RBS 2012 Annual Report Download - page 40

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Presentation of information continued
Managed results
The financial information on a managed basis, prepared using the
Group’s accounting policies, shows the underlying performance of the
Group which excludes certain one-off and other items. This information is
provided in this form to give a better understanding of the results of the
Group’s operations. Consistent with the manner in which the Group is
managed, Group operating profit on a managed basis excludes:
x own credit adjustments;
x Asset Protection Scheme;
x Payment Protection Insurance (PPI) costs;
x Interest Rate Hedging Products redress and related costs;
x regulatory fines;
x sovereign debt impairment;
x interest rate hedge adjustments on impaired available-for-sale
sovereign debt;
x amortisation of purchased intangible assets;
x integration and restructuring costs;
x gain on redemption of own debt;
x strategic disposals;
x bank levy;
x bonus tax;
x write-down of goodwill and other intangible assets; and
x RFS Holdings minority interest (RFS MI)
and includes the results of Direct Line Group on a managed basis, which
are included in discontinued operations in the statutory results.
Divisional reorganisation and Group reporting changes
Comparative data have been restated to reflect the divisional
reorganisation (see page 40) and certain Group reporting changes (see
below) during 2012.
Revised allocation of Group Treasury costs
The Group revised its allocation of funding and liquidity costs and capital.
The new methodology is designed to ensure that the allocated costs
more fully reflect the funding used by each division.
Divisional return on equity ratios
Notional divisional equity is calculated as a percentage of the monthly
average of divisional risk-weighted assets, adjusted for capital
deductions. In 2012, 10% was used for both the Retail & Commercial
divisions (2011 - 9%) and Markets division (Global Banking & Markets,
2011 - 10%).
Fair value of own debt and derivative liabilities
The Group had previously excluded changes in the fair value of own debt
(FVOD) in presenting the underlying performance of the Group on a
managed basis given it is a volatile non-cash item. To better align our
managed view of performance, movements in the fair value of own
derivative liabilities, previously incorporated within Markets operating
performance, are now combined with movements in FVOD in a single
measure, ‘Own Credit Adjustments’. As a result, Group and Markets
operating results on a managed basis have been adjusted to reflect this
change which does not affect profit/(loss) before and after tax.
Statutory results
The statutory results of the Group include the one-off and other items in
the appropriate captions in the income statement.
Reconciliations between managed and statutory results are detailed on
pages 102 to 104.
Disposal groups
Since 2011, the assets and liabilities relating to the RBS England and
Wales and NatWest Scotland branch-based businesses, along with
certain SME and corporate activities across the UK (‘UK branch-based
businesses’), were classified within Disposal groups. Santander's
withdrawal from the sale in October 2012 has led the Group to conclude
that a sale within 12 months is unlikely; accordingly the balance sheet at
31 December 2012 does not classify the assets and liabilities of the UK
branch-based businesses within Disposal groups. IFRS 5 ‘Non-current
Assets Held for Sale and Discontinued Operations’ does not permit
restatement on reclassification.
Discontinued operations
The Group sold the first tranche (34.7%) of the share capital of Direct
Line Insurance Group plc (DLG) in October 2012 via an Initial Public
Offering (IPO), consistent with the plan to cede control by the end of
2013. In accordance with IFRS 5, DLG has been recognised as a
discontinued operation with consequent changes to the presentation of
comparative information. The assets and liabilities relating to DLG are
included in Disposal groups as at 31 December 2012.
Share consolidation
Following approval at the Group’s Annual General Meeting on 30 May
2012, the sub-division and consolidation of the Group’s ordinary shares
on a one-for-ten basis took effect on 6 June 2012. Consequently, prior
year disclosures relating to or affected by numbers of ordinary shares or
share price have been restated.
Glossary
A glossary of terms is provided on pages 528 to 535.