UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------------------------------------------------------------
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
February 2007
Barclays PLC and
Barclays Bank PLC
(Names of Registrants)
1 Churchill Place
London E14 5HP
England
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No x
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):
--------------------------------------------------------------------------------
This Report is a joint Report on Form 6-K filed by Barclays PLC and Barclays
Bank PLC. All of the issued ordinary share capital of Barclays Bank PLC is
owned by Barclays PLC.
This Report comprises:
Information given to The London Stock Exchange and furnished pursuant to
General Instruction B to the General Instructions to Form 6-K.
--------------------------------------------------------------------------------
EXHIBIT INDEX
Final Results dated 20 February 2007
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of
the registrants has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BARCLAYS PLC
(Registrant)
Date: February 20, 2007 By: /s/ Patrick Gonsalves
----------------------
Patrick Gonsalves
Deputy Secretary
BARCLAYS BANK PLC
(Registrant)
Date: February 20, 2007 By: /s/ Patrick Gonsalves
----------------------
Patrick Gonsalves
Joint Secretary
Results
Announcement
31st December
2006
BARCLAYS PLC
PRELIMINARY ANNOUNCEMENT OF RESULTS FOR 2006
TABLE OF CONTENTS
PAGE
Summary of key information 2
Performance summary 3
Financial highlights 4
Group Chief Executive's Statement 5
Consolidated income statement 9
Consolidated balance sheet 11
Results by business 13
Results by nature of income and expense 44
Analysis of amounts included in the balance sheet 59
Additional information 70
Notes 75
Consolidated statement of recognised income and expense 90
Summary consolidated cash flow statement 91
Other information 92
Appendix 1-Absa Group Limited results 94
Appendix 2-Profit before business disposals 96
Index 98
The information in this announcement, which was approved by the Board of
Directors on 19th February 2007, does not comprise statutory accounts for the
years ended 31st December 2006 or 31st December 2005, within the meaning of
Section 240 of the Companies Act 1985 (the 'Act'). 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), will be delivered to the
Registrar of Companies in accordance with Section 242 of the Act. Statutory
accounts for the year ended 31st December 2005 have been delivered to the
Registrar of Companies and the Group's auditors have reported on those accounts
and have given an unqualified report which does not contain a statement under
Section 237(2) or (3) of the Act. The 2006 Annual Review and Summary Financial
Statement will be posted to shareholders together with the Group's full Annual
Report for those shareholders who request it.
Forward-looking statements
This document contains certain forward-looking statements within the meaning of
Section 21E of the US Securities Exchange Act of 1934, as amended, and Section
27A of the US Securities Act of 1933, as amended, with respect to certain of the
Group's plans and its current goals and expectations relating to its future
financial condition and performance. These forward-looking statements can be
identified by the fact that they do not relate only to historical or current
facts. Forward-looking statements sometimes use words such as 'aim',
'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal',
'believe', or other words of similar meaning. Examples of forward-looking
statements include, among others, statements regarding the Group's future
financial position, income growth, impairment charges, business strategy,
projected levels of growth in the banking and financial markets, projected
costs, estimates of capital expenditures, and plans and objectives for future
operations.
By their nature, forward-looking statements involve risk and uncertainty because
they relate to future events and circumstances, including, but not limited to,
the further development of standards and interpretations under International
Financial Reporting Standards (IFRS) applicable to past, current and future
periods, evolving practices with regard to the interpretation and application of
standards under IFRS, as well as UK domestic and global economic and business
conditions, market related risks such as changes in interest rates and exchange
rates, the policies and actions of governmental and regulatory authorities,
changes in legislation, progress in the integration of Absa into the Group's
business and the achievement of synergy targets related to Absa, the outcome of
pending and future litigation, and the impact of competition-a number of which
factors are beyond the Group's control. As a result, the Group's actual future
results may differ materially from the plans, goals, and expectations set forth
in the Group's forward-looking statements. Any forward-looking statements made
by or on behalf of Barclays speak only as of the date they are made. Barclays
does not undertake to update forward-looking statements to reflect any changes
in Barclays expectations with regard thereto or any changes in events,
conditions or circumstances on which any such statement is based. The reader
should, however, consult any additional disclosures that Barclays has made or
may make in documents it has filed or may file with the SEC.
Absa Definitions
'Absa Group Limited' refers to the consolidated results of the South African
group of which the parent company is listed on the Johannesburg Stock Exchange
in which Barclays owns a controlling stake.
'Absa' refers to the results for Absa Group Limited as consolidated into the
results of Barclays PLC; translated into Sterling with adjustments for
amortisation of intangible assets, certain head office adjustments, transfer
pricing and minority interests.
'International Retail and Commercial Banking-Absa' is the portion of Absa's
results that is reported by Barclays within the International Retail and
Commercial Banking business.
Barclays acquired a controlling stake in Absa Group Limited on 27th July 2005.
Therefore, unless otherwise indicated, 2005 comparatives reflect results from
that date and are not directly comparable to 2006.
'Absa Capital' is the portion of Absa's results that is reported by Barclays
within the Barclays Capital business.
Glossary of terms
The cost:income ratio is defined as operating expenses compared to total income
net of insurance claims.
The cost:net income ratio is defined as operating expenses compared to total
income net of insurance claims less impairment charges.
The Return on average economic capital is defined as attributable profit
compared to average economic capital.
'Income' refers to total income net of insurance claims, unless otherwise
specified.
'Profit before business disposals' represents profit before tax and disposal of
subsidiaries, associates and joint ventures. Details of the impact on each
business and the Group can be found in Appendix 2 on page 96.
RESULTS FOR THE YEAR TO 31ST DECEMBER 2006
---------------------- -------- -------- --------
Group Results
2006 2005
GBPm GBPm % Change
Total income net of insurance claims 21,595 17,333 25
Impairment charges (2,154) (1,571) 37
Operating expenses (12,674) (10,527) 20
Profit before tax 7,136 5,280 35
Profit attributable to minority interests (624) (394) 58
Profit attributable to equity holders of the parent 4,571 3,447 33
Economic profit 2,704 1,752 54
p p % Change
Earnings per share 71.9 54.4 32
Diluted earnings per share 69.8 52.6 33
Full year dividend per share 31.0 26.6 17
% %
Tier 1 Capital ratio 7.7 7.0
Return on average shareholders' equity 24.7 21.1
Profit before tax by business(1) GBPm GBPm % Change
UK Banking 2,578 2,200 17
-------- --------
UK Retail Banking 1,213 1,040 17
UK Business Banking 1,365 1,160 18
-------- --------
Barclaycard 382 640 (40)
International Retail and Commercial Banking (IRCB) 1,270 633 101
-------- --------
IRCB-ex Absa 572 335 71
IRCB-Absa(2) 698 298 134
-------- --------
Barclays Capital 2,216 1,431 55
Barclays Global Investors 714 540 32
Barclays Wealth 213 166 28
------------------------- -------- -------- --------
(1) Summary excludes Barclays Wealth-closed life assurance activities and Head
office functions and other operations. Full analysis of business profit before
tax is on page 17.
(2) For 2005, this reflects the period from 27th July until 31st December 2005.
PERFORMANCE SUMMARY
"Barclays had an excellent year in 2006. We delivered outstanding performance in
Barclays Capital and Barclays Global Investors. Momentum has accelerated in UK
Retail Banking and Absa has outperformed our acquisition business plan
delivering very strong growth. Conditions in UK cards and consumer loans were
difficult but Barclaycard UK consumer credit performance is beginning to
improve. We are well positioned to deliver further growth in the years ahead."
John Varley, Group Chief Executive
- Excellent financial results reflect the successful execution of strategy:
- Income up 25% to GBP21,595m
- Profit before tax up 35% to GBP7,136m
- Earnings per share up 32% to 71.9p
- Dividend per share up 17% to 31.0p
- Economic profit up 54% to GBP2,704m
- Return on average shareholders' equity of 25%.
- Excluding gains on business disposals of GBP323m:
- Profit before tax up 29% to GBP6,813m
- Earnings per share up 23% to 66.8p.
- Income growth of 25% was well ahead of expense growth of 20%. Expense growth
reflected significant investment in organic growth across the business and
performance related costs.
- In UK Retail Banking accelerated income momentum drove very strong
profit growth.
- UK Banking delivered a further three percentage points underlying
improvement in the cost:income ratio; the six percentage point target for
2005-2007 has been achieved a year ahead of schedule; we still target a
further two percentage point improvement in 2007.
- Outstanding growth in Barclays Capital was driven by continued expansion of
the business, the success of past investment and the focus of our client
driven model.
- Barclays Global Investors delivered another year of excellent growth.
Assets under management increased US$301bn to US$1.8trn.
- Absa's first full year contribution was well ahead of the acquisition
business plan.
- Barclaycard profits were affected by industrywide impairment pressures
in UK cards and unsecured loans; UK consumer credit performance is beginning
to improve.
- Capital ratios strengthened through retained earnings and active
balance sheet management; the Tier 1 Capital ratio rose to 7.7%.
- We delivered a Total Shareholder Return for 2006 of 25%.
- Approximately 50% of profits came from outside the UK.
FINANCIAL HIGHLIGHTS
2006 2005
RESULTS GBPm GBPm
----------
Net interest income 9,143 8,075
Net fee and commission income 7,177 5,705
Principal transactions(1) 4,576 3,179
Net premiums from insurance contracts 1,060 872
Other income 214 147
-------- --------
Total income 22,170 17,978
Net claims and benefits paid on insurance contracts (575) (645)
-------- --------
Total income net of insurance claims 21,595 17,333
Impairment charges (2,154) (1,571)
-------- --------
Net income 19,441 15,762
Operating expenses (12,674) (10,527)
Share of post-tax results of associates and joint ventures 46 45
Profit on disposal of subsidiaries, associates and joint
ventures 323 -
-------- --------
Profit before tax 7,136 5,280
-------- --------
Profit attributable to equity holders of the parent 4,571 3,447
Economic profit 2,704 1,752
PER ORDINARY SHARE p p
--------------------
Earnings 71.9 54.4
Diluted earnings 69.8 52.6
Full year dividend 31.0 26.6
Net asset value 303 269
PERFORMANCE RATIOS % %
--------------------
Return on average shareholders' equity 24.7 21.1
Cost:income ratio 59 61
Cost:net income ratio 65 67
2006 2005
BALANCE SHEET GBPm GBPm
--------------- -------- --------
Shareholders' equity excluding minority interests 19,799 17,426
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
-------- --------
Total assets 996,787 924,357
Risk weighted assets 297,833 269,148
CAPITAL RATIOS % %
----------------
Tier 1 ratio 7.7 7.0
Risk asset ratio 11.7 11.3
(1) Principal transactions comprise net trading income and net investment
income.
GROUP CHIEF EXECUTIVE'S REVIEW
Barclays had an excellent year in 2006. I start this review by thanking the
123,000 employees of the Barclays Group, whose dedication and creativity helped
us achieve record results. Our strategy of 'earn, invest and grow' continued to
deliver very strong growth in profits. Our ambition is to become one of the
handful of universal banks leading the global financial services industry. I
believe that the universal banking model is helping us drive the higher growth
for shareholders that I set out to achieve three years ago, by providing us with
new options in products, services and markets.
In our business, strategy simply stated is anticipation followed by service: we
anticipate the needs of customers and clients. We then serve them, by helping
them achieve their goals. The needs of customers and clients are changing. The
drivers of change include: the privatisation of welfare; wealth generation and
wealth transfer; explosive growth in demand for banking products in emerging
markets; the securitisation of assets and cash flows; the use of derivatives in
risk management; the significant growth in the use of credit cards for payment
and borrowing; and the opportunity for capital markets and private equity to
fund infrastructure development around the world.
To capitalise on these sources of growth, I have put a new structure in place by
creating Global Retail and Commercial Banking (GRCB) under the leadership of
Frits Seegers, who joined Barclays in July 2006. GRCB brings together: UK
Banking, International Retail and Commercial Banking and Barclaycard. GRCB gives
Barclays a single point of strategic direction and control to these businesses,
thereby increasing our capability to drive growth and synergies globally and to
enter new markets. We believe this will enable us to replicate success from one
part of the world in another. This GRCB structure mirrors the organisation of
Investment Banking and Investment Management under Bob Diamond, which also gives
a single point of strategic direction and control to a group of global
businesses which enjoy substantial synergies.
My obligation as Group Chief Executive is to assemble the best team I can. We
have added significantly to our management bench strength in 2006, particularly
in GRCB, and have concentrated on supplementing our existing talent with deep
specialist retail and commercial banking and card experience across a range of
international markets.
Performance versus goals
For the three years from 31st December 2003 to 31st December 2006, Barclays
delivered a Total Shareholder Return (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%. For the year to 31st December 2006, we delivered a TSR of 25%
and were positioned 5th in our peer group. The TSR for the FTSE 100 for the year
was 14%.
Economic profit for 2006 was GBP2.7bn, which, added to the GBP3.3bn generated in
2004 and 2005, delivered a cumulative total of GBP6.0bn for the goal period to
date. This equates to compound annual growth in economic profit of 28% per annum
over the period, which is well ahead of our target range.
Group performance
We made substantial progress on our strategic priorities and delivered record
financial results. Profit before tax increased 35% to GBP7,136m. Earnings per
share rose 32% to 71.9p, and economic profit was up 54% to GBP2,704m. Profit
excluding business disposals of GBP323m increased 29% to GBP6,813m, and earnings
per share increased 23% to 66.8p. We increased the total dividend payout to 31p,
a rise of 17%.
Income grew 25% to GBP21,595m, well ahead of expense growth of 20%. The growth
was broadly based by business and geography, reflecting momentum in each
business. All businesses made significant contributions, with especially strong
performances from Barclays Capital, UK Banking and Barclays Global Investors,
and a substantial contribution to income from Absa in its first full year of
ownership. Excluding Absa, Group income grew 18%, compared with expense growth
of 13%. The mix of income and profit continued to evolve. Approximately half our
profits came from outside the UK, up from about 30% in 2003.
Operating expenses increased 20% to GBP12,674m. The Group cost:income ratio
improved two percentage points to 59%. We continue to target top quartile
productivity for all businesses, and in 2006 the ratio improved or remained flat
in all businesses. Operating expenses include gains on the sale of properties of
GBP432m partly offset by accelerated incremental investment expenditure of
approximately GBP280m.
Impairment charges rose 37% to GBP2,154m. Excluding Absa, impairment charges on
loans and advances increased 26%. The increase was mostly attributable to the
challenging credit environment in UK unsecured retail lending, which was partly
due to the continued rise in the level of personal insolvencies. In the second
half of 2006, as a result of a number of management actions, flows into
delinquency decreased and arrears balances declined across the UK cards and
unsecured loans portfolios. We therefore believe that we passed the worst in
Barclaycard UK impairment in the second half of 2006. UK mortgage impairment
charges remained negligible, and the wholesale and larger corporate sectors
continued to be stable with a low level of defaults.
When I look at these results, I am pleased to see increased productivity in our
use of capital, risk and costs. Return on average shareholders' funds improved
four percentage points to 25%; profits grew much faster than Daily Value at Risk
and risk weighted assets and the associated consumption of capital; and income
growth exceeded cost growth by five percentage points.
Business performance
In UK Banking we made significant strides towards our strategic priority of
building the best bank in the UK. Strong growth in income enabled us to increase
our profit before tax 17% to GBP2,578m. The improvement in the cost:income ratio
was four percentage points in headline terms to 52% (2005: 56%). Excluding the
impact of property gains and accelerated investment, the improvement in the
cost:income ratio was three percentage points making a cumulative total for
2005-2006 of six percentage points. This means that we have achieved our target
of a six percentage point improvement over the period 2005-2007, one year ahead
of schedule. We continue to target a further two percentage point improvement in
the cost:income ratio for 2007.
UK Retail Banking delivered a 17% profit before tax increase to GBP1,213m. This
was driven by broadly based income growth of 7%, with particularly strong
performances in savings, Local Business and UK Premier and good growth in
current accounts. Our mortgage market share and processing capacity also
increased strongly leading to a net market share of 4% in the second half of the
year. We doubled investment across the business. We focused on upgrading
distribution capabilities, transforming the performance of the mortgage
business, revitalising product offerings, and improving core operations and
processes. The additional investment substantially offset the impact of property
gains, leading to broadly flat costs. In 2007 we expect to make further
significant investment, including the restructuring of the branch network and
the migration of Woolwich customers.
UK Business Banking delivered very strong growth in profit before tax of 18% to
GBP1,365m. Strong growth in loans and deposits drove income growth of 11%.
Profit before business disposals grew 11%. UK Business Banking maintained its
competitive position and also funded significant investment in improving its
infrastructure and customer service.
At Barclaycard profit before tax fell 40% to GBP382m. Good income growth of 8%,
driven by very strong momentum in Barclaycard International, was more than
offset by a further rise in impairment charges, principally in the UK lending
portfolios, and by higher costs, mainly as a result of continued investment in
Barclaycard US. In the UK, high debt levels and changing attitudes to bankruptcy
and debt default contributed to increased impairment charges. Actions that we
have taken, including more selective customer recruitment, limit management, and
improved collections, have led to a reduction of flows into delinquency and
lower levels of arrears balances in cards and unsecured loans. It is these
trends that cause us to believe that we passed the worst in Barclaycard UK
impairment in the second half of 2006.
We continued to invest in Barclaycard US. Since we bought the business in
December 2004, outstandings have grown from US$1.4bn to US$4.0bn, and cards in
issue have increased from 1.1 million to 4.2 million. Income grew 73% in 2006.
We are on track to become profitable in 2007.
International Retail and Commercial Banking achieved a step change in
profitability to GBP1,270m (2005: GBP633m), reflecting the inclusion of Absa for
a full year, the impact of corporate development activity and growth in key
geographies.
International Retail and Commercial Banking-excluding Absa achieved a profit
before tax of GBP572m (2005: GBP335m), including a gain of GBP247m from the
disposal of our interest in FirstCaribbean International Bank. Excluding this
gain, profit before tax was GBP325m (2005: GBP335m). Good organic growth in the
businesses across continental Europe was offset by incremental investment in
distribution capacity and technology across the businesses in 2006. We expect to
double the rate of investment in infrastructure and distribution in 2007.
International Retail and Commercial Banking-Absa contributed GBP698m profit
before tax in the first full year of ownership and is performing well ahead of
our acquisition business case. Absa Group Limited achieved year on year growth
in profit before tax of 24% in Rand terms, reflecting very strong growth in
mortgages, credit cards and commercial property finance. The benefits of
Barclays ownership are evident in 46% attributable earnings growth in both Absa
Card and Absa Capital (reported in Barclays Capital), with total synergy
benefits well ahead of plan.
Barclays Capital produced an outstanding performance with profit before tax
rising 55% to GBP2,216m. Income growth of 39% was driven by doing more business
with new and existing clients and was broadly based across asset classes and
geographies. Growth was particularly strong in areas where we have invested in
recent years, including commodities, equity products and credit derivatives.
Profit growth was accompanied by improvements in productivity: income and
profits grew significantly faster than Daily Value at Risk, risk weighted
assets, economic capital, regulatory capital and costs. The ratio of
compensation costs to net income improved two percentage points to 49% and the
cost:net income ratio improved three percentage points to 64%. We continued to
invest for future growth, increasing headcount 3,300 including 1,300 from the
acquisition of HomEq, a US mortgage servicing business.
Barclays Global Investors delivered excellent results, with profit before tax up
32% to GBP714m. Income growth of 26% was attributable to increased management
fees, particularly in the iShares and active businesses. Assets under management
grew US$301bn to US$1.8 trillion, including net new assets of $68bn, reflecting
very strong inflows in iShares and active assets. The cost:income ratio improved
two percentage points to 57%.
Barclays Wealth profit before tax rose 28% to GBP213m. This reflected broadly
based income growth and favourable market conditions, partially offset by a
significant increase in investment in people and infrastructure to build a
platform for future growth. Total client assets increased 19% to GBP93bn. The
cost:income ratio improved three percentage points to 79%.
In Head office functions and other operations the loss before tax decreased
GBP64m to GBP259m, reflecting the head office relocation costs incurred in 2005.
Capital management
Our strong credit rating and disciplined approach to capital management remain
sources of competitive advantage. Our capital management policies are designed
to optimise the returns to shareholders whilst maintaining our credit rating.
At the end of 2006, our tier 1 Capital ratio was 7.7% (2005: 7.0%). The improved
capital ratio was driven by the strong capital generation of our business
portfolio, the impact of disposals, including our stake in FirstCaribbean
International Bank, and the efficient management of the balance sheet through
the use of the capital markets. We have invested almost GBP2 billion to support
the capital required for our organic growth throughout the portfolio at a very
attractive rate of return and we also increased the dividend to shareholders by
17%.
We commenced parallel running for Basel II at the end of 2006. Whilst there are
still areas in which the regulators have not yet defined the requirements for
detailed implementation, we continue to anticipate a modest benefit to our
capital ratios from Basel II. For 2007 we will continue to report our capital
ratios under Basel I.
Executive management
I want to acknowledge the significant contributions of two executive directors
who are leaving Barclays. David Roberts, previously Chief Executive of
International Retail and Commercial Banking, left Barclays at the end of 2006
after 23 years of outstanding service. Naguib Kheraj has been a generator of
very significant value for the Group over the last 10 years in a number of
different roles at Barclays, most recently as Group Finance Director. He will be
leaving us in 2007. I thank David and Naguib warmly for their dedication to the
success of Barclays and I wish them well for the future. Our new Group Finance
Director, Chris Lucas joins us in April and brings a wealth of experience in
financial services.
Outlook
We enter 2007 with strong income momentum in Barclays, driven by high levels of
customer activity and good risk control. The global economic outlook continues
to be positive and we are well positioned to capture further growth in the years
ahead.
John Varley
Group Chief Executive
CONSOLIDATED INCOME STATEMENT
2006 2005
GBPm GBPm
Interest income 21,805 17,232
Interest expense (12,662) (9,157)
-------- --------
Net interest income 9,143 8,075
-------- --------
Fee and commission income 8,005 6,430
Fee and commission expense (828) (725)
-------- --------
Net fee and commission income 7,177 5,705
-------- --------
Net trading income 3,614 2,321
Net investment income 962 858
-------- --------
Principal transactions 4,576 3,179
Net premiums from insurance contracts 1,060 872
Other income 214 147
-------- --------
Total income 22,170 17,978
Net claims and benefits paid on insurance contracts (575) (645)
-------- --------
Total income net of insurance claims 21,595 17,333
Impairment charges (2,154) (1,571)
-------- --------
Net income 19,441 15,762
-------- --------
Operating expenses excluding amortisation of intangible
assets (12,538) (10,448)
Amortisation of intangible assets (136) (79)
-------- --------
Operating expenses (12,674) (10,527)
Share of post-tax results of associates and joint ventures 46 45
Profit on disposal of subsidiaries, associates and joint
ventures 323 -
-------- --------
Profit before tax 7,136 5,280
Tax (1,941) (1,439)
-------- --------
Profit after tax 5,195 3,841
-------- --------
Profit attributable to minority interests 624 394
Profit attributable to equity holders of the parent 4,571 3,447
-------- --------
5,195 3,841
-------- --------
p p
Earnings per share 71.9 54.4
Diluted earnings per share 69.8 52.6
Dividends per share:
Interim dividend 10.5 9.2
Final dividend 20.5 17.4
-------- --------
Total dividend 31.0 26.6
-------- --------
GBPm GBPm
Interim dividend 666 582
Final dividend 1,307 1,105
-------- --------
Total dividend 1,973 1,687
-------- --------
CONSOLIDATED BALANCE SHEET
2006 2005
Assets GBPm GBPm
Cash and balances at central banks 7,345 3,906
Items in the course of collection from other banks 2,408 1,901
Trading portfolio assets 177,867 155,723
Financial assets designated at fair value:
- held on own account 31,799 12,904
- held in respect of linked liabilities to customers
under investment contracts 82,798 83,193
Derivative financial instruments 138,353 136,823
Loans and advances to banks 30,926 31,105
Loans and advances to customers 282,300 268,896
Available for sale financial investments 51,703 53,497
Reverse repurchase agreements and cash collateral 174,090 160,398
on securities borrowed
Other assets 5,850 4,734
Current tax assets 557 -
Investments in associates and joint ventures 228 546
Goodwill 6,092 6,022
Intangible assets 1,215 1,269
Property, plant and equipment 2,492 2,754
Deferred tax assets 764 686
-------- --------
Total assets 996,787 924,357
-------- --------
2006 2005
Liabilities GBPm GBPm
Deposits from banks 79,562 75,127
Items in the course of collection due to other banks 2,221 2,341
Customer accounts 256,754 238,684
Trading portfolio liabilities 71,874 71,564
Financial liabilities designated at fair value 53,987 33,385
Liabilities to customers under investment contracts 84,637 85,201
Derivative financial instruments 140,697 137,971
Debt securities in issue 111,137 103,328
Repurchase agreements and cash collateral on securities
lent 136,956 121,178
Other liabilities 10,337 11,131
Current tax liabilities 1,020 747
Insurance contract liabilities, including unit-linked
liabilities 3,878 3,767
Subordinated liabilities 13,786 12,463
Deferred tax liabilities 282 700
Provisions 462 517
Retirement benefit liabilities 1,807 1,823
-------- --------
Total liabilities 969,397 899,927
-------- --------
Shareholders' equity
Called up share capital 1,634 1,623
Share premium account 5,818 5,650
Other reserves 390 1,377
Retained earnings 12,169 8,957
Less: treasury shares (212) (181)
-------- --------
Shareholders' equity excluding minority interests 19,799 17,426
Minority interests 7,591 7,004
-------- --------
Total shareholders' equity 27,390 24,430
-------- --------
-------- --------
Total liabilities and shareholders' equity 996,787 924,357
-------- --------
FINANCIAL REVIEW
Results by business
The following section analyses the Group's performance by business. For
management and reporting purposes, Barclays is organised into the following
business groupings:
Global Retail and Commercial Banking
- UK Banking, comprising
- UK Retail Banking
- UK Business Banking
- Barclaycard
- International Retail and Commercial Banking, comprising
- International Retail and Commercial Banking-excluding Absa
- International Retail and Commercial Banking-Absa, first included with effect
from 27th July 2005
Investment Banking and Investment Management
- Barclays Capital
- Barclays Global Investors
- Barclays Wealth
- Barclays Wealth-closed life assurance activities
Head office functions and other operations
UK Banking
UK Banking delivers banking solutions to Barclays UK retail and business banking
customers. It offers a range of integrated products and services and access to
the expertise of other Group businesses. Customers are served through a variety
of channels comprising the branch network, automated teller machines, telephone
banking, online banking and relationship managers. UK Banking is managed through
two business areas, UK Retail Banking and UK Business Banking.
UK Retail Banking
UK Retail Banking comprises Personal Customers, Home Finance, UK Premier and
Local Business (formerly Small Business). This cluster of businesses aims to
build broader and deeper relationships with customers. Personal Customers and
Home Finance provide a wide range of products and services to retail customers,
including current accounts, savings and investment products, mortgages branded
Woolwich and general insurance. UK Premier provides banking, investment products
and advice to affluent customers. Local Business provides banking services to
small businesses.
UK Business Banking
UK Business Banking provides relationship banking to Barclays larger and medium
business customers in the UK. Customers are served by a network of relationship
and industry sector specialist managers who provide local access to an extensive
range of products and services, as well as offering business information and
support. Customers are also offered access to the products and expertise of
other businesses in the Group, particularly Barclays Capital and Barclaycard. UK
Business Banking provides asset financing and leasing solutions through a
specialist business.
Barclaycard
Barclaycard is a multi-brand credit card and consumer loans business which also
processes card payments for retailers and merchants and issues credit and charge
cards to corporate customers and the UK Government. It is one of Europe's
leading credit card businesses and has an increasing presence in the United
States.
In the UK, Barclaycard comprises Barclaycard, SkyCard and Monument branded
credit cards, Barclays branded loans and FirstPlus secured lending. Barclaycard
also manages card operations on behalf of Solution Personal Finance.
Outside the UK, Barclaycard provides credit cards in the United States, Germany,
Spain, Italy, Portugal and Africa. In the Nordic region, Barclaycard operates
through Entercard, a joint venture with ForeningsSparbanken (Swedbank).
Barclaycard works closely with other parts of the Group, including UK Retail
Banking, UK Business Banking and International Retail and Commercial Banking, to
leverage their distribution capabilities.
International Retail and Commercial Banking
International Retail and Commercial Banking provides Barclays personal and
corporate customers outside the UK with banking services. The products and
services offered to customers are tailored to meet the regulatory and commercial
environments within each country. For reporting purposes from 2005, the
operations have been grouped into two components: International Retail and
Commercial Banking-excluding Absa and International Retail and Commercial
Banking-Absa.
International Retail and Commercial Banking works closely with all other parts
of the Group to leverage synergies from product and service propositions.
International Retail and Commercial Banking-excluding Absa
International Retail and Commercial Banking-excluding Absa provides a range of
banking services, including current accounts, savings, investments, mortgages
and loans to personal and corporate customers across Spain, Portugal, France,
Italy, Africa and the Middle East.
International Retail and Commercial Banking-Absa
International Retail and Commercial Banking-Absa represents Barclays
consolidation of Absa, excluding Absa Capital which is included as part of
Barclays Capital. Absa Group Limited is one of South Africa's largest financial
services organisations serving personal, commercial and corporate customers
predominantly in South Africa. International Retail and Commercial Banking-Absa
serves retail customers through a variety of distribution channels and offers a
full range of banking services, including current and deposit accounts,
mortgages, instalment finance, credit cards, bancassurance products and wealth
management services; it also offers customised business solutions for commercial
and large corporate customers.
Barclays Capital
Barclays Capital is a leading global investment bank which provides large
corporate, institutional and government clients with solutions to their
financing and risk management needs.
Barclays Capital services a wide variety of client needs, from capital raising
and managing foreign exchange, interest rate, equity and commodity risks,
through to providing technical advice and expertise. Activities are organised
into three principal areas: Rates, which includes fixed income, foreign
exchange, commodities, emerging markets, money markets, sales, trading and
research, prime services and equity products; Credit, which includes primary and
secondary activities for loans and bonds for investment grade, high yield and
emerging market credit, as well as hybrid capital products, asset based finance,
commercial mortgage backed securities, credit derivatives, structured capital
markets and large asset leasing; and Private Equity. Barclays Capital includes
Absa Capital, the investment banking business of Absa. Barclays Capital works
closely with all other parts of the Group to leverage synergies from client
relationships and product capabilities.
Barclays Global Investors
Barclays Global Investors (BGI) is one of the world's largest asset managers and
a leading global provider of investment management products and services.
BGI offers structured investment strategies such as indexing, global asset
allocation and risk controlled active products including hedge funds and
provides related investment services such as securities lending, cash management
and portfolio transition services. In addition, BGI is the global leader in
assets and products in the exchange traded funds business, with over 190 funds
for institutions and individuals trading in fifteen markets globally. BGI's
investment philosophy is founded on managing all dimensions of performance: a
consistent focus on controlling risk, return and cost. BGI collaborates with the
other Barclays businesses, particularly Barclays Capital and Barclays Wealth, to
develop and market products and leverage capabilities to better serve the client
base.
Barclays Wealth
Barclays Wealth serves affluent, high net worth and intermediary clients
worldwide, providing private banking, asset management, stockbroking, offshore
banking, wealth structuring and financial planning services.
Barclays Wealth works closely with all other parts of the Group to leverage
synergies from client relationships and product capabilities.
Barclays Wealth-closed life assurance activities
Barclays Wealth-closed life assurance activities comprise the closed life
assurance businesses of Barclays and Woolwich in the UK.
Head office functions and other operations
Head office functions and other operations comprise:
- Head office and central support functions
- Businesses in transition
- Consolidation adjustments.
Head office and central support functions comprise the following areas:
Executive management, Finance, Treasury, Corporate Affairs, Human Resources,
Strategy and Planning, Internal Audit, Legal, Corporate Secretariat, Property,
Tax, Compliance and Risk. Costs incurred wholly on behalf of the businesses are
recharged to them.
Businesses in transition principally relate to certain lending portfolios that
are centrally managed with the objective of maximising recovery from the assets.
Consolidation adjustments largely reflect the elimination of inter-segment
transactions.
SUMMARY OF RESULTS
Analysis of profit attributable to equity holders of the parent
2006 2005
GBPm GBPm
UK Banking 2,578 2,200
-------- --------
UK Retail Banking 1,213 1,040
UK Business Banking 1,365 1,160
-------- --------
Barclaycard 382 640
International Retail and Commercial Banking 1,270 633
-------- --------
International Retail and Commercial Banking-ex Absa 572 335
International Retail and Commercial Banking-Absa(1) 698 298
-------- --------
Barclays Capital 2,216 1,431
Barclays Global Investors 714 540
Barclays Wealth 213 166
Barclays Wealth-closed life assurance activities 22 (7)
Head office functions and other operations (259) (323)
-------- --------
Profit before tax 7,136 5,280
Tax (1,941) (1,439)
-------- --------
Profit after tax 5,195 3,841
Profit attributable to minority interests (624) (394)
-------- --------
Profit attributable to equity holders of the parent 4,571 3,447
-------- --------
(1) For 2005, this reflects the period from 27th July until 31st December 2005.
TOTAL ASSETS AND RISK WEIGHTED ASSETS
Total assets
2006 2005
GBPm GBPm
UK Banking 139,902 130,304
-------- --------
UK Retail Banking 74,018 70,389
UK Business Banking 65,884 59,915
-------- --------
Barclaycard 27,628 25,771
International Retail and Commercial Banking 68,848 63,556
-------- --------
International Retail and Commercial Banking-ex Absa 38,451 34,195
International Retail and Commercial Banking-Absa 30,397 29,361
-------- --------
Barclays Capital 657,922 601,193
Barclays Global Investors 80,515 80,900
Barclays Wealth 7,285 6,094
Barclays Wealth-closed life assurance activities 7,605 7,276
Head office functions and other operations 7,082 9,263
-------- --------
996,787 924,357
-------- --------
Risk weighted assets
2006 2005
GBPm GBPm
UK Banking 84,903 79,929
-------- --------
UK Retail Banking 34,942 32,803
UK Business Banking 49,961 47,126
-------- --------
Barclaycard 25,203 21,752
International Retail and Commercial Banking 41,053 41,228
-------- --------
International Retail and Commercial Banking-ex Absa 20,325 20,394
International Retail and Commercial Banking-Absa 20,728 20,834
-------- --------
Barclays Capital 137,635 116,677
Barclays Global Investors 1,375 1,456
Barclays Wealth 5,744 4,061
Barclays Wealth-closed life assurance activities - -
Head office functions and other operations 1,920 4,045
-------- --------
297,833 269,148
-------- --------
Further analysis of total assets and risk weighted assets, can be found on page
62.
UK Banking
2006 2005
GBPm GBPm
Net interest income 4,035 3,744
Net fee and commission income 1,861 1,720
-------- --------
Net trading income 2 -
Net investment income 28 26
-------- --------
Principal transactions 30 26
Net premiums from insurance contracts 269 280
Other income 63 33
-------- --------
Total income 6,258 5,803
Net claims and benefits on insurance contracts (35) (58)
-------- --------
Total income net of insurance claims 6,223 5,745
Impairment charges (461) (327)
-------- --------
Net income 5,762 5,418
-------- --------
Operating expenses excluding amortisation of intangible
assets (3,263) (3,212)
Amortisation of intangible assets (2) (3)
-------- --------
Operating expenses (3,265) (3,215)
Share of post-tax results of associates and joint ventures 5 (3)
Profit on disposal of subsidiaries, associates and joint
ventures 76 -
-------- --------
Profit before tax 2,578 2,200
-------- --------
Cost:income ratio 52% 56%
Cost:net income ratio 57% 59%
Risk Tendency GBP515m GBP430m
Return on average economic capital 38% 33%
Economic profit GBP1,431m GBP1,130m
2006 2005
Loans and advances to customers GBP123.9bn GBP118.2bn
Customer accounts GBP142.4bn GBP129.7bn
Total assets GBP139.9bn GBP130.3bn
Risk weighted assets GBP84.9bn GBP79.9bn
Key Fact
Number of UK branches 2,014 2,029
UK Banking profit before tax increased 17% (GBP378m) to GBP2,578m (2005:
GBP2,200m) driven principally by good income growth. Profit before business
disposals grew 14% (GBP302m) to GBP2,502m (2005: GBP2,200m).
UK Banking has targeted a cost:income ratio reduction of two percentage points
per annum in each of 2005, 2006 and 2007. In 2006 the cost:income ratio improved
three percentage points to 53% (2005: 56%) excluding gains from property sales
not reinvested; this brings the cumulative improvement to six percentage points
in two years. UK Banking continues to target a further two percentage point
improvement in 2007 to 51%.
UK Retail Banking
2006 2005
GBPm GBPm
Net interest income 2,333 2,208
Net fee and commission income 1,219 1,131
-------- --------
Net trading income - -
Net investment income - 9
-------- --------
Principal transactions - 9
Net premiums from insurance contracts 269 280
Other income 42 16
-------- --------
Total income 3,863 3,644
Net claims and benefits on insurance contracts (35) (58)
-------- --------
Total income net of insurance claims 3,828 3,586
Impairment charges (209) (150)
-------- --------
Net income 3,619 3,436
-------- --------
Operating expenses excluding amortisation of intangible
assets (2,407) (2,390)
Amortisation of intangible assets (1) -
-------- --------
Operating expenses (2,408) (2,390)
Share of post-tax results of associates and joint ventures 2 (6)
-------- --------
Profit before tax 1,213 1,040
-------- --------
Cost:income ratio 63% 67%
Cost:net income ratio 67% 70%
Risk Tendency GBP225m GBP180m
Return on average economic capital 39% 35%
Economic profit GBP693m GBP586m
2006 2005
Loans and advances to customers GBP67.6bn GBP64.8bn
Customer accounts GBP85.0bn GBP78.8bn
Total assets GBP74.0bn GBP70.4bn
Risk weighted assets GBP34.9bn GBP32.8bn
Key Facts
Personal Customers
--------------------
Number of UK current accounts 11.5m 11.1m
Number of UK savings accounts 11.0m 10.8m
Total UK mortgage balances (residential) GBP61.9bn GBP59.6bn
Number of household insurance policies 825,000 616,000
Local Business and UK Premier
-------------------------------
Number of Local Business customers 630,000 630,000
Number of UK Premier customers 297,000 286,000
UK Retail Banking profit before tax increased 17% (GBP173m) to GBP1,213m (2005:
GBP1,040m), driven by good income growth and well controlled costs. There has
been substantial additional investment to transform the business.
Income increased 7% (GBP242m) to GBP3,828m (2005: GBP3,586m), continuing the
momentum reported at the half year. Income growth was broadly based. There was
strong income growth in Personal Customers retail savings, Local Business and UK
Premier and good growth in Personal Customers current account income. Sales
volumes increased, with a particularly strong performance from direct channels.
Net interest income increased 6% (GBP125m) to GBP2,333m (2005: GBP2,208m).
Growth was driven by a higher contribution from deposits, through a combination
of good balance sheet growth and a stable liability margin. Total average
customer deposit balances increased 8% to GBP79.2bn (2005: GBP73.5bn), supported
by new products. Growth of personal savings was above that of the market.
Mortgage volumes improved significantly, driven by a focus on improving
capacity, customer service, value and promotion. UK residential mortgage
balances ended the year at GBP61.9bn (2005: GBP59.6bn). Gross advances were 60%
higher at GBP18.4bn (2005: GBP11.5bn), with a market share of 5% (2005: 4%). Net
lending was GBP2.4bn, with performance improving during the year, leading to a
market share of 4% in the second half of the year. The mortgage margin was
reduced by changed assumptions used in the calculation of effective interest
rates, a higher proportion of new mortgages and base rate changes. The new
business spread was in line with the industry. The loan to value ratio within
the residential mortgage book on a current valuation basis was 34% (2005: 35%).
There was good balance growth in non-mortgage loans, where Local Business
average balances increased 9% and UK Premier average balances increased 25%.
Net fee and commission income increased 8% (GBP88m) to GBP1,219m (2005:
GBP1,131m). There was strong current account income growth in Personal Customers
and Local Business. UK Premier delivered strong growth reflecting higher income
from banking services, mortgage sales and investment advice.
Net premiums from insurance underwriting activities decreased 4% (GBP11m) to
GBP269m (2005: GBP280m). There continued to be lower customer take-up of loan
protection insurance. Net claims and benefits on insurance contracts improved to
GBP35m (2005: GBP58m). Other income increased GBP26m to GBP42m (2005: GBP16m),
principally representing the benefit from reinsurance.
Impairment charges increased 39% (GBP59m) to GBP209m (2005: GBP150m). The
increase principally reflected balance growth and some deterioration in
delinquency rates in the Local Business loan book. Losses from the mortgage
portfolio remained negligible, with arrears at low levels.
Operating expenses were steady at GBP2,408m (2005: GBP2,390m). Substantially all
of the gains from the sale and leaseback of property of GBP253m have been
reinvested in the business to improve customer service and deliver sustainable
performance improvements. Around half of the incremental investment was directed
at upgrading distribution capabilities, including restructuring and improving
the branch network. Further investment was focused on upgrading the contact
centres, transforming the performance of the mortgage business, revitalising the
retail product range to meet customers' needs, improving core operations and
processes and rationalising the number of operating sites. The level of
investment reflected in operating expenses in 2006 was approximately double the
level of 2005.
The cost:income ratio improved four percentage points to 63% (2005: 67%).
UK Business Banking
2006 2005
GBPm GBPm
Net interest income 1,702 1,536
Net fee and commission income 642 589
-------- --------
Net trading income 2 -
Net investment income 28 17
-------- --------
Principal transactions 30 17
Other income 21 17
-------- --------
Total income 2,395 2,159
Impairment charges (252) (177)
-------- --------
Net income 2,143 1,982
-------- --------
Operating expenses excluding amortisation of intangible
assets (856) (822)
Amortisation of intangible assets (1) (3)
-------- --------
Operating expenses (857) (825)
Share of post-tax results of associates and joint ventures 3 3
Profit on disposal of subsidiaries, associates and joint
ventures 76 -
-------- --------
Profit before tax 1,365 1,160
-------- --------
Cost:income ratio 36% 38%
Cost:net income ratio 40% 42%
Risk Tendency GBP290m GBP250m
Return on average economic capital 37% 31%
Economic profit GBP738m GBP544m
2006 2005
Loans and advances to customers GBP56.3bn GBP53.4bn
Customer accounts GBP57.4bn GBP50.9bn
Total assets GBP65.9bn GBP59.9bn
Risk weighted assets GBP50.0bn GBP47.1bn
Key Fact
Total number of Business Banking customers 150,000 144,000
UK Business Banking profit before tax increased 18% (GBP205m) to GBP1,365m
(2005: GBP1,160m), driven by continued strong income growth. UK Business Banking
maintained its market share of primary customer relationships. The 2006 result
included a GBP23m (2005: GBP13m) contribution from the full year consolidation
of Iveco Finance, in which a 51% stake was acquired on 1st June 2005. Profit
before business disposals increased 11% to GBP1,289m (2005: GBP1,160m).
Income increased 11% (GBP236m) to GBP2,395m (2005: GBP2,159m), driven by strong
balance sheet growth. The uplift in income was broadly based across income
categories.
Net interest income increased 11% (GBP166m) to GBP1,702m (2005: GBP1,536m)
driven by strong balance sheet growth. There was strong growth in all business
areas and in particular Larger Business. The lending margin improved slightly.
Average deposit balances increased 11% to GBP44.8bn (2005: GBP40.5bn) with good
growth across product categories. The deposit margin was stable.
Net fee and commission income increased 9% (GBP53m) to GBP642m (2005: GBP589m).
There was a strong rise in income from foreign exchange and derivatives business
transacted through Barclays Capital on behalf of Business Banking customers.
Income from principal transactions was GBP30m (2005: GBP17m), primarily
reflecting the profit realised on a number of equity investments.
As expected, impairment rates trended upwards during the year towards a more
normalised level. Impairment increased 42% (GBP75m) to GBP252m (2005: GBP177m),
with the increase mainly reflecting higher charges from Medium Business and
balance growth. Impairment charges in Larger Business were stable.
Operating expenses increased 4% (GBP32m) to GBP857m (2005: GBP825m). Cost growth
reflected higher volumes, increased expenditure on front line staff and the
costs of Iveco Finance for a full year. Operating expenses included a credit of
GBP60m on the sale and leaseback of property, of which approximately half was
reinvested in the business, including costs relating to the acceleration of the
rationalisation of operating sites and technology infrastructure.
The cost:income ratio improved two percentage points to 36% (2005: 38%).
Profit on disposals of subsidiaries, associates and joint ventures of GBP76m
(2005: nil) arose from the sales of interests in vehicle leasing and European
vendor finance businesses.
Barclaycard
2006 2005
GBPm GBPm
Net interest income 1,843 1,726
Net fee and commission income 1,054 972
Net investment income 15 -
Net premiums from insurance contracts 33 24
-------- --------
Total income 2,945 2,722
Net claims and benefits on insurance contracts (8) (7)
-------- --------
Total income net of insurance claims 2,937 2,715
Impairment charges (1,493) (1,098)
-------- --------
Net income 1,444 1,617
-------- --------
Operating expenses excluding amortisation of intangible
assets (1,037) (961)
Amortisation of intangible assets (17) (17)
-------- --------
Operating expenses (1,054) (978)
Share of post-tax results of associates and joint ventures (8) 1
-------- --------
Profit before tax 382 640
-------- --------
Cost:income ratio 36% 36%
Cost:net income ratio 73% 60%
Risk Tendency GBP1,410m GBP1,100m
Return on average economic capital 10% 16%
Economic profit GBPnil GBP183m
2006 2005
Loans and advances to customers GBP25.5bn GBP24.0bn
Total assets GBP27.6bn GBP25.8bn
Risk weighted assets GBP25.2bn GBP21.8bn
Key Facts
Number of Barclaycard UK customers 9.8m 11.2m
Number of retailer relationships 93,000 93,000
UK credit cards-average outstanding balances GBP9.4bn GBP10.1bn
UK credit cards-average extended credit balances GBP8.0bn GBP8.6bn
UK loans-average consumer lending balances GBP11.9bn GBP10.3bn
International-average extended credit balances GBP2.5bn GBP1.8bn
International-cards in issue 6.4m 4.3m
Barclaycard profit before tax decreased 40% (GBP258m) to GBP382m (2005: GBP640m)
as good income growth was more than offset by higher impairment charges and
increased costs from the continued development of international businesses.
Income increased 8% (GBP222m) to GBP2,937m (2005: GBP2,715m). Growth was driven
by very strong momentum in the United States and by strong performances in
Barclaycard Business, FirstPlus, SkyCard and continental European markets.
Net interest income increased 7% (GBP117m) to GBP1,843m (2005: GBP1,726m). UK
average extended credit card balances fell 7% to GBP8.0bn (2005: GBP8.6bn),
reflecting the impact of tighter lending criteria. UK average consumer lending
balances increased 16% to GBP11.9bn (2005: GBP10.3bn) driven by secured lending
in FirstPlus. International average extended credit card balances rose 39% to
GBP2.5bn (2005: GBP1.8bn).
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.
Net fee and commission income increased 8% (GBP82m) to GBP1,054m (2005: GBP972m)
as a result of increased contributions from Barclaycard International, SkyCard,
FirstPlus and Barclaycard Business. Barclaycard reduced its late and overlimit
fee charges in the UK on 1st August 2006 in response to the Office of Fair
Trading's findings.
Investment income of GBP15m (2005: GBPnil) represents the gain arising from the
sale of part of the stake in MasterCard Inc, following its flotation.
Impairment charges increased 36% (GBP395m) to GBP1,493m (2005: GBP1,098m). The
increase was driven by a rise in delinquent balances and increased numbers of
bankruptcies and Individual Voluntary Arrangements. As a result of management
action in 2005 and 2006 to tighten lending criteria and improve collection
processes, the flows of new delinquencies reduced, and levels of arrears
balances declined in the second half of 2006 in UK cards and unsecured loans.
Operating expenses increased 8% (GBP76m) to GBP1,054m (2005: GBP978m). This
included a GBP38m gain from the sale and leaseback of property. Excluding this
item, underlying operating expenses increased 12% (GBP114m) to GBP1,092m. This
was largely as a result of continued investment in Barclaycard International,
particularly Barclaycard US, and the development of UK partnerships.
Barclaycard International continued its growth strategy in the continental
European business delivering solid results. The Entercard joint venture, which
is based in Scandinavia, performed ahead of plan. Barclaycard International loss
before tax reduced to GBP30m (2005: loss GBP37m), including the loss before tax
for Barclaycard US of GBP56m (2005: loss GBP59m). Barclaycard US continued to
perform ahead of expectations, delivering very strong growth in balances and
customer numbers and creating a number of new partnerships including US Airways,
Barnes & Noble, Travelocity and Jo-Ann Stores.
Barclaycard UK customer numbers declined 1.4m to 9.8m (2005: 11.2m). This
reflected the closure of 1.5 million accounts that had been inactive.
International Retail and Commercial Banking
2006 2005
GBPm GBPm
Net interest income 1,659 1,050
Net fee and commission income 1,303 705
-------- --------
Net trading income 6 3
Net investment income 188 143
-------- --------
Principal transactions 194 146
Net premiums from insurance contracts 351 227
Other income 74 60
-------- --------
Total income 3,581 2,188
Net claims and benefits on insurance contracts (244) (205)
-------- --------
Total income net of insurance claims 3,337 1,983
Impairment charges (167) (32)
-------- --------
Net income 3,170 1,951
-------- --------
Operating expenses excluding amortisation of intangible
assets (2,111) (1,317)
Amortisation of intangible assets (85) (47)
-------- --------
Operating expenses (2,196) (1,364)
Share of post-tax results of associates and joint ventures 49 46
Profit on disposal of subsidiaries, associates and joint
ventures 247 -
-------- --------
Profit before tax 1,270 633
-------- --------
Cost:income ratio 66% 69%
Cost:net income ratio 69% 70%
Risk Tendency GBP220m GBP175m
Return on average economic capital 37% 23%
Economic profit GBP530m GBP205m
2006 2005
Loans and advances to customers GBP53.5bn GBP49.3bn
Customer accounts GBP22.5bn GBP22.6bn
Total assets GBP68.9bn GBP63.6bn
Risk weighted assets GBP41.1bn GBP41.2bn
Key Fact
Number of international branches 1,613 1,516
International Retail and Commercial Banking profit before tax increased GBP637m
to GBP1,270m (2005: GBP633m). The increase reflected the inclusion of a full
year's profit before tax from International Retail and Commercial Banking-Absa
of GBP698m (2005(1): GBP298m) and a profit of GBP247m on the disposal of
Barclays interest in FirstCaribbean International Bank.
(1) For 2005, this reflects the period from 27th July until 31st December 2005.
International Retail and Commercial Banking-excluding Absa
2006 2005
GBPm GBPm
Net interest income 610 562
Net fee and commission income 448 377
-------- --------
Net trading income 17 31
Net investment income 66 88
-------- --------
Principal transactions 83 119
Net premiums from insurance contracts 111 129
Other income 20 23
-------- --------
Total income 1,272 1,210
Net claims and benefits on insurance contracts (138) (161)
-------- --------
Total income net of insurance claims 1,134 1,049
Impairment charges (41) (13)
-------- --------
Net income 1,093 1,036
-------- --------
Operating expenses excluding amortisation of intangible
assets (799) (734)
Amortisation of intangible assets (9) (6)
-------- --------
Operating expenses (808) (740)
Share of post-tax results of associates and joint ventures 40 39
Profit on disposal of subsidiaries, associates and joint
ventures 247 -
-------- --------
Profit before tax 572 335
-------- --------
Cost:income ratio 71% 71%
Cost:net income ratio 74% 71%
Risk Tendency GBP75m GBP75m
Return on average economic capital 39% 20%
Economic profit GBP346m GBP115m
2006 2005
Loans and advances to customers GBP29.3bn GBP25.4bn
Customer accounts GBP11.4bn GBP10.4bn
Total assets GBP38.5bn GBP34.2bn
Risk weighted assets GBP20.4bn GBP20.4bn
Key Facts
Number of international branches 868 798
Number of Barclays continental Europe customers 820,000 800,000
Number of continental European mortgage customers 252,000 221,000
Continental European mortgages-average balances (Euros) EUR25.9bn EUR21.2bn
Continental European assets under management (Euros) EUR26.4bn EUR22.6bn
International Retail and Commercial Banking-excluding Absa profit before tax
increased 71% (GBP237m) to GBP572m (2005: GBP335m), including a gain on the
disposal of the interest in FirstCaribbean International Bank of GBP247m. Profit
before business disposals was GBP325m (2005: GBP335m). This reflected good
growth in continental Europe offset by a decline in profits in Africa caused by
higher impairment, and increased costs reflecting a step change in the rate of
organic investment in the business.
Income increased 8% (GBP85m) to GBP1,134m (2005: GBP1,049m). Excluding gains
from asset sales in 2005, income increased 11% (GBP116m) to GBP1,134m (2005:
GBP1,018m).
Net interest income increased 9% (GBP48m) to GBP610m (2005: GBP562m), reflecting
strong balance sheet growth in continental Europe, Africa and the Middle East,
and the development of the corporate business in Spain.
Total average customer loans increased 20% to GBP27.4bn (2005: GBP22.9bn).
Mortgage balance growth in continental Europe was particularly strong, with
average Euro balances up 22%. There was a modest decline in lending margins
partly driven by a greater share of mortgage assets as a proportion of the total
book in continental Europe. Average customer deposits increased 17% to GBP10.8bn
(2005: GBP9.2bn), with deposit margins stable.
Net fee and commission income increased 19% (GBP71m) to GBP448m (2005: GBP377m).
This reflected a strong performance from the Spanish funds business, where
average assets under management increased 11%, together with very strong growth
in France, including the first full year contribution of the ING Ferri business
which was acquired on 1st July 2005. Net fee and commission income showed solid
growth in Africa and the Middle East.
Principal transactions decreased GBP36m to GBP83m (2005: GBP119m). 2005 included
GBP23m from the redemption of preference shares in FirstCaribbean International
Bank.
Impairment charges increased GBP28m to GBP41m (2005: GBP13m). This reflected the
absence of one-off recoveries of GBP12m which arose in 2005 in Africa and the
Middle East, and strong balance sheet growth across the businesses.
Operating expenses increased 9% (GBP68m) to GBP808m (2005: GBP740m). This
included gains from the sale and leaseback of property in Spain of GBP55m, just
under half of which were reinvested in accelerated staff restructuring and
infrastructure upgrades. Excluding these net gains, operating expenses increased
14% to GBP840m (2005: GBP740m). Operating expenses also included incremental
investment expenditure of GBP25m to expand the distribution network and enhance
IT and operational capabilities.
Barclays Spain continued to perform strongly. Profit before tax increased 21%
(GBP30m) to GBP171m (2005: GBP141m), excluding net one-off gains on asset sales
of GBP32m (2005: GBP8m) and integration costs of GBP43m (2005: GBP57m). This was
driven by the continued realisation of benefits from Banco Zaragozano, together
with strong growth in assets under management and solid growth in mortgages.
Africa and the Middle East profit before tax decreased 9% (GBP12m) to GBP126m
(2005: GBP138m) driven by higher impairment charges reflecting one-off
recoveries of GBP12m that arose in 2005 and an increase in investment
expenditure.
Profit before tax increased strongly in Portugal reflecting good flows of new
customers and increased business volumes. France also performed well as a result
of good organic growth and the acquisition of ING Ferri.
The profit on disposal of subsidiaries, associate and joint ventures of GBP247m
(2005: nil) comprised the gain on the sale of Barclays interest in
FirstCaribbean. The share of post-tax results of FirstCaribbean International
Bank included in 2006 was GBP41m (2005: GBP37m).
International Retail and Commercial Banking-Absa
2006 2005(1)
GBPm GBPm
Net interest income 1,049 488
Net fee and commission income 855 328
-------- --------
Net trading income (11) (28)
Net investment income 122 55
-------- --------
Principal transactions 111 27
Net premiums from insurance contracts 240 98
Other income 54 37
-------- --------
Total income 2,309 978
Net claims and benefits on insurance contracts (106) (44)
-------- --------
Total income net of insurance claims 2,203 934
Impairment charges (126) (19)
-------- --------
Net income 2,077 915
-------- --------
Operating expenses excluding amortisation of intangible
assets (1,312) (583)
Amortisation of intangible assets (76) (41)
-------- --------
Operating expenses (1,388) (624)
Share of post-tax results of associates and joint ventures 9 7
-------- --------
Profit before tax 698 298
-------- --------
Cost:income ratio 63% 67%
Cost:net income ratio 67% 68%
Risk Tendency GBP145m GBP100m
Return on average economic capital 34% 36%
Economic profit GBP184m GBP90m
2006 2005
Loans and advances to customers GBP24.2bn GBP23.9bn
Customer accounts GBP11.1bn GBP12.2bn
Total assets GBP30.4bn GBP29.4bn
Risk weighted assets GBP20.7bn GBP20.8bn
Key Facts
Number of branches 749 718
Number of ATMs 7,053 5,835
Number of retail customers 8.3m 7.6m
Number of corporate customers 84,000 79,000
(1) For 2005, this reflects the period from 27th July until 31st December 2005.
International Retail and Commercial Banking - Absa profit before tax increased
134% to GBP698m (2005: GBP298m) reflecting the full year to 31st December 2006
compared with the five months ended 31st December 2005. Barclays acquired a
controlling stake in Absa Group Limited on 27th July 2005.
Appendix 1 on page 94 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.
In the commentary below, the comparable period referred to, for illustrative
purposes only, is the proforma full year to 31st December 2005 and is based on
performance in Rand.
Absa Group Limited's profit before tax increased 24% 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%. Loans and advances to customers increased 26%
underpinned by very strong growth in mortgages, credit cards and commercial
property finance.
Non-interest income increased 12% reflecting higher transaction volumes, strong
growth in insurance related earnings and gains on asset sales.
As expected the impairment charge on loans and advances increased from the very
low levels of the prior year, particularly in Absa Home Loans, Absa Card and
Retail Banking Services.
Operating expenses increased 14% 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
synergies of R753m were delivered, in excess of the target originally
communicated for the year. Integration costs for the period were in line with
expectations.
Impact on Barclays results(1)
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/GBP (2005: R11.57/GBP).
Consolidation adjustments reflected the amortisation of intangible assets of
GBP75m and internal funding and other adjustments of GBP72m. The resulting
profit before tax of GBP769m (2005: GBP337m) is represented with International
Retail and Commercial Banking - Absa GBP698m, (2005: GBP298m) and Barclays
Capital, GBP71m (2005: GBP39m).
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/GBP (31st December 2005:
R10.87/GBP). 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) For 2005, this reflects the period from 27th July until 31st December 2005.
Barclays Capital
2006 2005
GBPm GBPm
Net interest income 1,158 1,065
Net fee and commission income 952 776
-------- --------
Net trading income 3,562 2,231
Net investment income 573 413
-------- --------
Principal transactions 4,135 2,644
Other income 22 20
-------- --------
Total income 6,267 4,505
Impairment charges (42) (111)
-------- --------
Net income 6,225 4,394
-------- --------
Operating expenses excluding amortisation of intangible
assets (3,996) (2,961)
Amortisation of intangible assets (13) (2)
-------- --------
Operating expenses (4,009) (2,963)
-------- --------
Profit before tax 2,216 1,431
-------- --------
Cost:income ratio 64% 66%
Cost:net income ratio 64% 67%
Compensation:net income ratio 49% 51%
Average DVaR GBP37.1m GBP32.0m
Risk Tendency GBP95m GBP110m
Return on average economic capital 41% 34%
Average net income generated per member of staff ('000) GBP560 GBP498
Economic profit GBP1,181m GBP706m
2006 2005
Total assets GBP657.9bn GBP601.2bn
Risk weighted assets GBP137.6bn GBP116.7bn
Corporate lending portfolio GBP40.6bn GBP40.1bn
Key Facts 2006 2005
League League
table Issuance table Issuance
position value position value
All international bonds (all
currencies) 1st US$271.9bn 2nd US$183.6bn
Sterling bonds 1st GBP27.3bn 1st GBP23.0bn
International securitisations 2nd US$53.2bn 1st US$36.8bn
US investment grade corporate
bonds 7th US$6.0bn 5th US$9.9bn
Barclays Capital delivered record profit before tax and net income. Profit
before tax increased 55% (GBP785m) to GBP2,216m (2005: GBP1,431m). This was the
result of a very strong income performance, driven by higher business volumes,
continued growth in client activity and favourable market conditions. Net income
increased 42% (GBP1,831m) to GBP6,225m (2005: GBP4,394m). Profit before tax for
Absa Capital was GBP71m (2005(1): GBP39m). Excluding Absa Capital, profit before
tax increased 54%.
Income increased 39% (GBP1,762m) to GBP6,267m (2005: GBP4,505m) as a result of
very strong growth across the Rates, Credit and Private Equity businesses.
Income increased in all geographic regions with significant contributions
outside the UK from the US, continental Europe and Asia. The top line
performance reflected returns from past investments and the strength of the
global client franchise. Average DVaR increased 16% to GBP37.1m (2005: GBP32.0m)
significantly below the rate of income growth.
Secondary income, comprising principal transactions (net trading income and net
investment income) and net interest income, is mainly generated from providing
client financing and risk management solutions. Secondary income increased 43%
(GBP1,584m) to GBP5,293m (2005: GBP3,709m).
Net trading income increased 60% (GBP1,331m) to GBP3,562m (2005: GBP2,231m) with
very strong contributions across the Rates and Credit businesses, in particular
commodities, fixed income, equities, credit derivatives and emerging markets.
The performance was driven by higher volumes of client led activity and
favourable market conditions. Net investment income increased 39% (GBP160m) to
GBP573m (2005: GBP413m) driven by investment realisations, primarily in Private
Equity, offset by reduced contributions from credit products. Net interest
income increased 9% (GBP93m) to GBP1,158m (2005: GBP1,065m) driven by a full
year contribution from Absa Capital. Corporate lending remained flat at
GBP40.6bn (2005: GBP40.1bn).
Primary income, which comprises net fee and commission income from advisory and
origination activities, grew 23% (GBP176m) to GBP952m (2005: GBP776m). This
reflected higher volumes and continued market share gains in a number of key
markets, with strong contributions from issuances in bonds, European leveraged
loans and convertibles.
Impairment charges of GBP42m (2005: GBP111m), including impairment on available
for sale assets of GBP83m (2005: nil), were 62% lower than prior year reflecting
recoveries and the continued benign wholesale credit environment.
Operating expenses increased 35% (GBP1,046m) to GBP4,009m (2005: GBP2,963m),
reflecting higher performance related costs, increased levels of activity and
continued investment across the business. The cost:net income ratio improved to
64% (2005: 67%) and the compensation to net income ratio improved to 49% (2005:
51%). Performance related pay, discretionary investment spend and short-term
contractor resource costs represented 50% of operating expenses (2005: 46%).
Amortisation of intangible assets principally relates to mortgage service rights
obtained as part of the purchase of HomEq, a US mortgage servicing business
acquired on 1st November 2006.
Total headcount increased 3,300 during 2006 to 13,200 (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.
(1) For 2005, this reflects the period from 27th July until 31st December 2005.
Barclays Global Investors
2006 2005
GBPm GBPm
Net interest income 10 15
Net fee and commission income 1,651 1,297
-------- --------
Net trading income 2 2
Net investment income 2 4
-------- --------
Principal transactions 4 6
-------- --------
Total income 1,665 1,318
-------- --------
Operating expenses excluding amortisation of intangible
assets (946) (775)
Amortisation of intangible assets (5) (4)
-------- --------
Operating expenses (951) (779)
Share of post-tax results of associates and joint ventures - 1
-------- --------
Profit before tax 714 540
-------- --------
Cost:income ratio 57% 59%
Average income generated per member of staff ('000) GBP666 GBP628
Return on average economic capital 228% 248%
Economic profit GBP376m GBP299m
2006 2005
Total assets GBP80.5bn GBP80.9bn
Risk weighted assets GBP1.4bn GBP1.5bn
Key Facts
Assets under management (GBP): GBP927bn GBP881bn
-------- --------
-indexed GBP566bn GBP570bn
-iShares GBP147bn GBP113bn
-active GBP214bn GBP198bn
-------- --------
Net new assets in period (GBP) GBP37bn GBP48bn
Assets under management (US$): US$1,814bn US$1,513bn
-------- --------
-indexed US$1,108bn US$980bn
-iShares US$287bn US$193bn
-active US$419bn US$340bn
-------- --------
Net new assets in period (US$) US$68bn US$88bn
Number of iShares products 191 149
Number of institutional clients 2,900 2,800
Barclays Global Investors delivered another year of outstanding results. Profit
before tax increased 32% (GBP174m) to GBP714m (2005: GBP540m), reflecting very
strong income growth and higher operating margins. The performance was broadly
based across products, distribution channels and geographies.
Net fee and commission income increased 27% (GBP354m) to GBP1,651m (2005:
GBP1,297m). This growth was attributable to increased management fees,
particularly in the iShares and active businesses, and securities lending,
offset by lower incentive fees. Incentive fees decreased 9% (GBP18m) to GBP186m
(2005: GBP204m). Higher asset values, driven by higher market levels and good
net new inflows, contributed to the growth in income.
Operating expenses increased 22% (GBP172m) to GBP951m (2005: GBP779m) as a
result of significant investment in key growth initiatives, ongoing investment
in product development and infrastructure and higher performance-based expenses.
The cost: income ratio improved two percentage points to 57% (2005: 59%).
Total headcount rose 400 to 2,700 (2005: 2,300). Headcount increased in all
regions, across product groups and the support functions, reflecting continued
investment to support strategic initiatives.
Total assets under management increased 5% (GBP46bn) to GBP927bn (2005:
GBP881bn) primarily due to net new inflows of GBP37bn. The positive market move
impact of GBP98bn was largely offset by GBP89bn of adverse exchange rate
movements. In US$ terms assets under management increased by US$301bn to
US$1,814bn (2005: US$1,513bn), comprising US$68bn of net new assets, US$177bn of
favourable market movements and US$56bn of positive exchange rate movements.
Barclays Wealth
2006 2005
GBPm GBPm
Net interest income 366 329
Net fee and commission income 665 589
-------- --------
Net trading income - -
Net investment income - 5
-------- --------
Principal transactions - 5
Other income 5 (1)
-------- --------
Total income 1,036 922
Impairment charges (2) (2)
-------- --------
Net income 1,034 920
-------- --------
Operating expenses excluding amortisation of intangible
assets (817) (752)
Amortisation of intangible assets (4) (2)
-------- --------
Operating expenses (821) (754)
-------- --------
Profit before tax 213 166
-------- --------
Cost:income ratio 79% 82%
Cost:net income ratio 79% 82%
Risk Tendency GBP10m GBP5m
Return on average economic capital 48% 38%
Average net income generated per member of staff ('000) GBP138 GBP128
Economic profit GBP144m GBP109m
2006 2005
Customer accounts GBP25.2bn GBP23.1bn
Loans and advances to customers GBP5.7bn GBP4.7bn
Total assets GBP7.3bn GBP6.1bn
Risk weighted assets GBP5.7bn GBP4.1bn
Key Fact
Total client assets GBP93.0bn GBP78.3bn
Barclays Wealth profit before tax showed very strong growth of 28% (GBP47m) to
GBP213m (2005: GBP166m). Performance was driven by broadly based income growth
and favourable market conditions. This was partially offset by additional volume
related costs and a significant increase in investment in people and
infrastructure to support future growth.
Income increased 12% (GBP114m) to GBP1,036m (2005: GBP922m).
Net interest income increased 11% (GBP37m) to GBP366m (2005: GBP329m) reflecting
growth in both customer deposits and customer lending. Average customer deposits
grew 6% (GBP1.3bn) to GBP24.7bn (2005: GBP23.4bn). Average loans to customers
grew 16% to GBP5.1bn (2005: GBP4.4bn), driven by increased lending to offshore
and private banking clients. Asset and liability margins were higher relative to
2005.
Net fee and commission income increased 13% (GBP76m) to GBP665m (2005: GBP589m).
This reflected growth in client assets and higher transactional income,
including increased sales of investment products to private banking and
financial planning clients, and higher stockbroking volumes.
Operating expenses increased 9% (GBP67m) to GBP821m (2005: GBP754m) with greater
volume related and investment costs more than offsetting efficiency gains.
Investment costs included increased hiring of client facing staff and
improvements to infrastructure with the upgrade of technology and operations
platforms. The cost:income ratio improved three percentage points to 79% (2005:
82%).
Total client assets, comprising customer deposits and client investments,
increased 19% (GBP14.7bn) to GBP93.0bn (2005: GBP78.3bn) reflecting good net new
asset inflows and favourable market conditions. Multi-Manager assets increased
68% (GBP4.1bn) to GBP10.1bn (2005: GBP6.0bn); this growth included transfers of
existing client assets.
Barclays Wealth-closed life assurance activities
2006 2005
GBPm GBPm
Net interest income (8) (14)
Net fee and commission income 50 44
-------- --------
Net trading income 2 -
Net investment income 154 259
-------- --------
Principal transactions 156 259
Net premiums from insurance contracts 210 195
Other income 11 11
-------- --------
Total income 419 495
Net claims and benefits on insurance contracts (288) (375)
-------- --------
Total income net of insurance claims 131 120
Operating expenses (109) (127)
-------- --------
Profit/(loss) before tax 22 (7)
-------- --------
Cost:income ratio 83% 106%
Return on average economic capital (22)% (3)%
Economic loss (GBP18m) (GBP7m)
2006 2005
Total assets GBP7.6bn GBP7.3bn
Barclays Wealth - closed life assurance activities profit before tax was GBP22m
(2005: loss GBP7m). The improvement was mostly due to lower funding costs and
reduced customer redress costs in 2006.
Profit before tax excluding customer redress costs was GBP89m (2005: GBP78m).
Income grew 9% (GBP11m) to GBP131m (2005: GBP120m) principally due to reduced
funding costs.
Operating expenses decreased to GBP109m (2005: GBP127m). Costs relating to
redress for customers decreased to GBP67m (2005: GBP85m) whilst other operating
expenses remained steady at GBP42m (2005: GBP42m).
Head office functions and other operations
2006 2005
GBPm GBPm
Net interest income 80 160
Net fee and commission income (359) (398)
-------- --------
Net trading income 40 85
Net investment income 2 8
-------- --------
Principal transactions 42 93
Net premiums from insurance contracts 197 146
Other income 39 24
-------- --------
Total income (1) 25
Impairment releases/(charges) 11 (1)
-------- --------
Net income 10 24
-------- --------
Operating expenses excluding amortisation of intangible
assets (259) (343)
Amortisation of intangible assets (10) (4)
-------- --------
Operating expenses (269) (347)
-------- --------
Loss before tax (259) (323)
-------- --------
Risk Tendency GBP10m GBP25m
2006 2005
Total assets GBP7.1bn GBP9.3bn
Risk weighted assets GBP1.9bn GBP4.0bn
Head office functions and other operations loss before tax decreased GBP64m to
GBP259m (2005: loss GBP323m).
Net interest income decreased GBP80m to GBP80m (2005: GBP160m) reflecting a
reduction in net interest income in Treasury following the acquisition of Absa
Group Limited. Treasury's net interest income also included the hedge
ineffectiveness for the period, which together with other related Treasury
adjustments amounted to a gain of GBP11m (2005: GBP18m) and the cost of hedging
the foreign exchange risk on the Group's equity investment in Absa, which
amounted to GBP71m (2005: GBP37m).
Group segmental reporting is performed in accordance with Group accounting
policies. This means that inter-segment transactions are recorded in each
segment as if undertaken on an arm's length basis. Adjustments necessary to
eliminate the inter-segment transactions are included in Head office functions
and other operations.
The impact of such inter-segment adjustments reduced GBP72m to GBP147m (2005:
GBP219m). These adjustments related to internal fees for structured capital
market activities of GBP87m (2005: GBP67m) and fees paid to Barclays Capital for
capital raising and risk management advice of GBP16m (2005: GBP39m), both of
which reduce net fees and commission income. In addition the impact of the
timing of the recognition of insurance commissions included in Barclaycard and
UK Retail Banking reduced to GBP44m (2005: GBP113m). This reduction was
reflected in a decrease in net fee and commission income of GBP242m (2005:
GBP258m) and an increase in net premium income of GBP198m (2005: GBP145m).
Principal transactions decreased GBP51m to GBP42m (2005: GBP93m). 2005 included
hedging related gains in Treasury of GBP80m. 2006 included GBP55m (2005: GBPnil)
in respect of the economic hedge of the translation exposure arising from Absa
foreign currency earnings.
The impairment charge improved GBP12m to a release of GBP11m (2005: GBP1m
charge) as a number of workout situations were resolved.
Operating expenses decreased GBP78m to GBP269m (2005: GBP347m) primarily due to
the expenses of the 2005 Head office relocation to Canary Wharf not recurring in
2006 (2005: GBP105m) and the gains of GBP26m (2005: GBPnil) from the sale and
leaseback of property offset by increased costs, principally driven by major
project expenditure including work related to implementing Basel II.
FINANCIAL REVIEW
Results by nature of income and expense
Net interest income
2006 2005
GBPm GBPm
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% (GBP1,068m) to GBP9,143m (2005:
GBP8,075m). The inclusion of Absa contributed net interest income of GBP1,138m
(2005(1): GBP516m). 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 GBP26m (2005: GBP145m), largely due to the impact of relatively
higher short-term interest rates and lower medium-term rates.
Interest income includes GBP98m (2005: GBP76m) 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
GBPm GBPm
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
GBPm GBPm
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
GBPm GBPm
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
GBPm GBPm
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% (GBP1,472m) to GBP7,177m (2005:
GBP5,705m). The inclusion of Absa contributed net fee and commission income of
GBP850m (2005(1): GBP334m). Group net fee and commission income excluding Absa
grew 18%, reflecting growth across all businesses.
Fee and commission income rose 24% (GBP1,575m) to GBP8,005m (2005: GBP6,430m).
The inclusion of Absa contributed fee and commission income of GBP896m (2005(1):
GBP386m). 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% (GBP103m) to GBP828m (2005: GBP725m),
reflecting the growth in Barclaycard US. Absa contributed fee and commission
expense of GBP46m (2005(1): GBP52m).
Total foreign exchange income was GBP850m (2005: GBP648m) 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
GBPm GBPm
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% (GBP1,293m) to GBP3,614m (2005: GBP2,321m) 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 GBP60m (2005(1): GBP9m). Group net trading income excluding Absa grew
54%.
Net investment income increased 12% (GBP104m) to GBP962m (2005: GBP858m). The
inclusion of Absa contributed net investment income of GBP144m (2005(1):
GBP62m). Group net investment income excluding Absa increased 3%.
The cumulative gain from disposal of available for sale assets increased 156%
(GBP187m) to GBP307m (2005: GBP120m) 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 GBP205m (2005: GBP317m).
(1) For 2005, this reflects the period from 27th July until 31st December 2005.
Net premiums from insurance contracts
2006 2005
GBPm GBPm
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% (GBP188m) to GBP1,060m
(2005: GBP872m). The inclusion of Absa contributed net premiums from insurance
contracts of GBP240m (2005(1): GBP98m). Group net premiums from insurance
contracts excluding Absa increased 6% reflecting growth in UK consumer lending.
Other income
2006 2005
GBPm GBPm
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
GBPm GBPm
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% (GBP70m) to
GBP575m (2005: GBP645m). The inclusion of Absa contributed net claims and
benefits of GBP106m (2005(1): GBP44m). 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 GBPm GBPm
-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% (GBP583m) to GBP2,154m (2005: GBP1,571m).
Impairment charges on loans and advances and other credit provisions
Impairment charges on loans and advances and other credit provisions increased
32% (GBP501m) to GBP2,068m (2005: GBP1,567m). Excluding Absa, the increase was
26% (GBP395m) 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 GBP316,561m (2005:
GBP303,451m) increased to 0.65% (2005: 0.52%).
Retail impairment charges on loans and advances and other credit provisions
increased to GBP1,809m (2005: GBP1,254m), including GBP99m (2005(1): GBP10m) 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
GBP139,350m (2005(2): GBP134,420m), including balances in Absa of GBP20,090m
(2005: GBP20,836m).
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 GBP259m (2005: GBP313m),
including GBP27m (2005(1): GBP10m) 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
GBP177,211m (2005(2): GBP169,031m), including balances in Absa of GBP9,299m
(2005: GBP9,731m).
In Absa impairment charges increased to GBP126m (2005(1): GBP20m) 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 GBP83m
(2005: GBPnil) 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
GBPm GBPm
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% (GBP2,147m) to GBP12,674m (2005: GBP10,527m).
The inclusion of Absa contributed operating expenses of GBP1,496m (2005(1):
GBP664m). 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% (GBP537m) to GBP3,980m (2005: GBP3,443m).
The inclusion of Absa contributed administrative expenses of GBP579m (2005(1):
GBP257m). 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% (GBP29m) to GBP345m (2005: GBP316m). The
inclusion of Absa contributed operating lease rentals of GBP73m (2005(1):
GBP27m), 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 GBP432m
(2005: GBPnil) 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% (GBP57m) to GBP136m (2005:
GBP79m) 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
GBPm GBPm
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% (GBP1,851m) to GBP8,169m (2005: GBP6,318m). The
inclusion of Absa contributed staff costs of GBP694m (2005(1): GBP296m). Group
staff costs excluding Absa rose 24%.
Salaries and accrued incentive payments rose 32% (GBP1,599m) to GBP6,635m (2005:
GBP5,036m), principally due to increased performance related payments and the
full year inclusion of Absa. The inclusion of Absa contributed salaries and
incentive payments of GBP615m (2005(1): GBP276m). 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
GBPm GBPm
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%
(GBP1m) to GBP46m (2005: GBP45m).
Of the GBP46m share of post-tax results of associates and joint ventures,
FirstCaribbean International Bank contributed GBP41m (2005: GBP37m).
Profit on disposal of subsidiaries, associates and joint ventures
2006 2005
GBPm GBPm
Profit on disposal of subsidiaries, associates and joint
ventures 323 -
-------- --------
The profit on disposal of subsidiaries, associates and joint ventures includes
GBP247m profit on disposal of FirstCaribbean International Bank and GBP76m 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
GBP1,234m (2005: GBP961m) arising in the UK and GBP707m (2005: GBP478m) arising
overseas.
The profit on disposal of subsidiaries, associates and joint ventures of GBP323m
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
GBPm GBPm
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 GBP230m to GBP624m (2005:
GBP394m) largely reflecting the full year inclusion of Absa.
Earnings per share
2006 2005
Profit attributable to equity holders of the parent GBP4,571m GBP3,447m
Dilutive impact of convertible options (GBP30m) (GBP38m)
-------- --------
Profit attributable to equity holders of the parent
including dilutive impact of convertible options GBP4,541m GBP3,409m
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 GBP1,307m (2005: GBP1,105m).
This amount excludes GBP33m payable on own shares held by employee benefit
trusts (2005: GBP25m).
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
GBPm GBPm
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 GBP2,500m (2005: GBP2,500m)
comprising 9,996 million (2005: 9,996 million) ordinary shares of 25p each and 1
million (2005: 1 million) staff shares of GBP1 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 GBP1 each.
Total capital resources increased GBP4,283m to GBP41,176m since 31st December
2005.
Shareholders' equity, excluding minority interests, increased GBP2,373m since
31st December 2005. The increase reflected profits attributable to equity
holders of the parent of GBP4,571m, increases in share capital and share premium
of GBP179m and other increases in retained reserves of GBP412m. Offsetting these
movements were dividends paid of GBP1,771m, decreases in the available for sale
and cash flow hedging reserves of GBP93m and GBP300m respectively, a GBP594m
decrease in the currency translation reserve and a GBP31m decrease due to
changes in treasury and Employee Share Ownership Plan shares.
Subordinated liabilities increased GBP1,323m since 31st December 2005. The
increase reflects capital raisings of GBP2,493m and interest charges of GBP11m;
offset by exchange rate movements of GBP575m, redemptions of GBP366m, fair value
adjustments of GBP214m and amortisation of issue expenses of GBP26m.
Minority interests increased GBP587m 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; GBP419m) with a 6.625%
dividend. In addition, during April 2006, Absa issued 3,000,000 preference
shares of R1,000 per share (GBP218m).
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 GBPm GBPm
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 GBP2,765m (31st December 2005:
GBP1,735m). Minority interests included issues of GBP500m 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
GBP4.2bn and risk weighted assets increased GBP28.7bn.
Tier 1 capital rose GBP4.1bn, including GBP2.8bn arising from profits
attributable to equity shareholders net of dividends paid. Minority interests
within tier 1 capital increased GBP1.3bn primarily due to the issuance of
GBP1.2bn of Reserve Capital Instruments and GBP0.7bn of preference shares
partially offset by a decrease in regulatory associates of GBP0.4bn driven by
the sale of FirstCaribbean and exchange rate movements of GBP0.5bn. Tier 2
capital increased GBP0.7bn mainly as a result of the issuance of GBP1.5bn of
loan capital partially offset by exchange rate movements of GBP0.6bn and
redemptions of GBP0.4bn.
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
GBPm GBPm
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 GBP996.8bn (2005: GBP924.4bn). Risk weighted assets
increased 11% to GBP297.8bn (31st December 2005: GBP269.1bn). Loans and advances
to customers that have been securitised increased GBP5.8bn to GBP24.4bn (31st
December 2005: GBP18.6bn). The increase in risk weighted assets since 2005
reflected a rise of GBP18.1bn in the banking book and a rise of GBP10.9bn in the
trading book.
UK Retail Banking total assets increased 5% to GBP74.0bn (31st December 2005:
GBP70.4bn). This was mainly attributable to growth in mortgage balances. Risk
weighted assets increased 6% to GBP34.9bn (31st December 2005: GBP32.8bn) also
primarily reflecting the growth in mortgage balances.
UK Business Banking total assets increased 10% to GBP65.9bn (31st December 2005:
GBP59.9bn) reflecting good growth across short, medium and long term lending
products. Risk weighted assets increased 6% to GBP50.0bn (31st December 2005:
GBP47.1bn), reflecting asset growth and increased regulatory netting.
Barclaycard total assets increased 7% to GBP27.6bn (31st December 2005:
GBP25.8bn) driven by growth in lending balances in the international businesses
and FirstPlus. Risk weighted assets increased 16% to GBP25.2bn (31st December
2005: GBP21.8bn), primarily reflecting the increase in total assets and lower
securitised balances.
International Retail and Commercial Banking-excluding Absa total assets
increased 13% to GBP38.5bn (31st December 2005: GBP34.2bn) mainly reflecting
increases in mortgage and other lending. Risk weighted assets remained flat at
GBP20.3bn (31st December 2005: GBP20.4bn), with balance sheet growth offset by
the sale of FirstCaribbean International Bank.
International Retail and Commercial Banking-Absa total assets increased 3% to
GBP30.4bn (31st December 2005: GBP29.4bn). Risk weighted assets remained flat at
GBP20.7bn (31st December 2005: GBP20.8bn). 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 GBP657.9bn (31st December 2005:
GBP601.2bn). 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 GBP137.6bn (31st December 2005:
GBP116.7bn) in line with risk, driven by the growth in equity derivatives,
credit derivatives and fixed income.
Barclays Global Investors total assets remained flat at GBP80.5bn (31st December
2005: GBP80.9bn). 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 GBP1.4bn (31st December 2005:
GBP1.5bn).
Barclays Wealth total assets increased 20% to GBP7.3bn (31st December 2005:
GBP6.1bn) reflecting strong growth in lending to high net worth, affluent and
intermediary clients. Risk weighted assets increased 39% to GBP5.7bn (31st
December 2005: GBP4.1bn) 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
GBP7.1bn (31st December 2005: GBP9.3bn). Risk weighted assets decreased 53% to
GBP1.9bn (31st December 2005: GBP4.0bn).
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
GBPm GBPm
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 GBP50m to GBP2,400m
(2005: GBP2,350m), reflecting exposure growth in the portfolio. UK Business
Banking economic capital allocation increased GBP100m to GBP2,700m (2005:
GBP2,600m) as a consequence of asset growth offset by changes to estimates of
risk correlation.
Barclaycard economic capital allocation increased GBP50m to GBP2,850m (2005:
GBP2,800m). 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 GBP50m to GBP1,200m (2005: GBP1,150m). 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 GBP450m to GBP750m (2005: GBP300m), reflecting
loan growth and the inclusion of Absa(2) for a full year.
Barclays Capital economic capital increased GBP850m to GBP3,750m (2005:
GBP2,900m) 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 GBP50m to GBP350m (2005:
GBP400m) due to changes to estimates of risk correlation on average economic
capital.
Capital held at the Group centre increased GBP400m to GBP1,450m (2005:
GBP1,050m). 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 GBP50m 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
GBP1,500m (31st December 2005: GBP1,800m) and total goodwill and intangibles was
GBP7,900m (31st December 2005: GBP7,900m).
(6) Total economic capital requirement as at 31st December 2006 stood at
GBP25,150m (31st December 2005: GBP21,850m).
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:
- 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.
- 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.
- 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
GBPm GBPm
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 GBP50m 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
GBP25,150m (31st December 2005: GBP21,850m).
Economic profit
Economic profit comprises:
- Profit after tax and minority interests; less
- 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
GBPm GBPm
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 GBP50m 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 GBP1,500m (31st December 2005:
GBP1,800m).
Economic profit generated by business 2006 2005
GBPm GBPm
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% (GBP952m) to GBP2,704m (2005:
GBP1,752m). 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% (GBP107m) to GBP693m (2005:
GBP586m) 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% (GBP194m) to
GBP738m (2005: GBP544m) 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 GBP183m to GBPnil (2005: GBP183m), 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% (GBP231m) to GBP346m (2005: GBP115m), due to a 71% increase in
profit before tax, including profit on business disposals of GBP247m
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% (GBP94m) reflecting a
full year of ownership.
Barclays Capital economic profit increased 67% (GBP475m) to GBP1,181m (2005:
GBP706m), 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% (GBP35m) to GBP144m (2005:
GBP109m), 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 (GBP6.5bn to GBP7.0bn of
cumulative economic profit)(3) over the 2004 to 2007 goal period.
Economic profit for 2006 was GBP2.7bn, which, added to the GBP3.3bn generated in
2004 and 2005, delivered a cumulative total of GBP6.0bn 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
GBPm GBPm
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 GBP415m to GBP2,260m (2005: GBP1,845m).
UK Retail Banking Risk Tendency increased GBP45m to GBP225m (2005: GBP180m)
reflecting a methodology enhancement to better reflect expected loss rates in
the local business portfolio.
The increase in Barclaycard Risk Tendency was GBP310m, the total rising to
GBP1,410m (2005: GBP1,100m). 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 GBP45m,
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 GBP15m 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:
- Interpretation 7-Applying the Restatement Approach under IAS 29
Financial Reporting in Hyperinflationary Economies
- Interpretation 8-Scope of IFRS 2
- Interpretation 9-Reassessment of Embedded Derivatives
- 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:
- IFRIC 11 IFRS 2 - Group and Treasury Share Transactions
- 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
GBPm GBPm
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 GBPm GBPm GBPm
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 GBPm GBPm GBPm
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 GBPm GBPm
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)
GBPm GBPm
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
GBPm GBPm
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 GBPm GBPm
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 GBPm GBPm
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 GBPm GBPm
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 GBP5,088m (31st December
2005: GBP5,210m). Retail NPLs increased 5% and wholesale and corporate NPLs
declined 17%.
Potential problem loans (PPLs) decreased 18% to GBP761m (31st December 2005:
GBP929m). Retail PPLs increased 8% and wholesale and corporate PPLs declined 32%.
Potential Credit Risk Loans (PCRLs) decreased 5% to GBP5,849m (31st December
2005: GBP6,139m). Retail PCRLs increased 5% and wholesale and corporate PCRLs
declined 21%.
7. Available for sale financial investments
2006 2005
GBPm GBPm
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
GBPm GBPm
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
GBPm GBPm
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
GBPm GBPm
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
GBPm GBPm
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 GBP817m (31st December 2005: GBP2,879m). The deficit comprised net
recognised liabilities of GBP1,719m (31st December 2005: GBP1,737m) and
unrecognised actuarial gains of GBP902m (31st December 2005: GBP1,142m
unrecognised actuarial loss). The net recognised liabilities comprised
retirement benefit liabilities of GBP1,807m (31st December 2005: GBP1,823m) and
assets of GBP88m (31st December 2005: GBP86m).
The Group's IAS 19 pension deficit in respect of the main UK scheme as at 31st
December 2006 was GBP475m (31st December 2005: GBP2,535m). 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 GBP1,300m (31st December 2005: surplus of GBP900m),
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 GBP389m (2005: GBP373m),
including GBP351m to the main UK scheme (2005: GBP354m).
(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 GBPm GBPm
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% (GBP7.7bn) to GBP39.4bn (2005: GBP47.1bn)
principally due to changes in the mix of securities lending activity within
Barclays Global Investors.
Commitments increased 1% (GBP1.7bn) to GBP205.5bn (2005: GBP203.8bn) 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 GBP37.1m (2005: GBP32.0m). 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 GBP41.9m (31st
December 2005: GBP37.6m(1)).
(1) This was previously reported as GBP37.4m. 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)
GBPm GBPm GBPm
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)
GBPm GBPm GBPm
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
GBPm GBPm
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
GBPm GBPm
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 GBP14,147m in 2005, with a
corresponding decrease in net cash used in investing activities of GBP111m and
decrease in net cash from financing activities of GBP14,036m. 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$/GBP 1.96 1.72
Average-US$/GBP 1.84 1.82
Period end-EUR/GBP 1.49 1.46
Average-EUR/GBP 1.47 1.46
Period end-R/GBP 13.71 10.87
Average-R/GBP 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/GBP (2005: R11.57/GBP).
Consolidation adjustments reflected the amortisation of intangible assets of
GBP75m and internal funding and other adjustments of GBP72m. The resulting
profit before tax of GBP769m (2005: GBP337m) is represented with International
Retail and Commercial Banking - Absa GBP698m, (2005: GBP298m) and Barclays
Capital, GBP71m (2005: GBP39m).
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/GBP (31st December 2005:
R10.87/GBP). 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
GBPm GBPm GBPm GBPm
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
-------- --------
GBPm GBPm
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.