Final Results - Part 2

Royal Bank of Scotland Group PLC 28 February 2002 PART 2 THE ROYAL BANK OF SCOTLAND GROUP plc YEAR ENDED 31 DECEMBER 2001 STATUTORY RESULTS THE ROYAL BANK OF SCOTLAND GROUP plc CONTENTS Page STATUTORY RESULTS Foreword 2 Review of results 3 Consolidated profit and loss account 5 Consolidated balance sheet 7 Statement of consolidated total recognised gains and losses 8 Reconciliation of movements in consolidated shareholders' funds 8 Consolidated cash flow statement 9 Notes 10 Contacts 12 THE ROYAL BANK OF SCOTLAND GROUP plc FOREWORD In this announcement, the consolidated profit and loss account for the year ended 31 December 2001 is presented with comparative results for the 15 months ended 31 December 2000. Commentary on these results is of limited benefit as the prior period includes National Westminster Bank Plc ('NatWest') from the date of acquisition, 6 March 2000. Pro forma results The Group has also released a separate announcement in which the results for the year ended 31 December 2001 are presented with the pro forma results for the year ended 31 December 2000. The pro forma results assume that the acquisition of NatWest took place on 1 January 1999. This approach facilitates meaningful comparisons with the prior period. THE ROYAL BANK OF SCOTLAND GROUP plc REVIEW OF RESULTS Profit Profit before tax at Â£4,275 million for the year ended 31 December 2001 was up 27%, Â£902 million, from Â£3,373 million for the 15 months ended 31 December 2000. Total income Total income rose by 20%, Â£2,473 million, to Â£14,581 million. Net interest income Net interest income increased by 19%, Â£1,082 million, to Â£6,869 million. Non-interest income Non-interest income, excluding general insurance, grew by 23%, Â£1,182 million, to Â£6,337 million. Fees and commissions receivable were up 22%, Â£850 million, to Â£4,735 million. Dealing profits increased by 42%, Â£423 million, to Â£1,426 million. Other operating income was 10%, Â£93 million higher at Â£1,052 million. General insurance premium income, after reinsurance, increased by 18%, Â£209 million, to Â£1,375 million. Total expenses Operating expenses rose by 15%, Â£1,061 million, to Â£8,367 million including integration costs of Â£875 million (2000 - Â£401 million). Staff expenses were up 14%, Â£512 million to Â£4,059 million. Other expenses were up 15%, Â£549 million, to Â£4,308 million. General insurance claims, after reinsurance, increased by 10%, Â£90 million, to Â£948 million. Provisions The Group's lending portfolio is widely diversified and, based on internal grading systems, the composition of the portfolio is broadly unchanged. Overall credit quality remains strong. New provisions were up 26%, Â£223 million to Â£1,071 million. This increase reflects the growth in lending and the deterioration in the short-term economic outlook combined with the impact of a small number of specific customer situations. Recoveries of amounts previously written off were down Â£97 million, 55% to Â£80 million. Consequently the net charge to the profit and loss account was up from Â£671 million to Â£991 million. Total balance sheet provisions for bad and doubtful debts amounted to Â£3,653 million (31 December 2000 - Â£3,153 million) equivalent to 81% (31 December 2000 - 83%) of risk elements in lending. Mellon acquisition Citizens completed the acquisition of the regional retail and commercial banking operations of Mellon Financial Corporation on 1 December 2001 for a cash consideration of US$2.2 billion (Â£1,564 million). The goodwill arising on this acquisition amounted to Â£1,655 million. Tax charge The tax charge for the year was Â£1,537 million, equivalent to 36% of profit before tax of Â£4,275 million. The rate is affected by goodwill amortisation, which is not allowable for UK tax purposes. The effective tax rate after adjusting for goodwill amortisation was 31% (2000 - 30%). THE ROYAL BANK OF SCOTLAND GROUP plc Shareholder returns Earnings per share, adjusted for goodwill amortisation, integration costs and the dividend on the Additional Value Shares ('AVS'), increased from 126.4p to 127.9p. The first dividend of 15.0p per share was paid on the AVS issued in connection with the acquisition of NatWest. This was paid on 3 December 2001 in accordance with the original payment schedule. A final dividend of 27.0p per ordinary share is recommended resulting in a total dividend for the year of 38.0p per ordinary share, up 15% on 2000. The total ordinary dividend of Â£1,085 million is covered 3.3 times (2000 - 3.0 times) by earnings before goodwill amortisation, integration costs and the AVS dividend. Profit attributable to ordinary shareholders after tax, minority interests, preference dividends and perpetual securities interest, at Â£2,267 million, increased by 23%. After deducting the AVS dividend, attributable profit increased by 1% to Â£1,868 million. Balance sheet Group total assets were Â£369 billion at 31 December 2001, of which Â£285 billion (77%) related to banking business and Â£84 billion (23%) to trading business. Loans and advances to customers at 31 December 2001 were Â£190 billion, up 13% from Â£168 billion at 31 December 2000. Customer deposits increased by 12% from Â£177 billion to Â£199 billion. Capital ratios at 31 December 2001 were 7.1% (tier 1) and 11.5% (total) compared with 6.9% (tier 1) and 11.5% (total) at 31 December 2000. Integration Integration now comprises two elements: NatWest Integration costs were Â£847 million compared with Â£401 million in 2000. Good progress continues to be made in integrating NatWest. Implementation has been faster which has resulted in revenue benefits and cost savings being achieved ahead of plan. In addition to value being created earlier than planned, additional revenue benefits and cost savings have been identified which will result in combined annual benefits being Â£300 million more than plan giving a benefit of Â£2.0 billion per annum at the end of the programme. As a consequence of the accelerated implementation and the additional benefits, the cumulative profits from the integration programme to the end of 2003 are expected to be Â£5.5 billion. This is Â£1.4 billion greater than the planned Â£4.1 billion and the overall cost of the programme is now estimated to be Â£2.3 billion against a plan of Â£1.4 billion. Mellon Mellon was acquired in December 2001 and expenditure of Â£28 million was incurred in the early stages of integrating Mellon with Citizens. No benefits from this integration have yet been recognised, however, the forecast future benefits announced at the time of the Mellon acquisition have been confirmed. THE ROYAL BANK OF SCOTLAND GROUP plc CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2001 (audited) 15 months Year ended ended 31 December 31 December 2001 2000 Â£m Â£m Interest receivable 14,421 14,494 Interest payable 7,552 8,707 --------- --------- Net interest income 6,869 5,787 --------- --------- Dividend income 54 54 Fees and commissions receivable 4,735 3,885 Fees and commissions payable (930) (746) Dealing profits 1,426 1,003 Other operating income 1,052 959 --------- --------- 6,337 5,155 General insurance - earned premiums 1,804 1,608 - reinsurance (429) (442) --------- --------- Non-interest income 7,712 6,321 --------- --------- Total income 14,581 12,108 --------- --------- Administrative expenses - staff costs* 4,059 3,547 - premises and equipment* 873 817 - other* 1,903 1,615 Depreciation and amortisation - tangible fixed assets* 881 786 - goodwill 651 541 --------- --------- Operating expenses 8,367 7,306 --------- --------- Profit before other operating charges 6,214 4,802 General insurance - gross claims 1,263 1,205 - reinsurance (315) (347) --------- --------- Profit before provisions for bad and doubtful debts 5,266 3,944 Provisions for bad and doubtful debts 984 629 Amounts written off fixed asset investments 7 42 --------- --------- Operating profit 4,275 3,273 Profit on disposal of businesses - 100 --------- --------- Profit on ordinary activities before tax 4,275 3,373 --------- --------- THE ROYAL BANK OF SCOTLAND GROUP plc CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2001 (audited) (continued) 15 months Year ended ended 31 December 31 December 2001 2000 Â£m Â£m Profit on ordinary activities before tax 4,275 3,373 Tax on profit on ordinary activities 1,537 1,157 -------- -------- Profit on ordinary activities after tax 2,738 2,216 Minority interests 90 47 -------- -------- Profit after minority interests 2,648 2,169 Preference dividends 358 322 Perpetual regulatory securities interest 23 - -------- -------- 2,267 1,847 Additional Value Shares dividend 399 - -------- -------- Profit attributable to ordinary shareholders 1,868 1,847 Ordinary dividends 1,085 882 -------- -------- Retained profit 783 965 -------- -------- Basic earnings per ordinary share (Note 4) 67.6p 90.0p -------- -------- Adjusted earnings per ordinary share (Note 4) 127.9p 126.4p -------- -------- Diluted earnings per ordinary share (Note 4) 66.3p 88.9p -------- -------- *includes reorganisation and integration expenditure: staff costs - Â£598 million (2000 - Â£255 million); premises and equipment costs - Â£64 million (2000 - Â£27 million); other administrative expenses - Â£188 million (2000 - Â£107 million); and depreciation - Â£25 million (2000 - Â£12 million). This information does not constitute statutory accounts for the periods ended 31 December 2001 or 31 December 2000. Statutory accounts for the 15 months ended 31 December 2000 have been delivered to the Registrar of Companies and those for the year ended 31 December 2001 will be delivered following the company's annual general meeting. The auditors have reported on the accounts for the year ended 31 December 2001 and the 15 months ended 31 December 2000; their reports were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. THE ROYAL BANK OF SCOTLAND GROUP plc CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2001 (audited) 31 December 31 December 2001 2000 Â£m Â£m Assets Cash and balances at central banks 3,093 3,049 Items in the course of collection from other banks 3,288 2,961 Treasury bills and other eligible bills 10,136 3,316 Loans and advances to banks 38,513 32,061 Loans and advances to customers 190,492 168,076 Debt securities 64,040 57,789 Equity shares 1,557 1,553 Interests in associated undertakings 108 83 Intangible fixed assets 13,325 12,080 Tangible fixed assets 8,813 6,121 Other assets 21,473 18,034 Prepayments and accrued income 3,696 4,182 ----------- ----------- 358,534 309,305 Long-term assurance assets attributable to policyholders 10,248 10,699 ----------- ----------- Total assets 368,782 320,004 ----------- ----------- Liabilities Deposits by banks 40,038 35,130 Items in the course of transmission to other banks 2,109 1,707 Customer accounts 198,995 177,302 Debt securities in issue 30,669 19,407 Other liabilities 37,357 32,959 Accruals and deferred income 7,654 7,172 Provisions for liabilities and charges - deferred taxation 1,456 1,224 - other provisions 341 306 Subordinated liabilities - dated loan capital 6,681 6,316 - undated loan capital including convertible debt 5,029 4,120 Minority interests - equity 5 (34) - non-equity 580 580 Shareholders' funds - equity 22,404 19,081 - non-equity 5,216 4,035 ----------- ----------- 358,534 309,305 Long-term assurance liabilities to policyholders 10,248 10,699 ----------- ----------- Total liabilities 368,782 320,004 ----------- ----------- Memorandum items Contingent liabilities and commitments 138,844 105,102 ----------- ----------- THE ROYAL BANK OF SCOTLAND GROUP plc STATEMENT OF CONSOLIDATED TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 DECEMBER 2001 (audited) 15 months Year ended ended 31 December 31 December 2001 2000 Â£m Â£m Profit attributable to ordinary shareholders 1,868 1,847 Currency translation adjustments and other movements (3) 26 Revaluation of premises 72 24 ------- ------- Total recognised gains and losses 1,937 1,897 ------- ------- RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 31 DECEMBER 2001 (audited) 15 months Year ended ended 31 December 31 December 2001 2000 Â£m Â£m Profit attributable to ordinary shareholders 1,868 1,847 Ordinary dividends (1,085) (882) ---------- ---------- Retained profit for the period 783 965 Issue of ordinary and preference shares 2,759 18,032 Issue of perpetual regulatory securities 823 - Redemption of preference shares - (300) Other recognised gains and losses 69 50 Currency translation adjustment on share premium account and perpetual regulatory securities 55 184 Accrued interest on perpetual regulatory securities 15 - Other movements - (17) ---------- ---------- Net increase in shareholders' funds 4,504 18,914 Opening shareholders' funds 23,116 4,202 ---------- ---------- Closing shareholders' funds 27,620 23,116 ---------- ---------- THE ROYAL BANK OF SCOTLAND GROUP plc CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2001 (audited) 15 months Year ended ended 31 December 31 December 2001 2000 Â£m Â£m Net cash inflow from operating activities 7,287 11,328 Dividends received from associated undertakings 1 2 Returns on investments and servicing of finance (1,447) (1,096) Taxation (1,209) (727) Capital expenditure and financial investment (10,337) (5,982) Acquisitions and disposals (1,653) (2,920) Ordinary equity dividends paid (653) (386) --------- --------- Net cash (outflow)/inflow before financing (8,011) 219 Financing 4,411 4,606 --------- --------- (Decrease)/increase in cash (3,600) 4,825 --------- --------- THE ROYAL BANK OF SCOTLAND GROUP plc NOTES 1. Accounting policies and presentation There have been no changes to the Group's principal accounting policies as set out on pages 49 to 51 of the 2000 Report and Accounts. Disclosures required by FRS 17 'Retirement Benefits' are included in the 2001 Report and Accounts. Further disclosures under the transitional requirements of the standard will be made in the Group's financial statements for 2002, and full implementation is required in 2003. The Group has also implemented FRS 18 'Accounting Policies'. 2. Taxation The charge for taxation is based on a UK corporation tax rate of 30% (2000 - 30%). The tax charge of Â£1,537 million on profits of Â£4,275 million for the year ended 31 December 2001 is equivalent to 36% 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 UK tax purposes. 3. Goodwill Citizens completed the acquisition of the regional retail and commercial banking operations of Mellon Financial Corporation on 1 December 2001. The goodwill arising on this acquisition amounted to Â£1,655 million. The goodwill arising on other acquisitions completed during the year was Â£147 million. The provisional fair value adjustments made in 2000 in respect of the acquisition of NatWest have been finalised giving rise to an increase in the related goodwill of Â£93 million to Â£11,483 million. The increase principally relates to adjustments to the fair value of financial instruments including loans and advances to customers. 4. Earnings per share The earnings per share have been calculated as follows: 15 months Year ended ended 31 December 31 December 2001 2000 Â£m Â£m Earnings: Profit attributable to ordinary shareholders 1,868 1,847 ------- ------- Weighted average number of ordinary shares: Number of shares - million In issue during the period 2,762 2,053 Effect of dilutive share options and convertible non-equity shares 55 26 ------- ------- 2,817 2,079 ------- ------- Basic earnings per share 67.6p 90.0p AVS dividend 14.5p - ---------- --------- 82.1p 90.0p Goodwill amortisation 23.2p 25.8p Integration costs 22.6p 14.0p Profit on sale of business - (3.4p) ---------- --------- Adjusted earnings per share 127.9p 126.4p ---------- --------- Diluted earnings per share 66.3p 88.9p ---------- --------- Adjusted earnings are calculated by adjusting the profit attributable to ordinary shareholders for the after tax effect of goodwill amortisation, integration costs and profit on disposal of businesses, and the AVS dividend. THE ROYAL BANK OF SCOTLAND GROUP plc NOTES (continued) 5. Reconciliation of operating profit to net cash inflow from operating activities 15 months Year ended ended 31 December 31 December 2001 2000 Â£m Â£m Operating profit 4,275 3,273 Decrease/(increase) in prepayments and accrued income 486 (1,151) Interest on subordinated liabilities 651 750 Increase in accruals and deferred income 475 2,236 Depreciation and amortisation of tangible and intangible fixed assets 1,532 1,327 Other trading items 146 (370) --------- --------- Net cash inflow from trading activities 7,565 6,065 Increase in loans and advances to banks and customers (22,823) (17,600) Increase in deposits by banks and customers 16,188 30,557 Increase in bills and securities (6,036) (1,628) Increase/(decrease) in debt securities in issue 11,262 (659) Other assets and liabilities and non-cash items 1,131 (5,407) --------- --------- Net cash inflow from operating activities 7,287 11,328 --------- --------- 6. Ordinary dividends The directors have recommended a final dividend of 27.0p per share on the ordinary shares, which, when added to the interim dividend of 11.0p per share, makes a total of 38.0p per share. Subject to approval by shareholders at the annual general meeting, the final dividend will be paid on 7 June 2002 to shareholders registered on 15 March 2002. As an alternative to cash, a scrip dividend election is to be offered and shareholders will receive details of this by letter. 7. Additional Value Shares The first dividend of 15.0p per share on the AVS issued in connection with the acquisition of NatWest was paid on 3 December 2001. THE ROYAL BANK OF SCOTLAND GROUP plc CONTACTS Fred Watt Group Finance Director 020 7427 8412 0131 523 2028 Grahame Whitehead Deputy Group Finance Director 020 7427 9450 0131 523 2970 28 February 2002 END This information is provided by RNS The company news service from the London Stock Exchange

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