Final Results - Part 1

Barclays PLC 21 February 2006 PART 1 Results Announcement 31st December 2005 BARCLAYS PLC PRELIMINARY ANNOUNCEMENT OF RESULTS FOR 2005 TABLE OF CONTENTS PAGE Summary of key information 1 Performance summary 2 Financial highlights 4 Group Chief Executive's Statement 5 Group Finance Director's Review 8 Consolidated income statement 11 Consolidated balance sheet 12 Results by business 14 Results by nature of income and expense 44 Analysis of amounts included on the balance sheet 56 Additional information 68 Notes 72 Consolidated statement of recognised income and expense 86 Summary consolidated cashflow statement 87 Other information 88 Index 90 BARCLAYS PLC, 1 CHURCHILL PLACE, LONDON, E14 5HP, ENGLAND, UNITED KINGDOM. TELEPHONE: +44 (0) 20 7116 1000. COMPANY NO. 48839 BARCLAYS PLC The information in this announcement, which was approved by the Board of Directors on 20th February 2006, does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985 (the 'Act'). Statutory accounts, which also include certain information required for the joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLC to the US Securities and Exchange Commission (SEC), will be delivered to the Registrar of Companies in accordance with Section 242 of the Act. The 2005 Annual Review and Summary Financial Statement will be posted to shareholders together with the Group's full Annual Report for those shareholders who request it. International Financial Reporting Standards The Group has applied International Financial Reporting Standards (IFRS) from 1st January 2004, with the exception of the standards relating to financial instruments and insurance contracts which are applied only with effect from 1st January 2005. Therefore the impacts of adopting IAS 32, IAS 39 and IFRS 4 are not included in the 2004 comparatives in accordance with IFRS 1 and financial instruments and insurance contracts are accounted for under UK GAAP in 2004. The results for 2005 are therefore not entirely comparable to those for 2004 in affected areas. For a fuller discussion of the transitional impacts of IFRS, please refer to the IFRS Transition Report 2004/2005, released 11th May 2005. The IFRS Transition Report provided the reconciliations required by IFRS and the provisional accounting policies expected to be applied in the preparation of the 2005 financial statements. The Interim Results Announcement on 5th August 2005 amended the reconciliations and the provisional accounting policies for the use of the fair value option. The financial information in this announcement has been prepared in accordance with these amended accounting policies. A summary of the Group's significant accounting policies will be included in the 2005 Annual Report. Dashes have been used to indicate where changes in policy cause an item to be not applicable and where there is no amount to report. Forward-looking statements This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and Section 27A of the US Securities Act of 1933, 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 'aim', 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding the Group's future financial position, income growth, impairment charges, business strategy, projected levels of growth in the banking and financial markets, projected costs, estimates of capital expenditures, and plans and objectives for future operations. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, the further development of standards and interpretations under IFRS applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, as well as 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, progress in the integration of Absa into the Group's business and the achievement of synergy targets related to Absa, the outcome of pending and future litigation, and the impact of competition - a number of which factors 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. The reader should, however, consult any additional disclosures that Barclays has made or may make in documents it has filed or may file with the SEC. 21st February 2006 'Barclays delivered strong and broadly based profit growth in 2005. Forty percent of our profits came from outside the UK as our wholesale and international businesses performed particularly well and as we started to benefit from the Absa acquisition. We made good progress in the UK, and are well positioned across the group for further growth in 2006.' John Varley, Group Chief Executive SUMMARY OF KEY INFORMATION(1) ----------------------------- ---------------------------------------------- --------- ------- --------- Group Results 2005 2004 % Change Â£m Â£m Total income net of insurance claims 17,333 14,108 23 Impairment charge and other credit provisions (1,571) (1,093) 44 Operating expenses (10,527) (8,536) 23 Profit before tax 5,280 4,580 15 Profit attributable to minority interests (394) (47) 738 Profit attributable to equity holders of the 3,447 3,254 6 parent Economic profit 1,752 1,568 12 Earnings per share 54.4p 51.0p 7 Proposed full year dividend per share 26.6p 24.0p 11 Post-tax return on average shareholders' equity 21.1% 21.7% Â£m Â£m % Change Summary of divisional profit before tax(2) UK Banking 2,455 2,265 8 -------- -------- UK Retail Banking 1,027 963 7 UK Business Banking 1,428 1,302 10 -------- -------- Barclays Capital 1,272 1,020 25 Barclays Global Investors 542 336 61 Wealth Management 172 110 56 Barclaycard 687 843 (19) International Retail and Commercial Banking (IRCB) 690 293 135 -------- -------- IRCB - ex Absa 355 293 21 IRCB - Absa 335 - - -------- -------- ---------------------------------------------- --------- ------- --------- (1) In this document the income statement analysis compares, unless stated otherwise, the year ended 31st December 2005 to the corresponding period of 2004. Balance sheet comparisons, unless stated otherwise, relate to the corresponding position at 31st December 2004. 2004 comparatives do not include additional impacts arising from the first time application of IAS 32 (Financial instruments: Disclosure and Presentation), IAS 39 (Financial instruments: Recognition and Measurement) and IFRS 4 (Insurance Contracts), which were applied from 1st January 2005. (2) Summary excludes Wealth Management-closed life assurance activities and Head office functions and other operations. Full analysis of business profit before tax is on page 18. PERFORMANCE SUMMARY â€¢ The financial results reflect progress in implementing our strategy: - Total income(1) up 23% to Â£17,333m - Profit before tax up 15% to Â£5,280m - Earnings per share up 7% to 54.4p - Dividend per share up 11% to 26.6p - Economic profit up 12% to Â£1,752m - Return on average shareholders' equity of 21%. â€¢ UK Banking produced good profit(2) growth, up 8% to Â£2,455m, and outperformed its productivity target for 2005 with the cost:income(1) ratio improving by three percentage points versus the target of two percentage points. UK Retail Banking delivered an improvement in profits driven by higher income and lower costs and UK Business Banking maintained strong growth. â€¢ Barclays Capital maintained its excellent performance, with profit(2) rising 25% to Â£1,272m. Profit growth reflected the success of past investments and higher customer driven revenues across a broad range of asset classes. The rate of profit growth exceeded the rate of growth in capital consumption. â€¢ Barclays Global Investors achieved outstanding results, with profit(2) up 61% to Â£542m, and delivered a strong investment performance. Net new assets under management were US$88bn. â€¢ Wealth Management profit(2) grew significantly, up 56% to Â£172m. This reflected balance sheet growth across the business, higher assets under management and client activity, and disciplined cost control. â€¢ Barclaycard profit(2) fell 19% to Â£687m. Strong income(1) growth was offset by a significant rise in impairment charges, principally in the UK card portfolios. Barclaycard profits were also adversely impacted by higher costs, mainly as a result of investment in Barclaycard US (previously Juniper), which is performing on plan. â€¢ International Retail and Commercial Banking excluding Absa achieved very strong growth with profit(2) up 21% to Â£355m. There were particularly good performances in European mortgages, African corporate lending and in the Spanish business. â€¢ Absa's performance was excellent, reflecting good balance sheet growth, strong levels of customer activity and a benign credit environment. Absa's contribution to profit(2) was Â£335m reflecting five months of ownership and the annualised return on investment before hedging and funding costs in this period was 13%. â€¢ The Group's results also reflect the benefits realised from other recent acquisitions, including Banco Zaragozano in Spain, Gerrard in the UK, Barclaycard US and the Iveco Finance business. â€¢ Group income growth(1) excluding Absa, of 16%, was very strong and well diversified by business, income type and geography. Non-interest income(1) excluding Absa rose 20% and represented over half of total income(1). â€¢ The increase in operating expenses excluding Absa was in line with comparable income(1) growth. The increase was driven by significant investment directed to the global product businesses, higher performance related expenses, the expansion of International Retail and Commercial Banking and head office relocation costs. This was partly offset by a strong focus on cost control and by good progress on UK Banking productivity goals. (1) Total income net of insurance claims. (2) Profit before tax. PERFORMANCE SUMMARY â€¢ Impairment charges and other credit provisions rose 44%. This reflected some large one-off releases and recoveries in 2004, the impact of acquisitions in 2005 and changes in methodology. Excluding these factors, the underlying rate of growth in impairment charges was 24%. Stable credit conditions in the wholesale and corporate businesses were more than offset by a deterioration in the retail businesses. This was driven principally by a continued steady increase in arrears balances and lower rates of recovery from customers in UK credit cards. Impairment charges rose at a slower rate in unsecured loans and were minimal in UK mortgages. â€¢ Barclays primary performance goal is to achieve top quartile total shareholder return. In the first two years of the 2004-2007 goal period Barclays was positioned 5th within its peer group(1), which is second quartile. Compound annual growth in economic profit of 18% over the first two years of the goal period is ahead of the target range (10%-13%). (1) Peer group for 2005 remained unchanged from 2004: ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, JP Morgan, Lloyds TSB, Royal Bank of Scotland and UBS. The peer group is unchanged for 2006. FINANCIAL HIGHLIGHTS 2005 2004 RESULTS Â£m Â£m --------- Net interest income 8,075 6,833 Net fee and commission income 5,705 4,847 Principal transactions(1) 3,179 2,514 Net premiums from insurance contracts 872 1,042 Other income 147 131 Total income 17,978 15,367 Net claims and benefits paid on insurance contracts (645) (1,259) Total income net of insurance claims 17,333 14,108 Impairment charge and other credit provisions (1,571) (1,093) Net income 15,762 13,015 Operating expenses (including amortisation (10,527) (8,536) of intangible assets) Share of post-tax results of associates and joint ventures 45 56 Profit on disposal of associates and joint ventures - 45 Profit before tax 5,280 4,580 Profit attributable to equity holders of the parent 3,447 3,254 Economic profit 1,752 1,568 PER ORDINARY SHARE p p -------------------- Earnings 54.4 51.0 Diluted earnings 52.6 49.8 Proposed full year dividend 26.6 24.0 Net asset value 269 246 PERFORMANCE RATIOS % % -------------------- Post-tax return on average shareholders' equity 21.1 21.7 Cost:income ratio(2) 61 61 Cost:net income ratio(3) 67 66 As at 2005 01.01.05 2004 BALANCE SHEET Â£m Â£m Â£m Shareholders' equity excluding minority interests 17,426 15,287 15,870 Minority interests 7,004 3,330 894 Total shareholders' equity 24,430 18,617 16,764 Loan capital 12,463 10,606 12,277 Total capital resources 36,893 29,223 29,041 Total assets 924,357 715,600 538,181 Weighted risk assets 269,148 219,758 218,601 CAPITAL RATIOS % % % Tier 1 ratio 7.0 7.1 7.6 Risk asset ratio 11.3 11.8 11.5 (1) Principal transactions comprise net trading income and net investment income. (2) The cost:income ratio is defined as operating expenses compared to total income net of insurance claims. (3) The cost:net income ratio is defined as operating expenses compared to total income net of insurance claims, less impairment charges. GROUP CHIEF EXECUTIVE'S STATEMENT I am pleased to report that 2005 was another record year for Barclays. Profit before tax grew 15% to Â£5.3bn. We increased our dividend 11%. This performance is the consequence of having a well-grounded and robust strategy, and implementing it well. Our ambition is to position Barclays as one of the handful of universal banks leading the global industry. Our portfolio helps us to achieve this, through diversity in both business and geography. We have a simply stated business purpose: to help our customers and clients achieve their goals. Our strategic priorities are derived from that business purpose. They are: building the best bank in the UK; accelerating the growth of our global product businesses; developing retail and commercial banking activities in selected countries outside the UK; and enhancing operational excellence. In executing our strategy, we are clear about what we are seeking to achieve on behalf of our owners: higher earnings growth. This is what drives our investment priorities, and what has guided us towards further international expansion. The acquisition of a controlling stake in the South African bank, Absa Group Limited, which we completed in 2005; the development of our other International Retail and Commercial Banking businesses; and the continued rapid growth of Barclays Capital, Barclays Global Investors and Barclaycard International - all of these are designed to enable us to grow faster by ensuring that we have a good spread of activities both by business and by geography. We have a clear view about sources of growth in the financial services industry over the coming years. We see significant growth opportunities in the UK but we see at least as many internationally. Our selective diversification by geography, by product, and by customer segment helps us improve financial performance, reduce risk, and create opportunities for synergies in product and capital. Our performance in 2005 has been underpinned by three strong pillars: our portfolio of businesses; our geographical presence; and the talent and skills of our people. Our portfolio UK Banking is a bellwether business for us. If Barclays is to achieve its ambitions, then UK Banking must perform well. We made good progress in UK Banking during 2005, and both of its components - UK Business Banking and UK Retail Banking - achieved encouraging profit growth. We have made a public commitment to improve the productivity of this business by two percentage points in each of 2005, 2006 and 2007, and we out-performed that goal in 2005. We know that UK Retail Banking presents us with a significant growth opportunity. Our recruitment of customers was good in 2005 - 400,000 new current account holders, 250,000 new savings customers, and over 500,000 new registrants for online banking. The business is not yet performing as strongly as we intend, but we have identified opportunities for improvement and have enhanced the resource and skill that we are directing towards these. UK Business Banking had a good year. Its business model - based on relationship management and industry sector specialisation - positions it well to capture business, and 2005 was busy and successful. Barclays Capital had another record year. Barclays Capital is a client focused business. Its performance is not particularly sensitive to the direction or absolute level of interest rates but rather to levels of client activity. We have taken the simple formula of offering financing and risk management services to clients, and applied it with discipline to a steadily expanding array of activities. The business base has expanded quickly through the investment of the last two years. As a result of growth in Asia, in continental Europe, and in North America, over 70% of Barclays Capital income comes from outside the UK. We have expanded the business in a way that demands both short term performance and medium term returns. Profits have grown very strongly. Meanwhile, we have increased the range of our investment banking activities through the development of significant income streams in the areas of mortgage backed securities, equity products, commodities, and derivative products across all asset classes. Barclays Global Investors achieved outstanding results. Assets under management now exceed US$1.5 trillion. As in the case of Barclays Capital, we are unconstrained by market share and, in particular, we are seeing brisk growth in the areas of fixed income, cash management and exchange traded funds. 2005 was a year of strong headcount growth in Barclays Global Investors (BGI), which reflects our confidence in the position which BGI has in the industry. This position is underpinned by BGI's investment performance track record - which is outstanding - and by demographics and the fiscal pressure on governments to provide retirement solutions for their citizens. Our goal is to position our Wealth Management business as a leading European wealth manager. This is a business undergoing rapid transformation. The pick-up in profits in the last two years has been striking, but the most important feature of our progress is good growth in the client base, in assets under management and lending balances. In Barclaycard, the challenging consumer environment and consequent rising impairment in the UK contrasted with stable credit conditions and very good growth in other markets. Our strategy has been to diversify our cards and consumer lending business, adding a partnerships business in the UK in recent years (providing Sky TV customers with a credit card offering would be a good example of this in 2005) and rapidly expanding Barclaycard International. We now have nearly 4.5 million cards in issue in the International business. Growth prospects here are underpinned by the rapid development of Barclaycard US (previously Juniper) which we acquired at the end of 2004, by our joint venture in Scandinavia with Swedbank launched in 2005, and by the Zaragozano and Absa acquisitions. The customer base of International Retail and Commercial Banking grew significantly during 2005 as a result of the acquisition of Absa, which added over 7 million new customers to the Group. This transaction was the largest investment we have ever made outside the UK. Absa is a very good bank, and it is performing strongly. The expected synergies with our pre-existing South African activities, and the introduction into Absa of specialist skills in the areas of investment banking, small and mid-corporate banking and credit cards, make us confident that Absa represents a significant source of earnings growth for our shareholders in the future. Outside Absa, the rest of the International Retail and Commercial Banking portfolio performed strongly. In particular, we continue to make rapid progress in our Spanish business, where the integration of Banco Zaragozano, acquired in 2003, is proceeding well. Spain represents another good example of where we can take a strong retail and commercial banking platform, develop it by acquisition, and use it to introduce additional service offerings to our customers through collaboration with Barclays Capital, Barclays Global Investors and Barclaycard. Our presence The second pillar of our activities is the business spread and geographical presence that we continue to build. We have two principal sources of earnings diversification: the first is in core banking activities outside the United Kingdom, of which Africa and Spain would be the best examples. The second is through the development of our global product businesses; investment banking, asset management, wealth management and credit cards. In 2005, about 40% of our profits came from outside the United Kingdom. Over time we would like to see this percentage increase. We expect the plans we have for our existing portfolio of businesses to enable us to achieve an approximately even balance between UK and international profits over the next three years. We believe that we should ensure that our shareholders, through investing in Barclays, have appropriate exposure to the fastest growing economies in the world. By consequence, we continue to invest in Asia through Barclays Capital and Barclays Global Investors, which represent our principal sources of activity in that part of the world. During 2005, we opened a branch in Shanghai, adding to our representative office in Beijing; and our Indian business grew quickly, in particular in the area of debt issuance on behalf of Indian companies. We are - and will continue to be - selective about where we do business. The standard we set ourselves is that where we choose to operate, we are in a position to compete with the best in the world. Our people The third pillar of our business - our people - is fundamental to what we do. Barclays has been in business for over 300 years. The common thread running through its long history is that of relationships, and strong business relationships depend on talented people. Recruiting, developing and retaining the best people is a strategic imperative for us, and we direct a lot of time and effort at nurturing what we call 'franchise health': in other words, the standing of Barclays in the minds of our people, our customers and the communities in which we live and work. We measure our people's level of engagement regularly through our employee opinion surveys. The results of the 2005 survey continued the positive trend of recent years, with good progress in employee engagement and pride in Barclays. Our investment in people reflects a broader cultural change in our business. As we grow and as we diversify, it is important that the people of Barclays reflect the customers, clients and societies which we serve. Central to the service ethic are two things: first that we must lift our performance, month by month and year by year. This is an intensively competitive industry, and our customers and clients have the right to expect us to be good at what we do. Second, we take pride in being successful, because if we are successful as an organisation, then we contribute significantly to the societies in which we work. It is important for all our stakeholders - be they pensioners, employees, customers or governments - that Barclays does well. Long term success, as well as good short term performance, depends on having the right strategy and executing it effectively. Our performance in 2005 shows that we are doing what we said we would. We have accelerated the pace at which we execute our strategy because the strategy is a good one, and it is serving our shareholders and customers well. It is good to be able to report record profits in 2005. However, it is more important still to be able to say that a portfolio of good businesses, along with a growing geographical presence and the talent of great people, position us well for the future. John Varley Group Chief Executive GROUP FINANCE DIRECTOR'S REVIEW Group performance Barclays delivered strong financial results in 2005. Profit before tax was Â£5,280m, an increase of 15% from 2004. Earnings per share rose 7%, and economic profit(1) was up 12%. Return on average shareholders' funds was 21% and we have increased the total dividend payout 11%. Income(2) rose 23%, an increase which was broadly spread across the Group with most businesses reporting double digit income growth and UK Retail Banking returning to modest top line growth. Operating expenses grew in line with income, reflecting significant investment directed to the global product businesses, higher performance-related expenses, the expansion of International Retail and Commercial Banking and head office relocation. Excluding the first time contribution of Absa, income and operating expenses increased 16%. Impairment charges increased 44% to Â£1,571m (2004: Â£1,093m). This reflected some large one-off releases and recoveries in 2004, the impact of acquisitions in 2005 and changes in methodology. Excluding these factors, the underlying rate of growth in impairment charges was 24%, driven by a continued increase in arrears balances and lower rates of recovery from customers in UK credit cards. Impairment charges rose at a slower rate in unsecured loans and were minimal in UK mortgages. Wholesale and corporate credit conditions were stable. Business performance UK Banking produced good profit growth(3), up 8%, to Â£2,455m (2004: Â£2,265m) and outperformed its productivity target for 2005 with the cost:income(2) ratio improving by three percentage points. UK Retail Banking achieved solid income(2) growth of 4% in 2005, with a marked pick-up in the second half of the year which we believe establishes good momentum for 2006. Operating expenses decreased 3% through strong cost control whilst continuing targeted reinvestment to improve customer service and the branch network. Profit before tax grew 7% to Â£1,027m (2004: Â£963m). Excluding the gain on the sale of our stake in Edotech in 2004, underlying profit before tax increased 12%. UK Business Banking profit before tax increased 10% to Â£1,428m (2004: Â£1,302m), driven by strong income and balance sheet growth. Operating expenses grew slower than income leading to an improved cost:income(2) ratio of 35%. Barclays Capital continued its very strong growth of recent years, with profit before tax in 2005 rising 25% to Â£1,272m (2004: Â£1,020m). Income(2) growth of 27% was broadly based across products and geographies. The year also saw continued investment in building Barclays Capital's scale and diversity in terms of geography, products and people. As a result of investment and the profit performance, operating expenses grew 28%. Market risk was well-controlled with DVaR falling 6% to Â£32m as a result of increased diversification. The rate of growth of earnings once again exceeded the rate of growth of capital consumption. Barclays Global Investors achieved outstanding results, with profit before tax rising 61% to Â£542m (2004: Â£336m), reflecting strong growth in net new assets, very good investment performance and a continuing improvement in operating margins. Income(2) growth of 48% was driven by significant increases in management fees, incentive fees, and securities lending revenues. Operating expenses rose 40%, reflecting higher performance based compensation and significant investment in the platform and in innovative new products. (1) Economic profit is defined on page 64. (2) Total income net of insurance claims. (3) Profit before tax. Wealth Management profit before tax rose 56% to Â£172m (2004: Â£110m) - a very strong performance driven by broad based income(1) growth of 11% and improved cost efficiency. Operating expenses grew only 3% as efficiency savings funded significant cost restructuring and investment programmes. Barclaycard profit before tax fell 19% to Â£687m (2004: Â£843m) driven by higher levels of impairment in the UK and continued investment in the International business. Income(1) growth of 15% reflected good performances by the UK cards and loans businesses and very strong international growth. Operating expenses rose 21%, reflecting continued heavy investment in the business, particularly internationally. The Barclaycard US business, previously Juniper, grew strongly in line with plans, and cards in Spain and Germany performed strongly. International Retail and Commercial Banking was transformed by the acquisition of Absa. International Retail and Commercial Banking excluding Absa increased profit before tax 21% to Â£355m (2004: Â£293m). Income(1) growth of 20% reflected strong balance sheet growth in Europe and Africa. Operating expenses grew in line with income(1) as we accelerated the integration of Banco Zaragozano. Excluding integration costs, Barclays Spain increased profit before tax 25% to Â£156m (2004: Â£125m). We completed the acquisition of a majority stake in Absa Group Limited in July 2005. Absa Group Limited reported 28% growth in profit before tax to R7,031m for the 9 month period to 31st December 2005(2). For the 5 month period of Barclays ownership, Absa contributed Â£335m to profit before tax and the performance of Absa is well ahead of the business plan that underpinned the acquisition. Head office functions and other operations loss before tax increased to Â£532m (2004: Â£235m). This was driven by accounting adjustments to eliminate inter-segment transactions of Â£204m (2004: Â£69m) and non-recurring costs of Â£165m (2004: Â£32m) including the costs of head office relocation and write-off of capitalised IT related assets. International Financial Reporting Standards Barclays applied International Financial Reporting Standards (IFRS) with effect from 1st January 2004, with the exception of IAS 32, IAS 39 and IFRS 4, which were applied from 1st January 2005. The effect of these changes is pervasive throughout these results. Where possible, and where the difference causes a significant issue with interpretation, we have sought to identify the discontinuities caused by different standards being applied from 1st January 2005 and have reported balance sheet data for both 31st December 2004 as well as 1st January 2005 in order to enable appropriate comparisons to be made. At Group level, we believe the application of IAS 32, IAS 39 and IFRS 4 has not had a material impact on attributable profits or earnings per share but have significantly increased balance sheet footings. We have previously reported in detail on the line items which would be affected by IFRS and the outcomes have been consistent with our earlier expectations. (1) Total income net of insurance claims. (2) Absa has changed its financial year-end to 31st December to conform with Barclays. The comparable period comprises unaudited results for the nine months ended 31st December 2004. Capital strength Our strong credit rating and disciplined approach to capital management remain sources of competitive advantage. Our capital management policies are designed to optimise the returns to shareholders whilst maintaining our rating. At the end of 2005, our tier 1 capital ratio was 7.0% and our risk asset ratio was 11.3%. Over the past two years we have consciously sought to address the extent to which we are carrying surplus capital and to use our resources more intensively. In 2004, we bought back approximately Â£700m in shares and we have changed the mix of our core capital in both 2004 and 2005 by introducing preference shares into the capital base. In 2005, we acquired Absa Group Limited without issuing ordinary equity, made a number of other smaller acquisitions, increased weighted risk assets 10% excluding Absa and paid dividends of Â£1.6bn. Despite this we ended the year with a tier 1 ratio only marginally changed from the level post the impact of IFRS at the beginning of the year. This resulted from the strong cash flow generation of our business portfolio and the efficient management of the balance sheet through the use of the capital markets. During 2006 we expect continued strong growth in capital investment in our businesses to support organic growth and for our tier 1 capital ratio to move towards our target of 7.25% through the combination of the impact of retained earnings and continued efficient use of the debt capital markets. Outlook We expect the UK economy to show reasonable growth in 2006, but the credit environment in the consumer sector is likely to remain challenging. Impairment charges in the UK small and medium business sector have been exceptionally low in the recent past and may trend towards more normal levels in 2006. The healthy global economy should provide a positive backdrop for all our businesses this year. We start 2006 with strong income momentum throughout Barclays and this positions us well for another year of good earnings growth. Naguib Kheraj Group Finance Director CONSOLIDATED INCOME STATEMENT 2005 2004 Continuing operations Â£m Â£m -------- -------- Interest income 17,232 13,880 Interest expense (9,157) (7,047) -------- -------- Net interest income 8,075 6,833 -------- -------- Fee and commission income 6,430 5,509 Fee and commission expense (725) (662) -------- -------- Net fee and commission income 5,705 4,847 -------- -------- Net trading income 2,321 1,487 Net investment income 858 1,027 -------- -------- Principal transactions 3,179 2,514 Net premiums from insurance contracts 872 1,042 Other income 147 131 -------- -------- Total income 17,978 15,367 Net claims and benefits paid on insurance contracts (645) (1,259) -------- -------- Total income net of insurance claims 17,333 14,108 Impairment charge and other credit provisions (1,571) (1,093) -------- -------- Net income 15,762 13,015 -------- -------- Operating expenses excluding amortisation of intangible assets (10,448) (8,514) Amortisation of intangible assets (79) (22) -------- -------- Operating expenses (10,527) (8,536) Share of post-tax results of associates and joint ventures 45 56 Profit on disposal of associates and joint ventures - 45 -------- -------- Profit before tax 5,280 4,580 Tax (1,439) (1,279) -------- -------- Profit for the year 3,841 3,301 -------- -------- Profit attributable to minority interests 394 47 Profit attributable to equity holders of the parent 3,447 3,254 -------- -------- 3,841 3,301 -------- -------- p p Basic earnings per ordinary share 54.4 51.0 Diluted earnings per share 52.6 49.8 Paid and proposed dividends per ordinary share: Interim paid 9.20 8.25 Final proposed 17.40 15.75 Interim dividend Â£582m Â£528m Proposed final dividend Â£1,105m Â£1,001m CONSOLIDATED BALANCE SHEET As at 2005 01.01.05 2004 Assets Â£m Â£m Â£m Cash and balances at central banks 3,906 3,238 1,753 Items in the course of collection from other banks 1,901 1,772 1,772 Treasury bills and other eligible bills - - 6,658 Trading portfolio assets 155,723 110,033 - Financial assets designated at fair value: - - held on own account 12,904 9,799 - - held in respect of linked liabilities to customers under investment contracts 83,193 63,124 - Derivative financial instruments 136,823 94,211 - Loans and advances to banks 31,105 25,728 80,632 Loans and advances to customers 268,896 207,259 262,409 Debt securities - - 130,311 Equity shares - - 11,399 Available for sale financial investments 53,497 48,097 - Reverse repurchase agreements and cash collateral on securities borrowed 160,398 139,574 - Other assets 4,620 3,647 25,915 Insurance assets including unit-linked assets 114 109 8,576 Investments in associates and joint ventures 546 429 429 Goodwill 6,022 4,518 4,518 Intangible assets 1,269 139 139 Property plant and equipment 2,754 2,282 2,282 Deferred tax assets 686 1,641 1,388 -------- -------- -------- Total assets 924,357 715,600 538,181 -------- -------- -------- CONSOLIDATED BALANCE SHEET As at 2005 01.01.05 2004 Liabilities Â£m Â£m Â£m Deposits from banks 75,127 74,735 111,024 Items in the course of collection due to other banks 2,341 1,205 1,205 Customer accounts 238,684 194,478 217,492 Trading portfolio liabilities 71,564 59,114 - Financial liabilities designated at fair value: - held on own account 33,385 5,320 - Liabilities to customers under investment contracts 85,201 64,609 - Derivative financial instruments 137,971 94,429 - Debt securities in issue 103,328 76,154 83,842 Repurchase agreements and cash collateral on securities lent 121,178 98,582 - Other liabilities 11,131 9,869 82,936 Current tax liabilities 747 621 621 Insurance contract liabilities including unit-linked liabilities 3,767 3,596 8,377 Subordinated liabilities: - Undated loan capital-non convertible 4,397 4,208 6,149 - Dated loan capital-convertible 38 15 15 - Dated loan capital-non convertible 8,028 6,383 6,113 Deferred tax liabilities 700 1,397 1,362 Other provisions for liabilities 517 403 416 Retirement benefit liabilities 1,823 1,865 1,865 -------- -------- -------- Total liabilities 899,927 696,983 521,417 -------- -------- -------- Shareholders' equity Called up share capital 1,623 1,614 1,614 Share premium account 5,650 5,524 5,524 Available for sale reserve 225 314 - Cash flow hedging reserve 70 302 - Capital redemption reserve 309 309 309 Other capital reserve 617 617 617 Translation reserve 156 (58) (58) Retained earnings 8,957 6,784 7,983 Less: treasury shares (181) (119) (119) -------- -------- -------- Shareholders' equity excluding minority interests 17,426 15,287 15,870 Minority interests 7,004 3,330 894 -------- -------- -------- Total shareholders' equity 24,430 18,617 16,764 -------- -------- -------- -------- -------- -------- Total liabilities and shareholders' equity 924,357 715,600 538,181 -------- -------- -------- FINANCIAL REVIEW Results by business The following section analyses the Group's performance by business. For management and reporting purposes, Barclays is organised into the following business groupings: â€¢ UK Banking, comprising - UK Retail Banking - UK Business Banking â€¢ Barclays Capital â€¢ Barclays Global Investors â€¢ Wealth Management â€¢ Wealth Management - closed life assurance activities â€¢ Barclaycard â€¢ International Retail and Commercial Banking, comprising - International Retail and Commercial Banking - excluding Absa - International Retail and Commercial Banking - Absa, included with effect from 27th July 2005 â€¢ Head office functions and other operations UK Banking UK Banking delivers banking solutions to Barclays UK retail and business banking customers. It offers a range of integrated products and services and access to the expertise of other Group businesses. Customers are served through a variety of channels comprising the branch network, automated teller machines, telephone banking, online banking and relationship managers. UK Banking is managed through two business areas, UK Retail Banking and UK Business Banking. UK Retail Banking UK Retail Banking comprises Personal Customers, Mortgages, Small Business and UK Premier. This cluster of businesses aims to build broader and deeper relationships with both existing and new customers. Personal Customers and Mortgages provide a wide range of products and services to retail customers, including current accounts, savings, mortgages, and general insurance. Small Business provides banking services to small businesses. UK Premier provides banking, investment products and advice to affluent customers. UK Business Banking UK Business Banking provides relationship banking to Barclays larger and medium business customers in the United Kingdom. Customers are served by a network of relationship and industry sector specialist managers who provide local access to an extensive range of products and services, as well as offering business information and support. Customers are also offered access to the products and expertise of other businesses in the Group, particularly Barclays Capital. UK Business Banking provides asset financing and leasing solutions through a specialist business. Barclays Capital Barclays Capital is a leading global investment bank which provides large corporate, institutional and government clients with solutions to their financing and risk management needs. Barclays Capital services a wide variety of client needs, from capital raising and managing foreign exchange, interest rate, equity and commodity risks, through to providing technical advice and expertise. Activities are organised into three principal areas: Rates, which includes fixed income, foreign exchange, commodities, emerging markets, money markets sales, trading and research, prime services and equity products; Credit, which includes primary and secondary activities for loans and bonds for investment grade, high yield and emerging market credits, as well as hybrid capital products, asset based finance, commercial mortgage backed securities, credit derivatives, structured capital markets and large asset leasing; and Private Equity. Barclays Global Investors Barclays Global Investors (BGI) is one of the world's largest asset managers and a leading global provider of investment management products and services. BGI offers structured investment strategies such as indexing, global asset allocation and risk-controlled active products, including hedge funds. BGI also provides related investment services such as securities lending, cash management and portfolio transition services. In addition, BGI is the global leader in assets and products in the exchange traded funds business, with over 140 funds for institutions and individuals trading in eleven markets globally. BGI's investment philosophy is founded on managing all dimensions of performance: a consistent focus on controlling risk, return and cost. Wealth Management Wealth Management serves affluent, high net worth and corporate clients, providing private banking, offshore banking, stockbroking, asset management and financial planning services. Wealth Management - closed life assurance activities Wealth Management - closed life assurance activities comprise the closed life assurance businesses of Barclays and Woolwich in the UK. Barclaycard Barclaycard is a multi-brand international credit card and consumer lending business; it is one of the leading credit card businesses in Europe. In the UK, Barclaycard manages the Barclaycard branded credit cards and other non-Barclaycard branded card portfolios including Monument, SkyCard and Solution Personal Finance. In consumer lending, Barclaycard manages both secured and unsecured loan portfolios, through Barclays branded loans, being mostly Barclayloan, and also through the FirstPlus and Clydesdale Financial Services businesses. Outside the UK, Barclaycard provides credit cards in the United States through Barclaycard US (previously Juniper), Germany, Spain, Greece, Italy, Portugal and a number of other countries. In the Nordic region, Barclaycard operates through Entercard, a joint venture with ForeningsSparbanken (Swedbank). Barclaycard Business processes card payments for retailers and issues purchasing and credit cards to business customers and to the UK Government. Barclaycard works closely with other parts of the Group, including UK Retail Banking, UK Business Banking and International Retail and Commercial Banking, to leverage their distribution capabilities. International Retail and Commercial Banking International Retail and Commercial Banking provides Barclays international personal and corporate customers with banking services. The products and services offered to customers are tailored to meet the regulatory and commercial environments within each country. For reporting purposes in 2005, the operations have been grouped into two components: International Retail and Commercial Banking excluding Absa encompasses Barclays operations in continental Europe, Africa and the Middle East and the Caribbean joint venture; and International Retail and Commercial Banking - Absa represents the total business of Absa Group Limited in which Barclays acquired a majority stake on 27th July 2005. International Retail and Commercial Banking - excluding Absa International Retail and Commercial Banking excluding Absa provides a range of banking services, including current accounts, savings, investments, mortgages and loans to personal and corporate customers across Spain, Portugal, France, Italy, the Caribbean, Africa and the Middle East. International Retail and Commercial Banking excluding Absa works closely with other parts of the Group, including Barclaycard, UK Banking, Barclays Capital and Barclays Global Investors, to leverage synergies from product and service propositions. International Retail and Commercial Banking - Absa Absa Group Limited is one of South Africa's largest financial services organisations serving personal, commercial and corporate customers predominantly in South Africa. Absa serves retail customers through a variety of distribution channels and offers a full range of banking services, including basic bank accounts, mortgages, instalment finance, credit cards, bancassurance products and wealth management services; for commercial and large corporate customers Absa offers customised business solutions. As at 31st December 2005, Barclays owned 56.6% of Absa Group Limited's ordinary shares and has voting control. Head office functions and other operations Head office functions and other operations comprise: â€¢ Head office and central support functions â€¢ discontinued businesses in transition â€¢ consolidation adjustments Head office and central support functions comprise the following areas: Executive Management, Finance, Treasury, Corporate Affairs, Human Resources, Strategy and Planning, Internal Audit, Legal, Corporate Secretariat, Property, Tax, Compliance and Risk. Costs incurred wholly on behalf of the businesses are recharged to them. Discontinued businesses in transition principally relate to Middle Eastern corporate banking businesses and airline leasing activities. These businesses are centrally managed with the objective of maximising recovery from the assets. Consolidation adjustments largely reflect the elimination of inter segment transactions. SUMMARY OF RESULTS Analysis of profit attributable to equity holders of the parent 2005 2004 Â£m Â£m UK Banking 2,455 2,265 -------- -------- UK Retail Banking 1,027 963 UK Business Banking 1,428 1,302 -------- -------- Barclays Capital 1,272 1,020 Barclays Global Investors 542 336 Wealth Management 172 110 Wealth Management - closed life assurance activities (6) (52) Barclaycard 687 843 International Retail and Commercial Banking 690 293 -------- -------- International Retail and Commercial Banking - ex Absa 355 293 International Retail and Commercial Banking - Absa 335 - -------- -------- Head office functions and other operations (532) (235) -------- -------- Profit before tax 5,280 4,580 Tax (1,439) (1,279) -------- -------- Profit for the year 3,841 3,301 Profit attributable to minority interests (394) (47) -------- -------- Profit attributable to equity holders of the parent 3,447 3,254 -------- -------- TOTAL ASSETS AND WEIGHTED RISK ASSETS Total assets As at 2005 01.01.05 2004 Â£m Â£m Â£m UK Banking 141,190 131,392 122,380 -------- -------- -------- UK Retail Banking 69,193 71,850 71,647 UK Business Banking 71,997 59,542 50,733 -------- -------- -------- Barclays Capital 581,865 454,437 346,901 Barclays Global Investors 80,900 61,371 968 Wealth Management 6,094 5,659 5,616 Wealth Management - closed life assurance activities 7,276 6,551 6,425 Barclaycard 25,771 23,186 23,367 International Retail and Commercial Banking 73,589 28,780 28,505 -------- -------- -------- International Retail and Commercial Banking - ex Absa 34,195 28,780 28,505 International Retail and Commercial Banking - Absa 39,394 - - -------- -------- -------- Head office functions and other operations 7,672 4,224 4,019 -------- -------- -------- Total assets 924,357 715,600 538,181 -------- -------- -------- Weighted risk assets As at 2005 01.01.05 2004 Â£m Â£m Â£m UK Banking 94,195 92,590 91,913 -------- -------- -------- UK Retail Banking 32,298 37,835 37,111 UK Business Banking 61,897 54,755 54,802 -------- -------- -------- Barclays Capital 96,095 79,511 79,949 Barclays Global Investors 1,659 1,233 1,230 Wealth Management 4,467 4,187 4,018 Wealth Management - closed life assurance - - - activities Barclaycard 20,438 21,595 20,188 International Retail and Commercial Banking 50,071 18,701 19,319 -------- -------- -------- International Retail and Commercial Banking - ex Absa 21,637 18,701 19,319 International Retail and Commercial Banking - Absa 28,434 - - -------- -------- -------- Head office functions and other operations 2,223 1,941 1,984 -------- -------- -------- Weighted risk assets 269,148 219,758 218,601 -------- -------- -------- Further analysis of total assets and weighted risk assets, including the impact of securitisations, can be found on page 59. UK Banking 2005 2004 Â£m Â£m Net interest income 3,990 3,477 Net fee and commission income 1,776 1,936 -------- -------- Net trading income - - Net investment income 31 5 -------- -------- Principal transactions 31 5 Net premiums from insurance contracts 280 249 Other income 26 37 -------- -------- Total income 6,103 5,704 Net claims and benefits on insurance contracts (58) (46) -------- -------- Total income net of insurance claims 6,045 5,658 Impairment charge and other credit provisions (344) (199) -------- -------- Net income 5,701 5,459 -------- -------- Operating expenses excluding amortisation of intangible assets (3,240) (3,239) Amortisation of intangible assets (3) (2) -------- -------- Operating expenses (3,243) (3,241) Share of post-tax results of associates and joint ventures (3) 5 Profit on disposal of associates and joint ventures - 42 -------- -------- Profit before tax 2,455 2,265 -------- -------- Cost:income ratio 54% 57% Cost:net income ratio 57% 59% Risk Tendency Â£450m Â£375m Return on average economic capital 33% 35% Economic profit Â£1,219m Â£1,158m As at 2005 01.01.05 2004 Loans and advances to customers Â£129.1bn Â£119.6bn Â£114.1bn Customer accounts Â£133.6bn Â£124.6bn Â£114.8bn Total assets Â£141.2bn Â£131.4bn Â£122.4bn Weighted risk assets Â£94.2bn Â£92.6bn Â£91.9bn Key Facts 2005 2004 Number of UK branches 2,029 2,061 UK Banking profit before tax increased 8% (Â£190m) to Â£2,455m (2004: Â£2,265m) driven by good income growth and strong cost management. UK Banking has targeted a cost:income ratio reduction of two percentage points per annum in 2005, 2006 and 2007. This has been exceeded in 2005 as the cost: income ratio improved by three percentage points to 54% (2004: 57%). UK Banking has continued to make good progress towards achieving its strategic aims of delivering integrated banking solutions to customers, enhancing the customer service experience, capturing revenue growth opportunities and improving productivity. UK Retail Banking 2005 2004 Â£m Â£m Net interest income 2,174 2,059 Net fee and commission income 1,112 1,123 -------- -------- Net trading income - - Net investment income 9 1 -------- -------- Principal transactions 9 1 Net premiums from insurance contracts 280 249 Other income 17 26 -------- -------- Total income 3,592 3,458 Net claims and benefits on insurance contracts (58) (46) -------- -------- Total income net of insurance claims 3,534 3,412 Impairment charge and other credit provisions (142) (60) -------- -------- Net income 3,392 3,352 Operating expenses (2,359) (2,433) Share of post-tax results of associates and joint ventures (6) 2 Profit on disposal of associates and joint ventures - 42 -------- -------- Profit before tax 1,027 963 -------- -------- Cost:income ratio 67% 71% Cost:net income ratio 70% 73% Risk Tendency Â£170m Â£150m Return on average economic capital 34% 32% Economic profit Â£557m Â£473m As at 2005 01.01.05 2004 Loans and advances to customers Â£63.6bn Â£66.0bn Â£65.6bn Customer accounts Â£77.6bn Â£73.1bn Â£72.4bn Total assets Â£69.2bn Â£71.9bn Â£71.7bn Weighted risk assets Â£32.3bn Â£37.8bn Â£37.1bn Key Facts 2005 2004 Personal Customers -------------------- Number of UK current accounts 11.1m 10.7m Number of UK savings accounts 10.8m 10.6m Total UK mortgage balances (residential) Â£59.6bn Â£61.7bn Small Business and UK Premier ------------------------------- Number of Small Business customers 592,000 566,000 Number of UK Premier customers 286,000 273,000 UK Retail Banking profit before tax increased 7% (Â£64m) to Â£1,027m (2004: Â£963m). Profit before tax increased 12% excluding the impact of a Â£42m profit on disposal of a stake in Edotech in 2004. Total income net of insurance claims increased 4% (Â£122m) to Â£3,534m (2004: Â£3,412m). The full-year growth compares favourably with 1% growth reported for the first half of 2005. There was good growth in current accounts, Small Business and UK Premier, whilst income from retail savings was weaker. The application of IAS 32 and IAS 39 from 1st January 2005, in particular Effective Interest Rate requirements, resulted in the reclassification of certain lending related fees from net fee and commission income to net interest income. Net interest income increased 6% (Â£115m) to Â£2,174m (2004: Â£2,059m). Growth was driven by higher contributions from Mortgages and Small Business, partly offset by some margin pressure on savings and deposits. Excluding the impact of the application of IAS 32 and IAS 39 from 1st January 2005, net interest income increased 3%. UK residential mortgage balances ended the period at Â£59.6bn (2004: Â£61.7bn). The mortgage business continued to focus on higher margin new business which resulted in an improved new business spread. Gross advances were Â£11.5bn which represented a market share of 4%. The loan to value ratio within the mortgage book on a current valuation basis averaged 35% (2004: 35%). There was strong balance growth in non-mortgage loans, as Small Business average loan balances increased 14% and within Personal Customers, average overdraft balances increased 8%. Total average customer deposit balances increased 6% to Â£72.4bn (2004: Â£68.5bn). There was strong growth in UK Premier average balances of 11%, and good growth in Small Business average deposits of 5%. Within Personal Customers, retail savings average balances increased 5% and current account average balances increased 3%. Net fee and commission income decreased 1% (Â£11m) to Â£1,112m (2004: Â£1,123m) with lending related fees impacted by the application of IAS 32 and IAS 39 from 1st January 2005. Excluding this impact, net fee and commission income growth was 5%. There was strong growth in current account fees, including a higher contribution from value-added Additions accounts. UK Premier delivered strong growth reflecting higher income from investment advice. There was also good growth from Small Business, including higher income from money transmission. Income from principal transactions was Â£9m (2004: Â£1m) representing the gain on the sale of the investment in Gresham, an insurance underwriting business, ahead of the launch in 2005 of the new general insurance offering. Net premiums from insurance underwriting activities increased 12% (Â£31m) to Â£280m (2004: Â£249m). In 2004 there was a provision relating to the early termination of contracts. Adjusting for this, income was slightly lower as a result of reduced insurance take-up on consumer loans. Impairment charges increased 137% (Â£82m) to Â£142m (2004: Â£60m). Excluding UK mortgage releases (Â£40m in 2004 and Â£10m in 2005) impairment charges increased 52% (Â£52m) to Â£152m (2004: Â£100m). The increase principally reflected some deterioration in the delinquency experience and balance growth in overdrafts and small business lending. Losses from the mortgage portfolio remained negligible, with arrears increasing slightly over the year but remaining at low levels. Operating expenses decreased 3% (Â£74m) to Â£2,359m (2004: Â£2,433m). The successful execution of initiatives focused on reducing back and middle office expenditure continued. Regulatory costs reduced in 2005. Despite continued investment in the business, the cost:income ratio improved four percentage points to 67% (2004: 71%). UK Business Banking 2005 2004 Â£m Â£m Net interest income 1,816 1,418 Net fee and commission income 664 813 -------- -------- Net trading income - - Net investment income 22 4 -------- -------- Principal transactions 22 4 Other income 9 11 -------- -------- Total income 2,511 2,246 Impairment charge and other credit provisions (202) (139) -------- -------- Net income 2,309 2,107 -------- -------- Operating expenses excluding amortisation of intangible assets (881) (806) Amortisation of intangible assets (3) (2) -------- -------- Operating expenses (884) (808) Share of post-tax results of associates and joint ventures 3 3 -------- -------- Profit before tax 1,428 1,302 -------- -------- Cost:income ratio 35% 36% Cost:net income ratio 38% 38% Risk Tendency Â£280m Â£225m Return on average economic capital 32% 38% Economic profit Â£662m Â£685m As at 2005 01.01.05 2004 Loans and advances to customers Â£65.5bn Â£53.6bn Â£48.5bn Customer accounts Â£56.0bn Â£51.5bn Â£42.4bn Total assets Â£72.0bn Â£59.5bn Â£50.7bn Weighted risk assets Â£61.9bn Â£54.8bn Â£54.8bn Key Facts 2005 2004 Total number of Business Banking customers 183,000 179,000 Customers registered for online banking/Business Master 70,100 66,900 UK Business Banking profit before tax increased 10% (Â£126m) to Â£1,428m (2004: Â£1,302m), driven by strong income growth. Both Larger Business and Medium Business performed well in highly competitive markets and maintained their respective shares of primary banking relationships. In June 2005, UK Business Banking completed the acquisition of a 51% stake in Iveco Finance. Total income increased 12% (Â£265m) to Â£2,511m (2004: Â£2,246m), driven by strong balance sheet growth. The application of IAS 32 and IAS 39 from 1st January 2005, in particular Effective Interest Rate requirements, resulted in the reclassification of certain lending related fees from net fee and commission income to net interest income. Net interest income increased 28% (Â£398m) to Â£1,816m (2004: Â£1,418m). Excluding the impact of the application of IAS 32 and IAS 39 from 1st January 2005, net interest income increased by 13%. Balance sheet growth was very strong. The application of IAS 32 and IAS 39 from 1st January 2005 has resulted in the grossing up of previously netted positions (assets and liabilities subject to master netting agreements). As at 31st December 2005 these balances were Â£8.9bn. Average lending balances (excluding previously netted balances) increased 23% to Â£54.9bn (2004: Â£44.6bn), with good contributions from all business areas and in particular large corporates. Iveco Finance contributed Â£1.1bn of average lending balances. Average deposit balances (excluding previously netted balances) increased 11% to Â£46.1bn (2004: Â£41.5bn) with strong growth from large corporate deposits. The underlying lending margin (adjusting for the income reclassification) was broadly stable. Excluding the impact of the structural hedge the liabilities margin declined modestly. Net fee and commission income decreased 18% (Â£149m) to Â£664m (2004: Â£813m). Excluding the impact of IAS 32 and IAS 39, net fee and commission income increased 8%, as a result of higher lending and transaction fees. Income from principal transactions was Â£22m (2004: Â£4m). The majority of the increase represented gains on equity investments. Impairment charges increased Â£63m to Â£202m (2004: Â£139m). Excluding the impact of a Â£57m recovery in the second half of 2004, the impairment charge was broadly stable. Corporate credit conditions remained steady during 2005 with potential credit risk loans unchanged, despite very strong loan growth. Operating expenses increased 9% (Â£76m) to Â£884m (2004: Â£808m), reflecting volume growth, increased expenditure on front line staff and the costs of Iveco Finance since acquisition. The cost:income ratio improved one percentage point to 35% (2004: 36%). Barclays Capital 2005 2004 Â£m Â£m Net interest income 926 991 Net fee and commission income 724 603 -------- -------- Net trading income 2,194 1,463 Net investment income 401 297 -------- -------- Principal transactions 2,595 1,760 Other income 25 21 -------- -------- Total income 4,270 3,375 Impairment charge and other credit provisions (103) (102) -------- -------- Net income 4,167 3,273 -------- -------- Operating expenses excluding amortisation of intangible assets (2,894) (2,253) Amortisation of intangible assets (1) - -------- -------- Operating expenses (2,895) (2,253) -------- -------- Profit before tax 1,272 1,020 -------- -------- Cost:income ratio 68% 67% Cost:net income ratio 69% 69% Risk Tendency Â£85m Â£70m Return on average economic capital 34% 35% Average net income per member of staff ('000) Â£496 Â£481 Economic profit Â£619m Â£521m As at 2005 01.01.05 2004 Total assets Â£581.9bn Â£454.4bn Â£346.9bn Weighted risk assets Â£96.1bn Â£79.5bn Â£79.9bn Key Facts(1) 2005 2004 League League table Issuance table Issuance position value position value Global all debt 4th $329.2bn 4th $284.0bn European all debt 2nd $221.6bn 1st $174.2bn All international bonds (all currencies) 2nd $183.6bn 3rd $148.7bn All international bonds (Euros) 4th â‚¬70.1bn 6th â‚¬59.0bn Sterling bonds 1st Â£23.0bn 1st Â£18.5bn US investment grade bonds 5th $9.9bn 10th $4.8bn (1) League tables compiled by Barclays Capital from external sources including Dealogic and Thomson Financial. Barclays Capital delivered record profit before tax and net income. Profit before tax increased 25% (Â£252m) to Â£1,272m (2004: Â£1,020m) as a result of the very strong income performance driven by higher business volumes and client activity levels. Net income increased 27% (Â£894m) to Â£4,167m (2004: Â£3,273m). Total income increased 27% (Â£895m) to Â£4,270m (2004: Â£3,375m) as a result of strong growth across Rates and Credit Businesses. Income by asset category was broadly based with particularly strong growth delivered by credit products, commodities, currency products and equity products. Income by geography was well spread with significant growth in the US. Areas of investment in 2004, such as commodities, commercial mortgage backed securities and equity derivatives, performed well, delivering significant income growth. Market risk was well controlled with average DVaR falling 6% to Â£32m (2004: Â£34m) as a result of increased diversification across asset classes. Secondary income, comprising principal transactions (net trading income and net investment income) and net interest income, is mainly generated from providing financing and client risk management solutions. This increased 28% (Â£770m) to Â£3,521m (2004: Â£2,751m). Net trading income increased 50% (Â£731m) to Â£2,194m (2004: Â£1,463m) with very strong contributions across the Rates and Credit Businesses; commodities, foreign exchange, fixed income and credit derivatives performed particularly well. These results were driven by the continued return on prior year investments and higher volumes of client led activity across a broad range of products and geographical regions. Net investment income increased 35% (Â£104m) to Â£401m (2004: Â£297m) driven by realisations from credit products. Net interest income decreased 7% (Â£65m) to Â£926m (2004: Â£991m) reflecting flattening yield curves and the impact of IAS 32 and IAS 39. Primary income, comprising net fee and commission income from advisory and origination activities, grew 20% (Â£121m) to Â£724m (2004: Â£603m). This reflected higher volumes and continued market share gains in a number of key markets, with strong performances from both bonds and loans. Other income of Â£25m (2004: Â£21m) primarily reflected income from operating leases. Impairment charges of Â£103m (2004: Â£102m) were in line with the prior year reflecting the stable wholesale credit environment. Operating expenses increased 28% (Â£642m) to Â£2,895m (2004: Â£2,253m), reflecting higher business volumes and the ongoing costs associated with staff hired during 2004 and 2005 as part of the business expansion plan. Performance related costs increased due to the strong profit performance. Investment expenditure, primarily in the front office, continued to be significant although less than 2004 as headcount growth slowed. The cost:net income ratio remained stable at 69% (2004: 69%). Total staff costs to net income of 56% was in line with 2004 levels. Approximately half of operating expenses comprised performance related pay, discretionary investment spend and short-term contractor resource, consistent with 2004. Total headcount increased by 1,200 during 2005 to 9,000 (2004: 7,800). Growth occurred across all regions with over half of the increase in the front office, spread across product, client coverage and distribution. Barclays Global Investors 2005 2004 Â£m Â£m Net interest income 17 5 Net fee and commission income 1,297 882 -------- -------- Net trading income 2 3 Net investment income 4 3 -------- -------- Principal transactions 6 6 Other income - - -------- -------- Total income 1,320 893 -------- -------- Operating expenses excluding amortisation of intangible assets (775) (555) Amortisation of intangible assets (4) (1) -------- -------- Operating expenses (779) (556) Share of post-tax results of associates and joint ventures 1 (2) Profit on disposal of associates and joint ventures - 1 -------- -------- Profit before tax 542 336 -------- -------- Cost:income ratio 59% 62% Average income per member of staff ('000) Â£629 Â£464 Return on average economic capital 248% 166% Economic profit Â£299m Â£195m As at 2005 01.01.05 2004 Total assets Â£80.9bn Â£61.4bn Â£1.0bn Weighted risk assets Â£1.7bn Â£1.2bn Â£1.2bn Key Facts 2005 2004 Number of institutional clients 2,800 2,600 Assets under management: -indexed Â£586bn Â£478bn -active Â£198bn Â£147bn -managed cash and other Â£97bn Â£84bn Total assets under management Â£881bn Â£709bn Total assets under management (US$) $1,513bn $1,362bn Net new assets in period Â£48bn Â£58bn Number of iShares products 149 132 Total iShares assets under management(1) Â£113bn Â£68bn (1) Included in indexed assets Barclays Global Investors (BGI) delivered another year of outstanding financial results, achieving record revenues and profit before tax. The performance was spread across a diverse range of products, distribution channels and geographies. Profit before tax increased 61% (Â£206m) to Â£542m (2004: Â£336m) reflecting substantial income growth and focused investment spend. Net fee and commission income increased 47% (Â£415m) to Â£1,297m (2004: Â£882m), driven by significant increases in management, incentive and securities lending revenues. Higher margin assets under management, strong investment performance and higher market levels contributed to the significant income growth, which was strong across all areas, particularly in the active and iShares businesses. Investment performance remained very good for the majority of active funds as they outperformed their respective benchmarks. The growth in global iShares continued at pace, with related assets under management up 66% (Â£45bn) to Â£113bn (2004: Â£68bn). Operating expenses increased 40% (Â£223m) to Â£779m (2004: Â£556m) as a result of higher performance based expenses, significant investment in key growth initiatives and ongoing investment in infrastructure required to support business growth. The cost:income ratio improved to 59% (2004: 62%). Total headcount rose by 400 to 2,300 (2004: 1,900). Headcount increased in all regions, across product groups and the support functions, reflecting the investments made to support strategic initiatives. Total assets under management increased 24% (Â£172bn) to Â£881bn (2004: Â£709bn). The growth included Â£48bn of net new assets, Â£53bn attributable to favourable exchange rate movements and Â£71bn as a result of market movements. In US$ terms, the increase in assets under management to US$1,513bn from US$1,362bn (2004) included US$88bn of net new assets and US$121bn of market movements, partially offset by adverse exchange rate movements of US$58bn. BGI manages assets denominated in numerous currencies although the majority are held in US dollars. Wealth Management 2005 2004 Â£m Â£m Net interest income 335 303 Net fee and commission income 589 529 -------- -------- Net trading income - - Net investment income 5 - -------- -------- Principal transactions 5 - Other income (1) 7 -------- -------- Total income 928 839 Impairment charge and other credit provisions (2) 1 -------- -------- Net income 926 840 -------- -------- Operating expenses excluding amortisation of intangible assets (752) (729) Amortisation of intangible assets (2) (1) -------- -------- Operating expenses (754) (730) -------- -------- Profit before tax 172 110 -------- -------- Cost:income ratio 81% 87% Cost:net income ratio 81% 87% Risk Tendency Â£5m Â£5m Return on average economic capital 38% 32% Average net income per member of staff ('000) Â£129 Â£119 Economic profit Â£109m Â£70m As at 2005 01.01.05 2004 Loans and advances to customers Â£4.7bn Â£4.2bn Â£4.1bn Customer accounts Â£23.1bn Â£21.4bn Â£21.3bn Total assets Â£6.1bn Â£5.7bn Â£5.6bn Weighted risk assets Â£4.5bn Â£4.2bn Â£4.0bn Key Facts 2005 2004 Total customer funds Â£78.3bn Â£70.8bn Multi-Manager assets (included above) Â£6.0bn Â£1.6bn Wealth Management profit before tax increased 56% (Â£62m) to Â£172m (2004: Â£110m), driven by broad based income growth and improved cost efficiency. Total income increased 11% (Â£89m) to Â£928m (2004: Â£839m). Net interest income increased 11% (Â£32m) to Â£335m (2004: Â£303m) reflecting strong growth in loans and deposits. Total average customer deposits increased 12% to Â£23.0bn (2004: Â£20.6bn) driven by strong growth from offshore and private banking clients. Total average loans increased 22% to Â£4.4bn (2004: Â£3.6bn), reflecting growth from corporate clients in the offshore business. Net fee and commission income increased 11% (Â£60m) to Â£589m (2004: Â£529m). The increase was driven principally by sales of investment products to private banking and financial planning clients, stronger equity markets and higher client transaction volumes. Operating expenses increased 3% (Â£24m) to Â£754m (2004: Â£730m). The business is being re-organised to establish an integrated global operating model and efficiency savings have enabled the funding of significant restructuring expenditure and the initiation of major investment programmes in people and infrastructure. The cost:income ratio improved six percentage points to 81% (2004: 87%). The integration of the Gerrard business continued to make good progress with profits well ahead of 2004. Total customer funds, comprising customer deposits and assets under management, increased to Â£78.3bn (31st December 2004: Â£70.8bn). Multi-Manager assets increased to Â£6.0bn (31st December 2004: Â£1.6bn); this growth included existing customer assets. Wealth Management - closed life assurance activities 2005 2004 Â£m Â£m Net interest income (13) (53) Net fee and commission income 44 - -------- -------- Net trading income - - Net investment income 259 596 -------- -------- Principal transactions 259 596 Net premiums from insurance contracts 195 362 Other income 11 4 -------- -------- Total income 496 909 Net claims and benefits on insurance contracts (375) (818) -------- -------- Total income net of insurance claims 121 91 Operating expenses (127) (143) -------- -------- Loss before tax (6) (52) -------- -------- Cost:income ratio 105% 157% Return on average economic capital (3)% (53)% Economic loss Â£(7)m Â£(77)m As at 2005 01.01.05 2004 Total assets Â£7.3bn Â£6.6bn Â£6.4bn Wealth Management closed life assurance activities loss before tax reduced to Â£6m (2004: loss of Â£52m) predominantly due to lower funding and redress costs in 2005. Profit before tax excluding customer redress costs was Â£79m (2004: Â£45m). From 1st January 2005, following the application of IAS 39 and IFRS 4, life assurance products are divided into investment contracts and insurance contracts. Investment income from assets backing investment contracts, and the corresponding movement in investment contract liabilities, has been presented on a net basis in other income. In addition, these standards have impacted the reporting of net claims and benefits paid. Total income decreased to Â£496m (2004: Â£909m), largely due to the application of IFRS. The decrease was offset by a broadly similar reduction in net claims and benefits. Operating expenses decreased 11% (Â£16m) to Â£127m (2004: Â£143m). Costs relating to redress for customers decreased to Â£85m (2004: Â£97m) and other operating expenses decreased 9% (Â£4m) to Â£42m (2004: Â£46m). Barclaycard 2005 2004 Â£m Â£m Net interest income 1,773 1,600 Net fee and commission income 972 790 Net premiums from insurance contracts 24 22 -------- -------- Total income 2,769 2,412 Net claims and benefits on insurance contracts (7) (5) -------- -------- Total income net of insurance claims 2,762 2,407 Impairment charge and other credit provisions (1,098) (761) -------- -------- Net income 1,664 1,646 -------- -------- Operating expenses excluding amortisation of intangible assets (961) (804) Amortisation of intangible assets (17) (3) -------- -------- Operating expenses (978) (807) Share of post-tax results of associates and joint ventures 1 4 -------- -------- Profit before tax 687 843 -------- -------- Cost:income ratio 35% 34% Cost:net income ratio 59% 49% Risk Tendency Â£1,100m Â£860m Return on average economic capital 16% 24% Economic profit Â£183m Â£350m As at 2005 01.01.05 2004 Loans and advances to customers Â£24.0bn Â£22.2bn Â£22.3bn Total assets Â£25.8bn Â£23.2bn Â£23.4bn Weighted risk assets Â£20.4bn Â£21.6bn Â£20.2bn Key Facts 2005 2004 Number of Barclaycard UK customers 11.2m 11.2m Number of retailer relationships 93,000 90,000 UK credit cards - average outstanding balances Â£10.1bn Â£9.6bn UK credit cards - average extended credit Â£8.6bn Â£8.2bn balances UK loans - average consumer lending balances Â£10.3bn Â£9.4bn International - average extended credit Â£1.8bn Â£0.9bn balances International - cards in issue 4.3m 2.9m Barclaycard profit before tax decreased 19% (Â£156m) to Â£687m (2004: Â£843m) as strong income growth was more than offset by higher impairment charges and increased costs from the continued development of the International business. Excluding Barclaycard US (previously Juniper), which was acquired in December 2004, profit before tax fell 12% (Â£102m) to Â£743m. Total income, net of insurance claims, increased 15% (Â£355m) to Â£2,762m (2004: Â£2,407m) driven by good performances across the diversified UK cards and loans businesses and Barclaycard Business, and by very strong momentum in international cards. Excluding Barclaycard US, income increased 10%. The application of IAS 32 and IAS 39 from 1st January 2005, in particular the Effective Interest Rate requirements, resulted in the reclassification of fee and commission expenses to net interest income. Net interest income increased 11% (Â£173m) to Â£1,773m (2004: Â£1,600m) as a result of growth in average balances, although the rate of growth in the UK slowed during 2005. UK average extended credit balances rose 5% to Â£8.6bn (2004: Â£8.2bn) and international average extended credit balances doubled to Â£1.8bn (2004: Â£0.9bn). Excluding Barclaycard US, international average extended credit balances increased 26%. UK average consumer lending balances increased 10% to Â£10.3bn (2004: Â£9.4bn). Margins in the cards business improved during 2005 to 7.96% (2004: 7.34%) due to the impact of increased card rates and a reduced proportion of total balances on promotional offers. Margins in consumer lending fell to 4.96% (2004: 6.27%), due to the impact of IAS 32 and IAS 39, competitive pressure and a change in the product mix. Excluding the impact of the application of IAS 32 and IAS 39, net interest income increased 14%. Net fee and commission income increased 23% (Â£182m) to Â£972m (2004: Â£790m) as a result of the inclusion of Barclaycard US and increased contributions from Barclaycard Business and FirstPlus. Excluding the impact of IAS 32 and IAS 39, net fee and commission income increased 16%. Impairment charges increased 44% (Â£337m) to Â£1,098m (2004: Â£761m). The increase was driven by a rise in delinquent balances, lower rates of recovery from customers, the inclusion of Barclaycard US, and an increase in the size of the average loan book. Excluding Barclaycard US, impairment charges increased 38%. The increases arose in the UK businesses as a result of the industry wide credit experience during 2005. Within the portfolio, the greater increase arose in the UK cards business; impairment charges in the consumer lending business increased at a lower rate. Non-performing loans increased significantly, driven by the growth in delinquent balances. Operating expenses rose 21% (Â£171m) to Â£978m (2004: Â£807m) mostly as a result of the inclusion of Barclaycard US. Excluding Barclaycard US, operating expenses rose 7% reflecting continued investment in the UK and continental European card businesses and the development of the UK Partnerships business. Barclaycard International performed strongly, with Germany and Spain delivering excellent results. In June Barclaycard formed a new joint venture with Swedbank to develop a card business in the Nordic region; the business is performing in line with expectations. Excluding Barclaycard US, Barclaycard International profit before tax was Â£26m (2004: Â£8m), with income ahead 22%. Barclaycard US performance and integration proceeded in line with expectations, with strong growth in balances and customers and the establishment of a number of new partnerships. The loss before tax for Barclaycard US was Â£56m (2004: loss of Â£2m). International Retail and Commercial Banking 2005 2004 Â£m Â£m Net interest income 1,096 534 Net fee and commission income 711 288 -------- -------- Net trading income 40 - Net investment income 150 135 -------- -------- Principal transactions 190 135 Net premiums from insurance contracts 227 300 Other income 62 25 -------- -------- Total income 2,286 1,282 Net claims and benefits on insurance contracts (205) (390) -------- -------- Total income net of insurance claims 2,081 892 Impairment charge and other credit provisions (33) (31) -------- -------- Net income 2,048 861 -------- -------- Operating expenses excluding amortisation of intangible assets (1,356) (616) Amortisation of intangible assets (48) (1) -------- -------- Operating expenses (1,404) (617) Share of post-tax results of associates and joint ventures 46 49 -------- -------- Profit before tax 690 293 -------- -------- Cost:income ratio 67% 69% Cost:net income ratio 69% 72% Risk Tendency Â£195m Â£65m Return on average economic capital 23% 21% Economic profit Â£238m Â£111m As at 2005 01.01.05 2004 Loans and advances to customers Â£54.3bn Â£20.8bn Â£20.7bn Customer accounts Â£33.4bn Â£9.5bn Â£10.1bn Total assets Â£73.6bn Â£28.8bn Â£28.5bn Weighted risk assets Â£50.1bn Â£18.7bn Â£19.3bn International Retail and Commercial Banking profit before tax increased Â£397m to Â£690m (2004: Â£293m). The increase reflected the inclusion of Absa profit before tax of Â£335m for the period from 27th July 2005 and strong organic growth in Africa and Europe. From 1st January 2005, following the application of IAS 39 and IFRS 4, life assurance products are divided into investment contracts and insurance contracts. Investment income from assets backing insurance contracts, and the corresponding movement in investment contract liabilities, has been presented on a net basis in other income. In addition, these standards have impacted the reporting of net claims and benefits paid. Also the application of IAS 32 and IAS 39 from 1st January 2005, in particular the Effective Interest Rate requirements, resulted in the reclassification of certain lending related fees from net fee and commission income to net interest income. International Retail and Commercial Banking - excluding Absa 2005 2004 Â£m Â£m Net interest income 582 534 Net fee and commission income 377 288 -------- -------- Net trading income 31 - Net investment income 88 135 -------- -------- Principal transactions 119 135 Net premiums from insurance contracts 129 300 Other income 23 25 -------- -------- Total income 1,230 1,282 Net claims and benefits on insurance contracts (161) (390) -------- -------- Total income net of insurance claims 1,069 892 Impairment charge and other credit provisions (13) (31) -------- -------- Net income 1,056 861 -------- -------- Operating expenses excluding amortisation of intangible assets (734) (616) Amortisation of intangible assets (6) (1) -------- -------- Operating expenses (740) (617) Share of post-tax results of associates and joint ventures 39 49 -------- -------- Profit before tax 355 293 -------- -------- Cost:income ratio 69% 69% Cost:net income ratio 70% 72% Risk Tendency Â£75m Â£65m Return on average economic capital 20% 21% Economic profit Â£115m Â£111m As at 2005 01.01.05 2004 Loans and advances to customers Â£25.4bn Â£20.8bn Â£20.7bn Customer accounts Â£10.4bn Â£9.5bn Â£10.1bn Total assets Â£34.2bn Â£28.8bn Â£28.5bn Weighted risk assets Â£21.6bn Â£18.7bn Â£19.3bn Key Facts 2005 2004 Number of international branches 798 830 Number of Barclays Africa and the Middle East customer accounts 1.3m 1.4m Number of Barclays Europe customers 0.8m 0.7m Number of European mortgage customers 229,000 153,000 European mortgages - average balances (Euros) â‚¬21.2bn â‚¬16.9bn European assets under management (Euros) â‚¬22.6bn â‚¬17.1bn International Retail and Commercial Banking excluding Absa performed strongly, with profit before tax increasing 21% (Â£62m) to Â£355m (2004: Â£293m). The performance was broad based, featuring stronger profits in all geographies. Total income net of insurance claims increased 20% (Â£177m) to Â£1,069m (2004: Â£892m). Net interest income increased 9% (Â£48m) to Â£582m (2004: Â£534m), reflecting strong balance sheet growth in Europe, Africa and the Middle East, and the development of the corporate businesses in Spain. Total average customer loans increased 28% to Â£22.8bn (2004: Â£17.8bn). Mortgage balance growth in continental Europe was particularly strong with average Euro balances up 25%. Average lending balances in Africa and the Middle East increased 34%. Changes in the overall product mix, as a result of growth in European mortgages and competitive pressures in key European markets contributed to lower lending margins. Average customer deposits increased 7% to Â£9.5bn (2004: Â£8.9bn), with deposit margins rising modestly. Net fee and commission income increased 31% (Â£89m) to Â£377m (2004: Â£288m). This reflected a strong performance from the Spanish funds business, where assets under management increased 15%, together with good growth in France, including the contribution of the ING Ferri business which was acquired on 1st July 2005. Fee income also showed solid growth in Italy, Africa and the Middle East. Excluding the impact of IAS 32 and IAS 39, net fee and commission income increased 25%. Principal transactions reduced to Â£119m (2004: Â£135m), reflecting the change in accounting for insurance business, partly offset by investment realisations during 2005 including a gain of Â£23m from the redemption of preference shares in FirstCaribbean. Impairment charges decreased 58% (Â£18m) to Â£13m (2004: Â£31m), mainly as a result of releases and recoveries in Africa and the Middle East. In Europe, charges remained broadly stable. Operating expenses increased 20% (Â£123m) to Â£740m (2004: Â£617m). The increase was in line with the growth in income, and was due to higher integration costs in Spain, the continued expansion of the business in Africa and the Middle East, investments in the European distribution network, particularly in Portugal and Italy, and the acquisition of the ING Ferri business in France. The cost:income ratio remained stable at 69% (2004: 69%). Barclays Spain continued to perform very strongly with profit before tax, pre integration costs, up 25% to Â£156m (2004: Â£125m). This was driven by the continued realisation of benefits from the accelerated integration of Banco Zaragozano, together with good growth in mortgages and assets under management. The integration of Banco Zaragozano continued to be well ahead of plan; integration costs were Â£57m (2004: Â£42m). Profit before tax also increased strongly in Italy and Portugal reflecting strong customer acquisition and increased business volumes. France performed well as a result of good organic growth and the acquisition of ING Ferri. Africa and the Middle East profit before tax increased 14% to Â£142m (2004: Â£125m) reflecting continued investment and balance sheet growth across the businesses, particularly in Egypt, United Arab Emirates and South Africa and lower impairment charges. The post-tax profit from associates decreased Â£10m to Â£39m (2004: Â£49m) due to a lower contribution from FirstCaribbean. The underlying performance in 2005 was stronger; Barclays results in 2004 included Â£28m relating to the gain made by FirstCaribbean on the sale of shares in Republic Bank Limited. International Retail and Commercial Banking - Absa Period from 27th July until 31st December 2005 Â£m Net interest income 514 Net fee and commission income 334 -------- Net trading income 9 Net investment income 62 -------- Principal transactions 71 Net premiums from insurance contracts 98 Other income 39 -------- Total income 1,056 Net claims and benefits on insurance contracts (44) -------- Total income net of insurance claims 1,012 Impairment charge and other credit provisions (20) -------- Net income 992 -------- Operating expenses excluding amortisation of intangible assets (622) Amortisation of intangible assets (42) -------- Operating expenses (664) Share of post-tax results of associates and joint ventures 7 -------- Profit before tax 335 -------- Cost:income ratio 66% Cost:net income ratio 67% Risk Tendency Â£120m Return on average economic capital 33% Economic profit Â£123m Loans and advances to customers Â£28.9bn Customer accounts Â£23.0bn Total assets Â£39.4bn Weighted risk assets Â£28.4bn Key Facts 2005 Number of branches 718 Number of ATMs 5,835 Number of retail customers 7.6m Number of corporate customers 82,000 Absa's profit before tax for the period from 27th July 2005 was Â£335m. On consolidation into Barclays results, a charge of Â£42m has been taken for the amortisation of intangible assets and is included within operating expenses. The consolidated results for Absa represent 100% of earnings, 43.4% of which is attributable to minority interests. This is deducted from Barclays results as profit attributable to minority interests. Absa Group Limited continued to perform strongly and today reported profit before tax for the nine months to 31st December 2005 of R7,031m. This was an increase of 28% over the comparable(1) period of 2004 and reflected excellent performances across all business lines. The performance was driven by lending growth of 27% on an annualised basis and the recruitment of 800,000 new retail customers over the period. The results also benefited from a favourable economic and equity market environment, the low levels of impairment charges and included equity investment gains of R270m. Absa Group Limited experienced good net interest income growth in the period since acquisition from the personal, commercial and wholesale businesses. The areas of strongest balance sheet growth were mortgages, credit cards and instalment finance as the retail credit environment remained strong. The performance in net fees and commission income was driven by good retail customer transaction volume growth and a strong performance from insurance related activities. This growth was partly offset by income reclassification due to the implementation of IFRS. Principal transactions growth was predominantly driven by higher treasury trading income. Impairment charges for the period were low reflecting the benign credit environment, a reduction in non-performing loans and a higher level of releases and recoveries. Operating expenses grew as Absa Group Limited invested in the expansion and improvement of the branch and ATM network and in customer service initiatives, including increased staff numbers. Expense growth also reflected higher volumes and regulatory programme expenditure. The integration of Absa Group Limited progressed well. Included in Absa Group Limited's results for 2005 are R211m (Â£18m)(2) of integration costs, R67m (Â£6m)(2) of sustainable pre-tax synergy benefits and R30m (Â£3m)(2) of one-off benefits. Total revenue and cost synergies identified to date are expected to improve Absa Group Limited's pre-tax profits by approximately R1.4 billion per annum four years after the completion of the transaction. Implementation costs totalling R1.8 billion are expected to be incurred over the first three years. (1) Absa has changed its financial year-end to 31st December to conform with Barclays. The comparable period comprises unaudited results for the nine months ended 31st December 2004. (2) Calculated using an average exchange rate of R/Â£ of 11.47, since the date of acquisition. Head office functions and other operations 2005 2004 Â£m Â£m Net interest expense (49) (24) Net fee and commission expense (408) (181) -------- -------- Net trading income 85 21 Net investment income 8 (9) -------- -------- Principal transactions 93 12 Net premiums from insurance contracts 146 109 Other income 24 37 -------- -------- Total income (194) (47) Impairment release/(charge) and other credit provisions 9 (1) -------- -------- Net loss (185) (48) -------- -------- Operating expenses excluding amortisation of intangible assets (343) (175) Amortisation of intangible assets (4) (14) -------- -------- Operating expenses (347) (189) Share of post-tax results of associates and joint ventures - 2 -------- -------- Loss before tax (532) (235) -------- -------- Risk Tendency Â£10m Â£20m As at 2005 01.01.05 2004 Total assets Â£7.7bn Â£4.2bn Â£4.0bn Weighted risk assets Â£2.2bn Â£1.9bn Â£2.0bn Head office functions and other operations loss before tax increased Â£297m to Â£532m (2004: loss Â£235m), reflecting the elimination of inter-segment transactions and increased operating expenses. Group segmental reporting is prepared in accordance with Group accounting policies. This means that inter-segment transactions are recorded in each segment as if undertaken on an arms length basis. Consolidation adjustments necessary to eliminate the inter-segment transactions, including adjustments to eliminate the timing differences on the recognition of inter-segment income and expenses, are included in Head office functions and other operations. The increase in asymmetric consolidation adjustments of Â£135m to Â£204m (2004: Â£69m) mainly arises from the timing of the recognition of insurance premiums included in Barclaycard and UK Banking amounting to Â£113m (2004: Â£nil). In UK Banking, captive insurers pay commissions to other businesses for the introduction of short term payment protection insurance. The recognition of commissions payable is generally spread over the term of the insurance to match the fact that claims arise over the term of the insurance. In Barclaycard, introducer commissions received from UK Banking's captive insurers are recognised as 'Net fees and commission' income at the time the service is provided. This is on the basis that the introducer carries none of the related policy risk and provides no on-going service to the policy holder. In addition, the related cost of introduction is incurred at the inception of any policy. In 2004 and prior years, Barclaycard dealt with third party underwriters but from the start of 2005 this activity was undertaken with the captive insurance operation within UK Banking. In Head office functions and other operations, consolidation adjustments are made: â€¢ to eliminate the differential timing of the recognition of insurance commissions between UK Banking and Barclaycard; and â€¢ to reclassify fees and commissions, as recorded in Barclaycard, as net premiums from insurance contracts in Head office functions and other operations. In addition there were two other significant consolidation adjustments: internal fees for structured capital markets activities arranged by Barclays Capital of Â£67m (2004: Â£63m); and the fees paid to Barclays Capital for capital raising and risk management advice of Â£50m (2004: Â£nil). Previously capital raising fees were amortised over the life of the capital raising and taken as a charge to net interest income. Under IFRS they are recognised as a cost in the year of issue. Net trading income of Â£85m (2004: Â£21m) primarily arose as a result of hedging related transactions in Treasury. The hedge ineffectiveness from 1st January 2005, together with other related Treasury adjustments, amounted to a gain of Â£18m (2004: Â£nil) and was reported in net interest income. The cost of hedging the foreign exchange risk on the Group's investment in Absa amounted to Â£37m (2004: Â£nil) and was deducted from net interest income. Other income primarily comprises property rental income. Impairment gains reflect recoveries made on loans previously written off in the transition businesses. Operating expenses rose Â£158m to Â£347m (2004: Â£189m) and included non-recurring costs relating to the head office relocation to Canary Wharf of Â£105m (2004: Â£32m) and a charge to write down capitalised IT related assets held centrally of Â£60m (2004: Â£nil). Underlying operating expenses rose by Â£25m, representing an increase of 16%. This information is provided by RNS The company news service from the London Stock Exchange

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