Interim Results. Part 1 of 2

Barclays PLC 01 August 2002 PART 1 BARCLAYS PLC INTERIM ANNOUNCEMENT OF RESULTS FOR 2002 The statutory consolidated Profit and Loss account and consolidated Balance Sheet are set out on pages 14 and 15 in the format adopted in the Group's Annual Report. In order to provide a more representative view of the Group's underlying performance an alternative presentation is set out on page 16. PAGE Summary 1 Financial highlights (unaudited) 4 Half-year review 5 Group performance management 9 Key facts (unaudited) 12 Summary of results (unaudited) 13 Consolidated profit and loss account (unaudited) 14 Consolidated balance sheet (unaudited) 15 Further analysis of profit and loss account (unaudited) 16 Financial review 17 Additional information 51 Notes (unaudited) 54 Average balance sheet (unaudited) 64 Consolidated statement of changes in shareholders' funds (unaudited) 66 Statement of total recognised gains and losses (unaudited) 67 Summary consolidated cashflow statement (unaudited) 68 Other information 69 Index 70 The information in this announcement, which was approved by the Board of Directors on 31st July 2002, 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 2001 including the Group's Annual Report on Form 20-F to the U.S. 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 U.S. 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 may make in documents it files with the US Securities and Exchange Commission. SUMMARY RESULTS FOR SIX MONTHS TO 30TH JUNE 2002 (UNAUDITED) Operating Results (1) Half-year ended 30.06.02 31.12.01 30.06.01 % Change (3) restated (2) restated (2) Â£m Â£m Â£m Operating income 5,755 5,685 5,537 4 Operating expenses (3,047) (3,115) (2,952) 3 Provisions for bad and doubtful debts of which: (713) (651) (498) 43 - Argentina (104) (40) 4 - other (609) (611) (502) 21 Operating profit 1,992 1,917 2,079 (4) Profit before tax 1,749 1,608 1,862 (6) Economic profit 650 536 721 (10) Earnings per share (4) 21.6p 21.3p 22.4p (4) Dividend per share 6.35p 10.875p 5.75p 10 Post-tax return on average shareholders' funds - on an operating profit basis (4) 19.1% 19.2% 21.6% - on a statutory basis 16.4% 16.2% 19.0% (1) The operating results and summary are based on operating profit, as defined for statutory purposes, adjusted for the costs directly associated with the integration of Woolwich plc, Woolwich fair value adjustments, goodwill amortisation and the restructuring charge. A profit and loss account presentation reflecting these adjustments is set out on page 16. (2) Comparative figures have been restated as a result of the changes in accounting policy and accounting presentation as set out on pages 51 and 52. (3) The percentage change is based on comparing 30th June 2002 to 30th June 2001. (4) Earnings per share and post-tax return on average shareholders' funds on an operating profit basis have been calculated as per (1) above, excluding exceptional items and after the 4:1 share split. A reconciliation to the statutory earnings per share is set out on page 30. 'Barclays underlying performance in the first half benefited from a strong inflow of new customers and increased business volumes. Although we made good profits, they were lower than the first half of 2001 because of our decision on provisioning for Argentina and the impact of the market decline on income in our life assurance business. Our post-tax return on equity was 16% which although respectable given the volatility in the external market is below the standards we set ourselves.' Matthew W Barrett, Group Chief Executive. Financial summary - Income up 4% to Â£5,755 million (2001: Â£5,537million) despite a negative contribution from the life assurance business of Â£37 million in the first half of this year compared to a positive contribution of Â£94 million in the first half of 2001. The result mainly reflects the impact of movements in the FTSE 100 index which has declined by 17% from 30th June 2001 to 30th June 2002. - Operating expenses rose by 3% to Â£3,047 million (2001: Â£2,952 million). - Provisions rose 43% to Â£713 million (2001: Â£498 million) comprising Â£104 million in respect of Argentina and Â£609 million of other provisions. The increase in the provision for Argentina reflects the individual assessment of each counterparty, resulting in a prudent provision coverage of 55%. - Operating profit fell 4% to Â£1,992 million (2001: Â£2,079 million) with the two specific situations mentioned above converting an 8% operating profit increase into a 4% decline. - Profit before tax fell 6% to Â£1,749 million (2001: Â£1,862 million) compared with the first half of 2001 yet increased 9% relative to the second half of 2001. - Post tax return on average shareholders' funds on an operating profit basis was 19.1% (2001: 21.6%). - Post tax return on shareholders' funds on a statutory basis was 16.4% (2001: 19.0%). - Earnings per share on an operating profit basis decreased by 4% to 21.6p (2001: 22.4p). - The interim dividend increased by 10% to 6.35p (2001: 5.75p) following the four for one share split in April. - This year, to date, the Group has repurchased shares to the value of Â£199 million and distributed Â£725 million through the second interim dividend for 2001. - Shareholders' funds were Â£15.1 billion at 30th June 2002 (31st December 2001: Â£14.5 billion) and the tier 1 ratio was 7.9% (31st December 2001: 7.8%). The average economic capital (excluding goodwill) to support the Group's ongoing business requirements was approximately Â£10.1 billion (2001: Â£9.6 billion). Progress against goals - Total shareholder return for the two and half years ended 30th June 2002 was 36%, maintaining Barclays in the upper quartile (2nd position) relative to its peer group*. The average for the peer group over the same period was 6%. - A Â£100 invested in Barclays at the end of 1999 was worth Â£136 at 30th June 2002 compared to the goal of Â£154. The average for the peer group* was Â£106. - Cumulative economic profit for the two and a half years ended 30th June 2002 was Â£3.3 billion relative to the goal of Â£3.3 billion. - Cumulative cost savings for the two and a half years ended 30th June 2002 were Â£675 million, representing 68% of the Â£1 billion target cost savings within 63% of elapsed time. - For the six months ended 30th June 2002, Woolwich integration synergies of Â£101 million were achieved and we remain on track to achieve the target synergies of Â£190 million by 31st December 2002. * Abbey National, ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland and Standard Chartered. Business performance summary - Personal Financial Services increased operating profit by 5% to Â£500 million (2001: Â£475 million). Income rose to Â£1,473 million (2001: Â£1,458 million). Costs were lower at Â£790 million (2001: Â£799 million) whilst provisions were marginally down at Â£182m (2001: Â£185 million). In mortgages, market share of net flow of new lending rose to 11.4% (2001: 7.4%) and total Openplan customers at the half year were 1.4 million relative to a target of 1.5 million by the end of 2002. - Barclays Private Clients operating profit decreased by 35% to Â£214 million (2001: Â£331 million), being impacted by the sharp reduction in income from the long term assurance business attributable to the fall in stock markets in the first half of 2002. Costs at Â£484 million increased by 10% (2001: Â£441 million) with almost all of the increase attributable to the inclusion of the costs relating to the UK regulated sales force that, prior to the implementation of the strategic alliance with Legal & General, were reported within the long term assurance fund. The Legal & General strategic alliance gathered momentum with sales of life and pensions products increasing by 20% compared with similar product sales from Barclays Life and Barclays Funds over the same period last year. - Barclaycard increased operating profit by 24% to Â£316 million (2001: Â£254 million) based on strong income growth of 11% to Â£744 million (2001: Â£673 million) combined with tight cost management. Provisions increased by 5% to Â£172 million (2001: Â£164 million) in line with growth in outstanding balances. Customer numbers increased by 800,000 (up 9%) from the year end following the acquisition of the UK Providian credit card business and strong recruitment which reached 540,000 (2001: 275,000) in the period. - Business Banking increased operating profit by 10% to Â£640 million (2001: Â£581 million) reflecting volume growth and the benefits of tight cost management. Income grew by 4% to Â£1,221 million (2001: Â£1,176 million) and costs reduced by 3% to Â£498 million (2001: Â£515 million). Provisions increased 5% to Â£80 million (2001: Â£76 million). Average lending balances increased 4% to Â£41.8 billion and average deposit balances increased by 5% to Â£43.9 billion. - Barclays Africa operating profit decreased 29% to Â£48 million (2001: Â£68 million) largely attributable to the situation in Zimbabwe. All businesses remained profitable. - Barclays Capital operating profit increased by 10% to Â£370 million (2001: Â£337 million) benefiting from a broadening business mix and the deepening of client relationships. Income growth was strong, up 18% to Â£1,224 million (2001: Â£1,037 million), and costs rose 8% to Â£701 million (2001: Â£647 million). The results absorbed a steep rise in provisions to Â£153 million (2001: Â£53 million) reflecting the general impact of the continued difficult economic conditions (particularly in the US), primarily in the telecommunications and energy sectors. - BGI operating profit increased 62% to Â£60m (2001: Â£37 million). Income increased by 12% to Â£289 million (2001: Â£259 million) and costs increased 3% to Â£229 million (2001: Â£222 million). The global Exchange Traded Funds (ETF) business performance was strong with total assets growing by 29% in the period since end 2001 to Â£19 billion. Total assets under management at 30th June 2002 were Â£500 billion (31st December 2001: Â£530 billion). FINANCIAL HIGHLIGHTS (UNAUDITED) Half-year ended 30.06.02 31.12.01 30.06.01 restated restated RESULTS (Note1) Â£m Â£m Â£m Net interest income 3,160 3,038 2,963 Non-interest income 2,595 2,647 2,574 Operating income 5,755 5,685 5,537 Operating expenses (3,047) (3,115) (2,952) Provisions for bad and doubtful debts (713) (651) (498) Provisions for contingent liabilities and commitments 1 1 (2) Loss from joint ventures and associated undertakings (4) (3) (6) Operating profit 1,992 1,917 2,079 Restructuring charge (55) (108) (63) Woolwich integration costs (32) (70) (19) Woolwich fair value adjustments (26) (17) (16) Goodwill amortisation (130) (114) (115) Exceptional items - - (4) Profit before tax 1,749 1,608 1,862 Profit attributable to shareholders 1,233 1,173 1,306 Economic profit 650 536 721 BALANCE SHEET Shareholders' funds 15,124 14,522 14,105 Loan capital 10,985 9,987 9,799 Total capital resources 26,233 24,643 24,008 Total assets 389,753 356,649 363,950 Weighted risk assets 165,168 158,873 154,822 PER ORDINARY SHARE p p p Earnings 18.5 17.6 19.6 Earnings (based on operating profit above) 21.6 21.3 22.4 Dividend 6.35 10.875 5.75 Net asset value 228 218 212 PERFORMANCE RATIOS % % % Post-tax return on average shareholders' funds 16.4 16.2 19.0 on a statutory basis Post-tax return on average shareholders' funds 19.1 19.2 21.6 on an operating profit basis RISK ASSET RATIO % % % Tier 1 7.9 7.8 7.7 Total 12.9 12.5 12.2 GROUP YIELDS, SPREADS & MARGINS % % % Gross yield 5.48 6.23 6.91 Interest spread 2.52 2.49 2.51 Interest margin 2.84 2.89 2.93 EXCHANGE RATES Period end - US$/Â£ 1.52 1.45 1.41 Average - US$/Â£ 1.44 1.44 1.44 Period end - Euro/Â£ 1.55 1.64 1.66 Average - Euro/Â£ 1.61 1.61 1.60 Note 1 Based on the further analysis of the Profit and Loss account as set out on page 16. HALF-YEAR REVIEW These are challenging times for businesses and their owners. In Barclays we attach the utmost importance to safeguarding the financial interests of our shareholders and our customers. In the first half of 2002 we continued to do this by focusing on delivering our core strategy. As a result, in difficult financial markets, we saw a strong inflow of new customers and business volumes. At 30th June 2002 we had delivered total returns of 36% for shareholders since the end of 1999, compared with an average for our peer group of just 6% over the same period. Income for the first half of 2002 was 4% up at Â£5,755 million (2001: Â£5,537 million), despite a loss of Â£37m from the life assurance business compared with an income contribution of Â£94m in the first half of last year. This arose from the precipitous drop in the stock market, where the FTSE was 17% down at the end of June 2002 compared with the end of June 2001. Operating expenses rose by 3% to Â£3,047 million (2001: Â£2,952 million) primarily as a result of our continued investment for growth - the acquisition of the UK card business of Providian by Barclaycard and the development of the Barclays Capital franchise being two good examples. Operating profit fell by 4% to Â£1,992 million (2001: Â£2,079 million). Operating profit would have increased by 8% were it not for two items - the impact of the stock market decline on our life assurance business and our decision to provide Â£104 million for Argentina exposure. In both areas we have taken business decisions in the last two years that have mitigated, to a large extent, the adverse impact of recent market developments. We closed our life funds in August 2001, following the announcement of our strategic alliance with Legal & General under which we sell their investment, life and pension products to our customers. We have managed down our gross exposure to Argentina from a peak of almost Â£900 million at the end of 2000 to around Â£250 million at the end of June 2002. The decision to increase provisioning for Argentina to 55% of our exposure was not an easy one given that much of our lending is to the subsidiaries and affiliates of leading banks and other multi-national companies, rather than to local businesses and individuals, and also that we have continued to receive repayments during this year. Our decision was partly informed by the guidance of the regulatory authorities in the US. We have continued to take a prudent stance on risk. Excluding the impact of Argentina, provisions for the first half of 2002 were Â£609 million (2001: Â£502 million), which was lower than the second half of 2001 (Â£611 million). At less than 50% of 2002 risk tendency, first half provisions (excluding Argentina) were more favourable than we expected. Post-tax earnings per share on an operating profit basis fell 4% to 21.6p (2001: 22.4p). The interim dividend is being increased by 10% to 6.35p (2001: 5.75p) and follows the 4 for 1 share split in April 2002. Economic profit for the half-year was Â£650 million (2001: Â£721 million). Cumulative economic profit for the 30-month period to 30th June 2002 was Â£3.3 billion against our goal of Â£3.3 billion. In summary, our performance in the first half of 2002 has not met our own high standards, largely as a result of two specific factors - the performance of the closed life funds and the continued deterioration of markets in Argentina. Nonetheless, our individual lines of business performed well and we remain on track to deliver our strategy and our performance goals. Highlights on progress against our strategy during the first half of 2002 Our strategic plan has five major themes: - Strengthening and extending our core UK banking franchise; - Expanding selected regional or global businesses such as Barclays Capital, Barclays Global Investors, Barclays Private Clients and Barclaycard; - Growing our retail and commercial banking presence in Europe; - Building a leading position in UK and European wealth management; and - Enhancing organisational fitness - continuing to build world class and industry leading capabilities in disciplines such as marketing and brand management, people management, value-based management, controls and compliance, and cost productivity management. Core UK banking franchise - We continued to drive the rejuvenation of our mass-market consumer proposition. This contributed to an increase in products per current account customer from 2.4 (end 2001) to 2.5 (end June 2002); customers with Openplan from Barclays are buying on average 3.5 products. - We attracted a net increase of 200,000 personal current account customers and 500,000 personal savings accounts from the end of 2001. Openplan from Barclays and The Woolwich now has 1.4 million customers and so at the half year we have almost reached our target of 1.5 million for the full year. - Our strategic alliance with Legal & General continues to produce good results - sales of life and pension products were 20% higher than the first half of last year. Sales of investment products were up 5% against an 8% downturn in the industry as a whole. - The acquisition of The Woolwich continues to bring benefits - we are on track to achieve the full year synergy target of Â£190m. The Group's market share of net mortgage lending was 11.4%, up from 7.4% last year. Gross mortgage advances were up 59% year on year to Â£11 billion and net lending rose by 117% to Â£3.9 billion. Barclays is now the fourth largest mortgage lender in the UK. - Business Banking is a market leader in the UK because of its excellent customer service and value propositions, as well as its leading risk management capabilities. This has helped to create a loyal customer base who are prepared to give us more of their business: for example, there was strong growth year on year in the sales financing business with turnover up 59%. - In Barclaycard we acquired the UK credit card operation of Providian Financial Corporation and integration is proceeding to plan. This acquisition brought half a million new customers and in addition Barclaycard's recruitment of new customers contributed a further 540,000. Expanding selected global businesses - Barclays Capital was recently voted the world's most improved investment bank. Three years ago it had a 1% share of non-UK European bond issuance and 2% of the non-UK European loans market. Today its market share is 5% and 8% respectively. - Outside the UK, Barclaycard now has 1.2 million cards in issue. In the first half we launched into Italy, building on our continental European presence that comprises businesses in Germany, France and Spain. - The investment we have made in developing our Barclays Global Investors' Exchange Traded Funds business is now showing good returns. Assets under management grew 29% since the year end and now total Â£19 billion. Retail and commercial banking in Europe - In the first half of 2002 we have continued to build our European retail and commercial banking businesses through organic development. For example, the launch of Openplan in Spain has been very successful - 85% of Openplan customers are new to Barclays and mortgage applications are up six-fold on the same period last year. UK and European wealth - Our wealth management business, Barclays Private Clients, now has 1,500 relationship managers trained to offer both investment and banking products to affluent and high net worth individuals. This integrated approach has contributed to products per customer in our UK affluent segment increasing to 4. - We have entered into strategic alliances with Axa and Fidelity in France which, as in the UK with Legal & General, gives us access to 'best in breed' product capability. Enhancing organisational fitness We continue to develop our organisational fitness including: - Cost and productivity management - we are moving towards achieving market leading cost:income ratios in each of our main business groupings. In four of our businesses - Barclaycard, Business Banking, Barclays Capital and BGI - this threshold has already been reached. - Marketing and brand management - we have conducted a full review of our brand and marketing capabilities. Our new advertising campaign, launched in June, helped to increase current account customer recruitment by 24% in July. - People management - we continue to invest in building a world-class workforce and were pleased to see our efforts in one aspect of this commitment - Barclays University - being recognised. A study by the Cabinet Office praised Barclays for its progress in nurturing a diverse workforce reflective of the customer base we seek to serve. Taken together, these achievements represent significant progress in executing our strategic plan. Outlook The market environment remains challenging. Nonetheless, some of the macro economic indicators do suggest that there are signs of improvement. In the UK, GDP rose 0.9% in the second quarter and manufacturing output has risen sharply for two months in a row. Whilst household borrowing is high, at 106% of total household resources versus around 85% in late 1989/early 1990, the cost of servicing this debt is only around 7% of household disposable income, compared with 15% in late 1989/early 1990. In the USA, industrial production has risen for six months in a row, and is now growing at a positive rate for the first time since January 2001. As we have said before, it is uncertain times such as these that distinguish the great businesses from the good. At Barclays we have a clear strategy and we are using it to chart our course through turbulent times. We remain confident that we are on track with our transformation of Barclays into a great business that will consistently exceed the expectations of its customers and its shareholders. Sir Peter Middleton Matthew W. Barrett Chairman Group Chief Executive GROUP PERFORMANCE MANAGEMENT Value Based Management Barclays is focused on maximising value for shareholders through the creation and delivery of superior products and services to customers. Barclays uses value-based management (VBM) to align management decision making at all levels of the Barclays Group with the interests of its shareholders. In applying VBM principles, Barclays has developed a disciplined 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. Performance Goals Performance goals have been established which are explicitly linked to shareholder value and aligned with achieving top-tier performance. These performance goals translate into three primary measures of shareholder value performance - total shareholder returns relative to peers, growth in absolute value and economic profit. Total Shareholder Return Total Shareholder Return (TSR) is defined as the combination of share price appreciation and dividend payments (treated as if reinvested in Barclays shares) realised by investors. The goal is to achieve and sustain top quartile TSR relative to our peer group*. Since the financial performance measure was adopted at 31st December 1999, our TSR for the two and a half years ended 30th June 2002 was 36%. The following table shows our relative TSR performance for the period 31st December 1999 to 30th June 2002: Barclays 36% Peer Group Average 6% UK Banks Average 15% FTSE 100 Average (29%) * Abbey National, ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland and Standard Chartered. Absolute Value Our absolute value goal is to double the value of an investment in Barclays shares over four years. This corresponds to a 19% increase in value each year, and is calculated as share price appreciation and dividends (treated as if re-invested in Barclays shares). Our belief is that the goal to double absolute value over four years is consistent with the goal of sustained top quartile TSR performance relative to our peer group. On this basis, an investment of Â£100 in Barclays shares on 31st December 1999 grew in value to Â£136 at the end of June 2002, an increase of 36% compared with the goal of 54% for the period (this reflects a 24% increase in the share price - from Â£4.46 to Â£5.52 - and dividend payments across the period totalling 39.25 pence). The average growth in value for the peer group over the same period was Â£106, an increase of 6%. Economic Profit Economic profit is the post-tax attributable profit generated by a business over and above the cost of capital. Our goal is to double economic profit of the Group over four years. Based on calibrated historical data, we believe delivery of the economic profit goal is consistent with achieving our relative TSR and absolute value goals. Economic profit for the Group is defined as profit after tax and minority interests excluding goodwill amortisation, less a charge for the cost of average shareholders' funds (which includes purchased goodwill). This is calculated using a capital asset pricing model. The cost of equity includes estimates of the future equity market risk premium of 4.5% and the relative risk of Barclays shares compared to the FTSE, measured by beta. A forward looking beta of 1.2 has been used. The cost of average shareholders' funds for 2002 is 9.5% down from 10.5% in 2001, primarily as a result of a fall in the post-tax yield of the benchmark gilt. The economic profit performance is shown below: Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Profit after tax and minority interests 1,370 1,284 1,419 (excluding goodwill amortisation) Average shareholders' funds 15,681 15,002 14,090 Post tax cost of equity 9.5% 10.5% 10.5% Cost of average shareholders' funds (1) (720) (748) (698) Economic profit 650 536 721 (1) The cost includes a charge for purchased goodwill. A post tax cost of equity of 8.5% has been used for goodwill associated with the acquisition of Woolwich plc. The cumulative economic profit required to achieve the Group's goal of doubling economic profit over four years, using 1999 as a base year, is Â£6.1bn between the years 2000 and 2003 inclusive. This represents a 19% compound annual growth rate. At the end of June 2002, the Group had generated Â£3.3bn cumulative economic profit since the beginning of 2000, which is in line with the goal at this stage in the four year period. For further information on the derivation of the Group's economic capital and a business split of both average economic capital and economic profit see pages 48 and 49. Cost Goal A specific financial goal focused on productivity improvement was set on 31st December 1999 recognising its importance in helping to achieve the TSR, absolute value and EP goals. Our belief is that to achieve our shareholder value aspirations we must deliver world-class productivity performance. The productivity goal is to reduce the annual run rate of costs by Â£1 billion over the four-year period to the end of 2003, thereby absorbing the impact of inflation and volume-related growth over the period. During 2000 and 2001, Â£545 million of savings were achieved. In the first half of 2002, a further Â£130m of savings was achieved. With 63% of the four year period elapsed, 68% of the goal has been achieved. We continue to benchmark each of our businesses against the appropriate peer group in financial services to establish top quartile efficiency ratio targets. The Group's cost income ratio remained flat at 53% for the first half of 2002 compared with the first half of 2001. KEY FACTS (UNAUDITED) Half-year ended 30.06.02 31.12.01 30.06.01 Number of UK branches 2,084 2,088 2,120 Number of overseas branches 550 564 600 Number of UK ATMs 3,900 3,900 3,900 Employees worldwide 78,400 78,600 75,800 Total customers registered for online banking 3.5m 3.3m 2.7m PERSONAL FINANCIAL SERVICES Number of UK current accounts 10.3m 10.1m 9.9m Number of UK savings accounts 9.5m 9.0m 8.6m Number of Openplan from The Woolwich customers 1.1m 1.0m 0.8m Number of Openplan from Barclays customers 332,000 10,000 - Total UK mortgage balances Â£55.7bn Â£51.9bn Â£49.4bn BARCLAYS PRIVATE CLIENTS Number of affluent and high net worth clients 1m 1m 1m Total customer funds Â£91bn Â£93bn Â£97bn Number of Iberian Openplan customers 12,000 4,000 - Average deal volumes per day (Stockbrokers) 6,400 5,700 7,000 BARCLAYCARD Number of Barclaycard UK customers 9.3m 8.5m 8.2m Number of customers registered for online services 862,000 653,000 512,000 Number of retailer relationships 85,000 83,000 83,000 Number of retailer transactions processed 0.7bn 0.7bn 0.6bn Number of Barclaycards issued in continental Europe 1.2m 1.2m 1.2m BUSINESS BANKING Number of Business Banking UK connections 528,000 539,000 548,000 Number of current accounts 738,000 748,000 762,000 Number of Business Premium deposit accounts 242,000 247,000 252,000 Customers registered for online banking/BusinessMaster 273,000 256,000 252,000 BARCLAYS AFRICA Number of customer accounts 1.4m 1.5m 1.5m BARCLAYS GLOBAL INVESTORS Total assets under management Â£500bn Â£530bn Â£548bn Number of institutional customers 2,100 2,000 1,900 BARCLAYS CAPITAL League 30.06.02 League 30.06.01 table Issuance table issuance position Value position value Sterling bonds 1st Â£8.1bn 1st Â£6.1bn Syndicated loans (Europe, Middle East, Africa) 1st $14.4bn 1st $18.1bn Syndicated loans (ex USA) 3rd $16.3bn 2nd $21.5bn All syndicated loans 5th $27.9bn 5th $30.2bn All international bonds 10th $43.0bn 10th $44.1bn Overall debt arranger (Western Europe) 2nd $49.5bn 4th $51.3bn Overall global debt 6th $77.7bn 8th $84.8bn SUMMARY OF RESULTS (UNAUDITED) Half-year ended PROFIT BEFORE TAX 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Personal Financial Services 500 474 475 Barclays Private Clients 214 310 331 Barclaycard 316 266 254 Business Banking 640 519 581 Barclays Africa 48 62 68 Barclays Capital 370 325 337 Barclays Global Investors 60 41 37 Other operations (1) (117) (28) 19 Head office functions (39) (52) (23) Operating profit (2) 1,992 1,917 2,079 Restructuring charge (55) (108) (63) Woolwich integration costs (32) (70) (19) Woolwich fair value adjustments (26) (17) (16) Goodwill amortisation (130) (114) (115) Exceptional items - - (4) 1,749 1,608 1,862 (1) Other operations now include South American Corporate Banking activities previously included in Barclays Capital and Corporate Banking, prior periods have been restated accordingly. (2) Includes the loss from joint ventures and associated undertakings. TOTAL ASSETS AND WEIGHTED RISK ASSETS Total assets Weighted risk assets 30.06.02 31.12.01 30.06.01 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Â£m Â£m Â£m Personal Financial Services 67,877 64,314 62,433 38,673 36,154 35,229 Barclays Private Clients 14,854 13,923 13,491 9,856 9,197 8,682 Barclaycard 10,278 9,404 9,469 10,009 9,467 9,378 Business Banking 44,509 44,132 44,228 47,159 46,272 45,269 Barclays Africa 2,366 2,756 2,649 1,672 1,943 1,859 Barclays Capital 230,511 201,301 210,044 53,974 51,943 50,083 Barclays Global Investors 389 308 263 636 563 535 Other operations and Head 7,035 8,250 8,780 3,189 3,334 3,787 office functions (1) Goodwill 4,055 4,091 4,198 - - - Retail life-fund assets 7,879 8,170 8,395 - - - 389,753 356,649 363,950 165,168 158,873 154,822 (1) Included within Other operations and Head office functions are the following amounts related to South American Corporate Banking: Total assets Â£512m (31st December 2001: Â£840m, 30th June 2001: Â£1,821m) and Weighted risk assets Â£444m (31st December 2001: Â£850m, 30th June 2001: Â£1,416m). CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED) Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Interest receivable 6,037 6,518 6,940 Interest payable (2,904) (3,495) (3,997) Net interest income 3,133 3,023 2,943 Net fees and commissions receivable 1,996 1,972 1,786 Dealing profits 513 441 570 Other operating income 86 234 218 Total non-interest income 2,595 2,647 2,574 Operating income 5,728 5,670 5,517 Administration expenses - staff costs (1,878) (1,921) (1,793) Administration expenses - other (1,099) (1,215) (1,088) Depreciation and amortisation (286) (273) (264) Operating expenses (3,263) (3,409) (3,145) Operating profit before provisions 2,465 2,261 2,372 Provisions for bad and doubtful debts (713) (651) (498) Provisions for contingent liabilities and commitments 1 1 (2) Operating profit 1,753 1,611 1,872 Loss from joint ventures and (4) (3) (6) associated undertakings Exceptional items - - (4) Profit on ordinary activities before tax 1,749 1,608 1,862 Tax on profit on ordinary activities (507) (424) (531) Profit on ordinary activities after tax 1,242 1,184 1,331 Minority interests (equity and non-equity) (9) (11) (25) Profit for the financial period attributable 1,233 1,173 1,306 to the members of Barclays PLC Dividends (419) (727) (383) Profit retained for the financial period 814 446 923 Earnings per ordinary share 18.5p 17.6p 19.6p Interim dividend per ordinary share: 6.35p 10.875p 5.75p CONSOLIDATED BALANCE SHEET (UNAUDITED) 30.06.02 31.12.01 30.06.01 restated restated Assets: Â£m Â£m Â£m Cash and balances at central banks 1,414 1,281 1,048 Items in course of collection from other banks 3,077 2,444 2,935 Treasury bills and other eligible bills 8,768 7,417 7,795 Loans and advances to banks - banking 16,889 12,196 12,149 - trading 40,951 35,693 38,207 57,840 47,889 50,356 Loans and advances to customers - banking 151,815 146,253 141,999 - trading 47,211 34,240 37,268 199,026 180,493 179,267 Debt securities 80,744 78,924 81,524 Equity shares 4,661 3,118 6,739 Interests in joint ventures and associated undertakings 89 88 91 Intangible fixed assets - goodwill 4,055 4,091 4,198 Tangible fixed assets 1,831 1,958 2,022 Other assets 20,369 20,776 19,580 381,874 348,479 355,555 Retail life-fund assets attributable to policyholders 7,879 8,170 8,395 Total assets 389,753 356,649 363,950 Liabilities: Deposits by banks - banking 39,052 45,837 38,838 - trading 42,133 21,543 29,252 81,185 67,380 68,090 Customer accounts - banking 143,388 139,831 141,258 - trading 30,146 23,984 30,182 173,534 163,815 171,440 Debt securities in issue 46,899 41,846 41,299 Items in course of collection due to other banks 1,396 1,550 1,350 Other liabilities 52,627 49,245 49,368 Undated loan capital - convertible to preference shares 328 345 356 Undated loan capital - non-convertible 5,454 4,709 4,772 Dated loan capital - non-convertible 5,203 4,933 4,671 366,626 333,823 341,346 Minority interests and shareholders' funds: Minority interests: equity 124 134 104 Called up share capital 1,661 1,668 1,664 Reserves 13,463 12,854 12,441 Shareholders' funds: equity 15,124 14,522 14,105 15,248 14,656 14,209 381,874 348,479 355,555 Retail life-fund liabilities attributable to policyholders 7,879 8,170 8,395 Total liabilities and shareholders' funds 389,753 356,649 363,950 FURTHER ANALYSIS OF PROFIT AND LOSS ACCOUNT FOR THE HALF-YEAR 30TH JUNE 2002(UNAUDITED) Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Interest receivable 6,067 6,545 6,968 Interest payable (2,907) (3,507) (4,005) Net interest income 3,160 3,038 2,963 Net fees and commissions receivable 1,996 1,972 1,786 Dealing profits 513 441 570 Other operating income 86 234 218 Total non-interest income 2,595 2,647 2,574 Operating income 5,755 5,685 5,537 Administration expenses - staff costs (1,840) (1,840) (1,738) Administration expenses - other (1,051) (1,119) (1,062) Depreciation and amortisation (156) (156) (152) Operating expenses (3,047) (3,115) (2,952) 2,708 2,570 2,585 Provisions for bad and doubtful debts (713) (651) (498) Provisions for contingent liabilities and commitments 1 1 (2) Loss from joint ventures and associated Undertakings (4) (3) (6) Operating profit 1,992 1,917 2,079 Restructuring charge (55) (108) (63) Woolwich integration costs (32) (70) (19) Woolwich fair value adjustments (26) (17) (16) Goodwill amortisation (130) (114) (115) Exceptional items - - (4) Profit on ordinary activities before tax 1,749 1,608 1,862 Earnings per ordinary share before restructuring charge, 21.6p 21.3p 22.4p goodwill amortisation, fair value adjustments, integration costs and exceptional items Post tax return on average shareholders' funds 19.1% 19.2% 21.6% (on a consistent basis with earnings per share above) The above results are based on the operating profit shown on page 14 before charging for costs directly associated with the integration of Woolwich plc, Woolwich fair value adjustments, goodwill amortisation and the restructuring charge. Barclays believes that identifying operating profit before charging these items assists in the understanding of underlying profit trends in the results. FINANCIAL REVIEW Results by nature of income and expense Half-year ended Net interest income 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Interest receivable 6,037 6,518 6,940 Interest payable (2,904) (3,495) (3,997) 3,133 3,023 2,943 Woolwich fair value adjustments 27 15 20 3,160 3,038 2,963 Net interest income increased 7% to Â£3,160m due primarily to strong growth in Barclays Capital, Barclaycard and Business Banking. Personal Financial Services net interest income fell by 2% to Â£954m. The comparison is affected by a number of one off factors in the first half of 2001 which included Â£20m interest released from suspense. In addition, in the first half of 2002, net interest income included Â£18m arising from the closure of surplus hedges (2001: Â£20m). Margin compression continued to be actively managed reflecting the steady improvement of the value of product offerings, competitive market conditions and a lower interest rate environment. Barclays Private Clients net interest income was broadly flat at Â£418m with increased income generated from higher average customer deposits and loans offset by margin compression due to lower interest rates, particularly the US dollar rate. Barclaycard net interest income increased 8% to Â£424m, principally benefiting from improved cardholder rate management and falling interest rates. Customer numbers increased by 800,000 (up 9%) from the year end following the acquisition of the UK Providian credit card business and strong recruitment which reached 540,000 (2001: 275,000) in the period. Business Banking net interest income increased by 5% to Â£795m as a result of increasing volumes. Average lending balances increased by 4% to Â£41.8bn and average deposit balances increased by 5% to Â£43.9bn. Lending margins continued to ease whilst deposit margins were maintained. Barclays Capital net interest income rose 63% to Â£474m, with strong performances from money markets, which benefited from a favourable interest rate environment, and structured capital markets. Corporate lending continued to be tightly managed with the credit portfolio remaining flat at Â£13bn. Overall banking margins were 2.84% compared with 2.93%* in the first half of 2001 primarily reflecting a managed shift in the business mix. * Restated for the impact of the new accounting treatment for Reserve Capital Instruments. The benefit of free funds fell 0.10% to 0.32%. The fall in short-term market rates increased the contribution to the net margin from the central management of the Group interest rate exposure to 0.21% from 0.07%. The overall benefit of free funds on a hedged basis was 0.53% (2001: 0.49%) with the increase in the effective rate of the hedge more than offsetting the fall in the liability interest rates. Yields, spreads and margins - banking business 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 United Kingdom by Barclays Capital, mainly with customers domiciled outside the UK. 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 repurchase of loan capital and the unwinding of the discount on vacant leasehold property provisions. Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Gross yield (i) % % % Group 5.48 6.23 6.91 Domestic 6.09 6.76 7.46 International 4.20 5.04 5.72 Interest spread (ii) Group 2.52 2.49 2.51 Domestic 3.27 3.22 3.26 International 0.98 0.90 0.93 Interest margin (iii) Group 2.84 2.89 2.93 Domestic 3.66 3.71 3.79 International 1.13 1.06 1.08 Average UK base rate 4.00 4.64 5.64 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 30.06.02 31.12.01 30.06.01 restated restated Average interest earning assets Â£m Â£m Â£m Group 220,323 209,217 200,817 Domestic 148,903 144,734 137,441 International 71,420 64,483 63,376 Average interest bearing liabilities Group 196,059 186,624 181,586 Domestic 128,163 124,648 120,195 International 67,896 61,976 61,391 Net fees and commissions Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Fees and commissions receivable 2,287 2,221 2,002 Less: fees and commissions payable (291) (249) (216) 1,996 1,972 1,786 Net fees and commissions rose 12% to Â£1,996m with strong performances in Barclays Capital, Barclays Private Clients and Barclaycard. Personal Financial Services net fees and commissions increased 6% to Â£425m. This reflected improved current account income and fees from mortgage related activities and certain non-recurring items, with income from Independent Financial Advisory (IFA) operations impacted by market volatility and a change in the product mix. Barclays Private Clients net fees and commissions increased 26% to Â£325m partly due to an increase in product sales to UK affluent clients, and higher commission income from the sale of Legal & General investment products. In addition, on a comparative basis, this reflects Â£35m of commission income which in 2001 would have been offset against costs associated with the regulated sales force and borne within the long term assurance fund. Following the strategic alliance with Legal & General, such costs are now included in operating costs. Excluding the impact of this change, net fees and commissions increased by 8%. Barclaycard net fees and commissions increased 14% to Â£320m, mainly as a result of replacing annual account fees with fees based on account behaviour. Business Banking net fees and commissions increased 2% to Â£426m. Lending related fees increased in line with the loan growth and foreign exchange related income increased despite flat turnover. Money transmission income was maintained despite reductions in average fee levels and a migration to more efficient, lower cost electronic payment mechanisms. Barclays Capital net fees and commissions increased 61% to Â£245m. This growth was driven by the Credit businesses with strong performances from primary bonds and structured capital markets. This reflects Barclays Capital increasing market share, despite an overall decline in the levels of financing activity. Barclays Global Investors fees and commissions increased by 11% to Â£283m. Despite significantly lower market levels, growth in management fees was strong, benefiting from growth in Exchange Traded Fund (ETF) assets and in incentive fees on funds under advanced active management. Personal Financial Services, Barclays Private Clients and Business Banking fees and commissions include Â£66m (2001: Â£64m) in respect of foreign exchange income on customer transactions with Barclays Capital. Dealing profits Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Rates related business 520 408 415 Credit related business (7) 33 155 513 441 570 Almost all of the Group's dealing profits arise in Barclays Capital. Dealing profits fell 10% to Â£513m. The overall reduction in dealing profits reflects more difficult market conditions compared with the corresponding period in 2001. A reduced contribution from the Credit businesses, primarily in credit repackaging, was mostly offset by increases in the Rates businesses, in particular interest rate derivatives and commodities. Total foreign exchange income was Â£229m (2001: Â£223m) and consists 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 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Dividend income from equity shares 3 2 6 Profits on disposal of investment securities 7 16 21 Income from the long term assurance business (37) 78 94 Property rentals 11 14 16 Premium income on insurance underwriting 84 90 68 Other income 18 34 13 86 234 218 Other operating income decreased by 61% to Â£86m. The long term assurance business, which was closed to new business following the Legal & General alliance in August 2001, reported a loss of Â£37m for the period compared with a contribution of Â£94m for the corresponding period in 2001. The result mainly reflects the impact of movements in the FTSE 100 index which has declined by 17% from the 30th June 2001 to 30th June 2002. The result of the long term assurance business is after charging costs of Â£13m (2001: Â£71m) borne directly in the fund. From 1st August 2001, the costs of the regulated sales force were no longer charged to the funds. Income from the sale of Legal & General products following the alliance in August 2001 is included in fees and commissions. The unutilised amount of the redress provision in Barclays Life for customers who may have been mis-sold a personal pension is Â£30m (31st December 2001: Â£47m, 30th June 2001: Â£71m). Premium income on insurance underwriting rose by Â£16m to Â£84m as a result of increased payment protection income related to consumer lending activities. 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 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 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 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 on the previous page, the Group's costs are summarised in the following table: Operating expenses Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Business as usual expenses 2,460 2,410 2,307 Revenue related costs 382 377 371 Strategic investment costs 188 308 243 Disposals and acquisitions in 2002 and 2001 17 20 31 Operating expenses 3,047 3,115 2,952 Restructuring charge 55 108 63 Goodwill amortisation 130 114 115 Woolwich Integration costs 32 70 19 Woolwich fair value adjustment (1) 2 (4) 3,263 3,409 3,145 Operating expenses before restructuring charge, goodwill amortisation, integration costs and Woolwich fair value adjustments increased 3% to Â£3,047m. Business as usual costs rose by 7% (Â£153m) to Â£2,460m, partly reflecting the operating cost consequences of the continued investment in the core businesses of Barclays Capital, Barclays Private Clients and Barclaycard. In the first half of 2002, costs included Â£35m associated with the regulated sales force that were previously offset against income from the long term assurance fund. Business as usual costs included Â£9m of costs attributable to the acquisition of the UK Providian credit card business by Barclaycard, and the costs of generating incremental Woolwich integration revenue synergies. Strategic investment expenditure at Â£188m was Â£55m (23%) lower than the first half of 2001 reflecting tight cost control and prioritisation of key initiatives. Revenue related costs rose 3% to Â£382m with increases in Barclays Capital and Barclays Global Investors in line with improved performance offset by reductions elsewhere. Administrative expenses - staff costs Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Salaries and accrued incentive payments 1,607 1,637 1,512 Social security costs 118 127 116 Pension costs (8) (23) 6 Post-retirement health care 7 1 (1) Other staff costs 154 179 160 1,878 1,921 1,793 Included above: Restructuring charge (38) (66) (48) Woolwich integration costs (1) (16) (8) Woolwich fair value adjustment 1 1 1 Excluding restructuring, integration 1,840 1,840 1,738 costs and fair value adjustment 30.06.02 31.12.01 30.06.01 Number of staff at period end: (1) Personal Financial Services (2) 31,200 32,100 30,400 Barclays Private Clients (3) 11,000 11,100 10,800 Barclaycard (4) 4,700 4,200 4,000 Business Banking 9,500 9,800 9,600 Barclays Africa (5) 7,900 8,000 7,900 Barclays Capital 5,500 5,500 5,100 Barclays Global Investors 2,100 2,100 2,100 Other operations (6) 6,000 5,400 5,900 Head office functions 500 400 500 Group total worldwide 78,400 78,600 76,300 of which United Kingdom 60,400 60,400 59,500 1 Staff numbers are on a full time equivalent basis and do not include temporary and agency staff of 4,500 (31st December 2001: 4,600; 30th June 2001: 5,000) whose costs are included in staff costs. 2 Includes 900 (31st December 2001: 1,000) regulated sales force and 50 (31st December 2001: 100) administrative staff whose costs following the strategic alliance with Legal & General from 1st August 2001, are included in administrative expenses - staff costs. As at 30th June 2001 the costs of these staff were borne within the long term assurance fund and not included in the staff numbers above. 3 Excludes 400 administrative staff (31st December 2001: 500; 30th June 2001: 600) whose costs are borne within the long term assurance fund. 4 June 2002 includes 500 in relation to the UK Providian business. 5 June 2001 figures have been restated to include 500 staff on contracts previously not reported within permanent headcount. 6 Includes 100 (31st December 2001: 100, 30th June 2001: 200) staff related to South American Corporate Banking. Staff costs Staff costs, excluding the restructuring charge together with integration costs and fair value adjustments arising from the acquisition of Woolwich plc, increased by 6% to Â£1,840m. Salaries and accrued incentive payments rose by 6% to Â£1,607m. The rise reflects increased performance related payments and costs associated with building capabilities in Barclays Capital partly offset by lower costs in Personal Financial Services following headcount reductions. In addition, staff costs include Â£30m (second half 2001: Â£25m) related to the regulated sales force whose costs were included in staff costs following the formation of the strategic alliance with Legal & General from 1st August 2001. Excluding the impact of this change, salaries and accrued incentive payments rose by Â£65m or 4%. Pension costs included a Â£36m credit (2001: Â£36m credit) in respect of the Group's main UK schemes. Staff numbers overall fell by 200 in comparison to December 2001 with a reduction of 1,000 from the implementation of restructuring programmes mainly offset by an increase in Barclaycard, attributable to the acquisition of the UK Providian credit card business. The number of staff reductions relating to each restructuring programme are as follows: Number of staff who Number of staff who are have left during the under notice at first half of 2002 30.06.02 Current year 200 600 Prior year 800 900 The restructuring charge of Â£38m detailed on page 46 relates to the 2002 restructuring programme above. Administrative expenses - other Half-year ended 30.06.02 31.12.01 31.06.01 Â£m Â£m Â£m Property and equipment expenses: Hire of equipment 8 6 10 Property rentals 82 89 94 Other property and equipment expenses 383 424 351 473 519 455 Stationery, postage and telephones 146 170 148 Advertising and market promotion 113 116 96 Travel, accommodation and entertainment 69 69 74 Subscriptions and publications 46 37 46 Securities clearing and other operational expenses 16 23 13 Sundry losses, provisions and write-offs 63 76 65 Statutory and regulatory audit and accountancy fees 3 3 4 Consultancy fees 37 65 68 Professional fees 61 76 54 Other expenses 72 61 65 1,099 1,215 1,088 Included above: Restructuring charge (17) (42) (15) Integration costs (31) (54) (11) Excluding restructuring charge and integration costs 1,051 1,119 1,062 Overall administrative expenses were flat. Other property and equipment expenses were Â£32m or 9% higher than in the first half of 2001. The reduction in costs compared to the second half of 2001 was mainly due to reductions in external systems development expenditure. Advertising and market promotion expenditure includes costs relating to the launch of Barclaycard Direct, Openplan from Barclays and other campaigns. Depreciation and amortisation Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Property depreciation 51 55 50 Equipment depreciation 101 99 95 Loss on sale of equipment 4 5 4 156 159 149 Goodwill amortisation - Woolwich plc 103 103 103 - other 27 11 12 286 273 264 The increase in other goodwill amortisation is related to the acquisition of the UK Providian credit card business in the period and an increase in the amortisation of goodwill on the Group's Brazilian subsidiary, Banco Barclays SA. Provisions for bad and doubtful debts Half-year ended 30.06.02 31.12.01 30.06.01 The charge for the period in respect of Â£m Â£m Â£m bad and doubtful debts comprises: Specific provisions New and increased 858 872 568 Releases (60) (89) (44) Recoveries (41) (110) (32) 757 673 492 General provision - (release)/charge (44) (22) 6 Net charge 713 651 498 The net charge for the period in respect of bad and doubtful debts comprises: Argentina 104 40 (4) Other 609 611 502 Net charge 713 651 498 Total provisions for bad and doubtful debts at end of the period comprise: Specific provisions 2,139 1,971 1,732 General provisions 702 745 767 2,841 2,716 2,499 The net provisions charge rose 43% (Â£215m) to Â£713m, with Â£108m of this increase relating to provisions raised against Argentina exposures and reported in South American Corporate Banking. Excluding provisions raised against Argentina exposures, the net provisions charge rose 21%. South American Corporate Banking provisions primarily relate to Argentina exposures. The increase reflects the individual assessment of each counterparty resulting in a prudent provision coverage of 55%. The increase in the net provision charge of Â£215m largely arose in the South American Corporate Banking portfolios, relating to Argentina exposures, and in Barclays Capital. The increase in Barclays Capital reflect the general impact of the continued difficult economic conditions (particularly in the US), primarily in the telecommunications and energy sectors. Compared with the first half of 2001, less favourable conditions in the corporate sector contributed to a 5% increase in Business Banking provisions to Â£80m. Provisions in the personal sector increased at a lower rate than loan growth. New and increased specific provisions increased by 51% to Â£858m while releases and recoveries of Â£101m were Â£25m higher. The release in general provision arises mainly as a result of the increase in specific provisions in Argentina. The net provision charge for the period as a percentage of average banking loans and advances was 0.42% compared with 0.32% in the first half of 2001. Provisions coverage of total potential credit risk lendings reduced to 48.8% compared with 52.9% at 31st December 2001. (Loss)/profit from joint ventures and associated undertakings Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m (Loss)/profit from joint ventures (6) (2) 1 Profit/ (loss) from associated undertakings 2 (1) (7) (4) (3) (6) The loss from joint ventures is attributable to the start up of new ventures in Business Banking. Exceptional items Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Loss on disposal of other Group undertakings - - (4) In the first half of 2002, the Group sold the US based Americas private banking business. The gross gain on disposal of Â£10m was fully offset by goodwill written off. The net loss on disposal of Group undertakings in the first half of 2001 represented losses of Â£9m offset by gains of Â£5m. The net loss included goodwill written off of Â£1m. Tax The charge for the period assumes a UK corporation tax rate of 30% for the calendar year 2002 (full year 2001: 30%). The effective rate of tax for the first half of 2002 was 29% (2001: 28.5%). This is lower than the standard rate due to the beneficial effects of lower tax on overseas income, certain non-taxable gains and payments to a qualifying employee trust offset by the absence of tax relief on the goodwill charge. Included in the charge is a credit of Â£25m (second half 2001: Â£2m credit, first half 2001: Â£25m charge) tax on the decrease in the shareholders' interest in the long term assurance fund. Earnings per ordinary share Earnings per ordinary share is based upon the results after deducting tax, profit attributable to minority interests and dividends on staff shares. Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Earnings in year Â£1,233m Â£1,173m Â£1,306m Earnings in year before restructuring, integration costs, Â£1,438m Â£1,418m Â£1,491m goodwill amortisation, fair value adjustments and exceptional items Weighted average number of ordinary shares in issue 6,656m 6,655m 6,647m Calculation of adjusted earnings per share pence pence pence Basic earnings per ordinary share 18.5 17.6 19.6 Restructuring charge 0.6 1.1 0.7 Integration costs 0.3 0.7 0.2 Goodwill amortisation 1.9 1.7 1.7 Woolwich fair value adjustments 0.3 0.2 0.2 Adjusted earnings per share 21.6 21.3 22.4 Dividends on ordinary shares The Board has decided to pay, on 1st October 2002, an interim dividend for the year ending 31st December 2002 of 6.35p per ordinary share, for shares registered in the books of the Company at the close of business on 16th August 2002. 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 2002/2003 tax year in mid-October 2002. For qualifying US and Canadian resident ADR holders, the interim dividend of 6.35p per ordinary share becomes 25.4p per ADS (representing four shares). The ADR depositary* will mail the dividend on 1st October 2002 to ADR holders on the record on 16th August 2002. * As of 15th July 2002, Bank of New York became the depositary for the Barclays ADR programme. For qualifying Japanese shareholders, the interim dividend of 6.35p per ordinary share will be distributed in mid-October to shareholders on the record on 16th August 2002. 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 10th September 2002 for it to be effective in time for the payment of the interim dividend on 1st October 2002. 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. Balance sheet Half-year ended Capital resources 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Shareholders' funds 15,124 14,522 14,105 Minority interests 124 134 104 15,248 14,656 14,209 Loan capital 10,985 9,987 9,799 26,233 24,643 24,008 The Group manages both its debt and equity capital actively. The Group's authority to buy back equity was renewed at the 2002 AGM to provide additional flexibility in the management of the Group's capital resources. Total capital resources increased in the period by Â£1,590m. Shareholders' funds increased by Â£602m primarily due to profit retentions of Â£814m offset by share repurchases of Â£199m and unfavourable exchange rate movements of Â£42m. Loan capital rose by Â£998m, reflecting raisings of Â£1,118m. This was offset by redemptions of Â£84m, amortisation of issue expenses of Â£1m and unfavourable exchange rate movements of Â£35m. Capital ratios Weighted risk assets and capital resources, as defined for supervisory purposes by the Financial Services Authority, comprise: Half-year ended 30.06.02 31.12.01 30.06.01 Weighted risk assets: Â£m Â£m Â£m Banking book on-balance sheet 124,864 120,113 117,503 off-balance sheet 21,587 20,368 19,783 Associated undertakings and joint ventures 501 499 462 Total banking book 146,952 140,980 137,748 Trading book Market risks 7,600 7,801 7,183 Counterparty and settlement risks 10,616 10,092 9,891 Total trading book 18,216 17,893 17,074 Total weighted risk assets 165,168 158,873 154,822 Capital resources: tier 1 capital 13,048 12,443 11,854 tier 2 capital 9,379 8,397 8,167 tier 3 capital 396 392 365 Total gross capital resources 22,823 21,232 20,386 Less: supervisory deductions (1,448) (1,333) (1,520) Total net capital resources 21,375 19,899 18,866 % % % Tier 1 ratio 7.9 7.8 7.7 Risk asset ratio 12.9 12.5 12.2 Total Assets The Group's balance sheet grew by 9% (Â£33bn) in the half-year to Â£390bn. Weighted risk assets rose by 4% to Â£165bn. Within Personal Financial Services total assets grew by 6% to Â£68bn. Weighted risk assets increased by 7% to Â£39bn due to growth in UK mortgage balances up 7% to Â£55.7bn (31st December 2001: Â£51.9bn) and growth in both current account overdrafts and consumer lending. Barclays Private Clients total assets grew 7% to Â£15bn and weighted risk assets increased 7% to Â£10bn mainly due to growth in sales of Openplan in continental Europe. Barclaycard total assets increased by Â£1bn (9%) to Â£10bn in the first half of 2002. Weighted risk assets increased by 6%. Within Business Banking, total assets grew by 1% to Â£45bn in the first half of 2002. Weighted risk assets increased by 2% during the same period. Barclays Capital total assets increased by 15% (Â£29bn) to Â£231bn during the first half of 2002. Reverse repos balances increased by Â£12bn, driven by the continued growth of the prime brokerage business that provides customer inventory financing. In addition, there were increases in the holdings of government debt securities of Â£3bn, settlement balances of Â£7bn and interbank lending of Â£5bn. Weighted risk assets increased by 4% to Â£54bn, reflecting the lower weightings associated with government securities, settlement balances and reverse repos. Personal Financial Services Personal Financial Services provides a wide range of products and services to personal customers throughout the United Kingdom including, current accounts, savings, mortgages, consumer loans and general insurance. It also provides financial advice through one of the UK's largest independent financial advisory (IFA) teams. A full range of channels is available to customers including the branch networks, telephone and online banking. On 1st January 2002 the Woolwich operations became an integral part of Personal Financial Services, in line with the integration plans, although separate brands have been retained consistent with maintaining the respective customer experiences. Personal Financial Services works closely with other businesses in the Group, in particular Barclays Private Clients, Barclaycard and Business Banking to provide customer servicing and to develop cross-selling opportunities. Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Net interest income 954 980 974 Net fees and commissions 425 420 401 Other operating income 94 94 83 Operating income 1,473 1,494 1,458 Operating costs (790) (825) (799) Provisions for bad and doubtful debts (182) (197) (185) (Loss)/profit from joint ventures (1) 2 1 Operating profit 500 474 475 Restructuring costs (18) (13) (24) Integration costs (30) (63) (13) Fair value adjustments (26) (17) (16) Profit before tax and exceptional items 426 381 422 Operating profit increased by 5% (Â£25m) to Â£500m (2001: Â£475m). Within the Personal Financial Services total, the Woolwich performance was broadly in line with that achieved in 2001, notwithstanding the upfront costs of significant new flows of business particularly in mortgages. Personal Financial Services has maintained a focus on improving performance through continued investment and control of the cost base. Net interest income fell by 2% to Â£954m (2001: Â£974m). The comparison is affected by a number of one off factors in the first half of 2001 which included Â£20m interest released from suspense. In addition, in the first half of 2002, net interest income included Â£18m arising from the closure of surplus hedges (2001: Â£20m). Margin compression continued to be actively managed reflecting the steady improvement of the value of product offerings, competitive market conditions and a lower interest rate environment. UK mortgage gross advances increased by 59% to Â£11bn (2001: Â£6.9bn) and net lending rose by 117% to Â£3.9bn (2001: Â£1.8bn). Market share of net lending was 11.4% (2001: 7.4%) relative to a share of balances outstanding of 9%. Whilst these volumes have been achieved in favourable market conditions, the growth in business is significantly higher than that of the market generally. UK mortgage balances increased by 13% to Â£55.7bn (2001: Â£49.4bn). This growth in the mortgage business has created a short term drag on profits of Â£14m due to the upfront expensing of discounts and incentives, together with additional mortgage origination and servicing costs. Average consumer lending balances increased by 7% to Â£6.1bn (2001: Â£5.7bn), below the market growth rate, but with the focus remaining on the goal of steadily improving the overall quality of the book and of the risk-adjusted return. Average savings balances have continued to grow strongly, reflecting the success of tracker products and Openplan in attracting new business flows. Average balances increased by 5% to Â£28.2bn (2001: Â£26.8bn), with Barclays branded savings experiencing much stronger growth of 22%. Net fees and commissions increased to Â£425m (2001: Â£401m). This reflected improved current account income and fees from mortgage related activities and certain non-recurring items, with income from IFA operations impacted by market volatility and a change in the product mix. The number of value added accounts, Additions and Platinum Banking, increased 41% to 1,708,000 (2001: 1,208,000). Other operating income increased 13% to Â£94m (2001: Â£83m), with an improved contribution from payment protection income as a result of consumer lending activities. Total costs fell 1% to Â£790m (2001: Â£799m) due to the implementation of initiatives aimed at improving operational efficiency. Business as usual costs were flat, notwithstanding significantly higher volumes. Productivity improvements were helped by the continued growth in customers using the internet banking channel. The cost income ratio improved by 1% to 54% (2001: 55%). Provisions decreased 2% to Â£182m (2001: Â£185m). Openplan continues to be a highly successful customer offering. In total, Personal Financial Services has some 1.4 million Openplan customers relative to the target of 1.5 million by the end of 2002. The number of customers with Openplan from The Woolwich has grown to 1,090,000 (2001: 806,000), with a further improvement in product penetration to 3.2 (2001: 3.1). Openplan from Barclays was successfully launched on a national basis in April 2002, supported by an extensive marketing campaign, and has attracted 332,000 customers, with a product penetration of 3.5. Barclays Private Clients Barclays Private Clients serves one million affluent and high net worth clients, primarily in continental Europe and the UK, providing banking and asset management services. The business has made considerable progress in its development of a fully integrated business. This transformation is delivering operational efficiency, enhanced customer service and product capability that focuses on providing a single relationship for the provision of banking and investment products. Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Net interest income 418 408 421 Net fees and commissions 325 315 258 Income from long term assurance business (37) 78 94 Other operating income 10 1 17 Operating income 716 802 790 Operating costs (484) (474) (441) Provisions for bad and doubtful debts (18) (18) (18) Operating profit 214 310 331 Restructuring costs (5) (25) (9) Integration costs (1) (9) - Profit before tax and exceptional items 208 276 322 Operating profit decreased 35% (Â£117m) to Â£214m (2001: Â£331m). This was caused primarily by the impact of falling global equity markets affecting the income of the long term assurance business. This has been closed to new business following the Legal & General alliance in August 2001. Excluding the impact of the fall in the income associated with the long term assurance business, the ongoing Barclays Private Clients business performed well with operating profit increasing 6%, reflecting encouraging income growth and rigorous cost management. Net interest income was broadly flat at Â£418m (2001: Â£421m) with increased income generated from higher average customer deposits and loans offset by margin compression due to lower interest rates, particularly the US dollar rate. Net fees and commissions increased 26% (Â£67m) to Â£325m (2001: Â£258m) partly due to an increase in product sales to UK affluent clients, and higher commission income from the sale of Legal & General investment products. In addition, on a comparative basis, this reflects Â£35m of commission income which in 2001 would have been offset against costs associated with the regulated sales force and borne within the long term assurance fund. Following the strategic alliance with Legal & General, such costs are now included in operating costs. Excluding the impact of this change, net fees and commissions increased by 8%. Operating costs increased 10% (Â£43m) to Â£484m (2001: Â£441m) primarily reflecting the Â£35m of costs associated with the regulated sales force, as detailed above. Excluding the impact of this, costs rose 2% primarily due to a significant increase in strategic investment spend to support the continued transformation of the business. Total customer funds, comprising customer deposits and assets under management (including assets managed by Legal & General under the strategic alliance), fell by Â£2bn to Â£91bn (31st December 2001: Â£93bn). This was mainly due to the impact of falling stock markets and the sale of the US based Americas private banking business. Customer loans increased by Â£1bn to Â£10bn primarily due to growth in the sales of Openplan in continental Europe. In Spain this half-year, Openplan has attracted 8,000 new customers with mortgage applications up six-fold on the same period last year (representing a 5% market share of new mortgage business). In the UK, sales of Openplan to affluent clients are significantly above expectations. Sales of Legal & General life and pension products increased by 20% compared with similar product sales by Barclays Life and Barclays Funds in the first half of 2001 and, despite the difficult market conditions, investment product sales were up 5%. In June 2002, Barclays Private Clients completed the sale of the US based Americas private banking business to Royal Bank of Canada. This is consistent with the core strategic focus for Barclays Private Clients directed principally at building the business in the UK and continental Europe. Barclays Private Clients includes the Barclays Caribbean operation. An agreement was signed in October 2001 to combine its retail, corporate and offshore banking operations with those of Canadian Imperial Bank of Commerce (CIBC) to create FirstCaribbean International Bank. Implementation of the combination remains subject to, amongst other things, the receipt of certain regulatory and governmental approvals. Further details are on page 53. Barclaycard Barclaycard is one of the leading credit card businesses in Europe. In addition to its operations in the United Kingdom, Germany, France, Italy, Spain and Greece, it also operates in Africa and the Caribbean. It offers a full range of credit card services to individual customers, together with card payment facilities to retailers and other businesses. Barclaycard acquired the UK Providian credit card business in April 2002. The acquisition was consistent with Barclaycard's strategy of defending and growing its core UK credit card business. Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Net interest income 424 415 392 Net fees and commissions 320 298 281 Operating income 744 713 673 Operating costs (256) (236) (253) Provisions for bad and doubtful debts (172) (210) (164) Loss from joint ventures - (1) (2) Operating profit 316 266 254 Restructuring costs (3) (10) (3) Integration costs - - (3) Profit before tax and exceptional items 313 256 248 Operating profit increased 24% (Â£62m) to Â£316m (2001: Â£254m). Net interest income increased 8% (Â£32m) to Â£424m (2001: Â£392m), principally benefiting from improved cardholder rate management and falling interest rates. Customer numbers increased by 800,000 (up 9%) from the year end consequent on the acquisition of the UK Providian credit card business and strong recruitment which reached 540,000 (2001: 275,000) in the period. Average UK extended credit balances rose to Â£6.2bn (2001: Â£6bn). Period end extended credit balances at 30th June 2002 were Â£500m higher than at 31st December 2001, resulting from the inclusion of the Providian balances and organic growth achieved using Information Based Customer Management (IBCM) capabilities developed over the last two years. Net fees and commissions increased 14% (Â£39m) to Â£320m (2001: Â£281m), mainly as a result of replacing annual account fees with fees based on account behaviour. Operating costs increased 1% (Â£3m) to Â£256m (2001: Â£253m) compared to growth in operating income of 11%, resulting in a lower cost income ratio of 34% (2001: 38%). Provisions increased 5% (Â£8m) to Â£172m (2001: Â£164m), in line with the growth in outstanding balances. Barclaycard's international businesses recorded an operating loss of Â£15m (2001: loss Â£14m). Income increased by 45% and average extended balances increased by 26%. In May Barclaycard joined forces with Banca Woolwich to launch a full range of credit cards in Italy, one of Europe's largest markets. Business Banking Business Banking provides relationship banking to the Group's small, medium and large business customers in the United Kingdom. Customers are served by a network of relationship and specialist managers who provide local access to an extensive range of products and services, as well as offering information and support. Customers are also offered access to business centres in continental Europe and the United States. The way that customers do business with Business Banking continues to evolve. A key trend is an increase in the use of electronic transfers and payments. For example, the majority of large business customers process transactions electronically and overall volumes of payments processed have risen significantly. Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Net interest income 795 794 759 Net fees and commissions 426 416 417 Other operating income - (4) - Operating income 1,221 1,206 1,176 Operating costs (498) (546) (515) Provisions for bad and doubtful debts (80) (134) (76) Loss from associated undertakings (3) (7) (4) Operating profit 640 519 581 Restructuring costs (14) (26) (23) Integration costs (1) (1) - Profit before tax and exceptional items 625 492 558 Operating profit increased by 10% (Â£59m) to Â£640m (2001: Â£581m) reflecting volume growth and the benefits of tight cost management. Net interest income increased by 5% (Â£36m) to Â£795m (2001: Â£759m) as a result of increasing volumes. Average lending balances increased by 4% to Â£41.8bn and average deposit balances increased by 5% to Â£43.9bn. Lending margins continued to ease whilst deposit margins were maintained. Lending growth was concentrated towards higher quality large business customers. As a result the overall quality of the lending portfolio continued to improve and this was reflected in the reduction in the lending margin. The sales financing product range, which includes factoring and invoice discounting, showed strong growth with turnover up 59%. Lending volumes were stable in the medium and small business customer segments and this was consistent with the wider economic slowdown. The lending portfolio remains well spread by industrial classification although the focus of growth was towards higher quality sectors. Net fees and commissions increased 2% (Â£9m) to Â£426m (2001: Â£417m). Lending related fees increased in line with loan growth and foreign exchange related income increased despite flat turnover. Money transmission income was maintained despite reductions in average fee levels and a migration to more efficient, lower cost electronic payment mechanisms. Operating costs fell 3% (Â£17m) to Â£498m (2001: Â£515m). Despite volume growth, business as usual costs were flat. The cost income ratio fell to 41% (2000: 44%). Provisions increased 5% to Â£80m (2001: Â£76m) reflecting the generally weaker trading conditions in a number of industries but were below risk tendency. The BarclaysB2B customer proposition has been discontinued as a result of low take up rates and uncertain market prospects. The capabilities have been redeployed to accelerate internal sourcing savings to the Barclays Group. Restructuring costs of Â£8m arising from the decision to discontinue the business were charged in the first half of 2002. Barclays Africa Barclays Africa provides banking services to personal and corporate customers in North Africa, sub-Saharan Africa and islands in the Indian Ocean. The portfolio comprises banking operations in Botswana, Egypt, Ghana, Kenya, Mauritius, Seychelles, South Africa, Tanzania, Uganda, Zambia and Zimbabwe. Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Net interest income 76 79 97 Net fees and commissions 54 60 70 Other operating income - 3 3 Operating income 130 142 170 Operating costs (72) (71) (86) Provisions for bad and doubtful debts (10) (9) (16) Operating profit 48 62 68 Restructuring costs (5) (2) (5) Profit before tax and exceptional items 43 60 63 Operating profit decreased 29% (Â£20m) to Â£48m (2001: Â£68m). This was primarily attributable to the situation in Zimbabwe (Â£16m) but also reflects the deteriorating trading environments in certain countries in Africa. All businesses remained profitable. Net interest income decreased 22% (Â£21m) to Â£76m (2001: Â£97m). There was a 14% decrease in average customer lending balances to Â£1.2bn (2001: Â£1.4bn) and the 9% fall in customer deposit balances to Â£2.1bn (2001: Â£2.3bn). This was entirely due to Zimbabwe. Net fees and commissions decreased 23% (Â£16m) to Â£54m (2001: Â£70m), primarily as a result of the impact of Zimbabwe (Â£14m). Operating costs decreased 16% (Â£14m) to Â£72m (2001: Â£86m). The cost income ratio was 55% (2001: 51%). The increase reflected the impact of Zimbabwe and increased investment in the businesses. Provisions decreased 38% (Â£6m) to Â£10m (2001: Â£16m), primarily due to the impact of Zimbabwe (Â£4m). Barclays Capital Barclays Capital conducts the Group's investment banking business. As the Group's principal point of access to the wholesale markets, it provides corporate, institutional and government clients with solutions to their financing and risk management needs. The Barclays Capital business model is distinctive. It focuses on a broad span of financing and risk management services in the interest rate, foreign exchange, commodities and credit markets combined with certain capabilities in equities. Activities are split between two areas: Rates which includes fixed income, foreign exchange, derivatives, commodities and money markets sales, trading and research, prime brokerage and equities; and Credit which includes origination, sales, trading and research relating to loans, debt capital markets and structured capital markets, and private equity. In the first half of the year, Barclays Capital maintained its leading position in the European syndicated loan market and Sterling bonds. While global market volumes fell in both international bonds and syndicated loans, Barclays Capital improved its market share in bonds and maintained its share in loans. Barclays Capital was one of the global leaders in private placements during the period. Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Net interest income 474 348 291 Dealing profits 507 437 569 Net fees and commissions 245 237 152 Other operating income (2) 28 25 Operating income 1,224 1,050 1,037 Operating costs (701) (675) (647) Provisions for bad and doubtful debts (153) (50) (53) Operating profit 370 325 337 Restructuring costs - (6) (1) Profit before tax and exceptional items 370 319 336 Operating profit increased 10% to Â£370m (2001: Â£337m), benefiting from a broadening business mix and the deepening of client relationships. Operating income grew 18% (Â£187m) to Â£1,224m (2001: Â£1,037m) and was achieved with modestly higher risk levels, with DVaR up 12% and weighted risk assets up 8% from 30th June 2001. Net interest income rose Â£183m to Â£474m (2001: Â£291m), with strong performances from money markets, which benefited from a favourable interest rate environment, and structured capital markets. Corporate lending continued to be tightly managed with the credit portfolio remaining flat at Â£13bn. Dealing profits fell to Â£507m (2001: Â£569m). The overall reduction in dealing profits reflects more difficult market conditions compared with the corresponding period in 2001. A reduced contribution from the Credit businesses, primarily in credit repackaging, was mostly offset by increases in the Rates businesses, in particular interest rate derivatives and commodities. Net fees and commissions increased Â£93m to Â£245m (2001: Â£152m). This growth was driven by the Credit businesses with strong performances from primary bonds and structured capital markets. This reflects Barclays Capital increasing market share, despite an overall decline in levels of financing activity. Net fees and commissions includes Â£53m (2001: Â£42m) of internal fees for structured capital market activities arranged by Barclays Capital. Operating costs increased Â£54m to Â£701m (2001: Â£647m). Business as usual costs increased, reflecting the effect of headcount increases and higher trading volumes. Headcount increased by 8% to 5,500 (2001: 5,100), principally as a result of the strategic investments made during 2001 in product, client coverage and distribution capabilities. Staff costs were maintained at 51% of operating income less provisions (2001: 51%). Provisions increased to Â£153m (2001: Â£53m). The increase reflects the general impact of the continued difficult economic conditions (particularly in the US), primarily in the telecommunications and energy sectors. Barclays Global Investors Barclays Global Investors (BGI) is one of the world's largest asset managers, providing structured investment strategies such as indexing, tactical asset allocation, and risk-controlled active strategies. The investment philosophy focuses on managing all dimensions of performance: return, risk and cost. Asset management is complemented by a range of related investment services including cash management, securities lending and transition management. Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Net interest income 6 2 3 Net fees and commissions 283 262 256 Operating income 289 264 259 Operating costs (229) (222) (222) Loss from joint ventures - (1) - Operating profit before tax and exceptional items 60 41 37 Operating profit increased 62% (Â£23m) to Â£60m (2001: Â£37m). Fees and commissions increased by 11% (Â£27m) to Â£283m (2001: Â£256m). Despite significantly lower market levels, growth in management fees was strong, benefiting from growth in Exchange Traded Fund (ETF) assets and in incentive fees on funds under advanced active management. A change in the timing of the recognition of management fees has resulted in an additional Â£14m of income in the first half. 60% of management fees are derived from actively managed assets. Operating costs increased 3% (Â£7m) to Â£229m (2001: Â£222m). This lower growth rate, compared with that of previous periods, was achieved primarily through ongoing cost management initiatives, with a particular focus on infrastructure costs, partially offset by higher performance related staff costs. The cost income ratio was 79% (2001: 86%). Total assets under management decreased Â£30bn to Â£500bn (31st December 2001: Â£530bn). This was the net result of Â£33bn attributable to net new assets offset by Â£38bn attributable to adverse market movements and Â£25bn to exchange rate translation movements. Assets under management consist of Â£415bn (83%) of indexed funds and Â£85bn (17%) under advanced active management. BGI's global Exchange Traded Funds business performance was strong, despite the persistent negative market movement. Global Exchange Traded Funds assets have grown to Â£19bn, an increase of 29%, 36% adjusted for foreign exchange movements, from 2001 year end levels. Other operations Property costs include Barclays Group Property Services which is responsible for the management of the Group's operational premises and property related services. Property costs also include the central administration of certain operational properties. Central services includes certain activities which support the operating businesses and provide central information technology services. South American Corporate Banking comprises non-core relationships which are now being managed separately with the objective of maximising the recovery from the assets concerned. Within Management of Group capital are certain central items including residual balances arising from centrally managed transition businesses. The Group maintains hedges with respect to its capital and its current account balances, which are designed both to reduce the impact of short-term interest rate fluctuations on profits and to increase profitability over the interest rate cycle. The hedges increase profitability when average short-term interest rates are lower than average medium-term interest rates and depress profitability when average short-term interest rates are higher than average medium-term interest rates. Earnings on centrally held Group capital are allocated to business groups on the basis of economic capital. Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Property costs 5 3 11 Central services (10) (12) 2 South American Corporate Banking (104) (35) 17 Management of Group capital (8) 16 (11) Operating (loss)/profit (117) (28) 19 Restructuring costs (6) (20) 1 Integration costs - 3 (3) Loss before tax and exceptional items (123) (45) 17 The loss on South American Corporate Banking in both the first half of 2002 and the second half of 2001 primarily reflects provisions raised against Argentina exposures. The credit in Management of Group capital in the second half of 2001 reflects the lower level of internal fees charged by Barclays Capital for structured capital markets activities. In total these fees amounted to Â£53m (second half 2001: Â£19m, first half 2001: Â£42m). Head office functions Head office functions comprise all the Group's central costs, including Group Executive, Group Finance, Corporate Communications, Human Resources, Corporate Planning, Audit, Marketing, Legal, Corporate Secretariat and Risk. Costs incurred wholly on behalf of the business units are recharged to them. Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Operating cost (39) (52) (23) Restructuring costs (4) (6) 1 Total (43) (58) (22) The increase in operating costs of Â£16m principally reflects increased expenditure on brand marketing. Restructuring charge Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Staff costs 38 66 48 Administrative expenses - other 17 42 15 55 108 63 The total restructuring charge is Â£55m, with the main elements relating to Personal Financial Services (Â£18m) and Business Banking (Â£14m). Accrued provisions at 30th June 2002 amounted to Â£120m (31st December 2001: Â£130m). Expenditure of Â£47m was incurred in the half-year against the provisions raised as at 31st December 2001, with Â£20m in respect of the 2002 programme. Woolwich integration costs Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Staff costs 1 16 8 Administration expenses - other 31 54 11 32 70 19 Total integration costs in respect of the acquisition of Woolwich plc, including those incurred during 2000 and 2001, are expected to be in the order of Â£200m by the end of 2003. Â£32m was incurred during the half year to 30th June 2002. Woolwich fair value adjustments Woolwich plc fair value adjustments were calculated at the time of the acquisition as the difference between the fair value and book value of the assets and liabilities acquired. These are amortised in the profit and loss account based on the expected life of the asset or liability concerned. It is expected that these will be substantially amortised by 2005. Woolwich integration synergies Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Synergies achieved in the six months ended 30th June 2002 were as follows: Gross revenue synergies 70 37 12 Attributable operating costs (23) (16) (6) Net revenue synergies 47 21 6 Cost savings 39 26 15 Avoided costs (1) 15 34 9 Total pre-tax effect 101 81 30 1 Avoided costs are primarily strategic investment costs which are not required due to the acquisition and integration of Woolwich plc. Pre-tax cost and revenue synergies totalling Â£101m were achieved (2001: Â£30m). The majority of the synergies were realised in Personal Financial Services (Â£86m which includes Â£14m of avoided costs) and Barclays Private Clients (Â£9m). Revenue synergies do not include a one-off gain of Â£18m which arose from the closure of a surplus hedge position in Personal Financial Services no longer required after the acquisition of Woolwich plc. In addition, the Group achieved related tax savings totalling Â£5m. The Group expects to realise pre-tax synergies of at least Â£400m per annum from 2004. This is represented by pre-tax annual cost savings of Â£150m per annum and pre-tax revenue synergies, net of attributable costs, of Â£250m. Against this target, the Group expects to achieve annual cost and revenue synergies of Â£190m for the year to 31st December 2002. For the six months ended 30th June 2002, synergies of Â£101m had been achieved towards meeting this goal. Economic Capital Barclays assesses capital adequacy by measuring risk using internal risk assessment methodologies. The Group assigns economic capital primarily within six risk categories. The methodologies are outlined below: Credit Risk - Using statistical techniques, estimates are made of potential unexpected losses for each segment of the portfolio, relative to the expected level of losses. This unexpected loss level is used to estimate the amount of credit risk economic capital required. Within wholesale and retail businesses, capital allocation is differentiated by segment and customer grade. Off-balance sheet exposures are converted to loan equivalent amounts based on their probability of being drawn, before applying capital factors. Market Risk - Economic capital is primarily estimated using DVaR measurements. Where risks are not measured using DVaR, economic capital is estimated based on stress test analysis. Business and Operational Risk - A combined economic capital allocation for operational risk and business risk is derived through an equation including variables such as cost base, historic profit volatility and comparable external benchmarks. Insurance Risk - Economic capital is estimated through benchmark analysis. Fixed Assets - Economic capital is estimated through benchmark analysis. Private Equity - Economic capital is allocated using an equation based on the amount of equity investment, and comparable benchmark capitalisation. Barclays estimates the correlation between risk types and calculates a diversification benefit which results in a reduction in allocated economic capital for the Group. The total required economic capital for Barclays as determined by its internal risk assessment models and after considering the Group's estimated diversification benefits is then compared with available common shareholders' funds to evaluate overall capital utilisation. The Group's policy is to maintain an appropriate level of excess capital, held at Group centre, which is not allocated to business units. In light of the Basle II proposals the Group is currently engaged in a project to review and enhance the economic capital allocation methodologies. Average economic capital and economic profit by business are set out below: Average economic capital Half-year ended 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Personal Financial Services 2,200 2,200 2,200 Barclays Private Clients 850 800 800 Barclaycard 1,350 1,000 1,000 Business Banking 2,750 2,800 2,200 Barclays Africa 200 200 200 Barclays Capital 1,950 1,900 1,700 Barclays Global Investors 200 100 100 Other operations (1) 600 600 600 Average economic capital 10,100 9,600 8,800 Goodwill 4,700 4,600 4,600 Capital held at Group centre (2) 900 800 700 Total average shareholders' funds 15,700 15,000 14,100 1 Includes South American Corporate Banking 2 The capital held at Group centre represents the variance between average economic capital by business and average shareholders' funds. Barclaycard's economic capital allocation has increased by Â£350m to Â£1,350m due to the continued improvements in methodologies for credit risk quantification and also the acquisition of the UK Providian portfolio. Barclays Global Investors' economic capital allocation has increased by Â£100m to Â£200m due to refinements in operational risk allocation methodology. Economic profit Half-year ended 30.06.02 31.12.01 30.06.01 restated restated Â£m Â£m Â£m Personal Financial Services 199 127 204 Barclays Private Clients 108 179 190 Barclaycard 146 125 110 Business Banking 291 205 269 Barclays Africa 10 17 27 Barclays Capital 143 123 121 Barclays Global Investors 28 24 20 Other operations (1) (54) (10) 7 Head office functions 4 (29) (3) Economic profit 875 761 945 Goodwill (2) (199) (202) (201) Variance to average shareholders' funds (26) (23) (23) Economic profit 650 536 721 1 Includes South American Corporate Banking 2 Cost of equity charge on purchased goodwill Risk Tendency The Group uses a credit risk measurement system, which estimates the cost of credit by different customer categories. The approach, which applies to both business and personal sector lendings, estimates losses over the next twelve months from the balance sheet date and is termed Risk Tendency. It was initially used primarily to aid the Group's understanding of the credit quality of the lending portfolio. As confidence has gained in the measure it has been used to inform a wider range of decisions for example pricing policy, provisioning and portfolio management. The system relies on a series of models, which assess the probability of customer default, the probable customer exposure at the time of default and the probable level of loss. A consistent approach is used across the organisation. Model outputs are a way of assessing what might happen in the future based on past experience. A number of different models are used in the Risk Tendency calculation reflecting the diversity of the portfolio. They are being improved constantly as the Group collects more data and deploys more sophisticated techniques. The Group believes that each change will have a minor impact on the total result but should lead to better estimates over time. The Risk Tendency number should not be regarded as a forecast of the next twelve months provisions. Risk Tendency is calculated on the existing fully performing credit portfolio as at the calculation date, a subset of the total portfolio. Risk Tendency does not forecast provisions relating to non-performing loans. Risk Tendency does not make any allowance for growth or change in the composition of the loan book post the reporting date. Based upon the composition of the lending portfolio as at 30th June 2002, Risk Tendency is Â£1,300m (31st December 2001: Â£1,245m). The increase is primarily a reflection of grade migration of a limited number of larger corporate clients, principally in the US, and a Â£25m increase in Barclaycard (total increase Â£35m) that is attributable to the acquisition of the UK Providian credit card business. Risk Tendency 30.06.02 31.12.01 30.06.01 Â£m Â£m Â£m Personal Financial Services 370 380 360 Barclays Private Clients 50 45 45 Barclaycard 415 380 315 Business Banking 260 260 220 Barclays Africa 30 30 25 Barclays Capital 170 145 135 South American Corporate Banking 5 5 0 1,300 1,245 1,100 ADDITIONAL INFORMATION Group structure changes from 2001 The figures in the business group analyses have been restated to take account of the following changes relative to 2001. The various constituents of the Woolwich business group have been transferred into other Barclays business groups. Woolwich Plan Managers and Unit Trusts have been transferred into Barclays Global Investors, Woolwich Guernsey & Woolwich Life to Barclays Private Clients and the Woolwich credit card business to Barclaycard. The remainder of the Woolwich business is reported within Personal Financial Services. Following a Group review of its South American Corporate Banking activity, a number of non-strategic relationships have been identified within Barclays Capital and Business Banking which did not fit their strategic business models. As a result a significant number of non-performing lendings, that are not expected to be of long term interest to the Group and which are now being managed separately with the objective of maximising the recovery from the assets concerned, are now reported within Other operations. Acquisitions and disposals In April 2002 Barclaycard acquired the UK Providian credit card business at a cost of Â£446m. Details of significant disposals are as set out under exceptional items on page 29. Accounting policies A change in accounting policy has arisen from the adoption in 2002 of Financial Reporting Standard 19 'Deferred tax' (FRS 19). Previously, deferred tax was only provided on timing differences where it was considered probable that a liability to tax will crystallise. Following FRS 19, deferred tax is now provided in full in respect of timing differences that have originated but not reversed at the balance sheet date. The change in policy has resulted in a prior year adjustment, and the profit and loss accounts and balance sheets for the previous periods have been restated. This has resulted in a net credit to shareholders' funds of Â£14m as at 1st January 2002 comprising the cumulative impact of prior year reductions in deferred tax recognised in the profit and loss account and balance sheet. Comparative figures have been restated with the effect that shareholders' funds have been increased by Â£14m at 1st January 2002. Profit after tax for the six months to 31st December 2001 and 30th June 2001 has been increased by Â£15m and reduced by Â£1m respectively. The Group is considering the implications of the recent decision by the ASB to consult on whether or not to extend the transitional provisions of Financial Reporting Standard 17 'Retirement Benefits'. There have been no other significant changes to the accounting policies as described in the 2001 Annual report. CHANGES IN ACCOUNTING PRESENTATION Following the issue of UITF Abstract 33, 'Obligations in capital instruments', Reserve Capital Instruments (RCIs) are now treated as forming part of the undated loan capital of the Bank, rather than as Minority interests - non-equity. The coupon on the RCIs is now reported in Interest payable, rather than as Minority non-equity interests. Comparatives have been restated accordingly. Profit after tax for the six months to 31st December 2001 and 30th June 2001 has been reduced by Â£54m and Â£43m respectively with no impact on retained profit. Liabilities have been increased and Minority interests and shareholders' funds have been reduced at 31st December 2001 and 30th June 2001 by Â£1,872m and Â£1,906m, respectively. CHANGES TO SHARE CAPITAL Following shareholder approval at the AGM on 25th April 2002, Barclays PLC divided each of its issued and unissued ordinary shares of Â£1 each into four ordinary shares of 25p each. GROUP SHARE SCHEMES The trustees of the Group's share schemes may make purchases of Barclays PLC ordinary shares in the market at any time or times following this announcement of the Group's results for the purposes of those schemes' current and future requirements. The total number of ordinary shares purchased would not be material in relation to the issued share capital of Barclays PLC. FILINGS WITH THE SEC This report will be furnished as a Form 6-K to the US Securities and Exchange Commission. OTHER INFORMATION The interim report for the six months to 30th June 2002, including extracts from this announcement and the independent review report by the auditors, will be advertised in The Times, The Daily Mail, The Daily Telegraph and The Scotsman on 2nd August 2002. Copies will be available to the public at Barclays registered office, on its website and via Barclays e-view. RECENT DEVELOPMENTS As announced on 31st October 2001, Barclays and Canadian Imperial Bank of Commerce ('CIBC') have signed an agreement to combine their retail, corporate and offshore banking operations in the Caribbean to create FirstCaribbean International BankTM ('FirstCaribbean'). Implementation of the combination remains subject to, amongst other things, the receipt of certain regulatory and governmental approvals. On the current timescale for obtaining these approvals the transaction is expected to be completed by the end of 2002. On completion, Barclays will account for its interest in FirstCaribbean as an associated undertaking under UK accounting standards. At the time the transaction was announced, it was expected to result in an economic profit for Barclays in the region of Â£250m (to be recognised in the statement of total recognised gains and losses) in respect of the disposal of its share of its existing Caribbean operations and goodwill of around Â£175m to arise in Barclays on the acquisition of its share of CIBC West Indies Holdings Limited. The originally quoted gain and goodwill figures, which are US dollar based, are now estimated to be in the region of Â£230m and Â£150m respectively, based on end of period exchange rates. Except for further movements in exchange rates and the impact of final fair value adjustments and transaction costs, no significant change is expected to the gain and goodwill calculated as at 30th June 2002. The transaction is expected to increase Barclays Tier 1 capital ratio and, going forward, to have a positive impact on earnings before goodwill and fair value amortisation, primarily as a result of synergies. The Barclays headquarters building at 54 Lombard Street was sold on 3rd July 2002 to Commercial Union Life Assurance Company Limited and CGNU Life Assurance Limited on a sale and leaseback transaction. The sale of the building followed a review of all London non-branch Barclays locations and the lease by Barclays of a new headquarters building in Canary Wharf which was announced in November 2001. The new Canary Wharf building will bring together the majority of Barclays non-branch staff currently based in the City and West End. The transaction will give rise to a small profit after accounting for related costs. The Competition Commission published its report into the provision of banking services to small and medium sized enterprises (SMEs) in March 2002. Barclays PLC, HSBC Bank Plc, Lloyds TSB Bank Plc and The Royal Bank of Scotland Group Plc have agreed undertakings with the Secretary of State and Chancellor regarding the implementation of the transitional pricing remedy contained in the Report. As a result by 1st January 2003 Barclays will offer each of its SME customers either interest on current account or free money transmission services or a choice between the two in accordance with the terms of such undertakings. Barclays has been in discussion since April with the Office of Fair Trading (OFT) regarding the recommended behavioural remedies and is working constructively with the OFT to agree these and take the necessary measures forward. This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW IR UAVRRUURWRRR

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