8th Jun 2005 07:23
Royal Bank of Scotland Group PLC8 June 2005 The following replaces the Trading Stmt/IFRS Report-Pt.1 announcement releasedtoday at 07:00 under RNS number 2833N. In Highlights, under "2004 Restatement - proforma (retrospective and prospective basis)" the basic earnings per share should read "an increase of around 10%". The full amended text appears below. PART 1 THE ROYAL BANK OF SCOTLAND GROUP PLC Pre-close Trading Update for the half year ending 30 June 2005 and IFRSTransition Report Highlights: Pre-close Trading Update • The Group continues to perform well in the first half of 2005 • Strong overall income growth • The Group's efficiency programme remains to plan to deliver previously stated benefits • Overall credit metrics expected to remain stable • The integrations of Churchill, First Active and Charter One remain fully on track • Underlying profit growth remains broadly consistent with the comparable period IFRS Transition Report 2004 IFRS restated results relative to UK GAAP: 2004 Restatement - retrospective basis • Income of £23,391 million, an increase of 3% • Profit before tax of £7,284 million, an increase of 5% • Basic adjusted earnings per share of 157.4p, an increase of 14% • Adjusted earnings per share of 170.2p, a reduction of 1% 2004 Restatement - proforma (retrospective and prospective basis) • Profit before tax, a reduction of around 5% • Basic earnings per share, an increase of around 10% • Adjusted earnings per share, a reduction of around 5% Pre-close Trading Update 8 June 2005 Introduction The Royal Bank of Scotland Group ('RBS') will be holding discussions withanalysts and investors ahead of its close period for the half year ending 30June 2005. This statement sets out the information that will be covered in thosediscussions. Attached to this statement are RBS statutory results for 2004 restated underInternational Financial Reporting Standards ('IFRS'). These reflect the IFRSstandards which are required to be applied to 2004. In addition, RBS results for 2005 will also be affected by IAS 32, IAS 39 andIFRS 4, which have been implemented from 1 January 2005. The comments in thisstatement are based on underlying trends as if IFRS had applied in full to ourresults for both 2004 and 2005. Proforma guidance on this basis is also includedin the attachment to this statement. Summary RBS has continued to perform well in the first half of 2005. Highlights of ourinterim results for 2005 are expected to include continued strong organic growthin income, stable overall credit metrics and the delivery of expected benefitsfrom recent acquisitions. Income and Margins Overall organic income growth remains strong, most notably in Citizens andCorporate Banking and Financial Markets, tempered by a lower rate of incomegrowth in our UK Retail Markets business. UK Retail Markets, comprising RetailBanking, Retail Direct and Wealth Management have, as anticipated at the time ofour 2004 results presentation in February, seen a degree of transition inconsumer behaviour away from unsecured lending which has reduced our growth inincome from this source. The impact upon the Group is however limited, asunsecured lending to UK consumers accounted for less than 10% of our income in2004. The Group's net interest margin is expected to be lower primarily as a result ofchanges in the business mix, including relatively strong growth in mortgages andlarge corporate lending, coupled with lower growth in unsecured personallending. Non-interest income has continued to grow, reflecting higher insurance premiumincome, higher corporate banking fee income and higher dealing profits. RBSInsurance has continued to increase its income, despite pressure on premiumpricing in motor insurance reflecting very competitive conditions. Expenses The Group's efficiency programme remains on track to deliver the anticipatedbenefits, and whilst the Group cost:income ratio will marginally increase inabsolute terms as a result of the application of IFRS and the acquisition ofCharter One, the underlying trajectory is comparable to that on a UK GAAP basis. Credit Quality and Provisions Overall credit metrics are expected to have remained stable. Total provisionsare expected to be higher than in 2004, but the increase is expected to be belowthe increase in average loans and advances. Provisions in UK Retail Markets haverisen, reflecting both growth in lending and increased credit card arrearswhich, whilst higher than the historically low levels seen in recent years,remain within normal parameters. Citizens' credit metrics remain strong, andCorporate Banking and Financial Markets provision charges are expected toreduce. Integration Activity The integrations of Churchill, First Active and Charter One remain fully ontrack. In each case important stages in the IT conversion have been completedsuccessfully and we remain confident that we shall be able to deliver theexpected transaction benefits. Profit Strong overall income growth, coupled with our cost:income ratio and stablecredit quality, is expected to produce underlying growth in profit before taxbroadly consistent with that reported for the comparable period last year. International Financial Reporting Standards Following resolution of the uncertainties surrounding the interpretation of IAS39 which we referred to at the time of our last IFRS update - in particular, inrelation to impairment and hedging - we estimate that the total impact on our2004 adjusted earnings per share (before goodwill amortisation and integrationcosts), had all IFRS applied, would have been a reduction of around 5% relativeto UK GAAP. We expect a similar impact on 2005 IFRS adjusted earnings per sharerelative to UK GAAP earnings. Sir Fred Goodwin, Group Chief Executive, commented: "The Group continues to make good progress and, while the adoption of IFRS willmake interpretation of the trends in results generally more challenging thisyear, the underlying strength of our business performance should be readilyapparent when we publish our interim results." CONTACTSSir Fred Goodwin Group Chief Executive 0131 523 2003Fred Watt Group Finance Director 0131 523 2028Richard O'Connor Head of Investor Relations 0131 523 5103 0207 672 1758For media enquiriesHoward Moody Group Director, Communications 0131 523 2056 This announcement contains forward looking statements, including such statementswithin the meaning of Section 27A of the US Securities Act of 1933 and Section21E of the Securities Exchange Act of 1934. These statements concern or mayaffect future matters, such as RBS's future economic results, business plans andstrategies, and are based upon the current expectations of the directors. Theyare subject to a number of risks and uncertainties that might cause actualresults and events to differ materially from the expectations expressed in theforward looking statements. Factors that could cause or contribute todifferences in current expectations include, but are not limited to, regulatorydevelopments, competitive conditions, technological developments and generaleconomic conditions. These factors risks and uncertainties are discussed inRBS's SEC filings, including, but not limited to, RBS's report on Form 6-Kcontaining this announcement and certain sections of RBS's Annual Report on Form20-F. Information in this announcement of the price at which investments havebeen bought or sold in the past or the yield on investments cannot be reliedupon as a guide to future performance. RBS assumes no responsibility to updateany of the forward looking statements contained in this announcement. CONTENTS Page SECTION 1 Introduction 2 Overview 3 SECTION 2 2004 Results Results summary 6 Financial review 7 Summary consolidated income statements 9 Consolidated balance sheets 11 Divisional performance 14 Corporate Banking and Financial Markets 15 Retail Banking 17 Retail Direct 19 Manufacturing 21 Wealth Management 23 RBS Insurance 25 Ulster Bank 27 Citizens 29 Central items 31 Analysis of IFRS adjustments 33 SECTION 3 2005 Results 42 IFRS consolidated opening balance sheet at 1 January 2005 44 Analysis of IFRS adjustments 45 Reconciliation of shareholders' funds 46 Regulatory ratios 47 SECTION 4 Bases of preparation of IFRS results 49 Provisional accounting policies 50 Significant differences between UK GAAP and IFRS 59 Tesco Personal Finance ('TPF') 65 Reports by the auditors 67 Forward-looking statements 70 Restatements 71 Contacts 74 INTRODUCTION In June 2002, the European Union ('the EU') adopted a regulation that requires,from 1 January 2005, listed companies to prepare their consolidated financialstatements in accordance with International Financial Reporting Standards ('IFRS') adopted by the EU. As part of the process of moving to reporting under IFRS the Group is requiredto restate statutory comparative figures for 2004 on the basis only of thestandards applicable at that time. Section 2 of this document contains suchrestatement of the 2004 results and the auditors' report thereon is set out on page 67. A number of significant new standards are to be applied with prospective effectfrom 1 January 2005, and to facilitate comparisons with our 2005 results in duecourse, an overview of the impact on our 2004 results on a proforma basis of allnew standards is included on pages 3 and 4. Sections 3 and 4 of the document provide further analysis of the impact of IAS32, IAS 39 and IFRS 4 and of the provisional accounting policies of the Groupunder IFRS together with an explanation of the differences between UK GAAP andIFRS accounting policies. The UK GAAP data included in this announcement are as published by the Group inrespect of its interim and full year 2004 results save for restatements ofdivisional results reflecting the transfer of businesses between divisions andthe reallocation of pension costs to divisions from the Group Centre. These haveno effect on the Group's results. The information in this announcement is based on IFRS expected to be applicableat 31 December 2005. IFRS currently in issue, and adopted by the EU, are subjectto interpretation issued from time to time by the International FinancialReporting Interpretation Committee. Further IFRS or interpretations may beissued during 2005, which may also be applicable for 2005. In addition, asmarket practice develops in respect of IFRS, alternative interpretations andapplications of IFRS may result. OVERVIEW OF THE IMPACT OF IFRS The following provides an overview of the impact of all IFRS on the reportedresults of the Group on a proforma basis. RESULTS Income, expenses and impairment are affected by rules on recognition and timingthat are different to those followed under UK GAAP. While these do not changethe economics or cash flows of a transaction, they affect the level of reportedoperating profit (profit before goodwill and integration costs), profit beforetax and earnings per share in any single period. In addition, within the income statement, certain items are now reported on adifferent line to that under UK GAAP. For example, the coupon payment on themajority of the Group's preference shares, which are tier one capitalinstruments, now appear "above the line" within interest paid in net interestincome. While this will reduce reported operating profit and profit before tax,it has no effect on earnings per share. Similarly, goodwill is no longer amortised. This increases reported profitbefore tax and basic earnings per share but has no impact on operating profitand adjusted earnings per share. The Group has for many years excluded goodwillamortisation from both of these measures. The estimated impact of the full implementation of IFRS (retrospective andprospective adjustments) on reported measures, subject to any further changes tothe standards or their interpretation, is as follows: Adjusted earnings per share - a reduction of around 5% from that reported underUK GAAP, representing the application of the new rules on recognition andtiming. Basic earnings per share - an increase of around 10% with the impact ofrecognition and timing more than offset by goodwill no longer being amortised. Profit before tax - a reduction of around 5%, representing the impact of theitems affecting operating profit (above) in part offset by goodwill no longerbeing amortised. BALANCE SHEET Application of IFRS also affects the reported balance sheet of the Group. Inaddition new regulatory treatments apply to the calculation of Tier 1 and TotalCapital. As a result of the restatement of the Group's 2004 results under IFRS and withthe impact of IAS 32, IAS 39 and IFRS 4 also included, the effect onshareholders' funds and regulatory capital of the Group is as follows: Regulatory Capital Ratios Shareholders' Tier 1 Total Funds Capital CapitalReported under UK GAAP £31.9bn 7.0% 11.7% At 31 December 2004 Reported under IFRS £29.9bn 6.7% 11.6% At 1 January 2005 The analysis of the impact on shareholders' funds is shown on page 46; ananalysis of and the movement on capital ratios is shown on page 47. SECTION 2 2004 Results The financial information on pages 6 to 40 includes retrospective adjustmentsonly and does not reflect the effects of IAS 32, IAS 39 and IFRS 4. RESULTS SUMMARY Year ended 31 December 2004 Half year ended 30 June 2004 IFRS UK GAAP IFRS UK GAAP £m £m £m £m Total income 23,391 22,754 11,192 10,964 _______ _______ ______ _______Operating expenses* 9,797 9,662 4,697 4,639 _______ _______ ______ _______Operating profit before provisions* 9,334 9,612 4,505 4,602 _______ _______ _______ _______Profit before tax, intangibles amortisation 7,849 3,767 3,851 and integration costs 8,101 _______ _______ _______ _______Intangibles amortisation 45 915 4 413 _______ _______ _______ _______Integration costs 520 269 178 57 _______ _______ _______ _______Profit before tax 7,284 6,917 3,585 3,381 _______ _______ _______ _______Cost:income ratio** 40.0% 40.8% 40.1% 40.6% _______ _______ _______ _______Basic earnings per ordinary share 157.4p 138.0p 79.7p 69.9p _______ _______ ______ _______Adjusted earnings per ordinary share*** 170.2p 172.5p 83.9p 84.4p _______ _______ _______ _______ * excluding intangibles amortisation and integration costs. ** the cost:income ratio is based on operating expenses excluding amortisation of purchased intangibles and integration costs, and after netting operating lease depreciation against rental income. *** adjusted earnings per ordinary share is based on earnings adjusted for amortisation of purchased intangibles and integration costs. The IFRS results shown above exclude the effects of IAS 32, IAS 39 and IFRS 4. FINANCIAL REVIEW The Group's 2004 results have been prepared in accordance with IFRS. Aspermitted by IFRS 1, they do not reflect the effects of IAS 32, IAS 39 and IFRS4. The commentary set out below explains the effect of IFRS as applied on aretrospective basis to the full year 2004 results. Income Total income was £23,391 million, an increase of £637 million, 3% compared with£22,754 million under UK GAAP. Income in Retail Banking benefited by £798million from the consolidation of the life assurance business on a line-by-linebasis rather than the recognition of the change in embedded value as a singleamount in other operating income. Insurance net premium income in RBS Insuranceincreased by £109 million due to proportional consolidation of Linea Directa,our joint venture in Spain. These were partially offset by a reduction in incomedue to the fact that TPF is proportionately consolidated under IFRS, and thetransfer of the net return on pension fund to operating expenses. Operating expenses Operating expenses, excluding amortisation of purchased intangibles andintegration costs, were £9,797 million, 1% or £135 million higher than under UKGAAP. The increase was principally due to operating expenses of the lifeassurance business (£106 million), share based payments (£36 million),amortisation of capitalised software development costs (£27 million) and leasing(£49 million). These were partially offset by the reduction in pension costsreflecting the net return on pension fund. Claims Under IFRS, net insurance claims were £780 million or 22% higher at £4,260million, reflecting the line-by-line consolidation of the life assurancebusiness and the proportional consolidation of Linea Directa. Provisions Provisions were £1,485 million, £26 million, 2% lower due to the proportionalconsolidation of TPF. Purchased intangibles amortisation The amortisation of intangible assets was £870 million lower at £45 million.Under IFRS goodwill is not amortised; instead it is tested annually forimpairment. The Group's purchased intangible assets include core depositintangibles and mortgage servicing rights. These are being amortised over theirexpected economic lives. Integration costs Integration costs at £520 million were £251 million higher than reported underUK GAAP. The increase reflects the amortisation of capitalised softwaredeveloped in respect of the integration of NatWest. Under IFRS, the costs ofinternally developed software are capitalised and amortised over their usefuleconomic life; under the Group's UK GAAP accounting policy these costs werewritten off as incurred. The total integration costs relating to the acquisitionof NatWest are unchanged. The change in accounting policy on software under IFRSresults in such costs being recognised in different accounting periods thanunder UK GAAP. Profit Profit before tax was £7,284 million, £367 million, 5% higher than £6,917million reported under UK GAAP. This reflects the fact that although profitbefore tax, intangibles amortisation and integration costs was 3%, £252 millionlower at £7,849 million, this reduction is more than offset by non amortisationof goodwill. FINANCIAL REVIEW (continued) Earnings and dividends Basic earnings per ordinary share were 157.4p compared with 138.0p under UKGAAP. The increase of 14% or 19.4p per ordinary share is mainly due tonon-amortisation of goodwill. Earnings per share adjusted for the amortisationof purchased intangibles and integration costs were 1% or 2.3p per ordinaryshare lower at 170.2p compared with 172.5p reflecting the impact of theretrospective adjustments on recognition and timing described above. The appropriation for ordinary dividends was £249 million less than under UKGAAP. Under IFRS, dividends are recognised only when paid or approved byshareholders. Balance sheet Total assets at 31 December 2004 increased by £4.7 billion under IFRS,principally as a result of the consolidation of special purpose entitiesestablished to facilitate customer transactions (£5.0 billion), thenon-amortisation of goodwill (£0.9 billion) and the capitalisation of softwaredevelopment costs (£0.6 billion) partially offset by the proportionateconsolidation of TPF (£1.4 billion) and a reduction of £0.3 billion due to thechanges in accounting for operating and finance leases. Note The information in this announcement is based on IFRS expected to be applicableat 31 December 2005. Further IFRS or interpretations may be issued during 2005,which may also be applicable for 2005. In addition, as market practice developsin respect of IFRS, alternative interpretations and applications of IFRS mayresult. SUMMARY CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 UK GAAP Effect IFRS of IFRS £m £m £m Net interest income 9,208 (137) 9,071 _______ _______ _______Non-interest income (excluding insurance premium income) 8,602 71 8,673Insurance net premium income 4,944 703 5,647 _______ _______ _______Non-interest income 13,546 774 14,320 _______ _______ _______Total income 22,754 637 23,391Operating expenses 9,662 135 9,797 _______ _______ _______Profit before other operating charges 13,092 502 13,594Insurance net claims 3,480 780 4,260 _______ _______ _______Operating profit before provisions 9,612 (278) 9,334Provisions 1,511 (26) 1,485 _______ _______ _______Profit before tax, intangible assets amortisation 8,101 (252) 7,849 and integration costsAmortisation of purchased intangible assets 915 (870) 45Integration costs 269 251 520 _______ _______ _______Profit on ordinary activities before tax 6,917 367 7,284Tax on profit on ordinary activities 2,155 (160) 1,995 _______ _______ _______Profit for period 4,762 527 5,289Minority interests (250) 73 (177)Preference dividends (256) - (256) _______ _______ _______Profit attributable to ordinary shareholders 4,256 600 4,856 _______ _______ _______ Ordinary dividends 1,837 (249) 1,588 _______ _______ _______ Basic earnings per ordinary share (Note 1 on page 40) 138.0p 19.4p 157.4p _______ _______ _______ Adjusted earnings per ordinary share (Note 1 on page 40) 172.5p (2.3p) 170.2p _______ _______ _______ The IFRS adjustments excluding IAS 32, IAS 39 and IFRS 4 are analysed on page33. SUMMARY CONSOLIDATED INCOME STATEMENT FOR THE HALF YEAR ENDED 30 JUNE 2004 (unaudited) UK GAAP Effect IFRS of IFRS £m £m £m Net interest income 4,378 (67) 4,311 _______ _______ _______Non-interest income (excluding insurance premium income) 4,170 5 4,175Insurance net premium income 2,416 290 2,706 _______ _______ _______Non-interest income 6,586 295 6,881 _______ _______ _______Total income 10,964 228 11,192Operating expenses 4,639 58 4,697 _______ _______ _______Profit before other operating charges 6,325 170 6,495Insurance net claims 1,723 267 1,990 _______ _______ _______Operating profit before provisions 4,602 (97) 4,505Provisions 751 (13) 738 _______ _______ _______Profit before tax, intangible assets amortisation 3,851 (84) 3,767 and integration costsAmortisation of purchased intangible assets 413 (409) 4Integration costs 57 121 178 _______ _______ _______Profit on ordinary activities before tax 3,381 204 3,585Tax on profit on ordinary activities 1,048 (61) 987 _______ _______ _______Profit for period 2,333 265 2,598Minority interests (111) 30 (81)Preference dividends (116) - (116) _______ _______ _______Profit attributable to ordinary shareholders 2,106 295 2,401 _______ _______ _______ Ordinary dividends 529 530 1,059 _______ _______ _______ Basic earnings per ordinary share (Note 1 on page 40) 69.9p 9.8p 79.7p _______ _______ _______ Adjusted earnings per ordinary share (Note 1 on page 40) 84.4p (0.5p) 83.9p _______ _______ _______ The IFRS adjustments excluding IAS 32, IAS 39 and IFRS 4 are analysed on page34. CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2004 UK GAAP Effect IFRS of IFRS £m £m £mAssetsCash and balances at central banks 4,293 - 4,293Items in the course of collection from other banks 2,629 - 2,629Treasury bills and other eligible bills 6,110 - 6,110Loans and advances to banks 58,260 184 58,444Loans and advances to customers 345,469 1,782 347,251Debt securities 91,211 2,697 93,908Equity shares 2,960 1,763 4,723Intangible fixed assets 17,576 1,666 19,242Property, plant and equipment 16,294 134 16,428Settlement balances 5,682 - 5,682Other assets 22,255 183 22,438Prepayments and accrued income 6,928 46 6,974Long-term assurance assets 3,800 (3,800) - _______ _______ _______Total assets 583,467 4,655 588,122 _______ _______ _______ LiabilitiesDeposits by banks 99,081 - 99,081Items in the course of transmission to other banks 802 - 802Customer accounts 285,062 (1,747) 283,315Debt securities in issue 58,960 5,039 63,999Settlement balances and short positions 32,990 - 32,990Other liabilities 26,152 (1,368) 24,784Accruals and deferred income 15,588 459 16,047Post-retirement benefit liabilities 1,901 1,039 2,940Provisions for liabilities and charges- deferred taxation liabilities 2,873 (812) 2,061- other provisions 198 4,142 4,340Subordinated liabilities 20,366 - 20,366Minority interests 3,829 (337) 3,492Shareholders' funds 31,865 2,040 33,905Long-term assurance liabilities 3,800 (3,800) - _______ _______ _______Total liabilities 583,467 4,655 588,122 _______ _______ _______ The IFRS adjustments excluding IAS 32, IAS 39 and IFRS 4 are analysed on page37. CONSOLIDATED BALANCE SHEET AT 30 JUNE 2004 (unaudited) UK GAAP Effect IFRS of IFRS £m £m £mAssetsCash and balances at central banks 3,140 17 3,157Items in the course of collection from other banks 3,149 - 3,149Treasury bills and other eligible bills 6,902 - 6,902Loans and advances to banks 60,152 191 60,343Loans and advances to customers 290,154 1,451 291,605Debt securities 89,813 2,211 92,024Equity shares 2,315 1,695 4,010Intangible fixed assets 13,589 1,231 14,820Property, plant and equipment 14,866 243 15,109Settlement balances 10,288 - 10,288Other assets 14,424 233 14,657Prepayments and accrued income 5,943 41 5,984Long-term assurance assets 3,531 (3,531) - _______ _______ _______Total assets 518,266 3,782 522,048 _______ _______ _______ LiabilitiesDeposits by banks 84,120 3 84,123Items in the course of transmission to other banks 996 - 996Customer accounts 253,949 (1,585) 252,364Debt securities in issue 51,721 3,838 55,559Settlement balances and short positions 38,058 - 38,058Other liabilities 17,301 76 17,377Accruals and deferred income 13,862 237 14,099Post-retirement benefit liabilities 1,490 618 2,108Provisions for liabilities and charges- deferred taxation liabilities 2,097 (359) 1,738- other provisions 217 3,818 4,035Subordinated liabilities 17,832 - 17,832Minority interests 2,685 (348) 2,337Shareholders' funds 30,407 1,015 31,422Long-term assurance liabilities 3,531 (3,531) - _______ _______ _______Total liabilities 518,266 3,782 522,048 _______ _______ _______ The IFRS adjustments excluding IAS 32, IAS 39 and IFRS 4 are analysed on page38. CONSOLIDATED OPENING BALANCE SHEET AT 1 JANUARY 2004 UK GAAP Effect IFRS of IFRS £m £m £mAssetsCash and balances at central banks 3,822 - 3,822Items in the course of collection from other banks 2,501 - 2,501Treasury bills and other eligible bills 4,846 - 4,846Loans and advances to banks 51,891 1,011 52,902Loans and advances to customers 252,531 662 253,193Debt securities 79,949 1,199 81,148Equity shares 2,300 1,745 4,045Intangible fixed assets 13,131 896 14,027Property, plant and equipment 13,927 320 14,247Settlement balances 2,857 - 2,857Other assets 17,807 247 18,054Prepayments and accrued income 5,309 32 5,341Long-term assurance assets 3,557 (3,557) - _______ _______ _______Total assets 454,428 2,555 456,983 _______ _______ _______ LiabilitiesDeposits by banks 67,323 - 67,323Items in the course of transmission to other banks 958 - 958Customer accounts 236,963 (1,497) 235,466Debt securities in issue 41,016 3,129 44,145Settlement balances and short positions 21,369 - 21,369Other liabilities 20,584 (1,019) 19,565Accruals and deferred income 13,155 404 13,559Post-retirement benefit liabilities 1,445 591 2,036Provisions for liabilities and charges- deferred taxation liabilities 2,036 (300) 1,736- other provisions 213 3,882 4,095Subordinated liabilities 16,998 - 16,998Minority interests 2,713 (321) 2,392Shareholders' funds 26,098 1,243 27,341Long-term assurance liabilities 3,557 (3,557) - _______ _______ _______Total liabilities 454,428 2,555 456,983 _______ _______ _______ The IFRS adjustments excluding IAS 32, IAS 39 and IFRS 4 are analysed on page39. DIVISIONAL PERFORMANCE The contribution of each division before amortisation of purchased intangiblesand integration costs and, where appropriate, Manufacturing costs is detailedbelow.Year ended 31 December 2004 UK GAAP Effect IFRS of IFRS £m £m £m Corporate Banking and Financial Markets 4,350 (106) 4,244Retail Banking 3,220 (8) 3,212Retail Direct 964 (115) 849Manufacturing (2,546) 27 (2,519)Wealth Management 374 (17) 357RBS Insurance 862 1 863Ulster Bank 450 (2) 448Citizens 1,061 - 1,061Central items (634) (32) (666) _______ _______ _______Profit before amortisation of purchased intangibles 8,101 (252) 7,849 and integration costs _______ _______ _______ Half year ended 30 June 2004 (unaudited) UK GAAP Effect of IFRS IFRS £m £m £m Corporate Banking and Financial Markets 2,081 (19) 2,062Retail Banking 1,613 (13) 1,600Retail Direct 447 (44) 403Manufacturing (1,227) 16 (1,211)Wealth Management 188 (5) 183RBS Insurance 395 (1) 394Ulster Bank 212 (1) 211Citizens 430 - 430Central items (288) (17) (305) _______ _______ _______Profit before amortisation of purchased intangibles 3,851 (84) 3,767 and integration costs _______ _______ _______ As set out on pages 71 to 73, 2004 results have been restated to reflect thetransfers of businesses between divisions. CORPORATE BANKING AND FINANCIAL MARKETSYear ended 31 December 2004 (unaudited) UK GAAP Effect IFRS of IFRS £m £m £m Net interest income excluding funding cost of rental assets 3,040 (41) 2,999Funding cost of rental assets (414) - (414) _______ _______ _______Net interest income 2,626 (41) 2,585 _______ _______ _______Fees and commissions receivable 1,762 (25) 1,737Fees and commissions payable (277) 23 (254)Dealing profits (before associated direct costs) 1,895 - 1,895Income on rental assets 1,282 - 1,282Other operating income 381 55 436 _______ _______ _______Non-interest income 5,043 53 5,096 _______ _______ _______Total income 7,669 12 7,681 _______ _______ _______Direct expenses- staff costs 1,708 5 1,713- other 421 40 461- operating lease depreciation 610 73 683 _______ _______ _______ 2,739 118 2,857 _______ _______ _______Contribution before provisions 4,930 (106) 4,824Provisions 580 - 580 _______ _______ _______Contribution 4,350 (106) 4,244 _______ _______ _______ Contribution at £4,244 million, is £106 million or 2% lower than under UK GAAP.The reduction principally reflects the changes in accounting for finance andoperating leases, fees eliminated on consolidation of special purpose entitiesand the timing difference created by amortisation of internally developedsoftware which was previously written off as incurred under the Group's UK GAAPaccounting policy. CORPORATE BANKING AND FINANCIAL MARKETSHalf year ended 30 June 2004 (unaudited) UK GAAP Effect IFRS of IFRS £m £m £m Net interest income excluding funding cost of rental assets 1,465 (18) 1,447Funding cost of rental assets (197) - (197) _______ _______ _______Net interest income 1,268 (18) 1,250 _______ _______ _______Fees and commissions receivable 825 - 825Fees and commissions payable (137) 11 (126)Dealing profits (before associated direct costs) 1,025 - 1,025Income on rental assets 618 - 618Other operating income 160 31 191 _______ _______ _______Non-interest income 2,491 42 2,533 _______ _______ _______Total income 3,759 24 3,783 _______ _______ _______Direct expenses- staff costs 846 (16) 830- other 214 19 233- operating lease depreciation 303 40 343 _______ _______ _______ 1,363 43 1,406 _______ _______ _______Contribution before provisions 2,396 (19) 2,377Provisions 315 - 315 _______ _______ _______Contribution 2,081 (19) 2,062 _______ _______ _______ RETAIL BANKINGYear ended 31 December 2004 (unaudited) UK GAAP Effect IFRS of IFRS £m £m £m Net interest income 3,123 (47) 3,076Insurance net premium income - 594 594Other non-interest income 1,657 252 1,909 _______ _______ _______Total income 4,780 799 5,579 _______ _______ _______Direct expenses- staff costs 910 54 964- other 261 51 312 _______ _______ _______ 1,171 105 1,276 _______ _______ _______Insurance net claims - 702 702 _______ _______ _______Contribution before provisions 3,609 (8) 3,601Provisions 389 - 389 _______ _______ _______Contribution 3,220 (8) 3,212 _______ _______ _______ Contribution at £3,212 million is £8 million lower. Virtually all of the IFRS adjustments arise from the consolidation of the lifeassurance business on a line-by-line basis. As a result, net interest incomedecreased by £47 million and non-interest income increased by £846 million.Staff costs and other costs increased by £54 million and £51 millionrespectively. Insurance net claims, which represent payments under assuranceRelated Shares:
RBS.L