flow, margins, or total debt liquidity positions outside the context of fixed charge calculations.
| Metric (£m) | 2010 | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|---|
| Profit Before Tax | (2,919) | 1,042 | 760 | 3,999 | 4,249 |
| Fixed Charges | 17,173 | 19,866 | 10,352 | 11,208 | 9,131 |
| Total Earnings (for Ratio) | 14,343 | 21,662 | 11,160 | 15,199 | 13,376 |
| Ratio of Earnings to Fixed Charges | N/A | 1.09 | 1.08 | 1.36 | 1.46 |
Note: For 2010, earnings were inadequate to cover total fixed charges by £2,830 million. The ratio is marked as N/A for 2010 due to the pre-tax loss.
Material Changes Versus Prior Period
- Profitability: The Group reported a significant deterioration in profitability, moving from a profit before tax of £1,042 million in 2009 to a loss of £2,919 million in 2010.
- Fixed Charges: Total fixed charges decreased from £19,866 million in 2009 to £17,173 million in 2010, primarily driven by a reduction in interest expensed and capitalized from £19,730 million to £17,034 million.
- Coverage Ratio: The ratio of earnings to fixed charges fell from 1.09 in 2009 to a negative coverage position in 2010, indicating earnings were insufficient to meet fixed obligations.
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. The document notes that 2008 and prior year profit figures were restated in 2009 to reflect the impact of amendments to IFRS 2 Share-based Payment. Additionally, the filing clarifies that all preference shares are accounted for as debt, meaning preference dividends are included within interest costs, resulting in identical ratios for fixed charges and combined fixed charges plus preference dividends.
Investor Verification Checklist
- Verify the full 2010 Annual Report on Form 20-F to understand the drivers behind the £2,919 million pre-tax loss.
- Confirm the composition of the £17,173 million in fixed charges, specifically the split between interest expense and estimated rental interest.
- Review the restatement details regarding IFRS 2 Share-based Payment to understand the comparability of 2008 and prior year data.
- Assess the impact of the negative earnings coverage ratio on the company's ability to service debt and meet regulatory capital requirements.