Final Results - Part 2

Barclays PLC 20 February 2007 FINANCIAL REVIEW Results by nature of income and expense Net interest income 2006 2005 Â£m Â£m Cash and balances with central banks 16 9 Financial investments 2,811 2,272 Loans and advances to banks 978 690 Loans and advances to customers 16,290 12,944 Other 1,710 1,317 -------- -------- Interest income 21,805 17,232 -------- -------- Deposits from banks (2,819) (2,056) Customer accounts (3,076) (2,715) Debt securities in issue (5,282) (3,268) Subordinated liabilities (777) (605) Other (708) (513) -------- -------- Interest expense (12,662) (9,157) -------- -------- Net interest income 9,143 8,075 -------- -------- Group net interest income increased 13% (Â£1,068m) to Â£9,143m (2005: Â£8,075m). The inclusion of Absa contributed net interest income of Â£1,138m (2005(1): Â£516m). Group net interest income excluding Absa grew 6%. A component of the benefit of free funds included in Group net interest income is the structural hedge which functions to reduce the impact of the volatility of short-term interest rate movements. The contribution of the structural hedge decreased to Â£26m (2005: Â£145m), largely due to the impact of relatively higher short-term interest rates and lower medium-term rates. Interest income includes Â£98m (2005: Â£76m) accrued on impaired loans. (1) For 2005, this reflects the period from 27th July until 31st December 2005. Business margins 2006 2005 % % UK Retail Banking assets 0.84 0.92 UK Retail Banking liabilities 2.01 1.99 UK Business Banking assets 1.92 1.87 UK Business Banking liabilities 1.46 1.46 Barclaycard assets 6.47 6.59 -------- -------- Barclaycard assets-cards 8.73 7.96 Barclaycard assets-loans 4.11 4.96 -------- -------- International Retail and Commercial Banking-ex Absa assets(1) 1.28 1.36 International Retail and Commercial Banking-ex Absa liabilities(1) 2.04 2.02 International Retail and Commercial Banking-Absa assets(1),(2) 2.95 3.52 International Retail and Commercial Banking-Absa liabilities(1),(2) 2.29 2.39 Barclays Wealth assets 1.11 0.99 Barclays Wealth liabilities 1.11 1.04 Average balances 2006 2005 Â£m Â£m UK Retail Banking assets 65,486 66,165 UK Retail Banking liabilities 79,188 73,473 UK Business Banking assets 52,018 43,985 UK Business Banking liabilities 44,839 40,545 Barclaycard assets 26,204 24,246 -------- -------- Barclaycard assets-cards 13,392 13,180 Barclaycard assets-loans 12,812 11,066 -------- -------- International Retail and Commercial Banking-ex Absa assets(1) 27,434 22,889 International Retail and Commercial Banking-ex Absa liabilities(1) 10,780 9,219 International Retail and Commercial Banking-Absa assets(1),(2) 24,388 20,225 International Retail and Commercial Banking-Absa liabilities1,(2) 12,826 13,338 Barclays Wealth assets 5,140 4,395 Barclays Wealth liabilities 24,697 23,430 (1) International Retail and Commercial Banking business margins, average balances and business net interest income for 2005 have been restated on a consistent basis to reflect changes in methodology. (2) For 2005, this reflects the period from 27th July until 31st December 2005, on an annualised basis. Business net interest income 2006 2005 Â£m Â£m UK Retail Banking assets 552 609 UK Retail Banking liabilities 1,595 1,462 UK Business Banking assets 999 823 UK Business Banking liabilities 655 592 Barclaycard assets 1,696 1,598 -------- -------- Barclaycard assets-cards 1,169 1,049 Barclaycard assets-loans 527 549 -------- -------- International Retail and Commercial Banking-ex Absa assets(1) 352 311 International Retail and Commercial Banking-ex Absa liabilities(1) 220 186 International Retail and Commercial Banking-Absa assets(1),(2) 719 308 International Retail and Commercial Banking-Absa liabilities(1),(2) 294 138 Barclays Wealth assets 57 43 Barclays Wealth liabilities 273 244 -------- -------- Business net interest income 7,412 6,314 -------- -------- Reconciliation of business interest income to Group net interest income 2006 2005 Â£m Â£m Business net interest income 7,412 6,314 Other: - Barclays Capital 1,158 1,065 - Barclays Global Investors 10 15 - Other 563 681 -------- -------- Group net interest income 9,143 8,075 -------- -------- Business net interest income is derived from the interest rate earned on average assets or paid on average liabilities relative to the average Bank of England base rate, local equivalents for international businesses or the rate managed by the bank using derivatives. The margin is expressed as annualised business interest income over the relevant average balance. Asset and liability margins cannot be added together as they are relative to the average Bank of England base rate, local equivalent for international businesses or the rate managed by the bank using derivatives. The benefit of capital attributed to these businesses is excluded from the calculation of business margins and business net interest income. Average balances are calculated on daily averages for most UK banking operations and monthly averages elsewhere. Within the reconciliation of Group net interest income, there is an amount captured as Other. This relates to: benefit of capital excluded from the business margin calculation, Head office functions and other operations; net funding on non-customer assets and liabilities; and Barclays Wealth-closed life assurance activities. (1) International Retail and Commercial Banking business margins, average balances and business net interest income for 2005 have been restated on a consistent basis to reflect changes in methodology. (2) For 2005, this reflects the period from 27th July until 31st December 2005. UK Retail Banking assets margin decreased 8 basis points to 0.84% (2005: 0.92%). The mortgage margin has been impacted by changed assumptions used in the calculation of effective interest rates, a higher proportion of new mortgages and base rate changes. This was partially offset by increased contributions from non-mortgage assets. UK Retail Banking liabilities margin was stable at 2.01% (2005: 1.99%). UK Business Banking assets margin improved to 1.92% (2005: 1.87%). UK Business Banking liabilities margin was stable at 1.46% (2005: 1.46%). Barclaycard margins in credit cards improved to 8.73% (2005: 7.96%) due to the impact of increased card rates and a reduced proportion of promotional rate balances in the UK. Margins in consumer lending fell to 4.11% (2005: 4.96%) due to a higher proportion of secured lending and continued competitive pressure. International Retail and Commercial Banking-excluding Absa assets margin decreased 8 basis points to 1.28% (2005: 1.36%) partly reflecting a greater share of mortgage assets as a proportion of the total book in continental Europe. International Retail and Commercial Banking-Absa assets margin decreased 57 basis points to 2.95% (2005(1): annualised 3.52%) reflecting a higher proportion of mortgage assets and competitive pressures in mortgages and asset finance. The liabilities margin decreased 10 basis points to 2.29% (2005(1): annualised 2.39%). The Absa Group Limited net interest margin remained stable compared to the year to 31st December 2005 as the asset margin decrease was offset by the benefit of higher returns on free funds and a higher proportion of preference share capital in the funding mix. Barclays Wealth assets margin increased 12 basis points to 1.11% (2005: 0.99%) largely reflecting higher margins on new lending business and a small increase in mortgage margins. The liabilities margin increased 7 basis points to 1.11% (2005: 1.04%) principally due to a slight increase in currency deposit spreads. (1) For 2005, this reflects the period from 27th July until 31st December 2005. Net fee and commission income 2006 2005 Â£m Â£m Fee and commission income 8,005 6,430 Fee and commission expense (828) (725) -------- -------- Net fee and commission income 7,177 5,705 -------- -------- Net fee and commission income increased 26% (Â£1,472m) to Â£7,177m (2005: Â£5,705m). The inclusion of Absa contributed net fee and commission income of Â£850m (2005(1): Â£334m). Group net fee and commission income excluding Absa grew 18%, reflecting growth across all businesses. Fee and commission income rose 24% (Â£1,575m) to Â£8,005m (2005: Â£6,430m). The inclusion of Absa contributed fee and commission income of Â£896m (2005(1): Â£386m). Excluding Absa, fee and commission income grew 18%, driven by a broadly based performance across the Group, particularly within Barclays Global Investors. Fee and commission expense increased 14% (Â£103m) to Â£828m (2005: Â£725m), reflecting the growth in Barclaycard US. Absa contributed fee and commission expense of Â£46m (2005(1): Â£52m). Total foreign exchange income was Â£850m (2005: Â£648m) and consisted of revenues earned from both retail and wholesale activities. Foreign exchange income earned on customer transactions by individual businesses is reported in those respective business units within fee and commission income. The foreign exchange income earned in Barclays Capital and in Treasury is reported within net trading income. (1) For 2005, this reflects the period from 27th July until 31st December 2005. Principal transactions 2006 2005 Â£m Â£m Rates related business 2,848 1,732 Credit related business 766 589 -------- -------- Net trading income 3,614 2,321 -------- -------- Cumulative gain from disposal of available for sale assets 307 120 Dividend income 15 22 Net income from financial instruments designated at fair value 447 389 Other investment income 193 327 -------- -------- Net investment income 962 858 -------- -------- Principal transactions 4,576 3,179 -------- -------- Most of the Group's trading income is generated in Barclays Capital. Net trading income increased 56% (Â£1,293m) to Â£3,614m (2005: Â£2,321m) due to excellent performances in Barclays Capital Rates and Credit businesses, in particular in commodities, fixed income, equities, credit derivatives and emerging markets. This was driven by higher volumes of client led activity and favourable market conditions. The inclusion of Absa contributed net trading income of Â£60m (2005(1): Â£9m). Group net trading income excluding Absa grew 54%. Net investment income increased 12% (Â£104m) to Â£962m (2005: Â£858m). The inclusion of Absa contributed net investment income of Â£144m (2005(1): Â£62m). Group net investment income excluding Absa increased 3%. The cumulative gain from disposal of available for sale assets increased 156% (Â£187m) to Â£307m (2005: Â£120m) driven by investment realisations, primarily in Private Equity. Fair value movements on certain assets and liabilities have been reported within net trading income or within net investment income depending on the nature of the transaction. Fair value movements on insurance assets included within net investment income contributed Â£205m (2005: Â£317m). (1) For 2005, this reflects the period from 27th July until 31st December 2005. Net premiums from insurance contracts 2006 2005 Â£m Â£m Gross premiums from insurance contracts 1,108 909 Premiums ceded to reinsurers (48) (37) -------- -------- Net premiums from insurance contracts 1,060 872 -------- -------- Net premiums from insurance contracts increased 22% (Â£188m) to Â£1,060m (2005: Â£872m). The inclusion of Absa contributed net premiums from insurance contracts of Â£240m (2005(1): Â£98m). Group net premiums from insurance contracts excluding Absa increased 6% reflecting growth in UK consumer lending. Other income 2006 2005 Â£m Â£m Increase in fair value of assets held in respect of linked liabilities to customers under investment contracts 7,417 9,234 Increase in liabilities to customers under investment contracts (7,417) (9,234) Property rentals 55 54 Other 159 93 -------- -------- Other income 214 147 -------- -------- Certain asset management products offered to institutional clients by Barclays Global Investors are recognised as investment contracts. Accordingly the invested assets and the related liabilities to investors are held at fair value and changes in those fair values are reported within Other income. Net claims and benefits paid on insurance contracts 2006 2005 Â£m Â£m Gross claims and benefits paid on insurance contracts 588 694 Reinsurers' share of claims paid (13) (49) -------- -------- Net claims and benefits paid on insurance contracts 575 645 -------- -------- Net claims and benefits paid on insurance contracts decreased 11% (Â£70m) to Â£575m (2005: Â£645m). The inclusion of Absa contributed net claims and benefits of Â£106m (2005(1): Â£44m). Net claims and benefits paid on insurance contracts excluding Absa decreased 22%, principally reflecting lower investment income and consequent claims and benefits in Barclays Wealth-closed life assurance activities. (1) For 2005, this reflects the period from 27th July until 31st December 2005. Impairment charges 2006 2005 Impairment charges on loans and advances Â£m Â£m -New and increased impairment allowances 2,722 2,129 -Releases (389) (333) -Recoveries (259) (222) -------- -------- Impairment charges on loans and advances (see note 5) 2,074 1,574 Other credit provisions Credits for the year in respect of provision for undrawn contractually committed facilities and guarantees provided (6) (7) -------- -------- Impairment charges on loans and advances and other credit provisions 2,068 1,567 Impairment charges on available for sale assets 86 4 -------- -------- Total impairment charges 2,154 1,571 -------- -------- Total impairment charges increased 37% (Â£583m) to Â£2,154m (2005: Â£1,571m). Impairment charges on loans and advances and other credit provisions Impairment charges on loans and advances and other credit provisions increased 32% (Â£501m) to Â£2,068m (2005: Â£1,567m). Excluding Absa, the increase was 26% (Â£395m) and largely reflected the continued challenging credit environment in UK unsecured retail lending through 2006. The wholesale and corporate sectors remained stable with a low level of defaults. The Group impairment charges on loans and advances and other credit provisions as a percentage of year-end total loans and advances of Â£316,561m (2005: Â£303,451m) increased to 0.65% (2005: 0.52%). Retail impairment charges on loans and advances and other credit provisions increased to Â£1,809m (2005: Â£1,254m), including Â£99m (2005(1): Â£10m) in respect of Absa. Retail impairment charges on loans and advances amounted to 1.30% (2005(2): 0.93%) as a percentage of year-end total loans and advances of Â£139,350m (2005(2): Â£134,420m), including balances in Absa of Â£20,090m (2005: Â£20,836m). In the UK retail businesses, household cashflows remained under pressure leading to a deterioration in consumer credit quality. High debt levels and changing social attitudes to bankruptcy and debt default contributed to higher levels of insolvency and increased impairment charges. In UK cards and unsecured consumer lending, the flows of new delinquencies and the levels of arrears balances declined in the second half of 2006, reflecting more selective customer recruitment, limit management and improved collections. In UK Home Finance, delinquencies were flat and amounts charged-off remained low. The weaker external environment led to increased credit delinquency in Local Business, where there were both higher balances on caution status and higher flows into delinquency, which both stabilised towards the year-end. (1) For 2005, this reflects the period from 27th July until 31st December 2005. (2) Prior year analysis of loans and advances to customers between retail business and wholesale and corporate business has been reclassified to reflect enhanced methodology implemented in the current year (see page 78). In the wholesale and corporate businesses, impairment charges on loans and advances and other credit provisions decreased to Â£259m (2005: Â£313m), including Â£27m (2005(1): Â£10m) in respect of Absa. The fall was due mainly to recoveries in Barclays Capital as a result of the benign wholesale credit environment. This was partially offset by an increase in UK Business Banking, reflecting higher charges in Medium Business and growth in lending balances. The wholesale and corporate impairment charge was 0.15% (2005(2): 0.19%) as a percentage of year-end total loans and advances to banks and to customers of Â£177,211m (2005(2): Â£169,031m), including balances in Absa of Â£9,299m (2005: Â£9,731m). In Absa impairment charges increased to Â£126m (2005(1): Â£20m) reflecting a full year of business and normalisation of credit conditions in South Africa following a period of low interest rates. Impairment on available for sale assets The total impairment charges in Barclays Capital included losses of Â£83m (2005: Â£nil) on an available for sale portfolio where an intention to sell caused the losses to be viewed as other than temporary in nature. These losses in 2006 were primarily due to interest rate movements, rather than credit deterioration, with a corresponding gain arising on offsetting derivatives recognised in net trading income. (1) For 2005, this reflects the period from 27th July until 31st December 2005. (2) Prior year analysis of loans and advances to customers between retail business and wholesale and corporate business has been reclassified to reflect enhanced methodology implemented in the current year (see page 78). Operating expenses 2006 2005 Â£m Â£m Staff costs (refer to page 54) 8,169 6,318 Administrative expenses 3,980 3,443 Depreciation 455 362 Impairment loss -property and equipment 14 - -intangible assets 7 9 Operating lease rentals 345 316 Gain on property disposals (432) - Amortisation of intangible assets 136 79 -------- -------- Operating expenses 12,674 10,527 -------- -------- Operating expenses increased 20% (Â£2,147m) to Â£12,674m (2005: Â£10,527m). The inclusion of Absa contributed operating expenses of Â£1,496m (2005(1): Â£664m). Group operating expenses excluding Absa grew 13%, reflecting a higher level of business activity and an increase in performance related pay. Administrative expenses increased 16% (Â£537m) to Â£3,980m (2005: Â£3,443m). The inclusion of Absa contributed administrative expenses of Â£579m (2005(1): Â£257m). Group administrative expenses excluding Absa grew 7% principally as a result of higher business activity in UK Banking and Barclays Capital. Operating lease rentals increased 9% (Â£29m) to Â£345m (2005: Â£316m). The inclusion of Absa contributed operating lease rentals of Â£73m (2005(1): Â£27m), which more than offset the absence of double occupancy costs incurred in 2005, associated with the head office relocation to Canary Wharf. Operating expenses were reduced by gains from the sale of property of Â£432m (2005: Â£nil) as the Group took advantage of historically low yields on property to realise gains on some of its freehold portfolio. Amortisation of intangible assets increased 72% (Â£57m) to Â£136m (2005: Â£79m) primarily reflecting the inclusion of Absa for the full year. The Group cost:income ratio improved to 59% (2005: 61%). This reflected improved productivity. The Group cost:net income ratio was 65% (2005: 67%). (1) For 2005 this reflects the period from 27th July until 31st December 2005. Staff costs 2006 2005 Â£m Â£m Salaries and accrued incentive payments 6,635 5,036 Social security costs 502 412 Pension costs - defined contribution plans 128 76 - defined benefit plans 282 271 Other post retirement benefits 30 27 Other 592 496 -------- -------- Staff costs 8,169 6,318 -------- -------- Staff costs increased 29% (Â£1,851m) to Â£8,169m (2005: Â£6,318m). The inclusion of Absa contributed staff costs of Â£694m (2005(1): Â£296m). Group staff costs excluding Absa rose 24%. Salaries and accrued incentive payments rose 32% (Â£1,599m) to Â£6,635m (2005: Â£5,036m), principally due to increased performance related payments and the full year inclusion of Absa. The inclusion of Absa contributed salaries and incentive payments of Â£615m (2005(1): Â£276m). Group salaries and accrued incentive payments excluding Absa rose 26%. (1) For 2005, this reflects the period from 27th July until 31st December 2005. Staff numbers Staff numbers: 2006 2005 UK Banking 41,100 39,800 -------- -------- UK Retail Banking 33,000 32,000 UK Business Banking 8,100 7,800 -------- -------- Barclaycard 8,600 7,800 International Retail and Commercial Banking 48,000 45,400 -------- -------- International Retail and Commercial Banking-ex Absa 14,100 12,700 International Retail and Commercial Banking-Absa 33,900 32,700 -------- -------- Barclays Capital 13,200 9,900 Barclays Global Investors 2,700 2,300 Barclays Wealth 7,800 7,200 Head office functions and other operations 1,200 900 -------- -------- Total Group permanent and fixed term contract staff worldwide 122,600 113,300 Agency staff worldwide 9,100 7,000 -------- -------- Total including agency staff 131,700 120,300 -------- -------- Staff numbers are shown on a full-time equivalent basis. Total Group permanent and contract staff comprised 62,400 (31st December 2005: 59,100) in the UK and 60,200 (31st December 2005: 54,200) internationally. UK Banking staff numbers increased 1,300 to 41,100 (31st December 2005: 39,800), primarily reflecting the inclusion in UK Retail Banking of mortgage processing staff involved in activities previously outsourced. Barclaycard staff numbers rose 800 to 8,600 (31st December 2005: 7,800), reflecting growth of 400 in Barclaycard US and increases in operations and customer facing staff in the UK. International Retail and Commercial Banking increased staff numbers 2,600 to 48,000 (31st December 2005: 45,400). International Retail and Commercial Banking-excluding Absa increased staff numbers by 1,400 to 14,100 (31st December 2005: 12,700), mainly due to growth in continental Europe and Africa. International Retail and Commercial Banking-Absa increased staff numbers by 1,200 to 33,900 (31st December 2005: 32,700), reflecting continued growth in the business. Barclays Capital staff numbers increased 3,300 during 2006 to 13,200 (31st December 2005: 9,900) and included 1,300 from the acquisition of HomEq. Organic growth was broadly based across all regions and reflected further investments in the front office, systems development and control functions to support continued business expansion. Barclays Global Investors increased staff numbers 400 to 2,700 (31st December 2005: 2,300) spread across regions, product groups and support functions, reflecting continued investment to support strategic initiatives. Barclays Wealth staff numbers rose 600 to 7,800 (31st December 2005: 7,200) to support the continued expansion of the business, including increased hiring of client facing staff. Head office functions and other operations staff numbers grew 300 to 1,200 (31st December 2005: 900) primarily reflecting the centralisation of functional activity and the increased regulatory environment and audit demands as a result of the expansion of business areas. Agency staff numbers rose 2,100 to 9,100 (31st December 2005: 7,000), largely due to an increase in temporary staff at Absa. Share of post-tax results of associates and joint ventures 2006 2005 Â£m Â£m Profit from associates 53 53 Loss from joint ventures (7) (8) -------- -------- Share of post-tax results of associates and joint ventures 46 45 -------- -------- The share of post-tax results of associates and joint ventures increased 2% (Â£1m) to Â£46m (2005: Â£45m). Of the Â£46m share of post-tax results of associates and joint ventures, FirstCaribbean International Bank contributed Â£41m (2005: Â£37m). Profit on disposal of subsidiaries, associates and joint ventures 2006 2005 Â£m Â£m Profit on disposal of subsidiaries, associates and joint ventures 323 - -------- -------- The profit on disposal of subsidiaries, associates and joint ventures includes Â£247m profit on disposal of FirstCaribbean International Bank and Â£76m from the sale of interests in vehicle leasing and vendor finance businesses. Tax The charge for the period is based upon a UK corporation tax rate of 30% for the calendar year 2006 (2005: 30%). The effective rate of tax for 2006, based on profit before tax, was 27.2% (2005: 27.3%). The effective tax rate differs from 30% as it takes account of the different tax rates which are applied to the profits earned outside the UK, disallowable expenditure, certain non-taxable gains and adjustments to prior year tax provisions. The effective tax rate for 2006 is consistent with the prior period. The tax charge for the year includes Â£1,234m (2005: Â£961m) arising in the UK and Â£707m (2005: Â£478m) arising overseas. The profit on disposal of subsidiaries, associates and joint ventures of Â£323m was substantially offset by losses or exemptions. The effective tax rate on profit before business disposals was 28.5%. Profit attributable to minority interests 2006 2005 Â£m Â£m Absa Group Limited 262 116 Preference shares 175 113 Reserve capital instruments 92 93 Upper tier 2 instruments 15 11 Barclays Global Investors minority interests 47 41 Other minority interests 33 20 -------- -------- Profit attributable to minority interests 624 394 -------- -------- Profit attributable to minority interests increased Â£230m to Â£624m (2005: Â£394m) largely reflecting the full year inclusion of Absa. Earnings per share 2006 2005 Profit attributable to equity holders of the parent Â£4,571m Â£3,447m Dilutive impact of convertible options (Â£30m) (Â£38m) -------- -------- Profit attributable to equity holders of the parent including dilutive impact of convertible options Â£4,541m Â£3,409m Basic weighted average number of shares in issue 6,357m 6,337m Number of potential ordinary shares(1) 150m 149m -------- -------- Diluted weighted average number of shares 6,507m 6,486m -------- -------- Basic earnings per ordinary share 71.9p 54.4p Diluted earnings per ordinary share 69.8p 52.6p The calculation of basic earnings per share is based on the profit attributable to equity holders of the parent and the weighted average number of shares excluding own shares held in employee benefit trusts, currently not vested and shares held for trading. When calculating the diluted earnings per share, the profit attributable to equity holders of the parent is adjusted for the conversion of outstanding options into shares within Absa Group Limited and Barclays Global Investors UK Holdings Limited. The weighted average number of ordinary shares excluding own shares held in employee benefit trusts currently not vested and shares held for trading, is adjusted for the effects of all dilutive potential ordinary shares, totalling 150 million (2005: 149 million). (1) Potential ordinary shares reflect the dilutive impact of share options outstanding. Dividends on ordinary shares The Board has decided to pay, on 27th April 2007, a final dividend for the year ended 31st December 2006 of 20.5p per ordinary share for shares registered in the books of the Company at the close of business on 9th March 2007. The interim dividend of 10.5p per ordinary share for the year ended 31st December 2006 was paid on 2nd October 2006. 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 2006-2007 UK tax year in mid-October 2007. The amount payable for the 2006 final dividend is Â£1,307m (2005: Â£1,105m). This amount excludes Â£33m payable on own shares held by employee benefit trusts (2005: Â£25m). For qualifying US and Canadian resident ADR holders, the final dividend of 20.5p per ordinary share becomes 82.0p per ADS (representing four shares). The ADR depositary will mail the dividend on 27th April 2007 to ADR holders on the record on 9th March 2007. For qualifying Japanese shareholders, the final dividend of 20.5p per ordinary share will be distributed in mid-May to shareholders on the record on 9th March 2007. 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 neither live in nor 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, Share Dividend Team, The Causeway, Worthing, West Sussex, BN99 6DA; or, by telephoning 0870 609 4535. The completed form should be returned to The Plan Administrator on or before 4th April 2007 for it to be effective in time for the payment of the final dividend on 27th April 2007. 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. Analysis of amounts included in the balance sheet Capital resources 2006 2005 Â£m Â£m Shareholders' equity excluding minority interests 19,799 17,426 -------- -------- Preference shares 3,414 2,977 Reserve capital instruments 1,906 1,868 Upper tier 2 instruments 586 581 Absa minority interests 1,451 1,351 Other minority interests 234 227 -------- -------- Minority interests 7,591 7,004 -------- -------- Total shareholders' equity 27,390 24,430 Subordinated liabilities 13,786 12,463 -------- -------- Total capital resources 41,176 36,893 -------- -------- The authorised share capital of Barclays PLC was Â£2,500m (2005: Â£2,500m) comprising 9,996 million (2005: 9,996 million) ordinary shares of 25p each and 1 million (2005: 1 million) staff shares of Â£1 each. Called up share capital comprises 6,535 million (2005: 6,490 million) ordinary shares of 25p each and 1 million (2005: 1 million) staff shares of Â£1 each. Total capital resources increased Â£4,283m to Â£41,176m since 31st December 2005. Shareholders' equity, excluding minority interests, increased Â£2,373m since 31st December 2005. The increase reflected profits attributable to equity holders of the parent of Â£4,571m, increases in share capital and share premium of Â£179m and other increases in retained reserves of Â£412m. Offsetting these movements were dividends paid of Â£1,771m, decreases in the available for sale and cash flow hedging reserves of Â£93m and Â£300m respectively, a Â£594m decrease in the currency translation reserve and a Â£31m decrease due to changes in treasury and Employee Share Ownership Plan shares. Subordinated liabilities increased Â£1,323m since 31st December 2005. The increase reflects capital raisings of Â£2,493m and interest charges of Â£11m; offset by exchange rate movements of Â£575m, redemptions of Â£366m, fair value adjustments of Â£214m and amortisation of issue expenses of Â£26m. Minority interests increased Â£587m since 31st December 2005. The increase primarily reflected the issue by Barclays Bank PLC, during April 2006, of 30,000,000 preference shares of US$25 each (US$750m; Â£419m) with a 6.625% dividend. In addition, during April 2006, Absa issued 3,000,000 preference shares of R1,000 per share (Â£218m). Capital ratios Risk weighted assets and capital resources, as defined for supervisory purposes by the Financial Services Authority, comprised: Risk weighted assets: 2006 2005 Banking book Â£m Â£m On-balance sheet 197,979 180,808 Off-balance sheet 33,821 31,351 Associated undertakings and joint ventures 2,072 3,914 -------- -------- Total banking book 233,872 216,073 -------- -------- Trading book Market risks 30,291 23,216 Counterparty and settlement risks 33,670 29,859 -------- -------- Total trading book 63,961 53,075 -------- -------- Total risk weighted assets 297,833 269,148 -------- -------- Capital resources: Tier 1 Called up share capital 1,634 1,623 Eligible reserves 19,608 16,837 Minority interests(1) 7,899 6,634 Tier one notes(2) 909 981 Less: intangible assets (7,045) (7,180) -------- -------- Total qualifying tier 1 capital 23,005 18,895 -------- -------- Tier 2 Revaluation reserves 25 25 Available for sale-equity gains 221 223 Collectively assessed impairment allowances 2,556 2,306 Minority Interests 451 515 Qualifying subordinated liabilities(3) Undated loan capital 3,180 3,212 Dated loan capital 7,603 7,069 -------- -------- Total qualifying tier 2 capital 14,036 13,350 -------- -------- Less: Supervisory deductions: Investments not consolidated for supervisory purposes (982) (782) Other deductions (1,348) (961) -------- -------- (2,330) (1,743) -------- -------- Total net capital resources 34,711 30,502 -------- -------- Tier 1 ratio 7.7% 7.0% Risk asset ratio 11.7% 11.3% (1) Included reserve capital instruments of Â£2,765m (31st December 2005: Â£1,735m). Minority interests included issues of Â£500m and US$1,350m, reserve capital instruments which are eligible for inclusion in tier 1 capital made during 2006. These issues are classified within subordinated liabilities on the balance sheet. (2) Tier 1 notes are included in subordinated liabilities in the consolidated balance sheet. (3) Subordinated liabilities included in tier 2 Capital are subject to limits laid down in the supervisory requirements. At 31st December 2006, the tier 1 Capital ratio was 7.7% and the Risk asset ratio was 11.7%. From 31st December 2005, total net capital resources rose Â£4.2bn and risk weighted assets increased Â£28.7bn. Tier 1 capital rose Â£4.1bn, including Â£2.8bn arising from profits attributable to equity shareholders net of dividends paid. Minority interests within tier 1 capital increased Â£1.3bn primarily due to the issuance of Â£1.2bn of Reserve Capital Instruments and Â£0.7bn of preference shares partially offset by a decrease in regulatory associates of Â£0.4bn driven by the sale of FirstCaribbean and exchange rate movements of Â£0.5bn. Tier 2 capital increased Â£0.7bn mainly as a result of the issuance of Â£1.5bn of loan capital partially offset by exchange rate movements of Â£0.6bn and redemptions of Â£0.4bn. The weakening of the Rand against Sterling had a positive impact on capital ratios in 2006. Reconciliation of regulatory capital Capital is defined differently for accounting and regulatory purposes. A reconciliation of shareholders' equity for accounting purposes to called up share capital and eligible reserves for regulatory purposes, is set out below: 2006 2005 Â£m Â£m Shareholders' equity excluding minority interests 19,799 17,426 Available for sale reserve (132) (225) Cash flow hedging reserve 230 (70) Retained earnings Defined benefit pension scheme 1,165 1,215 Additional companies in regulatory consolidation and non-consolidated companies (498) (145) Foreign exchange on RCIs and upper tier 2 loan stock 504 289 Other adjustments 174 (30) -------- -------- Called up share capital and eligible reserves for regulatory purposes 21,242 18,460 -------- -------- Total assets and risk weighted assets Total assets increased 8% to Â£996.8bn (2005: Â£924.4bn). Risk weighted assets increased 11% to Â£297.8bn (31st December 2005: Â£269.1bn). Loans and advances to customers that have been securitised increased Â£5.8bn to Â£24.4bn (31st December 2005: Â£18.6bn). The increase in risk weighted assets since 2005 reflected a rise of Â£18.1bn in the banking book and a rise of Â£10.9bn in the trading book. UK Retail Banking total assets increased 5% to Â£74.0bn (31st December 2005: Â£70.4bn). This was mainly attributable to growth in mortgage balances. Risk weighted assets increased 6% to Â£34.9bn (31st December 2005: Â£32.8bn) also primarily reflecting the growth in mortgage balances. UK Business Banking total assets increased 10% to Â£65.9bn (31st December 2005: Â£59.9bn) reflecting good growth across short, medium and long term lending products. Risk weighted assets increased 6% to Â£50.0bn (31st December 2005: Â£47.1bn), reflecting asset growth and increased regulatory netting. Barclaycard total assets increased 7% to Â£27.6bn (31st December 2005: Â£25.8bn) driven by growth in lending balances in the international businesses and FirstPlus. Risk weighted assets increased 16% to Â£25.2bn (31st December 2005: Â£21.8bn), primarily reflecting the increase in total assets and lower securitised balances. International Retail and Commercial Banking-excluding Absa total assets increased 13% to Â£38.5bn (31st December 2005: Â£34.2bn) mainly reflecting increases in mortgage and other lending. Risk weighted assets remained flat at Â£20.3bn (31st December 2005: Â£20.4bn), with balance sheet growth offset by the sale of FirstCaribbean International Bank. International Retail and Commercial Banking-Absa total assets increased 3% to Â£30.4bn (31st December 2005: Â£29.4bn). Risk weighted assets remained flat at Â£20.7bn (31st December 2005: Â£20.8bn). This reflected very strong growth in Rand terms offset by a 21% decline in the value of the Rand. In Rand terms assets grew 31% to R417bn (31st December 2005: R319bn) and risk weighted assets grew 25% to R284bn (31st December 2005: R227bn) due to strong growth in mortgage lending along with growth in corporate lending. Barclays Capital total assets increased 9% to Â£657.9bn (31st December 2005: Â£601.2bn). This reflected continued expansion of the business with growth in reverse repurchase agreements, debt securities and traded equity securities. Risk weighted assets increased 18% to Â£137.6bn (31st December 2005: Â£116.7bn) in line with risk, driven by the growth in equity derivatives, credit derivatives and fixed income. Barclays Global Investors total assets remained flat at Â£80.5bn (31st December 2005: Â£80.9bn). The majority of total assets relates to asset management products with equal and offsetting balances reflected within liabilities to customers. Risk weighted assets decreased 7% to Â£1.4bn (31st December 2005: Â£1.5bn). Barclays Wealth total assets increased 20% to Â£7.3bn (31st December 2005: Â£6.1bn) reflecting strong growth in lending to high net worth, affluent and intermediary clients. Risk weighted assets increased 39% to Â£5.7bn (31st December 2005: Â£4.1bn) above the rate of balance sheet growth driven by changes in the mix of lending and growth in guarantees. Head office functions and other operations total assets decreased 24% to Â£7.1bn (31st December 2005: Â£9.3bn). Risk weighted assets decreased 53% to Â£1.9bn (31st December 2005: Â£4.0bn). Economic capital Barclays assesses capital requirements by measuring the Group risk profile using both internally and externally developed models. The Group assigns economic capital primarily within seven risk categories: Credit Risk, Market Risk, Business Risk, Operational Risk, Insurance Risk, Fixed Assets and Private Equity. The Group regularly enhances its economic capital methodology and benchmarks outputs to external reference points. The framework has been enhanced to reflect default probabilities during average credit conditions, rather than those prevailing at the balance sheet date, thus seeking to remove cyclicality from the economic capital calculation. The framework also adjusts economic capital to reflect time horizon, correlation of risks and risk concentrations. Economic capital is allocated on a consistent basis across all of Barclays businesses and risk activities. A single cost of equity is applied to calculate the cost of risk. Economic capital allocations reflect varying levels of risk. The total average economic capital required by the Group, as determined by risk assessment models and after considering the Group's estimated portfolio effects, is compared with the supply of economic capital to evaluate economic capital utilisation. Supply of economic capital is calculated as the average available shareholders' equity after adjustment and including preference shares. The economic capital methodology will form the basis of the Group's submission for the Basel II Internal Capital Adequacy Assessment Process (ICAAP). Economic capital demand(1) 2006 2005 Â£m Â£m UK Banking 5,100 4,950 -------- -------- UK Retail Banking 2,400 2,350 UK Business Banking 2,700 2,600 -------- -------- Barclaycard 2,850 2,800 International Retail and Commercial Banking 1,950 1,450 -------- -------- International Retail and Commercial Banking-ex Absa 1,200 1,150 International Retail and Commercial Banking-Absa(2) 750 300 -------- -------- Barclays Capital 3,750 2,900 Barclays Global Investors 150 150 Barclays Wealth 350 400 Barclays Wealth-closed life assurance activities 50 50 Head office functions and other operations(3) 300 300 -------- -------- Business unit economic capital 14,500 13,000 Capital held at Group centre(4) 1,450 1,050 -------- -------- Economic capital requirement (excluding goodwill) 15,950 14,050 Average historic goodwill and intangible assets(5) 7,750 6,450 -------- -------- Total economic capital requirement(6) 23,700 20,500 -------- -------- UK Retail Banking economic capital allocation increased Â£50m to Â£2,400m (2005: Â£2,350m), reflecting exposure growth in the portfolio. UK Business Banking economic capital allocation increased Â£100m to Â£2,700m (2005: Â£2,600m) as a consequence of asset growth offset by changes to estimates of risk correlation. Barclaycard economic capital allocation increased Â£50m to Â£2,850m (2005: Â£2,800m). Exposure growth, primarily in the international cards and secured loans portfolio, was partially offset by risk transfer activity, the decline in UK Card balances and the transition to reflect default probability methodology which is based on average credit conditions rather than those prevailing at the balance sheet date. International Retail and Commercial Banking excluding Absa economic capital allocation increased Â£50m to Â£1,200m (2005: Â£1,150m). This was due to lending growth primarily in Africa and Iberia. International Retail and Commercial Banking-Absa economic capital allocation (excluding the risk borne by the minority interest) increased Â£450m to Â£750m (2005: Â£300m), reflecting loan growth and the inclusion of Absa(2) for a full year. Barclays Capital economic capital increased Â£850m to Â£3,750m (2005: Â£2,900m) due to growth in equity investments, market, business and operational risk and changes in the sector mix of the corporate lending portfolio. The growth also reflects holding the Absa Capital portfolio for the full year. Barclays Wealth economic capital allocation decreased Â£50m to Â£350m (2005: Â£400m) due to changes to estimates of risk correlation on average economic capital. Capital held at the Group centre increased Â£400m to Â£1,450m (2005: Â£1,050m). Demand for economic capital in the businesses was more than offset by growth in the funds available to support economic capital (see Economic capital supply on page 65). (1) Calculated using a five point average over the year and rounded to the nearest Â£50m for presentation purposes. (2) For 2005 average economic capital demand for Absa related to 5 months. (3) Includes Transition Businesses and capital for central functional risks. (4) The Group's practice is to maintain an appropriate level of excess capital, held at Group centre, which is not allocated to business units. This variance arises as a result of capital management timing and includes capital held to cover pension contribution risk. (5) Average goodwill relates to purchased goodwill and intangible assets from business acquisitions. Absa goodwill is included for 5 months of the second-half of 2005. As at 31st December 2006 Absa goodwill and intangibles amounted to Â£1,500m (31st December 2005: Â£1,800m) and total goodwill and intangibles was Â£7,900m (31st December 2005: Â£7,900m). (6) Total economic capital requirement as at 31st December 2006 stood at Â£25,150m (31st December 2005: Â£21,850m). Economic capital supply The capital resources to support economic capital comprise adjusted shareholders' equity including preference shares but excluding other minority interests. Preference shares have been issued to optimise the long-term capital base of the group. The capital resources to support economic capital are impacted by a number of factors arising from the application of IFRS and are modified in calculating available funds for economic capital. This applies specifically to: â€¢ Cash flow hedging reserve-to the extent that the Group undertakes the hedging of future cash flows, shareholders' equity will include gains and losses which will be offset against the gain or loss on the hedged item when it is recognised in the income statement at the conclusion of the future hedged transaction. Given the future offset of such gains and losses, they are excluded from shareholders' equity when calculating economic capital. â€¢ Available for sale reserve-unrealised gains and losses on such securities are included in shareholders' equity until disposal or impairment. Such gains and losses are excluded from shareholders' equity for the purposes of calculating economic capital. Realised gains and losses, foreign exchange translation differences and any impairment charges recorded in the income statement will impact economic profit. â€¢ Retirement benefits liability-the Group has recorded a deficit with a consequent reduction in shareholders' equity. This represents a non-cash reduction in shareholders' equity. For the purposes of calculating economic capital, the Group does not deduct the pension deficit from shareholders' equity. The average supply of capital to support the economic capital framework is set out below(1): 2006 2005 Â£m Â£m Shareholders' equity excluding minority interests less goodwill(2) 11,400 10,850 Retirement benefits liability 1,300 1,350 Cash flow hedging reserve 100 (250) Available for sale reserve (50) (250) Preference shares 3,200 2,350 -------- -------- Available funds for economic capital excluding goodwill 15,950 14,050 Average historic goodwill and intangible assets(2) 7,750 6,450 -------- -------- Available funds for economic capital(3) 23,700 20,500 -------- -------- (1) Averages for the period will not correspond to period-end balances disclosed in the balance sheet. Numbers are rounded to the nearest Â£50m for presentational purposes only. (2) Average goodwill relates to purchased goodwill and intangible assets from business acquisitions. (3) Available funds for economic capital as at 31st December 2006 stood at Â£25,150m (31st December 2005: Â£21,850m). Economic profit Economic profit comprises: â€¢ Profit after tax and minority interests; less â€¢ Capital charge (average shareholders' equity excluding minority interests multiplied by the Group cost of capital). The Group cost of capital has been applied at a uniform rate of 9.5%(1). The costs of servicing preference shares are included in minority interests. The economic profit performance in 2006 and 2005 is shown below: 2006 2005 Â£m Â£m Profit after tax and minority interests 4,571 3,447 Addback of amortisation charged on acquired intangible assets(2) 83 29 -------- -------- Profit for economic profit purposes 4,654 3,476 -------- -------- Average shareholders' equity excluding minority interests(3),(4) 11,400 10,850 Adjust for unrealised loss/(gains) on cash flow hedge reserve(4) 100 (250) Adjust for unrealised gains on available for sale financial instruments(4) (50) (250) Add: retirements benefits liability 1,300 1,350 Goodwill and intangible assets arising on acquisitions(4),(5) 7,750 6,450 -------- -------- Average shareholders' equity for economic profit purposes(3),(4) 20,500 18,150 -------- -------- Capital charge at 9.5% (1,950) (1,724) -------- -------- Economic profit 2,704 1,752 -------- -------- (1) The Board has determined the Group's cost of capital is to be unchanged for 2007 at 9.5%. (2) Amortisation charged for purchased intangibles, adjusted for tax and minority interests. (3) Average ordinary shareholders' equity for Group economic profit calculation is the sum of adjusted equity and reserves plus goodwill and intangible assets arising on acquisition, but excludes preference shares. (4) Averages for the period will not correspond exactly to period end balances disclosed in the balance sheet. Numbers are rounded to the nearest Â£50m for presentation purposes only. (5) Absa goodwill is included for 5 months of 2005. As at 31st December 2006 Absa goodwill and intangibles amounted to Â£1,500m (31st December 2005: Â£1,800m). Economic profit generated by business 2006 2005 Â£m Â£m UK Banking 1,431 1,130 -------- -------- UK Retail Banking 693 586 UK Business Banking 738 544 -------- -------- Barclaycard - 183 International Retail and Commercial Banking 530 205 -------- -------- International Retail and Commercial Banking-ex Absa 346 115 International Retail and Commercial Banking-Absa(1) 184 90 -------- -------- Barclays Capital 1,181 706 Barclays Global Investors 376 299 Barclays Wealth 144 109 Barclays Wealth-closed life assurance activities (18) (7) Head office functions and other operations (315) (340) -------- -------- 3,329 2,285 Historic goodwill and intangibles arising on acquisition (739) (615) Variance to average shareholders' funds (excluding minority interest) 114 82 -------- -------- Economic profit 2,704 1,752 -------- -------- Economic profit for the Group increased 54% (Â£952m) to Â£2,704m (2005: Â£1,752m). The rise in economic profit was greater than the increase in both profit before tax and earnings per share. This was due to the more efficient use of capital across the Group and the gains from business disposals partially offset by the increased share of minority interests. UK Retail Banking economic profit increased 18% (Â£107m) to Â£693m (2005: Â£586m) due to a 17% increase in profit before tax which was partly offset by a 2% increase in the economic capital charge reflecting exposure growth in the portfolio. UK Business Banking economic profit increased 36% (Â£194m) to Â£738m (2005: Â£544m) due to an 18% increase in profit before tax which was partly offset by a 3% increase in the economic capital charge arising from the impact of asset growth offset by changes to estimates of risk correlation and profits on business disposals not carrying a tax charge. Barclaycard economic profit decreased Â£183m to Â£nil (2005: Â£183m), due to a 40% decrease in profit before tax and a 2% increase in the economic capital charge. The economic capital charge increase arose primarily through growth in the international cards and the secured loans portfolio which was offset by risk transfer activity, the decline in UK card balances and the transition to reflect default probability methodology, which is based on average credit conditions rather than those prevailing at the balance sheet date. International Retail and Commercial Banking - excluding Absa economic profit increased 201% (Â£231m) to Â£346m (2005: Â£115m), due to a 71% increase in profit before tax, including profit on business disposals of Â£247m substantially covered by tax losses offset by an increase in the economic capital charge of 3%. The increase in economic capital charge reflects the impact of portfolio growth in Africa and Iberia. International Retail and Commercial Banking - Absa economic profit increased 104% (Â£94m) reflecting a full year of ownership. Barclays Capital economic profit increased 67% (Â£475m) to Â£1,181m (2005: Â£706m), due to a 55% increase in profit before tax offset by a 32% increase in the economic capital charge. The increased economic capital charge is due to growth in equity investments, market, business and operational risk and changes in the sector mix of the corporate lending portfolio. The growth also reflects holding the Absa Capital portfolio for a full year. Barclays Wealth economic profit increased 32% (Â£35m) to Â£144m (2005: Â£109m), due to a 28% increase in profit before tax and a decrease in the economic capital charge of 4%, reflecting the benefit of changes to estimates of risk correlation methodology on average economic capital. Group performance management Performance relative to the 2004 to 2007 goal period Barclays will continue to use goals to drive performance. At the end of 2003, Barclays established a new set of four year performance goals for the period 2004 to 2007 inclusive. The primary goal is to achieve top quartile total shareholder return (TSR) relative to a peer group(1) of financial services companies and is unchanged from the prior goal period. TSR is defined as the value created for shareholders through share price appreciation, plus reinvested dividend payments. The peer group is regularly reviewed to ensure that it remains aligned to our business mix and the direction and scale of our ambition. For the three years from 31st December 2003 to 31st December 2006, Barclays delivered a spot TSR of 66% and was positioned 6th within its peer group, which is second quartile. The TSR of the FTSE 100 Index for this period was 54%. At the time of setting the TSR goal, we estimated that achieving top quartile TSR would require the achievement of compound annual growth in economic profit(2) in the range of 10% to 13% per annum (Â£6.5bn to Â£7.0bn of cumulative economic profit)(3) over the 2004 to 2007 goal period. Economic profit for 2006 was Â£2.7bn, which, added to the Â£3.3bn generated in 2004 and 2005, delivered a cumulative total of Â£6.0bn for the goal period to date. This equates to compound annual growth in economic profit of 28% per annum for the goal period to date. (1) Peer group for 2006 remained unchanged from 2005: ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, JP Morgan Chase, Lloyds TSB, Royal Bank of Scotland and UBS. The peer group for 2007 remains unchanged. (2) Economic profit is defined on page 66. (3) Restated for IFRS. Risk Tendency As part of its credit risk management system, the Group uses a model-based methodology to assess the point-in-time expected loss of credit portfolios across different customer categories. The approach is termed Risk Tendency and applies to credit exposures in both wholesale and retail sectors. Risk Tendency provides statistical estimates of loss levels within a 12 month period based on averages in the ranges of possible losses expected from each of the current portfolios. This can be contrasted with impairment allowances required under accounting standards, which are based on objective evidence of actual impairment as at the balance sheet date. Since Risk Tendency and impairment allowances are calculated for different purposes and on different bases, Risk Tendency does not predict loan impairment. Risk Tendency is provided to present a view of the evolution of the quality and scale of the credit portfolios. 2006 2005 Â£m Â£m UK Banking 515 430 -------- -------- UK Retail Banking 225 180 UK Business Banking 290 250 -------- -------- Barclaycard 1,410 1,100 International Retail and Commercial Banking 220 175 -------- -------- International Retail and Commercial Banking-ex Absa 75 75 International Retail and Commercial Banking-Absa 145 100 -------- -------- Barclays Capital 95 110 Barclays Wealth 10 5 Transition Businesses(1) 10 25 -------- -------- 2,260 1,845 -------- -------- Risk Tendency increased Â£415m to Â£2,260m (2005: Â£1,845m). UK Retail Banking Risk Tendency increased Â£45m to Â£225m (2005: Â£180m) reflecting a methodology enhancement to better reflect expected loss rates in the local business portfolio. The increase in Barclaycard Risk Tendency was Â£310m, the total rising to Â£1,410m (2005: Â£1,100m). This reflected the deterioration in credit conditions in the UK credit card and unsecured loan market as well as loan balance growth. International Retail and Commercial Banking-Absa Risk Tendency increased Â£45m, reflecting balance sheet growth, a normalisation of credit conditions in South Africa and an asset transfer from Absa Capital. Risk Tendency in Barclays Capital fell Â£15m mainly as a result of assets which were transferred to International Retail and Commercial Banking - Absa from Absa Capital. (1) Included within Head office functions and other operations. ADDITIONAL INFORMATION Group reporting changes in 2006 Barclays announced on 16th June 2006 the impact of certain changes in Group structure and reporting on the 2005 results. Barclays realigned a number of reportable business segments based on the reorganisation of certain portfolios better to reflect the type of client served, the nature of the products offered and the associated risks and rewards. The Group's policy for the internal cost of funding and the segmental disclosure of risk weighted assets was also revised with effect from 1st January 2006. The restatements had no impact on the Group Income Statement or Balance Sheet. Group structure changes-effective 1st January 2006 UK Retail Banking comprises Personal Customers, Local Business (formerly Small Business), UK Premier and Home Finance. A number of smaller business clients previously within UK Business Banking are now managed and reported within UK Retail Banking. UK Business Banking comprises Larger Business and Medium Business including Asset and Sales Finance. A number of financial institution, large corporate and property clients previously within UK Business Banking are now managed by and reported in Barclays Capital. A number of smaller business clients previously within UK Business Banking are now managed and reported within UK Retail Banking. Certain portfolios have been reclassified as businesses in transition and are now managed and reported in Head office functions and other operations. International Retail and Commercial Banking-Absa. The majority of Absa Corporate and Merchant Banking has been relaunched as Absa Capital and is being managed and reported in Barclays Capital. Barclays Capital has added a number of financial institutions, large corporates and property company clients previously managed within UK Business Banking and Absa Capital from International Retail and Commercial Banking-Absa. Head office functions and other operations. Certain lending portfolios previously managed within UK Business Banking have been reclassified as businesses in transition. These businesses are now centrally managed with the objective of maximising the recovery from these assets. The structure remains unchanged for: Barclays Global Investors; Barclays Wealth; Barclays Wealth-closed life assurance activities; Barclaycard and International Retail and Commercial Banking excluding-Absa. Changes to internal cost of funding-effective 1st January 2006 All transactions between the businesses are conducted on an arms-length basis. Internal charges and transfer pricing adjustments are reflected in the performance of each business. Head office functions and other operations contains a centralised Treasury function which manages the Group's capital base, generating a net interest income. Previously the net interest income was allocated to the businesses based on the level of economic capital held by each business as a proportion of that held by the Group, which ensured a nil net interest income result in Treasury. The allocation is now determined by applying Treasury's effective rate of return on capital to the average economic capital held by each business. Changes to risk weighted assets by business-effective 1st January 2006 Under the Group's securitisation programme, certain portfolios of loans and advances to customers and other assets subject to securitisation or similar risk transfer are adjusted in calculating the Group's risk weighted assets. With effect from 1st January 2006 the costs associated with each securitisation, which were previously held centrally, have been allocated to the relevant businesses. The regulatory capital adjustments arising from the securitisation programme are attributed to the business which bears the costs. Basis of Preparation There have been no significant changes to the accounting policies described in the 2005 Annual report. Therefore the information in this announcement has been prepared using the accounting policies and presentation applied in 2005. Future accounting developments IFRS 7 ('Financial Instruments Disclosures') and an amendment to IAS 1 ('Presentation of Financial Statements') on capital disclosures were issued by the IASB in August 2005 for application in accounting periods beginning on or after 1st January 2007 and have been adopted by the European Commission. The new or revised disclosures will be adopted by the Group for reporting in 2007. The following International Financial Reporting Interpretations Committee (IFRIC) interpretations issued during 2005 and 2006 which first apply to accounting periods beginning on or after 1st January 2007 are not expected to result in any changes to the Group's accounting policies: â€¢ Interpretation 7-Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies â€¢ Interpretation 8-Scope of IFRS 2 â€¢ Interpretation 9-Reassessment of Embedded Derivatives â€¢ Interpretation 10-Interim Financial Reporting and Impairment Consideration will be given during 2007 to the implications, if any, of the following IFRIC interpretations issued during 2006 which would first apply to the Group accounting period beginning on 1st January 2008: â€¢ IFRIC 11 IFRS 2 - Group and Treasury Share Transactions â€¢ IFRIC 12 Service Concession Arrangements IFRS 8 ('Operating Segments') was issued in November 2006 and would first be required to be applied to the Group accounting period beginning on 1st January 2009. The standard replaces IAS 14 Segmental Reporting and would align operating segmental reporting with segments reported to senior management as well as requiring amendments and additions to the existing segmental reporting disclosures. The Group is considering the advantages that permitted early adoption in 2007 may make to the transparency of the segmental disclosures. Share capital The Group manages its debt and equity capital actively. The Group's authority to buy back ordinary shares (up to 968.6million ordinary shares) was renewed at the 2006 Annual General Meeting. The Group will seek to renew its authority to buy back ordinary shares at the 2007 Annual General Meeting to provide additional flexibility in the management of the Group's capital resources. Group share schemes The independent 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 The results will be furnished as a Form 6-K to the US Securities and Exchange Commission as soon as practicable following the publication of these results. Competition and regulatory matters The scale of regulatory change remains challenging, arising in part from the implementation of some key European Union (EU) directives. Many changes to financial services legislation and regulation have come into force in recent years and further changes will take place in the near future. Concurrently, there is continuing political and regulatory scrutiny of the operation of the retail banking and consumer credit industries in the UK and elsewhere. The nature and impact of future changes in policies and regulatory action are not predictable and beyond the Group's control but could have an impact on the Group's businesses and earnings. In the EU as a whole, there was an inquiry into retail banking in all of the then 25 Member States by the European Commission's Directorate General for Competition. The inquiry looked at retail banking in Europe generally and the Group has fully co-operated with the inquiry. On 31st January 2007 the European Commission announced that the inquiry had identified barriers to competition in certain areas of retail banking, payment cards and payment systems in the EU. The Commission indicated it will use its powers to address these barriers, and will encourage national competition authorities to enforce European and national competition laws where appropriate. Any action taken by the Commission and national competition authorities could have an impact on the payment cards and payment systems businesses of the Group and on its retail banking activities in the EU countries in which it operates. In the UK, in September 2005 the Office of Fair Trading (OFT) received a super-complaint from the Citizens Advice Bureau relating to payment protection insurance (PPI). As a result, the OFT commenced a market study on PPI in April 2006. In October 2006, the OFT announced the outcome of the market study and, following a period of consultation, the OFT referred the PPI market to the UK Competition Commission for an in-depth inquiry on 7th February 2007. This inquiry could last for up to two years. Also in October 2006, the Financial Services Authority (FSA) published the outcome of its broad industry thematic review of PPI sales practices in which it concluded that some firms fail to treat customers fairly. The Group has cooperated fully with these investigations and will continue to do so. In April 2006, the OFT commenced a review of the undertakings given following the conclusion of the Competition Commission Inquiry in 2002 into the supply of banking services to Small and Medium Enterprises (SMEs). The Group is cooperating fully with that review. The OFT has carried out investigations into Visa and MasterCard credit card interchange rates. The decision by the OFT in the MasterCard interchange case was set aside by the Competition Appeals Tribunal in June 2006. The OFT's investigation in the Visa interchange case is at an earlier stage and a second MasterCard interchange case is ongoing. The outcome is not known but these investigations may have an impact on the consumer credit industry in general and therefore on the Group's business in this sector. On 9th February 2007 the OFT announced that it was expanding its investigation into interchange rates to include debit cards. The OFT announced the findings of its investigation into the level of late and over-limit fees on credit cards on 5th April 2006, requiring a response from credit card companies by 31st May 2006. Barclaycard responded by confirming that it would reduce its late and over-limit fees on credit cards. On 7th September 2006, the OFT announced that it had decided to undertake a fact find on the application of its statement on credit card fees to current account unauthorised overdraft fees. The OFT expects this work to take up to six months, at which stage the OFT will consider whether a further detailed investigation into unauthorised overdraft fees is needed. On 26th January 2007 the FSA issued a Statement of Good Practice relating to Mortgage Exit Administration Fees. Barclays will charge the fee applicable at the time the customer took out the mortgage, which is one of the options recommended by the FSA. Acquisitions On 1st November 2006, Barclays Bank PLC acquired the US mortgage servicing business of HomEq Servicing Corporation from Wachovia Corporation. Disposals On 1st January 2006, Barclays completed the sale of the Barclays South African branch business to Absa Group Limited. This consists of the Barclays Capital South African operations and Corporate and Business Banking activities previously carried out by the South African branch of International Retail and Commercial Banking-excluding Absa, together with the associated assets and liabilities. On 25th July 2006, Barclays Asset & Sales Finance (BA&SF) disposed of its interest in its vehicle leasing business, Appleyard Finance Holdings Limited. On 22nd December 2006 Barclays disposed of its interest in FirstCaribbean International Bank to Canadian Imperial Bank of Commerce. On 31st December 2006, BA&SF disposed of its European Vendor Finance business, including Barclays Industrie Bank GmbH and Barclays Technology Finance Ltd, to CIT Group. Recent developments On 20th December 2006, Barclays announced that agreement in principle had been reached for Barclays to acquire 100% of the share capital of Nile Bank in Uganda. Barclays expects the transaction to complete during the first quarter of 2007, subject to finalisation of confirmatory due diligence and documentation and to receipt of regulatory approval. On 19th January 2007, Barclays announced that it had entered into an agreement to purchase EquiFirst Corporation, the non-prime mortgage origination business of Regions Financial Corporation. Completion is expected in the first half of 2007, subject to the receipt of the required licences and applicable regulatory approval. On 8th February 2007, Barclays completed the acquisition of Indexchange Investment AG, Germany's leading provider of exchange traded funds, from Bayerische Hypo-und Vereinsbank. The transaction was announced in November 2006. NOTES 1. Assets held in respect of linked liabilities to customers under investment contracts/liabilities to customers under investment contracts 2006 2005 Â£m Â£m Non-trading financial instruments fair valued through profit and loss held in respect of linked liabilities 82,798 83,193 Cash and bank balances within the funds 1,839 2,008 -------- -------- Assets held in respect of linked liabilities to customers under investment contracts 84,637 85,201 -------- -------- Liabilities to customers under investment contracts (84,637) (85,201) -------- -------- 2. Derivative financial instruments The tables set out below analyse the contract or underlying principal and the fair value of derivative financial instruments held for trading purposes and for the purposes of managing the Group's structural exposures. Derivatives are measured at fair value and the resultant profits and losses from derivatives held for trading purposes are included in net trading income. Where derivatives are held for risk management purposes and when transactions meet the criteria specified in IAS 39, the Group applies hedge accounting as appropriate to the risks being hedged. Contract 2006 notional Fair value amount Assets Liabilities Derivatives designated as held for Â£m Â£m Â£m trading Foreign exchange derivatives 1,500,774 22,026 (21,745) Interest rate derivatives 17,666,353 76,010 (75,854) Credit derivatives 1,224,548 9,275 (8,894) Equity and stock index and commodity derivatives 495,080 29,962 (33,253) -------- -------- -------- Total derivative assets/(liabilities) held for trading 20,886,755 137,273 (139,746) -------- -------- -------- Derivatives designated in hedge accounting relationships Derivatives designated as cash flow hedges 63,895 132 (401) Derivatives designated as fair value hedges 19,489 298 (441) Derivatives designated as hedges of net investments 12,050 650 (109) -------- -------- -------- Total derivative assets/(liabilities) designated in hedge accounting relationships 95,434 1,080 (951) -------- -------- -------- Total recognised derivative assets/(liabilities) 20,982,189 138,353 (140,697) -------- -------- -------- Contract 2005 notional Fair value amount Assets Liabilities Derivatives designated as held Â£m Â£m Â£m for trading Foreign exchange derivatives 1,184,074 18,485 (17,268) Interest rate derivatives 15,374,057 81,028 (79,701) Credit derivatives 609,381 4,172 (4,806) Equity and stock index and commodity derivatives 637,452 32,481 (35,128) -------- -------- -------- Total derivative assets/(liabilities) held for trading 17,804,964 136,166 (136,903) -------- -------- -------- Derivatives designated in hedge accounting relationships Derivatives designated as cash flow hedges 40,080 232 (483) Derivatives designated as fair value hedges 33,479 423 (331) Derivatives designated as hedges of net investments 5,919 2 (254) -------- -------- -------- Total derivative assets/(liabilities) designated in hedge accounting relationships 79,478 657 (1,068) -------- -------- -------- Total recognised derivative assets/(liabilities) 17,884,442 136,823 (137,971) -------- -------- -------- Total derivative notionals have grown over the year primarily due to increases in the volume of fixed income derivatives, reflecting the continued growth in client based activity and increased use of electronic trading platforms in Europe and the US. Credit derivative values have also increased significantly, largely due to growth in the market for these products. 3. Loans and advances to banks 2006 2005 By geographical area Â£m Â£m United Kingdom 6,229 4,624 Other European Union 8,513 5,423 United States 9,056 13,267 Africa 2,219 880 Rest of the World 4,913 6,915 -------- -------- 30,930 31,109 Less: Allowance for impairment (4) (4) -------- -------- Total loans and advances to banks 30,926 31,105 -------- -------- 4. Loans and advances to customers 2006 2005(2) Â£m Â£m Retail business 139,350 134,420 Wholesale and corporate business 146,281 137,922 -------- -------- 285,631 272,342 Less: Allowances for impairment (3,331) (3,446) -------- -------- Total loans and advances to customers 282,300 268,896 -------- -------- By geographical area United Kingdom 170,518 163,759 Other European Union 43,430 38,923 United States 25,677 22,925 Africa 31,691 33,221 Rest of the World 14,315 13,514 -------- -------- 285,631 272,342 Less: Allowance for impairment (3,331) (3,446) -------- -------- Total loans and advances to customers 282,300 268,896 -------- -------- By industry Financial institutions 45,954 43,102 Agriculture, forestry and fishing 3,997 3,785 Manufacturing 15,451 13,779 Construction 4,056 5,020 Property 16,528 16,325 Energy and water 6,810 6,891 Wholesale and retail distribution and leisure 15,490 17,760 Transport 5,586 5,960 Postal and communication 2,180 1,313 Business and other services 29,425 24,247 Home loans(1) 98,172 89,529 Other personal 31,840 35,543 Finance lease receivables 10,142 9,088 -------- -------- 285,631 272,342 Less: Allowance for impairment (3,331) (3,446) -------- -------- Total loans and advances to customers 282,300 268,896 -------- -------- The industry classifications have been prepared at the level of the borrowing entity. This means that a loan to the subsidiary of a major corporation is classified by the industry in which that subsidiary operates even though the parent's predominant business may be a different industry. (1) Excludes commercial property mortgages. (2) Prior year analysis of loans and advances to customers between retail business and wholesale and corporate business has been reclassified to reflect enhanced methodology implemented in the current year. 5. Allowance for impairment on loans and advances 2006 2005 Â£m Â£m At beginning of period 3,450 2,637 Acquisitions and disposals (23) 555 Exchange and other adjustments (153) 125 Unwind of discount (98) (76) Amounts written off (see below) (2,174) (1,587) Recoveries (see below) 259 222 Amounts charged against profit (see below) 2,074 1,574 -------- -------- At end of period 3,335 3,450 -------- -------- Amounts written off United Kingdom (1,746) (1,302) Other European Union (74) (56) United States (46) (143) Africa (264) (81) Rest of the World (44) (5) -------- -------- (2,174) (1,587) -------- -------- Recoveries United Kingdom 178 160 Other European Union 18 13 United States 22 15 Africa 33 16 Rest of the World 8 18 -------- -------- 259 222 -------- -------- Impairment charged against profit: New and increased impairment allowances United Kingdom 2,253 1,763 Other European Union 182 113 United States 60 105 Africa 209 109 Rest of the World 18 39 -------- -------- 2,722 2,129 -------- -------- Less: Releases of impairment allowance United Kingdom (195) (221) Other European Union (72) (25) United States (26) (14) Africa (33) (56) Rest of the World (63) (17) -------- -------- (389) (333) -------- -------- Recoveries (259) (222) -------- -------- Total impairment charges on loans and advances(1) 2,074 1,574 -------- -------- (1) This excludes other credit provisions and impairment on available for sale assets detailed on page 51. 2006 2005 Allowance Â£m Â£m United Kingdom 2,477 2,266 Other European Union 311 284 United States 100 130 Africa 417 647 Rest of the World 30 123 -------- -------- At end of period 3,335 3,450 -------- -------- 6. Potential credit risk loans The following tables present an analysis of potential credit risk loans (non-performing and potential problem loans). Potential credit risk loans 2006 2005 Summary Â£m Â£m Impaired loans(1) 4,444 4,550 Accruing loans which are contractually overdue 90 days or more as to principal or interest 598 609 -------- -------- 5,042 5,159 Restructured loans 46 51 -------- -------- Total non-performing loans 5,088 5,210 Potential problem loans 761 929 -------- -------- Total potential credit risk loans 5,849 6,139 -------- -------- Geographical split Impaired loans(1): United Kingdom 3,340 2,965 Other European Union 410 345 United States 129 230 Africa 535 831 Rest of the World 30 179 -------- -------- Total 4,444 4,550 -------- -------- Accruing loans which are contractually overdue 90 days or more as to principal or interest United Kingdom 516 539 Other European Union 58 53 United States 3 - Africa 21 17 Rest of the World - - -------- -------- Total 598 609 -------- -------- (1) Impaired loans are non-performing loans where, in general, an impairment allowance has been raised. This classification may also include non-performing loans which are fully collateralised or where the indebtedness has already been written down to the expected realisable value. 2006 2005 Restructured loans Â£m Â£m United Kingdom - 5 Other European Union 10 7 United States 22 16 Africa 14 23 Rest of the World - - -------- -------- Total 46 51 -------- -------- Total non-performing loans United Kingdom 3,856 3,509 Other European Union 478 405 United States 154 246 Africa 570 871 Rest of the World 30 179 -------- -------- Total 5,088 5,210 -------- -------- Potential problem loans United Kingdom 465 640 Other European Union 32 26 United States 21 12 Africa 240 248 Rest of the World 3 3 -------- -------- Total 761 929 -------- -------- Total potential credit risk loans United Kingdom 4,321 4,149 Other European Union 510 431 United States 175 258 Africa 810 1,119 Rest of the World 33 182 -------- -------- Total 5,849 6,139 -------- -------- Allowance coverage of non-performing loans % % United Kingdom 64.2 64.6 Other European Union 65.1 70.1 United States 64.9 52.8 Africa 73.2 74.3 Rest of the World 100.0 68.7 -------- -------- Total 65.6 66.2 -------- -------- Allowance coverage of total potential credit risk loans % % United Kingdom 57.3 54.6 Other European Union 61.0 65.9 United States 57.1 50.4 Africa 51.5 57.8 Rest of the World 91.0 67.6 -------- -------- Total 57.0 56.2 -------- -------- 2006 2005(1) Allowance coverage of non-performing loans: % % Retail 65.6 62.3 Wholesale and corporate 65.5 74.2 -------- -------- Total 65.6 66.2 -------- -------- Allowance coverage of total potential credit risk loans: Retail 59.8 57.1 Wholesale and corporate 50.6 54.4 -------- -------- Total 57.0 56.2 -------- -------- Non-performing loans (NPLs) were broadly stable at Â£5,088m (31st December 2005: Â£5,210m). Retail NPLs increased 5% and wholesale and corporate NPLs declined 17%. Potential problem loans (PPLs) decreased 18% to Â£761m (31st December 2005: Â£929m). Retail PPLs increased 8% and wholesale and corporate PPLs declined 32%. Potential Credit Risk Loans (PCRLs) decreased 5% to Â£5,849m (31st December 2005: Â£6,139m). Retail PCRLs increased 5% and wholesale and corporate PCRLs declined 21%. 7. Available for sale financial investments 2006 2005 Â£m Â£m Debt securities 47,910 50,024 Equity securities 1,379 1,258 Treasury bills and other eligible bills 2,420 2,223 -------- -------- 51,709 53,505 Less: Allowance for impairment (6) (8) -------- -------- Available for sale financial investments 51,703 53,497 -------- -------- (1) Prior year analysis of loans and advances to customers between retail business and wholesale and corporate business has been reclassified to reflect enhanced methodology implemented in the current year. 8. Other assets 2006 2005 Â£m Â£m Sundry debtors 4,298 3,569 Prepayments 658 722 Accrued income 722 329 Insurance assets, including unit linked assets 172 114 -------- -------- Other assets 5,850 4,734 -------- -------- 9. Other liabilities 2006 2005 Â£m Â£m Obligations under finance leases payable 92 289 Sundry creditors 4,118 6,131 Accruals and deferred income 6,127 4,711 -------- -------- Other liabilities 10,337 11,131 -------- -------- 10. Provisions 2006 2005 Â£m Â£m Redundancy and restructuring 102 74 Undrawn contractually committed facilities and guarantees 46 55 Onerous contracts 71 79 Sundry provisions 243 309 -------- -------- Provisions 462 517 -------- -------- 11. Other reserves 2006 2005 Â£m Â£m Available for sale reserve 132 225 Cash flow hedging reserve (230) 70 Capital redemption reserve 309 309 Other capital reserve 617 617 Currency translation reserve (438) 156 -------- -------- Other reserves 390 1,377 -------- -------- Movements in other reserves reflect the relevant amounts recorded in the consolidated statement of recognised income and expense on page 90. The movements include related tax impacts but exclude amounts attributable to minority interests. 12. Retirement benefit liabilities The Group's IAS 19 pension deficit across all schemes as at 31st December 2006 was Â£817m (31st December 2005: Â£2,879m). The deficit comprised net recognised liabilities of Â£1,719m (31st December 2005: Â£1,737m) and unrecognised actuarial gains of Â£902m (31st December 2005: Â£1,142m unrecognised actuarial loss). The net recognised liabilities comprised retirement benefit liabilities of Â£1,807m (31st December 2005: Â£1,823m) and assets of Â£88m (31st December 2005: Â£86m). The Group's IAS 19 pension deficit in respect of the main UK scheme as at 31st December 2006 was Â£475m (31st December 2005: Â£2,535m). Among the reasons for this change were greater than expected returns on assets and an increase in AA long-term corporate bond yields which resulted in a higher discount rate of 5.12% (31st December 2005: 4.83%), partially offset by an increase in the inflation assumption to 3.08% (31st December 2005: 2.75%). A number of additional changes were made to the assumptions used in valuing the liabilities, including a decrease in the assumed rate of real salary increases to 1.0% (31st December 2005: 1.55%), a change in the assumption regarding pension increases to recognise the caps and floors which apply to guaranteed pension increases, and the introduction of an explicit allowance for early retirement and commutation. Mortality assumptions remain unchanged from those in force at 31st December 2005. The actuarial funding position of the main UK pension scheme as at 31st December 2006, estimated based on assumptions relating to the formal triennial valuation in 2004, was a surplus of Â£1,300m (31st December 2005: surplus of Â£900m), representing a funding ratio of 109%. The Pensions Protection Fund (PPF) solvency ratio(1) for the main UK scheme as at 31st December 2006 was estimated to be 121% (31st December 2005: 110%). Cash contributions to the Group's schemes totalled Â£389m (2005: Â£373m), including Â£351m to the main UK scheme (2005: Â£354m). (1) The PPF solvency ratio represents the funds assets as a percentage of pension liabilities calculated using a section 179 valuation model. 13. Legal proceedings Barclays has for some time been party to proceedings, including a class action, in the United States against a number of defendants following the collapse of Enron; the class action claim is commonly known as the Newby litigation. On 20th July 2006 Barclays received an Order from the United States District Court for the Southern District of Texas Houston Division (the 'Court') which dismissed the claims against Barclays PLC, Barclays Bank PLC and Barclays Capital Inc. in the Newby litigation. On 4th December 2006, in response to the plaintiffs' procedural objections, the Court stayed Barclays dismissal from the proceedings and allowed the plaintiffs to file a supplemental complaint. The Court will consider the plaintiffs' supplemental complaint in connection with consideration of a summary judgment motion filed by Barclays. Barclays considers that the Enron related claims against it are without merit and is defending them vigorously. It is not possible to estimate Barclays possible loss in relation to these matters, nor the effect that they might have upon operating results in any particular financial period. Barclays has been in negotiations with the staff of the US Securities and Exchange Commission with respect to a settlement of the Commission's investigations of transactions between Barclays and Enron. Barclays does not expect that the amount of any settlement with the Commission would have a significant adverse effect on its financial position or operating results. On 3rd November 2006 Barclays announced that it had reached a settlement in principle with Enron in the Enron bankruptcy proceedings. A settlement agreement was signed on 30th November 2006 and became effective on 3rd January 2007. The settlement has had no negative impact on Barclays earnings as an adequate provision had already been made for the likely cost in prior periods. In reaching the settlement Barclays has denied any wrongdoing or liability. Barclays is engaged in various other litigation proceedings both in the United Kingdom and a number of overseas jurisdictions, including the United States, involving claims by and against it which arise in the ordinary course of business. Barclays does not expect the ultimate resolution of any of the proceedings to which Barclays is party to have a significant adverse effect on the financial position of the Group and Barclays has not disclosed the contingent liabilities associated with these claims either because they cannot reasonably be estimated or because such disclosure could be prejudicial to the conduct of the claims. 14. Contingent liabilities and commitments 2006 2005 Contingent liabilities Â£m Â£m Acceptances and endorsements 287 283 Guarantees and letters of credit pledged as collateral security 31,252 38,035 Other contingent liabilities 7,880 8,825 -------- -------- 39,419 47,143 -------- -------- Commitments 205,504 203,785 -------- -------- Contingent liabilities decreased 16% (Â£7.7bn) to Â£39.4bn (2005: Â£47.1bn) principally due to changes in the mix of securities lending activity within Barclays Global Investors. Commitments increased 1% (Â£1.7bn) to Â£205.5bn (2005: Â£203.8bn) primarily due to new facilities within Barclays Capital and Barclaycard. 15. Market risk Market risk is the risk that the Group's earnings, capital, or ability to meet its business objectives, will be adversely affected by changes in the level or volatility of market rates or prices such as interest rates, credit spreads, commodity prices, equity prices and foreign exchange rates. Barclays Capital's market risk exposure, as measured by average total Daily Value at Risk (DVaR), increased by 16% to Â£37.1m (2005: Â£32.0m). Interest rate risk fell while non-interest rate risks were higher, primarily in commodities. The range of total DVaR between High and Low was consistent with 2005 and diversification across risk types remains significant, reflecting the broad business mix. Total DVaR as at 31st December 2006 was Â£41.9m (31st December 2005: Â£37.6m(1)). (1) This was previously reported as Â£37.4m. The increase reflects the inclusion of Absa Capital. Analysis of Barclays Capital's market risk exposures The daily average, maximum and minimum values of DVaR were calculated as below: DVaR Twelve months to 31st December 2006 ------------------- Average High(1) Low(1) Â£m Â£m Â£m Interest rate risk 20.1 28.8 12.3 Credit spread risk 24.3 33.1 17.9 Commodities risk 11.3 21.6 5.7 Equities risk 7.8 11.6 5.8 Foreign exchange risk 4.0 7.7 1.8 Diversification effect (30.4) n/a n/a ------- -------- ------- Total DVaR 37.1 43.2 31.3 ------- -------- ------- Twelve months to 31st December 2005(2) ------------------- Average High(1) Low(1) Â£m Â£m Â£m Interest rate risk 25.4 44.8 15.4 Credit spread risk 23.0 28.3 19.0 Commodities risk 6.8 11.4 4.5 Equities risk 6.0 8.3 3.9 Foreign exchange risk 2.8 5.4 1.6 Diversification effect (32.0) n/a n/a ------- -------- ------- Total DVaR 32.0 40.7 25.4 ------- -------- ------- (1) The high (and low) DVaR figures reported for each category did not necessarily occur on the same day as the high (and low) DVaR reported as a whole. Consequently a diversification effect number for the high (and low) DVaR figures would not be meaningful and it is therefore omitted from the above table. (2) 2005 has been restated. The increase reflects the inclusion of Absa Capital. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 2006 2005 Â£m Â£m Net movements in available for sale reserve (140) (109) Net movements in cash flow hedging reserve (487) (119) Net movements in currency translation reserve (781) 300 Tax 253 50 Other movements 25 (102) -------- -------- Amounts included directly in equity (1,130) 20 Profit after tax 5,195 3,841 -------- -------- Total recognised income and expense 4,065 3,861 -------- -------- Attributable to: Equity holders of the parent 3,682 3,379 Minority interests 383 482 -------- -------- 4,065 3,861 -------- -------- The consolidated statement of recognised income and expense reflects all items of income and expense for the year, including items taken directly to equity. Movements in individual reserves are shown including amounts which relate to minority interests; the impact of such amounts is then reflected in the amount attributable to such interests. Movements in individual reserves are also shown on a gross basis with any related tax recorded on the separate tax line. The available for sale reserve reflects gains or losses arising from the change in fair value of available for sale financial assets except for items recorded in the income statement which are: impairment losses; gains or losses transferred to the income statement due to fair value hedge accounting; and foreign exchange gains or losses on monetary items such as debt securities. When an available for sale asset is impaired or derecognised, the cumulative gain or loss previously recognised in the available for sale reserve is transferred to the income statement. The movement in 2006 reflects the transfer of net realised gains partially offset by the transfer of impairment losses and the recognition of net unrealised gains from changes in fair value. Cash flow hedging aims to minimise exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss. The portion of the gain or loss on the hedging instrument that is deemed to be an effective hedge is recognised in the cash flow hedging reserve. The movement in 2006 primarily reflects net unrealised losses from changes in the fair value of the hedging instruments. The gains and losses deferred in this reserve will be transferred to the income statement in the same period or periods during which the hedged item is recognised in the income statement. Exchange differences arising on the net investments in foreign operations and effective hedges of net investments are recognised in the currency translation reserve and transferred to the income statement on the disposal of the net investment. The movement in the year primarily reflects the impact of changes in the value of the Rand on the minority interest in Absa Group Limited and changes in the value of the US Dollar on net investments. The net investments are economically hedged through US Dollar-denominated preference share capital, which is not revalued for accounting purposes. SUMMARY CONSOLIDATED CASH FLOW STATEMENT 2006 2005 Â£m Â£m Net cash flow from operating activities 10,047 3,649 Net cash flow from investing activities (1,154) (5,292) Net cash flow from financing activities 692 1,083 Exchange loss/(gain) on foreign currency cash and cash equivalents 562 (237) -------- -------- Net increase/(decrease) in cash and cash equivalents 10,147 (797) Cash and cash equivalents at beginning of the year 20,805 21,602 -------- -------- Cash and cash equivalents at end of the year 30,952 20,805 -------- -------- In order to provide more relevance to users and to enhance the comparability of its financial statement presentation, the Group has changed certain classifications within the cash flow statement in 2006. Certain activities which were categorised as operating activities have been reclassified as financing activities and investing activities. These changes have increased net cash from operating activities by Â£14,147m in 2005, with a corresponding decrease in net cash used in investing activities of Â£111m and decrease in net cash from financing activities of Â£14,036m. The amounts of cash and cash equivalents in 2005 have not been affected by the changes. OTHER INFORMATION Registered office 1 Churchill Place, London, E14 5HP, England, United Kingdom. Tel: +44 (0) 20 7116 1000. Company number: 48839. Website www.barclays.com Registrar The Registrar to Barclays PLC, The Causeway, Worthing, West Sussex, BN99 6DA, England, United Kingdom. Tel: + 44 (0) 870 609 4535. Listing The principal trading market for Barclays PLC ordinary shares is the London Stock Exchange. Ordinary shares are also listed on the New York Stock Exchange and the Tokyo Stock Exchange. Trading on the New York Stock Exchange is in the form of ADSs under the ticker symbol 'BCS'. Each ADS represents four ordinary shares of 25p each and is evidenced by an ADR. The ADR depositary is The Bank of New York whose international telephone number is +1-212-815-3700, whose domestic telephone number is 1-888-BNY-ADRS and whose address is The Bank of New York, Investor Relations, PO Box 11258, Church Street Station, New York, NY 10286-1258. Filings with the SEC Statutory accounts for the year ended 31st December 2006, which also include certain information required for the joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLC to the US Securities and Exchange Commission (SEC), can be obtained from Corporate Communications, Barclays Bank PLC, 200 Park Avenue, New York, NY 10166, United States of America or from the Director, Investor Relations at Barclays registered office address, shown above, once they have been published in late March. Once filed with the SEC, copies of the Form 20-F will also be available from the Barclays Investor Relations' website (details below) and from the SEC's website (www.sec.gov). Results timetable Ex dividend Date Wednesday, 7th March 2007 Dividend Record Date Friday, 9th March 2007 2007 Annual General Meeting Date Thursday, 26th April 2007 Dividend Payment Date Friday, 27th April 2007 2007 First-half Trading Update* Thursday, 24th May 2007 2007 Interim Results Announcement* Thursday, 2nd August 2007 *Note that these announcement dates are provisional and subject to change. Economic data 2006 2005 Period end-US$/Â£ 1.96 1.72 Average-US$/Â£ 1.84 1.82 Period end-â‚¬/Â£ 1.49 1.46 Average-â‚¬/Â£ 1.47 1.46 Period end-R/Â£ 13.71 10.87 Average-R/Â£ 12.47 11.57 For further information please contact: Investor Relations Media Relations -------------------- ----------------- Mark Merson/James S Johnson Jason Nisse/Alistair Smith +44 (0) 20 7116 5752/2927 +44 (0) 20 7116 6223/6132 More information on Barclays can be found on our website at the following address: www.investorrelations.barclays.com ABSA APPENDIX 1 2006 2005(1) Rm Rm -------- -------- Interest and similar income 38,368 29,377 Interest expense and similar charges (23,427) (17,567) -------- -------- Net interest income 14,941 11,810 Impairment losses on loans and advances (1,573) (875) -------- -------- Fee and commission income 10,951 10,060 Fee and commission expense (577) (448) -------- -------- Net fee and commission income 10,374 9,612 -------- -------- Insurance premium revenue 3,269 2,672 Premiums ceded to reinsurers (275) (235) -------- -------- Net insurance premium income 2,994 2,437 -------- -------- Gross claims and benefits paid on insurance contracts 1,376 1,195 Reinsurance recoveries (57) (142) -------- -------- Net claims and benefits paid (1,319) (1,053) Changes in insurance and investment liabilities (748) (532) Gains and losses from banking and trading activities 1,347 1,136 Gains and losses from investment activities 1,916 1,584 Other operating income 938 596 -------- -------- Net operating income 28,870 24,715 Operating expenses (16,620) (14,598) Impairments (75) (68) Indirect taxation (871) (949) Share of profit of associated and joint venture companies 113 112 -------- -------- Operating profit before income tax 11,417 9,212 -------- -------- (1) Absa has changed its financial year-end to 31st December to conform with Barclays. The comparable period comprises unaudited results for the year ended 31st December 2005. The appendix summarises the Rand results of Absa Group Limited for the year to 31st December 2006 as reported to the Johannesburg Stock Exchange, and their impact in Sterling on the consolidated results of Barclays. Absa Group Limited results(1) The comparable period referred to below, for illustrative purposes only, is the proforma full year to 31st December 2005. Barclays acquired a controlling stake in Absa Group Limited on 27th July 2005. Absa Group Limited's profit before tax increased 24% to R11,417m (2005: R9,212m) reflecting a very good performance from banking operations, with retail, corporate and business banking operations performing exceptionally well. Absa Group Limited delivered a return on equity of 27.4% (2005: 25.6%). Key factors impacting the results included very strong asset growth, strong revenue growth, an increased credit impairment charge, the realisation of synergies from leveraging Barclays expertise and economies of scale and the sale of non-core operations. The South African economy continued to expand at a solid pace with real growth expected to be about 4.9% for 2006 (2005: 5.1%) Net interest income grew 27% (R3,131m) from R11,810m to R14,941m. Loans and advances to customers increased 26% from R306,856m to R386,174m, underpinned by very strong growth in mortgages, credit cards and commercial property finance. Non-interest income increased 12% (R1,722m) to R15,502m (2005: R13,780m) reflecting higher transaction volumes, strong growth in insurance related earnings and gains on asset sales. As expected the impairment charge on loans and advances rose to R1,573m (2005: R875m) from the very low levels of the prior year, particularly in Absa Home Loans, Absa Card and Retail Banking Services. Operating expenses increased 14% (R2,022m) to R16,620m (2005: R14,598m) resulting from increased investment in the business in order to support continued growth in volumes and customers. Excellent progress was made with the realisation of synergy benefits. In 2006 R753m of synergies were delivered, R453m in excess of the R300m target originally communicated for the year. Integration costs for the period were R640m, in line with expectations. Impact on Barclays results(2) Absa Group Limited's profit before tax of R11,417m is translated into Barclays results at an average exchange rate for 2006 of R12.47/Â£ (2005: R11.57/Â£). Consolidation adjustments reflected the amortisation of intangible assets of Â£75m and internal funding and other adjustments of Â£72m. The resulting profit before tax of Â£769m (2005: Â£337m) is represented with International Retail and Commercial Banking - Absa Â£698m, (2005: Â£298m) and Barclays Capital, Â£71m (2005: Â£39m). Absa Group Limited's total assets at 31st December 2006 were R495,112m (31st December 2005: R404,561m), growth of 22%. This is translated into Barclays results at a year-end exchange rate of R13.71/Â£ (31st December 2005: R10.87/Â£). The consolidation of total assets reflected the impact of the 21% depreciation in the Rand largely offsetting the growth in the Rand balance sheet. (1) Absa has changed its financial year-end to 31st December to conform with Barclays. The comparable period comprises unaudited results for the year ended 31st December 2005. (2) For 2005, this reflects the period from 27th July until 31st December 2005. APPENDIX 2 Profit before business disposals 2006 2005 ---------------------------------- -------- UK Business IRCB- Banking ex Absa Group Group Â£m Â£m Â£m Â£m Profit before tax 1,365 572 7,136 5,280 Excluding profit on disposal of subsidiaries, associates and joint ventures (76) (247) (323) - -------- -------- -------- -------- Profit before business disposals 1,289 325 6,813 5,280 Tax on profit before business disposals (1,941) (1,439) -------- -------- Profit after tax before business disposals 4,872 3,841 -------- -------- Profit attributable to minority interests 624 394 Profit attributable to equity holders of the parent before business disposals 4,248 3,447 -------- -------- Profit after tax before business disposals 4,872 3,841 -------- -------- Â£m Â£m Economic profit 2,704 1,752 Economic profit before business disposals 2,381 1,752 p p Earnings per share 71.9 54.4 Earnings per share before business disposals 66.8 54.4 Diluted earnings per share 69.8 52.6 Diluted earnings per share before business disposals 64.8 52.6 Post-tax return on average shareholder equity 24.7% 21.1% Post-tax return on average shareholder equity before business disposals 23.0% 21.1% In 2005, there were no profits on disposal of subsidiaries, associates and joint ventures in the Group. This information is provided by RNS The company news service from the London Stock Exchange

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