We announced in the final quarter of last year that we'd achieved our integration goal of GBP 2 billion of run rate synergies well before the 3-year target period. I'm pleased to report that over and above competing integration in the second half of last year, we've also begun to deliver simplification. You'll note the program's already generated savings of GBP 242 million run rate at December 2011. Now I regard that as a strong start.Rather than look at our performance on cost just for 1 year, it's worth looking at the longer-term trend. This slide shows the progression of costs for Lloyds Banking Group from the acquisition of HBOS in January 2009 to the present day. The pro forma cost base of the newly combined group was just over GBP 12.2 billion. It is now GBP 10.6 billion, down just over GBP 1.6 billion. This represents an absolute 13% reduction. The principal driver is integration savings, which are passed through to the bottom line. That number of GBP 1,851 million savings is the in-year benefit in 2011, which translates to the run rate in excess of GBP 2 billion that we've reported. And in line with our strategy of reducing noncore assets in the Asset Finance business, operating lease depreciation has also reduced substantially over the period by GBP 663 million. Now these reductions have been partly offset by cost increases reflected in bank levy, wage inflation, national insurance, energy costs and VAT, together with some early investment in the strategic initiatives that António has described earlier. And last but not least, the early mobilization of simplification has now delivered GBP 178 million in the year. This is particularly pleasing as it overlaps with the key closing stages of integration and once again demonstrates the maturity of our change management capability to deal with both complexity and scale. All in all, I hope you agree this shows a strong downward momentum in costs and evidences our determination to deliver benefits and savings through to the bottom line.
Now for a close look at how the simplification program is going. Simplification is central to our strategy of becoming the best bank for customers. Customers want to experience processes with fewer steps, more automation and more transparent outcomes. Fewer errors will mean fewer complaints and increased brand consideration. António has already detailed the progress we're making on reducing complaints. We're determined that simplification will enable us to reduce those FSA-reportable complaints to less than 1 per 1,000 in 2014.Simplification will also generate significant financial benefits. I've previously described to you the iceberg effect, where simple processes and fewer errors and complaints leads to a virtual circle of lower cost to primary processes, generating fewer demands for secondary processes of error correction and rework, complaint handling and so on. And whilst the majority of simplification benefits will flow to the bottom line, approximately 1/3 of the benefits over the life of the program will be used to fund investment in our strategic growth initiatives. For colleagues, simplification will eliminate low-value tasks, increase cross-skilling and free up time to spend with customers to deepen relationships and drive income growth. Now hopefully, you recognize this slide from last year. Simplification is organized into 4 key streams: operations and processes, sourcing, organization, and channels and products. You'll see that at the outset to the program last year, we'd identified 111 initiatives. Now that number's grown to 183. This reflects the addition of new ideas as well as the deletion of some ideas that didn't provide the right financial payback. And this also reflects the added granularity of our plans as we move into delivery mode. With the core technical aspects of integration now complete, we've been able to move substantial and highly skilled resources onto our program of transforming the business and technology, harnessing automation and workflow tools, simplifying, and driving our cost.
I reported last time on the cost management approach that we had implemented. This is now maturing into a very effective process, bringing both detail and control to all aspects of our cost base. 14 dedicated cost management units, each responsible for a single type of cost, now review and control all costs and budgets on an end-to-end basis across all divisions and businesses reporting to a group cost board chaired by me.Read the rest of this transcript for free on seekingalpha.com