Interim Results

Barclays PLC 7 August 2003 7th August 2003 BARCLAYS PLC INTERIM ANNOUNCEMENT OF RESULTS FOR 2003 The statutory consolidated Profit and Loss account and consolidated Balance Sheet are set out on pages 13 and 14 in the format used in the Group's 2002 Annual Report. Barclays believes that the Further Analysis of the Profit and Loss account shown on page 15 assists in the understanding of profit trends in the results. In this document the profit and loss analysis compares, unless stated otherwise, the half-year to 30th June 2003 to the corresponding period of 2002. Balance sheet comparisons, unless stated otherwise, relate to the corresponding position at 31st December 2002. Average balance sheet comparisons relate the half-year to 30th June 2003 to the corresponding period of 2002. The prior period presentation has, where appropriate, been restated to conform with current year classification and the changes in accounting policies as described in the 2002 Annual Report. PAGE Summary 1 Financial highlights 4 Half-year review 5 Key facts 8 Group performance management 9 Summary of results 12 Consolidated profit and loss account 13 Consolidated balance sheet 14 Further analysis of profit and loss account 15 Financial review 16 Additional information 50 Notes 52 Consolidated statement of changes in shareholders' funds 62 Statement of total recognised gains and losses 63 Average balance sheet and net interest income 64 Summary consolidated cashflow statement 66 Other information 67 Index 68 The information in this announcement, which was approved by the Board of Directors on 6th August 2003, 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 2002 including the Group's Annual Report on Form 20-F to the US Securities and Exchange Commission, which contained an unqualified audit report under Section 235 of the Act and did not make any statements under Section 237 of the Act, 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, 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 and the impact of competition, a number 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. 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 further disclosures that Barclays has made or may make in documents it has filed or may file with the US Securities and Exchange Commission. BARCLAYS PLC, 54 LOMBARD STREET, LONDON EC3P 3AH, TELEPHONE 020 7699 5000, COMPANY NO. 48839. BARCLAYS PLC - SUMMARY RESULTS FOR SIX MONTHS TO 30TH JUNE 2003 (UNAUDITED) Operating Results Half-year ended 30.06.03 30.06.02 % Change £m £m Operating income 5,993 5,734 5 Operating expenses* (3,166) (3,046) 4 Provisions for bad and doubtful debts (652) (713) (9) Operating profit* 2,188 1,972 11 Profit before tax 1,963 1,755 12 Economic profit 742 654 13 Earnings per share 21.3p 18.6p 14 Dividend per share 7.05p 6.35p 11 Post-tax return on average shareholders' funds 18% 17% 'Barclays delivered a good first half performance, demonstrating that our strategy to transform the bank is on track and gathering momentum. We have seen good revenue growth, tight cost discipline and prudent risk management. At the same time we are continuing to fund investment for the future.' Matthew W. Barrett, Group Chief Executive Financial Summary - Operating income increased 5% to £5,993m (2002: £5,734m). - Operating expenses* rose 4% or £120m to £3,166m (2002: £3,046m), with the majority (£109m) of the increase attributable to the move to a pensions charge (£73m) from a pensions credit (£36m) in the first half of 2002. - The cost:income ratio was maintained at 53% (2002: 53%). - Provisions fell 9% to £652m (2002: £713m). Provisions, excluding the impact of South American Corporate Banking rose 6% to £643m (2002: £609m). - Operating profit*, rose 11% to £2,188m (2002: £1,972m). - Profit before tax rose 12% to £1,963m (2002: £1,755m). - Post-tax return on average shareholders' funds was 18% (2002: 17%). - Earnings per share rose 14% to 21.3p (2002: 18.6p). The interim dividend per share increased by 11% to 7.05p (2002: 6.35p). - In the first half of 2003, Barclays repurchased shares to the value of £119m and distributed £787m through the final dividend for 2002. - Equity shareholders' funds were £16.1bn at 30th June 2003 (31st December 2002: £15.2bn). The tier 1 capital ratio strengthened to 8.4% (31st December 2002: 8.2%). The average economic capital (excluding goodwill) to support the Group's ongoing business requirements was approximately £10.7bn (31st December 2002: £10.3bn). * Based on the consolidated profit and loss account, as defined for statutory purposes and shown on page 13, adjusted for the costs directly associated with the integration of Woolwich plc, goodwill amortisation and the restructuring charge. Additionally operating profit includes the profit/(loss) from joint ventures and associated undertakings prior to the amortisation of related goodwill. A profit and loss account presentation reflecting these adjustments is on page 15. Business Performance Summary* - Personal Financial Services increased operating profit 12% to £534m (2002: £475m). Income was up 6% at £1,524m (2002: £1,436m). Costs rose 5% to £829m (2002: £789m). The cost:income ratio improved to 54% (2002: 55%). Provisions were down 6% at £163m (2002: £173m). Stronger volumes and active margin management helped drive improvements in income. This was broadly based with revenue growth evident across the major business activities: general insurance up 21%; consumer finance up 14%; mortgages up 12%; and, current account and savings up 5%. In mortgages, margins improved relative to the first half of 2002. The share of net new lendings in the UK was 3% (2002: 11%). The number of Openplan customers in the UK grew to 2.4 million. Barclays branded savings maintained a leading market position in new business generation. - Barclays Private Clients operating profit, for the ongoing business, decreased 28% to £177m (2002: £246m), with activity impacted by significantly lower equity markets and by lower interest rates than in the first half of 2002. Comparisons year-on-year are impacted by several transactions that affected the structure of the business. Fees and commissions income fell 26%. Costs fell 11% to £430m (2002: £484m). The performance in Spain continued to be strong with income growth of 27% and a 129% increase in Openplan mortgage and deposit balances. The contribution from the closed life assurance activities, reported separately within Barclays Private Clients, was a loss of £46m (2002: loss £26m). - Barclaycard increased operating profit 22% to £381m (2002: £312m) with strong business volumes driving income growth of 17% to £878m (2002: £751m). Costs rose 14% to £292m (2002: £256m) reflecting business growth. The cost: income ratio improved to 33% (2002: 34%). Provisions increased 13% to £205m (2002: £181m) in line with growth in the portfolio. Average UK extended credit balances grew 16% to £7.2bn (2002: £6.2bn). Barclaycard International made a profit of £1m (2002: loss £15m) on income growth of 45% and average extended credit balances which were 41% higher. In the first half of 2003, 651,000 customers (2002: 540,000) were recruited. Monument (formerly Providian UK), acquired in April 2002, has been integrated into Barclaycard. - Business Banking increased operating profit 5% to £674m (2002: £643m) reflecting volume growth and the benefits of tight cost management. Income grew 5% to £1,287m (2002: £1,224m), notwithstanding the impact of the implementation of the Competition Commission Inquiry transitional pricing remedy. Costs grew 1%, to £504m (2002: £498m). The cost:income ratio improved to 39% (2002: 41%). Provisions rose 38% to £110m (2002: £80m), the increase being substantially attributable to provisions in respect of a small number of larger companies, with no particular industry concentration. The quality of the portfolio by risk grade remained stable. Average lending balances increased 11% to £46.1bn and average deposit balances increased 4% to £45.3bn. - Barclays Africa operating profit rose 31% to £63m (2002: £48m). The acquisition of BNPI Mauritius, completed in November 2002, made a positive contribution. * The Business Performance Summary is based on statutory definitions but with costs adjusted for those directly associated with the integration into the Barclays Group of Woolwich plc, goodwill amortisation and the restructuring charge. Additionally, operating profit includes the profit/(loss) from joint ventures and associated undertakings prior to amortisation of related goodwill. Further business analysis on this basis appears on pages 32-44. - Barclays Capital operating profit increased 14% to £420m (2002: £370m). Operating income grew 7% to a record £1,308m (2002: £1,224m). Market risk was maintained at a level similar to the prior period, with an average Daily Value at Risk (DVaR) of £23m (2002: £22m). Costs rose 8% as revenue related costs increased consequent on strong performance. Provisions declined 14% reflecting improvements in the credit environment, particularly in the US. Barclays Capital improved market share, progressing to 4th in the global all debt league table with over $100bn of debt issued for clients in the first half of 2003. - Barclays Global Investors operating profit increased 52% to £91m (2002: £60m). Income increased 8% to £311m (2002: £289m) reflecting asset growth, investment performance and higher margin product sales. Costs were down 4% at £220m (2002: £229m). Total assets in the Global iShares (Exchange Traded Funds) business grew 27% to £28bn (31st December 2002: £22bn). Total assets under management were £543bn (31st December 2002: £462bn) inclusive of £34bn of new funds acquired during the first half of the year. Progress against goals - Barclays continued to meet its primary goal, of top quartile total shareholder return relative to its peer group, for the three and a half years ended 30th June 2003. - Cumulative economic profit for the three and a half years ended 30th June 2003 was £4.6bn relative to the goal of £5.1bn. The cumulative goal for the period 2000 to 2003 inclusive is £6.1bn. - Cumulative annual cost savings for the three and a half years ended 30th June 2003 were £1,070m and have exceeded the £1bn targeted cost savings set for the end of 2003. - For the half-year ended 30th June 2003, ongoing Woolwich integration synergies of £159m were achieved relative to a target of £330m for 2003. Barclays remains on track to achieve the target synergies of £400m per annum by the end of 2004. FINANCIAL HIGHLIGHTS (UNAUDITED) Half-year ended 30.06.03 31.12.02 30.06.02 RESULTS * £m £m £m Net interest income 3,236 3,072 3,133 Non-interest income 2,757 2,521 2,601 Operating income 5,993 5,593 5,734 Operating expenses (3,166) (3,057) (3,046) Provisions for bad and doubtful debts (652) (771) (713) Provisions for contingent liabilities and commitments - (2) 1 Profit/(loss) from joint ventures and 13 (6) (4) associated undertakings Operating profit 2,188 1,757 1,972 Restructuring charge (74) (132) (55) Woolwich integration costs (22) (48) (32) Goodwill amortisation (128) (124) (130) Exceptional items (1) (3) - Profit before tax 1,963 1,450 1,755 Profit attributable to shareholders 1,383 993 1,237 Economic profit 742 583 654 BALANCE SHEET Shareholders' funds 16,064 15,205 15,091 Loan capital 12,553 11,537 10,985 Total capital resources 28,810 26,898 26,200 Total assets 446,731 403,066 389,708 Weighted risk assets 181,414 172,748 165,168 PER ORDINARY SHARE p p p Earnings (on a statutory basis) 21.3 15.1 18.6 Earnings (on an operating profit basis)* 24.3 18.9 21.4 Dividend 7.05 12.00 6.35 Net asset value 245.4 231.2 227.5 PERFORMANCE RATIOS % % % Post-tax return on average shareholders' funds (on a statutory basis) 17.6 13.0 16.5 Post-tax return on average shareholders' funds (on an operating profit basis)* 20.0 16.1 18.9 CAPITAL RATIOS % % % Tier 1 ratio 8.4 8.2 7.9 Risk asset ratio 13.2 12.8 12.9 GROUP YIELDS, SPREADS & MARGINS % % % Gross yield 5.00 5.22 5.48 Interest spread 2.37 2.32 2.52 Interest margin 2.66 2.66 2.84 ECONOMIC DATA Period end - US$/£ 1.65 1.61 1.52 Average - US$/£ 1.61 1.50 1.44 Period end - Euro/£ 1.44 1.54 1.55 Average - Euro/£ 1.46 1.59 1.61 FTSE 100 period end 4,031 3,940 4,656 Average FTSE 100 in period 3,844 4,085 5,126 * Based on the Further Analysis of the Profit and Loss account as set out on page 15. HALF-YEAR REVIEW The environment in 2002 was tough for financial services companies globally. At the start of 2003, there were no clear indications that the geopolitical or macroeconomic climate would become materially easier. However, there has been some progress in several areas; the war with Iraq has been largely resolved and fears of a double dip recession in the US have abated. On the other hand economic growth prospects across Europe remain subdued and, if anything, have deteriorated somewhat. Against this backdrop, the UK economy has remained relatively robust, with GDP growth forecast to be just under 2% for this year. Notwithstanding moderating house price inflation, customer confidence remains high as a result of historically low levels of interest rates and unemployment. Overall, whilst the remainder of 2003 still has its uncertainties, the outlook is generally more stable than at the start of the year. Barclays approach in 2003 is unchanged from 2002: the pursuit of income growth; tight cost management; a prudent approach to risk management; a focus on generating profitable business; and a relentless drive to transform our businesses. We continue to make progress in executing our strategic agenda and have been rewarded with good momentum in financial performance across most of our businesses. Profit before tax increased by 12% to £1,963m (2002: £1,755m). Post-tax earnings per share rose 14% to 21.3p (2002: 18.6p). We have increased the interim dividend by 11% to 7.05p (2002: 6.35p). Our economic profit* performance during the first half was sufficient to ensure that we continued to achieve our primary goal, which is to produce top quartile total shareholder return. Economic profit for the half-year was 13% higher at £742m (2002: £654m). On a cumulative basis, economic profit for the three and a half-year period to 30th June 2003 was £4.6bn - the strongest in Barclays history - although our economic goal for 2000-2003 inclusive required a cumulative £5.1bn at this stage. In the first half of 2003, income increased by 5% to £5,993m (2002: £5,734m). Costs** for the first half were £3,166m, an increase of 4%. The increase included the impact of the half-on-half move to a pensions charge of £73m from a pensions credit of £36m in the equivalent period in 2002, which alone accounted for over 3% of the rise in costs. Provisions fell by 9% to £652m (2002: £713m). Excluding the impact of South American Corporate Banking half-on-half, provisions rose 6%, well below loan growth of 9%. There are three main themes driving our financial performance: income growth and the associated risk appetite; productivity improvements; and the execution of strategic priorities. Income growth of 5% was well diversified across the portfolio and was achieved without increasing risk appetite. Net revenue, comprising operating income less provisions, increased 6%. * Economic profit is defined in note 2 on page 9. ** Based on the Further Analysis of the Profit and Loss account set out on page 15. At a business level, we have delivered improved income growth in Personal Financial Services, up 6% at £1,524m (2002: £1,436m). This largely reflects the early benefits of increased volumes acquired during 2002. Income increased in general insurance and consumer finance, rising by 21% and 14% respectively, more than offsetting the decline in income from the IFA operation which remained subdued given poor stockmarket conditions. Mortgage income rose 12%. Openplan continued to be a powerful tool in attracting new business and strengthening relationships with existing customers. Business Banking is experiencing the first year of impact of the Competition Commission Inquiry transitional pricing remedy. Business Banking responded proactively by consulting with the relevant customers and, based on the insights gained, offered them a choice of either interest on current account or a discounted money transmission package. During the first half of the year, we have recruited new customers and transacted more business with existing customers. Income in Business Banking rose 5%. Our businesses which target global or regional markets, as well as the home UK market, did well. Barclaycard income growth was 17%. This was the seventh consecutive half-year of record income. An important feature of this has been the rapid development of Barclaycard International and we will continue to extend the Barclaycard brand and technologies into new geographies. Barclays Capital had a record half-year; income rose 7% to £1,308m and operating profit grew 14% to £420m. Barclays Capital market share in core markets also grew as clients continued to respond positively to its integrated risk management and financing business model. Income growth at Barclays Capital was achieved with little change in market risk; average DVaR was £23m, broadly stable relative to 2002. Investment continued, focused on origination and distribution capabilities in the US and continental Europe. Barclays Capital remains one of the international growth engines for Barclays. In Barclays Private Clients, business performance continued to reflect volatile equity markets, falling interest rates and the on-going challenge of managing the closed life assurance activities. Despite the difficult conditions, wealth management presents attractive opportunities and remains a key strategic priority for us. The continued reshaping of the business, headed by a new leadership team, will position us to tap into the substantial wealth management profit pools and to take advantage of the market turnaround when it occurs. We continued to invest in the business. Barclays Global Investors income grew 8% (or 19% in dollar terms). Its excellent investment performance record in all asset classes over the short, medium and long term, combined with systematic risk control, is a winning formula. Barclays Africa has continued to reshape its business around serving its customers in a distinctive way and has been rewarded with a 31% increase in operating profit helped by income growth of 18%. This has been achieved when often both the economic and political environments were difficult. As we have grown income, we have maintained our focus on improving productivity. We set a goal at the end of 1999 to deliver £1bn of annual run-rate cost savings within four years. We have exceeded this goal within three and a half years, with £1,070m of savings achieved. The cost reduction initiative was not a one-off exercise, but very much part of our transformation programme. We know there are more gains to be captured through on-going productivity management; this continues to be an important agenda item for our business leaders. Each of our businesses is committed to achieving, and then at least maintaining, cost: income ratios in the top quartile of their peer group. Four businesses, Barclaycard, Business Banking, Barclays Africa and Barclays Capital, had top quartile cost:income performances by the end of 2002. Barclays Global Investors achieved top quartile performance for the first time during the first half of 2003. Personal Financial Services is committed to closing the gap between its performance (54%) and top quartile (51%). Barclays Private Clients remains challenged in achieving a top quartile ratio, largely a function of a fall in income rather than productivity. Overall, we achieved a positive margin of income growth over cost growth of 1% (or 4% if the impact of the move from a pension credit in 2002 to a pension charge in 2003 is excluded). The Group cost:income ratio was maintained at 53%. Our strategic priorities - remain unchanged and focus on those markets where we can most profitably implement our sources of competitive advantage: UK banking; businesses where we can benefit from global or regional economies of scale (such as cards, investment banking and institutional money management); retail and corporate banking in Europe; and wealth management in the UK and Europe. We also continue to work hard on improving the functional expertise, infrastructure and management disciplines that contribute to delivering good execution. In addition to the opportunities for growth within each line of business, we believe that there are incremental value opportunities available to the Group by exploiting synergies between different parts of the portfolio. A good example is the synergy potential between Barclays Capital and Barclays Private Clients, where the sharing of product understanding, distribution capability and intellectual capital is already showing real benefits. We are also achieving benefits from working together across our core UK businesses - Personal Financial Services, Business Banking, Barclaycard UK, and UK Premier Banking in Barclays Private Clients. The corporate development agenda is also an important element in delivering our goals. We completed in July our purchase of Banco Zaragozano in Spain, which we see as an important part of extending our retail and commercial banking activities in Western Europe. In January, we purchased Charles Schwab Europe (now part of Barclays Private Clients) and in May 2003 we bought Clydesdale Financial Services, a point of sale credit provider (now part of Barclaycard). Monument (formerly Providian UK) which was acquired in April 2002, has been integrated into Barclaycard. We regard these acquisitions as attractive ways to accelerate the implementation of our business strategies. Barclays has delivered a good set of results across its portfolio in the first half of 2003, and demonstrated the benefits of a diverse franchise with most of the businesses firing on all cylinders. Our transformation is giving us the ability to seize growth opportunities and to adjust rapidly to changing conditions. We are confident about our momentum and our ability to sustain it, tempered somewhat by the remaining uncertainties in the environment as well as the traditionally slower second half. We remain committed to building a portfolio of domestic and international businesses that will deliver long-term sustainable shareholder value. Sir Peter Middleton Matthew W. Barrett Chairman Group Chief Executive KEY FACTS (UNAUDITED) Half-year ended 30.06.03 31.12.02 30.06.02 Number of UK branches 2,077 2,080 2,084 Number of overseas branches 499 499 550 Number of UK ATMs 3,900 3,900 3,900 Employees worldwide 73,600 74,700 78,400 Total customers registered for online banking 4.2m 3.9m 3.5m UK OPENPLAN Number of customers with Openplan from Woolwich 1.3m 1.2m 1.1m Number of customers with Openplan from Barclays 1.1m 0.8m 0.3m Total UK Openplan savings balances £20.6bn £18.5bn £13.2bn Total UK Openplan mortgage balances £26.2bn £21.2bn £16.0bn PERSONAL FINANCIAL SERVICES Number of UK current accounts 10.6m 10.5m 10.3m Number of UK savings accounts 10.7m 10.2m 9.5m Total UK mortgage balances £59.8bn £58.7bn £55.7bn BARCLAYS PRIVATE CLIENTS Total customer funds £89bn £85bn £91bn Number of Iberian Openplan customers 26,000 20,000 12,000 Average stockbroking deal volumes per day 5,500 6,200 6,400 (excluding Charles Schwab Europe) BARCLAYCARD Number of Barclaycard UK customers 10.1m 9.7m 9.3m Number of customers registered for online account 1.3m 1.1m 0.9m services Number of retailer relationships 88,000 85,000 85,000 Number of retailer transactions processed 0.7bn 0.7bn 0.7bn Number of Barclaycards in issue overseas 1.32m 1.28m 1.24m BUSINESS BANKING Number of Business Banking customers 728,000 727,000 731,000 Number of current accounts 733,000 731,000 738,000 Number of Business Premium deposit accounts 238,000 238,000 242,000 Customers registered for online banking/ 258,000 288,000 273,000 BusinessMaster BARCLAYS AFRICA Number of customers accounts 1.4m 1.4m 1.4m BARCLAYS GLOBAL INVESTORS Total assets under management £543bn £462bn £500bn Number of institutional clients 2,400 2,300 2,100 Half-year ended BARCLAYS CAPITAL 30.06.03 30.06.02 League League Table issuance table Issuance position value position Value Global all debt 4th $103.0bn 6th $77.7bn European all debt 3rd $68.2bn 2nd $56.5bn All international bonds (all currencies) 5th $60.6bn 10th $43.7bn All international bonds (Euros) 6th Euro 30.8bn 8th Euro 24.0bn Sterling bonds 1st £5.8bn 1st £8.1bn US investment grade corporate bonds 9th $4.7bn 12th $2.1bn GROUP PERFORMANCE MANAGEMENT Value Based Management Barclays is focused on delivering superior value to its shareholders. To achieve this, we have adopted the principles of Value Based Management (VBM) to develop strategy, allocate resources and manage performance. In applying VBM principles, Barclays has developed a disciplined, fact-based approach to strategy development and business planning, which aims to build sustainable competitive advantage. Individual businesses generate alternative business strategies to facilitate the selection of the most appropriate value-maximising option. Our aim is to achieve profitable growth in all our businesses. In order to set a benchmark for top quartile value creation, we set performance goals designed to stretch the thinking and ambition of our businesses. These goals act as inputs into our strategy development process that in turn generates business performance commitments. Performance Goals At the end of 1999, Barclays set a series of four year performance goals for the period 2000 to 2003 inclusive. The primary goal is to achieve and sustain top quartile total shareholder return (TSR) relative to a peer group* of financial services companies (reviewed annually). TSR is defined as the value created for shareholders through share price appreciation, plus re-invested dividend payments. In addition, a set of secondary four year goals were established to frame the performance required to meet the primary goal. The first supporting goal was to double the absolute value of an investment of a hypothetical £100 in Barclays over the four year period from the end of 1999. At the time of setting the goals, analysis of financial services companies who had delivered top TSR performance indicated that this level of value creation would be required for Barclays to be in the top quartile of the peer group. The second supporting goal was to double economic profit** over the period. At the time of setting the goals, we believed that this level of economic profit generation would be required to deliver top quartile TSR performance. This goal requires the delivery of £6.1bn of cumulative economic profit for the period 2000 to 2003 inclusive. The third supporting goal was specifically focused on improving cost management. This goal was to reduce the annual run rate of Group costs by £1bn over the four year period to the end of 2003 thereby absorbing the impact of inflation and volume related growth during the period. Our belief is that to achieve our shareholder value aspirations we must deliver world-class productivity performance. * Peer group for 2003: Abbey National, ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland and Standard Chartered. The peer group is unchanged from 2002. ** Economic profit is defined as profit after tax and minority interests plus certain gains (and losses) reported within the statement of total recognised gains and losses where they arise from the Group's business activities and are in respect of transactions with third parties, less a charge for the cost of average shareholders' funds (which includes purchased goodwill). The cost of average shareholders' funds is calculated using the capital asset pricing model. The cost of equity comprises primarily three components: the equity risk premium; the market beta; and the risk free rate. The Group's cost of average shareholders' funds for 2003 is unchanged from 2002 at 9.5%. Performance relative to goals At the end of June 2003, Barclays had met its primary goal of top quartile TSR performance relative to its peer group and also delivered the cost goal ahead of schedule. However, Barclays is behind the cumulative economic profit goal and is significantly behind the absolute value goal as a result of the fall in the stock markets during the period. Total Shareholder Return For the three and a half years from 31st December 1999 to 30th June 2003, Barclays was positioned third within its peer group, thereby achieving its primary top quartile TSR performance goal. Absolute Value In order to be on track to meet this goal, the hypothetical £100 investment should have been worth £183 on 30th June 2003. The hypothetical £100 investment would actually have been worth £117. This performance has been achieved in an environment of widespread declines in stock market values. A corresponding hypothetical investment in a basket of shares made up of the Barclays peer group would have been worth £104 on 30th June 2003, while an investment in the FTSE 100 Index would have been worth £64. Economic Profit This goal required the generation of £5.1bn of cumulative economic profit by 30th June 2003, as the contribution of the first three and a half years in the four year (2000-2003 inclusive) cumulative goal of £6.1bn. Economic profit for the first half of 2003 was £0.7bn, which combined with the cumulative £3.9bn generated between 2000 and 2002 inclusive, delivered £4.6bn of cumulative economic profit at 30th June 2003. The breakdown of economic profit performance is shown below: Half-year ended 30.06.03 30.06.02 £m £m Profit after tax and minority interests (excluding goodwill amortisation) 1,508 1,374 Average shareholders' funds* 16,566 15,682 Post-tax cost of equity 9.5% 9.5% Cost of average shareholders' funds** (766) (720) Economic profit 742 654 * The difference between the average shareholders' funds (excluding minority interests) of £15,703m and that reported above represents cumulative goodwill amortisation charged and goodwill previously written off to reserves. ** The cost includes a charge for purchased goodwill of £201m (2002: £199m). A post-tax cost of equity of 8.5% has been used for goodwill associated with the acquisition of Woolwich plc. The table below shows the economic profit generated by each business area. Further information on the economic capital methodology and the allocation of economic capital by business can be found on pages 46 and 47. Economic profit Half-year ended 30.06.03 30.06.02 £m £m Personal Financial Services 246 200 Barclays Private Clients - ongoing business 96 145 - closed life assurance activities (46) (34) Barclaycard 174 143 Business Banking 315 293 Barclays Africa 19 10 Barclays Capital 167 143 Barclays Global Investors 52 28 Other operations* (14) (54) Head office functions (31) 5 Goodwill** (201) (199) Cost of variance to average shareholders' funds (35) (26) Economic profit 742 654 * Includes Transition Businesses, see page 50. ** Cost of equity charge on purchased goodwill. Cost goal Between 2000 and 2002 inclusive, £910m of savings were achieved. In the first half of 2003, a further £160m of savings were achieved, creating a cumulative total of £1,070m. Therefore with three and a half years of the four year period elapsed, the goal had been achieved ahead of schedule. We continue to benchmark each of our businesses against the appropriate peer group in financial services to establish top quartile efficiency ratio targets. Barclays cost:income ratio was maintained at 53% (2002: 53%). SUMMARY OF RESULTS (UNAUDITED) PROFIT BEFORE TAX Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Personal Financial Services 534 508 475 Barclays Private Clients - ongoing business 177 165 246 - closed life assurance activities (46) (61) (26) Barclaycard 381 312 312 Business Banking 674 625 643 Barclays Africa 63 57 48 Barclays Capital 420 223 370 Barclays Global Investors 91 50 60 Other operations* (46) (52) (117) Head office functions (60) (70) (39) Operating profit 2,188 1,757 1,972 Restructuring charge (74) (132) (55) Woolwich integration costs (22) (48) (32) Goodwill amortisation (128) (124) (130) Exceptional items (1) (3) - 1,963 1,450 1,755 TOTAL ASSETS AND WEIGHTED RISK ASSETS Total assets Weighted risk assets 30.06.03 31.12.02 30.06.02 30.06.03 31.12.02 30.06.02 £m £m £m £m £m £m Personal Financial Services 73,584 71,871 67,877 41,879 41,100 38,673 Barclays Private Clients - ongoing business 15,392 13,087 13,859 12,668 11,713 9,856 - closed life assurance 862 929 950 - - - activities Barclaycard 11,412 10,669 10,278 11,464 10,647 10,009 Business Banking 51,182 47,315 44,509 53,640 50,449 47,159 Barclays Africa 2,776 2,632 2,366 1,980 1,892 1,672 Barclays Capital 274,566 236,472 230,511 58,067 53,496 53,974 Barclays Global Investors 607 494 389 1,083 666 636 Other operations* and 4,841 8,379 7,035 633 2,785 3,189 Head office functions Goodwill 3,867 3,934 4,055 - - - Retail life-fund assets 7,642 7,284 7,879 - - - 446,731 403,066 389,708 181,414 172,748 165,168 * Includes Transition Businesses, see page 50. CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED) Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Interest receivable 6,093 6,007 6,037 Interest payable (2,857) (2,935) (2,904) Net interest income 3,236 3,072 3,133 Net fees and commissions receivable 2,030 1,961 1,964 Dealing profits 530 320 513 Other operating income 197 240 124 Total non-interest income 2,757 2,521 2,601 Operating income 5,993 5,593 5,734 Administration expenses - staff costs (2,026) (1,877) (1,878) Administration expenses - other (1,092) (1,213) (1,099) Depreciation and amortisation (269) (271) (286) Operating expenses (3,387) (3,361) (3,263) Operating profit before provisions 2,606 2,232 2,471 Provisions for bad and doubtful debts (652) (771) (713) Provisions for contingent liabilities and commitments - (2) 1 Operating profit 1,954 1,459 1,759 Profit/(loss) from joint ventures and 10 (6) (4) associated undertakings Exceptional items (1) (3) - Profit on ordinary activities before tax 1,963 1,450 1,755 Tax on profit on ordinary activities (567) (446) (509) Profit on ordinary activities after tax 1,396 1,004 1,246 Minority interests - equity and non-equity (13) (11) (9) Profit for the financial period attributable to the members of Barclays PLC 1,383 993 1,237 Dividends (457) (787) (419) Profit retained for the financial period 926 206 818 Earnings per ordinary share 21.3p 15.1p 18.6p Dividend per ordinary share Interim 7.05p - 6.35p Final - 12.00p - CONSOLIDATED BALANCE SHEET (UNAUDITED) 30.06.03 31.12.02 30.06.02 Assets: £m £m £m Cash and balances at central banks 1,717 2,032 1,414 Items in course of collection from other banks 3,155 2,335 3,077 Treasury bills and other eligible bills 7,842 7,645 8,768 Loans and advances to banks - banking 14,937 15,369 16,889 - trading 52,534 42,805 40,951 67,471 58,174 57,840 Loans and advances to customers - banking 164,912 157,222 151,815 - trading 59,447 45,176 47,211 224,359 202,398 199,026 Debt securities 100,122 94,229 80,744 Equity shares 5,164 3,133 4,661 Interests in joint ventures and associated 454 455 89 undertakings Intangible fixed assets - goodwill 3,867 3,934 4,055 Tangible fixed assets 1,572 1,626 1,831 Other assets 23,366 19,821 20,324 439,089 395,782 381,829 Retail life-fund assets attributable to 7,642 7,284 7,879 policyholders Total assets 446,731 403,066 389,708 Liabilities: Deposits by banks - banking 51,357 48,751 39,052 - trading 41,844 38,683 42,133 93,201 87,434 81,185 Customer accounts - banking 153,893 144,078 143,388 - trading 44,223 27,420 30,146 198,116 171,498 173,534 Debt securities in issue 48,431 45,885 46,899 Items in course of collection due to other banks 1,662 1,416 1,396 Other liabilities 68,869 62,651 52,615 Undated loan capital - convertible to preference - 310 328 shares Undated loan capital - non-convertible 6,570 6,368 5,454 Dated loan capital - convertible to preference 11 11 - shares Dated loan capital - non-convertible 5,972 4,848 5,203 422,832 380,421 366,614 Minority interests and shareholders' funds: Minority interests - equity and non-equity 193 156 124 Called up share capital 1,638 1,645 1,661 Reserves 14,426 13,560 13,430 Shareholders' funds: equity 16,064 15,205 15,091 16,257 15,361 15,215 439,089 395,782 381,829 Retail life-fund liabilities attributable to 7,642 7,284 7,879 policyholders Total liabilities and shareholders' funds 446,731 403,066 389,708 FURTHER ANALYSIS OF PROFIT AND LOSS ACCOUNT (UNAUDITED) Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Interest receivable 6,093 6,007 6,037 Interest payable (2,857) (2,935) (2,904) Net interest income 3,236 3,072 3,133 Net fees and commissions receivable 2,030 1,961 1,964 Dealing profits 530 320 513 Other operating income 197 240 124 Total non-interest income 2,757 2,521 2,601 Operating income 5,993 5,593 5,734 Administration expenses - staff costs (1,960) (1,790) (1,839) Administration expenses - other (1,062) (1,120) (1,051) Depreciation (144) (147) (156) Operating expenses (3,166) (3,057) (3,046) 2,827 2,536 2,688 Provisions for bad and doubtful debts (652) (771) (713) Provisions for contingent liabilities and commitments - (2) 1 Profit/(loss) from joint ventures and 13 (6) (4) associated undertakings Operating profit 2,188 1,757 1,972 Restructuring charge (74) (132) (55) Woolwich Integration costs (22) (48) (32) Goodwill amortisation (128) (124) (130) Exceptional items (1) (3) - Profit on ordinary activities before tax 1,963 1,450 1,755 Earnings per ordinary share before restructuring charge, 24.3p 18.9p 21.4p Woolwich integration costs, goodwill amortisation and exceptional items Post-tax return on average shareholders' funds (on a consistent basis with earnings per share above) 20.0% 16.1% 18.9% The above results are based on the consolidated profit and loss account shown on page 13 and show operating profit before charging the restructuring charge, costs directly associated with the integration of Woolwich plc, goodwill amortisation and exceptional items. The above presentation also includes the profit/(loss) from joint ventures and associated undertakings (prior to the amortisation of related goodwill) in the calculation of operating profit. Barclays believes that identifying operating profit on this basis assists in the understanding of profit trends in the results. In previous reporting periods, operating profit was additionally adjusted to remove the impact of Woolwich fair value adjustments primarily on net interest income. The presentation above no longer makes the adjustment to operating profit and comparative amounts have been restated accordingly. FINANCIAL REVIEW Results by nature of income and expense Net interest income Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Interest receivable 6,093 6,007 6,037 Interest payable (2,857) (2,935) (2,904) 3,236 3,072 3,133 Group net interest income increased by 3% to £3,236m, reflecting growth in balances, which more than offset an 18 basis point fall versus the first half of 2002 in the Group interest margin, to 2.66%. The margin versus the second half of 2002 was stable. The Group interest margin of 2.66% (2002: 2.84%) includes 0.50% (2002: 0.53%) arising from the benefit of free funds. A component of the benefit of free funds is the hedge against short term interest rate movements. The contribution of the hedge remained broadly constant at 0.21%. The 18 basis points fall in the Group interest margin was principally attributable to a 33 basis point fall in the international interest margin. The reduction was mainly as a result of managing down the higher yielding Transition Businesses and the general fall in global interest rates. The proportion of international average interest earning assets increased. The domestic net interest margin remained flat, reflecting active management of margins across the UK businesses, particularly in the mortgage market. Average interest earning assets increased by 11% to £244bn (2002: £220bn). Domestic average interest earning assets increased by 6% to £158bn (2002: £149bn), predominantly driven by a £6bn increase in mortgage balances in Personal Financial Services. International average interest earning assets increased by 21% to £86bn (2002: £71bn), reflecting an increase of £15bn in holdings of debt securities in Barclays Capital. Yields, spreads and margins - banking business* Half-year ended 30.06.03 31.12.02 30.06.02 Gross yield** % % % Group 5.00 5.22 5.48 Domestic 5.75 5.86 6.09 International 3.64 3.93 4.20 Interest spread*** Group 2.37 2.32 2.52 Domestic 3.29 3.16 3.27 International 0.72 0.63 0.98 Interest margin**** Group 2.66 2.66 2.84 Domestic 3.67 3.56 3.66 International 0.80 0.80 1.13 Average UK base rate 3.80 4.00 4.00 * Domestic business is conducted primarily in the UK in Sterling. 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 UK by Barclays Capital. The yields, spreads, and margins shown above exclude non-margin related items, including profits and losses on the repurchase of loan capital and the unwinding of the discount on vacant leasehold property provisions. ** Gross yield is the interest rate earned on average interest earning assets. *** 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. **** Interest margin is net interest income as a percentage of average interest earning assets. Average interest earning assets and liabilities - banking business Half-year ended 30.06.03 31.12.02 30.06.02 Average interest earning assets £m £m £m Group 243,668 230,033 220,323 Domestic 157,565 154,717 148,903 International 86,103 75,316 71,420 Average interest bearing liabilities Group 216,707 203,357 196,059 Domestic 132,796 131,927 128,163 International 83,911 71,430 67,896 Net fees and commissions Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Fees and commissions receivable 2,298 2,241 2,213 Less: fees and commissions payable (268) (280) (249) 2,030 1,961 1,964 Group net fees and commissions increased by £66m (3%) to £2,030m, reflecting increases in most businesses, partially offset by a reduction in Barclays Private Clients. In Personal Financial Services, there was a reduction of 2% to £389m (2002: £397m) reflecting lower income from the independent financial advisor (IFA) business. Net fees and commissions in Barclays Private Clients decreased 26% to £240m (2002: £325m) reflecting the impact of market conditions on sales of investment products, brokerage and fund management fees in private banking and the absence of the contribution of the Caribbean. In Barclaycard, growth in the international business, UK account activity fees and higher merchant acquiring volumes accounted for the growth in net fees and commissions of 19% to £380m (2002: £320m). In Business Banking, net fees and commissions increased by 8% to £455m (2002: £422m). Lending fees grew rapidly and reflected the growth in the balance sheet. Foreign exchange related commission grew due to increased business volumes. Money transmission income fell and was affected by the alternative offer to customers triggered by the Competition Commission Inquiry transitional pricing remedy. The migration to lower cost electronic payment methods continued. Business Banking fees and commissions included £71m (2002: £66m) in respect of foreign exchange income on customer transactions with Barclays Capital. Net fees and commissions in Barclays Africa increased 20% to £65m due to stronger business activity in Kenya and the acquisition of BNPI Mauritius. Barclays Capital net fees and commissions remained in line with the prior year at £244m (2002: £245m). Barclays Global Investors net fees and commission increased by 8% to £306m, with the increase dampened by foreign exchange translation movements of £37m and lower average market levels. Strong net new asset growth, investment performance and higher margin product sales created growth in investment management fees. Income from the sale of Legal & General products following the alliance in 2001 is included in net fees and commissions. Dealing profits Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Rates related business 449 356 520 Credit related business 81 (36) (7) 530 320 513 Almost all the Group's dealing profits are generated in Barclays Capital. Dealing profits grew 3% to £530m, with strong performances in the credit businesses, in particular corporate bonds. This was partially offset by lower contributions in the Rates businesses in particular from US interest rate derivatives. Total foreign exchange income was £277m (2002: £251m) and consisted of revenues earned from both retail and wholesale activities. The foreign exchange income earned on customer transactions by Personal Financial Services, Barclays Private Clients, Barclaycard, Business Banking, Barclays Africa and Barclays Global Investors, both externally and with Barclays Capital, is reported in those business units, within fees and commissions. Other operating income Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Dividend income from equity shares 3 4 3 Profits on disposal of investment securities 55 51 7 Income from the long term assurance business (31) (20) (31) Property rentals 9 9 11 Income on insurance underwriting 108 94 84 Other income 53 102 50 197 240 124 Other operating income increased by £73m (59%) to £197m (2002: £124m). Profits on disposal of investment securities primarily reflect realisations in the private equity business within Barclays Capital. Virtually all of the Group's long term assurance activity is based in the UK. This UK business, which closed to new business following the formation of the strategic alliance with Legal & General in 2001, was the main contributor to the loss of £31m for 2003 and the losses experienced in 2002. The contribution for 2003 included costs of redress for customer claims in respect of endowment policies and other actuarial basis changes, partially offset by the benefit of the limited stockmarket recovery during the first half of 2003. Total costs of customer redress in respect of endowment policies were £50m (2002: £nil). Income on insurance underwriting rose by £24m to £108m as a result of income from increased consumer lending activities and a favourable claims experience. Operating expenses The Group manages core costs on the basis of three distinct categories: strategic investment, revenue related and business as usual. In addition, goodwill amortisation, restructuring costs and integration costs are reported separately. Costs are allocated to individual categories based on the following definitions: Strategic investment costs relate to the development costs of an investment project which has either or both of the following features: - it generates or enables new revenue streams or definable growth in a revenue stream; or - it generates or enables reduced costs. Strategic investment costs exclude restructuring costs, integration costs and project operating costs. Revenue related costs are those costs which are directly associated with a corresponding change in revenues or profit. An increase or decrease in revenues or profits will usually lead to an increase or decrease in these costs. Business as usual costs are those costs not classified as strategic investment or revenue related. This category includes operating costs of live strategic projects, other project costs not classified as strategic and volume related costs which are not revenue related. Restructuring costs are those charges associated with the ongoing reorganisation and restructuring of the Group's operations as part of its cost reduction initiatives. Integration costs are in respect of projects and initiatives associated with the acquisition of Woolwich plc and include expenditure to achieve cost savings and revenue synergies. Based on the definitions, the Group's costs are summarised in the following table: Operating expenses Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Business as usual expenses 2,550 2,493 2,426 Revenue related costs 454 348 382 Strategic investment costs 145 193 188 Acquisitions and disposals 17 23 50 Operating expenses 3,166 3,057 3,046 Restructuring charge 74 132 55 Goodwill amortisation 125 124 130 Woolwich Integration costs 22 48 32 3,387 3,361 3,263 Operating expenses, before restructuring charge, goodwill, amortisation and integration costs, increased 4% to £3,166m. Business as usual costs rose by 5% (£124m) to £2,550m, with the majority of the increase, £109m, attributable to the year-on-year impact of the move to a pensions charge (£73m) from a pensions credit (£36m) in 2002. Businesses as usual costs also reflected the consequences of continued investment in the core businesses of Personal Financial Services and Barclaycard. In Barclays Africa business as usual costs increased due to further development of the business. In Business Banking and Barclays Capital they were held broadly in line with the prior year. Business as usual costs in Barclays Private Clients and Barclays Global Investors were lower. Revenue related costs rose 19% to £454m as a result of improved performance in Barclays Capital and Barclays Global Investors. Strategic investment expenditure of £145m was 23% lower than in the first half of 2002, reflecting tight cost control across the Group and the prioritisation of key initiatives. Administrative expenses - staff costs Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Salaries and accrued incentive payments 1,631 1,552 1,607 Social security costs 130 122 118 Pension costs 97 (19) (8) Post-retirement health care 9 8 7 Other staff costs 159 214 154 2,026 1,877 1,878 Included above: Restructuring charge (66) (86) (38) Woolwich integration costs - (1) (1) Excluding restructuring and integration costs 1,960 1,790 1,839 30.06.03 31.12.02 30.06.02 Number of staff at period end* Personal Financial Services** 26,600 27,200 28,200 Barclays Private Clients*** 10,300 10,700 13,000 Barclaycard**** 5,000 4,700 4,700 Business Banking***** 9,200 9,700 9,500 Barclays Africa 7,600 7,500 7,900 Barclays Capital 5,300 5,500 5,600 Barclays Global Investors 2,000 2,100 2,100 Other operations****** 7,100 6,800 6,900 Head office functions 500 500 500 Total Group permanent and contract staff worldwide 73,600 74,700 78,400 Temporary and agency staff worldwide 3,800 3,700 4,500 Total including temporary and agency staff 77,400 78,400 82,900 * Staff numbers are on a full time equivalent basis. United Kingdom permanent and contract staff are 58,400 (31st December 2002: 59,000; 30th June 2002: 60,400). ** Staff numbers decreased since 31st December 2002 by 600, as a result of a number of productivity initiatives. *** The decrease in staff numbers since 31st December 2002 reflected restructuring (500), transfers to Other operations (200), partly offset by the acquisition of Charles Schwab Europe (300). **** Includes 200 staff arising from the acquisition of Clydesdale Financial Services. ***** Staff numbers decreased since 31st December 2002 by 500, due to various restructuring initiatives. ****** The increase in staff numbers reflected the transfer of staff from other businesses, predominately Barclays Private Clients. Staff costs Staff costs, excluding the restructuring charge and the integration costs arising from the acquisition of Woolwich plc, increased by 7% to £1,960m. Salaries and accrued incentive payments increased by 1% to £1,631m reflecting increased performance related payments within Barclays Capital and Barclays Global Investors. The impact of the annual UK pay award was more than offset by a reduction in Group staff numbers. Pension costs calculated in accordance with SSAP 24 included a charge of £73m (2002: £36m credit) in respect of the Group's main UK pension schemes. Permanent and contract staff numbers fell by 1,100 during 2003. The implementation of restructuring programmes resulted in a decrease of 1,700 staff. This was partly offset by an increase of 300 staff from the acquisition of Charles Schwab Europe in Barclays Private Clients, an increase of 300 staff in Barclaycard mostly attributable to the acquisition of Clydesdale Financial Services. The numbers of staff reductions relating to each restructuring programme are as follows: Number of staff who have left during 2003 Current year programme 400 Prior year programme 1,300 Total 1,700 The number of staff who were under notice at 30th June 2003 was 1,300. The restructuring charge of £74m detailed on page 45 relates to the 2003 restructuring programme above. Administrative expenses Half-year ended 30.06.03 31.12.02 31.06.02 £m £m £m Property and equipment expenses 510 512 473 Other administrative expenses 582 701 626 1,092 1,213 1,099 Included above: Restructuring charge (8) (46) (17) Woolwich Integration costs (22) (47) (31) Excluding restructuring charge and integration costs 1,062 1,120 1,051 Administrative expenses were broadly flat. Property and equipment expenses increased by 8% to £510m primarily due to increased external information technology costs and increased property rentals. Other administrative expenses reduced by 7% to £582m reflecting decreases across a number of areas, principally advertising and securities clearing expenses. Depreciation and amortisation Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Property depreciation 45 42 51 Equipment depreciation 97 97 101 Loss on sale of equipment 2 8 4 144 147 156 Goodwill amortisation - Woolwich 103 103 103 - other 22 21 27 269 271 286 Provisions for bad and doubtful debts Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m The charge for the period in respect of bad and doubtful debts comprises: Specific provisions New and increased 771 861 858 Releases (70) (67) (60) Recoveries (62) (65) (41) 639 729 757 General provision charge / (release) 13 42 (44) Net charge 652 771 713 The net charge for the period in respect of bad and doubtful debts comprises: Transition Businesses 15 27 97 Other 637 744 616 Net charge 652 771 713 Total provisions for bad and doubtful debts at end of the period comprise: Specific provisions 2,261 2,261 2,139 General provisions 752 737 702 3,013 2,998 2,841 The net provisions charge for the half year decreased by 9% from £713m to £652m. Both wholesale and retail businesses contributed to the decrease. The significant impact of South American Corporate Banking in the first half of 2002 was not repeated. Provisions, excluding the impact of South America Corporate Banking, rose 6% to £643m (2002: £609m). In Barclays Capital, improved credit conditions in the large corporate market resulted in fewer credit provisions and lower non-performing loans. In Personal Financial Services the application of credit risk management initiatives resulted in lower provisions half on half. Provisions were higher in Business Banking, the increase being substantially attributable to provisions in respect of a small number of larger companies, with no particular industry concentration. Provisions increased in Barclaycard as the result of portfolio growth over the last two years. Overall, the net provision charge for the period as a percentage of average banking loans and advances improved from 0.42% to 0.36% for the half-year (annualised, from 0.83% to 0.72%). For the half year provision cover for non-performing and potential problem loans improved as detailed on page 56. Profit /(loss) from joint ventures and associated undertakings Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m Profit/(loss) from joint ventures - 1 (6) Profit/(loss) from associated undertakings 10 (7) 2 10 (6) (4) The profit from associated undertakings in the first half of 2003 primarily relates to the investment in FirstCaribbean (including goodwill amortisation of £3m). Exceptional items Half-year ended 30.06.03 31.12.02 30.06.02 £m £m £m (Loss)/profit on disposal of Group undertakings (1) 8 - Loss on termination of Group activities - (11) - (1) (3) - Tax The charge for the period assumes a UK corporation tax rate of 30% for the calendar year 2003 (full year 2002: 30%). The effective rate of tax for the first half of 2003 is 28.9% (2002: 29.0%). This is lower than the standard rate due to the beneficial effects of lower tax on overseas income and certain non-taxable gains, offset by the absence of tax relief on the goodwill charge. Included in the charge is a credit of £6m (2002: £8m credit) on the decrease in the shareholders' interest in the long term assurance fund. Earnings per ordinary share Earnings per ordinary share are based upon the results after deducting tax, profit attributable to minority interests and dividends on staff shares. Half-year ended 30.06.03 31.12.02 30.06.02 Earnings in period £1,383m £993m £1,237m Earnings in period before restructuring, integration £1,578m £1,249m £1,424m costs, goodwill amortisation and exceptional items Weighted average number of ordinary shares in issue 6,488m 6,599m 6,656m Calculation of adjusted earnings per share pence pence pence Basic earnings per ordinary share 21.3 15.1 18.6 Restructuring charge 0.8 1.5 0.6 Goodwill amortisation 2.0 1.8 1.9 Woolwich Integration costs 0.2 0.5 0.3 Adjusted earnings per share 24.3 18.9 21.4 Dividends on ordinary shares The Board has decided to pay, on 1st October 2003, an interim dividend for the year ending 31st December 2003 of 7.05p per ordinary share, for shares registered in the books of the Company at the close of business on 15th August 2003. Shareholders who have their dividends paid direct to their bank or building society account will receive a consolidated tax voucher detailing the dividends paid in the 2003/2004 tax year in mid-October 2003. For qualifying US and Canadian resident ADR holders, the interim dividend of 7.05p per ordinary share becomes 28.2p per ADS (representing four shares). The ADR depositary will mail the dividend on 1st October 2003 to ADR holders on the record on 15th August 2003. For qualifying Japanese shareholders, the interim dividend of 7.05p per ordinary share will be distributed in mid-October to shareholders on the record on 15th August 2003. Shareholders may have their dividends reinvested in Barclays PLC shares by participating in the Barclays Dividend Reinvestment Plan. The plan is available to all shareholders, including members of Barclays Sharestore, provided that they do not live in or are subject to the jurisdiction of any country where their participation in the plan would require Barclays or The Plan Administrator to take action to comply with local government or regulatory procedures or any similar formalities. Any shareholder wishing to obtain details and a form to join the plan should contact The Plan Administrator by writing to: The Plan Administrator to Barclays, PO Box 82, The Pavilions, Bridgwater Road, Bristol, BS99 7NH; or, by phoning 0870 702 0196. The completed form should be returned to The Plan Administrator on or before 9th September 2003 for it to be effective in time for the payment of the interim dividend on 1st October 2003. Shareholders who are already in the plan need take no action unless they wish to change their instructions in which case they should write to The Plan Administrator. Capital resources 30.06.03 31.12.02 30.06.02 £m £m £m Shareholders' funds 16,064 15,205 15,091 Minority interests 193 156 124 16,257 15,361 15,215 Loan capital 12,553 11,537 10,985 28,810 26,898 26,200 Total capital resources increased in the half-year by £1,912m. Equity shareholders' funds increased by £859m reflecting profit retentions of £926m, net proceeds of share issues of £16m and exchange rate movements of £36m, offset by share repurchases of £119m. Loan capital rose by £1,016m reflecting raisings of £1,667m and exchange rate movements of £58m, offset by redemptions of £708m and amortisation of issue expenses of £1m. Capital ratios Weighted risk assets and capital resources, as defined for supervisory purposes by the Financial Services Authority, comprise: Half-year ended 30.06.03 31.12.02 30.06.02 Weighted risk assets: £m £m £m Banking book on-balance sheet 131,320 128,691 124,864 off-balance sheet 22,358 21,999 21,587 Associated undertakings and joint ventures 2,777 3,065 501 Total banking book 156,455 153,755 146,952 Trading book Market risks 11,336 7,988 7,600 Counterparty and settlement risks 13,623 11,005 10,616 Total trading book 24,959 18,993 18,216 Total weighted risk assets 181,414 172,748 165,168 Capital resources: Tier 1 Called up share capital 1,638 1,645 1,661 Less: own shares (7) (4) (2) 1,631 1,641 1,659 Eligible reserves 14,295 13,409 13,400 Minority interests - equity 592 522 192 Reserve capital instruments* 1,783 1,771 1,838 Tier one notes* 1,005 1,019 - Less: goodwill (4,084) (4,158) (4,074) Total qualifying tier 1 capital 15,222 14,204 13,015 Tier 2 Revaluation reserves 23 25 31 General provisions 752 737 702 Qualifying subordinated liabilities** Undated loan capital 3,750 3,854 3,910 Dated loan capital 5,448 4,573 4,733 Minority interest*** 1 2 3 Total qualifying tier 2 capital 9,974 9,191 9,379 Tier 3: short term subordinated liabilities** 441 203 396 Less: Supervisory deductions Investments not consolidated for (1,363) (1,288) (1,330) Supervisory purposes**** Other deductions (247) (119) (104) (1,610) (1,407) (1,434) Total net capital resources 24,027 22,191 21,356 Capital ratios: % % % Tier 1 ratio 8.4 8.2 7.9 Risk asset ratio 13.2 12.8 12.9 * Reserve capital instruments and tier one notes are included in undated loan capital in the consolidated balance sheet. ** Subordinated liabilities are included in tiers 2 or 3, subject to limits laid down in the supervisory requirements. Barclays retains significant capacity to raise additional capital within these limits. *** Revaluation reserves of £1m (31st December 2002: £2m; 30th June 2002: £3m). **** Includes £799m (31st December 2002: £867m; 30th June 2002: £844m) of shareholders' interest in the long-term assurance funds. Capital ratios strengthened from the position as at 31st December 2002 as a result of a £1.8bn (8.3%) growth in total net capital resources, which more than offset the impact of a £8.7bn (5.0%) growth in weighted risk assets. The net impact on the risk asset ratio was an increase of 0.4% and on the tier 1 ratio an increase of 0.2%. Within total net capital, tier 1 capital rose by £1.0bn, almost wholly in equity shareholders' funds including retained profit of £0.9bn, while tier 2 capital increased by £0.8bn and tier 3 capital by £0.2bn. Supervisory deductions increased by £0.2bn. The increase in weighted risk assets is mainly accounted for by a rise of £6.0bn (31.4%) in the Trading book. Banking book weighted risk assets grew by £2.7bn (1.8%). The growth in weighted risk assets is discussed further under 'Total assets' below. Total assets* * All comparisons, unless otherwise specified, are relative to 31st December 2002. The Group's balance sheet grew by 11% (£43.7bn) to £446.7bn. Weighted risk assets rose by 5% to £181.4bn. Within Personal Financial Services, total assets increased by 2% to £73.6bn. Weighted risk assets increased by 2% to £41.9bn. This was mainly attributable to steady growth in UK mortgage balances, up 2% to £59.8bn (31st December 2002: £58.7bn), and to good growth in both secured and unsecured lending. Barclays Private Clients total assets grew (excluding the assets of the closed life assurance activities) by £2.2bn to £15.4bn, primarily as a result of the growth of Openplan in Spain. Weighted risk assets increased by £1bn, again reflecting the growth in Openplan assets. Barclaycard total assets increased by £0.7bn (7%) to £11.4bn. Weighted risk assets increased by 8%, reflecting growth in extended credit balances. Within Business Banking, total assets grew by 8% to £51.2bn in the first half of 2003. Weighted risk assets increased by 6% to £53.6bn. Lending growth remained concentrated towards higher quality larger business customers. Barclays Capital total assets increased by 16% to £274.6bn (31st December 2002: £236.5bn) due to increases in settlement balances and government securities. Total settlement balances increased by £25bn reflecting higher volumes in government debt trading at the period end. Increases in government debt securities were £5bn. Total weighted risk assets increased by 9% to £58.1bn (31st December 2002: £53.5bn), reflecting the higher quality and lower risk weightings associated with government securities. Part 2 to follow This information is provided by RNS The company news service from the London Stock Exchange

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