RNS Number:9796H
Abbey National PLC
26 February 2003
PART 3
6. APPENDICES: SUPPLEMENTARY INFORMATION
Appendix 1: Financial statements for the year ended 31 December 2002
Consolidated profit and loss account
31 December 31 December 31 December
2002 2001 2000
# m # m # m
___________ ___________ ___________
Net interest income 2,689 2,692 2,680
Non-interest income (3) 811 1,319 1,450
___________ ___________ ___________
Total income 3,500 4,011 4,130
Administration expenses (excluding depreciation on operating
lease assets) (1,992) (1,820) (1,807)
Goodwill impairments and amortisation (1,202) (36) (12)
Depreciation of operating lease assets (280) (256) (178)
Provisions for bad and doubtful debts (514) (263) (273)
Provisions for contingent liabilities and commitments (50) 9 (21)
Amounts written off fixed asset investments (511) (256) (32)
___________ ___________ ___________
Operating (loss) / profit (1,049) 1,389 1,807
Income from associated undertakings (3) 17 14 17
Profit on disposal of Group undertakings (3) 48 67 45
___________ ___________ ___________
(Loss) / profit on ordinary activities before tax (984) 1,470 1,869
Tax on (loss) / profit on ordinary activities (152) (464) (513)
___________ ___________ ___________
(Loss) / profit on ordinary activities after tax (1,136) 1,006 1,356
Minority interests - non equity (62) (59) (51)
___________ ___________ ___________
(Loss) / profit attributable to shareholders (1,198) 947 1,305
Transfer from/(to) non-distributable reserve 263 161 (134)
Preference dividends (62) (42) (38)
Ordinary dividends (362) (720) (649)
___________ ___________ ___________
Retained (loss) / profit for the period (1,359) 346 484
___________ ___________ ___________
Profit on ordinary activities before tax includes:
For acquired operations 4 25 -
___________ ___________ ___________
Average number of ordinary shares in issue (millions) 1,442 1,431 1,420
(Losses)/earnings per ordinary share - basic (87.4)p 63.2p 89.2p
(Losses)/earnings per ordinary share - diluted (86.9)p 62.8p 88.6p
Dividends per ordinary share 25.0p 50.00p 45.50p
___________ ___________ ___________
Group key statistics
Cost: income ratio (excluding goodwill amortisation) (1) 95.3% 47.4% 45.0%
Pre-tax return on average ordinary shareholders' equity (18.5)% 19.4% 28.8%
Post-tax return on average ordinary shareholders' equity (20.6)% 13.3% 20.9%
Net asset value per ordinary share (2) 387p 468p 451p
Pre-tax return on average assets 0.50% 0.70% 0.97%
Pre-tax return on average risk weighted assets (1.19)% 1.75% 2.35%
Tier 1 capital 8.8% 8.3% 8.8%
Equity Tier 1 capital 6.1% 6.2% 7.5%
___________ ___________ ___________
(1) The cost: income ratio measure calculated throughout this document is a
measure of administrative efficiency, and is calculated as operating expenses
(excluding goodwill amortisation) divided by total operating income after
deducting depreciation of operating lease assets.
(2) Net asset value is calculated as closing ordinary shareholders' equity,
divided by closing number of ordinary shares in issue.
(3) Total non-interest income disclosed elsewhere in this document comprises the
sum of non-interest income, income from associated undertakings and profit on
disposal of Group undertakings.
Consolidated balance sheet
as at 31 December 2002
31 December 31 December
2002 2001
# m # m
Assets ___________ ___________
Cash, treasury bills and other eligible bills 1,879 2,983
Loans and advances to banks 6,601 9,874
___________ ___________
Loans and advances to customers 81,912 78,650
Loans and advances subject to securitisation 24,156 18,883
Non returnable finance on securitised advances (15,160) (12,952)
___________ ___________
Loans and advances to customers after non-returnable finance 90,908 84,581
Net investment in finance leases 3,447 4,738
Debt securities 59,807 67,858
Equity shares and similar interests 963 815
Long-term assurance business 2,316 1,662
Fixed assets excluding operating lease assets 747 1,579
Operating lease assets 2,573 2,522
Other assets 7,069 7,383
Assets of long-term assurance funds 29,411 30,415
___________ ___________
Total assets 205,721 214,410
___________ ___________
Liabilities
Deposits by banks 24,174 24,945
Customer accounts 76,766 75,809
Debt securities in issue 48,079 54,413
Other liabilities 12,969 13,739
Subordinated liabilities 6,532 6,590
Reserve capital instruments 771 297
Liabilities of long-term assurance funds 29,411 30,415
___________ ___________
Total liabilities 198,702 206,208
___________ ___________
Minority interests - non-equity 627 681
Non-equity shareholders' funds 748 748
Equity shareholders' funds 5,644 6,773
___________ ___________
Total liabilities, minority interests and shareholders' funds 205,721 214,410
___________ ___________
The #24.2 billion loans and advances subject to securitisation represent
residential mortgage asset that has been transferred directly to standalone
securitisation vehicles or to a master trust for the purposes of issuing
mortgage-backed securities. The #15.2 billion non-returnable finance on
securitised advances relates to mortgage assets that have been securitised. The
balance represents residential mortgage asset in the master trust against which
mortgage-backed securities have not been issued.
Statement of total recognised gains and losses
31 December 31 December 31 December
2002 2001 2000
# m # m # m
___________ ___________ ___________
Profit attributable to the shareholders (1,198) 947 1,305
Translation differences on foreign currency net investment (2) - -
Unrealised surplus on revaluation of investment properties - - 11
___________ ___________ ___________
Total recognised gains relating to the period (1,200) 947 1,316
Prior period adjustments (269)
___________
Total gains recognised since the prior period (1,469)
___________
The 2001 and 2000 comparative balances have been restated to reflect market
valuations of investments in long-term assurance business, accounting for the
costs of share-based payments, the revised presentation of coupon payments on
Reserve Capital Instruments and the recognition of deferred tax assets. Further
details of these are contained in Section 4.
Consolidated cash flow statement
31 December 31 December 31 December
2002 2001 2000
# m # m # m
___________ ___________ ___________
Net cash (outflow) / inflow from operating activities (10,952) 1,740 6,093
Returns on investments and servicing of finance
Interest paid on subordinated liabilities (337) (323) (289)
Preference dividends paid (63) (42) (38)
Payments to non-equity minority interests (62) (59) (51)
___________ ___________ ___________
Net cash outflow from returns on investments and servicing of finance (462) (424) (378)
Taxation
UK corporation tax paid (481) (438) (402)
Overseas tax paid (15) (8) (4)
___________ ___________ ___________
Total taxation paid (496) (446) (406)
Capital expenditure and financial investment
Purchases of investment securities (16,636) (17,781) (18,169)
Sales of investment securities 12,926 3,282 4,971
Redemptions and maturities of investment securities 14,977 13,993 10,898
Purchases of tangible fixed assets (909) (1,001) (502)
Sales of tangible fixed assets 79 197 508
Transfers (to) / from Life Assurance funds (882) 43 (328)
___________ ___________ ___________
Net cash inflow / (outflow) from capital expenditure and financial
investment 9,555 (1,267) (2,622)
Acquisitions and disposals (536) (371) (968)
Equity dividends paid (648) (570) (548)
___________ ___________ ___________
Net cash outflow before financing (3,539) (1,338) 1,171
Financing
Issue of ordinary share capital 17 27 11
Issue of preference share capital - 298 -
Issue of loan capital 392 686 1,355
Issue of reserve capital instrument 485 297 -
Issue of preferred securities 15 - 620
Repayment of loan capital (222) - (365)
___________ ___________ ___________
Net cash inflow from financing 687 1,308 1,621
___________ ___________ ___________
(Decrease) / increase in cash (2,852) (30) 2,792
___________ ___________ ___________
Reconciliation of movement in shareholders' funds
31 December 31 December
2002 2001
# m # m
___________ ___________
Shareholders' funds as at beginning of the year 8,051 6,830
Prior period adjustments (530) 71
___________ ___________
Equity shareholders' funds as at beginning of the year - restated 7,521 6,901
(Loss) / profit retained for the period (1,622) 185
Increases in share capital including share premium 109 442
Capitalised reserves on exercise of share options (7) (13)
Goodwill written off 373 -
Goodwill transferred from profit and loss account reserve during the year 13 -
Other movements 5 6
___________ ___________
Shareholders' funds as at the end of the period 6,392 7,521
___________ ___________
Appendix 2: Statutory net interest income
Table 1: Net interest income 31 December 31 December 31 December
2002 2001 2000
# m # m # m
___________ ___________ ___________
Interest receivable 8,128 10,241 11,210
Interest payable (5,439) (7,549) (8,530)
___________ ___________ ___________
Net interest income 2,689 2,692 2,680
___________ ___________ ___________
Group average interest earning assets (#bn) 191.9 183.9 166.1
Group net interest margin (%) 1.40 1.47 1.61
Group net interest spread (%) 1.25 1.32 1.42
___________ ___________ ___________
Table 2: Spreads and margins 2002 2001
First Second Full First Second Full
Half Half Year Half Half Year
# m # m # m # m # m # m
______ ______ ______ ______ ______ ______
Net interest income (# m) 1,364 1,325 2,689 1,338 1,354 2,692
Average interest earning assets (# bn)
Group 191.6 192.2 191.9 177.9 189.9 183.9
Retail Banking 71.2 77.4 74.3 67.7 69.9 68.8
Net interest margins (%)
Group 1.42 1.38 1.40 1.50 1.44 1.47
Retail Banking (1) 2.08 1.98 2.03 2.17 2.05 2.11
Wholesale Banking 0.43 0.37 0.40 0.44 0.46 0.45
First National 6.91 6.87 6.89 6.94 6.96 6.95
Spread (%)
Group 1.33 1.17 1.25 1.33 1.31 1.32
Retail Banking (1) 1.82 1.75 1.79 1.92 1.80 1.86
______ ______ ______ ______ ______ ______
(1) Spread and margin calculations exclude Unsecured Lending, Abbey National
business, Retail Insurance and Abbey National Life
2002 2001
Table 3: Average balance sheet
Average Average Average Average
balance rate balance Rate
#bn % #bn %
___________ ___________ ___________ ___________
Group
Interest earning assets 179.0 174.9
Securitisation gross up 12.9 9.0
___________ ___________ ___________ ___________
Interest earning assets 191.9 4.53 183.9 6.84
Interest bearing liabilities 170.4 168.3
Securitisation gross up 12.9 - 9.0 -
___________ ___________ ___________ ___________
Interest bearing liabilities 183.3 3.28 177.3 4.25
Shareholders' funds 6.8 - 7.6 -
Other net non-interest bearing
(assets) / liabilities 1.8 - (1.0) -
___________ ___________ ___________ ___________
Definitions
Net interest margin: represents net interest income as a percentage of average interest earning assets.
Net interest spread: the difference between the average interest rate earned on average interest earning assets
and the average interest rate paid on average interest bearing liabilities.
Securitised assets: are shown with a deduction for non-recourse finance on the face of the balance sheet. Gross
securitised assets before this deduction are used in the calculation of yields, spreads and
margins.
Table 4: Mortgage discounts and 31 December 31December
cashbacks
2002 2001
Expense Charged to Balance Expense Charged to Balance
incurred in profit and carried incurred in profit and carried
year loss forward year loss forward
#m #m #m
#m #m #m
______ ______ ______ ______ ______ ______
Interest rate discounts 214 (247) 22 348 (376) 55
Cashbacks 45 (154) 181 70 (180) 290
______ ______ ______ ______ ______ ______
Total 259 (401) 203 418 (556) 345
______ ______ ______ ______ ______ ______
Appendix 3: Statutory non-interest income
31 December 31 December 31 December
2002 2001 2000
# m # m # m
___________ ___________ ___________
Total dividend income 1 3 3
Insurance income 204 238 239
Administration, survey and legal fees 207 177 211
Other retail banking income 218 214 246
Wholesale Banking fees 45 91 72
Other commissions receivable 112 86 99
___________ ___________ ___________
Fees and commissions receivable 786 806 867
Introducer fee charge (197) (183) (199)
Financial markets permanent fees / brokerage fees (18) (11) (9)
Other commissions payable (60) (81) (61)
___________ ___________ ___________
Fees and commissions payable (275) (275) (269)
___________ ___________ ___________
Net fees and commissions 511 531 598
___________ ___________ ___________
Dealing profits 100 176 116
(Decrease) / increase in value of long-term assurance business (311) (98) 138
Fee income on high loan to value loans 85 100 95
Income from operating lease assets 400 441 303
Other financial income 90 247 259
___________ ___________ ___________
Other operating income 264 690 795
___________ ___________ ___________
Total non-interest income 876 1,400 1,512
___________ ___________ ___________
Appendix 4: Statutory operating expenses
31 December 31 December 31 December
2002 2001 2000
# m # m # m
___________ ___________ ___________
Salaries and other staff costs 932 815 827
Bank, legal and professional fees 135 145 174
Advertising and marketing 46 80 82
___________ ___________ ___________
Bank, legal, marketing and professional expenses 181 225 256
Software, computer and other administration expenses 560 488 447
Premises and equipment depreciation 103 111 122
Depreciation of operating lease assets (1) 280 256 178
Goodwill amortisation 64 36 12
Goodwill impairment 1,138 - -
___________ ___________ ___________
Amortisation and depreciation of fixed assets 1,585 403 312
Rent payable 121 108 75
Rates payable 28 23 23
Other running costs 67 50 57
___________ ___________ ___________
Other property and equipment expenses 216 181 155
___________ ___________ ___________
Total operating expenses (including depreciation of operating 3,474 2,112 1,997
lease assets) ___________ ___________ ___________
(1) In 2002 includes #38 million relating to the impairment of IEM.
Appendix 4.1: Directors' Remuneration
Full details of current directors' remuneration will be published in the Annual
Report and Accounts as usual. Five executive directors left the Company's
employment during 2002. Compensation payments were made in accordance with the
terms of their service agreements. The table below sets out these amounts:
Payment in lieu of Pension Benefits in Contractual Pension Contractual Redundancy
notice Lieu of notice Benefits on Redundancy Payment
# # # #
I. Harley 1,132,312 560,000 Nil Nil
T. Ingram 517,880 230,000 520,000 401,640
J. King 394,143 142,000 65,000 543,602
A. Pople 700,316 118,000 Nil Nil
I. Treacy 410,920 188,000 104,000 406,252
All five directors received a payment in lieu of notice together with other
contractual entitlements (including augmented pension benefits where applicable)
for their notice periods.
As a result of their early retirement, the 2002 increase in transfer value of
accrued pension for Ian Harley, John King and Ian Treacy is #1,858,944, #683,369
and #646,571 respectively. This arises partly from the pension payments above,
partly from normal contributions during the year, with the remainder of the
increase due to the transfer value at 31 December 2001 having been calculated in
the usual way using actuarial assumptions including a normal retirement age. If
early retirement in 2002 had been assumed in calculating the transfer value at
31 December 2001, the transfer value at that date would have been significantly
higher. This final component should not be considered to be payments to the
former directors.
Appendix 5: Group provisions
31 December 31 December 31 December
2002 2001 2000
# m # m # m
___________ ___________ ___________
Secured 32 42 43
Unsecured 107 100 113
___________ ___________ ___________
Retail Banking 139 142 156
First National 115 113 112
cahoot 12 7 2
Other 2 1 3
___________ ___________ ___________
Wealth Management and Long-Term Savings 129 121 117
Wholesale Banking 247 - -
Other (1) - -
Provisions for bad and doubtful debts 514 263 273
Wholesale Banking 513 256 34
Other (2) - (2)
___________ ___________ ___________
Amounts written off fixed asset investments 511 256 32
___________ ___________ ___________
Contingent liabilities and commitments 50 (9) 21
___________ ___________ ___________
Total Provisions 1,075 510 326
___________ ___________ ___________
Table 2: Provisions for bad Residential Other secured Unsecured On Wholesale Total
and doubtful debts # m # m # m Advances (1) # m
#m
______ ______ ______ ______ ______
At 1 January 2002
General 150 22 36 - 208
Specific 62 72 156 - 290
______ ______ ______ ______ ______
Total 212 94 192 - 498
Exchange adjustments 1 2 - (3) -
Acquisitions of subsidiaries 6 1 1 - 8
Disposals of subsidiary - - (1) - (1)
undertakings
Transfer from investment
security provisions - - - 16 16
Transfer from P&L account 23 26 218 247 514
Irrecoverable amounts written
off (18) (24) (247) - (289)
______ ______ ______ ______ ______
At 31 December 2002 224 99 163 260 746
______ ______ ______ ______ ______
General 174 23 35 56 288
Specific 50 76 128 204 458
______ ______ ______ ______ ______
Total 224 99 163 260 746
______ ______ ______ ______ ______
(1): Wholesale Banking provisions of #247 million relate to loans and advances
to customers.
Table 3: Analysis of provisions for Charge Charge Charge Provisions Balance % of
bad and doubtful debts - 2002 First Half Second Half Full Year balance loan
# m # m # m # m assets
______ ______ ______ ______ ______
Secured 7 10 17 181 0.2
Personal banking 28 37 65 46 14.3
Unsecured personal loans 26 15 41 45 2.2
Abbey National business 7 9 16 9 0.6
______ ______ ______ ______ ______
Retail Banking 68 71 139 281 0.5
First National 59 56 115 117 1.4
European operations 1 1 2 77 1.7
cahoot 6 6 12 8 1.3
______ ______ ______ ______ ______
WM<S 66 63 129 202 1.5
Wholesale Banking 20 227 247 260 1.8
Group Infrastructure 2 3 1 3 0.6
______ ______ ______ ______ ______
Total 156 358 514 746 0.9
______ ______ ______ ______ ______
Table 4: Analysis of provisions for Charge Charge Charge Provisions Balance % of
bad and doubtful debts - 2001 First Half Second Half Full Year balance loan
# m # m # m # m assets
______ ______ ______ ______ ______
Secured 27 4 31 183 0.3
Personal banking 23 18 41 36 12.1
Unsecured personal loans 30 28 58 73 3.6
Abbey National business 6 6 12 10 0.7
______ ______ ______ ______ ______
Retail Banking 86 56 142 302 0.6
First National 49 64 113 137 1.8
European operations - 1 1 57 1.7
cahoot 3 4 7 2 1.1
______ ______ ______ ______ ______
WM<S 52 69 121 196 1.8
______ ______ ______ ______ ______
Total 138 125 263 498 0.6
______ ______ ______ ______ ______
Appendix 6: Taxation
31 December 31 December 31 December
2002 2001 2000
# m # m # m
___________ ___________ ___________
Taxation at UK corporation tax rate of 30% (295) 441 561
Effect of non-allowable provisions and other non-equalised items 49 8 (20)
Impairment and amortisation of goodwill 360 10 4
Capital allowances for the period in excess of depreciation 42 (47) (33)
Provisions and short-term timing differences 74 2 (29)
Effect of non-UK profits and losses 36 (1) (8)
Adjustment to prior year tax provisions (31) - 40
Effect of loss utilisation (1) (2) (27)
Deferred tax Timing differences, origination and reversal (82) 53 105
___________ ___________ ___________
Total taxation 152 464 513
___________ ___________ ___________
Effective rate (1) (15.4)% 31.6% 27.4%
(1) The effective tax rate is obtained by dividing taxes by (loss) / profit
before taxes.
Total taxation decreased to #152 million (2001: #464 million). This was the
result of a decrease in profit before taxes and before the charge for goodwill
impairment. The effective tax rate has increased in 2002 as compared to 2001 as
a result of the non-allowable charge for impairment of goodwill, an increase in
the effect of non-allowable provisions and other non-equalised items and the
taxation of dividends received from offshore subsidiaries, the profits of which
had previously been taxed at rates lower than the standard rate of UK
corporation tax without equalisation through deferred tax.
Appendix 7: Prior year restatements
Segmental reclassification
The segmental representation of the Abbey National Group has changed since the
2001 Full Year Results presentation. In February 2002, management changes were
announced, and subsequent results presentations (including this one) have been
reported under three customer facing business divisions. In addition to a Group
Infrastructure division, they are:
* Retail Banking;
* Wealth Management and Long-Term Savings; and
* Wholesale Banking.
Accounting Policy Changes
In addition to this segmental reporting change, there have been some accounting
policy changes that have impacted prior year results. They are:
* UITF Abstract 33 - Reserve Capital instruments;
* Expensing of Stock Options; and
* Embedded Value methodology.
These accounting policy changes are discussed in detail in Section 4.
Appendix 7.1 provides a reconciliation of prior year segmental results to the
new, at the PBT level, taking into account the impact of these accounting policy
changes. Appendix 7.2 then splits this new segmental PBT by profit and loss
line.
Trading Performance
Throughout this document, a measure of "trading" has been used. When analysing
the results, the statutory results have been adjusted for the following:
* embedded value re-basing;
* losses on credit impaired asset disposals in the Wholesale Bank;
* other asset disposals;
* cost programme implementation;
* share write-downs;
* IEM impairment;
* goodwill impairments; and
* goodwill amortisation.
Appendix 7.3 reconciles on a segmental basis between the statutory and 'trading
P&L' and Appendix 7.4 provides a reconciliation showing all adjustments on a
line-by-line basis.
Appendix 7.1: Segmental reclassification and accounting policy changes - PBT
level
2001 profit before tax
2001 Retail Banking WM<S Wholesale Group
Stated basis # m # m Banking Infra.
# m # m # m
___________ ___________ ___________ ___________ ___________
Retail Banking 1,303 1,303 - - -
Wholesale Banking 504 - - 504 -
Business to Business 284 (2) 286 - -
Business to Consumer (37) (26) (11) - -
Group Infrastructure (116) - - - (116)
___________ ___________ ___________ ___________ ___________
2001 segmental reclassification of
PBT 1,938 1,275 275 504 (116)
Accounting policy changes:
- RCI restatement (19) - - - (19)
- Embedded value re-basing (443) (34) (409) - -
- Share write-downs (6) - - - (6)
___________ ___________ ___________ ___________ ___________
2001 restated statutory PBT 1,470 1,241 (134) 504 (141)
___________ ___________ ___________ ___________ ___________
2000 profit before tax
2000 Retail Banking WM<S Wholesale Group
Stated basis # m # m Banking Infra.
# m # m # m
___________ ___________ ___________ ___________ ___________
Retail Banking 1,283 1,283 - - -
Wholesale Banking 575 - - 575 -
Business to Business 254 17 237 - -
Business to Consumer (48) - (48) - -
Group Infrastructure (89) - - - (89)
___________ ___________ ___________ ___________ ___________
2000 segmental reclassification of 1,975 1,300 189 575 (89)
PBT
Accounting policy changes:
- Embedded value re-basing (102) (13) (89) - -
- Share write-downs (4) - - - (4)
___________ ___________ ___________ ___________ ___________
2000 restated statutory PBT 1,869 1,287 100 575 (93)
___________ ___________ ___________ ___________ ___________
Appendix 7.2: Segmental reclassification and accounting policy changes - P&L
level
The restated segmental profit before tax (PBT) from Appendix 7.1 is set out
below on a line-by-line basis:
2002 profit before tax
Retail Banking WM<S Wholesale Group GROUP
# m # m Banking Infra. # m
# m # m
___________ ___________ ___________ ___________ ___________
Net interest income 1,666 739 459 (175) 2,689
Non-interest income 769 (503) 504 106 876
___________ ___________ ___________ ___________ ___________
Total income 2,435 236 963 (69) 3,565
Operating expenses (1,083) (392) (233) (1,486) (3,194)
Depreciation of operating lease assets (23) (5) (252) - (280)
Provisions for bad and doubtful debts (139) (129) (247) 1 (514)
Provisions for contingent liabs and commits (11) (4) - (35) (50)
Amounts w/o fixed asset investments - 2 (513) - (511)
___________ ___________ ___________ ___________ ___________
Statutory profit before tax 1,179 (292) (282) (1,589) (984)
___________ ___________ ___________ ___________ ___________
2001 profit before tax
Retail Banking WM<S Wholesale Group GROUP
# m # m Banking Infra. # m
# m # m
___________ ___________ ___________ ___________ ___________
Net interest income 1,586 641 508 (43) 2,692
Non-interest income 918 (255) 590 147 1,400
___________ ___________ ___________ ___________ ___________
Total income 2,504 386 1,098 104 4,092
Operating expenses (1,016) (392) (186) (262) (1,856)
Depreciation of operating lease assets (97) (7) (152) - (256)
Provisions for bad and doubtful debts (142) (121) - - (263)
Provisions for contingent liabs and commits (8) - - 17 9
Amounts w/o fixed asset investments - - (256) - (256)
___________ ___________ ___________ ___________ ___________
Statutory profit before tax 1,241 (134) 504 (141) 1,470
___________ ___________ ___________ ___________ ___________
2000 profit before tax
Retail Banking WM<S Wholesale Group GROUP
# m # m Banking Infra. # m
# m # m
___________ ___________ ___________ ___________ ___________
Net interest income 1,615 632 441 (8) 2,680
Non-interest income 903 41 423 145 1,512
___________ ___________ ___________ ___________ ___________
Total income 2,518 673 864 137 4,192
Operating expenses (995) (452) (155) (217) (1,819)
Depreciation of operating lease assets (69) (9) (100) - (178)
Provisions for bad and doubtful debts (156) (117) - - (273)
Provisions for contingent liabs and commits (11) 3 - (13) (21)
Amounts w/o fixed asset investments - 2 (34) - (32)
___________ ___________ ___________ ___________ ___________
Statutory profit before tax 1,287 100 575 (93) 1,869
___________ ___________ ___________ ___________ ___________
Appendix 7.3: Reconciliation of Statutory P&L to "Trading P&L"
Retail Banking
2002 Statutory Basis Profits / EV Cost programme Trading
# m losses on re-basing # m Basis
disposals #m # m
#m
___________ ___________ ___________ ___________ ___________
Net interest income 1,666 - - - 1,666
Non-interest income 769 - 32 - 801
___________ ___________ ___________ ___________ ___________
Total income 2,435 - 32 - 2,467
Operating expenses (1,083) - - 16 (1,067)
Depreciation of operating lease assets (23) - - - (23)
Provisions for bad and doubtful debts (139) - - - (139)
Provisions for cont liabs and commits (11) - - - (11)
Amounts w/o fixed asset investments - - - - -
___________ ___________ ___________ ___________ ___________
Profit before tax 1,179 - 32 16 1,227
___________ ___________ ___________ ___________ ___________
2001 Statutory Basis Profits / EV Cost programme Trading
# m losses on re-basing # m Basis
disposals #m # m
#m
___________ ___________ ___________ ___________ ___________
Net interest income 1,586 - - - 1,586
Non-interest income 918 (49) 34 - 903
___________ ___________ ___________ ___________ ___________
Total income 2,504 (49) 34 - 2,489
Operating expenses (1,016) - - - (1,016)
Depreciation of operating lease assets (97) - - - (97)
Provisions for bad and doubtful debts (142) - - - (142)
Provisions for cont liabs and commits (8) - - - (8)
Amounts w/o fixed asset investments - - - - -
___________ ___________ ___________ ___________ ___________
Profit before tax 1,241 (49) 34 - 1,226
___________ ___________ ___________ ___________ ___________
2000 Statutory Basis Profits / EV Cost programme Trading
# m losses on re-basing # m Basis
disposals #m # m
#m
___________ ___________ ___________ ___________ ___________
Net interest income 1,615 - - - 1,615
Non-interest income 903 - 13 - 916
___________ ___________ ___________ ___________ ___________
Total income 2,518 - 13 - 2,531
Operating expenses (995) - - - (995)
Depreciation of operating lease assets (69) - - - (69)
Provisions for bad and doubtful debts (156) - - - (156)
Provisions for cont liabs and commits (11) - - - (11)
Amounts w/o fixed asset investments - - - - -
___________ ___________ ___________ ___________ ___________
Profit before tax 1,287 - 13 - 1,300
___________ ___________ ___________ ___________ ___________
Wealth Management and Long-Term Savings
2002 Statutory EV Cost Trading
basis re-basing programme Basis
# m #m # m # m
___________ ___________ ___________ ___________
Net interest income 739 - - 739
Non-interest income (503) 600 - 97
___________ ___________ ___________ ___________
Total income 236 600 - 836
Operating expenses (392) - 14 (378)
Depreciation of operating lease assets (5) - - (5)
Provisions for bad and doubtful debts (129) - - (129)
Provisions for cont liabs and commits (4) - - (4)
Amounts w/o fixed asset investments 2 - - 2
___________ ___________ ___________ ___________
Profit before tax (292) 600 14 322
___________ ___________ ___________ ___________
2001 Statutory EV Cost Trading
basis re-basing programme Basis
# m #m # m # m
___________ ___________ ___________ ___________
Net interest income 641 - - 641
Non-interest income (255) 409 - 154
___________ ___________ ___________ ___________
Total income 386 409 - 795
Operating expenses (392) - - (392)
Depreciation of operating lease assets (7) - - (7)
Provisions for bad and doubtful debts (121) - - (121)
Provisions for cont liabs and commits - - - -
Amounts w/o fixed asset investments - - - -
___________ ___________ ___________ ___________
Profit before tax (134) 409 - 275
___________ ___________ ___________ ___________
2000 Statutory EV Cost Trading
basis re-basing programme Basis
# m #m # m # m
___________ ___________ ___________ ___________
Net interest income 632 - - 632
Non-interest income 41 89 - 130
___________ ___________ ___________ ___________
Total income 673 89 - 762
Operating expenses (452) - - (452)
Depreciation of operating lease assets (9) - - (9)
Provisions for bad and doubtful debts (116) - - (116)
Provisions for cont liabs and commits 2 - - 2
Amounts w/o fixed asset investments 2 - - 2
___________ ___________ ___________ ___________
Profit before tax 100 89 - 189
___________ ___________ ___________ ___________
Wholesale Banking
2002 Statutory Profits/ Losses on Cost Goodwill IEM Trading
Basis Losses on Asset Prog Impairment Impairment Basis
# m Disposals Disposals # m #m #m # m
#m #m
_____ _____ _____ _____ _____ _____ _____
Net interest income 459 - - - - - 459
Non-interest income 504 (44) 104 - - - 564
_____ _____ _____ _____ _____ _____ _____
Total income 963 (44) 104 - - - 1,023
Operating expenses (233) - - 3 16 - (214)
Depreciation of operating lease (252) - - - - 38 (214)
assets
Provisions for bad and doubtful (247) - - - - - (247)
debts
Provisions for cont liabs and - - - - - - -
commits
Amounts w/o fixed asset investments (513) - - - - - (513)
Losses on asset disposals - - (104) - - - (104)
IEM impairment - - - - - (38) (38)
_____ _____ _____ _____ _____ _____ _____
Profit before tax (282) (44) - 3 16 - (307)
_____ _____ _____ _____ _____ _____ _____
2001 Statutory Profits/ Losses on Cost Goodwill IEM Trading
Basis Losses on Asset Prog Impairment Impairment Basis
# m Disposals Disposals # m #m #m # m
#m #m
_____ _____ _____ _____ _____ _____ _____
Net interest income 508 - - - - - 508
Non-interest income 590 - 15 - - - 605
_____ _____ _____ _____ _____ _____ _____
Total income 1,098 - 15 - - - 1,113
Operating expenses (186) - - - - - (186)
Depreciation of operating lease (152) - - - - - (152)
assets
Provisions for bad and doubtful - - - - - - -
debts
Provisions for cont liabs and - - - - - - -
commits
Amounts w/o fixed asset investments (256) - - - - - (256)
Losses on asset disposals - - (15) - - - (15)
_____ _____ _____ _____ _____ _____ _____
Profit before tax 504 - - - - - 504
_____ _____ _____ _____ _____ _____ _____
2000 Statutory Profits/ Losses on Cost Goodwill IEM Trading
Basis Losses on Asset Prog Impairment Impairment Basis
# m Disposals Disposals # m #m #m # m
#m #m
_____ _____ _____ _____ _____ _____ _____
Net interest income 441 - - - - - 441
Non-interest income 423 - - - - - 423
_____ _____ _____ _____ _____ _____ _____
Total income 864 - - - - - 864
Operating expenses (155) - - - - - (155)
Depreciation of operating lease (100) - - - - - (100)
assets
Provisions for bad and doubtful - - - - - - -
debts
Provisions for cont liabs and - - - - - - -
commits
Amounts w/o fixed asset investments (34) - - - - - (34)
_____ _____ _____ _____ _____ _____ _____
Profit before tax 575 - - - - - 575
_____ _____ _____ _____ _____ _____ _____
Group Infrastructure
2002 Statutory Profits / Goodwill Goodwill Stock Cost Trading
Basis Losses on Impairm't Amort'n Options Prog Basis
# m Disposals #m #m #m #m # m
#m
_____ _____ _____ _____ _____ _____ _____
Net interest income (175) - - - - - (175)
Non-interest income 106 - - - - - 106
_____ _____ _____ _____ _____ _____ _____
Total income (69) - - - - - (69)
Operating expenses (1,486) - 1,122 64 37 11 (252)
Depreciation of operating lease - - - - - - -
assets
Provisions for bad and doubtful 1 - - - - - 1
debts
Provisions for cont liabs and (35) - - - - - (35)
commits
Amounts w/o fixed asset investments - - - - - - -
_____ _____ _____ _____ _____ _____ _____
Profit before tax (1,589) - 1,122 64 37 11 (355)
_____ _____ _____ _____ _____ _____ _____
2001 Statutory Profits / Goodwill Goodwill Stock Cost Trading
Basis Losses on Impairm't Amort'n Options Prog Basis
# m Disposals #m #m #m #m # m
#m
_____ _____ _____ _____ _____ _____ _____
Net interest income (43) - - - - - (43)
Non-interest income 147 (81) - - - - 66
_____ _____ _____ _____ _____ _____ _____
Total income 104 (81) - - - - 23
Operating expenses (262) - - 36 - - (226)
Depreciation of operating lease - - - - - - -
assets
Provisions for bad and doubtful - - - - - - -
debts
Provisions for cont liabs and 17 - - - - - 17
commits
Amounts w/o fixed asset investments - - - - - - -
_____ _____ _____ _____ _____ _____ _____
Profit before tax (141) (81) - 36 - - (186)
_____ _____ _____ _____ _____ _____ _____
2000 Statutory Profits / Goodwill Goodwill Stock Cost Trading
Basis Losses on Impairm't Amort'n Options Prog Basis
# m Disposals #m #m #m #m # m
#m
_____ _____ _____ _____ _____ _____ _____
Net interest income (8) - - - - - (8)
Non-interest income 145 (65) - - - - 80
_____ _____ _____ _____ _____ _____ _____
Total income 137 (65) - - - - 72
Operating expenses (217) - - 12 - - (205)
Depreciation of operating lease - - - - - - -
assets
Provisions for bad and doubtful (1) - - - - - (1)
debts
Provisions for cont liabs and (12) - - - - - (12)
commits
Amounts w/o fixed asset investments - - - - - - -
_____ _____ _____ _____ _____ _____ _____
Profit before tax (93) (65) - 12 - - (146)
_____ _____ _____ _____ _____ _____ _____
Appendix 7.4: Detailed reconciliation of Statutory P&L to "Trading P&L"
2002 profit before tax
Retail WM<S Wholesale Banking Group
Banking # m # m Infrastructure.
# m # m
___________ ___________ ___________ ___________
Stated statutory net interest income 1,666 739 459 (175)
___________ ___________ ___________ ___________
'Trading' net interest income 1,666 739 459 (175)
Stated statutory non-interest income 769 (503) 504 106
Trading adjustments:
- Embedded value re-basing 32 600 - -
- Wholesale Banking losses on asset disposals - - 104 -
- Other asset disposals - - (44) -
___________ ___________ ___________ ___________
'Trading' non-interest income 801 97 564 106
___________ ___________ ___________ ___________
'Trading' total income 2,467 836 1,023 (69)
Stated statutory operating expenses (1,083) (392) (233) (1,486)
Trading adjustments:
- Goodwill charges - - 16 1,186
- Cost programme implementation 16 14 3 11
- Share write-downs - - - 37
___________ ___________ ___________ ___________
'Trading' operating expenses (1,067) (378) (214) (252)
Stated statutory depreciation of operating
lease assets (23) (5) (252) -
Trading adjustments:
- IEM impairment - - 38 -
___________ ___________ ___________ ___________
'Trading' depreciation of operating lease
assets (23) (5) (214) -
Provisions for bad and doubtful debts (139) (129) (247) 1
Provisions for contingent liabs and commits (11) (4) - (35)
Amounts written off fixed asset investments - 2 (513) -
Wholesale Banking losses on asset disposals - - (104) -
IEM impairment - - (38) -
___________ ___________ ___________ ___________
'Trading' profit before tax 1,227 322 (307) (355)
___________ ___________ ___________ ___________
2001 profit before tax
Retail WM<S Wholesale Banking Group
Banking # m # m Infrastructure.
# m # m
___________ ___________ ___________ ___________
Stated statutory net interest income 1,586 641 508 (24)
Prior year restatements:
- RCI restatement - - - (19)
___________ ___________ ___________ ___________
Restated 'trading' net interest income 1,586 641 508 (43)
Stated statutory non-interest income 952 154 590 147
Prior year restatements:
- Embedded value re-basing (34) (409) - -
Trading adjustments:
- Embedded value re-basing 34 409 - -
- Wholesale Banking losses on asset disposals - - 15 -
- Other asset disposals (49) - - (81)
___________ ___________ ___________ ___________
Restated 'trading' non-interest income 903 154 605 66
___________ ___________ ___________ ___________
Restated 'trading' total income 2,489 795 1,113 23
Stated statutory operating expenses (1,016) (392) (186) (256)
Prior year restatements:
- Share write-downs - - - (6)
Trading adjustments:
- Goodwill charges - - - 36
___________ ___________ ___________ ___________
Restated 'trading' operating expenses (1,016) (392) (186) (226)
Depreciation of operating lease assets (97) (7) (152) -
Provisions for bad and doubtful debts (142) (121) - -
Provisions for contingent liabs and commits (8) - - 17
Amounts written off fixed asset investments - - (256) -
Wholesale Banking losses on asset disposals - - (15) -
___________ ___________ ___________ ___________
Restated 'trading' profit before tax 1,226 275 504 (186)
___________ ___________ ___________ ___________
2000 profit before tax
Retail WM<S Wholesale Banking Group
Banking # m # m Infrastructure.
# m # m
___________ ___________ ___________ ___________
Stated statutory net interest income 1,615 632 441 (8)
___________ ___________ ___________ ___________
Restated 'trading' net interest income 1,615 632 441 (8)
Stated statutory non-interest income 916 130 423 145
Prior year restatements:
- Embedded value re-basing (13) (89) - -
Trading adjustments:
- Embedded value re-basing 13 89 - -
- Other asset disposals - - - (65)
___________ ___________ ___________ ___________
Restated 'trading' non-interest income 916 130 423 80
___________ ___________ ___________ ___________
Restated 'trading' total income 2,531 762 864 72
Stated statutory operating expenses (995) (452) (155) (213)
Prior year restatements:
- Share write-downs - - - (4)
Trading adjustments:
- Goodwill charges - - - 12
___________ ___________ ___________ ___________
Restated 'trading' operating expenses (995) (452) (155) (205)
Depreciation of operating lease assets (69) (9) (100) -
Provisions for bad and doubtful debts (156) (116) - (1)
Provisions for contingent liabs and commits (11) 2 - (12)
Amounts written off fixed asset investments - 2 (34) -
___________ ___________ ___________ ___________
Restated 'trading' profit before tax 1,300 189 575 (146)
___________ ___________ ___________ ___________
Appendix 8: Trading profit and loss account by business segment
Retail Banking 2002 Retail Bank AN General Total
# m Life Insurance # m
# m # m
___________ ___________ ___________ ___________
Net interest income 1,661 8 (3) 1,666
Fees and commissions receivable 354 61 148 563
Fees and commissions payable (38) - - (38)
___________ ___________ ___________ ___________
Net fees and commissions 316 61 148 525
Other operating income 128 147 1 276
___________ ___________ ___________ ___________
Non-interest income 444 208 149 801
___________ ___________ ___________ ___________
Total operating income 2,105 216 146 2,467
Salaries and other staff costs (502) (6) (10) (518)
Bank, legal, marketing and professional expenses (53) (1) (11) (65)
Software, computer and other administration expenses (233) (4) (30) (267)
Depreciation and amortisation (62) (-) (-) (62)
Other property and equipment expenses (152) (-) (3) (155)
___________ ___________ ___________ ___________
Operating expenses (1,002) (11) (54) (1,067)
Depreciation on operating lease assets (23) - - (23)
Provisions for bad and doubtful debts (139) - - (139)
Provisions for contingent liabilities and commitments (11) - - (11)
___________ ___________ ___________ ___________
Profit before tax 930 205 92 1,227
___________ ___________ ___________ ___________
2001
Net interest income 1,579 11 (4) 1,586
Fees and commissions receivable 367 51 133 551
Fees and commissions payable (55) - (1) (56)
___________ ___________ ___________ ___________
Net fees and commissions 312 51 132 495
Other operating income 253 153 2 408
___________ ___________ ___________ ___________
Non-interest income 565 204 134 903
___________ ___________ ___________ ___________
Total operating income 2,144 215 130 2,489
Salaries and other staff costs (479) (5) (10) (494)
Bank, legal, marketing and professional expenses (97) (1) - (98)
Software, computer and other administration expenses (196) (3) (22) (221)
Depreciation and amortisation (68) - (6) (74)
Other property and equipment expenses (124) (1) (4) (129)
___________ ___________ ___________ ___________
Operating expenses (964) (10) (42) (1,016)
Depreciation on operating lease assets (97) - - (97)
Provisions for bad and doubtful debts (142) - - (142)
Provisions for contingent liabilities and commitments (5) (3) - (8)
___________ ___________ ___________ ___________
Profit before tax 936 202 88 1,226
___________ ___________ ___________ ___________
2002 2001
___________ ___________
Cost: income ratio (%) 43.7% 42.5%
Retail Banking net interest spread (%) 1.79% 1.86%
Retail Banking net interest yield (%) 4.93% 5.93%
Retail Banking net interest cost (%) 3.14% 4.07%
Retail Banking margin (%) 2.03% 2.11%
Average product holdings per active customer 2.11 2.13
Average product holdings per bank account customer 2.82 2.83
Average risk weighted assets (gross of securitisations) (# bn) 41.6 38.4
Post-tax return on regulatory equity (RoE) (%) 24.5% 26.2%
Scottish Scottish FN Wealth Mgmt cahoot 2002
Mutual Prov # m # m # m Total
Wealth Management & Long-Term Savings 2002 # m # m # m
______ ______ ______ ______ ______ ______
Net interest income 29 55 464 165 26 739
Fees and commissions receivable 2 - 108 50 10 170
Fees and commissions payable (2) - (194) (16) (6) (218)
______ ______ ______ ______ ______ ______
Net fees and commissions - - (86) 34 4 (48)
Other operating income 108 (8) 38 7 - 145
______ ______ ______ ______ ______ ______
Non-interest income 108 (8) (48) 41 4 97
______ ______ ______ ______ ______ ______
Total operating income 137 47 416 206 30 836
Salaries and other staff costs (2) - (103) (68) (12) (185)
Bank, legal, marketing and prof. expenses - - (20) (23) (21) (64)
Software, computer and other administration
expenses (2) (1) (28) (44) (8) (83)
Depreciation and amortisation - - (6) (5) (1) (12)
Other property and equipment expenses - - (25) (8) (1) (34)
______ ______ ______ ______ ______ ______
Operating expenses (4) (1) (182) (148) (43) (378)
Depreciation of operating lease assets - - (5) - - (5)
Provisions for bad and doubtful debts - - (115) (2) (12) (129)
Provisions for contingent liabilities &
commitments - - (4) - - (4)
Amounts written off fixed asset investments - - - 2 - 2
______ ______ ______ ______ ______ ______
Profit/(loss) before tax 133 46 110 58 (25) (322)
______ ______ ______ ______ ______ ______
Wealth Management & Long-Term Savings 2001 Scottish Scottish FN Wealth Mgmt cahoot 2001
Mutual Prov Total
# m # m # m # m # m # m
______ ______ ______ ______ ______ ______
Net interest income 16 27 461 143 (6) 641
Dealing profits 2 - - - - 2
Dividend Income - - - 2 - 2
Fees and commissions receivable 5 - 118 38 2 163
Fees and commissions payable (1) - (183) (12) (2) (198)
______ ______ ______ ______ ______ ______
Net fees and commissions 4 - (65) 26 - (35)
Other operating income 146 3 32 4 - 185
______ ______ ______ ______ ______ ______
Non-interest income 152 3 (33) 32 - 154
______ ______ ______ ______ ______ ______
Total operating income 168 30 428 175 (6) 795
Salaries and other staff costs (2) - (89) (57) (6) (154)
Bank, legal, marketing and prof. expenses - - (12) (20) (28) (60)
Software, computer and other administration
expenses (2) - (96) (32) (14) (144)
Depreciation and amortisation - - (5) (5) (1) (11)
Other property and equipment expenses - - (12) (10) (1) (23)
______ ______ ______ ______ ______ ______
Operating expenses (4) - (214) (124) (50) (392)
Depreciation of operating lease assets - - (7) - - (7)
Provisions for bad and doubtful debts - - (113) (1) (7) (121)
______ ______ ______ ______ ______ ______
Profit/(loss) before tax 164 30 94 50 (63) 275
______ ______ ______ ______ ______ ______
2002 2001
___________ ___________
Wholesale Banking 2002
# m # m
___________ ___________
Net interest income 459 508
Dealing profits 103 174
Fees and commissions receivable 44 91
Fees and commissions payable (21) (18)
___________ ___________
Net fees and commissions 23 73
Other operating income 438 358
___________ ___________
Non-interest income 564 605
___________ ___________
Total operating income 1,023 1,113
Salaries and other staff costs (111) (111)
Bank, legal, marketing and professional expenses (13) (11)
Software, computer and other administration expenses (74) (51)
Depreciation and amortisation (excluding operating leases) (7) (6)
Other property and equipment expenses (9) (7)
___________ ___________
Operating expenses (214) (186)
Depreciation of operating lease assets (214) (152)
Provisions for bad and doubtful debts (247) -
Amounts written off fixed asset investments (513) (256)
Losses on disposal of credit impaired assets (104) (15)
IEM impairment (38) -
___________ ___________
(Loss) / profit before tax (307) 504
___________ ___________
Cost: income ratio (%) 26.5 19.4
Net interest margin (%) 0.40 0.45
Average interest earning assets (#bn) 115.0 112.9
Post-tax return on regulatory equity (%) (8.4) 12.4
___________ ___________
Group Infrastructure 2002 2002 2001
# m # m
___________ ___________
Net interest income (175) (43)
Dividend income - 1
Fees and commissions receivable 10 1
Fees and commissions payable 2 (3)
___________ ___________
Net fees and commissions 12 (2)
Other operating income 94 67
___________ ___________
Non-interest income 106 66
Total operating income (69) 23
Salaries and other staff costs (74) (57)
Bank, legal, marketing and professional expenses (39) (56)
Software, computer and other administration expenses (99) (68)
Depreciation and amortisation (22) (23)
Other property and equipment expenses (18) (22)
___________ ___________
Operating expenses (252) (226)
Provisions for bad & doubtful debts 1 -
Provisions for contingent liabilities and commitments (35) 17
___________ ___________
Loss before tax (355) (186)
___________ ___________
Appendix 9: Life Assurance disclosures
Modified statutory solvency basis
31 December 31 December
2002 2001
# m # m
___________ ___________
Summarised profit and loss account
Earned premiums (net of reinsurance) 3,026 3,776
Net investment returns 1,115 1,015
Unrealised gains on investments - 1
Other income and charges 16 7,871
___________ ___________
Total income 4,157 12,663
Claims paid (net of reinsurance) (2,646) (1,990)
Changes in technical provisions 461 (9,042)
Operating expenses (433) (375)
Investment expenses and charges (951) (335)
Unrealised losses on investments (2,319) (1,494)
Other technical charges net of reinssurance (61) (48)
Tax attributable to the long-term business fund 29 195
Transfer to the fund for future appropriations 879 401
___________ ___________
Total expenditure (5,041) (12,688)
Balance on the technical account - long-term business (884) (25)
Tax credit attributable to balance on the technical account -
long-term business (49) 9
Income in the shareholders' funds 91 72
Expenses in the shareholders' funds (29) (23)
Goodwill amortisation and impairment (588) (18)
___________ ___________
Operating (loss) / profit on ordinary activities before tax (1,459) 15
Tax credit / (charge) on (loss) / profit on ordinary activities 29 (23)
___________ ___________
Loss for the financial year (1,430) (8)
___________ ___________
Summarised balance sheet
Investments 19,990 21,022
Assets held to cover linked liabilities 6,628 7,962
Debtors and prepayments and other accrued income 3,814 2,842
Other assets 1,592 1,764
___________ ___________
Total assets (1) 32,024 33,590
___________ ___________
Technical provisions 20,069 18,509
Technical provisions for linked liabilities 6,699 7,988
Fund for future appropriations (995) (116)
Subordinated liabilities 1,535 1,488
Other creditors 2,103 2,546
Shareholders' equity 2,613 3,175
___________ ___________
Total liabilities 32,024 33,590
___________ ___________
(1) Total assets disclosed on the face of the balance sheet as:
Long-term assurance business attributable to the shareholders 2,613 3,175
Long-term assurance business attributable to the policy holders 29,411 30,415
___________ ___________
Total 32,024 33,590
___________ ___________
The above disclosures have been extracted from draft accounts prepared in
compliance with the special provisions relating to insurance groups of Section
255A and Schedule 9A to the Companies Act 1985. The accounts are prepared in
accordance with applicable UK accounting standards under the historical cost
accounting rules modified to include the revaluation of investments. The
accounts have also been prepared in accordance with the Statement of Recommended
Practice on Accounting for Insurance Business issued by the Association of
British Insurers in December 1998.
On 1 August 2001 the long-term business of The Scottish Provident Institution
was transferred to Scottish Provident Limited in accordance with Schedule 2c of
the former Insurance Companies Act 1982. The value of assets and long-term
business technical provisions transferred on that date are the main components
of the "other income and charges" and "changes in technical provisions" in the
2001 Profit and Loss Account.
Reconciliation of embedded value to modified statutory solvency basis
12 months to 31 December 2002
AN SMA SP Total
Life
# m # m # m # m
___________ ___________ ___________ ___________
Reconciliation of profit and loss
Income from long-term assurance business after the
re-basing of embedded value 69 (246) (51) (228)
Net present value of future profits (21) (153) 14 (160)
Timing differences (24) (493) (2) (519)
Shareholder fund earnings 43 14 8 65
Goodwill - - (588) (588)
___________ ___________ ___________ ___________
Modified statutory solvency profit / (loss) for the 67 (878) (619) (1,430)
financial year after tax ___________ ___________ ___________ ___________
12 months to 31 December 2001
AN SMA SP Total
Life
# m # m # m # m
___________ ___________ ___________ ___________
Reconciliation of profit and loss
Income from long-term assurance business after the
re-basing of embedded value 75 (117) (37) (79)
Net present value of future profits (43) (109) 3 (149)
Timing differences 13 177 - 190
Shareholder fund earnings 36 9 3 48
Goodwill - - (18) (18)
___________ ___________ ___________ ___________
Modified statutory solvency profit / (loss) for the 81 (40) (49) (8)
financial year after tax ___________ ___________ ___________ ___________
The above tables reconcile the embedded value earnings to the earnings in the
individual Life companies statutory accounts produced in accordance with the
Statement of Recommended Practice on Accounting in Insurance Business issued by
the Association of British Insurers in December 1998.
The main differences between accounting methods are the inclusion of the
discounted value of future profits in the embedded value based accounts and
timing differences (including deferred acquisition costs) substantially due to
the prudential treatment of policies with guarantees within the Modified
Statutory Solvency Basis. In particular the statutory reserve for With-profits
Bonds with guarantees on certain policy anniversaries must reflect the fact that
all policies will reach the policy guarantee date and that they will also all
exercise their option. The embedded value, however, adopts best estimate
assumptions for persistency and can also allow for some future equity gains from
the current levels of the market whereas the statutory liability does not.
Goodwill appears as a reconciling item between the two methods as it is held
centrally in the Abbey National Group accounts. In addition, some goodwill also
appears in the individual company accounts under the modified statutory solvency
basis.
Principal assumptions used
2002 2001
% %
___________ ___________
Risk adjusted discount rate
Post-tax investment return: 8.5 8.5
Equities - pension business 7.0 7.0
Equities - life business 7.5 7.5
Gilts 5.0 5.0
Corporate bonds 5.75 5.75
Inflation (indexation) 2.5 2.5
Inflation (expenses) 3.5 3.5
___________ ___________
Demographic assumptions in respect of mortality and morbidity have been derived
from the relevant company's operating experience together with information
gathered within the life assurance industry on likely future trends.
Product persistency and expense assumptions are derived from the experience of
the relevant company. In the case of expenses the business operates an
activity-based cost model to attribute costs between those relating to the
acquisition of new business and those to support the administration of in-force
business. The resulting assumptions are then used within the overall basis for
calculating new business contribution and the value of in-force business.
Current tax rates and applicable legislation for the relevant territory
applicable to each company are assumed to remain unchanged into the future
except where changes in future tax rates have already been announced.
Current methods and bases for calculating statutory reserves are assumed to
continue unaltered, as are bases used to calculate early surrender values.
The value of in-force business allows for future premiums receivable under
regular premium business but does not include any non-contractual increments nor
rebate premiums due from the Department of Social Security. Any such receipts
will be included in the value of new business in a future year when such
premiums are received.
Methodology
The shareholders' interest in the long-term business operations is represented
by the embedded value. The embedded value is the total of the net assets of the
long-term operations and the present value at risk discount rates (which
incorporate a risk margin) of the projected releases to shareholders arising
from the business in-force. The releases to shareholders are obtained by
projecting forward the in-force business at the end of the period using the
assumptions described above.
The embedded value profit over the year is then measured as the movement in the
embedded value over the year, adjusted for any capital injections or dividends
paid. Pre-tax profits are obtained by taking this net of tax movement and
grossing up at the applicable rate of tax for the company concerned.
Alternative assumptions
The following table illustrates the sensitivity of the new business contribution
and value of in-force business to changes in key economic assumptions:
New business contribution Value of in-force business
Investment Discount rate Investment Discount rate
return rates return rates
# m # m # m # m
___________ ___________ ___________ ___________
Increase of one percentage point 16.5 (16.3) 95.5 (81.4)
Decrease of one percentage point (15.8) 17.6 (91.3) 90.9
___________ ___________ ___________ ___________
The sensitivities shown here are calculated by changing the particular
assumption in isolation and do not contain any other assumption changes which
may normally be made alongside such a change in determining a mutually
consistent economic basis.
Changes in investment return rates will have the impact of changing the future
releases to shareholders as the projected cashflows will increase or decrease in
the future. Changes in discount rates do not change the projected releases, only
the present value of them.
Life assurance - new business by geography
31 December 31 December 31 December
2002 2001 2000
# m # m # m
___________ ___________ ___________
United Kingdom annualised equivalent 428 495 485
Non-United Kingdom annualised equivalent 111 120 53
___________ ___________ ___________
539 615 538
___________ ___________ ___________
FORWARD LOOKING STATEMENTS
This document contains certain "forward-looking statements" with respect to
certain of Abbey National's plans and its current goals and expectations
relating to its future financial condition, performance and results. By their
nature, all forward-looking statements involve risk and uncertainty because they
relate to future events and circumstances which are beyond Abbey National's
control including among other things, UK domestic and global economic and
business conditions, market related risks such as fluctuations in interest rates
and exchange rates, the policies and actions of regulatory authorities, the
impact of competition, inflation, deflation, the timing, impact and other
uncertainties of future acquisitions or combinations within relevant industries,
as well as the impact of tax and other legislation and other regulations in the
jurisdictions in which Abbey National and its affiliates operate. As a result,
Abbey National's actual future financial condition, performance and results may
differ materially from the plans, goals, and expectations set forth in Abbey
National's forward-looking statements.
Other information
1. The financial information in this preliminary statement does not constitute
statutory accounts as defined in s240 of the Companies Act 1985. The
financial information for the full preceding year is based on the statutory
accounts for the year ended 31 December 2001. The auditors have reported on
those accounts; their reports were unqualified and did not contain
statements under s237(2) or (3) Companies Act 1985. Those accounts have been
delivered to the Registrar of Companies.
2. The financial information in this release is prepared on the basis of the
accounting policies as stated in the previous year's financial statements,
except for the expensing of stock options, providing for deferred tax on a
full provision basis (FRS 19), and the reclassification of Reserve Capital
Instruments (UITF Abstract 33) and embedded value. A summary of all
accounting restatements is included in Appendix 4, with a detailed
reconciliation included in Appendix 7.
3. An annual report on Form 20-F is expected to be filed with the Securities and
Exchange Commission in the United States of America on 7 March 2003.
4. The preliminary statement was approved by the board of directors of Abbey
National plc on 25 February 2003.
5. The ex-dividend date is 19 March 2003; the record date is 21 March 2003; the
payment date is 6 May 2003; the scrip election date is 28 March 2003.
6. The scrip price will be calculated utilising the average of the mid-market
price of Abbey National plc shares over the period 19 - 21 March 2003. The
scrip share price can be obtained from 24 March 2003 on the Abbey National
Group web site: www.abbeynational.com or by telephoning Abbey National
Shareholder Services on 0870 532 9430.
7. The AGM will take place on 24 April 2003.
8. The 2003 interim results announcement is expected to be on 30 July 2003.
9. This report will also be available on the Abbey National Group web site:
www.abbeynational.com from 26 February 2003.
Jon Burgess
Head of Investor Relations
For further information contact:
investor@abbeynational.co.uk
Tel: (020) 7756 4181
(020) 7756 4184
Abbey National plc Registered Office: Abbey National House, 2 Triton Square,
Regent's Place, London NW1 3AN
This information is provided by RNS
The company news service from the London Stock Exchange
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