The Royal Bank of Scotland plc Annual Report and Accounts 2019 Strategic report Page Franchises Strategic Report In the fourth quarter of 2019, Commercial & Private Banking (CPB), Presentation of information 1 combining the reportable segments of Commercial Banking and Description of business 1 Private Banking ceased to operate as one business area and the Performance overview 1 franchise Personal & Ulster, combining the reportable segments of UK Stakeholder engagement and s.172(1) statement 2 Personal Banking and Ulster Bank RoI was also disbanded. The Board of directors and secretary 4 reportable operating segments remain unchanged and no comparatives have been restated. Financial review 5 Capital and risk management 7 Principal activities and operating segments Report of the directors 55 RBS plc serves customers across the UK with a range of retail and Statement of directors’ responsibilities 59 commercial banking products and services. A wide range of personal Financial statements 60 products are offered including current accounts, credit cards, personal loans, mortgages and wealth management services. The reportable Presentation of information operating segments are as follows: The Royal Bank of Scotland plc (‘RBS plc’) is a wholly-owned subsidiary of NatWest Holdings Limited (‘NWH Ltd’ or ‘the intermediate UK Personal Banking serves individuals and mass affluent holding company’). The term ‘NWH Group’ comprises NWH Ltd and its customers in the UK. subsidiary and associated undertakings. The Royal Bank of Scotland Group plc (‘RBSG plc’) is ‘the ultimate holding company’. The term Commercial Banking serves, start-up, SME, commercial and corporate ‘RBS Group’ comprises RBSG plc and its subsidiary and associated customers in the UK, together with small businesses. undertakings. Private Banking serves UK connected, high net worth individuals and RBS plc publishes its financial statements in pounds sterling (‘£’ or their business interests. ‘sterling’). The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively, and references Central items & other comprises corporate treasury activity on behalf to ‘pence’ represent pence in the United Kingdom (‘UK’). Reference to of RBS plc and its fellow subsidiaries and also RBS plc’s corporate ‘dollars’ or ‘$’ are to United States of America (‘US’) dollars. The service and functions activities. abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of dollars, respectively, and references to ‘cents’ represent Performance overview cents in the US. The abbreviation ‘€’ represents the ‘euro’, and the The profit for 2019 was £660 million, compared with profit for 2018 of abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of £702 million. 2019 reflects a full twelve month period of the personal millions of euros, respectively. and commercial banking business transferred in under ring-fencing related transfers, compared to eight months of that business in Description of business 2018.The additional profit from that business was more than offset by RBS Group structure a PPI conduct charge of £296 million. The UK ring-fencing legislation required the separation of essential banking services from investment banking services from 1 January The operating profit before tax of £998 million includes £257 million 2019. RBS Group has placed the majority of the UK and Ireland relating to UK Personal Banking, £673 million relating to Commercial banking business in ring-fenced banking entities under an intermediate Banking, with UK Personal Banking reflecting the PPI charge. There holding company, NatWest Holdings Limited. (NWH Ltd). Some was continued margin pressure through mortgages and the flattening Western European corporate business has been transferred from the yield curve impact on deposit margins. ring-fenced bank entities to NatWest Markets N.V., a subsidiary of NatWest Markets Plc (NWM Plc) and RBS Group continues to review The additional four months of business increased total income to the scope of further transfers. NWM Plc and RBS International Limited £2,379 million in 2019 compared to £1,755 million in 2018. However, (RBSI Ltd) are separate banks outside the ring-fence, both the underlying income trend was downward due to decreases in subsidiaries of RBSG plc. income earning assets from the run-off of direct mortgage portfolios in UK Personal Banking and the transfer of Commercial Banking The principal entities under NWH Ltd are National Westminster Bank customers to NatWest Bank Plc. The additional four months of Plc (which wholly owns Ulster Bank Limited), The Royal Bank of business and the PPI charge also increased operating expenses to Scotland plc and Ulster Bank Ireland DAC. £1,174 million in 2019 from £755 million in 2018. RBS Group re-segmentation The CET1 capital ratio remained at 13.2% reflecting the attributable Effective from 1 January 2019, Business Banking has been transferred profit and a decrease in RWA’s, offset by a dividend paid to the entity’s from UK Personal and Business Banking (UK PBB) to Commercial parent during the year and a £800 million foreseeable ordinary Banking as the nature of the business, including distribution channels, dividend accrual. products and customers are more closely aligned to the Commercial Banking business. Concurrent with the transfer, UK PBB has been renamed UK Personal Banking and the previous franchise combining UK PBB and Ulster Bank RoI was renamed Personal & Ulster. Reportable segmental comparatives have been restated. RBS plc Annual Report and Accounts 2019 1 Stakeholder engagement and s.172(1) statement Stakeholder engagement and s.172(1) statement Board and provides further proof of progress across a range of The Board objectives, approved in February 2019, identified the measures. Board’s key stakeholders (as set out in this statement). During 2019 the Board undertook a variety of activities to engage with stakeholders Employee consultation and bring their voice into the boardroom. Details are set out below, Having ongoing discussion and engagement with a number of together with additional information on related engagement activities employee representatives such as trade unions and work councils is undertaken within RBS Group which impacted RBS plc. vital and RBS Group regularly discusses developments and updates on the progress of strategic plans. This section of the Strategic Report describes how the directors have had regard to the matters set out in section 172(1) (a) to (f), and forms Speak Up the directors’ statement required under section 414CZA, of The Where colleagues wish to report any concerns relating to wrong doing Companies Act 2006. or misconduct, one of the ways they can do this is by raising their concerns via Speak Up, RBS Group’s whistleblowing service. The Board training and support on s.172 duties 2019 colleague opinion survey showed the highest ever score when Directors are supported in the discharge of their duties by the asking colleagues if they feel safe to speak up, as well as an Company Secretary. All directors receive guidance on their statutory understanding the process of how they do that. In 2019, 458 cases duties including Section 172 and were briefed on the reporting were raised across RBS Group, compared to 480 in 2018. requirements introduced by the Companies (Miscellaneous Reporting) Regulations 2018 in advance of the effective date. A new approach to Developing colleagues Board and committee papers has been introduced with greater focus Culturally, becoming a learning organisation is a strategic priority. on ensuring relevant stakeholder interests are clearly articulated; and Focus has been on preparing colleagues for the future with broader guidance on documenting decisions has been refreshed to ensure development focused on key Critical People Capabilities. In 2019 RBS these are recorded in a consistent manner across RBS Group. Group created an Agile Capability Hub, providing learning content to support colleagues to confidently engage in new ways of working. This Customers year, RBS Group was also the first UK retail bank to launch a Data Customers are at the heart of everything RBS plc does. During the Academy, to nurture and grow data expertise, innovation, and year the Board received updates on key customer issues through collaboration. More information can be found in the 2019 Annual customer service performance updates and regular business reviews. Report and Accounts of RBSG plc and on rbs.com. There was also a dedicated Board session on the Retail Banking environment. The directors met a range of business and personal Investing in colleagues customers during a programme of visits in September 2019, which RBS Group has also transformed colleagues’ experience by deploying provided an opportunity to gain insights into customer issues and new digital tools. Workday was implemented as a new digital HR challenges. The Chairman and Chief Executive Officer have regular platform in November 2019 and includes a mobile app, giving meetings with customers to enhance relationships and understand colleagues an experience on par with the digital experience customers their views. enjoy. ServiceNow was extended to improve how RBS Group responds to colleagues’ queries, and an expanded HR chat bot has Colleagues helped over 50,000 colleagues to answer their basic queries. These References to “colleagues” in this Report mean all members of the enhancements are enabling RBS Group to respond to the evolving workforce