Final Results - Part 2

Barclays PLC 8 February 2001 PART 2 BARCLAYS PLC FINANCIAL REVIEW Results by nature of income and expense Net interest income 2000 1999 £m £m Interest receivable 11,788 9,320 Interest payable (6,635) (4,696) Profit on redemption/repurchase of loan capital 2 3 5,155 4,627 Excluding The Woolwich 5,068 4,627 Net interest income increased 11% to £5,155m. Adjusting for the impact of The Woolwich acquisition (including interest foregone on the cash element of the acquisition cost), loss of interest income arising from the share repurchases and business disposals, underlying net interest income also increased by 11%. In Retail Financial Services net interest income increased 7% to £2,649m excluding net interest arising in The Woolwich. This was primarily as a result of strong growth in Wealth Management and increased UK lending and deposit balances. In Wealth Management, particularly strong growth was achieved in the UK, with average Premier Banking mortgage balances increasing by 19% and, in continental Europe, where average lendings and deposits grew by 24% and 15% respectively. In Small Business average deposits grew by 4% to £ 6.7bn and average lending balances grew 8% to £1.8bn. In UK Personal Customers, current accounts and average savings balances benefited from good volume growth, despite some pressure on margins. Excluding The Woolwich, the overall UK retail lending margin reduced primarily as a result of pricing decisions in respect of consumer lending products and a change in mix of mortgage products. The overall UK retail deposit margin, excluding The Woolwich, has experienced some downward pressure in the second half of the year. Net interest income in Barclaycard improved 12% to £548m benefiting from continued strong growth in average UK extended credit balances which rose 19% year on year to £5.5bn. This compared with the market growth rate of 13%. The net interest margin fell slightly compared to 1999, mainly as a result of the balance consolidation promotions of 2000 and the increased range of rates available to cardholders. Corporate Banking net interest income rose 6% to £1,324m. Average customer lending balances increased 10% to £47bn as a result of strong growth in UK lending and in the rest of Europe. Average customer deposit balances increased 6% to £37bn with relatively strong growth in the United Kingdom. The overall UK lending margin in Corporate Banking was maintained in line with the improving quality of the portfolio. In Barclays Capital net interest income increased 21% to £483m primarily as a result of continued strong growth in revenues from structured capital markets and the credit portfolio. Overall banking margins reduced to 3.11% from 3.40% as a result of increased volumes in lower margin wholesale business in Barclays Capital and also reductions in UK margins in Retail Financial Services, Barclaycard and Corporate Banking. Additionally, the two month impact of the acquisition of The Woolwich on the Group's mix of interest earning assets has been to reduce the Group margin by 6 basis points. Further analysis of the movement year on year is given on page 15. The benefit of free funds was flat at 0.51% (1999: 0.52%). The rise in short-term market rates of interest reduced the contribution to the net margin from the central management of Group interest rate exposure to 0.05% from 0.21%. The overall benefit of free funds on a hedged basis has reduced to 0.56% from 0.73% in 1999 as a result of a decrease in the effective rate of the hedge and a reduction in the proportion of free funds to interest earning assets. Yields, spreads and margins - banking business Domestic business is conducted primarily in sterling and is transacted by Retail Financial Services, Barclaycard, Corporate Banking, Barclays Capital and Group Treasury. International business is conducted primarily in foreign currencies. In addition to the business carried out by overseas branches and subsidiaries, international business is transacted in the United Kingdom by Barclays Capital, mainly with customers domiciled outside the United Kingdom. The yields, spreads and margins shown below have been computed on this basis, which generally reflects the domicile of the borrower. They exclude profits and losses on the redemption and repurchase of loan capital, one-off write-downs of leases and the unwinding of the discount on vacant leasehold property provisions. Yields, spreads and margins - banking business 2000 1999 Gross yield (i) % % Group 7.09 6.84 Domestic 7.90 7.66 International 5.71 5.38 Interest spread (ii) Group 2.60 2.88 Domestic 3.54 3.89 International 1.01 1.10 Interest margin (iii) Group 3.11 3.40 Domestic 4.19 4.47 International 1.25 1.47 Average UK base rate 5.96 5.35 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. Analysis of movement in interest margin % Net interest margin at 31st December 1999 3.40 Movement due to change in business margins (0.08) Movement due to change in the asset mix (excluding The Woolwich) (0.15) 3.17 Impact of The Woolwich (including funding of the acquisition) (0.06) Net interest margin at 31st December 2000 3.11 Average interest earning assets and liabilities - banking business 2000 1999 Average interest earning assets £m £m Group 166,200 136,267 Domestic 104,845 87,407 International 61,355 48,860 Average interest bearing liabilities Group 147,367 118,496 Domestic 89,130 73,850 International 58,237 44,646 Net fees and commissions 2000 1999 £m £m Fees and commissions receivable 3,689 3,207 Less: fees and commissions payable (320) (275) 3,369 2,932 Excluding The Woolwich 3,320 2,932 Net fees and commissions, excluding The Woolwich, increased 13% to £3,320m reflecting strong growth in Barclays Global Investors and Barclays Capital and good performances in the other businesses. In Barclays Global Investors fee income increased by 37% to £435m driven by strong active product growth and performance which has generated significant incentive fees. Fees on active products comprised almost 50% of total fees and commissions. The increase also reflects strong securities lending revenue growth and a net increase in assets under management of 13% despite flat or declining global markets. Net fees and commissions in Barclays Capital rose 64% to £268m reflecting the increased number and size of transactions completed in the Credit businesses. Growth was strong across all the Credit businesses, in particular, primary loans, primary bonds and structured capital markets. In Retail Financial Services, fees and commissions, excluding The Woolwich, increased 5% to £1,370m. Within Retail Customers net fees increased 6% mainly as a result of additional current account and overdraft lending activity and higher fee income from Additions accounts. In Wealth Management, fees and commissions grew 10% to £590m on a comparable basis (including adjustments for disposals) reflecting increased investment sales, introduction of new fee based products and higher dealing commissions. Corporate Banking fees increased 9% to £752m. Lending related fees rose strongly and foreign exchange income increased in line with volume growth. Money transmission income reduced slightly due to intensifying competitive pressures. In Barclaycard, fees and commissions increased 9% to £521m, principally reflecting cardholder turnover which grew by 12% year on year. Corporate Banking and Retail Financial Services fees and commissions include £ 120m (1999: £100m) in respect of foreign exchange income on customer transactions with Barclays Capital. Dealing profits 2000 1999 £m £m Rates related business 536 397 Credit related business 141 159 677 556 Dealing profits rose 22% with almost all the Group's dealing profits arising in Barclays Capital. The Rates businesses continued to perform well, in particular interest rate derivatives. In the Credit businesses, equity derivatives and credit repackaging made good contributions, but in the second half these were offset in part by continuing difficult market conditions in the secondary bond market due to the widening of credit spreads. Total foreign exchange income for the year was £388m (1999 £380m) and consisted of the revenues earned from both retail and wholesale activities. The foreign exchange revenue earned by Retail Financial Services and Corporate Banking on customer transactions is reported within fees and commissions. Other operating income 2000 1999 £m £m Dividend income from equity shares 14 12 Profits on disposal of investment securities 45 41 Income from the long-term assurance business 171 44 Property rentals 22 27 Premium income on insurance underwriting 126 102 Other income 19 32 397 258 Excluding The Woolwich 388 258 Income from the long term assurance business increased £52m adjusting for the £75m provision for the redress of personal pension customers, which was raised during 1999. The increase in 2000 benefited from reductions in costs charged to the funds, a net £18m increase from applying current actuarial assumptions and £5m from the inclusion of Woolwich Life. Total provisions of £226m, including £16m in The Woolwich, have been raised to date for the cost of the redress for personal pension customers for priority and non-priority cases, of which £97m remains unutilised as at 31st December 2000. The result of the long term assurance business is after charging costs borne directly in the fund (2000: £146m; 1999: £165m). Premium income on insurance underwriting increased to £126m (1999: £102m), benefiting from improved volumes of consumer lending, overdrafts, mortgages and credit card lending. Operating Expenses From 1st January 2000 the Group has managed core costs on the basis of three distinct categories: strategic investment, revenue related and business as usual. In addition goodwill amortisation, integration costs and restructuring 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 revenue stream, or - it generates or enables reduced costs Strategic investment costs also include projects which support a major strategic initiative as agreed by Group Executive Committee, but exclude restructuring costs. Project operating costs are also excluded. Revenue or profit related costs are those costs which are directly associated with a corresponding change in revenues or profit. An increase or decrease in revenues or profits will lead to an increase or decrease in these costs. Business as usual costs are all costs not classified as strategic investment, revenue related or restructuring. This category includes operating costs of strategic projects, other projects not classified as strategic and volume related costs which are not revenue related. Integration costs are in respect of projects and initiatives associated with the acquisition of The Woolwich and include expenditure to achieve any cost savings and revenue synergies. Restructuring costs are those charges associated with the ongoing reorganisation and restructuring of the Group's operations as part of its cost reduction initiatives. Based on the above definitions the Group's costs are summarised in the following table with the costs associated with businesses sold and acquired restructuring costs shown separately: Barclays PLC The (excluding Woolwich The Group period from Woolwich) total 25.10.00 year ended 2000 to 31.12.00 31.12.00 1999 £m £m £m £m Business as usual costs 4,216 74 4,142 4,184 Strategic investment costs 440 14 426 229 Revenue related costs 528 10 518 300 Disposals 18 - 18 74 5,202 * 98 5,104 4,787 Goodwill amortisation 51 38 13 13 Integration costs 7 7 - - Restructuring charge 232 - 232 344 5,492 143 5,349 5,144 * net of £1m fair value adjustment (see page 11). The Group's strategic investment expenditure has risen by £211m (including £ 14m relating to The Woolwich) to £440m (1999: £229m). This increase reflects £179m greater commitment to e-enablement and information technology infrastructure that was announced in May 2000. Strategic investment expenditure also included costs of new activities such as Barclays B2B.com, e-commerce, European activities within Barclaycard and exchange traded funds in BGI. Revenue related costs have increased by £228m (including £10m in The Woolwich) as a direct result of improved performance across the Group's businesses. It mainly reflects increased performance related remuneration in Barclays Capital and BGI and an increase in the profit share for UK staff. Administrative expenses - staff costs 2000 1999 £m £m Salaries and accrued incentive payments 2,559 2,387 Social security costs 178 190 Pension costs (31) 38 Post-retirement health care 1 15 UK profit sharing 96 80 Other staff costs 416 347 3,219 3,057 Included above: The Woolwich 42 - Integration costs 1 - Restructuring charge 171 192 Excluding The Woolwich, integration costs and restructuring charge 3,005 2,865 Number of staff at period end:* Retail Financial Services** 49,900 46,100 Barclaycard 3,900 3,600 Corporate Banking 9,700 11,400 Barclays Capital 4,300 4,000 Barclays Global Investors 2,100 1,700 Other operations 4,900 7,100 Head office functions 500 400 Group total world wide 75,300 74,300 of which United Kingdom 57,000 55,700 * Staff numbers do not include temporary and agency staff of 4,800 (31st December 1999: 3,600) whose costs are included in staff costs. ** Retail Financial Services figures include staff who represent a shared resource with Corporate Banking, but exclude 1,000 regulated salesforce and field sales managers (31st December 1999: 1,000) and 1,100 administrative staff (31st December 1999: 1,300) whose costs are borne within the long-term assurance fund. Retail Financial Services figures at 31st December 2000 also include 6,500 staff of The Woolwich. Staff costs Staff costs excluding the restructuring charge and costs relating to The Woolwich increased 5% to £3,005m. Salaries and accrued incentive payments rose by 7% reflecting increased performance related payments in Barclays Capital and BGI. Excluding performance related payments, salary costs across the Group were flat compared with 1999. In Retail Financial Services, Corporate Banking and Service Provision savings from job reductions offset the impact of the annual UK pay award. Pension costs include a £74m credit (1999: £nil) in respect of the Group's main UK schemes following a review of the assumptions relating to the surplus and the continued nil contribution. The Group expects similar credits in the next two years. Staff number reduction in 2000 Number of staff 2000 restructuring programme 2,700 1999 restructuring programme 1,500 4,200 Sale of Dial 700 Outsourcing and other movements 600 5,500 Excluding The Woolwich, staff numbers decreased by 5,500 to 68,800, primarily as a result of continuing job reductions in the UK. The reduction in staff numbers relating to the 2000 restructuring programme amounted to 2,700 with a further 1,500 attributable to the 1999 programme where the notice process was underway at the end of 1999. The reduction in Corporate Banking staff numbers includes 700 as a result of the sale of Dial. Staff numbers also reduced by a net 600 as a result of outsourcing and other movements. In addition to the 4,200 staff who have left the Group in 2000 under the 2000 and 1999 restructuring programmes, a further 2,100 staff were in the process of being served notice at 31st December 2000 and are covered by the 2000 restructuring charge of £171m (total jobs affected 4,800). The increases in Barclays Capital, Barclays Global Investors and Barclaycard staff numbers reflected increased business volumes and investment in new activities. Administrative expenses - other 2000 1999 £m £m Property and equipment expenses: Hire of equipment 20 21 Property rentals 157 218 Other property and equipment expenses 641 613 818 852 Stationery, postage and telephones 261 236 Advertising and market promotion 221 190 Travel, accommodation and entertainment 123 117 Subscriptions and publications 65 58 Securities clearing and other operational expenses 26 20 Sundry losses, provisions and write-offs 115 78 Statutory and regulatory audit and accountancy fees 7 6 Consultancy fees 158 121 Professional fees 99 88 Other expenses 74 41 1,967 1,807 Included above: The Woolwich 47 - Integration costs 6 - Restructuring charge 61 152 Excluding The Woolwich, integration costs and restructuring charge 1,853 1,655 Administrative expenses increased by 12% to £1,853m, excluding operational costs of The Woolwich following acquisition, integration costs and restructuring costs. Advertising and market promotion expenditure returned to pre 1999 levels; increased stationery, postage and telephone expenses was in part volume related; consultancy fees increased primarily as a result of strategic project initiatives. Increased fraud losses reflecting industry experience are reflected in sundry losses. Depreciation and amortisation 2000 1999 £m £m Property depreciation 85 93 Equipment depreciation 166 170 Loss on sale of equipment 4 4 255 267 Goodwill amortisation - The Woolwich 38 - - other 13 13 306 280 Excluding The Woolwich depreciation and goodwill amortisation 259 280 Goodwill amortisation relating to The Woolwich acquisition is based on total goodwill of £4,121m and an estimated economic life of 20 years which will result in a charge of £206m per annum, £38m for the period from 25th October 2000 to 31st December 2000. Provisions for bad and doubtful debts 2000 1999 The charge for the year in respect of £m £m bad and doubtful debts comprises: Specific provisions - credit risk New and increased 981 887 Releases (86) (157) Recoveries (113) (93) 782 637 General provision - credit risk - charge/(release) 40 (16) 822 621 Specific provision releases - country risk (5) (2) General provision charge - country risk - 2 Net charge 817 621 Excluding The Woolwich acquisition 809 621 Total provisions for bad and doubtful debts at end of the year comprise: Specific - credit risk 1,592 1,298 Specific - country risk 1 13 Total specific provisions 1,593 1,311 General provisions - credit risk 703 615 - country risk 57 57 2,353 1,983 The net provisions charge rose 32% to £817m (including £8m relating to The Woolwich). The increase in the net specific credit risk charge reflected both an increase in new and increased provisions of £94m and a reduction in releases and recoveries of £51m. The rise in new and increased provisions primarily relates to Retail Financial Services and Barclaycard with both experiencing increased volumes. Corporate Banking experienced new provisions in respect of two larger individual customers as well as lower releases and recoveries. £33m of the £124m charge in Corporate Banking related to overseas specific provisions. There was an increase in provisions in relation to overseas exposures in Barclays Capital. The credit risk general provision charge was £40m compared to a release of £ 16m in 1999. The charge in general provision was mainly in respect of Barclays Capital and Corporate Banking. The net provision charge for the period as a percentage of average banking loans and advances was 0.67% compared with 0.58% in 1999. Loss from joint ventures and associated undertakings 2000 1999 £m £m Loss from joint ventures (1) (1) Loss from associated undertakings (7) (13) (8) (14) The loss from associated undertakings in 2000 largely arose in the Group's Brazilian associate Banco Barclays e Galicia SA as a result of credit provisions. Exceptional items 2000 1999 £m £m Profit/(loss) on disposal of other Group undertakings 214 (138) 214 (138) The profit on disposal of other Group undertakings includes a £186m profit on the sale of Dial in June 2000 and £18m profit on the sale of Barclays Property Investment Management in October 2000. The loss on disposal of other Group undertakings in 1999 includes a £117m loss (after £138m charge for goodwill which had been previously written off to reserves) on the sale of Merck Finck in March 1999. Tax The charge for the year assumes a UK corporation tax rate of 30.0% for the year 2000 (1999: 30.25%) and comprises current tax of £937m (1999: £696m) and deferred tax charge of £7m (1999: credit £52m). The effective rate of tax is 27.0% (1999: 26.2%). This is mainly due to the profit on sale of Dial being sheltered by capital gains tax losses, payments to a qualifying employee trust and differing rates of tax on overseas income. Included in the charge is £40m (1999: £7m) tax on the increase in the shareholders' interest in the long-term assurance fund. There has been no change in the policy for partial provision for deferred taxation in respect of leasing. Earnings per ordinary share Earnings per ordinary share is based upon the results after deducting tax, profit attributable to minority interests and dividends on staff shares. 2000 1999 £m £m Earnings in year 2,473 1,759 Earnings in year before restructuring, goodwill amortisation, 2,477 2,150 integration costs and exceptional items Weighted average of ordinary shares in issue 1,514 1,497 Calculation of adjusted earnings per share Pence Pence Basic earnings per ordinary share 163.3 117.5 Restructuring charge 10.7 16.3 Integration costs 0.3 - Goodwill amortisation 3.4 0.9 Exceptional items (14.1) 8.9 Adjusted earnings per share 163.6 143.6 Dividends on ordinary shares The Board has decided to pay, on 30th April 2001, a second interim dividend for 2000 of 38.0p per ordinary share, in respect of shares registered in the books of the Company at the close of business on 23rd February 2001. The total distribution on the ordinary shares for 2000 is 58.0p (1999: 50.0p). For US and Canadian resident ADR holders, the second interim dividend of 38.0p per ordinary share becomes 152p per ADS (representing four shares). The ADR depositary will mail the dividend on 30th April 2001 to ADR holders on record on 23rd February 2001. For Japanese shareholders, the second interim dividend of 38.0p per share will be distributed in mid May to shareholders on record on 23rd February 2001. Shareholders may have their dividends reinvested in Barclays PLC ordinary shares by participating in the Barclays Dividend Reinvestment Plan. The plan is available to all shareholders provided that they do not live in or are subject to the jurisdiction of any country where their participation in the plan would require Barclays or The Plan Administrator to take action to comply with local government or regulatory procedures or any similar formalities. Any shareholder wishing to obtain details of the plan and a mandate form should contact The Plan Administrator to Barclays, PO Box 82, The Pavilions, Bridgwater Road, Bristol, BS99 7NH. Those wishing to participate for the first time in the plan should send their completed mandate form to The Plan Administrator before 5th April 2001 for it to be applicable to the payment of the second interim dividend on 30th April 2001. Existing participants should take no action unless they wish to alter their current mandate instructions, in which case they should contact The Plan Administrator. Balance sheet Capital resources 2000 1999 £m £m Shareholders' funds 13,187 8,483 Minority interests 1,600 352 14,787 8,835 Loan capital 6,370 4,597 21,157 13,432 The Group continues to manage actively both its debt and equity capital. Total capital resources increased in the year by £7,725m. Shareholders' funds increased by £4,687m before favourable exchange differences of £17m. This increase resulted from shares issued in respect of The Woolwich acquisition (£3,359m) and profit retentions of £1,546m, offset by share buy-backs, including costs, of £311m. The increase in minority interests reflects the issue by Barclays Bank PLC of EUR850m (£510m) and US $1,250m (£860m) Reserve Capital Instruments on 3rd May and 19th September 2000 respectively. 17,920,000 outstanding Series C1 and C2 Non cumulative Dollar Denominated Preference Shares of $0.01 each were redeemed on 30th June 2000. The aggregate redemption cost was $224m (£149m). Loan capital rose by £1,773m reflecting raisings of £861m, loan capital of The Woolwich on acquisition of £957m and exchange rate movements of £169m. This was offset by repayments of £214m. Capital ratios Weighted risk assets and capital resources, as defined for supervisory purposes by the Financial Services Authority, comprise: 2000 1999 Weighted risk assets: £m £m Banking book on-balance sheet 112,633 84,535 off-balance sheet 18,413 15,567 associated undertakings 783 1,341 Total banking book 131,829 101,443 Trading book market risks 6,440 6,015 counterparty and settlement risks 8,771 8,420 Total trading book 15,211 14,435 Total weighted risk assets 147,040 115,878 Capital resources: tier 1 capital 10,547 8,696 tier 2 capital 6,619 4,948 tier 3 capital 331 343 Total gross capital resources 17,497 13,987 Less: supervisory deductions (1,312) (853) Total net capital resources 16,185 13,134 % % Tier 1 ratio 7.2 7.5 Risk asset ratio 11.0 11.3 Adjusting for the impact of the acquisition of The Woolwich, the reported ratios at 31st December 2000 are estimated as a tier 1 ratio of 8.8% and a risk asset ratio of 12.7%. Total Assets The Group's balance sheet grew £61bn, or 24%, to £316bn in 2000, and included £37bn of assets and £4.1bn of goodwill in respect of The Woolwich. This compared to a 16% increase in 1999. Weighted risk assets rose 27% to £147bn, of which £19bn (13%) relates to The Woolwich. Retail Financial Services assets (excluding The Woolwich) grew 6% to £44.1bn, compared with a 4% increase in 1999. Weighted risk assets were 9% higher at £ 28.5bn. Consumer lending balances in the United Kingdom increased by 5% to £ 6.5bn over the year and mortgage outstandings grew by 6% to £17.7bn. Wealth Management assets have grown strongly across most business units, with particularly high growth in UK Premier Banking and Iberia. The assets of Barclays Capital increased 8%, to £157bn (1999: £145bn). This was largely due to a £10bn increase in the holdings of debt securities across both the Rates and Credit businesses and a £2bn increase in reverse repos and stock lending assets due to increased customer financing. Total weighted risk assets increased 7% to £34bn (1999: £32bn) in line with the increase in assets. Corporate Banking assets grew 11% to £53bn, adjusted for the sale of Dial (1999: £47bn). Weighted risk assets increased by 13% to £55bn on the same basis. UK middle market lending grew strongly particularly to larger and higher quality customers. Lending volumes in the international business continued to grow strongly in Europe while volumes in Latin America reduced. In 2000 the sale of Dial reduced total assets by £800m. Barclaycard assets grew £1.4bn, or 19%, to £8.7bn in 2000 reflecting strong growth in credit card outstandings in the UK and Europe. Weighted risk assets increased by 18%. Assets of other operations fell by £1bn mainly because of lower holdings of government loan stock. Retail life fund assets, excluding The Woolwich (£721m), reduced by £50m. MORE TO FOLLOW

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