Press Releases

28 February 2002

• Profit before tax, goodwill amortisation and integration costs £5,801 million, up 32%.

• Income up 18%, increased in all divisions.

• Margin increased to 3.1%.

• Income growth underpinned by strong growth in customer numbers in the UK

  • Personal current accounts up 0.7 million, 7%, to 10.3 million.

  • Credit card accounts up 1.7 million, 22%, to 9.6 million.

  • Motor policies up 0.8 million, 25%, to 4 million.

  • Mortgages up £4.4 billion, 13%, to £37 billion.

  • Small business customers up 26,000, 3%, to 931,000.

• Costs up only 3%.

• Further efficiency gains – cost:income ratio now 46.9%, down from 53.5%.

• Integration progress even further ahead.

• Integration benefits will now be greater:

  • Annual benefits now up £300 million to £2.0 billion.

  • 2000 – 2003 total benefits up £1.4 billion to £5.5 billion.

  • One-off costs increased to £2.3 billion.

• Mellon acquisition going well and integration benefits confirmed.

• Credit quality remains good.

• New provisions up 27% - but lower recoveries result in a profit and loss charge for provisions up 54%.

• Balance sheet provision coverage of risk elements in lending maintained at over 80%.

• Creating value for shareholders:

  • Adjusted earnings per share up 25%.

  • Dividend up 15%.

  • Total shareholder return of 70% over 2 years to 31 December 2001.

Royal Bank Group Profit Up 32 Per Cent To £5,801 Million, And Natwest Integration Benefit Targets Raised

Profit before tax, goodwill amortisation and integration costs at The Royal Bank of Scotland Group increased by 32 per cent to £5,801 million (2000 – £4,401 million).  The growth in profit was achieved across all divisions.

The Group’s income grew in 2001 across the board. Total income increased by 18 per cent to £14,581 million.  Net interest income grew by 16 per cent, underpinned by good growth in both corporate and personal lending and deposits, while the net interest margin of the banking business improved from  3.0 per cent to 3.1 per cent. Non-interest income, which makes up 53 per cent of total income, increased by 16 per cent, excluding general insurance to £6,337 million. General insurance premium income, after reinsurance, increased by 40 per cent to £1,375 million.  Operating expenses increased by just 3 per cent to £6,841 million.

The Group’s cost:income ratio improved substantially, down to 46.9 per cent from 53.5 per cent, reflecting strong income growth combined with tight control of costs and the benefits of integration.

The final dividend increased by 15 per cent, to 27.0p, which, with the interim dividend of 11.0p, makes a total for the year of 38.0p, an increase of 15 per cent.

Sir George Mathewson, Chairman of The Royal Bank of Scotland Group, said: “2001 was another year of substantial improvement in the strength and profitability of our Group.  All our businesses have grown income and improved efficiency producing notable profit increases.  Credit quality remains good, although we have made prudent increases in our level of provisions to reflect the growth in our business combined with the deterioration in the short-term economic outlook and a small number of specific customer situations.

“The integration of NatWest is progressing well and we expect to achieve significantly greater income improvements and cost savings than originally envisaged.

“Our focus on building strategic options for the Group, together with our emphasis on growing income in ways which are beneficial for both customers and shareholders, has delivered another significant uplift in our performance.  I am confident that the resultant strength, diversity and flexibility of the Group will enable us to continue to build value.

“Increased income is key to the future of our business and we believe that this can only be achieved by an ever increasing focus on satisfying customer needs.  This approach has led to strong growth in customer numbers across the Group.  Current accounts in personal banking increased 6 per cent to stand at over 10 million accounts, with the number of credit cards rising by 19 per cent to a total of 14.8 million.

“I am particularly pleased that our share of small business start-ups has increased.  We believe that at this stage in the economic cycle it is vital for the well being of the economy that small businesses are supported on individual merit and not cherry-picked based on a prejudice about a particular sector or customer grouping.”

Fred Goodwin, Group Chief Executive, said: “We are less than two years into our three-year NatWest integration programme, but today’s results demonstrate that the targets for both revenue and cost benefits are running a year ahead of plan.  As a consequence we have now concluded that the cumulative benefits realised by the end of the integration programme will be £5.5 billion, some £1.4 billion ahead of plan.

“On a continuing basis, the contribution from integration to profit before tax from 1 January 2004 is forecast to be £2.03 billion. To achieve this continuing annual profit gain, we expect to have incurred one-off integration costs totalling £2.3 billion.”

Asset quality continues to be strong. New provisions were up 27 per cent, £230 million to £1,071 million.  Recoveries of amounts previously written off were down £116 million, 59 per cent, to £80 million.  Consequently the net charge to the profit and loss account was up from £645 million to £991 million.

Group total assets were £369 billion at 31 December 2001, up from £320 billion, an increase of 15 per cent.  Tier 1 capital ratio improved from 6.9 per cent at 31 December 2000 to 7.1 per cent, and total capital ratio was unchanged at 11.5 per cent.

Employee numbers rose from 94,000 (end December 2000) to 105,700 (end December 2001). The increase includes approximately 5,000 staff in businesses acquired in the year as well as additional staff to support the strong growth in business levels.  More staff have been employed particularly in branches to enhance further customer service. The total also includes short term appointments in connection with the integration of NatWest.

There was a very high response rate - 75 per cent - to this year’s annual Employee Opinion Survey.   We were ahead on all the performance indicators on the previous year and when compared with the UK financial services norm.  82 per cent of staff thought the acquisition of NatWest was positive for the long term future of the Group.  Some 89 per cent thought that they had a clear understanding of business goals and objectives, with 64 per cent saying they would recommend the Group as a place to work. 

Sarah Matthews, Group Director of International Survey Research, the body that carried out the survey, said: “It’s extremely rare to see such across-the-board improvements in such a short space of time in any organisation.  The improvement in results since 2000 has been dramatic.  It’s a remarkable achievement.”

Improvements in performance were recorded across all divisions:

§         Corporate Banking and Financial Markets continues to be the largest provider of banking services to medium and large businesses in the UK.  It increased its profit contribution by 10 per cent to £3,011 million, reflecting improvements in both lending and in non-interest income.

§         Retail Banking increased its contribution by 14 per cent to £2,807 million. Total income was up 10 per cent, reflecting strong growth in advances and deposits.  The customer base continues to grow in both NatWest and The Royal Bank of Scotland, with increased market share of current accounts. Average mortgage lending grew by 9 per cent. The number of personal customers increased by 5 per cent to 12.9 million, and small business customers grew by 3 per cent to 931,000.

§        Retail Direct, which includes the Group’s plastic card businesses and specialist businesses including Tesco Personal Finance, Virgin Direct Personal Finance, Direct Line Financial Services and Lombard Direct, increased its contribution by 48 per cent to £551 million, driven by the successful introduction of new products at Tesco Personal Finance and the expansion of the cards business.

§        Manufacturing, which supports customer-facing businesses, mainly Corporate Banking and Financial Markets, Retail Banking, and Retail Direct, with technology, account management, money transmission, property and other services reduced its total costs by 6 per cent, or £92 million.

§        Wealth Management, which includes Coutts Group, Adam & Company, and the offshore banking businesses, increased its contribution by £54 million, or 13 per cent, to £459 million. Total income increased by 5 per cent, while expenses were 2 per cent lower.

§         Direct Line Group increased its contribution by 30 per cent to £261 million. Earned premiums grew 34 per cent to £1,408 million during the year.  In September 2001, it expanded into Germany and Italy and in January 2002 announced the acquisition of Royal & Sun Alliance’s direct motor insurance operation in Italy, which will make Direct Line Italy’s second largest direct insurer with more than 300,000 customers.

§         Ulster Bank, which operates throughout Ireland, increased its profit contribution by 21 per cent to £242 million. Total income grew by 15 per cent while expenses grew by 10 per cent to support business expansion.  It successfully adapted its systems for the introduction of the euro in the Republic of Ireland in January 2002.

§         In the US, Citizens extended its presence to the states of Pennsylvania, Delaware and New Jersey through the acquisition of the regional retail and commercial banking operations of Mellon Financial Corporation in December 2001.  Citizens increased its profit contribution by 44 per cent to £501 million, reflecting strong organic growth.

We are particularly pleased to announce that all staff will receive 10 per cent profit share in the form of a bonus, and 70 per cent of staff in RBS and NatWest will receive a 5 per cent pay increase.  In addition, on the successful completion of the integration of NatWest before 6 March 2003, a further 5 per cent bonus will be payable.

Photographs for the media are available at www.newscast.co.uk

Results for the Year to 31 December 2001
Key Figures