Interim Results - Part 1

Barclays PLC 3 August 2000 PART 1 BARCLAYS PLC 2000 INTERIM RESULTS Summary 1 Financial highlights 3 Half-year review 4 Summary of results 6 Consolidated profit and loss account (unaudited) 7 Consolidated profit and loss account before restructuring charge (unaudited) 8 Consolidated balance sheet (unaudited) 9 Financial review 10 Additional information (unaudited) 38 Notes (unaudited) 41 Consolidated statement of changes in shareholders' funds (unaudited) 53 Statement of total recognised gains and losses (unaudited) 54 Consolidated cash flow statement (unaudited) 55 US GAAP data (unaudited) 58 Independent review report by the auditors 59 Other information 60 The information in this announcement, which was approved by the Board of Directors on 2nd August 2000, does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for the year ended 31st December 1999, which also included the Group's annual report on Form 20-F to the Securities and Exchange Commission in the United States of America, have been delivered to the Registrar of Companies in accordance with Section 242 of the Act and contained an auditors' report which was unqualified and did not make any statements under Section 237 of the Act. This document contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act 1995 with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition and performance. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, many of which are beyond the Group's control. As a result, the Group's actual future results may differ materially from the plans, goals, and expectations set forth in the Group's forward-looking statements. BARCLAYS PLC, 54 LOMBARD STREET, LONDON EC3P 3AH, TELEPHONE 020 7699 5000 3rd August 2000 BARCLAYS PLC - SUMMARY RESULTS FOR SIX MONTHS TO 30TH JUNE 2000 Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Operating profit before 2,145 1,808 1,751 provisions* Provisions for bad and doubtful (376) (301) (320) debts Operating profit* 1,770 1,506 1,431 Restructuring charge (106) 1 (345) Exceptional items 178 (19) (119) Profit before tax 1,842 1,488 967 Tax charge (488) (395) (249) Profit attributable to 1,320 1,063 696 shareholders Earnings per share 88.9p 71.3p 46.2p Earnings per share (based on 81.9p 72.1p 70.7p operating profit above)* Dividend per share 20.0p 32.5p 17.5p Economic profit 829 607 379 *Operating profit shown above excludes the 1999 and 2000 restructuring charges. Earnings per share and post-tax return on average shareholders' funds based on this operating profit also excludes exceptional items. - Operating profit rose by 24% to £1,770 million (1999: £1,431 million). Earnings per share increased to 81.9p (1999: 70.7p). - Operating income increased 13% to £4,676 million (1999: £4,146 million) and operating costs rose by 6% to £2,531 million (1999: £2,395 million). - Total costs rose by 6% to £2,531 million (1999: £2,395 million) as a result of increases in strategic investment and revenue related costs. Business as usual costs were maintained at £2,099 million (1999: £2,090 million). - The post-tax return on average shareholders' funds improved to 27.2% (1999: 25.5%). - The interim dividend increased by 14% to 20.0p (1999: 17.5p). - Shareholders' funds were £9.2 billion at 30th June 2000 (31st December 1999: £8.5 billion) and the tier 1 ratio was 8.0% (31st December 1999: 7.5%). The Group's economic capital requirement is estimated to be around £7.5 billion to support its current business requirements and to allow for future growth. - The Group returned £309 million of capital to shareholders in the first half of 2000. - Retail Financial Services increased operating profit by 32% to £822 million (1999: £621 million). Net interest income improved by 7% as a result of growth in UK consumer lending, mortgage lending and savings balances. Net fees and commissions grew by 8% benefiting from increases in both Retail Customers and Wealth Management. Total costs fell 3% despite an increase in strategic investment expenditure. - Barclaycard's operating profit of £195 million was at the same level as the first half of 1999. Net interest income rose by 12% and benefited from increased extended credit balances. Fees and commissions grew 10% as a result of increased transaction volumes. Total costs increased by 12% to £218 million (1999: £195 million) primarily reflecting higher strategic investment expenditure of £33 million (1999: £16 million). - Corporate Banking produced a strong performance with an improvement in operating profit of 18% to £541 million (1999: £458 million). Net interest income rose 8% reflecting the growth in customer lending balances. Fees and commissions increased 12% as a result of higher volumes of lending related fees and foreign exchange related income. - Overall banking margins fell to 3.17% (1999: 3.50%), reflecting the impact of increased levels of wholesale business and some reductions in overall UK margins in Retail Financial Services, Corporate Banking and Barclaycard. - Barclays Capital increased operating profit by 25% to £218 million (1999: £175 million) reflecting strong performance in both the Rates and Credit businesses. - Barclays Global Investors' operating profit rose by 18% to £33 million (1999: £28 million) benefiting from new business growth in assets under management and increased sales of higher margin products. Total assets under management increased to £529 billion (31st December 1999: £486 billion). - Total provisions for bad and doubtful debts rose by £56 million to £376 million, primarily as a result of higher levels of new and increased provisions reflecting increased volumes of new business in Retail Financial Services and Barclaycard. - The exceptional profit of £178 million reflected a £186 million profit on the sale of the Dial business in June 2000. - Economic profit increased to £829 million (1999: £379 million). BARCLAYS PLC FINANCIAL HIGHLIGHTS Half-year ended 30.6.00 31.12.99 30.6.99 RESULTS £m £m £m Net interest income 2,471 2,349 2,278 Non-interest income 2,205 1,864 1,868 Operating income 4,676 4,213 4,146 Operating expenses* (2,531) (2,405) (2,395) Operating profit before 2,145 1,808 1,751 provisions* Provisions for bad and doubtful (376) (301) (320) debts Provisions for contingent 1 (1) - liabilities and commitments Operating profit* 1,770 1,506 1,431 Restructuring charge (106) 1 (345) Exceptional items 178 (19) (119) Profit before tax 1,842 1,488 967 Profit retained 1,025 579 434 Economic profit 829 607 379 BALANCE SHEET Shareholders' funds 9,237 8,483 8,219 Loan capital 4,748 4,597 4,117 Total capital resources 14,750 13,432 12,685 Total assets 286,385 254,793 241,265 Weighted risk assets 123,483 115,878 113,994 PER ORDINARY SHARE P P P Earnings 88.9 71.3 46.2 Earnings (based on operating 81.9 72.1 70.7 profit above)* Dividend 20.0 32.5 17.5 Net asset value 626 568 547 PERFORMANCE RATIO % % % Post-tax return on average 29.6 25.6 16.8 shareholders' funds Post-tax return on average shareholders' funds (based on 27.2 24.4 25.5 operating profit above)* RISK ASSET RATIO Tier 1 8.0 7.5 7.4 Total 11.5 11.3 10.9 GROUP YIELDS, SPREADS & MARGINS % % % Gross yield 7.04 6.78 6.90 Interest spread 2.60 2.81 2.96 Interest margin 3.17 3.30 3.50 EXCHANGE RATES US$/£ US$/£ US$/£ Period end 1.51 1.62 1.58 Average 1.57 1.62 1.62 * Operating profit shown above excludes the 1999 and 2000 restructuring charges. Earnings per share and post-tax return on average shareholders' funds based on this operating profit also excludes exceptional items. BARCLAYS PLC HALF YEAR REVIEW We have built on our 1999 performance with strong results in the first half of 2000. Operating profit improved to £1,664 million. Earnings per share increased to 88.9p from 46.2p and post tax return on equity rose to 29.6%. As a result the interim dividend is being increased by 14% to 20p. Total revenues were up 13% to £4,676 million. We have seen revenue growth across all of our main businesses as they continue to build momentum. The diversification of our portfolio of businesses, customer segments and geographic coverage makes us less vulnerable as a Group to market discontinuity in any one product line or market place. Retail Financial Services profit improved by over 30% to £822 million reflecting good performances in consumer lending, mortgages and savings. Wealth Management is an important area of focus. In the last six months the Wealth Management business made a good contribution, particularly from Stockbrokers, Private Banking and Offshore Services. Barclaycard's profit was flat at £195 million with an 11% increase in revenues to £523 million partly offset by increased strategic investment spend in developing information management capabilities, international expansion and e-commerce initiatives. Corporate Banking recorded an 18% rise in profit to £541 million. We continue to develop the quality of our customer proposition in the United Kingdom. Our improved customer service approach to the UK middle market is generating record satisfaction levels and helping us win new customers and improve product penetration in an increasingly competitive market. Barclays Capital increased profits by 25% to £218 million, with both the Rates and Credit Businesses performing well. Our unique debt-focused approach and global model is gaining us new and repeat business from clients in the United Kingdom, United States, Asia and the rest of Europe. As European credit markets expand we benefit from a leading market position in loans and bonds. Barclays Global Investors (BGI) profit increased by 18% to £33 million, reflecting strong new business volumes in the core United States and United Kingdom businesses offset by continuing investment in key strategic initiatives, including exchange traded funds. Assets under management increased to £529 billion from £486 billion at 31st December 1999. The first six months saw good progress in the overhaul of everything we do for customers to achieve superiority in service quality and product proposition. Customers can expect to see continuing improvement in the range of products and channels. We have gained new customers across all businesses and our existing customers showed a trend of increased business with us. Technology will play an important part in our plans. We are bringing new customer applications to market at scale. Our small business joint venture with Freeserve provides a broad range of on-line information and services to UK small businesses. In addition, Barclays B2B.com will provide a direct channel for the sale and delivery of business services. In the future, technology will enable us to provide much wider functionality and information plus the capability to deliver our services over mobile devices and interactive TV. WAP-enabled mobile phone services will be operational for both Barclaycard and Stockbrokers by the end of the year. The level of investment required over the next few years will be substantial. We believe we have a proper fully integrated e-enablement strategy which will be vital in determining success in this market. As a foundation for implementing value-based management, we have identified an initial structure of key lines of business in the Group, each of which will be tasked with achieving the highest possible value within the Group. Accordingly, each of these businesses and the corporate centre will explicitly base decision making on the standard of maximising shareholder value creation. As we look forward to another challenging period ahead, we are immensely encouraged by the continued dedication, support and sheer hard work of all the Group's staff. Together we will continue to drive hard towards our goal of doubling economic profit every four years. Sir Peter Middleton Matthew W. Barrett Group Chairman Group Chief Executive BARCLAYS PLC SUMMARY OF RESULTS Half-year ended PROFIT BEFORE TAX 30.6.00 31.12.99 30.6.99 £m £m £m Retail Financial Services 822 691 621 Barclaycard 195 206 195 Corporate Banking 541 489 458 Barclays Capital 218 136 175 Barclays Global Investors 33 15 28 Other operations 6 23 (10) Head office functions (39) (47) (30) Goodwill amortisation (6) (7) (6) Operating profit 1,770 1,506 1,431 Restructuring charge (106) 1 (345) Exceptional items 178 (19) (119) 1,842 1,488 967 TOTAL ASSETS 30.6.00 31.12.99 30.6.99 £m £m £m Retail Financial Services 42,799 41,383 39,375 Barclaycard 7,696 7,343 6,401 Corporate Banking 51,209 47,422 46,662 Barclays Capital 170,950 144,811 135,941 Barclays Global Investors 255 232 199 Other operations and Head office 5,462 5,562 5,174 functions Retail life-fund assets 8,014 8,040 7,513 attributable to policyholders 286,385 254,793 241,265 WEIGHTED RISK ASSETS 30.6.00 31.12.99 30.6.99 £m £m £m Retail Financial Services 27,503 26,152 25,354 Barclaycard 7,697 7,210 6,333 Corporate Banking 52,502 48,218 47,683 Barclays Capital 33,388 32,032 31,652 Barclays Global Investors 653 456 297 Other operations 1,740 1,810 2,675 123,483 115,878 113,994 BARCLAYS PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED) Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Interest receivable 5,491 4,823 4,497 Interest payable (3,022) (2,477) (2,219) Profit on redemption/repurchase 2 3 - of loan capital Net interest income 2,471 2,349 2,278 Net fees and commissions 1,602 1,515 1,417 receivable Dealing profits 415 234 322 Other operating income 188 115 129 Total non-interest income 2,205 1,864 1,868 Operating income 4,676 4,213 4,146 Administration expenses - staff (1,606) (1,389) (1,668) costs Administration expenses - other (902) (872) (935) Depreciation and amortisation (129) (143) (137) Operating expenses (2,637) (2,404) (2,740) Operating profit before 2,039 1,809 1,406 provisions Provisions for bad and doubtful (376) (301) (320) debts Provisions for contingent 1 (1) - liabilities and commitments Operating profit 1,664 1,507 1,086 Exceptional items 178 (19) (119) Profit on ordinary activities 1,842 1,488 967 before tax Tax on profit on ordinary (488) (395) (249) activities Profit on ordinary activities 1,354 1,093 718 after tax Minority interests (equity and (34) (30) (22) non-equity) Profit for the period attributable to the members of 1,320 1,063 696 Barclays PLC Dividends (295) (484) (262) Profit retained for the period 1,025 579 434 Earnings per ordinary share 88.9p 71.3p 46.2p Earnings per ordinary share 72.1p before restructuring charge and 81.9p 70.7p exceptional items Dividend per ordinary share: First interim (payable 3rd 20.0p - 17.5p October 2000) Second interim - 32.5p - BARCLAYS PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT BEFORE RESTRUCTURING CHARGE (UNAUDITED) Half-year ended 30.6.00 31.12.99 30.6.99 £m £m £m Interest receivable 5,491 4,823 4,497 Interest payable (3,022) (2,477) (2,219) Profit on redemption/repurchase 2 3 - of loan capital Net interest income 2,471 2,349 2,278 Net fees and commissions 1,602 1,515 1,417 receivable Dealing profits 415 234 322 Other operating income 188 115 129 Total non-interest income 2,205 1,864 1,868 Operating income 4,676 4,213 4,146 Administration expenses - staff (1,514) (1,444) (1,421) costs Administration expenses - other (888) (818) (837) Depreciation and amortisation (129) (143) (137) Operating expenses (2,531) (2,405) (2,395) Operating profit before 2,145 1,808 1,751 provisions Provisions for bad and doubtful (376) (301) (320) debts Provisions for contingent 1 (1) - liabilities and commitments Operating profit before 1,770 1,506 1,431 restructuring charge Restructuring charge (106) 1 (345) Exceptional items 178 (19) (119) Profit on ordinary activities 1,842 1,488 967 before tax The results shown on page 7 include the 1999 and 2000 restructuring charges within operating expenses. The table above presents operating expenses excluding the restructuring charge. BARCLAYS PLC CONSOLIDATED BALANCE SHEET (UNAUDITED) Half-year ended 30.6.00 31.12.99 30.6.99 Assets: £m £m £m Cash and balances at central 588 1,166 780 banks Items in course of collection 2,660 2,492 2,709 from other banks Treasury bills and other eligible 9,584 7,176 8,321 bills Loans and advances to banks - banking 9,678 13,071 14,214 - trading 30,607 26,555 23,228 40,285 39,626 37,442 Loans and advances to customers - banking 99,893 95,006 88,952 - trading 34,547 21,562 19,671 134,440 116,568 108,623 Debt securities 61,380 53,919 48,756 Equity shares 9,947 5,604 8,011 Interests in associated 97 106 131 undertakings and joint ventures Intangible fixed assets - 188 183 209 goodwill Tangible fixed assets 1,731 1,800 1,878 Other assets 17,471 18,113 16,892 278,371 246,753 233,752 Retail life-fund assets 8,014 8,040 7,513 attributable to policyholders Total assets 286,385 254,793 241,265 Liabilities: Deposits by banks - banking 39,624 26,915 24,863 - trading 19,908 17,571 14,213 59,532 44,486 39,076 Customer accounts - banking 112,464 105,027 98,629 - trading 27,875 18,939 18,316 140,339 123,966 116,945 Debt securities in issue 18,388 23,329 22,976 Items in course of collection due 1,252 1,400 1,308 to other banks Other liabilities 44,110 40,140 40,762 Undated loan capital - 330 309 317 convertible to preference shares Undated loan capital - non- 1,475 1,440 1,463 convertible Dated loan capital - non- 2,943 2,848 2,337 convertible 268,369 237,918 225,184 Minority interests and shareholders' funds: Minority interests: equity 86 82 72 Minority interests: non-equity 679 270 277 Called up share capital 1,477 1,495 1,503 Reserves 7,760 6,988 6,716 Shareholders' funds: equity 9,237 8,483 8,219 10,002 8,835 8,568 278,371 246,753 233,752 Retail life-fund liabilities 8,014 8,040 7,513 attributable to policyholders Total liabilities and 286,385 254,793 241,265 shareholders' funds BARCLAYS PLC FINANCIAL REVIEW Results by nature of income and expense Half-year ended Net interest income 30.6.00 31.12.99 30.6.99 £m £m £m Interest receivable 5,491 4,823 4,497 Interest payable (3,022) (2,477) (2,219) Profit on redemption/repurchase 2 3 - of loan capital 2,471 2,349 2,278 Net interest income grew by 8% or £193m. Adjusting for the loss of interest income arising from the share repurchases and other business disposals, underlying net interest income increased by 9%. Retail Financial Services net interest income rose by 7% to £1,306m primarily as a result of growth in UK consumer lending, mortgage lending (particularly in UK Premier Banking) and UK savings balances. Average UK consumer lending balances grew by 8% to £6.4bn compared to the first half of 1999. Average UK mortgage lending increased by 8% to £17.0bn half-year on half-year. Gross new mortgage lending was £2.2bn and market share was 3.7% (1999: 3.8%). Average UK savings balances grew by 6% to £20.5bn, in line with market growth. UK lending and deposit margins fell slightly. The UK lending margin reduced primarily as a result of pricing decisions in respect of consumer lending products. The deposit margin fell mainly as a result of a change in mix. Barclaycard net interest income increased by 12% to £269m, benefiting from a 17% increase in average extended credit balances to £5.2bn. The UK market share of credit cards has been maintained. The interest margin reduced slightly as a result of a rise in funding costs and the introduction of a competitive range of customer rates. Corporate Banking net interest income improved by 8% to £658m. Average customer lending balances increased by 11% to £46bn, reflecting strong growth in UK lending and continued improvement in international business volumes. UK middle market lending volumes grew strongly resulting from the implementation of a new sales strategy. Overall, corporate lending margins have eased slightly. UK lending margins continued to narrow, reflecting the higher concentration of growth in the large and lower risk customers and competitive pressure particularly in leasing and asset finance products. Overseas lending margins fell as stability returned to Latin American markets. Average deposit volumes increased by 5% to £36bn with the rate of growth being slower than 1999, reflecting a contraction in corporate liquidity. Growth has been stronger in higher margin deposits and as a result the overall deposit margin has been maintained despite competitive pressure. Net interest income in Barclays Capital increased by 10% to £222m as a result of good performances from structured capital markets and the money markets business. Overall banking margins fell to 3.17% from 3.50% in the first half of 1999 and from 3.30% in the second half of 1999. The fall reflects increased volumes in the lower margin wholesale business and a reduction in overall UK margins in Retail Financial Services, Corporate Banking, Barclaycard and Barclays Capital. The benefit of free funds increased slightly to 0.57% (1999: 0.54%). The rise in short-term market rates of interest reduced the contribution to the net margin from the central management of Group interest rate exposure to 0.06% from 0.21%. The overall benefit of free funds has reduced to 0.63% from 0.75% compared to the first half of 1999 as a result of a decrease in the effective rate of the hedge and a reduction in the proportion of free funds to interest earning assets. Yields, spreads and margins - banking business Domestic business is conducted primarily in sterling and is transacted by Retail Financial Services, Barclaycard, Corporate Banking, Barclays Capital and Group Treasury. International business is conducted primarily in foreign currencies. In addition to the business carried out by overseas branches and subsidiaries, international business is transacted in the United Kingdom by Barclays Capital, mainly with customers domiciled outside the United Kingdom. The yields, spreads and margins shown below have been computed on this basis, which generally reflects the domicile of the borrower. They exclude profits and losses on the redemption and repurchase of loan capital, one-off write-downs of leases and the unwinding of the discount on vacant leasehold property provisions. Yields, spreads and margins - banking business Half-year ended 30.6.00 31.12.99 30.6.99 Gross yield (i) % % % Group 7.04 6.78 6.90 Domestic 7.98 7.47 7.85 International 5.53 5.56 5.18 Interest spread (ii) Group 2.60 2.81 2.96 Domestic 3.59 3.77 4.02 International 1.02 1.15 1.05 Interest margin (iii) Group 3.17 3.30 3.50 Domestic 4.33 4.28 4.68 International 1.29 1.57 1.36 Average UK base rate 5.93 5.23 5.46 Notes (i) Gross yield is the interest rate earned on average interest earning assets. (ii) Interest spread is the difference between the interest rate earned on average interest earning assets and the interest rate paid on average interest bearing liabilities. (iii)Interest margin is net interest income as a percentage of average interest earning assets. Average interest earning assets and liabilities - banking business Half-year ended 30.6.00 31.12.99 30.6.99 Average interest earning assets £m £m £m Group 155,901 142,294 130,241 Domestic 96,457 90,700 84,116 International 59,444 51,594 46,125 Average interest bearing liabilities Group 135,909 124,685 112,307 Domestic 80,139 78,083 69,617 International 55,770 46,602 42,690 Half-year ended Net fees and commissions 30.6.00 31.12.99 30.6.99 £m £m £m Fees and commissions receivable 1,769 1,656 1,551 Less: fees and commissions (167) (141) (134) payable 1,602 1,515 1,417 Net fees and commissions rose 13% to £1,602m with strong performances in all businesses. Fees and commissions in Corporate Banking increased by 12% to £366m resulting from good growth in lending related fees and foreign exchange related income. Money transmission income remained at a similar level to the first half of 1999. Barclays Global Investors (BGI) fee income improved by 29% to £196m due to good levels of net new business growth in assets under management, the benefit of cross-sales in higher margin products, increased securities lending income and performance fees, and favourable market conditions in the second six months of 1999. In Retail Financial Services fees and commissions grew by 8% to £694m. This increase was primarily within the Retail Customers business, which improved 9% to £391m. Increased activity on current accounts and a significant increase in the number of Additions accounts more than offset the absence of £11m of ATM commissions received in the first half of 1999. This followed the abolition in the final quarter of last year of charges for customers' use of non-affiliated ATM machines. In Wealth Management, there were good increases in the contributions from Stockbrokers, Private Banking and Offshore Services. Barclaycard's fees and commissions increased 10% to £254m mainly as a result of a 13% growth in transaction volume. This was slightly offset by continued pressure on merchant acquisition fees. In Barclays Capital fees and commissions grew by 27%, or £22m, to £105m reflecting the increased number and size of transactions in the Credit businesses, in particular from large acquisition related financing. Corporate Banking and Retail Financial Services fees and commissions include £57m (1999: £47m) in respect of foreign exchange income on customer transactions with Barclays Capital. Half-year ended Dealing profits 30.6.00 31.12.99 30.6.99 £m £m £m Rates related business 297 181 216 Credit related business 118 53 106 415 234 322 Almost all the Group's dealing profits arise in Barclays Capital. Dealing profits increased by 29%, or £93m, to £415m. In Barclays Capital, the Rates businesses continued to perform strongly with good contributions from interest rate derivatives and government bonds. In the Credit businesses, there was strong growth in equity derivatives from increased customer related activities. Dealing profits in the second half of 1999 were affected by adverse widening of credit spreads which continued to affect secondary corporate bonds in the first half of 2000. Total foreign exchange income for the first half of 2000 was £211m, (1999: £192m) and consists of the revenues earned from both retail and wholesale activities. The foreign exchange income earned by Retail Financial Services and Corporate Banking on customer transactions, both externally and with Barclays Capital, is reported within fees and commissions. Half-year ended Other operating income 30.6.00 31.12.99 30.6.99 £m £m £m (Loss)/income from associated undertakings and joint ventures (10) (19) 5 Dividend income from equity 7 6 6 shares Net profit on disposal of 24 23 18 investment securities Income from the long-term 79 26 18 assurance business Property rentals 12 6 21 Premium income on insurance 61 57 45 underwriting Other income 15 16 16 188 115 129 Income from associated undertakings and joint ventures fell by £15m mainly as a result of increased credit provisions in the Group's Brazilian associate Banco Barclays e Galicia SA. There was no contribution in the first half of 2000 from Cairo Barclays SAE, which became a subsidiary from June 1999. Profits on disposal of investment securities includes a gain following the final distributions from Long Term Capital Portfolio. Total distributions now exceed the original amount invested. Income from the long-term assurance business increased by £61m over the first half of 1999 when a provision of £40m for personal pension redress was raised. The first half of 2000 also benefited by £12m as a result of applying revised actuarial assumptions. Total provisions of £196m for the cost of redress to personal pension customers for priority and non priority cases have been raised to date of which some £96m had not yet been utilised as at 30th June 2000. Premium income on insurance underwriting increased to £61m (1999: £45m) and benefited in line with improved volumes of consumer lending, overdrafts, mortgages and credit card lending. Operating expenses From 1st January 2000 the Group has managed costs on the basis of three distinct categories, strategic investment, revenue related and business as usual. Costs are allocated to individual categories based on the following definitions: Strategic investment costs relate to the development cost of an investment which has either or both of the following features: - generate or enable new revenue streams or definable growth in revenue stream, or - generate or enable reduced costs Strategic investment costs also include projects which support a major strategic initiative as agreed by Group Executive Committee, but exclude restructuring costs. Project operating costs are also excluded. Revenue or profit 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 lead to an increase or decrease in these costs. Business as usual costs are all costs not classified as strategic investment, revenue related or restructuring. This category includes operating costs of strategic projects, other projects not classified as strategic (for example Year 2000 remediation) and volume related costs which are not revenue related. Restructuring costs are those charges associated with the reorganisation and restructuring of the Group's operations as part of its cost reduction initiatives. Based on the above definitions the Group's costs are summarised in the following table with the costs associated with businesses sold and restructuring costs shown separately: 30.6.00 31.12.99 30.6.99 £m £m £m Business as usual expenses 2,099 2,109 2,090 Strategic investment costs 162 142 87 Revenue related costs 255 127 173 Disposals 15 27 45 2,531 2,405 2,395 Restructuring 106 (1) 345 2,637 2,404 2,740 The cost analysis on the following pages showing administrative expenses, staff and other, and depreciation and amortisation is in accordance with the requirements of the UK Companies' Act. Half-year ended Administrative expenses - staff 30.6.00 31.12.99 30.6.99 costs £m £m £m Salaries and accrued incentive 1,283 1,229 1,238 payments Social security costs 85 96 94 Pension costs 21 20 18 Post-retirement health care 7 9 6 Other staff costs 210 35 312 1,606 1,389 1,668 Included above: Restructuring charge 92 (55) 247 Excluding restructuring charge 1,514 1,444 1,421 Number of staff at period end:* Retail Financial Services** 44,200 46,100 47,800 Barclaycard 3,700 3,600 3,800 Corporate Banking 10,200 11,400 11,900 Barclays Capital 4,000 4,000 4,200 Barclays Global Investors 1,900 1,700 1,700 Other operations 5,800 7,100 7,600 Head office functions 500 400 400 Group total world wide 70,300 74,300 77,400 of which United Kingdom 52,300 55,700 57,800 * Staff numbers do not include temporary and agency staff of 4,300 (31st December 1999: 3,600; 30th June 1999: 3,900) whose costs are included in staff costs. ** Retail Financial Services include staff who represent a shared resource with Corporate Banking, but exclude 1,100 regulated salesforce and field sales managers (31st December 1999: 1,000, 30th June 1999: 1,000) and 1,200 administrative staff (31st December 1999: 1,300, 30th June 1999: 1,300) whose costs are borne within the long-term assurance fund. Staff costs rose by 7% excluding restructuring costs of £92m (1999: £247m). The increase in salaries and accrued incentive payments reflects higher performance related payments in Barclays Capital and BGI, and an increase in the provisional allocation to employee profit sharing. Excluding performance related payments and profit sharing allocations, staff costs were slightly lower than the first half of 1999, with savings from job reductions offsetting the impact of pay awards. In Retail Financial Services staff costs, excluding restructuring costs, reduced by 6%. In Corporate Banking staff costs, before restructuring costs and the consolidation of Cairo Barclays, fell compared with the first half of 1999. For both Retail Financial Services and Corporate Banking savings from job reductions more than offset the impact of the annual pay award to UK staff. Pension costs remained at a similar level to 1999 with the contribution to the Group's main UK scheme continuing at nil. The £55m restructuring credit in the second half of 1999 arose from a reduction in the original charge made at 30th June 1999 as targeted job reductions were achieved at lower than expected cost. In the first half of 2000, overall staff numbers reduced by 4,000 from 74,300 to 70,300. The reduction of staff numbers within Corporate Banking includes 700 as a result of the sale of Dial. Staff number reductions in the first half of 2000 associated with the £92m restructuring charge were some 1,000. In addition, a further 1,400 of the reduction related to staff where the notice process was underway at 31st December 1999. Staff numbers also reduced as a result of normal staff turnover and by 300 as a result of outsourcing. In addition to the 1,000 staff who have already left the Group the £92m restructuring charge relates to a further 3,200 staff. Half-year ended Administrative expenses - other 30.6.00 31.12.99 30.6.99 £m £m £m Property and equipment expenses: Hire of equipment 11 9 12 Property rentals 74 69 149 Other property and equipment 282 325 288 expenses 367 403 449 Stationery, postage and 117 122 114 telephones Advertising and market promotion 120 93 97 Travel, accommodation and 60 63 54 entertainment Subscriptions and publications 35 28 30 Securities clearing and other 11 8 12 operational expenses Sundry losses, provisions and 45 47 31 write-offs Statutory and regulatory audit 3 3 3 and accountancy fees Consultancy fees 62 45 76 Professional fees 40 49 39 Other expenses 42 11 30 902 872 935 Included above: Restructuring charge 14 54 98 Excluding restructuring charge 888 818 837 The restructuring charge for 1999 relates primarily to property costs. Excluding these costs, property and equipment expenses fell by 1% compared to the first half of 1999. Non-property and equipment expenses excluding restructuring increased by 12% compared to the first half of 1999 and included a significant increase in advertising and market promotion expenditure. Half-year ended Depreciation and amortisation 30.6.00 31.12.99 30.6.99 £m £m £m Property depreciation 42 47 46 Equipment depreciation 79 87 83 Goodwill amortisation 6 7 6 Loss on sale of equipment 2 2 2 129 143 137 Provisions for bad and doubtful debts Half-year ended 30.6.00 31.12.99 30.6.99 The charge for the period in £m £m £m respect of bad and doubtful debts comprises: Specific provisions - credit risk New and increased 497 463 424 Releases (38) (87) (70) Recoveries (53) (53) (40) 406 323 314 General provision - credit risk - (26) (24) 8 (release)/charge Specific provision releases - (4) - (2) country risk General provision charge - - 2 - country risk Net charge 376 301 320 Total provisions for bad and doubtful debts at end of the period comprise: Specific - credit risk 1,412 1,298 1,265 Specific - country risk 6 13 15 Total specific provisions 1,418 1,311 1,280 General provisions - credit risk 594 615 662 - country risk 57 57 65 2,069 1,983 2,007 The net provisions charge rose by £56m to £376m. This represented an increase of £73m in new and increased specific credit risk provisions and a reduction of £19m in releases and recoveries. This was offset by a credit risk general provision release, reflecting refinements in the businesses' current risk measurement processes, of £26m (1999: £8m charge). The rise in new and increased credit risk provisions to £497m primarily related to increased volumes of new business in consumer lending within Retail Customers and Barclaycard. There was also an increase in provisions in relation to overseas exposures in Barclays Capital. The net provision charge for the period as a percentage of average loans and advances was 0.33% compared with 0.31% in the first half of 1999. Half-year ended Exceptional items 30.6.00 31.12.99 30.6.99 £m £m £m Loss on sale or restructuring of BZW - (30) - Profit/(loss) on disposal of 178 11 (119) other Group undertakings 178 (19) (119) The profit on disposal of other Group undertakings includes a £186m profit on the sale of the Dial business in June 2000. The loss on disposal of other Group undertakings in the first half of 1999 includes a £117m loss (after £138m charge for goodwill which had been previously written off to reserves) on the sale of Merck Finck in March 1999. An additional £30m loss on the sale and restructuring of BZW was booked in the second half of 1999. Tax The charge for the period assumes a UK corporation tax rate of 30% for the calendar year 2000 (full year 1999: 30.25%). The effective rate of tax for the first half of 2000 was 26.5% (half year 1999: 25.7%). This is mainly due to the beneficial effects of lower tax on overseas income, payments to a qualifying employee trust and the gain on the sale of Dial being sheltered by capital gains tax losses. Included in the charge is £22m (half year to 31st December 1999: £4m, half year to 30th June 1999: £3m) tax on the increase in the shareholders' interest in the long-term assurance fund. There has been no change in the policy for partial provision for deferred taxation in respect of leasing. MORE TO FOLLOW IR BRGDIIUGGGGD

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Barclays (BARC)
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