Final Results - Pre-tax Profit Up 20% - Part 1
Royal Bank of Scotland Group PLC
28 November 1999
PART 1
THE ROYAL BANK OF SCOTLAND GROUP plc
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 1999
FINANCIAL HIGHLIGHTS
1999 1998 %
£m £m Increase
Profit before taxation and 1,211 1,007 20
exceptional items
----- -----
Profit before taxation 1,211 1,001 21
----- -----
Profit attributable to ordinary 776 637 22
shareholders
----- -----
Earnings per ordinary share 87.8p 73.4p 20
----- -----
Dividends per ordinary share 28.5p 24.6p 16
----- -----
Viscount Younger, Chairman of The Royal Bank of Scotland Group
plc said:-
'These are excellent results. They are in line with our
consistent performance which made us the fastest growing, in
terms of income, of the UK banking groups over the five
years to 1998. We again achieved record profits, reflecting
our success in building our core businesses, in developing
new businesses which use a range of brands to exploit fresh
opportunities and markets, and in integrating and developing
acquisitions. Strong growth was achieved in all our main
business areas, and our group cost:income ratio improved
from 52.0% to 49.5%. Our focus on providing highly
competitive financial services products to our customers has
resulted in consistent profits growth in increasingly
competitive markets. Indeed The Royal Bank of Scotland
Group has made an enormous contribution to financial
services in the UK.'
CONTENTS PAGE
Chairman's statement 3
Overview of results 4
Consolidated profit and loss account 6
Consolidated balance sheet 8
Statement of total recognised gains and losses 9
Reconciliation of movements in shareholders' funds 9
Cash flow statement 10
Divisional performances
- UK Bank 11
- New Retail Financial Services 12
Businesses
- Angel Trains 14
- RBS Cards 15
- Investor Services 16
- Direct Line Insurance 17
- Citizens 18
- The Royal Bank of Scotland 19
International
- Central items 20
Notes 21
Average balance sheet 26
Average interest rates, yields, spreads and margins 27
Risk elements in lending 28
Derivatives business 29
Five-year financial summary 30
Ratios and other information 33
Contacts 34
CHAIRMAN'S STATEMENT
The Group has enjoyed another very successful year, with our
profit before tax up 21%, to £1,211 million.
The increase in our profit reflects strong performances from
all of our wide range of diverse businesses.
The UK Bank increased its profit before exceptionals by 18%,
from £626 million to £736 million, through increased volumes
and maintained margins.
Direct Line increased its profit from £64 million to £101
million due to higher earned premiums and investment income.
Citizens profit increased from £214 million to £242 million,
excluding the one-off gain in 1998.
The Royal Bank of Scotland International increased its
profit by 27%, to £70 million.
RBS Cards increased its profit from £61 million to £85
million, a rise of 39%.
Angel Trains made a profit of £53 million, an increase of
15% on 1998 (nine and a half months trading).
Investor Services made a profit of £14 million, up from £5
million in 1998.
In the New Retail Financial Services Businesses, Tesco
Personal Finance was trading profitably by the end of the
year and Direct Line Financial Services made an increased
profit for the year.
Dividend. The directors have recommended a final dividend of
20.3p which, together with the interim dividend of 8.2p,
makes a total for the year of 28.5p, an increase of 16%.
Outlook. With our record of enterprise and achievement in
building new and existing businesses The Royal Bank of
Scotland Group is well placed to continue to build value for
our shareholders.
OVERVIEW OF RESULTS
Group profit before tax rose by 21%, from £1,001 million to
£1,211 million. Profit before tax and exceptional items
increased by 20%, from £1,007 million to £1,211 million.
Net interest income grew by 10% to £1,756 million. Strong
growth was achieved in both corporate and personal lending.
Group average interest-earning assets increased by 12%. The
interest margin was maintained at 2.5%.
Non-interest income, excluding general insurance and the
exceptional items in 1998, grew by £256 million to £1,672
million, an increase of 18%. Of this increase, £63 million
came from Angel Trains. The balance primarily came from
increased fees and commissions.
General insurance premium income, after reinsurance,
increased by 18% to £710 million.
Total income, excluding exceptional items in 1998, increased
by 14% to £4,138 million.
Operating expenses were up by 9% to £2,048 million.
Excluding Angel Trains, the increase was 7%, reflecting
growth in business volumes.
Group cost:income ratio improved from 52.0% to 49.5%.
General insurance claims, after reinsurance, increased by
14% to £590 million. In Direct Line Insurance, claims
increased by 9%.
Provisions for bad debts, excluding exceptional provisions
for bad debts in the Far East in 1998, increased to £276
million, principally as a consequence of continued strong
growth in credit cards, personal loans and corporate
advances.
The tax charge was £361 million on profit before tax of
£1,211 million, an effective rate of 29.8%.
Profit attributable to ordinary shareholders, after tax,
minority interests and preference dividends increased by
22%, from £637 million to £776 million.
Earnings per share increased by 20%, from 73.4p to 87.8p.
After adjusting for the exceptional items in 1998, earnings
per share increased by 21%, from 72.3p to 87.8p.
Group return on equity, after tax, increased from 28% to
32%.
Group total assets increased by 12% to £88.9 billion.
Within this, loans and advances to customers grew by 20% to
£49.3 billion.
Group risk-weighted assets increased from £49.1 billion to £56.8
billion. At 30 September 1999, the capital ratios were 8.1%
(tier 1) and 12.1% (total).
Year 2000. The Year 2000 problem concerns the inability of
information systems, primarily computer software programs,
properly to recognise and process date sensitive information
prior to, during and after the Year 2000. The Group, many
of its customers and the third parties it deals with, use
software and related technology throughout their businesses
that could be affected by the Year 2000 problem and may
therefore not be Year 2000 compliant.
The Group's management recognised early the significance of
the Year 2000 issue and started its compliance programme in
mid 1996. Each of the Group's main entities has monitored
closely its progress via a Year 2000 Steering Group
reporting to a senior executive of the entity. In
addition, the overall Group's Year 2000 compliance programme
is monitored on a monthly basis by the Group Board.
The Group has conducted a Year 2000 compliance programme
designed to achieve Year 2000 compliance by:
(a) testing and obtaining assurances that existing IT
business critical systems and business critical processes
('Systems') operate through critical dates including testing
new products before purchase and implementation;
(b) reviewing customer credit risk in the light of their
Year 2000 preparations;
(c) liaising with key third parties to determine the Year
2000 compliance of their Systems;
(d) conducting interface testing to ensure the continued
operation of third party interface systems through the
critical dates; and
(e) preparing contingency plans to ensure business
continuity including the development of an incident
management structure and command centre to monitor and
manage the operation of the Group through the critical
dates.
As a result of the measures undertaken and described above,
the directors believe that the Group's Systems are, and will
remain, Year 2000 compliant. In forming this view, the
directors have relied on assurances given by third parties
including hardware and software suppliers, experts and key
third parties with which the Group deals. However, there
can be no assurance that the Systems of any company will
perform as expected or that measures taken or to be taken by
the Group or by third parties will successfully minimise or
eliminate the effects of the Year 2000 problem. Any failure
could have a materially adverse impact on the financial
condition and results of the Group and may not be embraced
by the Group's contingency plans.
The total estimated cost of the Group's Year 2000 compliance
programme is expected to be £66 million. Of this amount,
£62 million has been expended to 30 September 1999.
Segmental analysis of Group operating profit before exceptional
items is shown below. The performance of each division is discussed
on the pages indicated below.
1999 1998
Page £m £m
UK Bank 11 736 626
New Retail Financial Services 12 (35) (59)
Businesses
Angel Trains 14 53 46
RBS Cards 15 85 61
Investor Services 16 14 5
Direct Line Insurance 17 101 64
Citizens 18 242 247
The Royal Bank of Scotland 19 70 55
International (RBSI)
Central items 20 (55) (38)
---- ----
Total 1,211 1,007
---- ----
RBS Cards is now shown separately and integrates the Bank's
credit card businesses (previously included in the UK Bank) and
RBS Advanta (previously included in New Retail Financial Services
Businesses). The 1998 figures for the UK Bank and New Retail
Financial Services Businesses have been restated to reflect this.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
1999 1998
Note £m £m
Interest receivable 4,996 5,123
Interest payable 3,240 3,525
----- -----
NET INTEREST INCOME 1,756 1,598
----- -----
Dividend income 34 28
Fees and commissions receivable 1,084 923
Fees and commissions payable (93) (84)
Dealing profits (see note below)* 191 268
Other operating income 456 377
----- -----
1,672 1,512
General insurance - earned premiums 869 740
- reinsurance (159) (140)
----- -----
NON-INTEREST INCOME 2,382 2,112
----- -----
TOTAL INCOME 4,138 3,710
----- -----
Administrative expenses
- staff costs 956 884
- profit share 47 43
- premises and equipment 298 280
- other 468 429
Depreciation and amortisation 279 243
----- -----
OPERATING EXPENSES 2,048 1,879
----- -----
PROFIT BEFORE OTHER OPERATING CHARGES 2,090 1,831
General insurance - gross claims 720 625
- reinsurance (130) (107)
----- -----
PROFIT BEFORE PROVISIONS FOR BAD AND 1,500 1,313
DOUBTFUL DEBTS
Provisions for bad and doubtful debts 2
- excluding Far East 276 200
- Far East ** - 132
Amounts written off investments
- excluding Far East 13 10
- Far East ** - 14
Write-down of finance leases** - 13
----- -----
GROUP OPERATING PROFIT 1,211 944
Profit on sale of fixed asset - 57
investment
----- -----
PROFIT ON ORDINARY ACTIVITIES BEFORE 1,211 1,001
TAX
Tax on Group profit on ordinary 3 (361) (286)
activities
----- -----
PROFIT ON ORDINARY ACTIVITIES AFTER TAX 850 715
Minority interests - equity 6 (20)
----- -----
PROFIT AFTER MINORITY INTERESTS 856 695
Preference dividends 80 58
----- -----
PROFIT ATTRIBUTABLE TO ORDINARY 776 637
SHAREHOLDERS
Ordinary dividends 4 254 215
----- -----
RETAINED PROFIT 522 422
----- -----
* 1998 includes an exceptional gain of £96 million
** Exceptional item in 1998
EARNINGS PER ORDINARY SHARE 5 87.8p 73.4p
Adjustments to exclude exceptional
items:
Gain on Superdiplo - (7.7p)
Far East provisions - 11.7p
Write-down of finance leases - (0.1p)
Profit on sale of fixed asset - (5.0p)
investment
----- -----
ADJUSTED EARNINGS PER ORDINARY SHARE 5 87.8p 72.3p
----- -----
DILUTED EARNINGS PER ORDINARY SHARE 5 86.6p 72.4p
----- -----
CONSOLIDATED BALANCE SHEET
1999 1998
Note £m £m
ASSETS
Cash and balances at central banks 1,394 1,295
Treasury bills and other eligible 701 639
bills
Loans and advances to banks 10,375 11,514
Items in course of collection due from 1,655 1,652
other banks
Loans and advances to customers 6 49,340 41,017
Debt securities 15,632 13,021
Less: non-recourse finance (243) (247)
15,389 12,774
Equity shares 913 857
Interests in associated undertakings 43 43
Intangible fixed assets 11 -
Tangible fixed assets 2,526 2,005
Other assets 7 5,339 6,801
Prepayments and accrued income 1,166 1,079
------ ------
TOTAL ASSETS 88,852 79,676
------ -----
LIABILITIES
Deposits by banks 8 6,418 4,437
Items in course of collection due to 975 520
other banks
Customer accounts 8 55,180 50,685
Debt securities in issue 9,199 7,459
Other liabilities 9 6,647 8,076
Accruals and deferred income 2,582 2,419
Provisions for liabilities and charges
- deferred taxation 465 395
- pensions and other similar 6 20
obligations
- other provisions - 9
Subordinated liabilities
- dated loan capital 1,917 1,391
- undated loan capital including 1,115 1,220
convertible debt
Minority interests
- equity 108 73
- non-equity 38 19
Called up share capital 10 224 220
Share premium account 11 2,130 1,458
Other reserves 11 147 113
Revaluation reserve 11 17 (10)
Profit and loss account 11 1,684 1,172
------ ------
TOTAL LIABILITIES 88,852 79,676
------ ------
MEMORANDUM ITEMS:
Contingent liabilities 2,728 2,814
------ ------
Commitments (mainly standby
facilities, credit lines and other
commitments to lend) 20,922 15,581
------ ------
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
1999 1998
£m £m
Profit attributable to ordinary shareholders 776 637
Currency translation adjustments
on foreign currency net investments 5 (3)
Movements in revaluations of premises 28 14
Movements in net unrealised gains and losses
on debt securities and equity shares - (4)
----- -----
Total recognised gains and losses 809 644
----- -----
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
1999 1998
£m £m
Profit attributable to ordinary shareholders 776 637
Ordinary dividends (254) (215)
----- -----
Retained profit 522 422
Other recognised net gains and losses relating 33 7
to the year
Currency translation on share premium account 23 (42)
Increase in share capital 4 4
Premium arising on issues of shares 609 239
Elimination of goodwill on acquisitions - (754)
Write-back of goodwill 28 50
Other movements 30 (15)
----- -----
Net increase/(decrease) in shareholders' funds 1,249 (89)
Opening shareholders' funds 2,953 3,042
----- -----
Closing shareholders' funds 4,202 2,953
----- -----
CASH FLOW STATEMENT
1999 1998
£m £m
Net cash inflow from operating activities 5,059 1,087
Returns on investments and servicing of (295) (285)
finance
Taxation (311) (135)
Capital expenditure and financial (3,415) (1,176)
investment
Acquisitions and disposals 16 (917)
Ordinary equity dividends paid (138) (193)
------ ------
Net cash inflow/(outflow) before financing 916 (1,619)
Financing 959 370
----- ------
Increase/(decrease) in cash 1,875 (1,249)
----- ------
RECONCILIATION OF OPERATING PROFIT TO NET
CASH INFLOW FROM OPERATING ACTIVITIES
Operating profit - the company and its 1,211 944
subsidiary undertakings
Increase in interest receivable and (87) (150)
prepaid expenses
Increase in interest payable and accrued 126 607
expenses
Decrease in other provisions (9) (14)
Increase in provisions for bad and 94 182
doubtful debts
Interest payable on subordinated 251 226
liabilities
Depreciation and diminution in value of 278 243
fixed assets
Profit on sales of tangible fixed assets (5) (10)
Profit on sales of investment securities (112) (72)
and associated undertakings
Profit on sale of fixed asset investment - (57)
Other non-cash movements 7 208
----- -----
Net cash inflow from trading activities 1,754 2,107
Net increase/(decrease) in deposits by 1,941 (958)
banks
Increase in customer accounts 4,495 3,018
Net increase in debt securities in issue 1,740 1,864
Increase in loans to customers (8,425) (2,530)
Net decrease in loans to banks 2,915 1,293
Increase in items in course of collection (3) (582)
due from other banks
Increase/(decrease) in items in course of 455 (116)
collection due to other banks
Increase in treasury bills and other (62) (10)
eligible bills
Decrease/(increase) in debt securities
and equity shares (other than investment 159 (2,480)
securities)
Net decrease/(increase) in other assets 1,823 (1,985)
Net (decrease)/increase in other (1,733) 1,466
liabilities
------ ------
Net cash inflow from operating activities 5,059 1,087
------ ------
DIVISIONAL PERFORMANCES - UK BANK
1999 1998
£m £m
Net interest income 1,082 1,001
Non-interest income 829 715
----- -----
Total income 1,911 1,716
Expenses 991 949
----- -----
Profit before provisions 920 767
Provisions for bad and 171 132
doubtful debts
Amounts written off 13 9
investments
----- -----
Profit before exceptional 736 626
items
----- -----
Cost:income ratio (%) 51.9 55.3
Total assets (£bn) 57.9 51.8
Employees at 30 September 18,160 17,830
The UK Bank figures for 1998 have been restated to exclude
RBS Cards, which is now shown separately.
The UK Bank increased its profit before exceptional items by
18%, from £626 million to £736 million.
Income increased by 11%, mainly due to higher corporate
advances and increased fee income, whilst costs increased by
only 4%. As a result, the UK Bank's cost:income ratio
improved further, from 55.3% to 51.9%.
UK Bank provisions for bad debts increased from £132 million
to £171 million due to higher volumes in both corporate and
personal advances.
Notes: The UK Bank excludes RBSI, Angel Trains, RBS Cards,
Investor Services (i.e. RBS Trust Bank and RBS Global
Custody), Tesco Personal Finance and Virgin Direct Personal
Finance, which are disclosed separately.
The figures for the UK Bank on page 31 assume that it had a
total risk asset ratio of 10% and that the tier 1 element
was 6%, split between ordinary equity and preference shares
in the same ratio as the Group.
DIVISIONAL PERFORMANCES - NEW RETAIL FINANCIAL SERVICES
BUSINESSES
1999 1998
£m £m
Net interest income 82 50
Non-interest income - associated companies - (4)
- other 31 16
Insurance premium income 76 47
----- ----
Total income 189 109
Expenses 130 117
General insurance claims 75 45
------ ----
Loss before provisions (16) (53)
Provisions for bad and doubtful debts 19 6
----- -----
Loss before tax (35) (59)
----- -----
Total assets (£m) 3,748 2,293
Employees at 30 September 2,440 2,350
All of the New Retail Financial Services Businesses are treated
as subsidiaries, except Direct Line Life/Unit Trusts and Linea
Directa, which are treated as associated companies. RBS Advanta,
which had previously been included in New Retail Financial
Services Businesses, is now integrated with RBS Cards. The
comparative figures for 1998 have been adjusted to reflect this.
Direct Line Financial Services Commenced 1999 1998
Trading % £m £m
owned
Profit before tax Mar 93 100 8 6
Direct Line Financial Services has continued to make progress and
increased its profit to £8 million. Personal loans grew by 60%,
from £214 million to £343 million and mortgages were maintained
at £1.4 billion.
Privilege Insurance Commenced 1999 1998
Trading % £m £m
owned
Loss before tax Oct 94 100 (9) (4)
Privilege Insurance increased its policy numbers from
264,000 to 445,000, a rise of 69%. Increased losses
reflect a higher level of claims during the year.
Direct Line Life/Unit Trusts Commenced 1999 1998
Trading % £m £m
owned
Profit/(loss) before tax Feb 95 50 1 (2)
Direct Line Life/Unit Trusts made a profit of £1 million in 1999
compared with a loss of £2 million in the previous year. The
number of policyholders was 36,800 at 30 September 1999.
Linea Directa Commenced 1999 1998
Trading % £m £m
owned
Loss before tax Jun 95 50 (1) (2)
Linea Directa increased its policy numbers from 177,000 to
212,000. The Group's share of its losses was £1 million in 1999,
compared with a loss of £2 million in the previous year.
Direct Line Accident Commenced 1999 1998
Management Trading % £m £m
owned
Loss before tax Aug 95 100 (7) (9)
Direct Line Accident Management made a loss of £7 million, £5
million of which relates to the loss incurred on two discontinued
repair centres.
Tesco Personal Finance Commenced 1999 1998
Trading % £m £m
owned
Loss before tax Jul 97 50 (12) (35)
Tesco Personal Finance made a loss of £12 million in 1999
compared with a loss of £35 million in the previous year.
By the end of the year the venture was trading profitably. At 30
September 1999, Tesco Personal Finance had advances of £846
million (1998 - £259 million) and deposits of £978 million (1998
- £735 million).
Virgin Direct Personal Finance Commenced 1999 1998
Trading % £m £m
owned
Loss before tax Oct 97 50 (15) (13)
Virgin Direct Personal Finance made a loss of £15 million in
1999, mainly due to marketing costs, compared with a loss of £13
million in the previous year. At 30 September 1999 Virgin Direct
Personal Finance had advances of £790 million compared with £155
million at 30 September 1998.
DIVISIONAL PERFORMANCES - ANGEL TRAINS
1999 1998
£m £m
Operating lease rentals 291 228
Interest payable (62) (45)
----- -----
Total income 229 183
Depreciation and maintenance 150 118
Administrative expenses 26 19
----- -----
Profit before tax 53 46
----- -----
Cost:income ratio (%) 77 75
Total assets (£m) 1,642 887
Employees at 30 September 110 80
Angel Trains has contributed a profit of £53 million, 15%
higher than 1998, which represented nine and a half months
trading.
Angel Trains continued its success in winning new business
by negotiating an agreement with Virgin Rail to supply the
rolling stock for the West Coast main line. This
transaction, together with the previously announced order
for English, Welsh and Scottish Railways accounted for most
of the increase in total assets during the year.
Note: The purchase of Angel Trains in December 1997 for
£395 million was funded by equity of £200 million and
borrowings of £195 million. A further payment of £13
million representing contingent consideration was made
during the year. The interest on the borrowings has been
deducted in arriving at the profit disclosed above.
DIVISIONAL PERFORMANCES - RBS CARDS
1999 1998
£m £m
Net interest income 144 98
Non-interest income 125 109
----- -----
Total income 269 207
Expenses 113 99
----- -----
Profit before provisions 156 108
Provisions for bad and doubtful debts 71 47
---- ----
Profit before tax 85 61
---- ----
Cost:income ratio (%) 42.0 47.8
Total assets (£m) 2,286 1,944
Employees at 30 September 1,200 1,080
RBS Cards comprises the credit card businesses previously
included in the UK Bank, and RBS Advanta, which was
previously included as part of the New Retail Financial
Services Businesses.
RBS Cards has made a profit of £85 million compared with £61
million in 1998, an increase of 39%.
Total income increased by 30% and expenses increased by only
14%. As a result the cost:income ratio improved from 47.8%
to 42.0%. Provisions for bad debts were £24 million higher
than the prior year, reflecting the growth in credit card
advances in recent years.
At 30 September 1999 credit card balances were over £2.2
billion and the number of accounts over 2.2 million.
DIVISIONAL PERFORMANCES - INVESTOR SERVICES
1999 1998
£m £m
Net interest income 6 17
Non-interest income 154 120
----- -----
Total income 160 137
Expenses 146 132
----- -----
Profit before tax 14 5
----- -----
Cost:income ratio (%) 91 96
Employees at 30 September 1,310 1,190
On 31 October 1999, the Group completed the sale of its
main investor services businesses to The Bank of New York.
DIVISIONAL PERFORMANCES - DIRECT LINE INSURANCE
1999 1998
£m £m
Earned premiums 754 672
Reinsurers' share (120) (119)
----- -----
Insurance premium income 634 553
Net interest income 60 66
Non-interest income 69 46
----- -----
Total income 763 665
Expenses 147 128
Gross claims 611 561
Reinsurers' share (96) (88)
----- -----
Profit before tax 101 64
----- -----
In-force policies (000)
Motor 2,179 2,053
Home 894 863
------ -----
Total 3,073 2,916
------ -----
Operating ratio (%) 96 101
Total assets (£m) 1,411 1,201
Insurance reserves - net (£m) 997 872
Employees at 30 September 3,290 3,200
Direct Line Insurance increased its profit from £64 million
to £101 million, an increase of 58%. Overall, premium
income was up by 15%, while expenses were also up by 15%.
Claims increased by 9%.
In motor insurance, policy numbers increased by 6%. Average
written motor premiums were up by 8%. In motor insurance,
the operating ratio (the total of expense ratio and claims
ratio) improved from 109% to 102%.
In home insurance, policy numbers increased from 863,000 to
894,000. The increase in average written premiums was 1%.
In home insurance, the operating ratio increased from 85% to
90%.
In Direct Line Rescue, the number of policies has grown to
330,000. In October 1999, Direct Line announced the
acquisition of Green Flag, which has over 2.5 million
customers. Direct Line completed the acquisition on 26
November 1999.
Note: These accounts are prepared on the basis of the
Group's normal accounting policies. Direct Line Insurance's
own accounts are prepared in line with normal insurance
industry practice.
DIVISIONAL PERFORMANCES - CITIZENS
1999 1998
£m £m
Net interest income 408 376
Non-interest income 141 117
----- -----
Total income 549 493
Expenses 292 264
----- -----
Profit before provisions 257 229
Provisions for bad and doubtful debts 15 15
----- -----
242 214
Gain on sale of consumer credit card portfolio - 33
----- -----
Profit before tax 242 247
----- -----
Cost:income ratio (%) 53.2 50.2
Total assets (£m) 11,824 9,714
Employees at 30 September 5,190 5,010
US$/£ rate of exchange - average $1.63 $1.65
Citizens profit of £242 million is a 13% increase over the
prior year profit adjusted for the one-off gain of £33
million in 1998. Excluding this gain the cost:income ratio
shows an improvement from 53.5% to 53.2%.
Income, excluding the one-off gain in 1998, was up by
11%,and expenses were also up by 11%. The increase in
Citizens' income reflects strong volume growth in both
commercial and consumer loans and increased income from
service fees.
In October 1999, Citizens completed the acquisition of the
major part of the commercial banking business of State
Street Corporation for a cash premium of US$350 million.
This business has commercial loans totalling US$2.3 billion
and deposits of US$1.1 billion.
In June 1999, Citizens announced that it had entered into an
agreement to acquire, by way of merger, the entire issued
share capital of UST Corp. of Boston, Massachusetts for a
consideration of approximately US$1.4 billion. The
acquisition is expected to complete in early 2000.
DIVISIONAL PERFORMANCES - THE ROYAL BANK OF SCOTLAND
INTERNATIONAL (RBSI)
1999 1998
£m £m
Net interest income 85 68
Non-interest income 44 36
----- -----
Total income 129 104
Expenses 59 49
----- -----
Profit before provisions 70 55
Provisions for bad and doubtful debts - -
----- -----
Profit before tax 70 55
----- -----
Cost:income ratio (%) 45.7 47.1
Total assets - gross (£m) 7,877 7,259
Employees at 30 September 920 890
The Royal Bank of Scotland International, headquartered in
Jersey, increased its profit from offshore banking by 27% to
£70 million (1998 - £55 million).
Income rose by 24%, and costs by 20%, reflecting growth in
the business.
RBSI continues to make good progress in each of its four
main activities: offshore personal banking, investor
services, the treasury operation and its corporate banking
services.
On 31 October 1999, RBSI completed the sale of 30% of its
investor services businesses to The Bank of New York.
DIVISIONAL PERFORMANCES - CENTRAL ITEMS
The Centre's deficit for the year ended 30
September 1999 was as follows:
1999 1998
£m £m
Central income less expenses 16 2
Funding costs (71) (40)
----- -----
Deficit before exceptional items (55) (38)
----- -----
The Centre's balance sheet at 30 September 1999
was as follows:
1999 1998
£m £m
Book value of the shareholders' funds of
business units:
UK Bank 2,460 2,178
New Retail Financial Services Businesses 119 97
Angel Trains 291 235
RBS Cards 201 148
Investor Services 64 55
Direct Line Insurance 362 315
Citizens 905 707
RBSI 359 299
----- ----
4,761 4,034
Net borrowing by the Centre (559) (1,081)
----- -----
4,202 2,953
----- -----
Funded by Group shareholders' funds:
Preference shares 1,350 838
Ordinary shareholders' funds 2,852 2,115
----- -----
4,202 2,953
----- -----
Investment in Banco Santander Central Hispano (BSCH)
The investment in BSCH is held in the Centre and at 30
September 1999 the unrecognised surplus over book value was
£354 million (1998 - £230 million).
NOTES
1. Accounting policies
The Group has adopted FRS 10 - 'Goodwill and Intangible Assets',
resulting in goodwill arising on acquisitions after 1 October
1998 being capitalised on the balance sheet, and amortised over
its useful life, if appropriate. Previously goodwill arising on
acquisitions was charged to reserves immediately. No adjustment
has been made to goodwill previously charged to reserves.
The Group has also adopted FRS 11 - 'Impairment of Fixed Assets
and Goodwill' and FRS 12 - 'Provisions, Contingent Liabilities
and Contingent Assets'. The impact of adopting these new
standards was not material in the years ended 30 September 1999
and 1998.
2. Provisions for bad and doubtful debts
Group operating profit is stated after charging provisions for
bad and doubtful debts of £276 million (1998 - £332 million,
including a £132 million exceptional provision). The balance
sheet provisions for bad and doubtful debts increased from £633
million to £737 million, and the movements therein were:
1999 1998
Specific General Total Specific General Total
£m £m £m £m £m £m
At 1 October 454 179 633 354 105 459
Currency translation 9 1 10 (6) (2) (8)
adjustments
Amounts written off net of (182) - (182) (139) - (139)
recoveries
Additions on acquisitions - - - - 1 1
Released on disposal - - - (12) - (12)
Transfers between provisions 12 (12) - (3) 3 -
Charge to profit and loss
account
- UK Bank 172 (1) 171 129 3 132
- New Retail Financial 16 3 19 3 3 6
Services Businesses
- RBS Cards 71 - 71 47 - 47
- Citizens 15 - 15 15 - 15
Charge to profit and loss 274 2 276 194 6 200
account
Exceptional charge to profit - - - 66 66 132
and loss account
---- ----- ---- ---- ---- ----
At 30 September 567 170 737 454 179 633
---- ----- ---- ---- ---- ----
3. Tax charge
The charge for taxation is based on a UK corporation tax rate of
30.5% for the year to 30 September 1999 (1998 - 31%) and is made
up as follows:
1999 1998
£m £m
Current year charge - UK 305 244
- Overseas 64 72
Prior year (8) (14)
Exceptional items - (16)
----- -----
Tax charge 361 286
----- -----
The tax charge of £361 million on profit before tax of
£1,211 million represents an effective rate of 29.8%.
4. Ordinary dividends
The directors have recommended a final dividend of 20.3p on the
ordinary shares for the year to 30 September 1999. If approved
by the shareholders, this dividend will be paid on 18 February
2000 to those shareholders registered on 17 December 1999.
Together with the interim dividend, this will make a total
distribution of 28.5p per share, an increase of 16%. If the
necessary approval of the dividend is obtained from shareholders
at the annual general meeting on 13 January 2000, a scrip
dividend election, as an alternative to cash, is to be offered
and shareholders will receive details of this by letter after
that date.
5. Earnings per share
The earnings per share figures disclosed on page 7 have been
calculated in accordance with FRS 14 - 'Earnings per Share',
and are based on the following:
1999 1998
£m £m
Earnings:
Profit attributable to ordinary 776 637
shareholders
Exceptional items - (10)
----- -----
Profit attributable to ordinary
shareholders before exceptional items 776 627
----- -----
Number of shares
- millions
Number of ordinary shares:
Weighted average number of ordinary shares
in issue during the year 883.8 867.2
Dilutive effect of share options 12.4 12.6
outstanding
----- -----
Diluted weighted average number of
ordinary shares in issue during the year 896.2 879.8
----- -----
6. Loans and advances to customers
1999 1998
£m £m
UK offices
ECGD and government 150 78
Manufacturing 2,715 2,075
Construction 648 543
Finance 2,891 2,197
Service industries 5,585 4,968
Agriculture, forestry and fishing 673 643
Property 3,668 2,935
Business and other services 2,477 2,011
Individuals - mortgages 9,544 8,317
- other 6,283 4,550
Instalment credit and other loans 1,059 900
Finance leases 2,555 2,587
Overseas residents 2,799 2,248
------ ------
41,047 34,052
------ ------
Overseas offices
Continental Europe 1,046 484
United States 6,807 5,811
Rest of the World 1,177 1,303
------ ------
9,030 7,598
------ ------
Total 50,077 41,650
Provisions for bad and doubtful debts (737) (633)
(Note 2)
------ -----
Total loans and advances to customers 49,340 41,017
------ ------
7. Other assets
1999 1998
£m £m
Long-term assurance fund assets attributable
to policyholders 2,013 1,709
Foreign exchange and interest rate contracts 1,150 2,603
Other 2,176 2,489
----- -----
5,339 6,801
----- -----
8. Analysis of deposits
1999 1998
£m £m
Deposits by banks
Repayable on demand 1,890 1,486
With agreed maturity dates or periods of
notice, by remaining maturity
- three months or less 2,703 1,989
- one year or less but over three months 1,398 687
- five years or less but over one year 94 20
- over five years 333 255
------ -----
6,418 4,437
------ -----
Customer accounts
Repayable on demand 35,925 32,232
With agreed maturity dates or periods of
notice, by remaining maturity
- three months or less 14,759 14,507
- one year or less but over three months 3,150 2,607
- five years or less but over one year 947 1,023
- over five years 399 316
------ ------
55,180 50,685
------ ------
9. Other liabilities
1999 1998
£m £m
Notes in circulation 873 930
Long-term assurance fund liabilities to 2,013 1,709
policyholders
Foreign exchange and interest rate contracts 1,451 2,709
Short positions 312 732
Current taxation 185 229
Proposed final dividend 181 153
Other liabilities 1,632 1,614
----- -----
6,647 8,076
----- -----
10. Called up share capital
Non-cum
Cum dollar
Ordinary pref pref Total
£m £m £m £m
1 October 1998 218 1 1 220
Issued during the year 4 - - 4
----- ---- ---- -----
30 September 1999 222 1 1 224
----- ---- ---- -----
During the year to 30 September 1999, 5.5 million ordinary
shares were allotted under share option schemes, 1.8 million
ordinary shares were allotted under the profit sharing (share
ownership) scheme and 9.0 million ordinary shares were
allotted in lieu of cash dividends.
In addition, the company issued 12 million Series H, 12
million Series I and 9 million Series J, non-cumulative dollar
preference shares of US$0.01 each at US$25.00 per share.
11. Reserves
£m
At 1 October 1998 2,733
Currency translation adjustments 28
Premium on issues of shares 609
Movements on revaluation of premises 28
Write-back of goodwill 28
Retained profit for the year 522
Other movements 30
------
At 30 September 1999 3,978
------
The reserves of the Group include share premium of £2,130
million, of which £1,349 million relates to the issues of
non-cumulative dollar preference shares.
AVERAGE BALANCE SHEET
1998/99 1997/98
Average Average
Balance Rate Balance Rate
£m % £m %
ASSETS
Treasury and other eligible
bills
UK 740 6.1 646 7.5
Overseas 3 4.8 30 5.0
Loans and advances to banks
UK 9,157 5.4 11,804 6.6
Overseas 960 4.8 1,582 5.7
Loans and advances to
customers
UK 34,209 7.7 28,777 8.9
Overseas 7,911 7.5 7,188 8.3
Lease and HP receivables
UK 3,408 8.3 3,358 9.0
Overseas 279 6.3 133 7.4
Debt securities
UK 10,676 5.9 6,845 7.4
Overseas 4,168 6.5 3,739 6.5
------ ------ ------ -----
Interest earning assets 71,511 7.0 64,102 8.0
Non-interest earning assets 12,946 ------ 10,538 -----
------ ------
Total average assets 84,457 74,640
------ ------
LIABILITIES
Deposits by banks
UK 5,344 5.4 4,144 6.6
Overseas 1,038 4.6 1,289 5.7
Customer accounts
UK 39,775 4.6 35,313 6.0
Overseas 8,708 3.9 8,732 4.4
Debt securities in issue
UK 6,594 6.2 5,750 7.2
Overseas 1,674 4.9 812 5.0
Loan capital 2,901 8.7 2,517 9.0
------ ------ ------ -----
Interest bearing liabilities 66,034 4.9 58,557 6.0
Interest free liabilities ------ -----
Demand deposits 3,010 2,877
Other liabilities 11,893 10,144
Shareholders' funds 3,520 3,062
------ ------
Total average liabilities 84,457 74,640
------ ------
Average balances have been calculated on a daily basis using
customers' cleared balances, netted where interest set-off
arrangements exist.
The analysis into UK and overseas in the above table has been
compiled on the basis of location of office.
AVERAGE INTEREST RATES, YIELDS, SPREADS AND MARGINS
1999 1998
Average Average
Rate Rate
% %
United Kingdom
The Bank's base rate 5.7 7.3
London inter-bank offered rate:
Three month sterling 5.7 7.5
Three month eurodollar 5.2 5.6
Yields, spreads and margins:
Gross yield (1)
Group 7.0 8.0
UK 7.0 8.2
Overseas 7.0 7.4
Interest spread (2)
Group 2.1 2.0
UK 1.9 1.8
Overseas 2.9 2.8
Interest margin (3)
Group 2.5 2.5
UK 2.2 2.3
Overseas 3.4 3.5
(1) Gross yield is the average interest rate earned on
average interest earning assets.
(2) Interest spread is the difference between the gross yield
and the average interest rate paid on average interest bearing
liabilities.
(3) Interest margin is net interest income as a percentage of
average interest earning assets.
RISK ELEMENTS IN LENDING
The Group's advances control and review procedures do not include
the classification of loans as non-accrual, accruing past due,
restructured and potential problem loans, as defined by the
Securities and Exchange Commission ('SEC') in the US. The
following table shows the estimated amount of loans which would
be reported using the SEC's classifications.
1999 1998
£m £m
Loans accounted for on a non-accrual basis:
Domestic 378 416
Foreign 170 148
Accruing loans which are contractually overdue
90 days or more as to principal or interest: *
Domestic 322 311
Foreign 110 117
Loans not included above which are classified
as 'troubled debt restructurings' by the SEC:
Domestic 13 15
Foreign 104 5
----- -----
Total 1,097 1,012
----- -----
Provisions as a % of risk elements in lending 67% 63%
* Generally, lending by way of overdraft has no fixed repayment
schedule and consequently is not included in this category.
Loans that are current as to payment of principal and interest
and not reflected in the above table, but in respect of which the
Group has serious doubts about the ability of the borrower to
comply with loan repayment terms, totalled approximately £246
million at 30 September 1999 (1998 - £143 million). In
accordance with the Group's provisioning policy for bad and
doubtful debts it is considered that adequate provisions for the
above risk elements in lending have been made in the accounts.
Gross interest income not recognised but which would have been
recognised in the year ended 30 September 1999 under the original
terms of non-accrual and restructured loans amounted to £53
million from domestic loans and £32 million from foreign loans.
Interest on non-accrual and restructured loans included in the
consolidated profit and loss account in the year ended 30
September 1999 totalled £4 million from domestic loans and £13
million from foreign loans.
DERIVATIVES BUSINESS
In the normal course of business, the Group enters into a variety
of derivative transactions which are primarily in the foreign
exchange and interest rate markets. They are used to provide
financial services to customers, to take, hedge and modify
positions as part of the Group's trading activities and to hedge
or modify market risk exposure arising on the balance sheet from
a variety of activities, including lending and securities
investment.
Market risk
The Group uses a variety of techniques to measure the risk
of loss arising from adverse movements in market prices.
These include value at risk methodology (VaR) for
quantifying exposure. The following table shows the trading
market risk related VaR.
1999 1998
£m £m
As at 30 September 2.6 1.1
1999 1998
High Low Average High Low Average
£m £m £m £m £m £m
Year ended 30 2.9 1.0 1.9 1.8 0.6 1.1
September
The figures above are subject to the assumptions and limitations
of the Group's VaR model. The model is based on historic
movements which may not be indicative of future market
conditions. The Group continuously researches this and other
limitations to the model and also uses other techniques to
measure and manage market related risk.
MORE TO FOLLOW
FR BPBTBLLITTRL
Latest directors dealings
- 11 hours ago Rathbones Group
- 11 hours ago Raspberry PI Holdings (WI)
- 13 hours ago Alumasc Group
- 13 hours ago Land Securities Group
- 13 hours ago Computacenter