Final Results - Part 1

Barclays PLC 20 February 2007 Results Announcement 31st December 2006 BARCLAYS PLC PRELIMINARY ANNOUNCEMENT OF RESULTS FOR 2006 TABLE OF CONTENTS PAGE Summary of key information 2 Performance summary 3 Financial highlights 4 Group Chief Executive's Statement 5 Consolidated income statement 9 Consolidated balance sheet 11 Results by business 13 Results by nature of income and expense 44 Analysis of amounts included in the balance sheet 59 Additional information 70 Notes 75 Consolidated statement of recognised income and expense 90 Summary consolidated cash flow statement 91 Other information 92 Appendix 1-Absa Group Limited results 94 Appendix 2-Profit before business disposals 96 Index 98 The information in this announcement, which was approved by the Board of Directors on 19th February 2007, does not comprise statutory accounts for the years ended 31st December 2006 or 31st December 2005, within the meaning of Section 240 of the Companies Act 1985 (the 'Act'). Statutory accounts for the year ended 31st December 2006, 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. Statutory accounts for the year ended 31st December 2005 have been delivered to the Registrar of Companies and the Group's auditors have reported on those accounts and have given an unqualified report which does not contain a statement under Section 237(2) or (3) of the Act. The 2006 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. 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 International Financial Reporting Standards (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. Absa Definitions 'Absa Group Limited' refers to the consolidated results of the South African group of which the parent company is listed on the Johannesburg Stock Exchange in which Barclays owns a controlling stake. 'Absa' refers to the results for Absa Group Limited as consolidated into the results of Barclays PLC; translated into Sterling with adjustments for amortisation of intangible assets, certain head office adjustments, transfer pricing and minority interests. 'International Retail and Commercial Banking-Absa' is the portion of Absa's results that is reported by Barclays within the International Retail and Commercial Banking business. Barclays acquired a controlling stake in Absa Group Limited on 27th July 2005. Therefore, unless otherwise indicated, 2005 comparatives reflect results from that date and are not directly comparable to 2006. 'Absa Capital' is the portion of Absa's results that is reported by Barclays within the Barclays Capital business. Glossary of terms The cost:income ratio is defined as operating expenses compared to total income net of insurance claims. The cost:net income ratio is defined as operating expenses compared to total income net of insurance claims less impairment charges. The Return on average economic capital is defined as attributable profit compared to average economic capital. 'Income' refers to total income net of insurance claims, unless otherwise specified. 'Profit before business disposals' represents profit before tax and disposal of subsidiaries, associates and joint ventures. Details of the impact on each business and the Group can be found in Appendix 2 on page 96. RESULTS FOR THE YEAR TO 31ST DECEMBER 2006 ------------------------- -------- -------- -------- Group Results 2006 2005 Â£m Â£m % Change Total income net of insurance claims 21,595 17,333 25 Impairment charges (2,154) (1,571) 37 Operating expenses (12,674) (10,527) 20 Profit before tax 7,136 5,280 35 Profit attributable to minority interests (624) (394) 58 Profit attributable to equity holders of the parent 4,571 3,447 33 Economic profit 2,704 1,752 54 p p % Change Earnings per share 71.9 54.4 32 Diluted earnings per share 69.8 52.6 33 Full year dividend per share 31.0 26.6 17 % % Tier 1 Capital ratio 7.7 7.0 Return on average shareholders' equity 24.7 21.1 Profit before tax by business(1) Â£m Â£m % Change UK Banking 2,578 2,200 17 -------- -------- UK Retail Banking 1,213 1,040 17 UK Business Banking 1,365 1,160 18 -------- -------- Barclaycard 382 640 (40) International Retail and Commercial Banking (IRCB) 1,270 633 101 -------- -------- IRCB-ex Absa 572 335 71 IRCB-Absa(2) 698 298 134 -------- -------- Barclays Capital 2,216 1,431 55 Barclays Global Investors 714 540 32 Barclays Wealth 213 166 28 ------------------------- -------- -------- -------- (1) Summary excludes Barclays Wealth-closed life assurance activities and Head office functions and other operations. Full analysis of business profit before tax is on page 17. (2) For 2005, this reflects the period from 27th July until 31st December 2005. PERFORMANCE SUMMARY 'Barclays had an excellent year in 2006. We delivered outstanding performance in Barclays Capital and Barclays Global Investors. Momentum has accelerated in UK Retail Banking and Absa has outperformed our acquisition business plan delivering very strong growth. Conditions in UK cards and consumer loans were difficult but Barclaycard UK consumer credit performance is beginning to improve. We are well positioned to deliver further growth in the years ahead.' John Varley, Group Chief Executive â€¢ Excellent financial results reflect the successful execution of strategy: - Income up 25% to Â£21,595m - Profit before tax up 35% to Â£7,136m - Earnings per share up 32% to 71.9p - Dividend per share up 17% to 31.0p - Economic profit up 54% to Â£2,704m - Return on average shareholders' equity of 25%. â€¢ Excluding gains on business disposals of Â£323m: - Profit before tax up 29% to Â£6,813m - Earnings per share up 23% to 66.8p. â€¢ Income growth of 25% was well ahead of expense growth of 20%. Expense growth reflected significant investment in organic growth across the business and performance related costs. â€¢ In UK Retail Banking accelerated income momentum drove very strong profit growth. â€¢ UK Banking delivered a further three percentage points underlying improvement in the cost:income ratio; the six percentage point target for 2005-2007 has been achieved a year ahead of schedule; we still target a further two percentage point improvement in 2007. â€¢ Outstanding growth in Barclays Capital was driven by continued expansion of the business, the success of past investment and the focus of our client driven model. â€¢ Barclays Global Investors delivered another year of excellent growth. Assets under management increased US$301bn to US$1.8trn. â€¢ Absa's first full year contribution was well ahead of the acquisition business plan. â€¢ Barclaycard profits were affected by industrywide impairment pressures in UK cards and unsecured loans; UK consumer credit performance is beginning to improve. â€¢ Capital ratios strengthened through retained earnings and active balance sheet management; the Tier 1 Capital ratio rose to 7.7%. â€¢ We delivered a Total Shareholder Return for 2006 of 25%. â€¢ Approximately 50% of profits came from outside the UK. FINANCIAL HIGHLIGHTS 2006 2005 RESULTS Â£m Â£m ---------- Net interest income 9,143 8,075 Net fee and commission income 7,177 5,705 Principal transactions(1) 4,576 3,179 Net premiums from insurance contracts 1,060 872 Other income 214 147 -------- -------- Total income 22,170 17,978 Net claims and benefits paid on insurance contracts (575) (645) -------- -------- Total income net of insurance claims 21,595 17,333 Impairment charges (2,154) (1,571) -------- -------- Net income 19,441 15,762 Operating expenses (12,674) (10,527) Share of post-tax results of associates and joint ventures 46 45 Profit on disposal of subsidiaries, associates and joint ventures 323 - -------- -------- Profit before tax 7,136 5,280 -------- -------- Profit attributable to equity holders of the parent 4,571 3,447 Economic profit 2,704 1,752 PER ORDINARY SHARE p p -------------------- Earnings 71.9 54.4 Diluted earnings 69.8 52.6 Full year dividend 31.0 26.6 Net asset value 303 269 PERFORMANCE RATIOS % % -------------------- Return on average shareholders' equity 24.7 21.1 Cost:income ratio 59 61 Cost:net income ratio 65 67 2006 2005 BALANCE SHEET Â£m Â£m --------------- -------- -------- Shareholders' equity excluding minority interests 19,799 17,426 Minority interests 7,591 7,004 -------- -------- Total shareholders' equity 27,390 24,430 Subordinated liabilities 13,786 12,463 -------- -------- Total capital resources 41,176 36,893 -------- -------- Total assets 996,787 924,357 Risk weighted assets 297,833 269,148 CAPITAL RATIOS % % ---------------- Tier 1 ratio 7.7 7.0 Risk asset ratio 11.7 11.3 (1) Principal transactions comprise net trading income and net investment income. GROUP CHIEF EXECUTIVE'S REVIEW Barclays had an excellent year in 2006. I start this review by thanking the 123,000 employees of the Barclays Group, whose dedication and creativity helped us achieve record results. Our strategy of 'earn, invest and grow' continued to deliver very strong growth in profits. Our ambition is to become one of the handful of universal banks leading the global financial services industry. I believe that the universal banking model is helping us drive the higher growth for shareholders that I set out to achieve three years ago, by providing us with new options in products, services and markets. In our business, strategy simply stated is anticipation followed by service: we anticipate the needs of customers and clients. We then serve them, by helping them achieve their goals. The needs of customers and clients are changing. The drivers of change include: the privatisation of welfare; wealth generation and wealth transfer; explosive growth in demand for banking products in emerging markets; the securitisation of assets and cash flows; the use of derivatives in risk management; the significant growth in the use of credit cards for payment and borrowing; and the opportunity for capital markets and private equity to fund infrastructure development around the world. To capitalise on these sources of growth, I have put a new structure in place by creating Global Retail and Commercial Banking (GRCB) under the leadership of Frits Seegers, who joined Barclays in July 2006. GRCB brings together: UK Banking, International Retail and Commercial Banking and Barclaycard. GRCB gives Barclays a single point of strategic direction and control to these businesses, thereby increasing our capability to drive growth and synergies globally and to enter new markets. We believe this will enable us to replicate success from one part of the world in another. This GRCB structure mirrors the organisation of Investment Banking and Investment Management under Bob Diamond, which also gives a single point of strategic direction and control to a group of global businesses which enjoy substantial synergies. My obligation as Group Chief Executive is to assemble the best team I can. We have added significantly to our management bench strength in 2006, particularly in GRCB, and have concentrated on supplementing our existing talent with deep specialist retail and commercial banking and card experience across a range of international markets. Performance versus goals For the three years from 31st December 2003 to 31st December 2006, Barclays delivered a Total Shareholder Return (TSR) of 66% and was positioned 6th within its peer group, which is second quartile. The TSR of the FTSE 100 Index for this period was 54%. For the year to 31st December 2006, we delivered a TSR of 25% and were positioned 5th in our peer group. The TSR for the FTSE 100 for the year was 14%. Economic profit for 2006 was Â£2.7bn, which, added to the Â£3.3bn generated in 2004 and 2005, delivered a cumulative total of Â£6.0bn for the goal period to date. This equates to compound annual growth in economic profit of 28% per annum over the period, which is well ahead of our target range. Group performance We made substantial progress on our strategic priorities and delivered record financial results. Profit before tax increased 35% to Â£7,136m. Earnings per share rose 32% to 71.9p, and economic profit was up 54% to Â£2,704m. Profit excluding business disposals of Â£323m increased 29% to Â£6,813m, and earnings per share increased 23% to 66.8p. We increased the total dividend payout to 31p, a rise of 17%. Income grew 25% to Â£21,595m, well ahead of expense growth of 20%. The growth was broadly based by business and geography, reflecting momentum in each business. All businesses made significant contributions, with especially strong performances from Barclays Capital, UK Banking and Barclays Global Investors, and a substantial contribution to income from Absa in its first full year of ownership. Excluding Absa, Group income grew 18%, compared with expense growth of 13%. The mix of income and profit continued to evolve. Approximately half our profits came from outside the UK, up from about 30% in 2003. Operating expenses increased 20% to Â£12,674m. The Group cost:income ratio improved two percentage points to 59%. We continue to target top quartile productivity for all businesses, and in 2006 the ratio improved or remained flat in all businesses. Operating expenses include gains on the sale of properties of Â£432m partly offset by accelerated incremental investment expenditure of approximately Â£280m. Impairment charges rose 37% to Â£2,154m. Excluding Absa, impairment charges on loans and advances increased 26%. The increase was mostly attributable to the challenging credit environment in UK unsecured retail lending, which was partly due to the continued rise in the level of personal insolvencies. In the second half of 2006, as a result of a number of management actions, flows into delinquency decreased and arrears balances declined across the UK cards and unsecured loans portfolios. We therefore believe that we passed the worst in Barclaycard UK impairment in the second half of 2006. UK mortgage impairment charges remained negligible, and the wholesale and larger corporate sectors continued to be stable with a low level of defaults. When I look at these results, I am pleased to see increased productivity in our use of capital, risk and costs. Return on average shareholders' funds improved four percentage points to 25%; profits grew much faster than Daily Value at Risk and risk weighted assets and the associated consumption of capital; and income growth exceeded cost growth by five percentage points. Business performance In UK Banking we made significant strides towards our strategic priority of building the best bank in the UK. Strong growth in income enabled us to increase our profit before tax 17% to Â£2,578m. The improvement in the cost:income ratio was four percentage points in headline terms to 52% (2005: 56%). Excluding the impact of property gains and accelerated investment, the improvement in the cost:income ratio was three percentage points making a cumulative total for 2005-2006 of six percentage points. This means that we have achieved our target of a six percentage point improvement over the period 2005-2007, one year ahead of schedule. We continue to target a further two percentage point improvement in the cost:income ratio for 2007. UK Retail Banking delivered a 17% profit before tax increase to Â£1,213m. This was driven by broadly based income growth of 7%, with particularly strong performances in savings, Local Business and UK Premier and good growth in current accounts. Our mortgage market share and processing capacity also increased strongly leading to a net market share of 4% in the second half of the year. We doubled investment across the business. We focused on upgrading distribution capabilities, transforming the performance of the mortgage business, revitalising product offerings, and improving core operations and processes. The additional investment substantially offset the impact of property gains, leading to broadly flat costs. In 2007 we expect to make further significant investment, including the restructuring of the branch network and the migration of Woolwich customers. UK Business Banking delivered very strong growth in profit before tax of 18% to Â£1,365m. Strong growth in loans and deposits drove income growth of 11%. Profit before business disposals grew 11%. UK Business Banking maintained its competitive position and also funded significant investment in improving its infrastructure and customer service. At Barclaycard profit before tax fell 40% to Â£382m. Good income growth of 8%, driven by very strong momentum in Barclaycard International, was more than offset by a further rise in impairment charges, principally in the UK lending portfolios, and by higher costs, mainly as a result of continued investment in Barclaycard US. In the UK, high debt levels and changing attitudes to bankruptcy and debt default contributed to increased impairment charges. Actions that we have taken, including more selective customer recruitment, limit management, and improved collections, have led to a reduction of flows into delinquency and lower levels of arrears balances in cards and unsecured loans. It is these trends that cause us to believe that we passed the worst in Barclaycard UK impairment in the second half of 2006. We continued to invest in Barclaycard US. Since we bought the business in December 2004, outstandings have grown from US$1.4bn to US$4.0bn, and cards in issue have increased from 1.1 million to 4.2 million. Income grew 73% in 2006. We are on track to become profitable in 2007. International Retail and Commercial Banking achieved a step change in profitability to Â£1,270m (2005: Â£633m), reflecting the inclusion of Absa for a full year, the impact of corporate development activity and growth in key geographies. International Retail and Commercial Banking-excluding Absa achieved a profit before tax of Â£572m (2005: Â£335m), including a gain of Â£247m from the disposal of our interest in FirstCaribbean International Bank. Excluding this gain, profit before tax was Â£325m (2005: Â£335m). Good organic growth in the businesses across continental Europe was offset by incremental investment in distribution capacity and technology across the businesses in 2006. We expect to double the rate of investment in infrastructure and distribution in 2007. International Retail and Commercial Banking-Absa contributed Â£698m profit before tax in the first full year of ownership and is performing well ahead of our acquisition business case. Absa Group Limited achieved year on year growth in profit before tax of 24% in Rand terms, reflecting very strong growth in mortgages, credit cards and commercial property finance. The benefits of Barclays ownership are evident in 46% attributable earnings growth in both Absa Card and Absa Capital (reported in Barclays Capital), with total synergy benefits well ahead of plan. Barclays Capital produced an outstanding performance with profit before tax rising 55% to Â£2,216m. Income growth of 39% was driven by doing more business with new and existing clients and was broadly based across asset classes and geographies. Growth was particularly strong in areas where we have invested in recent years, including commodities, equity products and credit derivatives. Profit growth was accompanied by improvements in productivity: income and profits grew significantly faster than Daily Value at Risk, risk weighted assets, economic capital, regulatory capital and costs. The ratio of compensation costs to net income improved two percentage points to 49% and the cost:net income ratio improved three percentage points to 64%. We continued to invest for future growth, increasing headcount 3,300 including 1,300 from the acquisition of HomEq, a US mortgage servicing business. Barclays Global Investors delivered excellent results, with profit before tax up 32% to Â£714m. Income growth of 26% was attributable to increased management fees, particularly in the iShares and active businesses. Assets under management grew US$301bn to US$1.8 trillion, including net new assets of $68bn, reflecting very strong inflows in iShares and active assets. The cost:income ratio improved two percentage points to 57%. Barclays Wealth profit before tax rose 28% to Â£213m. This reflected broadly based income growth and favourable market conditions, partially offset by a significant increase in investment in people and infrastructure to build a platform for future growth. Total client assets increased 19% to Â£93bn. The cost:income ratio improved three percentage points to 79%. In Head office functions and other operations the loss before tax decreased Â£64m to Â£259m, reflecting the head office relocation costs incurred in 2005. Capital management 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 credit rating. At the end of 2006, our tier 1 Capital ratio was 7.7% (2005: 7.0%). The improved capital ratio was driven by the strong capital generation of our business portfolio, the impact of disposals, including our stake in FirstCaribbean International Bank, and the efficient management of the balance sheet through the use of the capital markets. We have invested almost Â£2 billion to support the capital required for our organic growth throughout the portfolio at a very attractive rate of return and we also increased the dividend to shareholders by 17%. We commenced parallel running for Basel II at the end of 2006. Whilst there are still areas in which the regulators have not yet defined the requirements for detailed implementation, we continue to anticipate a modest benefit to our capital ratios from Basel II. For 2007 we will continue to report our capital ratios under Basel I. Executive management I want to acknowledge the significant contributions of two executive directors who are leaving Barclays. David Roberts, previously Chief Executive of International Retail and Commercial Banking, left Barclays at the end of 2006 after 23 years of outstanding service. Naguib Kheraj has been a generator of very significant value for the Group over the last 10 years in a number of different roles at Barclays, most recently as Group Finance Director. He will be leaving us in 2007. I thank David and Naguib warmly for their dedication to the success of Barclays and I wish them well for the future. Our new Group Finance Director, Chris Lucas joins us in April and brings a wealth of experience in financial services. Outlook We enter 2007 with strong income momentum in Barclays, driven by high levels of customer activity and good risk control. The global economic outlook continues to be positive and we are well positioned to capture further growth in the years ahead. John Varley Group Chief Executive CONSOLIDATED INCOME STATEMENT 2006 2005 Â£m Â£m Interest income 21,805 17,232 Interest expense (12,662) (9,157) -------- -------- Net interest income 9,143 8,075 -------- -------- Fee and commission income 8,005 6,430 Fee and commission expense (828) (725) -------- -------- Net fee and commission income 7,177 5,705 -------- -------- Net trading income 3,614 2,321 Net investment income 962 858 -------- -------- Principal transactions 4,576 3,179 Net premiums from insurance contracts 1,060 872 Other income 214 147 -------- -------- Total income 22,170 17,978 Net claims and benefits paid on insurance contracts (575) (645) -------- -------- Total income net of insurance claims 21,595 17,333 Impairment charges (2,154) (1,571) -------- -------- Net income 19,441 15,762 -------- -------- Operating expenses excluding amortisation of intangible assets (12,538) (10,448) Amortisation of intangible assets (136) (79) -------- -------- Operating expenses (12,674) (10,527) Share of post-tax results of associates and joint ventures 46 45 Profit on disposal of subsidiaries, associates and joint ventures 323 - -------- -------- Profit before tax 7,136 5,280 Tax (1,941) (1,439) -------- -------- Profit after tax 5,195 3,841 -------- -------- Profit attributable to minority interests 624 394 Profit attributable to equity holders of the parent 4,571 3,447 -------- -------- 5,195 3,841 -------- -------- p p Earnings per share 71.9 54.4 Diluted earnings per share 69.8 52.6 Dividends per share: Interim dividend 10.5 9.2 Final dividend 20.5 17.4 -------- -------- Total dividend 31.0 26.6 -------- -------- Â£m Â£m Interim dividend 666 582 Final dividend 1,307 1,105 -------- -------- Total dividend 1,973 1,687 -------- -------- CONSOLIDATED BALANCE SHEET 2006 2005 Assets Â£m Â£m Cash and balances at central banks 7,345 3,906 Items in the course of collection from other banks 2,408 1,901 Trading portfolio assets 177,867 155,723 Financial assets designated at fair value: - held on own account 31,799 12,904 - held in respect of linked liabilities to customers under investment contracts 82,798 83,193 Derivative financial instruments 138,353 136,823 Loans and advances to banks 30,926 31,105 Loans and advances to customers 282,300 268,896 Available for sale financial investments 51,703 53,497 Reverse repurchase agreements and cash collateral 174,090 160,398 on securities borrowed Other assets 5,850 4,734 Current tax assets 557 - Investments in associates and joint ventures 228 546 Goodwill 6,092 6,022 Intangible assets 1,215 1,269 Property, plant and equipment 2,492 2,754 Deferred tax assets 764 686 -------- -------- Total assets 996,787 924,357 -------- -------- 2006 2005 Liabilities Â£m Â£m Deposits from banks 79,562 75,127 Items in the course of collection due to other banks 2,221 2,341 Customer accounts 256,754 238,684 Trading portfolio liabilities 71,874 71,564 Financial liabilities designated at fair value 53,987 33,385 Liabilities to customers under investment contracts 84,637 85,201 Derivative financial instruments 140,697 137,971 Debt securities in issue 111,137 103,328 Repurchase agreements and cash collateral on securities lent 136,956 121,178 Other liabilities 10,337 11,131 Current tax liabilities 1,020 747 Insurance contract liabilities, including unit-linked liabilities 3,878 3,767 Subordinated liabilities 13,786 12,463 Deferred tax liabilities 282 700 Provisions 462 517 Retirement benefit liabilities 1,807 1,823 -------- -------- Total liabilities 969,397 899,927 -------- -------- Shareholders' equity Called up share capital 1,634 1,623 Share premium account 5,818 5,650 Other reserves 390 1,377 Retained earnings 12,169 8,957 Less: treasury shares (212) (181) -------- -------- Shareholders' equity excluding minority interests 19,799 17,426 Minority interests 7,591 7,004 -------- -------- Total shareholders' equity 27,390 24,430 -------- -------- -------- -------- Total liabilities and shareholders' equity 996,787 924,357 -------- -------- 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: Global Retail and Commercial Banking â€¢ UK Banking, comprising - UK Retail Banking - UK Business Banking â€¢ Barclaycard â€¢ International Retail and Commercial Banking, comprising - International Retail and Commercial Banking-excluding Absa - International Retail and Commercial Banking-Absa, first included with effect from 27th July 2005 Investment Banking and Investment Management â€¢ Barclays Capital â€¢ Barclays Global Investors â€¢ Barclays Wealth â€¢ Barclays Wealth-closed life assurance activities 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, Home Finance, UK Premier and Local Business (formerly Small Business). This cluster of businesses aims to build broader and deeper relationships with customers. Personal Customers and Home Finance provide a wide range of products and services to retail customers, including current accounts, savings and investment products, mortgages branded Woolwich and general insurance. UK Premier provides banking, investment products and advice to affluent customers. Local Business provides banking services to small businesses. UK Business Banking UK Business Banking provides relationship banking to Barclays larger and medium business customers in the UK. 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 and Barclaycard. UK Business Banking provides asset financing and leasing solutions through a specialist business. Barclaycard Barclaycard is a multi-brand credit card and consumer loans business which also processes card payments for retailers and merchants and issues credit and charge cards to corporate customers and the UK Government. It is one of Europe's leading credit card businesses and has an increasing presence in the United States. In the UK, Barclaycard comprises Barclaycard, SkyCard and Monument branded credit cards, Barclays branded loans and FirstPlus secured lending. Barclaycard also manages card operations on behalf of Solution Personal Finance. Outside the UK, Barclaycard provides credit cards in the United States, Germany, Spain, Italy, Portugal and Africa. In the Nordic region, Barclaycard operates through Entercard, a joint venture with ForeningsSparbanken (Swedbank). 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 personal and corporate customers outside the UK 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 from 2005, the operations have been grouped into two components: International Retail and Commercial Banking-excluding Absa and International Retail and Commercial Banking-Absa. International Retail and Commercial Banking works closely with all other parts of the Group to leverage synergies from product and service propositions. 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, Africa and the Middle East. International Retail and Commercial Banking-Absa International Retail and Commercial Banking-Absa represents Barclays consolidation of Absa, excluding Absa Capital which is included as part of Barclays Capital. Absa Group Limited is one of South Africa's largest financial services organisations serving personal, commercial and corporate customers predominantly in South Africa. International Retail and Commercial Banking-Absa serves retail customers through a variety of distribution channels and offers a full range of banking services, including current and deposit accounts, mortgages, instalment finance, credit cards, bancassurance products and wealth management services; it also offers customised business solutions for commercial and large corporate customers. 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 credit, 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 Capital includes Absa Capital, the investment banking business of Absa. Barclays Capital works closely with all other parts of the Group to leverage synergies from client relationships and product capabilities. 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 and 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 190 funds for institutions and individuals trading in fifteen markets globally. BGI's investment philosophy is founded on managing all dimensions of performance: a consistent focus on controlling risk, return and cost. BGI collaborates with the other Barclays businesses, particularly Barclays Capital and Barclays Wealth, to develop and market products and leverage capabilities to better serve the client base. Barclays Wealth Barclays Wealth serves affluent, high net worth and intermediary clients worldwide, providing private banking, asset management, stockbroking, offshore banking, wealth structuring and financial planning services. Barclays Wealth works closely with all other parts of the Group to leverage synergies from client relationships and product capabilities. Barclays Wealth-closed life assurance activities Barclays Wealth-closed life assurance activities comprise the closed life assurance businesses of Barclays and Woolwich in the UK. Head office functions and other operations Head office functions and other operations comprise: â€¢ Head office and central support functions â€¢ 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. Businesses in transition principally relate to certain lending portfolios that 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 2006 2005 Â£m Â£m UK Banking 2,578 2,200 -------- -------- UK Retail Banking 1,213 1,040 UK Business Banking 1,365 1,160 -------- -------- Barclaycard 382 640 International Retail and Commercial Banking 1,270 633 -------- -------- International Retail and Commercial Banking-ex Absa 572 335 International Retail and Commercial Banking-Absa(1) 698 298 -------- -------- Barclays Capital 2,216 1,431 Barclays Global Investors 714 540 Barclays Wealth 213 166 Barclays Wealth-closed life assurance activities 22 (7) Head office functions and other operations (259) (323) -------- -------- Profit before tax 7,136 5,280 Tax (1,941) (1,439) -------- -------- Profit after tax 5,195 3,841 Profit attributable to minority interests (624) (394) -------- -------- Profit attributable to equity holders of the parent 4,571 3,447 -------- -------- (1) For 2005, this reflects the period from 27th July until 31st December 2005. TOTAL ASSETS AND RISK WEIGHTED ASSETS Total assets 2006 2005 Â£m Â£m UK Banking 139,902 130,304 -------- -------- UK Retail Banking 74,018 70,389 UK Business Banking 65,884 59,915 -------- -------- Barclaycard 27,628 25,771 International Retail and Commercial Banking 68,848 63,556 -------- -------- International Retail and Commercial Banking-ex Absa 38,451 34,195 International Retail and Commercial Banking-Absa 30,397 29,361 -------- -------- Barclays Capital 657,922 601,193 Barclays Global Investors 80,515 80,900 Barclays Wealth 7,285 6,094 Barclays Wealth-closed life assurance activities 7,605 7,276 Head office functions and other operations 7,082 9,263 -------- -------- 996,787 924,357 -------- -------- Risk weighted assets 2006 2005 Â£m Â£m UK Banking 84,903 79,929 -------- -------- UK Retail Banking 34,942 32,803 UK Business Banking 49,961 47,126 -------- -------- Barclaycard 25,203 21,752 International Retail and Commercial Banking 41,053 41,228 -------- -------- International Retail and Commercial Banking-ex Absa 20,325 20,394 International Retail and Commercial Banking-Absa 20,728 20,834 -------- -------- Barclays Capital 137,635 116,677 Barclays Global Investors 1,375 1,456 Barclays Wealth 5,744 4,061 Barclays Wealth-closed life assurance activities - - Head office functions and other operations 1,920 4,045 -------- -------- 297,833 269,148 -------- -------- Further analysis of total assets and risk weighted assets, can be found on page 62. UK Banking 2006 2005 Â£m Â£m Net interest income 4,035 3,744 Net fee and commission income 1,861 1,720 -------- -------- Net trading income 2 - Net investment income 28 26 -------- -------- Principal transactions 30 26 Net premiums from insurance contracts 269 280 Other income 63 33 -------- -------- Total income 6,258 5,803 Net claims and benefits on insurance contracts (35) (58) -------- -------- Total income net of insurance claims 6,223 5,745 Impairment charges (461) (327) -------- -------- Net income 5,762 5,418 -------- -------- Operating expenses excluding amortisation of intangible assets (3,263) (3,212) Amortisation of intangible assets (2) (3) -------- -------- Operating expenses (3,265) (3,215) Share of post-tax results of associates and joint ventures 5 (3) Profit on disposal of subsidiaries, associates and joint ventures 76 - -------- -------- Profit before tax 2,578 2,200 -------- -------- Cost:income ratio 52% 56% Cost:net income ratio 57% 59% Risk Tendency Â£515m Â£430m Return on average economic capital 38% 33% Economic profit Â£1,431m Â£1,130m 2006 2005 Loans and advances to customers Â£123.9bn Â£118.2bn Customer accounts Â£142.4bn Â£129.7bn Total assets Â£139.9bn Â£130.3bn Risk weighted assets Â£84.9bn Â£79.9bn Key Fact Number of UK branches 2,014 2,029 UK Banking profit before tax increased 17% (Â£378m) to Â£2,578m (2005: Â£2,200m) driven principally by good income growth. Profit before business disposals grew 14% (Â£302m) to Â£2,502m (2005: Â£2,200m). UK Banking has targeted a cost:income ratio reduction of two percentage points per annum in each of 2005, 2006 and 2007. In 2006 the cost:income ratio improved three percentage points to 53% (2005: 56%) excluding gains from property sales not reinvested; this brings the cumulative improvement to six percentage points in two years. UK Banking continues to target a further two percentage point improvement in 2007 to 51%. UK Retail Banking 2006 2005 Â£m Â£m Net interest income 2,333 2,208 Net fee and commission income 1,219 1,131 -------- -------- Net trading income - - Net investment income - 9 -------- -------- Principal transactions - 9 Net premiums from insurance contracts 269 280 Other income 42 16 -------- -------- Total income 3,863 3,644 Net claims and benefits on insurance contracts (35) (58) -------- -------- Total income net of insurance claims 3,828 3,586 Impairment charges (209) (150) -------- -------- Net income 3,619 3,436 -------- -------- Operating expenses excluding amortisation of intangible assets (2,407) (2,390) Amortisation of intangible assets (1) - -------- -------- Operating expenses (2,408) (2,390) Share of post-tax results of associates and joint ventures 2 (6) -------- -------- Profit before tax 1,213 1,040 -------- -------- Cost:income ratio 63% 67% Cost:net income ratio 67% 70% Risk Tendency Â£225m Â£180m Return on average economic capital 39% 35% Economic profit Â£693m Â£586m 2006 2005 Loans and advances to customers Â£67.6bn Â£64.8bn Customer accounts Â£85.0bn Â£78.8bn Total assets Â£74.0bn Â£70.4bn Risk weighted assets Â£34.9bn Â£32.8bn Key Facts Personal Customers -------------------- Number of UK current accounts 11.5m 11.1m Number of UK savings accounts 11.0m 10.8m Total UK mortgage balances (residential) Â£61.9bn Â£59.6bn Number of household insurance policies 825,000 616,000 Local Business and UK Premier ------------------------------- Number of Local Business customers 630,000 630,000 Number of UK Premier customers 297,000 286,000 UK Retail Banking profit before tax increased 17% (Â£173m) to Â£1,213m (2005: Â£1,040m), driven by good income growth and well controlled costs. There has been substantial additional investment to transform the business. Income increased 7% (Â£242m) to Â£3,828m (2005: Â£3,586m), continuing the momentum reported at the half year. Income growth was broadly based. There was strong income growth in Personal Customers retail savings, Local Business and UK Premier and good growth in Personal Customers current account income. Sales volumes increased, with a particularly strong performance from direct channels. Net interest income increased 6% (Â£125m) to Â£2,333m (2005: Â£2,208m). Growth was driven by a higher contribution from deposits, through a combination of good balance sheet growth and a stable liability margin. Total average customer deposit balances increased 8% to Â£79.2bn (2005: Â£73.5bn), supported by new products. Growth of personal savings was above that of the market. Mortgage volumes improved significantly, driven by a focus on improving capacity, customer service, value and promotion. UK residential mortgage balances ended the year at Â£61.9bn (2005: Â£59.6bn). Gross advances were 60% higher at Â£18.4bn (2005: Â£11.5bn), with a market share of 5% (2005: 4%). Net lending was Â£2.4bn, with performance improving during the year, leading to a market share of 4% in the second half of the year. The mortgage margin was reduced by changed assumptions used in the calculation of effective interest rates, a higher proportion of new mortgages and base rate changes. The new business spread was in line with the industry. The loan to value ratio within the residential mortgage book on a current valuation basis was 34% (2005: 35%). There was good balance growth in non-mortgage loans, where Local Business average balances increased 9% and UK Premier average balances increased 25%. Net fee and commission income increased 8% (Â£88m) to Â£1,219m (2005: Â£1,131m). There was strong current account income growth in Personal Customers and Local Business. UK Premier delivered strong growth reflecting higher income from banking services, mortgage sales and investment advice. Net premiums from insurance underwriting activities decreased 4% (Â£11m) to Â£269m (2005: Â£280m). There continued to be lower customer take-up of loan protection insurance. Net claims and benefits on insurance contracts improved to Â£35m (2005: Â£58m). Other income increased Â£26m to Â£42m (2005: Â£16m), principally representing the benefit from reinsurance. Impairment charges increased 39% (Â£59m) to Â£209m (2005: Â£150m). The increase principally reflected balance growth and some deterioration in delinquency rates in the Local Business loan book. Losses from the mortgage portfolio remained negligible, with arrears at low levels. Operating expenses were steady at Â£2,408m (2005: Â£2,390m). Substantially all of the gains from the sale and leaseback of property of Â£253m have been reinvested in the business to improve customer service and deliver sustainable performance improvements. Around half of the incremental investment was directed at upgrading distribution capabilities, including restructuring and improving the branch network. Further investment was focused on upgrading the contact centres, transforming the performance of the mortgage business, revitalising the retail product range to meet customers' needs, improving core operations and processes and rationalising the number of operating sites. The level of investment reflected in operating expenses in 2006 was approximately double the level of 2005. The cost:income ratio improved four percentage points to 63% (2005: 67%). UK Business Banking 2006 2005 Â£m Â£m Net interest income 1,702 1,536 Net fee and commission income 642 589 -------- -------- Net trading income 2 - Net investment income 28 17 -------- -------- Principal transactions 30 17 Other income 21 17 -------- -------- Total income 2,395 2,159 Impairment charges (252) (177) -------- -------- Net income 2,143 1,982 -------- -------- Operating expenses excluding amortisation of intangible assets (856) (822) Amortisation of intangible assets (1) (3) -------- -------- Operating expenses (857) (825) Share of post-tax results of associates and joint ventures 3 3 Profit on disposal of subsidiaries, associates and joint ventures 76 - -------- -------- Profit before tax 1,365 1,160 -------- -------- Cost:income ratio 36% 38% Cost:net income ratio 40% 42% Risk Tendency Â£290m Â£250m Return on average economic capital 37% 31% Economic profit Â£738m Â£544m 2006 2005 Loans and advances to customers Â£56.3bn Â£53.4bn Customer accounts Â£57.4bn Â£50.9bn Total assets Â£65.9bn Â£59.9bn Risk weighted assets Â£50.0bn Â£47.1bn Key Fact Total number of Business Banking customers 150,000 144,000 UK Business Banking profit before tax increased 18% (Â£205m) to Â£1,365m (2005: Â£1,160m), driven by continued strong income growth. UK Business Banking maintained its market share of primary customer relationships. The 2006 result included a Â£23m (2005: Â£13m) contribution from the full year consolidation of Iveco Finance, in which a 51% stake was acquired on 1st June 2005. Profit before business disposals increased 11% to Â£1,289m (2005: Â£1,160m). Income increased 11% (Â£236m) to Â£2,395m (2005: Â£2,159m), driven by strong balance sheet growth. The uplift in income was broadly based across income categories. Net interest income increased 11% (Â£166m) to Â£1,702m (2005: Â£1,536m) driven by strong balance sheet growth. There was strong growth in all business areas and in particular Larger Business. The lending margin improved slightly. Average deposit balances increased 11% to Â£44.8bn (2005: Â£40.5bn) with good growth across product categories. The deposit margin was stable. Net fee and commission income increased 9% (Â£53m) to Â£642m (2005: Â£589m). There was a strong rise in income from foreign exchange and derivatives business transacted through Barclays Capital on behalf of Business Banking customers. Income from principal transactions was Â£30m (2005: Â£17m), primarily reflecting the profit realised on a number of equity investments. As expected, impairment rates trended upwards during the year towards a more normalised level. Impairment increased 42% (Â£75m) to Â£252m (2005: Â£177m), with the increase mainly reflecting higher charges from Medium Business and balance growth. Impairment charges in Larger Business were stable. Operating expenses increased 4% (Â£32m) to Â£857m (2005: Â£825m). Cost growth reflected higher volumes, increased expenditure on front line staff and the costs of Iveco Finance for a full year. Operating expenses included a credit of Â£60m on the sale and leaseback of property, of which approximately half was reinvested in the business, including costs relating to the acceleration of the rationalisation of operating sites and technology infrastructure. The cost:income ratio improved two percentage points to 36% (2005: 38%). Profit on disposals of subsidiaries, associates and joint ventures of Â£76m (2005: nil) arose from the sales of interests in vehicle leasing and European vendor finance businesses. Barclaycard 2006 2005 Â£m Â£m Net interest income 1,843 1,726 Net fee and commission income 1,054 972 Net investment income 15 - Net premiums from insurance contracts 33 24 -------- -------- Total income 2,945 2,722 Net claims and benefits on insurance contracts (8) (7) -------- -------- Total income net of insurance claims 2,937 2,715 Impairment charges (1,493) (1,098) -------- -------- Net income 1,444 1,617 -------- -------- Operating expenses excluding amortisation of intangible assets (1,037) (961) Amortisation of intangible assets (17) (17) -------- -------- Operating expenses (1,054) (978) Share of post-tax results of associates and joint ventures (8) 1 -------- -------- Profit before tax 382 640 -------- -------- Cost:income ratio 36% 36% Cost:net income ratio 73% 60% Risk Tendency Â£1,410m Â£1,100m Return on average economic capital 10% 16% Economic profit Â£nil Â£183m 2006 2005 Loans and advances to customers Â£25.5bn Â£24.0bn Total assets Â£27.6bn Â£25.8bn Risk weighted assets Â£25.2bn Â£21.8bn Key Facts Number of Barclaycard UK customers 9.8m 11.2m Number of retailer relationships 93,000 93,000 UK credit cards-average outstanding balances Â£9.4bn Â£10.1bn UK credit cards-average extended credit balances Â£8.0bn Â£8.6bn UK loans-average consumer lending balances Â£11.9bn Â£10.3bn International-average extended credit balances Â£2.5bn Â£1.8bn International-cards in issue 6.4m 4.3m Barclaycard profit before tax decreased 40% (Â£258m) to Â£382m (2005: Â£640m) as good income growth was more than offset by higher impairment charges and increased costs from the continued development of international businesses. Income increased 8% (Â£222m) to Â£2,937m (2005: Â£2,715m). Growth was driven by very strong momentum in the United States and by strong performances in Barclaycard Business, FirstPlus, SkyCard and continental European markets. Net interest income increased 7% (Â£117m) to Â£1,843m (2005: Â£1,726m). UK average extended credit card balances fell 7% to Â£8.0bn (2005: Â£8.6bn), reflecting the impact of tighter lending criteria. UK average consumer lending balances increased 16% to Â£11.9bn (2005: Â£10.3bn) driven by secured lending in FirstPlus. International average extended credit card balances rose 39% to Â£2.5bn (2005: Â£1.8bn). Margins in credit cards improved to 8.73% (2005: 7.96%), due to the impact of increased card rates and a reduced proportion of promotional rate balances in the UK. Margins in consumer lending fell to 4.11% (2005: 4.96%), due to a higher proportion of secured lending and continued competitive pressure. Net fee and commission income increased 8% (Â£82m) to Â£1,054m (2005: Â£972m) as a result of increased contributions from Barclaycard International, SkyCard, FirstPlus and Barclaycard Business. Barclaycard reduced its late and overlimit fee charges in the UK on 1st August 2006 in response to the Office of Fair Trading's findings. Investment income of Â£15m (2005: Â£nil) represents the gain arising from the sale of part of the stake in MasterCard Inc, following its flotation. Impairment charges increased 36% (Â£395m) to Â£1,493m (2005: Â£1,098m). The increase was driven by a rise in delinquent balances and increased numbers of bankruptcies and Individual Voluntary Arrangements. As a result of management action in 2005 and 2006 to tighten lending criteria and improve collection processes, the flows of new delinquencies reduced, and levels of arrears balances declined in the second half of 2006 in UK cards and unsecured loans. Operating expenses increased 8% (Â£76m) to Â£1,054m (2005: Â£978m). This included a Â£38m gain from the sale and leaseback of property. Excluding this item, underlying operating expenses increased 12% (Â£114m) to Â£1,092m. This was largely as a result of continued investment in Barclaycard International, particularly Barclaycard US, and the development of UK partnerships. Barclaycard International continued its growth strategy in the continental European business delivering solid results. The Entercard joint venture, which is based in Scandinavia, performed ahead of plan. Barclaycard International loss before tax reduced to Â£30m (2005: loss Â£37m), including the loss before tax for Barclaycard US of Â£56m (2005: loss Â£59m). Barclaycard US continued to perform ahead of expectations, delivering very strong growth in balances and customer numbers and creating a number of new partnerships including US Airways, Barnes & Noble, Travelocity and Jo-Ann Stores. Barclaycard UK customer numbers declined 1.4m to 9.8m (2005: 11.2m). This reflected the closure of 1.5 million accounts that had been inactive. International Retail and Commercial Banking 2006 2005 Â£m Â£m Net interest income 1,659 1,050 Net fee and commission income 1,303 705 -------- -------- Net trading income 6 3 Net investment income 188 143 -------- -------- Principal transactions 194 146 Net premiums from insurance contracts 351 227 Other income 74 60 -------- -------- Total income 3,581 2,188 Net claims and benefits on insurance contracts (244) (205) -------- -------- Total income net of insurance claims 3,337 1,983 Impairment charges (167) (32) -------- -------- Net income 3,170 1,951 -------- -------- Operating expenses excluding amortisation of intangible assets (2,111) (1,317) Amortisation of intangible assets (85) (47) -------- -------- Operating expenses (2,196) (1,364) Share of post-tax results of associates and joint ventures 49 46 Profit on disposal of subsidiaries, associates and joint ventures 247 - -------- -------- Profit before tax 1,270 633 -------- -------- Cost:income ratio 66% 69% Cost:net income ratio 69% 70% Risk Tendency Â£220m Â£175m Return on average economic capital 37% 23% Economic profit Â£530m Â£205m 2006 2005 Loans and advances to customers Â£53.5bn Â£49.3bn Customer accounts Â£22.5bn Â£22.6bn Total assets Â£68.9bn Â£63.6bn Risk weighted assets Â£41.1bn Â£41.2bn Key Fact Number of international branches 1,613 1,516 International Retail and Commercial Banking profit before tax increased Â£637m to Â£1,270m (2005: Â£633m). The increase reflected the inclusion of a full year's profit before tax from International Retail and Commercial Banking-Absa of Â£698m (2005(1): Â£298m) and a profit of Â£247m on the disposal of Barclays interest in FirstCaribbean International Bank. (1) For 2005, this reflects the period from 27th July until 31st December 2005. International Retail and Commercial Banking-excluding Absa 2006 2005 Â£m Â£m Net interest income 610 562 Net fee and commission income 448 377 -------- -------- Net trading income 17 31 Net investment income 66 88 -------- -------- Principal transactions 83 119 Net premiums from insurance contracts 111 129 Other income 20 23 -------- -------- Total income 1,272 1,210 Net claims and benefits on insurance contracts (138) (161) -------- -------- Total income net of insurance claims 1,134 1,049 Impairment charges (41) (13) -------- -------- Net income 1,093 1,036 -------- -------- Operating expenses excluding amortisation of intangible assets (799) (734) Amortisation of intangible assets (9) (6) -------- -------- Operating expenses (808) (740) Share of post-tax results of associates and joint ventures 40 39 Profit on disposal of subsidiaries, associates and joint ventures 247 - -------- -------- Profit before tax 572 335 -------- -------- Cost:income ratio 71% 71% Cost:net income ratio 74% 71% Risk Tendency Â£75m Â£75m Return on average economic capital 39% 20% Economic profit Â£346m Â£115m 2006 2005 Loans and advances to customers Â£29.3bn Â£25.4bn Customer accounts Â£11.4bn Â£10.4bn Total assets Â£38.5bn Â£34.2bn Risk weighted assets Â£20.4bn Â£20.4bn Key Facts Number of international branches 868 798 Number of Barclays continental Europe customers 820,000 800,000 Number of continental European mortgage customers 252,000 221,000 Continental European mortgages-average balances (Euros) â‚¬25.9bn â‚¬21.2bn Continental European assets under management (Euros) â‚¬26.4bn â‚¬22.6bn International Retail and Commercial Banking-excluding Absa profit before tax increased 71% (Â£237m) to Â£572m (2005: Â£335m), including a gain on the disposal of the interest in FirstCaribbean International Bank of Â£247m. Profit before business disposals was Â£325m (2005: Â£335m). This reflected good growth in continental Europe offset by a decline in profits in Africa caused by higher impairment, and increased costs reflecting a step change in the rate of organic investment in the business. Income increased 8% (Â£85m) to Â£1,134m (2005: Â£1,049m). Excluding gains from asset sales in 2005, income increased 11% (Â£116m) to Â£1,134m (2005: Â£1,018m). Net interest income increased 9% (Â£48m) to Â£610m (2005: Â£562m), reflecting strong balance sheet growth in continental Europe, Africa and the Middle East, and the development of the corporate business in Spain. Total average customer loans increased 20% to Â£27.4bn (2005: Â£22.9bn). Mortgage balance growth in continental Europe was particularly strong, with average Euro balances up 22%. There was a modest decline in lending margins partly driven by a greater share of mortgage assets as a proportion of the total book in continental Europe. Average customer deposits increased 17% to Â£10.8bn (2005: Â£9.2bn), with deposit margins stable. Net fee and commission income increased 19% (Â£71m) to Â£448m (2005: Â£377m). This reflected a strong performance from the Spanish funds business, where average assets under management increased 11%, together with very strong growth in France, including the first full year contribution of the ING Ferri business which was acquired on 1st July 2005. Net fee and commission income showed solid growth in Africa and the Middle East. Principal transactions decreased Â£36m to Â£83m (2005: Â£119m). 2005 included Â£23m from the redemption of preference shares in FirstCaribbean International Bank. Impairment charges increased Â£28m to Â£41m (2005: Â£13m). This reflected the absence of one-off recoveries of Â£12m which arose in 2005 in Africa and the Middle East, and strong balance sheet growth across the businesses. Operating expenses increased 9% (Â£68m) to Â£808m (2005: Â£740m). This included gains from the sale and leaseback of property in Spain of Â£55m, just under half of which were reinvested in accelerated staff restructuring and infrastructure upgrades. Excluding these net gains, operating expenses increased 14% to Â£840m (2005: Â£740m). Operating expenses also included incremental investment expenditure of Â£25m to expand the distribution network and enhance IT and operational capabilities. Barclays Spain continued to perform strongly. Profit before tax increased 21% (Â£30m) to Â£171m (2005: Â£141m), excluding net one-off gains on asset sales of Â£32m (2005: Â£8m) and integration costs of Â£43m (2005: Â£57m). This was driven by the continued realisation of benefits from Banco Zaragozano, together with strong growth in assets under management and solid growth in mortgages. Africa and the Middle East profit before tax decreased 9% (Â£12m) to Â£126m (2005: Â£138m) driven by higher impairment charges reflecting one-off recoveries of Â£12m that arose in 2005 and an increase in investment expenditure. Profit before tax increased strongly in Portugal reflecting good flows of new customers and increased business volumes. France also performed well as a result of good organic growth and the acquisition of ING Ferri. The profit on disposal of subsidiaries, associate and joint ventures of Â£247m (2005: nil) comprised the gain on the sale of Barclays interest in FirstCaribbean. The share of post-tax results of FirstCaribbean International Bank included in 2006 was Â£41m (2005: Â£37m). International Retail and Commercial Banking-Absa 2006 2005(1) Â£m Â£m Net interest income 1,049 488 Net fee and commission income 855 328 -------- -------- Net trading income (11) (28) Net investment income 122 55 -------- -------- Principal transactions 111 27 Net premiums from insurance contracts 240 98 Other income 54 37 -------- -------- Total income 2,309 978 Net claims and benefits on insurance contracts (106) (44) -------- -------- Total income net of insurance claims 2,203 934 Impairment charges (126) (19) -------- -------- Net income 2,077 915 -------- -------- Operating expenses excluding amortisation of intangible assets (1,312) (583) Amortisation of intangible assets (76) (41) -------- -------- Operating expenses (1,388) (624) Share of post-tax results of associates and joint ventures 9 7 -------- -------- Profit before tax 698 298 -------- -------- Cost:income ratio 63% 67% Cost:net income ratio 67% 68% Risk Tendency Â£145m Â£100m Return on average economic capital 34% 36% Economic profit Â£184m Â£90m 2006 2005 Loans and advances to customers Â£24.2bn Â£23.9bn Customer accounts Â£11.1bn Â£12.2bn Total assets Â£30.4bn Â£29.4bn Risk weighted assets Â£20.7bn Â£20.8bn Key Facts Number of branches 749 718 Number of ATMs 7,053 5,835 Number of retail customers 8.3m 7.6m Number of corporate customers 84,000 79,000 (1) For 2005, this reflects the period from 27th July until 31st December 2005. International Retail and Commercial Banking - Absa profit before tax increased 134% to Â£698m (2005: Â£298m) reflecting the full year to 31st December 2006 compared with the five months ended 31st December 2005. Barclays acquired a controlling stake in Absa Group Limited on 27th July 2005. Appendix 1 on page 94 summarises the Rand results of Absa Group Limited for the year to 31st December 2006 as reported to the Johannesburg Stock Exchange, and their impact in Sterling on the consolidated results of Barclays. In the commentary below, the comparable period referred to, for illustrative purposes only, is the proforma full year to 31st December 2005 and is based on performance in Rand. Absa Group Limited's profit before tax increased 24% reflecting a very good performance from banking operations, with retail, corporate and business banking operations performing exceptionally well. Absa Group Limited delivered a return on equity of 27.4% (2005: 25.6%). Key factors impacting the results included very strong asset growth, strong revenue growth, an increased credit impairment charge, the realisation of synergies from leveraging Barclays expertise and economies of scale and the sale of non-core operations. The South African economy continued to expand at a solid pace with real growth expected to be about 4.9% for 2006 (2005: 5.1%). Net interest income grew 27%. Loans and advances to customers increased 26% underpinned by very strong growth in mortgages, credit cards and commercial property finance. Non-interest income increased 12% reflecting higher transaction volumes, strong growth in insurance related earnings and gains on asset sales. As expected the impairment charge on loans and advances increased from the very low levels of the prior year, particularly in Absa Home Loans, Absa Card and Retail Banking Services. Operating expenses increased 14% resulting from increased investment in the business in order to support continued growth in volumes and customers. Excellent progress was made with the realisation of synergy benefits. In 2006 synergies of R753m were delivered, in excess of the target originally communicated for the year. Integration costs for the period were in line with expectations. Impact on Barclays results(1) Absa Group Limited's profit before tax of R11,417m is translated into Barclays results at an average exchange rate for 2006 of R12.47/Â£ (2005: R11.57/Â£). Consolidation adjustments reflected the amortisation of intangible assets of Â£75m and internal funding and other adjustments of Â£72m. The resulting profit before tax of Â£769m (2005: Â£337m) is represented with International Retail and Commercial Banking - Absa Â£698m, (2005: Â£298m) and Barclays Capital, Â£71m (2005: Â£39m). Absa Group Limited's total assets at 31st December 2006 were R495,112m (31st December 2005: R404,561m), growth of 22%. This is translated into Barclays results at a year-end exchange rate of R13.71/Â£ (31st December 2005: R10.87/Â£). The consolidation of total assets reflected the impact of the 21% depreciation in the Rand largely offsetting the growth in the Rand balance sheet. (1) For 2005, this reflects the period from 27th July until 31st December 2005. Barclays Capital 2006 2005 Â£m Â£m Net interest income 1,158 1,065 Net fee and commission income 952 776 -------- -------- Net trading income 3,562 2,231 Net investment income 573 413 -------- -------- Principal transactions 4,135 2,644 Other income 22 20 -------- -------- Total income 6,267 4,505 Impairment charges (42) (111) -------- -------- Net income 6,225 4,394 -------- -------- Operating expenses excluding amortisation of intangible assets (3,996) (2,961) Amortisation of intangible assets (13) (2) -------- -------- Operating expenses (4,009) (2,963) -------- -------- Profit before tax 2,216 1,431 -------- -------- Cost:income ratio 64% 66% Cost:net income ratio 64% 67% Compensation:net income ratio 49% 51% Average DVaR Â£37.1m Â£32.0m Risk Tendency Â£95m Â£110m Return on average economic capital 41% 34% Average net income generated per member of staff ('000) Â£560 Â£498 Economic profit Â£1,181m Â£706m 2006 2005 Total assets Â£657.9bn Â£601.2bn Risk weighted assets Â£137.6bn Â£116.7bn Corporate lending portfolio Â£40.6bn Â£40.1bn Key Facts 2006 2005 League League table Issuance table Issuance position value position value All international bonds (all currencies) 1st US$271.9bn 2nd US$183.6bn Sterling bonds 1st Â£27.3bn 1st Â£23.0bn International securitisations 2nd US$53.2bn 1st US$36.8bn US investment grade corporate bonds 7th US$6.0bn 5th US$9.9bn Barclays Capital delivered record profit before tax and net income. Profit before tax increased 55% (Â£785m) to Â£2,216m (2005: Â£1,431m). This was the result of a very strong income performance, driven by higher business volumes, continued growth in client activity and favourable market conditions. Net income increased 42% (Â£1,831m) to Â£6,225m (2005: Â£4,394m). Profit before tax for Absa Capital was Â£71m (2005(1): Â£39m). Excluding Absa Capital, profit before tax increased 54%. Income increased 39% (Â£1,762m) to Â£6,267m (2005: Â£4,505m) as a result of very strong growth across the Rates, Credit and Private Equity businesses. Income increased in all geographic regions with significant contributions outside the UK from the US, continental Europe and Asia. The top line performance reflected returns from past investments and the strength of the global client franchise. Average DVaR increased 16% to Â£37.1m (2005: Â£32.0m) significantly below the rate of income growth. Secondary income, comprising principal transactions (net trading income and net investment income) and net interest income, is mainly generated from providing client financing and risk management solutions. Secondary income increased 43% (Â£1,584m) to Â£5,293m (2005: Â£3,709m). Net trading income increased 60% (Â£1,331m) to Â£3,562m (2005: Â£2,231m) with very strong contributions across the Rates and Credit businesses, in particular commodities, fixed income, equities, credit derivatives and emerging markets. The performance was driven by higher volumes of client led activity and favourable market conditions. Net investment income increased 39% (Â£160m) to Â£573m (2005: Â£413m) driven by investment realisations, primarily in Private Equity, offset by reduced contributions from credit products. Net interest income increased 9% (Â£93m) to Â£1,158m (2005: Â£1,065m) driven by a full year contribution from Absa Capital. Corporate lending remained flat at Â£40.6bn (2005: Â£40.1bn). Primary income, which comprises net fee and commission income from advisory and origination activities, grew 23% (Â£176m) to Â£952m (2005: Â£776m). This reflected higher volumes and continued market share gains in a number of key markets, with strong contributions from issuances in bonds, European leveraged loans and convertibles. Impairment charges of Â£42m (2005: Â£111m), including impairment on available for sale assets of Â£83m (2005: nil), were 62% lower than prior year reflecting recoveries and the continued benign wholesale credit environment. Operating expenses increased 35% (Â£1,046m) to Â£4,009m (2005: Â£2,963m), reflecting higher performance related costs, increased levels of activity and continued investment across the business. The cost:net income ratio improved to 64% (2005: 67%) and the compensation to net income ratio improved to 49% (2005: 51%). Performance related pay, discretionary investment spend and short-term contractor resource costs represented 50% of operating expenses (2005: 46%). Amortisation of intangible assets principally relates to mortgage service rights obtained as part of the purchase of HomEq, a US mortgage servicing business acquired on 1st November 2006. Total headcount increased 3,300 during 2006 to 13,200 (2005: 9,900) and included 1,300 from the acquisition of HomEq. Organic growth was broadly based across all regions and reflected further investments in the front office, systems development and control functions to support continued business expansion. (1) For 2005, this reflects the period from 27th July until 31st December 2005. Barclays Global Investors 2006 2005 Â£m Â£m Net interest income 10 15 Net fee and commission income 1,651 1,297 -------- -------- Net trading income 2 2 Net investment income 2 4 -------- -------- Principal transactions 4 6 -------- -------- Total income 1,665 1,318 -------- -------- Operating expenses excluding amortisation of intangible assets (946) (775) Amortisation of intangible assets (5) (4) -------- -------- Operating expenses (951) (779) Share of post-tax results of associates and joint ventures - 1 -------- -------- Profit before tax 714 540 -------- -------- Cost:income ratio 57% 59% Average income generated per member of staff ('000) Â£666 Â£628 Return on average economic capital 228% 248% Economic profit Â£376m Â£299m 2006 2005 Total assets Â£80.5bn Â£80.9bn Risk weighted assets Â£1.4bn Â£1.5bn Key Facts Assets under management (Â£): Â£927bn Â£881bn -------- -------- -indexed Â£566bn Â£570bn -iShares Â£147bn Â£113bn -active Â£214bn Â£198bn -------- -------- Net new assets in period (Â£) Â£37bn Â£48bn Assets under management (US$): US$1,814bn US$1,513bn -------- -------- -indexed US$1,108bn US$980bn -iShares US$287bn US$193bn -active US$419bn US$340bn -------- -------- Net new assets in period (US$) US$68bn US$88bn Number of iShares products 191 149 Number of institutional clients 2,900 2,800 Barclays Global Investors delivered another year of outstanding results. Profit before tax increased 32% (Â£174m) to Â£714m (2005: Â£540m), reflecting very strong income growth and higher operating margins. The performance was broadly based across products, distribution channels and geographies. Net fee and commission income increased 27% (Â£354m) to Â£1,651m (2005: Â£1,297m). This growth was attributable to increased management fees, particularly in the iShares and active businesses, and securities lending, offset by lower incentive fees. Incentive fees decreased 9% (Â£18m) to Â£186m (2005: Â£204m). Higher asset values, driven by higher market levels and good net new inflows, contributed to the growth in income. Operating expenses increased 22% (Â£172m) to Â£951m (2005: Â£779m) as a result of significant investment in key growth initiatives, ongoing investment in product development and infrastructure and higher performance-based expenses. The cost: income ratio improved two percentage points to 57% (2005: 59%). Total headcount rose 400 to 2,700 (2005: 2,300). Headcount increased in all regions, across product groups and the support functions, reflecting continued investment to support strategic initiatives. Total assets under management increased 5% (Â£46bn) to Â£927bn (2005: Â£881bn) primarily due to net new inflows of Â£37bn. The positive market move impact of Â£98bn was largely offset by Â£89bn of adverse exchange rate movements. In US$ terms assets under management increased by US$301bn to US$1,814bn (2005: US$1,513bn), comprising US$68bn of net new assets, US$177bn of favourable market movements and US$56bn of positive exchange rate movements. Barclays Wealth 2006 2005 Â£m Â£m Net interest income 366 329 Net fee and commission income 665 589 -------- -------- Net trading income - - Net investment income - 5 -------- -------- Principal transactions - 5 Other income 5 (1) -------- -------- Total income 1,036 922 Impairment charges (2) (2) -------- -------- Net income 1,034 920 -------- -------- Operating expenses excluding amortisation of intangible assets (817) (752) Amortisation of intangible assets (4) (2) -------- -------- Operating expenses (821) (754) -------- -------- Profit before tax 213 166 -------- -------- Cost:income ratio 79% 82% Cost:net income ratio 79% 82% Risk Tendency Â£10m Â£5m Return on average economic capital 48% 38% Average net income generated per member of staff ('000) Â£138 Â£128 Economic profit Â£144m Â£109m 2006 2005 Customer accounts Â£25.2bn Â£23.1bn Loans and advances to customers Â£5.7bn Â£4.7bn Total assets Â£7.3bn Â£6.1bn Risk weighted assets Â£5.7bn Â£4.1bn Key Fact Total client assets Â£93.0bn Â£78.3bn Barclays Wealth profit before tax showed very strong growth of 28% (Â£47m) to Â£213m (2005: Â£166m). Performance was driven by broadly based income growth and favourable market conditions. This was partially offset by additional volume related costs and a significant increase in investment in people and infrastructure to support future growth. Income increased 12% (Â£114m) to Â£1,036m (2005: Â£922m). Net interest income increased 11% (Â£37m) to Â£366m (2005: Â£329m) reflecting growth in both customer deposits and customer lending. Average customer deposits grew 6% (Â£1.3bn) to Â£24.7bn (2005: Â£23.4bn). Average loans to customers grew 16% to Â£5.1bn (2005: Â£4.4bn), driven by increased lending to offshore and private banking clients. Asset and liability margins were higher relative to 2005. Net fee and commission income increased 13% (Â£76m) to Â£665m (2005: Â£589m). This reflected growth in client assets and higher transactional income, including increased sales of investment products to private banking and financial planning clients, and higher stockbroking volumes. Operating expenses increased 9% (Â£67m) to Â£821m (2005: Â£754m) with greater volume related and investment costs more than offsetting efficiency gains. Investment costs included increased hiring of client facing staff and improvements to infrastructure with the upgrade of technology and operations platforms. The cost:income ratio improved three percentage points to 79% (2005: 82%). Total client assets, comprising customer deposits and client investments, increased 19% (Â£14.7bn) to Â£93.0bn (2005: Â£78.3bn) reflecting good net new asset inflows and favourable market conditions. Multi-Manager assets increased 68% (Â£4.1bn) to Â£10.1bn (2005: Â£6.0bn); this growth included transfers of existing client assets. Barclays Wealth-closed life assurance activities 2006 2005 Â£m Â£m Net interest income (8) (14) Net fee and commission income 50 44 -------- -------- Net trading income 2 - Net investment income 154 259 -------- -------- Principal transactions 156 259 Net premiums from insurance contracts 210 195 Other income 11 11 -------- -------- Total income 419 495 Net claims and benefits on insurance contracts (288) (375) -------- -------- Total income net of insurance claims 131 120 Operating expenses (109) (127) -------- -------- Profit/(loss) before tax 22 (7) -------- -------- Cost:income ratio 83% 106% Return on average economic capital (22)% (3)% Economic loss (Â£18m) (Â£7m) 2006 2005 Total assets Â£7.6bn Â£7.3bn Barclays Wealth - closed life assurance activities profit before tax was Â£22m (2005: loss Â£7m). The improvement was mostly due to lower funding costs and reduced customer redress costs in 2006. Profit before tax excluding customer redress costs was Â£89m (2005: Â£78m). Income grew 9% (Â£11m) to Â£131m (2005: Â£120m) principally due to reduced funding costs. Operating expenses decreased to Â£109m (2005: Â£127m). Costs relating to redress for customers decreased to Â£67m (2005: Â£85m) whilst other operating expenses remained steady at Â£42m (2005: Â£42m). Head office functions and other operations 2006 2005 Â£m Â£m Net interest income 80 160 Net fee and commission income (359) (398) -------- -------- Net trading income 40 85 Net investment income 2 8 -------- -------- Principal transactions 42 93 Net premiums from insurance contracts 197 146 Other income 39 24 -------- -------- Total income (1) 25 Impairment releases/(charges) 11 (1) -------- -------- Net income 10 24 -------- -------- Operating expenses excluding amortisation of intangible assets (259) (343) Amortisation of intangible assets (10) (4) -------- -------- Operating expenses (269) (347) -------- -------- Loss before tax (259) (323) -------- -------- Risk Tendency Â£10m Â£25m 2006 2005 Total assets Â£7.1bn Â£9.3bn Risk weighted assets Â£1.9bn Â£4.0bn Head office functions and other operations loss before tax decreased Â£64m to Â£259m (2005: loss Â£323m). Net interest income decreased Â£80m to Â£80m (2005: Â£160m) reflecting a reduction in net interest income in Treasury following the acquisition of Absa Group Limited. Treasury's net interest income also included the hedge ineffectiveness for the period, which together with other related Treasury adjustments amounted to a gain of Â£11m (2005: Â£18m) and the cost of hedging the foreign exchange risk on the Group's equity investment in Absa, which amounted to Â£71m (2005: Â£37m). Group segmental reporting is performed in accordance with Group accounting policies. This means that inter-segment transactions are recorded in each segment as if undertaken on an arm's length basis. Adjustments necessary to eliminate the inter-segment transactions are included in Head office functions and other operations. The impact of such inter-segment adjustments reduced Â£72m to Â£147m (2005: Â£219m). These adjustments related to internal fees for structured capital market activities of Â£87m (2005: Â£67m) and fees paid to Barclays Capital for capital raising and risk management advice of Â£16m (2005: Â£39m), both of which reduce net fees and commission income. In addition the impact of the timing of the recognition of insurance commissions included in Barclaycard and UK Retail Banking reduced to Â£44m (2005: Â£113m). This reduction was reflected in a decrease in net fee and commission income of Â£242m (2005: Â£258m) and an increase in net premium income of Â£198m (2005: Â£145m). Principal transactions decreased Â£51m to Â£42m (2005: Â£93m). 2005 included hedging related gains in Treasury of Â£80m. 2006 included Â£55m (2005: Â£nil) in respect of the economic hedge of the translation exposure arising from Absa foreign currency earnings. The impairment charge improved Â£12m to a release of Â£11m (2005: Â£1m charge) as a number of workout situations were resolved. Operating expenses decreased Â£78m to Â£269m (2005: Â£347m) primarily due to the expenses of the 2005 Head office relocation to Canary Wharf not recurring in 2006 (2005: Â£105m) and the gains of Â£26m (2005: Â£nil) from the sale and leaseback of property offset by increased costs, principally driven by major project expenditure including work related to implementing Basel II. More to follow This information is provided by RNS The company news service from the London Stock Exchange

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Friday, 6th September 2024

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A quiet end to the week but investment company CEPS sees shares jump as capital returns are mooted, Invinity Energy drops after orders deferred to FY25 and Vistry hands back some of Thursday’s bumper gains.

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