Interim Results - Part 2

Royal Bank of Scotland Group PLC 04 August 2005 Part 2 THE ROYAL BANK OF SCOTLAND GROUP plc NOTES - STATUTORY RESULTS 1. Adoption of International Financial Reporting Standards ('IFRS') The Group prepared its 2004 consolidated financial statements in accordance with accounting standards issued by the UK Accounting Standards Board, the pronouncements of the Urgent Issues Task Force, relevant Statements of Recommended Accounting Practice and in compliance with the Companies Act 1985. The Group will henceforth prepare its consolidated financial statements in accordance with International Financial Reporting Standards, International Accounting Standards and interpretations issued by the International Financial Reporting Interpretation Committee and its predecessor body (together 'IFRS'). The standards applied, which will be adopted for the first time for the purpose of preparing consolidated financial statements for the year ending 31 December 2005, will be those issued by the International Accounting Standards Board ('IASB') and endorsed by the European Union ('EU') (or where there is a reasonable expectation of endorsement) as at 31 December 2005. The EU has not endorsed IAS 39 as issued by the IASB. The EU has relaxed some of the hedging requirements and introduced a prohibition on the designation of non-trading financial liabilities at fair value through profit or loss. However, the IASB has now amended the fair value option to restrict the circumstances in which non-trading financial liabilities can be designated as at fair value through profit or loss. The EU is expected to endorse these changes later this year. The transitional arrangements for the revised fair value option permit designation from 1 January 2005 for companies applying IAS 39 for the first time from that date. Further standards and interpretations may be issued that could be applicable for financial years beginning on or after 1 January 2005 or that are applicable to later accounting periods but with an option for earlier adoption. The Group's first annual financial statements under IFRS may, therefore, be prepared using different accounting policies from those used in preparing the financial information in this announcement. Furthermore, IFRS is currently being applied in the EU and other jurisdictions for the first time. It contains many new and revised standards, and practice in applying these standards and their interpretation is still developing. It should be noted therefore that the financial information included in this announcement is subject to change. The relevant UK tax legislation has not yet been finalised and it is possible that the tax estimates included in this announcement will have to be revised as relevant elections are made in respect of the large number of UK companies in the Group. Reconciliations of equity as at 1 January 2004, 30 June 2004 and 31 December 2004 and of profit for the first half of 2004 and full year 2004 under previous GAAP to IFRS were included in the Group's IFRS Transition Report issued on 8 June 2005 and are not repeated in this announcement. 2. Basis of preparation The statutory interim results have been prepared in accordance with IFRS. 3. Accounting policies The Group's provisional IFRS accounting policies and a description of the key differences between UK GAAP and IFRS accounting policies were included in the Group's IFRS Transition Report issued on 8 June 2005. THE ROYAL BANK OF SCOTLAND GROUP plc NOTES - STATUTORY RESULTS (continued) 4. Taxation The tax charge applied to the interim results is based on the effective tax rate expected to apply for the full year. The charge for taxation is based on a UK corporation tax rate of 30% and comprises: Statutory Statutory First half First half Full year 2005 2004 2004 £m £m £m Tax on profit before intangibles amortisation 1,197 1,041 2,164 and integration costs Tax relief on intangibles amortisation and integration costs (102) (54) (169) _______ _______ _______ 1,095* 987* 1,995* _______ _______ _______ *including overseas tax of 433 313 725 _______ _______ _______ It differs from the tax charge computed by applying the standard UK corporation tax rate of 30% as follows: Statutory Statutory First half First half Full year 2005 2004 2004 £m £m £m Profit before tax 3,688 3,585 7,284 _______ _______ _______ Expected tax charge 1,106 1,076 2,185 Non-equity preference dividends 35 - - Non-deductible items 54 13 110 Non-taxable items (61) (36) (128) Foreign profits taxed at other rates 51 13 49 Other (90) (79) (221) _______ _______ _______ Actual tax charge 1,095 987 1,995 _______ _______ _______ THE ROYAL BANK OF SCOTLAND GROUP plc NOTES - STATUTORY RESULTS (continued) 5. Earnings per share Earnings per share have been calculated based on the following: Statutory Statutory First half First half Full year 2005 2004 2004 £m £m £m Earnings Profit attributable to ordinary shareholders 2,534 2,401 4,856 Add back finance cost on dilutive convertible securities 40 - 66 _______ _______ _______ Dilutive earnings attributable to ordinary shareholders 2,574 2,401 4,922 _______ _______ _______ Number of shares - millions Weighted average number of ordinary shares In issue during the period 3,177 3,013 3,085 Effect of dilutive share options and convertible 72 18 73 non-equity shares _______ _______ _______ Diluted weighted average number of ordinary shares during the 3,249 3,031 3,158 period _______ _______ _______ Basic earnings per share 79.8p 79.7p 157.4p Intangibles amortisation 0.9p 0.1p 1.2p Integration costs 6.0p 4.1p 11.6p _______ _______ _______ Adjusted earnings per share 86.7p 83.9p 170.2p _______ _______ _______ Diluted earnings per share 79.2p 79.2p 155.9p _______ _______ _______ Adjusted diluted earnings per share 86.0p 83.4p 168.4p _______ _______ _______ 6. Dividend During the period a dividend of 41.2p per ordinary share (first half 2004 - 35.7p) was paid in respect of the final dividend for 2004. The directors have declared an interim dividend of 19.4p per ordinary share which will be paid on 7 October 2005 to shareholders registered on 12 August 2005. As an alternative to cash, a scrip dividend election is to be offered and shareholders will receive details of this by letter. 7. Litigation Since December 2003, members of the Group have been joined as defendants in a number of legal actions in the United States following the collapse of Enron. Collectively the claims are, to a substantial degree, unquantified and in each case they are made against large numbers of defendants. The Group continues to defend these claims vigorously. The US Courts dealing with the main Enron actions have ordered that the Group join the non-binding, multi-party mediation which commenced in late 2003. Based on current knowledge including applicable defences and given the unquantified nature of these claims, the directors are unable at this stage to predict with certainty the eventual loss in these matters. In addition, pursuant to requests received from the US Securities and Exchange Commission and the US Department of Justice, the Group has been providing copies of Enron-related materials to these authorities and the Group continues to co-operate fully with them. Members of the Group are engaged in other litigation in the United Kingdom and a number of overseas jurisdictions, including the United States, involving claims by and against them arising in the ordinary course of business. The directors of the company have reviewed these other actual, threatened and known potential claims and proceedings and, after consulting with the Group's legal advisers, are satisfied that the outcome of these claims and proceedings will not have a material adverse effect on the Group's consolidated net assets, results of operations or cash flows. THE ROYAL BANK OF SCOTLAND GROUP plc NOTES - STATUTORY RESULTS (continued) 8. Analysis of consolidated equity Statutory Statutory First half First half Full year 2005 2004 2004 £m £m £m Called-up share capital At beginning of period 822 769 769 Implementation of IAS 32 (2) - - Shares issued during the period 3 44 53 _______ _______ _______ At end of period 823 813 822 _______ _______ _______ Share premium account At beginning of period 12,964 8,175 8,175 Implementation of IAS 32 (3,159) - - Currency translation adjustments - (60) (231) Shares issued during the period 1,494 2,785 4,550 Conversion of exchangeable undated loan capital - - 460 Other movements 4 4 10 _______ _______ _______ At end of period 11,303 10,904 12,964 _______ _______ _______ Merger reserve At beginning of period - UK GAAP 10,307 10,881 10,881 Implementation of IFRS (excluding IAS 32 and IAS 39) 574 - - _______ _______ _______ At beginning and end of period as restated 10,881 10,881 10,881 _______ _______ _______ Available-for-sale reserves Implementation of IAS 32 and IAS 39 on 1 January 2005 289 - - Net change 141 - - _______ _______ _______ At end of period 430 - - _______ _______ _______ Cash flow hedging reserve Implementation of IAS 32 and IAS 39 on 1 January 2005 28 - - Net change (94) - - _______ _______ _______ At end of period (66) - - _______ _______ _______ Foreign exchange reserve Transfer (to)/from profit and loss account on implementation of (320) 90 90 IFRS (excluding IAS 32 and IAS 39) _______ _______ _______ At beginning of period as restated (320) 90 90 Retranslation of net assets, net of related hedges 478 (34) (410) _______ _______ _______ At end of period 158 56 (320) _______ _______ _______ Revaluation reserve As previously reported 92 7 7 Transfer to profit and loss account on implementation of IFRS (92) (7) (7) (excluding IAS 32 and IAS 39) _______ _______ _______ At beginning and end of period as restated - - - _______ _______ _______ THE ROYAL BANK OF SCOTLAND GROUP plc NOTES - STATUTORY RESULTS (continued) 8. Analysis of consolidated equity (continued) Statutory Statutory First half First half Full year 2005 2004 2004 £m £m £m Other reserves As previously reported - UK GAAP 457 419 419 Transfer to profit and loss account on implementation of IFRS (307) (262) (262) (excluding IAS 32 and IAS 39) _______ _______ _______ At beginning of period as restated 150 157 157 Own shares held in relation to employee share schemes - (7) (7) _______ _______ _______ At end of period 150 150 150 _______ _______ _______ Profit and loss account As previously reported - UK GAAP 7,223 5,847 5,847 Implementation of IFRS (excluding IAS 32 and IAS 39) 2,185 1,422 1,422 _______ _______ _______ At beginning of period as restated 9,408 7,269 7,269 Implementation of IAS 32 and IAS 39 on 1 January 2005 (1,039) - - Currency translation adjustments and other movements - - (8) Profit attributable to ordinary and 2,559 2,517 5,112 equity preference shareholders Ordinary dividends paid (1,310) (1,059) (1,588) Equity preference dividends paid (25) (116) (256) Share-based payments 15 7 15 Actuarial losses recognised in post-retirement benefit schemes - - (1,136) _______ _______ _______ At end of period 9,608 8,618 9,408 _______ _______ _______ Closing shareholders' equity 33,287 31,422 33,905 _______ _______ _______ Minority interests As previously reported - UK GAAP 3,829 2,713 2,713 Implementation of IFRS (excluding IAS 32 and IAS 39) (337) (321) (321) _______ _______ _______ At beginning of period as restated 3,492 2,392 2,392 Implementation of IAS 32 and 39 (2,541) - - Currency translation adjustments and other movements - (67) (188) Profit for the period 34 81 177 Dividends paid (23) (68) (147) Equity raised 69 1 1,260 Equity withdrawn (124) (2) (2) _______ _______ _______ At end of period 907 2,337 3,492 _______ _______ _______ Closing total equity 34,194 33,759 37,397 _______ _______ _______ THE ROYAL BANK OF SCOTLAND GROUP plc NOTES - STATUTORY RESULTS (continued) 9. Analysis of contingent liabilities and commitments Statutory Statutory 30 June 31 December 30 June 2005 2004 2004 £m £m £m Contingent liabilities Guarantees and assets pledged as collateral security 11,710 10,438 8,872 Other contingent liabilities 5,671 5,655 6,176 _______ _______ _______ 17,381 16,093 15,048 _______ _______ _______ Commitments Undrawn formal standby facilities, credit lines and other commitments to lend 201,886 179,230 155,726 Other commitments 3,398 1,547 2,542 _______ _______ _______ 205,284 180,777 158,268 _______ _______ _______ Total contingent liabilities and commitments 222,665 196,870 173,316 _______ _______ _______ 10. Statutory accounts Financial information contained in this document does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 ('the Act'). The statutory accounts for the year ended 31 December 2004 have been filed with the Registrar of Companies and have been reported on by the auditors under section 235 of the Act. The report of the auditors was unqualified and did not contain a statement under section 237 (2) or (3) of the Act. 11. Auditors' review The interim results have been reviewed by the Group's auditors, Deloitte & Touche LLP, and their review report is set out on page 58. 12. Form 6-K A report on Form 6-K will be filed with the Securities and Exchange Commission in the United States. 13. Date of approval This announcement was approved by the Board of directors on 3 August 2005. THE ROYAL BANK OF SCOTLAND GROUP plc REGULATORY RATIOS The comparative data for 2004 regulatory ratios in the tables below are as previously published under UK GAAP. 30 June 31 December 30 June 2005 2004 2004 Capital base (£m) Ordinary shareholders' funds and minority interests less intangibles 14,667 14,330 17,268 Preference shares and tax deductible securities 9,353 8,364 6,048 _______ _______ _______ Tier 1 capital 24,020 22,694 23,316 Tier 2 capital 23,054 20,229 17,252 _______ _______ _______ 47,074 42,923 40,568 Less: investments in insurance companies, associated undertakings and other supervisory deductions (5,356) (5,165) (4,718) _______ _______ _______ 41,718 37,758 35,850 _______ _______ _______ Weighted risk assets (£m) Banking book - on-balance sheet 294,300 261,800 232,600 - off-balance sheet 51,400 44,900 41,300 Trading book 20,200 17,100 13,700 _______ _______ _______ 365,900 323,800 287,600 _______ _______ _______ Risk asset ratio - tier 1 6.6% 7.0% 8.1% - total 11.4% 11.7% 12.5% _______ _______ _______ OTHER INFORMATION 30 June 31 December 30 June 2005 2004 2004 Ordinary share price £16.86 £17.52 £15.88 Number of ordinary shares in issue 3,182m 3,173m 3,141m Market capitalisation £53.7bn £55.6bn £49.9bn Net asset value per ordinary share £9.61 £8.62 £9.40 Employee numbers Corporate Banking and Financial Markets 17,400 16,800 16,500 Retail Banking 32,400 32,200 30,600 Retail Direct 8,200 8,100 7,700 Wealth Management 4,100 4,100 4,100 Manufacturing 26,100 25,800 26,100 Citizens 25,400 24,000 14,600 RBS Insurance 20,300 19,500 19,500 Ulster Bank 4,300 4,100 4,100 Centre 2,200 2,000 1,900 _______ _______ _______ Group total 140,400 136,600 125,100 Acquisitions in the year ended 30 June 2005 (10,900) (9,600) - _______ _______ _______ Underlying 129,500 127,000 125,100 _______ _______ _______ THE ROYAL BANK OF SCOTLAND GROUP plc FORWARD-LOOKING STATEMENTS Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project', 'anticipate', 'should', 'intend', 'plan', 'probability', 'risk', 'Value-at-Risk ('VaR')', 'target', 'goal', 'objective', 'will', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on such expressions and sections such as 'Group Chief Executive's review' and 'Financial review'. In particular, this document includes forward-looking statements relating, but not limited, to the Group's potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. Such statements are subject to risks and uncertainties. For example, certain of the market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated. Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: general economic conditions in the UK and in other countries in which the Group has significant business activities or investments, including the United States; the monetary and interest rate policies of the Bank of England, the Board of Governors of the Federal Reserve System and other G-7 central banks; inflation; deflation; unanticipated turbulence in interest rates, foreign currency exchange rates, commodity prices and equity prices; changes in UK and foreign laws, regulations and taxes; changes in competition and pricing environments; natural and other disasters; the inability to hedge certain risks economically; the adequacy of loss reserves; acquisitions or restructurings; technological changes; changes in consumer spending and saving habits; and the success of the Group in managing the risks involved in the foregoing. The forward-looking statements contained in this document speak only as of the date of this report, and the Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. THE ROYAL BANK OF SCOTLAND GROUP plc INDEPENDENT REVIEW REPORT TO THE ROYAL BANK OF SCOTLAND GROUP plc Introduction We have been instructed by the company to review the financial information for the six months ended 30 June 2005 which comprises the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 13 on pages 42 to 55 ('the financial information'). We have additionally been instructed by the company to review the pro forma comparative financial information for the six months ended 30 June 2004 which comprises the pro forma income statement, the pro forma divisional performance disclosures, and the related notes on pro forma results, set out on pages 10 to 27 and 30 to 34 ('the pro forma half year comparative financial information'), the basis of preparation for which is described in note 2 on page 33. We have read the other information contained in the interim results announcement and considered whether it contains any apparent misstatements or material inconsistencies with the financial information or the pro forma half year comparative financial information. This report is made solely to the company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information and pro forma half year comparative financial information, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. International Financial Reporting Standards As disclosed in note 1 of the financial information, the next annual financial statements of the group will be prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted for use in the EU. Accordingly, the interim report has been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the Listing Rules. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information for the six months ended 30 June 2005 or the pro forma half year comparative financial information for the six months ended 30 June 2004. Deloitte & Touche LLP Chartered Accountants Edinburgh 3 August 2005 THE ROYAL BANK OF SCOTLAND GROUP plc FINANCIAL CALENDAR 2005 interim dividend payment 7 October 2005 2005 annual results announcement 28 February 2006 2005 final dividend payment June 2006 2006 interim results announcement 4 August 2006 CONTACTS Sir Fred Goodwin Group Chief Executive 020 7672 0008 0131 523 2033 Fred Watt Group Finance Director 020 7672 0008 0131 523 2028 Richard O'Connor Head of Investor Relations 020 7672 1758 For media enquiries: Howard Moody Group Director, Communications 020 7672 1923 07768 033562 Carolyn McAdam Head of Group Communications 020 7672 1914 07796 274968 3 August 2005 This information is provided by RNS The company news service from the London Stock Exchange

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