REG - Royal Bk Scot.Grp. - Half-year Report <Origin Href="QuoteRef">RBS.L</Origin> - Part 6
04/08/2017 07:08
- Part 6: For the preceding part double click ID:nRSD0890Ne
Net loans and advances to customers (1) 10.1 12.3 (18%) 12.8 (21%)
Net loans and advances to banks 4.9 5.0 (2%) 4.6 7%
Total assets 102.2 119.2 (14%) 132.5 (23%)
Funded assets 24.7 29.2 (15%) 27.6 (11%)
Risk elements in lending 1.8 2.1 (14%) 2.3 (22%)
Provision coverage (2) 33% 33% - 35% (200bp)
Risk-weighted assets
- Credit risk
- non-counterparty 15.0 17.1 (12%) 18.2 (18%)
- counterparty 6.7 7.6 (12%) 8.7 (23%)
- Market risk 3.1 4.0 (23%) 4.8 (35%)
- Operational risk 1.8 1.8 - 2.8 (36%)
Total risk-weighted assets 26.6 30.5 (13%) 34.5 (23%)
Analysis of RWAs by portfolio
Portfolio and GTS 2.3 2.8 (18%) 3.2 (28%)
Shipping 1.6 2.4 (33%) 2.8 (43%)
Markets 11.6 14.0 (17%) 15.8 (27%)
Alawwal Bank 7.4 7.8 (5%) 7.9 (6%)
Other 1.9 1.7 12% 2.0 (5%)
Total credit and market risk RWAs 24.8 28.7 (14%) 31.7 (22%)
Operational risk 1.8 1.8 - 2.8 (36%)
Total RWAs 26.6 30.5 (13%) 34.5 (23%)
Notes:
(1) Excludes disposal groups.
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
Capital Resolution
Capital Resolution continues to run down and dispose of non-strategic portfolios and remove risk from the balance sheet and the first half of the year saw good progress with RWAs falling by £7.9 billion to £26.6 billion. Excluding RBS's stake in Alawwal Bank (£7.4 billion at 30 June 2017), RWAs are now in the £15-£20 billion range we guided to for the end of 2017.
Financial performanceH1 2017 compared with H1 2016
● RWAs reduced by £15.7 billion to £26.6 billion and funded assets fell to £24.7 billion, a reduction of £20.0 billion, mainly reflecting disposal activity.
● An operating loss of £563 million in H1 2017, compared with a loss of £913 million in H1 2016, principally due to a net impairment release compared with a loss in H1 2016, and lower adjusted operating expenses. The adjusted operating loss in H1 2017 was
£135 million compared with a loss of £983 million in H1 2016. H1 2016 included a £330 million incremental funding valuation adjustment and a £264 million impairment loss in respect of the shipping portfolio.
● Income disposal losses in H1 2017 were £103 million compared with £104 million in H1 2016. Expected future losses on uncollateralised derivatives have driven £0.4 billion of the increase in the prudential valuation adjustment capital deduction in Q2 2017.
● Adjusted operating expenses fell by 68.0% to £133 million principally reflecting the impact of a 673 reduction in headcount to 209.
● A net impairment release of £78 million was recorded in the first half of the year. The H1 2016 charge of £263 million comprised charges relating to a number of shipping assets (£264 million).
Q2 2017 compared with Q1 2017
● RWAs reduced by £3.9 billion to £26.6 billion reflecting disposal activity.
● Funded assets reduced by £4.5 billion to £24.7 billion reflecting disposal activity across all portfolios.
● Operating losses increased by £213 million to £388 million, principally reflecting increased litigation and conduct charges. An adjusted operating loss of £59 million compared with a loss of £76 million in Q1 2017.
● Income disposal losses in Q2 2017 were £53 million compared with £50 million in Q1 2017.
● Adjusted operating expenses reduced by £5 million to £64 million.
Q2 2017 compared with Q2 2016
● An adjusted operating loss of £59 million compared with a loss of £606 million in Q2 2016 reflecting a £220 million funding valuation adjustment in Q2 2016, lower adjusted operating expenses and lower impairments.
● Adjusted operating expenses fell by £119 million, or 65.0%, principally reflecting the impact of a 673 reduction in headcount.
Williams & Glyn
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2017 2016 2017 2017 2016
Income statement (1) £m £m £m £m £m
Net interest income 333 324 168 165 162
Net fees and commissions 75 79 39 36 39
Other non-interest income 9 8 4 5 5
Non-interest income 84 87 43 41 44
Total income 417 411 211 206 206
Direct expenses
- staff costs (96) (125) (43) (53) (63)
- other costs (20) (33) (9) (11) (18)
Indirect expenses (42) (39) (22) (20) (18)
Restructuring costs
- direct - (45) - - (25)
Operating expenses (158) (242) (74) (84) (124)
Profit before impairment losses 259 169 137 122 82
Impairment losses (25) (17) (14) (11) (11)
Operating profit 234 152 123 111 71
Operating expenses - adjusted (2) (158) (197) (74) (84) (99)
Operating profit - adjusted (2) 234 197 123 111 96
Analysis of income by product
Retail 242 231 123 119 116
Commercial 175 180 88 87 90
Total income 417 411 211 206 206
Analysis of impairments by sector
Retail 15 10 7 8 5
Commercial 10 7 7 3 6
Total impairment losses 25 17 14 11 11
Performance ratios
Return on equity (3) 22.2% 14.3% 23.5% 20.9% 13.3%
Return on equity - adjusted (2,3) 22.2% 18.6% 23.5% 20.9% 18.0%
Net interest margin 2.65% 2.74% 2.64% 2.66% 2.70%
Cost:income ratio 37.9% 58.9% 35.1% 40.8% 60.2%
Cost:income ratio - adjusted (2) 37.9% 47.9% 35.1% 40.8% 48.1%
Notes
(1) Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK. During the period presented W&G has not operated as a separate legal entity.
(2) Excluding restructuring costs.
(3) Return on equity is based on segmental operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 15% of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes)), assuming 28% tax rate.
Williams & Glyn
30 June 31 March 31 December
2017 2017 2016
Capital and balance sheet (1) £bn £bn Change £bn Change
Loans and advances to customers (gross)
- Retail 12.3 12.3 - 12.3 -
- Commercial 8.3 8.5 (2%) 8.5 (2%)
Total loans and advances to customers (gross) 20.6 20.8 (1%) 20.8 (1%)
Loan impairment provisions (0.2) (0.2) - (0.2) -
Net loans and advances to customers 20.4 20.6 (1%) 20.6 (1%)
Total assets 26.0 25.8 1% 25.8 1%
Funded assets 26.0 25.8 1% 25.8 1%
Risk elements in lending 0.3 0.3 - 0.4 (25%)
Provision coverage (2) 64% 64% - 65% (100bp)
Customer deposits (excluding repos) 24.9 24.0 4% 24.2 3%
Loan:deposit ratio (excluding repos) 82% 86% (400bp) 85% (300bp)
Risk-weighted assets
- Credit risk (non-counterparty) 8.0 8.3 (4%) 8.2 (2%)
- Operational risk 1.4 1.4 - 1.4 -
Total risk-weighted assets 9.4 9.7 (3%) 9.6 (2%)
Notes:
(1) Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK. During the period presented W&G has not operated as a separate legal entity.
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
Key points
Williams and Glyn (W&G) reported an 18.8% increase in adjusted operating profits to £234 million, largely reflecting 19.8%
reduction in adjusted operating expenses with net impairments remaining benign. In our full year 2017 reporting we will no
longer report Williams & Glyn as a separate segment, but include within UK PBB.
Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and principally
comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate
activities across the UK.
Serving our customers
● In H1 2017 the W&G business continued to perform well. Gross lending across the portfolio was stable at £20.6 billion compared with H1 2016, with gross mortgage lending increasing by £0.3 billion, or 2.3%, to £11 billion.
Financial performanceH1 2017 compared with H1 2016
● Operating profit increased by £82 million to £234 million compared with H1 2016. Adjusted operating profit increased by £37 million, or 18.8%, to £234 million driven by reduced adjusted operating expenses.
● Total income increased by £6 million, or 1.5%, to £417 million largely reflecting increased lending, with net interest income increasing by £9 million, or 2.8%, to £333 million.
● Adjusted operating expenses reduced by £39 million, or 19.8%, to £158 million driven by reduced staff costs, reflecting a substantial reduction in headcount, down by c.1,100 to 4,100 FTEs by the end of H1 2017.
● Net impairment losses increased by £8 million, or 47.1%, to £25 million compared with H1 2016, with the prior year benefitting from releases in the retail business.
Q2 2017 compared with Q1 2017
● Adjusted operating profit increased by £12 million, or 10.8%, to £123 million compared with Q1 2017 driven by a £10 million, or 11.9%, reduction in adjusted operating expenses, principally reflecting lower staff costs.
Q2 2017 compared with Q2 2016
● Adjusted operating profit increased by £27 million, or 28.1%, compared with Q2 2016 driven by a £25 million, or 25.3%, reduction in adjusted operating expenses associated with the reduction in FTEs.
Central items
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2017 2016 2017 2017 2016
£m £m £m £m £m
Central items not allocated 178 (909) 322 (144) (537)
Funding and operating costs have been allocated to operating segments based on direct service usage, the requirement for
market funding and other appropriate drivers where services span more than one segment.
Residual unallocated items relate to volatile corporate items that do not naturally reside within a segment.
Key points
· Central items not allocated represented a gain of £178 million in H1 2017, compared with a £909 million charge in H1 2016, and included litigation and conduct costs of £40 million (H1 2016 - £708 million charge). Treasury funding costs were a gain of £132
million, compared with a charge of £382 million in H1 2016 (volatile items under IFRS: H1 2017 - £154 million gain, H1 2016 - £668 million charge). In addition, we recognised a VAT recovery of £51 million (H1 2016 - £227 million) and a £156 million gain
on the sale of our stake in Vocalink (H1 2016 - £246 million gain on sale of Visa Europe).
· Central items not allocated represented a gain of £322 million in Q2 2017 and included a £172 million gain in respect of volatile items under IFRS and a £156 million gain on the sale of our stake in Vocalink.
Condensed consolidated income statement for the period ended 30 June 2017 (unaudited)
Half year ended
30 June 30 June
2017 2016
£m £m
Interest receivable 5,462 5,692
Interest payable (990) (1,359)
Net interest income (1) 4,472 4,333
Fees and commissions receivable 1,666 1,676
Fees and commissions payable (448) (392)
Income from trading activities 884 (17)
Loss on redemption of own debt (7) (130)
Other operating income 352 594
Non-interest income 2,447 1,731
Total income 6,919 6,064
Staff costs (2,447) (2,695)
Premises and equipment (678) (652)
Other administrative expenses (1,208) (2,139)
Depreciation and amortisation (511) (354)
Write down of other intangible assets (8) (89)
Operating expenses (4,852) (5,929)
Profit before impairment losses 2,067 135
Impairment losses (116) (409)
Operating profit/(loss) before tax 1,951 (274)
Tax charge (727) (340)
Profit/(loss) for the period 1,224 (614)
Attributable to:
Non-controlling interests 29 30
Preference share and other dividends 256 208
Dividend access share - 1,193
Ordinary shareholders 939 (2,045)
1,224 (614)
Earnings/(loss) per ordinary share (EPS)
Basic earnings/(loss) per ordinary share (2) 7.9p (17.6p)
Notes:
(1) Negative interest on loans and advances is classed as interest payable. Negative interest on customer deposits classed as interest receivable. HY 2016 has been re-presented accordingly.
(2) There is no dilutive impact in any period.
Condensed consolidated statement of comprehensive income for the period ended 30 June 2017 (unaudited)
Half year ended
30 June 30 June
2017 2016
£m £m
Profit/(loss) for the period 1,224 (614)
Items that do not qualify for reclassification
Loss on remeasurement of retirement benefit schemes (26) (995)
Loss on fair value of credit in financial liabilities designated at fair value
through profit or loss due to own credit risk (77) -
Tax (8) 273
(111) (722)
Items that do qualify for reclassification
Available-for-sale financial assets 29 (95)
Cash flow hedges (611) 1,581
Currency translation 103 1,071
Tax 161 (360)
(318) 2,197
Other comprehensive (loss)/income after tax (429) 1,475
Total comprehensive income for the period 795 861
Total comprehensive income is attributable to
Non-controlling interests 49 125
Preference shareholders 85 113
Paid-in equity holders 171 95
Dividend access share - 1,193
Ordinary shareholders 490 (665)
795 861
Condensed consolidated balance sheet as at 30 June 2017 (unaudited)
30 June 31 December
2017 2016
£m £m
Assets
Cash and balances at central banks 86,807 74,250
Net loans and advances to banks 20,685 17,278
Reverse repurchase agreements and stock borrowing 14,847 12,860
Loans and advances to banks 35,532 30,138
Net loans and advances to customers 326,059 323,023
Reverse repurchase agreements and stock borrowing 25,183 28,927
Loans and advances to customers 351,242 351,950
Debt securities 86,169 72,522
Equity shares 518 703
Settlement balances 12,091 5,526
Derivatives 193,531 246,981
Intangible assets 6,467 6,480
Property, plant and equipment 4,823 4,590
Deferred tax 1,677 1,803
Prepayments, accrued income and other assets 3,797 3,713
Total assets 782,654 798,656
Liabilities
Bank deposits 38,965 33,317
Repurchase agreements and stock lending 5,183 5,239
Deposits by banks 44,148 38,556
Customer deposits 359,882 353,872
Repurchase agreements and stock lending 37,855 27,096
Customer accounts 397,737 380,968
Debt securities in issue 31,997 27,245
Settlement balances 11,379 3,645
Short positions 29,862 22,077
Derivatives 184,161 236,475
Provisions for liabilities and charges 11,227 12,836
Accruals and other liabilities 6,603 7,006
Retirement benefit liabilities 182 363
Deferred tax 585 662
Subordinated liabilities 14,724 19,419
Total liabilities 732,605 749,252
Equity
Non-controlling interests 844 795
Owners' equity*
Called up share capital 11,876 11,823
Reserves 37,329 36,786
Total equity 50,049 49,404
Total liabilities and equity 782,654 798,656
*Owners' equity attributable to:
Ordinary shareholders 42,149 41,462
Other equity owners 7,056 7,147
49,205 48,609
The parent company distributable reserves at 30 June 2017 were £38.1 billion (31 December 2016 - £8.0 billion).
Condensed consolidated statement of changes in equity for the period ended 30 June 2017 (unaudited)
Half year ended
30 June 30 June
2017 2016
£m £m
Called-up share capital
At beginning of period 11,823 11,625
Ordinary shares issued 53 131
At end of period 11,876 11,756
Paid-in equity
At beginning of period 4,582 2,646
Redeemed/reclassified (1) (91) (110)
At end of period 4,491 2,536
Share premium account
At beginning of period 25,693 25,425
Ordinary shares issued 96 203
Capital reduction (2) (25,789) -
At end of period - 25,628
Merger reserve
At the beginning and end of period 10,881 10,881
Available-for-sale reserve
At beginning of period 238 307
Unrealised gains 100 189
Realised gains (71) (284)
Tax (8) 20
At end of period 259 232
Cash flow hedging reserve
At beginning of period 1,030 458
Amount recognised in equity (240) 2,139
Amount transferred from equity to earnings (371) (558)
Tax 156 (436)
At end of period 575 1,603
Foreign exchange reserve
At beginning of period 2,888 1,674
Retranslation of net assets 124 1,232
Foreign currency losses on hedges of net assets (8) (277)
Tax 13 56
Recycled to profit or loss on disposal of businesses (3) (33) 21
At end of period 2,984 2,706
Capital redemption reserve
At the beginning and end of period 4,542 4,542
Capital reduction (2) (4,542) -
At end of period - 4,542
For the notes to this table refer to the following page.
Condensed consolidated statement of changes in equity for the period ended 30 June 2017 (unaudited)
Half year ended
30 June 30 June
2017 2016
£m £m
Retained earnings
At beginning of period (12,936) (4,020)
Profit/(loss) attributable to ordinary shareholders and other equity owners
- continuing operations 1,195 (644)
Equity preference dividends paid (85) (113)
Paid-in equity dividends paid, net of tax (171) (95)
Capital reduction (2) 30,331 -
Dividend access share dividend - (1,193)
Loss on remeasurement of retirement benefit schemes
- gross (26) (995)
- tax (20) 273
Changes in fair value of credit in financial liabilities designated at fair value through profit
- gross (77) -
- tax 12 -
Shares issued under employee share schemes (5) (7)
Share-based payments
- gross (34) (26)
Redemption/reclassification of paid-in equity - (21)
At end of period 18,184 (6,841)
Own shares held
At beginning of period (132) (107)
Shares utilised for employee share schemes 156 34
Own shares acquired (69) (63)
At end of period (45) (136)
Owners' equity at end of period 49,205 52,907
Non-controlling interests
At beginning of period 795 716
Currency translation adjustments and other movements 20 95
Profit attributable to non-controlling interests
- continuing operations 29 30
Equity withdrawn and disposals - (21)
At end of period 844 820
Total equity at end of period 50,049 53,727
Total equity is attributable to:
Non-controlling interests 844 820
Preference shareholders 2,565 3,305
Paid-in equity holders 4,491 2,536
Ordinary shareholders 42,149 47,066
50,049 53,727
Notes:
(1) Paid-in equity reclassified to liabilities as a result of the call of RBS Capital Trust D in March 2017 (redeemed in June 2017) and the call of RBS Capital Trust C in May 2016 (redeemed in July 2016).
(2) On 15 June 2017, the Court of Session approved a reduction of the parent company's capital so that the amounts which stood to the credit of share premium account and capital redemption reserve were transferred to retained earnings.
(3) No tax impact.
Condensed consolidated cash flow statement for the period ended 30 June 2017 (unaudited)
Half year ended
30 June 30 June
2017 2016
£m £m
Operating activities
Operating profit/(loss) before tax 1,951 (274)
Adjustments for non-cash items (2,181) (9,822)
Net cash outflow from trading activities (230) (10,096)
Changes in operating assets and liabilities 30,797 987
Net cash flows from operating activities before tax 30,567 (9,109)
Income taxes paid (248) (130)
Net cash flows from operating activities 30,319 (9,239)
Net cash flows from investing activities (6,319) (2,157)
Net cash flows from financing activities (4,814) (4,194)
Effects of exchange rate changes on cash and cash equivalents (64) 6,676
Net increase/(decrease) in cash and cash equivalents 19,122 (8,914)
Cash and cash equivalents at beginning of period 98,570 103,592
Cash and cash equivalents at end of period 117,692 94,678
Notes
1. Basis of preparation
The Group's condensed consolidated financial statements (as defined on page 2) have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 'Interim Financial Reporting'. They should
be read in conjunction with the Group's 2016 Annual Report and Accounts which were prepared in accordance with
International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and
interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together
IFRS).
Accounting policies
Ahead of adopting IFRS 9 Financial Instruments from 1 January 2018 RBS has adopted the provisions in respect of the
presentation of gains and losses on financial liabilities designated as at fair value through profit or loss from 1 January
2017. Accordingly, a loss of £77 million has been reported in the consolidated statement of other comprehensive income
instead of in the consolidated income statement. Comparatives have not been restated, however, in H1 2016 a gain of £200
million was included in the consolidated income statement. Own credit adjustments on financial liabilities held for trading
will continue to be recognised in the consolidated income statement, a loss of £73 million was reported in H1 2017 (H1 2016
- gain of £250 million).
Apart from the above RBS's principal accounting policies are as set out on pages 297 to 306 of the 2016 Annual Report and
Accounts. Other amendments to IFRS effective for 2017 have not had a material effect on RBS's H1 2017 results.
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to the portrayal of RBS's financial condition
are those relating to goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of
financial instruments. These critical accounting policies and judgements are described on pages 306 to 308 of RBS's 2016
Annual Report and Accounts. The risk factors are set out on pages 432 to 463.
Going concern
The Group's business activities and financial position, and the factors likely to affect its future development and
performance are discussed on pages 3 to 92. The risk factors which could materially affect the Group's future results are
described on pages 94 to 96.
Having reviewed RBS's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that
RBS will continue in operational existence for the foreseeable future. Accordingly, the results for the half year ended 30
June 2017 have been prepared on a going concern basis.
Notes
2. Analysis of income, expenses and impairment losses
Half year ended
30 June 30 June
2017 2016
£m £m
Loans and advances to customers 5,152 5,364
Loans and advances to banks 120 151
Debt securities 190 177
Interest receivable 5,462 5,692
Customer accounts 328 575
Deposits by banks 70 48
Debt securities in issue 254 298
Subordinated liabilities 317 442
Internal funding of trading businesses 21 (4)
Interest payable 990 1,359
Net interest income 4,472 4,333
Fees and commissions receivable
- payment services 405 434
- credit and debit card fees 331 314
- lending (credit facilities) 529 516
- brokerage 88 86
- investment management 121 121
- trade finance 88 102
- other 104 103
Fees and commissions receivable 1,666 1,676
Fees and commissions payable
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