Final Results - Year Ended 31 Dec 1999, Part 1

Barclays PLC 15 February 2000 Part 1 1999 Results Announcement BARCLAYS PLC PRELIMINARY ANNOUNCEMENT OF RESULTS FOR 1999 Page Summary 1 Financial highlights 3 Chairman's statement 4 Chief Executive's statement 5 Summary of results 8 Consolidated profit and loss account 9 Consolidated profit and loss account for the ongoing business 10 Consolidated balance sheet 11 Financial review 12 Additional information 40 Notes 42 Consolidated statement of changes in shareholders' funds 56 Statement of total recognised gains and losses 56 Summary consolidated cashflow statement 57 Other information 59 The information in this announcement, which was approved by the Board of Directors on 14th February 2000, does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts, which are combined with the Group's annual report on Form 20-F to the US Securities and Exchange Commission and which contain an unqualified audit report, will be delivered to the Registrar of Companies in accordance with Section 242 of the Companies Act 1985. The 1999 Annual Review and Summary Financial Statement will be posted to shareholders at the beginning of March and the Group's annual report will be posted to shareholders who have requested it towards the end of March 2000. This document contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act 1995 with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition and performance. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, many of which are beyond the Group's control. As a result, the Group's actual future results may differ materially from the plans, goals, and expectations set forth in the Group's forward-looking statements. BARCLAYS PLC, 54 LOMBARD STREET, LONDON EC3P 3AH, TELEPHONE 0171 699 5000 15th February 2000 BARCLAYS PLC - SUMMARY RESULTS FOR YEAR TO 31ST DECEMBER 1999 1999 1998 £m £m Operating profit before provisions* 3,564 2,539 Provisions for bad and doubtful (621) (492) debts Provisions for contingent (1) (76) liabilities and commitments Operating profit* 2,942 1,971 Restructuring charge (344) - Exceptional items (138) 1 Former BZW businesses - (33) Write-down of leases - (40) Write-down of fixed asset - (4) investments Profit before tax 2,460 1,895 Tax charge (649) (533) Profit attributable to shareholders 1,759 1,317 Earnings per share 117.5p 87.2p Earnings per share (based on 142.8p 89.6p operating profit above)* Dividend per share 50.0p 43.0p * Operating profit shown above excludes the 1999 restructuring charge. In 1998, operating profit excludes residual losses of the former BZW businesses and is stated prior to the write-down of leases as a result of the Finance Act 1998. Profit and loss items reported below are on a similar basis. In addition, earnings per share and post tax return on average shareholders' funds reported below exclude exceptional items and write-down of fixed asset investments. - Operating profit rose 49% to £2,942 million (1998: £1,971 million). - Operating income increased 13% to £8,364 million (1998: £7,416 million). Operating costs at £4,800 million (1998: £4,877 million) were tightly controlled. - Earnings per share increased by 59% to 142.8p (1998: 89.6p). - Post-tax return on average shareholders' funds improved to 25.0% (1998: 17.3%). The Group's target post-tax return on equity in the short term is at least 20% per annum. - The dividend increased by 16% with a second interim dividend of 32.5p (1998: 27.5p) making 50p per share for the year (1998: 43p). The Group maintains a progressive dividend policy, to achieve a cover of at least two times earnings, on a maintainable basis. - Economic profit, including exceptional items and restructuring charges but excluding the charge for the write-back of goodwill on disposals, increased to £986 million (1998: £471million). BARCLAYS PLC - SUMMARY - Assessing businesses on the basis of economic profit imposes a strong capital management discipline. The Group's aim is to maintain a minimum tier 1 ratio of 7% and risk asset ratio of 10%. - Shareholders' funds were £8.5 billion at 31st December 1999 (1998: £7.8 billion) and the tier 1 ratio was 7.5% (1998: 7.3%). The Group's economic capital requirement is estimated to be around £7.0 billion to support its current business requirements and to allow for future growth. - Share buy-backs will continue to be used as an efficient and flexible capital management tool. They allow for tier 1 capital to be reduced and surplus funds to be returned to shareholders. In 1999, the Group returned £500 million of capital to shareholders. - Retail Financial Services increased operating profit by 16% to £1,713 million (1998: £1,477 million). Net interest income improved by 5% reflecting strong volume growth in UK consumer lending and extended credit balances at Barclaycard. Net fees and commissions grew 3% predominantly within Wealth Management. Total costs at £2,723 million (1998: £2,852 million) benefited from greater efficiencies and the impact of the 1999 restructuring programme. - Corporate Banking produced a good underlying performance. Net interest income rose 5% after adjusting for a £20 million debt recovery in 1998. Fees and commissions increased 13% as a result of increased lending related fees and foreign exchange related income. Total costs were maintained at 1998 levels. - Barclays Capital operating profit of £316 million (1998: operating loss of £270 million) reflects a strong performance and the return to stability in the financial markets. Both the Rates and Credit businesses performed well despite a more challenging trading environment in the second half of the year. - Barclays Global Investors operating profit was lower at £43 million (1998: £52 million) as a result of increased investment in the business. Total assets under management rose strongly to £486 billion (1998: £370 billion). - The restructuring charge of £344 million for 1999 primarily relates to Retail Financial Services and Corporate Banking. Gross reduction in job numbers of 7,500 has been achieved from the 1999 restructuring programme and the Barclaycard change programme. - Total provisions for bad and doubtful debts rose by £129 million to £621 million, mainly as a result of higher levels of new and increased provisions reflecting strong volume growth within Retail Financial Services. This was offset partly by the absence of new and increased provisions of £153 million charged in 1998 in respect of Russian counterparties. Releases and recoveries also fell by £61 million to £250 million. - The exceptional loss of £138 million is mainly in respect of the loss on the sale of Merck Finck and Co, which included £138 million of goodwill previously written-off to reserves. FINANCIAL HIGHLIGHTS 1999 1998 RESULTS £m £m Net interest income* 4,627 4,353 Non-interest income* 3,737 3,063 Operating income* 8,364 7,416 Operating expenses* (4,800) (4,877) Operating profit before provisions* 3,564 2,539 Provisions for bad and doubtful (621) (492) debts Provisions for contingent (1) (76) liabilities and commitments Operating profit* 2,942 1,971 Restructuring charge (344) - Exceptional items (138) 1 Former BZW businesses - (33) Write-down of leases - (40) Write-down of fixed asset - (4) investments Profit before tax 2,460 1,895 Profit attributable to shareholders 1,759 1,317 Profit retained 1,013 671 BALANCE SHEET Shareholders' funds 8,483 7,842 Loan capital 4,597 3,734 Total capital resources 13,432 11,890 Total assets 254,793 219,494 Weighted risk assets 115,878 109,800 PER ORDINARY SHARE P P Earnings 117.5 87.2 Earnings (based on operating profit 142.8 89.6 above)* Dividend 50.0 43.0 Net asset value 568 519 PERFORMANCE RATIO % % Post-tax return on average 21.2 16.9 shareholders' funds Post-tax return on average shareholders' funds (based on operating profit above)* 25.0 17.3 RISK ASSET RATIO Tier 1 7.5 7.3 Total 11.3 10.6 GROUP YIELDS, SPREADS & MARGINS % % Gross yield 6.84 7.81 Interest spread 2.88 2.69 Interest margin 3.40 3.42 EXCHANGE RATES US$/£ US$/£ Period end 1.62 1.66 Average 1.62 1.66 *The 1999 results for the ongoing business exclude the restructuring charge. The 1998 results exclude the residual losses of the former BZW businesses and are stated prior to the write-down of leases as a result of the Finance Act 1998. CHAIRMAN'S STATEMENT Our strong financial performance in 1999 has taken place against a backdrop of rapid change in the financial services industry, which is being revolutionised by increased competition, technology and consumer demand. The scale of competition in the financial services industry has changed dramatically in recent years. The advent of the euro, the removal of legal and political trade barriers and consolidation and merger activity is transforming banking into a global industry. We must now measure our performance against the highest standards world-wide and I believe that one aspect which clearly differentiates Barclays from the competition is our strong brand which has both domestic recognition and international stature. Advances in technology are also driving change and continue to reduce barriers to entry in our industry. While this increases the speed and variety of new entrants to the market, it also provides us with tremendous opportunities to re-engineer the way we do business and create new and innovative products and services for our customers. The competitive environment is increasingly fierce, not least because our customers are progressively more discerning and their needs more diverse. As our customers' lives become busier and more disparate their expectations of financial organisations are undergoing a transformation. Customers' needs range from the speed and convenience of electronic channels to the personal face to face contact of our branch network. As governments become less paternalistic the demand for products such as personal pensions and health care provision increases. To ensure that we continue to understand and respond to our customers' changing demands we spent significantly on customer research programmes in 1999. While our customers are more discerning, our stakeholders too are more active in questioning the behaviour of large prominent corporates such as Barclays. We aim to be a responsible employer and corporate citizen by proactively providing attractive opportunities for staff, making a positive contribution to the community and addressing issues of social concern such as the pressing problem of financial exclusion, where we seek to provide innovative and sustainable solutions. These solutions range from developing new products and services through to working with organisations in affected communities such as credit unions, consumer support groups and charities. This has been a challenging year for the business and particularly for our people. The appointment of David Allvey as Group Finance Director has enhanced a strong management team which will gain immensely from the leadership of our new Group Chief Executive, Matthew Barrett. With their contribution and the skills and continuing commitment of all our people, I am confident that the value we add to our customers, shareholders and the community will increase. Sir Peter Middleton GCB Group Chairman CHIEF EXECUTIVE'S STATEMENT 1999 was an excellent year for Barclays. Profit before tax was £2.46 billion, a 30% increase on last year. Earnings per share were 117.5p and our post-tax return on equity was 21.2%. These achievements, and our underlying strengths, give me confidence that Barclays has enormous potential for future growth. With this in mind the total dividend payout for the year is 50p, a 16% increase over 1998. Certainly we start from a very sound base, as our 1999 figures demonstrate. Retail Financial Services, which represents some 60% of the Group's operating profit, increased profit by 16% to over £1.7 billion. All the major retail businesses performed well and present significant growth opportunities. Corporate Banking achieved operating profit of nearly £1 billion. We have a first-class middle market business, which is a UK leader, and around one quarter of UK companies bank with us. Barclays Capital achieved a complete turnaround with a profit of £316 million and made significant progress in extending its franchise, while taking less risk. Barclays Global Investors' operating profit was £43 million, and reflected increased investment in a number of strategic programmes. Assets under management grew by over 30% to £486 billion. While I am pleased with these achievements, I am also convinced that the Group can raise performance to even higher levels and meet a target of doubling economic profit every four years. Many of the elements and initiatives to get there are already in place, but we must accelerate the pace and sharpen our focus. In addition to targeting traditional areas of growth, my colleagues and I intend to get there by transforming our management framework and approach, setting our priorities for top-line growth, re-engineering our technological infrastructure and aggressively seeking improved productivity. We will do all this by having committed employees and by ensuring our customers associate our brand with the highest quality of professional service. We will do it, too, within the strong capital and risk management framework for which Barclays is known. Implementing a rigorous, value-based management framework Our guiding focus will be the creation of value for our shareholders, using the management framework called value-based management or VBM. Its yardstick of economic profit, that is, profit after deducting the cost of capital employed, enables management to compare the relative performance of all our lines of business. Once VBM is up and running, all our lines of business across the Group will be judged by the standard of their potential to double economic profit every four years, calculated on a rolling basis across the business cycle. Performance management and incentives will also be aligned to economic profit. We believe this framework will allow us to unlock the hidden value of our capital, skills and reputation and meet our overarching goal of maximising shareholder value. VBM favours three major pillars of financial discipline: revenue growth, higher productivity, and tight capital management. These three are interdependent and when properly handled, they are mutually re-enforcing. Barclays has already made good progress on cost-control and capital management, although we have more to do particularly in terms of costs. Now we are developing significant opportunities for growth across the Group, both in traditional revenue streams and in new e-commerce initiatives. Portfolio mix and growth opportunities In Retail Financial Services we aim to bring our market share of savings, investments and domestic mortgages more in line with our share of current accounts. Barclaycard is the leading European card brand with the potential to extend its market still further. In Wealth Management, where we already have several strong businesses and large customer bases, we believe we can be a European leader in this attractive market. In Corporate Banking we will build on our leading position in the UK middle market as well as the substantial cross-border trading between the UK and continental Europe where our presence in nine European countries gives us a competitive advantage. For Barclays Capital there are growth opportunities in the European markets as the sophistication of European corporates and investors increases. The bond market in Europe is underdeveloped relative to North America, giving us plenty of room to grow. Our debt-focused model has already yielded strong results. Barclays Global Investors continues to invest, recognising the need to maintain its strong global position. BGI has developed a new generation of higher-margin products and is now making progress in high growth markets such as defined contribution pensions and exchange traded funds. Transforming our technology infrastructure Our plans for accelerating the technological transformation of Barclays offer the greatest opportunities, both to grow traditional revenues and especially to win a large share of the business currently passing under the heading e-commerce. Five years from now, there will be no distinct e-businesses or dotcom companies; only companies that have learned how to change their business model and survived, and those that have fallen by the wayside. A bank with the brand value of Barclays, 300 years of trust and integrity, and a customer base that a dotcom business would envy, is particularly well placed to take advantage of this new economy. We are also, however, well aware of the pitfalls. We do not plan to buy market share by sacrificing margins but to introduce new technology in step with our customers' willingness to pay for it. Our long record of firsts in information technology proves, in our view, that big banks can be leaders in this field and make profits in it. Already, we are pioneering customer applications in e-commerce across all our businesses. In internet banking alone, we are the UK leader by a considerable margin, with 500,000 customers at the end of last year and plans to have more than one million by the end of 2000. In January alone 100,000 new customers took advantage of our internet offering. Our multi- delivery channel approach, which gives customers a choice of internet banking, telephone banking or a branch, will enable us to compete on service and value and not just on price. I believe this will be a major competitive advantage in profitable market segments over virtual-only new entrants. In Corporate Banking, around 30,000 customers use our electronic banking products, up 44% within 12 months. Improving our productivity Higher productivity is essential to build profitability, to fund future investment and to allow us selectively to compete on price. Costs were flat in 1999, but we need a permanent commitment to productivity, in effect a whole new way of running the bank. We have identified potential savings by aggressively targeting three areas: - The continuing transformation of our distribution network - The re-design of back-office systems - Streamlining our administrative and support overheads Our objective, by the end of 2003, is to offset inflationary and volume- related cost increases by reducing run-rate costs by £1 billion. This will assist us in reaching our target of doubling economic profit every four years. Investing in our employees, customers and brand Value based management will demand large resources of professional, dedicated management. It is well known that staff numbers are declining across the financial services industry and this trend will continue as our customers shift from capital-intensive distribution channels. On the other hand there are many more opportunities opening up for truly challenging and rewarding careers in our industry. If we offer our people the chance to acquire the skills, experience and attitudes they need to build successful careers at Barclays, we will be acting in the best interests of the Group and our staff. Motivated employees can give our customers what we owe them first and foremost - professional service, along with choice, reliability and security. Barclays name is one of the best known for integrity and trust in the UK and around the world. Barclays today, however, is also about value, size, innovation and diversity. Our challenge is to take these strengths both new and old and make them relevant to our customers' needs as they perceive them. As we do these things, we are taking long strides toward our vision of being one of the premier financial service companies in the world. Matthew W. Barrett Group Chief Executive SUMMARY OF RESULTS PROFIT BEFORE TAX 1999 1998 £m £m Retail Financial Services 1,713 1,477 Corporate Banking* 947 991 Barclays Capital 316 (270) Barclays Global Investors 43 52 Businesses in Transition** - 48 Other operations 13 (167) Head office functions (77) (72) Goodwill amortisation (13) (12) Provision for litigation - (76) settlement*** Operating profit 2,942 1,971 Restructuring charge (344) - Exceptional items (138) 1 Former BZW businesses - (33) Write-down of leases - (40) Write-down of fixed asset - (4) investments 2,460 1,895 1999 1998 TOTAL ASSETS £m £m Retail Financial Services 48,726 46,197 Corporate Banking 47,422 45,341 Barclays Capital 144,811 114,706 Barclays Global Investors 232 183 Businesses in Transition - 554 Other operations and Head office 5,562 5,428 functions Retail life-fund assets 8,040 7,085 attributable to policyholders 254,793 219,494 WEIGHTED RISK ASSETS Retail Financial Services 33,362 31,546 Corporate Banking 48,218 45,869 Barclays Capital 32,032 29,344 Barclays Global Investors 456 207 Businesses in Transition - 594 Other operations 1,810 2,240 115,878 109,800 * Figures are stated prior to the write-down of leases. ** Businesses in Transition 1998 profit before tax excludes the residual losses of the former BZW businesses which are shown separately. ***The 1998 provision relates to the settlement of the Atlantic litigation (see page 20). CONSOLIDATED PROFIT AND LOSS ACCOUNT 1999 1998 £m £m Interest receivable 9,320 9,952 Interest payable (4,696) (5,604) Write-down of leases - (40) Profit on redemption/repurchase of 3 3 loan capital Net interest income 4,627 4,311 Net fees and commissions 2,932 2,779 receivable Dealing profits 561 (33) Other operating income 244 324 Total non-interest income 3,737 3,070 Operating income 8,364 7,381 Administration expenses - staff (3,057) (2,811) costs Administration expenses - other (1,807) (1,829) Depreciation and amortisation (280) (275) Operating expenses (5,144) (4,915) Operating profit before provisions 3,220 2,466 Provisions for bad and doubtful (621) (492) debts Provisions for contingent (1) (76) liabilities and commitments Operating profit 2,598 1,898 Exceptional items (138) 1 Write-down of fixed asset - (4) investments Profit on ordinary activities 2,460 1,895 before tax Tax on profit on ordinary (649) (533) activities Profit on ordinary activities 1,811 1,362 after tax Minority interests (equity and non- (52) (45) equity) Profit for the financial year 1,759 1,317 attributable to the members of Barclays PLC Dividends (746) (646) Profit retained for the financial 1,013 671 year Earnings per ordinary share 117.5p 87.2p Earnings per ordinary share for 142.8p 89.6p the ongoing business Dividend per ordinary share: First interim 17.5p 15.5p Second interim (payable 3rd May 32.5p 27.5p 2000) CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE ONGOING BUSINESS 1999 1998 £m £m Interest receivable 9,320 9,952 Interest payable (4,696) (5,602) Profit on redemption/repurchase of 3 3 loan capital Net interest income 4,627 4,353 Net fees and commissions 2,932 2,771 receivable Dealing profits 561 (27) Other operating income 244 319 Total non-interest income 3,737 3,063 Operating income 8,364 7,416 Administration expenses - staff (2,865) (2,789) costs Administration expenses - other (1,655) (1,812) Depreciation and amortisation (280) (276) Operating expenses (4,800) (4,877) Operating profit before provisions 3,564 2,539 Provisions for bad and doubtful (621) (492) debts Provisions for contingent (1) (76) liabilities and commitments Operating profit for the ongoing 2,942 1,971 business Restructuring charge (344) - Exceptional items (138) 1 Former BZW businesses - (33) Write-down of leases - (40) Write-down of fixed asset - (4) investments Profit on ordinary activities 2,460 1,895 before tax The results shown on page 9 include the 1999 restructuring charge and the residual losses relating to the former BZW businesses and the impact of the Finance Act in 1998. The table above presents the consolidated profit and loss account for the ongoing business excluding the impact of these items. CONSOLIDATED BALANCE SHEET 1999 1998 Assets: £m £m Cash and balances at central banks 1,166 942 Items in course of collection from 2,492 2,475 other banks Treasury bills and other eligible 7,176 4,748 bills Loans and advances to banks - banking 13,071 20,316 - trading 29,585 16,296 42,656 36,612 Loans and advances to customers - banking 95,006 81,469 - trading 18,532 14,641 113,538 96,110 Debt and equity securities 59,523 50,068 Interests in associated 106 150 undertakings and joint ventures Intangible fixed assets - goodwill 183 196 Tangible fixed assets 1,800 1,939 Other assets 18,113 19,169 246,753 212,409 Retail life-fund assets 8,040 7,085 attributable to policyholders Total assets 254,793 219,494 Liabilities: Deposits by banks - banking 26,915 25,951 - trading 17,571 8,469 44,486 34,420 Customer accounts - banking 105,027 96,099 - trading 18,939 12,706 123,966 108,805 Debt securities in issue 23,329 17,824 Items in course of collection due 1,400 1,279 to other banks Other liabilities 40,140 38,191 Undated loan capital - convertible 309 301 to preference shares Undated loan capital - non- 1,440 1,441 convertible Dated loan capital - non- 2,848 1,992 convertible 237,918 204,253 Minority interests and shareholders' funds: Minority interests: equity 82 51 Minority interests: non-equity 270 263 Called up share capital 1,495 1,511 Reserves 6,988 6,331 Shareholders' funds: equity 8,483 7,842 8,835 8,156 246,753 212,409 Retail life-fund liabilities 8,040 7,085 attributable to policyholders Total liabilities and 254,793 219,494 shareholders' funds FINANCIAL REVIEW Results by nature of income and expense Net interest income 1999 1998 £m £m Interest receivable 9,320 9,952 Interest payable (4,696) (5,604) Profit on redemption/repurchase of 3 3 loan capital 4,627 4,351 Write-down of leases - (40) 4,627 4,311 Excluding former BZW businesses 4,627 4,353 and write-down of leases Net interest income increased by £274m or 6%, excluding the contribution from the former BZW businesses and the write-down of leases. This reflected volume growth in Retail Financial Services and Corporate Banking and an improved contribution from the central management of Group capital. Retail Financial Services net interest income increased by 5% to £2,959m primarily through strong volume growth in average UK consumer lending (up 11% to £5.9bn) and average extended credit card balances (up 17% to £4.8bn). Average UK mortgage outstandings increased by 6% to £16.1bn with gross new lendings rising 37% to £4.8bn. Average UK savings balances rose 7% to £19.6bn in line with market growth. The UK lending margin improved reflecting a change in business mix, while the UK deposit margin narrowed due to competitor pricing pressure and lower interest rates. Corporate Banking net interest income rose by 5% to £1,252m after adjusting for a £20m recovery in 1998 from two debts previously written off. This reflects good growth in lending volumes mainly to larger and higher quality corporate customers. Average customer lendings rose by 7% to £43bn as a result of steady growth in UK lending and strong growth in international lending. UK large corporate lending benefited from increased acquisition finance activity. Average deposit volumes increased by 9% to £32bn despite continued contraction in corporate liquidity. Overall lending margins were maintained, while the deposit margin has reduced slightly reflecting stronger growth in lower margin treasury products and a reduced contribution from non-interest earning current accounts. Overall banking business margins fell slightly to 3.40% from 3.42%. The Group margin fell in the second half of 1999 compared to the first half of 1999 mainly reflecting increased volumes in the lower margin wholesale business which is conducted in Barclays Capital. Overall UK margins in Retail Financial Services and Corporate Banking reduced slightly in the second half of 1999 compared to the first half of the year. The Group spread improved in the year to 2.88% from 2.69% reflecting growth in lendings to customers and a change in the funding mix. The benefit of free funds fell from 0.73% to 0.52% largely because of lower interest rates. The fall in short-term market rates of interest increased the contribution to the net margin from the central management of Group interest rate exposure to 0.21% (1998: nil). The net surplus from the central management of Group capital improved to £44m (1998: deficit £98m), mainly as a result of reduced interest allocations to businesses reflecting lower short-term interest rates. Yields, spreads and margins - banking business Domestic business is conducted primarily in sterling and is transacted by Retail Financial Services, Corporate Banking, Barclays Capital and Group Treasury. International business is conducted primarily in foreign currencies. In addition to the business carried out by overseas branches and subsidiaries, international business is transacted in the United Kingdom by Barclays Capital, mainly with customers domiciled outside the United Kingdom. The yields, spreads and margins shown below have been computed on this basis, which generally reflects the domicile of the borrower. They exclude profits and losses on the redemption and repurchase of loan capital, one-off write-downs of leases and the unwinding of the discount on vacant leasehold property provisions. 1999 1998 % % Gross yield (i) Group 6.84 7.81 Domestic 7.66 8.90 International 5.38 5.84 Interest spread (ii) Group 2.88 2.69 Domestic 3.89 3.40 International 1.10 1.30 Interest margin (iii) Group 3.40 3.42 Domestic 4.47 4.44 International 1.47 1.55 Average UK base rate 5.35 7.23 Notes (i)Gross yield is the interest rate earned on average interest earning assets. (ii)Interest spread is the difference between the interest rate earned on average interest earning assets and the interest rate paid on average interest bearing liabilities. (iii)Interest margin is net interest income as a percentage of average interest earning assets. Average interest earning assets and liabilities - banking business 1999 1998 Average interest earning assets £m £m Group 136,267 127,396 Domestic 87,407 82,095 International 48,860 45,301 Average interest bearing liabilities Group 118,496 109,225 Domestic 73,850 66,492 International 44,646 42,733 Net fees and commissions 1999 1998 £m £m Fees and commissions receivable 3,207 3,008 Less: fees and commissions payable (275) (229) 2,932 2,779 Net fees and commissions were 6% higher at £2,932m with strong performances in all businesses. Retail Financial Services fees and commissions increased by 3% to £1,780m, despite a reduced contribution from Barclays Insurance following the move to in-house underwriting of all payment protection insurance in the middle of 1998. In-house underwriting income is reported in Other operating income and rose by £71m. The underlying rise reflects good growth in investment management income, increased dealing activity at Barclays Stockbrokers and improved business volumes in Private Banking and UK Premier. Barclaycard fees and commission income rose as a result of higher transaction volumes in both the issuing and acquiring businesses. In Corporate Banking, fees and commissions rose by 13% to £690m reflecting good growth in lending related fees and foreign exchange related income. Money transmission income was maintained at similar levels to 1998. Barclays Global Investors' fee income improved by 15% to £318m benefiting from new business growth in assets under management and favourable market conditions during the year. Increased revenues in advanced active and securities lending offset competitive pressure on margins within the index business. Net fees and commissions in Barclays Capital increased by 3% to £163m reflecting growth in fees earned in the primary corporate bond business and from loan arrangement activity. Corporate Banking and Retail Financial Services fee income from foreign exchange transactions includes £100m (1998: £81m) in respect of customer transactions with Barclays Capital. Dealing profits 1999 1998 £m £m Rates related business 398 135 Credit related business 163 (168) 561 (33) Almost all the Group's dealing profits arise in Barclays Capital, where these increased by £583m to £554m, reflecting the return to stability in the financial markets following the 1998 dislocation in the world credit markets. This was achieved while operating at lower levels of risk compared to last year. The Rates business continued to perform strongly with significant contributions in the foreign exchange, government bonds and interest rate derivatives businesses. In the Credit business, equity derivatives and secondary corporate bond businesses also made good contributions benefiting from increased customer related activities. Total foreign exchange income for the year was £380m (1998: £353m) and consists of the revenues earned from both retail and wholesale activities. The foreign exchange income earned by Retail Financial Services and Corporate Banking on customer transactions, both externally and with Barclays Capital, is reported within fees and commissions. Other operating income 1999 1998 £m £m (Loss)/income from associated undertakings and joint ventures (14) 22 Dividend income from equity shares 12 14 Profits on disposal of investment 41 41 securities Income from the long-term 44 109 assurance business Property rentals 27 44 Premium income on insurance 102 31 underwriting Other income 32 63 244 324 Income from associated undertakings and joint ventures fell by £36m. This resulted mainly from increased credit risk provisions and difficult trading conditions in the Group's Brazilian associate Banco Barclays e Galicia SA. There was a reduced contribution from Cairo Barclays SAE, which became a subsidiary from 7th June 1999. Profits on disposal of investment securities arose largely from realisations by the private equity business within Barclays Capital. An additional £75m provision for the possible cost of redress to personal pension customers (non-priority cases) has been charged in the year. Total provisions of £196m for the cost of redress to personal pension customers for priority and non priority cases have been raised to date of which some £108m had not been utilised as at 31st December 1999. The increase in premium income on insurance underwriting to £102m (1998: £31m) reflects an increase of premiums on insurance business written in- house which commenced in the first half of 1998. The longer term nature of these policies means that premium income will continue to grow over the next two or three years as the full impact of the transfer of the business is achieved. Other income reduced primarily as a result of lower profits on disposal of properties at £4m (1998: £20m). Administrative expenses - staff 1999 1998 costs £m £m Salaries and accrued incentive 2,387 2,211 payments Social security costs 190 173 Pension costs 38 37 Post-retirement health care 15 17 UK profit sharing 80 88 Other staff costs 347 285 3,057 2,811 Included above: Restructuring charge 192 - Former BZW businesses - 22 Excluding restructuring charge and 2,865 2,789 former BZW businesses Number of staff at period end:* Retail Financial Services** 55,300 59,100 Corporate Banking 11,600 11,500 Barclays Capital 4,000 4,400 Barclays Global Investors 1,700 1,500 Businesses in Transition - 100 Other operations 1,300 1,600 Head office functions 400 400 Group total world wide 74,300 78,600 of which United Kingdom 55,700 58,900 * Staff numbers do not include temporary and agency staff of 3,600 (31st December 1998: 4,000) whose costs are included in staff costs. **Retail Financial Services figures include staff who represent a shared resource with Corporate Banking, but exclude 1,000 regulated salesforce and field sales managers (31st December 1998: 1,000) and 1,300 administrative staff (31st December 1998: 1,300) whose costs are borne within the long-term assurance fund. Staff costs Staff costs for the on-going business rose by 3% over 1998, excluding the staff related charge of £192m for the 1999 restructuring programme. The increase reflected higher performance related payments in Barclays Capital in line with improved profitability. Underlying staff costs, excluding performance related payments, were slightly below 1998 levels. The 1999 restructuring charge is principally in respect of other staff costs. Total staff costs in 1998 also included £86m of staff reduction and relocation costs. In Retail Financial Services, staff costs, excluding restructuring costs, were 4% lower than in 1998. Staff costs in Corporate Banking were at similar levels to 1998 excluding the impact of the acquisition of a controlling interest in Cairo Barclays SAE. In both Retail Financial Services and Corporate Banking, the impact of job reductions in 1999 more than offset the impact of the 4% annual pay award to staff in the United Kingdom. Pension costs continue at a low level with contributions to the Group's main UK scheme remaining at nil in 1999. The gross reduction in job numbers was 7,500 as a result of the 1999 restructuring programme and the Barclaycard change programme announced in 1998. Overall staff numbers fell by 4,300 in the year from 78,600 to 74,300 of which 3,500 related to the 1999 restructuring programme and 500 to the implementation of Barclaycard's change programme. In addition, 1,500 UK staff were under notice of redundancy as at 31st December 1999. In addition, 300 of the 400 reduction in temporary and agency staff related to the restructuring programme. Net job reductions arising from the 1999 restructuring programme were 5,300, while 1,700 staff affected by the programme have filled other jobs within the Group. As a result of the sale of Merck Finck and Co, Retail Financial Services staff numbers fell by 450 and Corporate Banking staff numbers increased by 500 as a result of the inclusion of the Cairo Barclays SAE workforce. Analysis of job reductions under restructuring programmes 1999 restructuring programme - reduction in full time equivalent staff 3,500 - full time equivalent staff under notice of 1,500 redundancy as at 31st December 1999 - reduction in temporary and agency staff 300 5,300 Barclaycard change programme - reduction in full time equivalent staff 500 Net reduction in job numbers 5,800 Jobs filled by displaced staff within the Group 1,700 Gross reduction in job numbers 7,500 Administrative expenses - other 1999 1998 £m £m Property and equipment expenses: Hire of equipment 21 28 Property rentals 218 195 Other property and equipment 632 638 expenses 871 861 Stationery, postage and telephones 236 230 Advertising and market promotion 190 225 Travel, accommodation and 117 113 entertainment Subscriptions and publications 39 43 Securities clearing and other 20 49 operational expenses Sundry losses, provisions and 78 53 write-offs Statutory and regulatory audit and 6 6 accountancy fees Consultancy fees 121 126 Professional fees 88 91 Other expenses 41 32 1,807 1,829 Included above: Restructuring charge 152 - Former BZW businesses - 17 Excluding restructuring charge and 1,655 1,812 former BZW businesses Administrative expenses include £152m in respect of the 1999 restructuring programme, of which £87m related to provisions for future costs on surplus leasehold properties. Excluding this charge and the costs of the former BZW businesses in 1998, there was a fall in the costs of the ongoing businesses of £157m to £1,655m. Property and equipment expenses, excluding the 1999 restructuring programme, were £122m lower than in 1998. Lower ongoing property rental charges and a fall in computer systems expenditure also accounted for this fall. The latter was mainly attributable to reduced activity; with preparation for the introduction of the euro work being largely completed in 1998 and a reduction in work required for Year 2000 compliance. Other administrative expenses excluding the restructuring charge and former BZW businesses costs were £35m lower than in 1998. Reductions in UK advertising and marketing costs within Retail Financial Services were offset in part by increased fraud losses at Barclaycard in line with industry trends. Depreciation and amortisation 1999 1998 £m £m Property depreciation 93 88 Equipment depreciation 170 172 Goodwill amortisation 13 12 Loss on sale of equipment 4 5 Write-back of surplus properties - (2) 280 275 Provisions for bad and doubtful debts 1999 1998 The charge for the year in respect £m £m of bad and doubtful debts comprises: Specific provisions - credit risk New and increased 887 816 Releases (157) (135) Recoveries (93) (176) 637 505 General provision - credit risk (16) (20) release 621 485 Specific provision releases - (2) (13) country risk General provision charge - country 2 20 risk Net charge 621 492 Total provisions for bad and doubtful debts at end of the year comprise: Specific - credit risk 1,298 1,199 Specific - country risk 13 16 Total specific provisions 1,311 1,215 General provisions - credit risk 615 663 - country risk 57 65 1,983 1,943 The net charge for provisions rose by £129m to £621m mainly as a result of a £71m increase in new and increased specific credit risk provisions and a £61m fall in releases and recoveries to £250m. New and increased specific provisions of £816m in 1998 included £153m of provisions against exposure to Russian counterparties (primarily in respect of currency forward contracts and repurchase agreements). Excluding Russia, new and increased provisions rose by £224m mainly within Retail Financial Services. This increase was as a result of volume growth in UK consumer lending and extended credit transactions at Barclaycard and to a lesser extent less favourable economic factors that affected the first half of the year. New and increased provisions in Corporate Banking were slightly higher than 1998. Releases and recoveries in Corporate Banking continued to decline at £86m compared to £168m in 1998. In Retail Financial Services releases and recoveries totalled £106m (1998: £82m). The net provisions charge for the year as a percentage of average loans and advances was 0.58%, compared with 0.49% in 1998. Provisions for contingent liabilities and commitments 1999 1998 £m £m (1) (76) The charge in 1998 related to the contribution to the overall settlement to the Administrators of British & Commonwealth Holdings PLC (B&C) in relation to proceedings which arose in connection with B&C's acquisition of Atlantic Computers Plc in 1988. Exceptional items 1999 1998 £m £m Loss on sale or restructuring of (30) (3) BZW (Loss)/profit on disposal of other (108) 4 Group undertakings (138) 1 Final losses and costs of £502m have been incurred on the sale and restructuring of BZW against an original charge of £469m in 1997. An additional £30m has been booked in 1999 (1998: £3m). The net loss on disposal of other Group undertakings includes goodwill written back of £138m (1998: £10m). It comprises losses of £128m and profits of £20m. The losses on disposal include a £117m loss on the sale of Merck Finck & Co. in March 1999. Tax The charge for the year assumes a UK corporation tax rate of 30.25% for the calendar year 1999 (1998: 31%) and comprises current tax of £701m (1998: £553m) and deferred tax credit of £52m (1998: credit £20m). The effective rate of tax is 26.4% (1998: 28.1%). The reduction in the rate is mainly attributable to beneficial adjustments in respect of overseas income, payments to a qualifying employee trust and prior year items. This was offset by non-allowable losses arising in respect of the disposal of Merck Finck. Included in the charge is £7m (1998: £25m) notional tax on the increase in the shareholders' interest in the long-term assurance fund. There has been no change in the policy for partial provision for deferred taxation in respect of leasing. Earnings per ordinary share Earnings per ordinary share is based upon the results after deducting tax, profit attributable to minority interests and dividends on staff shares. 1999 1998 Earnings in year £1,759m £1,317m Earnings in year for the ongoing £2,137m £1,353m business Weighted average of ordinary 1,497m 1,510m shares in issue Earnings per ordinary share 117.5p 87.2p Earnings per ordinary share for 142.8p 89.6p the ongoing business Diluted earnings per share is not materially different from the basic earnings per share figure reported above in either 1999 or 1998. Dividends on ordinary shares The Board has decided to pay, on 3rd May 2000, a second interim dividend for 1999 of 32.5p per ordinary share, in respect of shares registered in the books of the Company at the close of business on 25th February 2000. The total distribution on the ordinary shares for 1999 is 50.0p (1998: 43.0p). For US and Canadian resident ADR holders, the second interim dividend of 32.5p per ordinary share becomes 130p per ADS (representing four shares). The ADR depositary will mail the dividend on 3rd May 2000 to ADR holders on record on 25th February 2000. For Japanese shareholders, the second interim dividend of 32.5p per share will be distributed in May to shareholders on record on 25th February 2000. Shareholders may have their dividends reinvested in Barclays PLC ordinary shares by participating in the Dividend Reinvestment Plan. The plan is available to all shareholders 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 of the plan and a mandate form should contact The Plan Administrator to Barclays, PO Box 82, The Pavilions, Bridgwater Road, Bristol, BS99 7NH. Those wishing to participate for the first time in the plan should send their completed mandate form to the plan administrator before 10th April 2000 for it to be applicable to the payment of the second interim dividend on 3rd May 2000. Existing participants should take no action unless they wish to alter their current mandate instructions, in which case they should contact the plan administrator. MORE TO FOLLOW FR ILFITFIISLII

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