42. Segmental analysis

(a) Divisions

The directors manage the Group primarily by class of business and present the segmental analysis on that basis. The Group’s activities are organised as follows:

• Global Banking & Markets is a leading banking partner to major corporations and financial institutions around the world, providing a full range of debt financing, risk management and investment services to its customers.
• UK Corporate Banking provides banking, finance and risk management services to UK corporate customers. Through its network of relationship managers across the country it distributes the full range of Corporate Markets’ products and services to companies.
• Retail comprises both the Royal Bank and NatWest retail brands, and a number of direct providers offering a full range of banking products and related financial services to the personal, premium and small business markets across several distribution channels. Retail also includes the Group’s non-branch based retail business, such as Tesco Personal Finance, that issues a comprehensive range of credit and charge cards to personal and corporate customers and provides card processing services for retail businesses.
• Wealth Management provides private banking and investment services to its global clients through Coutts Group, Adam & Company, The Royal Bank of Scotland International and NatWest Offshore.
• Ulster Bank brings together the Ulster Bank and First Active businesses. Retail Markets serves personal customers through both brands and Corporate Markets caters for the banking needs of business and corporate customers.
• Citizens is engaged in retail and corporate banking activities through its branch network in 13 states in the United States and through non-branch offices in other states. Citizens includes the seven Citizens Banks, Charter One, RBS National Bank, US credit card business, RBS Lynk, merchant acquiring business, and Kroger Personal Finance, the credit card joint venture with the second largest US supermarket group.
• RBS Insurance sells and underwrites retail, SME and wholesale insurance over the telephone and internet, as well as through brokers and partnerships. The Retail Divisions of Direct Line, Churchill and Privilege sell general insurance products direct to the customer. Through its International Division, RBS Insurance sells general insurance, mainly motor, in Spain, Germany and Italy. The Intermediary and Broker Division sells general insurance products through its network of 2,500 independent brokers.
• Manufacturing supports the customer-facing businesses and provides operational technology, customer support in telephony, account management, lending and money transmission, global purchasing, property and other services.

Segments charge market prices for services rendered to other parts of the Group with the exception of Manufacturing and central items. The expenditure incurred by Manufacturing relates to costs principally in respect of the Group’s banking and insurance operations in the UK and Ireland. These costs reflect activities that are shared between the various customer-facing divisions. These shared costs and related assets and liabilities are not allocated to divisions in the day-to-day management of the businesses but for the first time in 2006, with comparatives restated accordingly, they are allocated to customer-facing divisions for financial reporting purposes on a basis the directors consider to be reasonable. Funding charges between segments are determined by Group Treasury, having regard to commercial demands. The results of each division before amortisation of purchased intangible assets, integration costs and net gain on sale of strategic investments and subsidiaries, and where appropriate, allocation of Manufacturing costs (‘Contribution’) and after allocation of Manufacturing costs (‘Operating profit before tax’) are shown below.

	Group
2006	Net interest income £m	Non-interest income £m	Total £m	Operating expenses and insurance claims £m	Deprec- iation and amortis- ation £m	Impairment losses £m	Contribution £m	Allocation of Manfacturing costs £m	Operating profit before tax £m
Global Banking & Markets	1,110	5,716	6,826	(2,336)	(472)	(85)	3,933	(143)	3,790
UK Corporate Banking	2,111	1,342	3,453	(737)	(338)	(189)	2,189	(427)	1,762
Retail	4,211	3,492	7,703	(2,461)	(32)	(1,343)	3,867	(1,568)	2,299
Wealth Management	500	434	934	(425)	(11)	(1)	497	(143)	354
Ulster Bank	773	215	988	(294)	(21)	(71)	602	(214)	388
Citizens	2,085	1,232	3,317	(1,398)	(156)	(181)	1,582	—	1,582
RBS Insurance	511	5,168	5,679	(4,671)	(44)	—	964	(214)	750
Manufacturing	(151)	45	(106)	(2,228)	(518)	—	(2,852)	2,852	—
Central items	(554)	(238)	(792)	(592)	24	(8)	(1,368)	(143)	(1,511)
	10,596	17,406	28,002	(15,142)	(1,568)	(1,878)	9,414	—	9,414
Amortisation of intangibles	—	—	—	—	(94)	—	(94)	—	(94)
Integration costs	—	—	—	(118)	(16)	—	(134)	—	(134)
	10,596	17,406	28,002	(15,260)	(1,678)	(1,878)	9,186	—	9,186

Note:

(1) Revenue represents total income included in the income statement grossed-up for interest payable fees and commissions payable.

	Group
2005	Net interest income £m	Non-interest income £m	Total £m	Operating expenses and insurance claims £m	Depreci- ation and amortis- ation £m	Impairment losses £m	Contribution £m	Allocation of Manfacturing costs £m	Operating profit before tax £m
Global Banking & Markets	1,034	4,557	5,591	(1,800)	(473)	(139)	3,179	(138)	3,041
UK Corporate Banking	1,904	1,265	3,169	(644)	(343)	(196)	1,986	(414)	1,572
Retail	4,068	3,374	7,442	(2,451)	(38)	(1,172)	3,781	(1,517)	2,264
Wealth Management	442	372	814	(377)	(14)	(13)	410	(138)	272
Ulster Bank	655	203	858	(246)	(24)	(58)	530	(207)	323
Citizens	2,122	1,142	3,264	(1,407)	(151)	(131)	1,575	—	1,575
RBS Insurance	461	5,028	5,489	(4,527)	(27)	—	935	(207)	728
Manufacturing	(146)	51	(95)	(2,140)	(523)	—	(2,758)	2,758	—
Central items	(622)	(341)	(963)	(431)	5	2	(1,387)	(137)	(1,524)
	9,918	15,651	25,569	(14,023)	(1,588)	(1,707)	8,251	—	8,251
Amortisation of intangibles	—	—	—	—	(97)	—	(97)	—	(97)
Integration costs	—	—	—	(318)	(140)	—	(458)	—	(458)
Net gain on sale of strategic investments and subsidiaries	—	333	333	(93)	—	—	240	—	240
	9,918	15,984	25,902	(14,434)	(1,825)	(1,707)	7,936	—	7,936
2004
Global Banking & Markets	899	3,714	4,613	(1,496)	(428)	(311)	2,378	(128)	2,250
UK Corporate Banking	1,639	1,347	2,986	(586)	(332)	(270)	1,798	(383)	1,415
Retail	3,858	3,529	7,387	(2,568)	(35)	(702)	4,082	(1,402)	2,680
Wealth Management	403	370	773	(366)	(30)	(18)	359	(128)	231
Ulster Bank	550	193	743	(224)	(27)	(40)	452	(192)	260
Citizens	1,609	659	2,268	(1,003)	(77)	(117)	1,071	—	1,071
RBS Insurance	426	4,613	5,039	(4,135)	(31)	—	873	(192)	681
Manufacturing	(102)	36	(66)	(2,060)	(426)	—	(2,552)	2,552	—
Central items	(211)	(141)	(352)	(243)	10	(27)	(612)	(127)	(739)
	9,071	14,320	23,391	(12,681)	(1,376)	(1,485)	7,849	—	7,849
Amortisation of intangibles	—	—	—	—	(45)	—	(45)	—	(45)
Integration costs	—	—	—	(267)	(253)	—	(520)	—	(520)
	9,071	14,320	23,391	(12,948)	(1,674)	(1,485)	7,284	—	7,284

	2006			2005			2004
Total revenue	External £m	Inter segment £m	Total £m	External £m	Inter segment £m	Total £m	External £m	Inter segment £m	Total £m
Global Banking & Markets	11,414	7,638	19,052	8,474	3,623	12,097	6,718	3,370	10,088
UK Corporate Banking	5,957	18	5,975	6,104	101	6,205	5,039	637	5,676
Retail	11,334	1,612	12,946	10,880	1,516	12,396	10,441	1,392	11,833
Wealth Management	1,028	1,430	2,458	870	1,129	1,999	861	918	1,779
Ulster Bank	2,174	196	2,370	1,638	150	1,788	1,281	53	1,334
Citizens	5,872	2	5,874	4,878	4	4,882	2,929	15	2,944
RBS Insurance	6,365	82	6,447	6,194	67	6,261	6,043	33	6,076
Manufacturing	49	5	54	54	6	60	42	15	57
Central items	93	7,985	8,078	28	5,161	5,189	23	2,065	2,088
Eliminations	—	(18,968)	(18,968)	—	(11,757)	(11,757)	—	(8,498)	(8,498)
	44,286	—	44,286	39,120	—	39,120	33,377	—	33,377
Net gain on sale of strategic investments	—	—	—	333	—	333	—	—	—
	44,286	—	44,286	39,453	—	39,453	33,377	—	33,377

	2006			2005			2004
Total income	External £m	Inter segment £m	Total £m	External £m	Inter segment £m	Total £m	External £m	Inter segment £m	Total £m
Global Banking & Markets	8,497	(1,671)	6,826	6,311	(720)	5,591	5,343	(730)	4,613
UK Corporate Banking	5,222	(1,769)	3,453	4,696	(1,527)	3,169	4,153	(1,167)	2,986
Retail	8,072	(369)	7,703	7,673	(231)	7,442	7,423	(36)	7,387
Wealth Management	(462)	1,396	934	(235)	1,049	814	18	755	773
Ulster Bank	1,109	(121)	988	973	(115)	858	800	(57)	743
Citizens	3,399	(82)	3,317	3,353	(89)	3,264	2,265	3	2,268
RBS Insurance	5,662	17	5,679	5,501	(12)	5,489	5,064	(25)	5,039
Manufacturing	(85)	(21)	(106)	(61)	(34)	(95)	(66)	—	(66)
Central items	(3,412)	2,620	(792)	(2,642)	1,679	(963)	(1,609)	1,257	(352)
	28,002	—	28,002	25,569	—	25,569	23,391	—	23,391
Net gain on sale of strategic investments	—	—	—	333	—	333	—	—	—
Operating profit before tax	28,002	—	28,002	25,902	—	25,902	23,391	—	23,391

Note:

(1) Segmental results for 2005 have been restated to reflect transfers of businesses between segments in 2006.

	Group
2006	Assets - before allocation of Manu- facturing assets £m	Allocation of Manu- facturing assets £m	Assets £m	Liabilities - before allocation of Manu- facturing liabilities £m	Allocation of Manu- facturing assets £m	Liabilities £m	Cost to acquire fixed assets and intangible assets - before allocation of Manu- facturing assets £m	Allocation of Manu- facturing assets £m	Cost to acquire fixed assets and intangible assets £m
Global Banking & Markets	498,191	228	498,419	444,487	—	444,487	2,069	14	2,083
UK Corporate Banking	88,677	417	89,094	80,221	—	80,221	1,284	46	1,330
Retail	114,778	3,546	118,324	93,049	1,014	94,063	13	186	199
Wealth Management	11,082	196	11,278	29,421	—	29,421	79	19	98
Ulster Bank	43,119	265	43,384	34,467	—	34,467	166	24	190
Citizens	82,531	—	82,531	69,770	—	69,770	203	—	203
RBS Insurance	12,252	397	12,649	9,085	—	9,085	83	54	137
Manufacturing	5,709	(5,709)	—	1,884	(1,884)	—	361	(361)	—
Central items	15,093	660	15,753	63,558	870	64,428	482	18	500
Group	871,432	—	871,432	825,942	—	825,942	4,740	—	4,740
2005
Global Banking & Markets	422,407	219	422,626	388,221	—	388,221	2,359	79	2,438
UK Corporate Banking	76,799	406	77,205	68,037	—	68,037	1,315	116	1,431
Retail	110,287	3,538	113,825	86,275	967	87,242	24	532	556
Wealth Management	10,078	191	10,269	26,369	—	26,369	42	58	100
Ulster Bank	35,875	256	36,131	29,878	—	29,878	77	81	158
Citizens	92,197	—	92,197	77,471	—	77,471	301	—	301
RBS Insurance	12,523	390	12,913	8,925	—	8,925	172	96	268
Manufacturing	5,638	(5,638)	—	1,788	(1,788)	—	998	(998)	—
Central items	11,023	638	11,661	52,319	821	53,140	—	36	36
Group	776,827	—	776,827	739,283	—	739,283	5,288	—	5,288

Shareholders’ equity by division	2006 £m	2005 £m
Global Banking & Markets	10,745	9,449
UK Corporate Banking	6,987	6,281
Retail	6,057	6,361
Wealth Management	487	462
Ulster Bank	2,960	2,256
Citizens	11,765	12,402
RBS Insurance	2,461	2,219
Manufacturing	246	264
Central items	(1,481)	(4,259)
Group	40,227	35,435

Note:

(1) Segmental results for 2005 have been restated to reflect transfers of businesses between segments in 2006.

Segmental analysis of goodwill is as follows:

	Group
	Global Banking & Markets £m	UK Corporate Banking £m	Retail £m	Wealth Manage- ment £m	Ulster Bank £m	Citizens £m	RBS Insurance £m	Central items £m	Total £m
At 1 January 2005	36	150	257	153	425	6,635	961	9,415	18,032
Currency translation and other adjustments	(5)	—	(3)	(4)	(11)	809	—	—	786
Arising on acquisitions during the year	—	1	9	—	—	—	103	—	113
Disposals	—	(96)	—	(12)	—	—	—	—	(108)
At 1 January 2006	31	55	263	137	414	7,444	1,064	9,415	18,823
Currency translation and other adjustments	4	—	(8)	(7)	(9)	(904)	—	—	(924)
Disposals	—	—	—	(3)	—	(7)	—	—	(10)
At 31 December 2006	35	55	255	127	405	6,533	1,064	9,415	17,889

(b) Geographical segments

The geographical analyses in the tables below have been compiled on the basis of location of office where the transactions are recorded.

	Group
2006	UK £m	USA £m	Europe £m	Rest of the World £m	Total £m
Total revenue	29,162	9,411	4,683	1,030	44,286
Net interest income	7,541	2,278	709	68	10,596
Fees and commissions (net)	3,443	1,245	412	94	5,194
Income from trading activities	1,585	939	108	43	2,675
Other operating income	2,766	295	491	12	3,564
Insurance premium income (net of reinsurers’ share)	5,604	—	369	—	5,973
Total income	20,939	4,757	2,089	217	28,002
Operating profit before tax	6,038	2,334	785	29	9,186
Total assets	589,962	201,134	60,759	19,577	871,432
Total liabilities	568,492	187,143	56,662	13,645	825,942
Net assets attributable to equity shareholders and minority interests	21,470	13,991	4,097	5,932	45,490
Contingent liabilities and commitments	179,558	57,873	13,244	7,159	257,834
Cost to acquire property, plant and equipment and intangible assets	3,040	254	1,427	19	4,740
2005
Total revenue	27,461	7,562	3,650	780	39,453
Net interest income	6,942	2,225	713	38	9,918
Fees and commissions (net)	3,466	1,100	263	80	4,909
Income from trading activities	1,263	959	56	65	2,343
Other operating income	2,330	211	403	9	2,953
Insurance premium income (net of reinsurers’ share)	5,462	—	317	—	5,779
Total income	19,463	4,495	1,752	192	25,902
Operating profit before tax	5,278	2,032	602	24	7,936
Total assets	492,962	205,514	62,203	16,148	776,827
Total liabilities	473,581	191,189	58,527	15,986	739,283
Net assets attributable to equity shareholders and minority interests	19,381	14,325	3,676	162	37,544
Contingent liabilities and commitments	161,927	51,392	10,714	1,164	225,197
Cost to acquire property, plant and equipment and intangible assets	3,353	337	1,581	17	5,288

	Group
2004	UK £m	USA £m	Europe £m	Rest of the World £m	Total £m
Total revenue	25,486	4,698	2,772	421	33,377
Net interest income	6,454	1,825	751	41	9,071
Fees and commissions (net)	3,455	717	301	74	4,547
Income from trading activities	1,113	821	18	36	1,988
Other operating income	1,741	109	284	4	2,138
Insurance premium income (net of reinsurers’ share)	5,390	—	257	—	5,647
Total income	18,153	3,472	1,611	155	23,391
Operating profit before tax	5,059	1,575	583	67	7,284
Total assets	382,623	145,748	45,845	13,906	588,122
Total liabilities	362,297	131,449	43,129	13,850	550,725
Net assets attributable to equity shareholders and minority interests	20,326	14,299	2,716	56	37,397
Contingent liabilities and commitments	151,489	37,972	6,791	618	196,870
Cost to acquire property, plant and equipment and intangible assets	3,811	6,178	1,736	2	11,727

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