Final Results Cont.

Royal Bank of Scotland Group PLC 1 March 2001 THE ROYAL BANK OF SCOTLAND GROUP plc CONTENTS PAGE STATUTORY RESULTS Basis of Preparation 2 Consolidated Profit and Loss Account for the 15 months to 31 December 2000 3 Consolidated Balance Sheet at 31 December 2000 5 Statement of total recognised gains and losses 6 Reconciliation of movements in shareholders' funds 6 Acquisition of NatWest 7 Notes 8 CONTACTS 10 Page 1 of 10 BASIS OF PREPARATION On 6 March 2000 the Group completed the acquisition of National Westminster Bank Plc ('NatWest') and on 19 April 2000 announced a change of financial year end to 31 December. The Group's statutory accounts are therefore for the 15 month period ending on 31 December 2000 and include the results of NatWest from 6 March 2000. These statutory accounts also include the fair value and other adjustments required to account for the acquisition of NatWest. The consolidated profit and loss account for the 15 months ended 31 December 2000 set out on pages 3 and 4 incorporates the results of NatWest from the date of acquisition, 6 March 2000. Pro forma results The acquisition has had a significant effect on the Group's financial position. As a consequence, comparisons with the prior year on a statutory basis (which only includes NatWest from 6 March 2000) are of limited benefit. In order to provide shareholders with additional relevant and meaningful information the Group has also published results on a pro forma basis. The pro forma results assume that the acquisition of NatWest took place on 1 January 1999. This approach facilitates meaningful comparisons with the prior year and provides a benchmark against which the Group's future performance can be judged. The pro forma results are also being announced at this time and are set out in a separate report. Page 2 of 10 CONSOLIDATED PROFIT AND LOSS ACCOUNT 15 months 12 months ended ended 31 December 30 September 2000 1999 £m £m Interest receivable 14,494 4,853 Interest payable 8,707 3,105 -------- -------- Net interest income 5,787 1,748 -------- -------- Dividend income 54 34 Fees and commissions receivable 3,885 1,081 Fees and commissions payable (746) (129) Dealing profits 1,003 199 Other operating income 959 459 -------- -------- 5,155 1,644 General insurance - earned premiums 1,608 869 - reinsurance (442) (159) -------- -------- Non-interest income 6,321 2,354 --------- -------- Total income* 12,108 4,102 --------- -------- Administrative expenses - staff costs 3,547 1,012 - premises and equipment 817 271 - other 1,615 460 Depreciation and amortisation - tangible fixed assets 786 278 - goodwill 541 1 -------- -------- Operating expenses 7,306 2,022 -------- -------- Profit before other operating charges 4,802 2,080 General insurance - gross claims 1,205 720 - reinsurance (347) (130) -------- -------- Profit before provisions for bad and doubtful debts 3,944 1,490 Provisions for bad and doubtful debts 629 266 Amounts written off investments 42 13 -------- -------- Operating profit** 3,273 1,211 Profit on disposal of businesses 100 - -------- -------- Profit on ordinary activities before tax 3,373 1,211 -------- -------- * Analysis of total income: - continuing operations 5,629 4,102 - acquisitions 6,479 - --------- --------- 12,108 4,102 ** Analysis of operating profit: --------- --------- - continuing operations 1,355 1,211 - acquisitions 1,918 - --------- --------- 3,273 1,211 --------- --------- Page 3 of 10 CONSOLIDATED PROFIT AND LOSS ACCOUNT 15 months 12 months ended ended 31 December 30 September 2000 1999 £m £m Profit on ordinary activities before tax 3,373 1,211 Tax on profit on ordinary activities 1,157 361 --------- --------- Profit on ordinary activities after tax 2,216 850 Minority interests (47) 6 --------- --------- Profit after minority interests 2,169 856 Preference dividends 322 80 --------- --------- Profit attributable to ordinary shareholders 1,847 776 Ordinary dividends 882 254 --------- --------- Retained profit 965 522 --------- --------- Basic earnings per ordinary share 90.0p 87.8p --------- --------- Adjusted earnings per ordinary share (Note 4) 126.4p 87.8p --------- --------- Diluted earnings per ordinary share 88.9p 86.6p --------- --------- This information does not constitute statutory accounts for the periods ended 31 December 2000 or 30 September 1999. Statutory accounts for the year ended 30 September 1999 have been delivered to the Registrar of Companies and those for the 15 months ended 31 December 2000 will be delivered following the company's annual general meeting. The auditors have reported on these accounts; their reports were unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act. Page 4 of 10 CONSOLIDATED BALANCE SHEET 31 December 30 September 2000 1999 £m £m Assets Cash and balances at central banks 3,049 1,394 Items in course of collection from other banks 2,961 1,655 Treasury bills and other eligible bills 3,316 701 Loans and advances to banks 32,061 10,375 Loans and advances to customers 168,076 49,340 Debt securities 57,789 15,389 Equity shares 1,553 913 Interests in associated undertakings 83 43 Intangible fixed assets 12,080 11 Tangible fixed assets 6,121 2,526 Other assets 18,034 3,326 Prepayments and accrued income 4,182 1,166 ----------- ---------- 309,305 86,839 Long-term assurance assets attributable to 10,699 2,013 policyholders ----------- ---------- Total assets 320,004 88,852 ----------- ---------- Liabilities Deposits by banks 35,130 6,418 Items in the course of transmission to other banks 1,707 975 Customer accounts 177,302 55,180 Debt securities in issue 19,407 9,199 Other liabilities 32,959 4,634 Accruals and deferred income 7,172 2,582 Provisions for liabilities and charges - deferred taxation 1,224 465 - other provisions 306 6 Subordinated liabilities - dated loan capital 6,316 1,917 - undated loan capital including convertible debt 4,120 1,115 Minority interests - equity (34) 108 - non-equity 580 38 Shareholders' funds including non-equity interests 23,116 4,202 ----------- ---------- 309,305 86,839 Long-term assurance liabilities to policyholders 10,699 2,013 ----------- ---------- Total Liabilities 320,004 88,852 ----------- ---------- Memorandum items: Contingent liabilities and commitments 105,102 23,650 ----------- ---------- Page 5 of 10 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 15 months 12 months ended ended 31 December 30 September 2000 1999 £m £m Profit attributable to ordinary shareholders 1,847 776 Currency translation adjustments and other movements 26 5 Revaluation of premises 24 28 ------- ------ Total recognised gains and losses 1,897 809 ------- ------ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 15 months 12 months ended ended 31 December 30 September 2000 1999 £m £m Profit attributable to ordinary shareholders 1,847 776 Ordinary dividends (882) (254) ------- ------ Retained profit for the period 965 522 Issue of ordinary and preference shares 18,032 613 Redemption of preference shares (300) - Other recognised gains and losses 50 33 Currency translation adjustment on share premium 184 23 account Write-back of goodwill - 28 Other movements (17) 30 --------- -------- Net increase in shareholders' funds 18,914 1,249 Opening shareholders' funds 4,202 2,953 --------- -------- Closing shareholders' funds 23,116 4,202 --------- -------- Page 6 of 10 ACQUISITION OF NATWEST £m £m Consideration paid: Issue of 1,563.5 million new 25 pence ordinary shares to NatWest ordinary shareholders (Note a) 13,462 Payment of cash to NatWest ordinary shareholders (Note b) 7,110 Issue of loan notes to NatWest ordinary shareholders (Note 239 b) Fees and expenses related to the acquisition 176 --------- 20,987 --------- Net assets acquired: Shareholders' funds 9,699 Less: preference shares (488) --------- NatWest net assets as at 6 March 2000 (Note c) 9,211 --------- Fair value adjustments: (533) Goodwill in NatWest Disposal of businesses: (Note d) - Gartmore 866 - Other 271 --------- 1,137 Pension fund surplus 1,070 Contingent asset 70 Fixed assets excluding property (40) Property (262) Financial instruments (516) Other (504) Tax on fair value adjustments (36) --------- Total fair value adjustments 386 --------- Adjusted net assets acquired 9,597 --------- Goodwill arising on acquisition (Note e) 11,390 --------- Notes (a) The 'Consideration paid' information above is based on the closing price on the London Stock Exchange on 3 March 2000, the trading day immediately prior to the offer for NatWest being declared unconditional in all respects, of 861 pence per RBSG ordinary share of 25 pence. (b) NatWest ordinary shareholders had the right to receive, for each NatWest share held, 0.968 new RBSG 25 pence ordinary shares plus 400 pence in cash or loan notes. A 'Partial cash alternative' was also offered, which, for each NatWest share held, consisted of 0.92 new RBSG 25 pence ordinary shares plus 450 pence in cash or loan notes. (c) Net assets acquired at 6 March 2000 include £51 million relating to proceeds from the subsequent exercise of outstanding options. (d) The fair value adjustment relating to the disposal of businesses reflects the excess of sale proceeds over the net tangible asset value of these businesses in NatWest's consolidated balance sheet at 6 March 2000. (e) In the Group's interim results, the goodwill arising on the acquisition of NatWest was estimated to be £11,200 million, based on preliminary fair value adjustments. Subsequently, further fair value adjustments have been identified resulting in a revision to the goodwill figure to £11,390 million. This is being amortised over its estimated economic life of 20 years, resulting in a charge of £570 million per annum. Page 7 of 10 NOTES 1. Basis of preparation The basis of preparation of the statutory results is set out on page 2. 2. Accounting policies and presentation (i) Implementation by the Group of Financial Reporting Standard ('FRS') 15 'Tangible Fixed Assets' and FRS 16 'Current Tax' had no material effect on reported profits. From 1 October 1999, the Group's freehold and long leasehold buildings, following a reassessment of their useful economic lives, are being depreciated over 50 years. (ii) The following changes to the accounting presentation adopted by the Group have been made to give a fairer presentation of the results of the enlarged Group: a) Interest receivable and interest payable on trading assets and liabilities previously shown in net interest income are now included in dealing profits. As a result of this change there is a reduction of £217 million in interest receivable for the 15 months ended 31 December (30 September 1999 - £143 million), a reduction in interest payable of £201 million (30 September 1999 - £135 million) and an increase of £16 million (30 September 1999 - £8 million) in dealing profits. b) Fraud losses, formerly included in provisions for bad and doubtful debts are now included in administrative expenses. The charge for bad and doubtful debt provisions has decreased by £ 16 million for the 15 months ended 31 December 2000 (30 September 1999 - £10 million), with a corresponding increase in administrative expenses - other. c) Credit card processing costs are now reported in fees and commissions payable increasing this profit and loss caption by £49 million for the 15 months ended 31 December 2000 (30 September 1999 - £36 million) and reducing administrative expenses - other. d) Following an analysis of staff costs, a net £17 million for the 15 months ended 31 December 2000 and £8 million for the year ended 30 September 1999 has been transferred within administrative expenses between staff costs and other costs. Comparative figures have been restated to reflect these changes in presentation which do not affect profit before tax. 3. Taxation The charge for taxation is based on a UK corporation tax rate of 30% (1999 - 30.5%). The tax charge of £1,157 million on profits of £3,373 million for the 15 months ended 31 December 2000 is equivalent to 34% of pre-tax profit. This is higher than the standard UK tax rate of 30%, mainly due to goodwill amortisation, which is not allowable for tax purposes. Page 8 of 10 NOTES (continued) 4. Earnings per share The earnings per share have been calculated as follows: 15 months 12 months ended ended 31 30 December September 2000 1999 £m £m Earnings: Profit attributable to ordinary shareholders 1,847 776 -------- ------ Weighted average number of ordinary shares: In issue during the period 2,053 884 Effect of dilutive share options and convertible 26 12 non-equity shares -------- -------- In issue during the period - diluted 2,079 896 -------- -------- Earnings per share 90.0p 87.8p Integration costs 14.0p - Goodwill amortisation 25.8p - Profit on sale of businesses (3.4p) - -------- -------- Adjusted earnings per share 126.4p 87.8p -------- -------- Adjusted earnings are calculated by adjusting the profit attributable to ordinary shareholders for the after tax profits or losses on disposals of businesses, integration costs and goodwill amortisation. Integration costs, as defined by Financial Reporting Standard 6, amounted to £401 million in the period 6 March 2000 to 31 December 2000. 5. Ordinary Dividends The directors have declared a final dividend of 23.5p per share on the ordinary shares, which, when added to the interim dividend of 9.5p per share, makes a total of 33.0p per share. Subject to approval by shareholders at the annual general meeting, the final dividend will be paid on 18 May 2001 to shareholders registered on 16 March 2001. As an alternative to cash, a scrip dividend election is to be offered and shareholders will receive details of this by letter. Page 9 of 10 CONTACTS Fred Watt Group Finance Director 020 7427 8412 0131 523 2028 Grahame Whitehead Deputy Group Finance Director 020 7427 9450 0131 523 2970 1 March 2001 END Page 10 of 10

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