Interim Results-Statutory
Royal Bank of Scotland Group PLC
1 August 2000
THE ROYAL BANK OF SCOTLAND GROUP plc
CONTENTS PAGE
STATUTORY RESULTS
Basis of Preparation 2
Consolidated Profit and Loss Account for the six 3
months to 31 March 2000
Consolidated Balance Sheet at 31 March 2000 5
Consolidated Profit and Loss Account for the nine 6
months to 30 June 2000
Consolidated Balance Sheet at 30 June 2000 8
Acquisition of NatWest 9
Notes 10
INDEPENDENT REVIEW REPORT BY THE AUDITORS 12
CONTACT 13
THE ROYAL BANK OF SCOTLAND GROUP plc
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 will therefore be for the fifteen month period
ending on 31 December 2000 and will include the results of NatWest from 6
March 2000. These statutory accounts will also include the fair value and
other adjustments required to account for the acquisition of NatWest.
On 4 May 2000 the Group announced its results for the six months ended 31
March 2000 excluding the results of NatWest from the date of acquisition on 6
March. In order to comply with the Listing Rules this announcement includes
the enlarged Group's results for the six months ended 31 March 2000 including
NatWest.
The consolidated profit and loss account for the six months ended 31 March
2000 set out on pages 3 and 4 and for the nine months ended 30 June 2000 set
out on pages 6 and 7 incorporate 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 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 ROYAL BANK OF SCOTLAND GROUP plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT (unaudited)
6 6 12
months months months
ended ended ended
31 31 30
March March September
2000 1999 1999
£m £m £m
Interest receivable 3,255 2,503 4,853
Interest payable 1,948 1,642 3,105
------ ------ --------
Net interest income 1,307 861 1,748
------ ------ --------
Dividend income 24 16 34
Fees and commissions receivable 792 497 1,081
Fees and commissions payable (110) (64) (129)
Dealing profits 184 81 199
Other operating income 234 210 459
------ ------ --------
1,124 740 1,644
General insurance - earned premiums 560 408 869
- reinsurance (94) (73) (159)
------ ------ --------
Non-interest income 1,590 1,075 2,354
------ ------ --------
Total income 2,897 1,936 4,102
------ ------ --------
Administrative expenses
- staff costs 777 502 1,012
- premises and equipment 196 131 271
- other 363 213 460
Depreciation and amortisation
- tangible fixed assets 175 153 278
- goodwill 56 - 1
------ ------ --------
Operating expenses 1,567 999 2,022
------ ------ --------
Profit before other operating 1,330 937 2,080
charges
General insurance - gross claims 479 364 720
- reinsurance (84) (62) (130)
------ ------ --------
Profit before provisions for bad 935 635 1,490
and doubtful debts
Provisions for bad and doubtful 162 103 266
debts
Amounts written off investments 1 1 13
------ ------ --------
Operating profit 772 531 1,211
Profit on disposal of businesses 100 - -
------ ------ --------
Profit on ordinary activities 872 531 1,211
before tax
------ ------ --------
THE ROYAL BANK OF SCOTLAND GROUP plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT (unaudited)
6 6 12
months months months
ended ended ended
31 31 30
March March September
2000 1999 1999
£m £m £m
Profit on ordinary activities 872 531 1,211
before tax
Tax on profit on ordinary (275) (164) (361)
activities
------ ------ --------
Profit on ordinary activities 597 367 850
after tax
Minority interests - 2 6
------ ------ --------
Profit after minority interests 597 369 856
Preference dividends 74 36 80
------ ------ --------
Profit attributable to ordinary 523 333 776
shareholders
Ordinary dividends - 73 254
------ ------ --------
Retained profit 523 260 522
------ ------ --------
Basic earnings per ordinary share 46.0p 37.9p 87.8p
------ ------ --------
Adjusted earnings per ordinary 46.6p 37.9p 87.8p
share (Note 4)
------ ------ --------
Diluted earnings per ordinary 45.3p 37.3p 86.6p
share
------ ------ --------
Comparative figures relating to the year ended 30 September 1999 do not
constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985 ('the Act'). The statutory accounts for that year 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.
THE ROYAL BANK OF SCOTLAND GROUP plc
CONSOLIDATED BALANCE SHEET (unaudited)
31 31 30
March March September
2000 1999 1999
£m £m £m
Assets
Cash and balances at central
banks and items in the course 6,018 2,624 3,049
of collection
Treasury bills and other eligible 3,716 649 701
bills
Loans and advances to banks 37,405 8,909 10,375
Loans and advances to customers 153,726 45,732 49,340
Debt securities and equity shares 50,625 15,039 16,302
Intangible fixed assets 12,209 12 11
Other assets 25,184 6,933 7,061
------- ------ --------
288,883 79,898 86,839
Long-term assurance assets 10,257 2,082 2,013
attributable to policyholders
------- ------ --------
Total assets 299,140 81,980 88,852
------- ------ --------
Liabilities
Deposits by banks and items in
the course of transmission to
other banks 30,876 5,253 7,393
Customer accounts 163,246 51,962 55,180
Debt securities in issue 23,741 7,825 9,199
Other liabilities 38,353 8,109 7,687
Subordinated liabilities 9,754 3,091 3,032
Minority interests 764 111 146
Shareholders' funds including 22,149 3,547 4,202
non-equity interests
------- ------ --------
288,883 79,898 86,839
Long-term assurance liabilities 10,257 2,082 2,013
to policyholders
------- ------ --------
Total liabilities 299,140 81,980 88,852
------- ------ --------
Memorandum items:
Contingent liabilities and 94,923 21,185 23,650
commitments
------ ------ --------
THE ROYAL BANK OF SCOTLAND GROUP plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT (unaudited)
9 9 12
months months months
ended ended ended
30 30 30
June June September
2000 1999 1999
£m £m £m
Interest receivable 6,904 3,488 4,853
Interest payable 4,156 2,181 3,105
------ ------ --------
Net interest income 2,748 1,307 1,748
------ ------ --------
Dividend income 65 25 34
Fees and commissions receivable 1,785 783 1,081
Fees and commissions payable (333) (92) (129)
Dealing profits 456 131 199
Other operating income 402 349 459
------ ------ --------
2,375 1,196 1,644
General insurance - earned premiums 884 629 869
- reinsurance (246) (115) (159)
------ ------ --------
Non-interest income 3,013 1,710 2,354
------ ------ --------
Total income 5,761 3,017 4,102
------ ------ --------
Administrative expenses
- staff costs 1,700 760 1,012
- premises and equipment 389 192 271
- other 784 352 460
Depreciation and amortisation
- tangible fixed assets 387 220 278
- goodwill 212 1 1
------ ------ --------
Operating expenses 3,472 1,525 2,022
------ ------ --------
Profit before other operating 2,289 1,492 2,080
charges
General insurance - gross claims 685 536 720
- reinsurance (201) (97) (130)
------ ------ --------
Profit before provisions for bad 1,805 1,053 1,490
and doubtful debts
Provisions for bad and doubtful 310 176 266
debts
Amounts written off investments 26 12 13
------ ------ --------
Operating profit 1,469 865 1,211
Profit on disposal of businesses 100 - -
------ ------ --------
Profit on ordinary activities 1,569 865 1,211
before tax
------ ------ --------
THE ROYAL BANK OF SCOTLAND GROUP plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT (unaudited)
9 9 12
months months months
ended ended ended
30 30 30
June June September
2000 1999 1999
£m £m £m
Profit on ordinary activities 1,569 865 1,211
before tax
Tax on profit on ordinary (538) (258) (361)
activities
------ ------ --------
Profit on ordinary activities 1,031 607 850
after tax
Minority interests (15) 2 6
------ ------ --------
Profit after minority interests 1,016 609 856
Preference dividends 156 59 80
------ ------ --------
Profit attributable to ordinary 860 550 776
shareholders
Ordinary dividends 253 73 254
------ ------ --------
Retained profit 607 477 522
------ ------ --------
Basic earnings per ordinary share 52.5p 62.4p 87.8p
------ ------ --------
Adjusted earnings per ordinary 67.9p 62.4p 87.8p
share (Note 4)
------ ------ --------
Diluted earnings per ordinary 51.8p 61.6p 86.6p
share
------ ------ --------
Comparative figures relating to the year ended 30 September 1999 do not
constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985 ('the Act'). The statutory accounts for that year 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.
THE ROYAL BANK OF SCOTLAND GROUP plc
CONSOLIDATED BALANCE SHEET (unaudited)
30 30 30
June June September
2000 1999 1999
£m £m £m
Assets
Cash and balances at central
banks and items in the course
of collection 6,449 2,588 3,049
Treasury bills and other eligible 5,332 791 701
bills
Loans and advances to banks 37,324 11,066 10,375
Loans and advances to customers 156,292 46,967 49,340
Debt securities and equity shares 54,297 17,986 16,302
Intangible fixed assets 12,121 11 11
Other assets 24,132 6,899 7,061
------- ------ --------
295,947 86,308 86,839
Long-term assurance assets 10,258 2,275 2,013
attributable to policyholders
------- ------ --------
Total assets 306,205 88,583 88,852
------- ------ --------
Liabilities
Deposits by banks and items in
the course of transmission to
other banks 35,472 8,088 7,393
Customer accounts 166,221 54,726 55,180
Debt securities in issue 23,614 8,039 9,199
Other liabilities 37,348 8,414 7,687
Subordinated liabilities 10,092 3,108 3,032
Minority interests 759 137 146
Shareholders' funds including 22,441 3,796 4,202
non-equity interests
------- ------ --------
295,947 86,308 86,839
Long-term assurance liabilities 10,258 2,275 2,013
to policyholders
------- ------ --------
Total liabilities 306,205 88,583 88,852
------- ------ --------
Memorandum items:
Contingent liabilities and 99,699 21,263 23,650
commitments
------ ------ --------
THE ROYAL BANK OF SCOTLAND GROUP plc
ACQUISITION OF NATWEST
£m £m
Consideration paid:
Issue of 1,563.5 million new RBSG 25 pence
ordinary shares to NatWest ordinary
shareholders (Note a) 13,462
Payment of cash to NatWest ordinary 7,110
shareholders (Note b)
Issue of loan notes to NatWest ordinary 239
shareholders (Note b)
Fees and expenses related to the 176
acquisition
-------
20,987
-------
Net assets acquired:
Shareholders' funds 9,648
Less: preference shares (488)
-------
NatWest net assets as at 6 March 2000 9,160
-------
Fair value adjustments:
Goodwill in NatWest (533)
Disposal of businesses: (Note c)
- Gartmore 866
- Other 271
-------
1,137
Pension fund surplus 1,070
Contingent asset 70
Fixed assets excluding property (40)
Property (172)
Financial instruments carried at cost (203)
Other (428)
Tax on fair value adjustments (274)
-------
Total fair value adjustments 627
-------
Adjusted net assets acquired 9,787
-------
Goodwill arising on acquisition (Note d) 11,200
-------
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) 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.
(d) The goodwill arising on acquisition is being amortised over its
estimated economic life of 20 years, resulting in a charge of £560
million per annum.
THE ROYAL BANK OF SCOTLAND GROUP plc
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 January 2000, the Group's
freehold and long leasehold buildings, following a reassessment of
their useful economic lives, are being depreciated over 50 years.
There have been no other changes to the Group's principal accounting
policies as set out on pages 39 to 41 of the 1999 Annual Report and
Accounts.
(ii) Changes have been made to align NatWest accounting presentation with
that adopted by the Group. However, in the following instances, the
NatWest presentation has been adopted:
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
are reductions of £73 million and £143 million interest
receivable for the six months ended 31 March 1999 and for the
year ended 30 September 1999 respectively, reductions in
interest payable of £69 million and £135 million for the six
months ended 31 March 1999 and for the year ended 30 September
1999 respectively and an increase of £4 million for the six
months ended 31 March 1999 and £8 million for the year ended 30
September 1999 respectively, 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 £5
million for the six months ended 31 March 1999 and £10 million
for the year ended 30 September 1999, 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
£17 million for the six months ended 31 March 1999 and £36
million for the year ended 30 September 1999 and reducing
administrative expenses - other.
d) Following an analysis of staff costs, £9 million for the six
months ended 31 March 1999 and £18 million for the year ended 30
September 1999 has been transferred within administrative
expenses from staff costs to 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 £538 million on profits of £1,569 million for the nine
months ended 30 June 2000 is equivalent to 34.3% 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.
The tax charge of £275 million on profits of £872 million for the six
months to 31 March 2000 is equivalent to 31.5% of pre-tax profit.
THE ROYAL BANK OF SCOTLAND GROUP plc
NOTES (continued)
4. Earnings per share
The earnings per share have been calculated as follows:
9 9 6 6 12
months months months months months
ended ended ended ended ended
30 30 31 31 30
June June March March September
2000 1999 2000 1999 1999
£m £m £m £m £m
Earnings:
Profit
attributable to 860 550 523 333 776
ordinary
shareholders
------ ------ ------ ------ ------
Weighted average Number of shares - millions
number of
ordinary shares:
In issue during 1,639 881 1,137 879 884
the period
Effect of
dilutive share
options and 20 11 46 14 12
convertible
preference
shares
------ ------ ------ ------ --------
In issue during
the period 1,659 892 1,183 893 896
- diluted
------ ------ ------ ------ --------
Basic earnings 52.5p 62.4p 46.0p 37.9p 87.8p
per share
Integration costs 6.8p - 1.8p - -
Goodwill 12.8p - 4.8p - -
amortisation
Profit on sale of (4.2p) - (6.0p) - -
businesses
------ ------ ------ ------ --------
Adjusted earnings 67.9p 62.4p 46.6p 37.9p 87.8p
per share
------ ------ ------ ------ --------
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, which are costs incurred in respect of cost reduction and revenue
enhancement targets announced in connection with the acquisition of
NatWest, amounted to £156 million in the period 6 March 2000 to 30 June
2000.
5. Ordinary Dividends
The directors have declared an interim dividend of 9.5p per share on the
ordinary shares. This interim dividend will be paid on 13 October 2000 to
shareholders registered on 18 August 2000. As an alternative to cash, a
scrip dividend election is to be offered and shareholders will receive
details of this by letter.
6. Additional Value Shares (AVS's)
Following approval at the Extraordinary General Meeting on 20 June 2000,
approximately 2.7 billion AVS's with a total nominal value of £27 million
were issued to shareholders by way of a bonus issue on 12 July 2000.
7. Auditors' Review
The interim financial statements have been reviewed by the Group's
auditors, Deloitte & Touche, and their report is set out on page 12.
8. Interim Report
An interim report is being sent to shareholders and copies will be
available at the Company's registered office at 36 St Andrew Square,
Edinburgh, EH2 2YB.
9. Final Results
The Group's final results will be announced on Thursday 1 March 2001.
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 set out on pages 2 to 11 and we have read the other
information contained in the results announcement and considered
whether it contains any apparent misstatements or material
inconsistencies with the financial information.
Directors' responsibilities
The results announcement, including the financial information contained
therein, is the responsibility of, and has been approved by, the
directors. The Listing Rules of the UK Listing Authority require that
the accounting policies and presentation applied to the figures should
be consistent with those applied in preparing the preceding annual
accounts except where any changes, and the reasons for them, are
disclosed.
Review work performed
We conducted our review in accordance with guidance contained in
Bulletin 1999/4 issued by the Auditing Practices Board. A review
consists principally of making enquiries of 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 Auditing Standards 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 as
presented for the six months ended 31 March 2000 and the nine months
ended 30 June 2000.
Deloitte & Touche
Chartered Accountants
Edinburgh
31 July 2000
THE ROYAL BANK OF SCOTLAND GROUP plc
CONTACT
Grahame Whitehead Deputy Group Finance Director 020 7427 9450
0131 523 2970
1 August 2000
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