Final Results - Part 1 of 2

Barclays PLC 14 February 2002 PART 1 OF 2 BARCLAYS PLC PRELIMINARY ANNOUNCEMENT OF RESULTS FOR 2001 The statutory consolidated Profit and Loss account and consolidated Balance Sheet are set out on pages 10 and 11 in the format they will be presented in the Group's Annual Report. In order to provide a more comparable view of the prior year results, pro forma results are set out on pages 1 and 12. An explanation of the calculation of the pro forma results is set out on page 13. Elsewhere, unless indicated otherwise, comparisons are to the actual results for 2000. PAGE Financial summary 1 Financial highlights 3 Chairman's statement 4 Chief Executive's Statement 5 Key facts 8 Summary of results 9 Consolidated profit and loss account 10 Consolidated balance sheet 11 Further analysis of profit and loss account and pro forma disclosure 12 Financial review including business group details 14 Additional information 51 Notes 54 Consolidated statement of changes in shareholders' funds 64 Statement of total recognised gains and losses 64 Average balance sheet 65 Summary consolidated cashflow statement 67 Other information 69 Index 73 The information in this announcement, which was approved by the Board of Directors on 13th February 2002, does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts, which are combined with the Group's annual report on Form 20-F to the U.S. Securities and Exchange Commission and which contain an unqualified audit report, will be delivered to the Registrar of Companies in accordance with section 242 of the Companies Act 1985. The 2001 Annual Review and Summary Financial Statement will be posted to shareholders in the third week of March together with the Group's annual report for those shareholders who have requested it. This document contains certain forward-looking statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, as amended, with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition and performance. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as 'anticipate,' 'target,' 'expect,' 'estimate,' 'intend,' 'plan,' 'goal,' 'believe,' or other words of similar meaning. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including UK domestic and global economic and business conditions, market related risks such as changes in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation and the impact of competition, a number of which are beyond the Group's control. As a result, the Group's actual future results may differ materially from the plans, goals, and expectations set forth in the Group's forward-looking statements. Any forward-looking statements made by or on behalf of Barclays speak only as of the date they are made. Barclays does not undertake to update forward-looking statements to reflect any changes in Barclays expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. BARCLAYS PLC. REGISTERED IN ENGLAND. REGISTERED NO: 48839. REGISTERED OFFICE: 54 LOMBARD STREET, LONDON EC3P 3AH BARCLAYS PLC - FINANCIAL SUMMARY RESULTS FOR YEAR TO 31ST DECEMBER 2001 Pro forma operating results* 2001 2000 % Change Operating income Â£11,360m Â£10,248m 11 Operating expenses Â£6,067m Â£5,618m 8 Provisions for bad and doubtful debts Â£1,149m Â£850m 35 Operating profit Â£4,134m Â£3,771m 10 Profit before tax Â£3,608m Â£3,307m 9 Earnings per share 174.1p 158.1p 10 Dividend per share 66.5p 58.0p 15 Post-tax return on average shareholders' funds 20.2% 21.2% (5) SUMMARY - Operating profit rose 10% to Â£4,134 million (2000: Â£3,771 million). - Operating income increased by 11% to Â£11,360 million (2000: Â£10,248 million). - Operating expenses rose by 8% to Â£6,067 million (2000: Â£5,618 million). Operating expenses include Â£31 million of costs relating to the UK regulated sales force and field sales managers, which prior to the implementation of the strategic alliance with Legal & General Group PLC (Legal & General) were reported within the long term assurance fund. - Provisions for bad and doubtful debts rose 35% to Â£1,149 million (2000: Â£850 million). Risk tendency increased by 21% to Â£1,245 million (2000: Â£1,030 million). - Earnings per share increased 10% to 174.1p (pro forma 2000: 158.1p). - Post tax return on average shareholders' funds was 20.2% (pro forma 2000: 21.2%). - The total dividend for the year increased by 15% to 66.5p (2000: 58.0p). - Economic profit was Â£1,243 million. - Pre-tax Woolwich integration synergies amounting to Â£111 million were achieved in 2001. - Total Shareholder Return for the two years ended 31st December 2001 was 37%, placing Barclays in the top quartile relative to our peer group (details on page 47). Â£100 invested in Barclays at the beginning of 2000 was worth Â£137 at the end of 2001. - Shareholders' funds at the year end were Â£14.5 billion (2000: Â£13.2 billion) and the tier 1 ratio was 7.8% (2000: 7.2%). The average economic capital (excluding goodwill) to support the Group's current business requirements was approximately Â£9.2 billion (2000: Â£8.1 billion). - During 2001, the Group returned a total of Â£1,116 million of capital to shareholders. This comprised the second interim dividend for 2000 of 38p per share, the first interim dividend of 2001 of 23p per share and share buybacks totalling Â£101 million. - Personal Financial Services achieved an 18% increase in operating profit to Â£498 million (2000: Â£423 million). Total income increased by 6%. Costs were held flat. Net interest income increased by 5% to Â£1,142 million (2000: Â£1,092 million) driven by strong growth in deposit balances and continued growth in consumer lending balances. - Operating profit on a statutory basis for the Woolwich business increased from Â£230 million to Â£505 million. On a pro forma basis operating profit reduced by 9% to Â£505 million (2000: Â£552 million) primarily as a result of a reduced contribution from Barclays Mortgages, which was Â£62 million lower than the previous year. - Barclays Private Clients operating profit decreased by 4% to Â£620 million (2000: Â£645 million) due to significant strategic investment (which grew Â£62m year on year). Operating income was held at 2000 levels, despite difficult market conditions, due to the diversity of product, geography and client mix. - Barclaycard operating profit increased by 20% to Â£555 million (2000: Â£464 million), benefiting from increased customer recruitment and the application of Information Based Customer Management techniques, which enable pricing and proposition features to be responsive to customers needs. Recruitment of UK customers reached 763,000 (2000: 740,000), aided by the Barclaycard Premiership sponsorship and despite lower balance consolidation activity. - Business Banking operating profit increased 5% to Â£1,152 million (2000: Â£1,102 million) reflecting good growth in balances. Business Banking maintained its highly targeted approach to new lending. Net fees and commissions increased 6%, while operating costs were held flat. - Barclays Africa operating profit increased 21% to Â£133 million (2000: Â£110 million), primarily reflecting lower provisions. Costs were held flat. - Barclays Capital operating profit increased 19% to Â£685 million (2000: Â£575 million) with both the Rates and Credit businesses performing well. Total income growth of 26% reflected increased business activity in most areas. Net interest income increased 33% and dealing profits 48%, underpinned by a 77% increase in client transaction volumes. - Barclays Global Investors operating profit increased 20% to Â£71 million (2000: Â£59 million) despite significantly lower stock market levels. Fees and commissions totalled Â£505 million (2000: Â£435 million), up 16%, assisted by strong growth in performance fees. * Pro forma results for 2000 assume that the acquisition of Woolwich plc took place on 1st January 2000. Other acquisitions and disposals in 2000 have also been reflected on a similar basis. Details of the basis of calculating pro forma results, including earnings per share and post-tax return on average shareholders' funds, are set out on page 13. Elsewhere in this document, unless indicated otherwise, comparatives are to the actual results for 2000. FINANCIAL HIGHLIGHTS 2001 2000 RESULTS (Note 1) Â£m Â£m Net interest income 6,139 5,162 Non-interest income 5,221 4,443 Operating income 11,360 9,605 Operating expenses (6,067) (5,203) Provisions for bad and doubtful debts (1,149) (817) Provisions for contingent liabilities and commitments (1) 1 Loss from joint ventures and associated undertakings (9) (8) Operating profit 4,134 3,578 Restructuring charge (171) (232) Woolwich integration costs (89) (7) Woolwich fair value adjustments (33) (6) Goodwill amortisation (229) (51) Exceptional items (4) 214 Profit before tax 3,608 3,496 Profit attributable to shareholders 2,465 2,473 Economic profit 1,243 1,429 BALANCE SHEET Shareholders' funds 14,508 13,187 Loan capital 8,115 6,370 Total capital resources 24,629 21,157 Total assets 356,649 316,190 Weighted risk assets 158,873 147,040 PER ORDINARY SHARE p p Earnings 148.2 163.3 Earnings (based on operating profit above) 174.1 164.0 Dividend 66.5 58.0 Net asset value 870 794 PERFORMANCE RATIOS % % Post-tax return on average shareholders' funds 17.5 25.1 Post-tax return on average shareholders' funds (based on operating profit above) 20.2 25.3 RISK ASSET RATIO Tier 1 7.8 7.2 Total 12.5 11.0 GROUP YIELDS, SPREADS & MARGINS % % Gross yield 6.56 7.09 Interest spread 2.53 2.60 Interest margin 2.98 3.11 EXCHANGE RATES Period end - US$/Â£ 1.45 1.49 Average - US$/Â£ 1.44 1.52 Period end - Euro/Â£ 1.64 1.60 Average - Euro/Â£ 1.61 1.64 Note 1 Based on the analysis of the Profit and Loss account as set out on page 12. Comparatives for 2000 are on a non pro forma basis. CHAIRMAN'S STATEMENT Barclays delivered a strong performance in 2001, building on the excellent progress achieved in 2000. We have continued to grow our profitability as well as investing in the business and strengthening our position in the UK and internationally. Barclays is focused on safeguarding the financial interests of our shareholders and customers, looking after our staff and contributing to the wellbeing of the communities in which we live and work. In 2001 we experienced the impact of the foot and mouth crisis in the UK and witnessed the terrible events in New York. They remind us that we have a privileged role in supporting our shareholders, our customers and the wider community. Our stakeholders rely on us through the difficult times as well as the good ones. They expect of us integrity, professionalism and expertise. We must be worthy of their trust - without them, Barclays would not exist. That is why we strive to reach the highest ethical and moral standards in everything we do. The Financial Services Authority (FSA) in the UK is Barclays lead regulator. In all, we have some 150 financial regulators around the world - and that excludes regulators in other fields who oversee our activities. The regulatory system in the UK changed significantly during 2001. The Financial Services and Markets Act 2000 came into force on 1st December 2001, finally merging the roles of various UK regulators. The FSA has now taken on the responsibilities of self-regulatory organisations such as the Securities & Futures Authority and Investment Management Regulatory Organisation. The result is a unified regulatory regime in our home market. The FSA has introduced new regulatory procedures and rules relating to governance, compliance and controls. It is in the best interest of all stakeholders to have an effective and independent regulator such as the FSA in the UK. However, higher and growing costs of compliance with regulation are a key issue for the financial services industry at a time of increasing domestic and international competition. We are in an era of escalating regulation, often as a reaction to sudden or unexpected events. It is crucial for the future of banking that regulators strike the right balance between, on the one hand, protecting the safety and security of the system and customers and, on the other, encouraging innovation that makes it easier for customers to deal with financial institutions. We must avoid a regime that simply increases the costs of doing business which ultimately leads to higher prices and could constitute a barrier to entry and depress competition. Barclays plays a significant role in the UK economy, and we will continue to work with the authorities to help influence a proper balance. Similarly, Barclays is committed to giving something back to the communities in which we operate. We have a proud record of working in partnership with many organisations on initiatives ranging from environmental improvement to the economic regeneration of deprived areas, and from the enhancement of community life to the inclusion into society of marginalised individuals. We provide funding, advice, hands-on assistance from employee volunteers and financial support through our community programme, which is one of the largest in the UK. We try to ensure that everything we do as an organisation adds to shareholder value. Millions of people own Barclays shares through their pension funds or unit trusts. When we do well, we are helping to secure the financial well-being of all those men and women. This is the single most important contribution we can make to the public good. We are building a world-class financial services organisation. Our people are key to this and they have done a magnificent job in a difficult year. We continue to invest in and develop our people wherever we operate in the world. To stay competitive, we need to keep on raising our game. We can and we will. Sir Peter Middleton GCB Chairman CHIEF EXECUTIVE'S STATEMENT Barclays performed well in 2001. On a pro forma basis operating profit was Â£4,134 million, up 10% on last year and earnings per share rose 10% from 158.1p to 174.1p. Our after-tax return on equity was 20%. These results were achieved despite a significant slow-down in all the major economies, volatile stock markets and the technology, media and telecoms sector rundown, and the tragic events of 11th September. Our good performance was reflected in a total dividend pay-out for the year of 66.5p, a 15% increase over 2000. Barclays results therefore reflected the benefits of a diversified and competitively strong portfolio of businesses, robust risk management policies, continued focus on productivity improvement, and continued strong revenue growth. Our primary goal is to rank consistently in the top quartile of value-creation for shareholders in our comparator peer group*. Our performance on this measure met the objective: for the two years to date of the first four year plan we are ranked second out of twelve. We also aim to double shareholder value every four years. On this measure, for the two years to date we are marginally behind. The pace of shareholder value creation would have required a Â£100 investment at the beginning of the period, with dividends reinvested, to have grown to Â£142 by the end of 2001. We have achieved Â£137. Tackling a changing global marketplace The financial services industry everywhere is reshaping itself to compete in this global market. To take advantage of these opportunities, we have to be clear about which businesses are likely to become global and those which presently have a more domestic focus. For example, retail and commercial banking are likely to remain regional, while investment banking and institutional asset management are increasingly global. The standing of the Barclays brand in domestic and global market places is an advantage in tackling these opportunities. Meeting the challenge of competition Competition is intensifying. Barclays must beat the pace and speed of companies that focus on a single product, while continuing to offer our own customers a full range of services. At the same time, we have to compete with the world's largest financial institutions in our home markets. All this means our customers have more choice than ever before. This keeps us sharp, for if we do not serve their needs effectively, they will look elsewhere. A priority is to differentiate our services to provide greater value to customers and ensure that they do not want to turn to our competitors. Creating tomorrow's value We can expect to see wide variations in growth and profitability between different markets and products. The UK will continue to be a good market for Barclays. We also expect several markets outside the UK (particularly in continental Europe) to have good long-term potential for growth. Wealth management products will increase in importance. Our business development over the next 10 years will be biased towards increasing the profit stream from outside the UK, while continuing to grow earnings aggressively in a still fragmented home market. At the same time, we expect to increase the proportion of profit contribution from value-added relationship products and services, asset gathering and capital markets activities as transactional activities increasingly commoditise. These are areas where we can build on existing strengths. * refer to page 47 for details Shaping our destiny In the medium term, we are concentrating on four priorities to help us increase the value of the organisation. These are: - to defend and grow Barclays UK businesses, becoming the 'first choice provider' of all financial services for our personal and business customers; - to develop products and businesses with regional and global potential where we have existing strengths, thus increasing the contribution from sources outside the UK; - to capitalise on our existing strengths in continental Europe and develop a stronger presence, in selected markets, in both retail and commercial banking; - to build a leading position in the UK and Europe in serving the needs of the mass affluent and high net worth customer segment. Building a profitable organisation The Group is making good progress on all four priorities. - We are strengthening and extending our main UK banking businesses. We are overhauling everything we do for our customers, to give them a range of excellent products and services. We have already made a good start, and we have filled product gaps through our acquisition of the Woolwich and our strategic alliance with Legal & General. - We are expanding the businesses with regional and global reach where Barclays already has a strong competitive position. One example of this is the investment banking business, Barclays Capital, which is performing well and playing to its strengths. Its very effective leadership team and outstanding people have distinctive competencies in financing and risk management solutions to corporates, institutions and governments. Another example is Barclaycard, a leading credit card brand in the UK and Europe. The wide public awareness of its brand and its Information Based Customer Management (IBCM) capabilities provide advantages in the full range of credit card services for individual customers and card payment facilities for retailers. - We are building our retail and commercial banking presence in certain western European markets. Barclays already has a stronger continental European presence than most of its UK competitors, with operations in 12 countries and broad networks in France and Iberia. Our objective is to become a much more significant player in continental Europe in the future. - We are building on the Group's strengths in the wealth and asset-gathering markets by developing unique products and services. Barclays Private Clients has 1 million affluent customers. Achieving operational excellence To build a better Barclays, we are not only focusing on the shape of our business - we are also focusing on the ways in which we run the business to better manage for value. We are: - analysing every business for value creating characteristics and economic profit potential within our total portfolio: - focusing on achieving efficiency ratios for each strategic business unit that ranks in the top quartile for such businesses globally; - encouraging staff at all levels to take decisions based on clear value-based guidelines; - embedding a high-performance culture incorporating stretching performance standards at every level, with variable pay-for-performance incentives directly tied to economic profit generation; - harnessing the power of technology to change the way we do things for customers and for ourselves; - developing deeper relationships with our customers, built upon an ethos of service excellence, customer convenience and value for money. Progress is evident in all these areas, but there is considerable room for further improvement. Managing for risk Information technology has given us the means to analyse and assess risk much more accurately than ever before, and Barclays is at the leading edge in the field of credit and market risk. Our policy, implemented three years ago, of tightening our risk controls in both corporate and personal lending means that we can remain confident even in these more difficult times. This is an important plank in our strategy. It gives us the confidence to grow the Group's businesses where we see opportunities, making the right trade-offs between risk and reward. Equally important, the diversity of the businesses that make up the Barclays Group is a source of strength and protection. A key part of the strategy is to focus on attractive markets where the Group has a distinctive strength, while avoiding the lure of businesses where it does not. Our stakeholders We do not believe that the interests of one group of stakeholders can be served in isolation. Instead, we aim to create value by building a virtuous circle of satisfied stakeholders, in which capable and committed staff, satisfied customers and a deserved reputation for good corporate citizenship all contribute to sustaining value creation. Driven by aspiration We aspire to be one of the most valuable and admired financial service organisations in the world. A company that leads in its chosen markets, that uses technology to the benefit of its customers and the business. A company with integrity and a passion for good citizenship and a model of excellence that becomes the benchmark. We have made solid progress over the past year, yet we know that more work needs to be done before we fully translate our aspirations for customers, shareholders and communities into reality. We intend to do it. Matthew W. Barrett Group Chief Executive KEY FACTS 31.12.01 31.12.00 Number of UK branches 2,088 2,129 Number of overseas branches 564 624 Number of UK Barclays Group ATMs 3,900 3,800 Employees worldwide 78,600 76,200 Total customers registered for online banking 3.3m 2.0m PERSONAL FINANCIAL SERVICES AND WOOLWICH UK current accounts 10.1m 9.7m UK savings accounts 9.0m 8.4m Open Plan customers 970,000 544,000 Total UK mortgage balances Â£51.9bn Â£47.5bn BARCLAYS PRIVATE CLIENTS Affluent and high net worth clients 1m 1m Total customer funds Â£88bn Â£95bn Stockbrokers - deal volumes per day 6,400 8,100 BARCLAYCARD Barclaycard UK customers 8.2m 7.9m Customers registered for on-line services 653,000 388,000 Retailer relationships 83,000 81,000 Number of retailer transactions processed 1.3bn 1.2bn Barclaycards issued in continental Europe 1.25m 1.17m BUSINESS BANKING Number of UK Business Banking connections (market share 539,000 552,000 maintained) Number of current accounts 748,000 765,000 Number of Business Premium deposit accounts 247,000 257,000 Customers registered for online banking/BusinessMaster 256,000 208,000 AFRICA Customer accounts 1.5m 1.5m BARCLAYS GLOBAL INVESTORS Total assets under management Â£530bn Â£550bn Number of institutional clients 2,000 1,800 BARCLAYS CAPITAL 31.12.01 31.12.00 League table Issuance value League table Issuance value position position Sterling bonds 1st Â£11bn 1st Â£12bn Syndicated loans 1st $46bn 1st $89bn (Europe, Middle East, Africa) Syndicated loans (ex USA) 2nd $50bn 1st $98bn All syndicated loans 5th $69bn 4th $116bn All international bonds 10th $67bn 11th $48bn SUMMARY OF RESULTS PROFIT BEFORE TAX 2001 2000 Â£m Â£m Personal Financial Services 498 423 Woolwich* 505 230 Barclays Private Clients 620 645 Barclaycard 555 464 Business Banking 1,152 1,102 Barclays Africa 133 110 Barclays Capital 685 575 Barclays Global Investors 71 59 Other operations (16) 17 Head office functions (69) (47) Operating profit** 4,134 3,578 Restructuring charge (171) (232) Woolwich integration costs (89) (7) Woolwich fair value adjustments (33) (6) Goodwill amortisation (229) (51) Exceptional items (4) 214 3,608 3,496 * Comprises the contribution from Woolwich plc since its acquisition on 25th October 2000 and the Barclays Mortgages business. ** Includes the loss from joint ventures and associated undertakings. TOTAL ASSETS AND WEIGHTED RISK ASSETS Total assets Weighted risk assets 2001 2000 2001 2000 Â£m Â£m Â£m Â£m Personal Financial Services 7,244 6,562 6,097 5,598 Woolwich 57,630 55,243 30,142 28,620 Barclays Private Clients 13,736 13,352 9,167 8,390 Barclaycard 9,342 9,805 9,405 9,623 Business Banking 44,243 41,364 46,390 44,017 Barclays Africa 2,756 2,291 1,943 1,661 Barclays Capital 202,030 168,894 52,675 45,946 Barclays Global Investors 265 259 548 653 Other Operations And Head office functions 7,142 5,440 2,506 2,532 Goodwill 4,091 4,269 - - Retail life-fund assets 8,170 8,711 - - 356,649 316,190 158,873 147,040 CONSOLIDATED PROFIT AND LOSS ACCOUNT 2001 2000 Â£m Â£m Interest receivable 13,458 11,788 Interest payable (7,354) (6,635) Profit on repurchase of loan capital - 2 Net interest income 6,104 5,155 Net fees and commissions receivable 3,758 3,369 Dealing profits 1,011 677 Other operating income 452 397 Total non-interest income 5,221 4,443 Operating income 11,325 9,598 Administration expenses - staff costs (3,714) (3,219) Administration expenses - other (2,303) (1,967) Depreciation and amortisation (537) (306) Operating expenses (6,554) (5,492) Operating profit before provisions 4,771 4,106 Provisions for bad and doubtful debts (1,149) (817) Provisions for contingent liabilities and commitments (1) 1 Operating profit 3,621 3,290 Loss from joint ventures and associated undertakings (9) (8) Exceptional items (4) 214 Profit on ordinary activities before tax 3,608 3,496 Tax on profit on ordinary activities (1,010) (944) Profit on ordinary activities after tax 2,598 2,552 Minority and other interests (equity and non-equity) (133) (79) Profit for the financial year attributable to the members of 2,465 2,473 Barclays PLC Dividends (1,110) (927) Profit retained for the financial year 1,355 1,546 Earnings per ordinary share 148.2p 163.3p Dividend per ordinary share: First interim 23.0p 20.0p Second interim (payable 26th April 2002) 43.5p 38.0p CONSOLIDATED BALANCE SHEET 2001 2000 Assets: Â£m Â£m Cash and balances at central banks 1,281 1,243 Items in course of collection from other banks 2,444 2,509 Treasury bills and other eligible bills 7,417 5,564 Loans and advances to banks - banking 12,196 9,556 - trading 35,693 27,345 47,889 36,901 Loans and advances to customers - banking 146,253 138,437 - trading 34,240 23,198 180,493 161,635 Debt securities 78,924 70,770 Equity shares 3,118 4,062 Interests in joint ventures and associated undertakings 88 122 Intangible fixed assets - goodwill 4,091 4,269 Tangible fixed assets 1,958 2,059 Other assets 20,776 18,345 348,479 307,479 Retail life-fund assets attributable to policyholders 8,170 8,711 Total assets 356,649 316,190 Liabilities: Deposits by banks - banking 45,837 32,445 - trading 21,543 17,311 67,380 49,756 Customer accounts - banking 139,831 140,352 - trading 23,984 18,616 163,815 158,968 Debt securities in issue 41,846 31,883 Items in course of collection due to other banks 1,550 1,176 Other liabilities 49,259 44,539 Undated loan capital - convertible to preference shares 345 335 Undated loan capital - non-convertible 2,837 2,337 Dated loan capital - non-convertible 4,933 3,698 331,965 292,692 Minority interests and shareholders' funds: Minority interests: equity 134 108 Minority interests: non-equity 1,872 1,492 Called up share capital 1,668 1,662 Reserves 12,840 11,525 Shareholders' funds: equity 14,508 13,187 16,514 14,787 348,479 307,479 Retail life-fund liabilities attributable to policyholders 8,170 8,711 Total liabilities and shareholders' funds 356,649 316,190 FURTHER ANALYSIS OF PROFIT AND LOSS ACCOUNT AND PRO FORMA DISCLOSURE 2001 2000 2000 Pro forma Â£m Â£m Â£m Interest receivable 13,513 13,546 11,799 Interest payable (7,374) (8,006) (6,639) Profit on repurchase of loan capital - 2 2 Net interest income 6,139 5,542 5,162 Net fees and commissions receivable 3,758 3,597 3,369 Dealing profits 1,011 677 677 Other operating income 452 432 397 Total non-interest income 5,221 4,706 4,443 Operating income 11,360 10,248 9,605 Administration expenses - staff costs (3,578) (3,189) (3,047) Administration expenses - other (2,181) (2,135) (1,900) Depreciation and amortisation (308) (294) (256) Operating expenses (6,067) (5,618) (5,203) 5,293 4,630 4,402 Provisions for bad and doubtful debts (1,149) (850) (817) Provisions for contingent liabilities and commitments (1) 1 1 Loss from joint ventures and associated undertakings (9) (10) (8) Operating profit 4,134 3,771 3,578 Restructuring charge (171) (232) (232) Woolwich integration costs (89) (7) (7) Woolwich fair value adjustments (33) (6) (6) Goodwill amortisation (229) (219) (51) Exceptional items (4) - 214 Profit on ordinary activities before tax 3,608 3,307 3,496 Earnings per ordinary share before restructuring charge, 174.1p 158.1p 164.0p integration costs, Woolwich fair value adjustments, goodwill amortisation and exceptional items Post-tax return on average shareholders' funds (on a 20.2% 21.2% 25.3% consistent basis with earnings per share above) The above results for 31st December 2001 and 2000 are based on the operating profit shown on page 10 before charging for costs directly associated with the integration of Woolwich plc, Woolwich fair value adjustments, goodwill amortisation and the restructuring charge. The pro forma 2000 comparatives are based on the assumption that the acquisition of Woolwich plc took place on 1st January 2000. Further details of the pro forma adjustments are provided on page 13. Woolwich fair value adjustments consist of Â£35m net interest charge (2000: Â£7m) and Â£2m of credit to operating expenses (2000: Â£1m). Basis of preparation of further analysis of results The further analysis of the results for 31st December 2001 and 2000 presents operating profit before the restructuring charge, costs associated with the integration of Woolwich plc, Woolwich fair value adjustments and goodwill amortisation. Barclays believes that identifying operating profit before charging these items assists in the understanding of underlying profit trends in the results. Basis of preparation of pro forma results In addition to the adjustments above, the acquisition of Woolwich plc on 25th October 2000 has had a material impact on the Group's results. Therefore, in order to facilitate the comparison of results in 2001 to those in 2000 pro forma results have been prepared for the year ended 31st December 2000 on the assumption that the acquisition of Woolwich plc, and the disposal of certain other businesses, had taken place on 1st January 2000. Pro forma earnings per share and post-tax return on average shareholders' funds have been calculated on a similar basis to the pro forma results. The pro forma results for the year ended 31st December 2000 have been prepared on the following basis: Changes in accounting policies and accounting estimates The results for Woolwich plc have been restated using Barclays Group accounting policies. This has resulted in mortgage incentives and software costs, previously capitalised and amortised, being expensed as incurred. The results for Woolwich plc have been adjusted to reflect the Barclays depreciation rates and other accounting estimates. Adjustment to reflect net funding of the acquisition of Woolwich plc Interest received has been reduced by Â£128m in the year to 31st December 2000 to reflect interest foregone had the cash element of the acquisition been paid on 1st January 2000. This is based on the assumption that the amount would have been deposited at the internal transfer price of cash, which is calculated based on an average of one-month sterling LIBOR over the period. Results of businesses disposed of The results of any businesses disposed of during 2000 by either Barclays or Woolwich plc have been eliminated, together with any profits or losses on disposal. Proceeds of Â£286m are assumed to have been received on 1st January 2000 and interest received adjusted on the same basis as for the funding adjustment above. Acquisitions and disposals in 2001 are not considered material and consequently no adjustment is made in the pro forma presentation. Goodwill amortisation. Amortisation of Â£206m per year based on goodwill balance of Â£4,121m over its estimated economic life of 20 years has been included in the pro forma accounts for 2000. Costs of acquisition Incremental costs incurred by Woolwich plc in relation to the acquisition have not been included. FINANCIAL REVIEW Results by nature of income and expense In order to provide a like for like comparison, pro forma results have been prepared for year ended 31st December 2000 and are set out on page 12 and also, where relevant, by category of income and expense as below. Net interest income 2001 2000 Â£m Â£m Interest receivable 13,458 11,788 Interest payable (7,354) (6,635) Profit on repurchase of loan capital - 2 6,104 5,155 Woolwich fair value adjustments 35 7 6,139 5,162 Pro forma basis 6,139 5,542 On a pro forma basis, net interest income increased 11% (Â£597m), with strong growth in Barclaycard and Barclays Capital. Personal Financial Services net interest income increased by 5% to Â£1,142m. This was driven by strong growth in deposit balances and by continued growth in consumer lending balances. On a pro forma basis Woolwich net interest income remained stable at Â£851m, despite highly competitive market conditions. The contribution from lending activities improved and compensated for a reduction in retail deposit income, where margin pressure was particularly intense during the year. Barclays Private Clients net interest income increased by 6% to Â£839m as average lending volumes increased by 16% and average deposits, primarily from UK affluent clients, increased by 6%. The benefit was partially offset by margin compression in deposits, due to reduced interest rates. Barclaycard's net interest income increased by 20% to Â£820m. This was mainly as a result of good growth in average UK extended credit balances which rose 9% and improved cardholder rate management coupled with lower interest rates. Business Banking net interest income rose 6% to Â£1,591m reflecting increased lending and deposit balances partly offset by a slight reduction in the overall margin. Average customer lending balances increased 9% and average customer deposit balances increased 6%. Barclays Capital net interest income increased 33% to Â£682m. The growth in net interest income was mainly in money markets, which benefited from a favourable interest rate environment, and in structured capital markets. Overall banking margins were 2.98% compared with 3.11% in 2000. The adverse impact on the margin of the acquisition of Woolwich plc was mitigated in part by the benefit of a gain on closure of a surplus hedge following the Woolwich acquisition. Increased margins in Barclaycard in part offset margin pressure in Personal Financial Services, Barclays Private Clients and Business Banking. The benefit of free funds fell 0.06% to 0.45%. The fall in short term market rates increased the contribution to the net margin from the central management of Group interest rate exposure to 0.11% from 0.05%. The overall benefit of free funds on a hedged basis was flat at 0.56% (2000: 0.56%) as the increase in the effective rate of the hedge was offset by a reduction in the proportion of free funds to interest earning assets. Yields, spreads and margins - banking business Domestic business is conducted primarily in the UK in sterling. International business is conducted primarily in foreign currencies. In addition to the business carried out by overseas branches and subsidiaries, international business is transacted in the United Kingdom by Barclays Capital, mainly with customers domiciled outside the UK. The yields, spreads and margins shown below have been computed on this basis, which generally reflects the domicile of the borrower. They exclude profits and losses on the repurchase of loan capital and the unwinding of the discount on vacant leasehold property provisions. 2001 2000 Gross yield (i) % % Group 6.56 7.09 Domestic 7.10 7.90 International 5.38 5.71 Interest spread (ii) Group 2.53 2.60 Domestic 3.24 3.54 International 1.01 1.01 Interest margin (iii) Group 2.98 3.11 Domestic 3.77 4.19 International 1.24 1.25 Average UK base rate 5.12 5.96 Notes (i) Gross yield is the interest rate earned on average interest earning assets. (ii) Interest spread is the difference between the interest rate earned on average interest earning assets and the interest rate paid on average interest bearing liabilities. (iii) Interest margin is net interest income as a percentage of average interest earning assets. Average interest earning assets and liabilities - banking business 2001 2000 Average interest earning assets Â£m Â£m Group 205,017 166,200 Domestic 141,087 104,845 International 63,930 61,355 Average interest bearing liabilities Group 182,435 147,367 Domestic 121,878 89,130 International 60,557 58,237 Net fees and commissions 2001 2000 Â£m Â£m Fees and commissions receivable 4,223 3,689 Less: fees and commissions payable (465) (320) 3,758 3,369 Pro forma basis 3,758 3,597 On a pro forma basis, net fees and commissions rose 4% with strong performances in Personal Financial Services, Barclaycard and BGI which were partially offset by reductions in Barclays Private Clients and Barclays Capital. Personal Financial Services net fees and commissions increased by 8% to Â£525m mainly as a result of additional current account and overdraft lending activity, and higher income from fee-based Additions current accounts. Woolwich net fees and commissions of Â£301m were at a similar level to 2000, on a pro forma basis. Income from IFA operations, increased by 17% to Â£89m, and fees were assisted by good volumes in mortgage related activities. Income from other business areas including unit trusts and life assurance reduced, mainly as a result of stock market volatility. Barclays Private Clients net fees and commissions decreased by 1% to Â£576m primarily due to lower fund management and brokerage fees. Barclays Stockbrokers maintained its leading position in the UK retail market. Barclaycard net fees and commissions increased by 11% to Â£581m, principally as a result of replacing UK annual account fees with fees based on account behaviour. Business Banking net fees and commissions increased 6% to Â£833m. Lending related fee growth was driven by good activity levels in the large business market and by a strong fee income performance from Sales Financing. UK money transmission income fell, with higher volumes offset by lower fee levels as a result of strong competitive pressures. Foreign exchange related income increased strongly as a result of higher turnover. In Barclays Capital, net fees and commissions fell 15% to Â£405m mainly due to lower financing volumes in syndicated loans. Primary bond fees increased compared to 2000 but were offset by lower primary loan fees in line with the fall in market volumes. Barclays Capital maintained its leading position in the European syndicated loan markets. Barclays Global Investors net fees and commissions increased Â£70m or 16% to Â£505m. The increase was driven by a large increase in performance fees, as a result of strong active product performance, increased securities lending revenues, as well as higher transition fees due to increased business in client portfolio restructuring. Management fees remained at a similar level as revenues from net new client sales and cross-sales were offset by the impact of significantly lower market levels. Personal Financial Services, Barclays Private Clients and Business Banking fees and commissions include Â£129m (2000: Â£120m) in aggregate in respect of foreign exchange income on customer transactions with Barclays Capital. Dealing profits 2001 2000 Â£m Â£m Rates related business 823 635 Credit related business 188 42 1,011 677 Almost all of the Group's dealing profits arise in Barclays Capital. Dealing profits rose 49% to Â£1,011m (2000: Â£677m). The strong performance was underpinned by increased customer business in Barclays Capital, with client transaction volumes increasing by 77% and improved contributions from the US and Europe. Growth was broadly spread across a range of markets and products, with major increases in government bonds, foreign exchange, interest rate derivatives and debt capital markets. The growth in dealing profits was achieved with a 3% lower average daily value at risk (DVaR) 2001: Â£16.9m (2000: Â£17.5m). The reduction in market risk levels reflects the continued focus on risk management. Total foreign exchange income for 2001 was Â£525m (2000: Â£388m) and consisted of revenues earned from both retail and wholesale activities. The foreign exchange income earned by Personal Financial Services, Woolwich, Barclays Private Clients, Barclaycard, Business Banking, Barclays Africa and Barclays Global Investors on customer transactions, both externally and with Barclays Capital, is reported in those business units within fees and commissions. Other operating income 2001 2000 Â£m Â£m Dividend income from equity shares 8 14 Profits on disposal of investment securities 37 45 Income from the long-term assurance business 172 171 Property rentals 30 22 Premium income on insurance underwriting 158 126 Other income 47 19 452 397 Pro forma basis 452 432 Other operating income increased by 14% to Â£452m. Income from the long term assurance business was Â£172m (including Â£24m from Woolwich Life) compared with Â£171m (including Â£5m from Woolwich Life) in 2000. This income was restricted by lower stock market levels (Â£73m), and was partly offset by one-off benefits of Â£45m as a result of the Legal & General strategic alliance. From August 2001, the Group ceased to market its own life and pension products (and at that date the costs of the regulated sales force and field sales managers were no longer charged to the funds). Income from the sale of Legal & General products after that date is included in fees and commissions. The result of the long term assurance business is after charging costs of Â£105m (2000: Â£146m) borne directly in the funds. The unutilised amount of the redress provision in Barclays Life for customers who may have been mis-sold a personal pension is Â£47m at 31st December 2001 (2000: Â£80m). 8% of the cases originally identified for review remain to be settled. Premium income on insurance underwriting increased to Â£158m (2000: Â£126m) predominantly benefiting from improved volumes relating to consumer lending and credit card borrowings. Operating expenses The Group manages operating costs on the basis of three distinct categories: strategic investment, revenue related and business as usual. In addition, goodwill amortisation, integration costs and restructuring costs are reported separately. Costs are allocated to individual categories based on the following definitions: Strategic investment costs relate to the development costs of an investment project which has either or both of the following features: - it generates or enables new revenue streams or definable growth in revenue stream, or - it generates or enables reduced costs. Strategic investment costs exclude restructuring costs and project operating costs. Revenue related costs are those costs which are directly associated with a corresponding change in revenues or profits. An increase or decrease in revenues or profits will lead to an increase or decrease in these costs. Business as usual costs are those costs not classified as strategic investment or revenue related. This category includes operating costs of strategic projects, other projects not classified as strategic and volume related costs which are not revenue related. Restructuring costs are those charges associated with the ongoing reorganisation and restructuring of the Group's operations as part of its cost reduction initiatives. Integration costs are in respect of projects and initiatives associated with the acquisition of Woolwich plc and include expenditure to achieve cost savings and revenue synergies. Operating expenses Based on the above definitions the Group's costs are summarised in the following table on both an actual and pro forma basis: 2001 2000 2000 Pro forma Â£m Â£m Â£m Business as usual costs 4,729 4,496 4,166 Strategic investment costs 551 478 440 Revenue related costs 748 593 528 6,028 5,567 5,134 Disposals and acquisitions 39 51 69 6,067 5,618 5,203 Restructuring charge 171 232 232 Goodwill amortisation 229 219 51 Woolwich integration costs 89 7 7 Woolwich fair value adjustment (2) (1) (1) 6,554 6,075 5,492 On a pro forma basis operating expenses increased 8% to Â£6,554m. Business as usual costs rose by 5% (Â£233m) to Â£4,729m on a pro forma basis, partly reflecting growth in Barclays Capital, Barclays Global Investors and Â£31m of costs relating to the UK regulated sales force and field sales managers which prior to the implementation of the strategic alliance with Legal & General were reported within the long term assurance fund. Excluding the impact of this change, business as usual costs rose by 4%. Strategic investment costs increased by 15% (Â£73m) to Â£551m on a pro forma basis, with the largest increases being in Barclaycard, Barclays Private Clients and Barclays Capital. In Barclaycard this arose from recruitment in overseas territories and investment in IT infrastructure. In Barclays Private Clients, the increase supported the transformation programme. In Barclays Capital the rise was mainly in respect of product, client coverage and distribution capabilities. Revenue related costs rose by 26% (Â£155m) to Â£748m on a pro forma basis, primarily reflecting higher performance related remuneration in line with profit growth in Barclays Capital and Barclays Global Investors. Administrative expenses - staff costs 2001 2000 Â£m Â£m Salaries and accrued incentive payments 3,149 2,655 Social security costs 243 178 Pension costs (17) (31) Post-retirement health care - 1 Other staff costs 339 416 3,714 3,219 Included above: Restructuring charge (114) (171) Woolwich integration costs (24) (1) Woolwich fair value adjustment 2 - Excluding restructuring, integration costs and fair value 3,578 3,047 adjustment Pro forma basis 3,578 3,189 2001 2000 Number of staff at period end:* Personal Financial Services** 24,900 23,400 Woolwich*** 7,300 7,200 Barclays Private Clients**** 11,000 10,800 Barclaycard 4,200 4,000 Business Banking 9,700 9,500 Africa***** 8,000 8,000 Barclays Capital 5,700 4,900 Barclays Global Investors 2,100 2,100 Other Operations 5,300 5,900 Head office functions 400 400 Group total world wide**** 78,600 76,200 of which United Kingdom 59,200 57,000 * Staff numbers are on a full time equivalent basis and do not include temporary and agency staff of 4,600 (31st December 2000: 4,800) whose costs are included in staff costs. ** Includes 1,000 regulated salesforce and field sales managers and 100 administrative staff whose costs, following the strategic alliance with Legal & General from 1st August 2001, are included in administrative expenses - staff costs. Previously the costs were borne within the long term assurance fund. In 2000, the total related number of staff (1,000 regulated salesforce and field sales managers and 200 administration staff) are excluded from the comparatives above. *** Includes Barclays Mortgages business and Woolwich plc business following the acquisition on 25th October 2000. **** Excludes 500 administrative staff (31st December 2000: 900) whose costs are borne within the long term assurance fund. ***** Includes 900 staff on contracts previously not reported within permanent headcount. 2000 figures have been restated accordingly. Staff costs Staff costs, excluding the restructuring charge and integration costs arising from the acquisition of Woolwich plc, increased on a pro forma basis by 12% (Â£389m) to Â£3,578m. Salaries and accrued incentive payments rose by Â£494m. The rise largely reflects increased performance related payments and the cost of building new capability in Barclays Capital. Salaries and accrued incentive payments also include the cost of the Performance Incentive Plan (PIP) which was launched in 2001. The PIP combines the previous bonus and profit sharing schemes into a single bonus. In addition, staff costs in 2001 included Â£31m relating to the regulated sales force and field sales managers whose costs were included in staff costs following the formation of the strategic alliance with Legal & General from 1st August 2001. Staff numbers overall rose by 2,400 in the year of which 1,100 is attributable to the inclusion of the UK regulated sales force and field sales managers and related administrative staff. Pension costs include a credit of Â£72m (2000: Â£74m) in respect of the Group's main UK schemes. The reduction in other staff costs reflects lower levels of job reductions compared to 2000. In addition to the 2,500 staff who have left the Group in 2001 under the 2000 and 2001 restructuring programmes, there are 1,800 staff where the notice process was underway at 31st December 2001. The business groups impacted are primarily Barclays Private Clients, Personal Financial Services and Business Banking. New jobs were created in most areas of the business with increases in Barclays Capital, in line with the strategic plans for business growth, in customer facing roles in Woolwich and Personal Financial Services, and in Business Banking. Administrative expenses - other 2001 2000 Â£m Â£m Property and equipment expenses: Hire of equipment 16 20 Property rentals 183 157 Other property and equipment expenses 775 641 974 818 Stationery, postage and telephones 318 261 Advertising and market promotion 212 221 Travel, accommodation and entertainment 143 123 Subscriptions and publications 83 65 Securities clearing and other operational expenses 36 26 Sundry losses, provisions and write-offs 141 115 Statutory and regulatory audit and accountancy fees 7 7 Consultancy fees 133 158 Professional fees 130 99 Other expenses 126 74 2,303 1,967 Included above: Restructuring charge (57) (61) Integration costs (65) (6) Excluding restructuring charge and integration costs 2,181 1,900 Pro forma basis 2,181 2,135 Administrative expenses increased by Â£336m to Â£2,303m. On a pro forma basis, the increase was 2% (Â£46m) to Â£2,181m. The increase in administrative expenses is mainly attributable to higher levels of business and increased strategic investment. Depreciation and amortisation 2001 2000 Â£m Â£m Property depreciation 105 85 Equipment depreciation 194 166 Loss on sale of equipment 9 4 308 255 Goodwill amortisation - The Woolwich 206 38 - other 23 13 537 306 Included above: Goodwill amortisation (229) (51) Woolwich fair value adjustments - 1 Excluding goodwill and fair value adjustments 308 256 Pro forma basis 308 294 The increase in goodwill amortisation - other relates to the Group's Brazilian operation, Banco Barclays SA (formerly Banco Barclays e Galicia SA), which has been accounted for as a subsidiary from 1st January 2001. Provisions for bad and doubtful debts 2001 2000 The charge for the year in respect of bad and doubtful debts Â£m Â£m comprises: Specific provisions New and increased 1,440 981 Releases (133) (91) Recoveries (142) (113) 1,165 777 General provision (release)/charge (16) 40 1,149 817 Pro forma basis 1,149 850 Total provisions for bad and doubtful debts at end of the year comprise: Specific provisions 1,971 1,593 General provisions 745 760 2,716 2,353 The net provision charge rose 41% (Â£332m) to Â£1,149m. On a pro forma basis the increase in the net provision charge was 35%. New and increased specific provisions increased by 47% (Â£459m) to Â£1,440m while releases and recoveries of Â£275m were Â£71m higher. During the year there was a Â£40m reclassification from general provision to specific provision in Personal Financial Services based on the introduction of a statistical methodology enabling earlier recognition of specific impairment. This is reflected as a new and increased specific provision and a release of general provision. Within the overall increase in the provision charge, Business Banking and Barclays Capital accounted for 55% of this increase (on a pro forma basis). The current deterioration in economic conditions on the corporate sector, where there are smaller numbers of larger value lendings, has resulted in greater volatility in provisions in this sector. In the personal sector, Barclaycard provisions reflected the continued high levels of new customer recruitment, and in the rest of the sector, provisions growth was primarily as a result of increased lending volumes. There was an increase in new and increased provisions in the US, primarily relating to a small number of large loans. Increased levels of releases and recoveries were experienced by Business Banking and Barclays Capital in the second half of 2001. The net provision charge for the period as a percentage of average banking loans and advances was 0.73% compared with 0.67% in 2000. Provision coverage of total potential credit risk lendings decreased slightly to 52.9% compared with 54.5% at 31st December 2000. Loss from joint ventures and associated undertakings 2001 2000 Â£m Â£m Loss from joint ventures (1) (1) Loss from associated undertakings (8) (7) (9) (8) The loss from associated undertakings in 2001 is attributable to start up costs of new ventures in Business Banking. The loss from associated undertakings in 2000 largely arose in the Brazilian entity Banco Barclays SA (formerly Banco Barclays e Galicia SA). This business was consolidated as a subsidiary undertaking from 1st January 2001. Exceptional items 2001 2000 Â£m Â£m (Loss)/profit on disposal of other Group undertakings (4) 214 The net loss on disposal of Group undertakings includes goodwill written off of Â£7m. It represents losses of Â£19m offset by gains of Â£15m. The profit in 2000 reflected primarily a Â£186m profit on the sale of the Dial business and Â£18m from the sale of Barclays Property Investment Limited. Tax The charge for the year assumes a UK corporation tax rate of 30% for the year 2001 (2000: 30.0%). The effective rate of tax is 28.0% (2000: 27.0%). Included in the charge is Â£23m (2000: Â£48m) tax on the increase in the shareholders' interest in the long-term assurance fund. There has been no change in the policy for partial provision for deferred taxation in respect of leasing. Earnings per ordinary share Earnings per ordinary share is based upon the results after deducting tax, profit attributable to minority interests and dividends on staff shares. 2001 2000 Earnings in year Â£2,465m Â£2,473m Earnings in year before restructuring, integration costs, Â£2,895m Â£2,483m goodwill amortisation, fair value adjustments and exceptional items Weighted average of ordinary shares in issue 1,663m 1,514m Calculation of adjusted earnings per share pence pence Basic earnings per ordinary share 148.2 163.3 Restructuring charge 7.2 10.7 Integration costs 3.8 0.3 Goodwill amortisation 13.5 3.4 Woolwich fair value adjustments 1.2 0.4 Exceptional items 0.2 (14.1) Adjusted earnings per share 174.1 164.0 Dividends on ordinary shares The Board has decided to pay, on 26th April 2002, a second interim dividend for the year ended 31st December 2001 of 43.5p per ordinary share, for shares registered in the books of the Company at the close of business on 1st March 2002. Shareholders who have their dividends mandated to their bank or building society account will receive a consolidated tax voucher detailing the dividends paid in the 2002/2003 tax year in late October 2002. For qualifying US and Canadian resident ADR holders, the second interim dividend of 43.5p per ordinary share becomes 174.0p per ADS (representing four shares). The ADR depositary will mail the dividend on 26th April 2002 to ADR holders on the record on 1st March 2002. For qualifying Japanese shareholders, the second interim dividend of 43.5p per ordinary share will be distributed in mid May to shareholders on the record on 1st March 2002. Shareholders may have their dividends reinvested in Barclays PLC shares by participating in the Barclays Dividend Reinvestment Plan. The plan is available to all shareholders, including members of Barclays Sharestore, provided that they do not live in or are subject to the jurisdiction of any country where their participation in the plan would require Barclays or The Plan Administrator to take action to comply with local government or regulatory procedures or any similar formalities. Any shareholder wishing to obtain details and a form to join the plan should contact The Plan Administrator by writing to The Plan Administrator to Barclays, PO Box 82, The Pavilions, Bridgwater Road, Bristol, BS99 7NH or by phoning 0870 702 0196. The completed form should be returned to The Plan Administrator on or before 5th April 2002 for it to be effective in time for the payment of the second interim dividend on 26th April 2002. Shareholders who are already in the plan need take no action unless they wish to change their instructions in which case they should write to The Plan Administrator. Balance sheet Capital resources 2001 2000 Â£m Â£m Shareholders' funds 14,508 13,187 Minority and other interests 2,006 1,600 16,514 14,787 Loan capital 8,115 6,370 24,629 21,157 The Group manages actively both its debt and equity capital. Total capital resources increased in the year by Â£3,472m. Shareholders' funds increased by Â£1,321m due to profit retentions. The increase in minority and other interests reflects the issue by Barclays Bank PLC of US$750m (Â£520m) 7.375% Step-up Callable Perpetual Reserve Capital Instruments on 5th June 2001. This was offset in part by redemption of the outstanding Series D1 and D2 Non-cumulative Dollar denominated Preference shares at an aggregate cost of US$213m (Â£148m). Loan capital rose by Â£1,745m primarily reflecting raisings of Â£2,499m offset by repayments of Â£715m. Capital ratios Weighted risk assets and capital resources, as defined for supervisory purposes by the Financial Services Authority, comprise: 2001 2000 Weighted risk assets: Â£m Â£m Banking book on-balance sheet 120,113 112,633 off-balance sheet 20,368 18,413 Associated undertakings and joint ventures 499 783 Total banking book 140,980 131,829 Trading book Market risks 7,801 6,440 Counterparty and settlement risks 10,092 8,771 Total trading book 17,893 15,211 Total weighted risk assets 158,873 147,040 Capital resources: tier 1 capital 12,443 10,547 tier 2 capital 8,397 6,619 tier 3 capital 392 331 Total gross capital resources 21,232 17,497 Less: supervisory deductions (1,333) (1,312) Total net capital resources 19,899 16,185 % % Tier 1 ratio 7.8 7.2 Risk asset ratio 12.5 11.0 Total Assets The Group's balance sheet grew Â£40bn or 13% in the year to Â£357bn. Weighted risk assets rose by 8% to Â£159bn. Within Business Banking, assets grew by 7% to Â£44bn in the year, with weighted risk assets increasing by 5% in the same period. Growth has been predominantly in lending to larger business customers. Barclays Capital assets increased by 20% to Â£202bn during 2001, predominantly as a result of growth in the Rates businesses. There was an increase of Â£15bn in the balance of reverse repos and stock-lending assets, driven mainly by the prime brokerage business where collateralised customer inventory financing positions continued to grow. In addition, there were increases in the holdings of debt securities of Â£10bn mainly government debt. Total weighted risk assets increased by only 15% to Â£53bn, reflecting the relatively low weightings associated with government securities and reverse repos. In the year, Woolwich total assets grew by 4% to Â£58bn, and weighted risk assets rose by 5% to Â£30bn. UK mortgage outstandings grew by 9% to Â£52bn. Barclays Private Clients total assets of Â£13.7bn were 3% above the Â£13.4bn at the end of 2000. Within Barclaycard total assets fell by Â£0.5bn in the year to Â£9.3bn. Weighted risk assets reduced by 2% to Â£9.4bn. The reduction reflected lower consumer lending balances. Within Personal Financial Services total assets grew by 10% to Â£7.2bn. Weighted risk assets were 9% higher at Â£6.1bn due to growth in both current account overdrafts and consumer lending. Personal Financial Services Personal Financial Services provides a broad range of financial services to personal customers in the United Kingdom. It offers services and products to meet customers' individual requirements via an integrated range of delivery channels, comprising the branch network, cash machines, telephone banking and the internet. Personal Financial Services works closely with other businesses in the Group, in particular Woolwich, Barclays Private Clients, Barclaycard and Business Banking. 2001 2000 Â£m Â£m Net interest income 1,142 1,092 Net fees and commissions 525 488 Other operating income 147 126 Operating income 1,814 1,706 Operating costs (1,006) (1,010) Provisions for bad and doubtful debts (310) (273) Operating profit 498 423 Restructuring costs (13) (51) Integration costs (33) - Profit before tax and exceptional items 452 372 Personal Financial Services achieved a strong increase in operating profit, up 18% (Â£75m) to Â£498m (2000: Â£423m). Operating income increased by Â£108m (6%) to Â£1,814m (2000: Â£1,706m), while costs were held flat at Â£1,006m (2000: Â£1,010m). Net interest income increased by Â£50m (5%) to Â£1,142m (2000: Â£1,092m). This was driven by strong growth in deposit balances, and by continued growth in consumer lending balances. Average asset and liability margins for the year were both slightly reduced, reflecting the lower interest rate environment. Average savings balances increased 11% to Â£12.3bn (2000: Â£11.1bn), ahead of market growth. New products launched during 2001, such as the Regular Savings and Tracker Accounts, together with continued balance growth in e-savings, contributed to this strong performance. Improvements to current account products contributed to increased average current account credit balances, of 8%. The net inflow of current accounts totalled 120,000. Average consumer lending balances increased by 7% to Â£4.7bn (2000: Â£4.4bn), below market growth, due to adopting a cautious risk assessment approach throughout the year. Asset quality has improved, with personal pricing on the Barclayloan product resulting in an increased proportion of better quality lending. Net fees and commissions increased by Â£37m (8%) to Â£525m (2000: Â£488m) mainly as a result of additional current account and overdraft lending activity, and higher income from the fee-based Additions current account where the number of accounts increased by 16% to 1,219,000 (2000: 1,050,000). Other operating income increased by Â£21m (17%) to Â£147m (2000: Â£126m). This was predominantly due to higher levels of payment protection insurance and underwriting which benefited from improved volumes relating to consumer lending and credit card borrowing. Operating costs were maintained at Â£1,006m (2000: Â£1,010m) notwithstanding the growth in business volumes. Provisions rose 14% (Â£37m) to Â£310m (2000: Â£273m). This increase included a one-off Â£20m charge in respect of interest previously held in suspense. Excluding this charge, provisions rose by 6% which was below the rate of growth of consumer lending balances and reflected the benefit of the increased use of personal pricing. Barclays Open Plan was launched in a small part of the branch network in September 2001 and had already attracted 10,000 customers by 31st December 2001. Woolwich The Woolwich business comprises Woolwich plc and Barclays Mortgages, the UK mortgage and household insurance operations of Barclays. Woolwich is a predominantly UK-based business. It provides a wide range of personal financial services, including financial advice from one of the UK's largest independent financial advisory (IFA) teams. 2001 2000* Â£m Â£m Net interest income 851 318 Net fees and commissions 301 77 Income from long-term assurance business 24 5 Other operating income 34 4 Operating income 1,210 404 Operating costs (632) (170) Provisions for bad and doubtful debts (76) (4) Profit from joint ventures 3 - Operating profit 505 230 Restructuring costs (3) (4) Integration costs (46) (7) Fair value adjustments (33) (6) Profit before tax and exceptional items 423 213 * Includes Barclays Mortgages business and operating profit of Â£70m in respect of Woolwich plc business from 25th October 2000 to 31st December 2000. Pro forma profit and loss account for Woolwich plc and Barclays Mortgages As set out on pages 12 and 13 the Group is presenting pro forma results. The analysis below is provided to assist in the understanding of the underlying trends. Unless indicated, the commentary that follows is based on pro forma results. 2001 2000 Â£m Â£m Net interest income 851 850 Net fees and commissions 301 306 Income from long-term assurance business 24 34 Other operating income 34 16 Operating income 1,210 1,206 Operating costs (632) (613) Provisions for bad and doubtful debts (76) (39) Profit/(loss) from joint ventures 3 (2) Operating profit 505 552 Restructuring costs (3) (4) Integration costs (46) (7) Profit before tax and exceptional items* 456 541 * The fair value adjustments detailed on page 12 are not reflected in this presentation. Operating profit reduced by 9% to Â£505m (2000: Â£552m) primarily as a result of a reduced contribution from Barclays Mortgages, which was Â£62m lower than the previous year. Net interest income was maintained at Â£851m (2000: Â£850m). The contribution from lending activities improved, benefiting from a strong second half and compensated for a reduction in retail deposit income, where margin pressure was particularly intense during the year. Lending performance was strong with UK mortgage balances increasing 9% to Â£51.9bn. From April, Woolwich branded mortgages have been sold through the Barclays retail network. Gross mortgage advances increased during the year by 37% to Â£15.7bn, a market share of 9.8% relative to share of balances outstanding of 9%. Net lending on UK mortgages increased by 45% to Â£4.3bn, a market share of 7.8%, with the market share of net lending for the second half of the year in excess of 8%. Consumer finance lending balances have increased 32% to Â£1.5bn. Net fees and commissions were Â£301m (2000: Â£306m). This primarily reflected a good performance from the IFA operations, where income for the year increased by 17% to Â£89m, and from growth in fees from mortgage related activities. Income from business areas, such as unit trusts and life assurance reduced mainly as a result of stock market volatility. Operating costs were Â£632m, an increase of 3%. Revenue related costs increased Â£19m due to increased business volumes such as mortgages and IFA sales. Business as usual costs were held at Â£504m (2000: Â£500m). Provisions for the year increased to Â£76m (2000: Â£39m), principally reflecting growth in consumer finance lending balances. In 2000, provisions were impacted by a provision release of Â£8m in Barclays Mortgages in the first half of the year. During 2001 the number of Open Plan customers increased 76%, to 960,000 (2000: 544,000), with product penetration increasing slightly to 3.1 (2000: 3.0) products per customer. During the course of the year an increasing number of Open Plan recruits were new to the Woolwich. Barclays Private Clients Barclays Private Clients serves one million affluent and high net worth clients across thirty three countries worldwide, providing banking and asset management services. The business continued its transformation programme to integrate the businesses that previously formed Wealth Management. This programme aims to deliver operational economies of scale and improved customer service and product capability built around a single relationship for the provision of banking and investment products. 2001 2000 Â£m Â£m Net interest income 839 793 Net fees and commissions 576 579 Income from long-term assurance business 148 166 Other operating income 18 36 Operating income 1,581 1,574 Operating costs (925) (906) Provisions for bad and doubtful debts (36) (23) Operating profit 620 645 Restructuring costs (29) (41) Integration costs (9) - Profit before tax and exceptional items 582 604 Operating profit of Barclays Private Clients decreased by 4% to Â£620m (2000: Â£645m). This was due to significant strategic investment spend. Operating income was held at 2000 levels, despite difficult market conditions, due to the diversity of product, geography and client mix. Net interest income increased by 6% to Â£839m (2000: Â£793m). Average lending volumes increased by 16% to Â£8.6bn (2000: Â£7.4bn) and average deposits, primarily from UK affluent clients, increased by 6% to Â£38bn (2000: Â£36bn). The benefit of increased balances was partially offset by margin compression in deposits, due to reduced interest rates. Net fees and commissions decreased by 1% to Â£576m (2000: Â£579m) primarily due to lower fund management and brokerage fees. This was partially offset by commission income of Â£35m from the sale of Legal & General products. Average daily volumes in UK retail stockbroking decreased by 21% to 6,400 (2000: 8,100). Barclays Stockbrokers continued to maintain its leading UK position with market share of retail stockbroking, as measured by retail client orders, remaining at 11%. Income from long term assurance, declined by 11% to Â£148m (2000: Â£166m). Lower stock market levels in the year resulted in a Â£70m negative impact on income. This was partly offset by one-off benefits such as the Â£45m gain from the Legal & General strategic alliance. Operating costs increased 2% to Â£925m (2000: Â£906m). This includes Â£31m relating to the regulated sales force and field sales managers following the Legal & General strategic alliance, whose costs were previously borne within the long term assurance fund. Excluding this, total costs reduced 1%. Cost reduction and productivity improvement outweighed inflationary and volume related pressures, resulting in a 5% decrease in business as usual costs and revenue related costs in total to Â£830m. Strategic investment costs increased by Â£62m to Â£95m, supporting the transformation programme. Total customer funds, which include assets under management and customer deposits, amounted to Â£88bn (2000: Â£95bn). Assets under management fell by Â£7bn to Â£50bn primarily due to the impact of falling stock markets and the transfer of assets under management following the Legal and General strategic alliance. Despite more difficult market conditions net new funds were flat. Within total customer funds, Barclays Private Clients has Â£10bn (2000: Â£15bn) of assets under management relating to retail life and funds businesses. The Legal & General strategic alliance is representative of Barclays Private Clients strategy of distributing best of breed investment products to customers. The launch of stakeholder pensions commenced in April 2001. The sale through Barclays distribution channels of protection and bond products commenced in August 2001 and of unit trusts and ISAs in September 2001. Legal & General product sales for the fourth quarter of 2001 (the first full quarter that Barclays distributed the full complement of Legal & General products) increased by 18% compared with similar product sales by Barclays Life and Barclays Funds over the same period in 2000. Barclays Private Clients includes the Barclays Caribbean operation which signed an agreement in October 2001 to combine its retail, corporate and offshore banking operations with those of Canadian Imperial Bank of Commerce (CIBC) to create FirstCaribbean International Bank. Further details are on page 53. Barclaycard Barclaycard is a leading credit card business in Europe. In addition to its operations in the United Kingdom, Germany, France, Spain and Greece, it also operates in Africa and the Caribbean. It offers a full range of credit card services to individual customers, together with card payment facilities to retailers and other businesses. 2001 2000 Â£m Â£m Net interest income 820 685 Net fees and commissions 581 524 Operating income 1,401 1,209 Operating costs (473) (439) Provisions for bad and doubtful debts (370) (304) Loss from joint ventures (3) (2) Operating profit 555 464 Restructuring costs (8) (4) Profit before tax and exceptional items 547 460 Operating profit of Barclaycard increased by 20% to Â£555m (2000: Â£464m). The improved performance benefited from the application of Information Based Customer Management techniques, which allow pricing and features to be responsive to customer needs. A greater insight into the behaviours of customers has allowed Barclaycard to develop targeted offers, which has increased the revenue per customer, whilst reducing the cost of acquisition of new business. Net interest income increased by 20% to Â£820m (2000: Â£685m). This was mainly as a result of good growth in average UK extended credit balances which rose 9% to Â£6.0bn (2000: Â£5.5bn), and improved cardholder rate management coupled with lower interest rates. Recruitment of UK customers reached 763,000 (2000: 740,000), aided by the Barclaycard Premiership sponsorship and in spite of lower balance consolidation activity. Fees and commissions increased by 11% to Â£581m (2000: Â£524m), principally as a result of replacing UK annual account fees with fees based on account behaviour. Operating costs increased 8% to Â£473m (2000: Â£439m). Strategic investment costs increased 31% to Â£77m (2000: Â£59m) arising from further recruitment of customers outside the UK and investment in capacity to facilitate the growing number of on line users which rose 68% during 2001. Business as usual costs increased by 2% to Â£383m, despite fraud losses rising by 22%. Provisions increased by 22% to Â£370m (2000: Â£304m). This was mainly attributable to growth in lending across the UK and international businesses and the continuing high levels of recruitment during the last two years. Barclaycard's international businesses recorded an operating loss of Â£19m (2000: loss Â£26m) reflecting the continued cost of business expansion. The improved performance was driven by a 38% rise in average extended credit balances and a 48% increase in total income. Total cards issued in continental Europe grew 7% to 1.25m during 2001. Business Banking Business Banking provides relationship banking to the Group's small, medium and large business customers in the United Kingdom. Customers are served by a network of relationship and specialist managers who provide local access to an extensive range of products and services, as well as offering information and support. Customers are also offered access to business centres in mainland Europe and the United States. Market share was maintained at around one quarter of small and medium businesses in the United Kingdom, despite a fall in both the number of start ups and in the overall business stock. Non-banking services are provided to customers through Barclays B2B, which delivers business services such as smart-sourcing targeted at customers with an annual turnover of over Â£100m up to Â£1bn. 2001 2000 Â£m Â£m Net interest income 1,591 1,503 Net fees and commissions 833 787 Other operating income (4) (7) Operating income 2,420 2,283 Operating costs (1,047) (1,055) Provisions for bad and doubtful debts (210) (120) Loss from associated undertakings (11) (6) Operating profit 1,152 1,102 Restructuring costs (31) (59) Integration costs (1) - Profit before tax and exceptional items 1,120 1,043 Operating profit increased 5% (Â£50m) to Â£1,152m (2000: Â£1,102m). Net interest income rose 6% to Â£1,591m reflecting increased lending and deposit balances partly offset by a slight reduction in the overall margin. Average customer lending balances increased 9% to Â£40.9bn (2000: Â£37.5bn) and average customer deposit balances increased 6% to Â£42.4bn (2000: Â£40bn). Lending growth was focused towards higher quality. This was reflected in strong lending growth to large business customers and also through steady volumes of lending to medium and small business customers. The Sales Financing product range, which includes factoring and invoice discounting, saw rapid growth in turnover, up 55% as a result of investment in this area, while Barclays Asset Finance direct new business volumes were up over 20%. UK lending margins continued to reduce, reflecting the focus of growth in higher quality lending. The overall deposit margin remained broadly unchanged. Net fees and commissions increased 6% to Â£833m. Lending related fees growth was driven by good activity levels in large business with a strong fee income performance from Sales Financing. UK money transmission income continued to fall, with higher volumes offset by lower fee levels as a result of strong competitive pressures. Foreign exchange related income increased strongly as a result of higher turnover. The use of Businessmaster continues to increase with over 70% of large business customers and over 50% of medium business customers registered for the service. Businessmaster allows customers direct access to account information and provides a facility to make same day and international payments. In Small Business, over 35% of customers were registered to use the Online Banking system at the end of December 2001. Operating costs fell 1% compared to 2000. Strategic investment costs were maintained at Â£98m (2000: Â£97m) and were focused towards the development of new customer value propositions and improving efficiency. Operating costs included the Â£36m (2000: Â£32m) total operating costs of Barclays B2B and Â£9m of costs of Banco Barclays SA (formerly Banco Barclays e Galicia SA) which was consolidated as a subsidiary from 1st January 2001, having been previously reported as an associated undertaking. Provisions increased, as expected, to Â£210m (2000: Â£120m) from relatively low levels in 2000. This reflected weaker economic conditions especially in the manufacturing sectors. Barclays Africa Barclays Africa provides banking services to personal and corporate customers in North Africa, sub-Saharan Africa and islands in the Indian Ocean. It operates a diversified portfolio of banking operations in Botswana, Egypt, Ghana, Kenya, Mauritius, Seychelles, South Africa, Tanzania, Uganda, Zambia and Zimbabwe. 2001 2000 Â£m Â£m Net interest income 180 181 Net fees and commissions 130 126 Other operating income 6 7 Operating income 316 314 Operating costs (158) (157) Provisions for bad and doubtful debts (25) (47) Operating profit 133 110 Restructuring costs (7) (16) Profit before tax and exceptional items 126 94 Operating profit increased Â£23m (21%) to Â£133m (2000: Â£110m), primarily as a result of a Â£22m reduction in the net provision charge to Â£25m (2000: Â£47m). Net interest income was at a similar level to last year. Total average customer lending balances increased 3% to Â£1.3bn. Total average customer deposit balances increased Â£67m (3%), to Â£2.2bn. Margins decreased due to increased competitive pressures. Net fees and commissions increased 3% to Â£130m (2000: Â£126m) through increased activity levels following the introduction of new personal product offerings. Operating costs increased 1% to Â£158m (2000: Â£157m) including costs to establish new branch operations in Tanzania. Barclays Capital Barclays Capital conducts the Group's investment banking business. As the Group's principal point of access to the wholesale markets, it provides corporate, institutional and government clients with solutions to their financing and risk management needs. The Barclays Capital business model is distinctive. It focuses on a broad span of financing and risk management services in the interest rate, foreign exchange, commodities and credit markets combined with capabilities in equities. Activities are split between two areas: Rates which includes fixed income, foreign exchange, derivatives, commodities and money markets sales, trading and research, prime brokerage and equities; and Credit which includes origination, sales, trading and research relating to loans, debt capital markets and structured capital markets, and private equity. Barclays Capital manages wholesale client relationships, having integrated the larger corporate and institutional businesses, which previously operated out of Corporate Banking. This has extended the client base in Europe, Latin America and the Middle East and is enabling the delivery of a wider product range across the wholesale markets. 2001 2000 Â£m Â£m Net interest income 682 512 Dealing profits 1,006 680 Net fees and commissions 405 474 Other operating income 53 39 Operating income 2,146 1,705 Operating costs (1,322) (1,064) Provisions for bad and doubtful debts (139) (66) Operating profit 685 575 Restructuring costs (23) (2) Profit before tax and exceptional items 662 573 Barclays Capital continued to grow operating profits and fund significant investment during the year while improving the cost income ratio to 61.6% (2000: 62.4%). The proportion of revenues derived from outside the UK continued to increase and overall has grown by 11% to 50%. Operating profit increased 19% (Â£110m) to Â£685m (2000: Â£575m) with both the Rates and Credit businesses performing well. Operating income growth of 26% reflects increased volumes of transactions for customers and good market conditions. Net interest income increased 33% to Â£682m (2000: Â£512m). The growth in net interest income was mainly in money markets, which benefited from a favourable interest rate environment, and in structured capital markets. Corporate lending continues to be tightly managed, with an overall decline in the credit portfolio of 7% to Â£14bn. Dealing profits rose 48% to Â£1,006m (2000: Â£680m). The strong performance was underpinned by increased customer business, with client transaction volumes increasing by 77% and improved contributions from the US and Europe. Growth was broadly spread across a range of markets and products, with major increases in government bonds, foreign exchange, interest rate derivatives and debt capital markets. The growth in operating profits was achieved with a 3% lower average daily value at risk (DVaR) 2001: Â£16.9m (2000: Â£17.5m). The reduction in market risk levels reflects the continued focus on risk management and the benefit of the portfolio effect which arises from conducting a broader span of activities. Net fees and commissions fell 15% to Â£405m (2000: Â£474m) mainly due to lower financing volumes in syndicated loans. Primary bond fees increased compared to 2000 but were offset by lower primary loan fees in line with the fall in market volumes. Barclays Capital maintained its leading position in the European syndicated loan markets. Net fees and commissions include Â£61m (2000: Â£81m) internal fees for structured capital markets activities. Operating costs rose 24% to Â£1,322m (2000: Â£1,064m) largely due to variable revenue related costs increasing in line with performance. Business as usual costs grew 7% as a result of a 16% rise in headcount and higher trading volumes. Staff costs were maintained at 52% of total operating income less provisions (2000: 50%). There was increased strategic investment costs mainly in respect of product, client coverage and distribution capabilities. The results of the expanded business include an increased proportion of variable revenue related costs giving greater flexibility for the future. Provisions increased to Â£139m (2000: Â£66m), reflecting greater uncertainty in certain sectors in the US and UK. Barclays Global Investors Barclays Global Investors (BGI) is the world's largest institutional asset manager, with offices in eight countries. BGI provides active, enhanced index and index strategies and manages assets for clients worldwide. BGI's investment philosophy focuses on managing all dimensions of performance: return, risk and cost. BGI's strategies are complemented by a range of value chain services that enhance investors' total portfolio returns, including cash management, securities lending and transition management. 2001 2000 Â£m Â£m Net interest income 5 6 Net fees and commissions 505 435 Other operating income (1) (1) Operating income 509 440 Operating costs (437) (381) Loss from associated undertakings (1) - Operating profit before tax and exceptional items 71 59 Operating profit increased 20% to Â£71m in a year of significantly lower stock market levels. The diversity of revenue mix has sustained growth in profits during this year's economic downturn and difficult market environment. Net fees and commissions increased Â£70m (16%) to Â£505m (2000: Â£435m). The increase was driven by a large increase in performance fees as a result of strong active product performance, increased securities lending revenues as a result of increases in stock lending volumes and spreads, and by higher transition fees due to increased business in client portfolio restructuring. Management fees remained at a similar level as revenues from net new sales and cross-sales were offset by the impact of significantly lower market levels. Operating costs increased Â£56m (15%) to Â£437m (2000: Â£381m), primarily reflecting higher performance related staff costs. Total assets under management fell 4% to Â£530bn (2000: Â£550bn). This was the net result of increases of Â£42bn attributable to net new business, Â£15bn due to exchange rate translation movements and a reduction of Â£77bn attributable to adverse market movements. Assets under management consisted of Â£438bn of indexed funds and Â£92bn under advanced active management. During 2001 BGI launched 40 Exchange Traded Funds (ETFs) globally bringing total ETFs to 104 at 31st December 2001 with assets of Â£14.8bn and a global market share of nearly 20%. BGI have received awards for its web capabilities reflecting its progress in developing internet-based client service, transaction and reporting capabilities. Other operations Property costs includes Barclays Group Property Services, which is responsible for the management of the majority of the Group's operational premises and property related services. Property costs also include the central administration of certain operational properties. Central services primarily comprises Service Provision, which provides central information technology services, and certain activities which support the operating businesses. Within Management of Group capital are certain central items including residual balances arising from centrally managed transition businesses. The Group maintains hedges with respect to its capital and its current account balances, which are designed both to reduce the impact of short-term interest rate fluctuations on profits and to increase profitability over the interest rate cycle. The hedges increase profitability when average short-term interest rates are lower than average medium-term interest rates and depress profitability when average short-term interest rates are higher than average medium-term interest rates. Earnings on centrally held Group capital are allocated to business groups on the basis of economic capital. 2001 2000 Â£m Â£m Property costs 15 28 Central services (38) (26) Management of Group capital* 7 15 Operating (loss)/profit (16) 17 Restructuring costs (52) (44) Loss before tax and exceptional items (68) (27) * Management of Group capital is after charging Â£61m (2000: Â£81m) internal fees for structured capital markets activities arranged by Barclays Capital. Within Property costs, the reduced property surplus in 2001 includes decreased disposal activity. The increased deficit in Central services reflects additional investment in core technology and operational infrastructure. The decreased surplus in Management of Group capital is attributable to reduced credits arising in centrally managed transition businesses and lower internal fees. Head office functions Head office functions comprise all the Group's central costs, including the Group executive, Group finance, corporate communications, human resources, corporate planning, audit, marketing, legal, corporate secretariat, public policy and risk. Costs incurred wholly on behalf of the business units are recharged to them. 2001 2000 Â£m Â£m Operating costs (69) (47) Restructuring costs (5) (11) Total (74) (58) The increase in operating costs reflects expenditure on Group initiatives, the cost of which is held centrally. Restructuring charge 2001 2000 Â£m Â£m Staff costs 114 171 Administrative expenses - other 57 61 171 232 Total restructuring charge of Â£171m, primarily relates to other operations (Â£52m), Business Banking (Â£31m), Barclays Private Clients (Â£29m) and Barclays Capital (Â£23m). Expenditure of Â£91m was incurred during the year against the provisions raised as at 31st December 2000 and Â£86m in respect of the 2001 programme. Accrued provision at 31st December 2001 amounted to Â£130m (31st December 2000: Â£132m). Woolwich integration costs 2001 2000 Â£m Â£m Staff costs 24 1 Administration expenses - other 65 6 89 7 Total integration costs, including those incurred in 2000 in respect of the acquisition of Woolwich plc, are expected to be in the order of Â£200m by the end of 2003. Woolwich integration synergies 2001 Â£m Actual synergies achieved in the year ended 31st December 2001 were as follows: Gross revenue synergies 49 Attributable operating costs (22) Net revenue synergies 27 Cost savings 41 Avoided costs* 43 Total pre-tax effect 111 * Avoided costs are primarily strategic investment costs which are not required due to the acquisition and integration of Woolwich plc. The Group expects to realise pre-tax synergies of at least Â£400m per annum from 1st January 2004. This is represented by pre-tax annual cost savings of at least Â£150m and pre-tax revenue synergies, net of attributable costs, of at least Â£250m. Pre-tax cost and revenue synergies totalling Â£111m have been achieved in 2001. Revenue synergies do not include the following which are of a one-off nature relating to 2001. Â£29m arising from the closure of surplus hedge positions in Personal Financial Services and Barclays Private Clients which were no longer required following the acquisition of Woolwich plc and Â£24m relating to the restructuring of the Life Funds. In addition the Group achieved related tax savings totalling Â£32m. Shareholder Value Barclays is focused on delivering superior value creation for shareholders through creation and delivery of superior products and services to customers. Barclays uses value-based management (VBM) to align management decision taking at all levels with the interests of its shareholders. Through VBM, Barclays has a disciplined focus on strategy development and business planning to realise sustainable competitive advantage. Group businesses undertake strategy development based on generation of alternative business models to enable identification and selection of the value-maximising alternatives. In order to manage for value, demanding performance goals have been established which are explicitly linked to shareholder value and are consistent with being a top quartile performer. These performance goals are now specified in terms of three primary measures of shareholder value performance - total shareholder return relative to peers, absolute value goal performance and economic profits. Total Shareholder Return Total shareholder returns are defined as the combination of share price appreciation and dividend yield realised by investors. The goal is to achieve and sustain top quartile total shareholder return relative to the Group's peers*. We believe relative total shareholder return performance is the best way of evaluating the Group's performance against selected competitors, and is the best external measure of shareholder value creation. In 2001 Barclays was in the top quartile, producing total shareholder return significantly above the average for the Group's peer group* (13% increase versus average decrease of 2%). Since this financial performance measure was adopted in January 2000, total shareholder return for the two years ended 31st December 2001 was 37%. This places the Group in the top quartile relative to our peer group (Abbey National, ABN Amro, Alliance & Leicester, Citigroup, HBOS, HSBC, Lloyds TSB, Prudential, Royal Bank of Scotland, Standard Chartered and UBS), whose total shareholder return was 19% over the same period. Absolute value goal As well as judging performance relative to the Group's peer group, we have set ourselves an absolute value goal. Our aim in this is to make Â£100 invested in Barclays at the beginning of January 2000 generate a further Â£100 for the investor by the end of 2003, from a combination of share price growth and dividends. Â£100 invested in Barclays at the beginning of 2000 was worth Â£137 at the end of 2001. This derives from a 28% increase in the share price (from Â£17.82 to Â£22.75), plus re-invested dividend payments across the two years of 113.5p. Economic Profit and Economic Capital The Group's performance goals also require that economic profit is doubled over the period 2000 to 2003 inclusive. If this is achieved then it is believed that shareholders have the best opportunity of having their investment in Barclays doubled over the same period. Economic profit is the post-tax attributable profit generated by a business over and above the cost of capital. The Group's goal is to double the economic profit of the Group over four years, consistent with its relative total shareholder return and value goals. The cumulative economic profit required to achieve the Group's goal of doubling economic profit over four years, using 1999 as a base year, is Â£6.1bn between the years 2000 and 2003 inclusive. This represents a 19% compound annual growth rate (CAGR). At the end of 2001, the Group generated Â£2.7bn cumulative economic profit, which is ahead of the goal which requires Â£2.5bn of cumulative economic profit at this stage in the four year period. 2001 2000 Â£m Â£m Profit after tax and minority interests (excluding goodwill 2,689 2,524 amortisation) Average shareholders' funds 14,546 10,131 Post tax cost of equity 10.5% 11% Cost of average shareholders' funds* (1,446) (1,095) Economic profit 1,243 1,429 * The cost includes a charge for purchased goodwill. A post tax cost of equity of 8.5% has been used for Woolwich plc goodwill. Economic profit for the Group is defined as profit after tax and minority interests excluding goodwill amortisation, less a charge for the cost of average shareholders' funds (which includes purchased goodwill). This is calculated using a capital asset pricing model. The cost of equity includes estimates of the future equity market risk premium of 4.5% and the relative risk of Barclays shares compared to the FTSE, measured by beta. A forward looking beta of 1.2 has been used. The cost of average shareholders' funds in 2001 was 10.5%, down from 11% in 2000, primarily as a result of lower overall interest rates. The quantum of economic capital, which is distinct from regulatory capital, is derived from an estimate of risk, based on contribution to overall Group volatility. Each business group is charged for its use of economic capital. The cost of economic capital is deducted from profit after tax and minority interests to arrive at economic profit. The use of economic capital is an integral part of value-based management. Economic capital and economic profit by business are set out below: Average economic capital 2001 2000 Â£m Â£m Personal Financial Services 1,300 1,200 Woolwich* 900 300 Barclays Private Clients 800 800 Barclaycard 1,000 1,000 Business Banking 2,500 2,200 Africa 200 200 Barclays Capital 1,900 1,700 Barclays Global Investors 100 100 Other operations 500 600 Head office functions - - Average economic capital 9,200 8,100 Goodwill** 4,600 1,200 Variance to average shareholders' funds*** 700 800 Total average shareholders' funds 14,500 10,100 * Average economic capital for Woolwich includes capital attributable to Barclays Mortgages business and for Woolwich plc from 25th October 2000. ** The movement in average goodwill (which is stated gross of any amortisation) primarily reflects the acquisition of Woolwich plc on the 25th October 2000. *** The variance to average shareholders' funds represents the variance between average economic capital by business and average shareholders' funds. The Business Banking average economic capital allocation increased by Â£300m to Â£2,500m as a result of growth in the lending book and the impact in the second half of the year of the global economic slow-down. The average economic capital movement was in line with the risk tendency increase. Economic profit 2001 2000 Â£m Â£m Personal Financial Services 192 132 Woolwich 165 112 Barclays Private Clients 348 355 Barclaycard 253 214 Business Banking - operating 483 486 - sale of subsidiary - 186 Africa 44 28 Barclays Capital 223 172 Barclays Global Investors 38 21 Other operations (23) (72) Head office functions (31) (39) Economic profit 1,692 1,595 Goodwill**** (403) (114) Variance to average shareholders' funds (46) (52) Economic profit 1,243 1,429 **** Cost of equity charge on purchased goodwill. Risk tendency 2001 2000 Â£m Â£m Personal Financial Services 270 240 Woolwich 115 95 Barclays Private Clients 45 45 Barclaycard 375 300 Business Banking 260 215 Africa 30 20 Barclays Capital 150 115 1,245 1,030 The Group uses a credit risk measurement system which estimates the cost of credit by different customer categories. The approach, which applies to both business and personal sector lendings, estimates losses over the next twelve months from the balance sheet date and is termed Risk Tendency. It was initially used primarily to aid the Group's understanding of the credit quality of the lending portfolio. As confidence has been gained in the measure it has been used to inform a wider range of decisions for example pricing policy, provisioning and portfolio management. The system relies on a series of models which assess the probability of customer default, the probable customer exposure at the time of default and the probable level of loss. A consistent approach is used across the organisation. Model outputs are a way of assessing what might happen in the future based on past experience. A number of different models are used in the risk tendency calculation reflecting the diversity of the portfolio. They are being improved constantly as the Group collects more data and deploys more sophisticated techniques. The Group believes that each change will have a minor impact on the total result but should lead to better estimates over time. When first developed the models were calibrated to estimate the average loss rate over an economic cycle, as customer relationships tend to last many years. Experience has shown some difficulties with this approach. Consequently, the basis of Risk Tendency has been developed to allow greater use in pricing and portfolio management and to overcome the issues surrounding estimating the length and amplitude of an economic cycle. As a result, default probabilities will be estimated for the forthcoming twelve months. As 2000 was a relatively neutral economic year in the UK the change in focus of the calculation should not result in a significant difference in the result. The Risk Tendency number should not be regarded as a forecast of the next twelve months provisions. Risk Tendency is calculated on the existing fully performing credit portfolio as at the calculation date, a subset of the total portfolio. Risk Tendency does not forecast next year's provisions relating to non-performing loans. Risk Tendency does not make any allowance for growth or change in the composition of the loan book post the reporting date. This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW

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