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Chief Executive’s review
As indicated in the Chairman’s
statement, 2001 has been a year of considerable progress. Clear evidence of this
can be seen in each of our operating divisions as well as in the Group as a
whole.
Our business model recognises
that, to deliver superior sustainable value to our shareholders, we need to do
the same for our customers and our people. That the 32% increase in our profit
before tax, goodwill amortisation and integration costs has been fuelled largely
by income growth, which was in turn driven by increased customer numbers, is
pleasing, as is the fact that our annual employee opinion survey indicates that
our people strongly support what we are doing.
Increased efficiency also
contributed to our growth, with our cost:income ratio improving to 46.9% (2000 –
53.5%).
The Group net interest margin
for 2001 was 3.1% (2000 – 3.0%). Improved lending spread has more than offset a
decline in deposit margins arising from lower interest rates. There was also a
small benefit from interest on funds raised in July 2001 for the acquisition of
Mellon Financial Corporation’s regional banking franchise.
Whilst the credit quality of
our loan portfolio remains strong, bad debt provisions have been increased to
ensure that we retain a prudent level of reserves against the poorer quality
loans in our book, where customers are experiencing difficulty as a result of
deterioration in the short-term economic environment.
Integration
Good progress continues to be made on all aspects of integration. As well as
enabling an upward revision in the expected total annual benefits of the
programme at completion (now £2,030 million, formerly £1,730 million), the
benefits being realised during the programme are being achieved earlier than
plan. We now anticipate that the benefits realised during integration will be
£1,410 million higher than planned. The cost of delivering the entire
integration programme has also increased to £2,300 million.
Employees
As ever, the Group’s performance in 2001 would not have been possible without
the efforts and achievements of our people. Their commitment to the Group was
again evident throughout the year, and was confirmed in our annual employee
opinion survey, which was carried out in the fourth quarter of 2001 by the
independent firm International Survey Research (ISR). In this survey, we
distributed 100,000 forms across the Group, and the response rate was 75% – the
highest we have ever achieved (2000 – 67%). The Group improved its performance
in each of the 16 categories measured by ISR.ISR also evaluates our
performance against external benchmarks. The Group outperformed the UK Financial
Services norm in every category and showed an excellent performance against the
Global Financial Services norm.
That we have been able to make
such good progress with integration whilst delivering outstanding “business as
usual” results further emphasises how fortunate we are to have such a capable
and committed team of people engaged throughout the Group.
Outlook
Considerable momentum is evident in each of our
divisions, which together with their financial results in 2001 gives confidence
for the future. Whilst the economic outlook is shrouded in even greater than
usual uncertainty at this time, I remain of the view that the strength,
diversity and flexibility of the Group will enable us to deliver superior value
in any of the likely outcomes for the economies in which we operate.
Fred Goodwin
Group Chief Executive
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