Interim Results - Pre-tax Profit Up 31%
Royal Bank of Scotland Group PLC
28 January 2000
THE ROYAL BANK OF SCOTLAND GROUP
INTERIM PROFITS FORECAST
* PROFIT BEFORE TAX UP 31 PER CENT
* PROFIT BEFORE TAX AND EXCEPTIONAL ITEMS UP 23 PER CENT
* EARNINGS PER SHARE UP 28 PER CENT
* ADJUSTED EARNINGS PER SHARE UP 19 PER CENT
* IMPROVEMENT IN ALL BUSINESSES
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ROYAL BANK GROUP FORECASTS INCREASED INTERIM PROFIT
The Royal Bank of Scotland Group ('the RBS Group') today issued a forecast of
its results for the six months to 31 March 2000. Group profit before tax is
forecast to increase by 31 per cent to £695 million (1999 - £531 million).
Profit before tax and exceptional items is forecast to increase by 23 per cent
to £651 million (1999 - £531 million). The profit forecast is made in the
absence of unforeseen circumstances and on the basis of a number of given
assumptions.
The RBS Group's total income is anticipated to rise 19 per cent to £2,325
million, while operating expenses, before exceptional items, increase by 12
per cent to £1,133 million. The RBS Group's cost:income ratio is forecast to
improve from 51.8 per cent to 48.7 per cent.
Earnings per share are forecast to rise by 28 per cent, from 37.9p to 48.4p.
After adjusting for exceptional items, earnings per share rise by 19 per cent,
from 37.9p to 45.0p.
Sir George Mathewson, Group Chief Executive, said: 'We believe that the three
proposals for NatWest's future are quite different, featuring different
visions, different benefits and different risks. We believe that our track
record significantly reinforces the strength of our proposals and we take this
opportunity to provide further evidence of our continuing success in growing
income, growing profits and improving efficiency.
'The improvement demonstrated in our forecast profit is based on progress
across all parts of our Group, in both new and established businesses.'
Divisional performances:
* In the largest business area, the UK Bank, profit is forecast to increase
by 19 per cent to £411 million (1999 - £344 million).
* In the USA, Citizens Financial Group is forecast to increase its profit
before exceptional items by 13 per cent to £135 million (1999 - £119
million).
* The RBS Group's insurance division, comprising Direct Line Insurance,
Privilege Insurance and Green Flag (from the date of acquisition in
November 1999), is forecast to increase its profit from £9 million to £14
million. Because of the seasonal pattern of claims, the Group's motor
insurance businesses tend to make the larger proportion of their profit in
the second half of the year.
* The RBS Group's New Retail Financial Services Businesses are forecast to
reduce their loss from £17 million in 1999 to £1 million.
* Angel Trains, the RBS Group's train leasing business, is forecast to
increase its profit from £24 million to £33 million.
* RBS Cards is forecast to increase its profit from £37 million to £47
million.
* The RBS Group's offshore business, The Royal Bank of Scotland
International, is forecast to increase its profit by 29 per cent to £44
million (1999 - £34 million).
* The above results exclude a forecast exceptional gain of £99 million
realised from the sale of the RBS Group's main investor services businesses
in October 1999 and forecast exceptional restructuring costs of £55 million
incurred in relation to the acquisitions, by Citizens Financial Group, of
UST Corp. of Boston and the commercial banking business of State Street
Corporation.
THE ROYAL BANK OF SCOTLAND GROUP plc
FORECAST GROUP RESULTS FOR THE HALF-YEAR TO 31 MARCH 2000
The Board of The Royal Bank of Scotland Group plc ('RBS') forecasts that,
subject to unforeseen circumstances and on the basis and assumptions,
including the notes to the Group profit forecast, which form an integral part
of this forecast, the Group results for the half year to 31 March 2000 ('the
forecast Group results') will be as follows:
Forecast
Half- Half- Full
year year Year
2000 1999 Forecast 1999
£m £m % £m
increase
Profit before tax and 651 531 23 1,211
exceptional items
(not less than) ----- ----- -----
Profit before tax 695 531 31 1,211
(not less than) ----- ----- -----
Profit attributable to 433 333 30 776
ordinary shareholders
(not less than) ----- ----- -----
Earnings per ordinary 48.4p 37.9p 28 87.8p
share
(not less than) ------- ------ -----
The basis and assumptions underlying this profit forecast, and letters from
PricewaterhouseCoopers and Goldman Sachs and Merrill Lynch relating thereto,
follow.
THE ROYAL BANK OF SCOTLAND GROUP plc
BASIS AND ASSUMPTIONS
1. Basis
The profit forecast is based on:
* the unaudited management accounts of the RBS Group for the three months to
31 December 1999 presented to and approved by the Group Board; and
* management estimates and forecasts for the three months ending 31 March
2000. Such management forecasts are based on current operating experience
and expected market and economic conditions.
The profit forecast has been prepared excluding the impact of the current bid
for NatWest. Specifically, the forecast excludes any anticipated post
acquisition profits and losses of NatWest, related financing and capital
raising transactions and costs, other direct costs of acquisition and post
acquisition costs, such as integration costs.
2. Group accounting policies
The profit forecast was prepared on the basis of the accounting policies
adopted by the RBS Group in the audited accounts for the year ended 30
September 1999 and as amended for changes arising from the adoption of
Financial Reporting Standard ('FRS') 15, Tangible Fixed Assets, and FRS 16,
Current Tax. The adoption of these new accounting standards does not have a
material impact on the RBS Group.
3. Assumptions
The principal assumptions on which the forecast is based and which are outside
the directors' control are:
* There will be no material change in the present management or control of
the RBS Group.
* There will be no material change to the RBS Group's customers' ability to
meet their obligations to the RBS Group from that currently anticipated by
the directors.
* There will be no material change in legislation or regulatory requirements
impacting the RBS Group's operations or its accounting policies. Any
further guidance issued by the Financial Services Authority in respect of
providing for pensions mis-selling will not have a material adverse affect
on the RBS Group.
* There will be no material change in interest rates or exchange rates from
those currently prevailing.
* There will not be any material change in the rates or bases of taxation,
both direct and indirect, affecting the RBS Group from those currently
prevailing.
* There will not be any changes in general trading and economic conditions in
the countries in which the RBS Group operates or trades which would
materially affect the RBS Group's business.
* There will be no material changes in the market value of listed investments
held by the RBS Group.
* There will be no natural disasters or other circumstances which would cause
there to be a materially adverse change in the level of insurance claims in
the forecast period than that which the RBS Group has historically
experienced.
* There will be no changes in circumstances (credit, operational or
otherwise) affecting the performance of the RBS Group's underwriters or
other trading companies which would have a materially adverse effect on the
RBS Group.
* There will be no major disruptions to the businesses of the RBS Group, its
suppliers or its major customers by reason of industrial disruption, civil
disturbance or government action.
* There will be no material losses arising in respect of the RBS Group's
contingent liabilities.
* Any Year 2000 problems at RBS Group's key counterparties will not have a
materially adverse financial impact on the RBS Group.
* Results of businesses giving rise to dealing profits in the second quarter
have been assumed to follow trends of the first quarter.
THE ROYAL BANK OF SCOTLAND GROUP plc
BASIS AND ASSUMPTIONS (continued)
4. Notes to the forecast Group results
(a) Forecast consolidated profit and loss account (unaudited)
Forecast
before Forecast
except except Forecast
-ional -ional Half- Half- (Audited)
items items year year Full Year
2000 1999 1999
£m £m £m £m £m
NET INTEREST INCOME 1,033 - 1,033 865 1,756
NON-INTEREST INCOME 824 - 824 753 1,672
General insurance 468 - 468 335 710
premiums (net of
reinsurance)
-------- -------- -------- ----- --------
TOTAL INCOME 2,325 - 2,325 1,953 4,138
OPERATING EXPENSES 1,133 55 1,188 1,011 2,048
-------- -------- -------- ----- --------
PROFIT BEFORE OTHER 1,192 (55) 1,137 942 2,090
OPERATING CHARGES
General insurance 395 - 395 302 590
claims (net of
reinsurance)
-------- -------- -------- ----- --------
PROFIT BEFORE
PROVISIONS FOR BAD
AND DOUBTFUL DEBTS 797 (55) 742 640 1,500
Provisions for bad 146 - 146 108 276
and doubtful debts
Amounts written off - - - 1 13
investments
----- ----- ----- ----- -------
GROUP OPERATING 651 (55) 596 531 1,211
PROFIT
Profit on sale of - 99 99 - -
business
----- ----- ----- ----- -------
PROFIT ON ORDINARY 651 44 695 531 1,211
ACTIVITIES BEFORE TAX
Tax on Group profit (199) (13) (212) (164) (361)
on ordinary
activities
------- ------- ------- ----- --------
PROFIT ON ORDINARY 452 31 483 367 850
ACTIVITIES AFTER TAX
Minority interests 7 - 7 2 6
- equity
------- ------- ------- ----- -------
PROFIT AFTER MINORITY 459 31 490 369 856
INTERESTS
Preference dividends 57 - 57 36 80
------- ------- ------- ----- -------
PROFIT ATTRIBUTABLE
TO ORDINARY
SHAREHOLDERS 402 31 433 333 776
------- ------- ------- ----- -------
EARNINGS PER ORDINARY SHARE 48.4p 37.9p 87.8p
Adjustments to exclude
exceptional items:
Restructuring costs on 4.3p - -
acquisitions
Profit on sale of business (7.7p) - -
------ ----- -----
ADJUSTED EARNINGS PER 45.0p 37.9p 87.8p
ORDINARY SHARE
------ ----- -----
THE ROYAL BANK OF SCOTLAND GROUP plc
BASIS AND ASSUMPTIONS (continued)
4. Notes to the forecast Group results (continued)
Group profit before tax up 31%, from £531 million to £695 million. Profit
before tax and exceptional items up by 23%, from £531 million to £651
million.
Net interest income up by 19% to £1,033 million.
Non-interest income, excluding general insurance, up by 9% to £824 million.
General insurance premium income, after reinsurance, up by 40% to £468
million.
Total income up by 19% to £2,325 million.
Operating expenses, before exceptional items, up by 12% to £1,133 million.
Group cost:income ratio improves from 51.8% to 48.7%.
General insurance claims, after reinsurance, up by 31% to £395 million.
Provisions for bad debts up by £38 million to £146 million.
Exceptional items of £99 million from the sale of the Group's main investor
services businesses and exceptional restructuring costs of £55 million in
relation to Citizens' acquisitions.
Tax charge of £212 million on profits before tax of £695 million, an
effective rate of 30.5%.
Profit attributable to ordinary shareholders, after tax, minority interests
and preference dividends, up by 30%, from £333 million to £433 million.
Earnings per share up by 28%, from 37.9p to 48.4p. After adjusting for the
exceptional items, earnings per share up by 19%, from 37.9p to 45.0p.
(b) Segmental analysis of forecast Group operating profit before
exceptional items is shown below.
Forecast (Audited)
Half-year Half- Full Year
year
2000 1999 1999
£m £m £m
UK Bank 411 344 736
New Retail Financial (1) (17) (26)
Services Businesses
Angel Trains 33 24 53
RBS Cards 47 37 85
Direct Line Insurance 14 9 93
Division
Citizens 135 119 242
The Royal Bank of 44 34 70
Scotland International
Central Items (32) (26) (56)
Investor Services - 7 14
- discontinued
------ ------ --------
Group operating profit 651 531 1,211
before exceptional items ------ ------ --------
Privilege Insurance (previously included in the New Retail Financial Services
Businesses) is now included with Direct Line Insurance and Green Flag as the
Direct Line Insurance Division. The 1999 figures have been adjusted to
reflect
this.
THE ROYAL BANK OF SCOTLAND GROUP plc
Enquiries
Sir George Mathewson Group Chief Executive 0171 427 8145
0131 523 2672
Fred Goodwin Deputy Group Chief Executive 0171 427 8116
0131 523 2033
Not for release, publication or distribution in or into Australia, Canada or
Japan.
The directors of RBS accept responsibility for the information contained in
this document. To the best of the knowledge and belief of such persons (who
have taken all reasonable care to ensure that such is the case), the
information contained in this document, for which they are responsible, is in
accordance with the facts and does not omit anything likely to affect the
import of such information.
The contents of this document, which have been prepared by and are the sole
responsibility of the directors of RBS, have been approved by Merrill Lynch
International and Goldman Sachs International solely for the purposes of
section 57 of the Financial Services Act 1986.
Merrill Lynch International and Goldman Sachs International, each of which is
regulated in the United Kingdom by The Securities and Futures Authority
Limited, are acting for RBS and no-one else in connection with the offer by
RBS for National Westminster Bank plc ('NatWest') (the 'Offer') and will not
be responsible to anyone other than RBS for providing the protections afforded
to the customers of Merrill Lynch International and Goldman Sachs
International, nor for giving advice in relation to the Offer.
The Offer is not being made in or into and is not capable of acceptance in or
from Canada, Australia or Japan. Custodians, nominees and trustees should
observe these restrictions and should not send or distribute this document in,
into or from Canada, Australia or Japan.
The New RBS Ordinary Shares and the Loan Notes proposed to be issued in
connection with the Offer have not been cleared by the securities commission
or similar authority of any province or territory of Canada and no prospectus
has been, nor is it intended that one will be, filed or registration made
under any securities laws of any province or territory of Canada, nor has a
prospectus in relation to the New RBS Ordinary Shares or the Loan Notes been
lodged, nor is it intended that one will be lodged with, or registered by the
Australian Securities Commission, nor have any steps been taken, nor is it
intended that any steps will be taken, to enable the New RBS Ordinary Shares
or the Loan Notes to be offered in compliance with applicable securities laws
of Japan. Accordingly, unless an exemption under applicable securities laws
is available, or such steps are consequently taken, neither the New RBS
Ordinary Shares nor the Loan Notes may be offered, sold, re-sold, transferred
or delivered, directly or indirectly, in, or into or from, Canada, Australia
or Japan or any other jurisdiction in which the offer of the New RBS Ordinary
Shares or the Loan Notes would constitute a violation of relevant laws or
require registration thereof.
Certain statements in this document are 'forward looking statements'. All
forward looking statements involve risks and uncertainties and are based on
current expectations regarding important risk factors. Statements contained
herein regarding the consummation and benefits of the proposed transaction,
as well as expectations with respect to future interest receivable, ability
to sustain margins, and realisation of financial and operating synergies and
efficiencies, are subject to known or unknown risks, uncertainties and
contingencies, many of which are beyond the control of RBS, which may cause
actual results, performance, or achievements to differ materially from
anticipated results, performance, or achievements. Factors that might cause
forward looking statements to differ materially from actual results include,
among other things, requirements imposed by regulatory authorities to permit
the transaction to be consummated, competitive factors in the industries in
which RBS and NatWest compete, changes in the monetary and interest rate
policies of the Bank of England and other G-7 central banks, inflation,
deflation, the timing, impact and other uncertainties of future acquisitions
or combinations within relevant industries, fluctuations in interest rates,
equity prices and foreign currencies, the adequacy of loss reserves, the
inability to hedge certain risks economically, changes in consumer spending
and other habits, as well as the impact of tax and other legislation and
other regulations in the jurisdictions in which RBS and NatWest and their
respective affiliates operate.
The Directors
The Royal Bank of Scotland Group plc
42 St Andrew Square
EDINBURGH
EH2 2YE
The Directors The Directors
Merrill Lynch International Goldman Sachs International
Ropemaker Place Peterborough Court
25 Ropemaker Street 133 Fleet Street
LONDON LONDON
EC2Y 9LY EC4A 2BB
28 January 2000
Dear Sirs
We refer to the statement made by the Board of The Royal
Bank of Scotland Group plc ('RBS') entitled the 'Forecast
Group Results for the Half Year to 31 March 2000' of the
announcement dated 28 January 2000 ('the announcement')
regarding the profit forecast of RBS and its subsidiary and
associated undertakings ('the RBS Group'), together with
note 4, 'Notes to the Forecast Group Results', to the profit
forecast, for the six months ending 31 March 2000 ('the
forecast results').
We have reviewed the basis of compilation and the accounting
policies for the forecast results. The forecast results,
for which the directors of RBS are solely responsible,
include the results shown by unaudited management accounts
for the three months ended 31 December 1999 and a forecast
for the three months ending 31 March 2000.
We conducted our work in accordance with the Statements of
Investment Circular Reporting Standards issued by the
Auditing Practices Board of the United Kingdom.
Our work has not been carried out in accordance with
auditing standards generally accepted in the United States
of America ('US') and accordingly should not be relied upon
as if our work had been carried out in accordance with those
standards. This letter has been prepared in accordance with
standards and practices established in the United Kingdom
for use solely in connection with the offer by Merrill Lynch
International and Goldman Sachs International, on behalf of
RBS, for the entire issued share capital of National
Westminster Bank plc. The letter has not been prepared in
connection with the filing of a registration statement with
the US Securities and Exchange Commission and does not
comply with United States generally accepted auditing
standards. Accordingly, under the United States auditing
standards we are unable to express any opinion with respect
to the forecast results of the RBS Group.
In our opinion the forecast results of the RBS Group have
been properly compiled on the basis stated and the basis of
accounting is consistent with the accounting policies of
RBS.
PricewaterhouseCoopers
Merrill Lynch International Goldman Sachs International
Ropemaker Place Peterborough Court
25 Ropemaker Street 133 Fleet Street
London EC2Y 9LY London EC4A 2BB
The Directors
The Royal Bank of Scotland Group plc
42 St Andrew Square
Edinburgh EH2 2YE
28 January 2000
Dear Sirs
Royal Bank of Scotland Group plc Profit Forecast
We refer to the profit forecast made by The Royal Bank of
Scotland Group plc ('RBS') for the six months ending 31
March 2000, which is set out in this document.
We have discussed the profit forecast and the basis and
assumptions on which it has been prepared with you as
Directors of RBS. We have also discussed the accounting
policies and calculations for the profit forecast with
PricewaterhouseCoopers, RBS's auditors, and we have
considered their letter of 28 January 2000 addressed to
yourselves and ourselves on this matter. We have relied
upon the accuracy and completeness of all of the financial
and other information discussed with us and have assumed
such accuracy and completeness for the purposes of rendering
this letter.
This report is provided in compliance with Rules 28.3(b) and
28.4 of the City Code on Takeovers and Mergers and Rule 2.15
of the Listing Rules of the London Stock Exchange.
On the basis of the foregoing, we consider that the profit
forecast referred to above, for which the Directors of RBS
are solely responsible, has been made with due care and
consideration.
For and on behalf of For and on behalf of
Merrill Lynch International Goldman Sachs International
Matthew Greenburgh Andrew Chisholm
Managing Director Managing Director
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