RBS 2005 Annual Report Download - page 9

Group review
07
Our results for 2005 demonstrate the
strength and momentum of the Group
and the capabilities of our diverse
business platform. We increased our
total income by 14% and held our
cost:income ratio, before acquisitions,
steady at 41.8%. Group operating profit
increased by 16% to £8,251 million.
All our divisions increased their income
and contribution to Group profit.
We are particularly pleased with the geographic mix of our
profits, 42% of which came from our international operations.
Our profits in Europe, outside the UK, have grown to be equal
to Citizens’ profits before the acquisition of Charter One. The
majority of this growth is organic. Strong organic income
growth has been a recurring theme of our results over recent
years and provided over 70% of our increase in 2005.
During the course of the year we established Retail Markets
in order to strengthen the co-ordination and delivery of our
multi-brand retail strategy. At the beginning of 2006 the former
Corporate Banking & Financial Markets division was renamed
Corporate Markets and we reorganised our activities into two
businesses, UK Corporate Banking and Global Banking &
Markets, to enhance our ability to serve the needs of these
distinct customer segments.
Bank of China
In August 2005 we signed strategic investment and co-
operation agreements with Bank of China, the second largest
bank in China. Following regulatory approvals, the transaction
was completed in December. RBS led a consortium that
invested $3.1 billion, taking a 10% stake in Bank of China.
We have ourselves invested $1.6 billion, financed by the
sale of our shares in Banco Santander Central Hispano S.A.
We are working closely with Bank of China to develop
business co-operation initiatives in areas such as credit
cards, wealth management and corporate banking. We are
also supporting Bank of China in key infrastructure areas,
including risk and financial management, human resources
and information technology.
Our customers
Customer numbers increased in all our divisions, with The
Royal Bank of Scotland securing top position amongst the high
street banks for personal customer satisfaction and NatWest
moving into joint second position. This result reflects our
investment in our branches and our people to support them,
and improved access through a wide choice of channels.
Our people
In the 2005 Employee Opinion Survey the Group improved its
score in each of the 14 categories surveyed. At 86%, response
to the 2005 Employee Opinion Survey was even higher than
previously. We have launched new initiatives to encourage
innovation and leadership. Our new Business School and
programmes developed in conjunction with Harvard Business
School are helping to develop the vision and quality of
management that the Group will need in challenging markets
in the future.
Our shareholders
Strong earnings and capital generation strengthened our
Tier 1 capital ratio to 7.6% at the end of 2005 and our total
capital ratio to 11.7%. We are committed to capital strength
and efficiency, returning capital to our shareholders both
through increasing dividends and when appropriate via share
buybacks. This year the Board proposed a 25% increase in our
dividend to 72.5p per share, representing an increased payout
ratio of 41%. In addition, we intend to repurchase up to £1
billion of our shares over the next 12 months.
Sir George Mathewson
George Mathewson will retire as the Group's Chairman at the
Annual General Meeting. Under his leadership, initially as
Group Chief Executive, RBS has enjoyed an unparalleled
period of growth and success both at home and internationally.
Very few can match his 18-year legacy of consistently increasing
value generation. Personally and on behalf of his colleagues,
I would like to thank George for his outstanding contribution.
Outlook
Whilst displaying both opportunities and threats, the economic
outlook for 2006 in all of the major economies in which we
operate would appear to be supportive of the continued
momentum of the Group. We believe that we have built a
strong platform for future growth with a diverse range of
opportunities in a number of geographies, and taken together
with our strong capital base, continuing good credit metrics,
and firm cost control, we remain optimistic about the future
prospects of the Group.
Sir Fred Goodwin, Group Chief Executive
2005