purchased intangibles amortisation and integration costs.
Edited Press Release
Sir Fred Goodwin, Group Chief Executive, said: "Some of the structuralheadwinds we have experienced in Retail Markets, Citizens and RBS Insurance havebegun to abate.
"The strength of our franchise coupled with the diversity of our incomestreams means the Group is well placed to compete as the market evolves.
"We remain confident of the Group's ability to continue to deliver sustainableorganic growth in income, profit and earnings per share."
Edited Press Release
Sir Fred Goodwin, Group Chief Executive, said: "Our Group has consistentlydemonstrated its ability to deliver organic growth in income, profit andearnings per share and we have done so once again in the first half of 2007,with a strong performance from our range of diversified businesses. Total incomerose to
"Income growth has been built on increasing customer activity across our corefranchises. Each of our divisions faces different market conditions, but acrossthe Group as a whole we have grown average customer deposits by 10% and lendingby 9%, demonstrating the resilience of our operating model. Adverse movements inexchange rates have affected not only Citizens but also Corporate Markets andWealth Management. In constant currency terms, we grew income by 10% andoperating profit by 13%.
"We have also expanded our product capabilities and broadened our geographicalfootprint, with excellent results from Corporate Markets, Wealth Management andUlster Bank. We have made particularly good progress in Asia, where we more thandoubled income, benefiting from the investments we are making in building ourfranchise.
"Income growth has been accompanied by good cost discipline. In the first halfthe Group cost:income ratio improved further to 41.4%. Our customer-facingdivisions have directed investment towards faster-growth opportunities whiletightly managing their direct costs. Our Manufacturing division heldinfrastructure and support cost growth to just 2% while supporting increasedbusiness volumes.
"Strong credit metrics highlight our conservative risk profile across theGroup, and impairment losses fell 2% to
"Many of our customers' homes have been damaged by the severe flooding theU.K. has experienced over the last two months, and we have been working hard toprocess their claims as quickly as possible and assist them at this difficulttime. This has, naturally, affected RBS Insurance's results, with June floodclaims estimated to have cost a net
"Adjusted earnings per share increased by 21% to 38.4 pence, driven by ourstrong operating performance, a reduction in the number of shares in issuefollowing last year's share buyback, and an effective tax rate of 25.4% in thefirst half of 2007. This tax rate includes the full impact on deferred tax ofthe change in the U.K. corporation tax rate from
"Adjusted return on equity improved to 19.6%, or to 18.7% excluding thedeferred tax reduction.
"These very good results endorse the strength of our business model andemphasise the importance of diversity in our sources of income. They alsoreflect the measured investments we have made over recent years to takeadvantage of growth opportunities across our businesses. In each of ourdivisions we have achieved good growth in core customer numbers, underpinningthese results and strengthening our franchise for the future.
"Our businesses have continued to balance volume growth against profitability,and we have maintained a more cautious approach towards a number of businesssegments in which we have not considered that the available returns matched thecosts and risks entailed. We have, therefore, further reduced our businessvolumes in markets such as direct loans, intermediary mortgages and insurancepartnerships, with a consequent improvement in profitability.
"Global Banking & Markets has produced another strong performance, as itsexpanding product set and broadening geographical footprint have yielded a 19%increase in operating profit, while U.K. Corporate Banking has maintained itsconsistently good pace of growth. Ulster Bank and Wealth Management, too, havekept up their momentum, and we are continuing to invest in these high-growthbusinesses.
"Retail Markets has continued to build its core current account franchise,providing the platform for strong growth in its savings and investmentsbusiness. Lending growth has been more subdued but our cautious credit stancehas produced a reduction in impairment losses, and this, together with flatunderlying costs, drove a 10% increase in operating profit.
"Citizens has increased its customer numbers by 5% and made significantprogress in its efforts to diversify its income streams away from itstraditional deposit products, with good growth in credit cards and merchantacquiring. That diversification has emphatically not included the sub-primecredit markets, and we have no regrets over our decision to avoid this segment.Average corporate lending increased by 12%, demonstrating the momentum we arebuilding towards our objective of developing a significant corporate andcommercial banking presence in the U.S. Operating profit rose by 2% in U.S.dollar terms.
"RBS Insurance has also performed well in the first half. Whilst its headlineoperating profit is lower, reflecting the
"We have managed our balance sheet carefully, generating capital to fund a 9%increase in risk-weighted assets since
"In line with our established policy, we will be paying an interim dividendequivalent to one third of the previous year's total dividend. Allowing for thebonus share issue in May, that equates to 10.1 pence per share, up 25%."
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