IFRS Transition Report-Part 2
Barclays PLC
11 May 2005
IFRS
Transition
Report
2004/2005
BARCLAYS PLC
TABLE OF CONTENTS
Section 1 - IFRS Results
Introduction
Consolidated income statement
Consolidated balance sheet
Results by business
Results by nature of income and expense
Analysis of amounts included in the balance sheets
Group performance ratios
Total assets and weighted risk assets
Capital ratios
Additional information
Section 2 - UK GAAP/IFRS reconciliations
Special purpose audit report
Basis of preparation
Provisional accounting policies
Detailed reconciliations
Income statement reconciliations
Balance sheet reconciliations
Differences between UK GAAP and IFRS
Other information
The information in this announcement does not comprise statutory accounts within
the meaning of Section 240 of the Companies Act 1985 (the 'Act'). Statutory
accounts for the year-ended 31st December 2004, 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), have
been delivered to the Registrar of Companies in accordance with Section 242 of
the Act.
This document contains certain forward-looking statements within the meaning of
Section 21E of the US Securities Exchange Act of 1934, as amended, and Section
27A of the US Securities Act of 1933, as amended, with respect to certain of the
Group's plans and its current goals and expectations relating to its future
financial condition and performance. These forward-looking statements can be
identified by the fact that they do not relate only to historical or current
facts. Forward-looking statements sometimes use words such as 'anticipate',
'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', or other
words of similar meaning. By their nature, forward-looking statements involve
risk and uncertainty because they relate to future events and circumstances,
including, but not limited to, the further development of standards and
interpretations under IFRS applicable to past, current and future periods,
evolving practices with regard to the interpretation and application of
standards under IFRS and pending tax elections with regards to certain
subsidiaries, as well as UK domestic and global economic and business
conditions, market related risks such as changes in interest rates and exchange
rates, the policies and actions of governmental and regulatory authorities,
changes in legislation, the outcome of pending and future litigation and the
impact of competition - a number of which factors are beyond the Group's
control. As a result, the Group's actual future results may differ materially
from the plans, goals, and expectations set forth in the Group's forward-looking
statements. Any forward-looking statements made by or on behalf of Barclays
speak only as of the date they are made. Barclays does not undertake to update
forward-looking statements to reflect any changes in Barclays expectations with
regard thereto or any changes in events, conditions or circumstances on which
any such statement is based. The reader should, however, consult any additional
disclosures that Barclays has made or may make in documents it has filed or may
file with the SEC including its most recent Annual Report on Form 20-F.
INTRODUCTION
This Transition Report (the 'Report') sets out the financial results of Barclays
PLC under International Financial Reporting Standards (IFRS) from 1st January
2004. The Report is prepared in accordance with the transitional provisions set
out in IFRS 1, 'First-time Adoption of International Financial Reporting
Standards', and other relevant standards and is based on the application of IFRS
expected to apply as at 31st December 2005.
The Report provides certain restated comparative data in a format based on the
usual presentation layout of Results Announcements. It also summarises the main
policy differences between UK GAAP and IFRS as currently expected to apply and
sets out the Group's provisional accounting policies for the year ending 31st
December 2005.
Whilst the change in accounting standards has no impact on the underlying
economics or risk of the business, the 2004 results under IFRS are different
from the Group's previously provided 2004 results under UK GAAP. Commencing with
reporting for 2005, there will be additional impacts arising from the first-time
application of IAS 32 (Financial Instruments: Disclosure and Presentation), IAS
39 (Financial Instruments: Recognition and Measurement) and IFRS 4 (Insurance
Contracts).
The 2004 results under UK GAAP announced on 11th February 2005 are restated in
this document. These restated 2004 financial results will, subject to possible
changes arising as the application of IFRS develops, form the comparatives that
will be used for 2005 performance discussions, commencing with the Trading
Update on 26th May 2005. However, since the standards relating to financial
instruments and insurance contracts have not been applied to 2004, these
comparatives are significantly different from the numbers to be reported from
1st January 2005.
In this Report all comparisons, unless otherwise stated, are between the
financial results under IFRS and the previously reported UK GAAP data for the
corresponding period or date. Profit comparisons at the divisional level are
based on the analysis of results by business division previously provided in
Results Announcements which excluded goodwill amortisation.
IFRS Results: Income Statement
The 2004 IFRS income statement shows a reduction in profit before tax of £23m
from the reported 2004 UK GAAP figure of £4,603m. Earnings per share for 2004 on
an IFRS basis were 51.0p as against 51.2p under UK GAAP.
The magnitude of the change to total operating income and costs under IFRS in
2004 is principally the result of the requirement to consolidate the insurance
businesses, including life assurance, on a line by line basis rather than the
previous recognition of the change in embedded value and net premium on
insurance underwriting within other operating income. For 2004, this
presentation increased operating income by £1,401m and created net claims and
benefits on insurance contracts of £1,310m (treated as costs under IFRS) and
added £142m to operating expenses.
From 2005 the income statement will be affected by the implementation of IAS 32/
39 including those impacts relating to liability and equity classifications,
hedging, impairment and effective interest calculations. In addition IFRS 4
requires the separation of investment and insurance contracts. To the extent
that such contracts are identified as being of an investment nature they have
been classified accordingly and consequently the amounts payable to customers
will be offset against the income received on underlying assets. Over half of
the life assurance activities of the Group will therefore be accounted for as
investment business in 2005, whereas all is accounted for as insurance business
in 2004.
IFRS Results: Balance Sheet
The balance sheet restatements cover all previously reported balance sheets for
2004 and also the opening balance sheet for 2005, which includes the impacts of
financial instruments and insurance contracts. The aggregate differences between
the UK GAAP balance sheet as at 31st December 2004 and the IFRS balance sheet at
1st January 2005 are significant in terms of the categorisation and magnitude of
balances recorded. Balance sheet assets under IFRS as at 1st January 2005 total
£716bn, an increase of £193bn over those reported under UK GAAP as at 31st
December 2004, primarily as a result of the application of IAS 32 and 39. The
most significant adjustments in terms of balance sheet totals are:
• The grossing up of previously netted positions (primarily derivative
assets and liabilities subject to master netting agreements, repurchase
contracts and cash collateral balances), amounting to £120bn;
• The recognition of balances relating to certain asset management
products offered to institutional pension funds which are required to be
recognised as financial instruments, amounting to £65bn; and
• The consolidation of conduit financing vehicles, amounting to £12bn.
IFRS Results: Total Shareholders' Equity
Total shareholders' equity (including minority interests) at 1st January 2005 of
£18.6bn is £0.2bn higher than the combined shareholders' funds and minority
interests under UK GAAP at 31st December 2004.
Excluding minority interests the shareholders' equity under IFRS is £15.2bn at
1st January 2005, a reduction of £2.2bn compared to shareholders' funds under UK
GAAP at 31st December 2004. At 1st January 2005, retained earnings and other
reserves are £2.8bn lower than the profit and loss reserve under UK GAAP at 31st
December 2004. This is partially offset by increases to shareholders' equity
which arise from the creation of unrealised reserves relating to available for
sale securities (£0.3bn) and cash flow hedges (£0.3bn).
The reduction in retained earnings includes the following significant impacts:
• Pensions - the elimination of all UK GAAP pensions entries and
creation of a net deficit for all Group schemes (reduction in retained
earnings of £1.8bn);
• UK Life Fund - the move from an Embedded Value accounting treatment to
the Modified Statutory Solvency Basis (total reduction in retained earnings of
£0.6bn arising from the insurance businesses); and
• Dividends - under IFRS dividends are recognised when approved by
shareholders, rather than in the period to which they relate (increase in
retained earnings of £1.0bn).
• Financial instruments - the re-stating of financial instruments moved
from debt to equity under IFRS, at exchange rates prevailing at the date of
issue, rather than at the exchange rate at 31st December 2004 (reduction in
retained earnings of £0.4bn).
Minority interests have increased by £2.4bn consequent on the inclusion of
Reserve Capital Instruments (RCIs) and certain other capital instruments
previously recorded as debt.
IFRS Results: Regulatory Capital
The impacts of changes in shareholders' equity are not reflected in changes in
regulatory capital on a strictly equivalent basis. The Financial Services
Authority in the UK ('FSA') which is Barclays' lead regulator has issued policy
statement 05/5 on the interpretation of IFRS related changes which affect the
regulatory capital outcome. We have also sought individual guidance on a number
of areas where the outcome required clarification.
The impact on the Tier 1 Capital ratio as at 1st January 2005 is a reduction
from 7.6% to 7.1%.
The Group's Risk Asset Ratio under IFRS as at 1st January 2005 is 11.9% compared
to 11.5% under UK GAAP as at 31st December 2004. This increase primarily
reflects the Group's ability to include collectively assessed impairment
allowances in Tier 2 capital, replacing the similarly treated UK GAAP general
provisions.
Hedging
While the introduction of IFRS has had little impact on the Group's economic
hedging activities, IAS 39 significantly changes hedge accounting by specifying
the accounting methods and introducing stringent conditions on when hedge
accounting can be applied. IAS 39 sets out three forms of hedge accounting: cash
flow hedge accounting, fair value hedge accounting and hedges of net investments
in overseas entities. All forms of hedge accounting result in hedging
derivatives being carried at fair value in the balance sheet. To the extent that
the hedge is effective, cash flow hedge accounting and hedges of net investments
result in the gains and losses on the hedging instruments being taken initially
to equity and subsequently recycled to the income statement in the same periods
as the hedged items affect profit or loss. Fair value hedge accounting results
in the gain or loss on the hedged item attributable to the hedged risk adjusting
the carrying amount of the hedged item and being recognised immediately in the
income statement. Ineffective elements of hedges are recognised immediately in
the income statement.
IFRS hedge accounting can be contrasted with UK GAAP where hedging derivatives
may be carried at cost and income is recognised on an accruals basis to match
the hedged items. IFRS hedge accounting will not only result in additional asset
and liability amounts being recognised on the balance sheet, but the income
statement will also include more variability due to hedge ineffectiveness and
economic hedges that do not meet the stringent hedge accounting conditions. In
comparison with UK GAAP, cash flow hedge accounting will result in equity
volatility and fair value hedge accounting will result in additional fair value
amounts being included in the balance sheet and additional income statement
volatility.
IFRS hedge accounting has been applied prospectively to all hedges designated
and documented as at 1st January 2005. This results in the creation of an
initial cash flow hedging reserve and the recognition of fair value movements on
items subject to fair value hedge accounting. In addition, qualifying UK GAAP
hedged positions result in adjustments to the carrying amount of financial
assets and liabilities as at 1st January 2005 to reflect this hedging.
Update from December 2004 Analyst and Investor Briefing
In December 2004, the Group provided a briefing to analysts and investors on the
anticipated impact of IFRS. In that briefing, indicative rounded estimates were
given in order to convey the direction and approximate scale of the impacts of
IFRS based broadly on 2003 results. As anticipated, the numbers provided in that
briefing are different from those reflected in the Report due to:
• Market movements;
• Finalisation of 2004 UK GAAP results; and
• Clarification of accounting and regulatory treatments.
The December briefing indicated that, excluding the impacts of the standards on
financial instruments and insurance, the Group's profit before tax would rise
under IFRS by approximately £75m. The actual impact on the 2004 income statement
is a £23m decline in reported profit before tax. The principal reason for this
difference is that the embedded value result of the closed life assurance
activities under UK GAAP for 2004 was higher than anticipated and ahead of 2003.
The December briefing also indicated a reduction in shareholders' equity
excluding minority interests of £1.3bn. This report indicates a reduction of
£2.2bn which is analysed on pages 65 to 79.
Movements since the presentation include:
• A reduction from the impact of re-stating financial instruments moved
from debt to equity under IFRS, at exchange rates prevailing at the date of
issue, rather than at the exchange rate at 31st December 2004;
• An increased negative impact from the IFRS pensions treatment;
• A reduction arising from the clarification of accounting treatments
surrounding certain capital market transactions, which resulted in timing
differences over the recognition of profits; and
• A reduction arising from the application of a revised income profile
to certain loan insurance activities.
In relation to minority interests, the December briefing highlighted an expected
increase of £1.6bn arising from the reclassification of Reserve Capital
Instruments from debt to equity. This increase has now risen to £2.4bn
reflecting the reclassification of £0.4bn of Tier 2 capital as equity and a
further £0.4bn from the requirement to translate all of these issues at the
exchange rate prevailing on their date of issue. The instruments are classified
as minority interests because they are issued by a subsidiary.
Implications for 2005
It is expected that the Group's results for 2005 will also reflect the
following:
• Closed life assurance activities - the move to Modified Statutory
Solvency Basis of accounting, which is effectively an accruals basis of
accounting for these activities, should result in less volatility than under
embedded value accounting and a profit before endowment redress costs and tax
of about £45m is expected for 2005, similar to the result in 2004 on a
comparable basis;
• IAS 32 and 39 - some of this impact is relatively predictable such as
Effective Interest Rate which is expected to reduce profit before tax by about
£60m and which will involve interest-related fees and costs being included in
net interest rather than in fees and commissions. Other elements are
inherently unpredictable, such as: the profit impact from the continuation of
the Group's economic structural hedging position, which will depend upon the
effectiveness of the hedging; and the level of the impairment allowance, which
will be more volatile in response to changes in the external environment;
• Insurance underwriting - the Group transferred some loan insurance
underwriting activities in house at the beginning of 2005. Under the previous
arrangement the Group recognised sales commissions at the point of sale of the
loan but no underwriting income as the underwriting was carried by third
parties. The new arrangement has long-term economic benefits for the Group but
results in a timing difference in income recognition because the income will
be recognised over the life of the loans. The relevant business lines will
record the sales commission and the underwriting income in line with that
which would apply to a third party arms length agreement. On consolidation, an
adjustment will be made to align the total result with the required insurance
accounting under IFRS. The change is expected to have a negative impact of
about £80m on income in 2005; and
• Instruments classified as minority interests - instruments classified
as debt under UK GAAP to minority interests under IFRS with the associated
funding cost moving from interest expense to the minority interest line in the
income statement. The combined impact is an expected increase in profit before
tax of approximately £145m. The post tax benefit is offset by an increase in
profit attributable to minority interests of a similar amount.
Group Goals
2004 marked the start of the Group's new four-year goal period covering 2004 to
2007 inclusive. The primary goal is to achieve top quartile Total Shareholder
Return (TSR). The Group continues to believe that achievement of a compound
annual growth rate of 10-13% in economic profit calculated on a consistent basis
over the four-year goal period is likely to be required for the achievement of
the primary goal.
The introduction of IFRS has necessitated a review of the derivation of economic
capital in the calculation of economic profit resulting in items being excluded
which do not represent cash movements in shareholders' equity. Additionally, the
Group has determined that the cost of capital for goodwill carried in relation
to the acquisition of the Woolwich, previously charged at 8.5% should be brought
into line with the Group's overall cost of capital at 9.5%. This has the effect
of reducing economic profit for 2004 by £41m. The impact of all of these changes
(set out in detail on pages 36 and 37) and of IFRS on the income statement, is
to decrease economic profit for 2004 from £1,885m, as reported in February 2005,
to £1,568m as reported here.
Business Performance Reporting
The Group's performance by business division is set out on pages 10 to 21. The
presentation differs from that which was provided in the Annual Report for 2004
in the following respects:
• The Private Clients and International Retail and Commercial Banking
businesses which were formerly aggregated are now reported as distinct
business divisions, reflecting the revised management structure;
• The results for the Private Clients - closed life assurance activities
are provided separately from those for the rest of Private Clients. The
introduction of IFRS requires that the results of the life assurance
activities are recorded on a line by line basis rather than the previous
single line presentation. As a result of this, it is now considered
appropriate to report this activity separately; and
• 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 has the impact of increasing
Barclaycard's profit before tax by £59m and reducing UK Banking's profit
before tax by the same amount.
Following the line by line consolidation of insurance activities in the income
statement, the cost:income ratios have been redefined as follows:
• The cost:income ratio is defined as operating expenses plus net claims
and benefits compared to total operating income;
• The operating expenses:income less net claims ratio is defined as
operating expenses compared to total operating income less net claims and
benefits on insurance contracts; and
• The operating expenses:net income less net claims ratio is defined as
operating expenses compared to net operating income less net claims and
benefits on insurance contracts.
Further Developments in IFRS Reporting
The information in this document has been prepared on the basis of the
Group's expectation of the standards that will be applicable as at 31st
December 2005. Future Group financial information prepared on the basis of
IFRS may differ from the data contained herein for the following reasons:
• Further standards and interpretations may be issued that are applicable for
2005 reporting or which are applicable to later accounting periods but with
an option to adopt for earlier periods. Specifically we anticipate that the
European Union may enable the adoption of the Exposure Draft (ED)
amendments to IAS 39 covering the use of fair values for non-trading
financial liabilities. If available for use in 2005, the Group would
consider adopting this ED, which would have the effect of increasing
retained earnings by £70m at 1st January 2005;
• Different practice may develop with regard to interpretation and
application of the standards; and
• The relevant tax legislation is not final and consequently tax balances
could change as elections are made in respect of a large number of
subsidiaries.
CONSOLIDATED INCOME STATEMENT
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
Continuing operations £m £m £m
Interest income 13,880 7,315 6,565
Interest expense (7,047) (3,815) (3,232)
-------- -------- --------
Net interest income 6,833 3,500 3,333
-------- -------- --------
Fee and commission income 5,560 2,887 2,673
Fee and commission expense (662) (329) (333)
-------- -------- --------
Net fee and commission income 4,898 2,558 2,340
-------- -------- --------
Net trading income 1,487 684 803
Net investment income 1,048 725 323
-------- -------- --------
Principal transactions 2,535 1,409 1,126
Net premiums from insurance contracts 1,042 506 536
Other operating income 110 64 46
-------- -------- --------
Total operating income 15,418 8,037 7,381
Impairment loss on loans and advances and
other credit risk provisions (1,093) (504) (589)
-------- -------- --------
Net operating income 14,325 7,533 6,792
Net claims and benefits on insurance
contracts (1,310) (896) (414)
Operating expenses (8,536) (4,562) (3,974)
Share of results of associates and joint
ventures 56 42 14
Profit on disposal of associates and joint
ventures 45 - 45
-------- -------- --------
Profit before tax 4,580 2,117 2,463
Tax (1,279) (634) (645)
-------- -------- --------
Profit for the year 3,301 1,483 1,818
-------- -------- --------
Profit attributable to minority interests 47 27 20
Profit attributable to shareholders 3,254 1,456 1,798
-------- -------- --------
3,301 1,483 1,818
-------- -------- --------
p p p
Basic earnings per ordinary share 51.0 23.0 28.0
Diluted earnings per ordinary share 50.7 22.8 27.9
CONSOLIDATED BALANCE SHEET
As at
01.01.051 31.12.04 30.06.04 01.01.04
Assets £m £m £m £m
Cash and balances at
central banks 3,238 1,753 1,829 1,726
Items in the course of
collection from
other banks 1,772 1,772 2,527 2,006
Treasury bills and other
eligible bills 6,658 6,547 7,177
Trading portfolio assets 113,241
Non-trading financial
instruments fair valued
through profit and loss:
- held on own account 2,367
- held in respect of
linked liabilities to
customers under
investment contracts 63,124
Derivative financial
instruments 94,340
Loans and advances to
banks 25,728 80,632 83,034 66,993
Loans and advances to
customers 210,959 262,409 252,053 230,772
Debt securities 130,311 119,840 99,896
Equity shares 11,399 8,599 7,094
Available for sale
financial investments 48,491
Reverse repurchase
agreements and cash
collateral on securities
borrowed 139,574
Other assets 3,595 25,915 21,344 22,728
Insurance assets,
including unit-linked
assets 153 8,576 8,165 8,274
Investments in
associates and joint
ventures 429 429 442 438
Goodwill 4,518 4,518 4,398 4,393
Intangible assets 139 139 62 64
Property, plant and
equipment 2,282 2,282 2,108 2,123
Deferred tax assets 1,642 1,388 1,383 1,348
-------- -------- -------- --------
Total assets 715,592 538,181 512,331 455,032
-------- -------- -------- --------
1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39
and IFRS 4 which have not been applied to the 2004 comparatives, in accordance
with IFRS 1.
CONSOLIDATED BALANCE SHEET
As at
01.01.051 31.12.04 30.06.04 01.01.04
Liabilities £m £m £m £m
Deposits from banks 74,735 111,024 115,836 94,092
Items in the course of
collection due to
other banks 1,205 1,205 1,442 1,286
Customer accounts 194,488 217,492 206,170 184,796
Trading portfolio
liabilities 59,114
Liabilities to customers
under investment contracts 64,609
Derivative financial
instruments 95,218
Debt securities in issue 80,754 83,842 69,431 61,469
Repurchase agreements
and cash collateral on
securities lent 98,582
Other liabilities 9,859 82,936 79,546 74,068
Current tax liabilities 621 621 697 514
Insurance contract
liabilities, including
unit-linked liabilities 3,596 8,377 7,944 8,023
Subordinated liabilities:
- Undated loan capital - non
convertible 4,208 6,149 6,233 6,310
- Dated loan capital -
convertible to
preference shares 15 15 15 17
- Dated loan capital -
non convertible 6,383 6,113 6,220 6,012
Deferred tax liabilities 1,365 1,362 1,284 1,257
Other provisions for
liabilities 403 416 329 380
Retirement benefit
liabilities 1,865 1,865 2,028 1,885
-------- -------- -------- --------
Total liabilities 697,020 521,417 497,175 440,109
-------- -------- -------- --------
Shareholders' equity
Called up share capital 1,614 1,614 1,613 1,642
Share premium account 5,524 5,524 5,437 5,417
Less: treasury shares (119) (119) (115) (84)
Available for sale reserve 314
Cash flow hedging reserve 302
Capital redemption reserve 309 309 305 274
Other capital reserve 617 617 617 617
Translation reserve (58) (58) (43) -
Retained earnings 6,739 7,983 7,164 6,774
-------- -------- -------- --------
Shareholders' equity excluding
minority interests 15,242 15,870 14,978 14,640
Minority interests 3,330 894 178 283
-------- -------- -------- --------
Total shareholders' equity 18,572 16,764 15,156 14,923
-------- -------- -------- --------
-------- -------- -------- --------
Total liabilities and
shareholders' equity 715,592 538,181 512,331 455,032
-------- -------- -------- --------
1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39
and IFRS 4 which have not been applied to the 2004 comparatives, in accordance
with IFRS 1.
Results by business
The following section analyses the Group's performance by business.
Profit attributable to shareholders
UK
GAAP
Year- Year-
ended ended Half-year ended
31.12.04 31.12.04 31.12.04 30.06.04
£m £m £m £m
UK Banking 2,415 2,265 1,103 1,162
-------- -------- -------- --------
UK Retail Banking 1,068 963 405 558
UK Business Banking 1,347 1,302 698 604
-------- -------- -------- --------
International Retail and
Commercial Banking 311 293 148 145
Barclaycard 860 843 384 459
Barclays Capital 1,042 1,020 432 588
Barclays Global Investors 347 336 185 151
Private Clients 144 110 46 64
Private Clients-closed life
assurance activities (4) (52) (51) (1)
Head office functions and other
operations (206) (235) (130) (105)
-------- -------- -------- --------
Profit before tax and UK GAAP
goodwill amortisation 4,909 4,580 2,117 2,463
-------- -------- -------- --------
Goodwill amortisation (306) - - -
-------- -------- -------- --------
Profit before tax 4,603 4,580 2,117 2,463
Tax (1,289) (1,279) (634) (645)
-------- -------- -------- --------
Profit for the year 3,314 3,301 1,483 1,818
Profit attributable to minority
interests (46) (47) (27) (20)
-------- -------- -------- --------
Profit attributable to
shareholders 3,268 3,254 1,456 1,798
-------- -------- -------- --------
The presentation of results by business differs from that provided in 2004 in
the following respects:
• International Retail and Commercial Banking and Private Clients are
reported as completely separate business divisions and not aggregated,
reflecting changes in management accountability;
• The results for the Private Clients-closed life assurance activities
are provided separately from those for the rest of Private Clients. The
introduction of IFRS requires that the results of the life assurance
activities are recorded on a line by line basis rather than the previous
single line presentation. In order that the presentation of the underlying
financial performance is not distorted, it is considered appropriate to report
the life assurance activity separately; and
• 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 has the impact of increasing
Barclaycard's profit before tax by £59m and reducing UK Banking's profit
before tax by the same amount.
The share of results of associates and joint ventures is reported after tax
under IFRS.
Following the line by line consolidation of insurance activities in the income
statement, the cost:income ratios have been redefined as follows:
• The cost:income ratio is defined as operating expenses plus net claims
and benefits compared to total operating income;
• The operating expenses:income less net claims ratio is defined as
operating expenses compared to total operating income less net claims and
benefits on insurance contracts; and
• The operating expenses:net income less net claims ratio is defined as
operating expenses compared to net operating income less net claims and
benefits on insurance contracts.
UK Banking
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Net interest income 3,477 1,780 1,697
Net fee and commission income 1,936 974 962
-------- -------- --------
Net trading income - - -
Net investment income 5 4 1
-------- -------- --------
Principal transactions 5 4 1
Net premiums from insurance contracts 249 100 149
Other operating income 37 31 6
-------- -------- --------
Total operating income 5,704 2,889 2,815
Impairment loss on loans and advances and
other credit risk provisions (199) (46) (153)
-------- -------- --------
Net operating income 5,505 2,843 2,662
Net claims and benefits on insurance
contracts (46) (20) (26)
Operating expenses (3,241) (1,722) (1,519)
Share of results of associates and joint
ventures 5 2 3
Profit on disposal of associates and joint 42 - 42
ventures -------- -------- --------
Profit before tax 2,265 1,103 1,162
-------- -------- --------
Memo - UK GAAP profit before tax
excluding goodwill amortisation (as restated)2,415 1,186 1,229
-------- -------- --------
Cost:income ratio 58% 60% 55%
Operating expenses:income less net claims ratio 57% 60% 54%
Operating expenses:net income less net claims
ratio 59% 61% 58%
Loans and advances to customers (period £114.1bn £114.1bn £109.1bn
end)
Customer accounts (period end) £114.8bn £114.8bn £113.1bn
Total assets £119.6bn £119.6bn £114.4bn
Return on average economic capital 34% 32% 35%
Economic profit 1,158 565 593
The reduction in profit before tax is mainly due to the increased costs
associated with share based payments and pensions, which have also resulted
in an increase in the cost:income ratios. The non-life insurance activities
are presented on separate income statement lines, although the net result is
not changed by the introduction of IFRS.
In 2004, UK Banking announced that it is targeting cost:income ratio
improvements of 2% per annum in 2005, 2006 and 2007. The relevant comparator
for this target is the operating expenses:income less net claims ratio based
on a starting point of 57%.
UK Retail Banking
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Net interest income 2,059 1,046 1,013
Net fee and commission income 1,123 554 569
-------- -------- --------
Net trading income - - -
Net investment income 1 1 -
-------- -------- --------
Principal transactions 1 1 -
Net premiums from insurance contracts 249 100 149
Other operating income 26 22 4
-------- -------- --------
Total operating income 3,458 1,723 1,735
Impairment loss on loans and advances and
other credit risk provisions (60) 2 (62)
-------- -------- --------
Net operating income 3,398 1,725 1,673
Net claims and benefits on insurance
contracts (46) (20) (26)
Operating expenses (2,433) (1,300) (1,133)
Share of results of associates and joint
ventures 2 - 2
Profit on disposal of associates and
joint ventures 42 - 42
-------- -------- --------
Profit before tax 963 405 558
-------- -------- --------
Memo - UK GAAP profit before tax
excluding goodwill amortisation (as
restated) 1,068 468 600
-------- -------- --------
Cost:income ratio 72% 77% 67%
Operating expenses:income less net claims
ratio 71% 76% 66%
Operating expenses:net income less net
claims ratio 73% 76% 69%
Loans and advances to customers (period £65.6bn £65.6bn £64.4bn
end)
Customer accounts (period end) £72.4bn £72.4bn £70.7bn
Total assets £68.9bn £68.9bn £67.3bn
Return on average economic capital 31% 25% 36%
Economic profit 473 183 290
The reduction in profit before tax is mainly due to the increased costs
associated with share based payments and pensions, which have also resulted
in an increase in the cost:income ratios.
UK Business Banking
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Net interest income 1,418 734 684
Net fee and commission income 813 420 393
-------- -------- --------
Net trading income - - -
Net investment income 4 3 1
-------- -------- --------
Principal transactions 4 3 1
Other operating income 11 9 2
-------- -------- --------
Total operating income 2,246 1,166 1,080
Impairment loss on loans and advances and
other credit risk provisions (139) (48) (91)
-------- -------- --------
Net operating income 2,107 1,118 989
Operating expenses (808) (422) (386)
Share of results of associates and joint
ventures 3 2 1
-------- -------- --------
Profit before tax 1,302 698 604
-------- -------- --------
Memo - UK GAAP profit before tax
excluding goodwill amortisation 1,347 718 629
-------- -------- --------
Cost:income ratio 36% 36% 36%
Operating expenses:net income ratio 38% 38% 39%
Loans and advances to customers (period £48.5bn £48.5bn £44.7bn
end)
Customer accounts (period end) £42.4bn £42.4bn £42.4bn
Total assets £50.7bn £50.7bn £47.1bn
Return on average economic capital 37% 38% 35%
Economic profit 685 382 303
The reduction in profit before tax is mainly due to the increased costs
associated with share based payment and pensions, which have also resulted
in an increase in the cost:income ratios.
International Retail and Commercial Banking
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Net interest income 534 277 257
Net fee and commission income 288 145 143
-------- -------- --------
Net trading income - - -
Net investment Income 135 71 64
-------- -------- --------
Principal transactions 135 71 64
Net premiums from insurance contracts 300 155 145
Other operating income 25 12 13
-------- -------- --------
Total operating income 1,282 660 622
Impairment loss on loans and advances and
other credit risk provisions (31) (12) (19)
-------- -------- --------
Net operating income 1,251 648 603
Net claims and benefits paid on insurance
contracts (390) (208) (182)
Operating expenses (617) (330) (287)
Share of results of associates and joint
ventures 49 38 11
-------- -------- --------
Profit before tax 293 148 145
-------- -------- --------
Memo - UK GAAP profit before tax
excluding goodwill amortisation 311 167 144
-------- -------- --------
Cost:income ratio 79% 82% 75%
Operating expenses:income less net claims
ratio 69% 73% 65%
Operating expenses:net income less net
claims ratio 72% 75% 68%
Loans and advances to customers (period £20.7bn £20.7bn £17.6bn
end)
Customer accounts (period end) £10.1bn £10.1bn £9.7bn
Total assets £28.4bn £28.4bn £25.1bn
Return on average economic capital 20% 22% 18%
Economic profit 111 54 57
The reduction in full-year profit before tax is mainly due to the increased
costs associated with share based payments and pensions. The 2004 income
statement presentation under IFRS includes separate line items relating to
the insurance businesses: net premiums from insurance contracts and net
claims and benefits paid on insurance contracts. In addition, investment
income on assets backing insurance policies is separately presented. Under
UK GAAP, the results of the insurance businesses were presented on a net
basis. There is no change in the measurement of the insurance result in
2004. Under IFRS, the share of results of associates and joint ventures is
presented after tax.
In 2005, investment and insurance contracts will be separately accounted for
in accordance with IAS 39 and IFRS 4. This will result in investment income
and premiums and claims relating to investment contracts being presented on
a net basis in other operating income. Therefore, the 2004 figures provided
above will not be directly comparable to the results to be reported in 2005.
Barclaycard
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Net interest income 1,600 790 810
Net fee and commission income 790 416 374
Net premiums from insurance contracts 22 11 11
-------- -------- --------
Total operating income 2,412 1,217 1,195
Impairment loss on loans and advances and
other credit risk provisions (761) (404) (357)
-------- -------- --------
Net operating income 1,651 813 838
Net claims and benefits on insurance
contracts (5) (3) (2)
Operating expenses (807) (428) (379)
Share of results of associates and joint
ventures 4 2 2
-------- -------- --------
Profit before tax 843 384 459
-------- -------- --------
Memo - UK GAAP profit before tax
excluding goodwill amortisation (as restated) 860 444 416
-------- -------- --------
Cost:income ratio 34% 35% 32%
Operating expense:income less net claims
ratio 34% 35% 32%
Operating expenses:net income ratio 49% 53% 45%
Loans and advances to customers (period £22.3bn £22.3bn £20.1bn
end)
Total assets £23.1bn £23.1bn £20.7bn
Return on average economic capital 23% 20% 25%
Economic profit 350 148 202
The reduction in profit before tax reflects the increased costs associated
with share based payments and pensions.
Barclays Capital
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Net interest income 991 535 456
Net fee and commission income 603 331 272
-------- -------- --------
Net trading income 1,463 679 784
Net investment income 318 132 186
-------- -------- --------
Principal transactions 1,781 811 970
-------- -------- --------
Total operating income 3,375 1,677 1,698
Impairment loss on loans and advances and
other
credit risk provisions (102) (53) (49)
-------- -------- --------
Net operating income 3,273 1,624 1,649
Operating expenses (2,253) (1,192) (1,061)
Share of results of associates and joint - - -
ventures -------- -------- --------
Profit before tax 1,020 432 588
-------- -------- --------
Memo - UK GAAP profit before tax
excluding goodwill amortisation 1,042 443 599
-------- -------- --------
Cost:income ratio 67% 71% 62%
Operating expenses:net income ratio 69% 73% 64%
Average net revenue per member of staff
('000) £481 £221 £260
Total assets £346.9bn £346.9bn £330.2bn
Return on average economic capital 35% 32% 38%
Economic profit 521 230 291
The introduction of IFRS has not had a material impact on the 2004 restated
results.
Barclays Global Investors
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
Continuing operations £m £m £m
Net interest income 5 1 4
Net fee and commission income 882 464 418
-------- -------- --------
Net trading income 3 3 -
Net investment income 3 3 -
-------- -------- --------
Principal transactions 6 6 -
Other operating income - (1) 1
-------- -------- --------
Total operating income 893 470 423
Operating expenses (556) (284) (272)
Share of results of associates and joint
ventures (2) (1) (1)
Profit on disposal of associates and
joint 1 - 1
ventures -------- -------- --------
Profit before tax 336 185 151
-------- -------- --------
Memo - UK GAAP profit before tax
excluding goodwill amortisation 347 189 158
-------- -------- --------
Cost:income ratio 62% 60% 64%
Average net revenue per member of staff
('000) £464 £247 £217
Total assets £0.8bn £0.8bn £0.7bn
Return on average economic capital 166% 185% 147%
Economic profit 195 108 87
The introduction of IFRS has not had a material impact on the 2004 restated
results.
Private Clients
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Net interest income 303 155 148
Net fee and commission income 529 268 261
-------- -------- --------
Net trading income - - -
Net investment income - - -
-------- -------- --------
Principal transactions - - -
Other operating income 7 4 3
-------- -------- --------
Total operating income 839 427 412
Impairment loss on loans and advances and
other
credit risk provisions 1 1 -
-------- -------- --------
Net operating income 840 428 412
Operating expenses (730) (382) (348)
Share of results of associates and joint - - -
ventures
-------- -------- --------
Profit before tax 110 46 64
-------- -------- --------
Memo - UK GAAP profit before tax
excluding goodwill amortisation 144 63 81
-------- -------- --------
Cost:income ratio 87% 89% 84%
Operating expenses:net income ratio 87% 89% 84%
Loans and advances to customers (period £4.1bn £4.1bn £3.6bn
end)
Customer accounts (period end) £21.3bn £21.3bn £20.4bn
Total assets £5.0bn £5.0bn £4.4bn
Return on average economic capital 32% 23% 43%
Economic profit 70 23 47
The reduction in profit before tax is mainly due to the increased costs
associated with pensions and the capitalisation of software, which have also
had the effect of increasing the cost:income ratios.
Private Clients-closed life assurance activities
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Net interest income (53) (33) (20)
Net fee and commission income 51 26 25
-------- -------- --------
Net trading income - - -
Net investment income 596 517 79
-------- -------- --------
Principal transactions 596 517 79
Net premiums from insurance contracts 362 195 167
Other operating income 4 1 3
-------- -------- --------
Total operating income 960 706 254
Net claims and benefits on insurance
contracts (869) (665) (204)
Endowment redress costs (97) (64) (33)
Other operating expenses (46) (28) (18)
-------- -------- --------
Loss before tax (52) (51) (1)
-------- -------- --------
Memo - UK GAAP (loss)/profit before tax
excluding goodwill amortisation (4) 25 (29)
-------- -------- --------
Cost:income ratio 105% 107% 100%
Operating expenses:income less net claims
ratio 157% 224% 102%
Total assets £6.4bn £6.4bn £6.1bn
Return on average economic capital (53)% (117)% 11%
Economic (loss)/profit (77) (79) 2
For the year-ended 31st December 2004, under UK GAAP and using the Embedded
Value basis of accounting, the Private Clients-closed life assurance
activities resulted in a loss of £4m. The change in accounting policy to the
Modified Statutory Solvency Basis, which is an accruals basis of accounting,
has resulted in an increase in the loss of £48m since the net present value
of profits inherent in the in-force policies is no longer recognised. The
tax impact of this change has also resulted in the economic loss.
In 2005, investment and insurance contracts will be separately accounted for
in accordance with IAS 39 and IFRS 4. This will result in investment income
and premiums and claims relating to investment contracts being presented on
a net basis in other operating income. Therefore, the 2004 figures provided
above will not be directly comparable to the results to be reported in 2005.
Head office functions and other operations
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Head office functions and central items (230) (140) (90)
Transition businesses 7 17 (10)
Restructuring costs (12) (7) (5)
-------- -------- --------
Loss on operating activities before tax (235) (130) (105)
-------- -------- --------
Memo - UK GAAP loss before tax
excluding goodwill amortisation (206) (128) (78)
-------- -------- --------
The increased loss in head office functions and central items is mainly due
to the increased costs associated with share based payments and pensions.
Results by nature of income and expense
Net interest income
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Interest income 13,880 7,315 6,565
Interest expense (7,047) (3,815) (3,232)
-------- -------- --------
6,833 3,500 3,333
-------- -------- --------
The components of net interest income have increased mainly as the result of
the consolidation of additional subsidiaries, including special purpose
entities.
Principal transactions
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
Net trading income
Rates related business 1,141 443 698
Credit related business 346 241 105
-------- -------- --------
1,487 684 803
-------- -------- --------
Net investment income
Gain on disposal of investment securities 199 129 70
Dividend income 17 11 6
Other investment income 832 585 247
-------- -------- --------
1,048 725 323
-------- -------- --------
2,535 1,409 1,126
-------- -------- --------
Other investment income includes income from assets backing insurance
policies in the long term assurance businesses. Under UK GAAP this was
included in income from the long-term assurance business previously included
in other operating income.
Other operating income
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Property rentals 45 27 18
Other income 65 37 28
-------- -------- --------
110 64 46
-------- -------- --------
Other income includes operating lease income, which was previously included
in interest income.
Impairment loss on loans and advances and other credit risk provisions
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
The charge for the period in respect of
impairment for
loans and advances comprises:
- New and increased 1,755 927 828
- Releases (396) (267) (129)
- Recoveries (255) (140) (115)
-------- -------- --------
Total impairment charge for loans and
advances 1,104 520 584
(Release)/charge for the period in
respect of provisions for undrawn
contractually committed facilities and
guarantees provided (11) (16) 5
Charge for the period in respect of
impairment of available for sale
financial investments
-------- -------- --------
Total impairment loss on loans and
advances and other credit risk provisions 1,093 504 589
-------- -------- --------
The total impairment loss on loans and advances and other credit risk
provisions is unchanged for 2004, although the charge in respect of
provisions for undrawn contractually committed facilities and guarantees
provided to customers is presented separately from impairment loss on loans
and advances.
Operating expenses
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Staff costs (refer to page 24) 5,227 2,720 2,507
Administrative expenses 2,766 1,553 1,213
Depreciation 297 156 141
Amortisation of intangible assets 22 13 9
Impairment loss
- Intangible assets 9 5 4
Operating lease rentals 215 115 100
-------- -------- --------
8,536 4,562 3,974
-------- -------- --------
Operating lease rentals were previously netted with income received from the
sub-let of properties and included in other operating income.
Staff costs
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Salaries and accrued incentive payments 4,098 2,124 1,974
Social security costs 339 172 167
Pension costs
- defined contribution plans 92 39 53
- defined benefit plans 235 126 109
Other post retirement benefits 29 16 13
Other 434 243 191
-------- -------- --------
5,227 2,720 2,507
-------- -------- --------
Included in salaries and accrued incentive payments is £169m (half-year
ended 31st December 2004: £90m; half-year ended 30th June 2004: £79m)
resulting from equity settled share based payments.
Staff costs have increased due to the recognition of the additional cost of
share based payments, including Sharesave and Incentive Share Option Plan
(ISOP), and the increase in pension costs under IAS 19.
Share of results of associates and joint ventures
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Profit from associates 56 42 14
Profit from joint ventures - - -
-------- -------- --------
56 42 14
-------- -------- --------
The share of results of associates and joint ventures is reported after tax,
with no amortisation of goodwill and after aligning results with Group IFRS
accounting policies as set on pages 43 to 59.
Earnings per share
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
Profit attributable to the members of
Barclays PLC £3,254m £1,456m £1,798m
Basic weighted average number of shares
(in issue) 6,381m 6,341m 6,421m
Potential ordinary shares1 33m 32m 31m
-------- -------- --------
Diluted weighted average number of shares 6,414m 6,373m 6,452m
-------- -------- --------
p p p
Basic earnings per ordinary share 51.0 23.0 28.0
Diluted earnings per ordinary share 50.7 22.8 27.9
Memo - UK GAAP
Earnings per ordinary share 51.2 24.5 26.7
Fully diluted earnings per ordinary share 51.0 24.4 26.6
1 Potential ordinary shares reflect the dilutive effect of share options
outstanding.
Tax rate
The charge for 2004 is based upon the UK GAAP financial statements and a UK
corporation tax rate of 30% for the calendar year 2004 (2003: 30%).
Analysis of amounts included in the balance sheets
Assets held in respect of linked liabilities to customers under investment
contracts/liabilities to customers under investment contracts
01.01.051
£m
Non-trading financial instruments fair valued through profit and
loss
- held in respect of linked liabilities 63,124
Cash and bank balances within the funds 1,485
--------
64,609
--------
--------
Liabilities to customers under investment contracts 64,609
--------
This comprises assets under management held on behalf of clients. Under UK
GAAP the assets were included in assets under management and not included on
the balance sheet.
Derivative financial instruments
The table below analyses the contract or underlying principal amounts and
fair values of derivatives financial instruments held for trading purposes
and for the purposes of risk management.
As at 01.01.051
Gross
Contract Fair Value
Amount Assets Liabilities
£m £m £m
Derivative assets/liabilities held for
trading 12,397,266 92,619 94,006
Derivative assets/liabilities held for
risk 89,894 1,721 1,212
management -------- -------- --------
Total recognised derivative
assets/liabilities 12,487,160 94,340 95,218
-------- -------- --------
From 1st January 2005, amounts previously described as balances from
off-balance sheet financial instruments and included in other assets and
other liabilities have been reclassified to derivative financial instruments
and recognised according to the offset requirements of IFRS. IFRS requires
financial assets and liabilities to be stated on a gross basis unless the
Group has the ability and intention to settle them net. Under master netting
agreements, the Group has the ability, but not the intention, to settle net.
Under UK GAAP, such agreements qualified for net presentation, accordingly,
the derivative balances recognised under IFRS are significantly higher than
those under UK GAAP.
1 The figures at 1st January 2005 include the impacts of adopting IAS 32,
IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in
accordance with IFRS 1.
Loans and advances
As at
01.01.051 31.12.04 30.06.04 01.01.04
£m £m £m £m
-------- -------- -------- --------
Loans and advances to
banks 25,752 80,655 83,042 67,010
Less: impairment
allowance (24) (23) (8) (17)
-------- -------- -------- --------
25,728 80,632 83,034 66,993
-------- -------- -------- --------
-------- -------- -------- --------
Loans and advances to
customers 213,572 265,097 254,896 233,701
Less: impairment
allowance (2,613) (2,688) (2,843) (2,929)
-------- -------- -------- --------
210,959 262,409 252,053 230,772
-------- -------- -------- --------
236,687 343,041 335,087 297,765
-------- -------- -------- --------
The increase in loans and advances to banks and to customers in 2004 mainly
results from the consolidation of additional entities, including special
purpose entities. Loans and advances have decreased at 1st January 2005 due
to the reclassification of trading portfolio assets and reverse repurchase
agreements. These decreases have been partially offset by the increase due
to the presentation on a gross basis of balances that qualified to be
presented on a net basis under UK GAAP.
Impairment allowance
In 2004, the reduction in impairment allowance compared to UK GAAP
provisions for bad and doubtful debts is due to the reclassification of the
provision for undrawn contractually committed facilities and guarantees
provided to other provisions for liabilities. The provision has not been
remeasured, but has been presented in a separate place on the balance sheet.
The total impairment allowance, including provision for undrawn
contractually committed facilities and guarantees, as at 1st January 2005
under IFRS has increased slightly when compared to UK GAAP as a result of
the application of revised calculation methodologies.
A reconciliation of UK GAAP provisions to IFRS impairment allowances is as
follows:
£m
UK GAAP provision as at 31st December 2004 2,766
UK GAAP interest in suspense as at 31st December 2004 40
--------
2,806
UK GAAP fees in suspense as at 31st December 2004 19
Additional impairment resulting from the application of
revised
calculation methodologies at 1st January 2005 24
--------
2,849
--------
Impairment allowance on loans and advances to banks 24
Impairment allowance on loans and advances to customers 2,613
Provision for undrawn contractually committed facilities and
guarantees provided 55
Interest and fees not recognised 157
--------
2,849
--------
Interest in suspense is not recognised under IFRS. Interest and fees that
are not expected to be recoverable are not recognised in the income
statement. Interest, representing the unwind of the discount rate applied to
future cashflows included in the impairment allowance calculation, will be
recognised on impaired loans from 2005.
1 The figures at 1st January 2005 include the impacts of adopting IAS 32,
IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in
accordance with IFRS 1.
Potential credit risk loans
As at
01.01.051 31.12.04 30.06.04 01.01.04
Potential credit risk loans £m £m £m £m
Non-accrual loans 2,052 2,115 2,235 2,261
Accruing loans where there
is an expectation of
ultimate write-off
(either partial or full) 1,255 1,334 1,343 1,450
Accruing loans 90 days
overdue, against which
no allowances have been
made 509 521 569 590
Reduced rate loan 15 15 10 4
-------- -------- -------- --------
Total non-performing loans 3,831 3,985 4,157 4,305
Potential problem loans 753 756 824 1,327
-------- -------- -------- --------
Total potential credit
risk loans 4,584 4,741 4,981 5,632
-------- -------- -------- --------
% % % %
Allowance coverage of
non-performing loans 68.8 69.0 69.7 69.6
-------- -------- -------- --------
Allowance coverage of
total potential
credit
risk loans 57.5 58.0 58.1 53.2
-------- -------- -------- --------
The coverage ratios are calculated by dividing the impairment allowance
either by the non-performing loans (NPLs) or the total potential credit risk
loans (PCRLs). The coverage ratios differ from those previously published
for the following reasons:
• Treatment of provisions relating to undrawn contractually
committed facilities and guarantees:
- under UK GAAP provisions for losses on undrawn but committed facilities
(such as loan commitments and guarantees) were included in the calculation;
- under IAS 37, which became effective from the 1st January 2004, the
equivalent provisions raised against such facilities are excluded.
As a result, coverage ratios are lower than those previously reported.
• Treatment of interest in suspense and income not recognised:
- under UK GAAP, for purposes of the coverage ratio calculation, interest
in suspense was included in the provisions and in the NPLs and PCRLs;
- under IFRS, interest not recognised, by definition, is excluded from
both allowance and NPLs and PCRLs.
1 The figures at 1st January 2005 include the impacts of adopting IAS 32,
IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in
accordance with IFRS 1.
Potential credit risk loans (continued)
As a result, both NPL and PCRLs coverage ratios will be lower. However, as
this new treatment became effective from 1st January 2005, only the figures
as at 1st January 2005, in the table above, have been affected.
• Change to the underlying impairment allowance balances:
- under IFRS, the 1st January 2005 opening impairment allowance balance is
slightly higher than the 31st December 2004 closing UK GAAP balance due
to the application of revised calculation methodologies.
As a result, the coverage ratios as at 1st January 2005 are slightly higher
than reported as at 31st December 2004 under UK GAAP. This partially offsets
the decreases in the ratios mentioned above.
The overall effect of the changes described above is for coverage ratios to
be marginally lower than previously reported.
Other assets
As at
01.01.051 31.12.04 30.06.04 01.01.04
£m £m £m £m
Sundry debtors 2,624 3,711 3,629 3,790
Prepayments 415 467 410 363
Balances arising from
off-balance sheet
financial instruments 18,174 14,000 15,812
Accrued income 556 3,563 3,305 2,763
-------- -------- -------- --------
3,595 25,915 21,344 22,728
-------- -------- -------- --------
In 2004, other assets has reduced mainly due to the recognition of the
shareholders' interest in the long term assurance business in the relevant
lines in the balance sheet and the removal of the pension prepayment under
SSAP 24. This has been partially offset by the recognition of balances
relating to additional consolidated entities and deferred income in respect
of financial guarantees provided to customers.
The reduction in other assets as at 1st January 2005 primarily reflects the
reclassification of balances arising from off balance sheet financial
instruments to derivative financial instruments. From 1st January 2005,
accrued income no longer includes accrued interest, which is included in the
loan balances as part of the effective interest calculation.
1 The figures at 1st January 2005 include the impacts of adopting IAS 32,
IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in
accordance with IFRS 1.
Other liabilities
As at
01.01.051 31.12.04 30.06.04 01.01.04
£m £m £m £m
Obligations under
finance leases payable 353 353 352 110
Balances arising from off
balance sheet
financial instruments 18,009 12,829 14,797
Sundry creditors 4,763 3,851 3,531 4,038
Accruals and deferred
income 4,743 6,820 5,396 5,189
Short positions in
securities 53,903 57,438 49,934
-------- -------- -------- --------
9,859 82,936 79,546 74,068
-------- -------- -------- --------
Current and deferred tax and other provisions for liabilities are no longer
included in other liabilities. These items are presented separately on the
face of the balance sheet. Proposed dividends formerly included within other
liabilities, are not accrued under IFRS.
Other liabilities includes liabilities arising on financial guarantees
provided to customers. In 2005, other liabilities has reduced due to the
reclassification of balances arising from off balance sheet financial
instruments to derivative financial instruments and short positions in
securities to trading portfolio liabilities. This is partly offset by the
inclusion within other liabilities of customer loyalty provisions which have
been reclassified from other provisions for liabilities to other liabilities
and remeasured accordingly. Accruals and deferred income no longer includes
accrued interest, which is included in customer balances as part of the
amortised cost.
Other provisions for liabilities
As at
01.01.051 31.12.04 30.06.04 01.01.04
£m £m £m £m
Customer loyalty
provisions 12 15 32
Redundancy and
restructuring 97 97 34 64
Undrawn contractually
committed facilities
and guarantees 55 55 85 82
Onerous leases 39 39 13 23
Sundry provisions 212 213 182 179
-------- -------- -------- --------
403 416 329 380
-------- -------- -------- --------
In 2004, other provisions for liabilities no longer includes provision for
pensions and post retirement benefits, which are presented separately. This
reclassification is partially offset by the inclusion of the provision for
undrawn contractually committed facilities and guarantees of £55m as at 31st
December 2004 previously reported as part of credit risk provisions. As at
1st January 2005, the customer loyalty provision has been reclassified to
other liabilities and remeasured accordingly.
1 The figures at 1st January 2005 include the impacts of adopting IAS 32,
IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in
accordance with IFRS 1.
Capital resources
As at
01.01.051 31.12.04 30.06.04 01.01.04
£m £m £m £m
Shareholders' equity
excluding minority
interests 15,242 15,870 14,978 14,640
Minority interests 3,330 894 178 283
-------- -------- -------- --------
Total shareholders'
equity 18,572 16,764 15,156 14,923
Loan capital 10,606 12,277 12,468 12,339
-------- -------- -------- --------
29,178 29,041 27,624 27,262
-------- -------- -------- --------
In 2004, shareholders' equity excluding minority interests has decreased,
primarily reflecting the impact of the recognition of the pension liability
under IAS 19 and the derecognition of the embedded value on the long term
assurance activities. This has been partially offset by the derecognition of
the liability for the final proposed dividend.
As at 1st January 2005, minority interests have increased and loan capital
has decreased primarily due to the reclassification of reserve capital
instruments and certain upper tier 2 instruments from loan capital to
equity. The reclassification of RCIs and certain upper tier 2 instruments,
together with other remeasurements necessitated by IAS 39, has reduced
retained earnings. This reduction is partially offset by the recognition of
the initial cash flow hedging and available for sale reserves.
Group performance ratios
As at
01.01.051 31.12.04 30.06.04 01.01.042
Net asset value per
ordinary share
(excluding minority
interests) 236p 246p 232p 223p
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
% % %
Post-tax return on
average shareholders'
equity (excluding minority
interest) 22.0 19.2 24.6
Cost:income ratios
Cost:income ratios are defined on page 11 and presented below for the Group:
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
% % %
Cost:income ratio 64 68 59
Operating expenses:income less net claims
ratio 61 64 57
Operating expenses:net income less net
claims ratio 66 69 62
1 The figures at 1st January 2005 include the impacts of adopting IAS 32,
IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in
accordance with IFRS 1.
2 Since IFRS has been applied from 1st January 2004, it is not possible to
determine the average shareholders' equity for this period.
TOTAL ASSETS AND WEIGHTED RISK ASSETS
Total assets
As at
01.01.051 31.12.04 30.06.04 01.01.04
£m £m £m £m
UK Banking 128,573 119,561 114,404 110,654
-------- -------- -------- --------
UK Retail Banking 69,064 68,861 67,255 66,720
UK Business Banking 59,509 50,700 47,149 43,934
-------- -------- -------- --------
International Retail and
Commercial Banking 28,715 28,448 25,114 24,389
Barclaycard 22,878 23,059 20,693 20,327
Barclays Capital 454,437 346,901 330,235 279,391
Barclays Global
Investors 61,201 798 711 537
Private Clients 5,050 5,007 4,409 3,840
Private Clients-closed
life
assurance activities 6,551 6,425 6,092 6,226
Head office functions
and other operations2 3,669 3,464 6,275 5,275
Goodwill 4,518 4,518 4,398 4,393
-------- -------- -------- --------
715,592 538,181 512,331 455,032
-------- -------- -------- --------
Weighted risk assets
As at
01.01.051 31.12.04 30.06.04
£m £m £m
UK Banking 91,202 91,913 87,506
-------- -------- --------
UK Retail Banking 36,787 37,111 36,458
UK Business Banking 54,415 54,802 51,048
-------- -------- --------
International Retail and Commercial
Banking 19,386 19,319 17,292
Barclaycard 19,972 20,188 18,404
Barclays Capital 79,548 79,949 72,715
Barclays Global Investors 1,233 1,230 1,004
Private Clients 3,939 4,018 3,632
Head office functions and other
operations 1,944 1,984 2,780
-------- -------- --------
217,224 218,601 203,333
-------- -------- --------
Weighted risk assets for 30th June 2004 and 31st December 2004 have not been
restated but are shown as reported to the Financial Services Authority
(FSA).
1 The figures at 1st January 2005 include the impacts of adopting IAS 32,
IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in
accordance with IFRS 1.
2 Head office functions and other operations includes the Group deferred tax
asset which is not currently allocated by business.
Capital ratios 01.01.051
Weighted risk assets: £m
Banking book
On-balance sheet 147,244
Off-balance sheet 26,741
Associated undertakings and joint ventures 3,020
--------
Total banking book 177,005
--------
Trading book
Market risks 22,106
Counterparty and settlement risks 18,113
--------
Total trading book 40,219
--------
Total weighted risk assets 217,224
--------
Capital resources:
Tier 1
Called up share capital 1,614
Eligible reserves 14,886
Minority interests2 2,824
Tier one notes3 920
Less: intangible assets (4,747)
--------
Total qualifying tier 1 capital 15,497
--------
Tier 2
Revaluation reserves 25
Collectively assessed impairment allowances 2,046
Minority Interests 397
Qualifying subordinated liabilities 4
Undated loan capital 3,176
Dated loan capital 5,647
Other 3
--------
Total qualifying tier 2 capital 11,294
--------
Tier 3: short term subordinated liabilities4 286
--------
Less: Supervisory deductions:
Investments not consolidated for supervisory purposes (781)
Other deductions (496)
--------
(1,277)
--------
Total net capital resources 25,800
--------
Tier 1 ratio 7.1%
Risk asset ratio 11.9%
Capital ratios for prior periods have not been restated as these remain as
reported to the FSA. The capital ratios above indicate the impact of IFRS
first time adoption adjustments and have been prepared in accordance with
the FSA's policy statement 05/5.
1 The figures at 1st January 2005 include the impacts of adopting IAS 32,
IAS 39 and IFRS 4.
2 Includes Reserve capital instruments of £1,627m.
3 Tier one notes are included in undated loan capital in the consolidated
balance sheet.
4 Subordinated liabilities are included in tiers 2 or 3, subject to limits
laid down in the supervisory requirements.
ADDITIONAL INFORMATION
Economic Capital
Capital Demand
The demand for capital from the Group's businesses via the economic capital
framework is set out below:
Average, as at
31.12.04 30.06.04
£m £m
UK Banking 4,650 4,450
--------- ---------
UK Retail Banking 2,200 2,150
UK Business Banking 2,450 2,300
--------- ---------
International Retail and Commercial Banking 1,000 1,000
Barclaycard 2,450 2,450
Barclays Capital 2,100 2,050
Barclays Global Investors 150 150
Private Clients 300 300
Private clients-closed life assurance activities 100 100
Head office functions and other operations1 200 200
--------- ---------
Business unit economic capital 10,950 10,700
Capital held at Group centre2 1,400 1,300
--------- ---------
Economic capital requirement (excluding goodwill) 12,200 12,000
Average historic goodwill 5,600 5,550
--------- ---------
Total economic capital requirement 17,950 17,550
--------- ---------
1 Includes Transition Businesses and capital for central function risks.
2 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.
Capital Supply
The supply of capital to support the economic capital framework is set out
below:
Average, as at
31.12.04 30.06.04
£m £m
Shareholders' equity excluding minority interests
less goodwill 10,450 10,300
Pension liability 1,750 1,700
Cashflow hedge reserve
Available for sale reserve
Preference shares 150 -
--------- ---------
Available funds for economic capital
excluding goodwill 12,350 12,000
Average historic goodwill 5,600 5,550
--------- ---------
Available funds for economic capital 17,950 17,550
--------- ---------
Average ordinary shareholders' equity for
Group economic profit calculation1 17,800 17,550
--------- ---------
Shareholders' equity above has been adjusted as a result of the transition
to IFRS. These changes do not affect the demand from the Group's businesses
for economic capital, but do affect the amount held at Group centre.
The Group has adjusted available funds for economic capital to reflect the
impact of hedging, available for sale securities and pensions. These
adjustments are explained more fully in the following section under economic
profit.
The capital resources to support economic capital comprise shareholders'
equity including preference shares but excluding other minority interests.
1 Average ordinary shareholders' equity for Group economic profit
calculation is the sum of adjusted equity and reserves plus goodwill.
Economic Profit
Year-
ended Half-year ended
31.12.04 31.12.04 30.06.04
£m £m £m
Profit after tax and minority interests 3,254 1,456 1,798
Addback of amortisation charged on
acquired
intangible assets 6 6 -
-------- -------- --------
Profit for economic profit purposes 3,260 1,462 1,798
-------- -------- --------
Average shareholders' equity excluding
minority
interests less goodwill 10,450 10,450 10,300
Add/(deduct): reserve for unrealised
(gains)/losses on effective hedges
Add/(deduct): reserve for unrealised
(gains)/losses on Available for sale
financial instruments
Add: pension fund net deficit 1,750 1,750 1,700
Goodwill and intangible assets arising on
acquisitions 5,600 5,600 5,550
-------- -------- --------
Average shareholders' equity for economic
profit purposes (rounded to the nearest
£50m) 17,800 17,800 17,550
-------- -------- --------
Capital charge at 9.5% 1,692 858 834
-------- -------- --------
Economic profit 1,568 604 964
-------- -------- --------
Memo - UK GAAP economic profit 1,885 831 1,054
-------- -------- --------
The economic profit methodology under IFRS will continue to be made up of
two components:
• Profit after tax and minority interests; and
• Capital charge (average shareholders' equity excluding minority
interests multiplied by the Group's cost of equity capital charge).
The Group cost of capital will now be applied at a uniform rate of 9.5%
(previously the Woolwich goodwill component of £4,121m was charged at 8.5%).
In general, the impact of IFRS on the Group's financial results will be
reflected in the calculation of economic profit. One example of this is the
treatment of goodwill where the absence of an annual amortisation charge
removes the need for an adjustment to profit after tax and minority
interests for economic profit purposes. In other cases the Group has
determined that the impacts of IFRS should be modified in calculating
economic profit.
• Preference Shares - at the Barclays PLC Group level these shares
are reported as a minority interest. Since they have been issued to improve
the long-term capital base they are included in the funds available to
support economic capital.
The preference shareholders receive a fixed return rather than participating
in the returns available to ordinary shareholders and consequently are
excluded from the calculation of the capital charge. The preference dividend
is reflected in the calculation of the return after tax and minority
interests.
Economic Profit (continued)
• Hedging - to the extent that the Group undertakes the hedging of
future cash flows, shareholders' equity will include gains and losses which
will be offset 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.
• Available for sale securities - 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 and any impairment charge recorded in the income statement will
impact economic profit.
• Pensions - IFRS has required the Group to recognise 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 economic capital.
Economic profit generated by business
UK
GAAP IFRS
Year- Year-
ended ended Half-year ended
31.12.04 31.12.04 31.12.04 30.06.04
£m £m £m £m
UK Banking 1,271 1,158 565 593
-------- -------- -------- --------
UK Retail Banking 554 473 183 290
UK Business Banking 717 685 382 303
-------- -------- -------- --------
International Retail and
Commercial Banking 127 111 54 57
Barclaycard 362 350 148 202
Barclays Capital 534 521 230 291
Barclays Global Investors 204 195 108 87
Private Clients 102 70 23 47
Private clients-closed life
assurance activities 35 (77) (79) 2
Head office functions and
other operations (149) (146) (138) (8)
-------- -------- -------- --------
2,486 2,182 911 1,271
Historical goodwill (490) (533) (268) (265)
Variance to average
shareholders' equity
(excluding minority
interest) (111) (81) (39) (42)
-------- -------- -------- --------
Economic profit 1,885 1,568 604 964
-------- -------- -------- --------
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