Final Results - Part 2

Barclays PLC 21 February 2006 PART 2 BARCLAYS PLC FINANCIAL REVIEW Results by nature of income and expense Net interest income 2005 2004(1) Interest income(2) Â£m Â£m Cash and balances with central banks 9 4 Financial instruments 2,272 - Debt securities - 2,597 Loans and advances to banks 690 957 Loans and advances to customers 12,944 10,312 Other 1,317 10 -------- -------- 17,232 13,880 -------- -------- Interest expense(2) Deposits from banks (2,056) (1,535) Customer accounts (2,715) (2,053) Debt securities in issue (3,268) (1,569) Subordinated liabilities (605) (692) Other (513) (1,198) -------- -------- (9,157) (7,047) -------- -------- Net interest income 8,075 6,833 -------- -------- Group net interest income increased 18% (Â£1,242m) to Â£8,075m (2004: Â£6,833m). The inclusion of Absa added net interest income of Â£514m in the second half of 2005. Group net interest income excluding Absa grew 11% reflecting growth in average balances across all businesses. Growth in net interest income was strongest in UK Banking, particularly reflecting the growth in UK Business Banking average lending and deposit balances. Net interest income also improved in Barclaycard and International Retail and Commercial Banking as a result of strong growth in balances. In 2005, interest income relating to reverse repurchase agreements has been included within other interest income. In 2004, such income was classified within the loans and advances to banks and the loans and advances to customers categories. Expenditure relating to repurchase agreements has been treated accordingly and is included within other interest expense. In 2004 the expenditure was included within deposits from banks and customer accounts. A component of the benefit of free funds included in Group net interest income is the structural hedge which functions to reduce the impact of the volatility of short-term interest rate movements. The contribution of the structural hedge has decreased to Â£145m (2004: Â£304m), largely due to the impact of higher short-term interest rates and lower medium-term rates. The reduced contribution from the structural hedge has impacted the interest earned on shareholders' funds and reported liability margins. Interest income includes Â£76m accrued on impaired loans, reflecting the application of IAS 32. (1) Does not include IAS 32, IAS 39 or IFRS 4. Financial instruments are measured in accordance with UK GAAP. Further explanation is provided on page 9. (2) Following application of IAS 32 and IAS 39 there are a number reclassifications, which affect the year on year comparisons of interest income and expense: - Certain lending related fees and commissions transferred to net interest income. - The interest expense of certain capital instruments transferred to minority interests. Business margins(1) 2005 2004 % % UK Retail Banking assets 0.87 0.73 UK Retail Banking liabilities 1.98 2.14 UK Business Banking assets 1.84 1.55 UK Business Banking liabilities 1.37 1.51 Wealth Management assets 0.99 0.97 Wealth Management liabilities 1.04 1.07 Barclaycard assets 6.59 6.84 -------- -------- Barclaycard assets - cards 7.96 7.34 Barclaycard assets - loans 4.96 6.27 -------- -------- International Retail and Commercial Banking assets - ex Absa 1.51 1.75 International Retail and Commercial Banking liabilities - ex Absa 1.49 1.43 International Retail and Commercial Banking assets - Absa(2) 2.02 - International Retail and Commercial Banking liabilities - Absa(2) 1.42 - UK Retail Banking assets margin increased 14 basis points to 0.87% (2004: 0.73%). The application of IAS 32 and IAS 39 increased the assets margin by 3 basis points. The higher assets margin reflected improved mortgage margins and higher contributions from Personal Customer overdrafts and Small Business loans. The UK Retail Banking liabilities margin decreased by 16 basis points to 1.98% (2004: 2.14%), reflecting an 8 basis point impact from the reduced contribution from the structural hedge, and competition for retail savings and deposits. The movements in both the assets and liabilities margins partly reflect changes in UK base rates. UK Business Banking assets margin increased 29 basis points to 1.84% (2004: 1.55%). The application of IAS 32 and IAS 39 had a significant effect on the UK Business Banking assets margin for 2005, increasing it by 32 basis points. Excluding the impact of IAS 32 and IAS 39 the asset margin was broadly stable. UK Business Banking liabilities margin decreased 14 basis points to 1.37% (2004: 1.51%), principally reflecting a 10 basis point impact from the reduced contribution from the structural hedge. Wealth Management assets margin increased slightly by 2 basis points to 0.99% (2004: 0.97%). The application of IAS 32 and IAS 39 did not impact the assets margin. Wealth Management liabilities margin decreased modestly by 3 basis points to 1.04% (2004: 1.07%). Excluding the reduced contribution from the structural hedge, underlying margins were firmer. Barclaycard cards margin increased 62 basis points to 7.96% (2004: 7.34%). The application of IAS 32 and IAS 39 increased the cards margin by 10 basis points. Margins in the cards business improved due to the impact of increased card rates and the roll off of promotional rate balances throughout 2005. Barclaycard loans margin decreased 131 basis points to 4.96% (2004: 6.27%). The application of IAS 32 and IAS 39 reduced the loans margin by 60 basis points. Margins in the loans business also reduced due to competitive pressures and a change in the product mix with a higher weighting to secured loans. (1) The margin is expressed as annualised divisional interest over average balance. Asset and liability margins cannot be added together as they are relative to the average Bank of England base rate or local equivalent for international businesses or the rate managed by the Group using derivatives. 2005 figures are not strictly comparable to those in 2004 with the application of IAS 32 and IAS 39 from 1st January 2005 affecting the assets margin. (2) Absa's margin is five months annualised. International Retail and Commercial Banking excluding Absa assets margin decreased 24 basis points to 1.51% (2004: 1.75%) The application of IAS 32 and IAS 39 increased the assets margin for 2005 by 5 basis points. Excluding the impact of IAS 32 and IAS 39, the assets margin reduction reflected the impact of a change in mix as a result of growth in mortgage assets in Europe and competitive pressures. International Retail and Commercial Banking excluding Absa liabilities margin increased 6 basis points to 1.49% (2004: 1.43%). International Retail and Commercial Banking Absa assets margin of 2.02% remained broadly stable over the period since acquisition. The liabilities margin of 1.42% declined modestly over the period. Net fee and commission income 2005 2004 Â£m Â£m Fee and commission income 6,430 5,509 Fee and commission expense (725) (662) -------- -------- Net fee and commission income 5,705 4,847 -------- -------- Net fee and commission income increased 18% (Â£858m) to Â£5,705m (2004: Â£4,847m) reflecting good growth across all businesses. The inclusion of Absa increased net fee and commission income by Â£334m in the second half of 2005. Group net fee and commission income excluding Absa grew 11%. Excluding the application of IAS 32 and IAS 39 net fee and commission income increased 20%. Fee and commission income rose 17% (Â£921m) to Â£6,430m (2004: Â£5,509m). The inclusion of Absa increased fee and commission income by Â£386m. Excluding Absa, fee and commission income grew by 10%. The growth was driven by Barclays Global Investors, reflecting strong growth in net new assets, strong investment performance and higher market levels, and Barclays Capital as a result of increased business volumes and higher market share. In addition, Barclaycard fee and commission income increased as a result of higher contributions from Barclaycard Business and FirstPlus and the inclusion of Barclaycard US for the full year. Fee and commission expense increased 10% (Â£63m) to Â£725m (2004: Â£662m), largely reflecting the inclusion of Absa which added Â£52m. Total foreign exchange income was Â£648m (2004: Â£520m) and consisted of revenues earned from both retail and wholesale activities. The foreign exchange income earned on customer transactions by UK Retail Banking, UK Business Banking, International Retail and Commercial Banking, Barclaycard, Barclays Global Investors and Wealth Management, both externally and with Barclays Capital, is reported in those respective business units, within fee and commission income. The foreign exchange income earned in Barclays Capital is reported within trading income. Principal transactions 2005 2004 Â£m Â£m Net trading income Rates related business 1,732 1,141 Credit related business 589 346 -------- -------- 2,321 1,487 -------- -------- Net investment income Cumulative gain from disposal of available for sale assets/investment securities 120 45 Dividend income 22 17 Net income from financial instruments designated at fair value 389 - Income from assets backing insurance policies(1) - 717 Other investment income 327 248 -------- -------- 858 1,027 -------- -------- Principal transactions 3,179 2,514 -------- -------- Most of the Group's trading income is generated in Barclays Capital. Net trading income increased 56% (Â£834m) to Â£2,321m (2004: Â£1,487m) due to strong performances across Barclays Capital Rates and Credit businesses, in particular from commodities, foreign exchange, fixed income and credit derivatives. This was 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. Group net trading income excluding Absa grew 55%. Net investment income decreased 16% (Â£169m) to Â£858m (2004: Â£1,027m). The inclusion of Absa increased net investment income by Â£62m in the second half of 2005. Group net investment income excluding Absa decreased 22%. Following the application of IAS 39 at 1st January 2005, certain assets and liabilities have been designated at fair value. Fair value movements on these items have been reported within net trading income or within net investment income depending on the nature of the transaction. Fair value movements on insurance assets included within net investment income contributed Â£317m. (1) From 1st January 2005, investment and insurance contracts are separately accounted for in accordance with IAS 39 and IFRS 4. This has resulted in investment income and the corresponding movement in investment contract liabilities being presented on a net basis within other income. In 2004, all contracts were accounted for as insurance contracts and the gross income relating to these contracts was reported as income from assets backing insurance policies. Net premiums from insurance contracts 2005 2004 Â£m Â£m Gross premiums from insurance contracts 909 1,069 Premiums ceded to reinsurers (37) (27) -------- -------- Net premiums from insurance contracts 872 1,042 -------- -------- The application of IAS 39 and IFRS 4 in 2005 has affected year on year comparatives of insurance results. These standards change the basis of recognition for insurance premiums, claims and insurance contract liability movements (together reported as net claims and benefits) and also of investment management fees on unit linked products. IFRS 4 requires preparers to distinguish portfolios with the legal form of insurance contracts between those that contain significant insurance risk and those that are largely investment in nature. The change in accounting for investment contracts resulted in a substantial decline in reported net premiums from insurance contracts in the Wealth Management - closed life assurance activities and International Retail and Commercial Banking businesses. There is a corresponding decline in net claims and benefits paid on insurance contracts. Other income 2005 2004 Â£m Â£m Increase in fair value of assets held in respect of linked liabilities to customers under investment contracts 9,234 - Increase in liabilities held in respect of linked liabilities to customers under investment contracts (9,234) - Property rentals 54 46 Other income 93 85 -------- -------- 147 131 -------- -------- In accordance with IAS 39, from 1st January 2005 certain asset management products offered to institutional clients by Barclays Global Investors are recognised as investment contracts. This results in a substantial increase in the fair value of assets held in respect of linked liabilities to customers under investment contracts and in the related liabilities. Net claims and benefits paid on insurance contracts 2005 2004 Â£m Â£m Gross claims and benefits paid on insurance contracts 694 1,275 Reinsurers' share of claims paid (49) (16) -------- -------- Net claims and benefits paid on insurance contracts 645 1,259 -------- -------- The change in accounting for investment contracts results in a substantial decline in reported net claims and benefits paid on insurance contracts in Wealth Management - closed life assurance activities and International Retail and Commercial Banking. There is a corresponding decline in net premiums from insurance contracts. Impairment charge and other credit provisions 2005 2004 Â£m Â£m Impairment charges The charges for the period in respect of impairment for loans and advances comprise: - New and increased 2,129 1,755 - Releases (333) (396) - Recoveries (222) (255) -------- -------- Total impairment charges for loans and advances 1,574 1,104 Impairment on available for sale assets 4 - Other credit provisions Charges for the period in respect of provision for undrawn contractually committed facilities and guarantees provided (7) (11) -------- -------- Total impairment charge and other credit provisions 1,571 1,093 -------- -------- Period-on-period comparison is affected by the adoption of IAS 39 on 1st January 2005, which has changed the absolute value and calculation basis of the impairment charges and Potential Credit Risk Loans (PCRLs). In addition, following the adoption of IAS 39 on 1st January 2005 wholesale and corporate charges now include the impairment of private equity investments. Total impairment charges and other credit provisions increased 44% (Â£478m) 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%. In the UK pressure on household cashflows due to a range of factors and the high level of household indebtedness have led to a greater strain on personal budgets. This has resulted in a deterioration in consumer credit quality which has been evident from higher average delinquency balances and shorter periods between delinquency and charge-off. Smaller business customers have also shown some limited deterioration in credit quality. Wholesale and corporate credit conditions remained steady. In other key markets for the Group, the US consumer and corporate credit markets remained robust while the consumer and SME markets in Iberia remained well underpinned by strong economic growth. In South Africa good economic growth has led to buoyant domestic demand for credit, whilst rising retail debt:income ratios were underpinned by growth in household income and low interest rates. As a result of an increase in impairment charges to the retail portfolios, and to a lesser extent in the wholesale and corporate portfolios, the impairment charges for the Group (excluding Absa) for the full-year were Â£1,551m (2004: Â£1,093m). Impairment charges excluding Absa amounted to 0.57% (2004: 0.48%), as a percentage of period-end total non-trading loans and advances. Retail impairment charges, excluding Absa, increased to Â£1,235m (2004: Â£811m), accounting for just under 80% of the Group's impairment charges. Excluding Absa, retail impairment charges amounted to 1.05% (2004: 0.72%) of the period-end total non-trading loans and advances. The increase was predominantly in the UK cards and consumer loans portfolios. In the wholesale and corporate businesses, excluding Absa, impairment charges increased to Â£323m (2004: Â£282m). The increase occurred largely in UK Business Banking and reflected the fact that the 2004 results included a large one-off recovery of Â£57m. Underlying impairment charges excluding this item were broadly flat. Wholesale and corporate impairment charges, excluding Absa, were 0.21% (2004: 0.25%) of period-end total non-trading loans and advances. Absa's impairment charge of Â£20m for the five month period was low in a benign credit environment and also reflected a reduction in the number and value of non-performing loans and a higher level of releases and recoveries. Impairment charges by their very nature are subject to exceptional increases, releases and recoveries from time to time. The presence of such items means that the movements in the impairment charge from one period to another will differ from the movement in the underlying trend. In 2004, the credit loss was reduced by a number of one-off items, including an exceptional recovery of Â£57m in UK Business Banking and a release of mortgage provisions of Â£40m (2005: release Â£10m) in UK Retail Banking. Operating expenses excluding amortisation of intangible assets 2005 2004 Â£m Â£m Staff costs (refer to page 52) 6,318 5,227 Administrative expenses 3,443 2,766 Depreciation 362 297 Impairment loss - intangible assets 9 9 Operating lease rentals 316 215 ------ ------ Operating expenses excluding amortisation of intangible assets 10,448 8,514 ------ ------ Operating expenses increased 23% (Â£1,934m) to Â£10,448m (2004: Â£8,514m). The inclusion of Absa added operating expenses of Â£622m to the second half of 2005. Group operating expenses excluding Absa grew 15% reflecting higher business activity. Administrative expenses increased 24% (Â£677m) to Â£3,443m (2004: Â£2,766m). The inclusion of Absa added administrative expenses of Â£257m in the second half of 2005. Group administrative expenses excluding Absa grew 15% principally as a result of higher business activity in Barclays Capital and Barclays Global Investors and the inclusion of Barclaycard US for the full year. There was a strong focus on cost control across the business, with particularly good results in UK Retail Banking. Administrative expenses included non-recurring costs relating to the write down of capitalised IT related assets held centrally of Â£60m (2004: Â£nil). Impairment losses of Â£9m (2004: Â£9m) reflected a further charge for the impairment of certain capitalised IT related assets following a review of their likely future economic benefit. Operating lease rentals increased 47% (Â£101m) to Â£316m (2004: Â£215m). The inclusion of Absa added operating lease rentals of Â£27m in the second half of 2005. Operating lease rentals excluding Absa increased primarily as a consequence of the double occupancy costs associated with the head office relocation to Canary Wharf. The Group cost:income ratio remained steady at 61%. This reflected improved productivity in UK Banking, Barclays Global Investors and Wealth Management; and a stable performance by International Retail and Commercial Banking, offset by an increase in non-recurring operating expenses in head office and other functions. The Group cost:net income ratio was 67% (2004: 66%). Amortisation of intangible assets 2005 2004 Â£m Â£m Internally generated software 20 19 Other software 3 - Brands 9 - Customer lists and relationships 27 - Licences 13 3 Core deposit intangibles 7 - -------- -------- Amortisation of intangible assets 79 22 -------- -------- The increase in the amortisation of intangible assets primarily reflects the inclusion of Absa in the second half of 2005. Staff costs 2005 2004 Â£m Â£m Salaries and accrued incentive payments 5,036 4,098 Social security costs 412 339 Pension costs - defined contribution plans 76 92 - defined benefit plans 271 235 Other post retirement benefits 27 29 Other 496 434 -------- -------- Staff costs 6,318 5,227 -------- -------- Included in salaries and accrued incentive payments is Â£338m (2004: Â£204m) arising from equity settled share based payments. Staff costs increased 21% (Â£1,091m) to Â£6,318m (2004: Â£5,227m). The inclusion of Absa added staff costs of Â£296m during the second half of the year. Excluding the impact of Absa, staff costs increased 15%. Salaries and accrued incentive payments rose 23% (Â£938m) to Â£5,036m (2004: Â£4,098m), principally due to increased headcount in Barclays Capital and performance related payments primarily in Barclays Capital and Barclays Global Investors and the inclusion of Absa. Excluding Absa salaries and accrued incentive payments rose 16% (Â£662m). Pension costs comprise all UK and international pension schemes. Included in pension costs is a charge of Â£276m (2004: Â£261m) in respect of the Group's main UK pension schemes. Staff numbers 2005 2004 UK Banking 39,900 41,800 -------- -------- UK Retail Banking 31,900 34,400 UK Business Banking 8,000 7,400 -------- -------- Barclays Capital 9,000 7,800 Barclays Global Investors 2,300 1,900 Wealth Management 7,200 7,200 Barclaycard 7,800 6,700 International Retail and Commercial Banking 46,200 12,100 -------- -------- International Retail and Commercial Banking - ex Absa 12,700 12,100 International Retail and Commercial Banking - Absa 33,500 - -------- -------- Head office functions and other operations 900 900 -------- -------- Total Group permanent and fixed term contract staff worldwide 113,300 78,400 Agency staff worldwide 7,000 4,300 -------- -------- Total including agency staff 120,300 82,700 -------- -------- Staff numbers are shown on a full-time equivalent basis. Total Group permanent and contract staff comprise 59,100 (2004: 60,000) in the UK and 54,200 (2004: 18,400) internationally. Since 2004 permanent and contract staff numbers increased by 34,900, primarily as a result of the acquisition of Absa Group Limited, offset in part by the implementation of restructuring programmes resulting in a decrease of 2,400 staff. UK Banking staff numbers fell by 1,900 to 39,900 (2004: 41,800), reflecting the cost management programme in UK Retail Banking partially offset by an increase in UK Business Banking frontline staff and the inclusion of 200 Iveco Finance staff. Barclays Capital staff numbers rose by 1,200 to 9,000 (2004: 7,800), reflecting the continued expansion of the business. Barclays Global Investors increased staff numbers by 400 to 2,300 to support strategic initiatives (2004: 1,900). Barclaycard staff numbers rose by 1,100 to 7,800 (2004: 6,700), reflecting growth of 300 in Barclaycard US, an increase of 200 in other international operations and growth in customer facing staff in the UK. International Retail and Commercial Banking increased staff numbers by 34,100, primarily due to the inclusion of 33,500 Absa staff. International Retail and Commercial Banking excluding Absa increased staff numbers by 600 to 12,700 (2004: 12,100), mainly due to growth in continental Europe, including over 100 from the acquisition of the ING Ferri business in France. Head office functions and other operations staff numbers remained stable at 900 (2004: 900). The increase in agency staff worldwide largely reflects the inclusion of 3,300 temporary staff at Absa. The number of staff under notice at 31st December 2005, was 2,400. Share of post-tax results of associates and joint ventures 2005 2004 Â£m Â£m Loss from joint ventures (8) - Profit from associates 53 56 -------- -------- Share of post-tax results of associates and joint ventures 45 56 -------- -------- The share of post-tax results of associates and joint ventures fell 20% (Â£11m) to Â£45m (2004: Â£56m). A stronger underlying performance by FirstCaribbean in 2005 was more than offset by the impact of a gain in 2004 relating to the sale of shares held in Republic Bank Ltd (Barclays share Â£28m). Losses from joint ventures primarily related to Intelligent Processing Systems Limited, a cheque processing joint venture in the UK. Tax The charge for the period is based upon a UK corporation tax rate of 30% for the calendar year 2005 (full-year 2004: 30%). The effective rate of tax for 2005 was 27% (2004: 28%). This is lower than the standard rate due to the beneficial effects of lower tax on certain overseas income and certain non-taxable gains. The tax charge for the year includes Â£961m (2004: Â£1,028m) arising in the UK and Â£478m (2004: Â£251m) arising overseas. Profit attributable to minority interests 2005 2004 Â£m Â£m International Retail and Commercial Banking - Absa minority interests 116 - Preference shares 113 2 Reserve capital instruments 93 - Upper tier 2 instruments 11 - Barclays Global Investors minority interests 41 22 Other minority interests 20 23 -------- -------- Profit attributable to minority interests 394 47 -------- -------- Profit attributable to minority interests increased due to the acquisition of Absa, the inclusion of certain capital instruments within minority interests in accordance with IAS 39 and an increase in the preference share capital of subsidiary undertakings. Earnings per share 2005 2004 Profit attributable to equity holders of the parent Â£3,447m Â£3,254m Dilutive impact of convertible options Â£(38)m Â£(16)m -------- -------- Profit attributable to equity holders of the parent including Â£3,409m Â£3,238m dilutive impact of convertible options -------- -------- Basic weighted average number of shares in issue 6,337m 6,381m Number of potential ordinary shares(1) 149m 124m -------- -------- Diluted weighted average number of shares 6,486m 6,505m -------- -------- p p Basic earnings per ordinary share 54.4 51.0 Diluted earnings per ordinary share 52.6 49.8 Dividends on ordinary shares The Board has decided to pay, on 28th April 2006, a final dividend for the year ended 31st December 2005 of 17.4p per ordinary share, for shares registered in the books of the Company at the close of business on 3rd March 2006. Shareholders who have their dividends paid direct to their bank or building society account will receive a consolidated tax voucher detailing the dividends paid in the 2005 - 2006 tax year in mid-October 2006. The amount payable for the 2005 final dividend is Â£1,105m (2004: Â£1,001m). This amount excludes Â£24m payable on own shares held by employee benefit trusts (2004: Â£16m). For qualifying US and Canadian resident ADR holders, the final dividend of 17.4p per ordinary share becomes 69.6p per ADS (representing four shares). The ADR depositary will mail the dividend on 28th April 2006 to ADR holders on the record on 3rd March 2006. For qualifying Japanese shareholders, the final dividend of 17.4p per ordinary share will be distributed in mid-May to shareholders on the record on 3rd March 2006. Shareholders may have their dividends reinvested in Barclays PLC shares by participating in the Barclays Dividend Reinvestment Plan. The plan is available to all shareholders, including members of Barclays Sharestore, provided that they do not live in or are subject to the jurisdiction of any country where their participation in the plan would require Barclays or The Plan Administrator to take action to comply with local government or regulatory procedures or any similar formalities. Any shareholder wishing to obtain details and a form to join the plan should contact The Plan Administrator by writing to: The Plan Administrator to Barclays, Share Dividend Team, The Causeway, Worthing, West Sussex, BN99 6DA; or, by telephoning 0870 609 4535. The completed form should be returned to The Plan Administrator on or before 7th April 2006 for it to be effective in time for the payment of the final dividend on 28th April 2006. Shareholders who are already in the plan need take no action unless they wish to change their instructions in which case they should write to The Plan Administrator. (1) Potential ordinary shares reflect the dilutive effect of share options outstanding. Analysis of amounts included in the balance sheet Capital resources As at 2005 01.01.05 2004 Â£m Â£m Â£m Shareholders' equity excluding minority interests 17,426 15,287 15,870 -------- -------- -------- Preference shares 2,977 690 690 Reserve capital instruments 1,868 1,907 - Upper tier 2 instruments 581 586 - International Retail and Commercial Banking - Absa minority interests 1,351 - - Other minority interests 227 147 204 -------- -------- -------- 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 -------- -------- -------- The authorised share capital of Barclays PLC is Â£2,500m (2004: Â£2,500m) comprising 9,996 million (2004: 9,996 million) ordinary shares of 25p shares and 1 million (2004: 1 million) staff shares of Â£1 each. Called up share capital comprises 6,490 million (2004: 6,454 million) ordinary shares of 25p each and 1 million (2004: 1 million) staff shares of Â£1 each. Total capital resources increased Â£7,670m to Â£36,893m since 1st January 2005. Shareholders' equity, excluding minority interests, increased Â£2,139m since 1st January 2005. The increase primarily reflected profits attributable to equity holders of the parent of Â£3,447m, offset by dividends of Â£1,581m. Loan capital rose Â£1,857m reflecting capital raisings of Â£1,283m, acquisition of Absa Group Limited's loan capital of Â£669m, accrued interest of Â£210m and exchange rate movements of Â£207m; offset by redemptions of Â£464m, fair value adjustments of Â£43m and amortisation of issue expenses of Â£5m. Minority interests increased Â£3,674m since 1st January 2005, primarily reflecting the purchase of Absa Group Limited with minority interest of Â£1,351m and the following issuances of preference shares during 2005: â€¢ 140,000 preference shares of nominal â‚¬100 each (Principal amount: â‚¬1.4bn; Â£978m) with a 4.75% dividend issued on 15th March 2005. â€¢ 100,000 preference shares of nominal US$100 each (Principal amount: US$1.0bn; Â£551m) with a 6.278% dividend issued on 8th June 2005. â€¢ 75,000 preference shares of nominal Â£100 each (Principal amount: Â£750m) with a 6% dividend issued on 22nd June 2005. The impact of IAS 32 resulted in the reclassification of certain capital instruments from debt to minority interests. This accounts for substantially all of the increase in minority interests between 31st December 2004 and 1st January 2005. Capital ratios Weighted risk assets and capital resources, as defined for supervisory purposes by the Financial Services Authority (FSA), comprised: As at 2005 01.01.05 2004 Weighted risk assets: Â£m Â£m Â£m Banking book On-balance sheet 180,808 148,328 148,621 Off-balance sheet 31,351 28,191 26,741 Associated undertakings and joint ventures 3,914 3,020 3,020 -------- -------- -------- Total banking book 216,073 179,539 178,382 -------- -------- -------- Trading book Market risks 23,216 22,106 22,106 Counterparty and settlement risks 29,859 18,113 18,113 -------- -------- -------- Total trading book 53,075 40,219 40,219 -------- -------- -------- Total weighted risk assets 269,148 219,758 218,601 -------- -------- -------- Capital resources: Tier 1 Called up share capital 1,623 1,614 1,614 Eligible reserves 16,837 14,933 15,670 Minority interests(1) 6,634 2,824 2,890 Tier one notes(2) 981 920 920 Less: intangible assets (7,180) (4,747) (4,432) -------- -------- -------- Total qualifying tier 1 capital 18,895 15,544 16,662 -------- -------- -------- Tier 2 Revaluation reserves 25 25 25 Available for sale - equity gains 223 - - Collectively assessed impairment allowances 2,306 2,046 - General provisions - - 564 Minority Interests 515 397 - Qualifying subordinated liabilities(3) Undated loan capital 3,212 3,176 3,573 Dated loan capital 7,069 5,647 5,647 Other - 3 2 -------- -------- -------- Total qualifying tier 2 capital 13,350 11,294 9,811 -------- -------- -------- Tier 3: short term subordinated liabilities(3) - 286 286 -------- -------- -------- Less: Supervisory deductions: Investments not consolidated for supervisory purposes (782) (781) (1,047) Other deductions (961) (496) (496) -------- -------- -------- (1,743) (1,277) (1,543) -------- -------- -------- Total net capital resources 30,502 25,847 25,216 -------- -------- -------- Tier 1 ratio 7.0% 7.1% 7.6% Risk asset ratio 11.3% 11.8% 11.5% (1) Includes reserve capital instruments of Â£1,735m (1st January 2005: Â£1,627m; 31st December 2004: Â£1,627m). (2) Tier one notes are included in undated loan capital in the consolidated balance sheet. (3) Subordinated liabilities are included in tiers 2 or 3, subject to limits laid down in the supervisory requirements. At 31st December 2005, the tier 1 capital ratio was 7.0% and the risk asset ratio was 11.3%. From 1st January 2005, net total capital resources rose Â£4.7bn and weighted risk assets increased Â£49.4bn. Tier 1 capital rose Â£3.4bn, including Â£1.9bn arising from profits attributable to equity holders net of dividends paid. Minority interests within tier 1 capital increased Â£3.8bn primarily due to the issuance of Â£2.3bn of preference shares by Barclays Bank PLC and the minority interest arising on the acquisition of a majority stake in Absa Group Limited. Deductions for intangible assets increased Â£2.4bn, primarily due to goodwill and intangible assets arising from the acquisition of Absa Group Limited. Tier 2 capital increased Â£2.1bn of which Â£1.5bn related to loan capital. The tier 3 capital debt matured in April 2005. Reconciliation of regulatory capital Capital is defined differently for accounting and regulatory purposes. A reconciliation of shareholders' equity for accounting purposes to called up share capital and eligible reserves for regulatory purposes, is set out below: As at 2005 01.01.05 Â£m Â£m Shareholders' equity excluding minority interests 17,426 15,287 Available for sale reserve (225) (314) Cash flow hedging reserve (70) (302) Retained earnings Defined benefit pension scheme 1,215 1,252 Additional companies in regulatory consolidation and (145) 266 non-consolidated companies Foreign exchange on RCIs and upper tier 2 loan stock 289 459 Other adjustments (30) (101) -------- -------- Called up share capital and eligible reserves 18,460 16,547 -------- -------- Total assets and weighted risk assets Total assets increased 29% to Â£924.4bn (1st January 2005: Â£715.6bn). Weighted risk assets increased 22% to Â£269.1bn (1st January 2005: Â£219.8bn). Loans and advances to customers that have been securitised or subject to similar risk transfer increased Â£17.3bn to Â£21.6bn (2004: Â£4.3bn). Securitised or risk transferred assets are included within total assets but are excluded from weighted risk assets. The increase in weighted risk assets since 1st January 2005 reflects a rise of Â£36.5bn in the banking book and a rise of Â£12.9bn in the trading book. UK Retail Banking total assets decreased 4% to Â£69.2bn (1st January 2005: Â£71.9bn). This was mainly attributable to lower residential mortgage balances. Weighted risk assets decreased 15% to Â£32.3bn (1st January 2005: Â£37.8bn), reflecting lower mortgage balances and a Â£4.5bn securitisation of mortgage assets in the second half of 2005, which more than offset strong growth in non-mortgage loans. UK Business Banking total assets increased 21% to Â£72.0bn (1st January 2005: Â£59.5bn), reflecting strong growth in lending balances. Weighted risk assets increased 13% to Â£61.9bn (1st January 2005: Â£54.8bn), the increase being lower than asset growth mostly as a result of Â£5.0bn securitisation of corporate loans in the second half of 2005. The acquisition of a 51% stake in Iveco Finance, completed in June, increased total assets and weighted risk assets by Â£1.8bn. Excluding the impact of Iveco Finance, assets and weighted risk assets increased 18% and 10% respectively. Barclays Capital total assets increased 28% to Â£581.9bn (1st January 2005: Â£454.4bn). This was mainly attributable to increases in debt securities and reverse repurchase agreements as the business continued to grow, and in derivative financial instruments as a result of business growth and market movements. Weighted risk assets increased 21% to Â£96.1bn (1st January 2005: Â£79.5bn), below the rate of balance sheet growth. This reflected trading book weighted risk assets moving in line with risk rather than the balance sheet, the lower weighting of fully collateralised reverse repurchase agreements and the availability of legally enforceable netting agreements with derivative counterparties. Barclays Global Investors total assets increased 32% to Â£80.9bn (1st January 2005: Â£61.4bn) due to growth in asset management products reported on the balance sheet. For the amounts related to asset management products, equal and offsetting balances are reflected within liabilities to customers. Weighted risk assets rose 42% to Â£1.7bn (1st January 2005: Â£1.2bn) due to growth in the business. Wealth Management total assets increased 7% to Â£6.1bn (1st January 2005: Â£5.7bn). Weighted risk assets increased 7% to Â£4.5bn (1st January 2005: Â£4.2bn) reflecting good growth in lending balances. Barclaycard total assets increased 11% to Â£25.8bn (1st January 2005: Â£23.2bn) driven by growth in lending balances. Weighted risk assets dropped by 6% to Â£20.4bn (1st January 2005: Â£21.6bn) reflecting increased securitisation activity during the second half of 2005. International Retail and Commercial Banking excluding Absa total assets increased 19% to Â£34.2bn (1st January 2005: Â£28.8bn) reflecting strong volume growth in European mortgages and African corporate lending. Weighted risk assets increased 16% to Â£21.6bn (1st January 2005: Â£18.7bn), which was lower than the increase in assets, reflecting strong growth in mortgage balances, which carry a 50% weighting, and the securitisation of assets in Spain during 2005. International Retail and Commercial Banking - Absa total assets were Â£39.4bn and weighted risk assets Â£28.4bn. Growth in assets since acquisition has been driven by increases in retail lending balances. Head office functions and other operations total assets increased 83% to Â£7.7bn (1st January 2005: Â£4.2bn). The increase includes financial instruments acquired for hedging purposes. Weighted risk assets increased 16% to Â£2.2bn (1st January 2005: Â£1.9bn) below the rate of balance sheet growth primarily due to lower risk weighting for assets held for hedging purposes. Economic capital Barclays assesses capital requirements by measuring the Group risk profile using both internally and externally developed models. The Group assigns economic capital primarily within seven risk categories: Credit Risk, Market Risk, Business Risk, Operational Risk, Insurance Risk, Fixed Assets and Private Equity. The Group regularly enhances its economic capital methodology and benchmarks outputs to external reference points. The framework has been enhanced to reflect default probabilities during average credit conditions, rather than those prevailing at the balance sheet date, thus seeking to remove cyclicality from the economic capital calculation. The framework also adjusts economic capital to reflect time horizon, correlation of risks and risk concentrations. Economic capital is allocated on a consistent basis across all of Barclays businesses and risk activities. A single cost of equity is applied to calculate the cost of risk. Economic capital allocations reflect varying levels of risk. The total average economic capital required by the Group, as determined by risk assessment models and after considering the Group's estimated portfolio effects, is compared with the supply of economic capital to evaluate economic capital utilisation. Supply of economic capital is calculated as the average available shareholders' equity after adjustment and including preference shares. The economic capital methodology will form the basis of the Group's submission for the Basel II Internal Capital Adequacy Assessment Process (ICAAP). Economic capital demand(1) 2005 2004 Â£m Â£m UK Banking 5,250 4,650 -------- -------- UK Retail Banking 2,300 2,200 UK Business Banking 2,950 2,450 -------- -------- Barclays Capital 2,550 2,100 Barclays Global Investors 150 150 Wealth Management 400 300 Wealth Management - closed life assurance activities 50 100 Barclaycard 2,800 2,450 International Retail and Commercial Banking 1,550 1,000 -------- -------- International Retail and Commercial Banking - ex Absa 1,150 1,000 International Retail and Commercial Banking - Absa(2) 400 - -------- -------- Head office functions and other operations(3) 250 200 -------- -------- Business unit economic capital 13,000 10,950 Capital held at Group centre(4) 1,050 1,400 -------- -------- Economic capital requirement (excluding goodwill) 14,050 12,350 Average historic goodwill and intangible assets(5) 6,450 5,600 -------- -------- Total economic capital requirement(6) 20,500 17,950 -------- -------- UK Retail Banking economic capital allocation increased Â£100m to Â£2.3bn. The impact of growth was offset by risk transfer transactions within UK mortgages. UK Business Banking economic capital allocation increased Â£500m to Â£2.95bn as a consequence of asset growth and the acquisition of the Iveco Finance business. Barclays Capital economic capital increased Â£450m to Â£2.55bn reflecting underlying growth in loan and derivative portfolios, additional equity investments and the growth in business and operational risk economic capital. Wealth Management economic capital allocation increased Â£100m to Â£400m as a consequence of general growth across the business and the recalibration of business and operational risk economic capital. Wealth Management - closed life assurance activities economic capital allocation reduced Â£50m to Â£50m reflecting the impact of IFRS removing the volatility previously associated with embedded value accounting. Barclaycard economic capital allocation increased Â£350m to Â£2.8bn, due to growth in outstandings and the inclusion of Barclaycard US for the full year. (1) Calculated using a five point average over the year. (2) Average economic capital demand for Absa relates to 5 months of 2005. As at 31st December 2005 the capital demand amounted to Â£950m. (3) Includes Transition Businesses and capital for central functional risks. (4) The Group's practice is to maintain an appropriate level of excess capital, held at Group centre, which is not allocated to business units. This variance arises as a result of capital management timing and includes capital held to cover pension contribution risk. (5) Average goodwill relates to purchased goodwill and intangible assets from business acquisitions. Absa goodwill is included for 5 months of 2005. As at 31st December 2005 Absa goodwill and intangibles amounted to Â£1.8bn and total goodwill and intangibles was Â£7.9bn. (6) Total period-end economic capital requirement as at 31st December 2005 stood at Â£21,850m (1st January 2005: Â£18,150m; 31st December 2004: Â£19,400m). International Retail and Commercial Banking excluding Absa economic capital allocation increased Â£150m to Â£1.15bn due to the recalibration of business and operational risk economic capital together with exposure growth in Africa and Spain. Absa added Â£400m to the average economic capital demand reflecting 5 months of the allocation after excluding the risk borne by the minority interest. Capital held at the Group centre fell Â£350m to Â£1.05bn as a result of the acquisition of Absa, partially offset by an increase in available funds to support economic capital (see Economic capital supply on page 63). Economic capital supply The Group has determined that the impacts of IFRS should be modified in calculating available funds for economic capital. This applies specifically to: â€¢ Cashflow hedging reserve - to the extent that the Group undertakes the hedging of future cash flows, shareholders' equity will include gains and losses which will be offset against the gain or loss on the hedged item when it is recognised in the income statement at the conclusion of the future hedged transaction. Given the future offset of such gains and losses, they are excluded from shareholders' equity upon which the capital charge is based. â€¢ Available for sale reserve - unrealised gains and losses on such securities are included in shareholders' equity until disposal or impairment. Such gains and losses will be excluded from shareholders' equity for the purposes of calculating the capital charge. Realised gains and losses, foreign exchange translation differences and any impairment charges recorded in the income statement will impact economic profit. â€¢ Retirement benefits liability - the Group has recorded a deficit with a consequent reduction in shareholders' equity. This represents a non-cash reduction in shareholders' equity. For the purposes of deriving the capital charge, the Group will not deduct the pension deficit from shareholders' equity. The capital resources to support economic capital comprise adjusted shareholders' equity including preference shares but excluding other minority interests. Preference shares have been issued to optimise the long-term capital base of the Group. The average supply of capital to support the economic capital framework is set out below(1): 2005 2004 Â£m Â£m Shareholders' equity excluding minority interests less goodwill(2) 10,850 10,450 Retirement benefits liability 1,350 1,750 Cashflow hedging reserve (250) - Available for sale reserve (250) - Preference shares 2,350 150 -------- -------- Available funds for economic capital excluding goodwill 14,050 12,350 Average historic goodwill and intangible assets(2) 6,450 5,600 -------- -------- Available funds for economic capital(3) 20,500 17,950 -------- -------- (1) Averages for the period will not correspond to period-end balances disclosed in the balance sheet. Numbers are rounded to the nearest Â£50m for presentational purposes only. (2) Average goodwill relates to purchased goodwill and intangible assets from business acquisitions. Absa goodwill is included for 5 months of 2005. As at 31st December 2005, Absa goodwill and intangibles amounted to Â£1.8bn. (3) Available funds for economic capital as at 31st December 2005 stood at Â£21,850m (1st January 2005: Â£18,150m; 31st December 2004: Â£19,400m). Economic profit Economic profit comprises: â€¢ Profit after tax and minority interests; less â€¢ Capital charge (average shareholders' equity excluding minority interests multiplied by the Group cost of capital). The Group cost of capital has been applied at a uniform rate of 9.5%(1) (2004: 9.5%). The costs of preference shares servicing are included in minority interests. The economic profit performance in 2005 and 2004 is shown below: 2005 2004 Â£m Â£m Profit after tax and minority interests 3,447 3,254 Addback of amortisation charged on acquired intangible assets(2) 29 6 -------- -------- Profit for economic profit purposes 3,476 3,260 -------- -------- Average shareholders' equity excluding minority interests(3), (4) 10,850 10,450 Deduct reserve for unrealised gains on cashflow hedging reserve(4) (250) - Deduct reserve for unrealised gains on available for sale financial instruments(4) (250) - Add: retirement benefits liability 1,350 1,750 Goodwill and intangible assets arising on acquisitions (4),(5) 6,450 5,600 -------- -------- Average shareholders' equity for economic profit purposes (3),(4) 18,150 17,800 -------- -------- Capital charge at 9.5% (1,724) (1,692) -------- -------- -------- -------- Economic profit 1,752 1,568 -------- -------- (1) The Group's cost of capital for 2006 is unchanged at 9.5%. (2) Amortisation charged for purchased intangibles only, adjusted for tax and minority interests. (3) Average ordinary shareholders' equity for Group economic profit calculation is the sum of adjusted equity and reserves plus goodwill, but excludes preference shares. (4) Averages for the period will not correspond exactly to period end balances disclosed in the balance sheet. Numbers are rounded to the nearest Â£50m for presentation purposes only. (5) Absa goodwill is included for 5 months of 2005. As at 31st December 2005 Absa goodwill and intangibles amounted to Â£1.8bn. Economic profit generated by business 2005 2004 Â£m Â£m UK Banking 1,219 1,158 -------- -------- UK Retail Banking 557 473 UK Business Banking 662 685 -------- -------- Barclays Capital 619 521 Barclays Global Investors 299 195 Wealth Management 109 70 Wealth Management - closed life assurance activities (7) (77) Barclaycard 183 350 International Retail and Commercial Banking 238 111 -------- -------- International Retail and Commercial Banking - ex Absa 115 111 International Retail and Commercial Banking - Absa 123 - -------- -------- Head office functions and other operations (375) (146) -------- -------- 2,285 2,182 Historic goodwill (615) (533) Variance to average shareholders' funds (excluding minority interest) 82 (81) -------- -------- Economic profit 1,752 1,568 -------- -------- Economic profit for the Group increased 12% (Â£184m) to Â£1,752m (2004: Â£1,568m). The rise in economic profit was less than the increase in profit before tax due to the increased share of minority interests. The rise in economic profit was greater than the increase in earnings per share due to the more efficient use of capital across the Group. UK Business Banking economic profit fell 3% (Â£23m) to Â£662m (2004: Â£685m) reflecting an increase in profit before tax of 10% and an increase of 20% in economic capital due to growth in lending balances and the acquisition of the Iveco Finance business. International Retail and Commercial Banking excluding Absa economic profit rose 4% (Â£4m) to Â£115m (2004: Â£111m) reflecting an increase in profit before tax of 21% and an increase of 15% in economic capital due to exposure growth in Africa and Spain. GROUP PERFORMANCE MANAGEMENT Performance relative to the 2004 to 2007 goal period Barclays will continue to use goals to drive performance. At the end of 2003, Barclays established a new set of four year performance goals for the period 2004 to 2007 inclusive. The primary goal is to achieve top quartile total shareholder return (TSR) relative to a peer group(1) of financial services companies and is unchanged from the prior goal period. TSR is defined as the value created for shareholders through share price appreciation, plus re-invested dividend payments. The peer group is regularly reviewed to ensure that it remains aligned to our business mix and the direction and scale of our ambition. For the two years from 31st December 2003 to 31st December 2005, Barclays delivered TSR of 34% and was positioned 5th within its peer group, which is second quartile. The TSR of the FTSE 100 Index for this period was 34%. At the time of setting the TSR goal, we estimated that achieving top quartile TSR would require the achievement of compound annual growth in economic profit(2) in the range of 10% to 13% per annum (Â£6.5bn to Â£7.0bn of cumulative economic profit)(3) to support top quartile TSR over the 2004 to 2007 goal period. Economic profit for 2005 was Â£1.75bn, which, added to the Â£1.57bn generated in 2004, delivered a cumulative total of Â£3.32bn for the goal period to date. This equates to compound annual growth in economic profit of 18% per annum for the goal period to date. (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. (2) Economic profit is defined on page 64. (3) Restated for IFRS. Risk Tendency As part of its credit risk management system, the Group uses a model-based methodology to assess the point-in-time expected loss of credit portfolios across different customer categories. The approach is termed Risk Tendency and applies to credit exposures in both wholesale and retail sectors. Risk Tendency provides statistical estimates of losses expected to arise within the next year based on averages in the ranges of possible losses expected from each of the current portfolios. This can be contrasted with impairment allowances required under accounting standards, which are based on objective evidence of impairment as at the balance sheet date. Since Risk Tendency and impairment allowances are calculated for different purposes and on different bases, Risk Tendency does not predict loan impairment. Risk Tendency is provided to present a view of the evolution of the quality and scale of the credit portfolios. 2005 2004 Â£m Â£m UK Banking 450 375 -------- -------- UK Retail Banking 170 150 UK Business Banking 280 225 -------- -------- Barclays Capital 85 70 Wealth Management 5 5 Barclaycard 1,100 860 International Retail and Commercial Banking 195 65 -------- -------- International Retail and Commercial Banking - ex Absa 75 65 International Retail and Commercial Banking - Absa 120 - -------- -------- Transition Businesses(1) 10 20 -------- -------- Risk Tendency 1,845 1,395 -------- -------- Risk Tendency increased 32% (Â£450m) to Â£1,845m (2004: Â£1,395m). The largest increase occurred in Barclaycard, which rose Â£240m to Â£1,100m, reflecting the deterioration of credit conditions in the UK credit card market. Risk Tendency increased in UK Business Banking due to the growth in the loan book and the acquisition of the Iveco Finance business. (1) Included within head office functions and other operations. ADDITIONAL INFORMATION Basis of preparation The Group adopted the requirements of International Financial Reporting Standards and International Accounting Standards (collectively IFRS) for the first time for the purpose of preparing financial statements for the year ended 31st December 2005. The Group issued an IFRS Transition Report on 11th May 2005 that 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 Results 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. Group structure changes from 2004 The presentation of results by business differs from that provided in 2004 in the following respects: â€¢ International Retail and Commercial Banking and Wealth Management (previously called Private Clients) are reported as separate business divisions and not aggregated, reflecting the differences in the nature of the products and services and changes in management accountability. Absa is included in International Retail and Commercial Banking to reflect the nature of the products and services and the management accountability. International Retail and Commercial Banking excluding and including Absa are reported as separate components to provide useful information about this significant acquisition. â€¢ The results for Wealth Management - closed life assurance activities are provided separately from those for the rest of Wealth Management in order to provide more clarity on the impact of these activities. â€¢ The 2004 results of Barclaycard and UK Retail Banking have been restated to reflect the 2005 change in allocation of branch network costs and insurance sales between the two divisions. This had the impact of increasing Barclaycard profit before tax by Â£59m in 2004 and reducing UK Banking profit before tax in 2004 by the same amount. This restatement was reflected in the IFRS Transition Report issued on 11th May 2005 and the Interim Results Announcement for the half-year ended 30th June 2005. Acquisitions and disposals On 1st June 2005, Barclays Asset and Sales Finance ('BASF') acquired a 51% share and controlling stake in Fiat's Iveco Vehicle Finance Business. The transaction will expand BASF's commercial vehicle expertise. On 30th June 2005, EnterCard, the joint venture between Barclays Bank PLC and ForeningsSparbanken (also known as Swedbank), which was announced on 4th February 2005, began operations. Barclays Bank PLC has a 50% economic interest in the joint venture. EnterCard provides credit cards in the Nordic market, initially in Sweden and Norway. On 1st July 2005, Barclays acquired the wealth business of ING Securities Bank (France) consisting of ING Ferri and ING Private Banking. On 9th May 2005, Barclays announced the terms of a recommended acquisition of a majority stake in Absa Group Limited ('Absa'). The acquisition was subject to a number of conditions, one of which was the approval of the South African Minister of Finance under the Banks Act, 1990, of South Africa. As part of the Banks Act approval process, Barclays confirmed its long-term commitment to investing in South Africa pursuant to the acquisition of Absa and its intention to retain a controlling stake. Barclays also acknowledged the importance of maintaining the South African character of Absa, in which regard the Chairman of Absa, Dr. Danie Cronje, would continue to serve as chairman and would become a non-executive director of Barclays PLC and Barclays Bank PLC and Dr. Steve Booysen would remain as Group Chief Executive of Absa. Three Barclays representatives were appointed to the Absa board. Barclays has consolidated Absa from 27th July 2005. As at 31st December 2005, Barclays shareholding was 377,527,453 ordinary shares (56.6%). The acquisition was endorsed by Absa's black economic empowerment partner. Batho Bonke Capital (Proprietary) Limited, and the Absa Share Ownership Trust, hold redeemable cumulative option-holding preference shares in Absa. These redeemable preference shares have the same rights as ordinary shares, including voting rights (amounting to approximately 11% of the aggregate voting rights), save for the rights relating to dividends, redemption and option liquidation. Each redeemable preference share carries the option to acquire one Absa ordinary share at a discount to the market price during an option exercise period commencing on 2nd July 2007 and ending on 1st July 2009. Change in accounting estimate The Group has undertaken a review of the actual useful economic lives of property, plant and equipment. As a result of this review, the assumed useful economic lives of the costs of adaptation of freehold and leasehold property and equipment installed in freehold and leasehold property have increased from 10 years to a range of 10-15 years. The useful economic lives of fixtures and fittings and other equipment have increased from 5 years to a range of 5-10 years. This change in accounting estimate better reflects historical experience and has been applied prospectively from 1st January 2005. This reduced the depreciation charge in 2005 by Â£30m. Hedge accounting The element of ineffectiveness arising on hedges that qualify for hedge accounting is included in net interest income. Share capital The Group manages its debt and equity capital actively. The Group will seek to renew its authority to buy back ordinary shares at the 2006 Annual General Meeting to provide additional flexibility in the management of the Group's capital resources. Group share schemes The independent trustees of the Group's share schemes may make purchases of Barclays PLC ordinary shares in the market at any time or times following this announcement of the Group's results for the purposes of those schemes' current and future requirements. The total number of ordinary shares purchased would not be material in relation to the issued share capital of Barclays PLC. Filings with the SEC The results will be furnished as a Form 6-K to the US Securities and Exchange Commission as soon as practicable following the publication of these results. Competition and regulatory matters There is continuing political and regulatory scrutiny of, and major changes in, legislation and regulation of the retail banking and consumer credit industries in the UK and elsewhere. In the European Union (EU) as a whole, this includes an inquiry into retail banking in all 25 member states by the European Commission's Directorate General for Competition. The inquiry is looking at retail banking in Europe generally and the Group is co-operating with the inquiry. The outcome of the inquiry is unclear, but it may have an impact on retail banking in one or more of the EU countries in which the Group operates and therefore on the Group's business in that sector. In the UK, in September 2005 the Office of Fair Trading (OFT) received a super-complaint from the Citizens Advice Bureau relating to payment protection insurance (PPI). As a result of its inquiries, the OFT then announced in December 2005 that it will commence a market study on PPI in March 2006. The scope and impact of the study is not known at present. In relation to UK consumer credit: â€¢ The OFT has carried out investigations into Visa and MasterCard credit card interchange rates. The decision by the OFT in the MasterCard interchange case is being appealed to the Competition Appeals Tribunal and the appeal is expected to be heard towards the end of 2006. The OFT's investigation in the Visa interchange case is at an earlier stage. â€¢ The OFT also has a continuing investigation into the level of late and over-limit fees on credit cards. The OFT issued a press release in July 2005 stating that their provisional conclusion was that these fees were excessive and need to be reduced to be fair. The OFT gave Barclaycard, and seven other credit card companies, three months to provide suitable undertakings regarding the basis of these charges or otherwise to address the concerns of the OFT. Barclaycard responded to the OFT in October 2005 further explaining the position Barclaycard takes in respect of late and over-limit fees and has continued to work with the OFT to address its concerns. Barclays continues to consider the impact of the provisional finding on the credit card industry and Barclaycard, including steps to mitigate any financial impact on shareholders. These investigations are looking at several aspects of the UK consumer credit industry and the Group is co-operating with them. Their outcome is not known but they may have an impact on the consumer credit industry in general and therefore on the Group's business in this sector. The OFT announced in January 2006 that it would be reviewing the undertakings given following the conclusion of the Competition Commission Inquiry in 2002 into the supply of banking services to SMEs. The OFT will commence that review in March 2006 and anticipate that it will take them 9 months. The Group will cooperate fully with that review. Recent developments On 1st January 2006 Barclays completed the sale to Absa Group Limited of the Barclays South African branch business (the 'business'). The business consists of the Barclays Capital South African operations and Corporate and Business Banking activities carried out by International Retail and Commercial Banking (South African branch), together with the associated assets and liabilities. NOTES 1. Assets held in respect of linked liabilities to customers under investment contracts/liabilities arising from investment contracts As at 2005 01.01.05 2004 Â£m Â£m Â£m Non-trading financial instruments fair valued through profit and loss held in respect of linked liabilities 83,193 63,124 - Cash and bank balances within the funds 2,008 1,485 - -------- -------- -------- Assets held in respect of linked liabilities to customers under investment contracts 85,201 64,609 - -------- -------- -------- Liabilities arising from investment contracts (85,201) (64,609) - -------- -------- -------- These assets comprise assets under management held on behalf of clients, required to be recognised on the balance sheet under IAS 39. 2. Derivative financial instruments The tables set out below analyse the contract or underlying principal and the fair value of derivative financial instruments held for trading purposes and for the purposes of managing the Group's structural exposures. Derivatives are measured at fair value and the resultant profits and losses from derivatives held for trading purposes are included in net trading income. Where derivatives are held for risk management purposes and when transactions meet the criteria specified in IAS 39, the Group applies hedge accounting as appropriate to the risks being hedged. 2005 Contract notional Fair value amount Assets Liabilities Derivatives designated as held for Â£m Â£m Â£m trading Foreign exchange derivatives 1,184,074 18,485 (17,268) Interest rate derivatives 15,374,057 81,028 (79,701) Credit derivatives 609,381 4,172 (4,806) Equity and stock index and commodity derivatives 637,452 32,481 (35,128) ---------- -------- -------- Total derivative assets/(liabilities) held for trading 17,804,964 136,166 (136,903) ---------- -------- -------- Derivatives designated in hedge accounting relationships Derivatives designated as cash flow hedges 40,080 232 (483) Derivatives designated as fair value hedges 33,479 423 (331) Derivatives designated as hedges of net investments 5,919 2 (254) ---------- -------- -------- Total derivative assets/(liabilities) designated in hedge accounting relationships 79,478 657 (1,068) ---------- -------- -------- Total recognised derivative assets/(liabilities) 17,884,442 136,823 (137,971) ---------- -------- -------- Total derivative notionals at 31st December 2005 have grown from 1st January 2005 due primarily to increases in the volume of fixed income derivatives. This reflects the larger client base and clients' increased use of Barclays electronic trading platforms in Europe and the US. Credit derivatives volumes have also increased significantly, due to growth in the market for these products. The Group's total contract notional amount and the fair derivative asset and liability position before the effect of netting or allowable cash collateral offset as at 31st December 2004 was as follows: 2004 Contract notional Fair value amount Assets Liabilities Â£m Â£m Â£m Foreign exchange derivatives 824,894 20,302 (22,332) Interest rate derivatives 11,296,699 66,031 (62,753) Credit derivatives 191,408 1,452 (1,217) Equity and stock index and commodity derivatives 321,035 9,455 (10,053) ---------- -------- -------- Total derivative assets/(liabilities) before netting or cash collateral offset 12,634,036 97,240 (96,355) ---------- -------- -------- The Group's total derivative asset and liability position as presented on the balance sheet was as follows: 2005 Contract notional Fair value amount Assets Liabilities Â£m Â£m Â£m Derivative assets/(liabilities) designated as held for trading 17,804,964 136,166 (136,903) Derivative assets/(liabilities) designated in hedge accounting relationships 79,478 657 (1,068) ---------- -------- -------- Total recognised derivative assets/(liabilities) 17,884,442 136,823 (137,971) ---------- -------- -------- As at 01.01.05 Contract notional Fair value amount Assets Liabilities Â£m Â£m Â£m Derivative assets/(liabilities) designated as held for trading 12,381,890 92,490 (93,217) Derivative assets/(liabilities) designated in hedge accounting relationships 89,894 1,721 (1,212) ---------- -------- -------- Total recognised derivative assets/(liabilities) 12,471,784 94,211 (94,429) ---------- -------- -------- 3. Loans and advances to banks As at 2005 01.01.05 2004 By geographical area Â£m Â£m Â£m United Kingdom 4,624 5,813 3,949 Other European Union 5,423 4,274 1,813 United States 13,267 8,459 7,668 Africa 880 425 425 Rest of the World 6,915 6,781 5,725 -------- -------- -------- 31,109 25,752 19,580 Reverse repurchase agreements - - 61,075 Less: Allowance for impairment/provision (4) (24) (23) -------- -------- -------- Total loans and advances to banks 31,105 25,728 80,632 -------- -------- -------- Of the total loans and advances to banks, placings with banks were Â£12.7bn (2004: Â£66.7bn). Placings with banks have decreased primarily due to the reclassification of reverse repurchase agreements to a separate balance sheet category. 4. Loans and advances to customers As at 2005 01.01.05 2004 Â£m Â£m Â£m Retail business 144,039 108,506 106,296 Wholesale business 128,303 101,366 100,497 -------- -------- -------- 272,342 209,872 206,793 Reverse repurchase agreements - - 58,304 Less: Allowances for impairment/provisions (3,446) (2,613) (2,688) -------- -------- -------- Total loans and advances to customers 268,896 207,259 262,409 -------- -------- -------- By geographical area United Kingdom 163,759 148,197 146,248 Other European Union 38,923 26,350 26,210 United States 22,925 21,813 20,982 Africa 33,221 2,776 2,759 Rest of the World 13,514 10,736 10,594 -------- -------- -------- 272,342 209,872 206,793 Reverse repurchase agreements - - 58,304 Less: Allowance for impairment/provisions (3,446) (2,613) (2,688) -------- -------- -------- Total loans and advances to customers 268,896 207,259 262,409 -------- -------- -------- By industry Financial institutions 43,102 36,865 25,132 Agriculture, forestry and fishing 3,785 2,247 2,345 Manufacturing 13,779 9,477 9,044 Construction 5,020 3,637 3,278 Property 16,325 5,747 8,992 Energy and water 6,891 3,194 3,709 Wholesale and retail distribution and leisure 17,760 11,897 11,099 Transport 5,960 3,812 3,742 Postal and communication 1,313 828 834 Business and other services 24,247 20,924 23,223 Home loans(1) 89,529 78,030 80,855 Other personal 35,543 27,400 27,602 Finance lease receivables 9,088 5,814 6,938 -------- -------- -------- 272,342 209,872 206,793 Reverse repurchase agreements - - 58,304 Less: Allowance for impairment/provisions (3,446) (2,613) (2,688) -------- -------- -------- Total loans and advances to customers 268,896 207,259 262,409 -------- -------- -------- As at 1st January 2005, total loans and advances decreased Â£55.1bn to Â£207.3bn (2004: Â£262.4bn) primarily due to the reclassification of reverse repurchase agreements to a separate balance sheet category. The industry classifications have been prepared at the level of the borrowing entity. This means that a loan to the subsidiary of a major corporation is classified by the industry in which that subsidiary operates even though the parent's predominant business may be a different industry. (1) Excludes commercial property mortgages. 5. Allowance for impairment on loans and advances/provisions for bad and doubtful debts 2005 2004 Â£m Â£m At beginning of period(1) 2,637 2,946 Acquisitions and disposals 555 21 Exchange and other adjustments 125 (33) Unwind of discount (76) - Amounts written off (see below) (1,587) (1,582) Recoveries (see below) 222 255 Amounts charged against profit (see below) 1,574 1,104 -------- -------- At end of period 3,450 2,711 -------- -------- Amounts written off United Kingdom (1,306) (1,280) Other European Union (56) (63) United States (143) (50) Africa (81) (15) Rest of the World (5) (174) -------- -------- (1,591) (1,582) -------- -------- Recoveries United Kingdom 160 217 Other European Union 13 9 United States 15 14 Africa 16 4 Rest of the World 18 11 -------- -------- 222 255 -------- -------- Impairment/provisions charged against profit: New and increased impairment allowances/provisions United Kingdom 1,763 1,358 Other European Union 113 131 United States 105 85 Africa 109 47 Rest of the World 39 134 -------- -------- 2,129 1,755 -------- -------- Less: Releases of impairment allowance/provision United Kingdom (221) (120) Other European Union (25) (20) United States (14) (14) Africa (56) (16) Rest of the World (17) (20) -------- -------- (333) (190) -------- -------- Recoveries (222) (255) -------- -------- Impairment charged against profit/net specific provisions charge 1,574 1,310 General provision release(2) - (206) -------- -------- Net charge to profit(3) 1,574 1,104 -------- -------- (1) Due to the adoption of IAS 32 and IAS 39 on 1st January 2005 and the consequent restatement of the impairment allowance, the period end value at 31st December 2004 does not correspond to the opening value at the beginning of 2005. The period end and opening values are reconciled on page 77. (2) The distinction between specific and general provisions which was made in UK GAAP does not exist under IFRS. (3) This excludes other credit provisions and impairment on available for sale assets detailed on page 50. 2005 2004 Â£m Â£m Allowance/specific provisions United Kingdom 2,266 1,683 Other European Union 284 149 United States 130 155 Africa 647 70 Rest of the World 123 90 -------- -------- Total allowance/specific provisions 3,450 2,147 General provisions(1) - 564 -------- -------- 3,450 2,711 -------- -------- A reconciliation of UK GAAP provisions to IFRS impairment allowances is as follows: Â£m UK GAAP provision as at 31st December 2004 2,711 IFRS interest and fees not recognised (157) UK GAAP interest in suspense as at 31st December 2004 40 UK GAAP fees in suspense as at 31st December 2004 19 Additional impairment allowances resulting from the application of revised Calculation methodologies at 1st January 2005 24 -------- IFRS impairment allowances as at 1st January 2005 2,637 -------- (1) The distinction between specific and general provisions which was made in UK GAAP does not exist under IFRS. 6. Potential credit risk loans The following tables present an analysis of potential credit risk loans (non-performing and potential problem loans). As at 2005 01.01.05 2004 Potential credit risk loans Â£m Â£m Â£m Summary Impaired loans(1) 4,550 3,536 3,550 Accruing loans which are contractually overdue 90 days or more as to principal or interest 609 538 550 -------- -------- -------- 5,159 4,074 4,100 Restructured loans 51 15 15 -------- -------- -------- Total non-performing loans 5,210 4,089 4,115 Potential problem loans 929 795 798 -------- -------- -------- Total potential credit risk loans 6,139 4,884 4,913 -------- -------- -------- Geographical split Impaired loans(1): United Kingdom 2,965 2,680 2,697 Other European Union 345 308 301 United States 230 284 284 Africa 831 115 116 Rest of the World 179 149 152 -------- -------- -------- Total 4,550 3,536 3,550 -------- -------- -------- Accruing loans which are contractually overdue 90 days or more as to principal or interest United Kingdom 539 501 513 Other European Union 53 34 34 United States - 1 1 Africa 17 1 1 Rest of the World - 1 1 -------- -------- -------- Total 609 538 550 -------- -------- -------- (1) Impaired loans are non-performing loans where, in general, an impairment allowance has been raised. This classification may also include non-performing loans which are fully collateralised or where the indebtedness has already been written down to the expected realisable value. As at 2005 01.01.05 2004 Â£m Â£m Â£m Restructured loans: United Kingdom 5 2 2 Other European Union 7 - - United States 16 13 13 Africa 23 - - Rest of the World - - - -------- -------- -------- Total 51 15 15 -------- -------- -------- Total non-performing loans: United Kingdom 3,509 3,183 3,212 Other European Union 405 342 335 United States 246 298 298 Africa 871 116 117 Rest of the World 179 150 153 -------- -------- -------- Total 5,210 4,089 4,115 -------- -------- -------- Potential problem loans: United Kingdom 640 655 658 Other European Union 26 32 32 United States 12 27 27 Africa 248 67 67 Rest of the World 3 14 14 -------- -------- -------- Total 929 795 798 -------- -------- -------- Total potential credit risk loans: United Kingdom 4,149 3,838 3,870 Other European Union 431 374 367 United States 258 325 325 Africa 1,119 183 184 Rest of the World 182 164 167 -------- -------- -------- Total 6,139 4,884 4,913 -------- -------- -------- Allowance coverage of non-performing loans(1): % % % United Kingdom 64.6 64.2 68.1 Other European Union 70.1 69.9 60.9 United States 52.8 53.7 57.0 Africa 74.3 71.6 68.4 Rest of the World 68.7 75.3 71.9 -------- -------- -------- Total 66.2 64.5 66.9 -------- -------- -------- Allowance coverage of total potential credit risk % % % loans(1): United Kingdom 54.6 53.2 56.5 Other European Union 65.9 63.9 55.6 United States 50.4 49.2 52.3 Africa 57.8 45.4 43.5 Rest of the World 67.6 68.9 65.9 -------- -------- -------- Total 56.2 54.0 56.0 -------- -------- -------- (1) In 2004, the geographical coverage ratios include an allocation of general provisions. Since 1st January 2005, non-performing loans (NPLs) increased 27% to Â£5,210m (1st January 2005: Â£4,089m). Excluding Absa NPLs of Â£725m at the year-end, NPLs increased 10%. Other than Absa, the increase in NPLs occurred mainly in the UK retail businesses with NPLs in the wholesale and corporate businesses decreasing modestly. Potential problem loans (PPLs) increased 17% from the beginning of the year to Â£929m (1st January 2005: Â£795m). Excluding Absa PPLs of Â£176m at the year-end, PPLs decreased 5%. Excluding Absa, retail businesses PPLs increased 38%, but this was more than offset by the 30% decline in PPLs to wholesale and corporate businesses. Potential Credit Risk Loans (PCRLs) increased 26% to Â£6,139m (1st January 2005: Â£4,884m). Excluding Absa PCRLs of Â£901m at the year-end, PCRLs increased 7%. Other than Absa, the increase in PCRLs occurred mainly in the UK retail businesses. The value of PCRLs at 31st December 2004 was restated for the adoption of IFRS on 1st January 2005. This restatement has not been applied to the numbers for 2004 and, as a consequence, these numbers are not directly comparable with the current values. In addition, due to enhanced modelling, PCRLs in the mortgage business have been restated. The restatement has been applied to the prior periods shown, causing increases of Â£172m at 31st December 2004 and at 1st January 2005. This restatement does not reflect changes in credit quality but arises from the application of revised methodology. Including Absa, the NPL and PCRL coverage ratios increased to 66.2% and 56.2% respectively at the end of 2005. These ratios are higher than those excluding Absa due to the fact that Absa has a higher proportion of retail lending which, in general, tends to carry a higher level of coverage than corporate lending. Excluding Absa, coverage of NPLs and PCRL by the stock of impairment allowances, at 64.8%, (1st January 2005: 64.5%) and 55.5% (1st January 2005: 54.0%) were broadly in line with those reported at 1st January 2005. 7. Available for sale financial investments As at 2005 01.01.05 2004 Â£m Â£m Â£m Debt securities 50,024 46,059 - Equity securities 1,250 675 - Treasury bills 2,223 1,143 - Other eligible bills - 220 - -------- -------- -------- Available for sale financial investments 53,497 48,097 - -------- -------- -------- As at 1st January 2005, financial instruments have been classified and measured in accordance with IAS 39. In general, investment securities held under UK GAAP have been classified as available for sale under IFRS. 8. Other assets As at 2005 01.01.05 2004 Â£m Â£m Â£m Sundry debtors 3,569 3,042 3,711 Prepayments 722 415 467 Balances arising from off-balance sheet instruments - - 18,174 Accrued income 329 190 3,563 -------- -------- -------- Other assets 4,620 3,647 25,915 -------- -------- -------- As at 1st January 2005, balances arising from off-balance sheet instruments were reclassified to derivative financial instruments. Also from 1st January 2005, accrued income no longer includes accrued interest, which is now included within the classes of financial instruments to which the accrued interest relates. 9. Insurance assets, including unit-linked assets As at 2005 01.01.05 2004 Â£m Â£m Â£m Reinsurer's share of provisions 114 109 109 Assets held to cover linked liabilities - - 5,870 Assets held to cover non-linked liabilities - - 2,597 -------- -------- -------- Insurance assets, including unit-linked assets 114 109 8,576 -------- -------- -------- In 2005, investment and insurance contracts are separately accounted for in accordance with IAS 39 and IFRS 4. At 1st January 2005, this has resulted in the majority of the assets within the life assurance businesses being classified as financial assets designated at fair value. These assets are held both in respect of linked liabilities to customers under investment contracts and also held on own account. In 2004, assets held to cover linked liabilities and provision for linked liabilities were aggregated and reported as insurance assets and insurance contract liabilities. 10. Insurance contract liabilities, including unit-linked liabilities As at 2005 01.01.05 2004 Â£m Â£m Â£m Long term business provision: - Provision for linked liabilities 1,532 1,460 5,821 - Provision for non-unit linked liabilities 2,187 2,100 2,520 Provision for claims outstanding 48 36 36 -------- -------- -------- Insurance contract liabilities, including unit-linked liabilities 3,767 3,596 8,377 -------- -------- -------- In 2005, investment and insurance contracts are separately accounted for in accordance with IAS 39 and IFRS 4. In 2004, assets held to cover linked liabilities and provision for linked liabilities were aggregated and reported as insurance assets and insurance contract liabilities. 11. Other liabilities As at 2005 01.01.05 2004 Â£m Â£m Â£m Obligations under finance leases payable 289 353 353 Balances arising from off-balance sheet financial instruments - - 18,009 Sundry creditors 6,131 5,021 3,851 Accruals and deferred income 4,711 4,495 6,820 Short positions in securities - - 53,903 -------- -------- -------- Other liabilities 11,131 9,869 82,936 -------- -------- -------- As at 1st January 2005, balances arising from off-balance sheet instruments were reclassified to derivative financial instruments and short positions in securities were reclassified to trading portfolio liabilities. Also from 1st January 2005, accruals and deferred income no longer includes accrued interest, which is now included within the classes of financial instruments to which the accrued interest relates. 12. Other provisions for liabilities As at 2005 01.01.05 2004 Â£m Â£m Â£m Customer loyalty provisions - - 12 Redundancy and restructuring 74 97 97 Undrawn contractually committed facilities and guarantees 55 55 55 Onerous contracts 79 39 39 Sundry provisions 309 212 213 -------- -------- -------- Other provisions for liabilities 517 403 416 -------- -------- -------- As at 1st January 2005, the customer loyalty provision has been reclassified to other liabilities. Other provisions for liabilities rose Â£101m to Â£517m (2004: Â£416m), principally reflecting the inclusion of Absa (Â£45m) and property costs relating to the head office relocation to Canary Wharf (Â£40m). 13. Retirement benefit liabilities The Group's IAS 19 pension deficit across all schemes as at 31st December 2005 was Â£2,879m (2004: Â£2,464m). This comprises net recognised liabilities of Â£1,737m (2004: Â£1,786m) and unrecognised actuarial losses of Â£1,142m (2004: Â£678m). The net recognised liabilities comprises retirement benefit liabilities of Â£1,823m (2004: Â£1,865m) and assets of Â£86m (2004: Â£79m). The Group's IAS 19 pension deficit in respect of the main UK scheme as at 31st December 2005 was Â£2,535m (2004: Â£2,220m). The actuarial funding position of the main UK pension scheme as at 31st December 2005, estimated from the formal triennial valuation in 2004, was a surplus of Â£900m (2004: deficit of Â£50m). Cash contributions to the Group's schemes totalled Â£373m in 2005 (2004: Â£279m), including Â£354m to the main UK scheme (2004: Â£255m). The Pensions Protection Fund (PPF) solvency ratio(1) for the main UK scheme as at 31st December 2005 was estimated to be 110%. (1) The PPF solvency ratio represents the funds assets as a percentage of pension liabilities calculated using a section 179 valuation model to be finalised in March 2006 and agreed with the PPF. 14. Legal proceedings Proceedings, including a class action, have been brought in the United States against a number of defendants, including Barclays, following the collapse of Enron. In each case the claims are against groups of defendants. Barclays considers that the claims against it are without merit and is defending them vigorously. The trial of the class action claims relating to Enron is currently scheduled to begin in October 2006. A court ordered mediation commenced in September 2003 but no material progress has been made towards a resolution of the litigation, although certain other defendants have reached settlements. In addition, in respect of investigations relating to Enron, Barclays is continuing to provide information in response to enquiries by regulatory and governmental authorities in the United States and elsewhere. It is not possible to estimate Barclays possible loss in relation to these matters, nor the effect that it might have upon operating results in any particular financial period. Barclays has been in negotiations with the staff of the US Securities and Exchange Commission with respect to a settlement of the Commission's investigation of transactions between Barclays and Enron. Barclays has also been in negotiations in the Enron bankruptcy proceedings. Barclays does not expect that the amount of any settlement with the Commission or in the bankruptcy proceedings would have a significant adverse effect on its financial position or operating results. Barclays is engaged in various other litigation proceedings both in the United Kingdom and a number of overseas jurisdictions, including the United States, involving claims by and against it, which arise in the ordinary course of business. Barclays does not expect the ultimate resolution of any of the proceedings to which Barclays is party to have a significant adverse effect on the financial position of the Group and Barclays has not disclosed the contingent liabilities associated with these claims either because they cannot reasonably be estimated or because such disclosure could be prejudicial to the conduct of the claims. 15. Contingent liabilities and commitments As at 2005 01.01.05 2004 Contingent liabilities Â£m Â£m Â£m Acceptances and endorsements 283 303 303 Guarantees and assets pledged as collateral for security 38,035 30,011 30,011 Other contingent liabilities 8,825 8,245 8,245 -------- -------- -------- 47,143 38,559 38,559 -------- -------- -------- Commitments Standby facilities, credit lines and other commitments 203,785 134,051 134,051 -------- -------- -------- Contingent liabilities increased 22% (Â£8.5bn) to Â£47.1bn (1st January 2005: Â£38.6bn) due to increases in securities lending activity within Barclays Global Investors. The inclusion of Absa increased contingent liabilities by Â£1.6bn. Commitments increased 52% (Â£69.7bn) to Â£203.8m (1st January 2005: Â£134.1bn) primarily because of the inclusion of Absa and new facilities within Barclays Capital, Barclaycard and UK Banking. The inclusion of Absa increased commitments by Â£23.6bn. 16. Market risk Barclays policy is that the market risks associated with business activities are clearly identified, assessed and controlled within agreed limits and that the market risks arising from trading activities are concentrated in Barclays Capital. Barclays uses a 'value at risk' measure as the primary mechanism for controlling market risk. Daily Value at Risk (DVaR) is an estimate of the potential loss which might arise from unfavourable market movements, if the current positions were to be held unchanged for one business day, measured to a confidence level of 98%. Daily losses exceeding the DVaR figure are likely to occur, on average, twice in every one hundred business days. In 2005, the DVaR methodology for credit spread risk was enhanced. The original methodology was currency dependent and incorporated seven credit categories, these being interest rate swaps and six credit rating based categories. The enhanced 'specific credit spread' method replaces the rating and currency based approach with a name specific approach and was rolled out in phases across a number of business lines. The enhanced model captures concentration risk and responds quickly to changing market conditions and individual company circumstances. 'Specific credit spread' risk is reported within credit spread risk in the table on page 85. Also in 2005, a methodology enhancement was introduced for inflation products. Inflation risk is reported within Interest rate risk in the table on page 85. The impact of these methodology changes was not material and has not been reflected in the 2004 comparative data. Analysis of Barclays Capital's market risk exposures Barclays Capital's market risk exposure, as measured by average total Daily Value at Risk, decreased by 7% in 2005. This was mainly a consequence of increased geographical and product diversification resulting from business growth. DVaR Twelve months to 31st December 2005 ------------------- Average High(1) Low(1) Â£m Â£m Â£m Interest rate risk 25.3 44.8 15.4 Credit spread risk 23.0 28.3 19.0 Foreign exchange risk 2.8 5.3 1.4 Equities risk 5.9 8.2 3.9 Commodities risk 6.8 11.4 4.5 Diversification effect (31.9) - - ------- -------- ------- Total DVaR(2) 31.9 40.4 25.4 ------- -------- ------- Twelve months to 31st December 2004 ------------------- Average High(1) Low(1) Â£m Â£m Â£m Interest rate risk 25.0 53.6 15.1 Credit spread risk 22.6 32.9 16.0 Foreign exchange risk 2.4 7.4 0.9 Equities risk 4.2 7.9 2.2 Commodities risk 6.0 14.4 2.2 Diversification effect (25.9) - - ------- ------- ------- Total DVaR 34.3 46.8 24.0 ------- ------- ------- (1) The high (and low) DVaR figures reported for each category did not necessarily occur on the same day as the high (and low) DVaR reported as a whole. Consequently a diversification effect number for the high (and low) DVaR figures would not be meaningful and it is therefore omitted from the above table. (2) The year-end total DVaR for 2005 was Â£37.4m (2004: Â£31.9m). CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 2005 2004 Â£m Â£m Net movements in available for sale reserve (109) - Net movements in cash flow hedging reserve (119) - Currency translation differences arising during the year 300 (58) Tax 50 - Other movements (102) - -------- -------- Amounts included directly in equity 20 (58) Profit for the year 3,841 3,301 -------- -------- Total recognised income and expense for the year 3,861 3,243 -------- -------- Attributable to: Equity holders of the parent 3,379 3,196 Minority interests 482 47 -------- -------- 3,861 3,243 -------- -------- The consolidated statement of recognised income and expense reflects the accumulated income and expense for the year, including items taken directly to equity and reserves. In accordance with IAS 39, gains or losses arising from the change in fair value of available for sale assets are recognised in the available for sale reserve except for impairment losses and foreign exchange gains or losses on monetary items such as debt securities, which are recognised in income. When an available for sale asset is impaired or derecognised, the cumulative gain or loss previously recognised in the available for sale reserve is transferred to income. In accordance with IAS 39, cash flow hedging aims to minimise exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability that could affect profit or loss. The portion of the gain or loss on the hedging instrument that is deemed to be an effective hedge is recognised in the cash flow hedging reserve. The gains and losses deferred in this reserve are transferred to income in the same period or periods during which the hedged item effects profit or loss. Exchange differences arising on the net investments in foreign operations and effective hedges of net investments are recognised in the translation reserve and transferred to income on the disposal of the net investment. Tax comprises tax on items taken directly to reserves, including tax on the available for sale reserve and cash flow hedging reserve. Other movements primarily reflects the change in insurance liabilities taken directly to reserves. SUMMARY CONSOLIDATED CASH FLOW STATEMENT 2005 2004 Â£m Â£m Net cash (outflow)/inflow from operating activities (10,498) 5,171 Net cash outflow from investing activities (5,181) (6,998) Net cash inflow from financing activities 15,119 2,960 Net gain on exchange rate changes on cash and cash equivalents (237) (470) -------- -------- Net (decrease)/increase in cash and cash equivalents (797) 663 Cash and cash equivalents at beginning of period 21,602 13,854 -------- -------- Cash and cash equivalents at end of period 20,805 14,517 -------- -------- The opening cash and cash equivalents balance has been adjusted by Â£7.1bn to reflect the application of IAS 32 and IAS 39. In 2005 the inflow from securitisations of Â£14.0bn (2004: Â£4.2bn) is included in net cash inflow from financing activities and net cash outflow from operating activities. OTHER INFORMATION Registered office 1 Churchill Place, London, E14 5HP, England, United Kingdom. Tel: +44 (0) 20 7116 1000. Company number: 48839. Website www.barclays.com Registrar The Registrar to Barclays PLC, The Causeway, Worthing, West Sussex, BN99 6DA, England, United Kingdom. Tel: + 44 (0) 870 609 4535. Listing The principal trading market for Barclays PLC ordinary shares is the London Stock Exchange. Ordinary shares are also listed on the New York Stock Exchange and the Tokyo Stock Exchange. Trading on the New York Stock Exchange is in the form of ADSs under the ticker symbol 'BCS'. Each ADS represents four ordinary shares of 25p each and is evidenced by an ADR. The ADR depositary is The Bank of New York whose international telephone number is +1-212-815-3700, whose domestic telephone number is 1-888-BNY-ADRS and whose address is The Bank of New York, Investor Relations, PO Box 11258, Church Street Station, New York, NY 10286-1258. Filings with the SEC Statutory accounts for the year ended 31st December 2005, 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), can be obtained from Corporate Communications, Barclays Bank PLC, 200 Park Avenue, New York, NY 10166, United States of America or from the Director, Investor Relations at Barclays registered office address, shown above, once they have been published in late March. Once filed with the SEC, copies of the Form 20-F will also be available from the Barclays Investor Relations' website (details below) and from the SEC's website (www.sec.gov). Results timetable Ex Dividend Date Wednesday, 1st March 2006 Dividend Record Date Friday, 3rd March 2006 2006 Annual General Meeting Thursday, 27th April 2006 Dividend Payment Date Friday, 28th April 2006 2006 Trading Update* Thursday, 25th May 2006 2006 Interim Results Announcement* Thursday, 3rd August 2006 *Note that these announcement dates are provisional and subject to change. Economic data 2005 2004 Period end - US$/Â£ 1.72 1.92 Average - US$/Â£ 1.82 1.83 Period end - â‚¬/Â£ 1.46 1.41 Average - â‚¬/Â£ 1.46 1.47 Period end - R/Â£ 10.87 10.86 Average - R/Â£ 11.57 11.83 For further information please contact: Investor Relations Media Relations -------------------- ----------------- Mark Merson/James S Johnson Stephen Whitehead/Chris Tucker +44 (0) 20 7116 5752/2927 +44 (0) 20 7116 6060/6223 More information on Barclays can be found on our website at the following address:www.investorrelations.barclays.co.uk An interview with John Varley, Group Chief Executive, is available in video, audio and text on http://www.investorrelations.barclays.co.uk and http://www.cantos.com. Index of Main Reference Points Acquisitions and disposals 69 Additional information 68 Allowance for impairment on loans and advances 76 Amortisation of intangible assets 52 Available for sale financial investments 80 Balance sheet (consolidated) 12-13 Barclaycard 16, 34 Barclays Capital 15, 26 Barclays Global Investors 15, 28 Basis of preparation 68 Business margins 45 Capital ratios 57 Capital resources 56 Cash flow statement - summary (consolidated) 87 Change in accounting estimate 70 Competition and regulatory matters 71 Contingent liabilities and commitments 83 Derivative financial instruments 72 Dividends on ordinary shares 55 Daily Value at Risk (DVaR) 84 Earnings per share 55 Economic capital 60 Economic capital demand 61 Economic capital supply 63 Economic data 88 Economic profit 64 Filings with the SEC 70 Financial highlights 4 Goals reporting 66 Group Chief Executive's Statement 5 Group Finance Director's Review 8 Group share schemes 70 Group structure changes from 2004 68 Head office functions and other operations 17, 42 Hedge accounting 70 IFRS ii, 9 Impairment charge and other credit provisions 50 Income statement (consolidated) 11 Insurance assets 81 Insurance contract liabilities 81 International Retail and Commercial Banking 16, 37 - excluding Absa 16, 38 - Absa 16, 40 Legal proceedings 83 Loans and advances to banks 74 Loans and advances to customers 75 Market risk 84 Net fee and commission income 47 Net premiums from insurance contracts 49 Net claims and benefits paid on insurance contracts 49 Net interest income 44 Operating expenses 51 Other assets 81 Other information 88 Other liabilities 82 Other income 49 Other provisions for liabilities 82 Performance summary 2 Performance ratios 4 Potential credit risk loans 78 Principal transactions 48 Profit attributable to minority interests 54 Profit before tax 1 Recent developments 71 Reconciliation of regulatory capital 58 Results by business 14 Results timetable 88 Retirement benefit liabilities 82 Risk asset ratio 57 Risk Tendency 67 Share capital 70 Share of post-tax results of associates and joint ventures 54 Staff costs 52 Staff numbers 53 Statement of recognised income and expense (consolidated) 86 Summary of key information 1 Tax 54 Total assets 19, 59 UK Banking 14, 20 UK Business Banking 14, 24 UK Retail Banking 14, 22 Wealth Management 15, 30 Wealth Management-closed life assurance activities 15, 32 Weighted risk assets 19, 59 This information is provided by RNS The company news service from the London Stock Exchange

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