REG - Royal Bk Scot.Grp. - Half Year Report - Part 1 <Origin Href="QuoteRef">RBS.L</Origin> - Part 7
05/08/2016 07:07
- Part 7: For the preceding part double click ID:nRSE3368Gf
Cash and balances at central banks 65,307 79,404
Net loans and advances to banks 21,763 18,361
Reverse repurchase agreements and stock borrowing 14,458 12,285
Loans and advances to banks 36,221 30,646
Net loans and advances to customers 326,503 306,334
Reverse repurchase agreements and stock borrowing 31,320 27,558
Loans and advances to customers 357,823 333,892
Debt securities 84,058 82,097
Equity shares 749 1,361
Settlement balances 13,405 4,116
Derivatives 326,023 262,514
Intangible assets 6,525 6,537
Property, plant and equipment 4,589 4,482
Deferred tax 2,217 2,631
Prepayments, accrued income and other assets 4,311 4,242
Assets of disposal groups 396 3,486
Total assets 901,624 815,408
Liabilities
Bank deposits 31,377 28,030
Repurchase agreements and stock lending 11,611 10,266
Deposits by banks 42,988 38,296
Customer deposits 355,719 343,186
Repurchase agreements and stock lending 29,270 27,112
Customer accounts 384,989 370,298
Debt securities in issue 27,148 31,150
Settlement balances 11,262 3,390
Short positions 21,793 20,809
Derivatives 322,390 254,705
Provisions, accruals and other liabilities 15,627 15,115
Retirement benefit liabilities 511 3,789
Deferred tax 824 882
Subordinated liabilities 20,113 19,847
Liabilities of disposal groups 252 2,980
Total liabilities 847,897 761,261
Equity
Non-controlling interests 820 716
Owners' equity*
Called up share capital 11,756 11,625
Reserves 41,151 41,806
Total equity 53,727 54,147
Total liabilities and equity 901,624 815,408
* Owners' equity attributable to:
Ordinary shareholders 47,066 47,480
Other equity owners 5,841 5,951
52,907 53,431
The parent company distributable reserves at 30 June 2016 were £14.6 billion (31 December 2015 - £16.3 billion).
Condensed consolidated statement of changes in equity for the period ended 30 June 2016 (unaudited)
Half year ended
30 June 30 June
2016 2015*
£m £m
Called up share capital
At beginning of period 11,625 6,877
Ordinary shares issued 131 104
At end of period 11,756 6,981
Paid-in equity
At beginning of period 2,646 784
Redeemed/reclassified (1) (110) (150)
At end of period 2,536 634
Share premium account
At beginning of period 25,425 25,052
Ordinary shares issued 203 254
At end of period 25,628 25,306
Merger reserve
At beginning and end of period 10,881 13,222
Available-for-sale reserve
At beginning of period 307 299
Unrealised gains/(losses) 189 (114)
Realised (gains)/losses (284) 63
Tax 20 39
Transfer to retained earnings - (43)
At end of period 232 244
Cash flow hedging reserve
At beginning of period 458 1,029
Amount recognised in equity 2,139 (26)
Amount transferred from equity to earnings (558) (705)
Tax (436) 128
Transfer to retained earnings - 9
At end of period 1,603 435
Foreign exchange reserve
At beginning of period 1,674 3,483
Retranslation of net assets 1,232 (548)
Foreign currency (losses)/gains on hedges of net assets (277) 38
Tax 56 (14)
Recycled to profit or loss on disposal of businesses (2) 21 -
Transfer to retained earnings - (642)
At end of period 2,706 2,317
Capital redemption reserve
At beginning and end of period 4,542 9,131
*Restated - refer to page 66 for further details
Notes:
(1) Paid-in equity reclassified to liabilities as a result of the call of RBS Capital Trust C in May 2016 (redeemed in July 2016) and the call of RBS Capital Trust IV in January 2015 (redeemed in March 2015).
(2) No tax impact.
(3) Relating to the secondary offering of Citizens Financial Group in March 2015.
Condensed consolidated statement of changes in equity for the period ended 30 June 2016 (unaudited)
Half year ended
30 June 30 June
2016 2015*
£m £m
Retained earnings
At beginning of period (4,020) (4,001)
(Loss)/profit attributable to ordinary shareholders and other equity owners
- continuing operations (644) (76)
- discontinued operations - 64
Equity preference dividends paid (113) (143)
Paid-in equity dividends paid, net of tax (95) (24)
Dividend access share dividend (1,193) -
Transfer from available-for-sale reserve - 43
Transfer from cash flow hedging reserve - (9)
Transfer from foreign exchange reserve - 642
Costs of placing Citizens Financial Group equity - (29)
(Loss)/gain on remeasurement of retirement benefit schemes
- gross (995) 17
- tax 273 (3)
Shares issued under employee share schemes (7) (57)
Share-based payments
- gross (26) 10
Reclassification of paid-in equity (21) (27)
At end of period (6,841) (3,593)
Own shares held
At beginning of period (107) (113)
Disposal of own shares 34 5
Own shares acquired (63) -
At end of period (136) (108)
Owners' equity at end of period 52,907 54,569
Non-controlling interests
At beginning of period 716 2,946
Currency translation adjustments and other movements 95 (63)
Profit attributable to non-controlling interests
- continuing operations 30 50
- discontinued operations - 294
Dividends paid - (31)
Movements in available-for-sale securities
- unrealised gains - 12
- realised gains - (6)
- tax - (5)
Movements in cash flow hedging reserve
- gross - 21
- tax - (4)
Equity raised (3) - 2,491
Equity withdrawn and disposals (21) -
At end of period 820 5,705
Total equity at end of period 53,727 60,274
Total equity is attributable to:
Non-controlling interests 820 5,705
Preference shareholders 3,305 4,313
Paid-in equity holders 2,536 634
Ordinary shareholders 47,066 49,622
53,727 60,274
*Restated - refer to page 66 for further details
For notes to this table refer to previous page
Condensed consolidated cash flow statement for the period ended 30 June 2016 (unaudited)
Half year ended
30 June 30 June
2016 2015*
£m £m
Operating activities
Operating (loss)/profit before tax on continuing operations (274) 261
Operating profit before tax on discontinued operations - 542
Adjustments for non-cash items (9,822) (3,659)
(10,096) (2,856)
Changes in operating assets and liabilities 987 12,313
Net cash flows from operating activities before tax (9,109) 9,457
Income taxes paid (130) (201)
Net cash flows from operating activities (9,239) 9,256
Net cash flows from investing activities (2,157) (1,461)
Net cash flows from financing activities (4,194) (426)
Effects of exchange rate changes on cash and cash equivalents 6,676 (1,885)
Net (decrease)/increase in cash and cash equivalents (8,914) 5,484
Cash and cash equivalents at beginning of period 103,592 107,904
Cash and cash equivalents at end of period 94,678 113,388
*Restated - refer to page 66 for further details
Notes
1. Basis of preparation
The Group's condensed consolidated financial statements (as defined on page 1) 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 2015 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
RBS's principal accounting policies are set out on pages 267 to 280 of the 2015 Annual Report and Accounts. Amendments to
IFRSs effective for 2016 have not had a material effect on RBS's 2016 interim results.
Pensions
In 2015, RBS changed its accounting policy for the recognition of surpluses in its defined benefit pension schemes: in
particular, the policy for determining whether or not it has an unconditional right to a refund of surpluses in its
employee pension funds. Where RBS has a right to a refund, this is not deemed unconditional if pension fund trustees can
unilaterally enhance benefits for plan members. The amended policy was applied retrospectively and prior periods restated.
For further details, see pages 267 to 268 of RBS's 2015 Annual Report and Accounts
Consolidated income statement
Half year ended 30 June 2015
As previously
reported Adjustment Restated
£m £m £m
Staff costs (2,855) (32) (2,887)
Operating expenses (7,284) (32) (7,316)
Loss before impairment losses (28) (32) (60)
Operating profit before tax 293 (32) 261
Tax charge (293) 6 (287)
Loss from continuing operations - (26) (26)
Profit for the period 358 (26) 332
Loss attributable to ordinary shareholders (153) (26) (179)
The adjustment reduced basic and diluted earnings per ordinary share by 0.3p.
Consolidated statement of comprehensive income
Half year ended 30 June 2015
As previously
reported Adjustment Restated
£m £m £m
Profit for period 358 (26) 332
Gain on remeasurement of retirement benefit schemes - 17 17
Tax - (3) (3)
Total comprehensive loss after tax (826) (12) (838)
Consolidated statement of changes in equity
Half year ended 30 June 2015
As previously
reported Adjustment Restated
£m £m £m
Retained earnings
At beginning of period (2,518) (1,483) (4,001)
Loss attributable to ordinary shareholders and other equity owners - continuing operations (50) (26) (76)
Gain on remeasurement of retirement benefit schemes
- gross - 17 17
- tax - (3) (3)
At end of period (2,098) (1,495) (3,593)
Notes
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 pensions, 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 276 to 280 of
RBS's 2015 Annual Report and Accounts. The risk factors set out on pages 111 to 116 include new risk factors arising from
the UK's referendum on EU membership held on 23 June 2016.
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 2 to 108. The risk factors which could materially affect the Group's future results are
described on pages 111 to 116.
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 2016 have been prepared on a going concern basis.
2. Dividend Access Share
In March 2016, RBS completed the normalisation of its capital structure: the final dividend of £1.2 billion was paid in
respect of the Dividend Access Share (DAS) owned by the UK Government and the DAS re-designated a single B ordinary share
which was then cancelled.
3. Pensions
Result of triennial valuation
In June 2016, the triennial funding valuation of the Main Scheme of The Royal Bank of Scotland Group Pension Fund was
agreed which showed that the value of the liabilities exceeded the value of assets by £5.8 billion at 31 December 2015, a
ratio of 84%. To mitigate the anticipated deficit, RBS made a cash payment of £4.2 billion in March 2016. Investment
returns over the next 10 year period are forecast to absorb the £1.6 billion balance of the deficit. The average cost of
the future service of current members has increased from 27% to 35% of basic salary before contributions from those
members; it includes the expenses of running the scheme.
IFRS accounting
In accordance with RBS policy, a reduction of £1.0 billion in relation to the Main Scheme was charged to reserves,
including £529 million of the contribution of £4.2 billion made in March 2016 that is not permitted to be recognised as an
asset and the elimination of the asset ceiling recognised at 31 December 2015 as a result of the revised schedule of
contributions.
At 30 June 2016 the Main Scheme had an unrecognised aggregate surplus reflected by a ratio of assets to liabilities of
c120% under IAS 19 valuation principles. Following the 2015 change in accounting policy, the surplus cannot be recognised
as an asset because of the trustee's power to use surpluses to enhance member benefits but its existence limits the
exposure of the consolidated financial statements to changes in actuarial assumptions and asset values.
Notes
4. Analysis of income, expenses and impairment losses
Half year ended
30 June 30 June
2016 2015
£m £m
Loans and advances to customers 5,364 5,771
Loans and advances to banks 115 197
Debt securities 177 139
Interest receivable 5,656 6,107
Customer accounts 575 758
Deposits by banks 12 25
Debt securities in issue 298 412
Subordinated liabilities 442 442
Internal funding of trading businesses (4) 52
Interest payable 1,323 1,689
Net interest income 4,333 4,418
Fees and commissions receivable
- payment services 434 469
- credit and debit card fees 314 355
- lending (credit facilities) 516 559
- brokerage 86 161
- investment management 121 162
- trade finance 102 126
- other 103 126
Fees and commissions receivable 1,676 1,958
Fees and commissions payable (392) (363)
Net fees and commissions 1,284 1,595
Foreign exchange 570 378
Interest rate (628) 81
Credit (181) 220
Own credit adjustments 250 210
Other (28) (14)
Income from trading activities (2) (17) 875
Loss on redemption of own debt (130) -
Operating lease and other rental income 139 143
Changes in the fair value of own debt designated as at fair value through profit or loss
attributable to own credit risk 200 78
Other changes in the fair value of financial assets and liabilities designated as at fair
value through profit or loss and related derivatives (1) (90) 215
Changes in fair value of investment properties (9) (30)
Profit/(loss) on sale of securities 34 (11)
Profit on sale of property, plant and equipment 18 47
Profit/(loss) on sale of subsidiaries and associates 224 (48)
Loss on disposal or settlement of loans and receivables (14) (151)
Share of profits of associated entities 68 73
Other income 24 52
Other operating income 594 368
Total non-interest income 1,731 2,838
Total income 6,064 7,256
Notes:
(1) Fair value through profit and loss
(2) Income from trading activities arises in all segments, predominately CIB and Central items.
Notes
4. Analysis of income, expenses and impairment losses (continued)
Half year ended
30 June 30 June
2016 2015*
£m £m
Staff costs (2,695) (2,887)
Premises and equipment (652) (745)
Other (1) (2,139) (2,366)
Administrative expenses (5,486) (5,998)
Depreciation and amortisation (354) (712)
Write down of other intangible assets (89) (606)
Operating expenses (5,929) (7,316)
Loan impairment (losses)/releases (412) 431
Securities 3 (110)
Impairment (losses)/releases (409) 321
Note:
(1) Includes PPI costs, Interest Rate Hedging Products redress and related costs and litigation and conduct costs - see Note 5 for further details.
*Restated - refer to page 66 for further details
5. Provisions for liabilities and charges
Regulatory and legal actions
Other Litigation and
customer FX other Property
PPI IRHP redress investigations regulatory and other Total
£m £m £m (1) £m £m £m £m
At 1 January 2016 996 149 672 306 3,985 1,258 7,366
Transfer from accruals and other
liabilities - - - - - 19 19
Transfer - - 21 (35) 85 (71) -
Currency translation and other
movements - - - 10 126 28 164
Charge to income statement (2) - - 11 - 34 79 124
Releases to income statement (2) - - (8) - (1) (19) (28)
Provisions utilised (85) (41) (63) - (24) (69) (282)
At 31 March 2016 911 108 633 281 4,205 1,225 7,363
Transfer from accruals and other
liabilities - - 35 - 5 14 54
Transfer 50 - (50) - - - -
Currency translation and other
movements - - 8 23 336 20 387
Charge to income statement (2) 400 - 117 - 779 233 1,529
Releases to income statement (2) - - (5) - (12) (95) (112)
Provisions utilised (114) (30) (50) - (141) (146) (481)
At 30 June 2016 1,247 78 688 304 5,172 1,251 8,740
Notes:
(1) Closing provision primarily relates to investment advice, packaged accounts (including costs), and tracker mortgages.
(2) Relates to continuing operations.
Payment Protection Insurance (PPI)
H1 2016 the provision increased by £450 million including £50 million in relation to a minor policy revision and a charge
of £400 million in Q2 2016 in response to the FCA Consultation Paper 16/20 issued on 2 August 2016. The cumulative charge
in respect of PPI is £4.7 billion, of which £3.5 billion (74%) in redress and expenses had been utilised by 30 June 2016.
Of the £4.7 billion cumulative charge, £4.3 billion relates to redress and £0.4 billion to administrative expenses.
Notes
5. Provisions for liabilities and charges (continued)
The table below shows the sensitivity of the provision to changes in the principal assumptions (all other assumptions
remaining the same).
Sensitivity
Actual to date Current assumption Change in assumption Consequential change in provision
Assumption % £m
Single premium book past business review take-up rate 56% 56% +/-5 +/-55
Uphold rate (1) 90% 89% +/-5 +/-50
Average redress £1,687 £1,644 +/-5 +/-45
Note:
(1) Uphold rate excludes claims where no PPI policy was held.
Interest that will be payable on successful complaints has been included in the provision as has the estimated cost of
administration. There are uncertainties as to the eventual cost of redress which will depend on actual complaint volumes,
take-up and uphold rates and average redress costs. Assumptions related to these are inherently uncertain and the ultimate
financial impact may be different from the amount provided. We continue to monitor the position closely and refresh the
underlying assumptions. Background information in relation to PPI claims is given in Note 15.
Interest Rate Hedging Products (IRHP) redress and related costs
Following an industry-wide review conducted in conjunction with the Financial Services Authority (now being dealt with by
the Financial Conduct Authority (FCA)), RBS agreed to provide redress to customers in relation to certain interest rate
hedging products sold to small and medium-sized businesses classified as retail clients under FSA rules. We have now agreed
outcomes with the independent reviewer on all cases. We continue to monitor the level of provision given the remaining
uncertainties over the eventual cost of redress, including the cost of consequential loss claims.
Regulatory and legal actions
RBS is party to certain legal proceedings and regulatory and governmental investigations and continues to co-operate with a
number of regulators. All such matters are periodically reassessed with the assistance of external professional advisers,
where appropriate, to determine the likelihood of RBS incurring a liability and to evaluate the extent to which a reliable
estimate of any liability can be made. Additional charges of £0.9 billion in H1 2016 include actual and anticipated costs.
Notes
6. Loan impairment provisions and risk elements in lending
Operating loss is stated after net loan impairment losses from continuing operations of £412 million for H1 2016 (H1 2015 -
£431 million releases). The balance sheet loan impairment provisions decreased in H1 2016 from £7,119 million to £6,456
million and the movements thereon were:
Half year ended
30 June 30 June
2016 2015
£m £m
At beginning of period 7,119 17,500
Transfers to disposal groups - (20)
Currency translation and other adjustments 458 (678)
Amounts written-off (1,532) (5,615)
Recoveries of amounts previously written-off 57 79
Charges/(releases) to income statement
- continuing operations 412 (431)
Unwind of discount (recognised in interest income) (58) (84)
At end of period 6,456 10,751
As at 30 June 2016 there were no provisions for loans and advances to banks (30 June 2015 - £26 million).
Risk elements in lending (REIL) comprise impaired loans and accruing loans past due 90 days or more as to principal or
interest. Impaired loans are all loans (including loans subject to forbearance) for which an impairment provision has been
established; for collectively assessed loans, impairment loss provisions are not allocated to individual loans and the
entire portfolio is included in impaired loans. Accruing loans past due 90 days or more comprise loans past due 90 days
where no impairment loss is expected.
REIL decreased by £348 million in H1 2016 to £11,789 million and the movements thereon were:
Half year ended
30 June 2016 30 June 2015
£m £m
At beginning of period 12,137 26,884
Transfer to disposals groups - (22)
Currency translation and other adjustments 832 (1,191)
Additions 2,193 2,170
Transfers (1) (108) (121)
Transfer to performing book (519) (324)
Repayments and disposals (1,214) (4,327)
Amounts written-off (1,532) (5,615)
At end of period 11,789 17,454
Note:
(1) Represents transfers between REIL and potential problem loans.
Provision coverage of REIL was 55% at 30 June 2016 (30 June 2015 - 62%).
Notes
7. Tax
The actual tax charge differs from the expected tax credit/(charge) computed by applying the standard UK corporation tax
rate of 20.00% (H1 2015 - 20.25%), as analysed below.
Half year ended
30 June 30 June
2016 2015*
£m £m
(Loss)/profit before tax (274) 261
Expected tax credit/(charge) 55 (53)
Losses and temporary differences in period where no
deferred tax asset recognised (107) (369)
Foreign profits taxed at other rates 32 165
Unrecognised timing differences - (25)
Items not allowed for tax
- losses on disposals and write-downs (13) (9)
- UK bank levy (24) (28)
- regulatory and legal actions (216) (72)
- other disallowable items (45) (51)
Non-taxable items 59 37
Taxable foreign exchange movements (10) 12
Losses brought forward and utilised 6 57
Banking surcharge (86) -
Adjustments in respect of prior periods 9 49
Actual tax charge (340) (287)
*Restated - refer to page 66 for further details
At 30 June 2016, the Group has recognised a deferred tax asset of £2,217 million (31 December 2015 - £2,631 million) and a
deferred tax liability of £824 million (31 December 2015 - £882 million). These include amounts recognised in respect of UK
trading losses of £1,101 million (31 December 2015 - £1,122 million). Under UK tax legislation, these UK losses can be
carried forward indefinitely to be utilised against profits arising in the future. The Group has considered the carrying
value of this asset as at 30 June 2016 and concluded that it is recoverable based on future profit projections.
8. Profit attributable to non-controlling interests
Half year ended
30 June 30 June
2016 2015
£m £m
RFS Holdings BV Consortium Members 28 53
Citizens Financial Group - 290
Other 2 1
Profit attributable to non-controlling interests 30 344
9. Dividends
In the context of macro-prudential policy discussions, the Board decided to partially neutralise any impact on CET1 capital
of coupon and dividend payments for 2015 and 2016. £300 million of new equity was issued during the course of 2015 and £170
million of new equity has been issued in H1 2016. The Board intends to issue £300 million of new equity in total during
2016 to achieve this aim.
Notes
10. Earnings per ordinary share
Half year ended
30 June 30 June
2016 2015*
Earnings
Loss from continuing operations attributable to ordinary shareholders (£m) (2,045) (243)
Profit from discontinued operations attributable to ordinary shareholders (£m) - 64
Loss attributable to ordinary shareholders (£m) (2,045) (179)
Weighted average number of ordinary shares outstanding during the period (millions) (1) 11,639 11,481
Effect of dilutive share options and convertible securities (millions) 41 59
Diluted weighted average number of ordinary shares outstanding during the period (millions) 11,680 11,540
Basic loss per ordinary share from continuing operations (17.6p) (2.2p)
Restructuring costs 4.0p 10.9p
Litigation and conduct costs 11.3p 10.6p
Own credit adjustments (3.0p) (2.0p)
Loss on redemption of own debt 1.0p -
Strategic disposals (1.2p) 1.2p
Adjusted (loss)/earnings per ordinary share from continuing operations (5.5p) 18.5p
Basic loss per ordinary share from continuing and discontinued operations (17.6p) (1.6p)
Basic earnings per ordinary share from discontinued operations - 0.6p
*Restated - refer to page 66 for further details
Notes:
(1) H1 2015 includes the effect of 51 billion B shares that were converted to 5.1 billion ordinary shares in October 2015.
(2) Diluted loss per ordinary share was 0.1p lower than basic. There was no dilutive impact in the prior period.
Notes
11. Segmental analysis
The business is organised into the following franchises and reportable segments:
● Personal & Business Banking (PBB) which comprises two reportable segments: UK Personal & Business Banking (UK PBB) and Ulster Bank RoI.
● Commercial & Private Banking (CPB) which comprises three reportable segments: Commercial Banking, Private Banking and RBS International (RBSI).
● Corporate & Institutional Banking (CIB) which is a single reportable segment.
● Capital Resolution which consists of CIB non-strategic portfolios.
● Williams & Glyn (W&G) which is a single reportable segment.
● Central items & other which comprises corporate functions.
See Note 36 in the 2015 Annual Report and Accounts for further details of the segmental reorganisation completed in 2015.
Analysis of operating profit/(loss)
The following tables provide a segmental analysis of operating profit/(loss) by main income statement captions.
Net Non- Impairment
interest interest Total Operating (losses)/ Operating
income income income expenses releases profit/(loss)
Half year ended 30 June 2016 £m £m £m £m £m £m
UK Personal & Business Banking 2,109 506 2,615 (2,042) (40) 533
Ulster Bank RoI 198 95 293 (312) 27 8
Personal & Business Banking 2,307 601 2,908 (2,354) (13) 541
Commercial Banking 1,067 632 1,699 (984) (103) 612
Private Banking 226 105 331 (278) (2) 51
RBS International 151 34 185 (71) (11) 103
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