northern rock's business

Mission, Vision and Values

Company Strategy
Northern Rock is a specialised lender providing funds for residential mortgages, secured commercial lending and personal finance. We obtain funds from both on-shore and offshore personal savings, wholesale money markets, covered bonds and from the securitisation of mortgage assets.

Northern Rock's strategy encompasses efficiency, growth and value for both customers and shareholders.

Efficiency is paramount to this business strategy. Cost efficiency is enhanced by low cost, effective distribution and enables competitive pricing. Capital efficiency is achieved by optimising the use of debt and equity capital.

By growing lending and improving the mix of higher margin products, Northern Rock aims to grow earnings and improve returns to shareholders, at the same time as providing innovative and consumer friendly products to our customers.

Northern Rock Mission Statement
Northern Rock is a specialised lending and savings bank which aims to deliver superior value to customers and shareholders through excellent products, efficiency and growth.

Corporate Social Responsibility Policy
CSR has emerged as an aspect of management that requires companies to provide specific focus and public reporting of activities. The outcomes are subject to scrutiny, assessment and comment by external parties. Northern Rock has embraced CSR as a function of good management and we now have a comprehensive policy to cover current and future topics on the CSR agenda.

Approach
The existence of a framework to capture and report on CSR activities within the Company allows us to promote CSR in keeping with our business objectives and, in addition, to allow the review and control of risks associated with poor CSR performance. CSR is a visible function of management and we can demonstrate that it is part of our normal business activities.

Northern Rock is a well-managed company and we already have many CSR elements in place. Through the work of the CSR Section within Premises and the cross-functional CSR Group, a framework has been established to promote, capture and report our CSR activities.

The key content headings listed in the policy statement encompass further policies and practices already in place or being developed within the Company.

Corporate Social Responsibility Policy Statement
At Northern Rock, we will conduct all of our business operations in a fair and balanced manner, respecting and responding to legal, social and ethical issues arising from our commercial activities.

We will demonstrate our commitment to continuous improvement in Corporate Social Responsibility by acting as good corporate citizens, controlling and minimising our direct and indirect social and environmental impacts.

This policy extends to relationships with all of our stakeholders, including customers, shareholders, employees, suppliers, joint venture partners and subsidiaries.

To support our aim of being an 'employer of choice', we will provide our employees with a comfortable, safe and healthy working environment whilst promoting personal development, job enrichment and work-life balance.

We expect all of our employees to respect our stakeholders, the wider communities in which we operate and the natural environment.

Through the Northern Rock Foundation, which receives 5% of annual pre-tax profits, we will support communities and charitable causes based mainly though not exclusively, in the North-East of England and Cumbria.

Corporate policy and procedures will include social responsibility and sustainability issues in the decision making process. We will identify, monitor, measure, review and report on our performance and policies in the following areas:

Mission, Vision and Values
Governance and Accountability
Business Ethics and Human Rights
Workplace
Marketplace
Community
Environment

We believe that the implementation of this policy will contribute to achieving superior value for our customers and shareholders.

Corporate Social Responsibility - Supporting Policies and Practices
Mission, Vision and Values

Executive input and influence in CSR development
Enhanced brand image and reputation
Improved financial performance
Stakeholder engagement
Measurement and transparency
Following the research, publication and implementation of our Corporate Social Responsibility Policy we have disbanded this individual Group as we believe that the Mission, Vision and Values principles are now embedded in the remit and activities of the remaining groups.

Governance and Accountability

Board and leadership responsibilities
Compliance and best practice
Role of stakeholders
Monitoring and reporting

Business Ethics and Human Rights

Financial and accounting integrity
Privacy and security
Compliance and best practice
Due diligence towards business partners
Socially responsible investment, operations and advertising
Human Rights

Workplace

Working environment and Health and Safety
Employee rights
Conditions and benefits of employment
Employee involvement

Marketplace

Supplier management
Complaint handling
Customer loyalty and retention
Stakeholder consultation and customer satisfaction
Business continuity
Diversity and access

Community

Northern Rock Foundation
Role in the community
Impact of community programmes
Contributions, including money, time etc.

Environment

Compliance with legislation
Managing environmental risk
Employee awareness and involvement
Objectives and targets

A Management Structure is in place within the Company to support our Corporate Social Responsibility activities.

The Board Member Responsible for Corporate Social Responsibility within Northern Rock is David F Baker, Deputy Chief Executive.
The Executive Committee receives a formal summary of corporate CSR activities that have taken place during the reporting period and the proposals for the following year.

Main Board receives a formal briefing annually in the area of Corporate Social Responsibility.

Northern Rock Operations
Northern Rock plc currently operates within the United Kingdom and Ireland and offshore via a subsidiary company in Guernsey.

Corporate Citizenship
Northern Rock recognises that there is a direct correlation between our everyday operation and activities and our wider social and environmental conduct. The concept of being a good corporate citizen is fundamental to Northern Rock and we have embodied this principle into our staff employment, training and welfare.

In addition, we have a history of supporting local community and charitable causes. This has been achieved largely by the creation of The Northern Rock Foundation, and continues into the everyday contributions by our staff on a voluntary and company-assisted basis.

Building on this Community Report, the Company will continue to promote greater transparency of our corporate activity in this area.

Stakeholder Engagement
Northern Rock has a policy of active communication with its stakeholders. As part of this process members of management are regularly engaged in verbal, face to face and written communication with the following stakeholders:

Customers

Employees

Shareholders

Government Offices

Non Government Organisations

Analysts

Media

Suppliers

Local Community Groups

Guidance from the United Kingdom Listing Authority (UKLA) is followed in respect of matters concerned with listing and the FSA's (Financial Services Authority) interpretation of the various provisions of the Listing Rules.

The guidance is based on the premise that communication between companies and the market is desirable and should be of positive benefit to both. It recognises the value to both companies and the market of a dialogue between analysts and a company that builds up a view of a business's potential.

Further information with regard to Institutional Relations may be obtained from the Company's Institutional Relations Department and our Corporate website.

Media related enquiries should be directed to our Corporate Relations Department.

Value Added Scoreboard 2005
The fourth Value Added Scoreboard was produced by the Department of Trade and Industry (DTI) during 2005 using 2004 data.

Value added is the wealth created by the activities of a company and is defined as sales less the cost of bought-in materials, components and services. It can be calculated from a company's audited accounts.

The 2005 Value Added Scoreboard lists the value added (VA) for the top 600 European companies and the top 800 UK companies together with extensive financial data and key ratios. The Scoreboard shows by how much these companies have increased their value added and records the efficiency with which they create wealth.

Value added is distributed to employees, as returns to the providers of capital, taxes to governments, and as investment to develop and grow the company.

It is an output measure of the wealth created by the activities of a company and is distributed in four main ways:

Rewards to the providers of capital (loans and equity)

Compensation for employees who provide the necessary skills

Taxes for governments

Investment to sustain and develop the business (e.g. Research and development for new products and services)

Northern Rock is pleased that the DTI exercise has produced a favourable benchmark for Northern Rock in their 2005 report and we believe that is a reflection of productivity, control and management by our staff.

In the exercise Northern Rock was ranked at 194 in the largest 800 UK Companies by value added generated in the Scoreboard.

Growth of value added in the year was 19% against sector average of 20% - Northern Rock's organic growth was higher than all other UK banks except HBOS at 22%.

National Average Value Added per employee (£000) for the largest 800 companies is 48.1, for banks this reaches 82.6, Northern Rock registered 115.8

The most favourable performance of all was in Value Added as % of Employment Costs and Depreciation, a measure of efficiency and profitability with the result of 433.2% while the sector average was 205.2% and National Average was 152.3%

Further details on the Value Added Scoreboard can be found at:
Department of Trade and Industry (DTI)

The Scope Definitions and Data Sources of the Value Added Scoreboard can be found at: Scope Definitions and Data Sources (page 71)

EIRIS

Ethical Investment Research Service (EIRIS) researches over 2,600 companies around the world. Their clients include major institutional investors, ethical and SRI fund managers, charities and a leading index provider.

'EIRIS has appreciated Northern Rock's willingness to disclose and engage in dialogue on issues of corporate social responsibility. This is a particularly noteworthy commitment from within the finance sector. This has led to an improved mutual understanding of each other's business which can only be for the good of all concerned.'

David Tozer
(Senior Researcher: Central Team)
Ethical Investment Research Service (EIRIS)

This year EIRIS sent companies 2 surveys covering environmental and social issues.

Environmental - information on environmental policy, management systems, reporting and performance data.

Social - information covering governance, ethics and stakeholder relations.

During the year the Company, was engaged in 2-way communication with EIRIS sharing environmental, social and ethical information.

In the EIRIS Company Profile Mailing 2005 Northern Rock received the following assessments in the areas of social and environmental performance:


Board Practice	All of the core governance elements Separates the roles of chairman and chief executive More then 33% of the board are independent non-executives Has a majority independent committee
Bribery and Corruption	Clear policy and procedures on bribery and corruption.
Code of Ethics	Advanced level Code of Ethics Intermediate Code of Ethics System Clearly communicates a Code of Ethics
Directors’ Pay	Top director receives 25 times average UK pay
Disclosure	Yes, has responded to a recent questionnaire or profile mailing
Responsibility for Stakeholders	Five or more stakeholder issues allocated at board level
SEE Risk Management	Good board/senior management engagement with SEE issues
Women on the Board	One or more, but not 20% of the directors are women
Human Rights Overall	0 countries of operation listed in Category A 0 countries of operation listed in Category B
Environmental Policy	Good environmental policy and commitment (medium impact)
Environmental Management Systems	Good environmental management system (medium impact)
Environmental Reporting	Exceptional environmental reporting (medium impact)
Environmental Performance	No improvement on environmental performance (medium impact)
Greenhouse gases	Develops or uses renewable energy
Stakeholder Policy	Good policies towards stakeholders overall
Stakeholder Systems	Good systems for stakeholders overall
Stakeholder Engagement	Good disclosure of engagement with stakeholders
Stakeholder Reporting	Good quantitative disclosure on stakeholder relations
Equal Opportunities and Diversity Policies	Good policy on equal opportunities and diversity issues
Systems and practices to support Equal Opportunities and Diversity Polices	Very Clear evidence of systems to uphold equal opportunity/diversity
Health and Safety	No convictions for health and safety offences Clear evidence of health and safety systems
Job Creation and Security	Clear evidence of systems/practices for job creation and job security
Trade Unions and Employee Participation	Clear evidence of systems for managing employee relations
Training	Clear evidence of systems to support training and development
Advertising Complaints upheld during last 2 years	One in the last 2 years One in the last year
Customer/Supplier Relations	Clearly communicates policy on customers and/or suppliers Clear evidence of systems to maintain customer/supplier relations
Community Involvement	- Very clear commitment to community or charitable work

FTSE
Launched in July 2001, Northern Rock is included in the UK, European and Global Indices. Index listings were again reviewed in 2005 by the FTSE4Good Policy Committee and Northern Rock retained listing.

Pass ratings were received in all applicable areas.

Being a member of FTSE4Good Index Series sends a powerful message to our investors and other stakeholders about or company's commitment to responsible business practice. Investors are increasingly concerned with the management of social, environmental and ethical risks in their portfolios. As a constituent member of the FTSE4Good Index we are demonstrating that we have the policies and management systems in place to help address these risks.

For further details of the FTSE4Good Index Series, please see:

FTSE

Equity Investors
In addition to verbal engagement, Northern Rock writes on a two-yearly basis to the top 20 equity investors enclosing the summary copy of our Community Report and invites feedback on our Corporate Social Responsibility performance during the year. CSR information is also made available in the Investor Relations information pack on Northern Rock.

The Newcastle Journal North-East Top 200 Companies 2005
Northern Rock is a large, expanding company with international links but we are intensely proud of our North-East roots and much of our success is down to homegrown talent. We are fully committed to our heartland and are particularly pleased that our continued successful growth has taken us to the number one position in The Journal Top 200 table of North-East companies.

Alan Johnson, Secretary of State for Trade and Industry said “Firms led from within the region will be the most important contributors to the on-going economic growth of the North-East” and welcomed major inward investment in the region.

North-East Energy Forum
Northern Rock attended the third North-East Energy Forum, held on 21 October 2005 at St James Park in Newcastle.

The forum is sponsored by the North-East Energy Partnership (NEEP) in association with Government Office for the North-East.

The event provides companies an opportunity to engage with other regional stakeholders interested in energy issues in the North East and to share best practice and to air views to help shape regional priorities and policies.

Two influential senior speakers from the European Commission attended, giving keynote speeches, together with a major local business giving an industrialist’s point of view of how energy issues affect business. The Forum provides an opportunity for all attendees to debate energy issues and to decide action, which the individuals, the region and its support bodies and energy partnerships can take forward.

Mortgage Business Expo North - Manchester May 2005
Northern Rock again attended the above event. This was attended by over 2,000 mortgage brokers and financial advisors.

The event provided the Company with valuable feedback from the intermediaries who sell our products. Representatives from Northern Rock's Key Accounts, Indirect Area Sales and Commercial Finance teams were present to promote Northern Rocks product and service proposition.

Northern Rock has hosted a number of evening dinners to bring together some of the intermediary market's biggest players and Northern Rock contacts, including Legal and General, Mortgage Intelligence and Premier Mortgage Service. These provide an opportunity for us to thank our Key Accounts for the support over the preceding 12 months.

In addition, Northern Rock has also actively engaged with a number of organisations during the year to further our CSR knowledge and reporting process including:

Pensions Investment Research Consultants Limited (PIRC);

British Bankers Association;

Council of Mortgage Lenders;

Environment Agency;

The Major Energy Users Council (MEUC);

Newcastle City Council; and the

London Benchmarking Group.

2 way engagement has taken place by telephone, face to face and by letter.

Please see also Community Engagement.