RBS 2006 Annual Report Download - page 5

RBS Group • Annual Report and Accounts 2006
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Chairman’s statement
In 2006, the Group once again demonstrated
its inherent strength and breadth, achieving
impressive growth and capital generation enabling
us to increase the dividend by 25% and raise our
payout ratio to 45%.
At last year’s AGM, Sir George Mathewson stood down as
Chairman and the Board appointed me as his successor.
George’s 18 years at the helm of RBS, as Group Chief
Executive and latterly Chairman, marked an extraordinary
period of growth and success. I thank him for the fine
legacy he provided and for all the help he gave me in
ensuring a smooth and easy transition.
Over the last year I have travelled widely across the Group,
meeting many employees, customers and shareholders in
Europe, the US and across the Asia Pacific region. I have
been deeply impressed with the RBS people I have met
and have found our businesses to be in good health,
continuing to grow strongly and making significant impact
in their respective markets.
Financial performance and use of capital
In 2006 the Group operating profit increased by 14% to
£9,414 million (2005 – £8,251 million). Total income grew
by 10% to £28,002 million (2005 – £25,569 million), while
operating expenses grew by just 8% to £12,252 million
(2005 – £11,298 million).
Impressive profit growth in 2006 coupled with increased
distribution, which helped minimise the capital required
to support origination, enabled us to be strongly capital
generative. As a consequence, the Board is recommending
raising the total dividend by 25%, which raises the payout
ratio to 45%. In addition, we completed the repurchase of
£1 billion of shares announced last year. Our adjusted
return on equity increased to 19.0% from 18.2% in 2005,
and our total shareholder return in 2006 was 18%, in line
with the average over the last decade.
Bonus share issue
The company’s shares traded at an average price of
£18.09 over the course of 2006 and have moved higher
since. This is significantly above the average share price
of companies trading on the London Stock Exchange
and we believe that many shareholders prefer to deal
in shares with a lower price per share, more in line with
the average. We therefore propose to adjust the price
per share by a bonus issue of two new ordinary shares
of 25p for each ordinary share held.
Staff profit sharing
This is the ninth successive year we have announced
a profit share of 10% of salary for all eligible employees,
in addition to performance bonuses. On behalf of the
Board, I would like to express my warm thanks to our
people for all they have done to deliver our success.
Board of directors
I would also like to thank my Board colleagues for their
commitment and support during 2006.
The economy and environment
In general, we have enjoyed benign economic conditions
which have proved favourable to our businesses, though
there have been and will continue to be challenges.
The Group is well positioned for growth in all its geographies
and invested £2.8 billion in infrastructure in 2006 to support
our growth ambitions.
In the UK there has been much debate about the retail
banking model. Studies have shown that the UK has one
of the most efficient and competitive banking services
in the world, offering excellent value to customers overall.
With the largest branch network and the highest customer
satisfaction scores amongst our peers we are confident
that we will be able to respond effectively to any changes
which may occur in the marketplace.
The environment has appropriately become the focus of
much attention. I am pleased to say that with our adoption
of the revised Equator Principles and our approach to
sustainability in all we do, RBS has established a fine
reputation as a responsibly managed company.
I have been proud to serve as your Chairman in 2006 and
look forward to the continuing progress of The Royal Bank
of Scotland Group.
Sir Tom McKillop
Chairman
Chairman’s statement