Form 6-K

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

28 February 2006

 


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 ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENTS ON FORM F-3 (NOS.333-126811, 333-85646 AND 333-12384) OF BARCLAYS BANK PLC AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED. THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE SUPERCEDED IN ITS ENTIRETY BY, AND UPON THE FILING OF, THE ANNUAL REPORT ON FORM 20-F FOR THE YEAR ENDED DECEMBER 31, 2005 TO BE FILED JOINTLY BY BARCLAYS PLC AND BARCLAYS BANK PLC.

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.

The Report comprises:

The results of Barclays PLC and Barclays Bank PLC for the year ended 31st December 2005.

 



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 authorised.

 

  BARCLAYS PLC
  (Registrant)
Date: February 28, 2006   By:  

/s/ Patrick Gonsalves

    Patrick Gonsalves
    Deputy Secretary

 

  BARCLAYS BANK PLC
  (Registrant)
Date: February 28, 2006   By:  

/s/ Patrick Gonsalves

    Patrick Gonsalves
    Joint Secretary


This document includes portions from the previously published results announcement of Barclays PLC for the year ended 31 December 2005, as amended to comply with the requirements of Regulation G and Item 10(e) of Regulation S-K promulgated by the U.S. Securities and Exchange Commission. In addition, this document includes data relating to Barclays Bank PLC, the wholly owned subsidiary of Barclays plc. The purpose of this document is to provide such additional disclosure as required by Regulation G and Regulation S-K Item 10 (e), to delete certain information not in compliance with SEC regulations and to include reconciliations of certain non-IFRS figures to the most directly equivalent IFRS figures, as of, and for the period ended, 31 December 2005, and does not update or otherwise supplement the information contained in the results announcement, which speaks only as of its date.

In this document certain non-IFRS measures are reported. Barclays management believes that these non-IFRS measures provide valuable information to readers of its financial statements because they enable the reader to focus more directly on the underlying day-to-day performance of its businesses and provide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by Barclays management.

An audit opinion has not been rendered on this announcement.


BARCLAYS PLC

PRELIMINARY ANNOUNCEMENT OF RESULTS FOR 2005

TABLE OF CONTENTS

 

     PAGE

Summary of key information

   1

Financial highlights

   2

Consolidated income statement

   3

Consolidated balance sheet

   4

Results by business

   6

Results by nature of income and expense

   36

Analysis of amounts included on the balance sheet

   46

Additional information

   57

Notes

   61

Consolidated statement of recognised income and expense

   75

Summary consolidated cashflow statement

   76

Other information

   77

Index

   79

BARCLAYS PLC, 1 CHURCHILL PLACE, LONDON, E14 5HP, ENGLAND, UNITED KINGDOM. TELEPHONE: +44 (0) 20 7116 1000. COMPANY NO. 48839

 

i


BARCLAYS PLC

The information in this announcement, which was approved by the Board of Directors on 20th February 2006, does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985 (the ‘Act’). Statutory accounts, 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. The 2005 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.

International Financial Reporting Standards

The Group has applied International Financial Reporting Standards (IFRS) from 1st January 2004, with the exception of the standards relating to financial instruments and insurance contracts which are applied only with effect from 1st January 2005. Therefore the impacts of adopting IAS 32, IAS 39 and IFRS 4 are not included in the 2004 comparatives in accordance with IFRS 1 and financial instruments and insurance contracts are accounted for under UK GAAP in 2004.

The results for 2005 are therefore not entirely comparable to those for 2004 in affected areas. For a fuller discussion of the transitional impacts of IFRS, please refer to the IFRS Transition Report 2004/2005, released 11th May 2005. The IFRS Transition Report provided the reconciliations required by IFRS and the provisional accounting policies expected to be applied in the preparation of the 2005 financial statements. The Interim Results Announcement on 5th August 2005 amended the reconciliations and the provisional accounting policies for the use of the fair value option. The financial information in this announcement has been prepared in accordance with these amended accounting policies. A summary of the Group’s significant accounting policies will be included in the 2005 Annual Report. Dashes have been used to indicate where changes in policy cause an item to be not applicable and where there is no amount to report.

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 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.

.

 

ii


21st February 2006

BARCLAYS PLC

SUMMARY OF KEY INFORMATION1

 

Group Results

   2005     2004     % Change  
     £m     £m        

Total income net of insurance claims

   17,333     14,108     23  

Impairment charge and other credit provisions

   (1,571 )   (1,093 )   44  

Operating expenses

   (10,527 )   (8,536 )   23  

Profit before tax

   5,280     4,580     15  

Profit attributable to minority interests

   (394 )   (47 )   738  

Profit attributable to equity holders of the parent

   3,447     3,254     6  

Earnings per share

   54.4 p   51.0 p   7  

Proposed full year dividend per share

   26.6 p   24.0 p   11  

Post-tax return on average shareholders’ equity

   21.1 %   21.7 %  
                 % Change  
     £m     £m        

Summary of divisional profit before tax2

      

UK Banking

   2,455     2,265     8  

UK Retail Banking

   1,027     963     7  

UK Business Banking

   1,428     1,302     10  

Barclays Capital

   1,272     1,020     25  

Barclays Global Investors

   542     336     61  

Wealth Management

   172     110     56  

Barclaycard

   687     843     (19 )

International Retail and Commercial Banking (IRCB)

   690     293     135  

IRCB - ex Absa

   355     293     21  

IRCB - Absa

   335     —       —    

1 In this document the income statement analysis compares, unless stated otherwise, the year ended 31st December 2005 to the corresponding period of 2004. Balance sheet comparisons, unless stated otherwise, relate to the corresponding position at 31st December 2004. 2004 comparatives do not include additional impacts arising from the first time application of IAS 32 (Financial instruments: Disclosure and Presentation), IAS 39 (Financial instruments: Recognition and Measurement) and IFRS 4 (Insurance Contracts), which were applied from 1st January 2005.
2 Summary excludes Wealth Management-closed life assurance activities and Head office functions and other operations. Full analysis of business profit before tax is on page 10.

 

1


BARCLAYS PLC

FINANCIAL HIGHLIGHTS

 

          2005     2004  
          £m     £m  

RESULTS

       

Net interest income

      8,075     6,833  

Net fee and commission income

      5,705     4,847  

Principal transactions1

      3,179     2,514  

Net premiums from insurance contracts

      872     1,042  

Other income

      147     131  

Total income

      17,978     15,367  

Net claims and benefits paid on insurance contracts

      (645 )   (1,259 )

Total income net of insurance claims

      17,333     14,108  

Impairment charge and other credit provisions

      (1,571 )   (1,093 )

Net income

      15,762     13,015  

Operating expenses (including amortisation of intangible assets)

      (10,527 )   (8,536 )

Share of post-tax results of associates and joint ventures

      45     56  

Profit on disposal of associates and joint ventures

      —       45  

Profit before tax

      5,280     4,580  

Profit attributable to equity holders of the parent

      3,447     3,254  
          p     p  

PER ORDINARY SHARE

       

Earnings

      54.4     51.0  

Diluted earnings

      52.6     49.8  

Proposed full year dividend

      26.6     24.0  

Net asset value

      269     246  
          %     %  

PERFORMANCE RATIOS

       

Post-tax return on average shareholders’ equity

      21.1     21.7  

Cost:income ratio2

      61     61  

Cost:net income ratio3

      67     66  
     2005    As at
01.01.05
    2004  
     £m    £m     £m  

BALANCE SHEET

       

Shareholders’ equity excluding minority interests

   17,426    15,287     15,870  

Minority interests

   7,004    3,330     894  

Total shareholders’ equity

   24,430    18,617     16,764  

Loan capital

   12,463    10,606     12,277  

Total capital resources

   36,893    29,223     29,041  

Total assets

   924,357    715,600     538,181  

Weighted risk assets

   269,148    219,758     218,601  
     %    %     %  

CAPITAL RATIOS

       

Tier 1 ratio

   7.0    7.1     7.6  

Risk asset ratio

   11.3    11.8     11.5  

1 Principal transactions comprise net trading income and net investment income.
2 The cost:income ratio is defined as operating expenses compared to total income net of insurance claims.
3 The cost:net income ratio is defined as operating expenses compared to total income net of insurance claims, less impairment charges.

 

2


BARCLAYS PLC

CONSOLIDATED INCOME STATEMENT

 

     2005     2004  
     £m     £m  

Continuing operations

    

Interest income

     17,232       13,880  

Interest expense

     (9,157 )     (7,047 )

Net interest income

     8,075       6,833  

Fee and commission income

     6,430       5,509  

Fee and commission expense

     (725 )     (662 )

Net fee and commission income

     5,705       4,847  

Net trading income

     2,321       1,487  

Net investment income

     858       1,027  

Principal transactions

     3,179       2,514  

Net premiums from insurance contracts

     872       1,042  

Other income

     147       131  
                

Total income

     17,978       15,367  

Net claims and benefits paid on insurance contracts

     (645 )     (1,259 )
                

Total income net of insurance claims

     17,333       14,108  

Impairment charge and other credit provisions

     (1,571 )     (1,093 )
                

Net income

     15,762       13,015  

Operating expenses excluding amortisation of intangible assets

     (10,448 )     (8,514 )

Amortisation of intangible assets

     (79 )     (22 )

Operating expenses

     (10,527 )     (8,536 )

Share of post-tax results of associates and joint ventures

     45       56  

Profit on disposal of associates and joint ventures

     —         45  
                

Profit before tax

     5,280       4,580  

Tax

     (1,439 )     (1,279 )
                

Profit for the year

     3,841       3,301  
                

Profit attributable to minority interests

     394       47  

Profit attributable to equity holders of the parent

     3,447       3,254  
                
     3,841       3,301  
                
     p     p  

Basic earnings per ordinary share

     54.4       51.0  

Diluted earnings per share

     52.6       49.8  

Paid and proposed dividends per ordinary share:

    

Interim paid

     9.20       8.25  

Final proposed

     17.40       15.75  

Interim dividend

   £ 582 m   £ 528 m

Proposed final dividend

   £ 1,105 m   £ 1,001 m

 

3


BARCLAYS PLC

CONSOLIDATED BALANCE SHEET

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Assets

        

Cash and balances at central banks

   3,906    3,238    1,753

Items in the course of collection from other banks

   1,901    1,772    1,772

Treasury bills and other eligible bills

   —      —      6,658

Trading portfolio assets

   155,723    110,033    —  

Financial assets designated at fair value:

         —  

held on own account

   12,904    9,799    —  

held in respect of linked liabilities to customers under investment contracts

   83,193    63,124    —  

Derivative financial instruments

   136,823    94,211    —  

Loans and advances to banks

   31,105    25,728    80,632

Loans and advances to customers

   268,896    207,259    262,409

Debt securities

   —      —      130,311

Equity shares

   —      —      11,399

Available for sale financial investments

   53,497    48,097    —  

Reverse repurchase agreements and cash collateral on securities borrowed

   160,398    139,574    —  

Other assets

   4,620    3,647    25,915

Insurance assets including unit-linked assets

   114    109    8,576

Investments in associates and joint ventures

   546    429    429

Goodwill

   6,022    4,518    4,518

Intangible assets

   1,269    139    139

Property plant and equipment

   2,754    2,282    2,282

Deferred tax assets

   686    1,641    1,388
              

Total assets

   924,357    715,600    538,181
              

 

4


BARCLAYS PLC

CONSOLIDATED BALANCE SHEET

 

     2005     As at
01.01.05
    2004  
     £m     £m     £m  

Liabilities

      

Deposits from banks

   75,127     74,735     111,024  

Items in the course of collection due to other banks

   2,341     1,205     1,205  

Customer accounts

   238,684     194,478     217,492  

Trading portfolio liabilities

   71,564     59,114     —    

Financial liabilities designated at fair value:

      

held on own account

   33,385     5,320     —    

Liabilities to customers under investment contracts

   85,201     64,609     —    

Derivative financial instruments

   137,971     94,429     —    

Debt securities in issue

   103,328     76,154     83,842  

Repurchase agreements and cash collateral on securities lent

   121,178     98,582     —    

Other liabilities

   11,131     9,869     82,936  

Current tax liabilities

   747     621     621  

Insurance contract liabilities including unit-linked liabilities

   3,767     3,596     8,377  

Subordinated liabilities:

      

Undated loan capital-non convertible

   4,397     4,208     6,149  

Dated loan capital-convertible

   38     15     15  

Dated loan capital-non convertible

   8,028     6,383     6,113  

Deferred tax liabilities

   700     1,397     1,362  

Other provisions for liabilities

   517     403     416  

Retirement benefit liabilities

   1,823     1,865     1,865  
                  

Total liabilities

   899,927     696,983     521,417  
                  

Shareholders’ equity

      

Called up share capital

   1,623     1,614     1,614  

Share premium account

   5,650     5,524     5,524  

Available for sale reserve

   225     314     —    

Cash flow hedging reserve

   70     302     —    

Capital redemption reserve

   309     309     309  

Other capital reserve

   617     617     617  

Translation reserve

   156     (58 )   (58 )

Retained earnings

   8,957     6,784     7,983  

Less: treasury shares

   (181 )   (119 )   (119 )
                  

Shareholders’ equity excluding minority interests

   17,426     15,287     15,870  

Minority interests

   7,004     3,330     894  
                  

Total shareholders’ equity

   24,430     18,617     16,764  
                  

Total liabilities and shareholders’ equity

   924,357     715,600     538,181  
                  

 

5


BARCLAYS PLC

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:

 

  UK Banking, comprising

 

    UK Retail Banking
    UK Business Banking

 

  Barclays Capital

 

  Barclays Global Investors

 

  Wealth Management

 

  Wealth Management - closed life assurance activities

 

  Barclaycard

 

  International Retail and Commercial Banking, comprising

 

    International Retail and Commercial Banking - excluding Absa

 

    International Retail and Commercial Banking - Absa, included with effect from 27th July 2005

 

  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, Mortgages, Small Business and UK Premier. This cluster of businesses aims to build broader and deeper relationships with both existing and new customers. Personal Customers and Mortgages provide a wide range of products and services to retail customers, including current accounts, savings, mortgages, and general insurance. Small Business provides banking services to small businesses. UK Premier provides banking, investment products and advice to affluent customers.

UK Business Banking

UK Business Banking provides relationship banking to Barclays larger and medium business customers in the United Kingdom. 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. UK Business Banking provides asset financing and leasing solutions through a specialist business.

 

6


BARCLAYS PLC

FINANCIAL REVIEW

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 credits, 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 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. BGI also 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 140 funds for institutions and individuals trading in eleven markets globally. BGI’s investment philosophy is founded on managing all dimensions of performance: a consistent focus on controlling risk, return and cost.

Wealth Management

Wealth Management serves affluent, high net worth and corporate clients, providing private banking, offshore banking, stockbroking, asset management and financial planning services.

Wealth Management - closed life assurance activities

Wealth Management - closed life assurance activities comprise the closed life assurance businesses of Barclays and Woolwich in the UK.

 

7


BARCLAYS PLC

FINANCIAL REVIEW

Barclaycard

Barclaycard is a multi-brand international credit card and consumer lending business; it is one of the leading credit card businesses in Europe.

In the UK, Barclaycard manages the Barclaycard branded credit cards and other non-Barclaycard branded card portfolios including Monument, SkyCard and Solution Personal Finance. In consumer lending, Barclaycard manages both secured and unsecured loan portfolios, through Barclays branded loans, being mostly Barclayloan, and also through the FirstPlus and Clydesdale Financial Services businesses.

Outside the UK, Barclaycard provides credit cards in the United States through Barclaycard US (previously Juniper), Germany, Spain, Greece, Italy, Portugal and a number of other countries. In the Nordic region, Barclaycard operates through Entercard, a joint venture with FöreningsSparbanken (Swedbank).

Barclaycard Business processes card payments for retailers and issues purchasing and credit cards to business customers and to the UK Government.

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 international personal and corporate customers 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 in 2005, the operations have been grouped into two components: International Retail and Commercial Banking excluding Absa encompasses Barclays operations in continental Europe, Africa and the Middle East and the Caribbean joint venture; and International Retail and Commercial Banking - Absa represents the total business of Absa Group Limited in which Barclays acquired a majority stake on 27th July 2005.

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, the Caribbean, Africa and the Middle East.

International Retail and Commercial Banking excluding Absa works closely with other parts of the Group, including Barclaycard, UK Banking, Barclays Capital and Barclays Global Investors, to leverage synergies from product and service propositions.

International Retail and Commercial Banking - Absa

Absa Group Limited is one of South Africa’s largest financial services organisations serving personal, commercial and corporate customers predominantly in South Africa. Absa serves retail customers through a variety of distribution channels and offers a full range of banking services, including basic bank accounts, mortgages, instalment finance, credit cards, bancassurance products and wealth management services; for commercial and large corporate customers Absa offers customised business solutions. As at 31st December 2005, Barclays owned 56.6% of Absa Group Limited’s ordinary shares and has voting control.

 

8


BARCLAYS PLC

FINANCIAL REVIEW

Head office functions and other operations

Head office functions and other operations comprise:

 

  Head office and central support functions

 

  discontinued 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.

Discontinued businesses in transition principally relate to Middle Eastern corporate banking businesses and airline leasing activities. These businesses are centrally managed with the objective of maximising recovery from the assets.

Consolidation adjustments largely reflect the elimination of inter segment transactions.

 

9


BARCLAYS PLC

SUMMARY OF RESULTS

Analysis of profit attributable to equity holders of the parent

 

     2005     2004  
     £m     £m  

UK Banking

   2,455     2,265  

UK Retail Banking

   1,027     963  

UK Business Banking

   1,428     1,302  

Barclays Capital

   1,272     1,020  

Barclays Global Investors

   542     336  

Wealth Management

   172     110  

Wealth Management - closed life assurance activities

   (6 )   (52 )

Barclaycard

   687     843  

International Retail and Commercial Banking

   690     293  

International Retail and Commercial Banking - ex Absa

   355     293  

International Retail and Commercial Banking - Absa

   335     —    

Head office functions and other operations

   (532 )   (235 )
            

Profit before tax

   5,280     4,580  

Tax

   (1,439 )   (1,279 )
            

Profit for the year

   3,841     3,301  

Profit attributable to minority interests

   (394 )   (47 )
            

Profit attributable to equity holders of the parent

   3,447     3,254  
            

 

10


BARCLAYS PLC

TOTAL ASSETS AND WEIGHTED RISK ASSETS

Total assets

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

UK Banking

   141,190    131,392    122,380

UK Retail Banking

   69,193    71,850    71,647

UK Business Banking

   71,997    59,542    50,733

Barclays Capital

   581,865    454,437    346,901

Barclays Global Investors

   80,900    61,371    968

Wealth Management

   6,094    5,659    5,616

Wealth Management - closed life assurance activities

   7,276    6,551    6,425

Barclaycard

   25,771    23,186    23,367

International Retail and Commercial Banking

   73,589    28,780    28,505

International Retail and Commercial Banking - ex Absa

   34,195    28,780    28,505

International Retail and Commercial Banking - Absa

   39,394    —      —  

Head office functions and other operations

   7,672    4,224    4,019
              

Total assets

   924,357    715,600    538,181
              

 

Weighted risk assets

        
     2005    As at
01.01.05
   2004
     £m    £m    £m

UK Banking

   94,195    92,590    91,913

UK Retail Banking

   32,298    37,835    37,111

UK Business Banking

   61,897    54,755    54,802

Barclays Capital

   96,095    79,511    79,949

Barclays Global Investors

   1,659    1,233    1,230

Wealth Management

   4,467    4,187    4,018

Wealth Management - closed life assurance activities

   —      —      —  

Barclaycard

   20,438    21,595    20,188

International Retail and Commercial Banking

   50,071    18,701    19,319

International Retail and Commercial Banking - ex Absa

   21,637    18,701    19,319

International Retail and Commercial Banking - Absa

   28,434    —      —  

Head office functions and other operations

   2,223    1,941    1,984
              

Weighted risk assets

   269,148    219,758    218,601
              

Further analysis of total assets and weighted risk assets, including the impact of securitisations, can be found on page 49.

 

11


BARCLAYS PLC

UK Banking

 

           2005     2004  
           £m     £m  

Net interest income

       3,990       3,477  

Net fee and commission income

       1,776       1,936  

Net trading income

       —         —    

Net investment income

       31       5  

Principal transactions

       31       5  

Net premiums from insurance contracts

       280       249  

Other income

       26       37  
                  

Total income

       6,103       5,704  

Net claims and benefits on insurance contracts

       (58 )     (46 )
                  

Total income net of insurance claims

       6,045       5,658  

Impairment charge and other credit provisions

       (344 )     (199 )
                  

Net income

       5,701       5,459  

Operating expenses excluding amortisation of intangible assets

       (3,240 )     (3,239 )

Amortisation of intangible assets

       (3 )     (2 )

Operating expenses

       (3,243 )     (3,241 )

Share of post-tax results of associates and joint ventures

       (3 )     5  

Profit on disposal of associates and joint ventures

       —         42  
                  

Profit before tax

       2,455       2,265  
                  

Cost:income ratio

       54 %     57 %

Cost:net income ratio

       57 %     59 %

Risk Tendency

     £ 450 m   £ 375 m
     2005     As at
01.01.05
    2004  

Loans and advances to customers

   £ 129.1 bn   £ 119.6 bn   £ 114.1 bn

Customer accounts

   £ 133.6 bn   £ 124.6 bn   £ 114.8 bn

Total assets

   £ 141.2 bn   £ 131.4 bn   £ 122.4 bn

Weighted risk assets

   £ 94.2 bn   £ 92.6 bn   £ 91.9 bn

Key Facts

         2005     2004  

Number of UK branches

       2,029       2,061  

 

12


BARCLAYS PLC

UK Banking profit before tax increased 8% (£190m) to £2,455m (2004: £2,265m) driven by good income growth and strong cost management.

UK Banking has targeted a cost:income ratio reduction of two percentage points per annum in 2005, 2006 and 2007. This has been exceeded in 2005 as the cost:income ratio improved by three percentage points to 54% (2004: 57%). UK Banking has continued to make good progress towards achieving its strategic aims of delivering integrated banking solutions to customers, enhancing the customer service experience, capturing revenue growth opportunities and improving productivity.

 

13


BARCLAYS PLC

UK Retail Banking

 

           2005     2004  
           £m     £m  

Net interest income

       2,174       2,059  

Net fee and commission income

       1,112       1,123  

Net trading income

       —         —    

Net investment income

       9       1  

Principal transactions

       9       1  

Net premiums from insurance contracts

       280       249  

Other income

       17       26  
                  

Total income

       3,592       3,458  

Net claims and benefits on insurance contracts

       (58 )     (46 )
                  

Total income net of insurance claims

       3,534       3,412  

Impairment charge and other credit provisions

       (142 )     (60 )
                  

Net income

       3,392       3,352  

Operating expenses

       (2,359 )     (2,433 )

Share of post-tax results of associates and joint ventures

       (6 )     2  

Profit on disposal of associates and joint ventures

       —         42  
                  

Profit before tax

       1,027       963  
                  

Cost:income ratio

       67 %     71 %

Cost:net income ratio

       70 %     73 %

Risk Tendency

     £ 170 m   £ 150 m
     2005     As at
01.01.05
    2004  

Loans and advances to customers

   £ 63.6 bn   £ 66.0 bn   £ 65.6 bn

Customer accounts

   £ 77.6 bn   £ 73.1 bn   £ 72.4 bn

Total assets

   £ 69.2 bn   £ 71.9 bn   £ 71.7 bn

Weighted risk assets

   £ 32.3 bn   £ 37.8 bn   £ 37.1 bn

Key Facts

         2005     2004  

Personal Customers

      

Number of UK current accounts

       11.1 m     10.7 m

Number of UK savings accounts

       10.8 m     10.6 m

Total UK mortgage balances (residential)

     £ 59.6 bn   £ 61.7 bn

Small Business and UK Premier

      

Number of Small Business customers

       592,000       566,000  

Number of UK Premier customers

       286,000       273,000  

 

14


BARCLAYS PLC

UK Retail Banking profit before tax increased 7% (£64m) to £1,027m (2004: £963m). Profit before tax increased 12% excluding the impact of a £42m profit on disposal of a stake in Edotech in 2004.

Total income net of insurance claims increased 4% (£122m) to £3,534m (2004: £3,412m). The full-year growth compares favourably with 1% growth reported for the first half of 2005. There was good growth in current accounts, Small Business and UK Premier, whilst income from retail savings was weaker. The application of IAS 32 and IAS 39 from 1st January 2005, in particular Effective Interest Rate requirements, resulted in the reclassification of certain lending related fees from net fee and commission income to net interest income.

Net interest income increased 6% (£115m) to £2,174m (2004: £2,059m). Growth was driven by higher contributions from Mortgages and Small Business, partly offset by some margin pressure on savings and deposits. Excluding the impact of the application of IAS 32 and IAS 39 from 1st January 2005, net interest income increased 3%.

UK residential mortgage balances ended the period at £59.6bn (2004: £61.7bn). The mortgage business continued to focus on higher margin new business which resulted in an improved new business spread. Gross advances were £11.5bn which represented a market share of 4%. The loan to value ratio within the mortgage book on a current valuation basis averaged 35% (2004: 35%). There was strong balance growth in non-mortgage loans, as Small Business average loan balances increased 14% and within Personal Customers, average overdraft balances increased 8%.

Total average customer deposit balances increased 6% to £72.4bn (2004: £68.5bn). There was strong growth in UK Premier average balances of 11%, and good growth in Small Business average deposits of 5%. Within Personal Customers, retail savings average balances increased 5% and current account average balances increased 3%.

Net fee and commission income decreased 1% (£11m) to £1,112m (2004: £1,123m) with lending related fees impacted by the application of IAS 32 and IAS 39 from 1st January 2005. Excluding this impact, net fee and commission income growth was 5%. There was strong growth in current account fees, including a higher contribution from value-added Additions accounts. UK Premier delivered strong growth reflecting higher income from investment advice. There was also good growth from Small Business, including higher income from money transmission.

Income from principal transactions was £9m (2004: £1m) representing the gain on the sale of the investment in Gresham, an insurance underwriting business, ahead of the launch in 2005 of the new general insurance offering.

Net premiums from insurance underwriting activities increased 12% (£31m) to £280m (2004: £249m). In 2004 there was a provision relating to the early termination of contracts. Adjusting for this, income was slightly lower as a result of reduced insurance take-up on consumer loans.

Impairment charges increased 137% (£82m) to £142m (2004: £60m). Excluding UK mortgage releases (£40m in 2004 and £10m in 2005) impairment charges increased 52% (£52m) to £152m (2004: £100m). The increase principally reflected some deterioration in the delinquency experience and balance growth in overdrafts and small business lending. Losses from the mortgage portfolio remained negligible, with arrears increasing slightly over the year but remaining at low levels.

Operating expenses decreased 3% (£74m) to £2,359m (2004: £2,433m). The successful execution of initiatives focused on reducing back and middle office expenditure continued. Regulatory costs reduced in 2005. Despite continued investment in the business, the cost:income ratio improved four percentage points to 67% (2004: 71%).

 

15


BARCLAYS PLC

UK Business Banking

 

           2005     2004  
                 £m  

Net interest income

       1,816       1,418  

Net fee and commission income

       664       813  

Net trading income

       —         —    

Net investment income

       22       4  

Principal transactions

       22       4  

Other income

       9       11  
                  

Total income

       2,511       2,246  

Impairment charge and other credit provisions

       (202 )     (139 )
                  

Net income

       2,309       2,107  

Operating expenses excluding amortisation of intangible assets

       (881 )     (806 )

Amortisation of intangible assets

       (3 )     (2 )

Operating expenses

       (884 )     (808 )

Share of post-tax results of associates and joint ventures

       3       3  
                  

Profit before tax

       1,428       1,302  
                  

Cost:income ratio

       35 %     36 %

Cost:net income ratio

       38 %     38 %

Risk Tendency

     £ 280 m   £ 225 m
     2005     As at
01.01.05
    2004  

Loans and advances to customers

   £ 65.5 bn   £ 53.6 bn   £ 48.5 bn

Customer accounts

   £ 56.0 bn   £ 51.5 bn   £ 42.4 bn

Total assets

   £ 72.0 bn   £ 59.5 bn   £ 50.7 bn

Weighted risk assets

   £ 61.9 bn   £ 54.8 bn   £ 54.8 bn

Key Facts

         2005     2004  

Total number of Business Banking customers

       183,000       179,000  

Customers registered for online banking/Business Master

       70,100       66,900  

 

16


BARCLAYS PLC

UK Business Banking profit before tax increased 10% (£126m) to £1,428m (2004: £1,302m), driven by strong income growth. Both Larger Business and Medium Business performed well in highly competitive markets and maintained their respective shares of primary banking relationships. In June 2005, UK Business Banking completed the acquisition of a 51% stake in Iveco Finance.

Total income increased 12% (£265m) to £2,511m (2004: £2,246m), driven by strong balance sheet growth. The application of IAS 32 and IAS 39 from 1st January 2005, in particular Effective Interest Rate requirements, resulted in the reclassification of certain lending related fees from net fee and commission income to net interest income.

Net interest income increased 28% (£398m) to £1,816m (2004: £1,418m). Excluding the impact of the application of IAS 32 and IAS 39 from 1st January 2005, net interest income increased by 13%.

Balance sheet growth was very strong. The application of IAS 32 and IAS 39 from 1st January 2005 has resulted in the grossing up of previously netted positions (assets and liabilities subject to master netting agreements). As at 31st December 2005 these balances were £8.9bn. Average lending balances (excluding previously netted balances) increased 23% to £54.9bn (2004: £44.6bn), with good contributions from all business areas and in particular large corporates. Iveco Finance contributed £1.1bn of average lending balances. Average deposit balances (excluding previously netted balances) increased 11% to £46.1bn (2004: £41.5bn) with strong growth from large corporate deposits. The underlying lending margin (adjusting for the income reclassification) was broadly stable.

Net fee and commission income decreased 18% (£149m) to £664m (2004: £813m). Excluding the impact of IAS 32 and IAS 39, net fee and commission income increased 8%, as a result of higher lending and transaction fees.

Income from principal transactions was £22m (2004: £4m). The majority of the increase represented gains on equity investments.

Impairment charges increased £63m to £202m (2004: £139m). Excluding the impact of a £57m recovery in the second half of 2004, the impairment charge was broadly stable. Corporate credit conditions remained steady during 2005 with potential credit risk loans unchanged, despite very strong loan growth.

Operating expenses increased 9% (£76m) to £884m (2004: £808m), reflecting volume growth, increased expenditure on front line staff and the costs of Iveco Finance since acquisition. The cost:income ratio improved one percentage point to 35% (2004: 36%).

 

17


BARCLAYS PLC

Barclays Capital

 

           2005     2004  
           £m     £m  

Net interest income

       926       991  

Net fee and commission income

       724       603  

Net trading income

       2,194       1,463  

Net investment income

       401       297  

Principal transactions

       2,595       1,760  

Other income

       25       21  
                  

Total income

       4,270       3,375  

Impairment charge and other credit provisions

       (103 )     (102 )
                  

Net income

       4,167       3,273  

Operating expenses excluding amortisation of intangible assets

       (2,894 )     (2,253 )

Amortisation of intangible assets

       (1 )     —    

Operating expenses

       (2,895 )     (2,253 )
                  

Profit before tax

       1,272       1,020  
                  

Cost:income ratio

       68 %     67 %

Cost:net income ratio

       69 %     69 %

Risk Tendency

     £ 85 m   £ 70 m

Average net income per member of staff (‘000)

     £ 496     £ 481  
     2005     As at
01.01.05
    2004  

Total assets

   £ 581.9 bn   £ 454.4 bn   £ 346.9 bn

Weighted risk assets

   £ 96.1 bn   £ 79.5 bn   £ 79.9 bn

 

      2005     2004  

Key Facts1

   League
table
position
   Issuance
value
    League
table
position
   Issuance
value
 

Global all debt

   4th    $ 329.2 bn   4th    $ 284.0 bn

European all debt

   2nd    $ 221.6 bn   1st    $ 174.2 bn

All international bonds (all currencies)

   2nd    $ 183.6 bn   3rd    $ 148.7 bn

All international bonds (Euros)

   4th    70.1 bn   6th    59.0 bn

Sterling bonds

   1st    £ 23.0 bn   1st    £ 18.5 bn

US investment grade bonds

   5th    $ 9.9 bn   10th    $ 4.8 bn

1 League tables compiled by Barclays Capital from external sources including Dealogic and Thomson Financial.

 

18


BARCLAYS PLC

Barclays Capital delivered record profit before tax and net income. Profit before tax increased 25% (£252m) to £1,272m (2004: £1,020m) as a result of the very strong income performance driven by higher business volumes and client activity levels. Net income increased 27% (£894m) to £4,167m (2004: £3,273m).

Total income increased 27% (£895m) to £4,270m (2004: £3,375m) as a result of strong growth across Rates and Credit Businesses. Income by asset category was broadly based with particularly strong growth delivered by credit products, commodities, currency products and equity products. Income by geography was well spread with significant growth in the US. Areas of investment in 2004, such as commodities, commercial mortgage backed securities and equity derivatives, performed well, delivering significant income growth. Market risk was well controlled with average DVaR falling 6% to £32m (2004: £34m) as a result of increased diversification across asset classes.

Secondary income, comprising principal transactions (net trading income and net investment income) and net interest income, is mainly generated from providing financing and client risk management solutions. This increased 28% (£770m) to £3,521m (2004: £2,751m).

Net trading income increased 50% (£731m) to £2,194m (2004: £1,463m) with very strong contributions across the Rates and Credit Businesses; commodities, foreign exchange, fixed income and credit derivatives performed particularly well. These results were driven by the continued return on prior year investments and higher volumes of client led activity across a broad range of products and geographical regions. Net investment income increased 35% (£104m) to £401m (2004: £297m) driven by realisations from credit products. Net interest income decreased 7% (£65m) to £926m (2004: £991m) reflecting flattening yield curves and the impact of IAS 32 and IAS 39.

Primary income, comprising net fee and commission income from advisory and origination activities, grew 20% (£121m) to £724m (2004: £603m). This reflected higher volumes and continued market share gains in a number of key markets, with strong performances from both bonds and loans.

Other income of £25m (2004: £21m) primarily reflected income from operating leases.

Impairment charges of £103m (2004: £102m) were in line with the prior year reflecting the stable wholesale credit environment.

Operating expenses increased 28% (£642m) to £2,895m (2004: £2,253m), reflecting higher business volumes and the ongoing costs associated with staff hired during 2004 and 2005 as part of the business expansion plan. Performance related costs increased due to the strong profit performance. Investment expenditure, primarily in the front office, continued to be significant although less than 2004 as headcount growth slowed. The cost:net income ratio remained stable at 69% (2004: 69%). Total staff costs to net income of 56% was in line with 2004 levels. Approximately half of operating expenses comprised performance related pay, discretionary investment spend and short-term contractor resource, consistent with 2004.

Total headcount increased by 1,200 during 2005 to 9,000 (2004: 7,800). Growth occurred across all regions with over half of the increase in the front office, spread across product, client coverage and distribution.

 

19


BARCLAYS PLC

Barclays Global Investors

 

           2005     2004  
           £m     £m  

Net interest income

       17       5  

Net fee and commission income

       1,297       882  

Net trading income

       2       3  

Net investment income

       4       3  

Principal transactions

       6       6  

Other income

       —         —    
                  

Total income

       1,320       893  

Operating expenses excluding amortisation of intangible assets

       (775 )     (555 )

Amortisation of intangible assets

       (4 )     (1 )

Operating expenses

       (779 )     (556 )

Share of post-tax results of associates and joint ventures

       1       (2 )

Profit on disposal of associates and joint ventures

       —         1  
                  

Profit before tax

       542       336  
                  

Cost:income ratio

       59 %     62 %

Average income per member of staff (‘000)

     £ 629     £ 464  
     2005     As at
01.01.05
    2004  

Total assets

   £ 80.9 bn   £ 61.4 bn   £ 1.0 bn

Weighted risk assets

   £ 1.7 bn   £ 1.2 bn   £ 1.2 bn

Key Facts

         2005     2004  

Number of institutional clients

       2,800       2,600  

Assets under management:

      

indexed

     £ 586 bn   £ 478 bn

active

     £ 198 bn   £ 147 bn

managed cash and other

     £ 97 bn   £ 84 bn

Total assets under management

     £ 881 bn   £ 709 bn

Total assets under management (US$)

     $ 1,513 bn   $ 1,362 bn

Net new assets in period

     £ 48 bn   £ 58 bn

Number of iShares products

       149       132  

Total iShares assets under management1

     £ 113 bn   £ 68 bn

1 Included in indexed assets

 

20


BARCLAYS PLC

Barclays Global Investors (BGI) delivered another year of outstanding financial results, achieving record revenues and profit before tax. The performance was spread across a diverse range of products, distribution channels and geographies. Profit before tax increased 61% (£206m) to £542m (2004: £336m) reflecting substantial income growth and focused investment spend.

Net fee and commission income increased 47% (£415m) to £1,297m (2004: £882m), driven by significant increases in management, incentive and securities lending revenues. Higher margin assets under management, strong investment performance and higher market levels contributed to the significant income growth, which was strong across all areas, particularly in the active and iShares businesses.

Investment performance remained very good for the majority of active funds as they outperformed their respective benchmarks. The growth in global iShares continued at pace, with related assets under management up 66% (£45bn) to £113bn (2004: £68bn).

Operating expenses increased 40% (£223m) to £779m (2004: £556m) as a result of higher performance based expenses, significant investment in key growth initiatives and ongoing investment in infrastructure required to support business growth. The cost:income ratio improved to 59% (2004: 62%).

Total headcount rose by 400 to 2,300 (2004: 1,900). Headcount increased in all regions, across product groups and the support functions, reflecting the investments made to support strategic initiatives.

Total assets under management increased 24% (£172bn) to £881bn (2004: £709bn). The growth included £48bn of net new assets, £53bn attributable to favourable exchange rate movements and £71bn as a result of market movements. In US$ terms, the increase in assets under management to US$1,513bn from US$1,362bn (2004) included US$88bn of net new assets and US$121bn of market movements, partially offset by adverse exchange rate movements of US$58bn. BGI manages assets denominated in numerous currencies although the majority are held in US dollars.

 

21


BARCLAYS PLC

Wealth Management

 

           2005     2004  
           £m     £m  

Net interest income

       335       303  

Net fee and commission income

       589       529  

Net trading income

       —         —    

Net investment income

       5       —    

Principal transactions

       5       —    

Other income

       (1 )     7  
                  

Total income

       928       839  

Impairment charge and other credit provisions

       (2 )     1  
                  

Net income

       926       840  

Operating expenses excluding amortisation of intangible assets

       (752 )     (729 )

Amortisation of intangible assets

       (2 )     (1 )

Operating expenses

       (754 )     (730 )
                  

Profit before tax

       172       110  
                  

Cost:income ratio

       81 %     87 %

Cost:net income ratio

       81 %     87 %

Risk Tendency

     £ 5 m   £ 5 m

Average net income per member of staff (‘000)

     £ 129     £ 119  
     2005     As at
01.01.05
    2004  

Loans and advances to customers

   £ 4.7 bn   £ 4.2 bn   £ 4.1 bn

Customer accounts

   £ 23.1 bn   £ 21.4 bn   £ 21.3 bn

Total assets

   £ 6.1 bn   £ 5.7 bn   £ 5.6 bn

Weighted risk assets

   £ 4.5 bn   £ 4.2 bn   £ 4.0 bn

Key Facts

         2005     2004  

Total customer funds

     £ 78.3 bn   £ 70.8 bn

Multi-Manager assets (included above)

     £ 6.0 bn   £ 1.6 bn

 

22


BARCLAYS PLC

Wealth Management profit before tax increased 56% (£62m) to £172m (2004: £110m), driven by broad based income growth and improved cost efficiency.

Total income increased 11% (£89m) to £928m (2004: £839m).

Net interest income increased 11% (£32m) to £335m (2004: £303m) reflecting strong growth in loans and deposits. Total average customer deposits increased 12% to £23.0bn (2004: £20.6bn) driven by strong growth from offshore and private banking clients. Total average loans increased 22% to £4.4bn (2004: £3.6bn), reflecting growth from corporate clients in the offshore business.

Net fee and commission income increased 11% (£60m) to £589m (2004: £529m). The increase was driven principally by sales of investment products to private banking and financial planning clients, stronger equity markets and higher client transaction volumes.

Operating expenses increased 3% (£24m) to £754m (2004: £730m). The business is being re-organised to establish an integrated global operating model and efficiency savings have enabled the funding of significant restructuring expenditure and the initiation of major investment programmes in people and infrastructure. The cost:income ratio improved six percentage points to 81% (2004: 87%).

The integration of the Gerrard business continued to make good progress with profits well ahead of 2004.

Total customer funds, comprising customer deposits and assets under management, increased to £78.3bn (31st December 2004: £70.8bn). Multi-Manager assets increased to £6.0bn(31st December 2004: £1.6bn); this growth included existing customer assets.

 

23


BARCLAYS PLC

Wealth Management - closed life assurance activities

 

           2005     2004  
           £m     £m  

Net interest income

       (13 )     (53 )

Net fee and commission income

       44       —    

Net trading income

       —         —    

Net investment income

       259       596  

Principal transactions

       259       596  

Net premiums from insurance contracts

       195       362  

Other income

       11       4  
                  

Total income

       496       909  

Net claims and benefits on insurance contracts

       (375 )     (818 )
                  

Total income net of insurance claims

       121       91  

Operating expenses

       (127 )     (143 )
                  

Loss before tax

       (6 )     (52 )
                  

Cost:income ratio

       105 %     157 %
     2005     As at
01.01.05
    2004  

Total assets

   £ 7.3 bn   £ 6.6 bn   £ 6.4 bn

 

24


BARCLAYS PLC

Wealth Management closed life assurance activities loss before tax reduced to £6m (2004: loss of £52m) predominantly due to lower funding and redress costs in 2005.

Profit before tax excluding customer redress costs of £85m was £79m (2004: £45m).

From 1st January 2005, following the application of IAS 39 and IFRS 4, life assurance products are divided into investment contracts and insurance contracts. Investment income from assets backing investment contracts, and the corresponding movement in investment contract liabilities, has been presented on a net basis in other income. In addition, these standards have impacted the reporting of net claims and benefits paid.

Total income decreased to £496m (2004: £909m), largely due to the application of IFRS. The decrease was offset by a broadly similar reduction in net claims and benefits.

Operating expenses decreased 11% (£16m) to £127m (2004: £143m). Costs relating to redress for customers decreased to £85m (2004: £97m) and other operating expenses decreased 9% (£4m) to £42m (2004: £46m).

 

25


BARCLAYS PLC

Barclaycard

 

           2005     2004  
           £m     £m  

Net interest income

       1,773       1,600  

Net fee and commission income

       972       790  

Net premiums from insurance contracts

       24       22  
                  

Total income

       2,769       2,412  

Net claims and benefits on insurance contracts

       (7 )     (5 )
                  

Total income net of insurance claims

       2,762       2,407  

Impairment charge and other credit provisions

       (1,098 )     (761 )
                  

Net income

       1,664       1,646  

Operating expenses excluding amortisation of intangible assets

       (961 )     (804 )

Amortisation of intangible assets

       (17 )     (3 )

Operating expenses

       (978 )     (807 )

Share of post-tax results of associates and joint ventures

       1       4  
                  

Profit before tax

       687       843  
                  

Cost:income ratio

       35 %     34 %

Cost:net income ratio

       59 %     49 %

Risk Tendency

     £ 1,100 m   £ 860 m
     2005     As at
01.01.05
    2004  

Loans and advances to customers

   £ 24.0 bn   £ 22.2 bn   £ 22.3 bn

Total assets

   £ 25.8 bn   £ 23.2 bn   £ 23.4 bn

Weighted risk assets

   £ 20.4 bn   £ 21.6 bn   £ 20.2 bn

Key Facts

         2005     2004  

Number of Barclaycard UK customers

       11.2 m     11.2 m

Number of retailer relationships

       93,000       90,000  

UK credit cards - average outstanding balances

     £ 10.1 bn   £ 9.6 bn

UK credit cards - average extended credit balances

     £ 8.6 bn   £ 8.2 bn

UK loans - average consumer lending balances

     £ 10.3 bn   £ 9.4 bn

International - average extended credit balances

     £ 1.8 bn   £ 0.9 bn

International - cards in issue

       4.3 m     2.9 m

 

26


BARCLAYS PLC

Barclaycard profit before tax decreased 19% (£156m) to £687m (2004: £843m) as strong income growth was more than offset by higher impairment charges and increased costs from the continued development of the International business. Excluding Barclaycard US (previously Juniper) loss before tax of £56m, profit before tax fell 12% (£102m) to £743m.

Total income, net of insurance claims, increased 15% (£355m) to £2,762m (2004: £2,407m) driven by good performances across the diversified UK cards and loans businesses and Barclaycard Business, and by very strong momentum in international cards. Excluding Barclaycard US income of £75m, income increased 10%. The application of IAS 32 and IAS 39 from 1st January 2005, in particular the Effective Interest Rate requirements, resulted in the reclassification of fee and commission expenses to net interest income.

Net interest income increased 11% (£173m) to £1,773m (2004: £1,600m) as a result of growth in average balances, although the rate of growth in the UK slowed during 2005. UK average extended credit balances rose 5% to £8.6bn (2004: £8.2bn) and international average extended credit balances doubled to £1.8bn (2004: £0.9bn). Excluding Barclaycard US average extended credit balances of £0.9bn, international average extended credit balances increased 26%. UK average consumer lending balances increased 10% to £10.3bn (2004: £9.4bn). Margins in the cards business improved during 2005 to 7.96% (2004: 7.34%) due to the impact of increased card rates and a reduced proportion of total balances on promotional offers. Margins in consumer lending fell to 4.96% (2004: 6.27%), due to the impact of IAS 32 and IAS 39, competitive pressure and a change in the product mix. Excluding the impact of the application of IAS 32 and IAS 39, net interest income increased 14%.

Net fee and commission income increased 23% (£182m) to £972m (2004: £790m) as a result of the inclusion of Barclaycard US and increased contributions from Barclaycard Business and FirstPlus. Excluding the impact of IAS 32 and IAS 39, net fee and commission income increased 16%.

Impairment charges increased 44% (£337m) to £1,098m (2004: £761m). The increase was driven by a rise in delinquent balances, lower rates of recovery from customers, the inclusion of Barclaycard US, and an increase in the size of the average loan book. Excluding Barclaycard US impairment charges of £53m, impairment charges increased 38%. The increases arose in the UK businesses as a result of the industry wide credit experience during 2005. Within the portfolio, the greater increase arose in the UK cards business; impairment charges in the consumer lending business increased at a lower rate. Non-performing loans increased significantly, driven by the growth in delinquent balances.

Operating expenses rose 21% (£171m) to £978m (2004: £807m) mostly as a result of the inclusion of Barclaycard US. Excluding Barclaycard US operating expenses of £111m, operating expenses rose 7% reflecting continued investment in the UK and continental European card businesses and the development of the UK Partnerships business.

Barclaycard International performed strongly, with Germany and Spain delivering excellent results. In June Barclaycard formed a new joint venture with Swedbank to develop a card business in the Nordic region; the business is performing in line with expectations. Excluding Barclaycard US, Barclaycard International profit before tax was £26m (2004: £8m), with income ahead 22%. Barclaycard US performance and integration proceeded in line with expectations, with strong growth in balances and customers and the establishment of a number of new partnerships. The loss before tax for Barclaycard US was £56m (2004: loss of £2m).

 

27


BARCLAYS PLC

Intentionally left blank

 

28


BARCLAYS PLC

International Retail and Commercial Banking

 

           2005     2004  
           £m     £m  

Net interest income

       1,096       534  

Net fee and commission income

       711       288  

Net trading income

       40       —    

Net investment income

       150       135  

Principal transactions

       190       135  

Net premiums from insurance contracts

       227       300  

Other income

       62       25  
                  

Total income

       2,286       1,282  

Net claims and benefits on insurance contracts

       (205 )     (390 )
                  

Total income net of insurance claims

       2,081       892  

Impairment charge and other credit provisions

       (33 )     (31 )
                  

Net income

       2,048       861  

Operating expenses excluding amortisation of intangible assets

       (1,356 )     (616 )

Amortisation of intangible assets

       (48 )     (1 )

Operating expenses

       (1,404 )     (617 )

Share of post-tax results of associates and joint ventures

       46       49  
                  

Profit before tax

       690       293  
                  

Cost:income ratio

       67 %     69 %

Cost:net income ratio

       69 %     72 %

Risk Tendency

     £ 195 m   £ 65 m
     2005     As at
01.01.05
    2004  

Loans and advances to customers

   £ 54.3 bn   £ 20.8 bn   £ 20.7 bn

Customer accounts

   £ 33.4 bn   £ 9.5 bn   £ 10.1 bn

Total assets

   £ 73.6 bn   £ 28.8 bn   £ 28.5 bn

Weighted risk assets

   £ 50.1 bn   £ 18.7 bn   £ 19.3 bn

International Retail and Commercial Banking profit before tax increased £397m to £690m (2004: £293m). The increase reflected the inclusion of Absa profit before tax of £335m for the period from 27th July 2005 and strong organic growth in Africa and Europe.

From 1st January 2005, following the application of IAS 39 and IFRS 4, life assurance products are divided into investment contracts and insurance contracts. Investment income from assets backing insurance contracts, and the corresponding movement in investment contract liabilities, has been presented on a net basis in other income. In addition, these standards have impacted the reporting of net claims and benefits paid. Also the application of IAS 32 and IAS 39 from 1st January 2005, in particular the Effective Interest Rate requirements, resulted in the reclassification of certain lending related fees from net fee and commission income to net interest income.

 

29


BARCLAYS PLC

International Retail and Commercial Banking - excluding Absa

 

           2005     2004  
           £m     £m  

Net interest income

       582       534  

Net fee and commission income

       377       288  

Net trading income

       31       —    

Net investment income

       88       135  

Principal transactions

       119       135  

Net premiums from insurance contracts

       129       300  

Other income

       23       25  
                  

Total income

       1,230       1,282  

Net claims and benefits on insurance contracts

       (161 )     (390 )
                  

Total income net of insurance claims

       1,069       892  

Impairment charge and other credit provisions

       (13 )     (31 )
                  

Net income

       1,056       861  

Operating expenses excluding amortisation of intangible assets

       (734 )     (616 )

Amortisation of intangible assets

       (6 )     (1 )

Operating expenses

       (740 )     (617 )

Share of post-tax results of associates and joint ventures

       39       49  
                  

Profit before tax

       355       293  
                  

Cost:income ratio

       69 %     69 %

Cost:net income ratio

       70 %     72 %

Risk Tendency

     £ 75 m   £ 65 m
     2005     As at
01.01.05
    2004  

Loans and advances to customers

   £ 25.4 bn   £ 20.8 bn   £ 20.7 bn

Customer accounts

   £ 10.4 bn   £ 9.5 bn   £ 10.1 bn

Total assets

   £ 34.2 bn   £ 28.8 bn   £ 28.5 bn

Weighted risk assets

   £ 21.6 bn   £ 18.7 bn   £ 19.3 bn

Key Facts

         2005     2004  

Number of international branches

       798       830  

Number of Barclays Africa and the Middle East customer accounts

       1.3 m     1.4 m

Number of Barclays Europe customers

       0.8 m     0.7 m

Number of European mortgage customers

       229,000       153,000  

European mortgages - average balances (Euros)

     21.2 bn   16.9 bn

European assets under management (Euros)

     22.6 bn   17.1 bn

 

30


BARCLAYS PLC

International Retail and Commercial Banking excluding Absa performed strongly, with profit before tax increasing 21% (£62m) to £355m (2004: £293m). The performance was broad based, featuring stronger profits in all geographies.

Total income net of insurance claims increased 20% (£177m) to £1,069m (2004: £892m).

Net interest income increased 9% (£48m) to £582m (2004: £534m), reflecting strong balance sheet growth in Europe, Africa and the Middle East, and the development of the corporate businesses in Spain.

Total average customer loans increased 28% to £22.8bn (2004: £17.8bn). Mortgage balance growth in continental Europe was particularly strong with average Euro balances up 25%. Average lending balances in Africa and the Middle East increased 34%. Changes in the overall product mix, as a result of growth in European mortgages and competitive pressures in key European markets contributed to lower lending margins. Average customer deposits increased 7% to £9.5bn (2004: £8.9bn), with deposit margins rising modestly.

Net fee and commission income increased 31% (£89m) to £377m (2004: £288m). This reflected a strong performance from the Spanish funds business, where assets under management increased 15%, together with good growth in France, including the contribution of the ING Ferri business which was acquired on 1st July 2005. Fee income also showed solid growth in Italy, Africa and the Middle East. Excluding the impact of IAS 32 and IAS 39, net fee and commission income increased 25%.

Principal transactions reduced to £119m (2004: £135m), reflecting the change in accounting for insurance business, partly offset by investment realisations during 2005 including a gain of £23m from the redemption of preference shares in FirstCaribbean.

Impairment charges decreased 58% (£18m) to £13m (2004: £31m), mainly as a result of releases and recoveries in Africa and the Middle East. In Europe, charges remained broadly stable.

Operating expenses increased 20% (£123m) to £740m (2004: £617m). The increase was in line with the growth in income, and was due to higher integration costs in Spain, the continued expansion of the business in Africa and the Middle East, investments in the European distribution network, particularly in Portugal and Italy, and the acquisition of the ING Ferri business in France. The cost:income ratio remained stable at 69% (2004: 69%).

Barclays Spain continued to perform very strongly with profit before tax, pre integration costs of £57m, up 25% to £156m (2004: £125m). Including integration costs, profit before tax was up 19% to £99m (2004: £83m). This was driven by the continued realisation of benefits from the accelerated integration of Banco Zaragozano, together with good growth in mortgages and assets under management. The integration of Banco Zaragozano continued to be well ahead of plan; integration costs were £57m (2004: £42m). Profit before tax also increased strongly in Italy and Portugal reflecting strong customer acquisition and increased business volumes. France performed well as a result of good organic growth and the acquisition of ING Ferri.

Africa and the Middle East profit before tax increased 14% to £142m (2004: £125m) reflecting continued investment and balance sheet growth across the businesses, particularly in Egypt, United Arab Emirates and South Africa and lower impairment charges.

The post-tax profit from associates decreased £10m to £39m (2004: £49m) due to a lower contribution from FirstCaribbean. The underlying performance in 2005 was stronger; Barclays results in 2004 included £28m relating to the gain made by FirstCaribbean on the sale of shares in Republic Bank Limited.

 

31


BARCLAYS PLC

International Retail and Commercial Banking - Absa

 

    

Period from 27th

July until
31st December
2005

 
     £m  

Net interest income

     514  

Net fee and commission income

     334  

Net trading income

     9  

Net investment income

     62  

Principal transactions

     71  

Net premiums from insurance contracts

     98  

Other income

     39  
        

Total income

     1,056  

Net claims and benefits on insurance contracts

     (44 )
        

Total income net of insurance claims

     1,012  

Impairment charge and other credit provisions

     (20 )
        

Net income

     992  

Operating expenses excluding amortisation of intangible assets

     (622 )

Amortisation of intangible assets

     (42 )

Operating expenses

     (664 )

Share of post-tax results of associates and joint ventures

     7  
        

Profit before tax

     335  
        

Cost:income ratio

     66 %

Cost:net income ratio

     67 %

Risk Tendency

   £ 120 m

Loans and advances to customers

   £ 28.9 bn

Customer accounts

   £ 23.0 bn

Total assets

   £ 39.4 bn

Weighted risk assets

   £ 28.4 bn

Key Facts

   2005  

Number of branches

     718  

Number of ATM’s

     5,835  

Number of retail customers

     7.6m  

Number of corporate customers

     82,000  

 

32


BARCLAYS PLC

Absa’s profit before tax for the period from 27th July 2005 was £335m. On consolidation into Barclays results, a charge of £42m has been taken for the amortisation of intangible assets and is included within operating expenses. The consolidated results for Absa represent 100% of earnings, 43.4% of which is attributable to minority interests. This is deducted from Barclays results as profit attributable to minority interests.

 

33


BARCLAYS PLC

Head office functions and other operations

 

           2005     2004  
           £m     £m  

Net interest expense

       (49 )     (24 )

Net fee and commission expense

       (408 )     (181 )

Net trading income

       85       21  

Net investment income

       8       (9 )

Principal transactions

       93       12  

Net premiums from insurance contracts

       146       109  

Other income

       24       37  
                  

Total income

       (194 )     (47 )

Impairment release/(charge) and other credit provisions

       9       (1 )
                  

Net loss

       (185 )     (48 )

Operating expenses excluding amortisation of intangible assets

       (343 )     (175 )

Amortisation of intangible assets

       (4 )     (14 )

Operating expenses

       (347 )     (189 )

Share of post-tax results of associates and joint ventures

       —         2  
                  

Loss before tax

       (532 )     (235 )
                  

Risk Tendency

     £ 10 m   £ 20 m
     2005     As at
01.01.05
    2004  

Total assets

   £ 7.7 bn   £ 4.2 bn   £ 4.0 bn

Weighted risk assets

   £ 2.2 bn   £ 1.9 bn   £ 2.0 bn

 

34


BARCLAYS PLC

Head office functions and other operations loss before tax increased £297m to £532m (2004: loss £235m), reflecting the elimination of inter-segment transactions and increased operating expenses.

Group segmental reporting is prepared in accordance with Group accounting policies. This means that inter-segment transactions are recorded in each segment as if undertaken on an arms length basis. Consolidation adjustments necessary to eliminate the inter-segment transactions, including adjustments to eliminate the timing differences on the recognition of inter-segment income and expenses, are included in Head office functions and other operations.

The increase in asymmetric consolidation adjustments of £135m to £204m (2004: £69m) mainly arises from the timing of the recognition of insurance premiums included in Barclaycard and UK Banking amounting to £113m (2004: £nil).

In UK Banking, captive insurers pay commissions to other businesses for the introduction of short term payment protection insurance. The recognition of commissions payable is generally spread over the term of the insurance to match the fact that claims arise over the term of the insurance.

In Barclaycard, introducer commissions received from UK Banking’s captive insurers are recognised as ‘Net fees and commission’ income at the time the service is provided. This is on the basis that the introducer carries none of the related policy risk and provides no on-going service to the policy holder. In addition, the related cost of introduction is incurred at the inception of any policy.

In 2004 and prior years, Barclaycard dealt with third party underwriters but from the start of 2005 this activity was undertaken with the captive insurance operation within UK Banking.

In Head office functions and other operations, consolidation adjustments are made:

 

    to eliminate the differential timing of the recognition of insurance commissions between UK Banking and Barclaycard; and

 

    to reclassify fees and commissions, as recorded in Barclaycard, as net premiums from insurance contracts in Head office functions and other operations.

In addition there were two other significant consolidation adjustments: internal fees for structured capital markets activities arranged by Barclays Capital of £67m (2004: £63m); and the fees paid to Barclays Capital for capital raising and risk management advice of £50m (2004: £nil). Previously capital raising fees were amortised over the life of the capital raising and taken as a charge to net interest income. Under IFRS they are recognised as a cost in the year of issue.

Net trading income of £85m (2004: £21m) primarily arose as a result of hedging related transactions in Treasury. The hedge ineffectiveness from 1st January 2005, together with other related Treasury adjustments, amounted to a gain of £18m (2004: £nil) and was reported in net interest income. The cost of hedging the foreign exchange risk on the Group’s investment in Absa amounted to £37m (2004: £nil) and was deducted from net interest income.

Other income primarily comprises property rental income.

Impairment gains reflect recoveries made on loans previously written off in the transition businesses.

Operating expenses rose £158m to £347m (2004: £189m) and included non-recurring costs relating to the head office relocation to Canary Wharf of £105m (2004: £32m) and a charge to write down capitalised IT related assets held centrally of £60m (2004: £nil). Underlying operating expenses, excluding non-recurring costs of £165m, rose by £25m, representing an increase of 16%.

 

35


BARCLAYS PLC

FINANCIAL REVIEW

Results by nature of income and expense

Net interest income

 

     2005     20041  
     £m     £m  

Interest income2

    

Cash and balances with central banks

   9     4  

Financial instruments

   2,272     —    

Debt securities

   —       2,597  

Loans and advances to banks

   690     957  

Loans and advances to customers

   12,944     10,312  

Other

   1,317     10  
            
   17,232     13,880  
            

Interest expense2

    

Deposits from banks

   (2,056 )   (1,535 )

Customer accounts

   (2,715 )   (2,053 )

Debt securities in issue

   (3,268 )   (1,569 )

Subordinated liabilities

   (605 )   (692 )

Other

   (513 )   (1,198 )
            
   (9,157 )   (7,047 )
            

Net interest income

   8,075     6,833  
            

Group net interest income increased 18% (£1,242m) to £8,075m (2004: £6,833m). The inclusion of Absa added net interest income of £514m in the second half of 2005. Group net interest income excluding Absa grew 11% reflecting growth in average balances across all businesses. Growth in net interest income was strongest in UK Banking, particularly reflecting the growth in UK Business Banking average lending and deposit balances. Net interest income also improved in Barclaycard and International Retail and Commercial Banking as a result of strong growth in balances.

In 2005, interest income relating to reverse repurchase agreements has been included within other interest income. In 2004, such income was classified within the loans and advances to banks and the loans and advances to customers categories. Expenditure relating to repurchase agreements has been treated accordingly and is included within other interest expense. In 2004 the expenditure was included within deposits from banks and customer accounts.

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 has decreased to £145m (2004: £304m), largely due to the impact of higher short-term interest rates and lower medium-term rates. The reduced contribution from the structural hedge has impacted the interest earned on shareholders’ funds and reported liability margins.

Interest income includes £76m accrued on impaired loans, reflecting the application of IAS 32.

 


1 Does not include IAS 32, IAS 39 or IFRS 4. Financial instruments are measured in accordance with UK GAAP.
2 Following application of IAS 32 and IAS 39 there are a number reclassifications, which affect the year on year comparisons of interest income and expense:

- Certain lending related fees and commissions transferred to net interest income.

- The interest expense of certain capital instruments transferred to minority interests.

 

36


BARCLAYS PLC

FINANCIAL REVIEW

Net fee and commission income

 

     2005     2004  
     £m     £m  

Fee and commission income

   6,430     5,509  

Fee and commission expense

   (725 )   (662 )
            

Net fee and commission income

   5,705     4,847  
            

Net fee and commission income increased 18% (£858m) to £5,705m (2004: £4,847m) reflecting good growth across all businesses. The inclusion of Absa increased net fee and commission income by £334m in the second half of 2005. Group net fee and commission income excluding Absa grew 11%. Excluding the application of IAS 32 and IAS 39 net fee and commission income increased 20%.

Fee and commission income rose 17% (£921m) to £6,430m (2004: £5,509m). The inclusion of Absa increased fee and commission income by £386m. Excluding Absa, fee and commission income grew by 10%. The growth was driven by Barclays Global Investors, reflecting strong growth in net new assets, strong investment performance and higher market levels, and Barclays Capital as a result of increased business volumes and higher market share. In addition, Barclaycard fee and commission income increased as a result of higher contributions from Barclaycard Business and FirstPlus and the inclusion of Barclaycard US for the full year. Fee and commission expense increased 10% (£63m) to £725m (2004: £662m), largely reflecting the inclusion of Absa which added £52m.

Total foreign exchange income was £648m (2004: £520m) and consisted of revenues earned from both retail and wholesale activities. The foreign exchange income earned on customer transactions by UK Retail Banking, UK Business Banking, International Retail and Commercial Banking, Barclaycard, Barclays Global Investors and Wealth Management, both externally and with Barclays Capital, is reported in those respective business units, within fee and commission income. The foreign exchange income earned in Barclays Capital is reported within trading income.

 

37


BARCLAYS PLC

FINANCIAL REVIEW

Principal transactions

 

     2005    2004
     £m    £m

Net trading income

     

Rates related business

   1,732    1,141

Credit related business

   589    346
         
   2,321    1,487
         

Net investment income

     

Cumulative gain from disposal of available for sale assets/investment securities

   120    45

Dividend income

   22    17

Net income from financial instruments designated at fair value

   389    —  

Income from assets backing insurance policies1

   —      717

Other investment income

   327    248
         
   858    1,027
         

Principal transactions

   3,179    2,514
         

Most of the Group’s trading income is generated in Barclays Capital.

Net trading income increased 56% (£834m) to £2,321m (2004: £1,487m) due to strong performances across Barclays Capital Rates and Credit businesses, in particular from commodities, foreign exchange, fixed income and credit derivatives. This was driven by the continued return on prior year investments and higher volumes of client led activity across a broad range of products and geographical regions. Group net trading income, excluding £9m of Absa income, grew 55%.

Net investment income decreased 16% (£169m) to £858m (2004: £1,027m). The inclusion of Absa increased net investment income by £62m in the second half of 2005. Group net investment income excluding Absa decreased 22%.

Following the application of IAS 39 at 1st January 2005, certain assets and liabilities have been designated at fair value. Fair value movements on these items 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 £317m.

 


1 From 1st January 2005, investment and insurance contracts are separately accounted for in accordance with IAS 39 and IFRS 4. This has resulted in investment income and the corresponding movement in investment contract liabilities being presented on a net basis within other income. In 2004, all contracts were accounted for as insurance contracts and the gross income relating to these contracts was reported as income from assets backing insurance policies.

 

38


BARCLAYS PLC

FINANCIAL REVIEW

Net premiums from insurance contracts

 

     2005     2004  
     £m     £m  

Gross premiums from insurance contracts

   909     1,069  

Premiums ceded to reinsurers

   (37 )   (27 )
            

Net premiums from insurance contracts

   872     1,042  
            

The application of IAS 39 and IFRS 4 in 2005 has affected year on year comparatives of insurance results. These standards change the basis of recognition for insurance premiums, claims and insurance contract liability movements (together reported as net claims and benefits) and also of investment management fees on unit linked products. IFRS 4 requires preparers to distinguish portfolios with the legal form of insurance contracts between those that contain significant insurance risk and those that are largely investment in nature.

The change in accounting for investment contracts resulted in a substantial decline in reported net premiums from insurance contracts in the Wealth Management - closed life assurance activities and International Retail and Commercial Banking businesses. There is a corresponding decline in net claims and benefits paid on insurance contracts.

Other income

 

     2005     2004
     £m     £m

Increase in fair value of assets held in respect of linked liabilities to customers under investment contracts

   9,234     —  

Increase in liabilities held in respect of linked liabilities to customers under investment contracts

   (9,234 )   —  

Property rentals

   54     46

Other income

   93     85
          
   147     131
          

In accordance with IAS 39, from 1st January 2005 certain asset management products offered to institutional clients by Barclays Global Investors are recognised as investment contracts. This results in a substantial increase in the fair value of assets held in respect of linked liabilities to customers under investment contracts and in the related liabilities.

Net claims and benefits paid on insurance contracts

 

     2005     2004  
     £m     £m  

Gross claims and benefits paid on insurance contracts

   694     1,275  

Reinsurers’ share of claims paid

   (49 )   (16 )
            

Net claims and benefits paid on insurance contracts

   645     1,259  
            

The change in accounting for investment contracts results in a substantial decline in reported net claims and benefits paid on insurance contracts in Wealth Management - closed life assurance activities and International Retail and Commercial Banking. There is a corresponding decline in net premiums from insurance contracts.

 

39


BARCLAYS PLC

FINANCIAL REVIEW

Impairment charge and other credit provisions

 

     2005     2004  
     £m     £m  

Impairment charges

    

The charges for the period in respect of impairment for loans and advances comprise:

    

- New and increased

   2,129     1,755  

- Releases

   (333 )   (396 )

- Recoveries

   (222 )   (255 )
            

Total impairment charges for loans and advances

   1,574     1,104  

Impairment on available for sale assets

   4     —    

Other credit provisions

    

Charges for the period in respect of provision for undrawn contractually committed facilities and guarantees provided

   (7 )   (11 )
            

Total impairment charge and other credit provisions

   1,571     1,093  
            

Period-on-period comparison is affected by the adoption of IAS 39 on 1st January 2005, which has changed the absolute value and calculation basis of the impairment charges and Potential Credit Risk Loans (PCRLs). In addition, following the adoption of IAS 39 on 1st January 2005 wholesale and corporate charges now include the impairment of private equity investments.

Total impairment charges and other credit provisions increased 44% (£478m) to £1,571m (2004: £1,093m). This reflected some large one-off releases and recoveries in 2004, the impact of acquisitions in 2005 and changes in methodology.

In the UK pressure on household cashflows due to a range of factors and the high level of household indebtedness have led to a greater strain on personal budgets. This has resulted in a deterioration in consumer credit quality which has been evident from higher average delinquency balances and shorter periods between delinquency and charge-off. Smaller business customers have also shown some limited deterioration in credit quality. Wholesale and corporate credit conditions remained steady. In other key markets for the Group, the US consumer and corporate credit markets remained robust while the consumer and SME markets in Iberia remained well underpinned by strong economic growth. In South Africa good economic growth has led to buoyant domestic demand for credit, whilst rising retail debt:income ratios were underpinned by growth in household income and low interest rates.

As a result of an increase in impairment charges to the retail portfolios, and to a lesser extent in the wholesale and corporate portfolios, the impairment charges for the Group, excluding Absa impairment of £20m, for the full-year was £1,551m (2004: £1,093m). Impairment charges excluding Absa amounted to 0.57% (2004: 0.48%), as a percentage of period-end total non-trading loans and advances.

Retail impairment charges, excluding Absa impairment charges of £19m, increased to £1,235m (2004: £811m), accounting for just under 80% of the Group’s impairment charges. Excluding Absa impairment charges of £19m, retail impairment charges amounted to 1.05% (2004: 0.72%) of the period-end total non-trading loans and advances. The increase was predominantly in the UK cards and consumer loans portfolios.

In the wholesale and corporate businesses, excluding Absa impairment charges of £1m, impairment charges increased to £323m (2004: £282m). The increase occurred largely in UK Business Banking and reflected the fact that the 2004 results included a large one-off recovery of £57m. Underlying impairment charges excluding this item were broadly flat. Wholesale and corporate impairment charges, excluding Absa impairment charges of £1m, were 0.21% (2004: 0.25%) of period-end total non-trading loans and advances.

 

40


BARCLAYS PLC

FINANCIAL REVIEW

Impairment charge and other credit provisions (continued)

Absa’s impairment charge of £20m for the five month period was low in a benign credit environment and also reflected a reduction in the number and value of non-performing loans and a higher level of releases and recoveries.

Impairment charges by their very nature are subject to exceptional increases, releases and recoveries from time to time. The presence of such items means that the movements in the impairment charge from one period to another will differ from the movement in the underlying trend. In 2004, the credit loss was reduced by a number of one-off items, including an exceptional recovery of £57m in UK Business Banking and a release of mortgage provisions of £40m (2005: release £10m) in UK Retail Banking.

Operating expenses excluding amortisation of intangible assets

 

     2005    2004
     £m    £m

Staff costs (refer to page 42)

   6,318    5,227

Administrative expenses

   3,443    2,766

Depreciation

   362    297

Impairment loss - intangible assets

   9    9

Operating lease rentals

   316    215
         

Operating expenses excluding amortisation of intangible assets

   10,448    8,514
         

Operating expenses increased 23% (£1,934m) to £10,448m (2004: £8,514m). The inclusion of Absa added operating expenses of £622m to the second half of 2005. Group operating expenses excluding Absa grew 15% reflecting higher business activity.

Administrative expenses increased 24% (£677m) to £3,443m (2004: £2,766m). The inclusion of Absa added administrative expenses of £257m in the second half of 2005. Group administrative expenses excluding Absa grew 15% principally as a result of higher business activity in Barclays Capital and Barclays Global Investors and the inclusion of Barclaycard US for the full year. There was a strong focus on cost control across the business, with particularly good results in UK Retail Banking.

Administrative expenses included non-recurring costs relating to the write down of capitalised IT related assets held centrally of £60m (2004: £nil). Impairment losses of £9m (2004: £9m) reflected a further charge for the impairment of certain capitalised IT related assets following a review of their likely future economic benefit.

Operating lease rentals increased 47% (£101m) to £316m (2004: £215m). The inclusion of Absa added operating lease rentals of £27m in the second half of 2005. Operating lease rentals excluding Absa increased primarily as a consequence of the double occupancy costs associated with the head office relocation to Canary Wharf.

The Group cost:income ratio remained steady at 61%. This reflected improved productivity in UK Banking, Barclays Global Investors and Wealth Management; and a stable performance by International Retail and Commercial Banking, offset by an increase in non-recurring operating expenses in head office and other functions.

The Group cost:net income ratio was 67% (2004: 66%).

 

41


BARCLAYS PLC

FINANCIAL REVIEW

Amortisation of intangible assets

 

     2005    2004
     £m    £m

Internally generated software

   20    19

Other software

   3    —  

Brands

   9    —  

Customer lists and relationships

   27    —  

Licences

   13    3

Core deposit intangibles

   7    —  
         

Amortisation of intangible assets

   79    22
         

The increase in the amortisation of intangible assets primarily reflects the inclusion of Absa in the second half of 2005.

Staff costs

 

     2005    2004
     £m    £m

Salaries and accrued incentive payments

   5,036    4,098

Social security costs

   412    339

Pension costs

     

defined contribution plans

   76    92

defined benefit plans

   271    235

Other post retirement benefits

   27    29

Other

   496    434
         

Staff costs

   6,318    5,227
         

Included in salaries and accrued incentive payments is £338m (2004: £204m) arising from equity settled share based payments.

Staff costs increased 21% (£1,091m) to £6,318m (2004: £5,227m). The inclusion of Absa added staff costs of £296m during the second half of the year. Excluding the impact of Absa, staff costs increased 15%.

Salaries and accrued incentive payments rose 23% (£938m) to £5,036m (2004: £4,098m), principally due to increased headcount in Barclays Capital and performance related payments primarily in Barclays Capital and Barclays Global Investors and the inclusion of Absa. Excluding Absa salaries and accrued incentive payments of £276m, salaries and accrued incentive payments rose 16% (£662m).

Pension costs comprise all UK and international pension schemes. Included in pension costs is a charge of £276m (2004: £261m) in respect of the Group’s main UK pension schemes.

 

42


BARCLAYS PLC

FINANCIAL REVIEW

Staff numbers

 

     2005    2004

UK Banking

   39,900    41,800

UK Retail Banking

   31,900    34,400

UK Business Banking

   8,000    7,400

Barclays Capital

   9,000    7,800

Barclays Global Investors

   2,300    1,900

Wealth Management

   7,200    7,200

Barclaycard

   7,800    6,700

International Retail and Commercial Banking

   46,200    12,100

International Retail and Commercial Banking - ex Absa

   12,700    12,100

International Retail and Commercial Banking - Absa

   33,500    —  

Head office functions and other operations

   900    900
         

Total Group permanent and fixed term contract staff worldwide

   113,300    78,400

Agency staff worldwide

   7,000    4,300
         

Total including agency staff

   120,300    82,700
         

Staff numbers are shown on a full-time equivalent basis. Total Group permanent and contract staff comprise 59,100 (2004: 60,000) in the UK and 54,200 (2004: 18,400) internationally.

Since 2004 permanent and contract staff numbers increased by 34,900, primarily as a result of the acquisition of Absa Group Limited, offset in part by the implementation of restructuring programmes resulting in a decrease of 2,400 staff.

UK Banking staff numbers fell by 1,900 to 39,900 (2004: 41,800), reflecting the cost management programme in UK Retail Banking partially offset by an increase in UK Business Banking frontline staff and the inclusion of 200 Iveco Finance staff.

Barclays Capital staff numbers rose by 1,200 to 9,000 (2004: 7,800), reflecting the continued expansion of the business.

Barclays Global Investors increased staff numbers by 400 to 2,300 to support strategic initiatives (2004: 1,900).

Barclaycard staff numbers rose by 1,100 to 7,800 (2004: 6,700), reflecting growth of 300 in Barclaycard US, an increase of 200 in other international operations and growth in customer facing staff in the UK.

International Retail and Commercial Banking increased staff numbers by 34,100, primarily due to the inclusion of 33,500 Absa staff. International Retail and Commercial Banking excluding Absa increased staff numbers by 600 to 12,700 (2004: 12,100), mainly due to growth in continental Europe, including over 100 from the acquisition of the ING Ferri business in France.

Head office functions and other operations staff numbers remained stable at 900 (2004: 900).

The increase in agency staff worldwide largely reflects the inclusion of 3,300 temporary staff at Absa.

The number of staff under notice at 31st December 2005, was 2,400.

 

43


BARCLAYS PLC

FINANCIAL REVIEW

Share of post-tax results of associates and joint ventures

 

     2005     2004
     £m     £m

Loss from joint ventures

   (8 )   —  

Profit from associates

   53     56
          

Share of post-tax results of associates and joint ventures

   45     56
          

The share of post-tax results of associates and joint ventures fell 20% (£11m) to £45m (2004: £56m). A stronger underlying performance by FirstCaribbean in 2005 was more than offset by the impact of a gain in 2004 relating to the sale of shares held in Republic Bank Ltd (Barclays share £28m). Losses from joint ventures primarily related to Intelligent Processing Systems Limited, a cheque processing joint venture in the UK.

Tax

The charge for the period is based upon a UK corporation tax rate of 30% for the calendar year 2005 (full-year 2004: 30%). The effective rate of tax for 2005 was 27% (2004: 28%). This is lower than the standard rate due to the beneficial effects of lower tax on certain overseas income and certain non-taxable gains. The tax charge for the year includes £961m (2004: £1,028m) arising in the UK and £478m (2004: £251m) arising overseas.

Profit attributable to minority interests

 

     2005    2004
     £m    £m

International Retail and Commercial Banking - Absa minority interests

   116    —  

Preference shares

   113    2

Reserve capital instruments

   93    —  

Upper tier 2 instruments

   11    —  

Barclays Global Investors minority interests

   41    22

Other minority interests

   20    23
         

Profit attributable to minority interests

   394    47
         

Profit attributable to minority interests increased due to the acquisition of Absa, the inclusion of certain capital instruments within minority interests in accordance with IAS 39 and an increase in the preference share capital of subsidiary undertakings.

 

44


BARCLAYS PLC

FINANCIAL REVIEW

Earnings per share

 

     2005     2004  

Profit attributable to equity holders of the parent

   £ 3,447 m   £ 3,254 m

Dilutive impact of convertible options

   £ (38 )m   £ (16 )m
                

Profit attributable to equity holders of the parent including dilutive impact of convertible options

   £ 3,409 m   £ 3,238 m
                

Basic weighted average number of shares in issue

     6,337 m     6,381 m

Number of potential ordinary shares1

     149 m     124 m
                

Diluted weighted average number of shares

     6,486 m     6,505 m
                
     p     p  

Basic earnings per ordinary share

     54.4       51.0  

Diluted earnings per ordinary share

     52.6       49.8  

Dividends on ordinary shares

The Board has decided to pay, on 28th April 2006, a final dividend for the year ended 31st December 2005 of 17.4p per ordinary share, for shares registered in the books of the Company at the close of business on 3rd March 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 2005 - 2006 tax year in mid-October 2006.

The amount payable for the 2005 final dividend is £1,105m (2004: £1,001m). This amount excludes £24m payable on own shares held by employee benefit trusts (2004: £16m).

For qualifying US and Canadian resident ADR holders, the final dividend of 17.4p per ordinary share becomes 69.6p per ADS (representing four shares). The ADR depositary will mail the dividend on 28th April 2006 to ADR holders on the record on 3rd March 2006.

For qualifying Japanese shareholders, the final dividend of 17.4p per ordinary share will be distributed in mid-May to shareholders on the record on 3rd March 2006.

Shareholders may have their dividends reinvested in Barclays PLC shares by participating in the Barclays Dividend Reinvestment Plan. The plan is available to all shareholders, including members of Barclays Sharestore, provided that they do not live in or are subject to the jurisdiction of any country where their participation in the plan would require Barclays or The Plan Administrator to take action to comply with local government or regulatory procedures or any similar formalities. Any shareholder wishing to obtain details and a form to join the plan should contact The Plan Administrator by writing to: The Plan Administrator to Barclays, 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 7th April 2006 for it to be effective in time for the payment of the final dividend on 28th April 2006. 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.

 


1 Potential ordinary shares reflect the dilutive effect of share options outstanding.

 

45


BARCLAYS PLC

Analysis of amounts included in the balance sheet

Capital resources

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Shareholders’ equity excluding minority interests

   17,426    15,287    15,870

Preference shares

   2,977    690    690

Reserve capital instruments

   1,868    1,907    —  

Upper tier 2 instruments

   581    586    —  

International Retail and Commercial Banking - Absa minority interests

   1,351    —      —  

Other minority interests

   227    147    204

Minority interests

   7,004    3,330    894
              

Total shareholders’ equity

   24,430    18,617    16,764

Loan capital

   12,463    10,606    12,277
              

Total capital resources

   36,893    29,223    29,041
              

The authorised share capital of Barclays PLC is £2,500m (2004: £2,500m) comprising 9,996 million (2004: 9,996 million) ordinary shares of 25p shares and 1 million (2004: 1 million) staff shares of £1 each. Called up share capital comprises 6,490 million (2004: 6,454 million) ordinary shares of 25p each and 1 million (2004: 1 million) staff shares of £1 each.

Total capital resources increased £7,670m to £36,893m since 1st January 2005.

Shareholders’ equity, excluding minority interests, increased £2,139m since 1st January 2005. The increase primarily reflected profits attributable to equity holders of the parent of £3,447m, offset by dividends of £1,581m.

Loan capital rose £1,857m reflecting capital raisings of £1,283m, acquisition of Absa Group Limited’s loan capital of £669m, accrued interest of £210m and exchange rate movements of £207m; offset by redemptions of £464m, fair value adjustments of £43m and amortisation of issue expenses of £5m.

Minority interests increased £3,674m since 1st January 2005, primarily reflecting the purchase of Absa Group Limited with minority interest of £1,351m and the following issuances of preference shares during 2005:

 

  140,000 preference shares of nominal €100 each (Principal amount: €1.4bn; £978m) with a 4.75% dividend issued on 15th March 2005.

 

  100,000 preference shares of nominal US$100 each (Principal amount: US$1.0bn; £551m) with a 6.278% dividend issued on 8th June 2005.

 

  75,000 preference shares of nominal £100 each (Principal amount: £750m) with a 6% dividend issued on 22nd June 2005.

The impact of IAS 32 resulted in the reclassification of certain capital instruments from debt to minority interests. This accounts for substantially all of the increase in minority interests between 31st December 2004 and 1st January 2005.

 

46


BARCLAYS PLC

Capital ratios

Weighted risk assets and capital resources, as defined for supervisory purposes by the Financial Services Authority (FSA), comprised:

 

     2005     As at
01.01.05
    2004  
     £m     £m     £m  

Weighted risk assets:

      

Banking book

      

On-balance sheet

   180,808     148,328     148,621  

Off-balance sheet

   31,351     28,191     26,741  

Associated undertakings and joint ventures

   3,914     3,020     3,020  
                  

Total banking book

   216,073     179,539     178,382  
                  

Trading book

      

Market risks

   23,216     22,106     22,106  

Counterparty and settlement risks

   29,859     18,113     18,113  
                  

Total trading book

   53,075     40,219     40,219  
                  

Total weighted risk assets

   269,148     219,758     218,601  
                  

Capital resources:

      

Tier 1

      

Called up share capital

   1,623     1,614     1,614  

Eligible reserves

   16,837     14,933     15,670  

Minority interests1

   6,634     2,824     2,890  

Tier one notes2

   981     920     920  

Less: intangible assets

   (7,180 )   (4,747 )   (4,432 )
                  

Total qualifying tier 1 capital

   18,895     15,544     16,662  
                  

Tier 2

      

Revaluation reserves

   25     25     25  

Available for sale - equity gains

   223     —       —    

Collectively assessed impairment allowances

   2,306     2,046     —    

General provisions

   —       —       564  

Minority Interests

   515     397     —    

Qualifying subordinated liabilities3

      

Undated loan capital

   3,212     3,176     3,573  

Dated loan capital

   7,069     5,647     5,647  

Other

   —       3     2  
                  

Total qualifying tier 2 capital

   13,350     11,294     9,811  
                  

Tier 3: short term subordinated liabilities3

   —       286     286  
                  

Less: Supervisory deductions:

      

Investments not consolidated for supervisory purposes

   (782 )   (781 )   (1,047 )

Other deductions

   (961 )   (496 )   (496 )
                  
   (1,743 )   (1,277 )   (1,543 )
                  

Total net capital resources

   30,502     25,847     25,216  
                  

Tier 1 ratio

   7.0 %   7.1 %   7.6 %

Risk asset ratio

   11.3 %   11.8 %   11.5 %

1 Includes reserve capital instruments of £1,735m (1st January 2005: £1,627m; 31st December 2004: £1,627m).
2 Tier one notes are included in undated loan capital in the consolidated balance sheet.
3 Subordinated liabilities are included in tiers 2 or 3, subject to limits laid down in the supervisory requirements.

 

47


BARCLAYS PLC

Capital ratios (continued)

At 31st December 2005, the tier 1 capital ratio was 7.0% and the risk asset ratio was 11.3%. From 1st January 2005, net total capital resources rose £4.7bn and weighted risk assets increased £49.4bn.

Tier 1 capital rose £3.4bn, including £1.9bn arising from profits attributable to equity holders net of dividends paid. Minority interests within tier 1 capital increased £3.8bn primarily due to the issuance of £2.3bn of preference shares by Barclays Bank PLC and the minority interest arising on the acquisition of a majority stake in Absa Group Limited. Deductions for intangible assets increased £2.4bn, primarily due to goodwill and intangible assets arising from the acquisition of Absa Group Limited. Tier 2 capital increased £2.1bn of which £1.5bn related to loan capital. The tier 3 capital debt matured in April 2005.

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:

 

     2005     As at
01.01.05
 
     £m     £m  

Shareholders’ equity excluding minority interests

   17,426     15,287  

Available for sale reserve

   (225 )   (314 )

Cash flow hedging reserve

   (70 )   (302 )

Retained earnings

    

Defined benefit pension scheme

   1,215     1,252  

Additional companies in regulatory consolidation and

non-consolidated companies

   (145 )   266  

Foreign exchange on RCIs and upper tier 2 loan stock

   289     459  

Other adjustments

   (30 )   (101 )
            

Called up share capital and eligible reserves

   18,460     16,547  
            

 

48


BARCLAYS PLC

Total assets and weighted risk assets

Total assets increased 29% to £924.4bn (1st January 2005: £715.6bn). Weighted risk assets increased 22% to £269.1bn (1st January 2005: £219.8bn). Loans and advances to customers that have been securitised or subject to similar risk transfer increased £17.3bn to £21.6bn (2004: £4.3bn). Securitised or risk transferred assets are included within total assets but are excluded from weighted risk assets. The increase in weighted risk assets since 1st January 2005 reflects a rise of £36.5bn in the banking book and a rise of £12.9bn in the trading book.

UK Retail Banking total assets decreased 4% to £69.2bn (1st January 2005: £71.9bn). This was mainly attributable to lower residential mortgage balances. Weighted risk assets decreased 15% to £32.3bn (1st January 2005: £37.8bn), reflecting lower mortgage balances and a £4.5bn securitisation of mortgage assets in the second half of 2005, which more than offset strong growth in non-mortgage loans.

UK Business Banking total assets increased 21% to £72.0bn (1st January 2005: £59.5bn), reflecting strong growth in lending balances. Weighted risk assets increased 13% to £61.9bn (1st January 2005: £54.8bn), the increase being lower than asset growth mostly as a result of £5.0bn securitisation of corporate loans in the second half of 2005. The acquisition of a 51% stake in Iveco Finance, completed in June, increased total assets and weighted risk assets by £1.8bn. Excluding the impact of Iveco Finance, assets and weighted risk assets increased 18% and 10% respectively.

Barclays Capital total assets increased 28% to £581.9bn (1st January 2005: £454.4bn). This was mainly attributable to increases in debt securities and reverse repurchase agreements as the business continued to grow, and in derivative financial instruments as a result of business growth and market movements. Weighted risk assets increased 21% to £96.1bn (1st January 2005: £79.5bn), below the rate of balance sheet growth. This reflected trading book weighted risk assets moving in line with risk rather than the balance sheet, the lower weighting of fully collateralised reverse repurchase agreements and the availability of legally enforceable netting agreements with derivative counterparties.

Barclays Global Investors total assets increased 32% to £80.9bn (1st January 2005: £61.4bn) due to growth in asset management products reported on the balance sheet. For the amounts related to asset management products, equal and offsetting balances are reflected within liabilities to customers. Weighted risk assets rose 42% to £1.7bn (1st January 2005: £1.2bn) due to growth in the business.

Wealth Management total assets increased 7% to £6.1bn (1st January 2005: £5.7bn). Weighted risk assets increased 7% to £4.5bn (1st January 2005: £4.2bn) reflecting good growth in lending balances.

Barclaycard total assets increased 11% to £25.8bn (1st January 2005: £23.2bn) driven by growth in lending balances. Weighted risk assets dropped by 6% to £20.4bn (1st January 2005: £21.6bn) reflecting increased securitisation activity during the second half of 2005.

International Retail and Commercial Banking excluding Absa total assets increased 19% to £34.2bn (1st January 2005: £28.8bn) reflecting strong volume growth in European mortgages and African corporate lending. Weighted risk assets increased 16% to £21.6bn (1st January 2005: £18.7bn), which was lower than the increase in assets, reflecting strong growth in mortgage balances, which carry a 50% weighting, and the securitisation of assets in Spain during 2005.

International Retail and Commercial Banking - Absa total assets were £39.4bn and weighted risk assets £28.4bn. Growth in assets since acquisition has been driven by increases in retail lending balances.

Head office functions and other operations total assets increased 83% to £7.7bn (1st January 2005: £4.2bn). The increase includes financial instruments acquired for hedging purposes. Weighted risk assets increased 16% to £2.2bn (1st January 2005: £1.9bn) below the rate of balance sheet growth primarily due to lower risk weighting for assets held for hedging purposes.

 

49


BARCLAYS PLC

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).

 

50


BARCLAYS PLC

Economic capital demand1

 

     2005    2004
     £m    £m

UK Banking

   5,250    4,650

UK Retail Banking

   2,300    2,200

UK Business Banking

   2,950    2,450

Barclays Capital

   2,550    2,100

Barclays Global Investors

   150    150

Wealth Management

   400    300

Wealth Management - closed life assurance activities

   50    100

Barclaycard

   2,800    2,450

International Retail and Commercial Banking

   1,550    1,000

International Retail and Commercial Banking - ex Absa

   1,150    1,000

International Retail and Commercial Banking - Absa2

   400    —  

Head office functions and other operations3

   250    200
         

Business unit economic capital

   13,000    10,950

Capital held at Group centre4

   1,050    1,400
         

Economic capital requirement (excluding goodwill)

   14,050    12,350

Average historic goodwill and intangible assets5

   6,450    5,600
         

Total economic capital requirement6

   20,500    17,950
         

UK Retail Banking economic capital allocation increased £100m to £2.3bn. The impact of growth was offset by risk transfer transactions within UK mortgages. UK Business Banking economic capital allocation increased £500m to £2.95bn as a consequence of asset growth and the acquisition of the Iveco Finance business.

Barclays Capital economic capital increased £450m to £2.55bn reflecting underlying growth in loan and derivative portfolios, additional equity investments and the growth in business and operational risk economic capital.

Wealth Management economic capital allocation increased £100m to £400m as a consequence of general growth across the business and the recalibration of business and operational risk economic capital.

Wealth Management - closed life assurance activities economic capital allocation reduced £50m to £50m reflecting the impact of IFRS removing the volatility previously associated with embedded value accounting.

Barclaycard economic capital allocation increased £350m to £2.8bn, due to growth in outstandings and the inclusion of Barclaycard US for the full year.

 


1 Calculated using a five point average over the year.
2 Average economic capital demand for Absa relates to 5 months of 2005. As at 31st December 2005 the capital demand amounted to £950m.
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 2005. As at 31st December 2005 Absa goodwill and intangibles amounted to £1.8bn and total goodwill and intangibles was £7.9bn.
6 Total period-end economic capital requirement as at 31st December 2005 stood at £21,850m (1st January 2005: £18,150m; 31st December 2004: £19,400m).

 

51


BARCLAYS PLC

Economic capital demand (continued)

International Retail and Commercial Banking excluding Absa economic capital allocation increased £150m to £1.15bn due to the recalibration of business and operational risk economic capital together with exposure growth in Africa and Spain. Absa added £400m to the average economic capital demand reflecting 5 months of the allocation after excluding the risk borne by the minority interest.

Capital held at the Group centre fell £350m to £1.05bn as a result of the acquisition of Absa, partially offset by an increase in available funds to support economic capital (see Economic capital supply on page 53).

 

52


BARCLAYS PLC

Economic capital supply

The Group has determined that the impacts of IFRS should be modified in calculating available funds for economic capital. This applies specifically to:

 

  Cashflow 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 upon which the capital charge is based.

 

  Available for sale reserve - unrealised gains and losses on such securities are included in shareholders’ equity until disposal or impairment. Such gains and losses will be excluded from shareholders’ equity for the purposes of calculating the capital charge. 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 deriving the capital charge, the Group will not deduct the pension deficit from shareholders’ equity.

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 average supply of capital to support the economic capital framework is set out below1:

 

     2005     2004
     £m     £m

Shareholders’ equity excluding minority interests less goodwill2

   10,850     10,450

Retirement benefits liability

   1,350     1,750

Cashflow hedging reserve

   (250 )   —  

Available for sale reserve

   (250 )   —  

Preference shares

   2,350     150
          

Available funds for economic capital excluding goodwill

   14,050     12,350

Average historic goodwill and intangible assets2

   6,450     5,600
          

Available funds for economic capital3

   20,500     17,950
          

1 Averages for the period will not correspond to period-end balances disclosed in the balance sheet. Numbers are rounded to the nearest £50m for presentational purposes only.
2 Average goodwill relates to purchased goodwill and intangible assets from business acquisitions. Absa goodwill is included for 5 months of 2005. As at 31st December 2005, Absa goodwill and intangibles amounted to £1.8bn.
3 Available funds for economic capital as at 31st December 2005 stood at £21,850m (1st January 2005: £18,150m; 31st December 2004: £19,400m).

 

53


BARCLAYS PLC

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 (2004: 9.5%). The costs of preference shares servicing are included in minority interests.

The economic profit performance in 2005 and 2004 is shown below:

 

     2005     2004  
     £m     £m  

Profit after tax and minority interests

   3,447     3,254  

Addback of amortisation charged on acquired intangible assets2

   29     6  
            

Profit for economic profit purposes

   3,476     3,260  

Average shareholders’ equity excluding minority interests3, 4

   10,850     10,450  

Deduct reserve for unrealised gains on cashflow hedging reserve4

   (250 )   —    

Deduct reserve for unrealised gains on available for sale financial instruments4

   (250 )   —    

Add: retirement benefits liability

   1,350     1,750  

Goodwill and intangible assets arising on acquisitions4,5

   6,450     5,600  
            

Average shareholders’ equity for economic profit purposes 3,4

   18,150     17,800  

Capital charge at 9.5%

   (1,724 )   (1,692 )
            

Economic profit

   1,752     1,568  
            

1 The Group’s cost of capital for 2006 is unchanged at 9.5%.
2 Amortisation charged for purchased intangibles only, 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, 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 £50m for presentation purposes only.
5 Absa goodwill is included for 5 months of 2005. As at 31st December 2005 Absa goodwill and intangibles amounted to £1.8bn.

 

54


BARCLAYS PLC

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 group1 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 re-invested 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 two years from 31st December 2003 to 31st December 2005, Barclays delivered TSR of 34% and was positioned 5th within its peer group, which is second quartile. The TSR of the FTSE 100 Index for this period was 34%.

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 profit2 in the range of 10% to 13% per annum (£6.5bn to £7.0bn of cumulative economic profit)3 to support top quartile TSR over the 2004 to 2007 goal period.

Economic profit for 2005 was £1.75bn, which, added to the £1.57bn generated in 2004, delivered a cumulative total of £3.32bn for the goal period to date. This equates to compound annual growth in economic profit of 18% per annum for the goal period to date.

 


1 Peer group for 2005 remained unchanged from 2004: ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, JP Morgan, Lloyds TSB, Royal Bank of Scotland and UBS. The peer group is unchanged for 2006.
2 Economic profit is defined on page 54.
3 Restated for IFRS.

 

55


BARCLAYS PLC

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 losses expected to arise within the next year 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 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.

 

     2005    2004
     £m    £m

UK Banking

   450    375

UK Retail Banking

   170    150

UK Business Banking

   280    225

Barclays Capital

   85    70

Wealth Management

   5    5

Barclaycard

   1,100    860

International Retail and Commercial Banking

   195    65

International Retail and Commercial Banking - ex Absa

   75    65

International Retail and Commercial Banking - Absa

   120    —  

Transition Businesses1

   10    20
         

Risk Tendency

   1,845    1,395
         

Risk Tendency increased 32% (£450m) to £1,845m (2004: £1,395m). The largest increase occurred in Barclaycard, which rose £240m to £1,100m, reflecting the deterioration of credit conditions in the UK credit card market. Risk Tendency increased in UK Business Banking due to the growth in the loan book and the acquisition of the Iveco Finance business.

 


1 Included within head office functions and other operations.

 

56


BARCLAYS PLC

ADDITIONAL INFORMATION

Basis of preparation

The Group adopted the requirements of International Financial Reporting Standards and International Accounting Standards (collectively IFRS) for the first time for the purpose of preparing financial statements for the year ended 31st December 2005.

The Group issued an IFRS Transition Report on 11th May 2005 that provided the reconciliations required by IFRS and the provisional accounting policies expected to be applied in the preparation of the 2005 financial statements. The Interim Results Announcement on 5th August 2005 amended the reconciliations and the provisional accounting policies for the use of the fair value option. The financial information in this Results Announcement has been prepared in accordance with these amended accounting policies. A summary of the Group’s significant accounting policies will be included in the 2005 Annual Report.

Group structure changes from 2004

The presentation of results by business differs from that provided in 2004 in the following respects:

 

  International Retail and Commercial Banking and Wealth Management (previously called Private Clients) are reported as separate business divisions and not aggregated, reflecting the differences in the nature of the products and services and changes in management accountability. Absa is included in International Retail and Commercial Banking to reflect the nature of the products and services and the management accountability. International Retail and Commercial Banking excluding and including Absa are reported as separate components to provide useful information about this significant acquisition.

 

  The results for Wealth Management - closed life assurance activities are provided separately from those for the rest of Wealth Management in order to provide more clarity on the impact of these activities.

 

  The 2004 results of Barclaycard and UK Retail Banking have been restated to reflect the 2005 change in allocation of branch network costs and insurance sales between the two divisions. This had the impact of increasing Barclaycard profit before tax by £59m in 2004 and reducing UK Banking profit before tax in 2004 by the same amount. This restatement was reflected in the IFRS Transition Report issued on 11th May 2005 and the Interim Results Announcement for the half-year ended 30th June 2005.

 

57


BARCLAYS PLC

ADDITIONAL INFORMATION

Acquisitions and disposals

On 1st June 2005, Barclays Asset and Sales Finance (‘BASF’) acquired a 51% share and controlling stake in Fiat’s Iveco Vehicle Finance Business. The transaction will expand BASF’s commercial vehicle expertise.

On 30th June 2005, EnterCard, the joint venture between Barclays Bank PLC and FöreningsSparbanken (also known as Swedbank), which was announced on 4th February 2005, began operations. Barclays Bank PLC has a 50% economic interest in the joint venture. EnterCard provides credit cards in the Nordic market, initially in Sweden and Norway.

On 1st July 2005, Barclays acquired the wealth business of ING Securities Bank (France) consisting of ING Ferri and ING Private Banking.

On 9th May 2005, Barclays announced the terms of a recommended acquisition of a majority stake in Absa Group Limited (‘Absa’). The acquisition was subject to a number of conditions, one of which was the approval of the South African Minister of Finance under the Banks Act, 1990, of South Africa. As part of the Banks Act approval process, Barclays confirmed its long-term commitment to investing in South Africa pursuant to the acquisition of Absa and its intention to retain a controlling stake. Barclays also acknowledged the importance of maintaining the South African character of Absa, in which regard the Chairman of Absa, Dr. Danie Cronje, would continue to serve as chairman and would become a non-executive director of Barclays PLC and Barclays Bank PLC and Dr. Steve Booysen would remain as Group Chief Executive of Absa. Three Barclays representatives were appointed to the Absa board. Barclays has consolidated Absa from 27th July 2005. As at 31st December 2005, Barclays shareholding was 377,527,453 ordinary shares (56.6%).

The acquisition was endorsed by Absa’s black economic empowerment partner. Batho Bonke Capital (Proprietary) Limited, and the Absa Share Ownership Trust, hold redeemable cumulative option-holding preference shares in Absa. These redeemable preference shares have the same rights as ordinary shares, including voting rights (amounting to approximately 11% of the aggregate voting rights), save for the rights relating to dividends, redemption and option liquidation. Each redeemable preference share carries the option to acquire one Absa ordinary share at a discount to the market price during an option exercise period commencing on 2nd July 2007 and ending on 1st July 2009.

 

58


BARCLAYS PLC

ADDITIONAL INFORMATION

Change in accounting estimate

The Group has undertaken a review of the actual useful economic lives of property, plant and equipment. As a result of this review, the assumed useful economic lives of the costs of adaptation of freehold and leasehold property and equipment installed in freehold and leasehold property have increased from 10 years to a range of 10-15 years. The useful economic lives of fixtures and fittings and other equipment have increased from 5 years to a range of 5-10 years. This change in accounting estimate better reflects historical experience and has been applied prospectively from 1st January 2005. This reduced the depreciation charge in 2005 by £30m.

Hedge accounting

The element of ineffectiveness arising on hedges that qualify for hedge accounting is included in net interest income.

Share capital

The Group manages its debt and equity capital actively. The Group will seek to renew its authority to buy back ordinary shares at the 2006 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.

 

59


BARCLAYS PLC

ADDITIONAL INFORMATION

Competition and regulatory matters

There is continuing political and regulatory scrutiny of, and major changes in, legislation and regulation of the retail banking and consumer credit industries in the UK and elsewhere.

In the European Union (EU) as a whole, this includes an inquiry into retail banking in all 25 member states by the European Commission’s Directorate General for Competition. The inquiry is looking at retail banking in Europe generally and the Group is co-operating with the inquiry. The outcome of the inquiry is unclear, but it may have an impact on retail banking in one or more of the EU countries in which the Group operates and therefore on the Group’s business in that sector.

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 of its inquiries, the OFT then announced in December 2005 that it will commence a market study on PPI in March 2006. The scope and impact of the study is not known at present.

In relation to UK consumer credit:

 

  The OFT has carried out investigations into Visa and MasterCard credit card interchange rates. The decision by the OFT in the MasterCard interchange case is being appealed to the Competition Appeals Tribunal and the appeal is expected to be heard towards the end of 2006. The OFT’s investigation in the Visa interchange case is at an earlier stage.

 

  The OFT also has a continuing investigation into the level of late and over-limit fees on credit cards. The OFT issued a press release in July 2005 stating that their provisional conclusion was that these fees were excessive and need to be reduced to be fair. The OFT gave Barclaycard, and seven other credit card companies, three months to provide suitable undertakings regarding the basis of these charges or otherwise to address the concerns of the OFT. Barclaycard responded to the OFT in October 2005 further explaining the position Barclaycard takes in respect of late and over-limit fees and has continued to work with the OFT to address its concerns. Barclays continues to consider the impact of the provisional finding on the credit card industry and Barclaycard, including steps to mitigate any financial impact on shareholders.

These investigations are looking at several aspects of the UK consumer credit industry and the Group is co-operating with them. Their outcome is not known but they may have an impact on the consumer credit industry in general and therefore on the Group’s business in this sector.

The OFT announced in January 2006 that it would be reviewing the undertakings given following the conclusion of the Competition Commission Inquiry in 2002 into the supply of banking services to SMEs. The OFT will commence that review in March 2006 and anticipate that it will take them 9 months. The Group will cooperate fully with that review.

Recent developments

On 1st January 2006 Barclays completed the sale to Absa Group Limited of the Barclays South African branch business (the ‘business’). The business consists of the Barclays Capital South African operations and Corporate and Business Banking activities carried out by International Retail and Commercial Banking (South African branch), together with the associated assets and liabilities.

 

60


BARCLAYS PLC

NOTES

1. Assets held in respect of linked liabilities to customers under investment contracts/liabilities arising from investment contracts

 

     2005     As at
01.01.05
    2004
     £m     £m     £m

Non-trading financial instruments fair valued through profit and loss held in respect of linked

      

liabilities

   83,193     63,124     —  

Cash and bank balances within the funds

   2,008     1,485     —  
                

Assets held in respect of linked liabilities to customers under investment contracts

   85,201     64,609     —  
                

Liabilities arising from investment contracts

   (85,201 )   (64,609 )   —  
                

These assets comprise assets under management held on behalf of clients, required to be recognised on the balance sheet under IAS 39.

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.

 

     2005  
     Contract
notional
amount
   Fair value  
      Assets    Liabilities  
     £m    £m    £m  

Derivatives designated as held 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 at 31st December 2005 have grown from 1st January 2005 due primarily to increases in the volume of fixed income derivatives. This reflects the larger client base and clients’ increased use of Barclays electronic trading platforms in Europe and the US. Credit derivatives volumes have also increased significantly, due to growth in the market for these products.

 

61


BARCLAYS PLC

2. Derivative financial instruments (continued)

The Group’s total contract notional amount and the fair derivative asset and liability position before the effect of netting or allowable cash collateral offset as at 31st December 2004 was as follows:

 

     2004  
     Contract
notional
amount
   Fair value  
      Assets    Liabilities  
     £m    £m    £m  

Foreign exchange derivatives

   824,894    20,302    (22,332 )

Interest rate derivatives

   11,296,699    66,031    (62,753 )

Credit derivatives

   191,408    1,452    (1,217 )

Equity and stock index and commodity derivatives

   321,035    9,455    (10,053 )
                

Total derivative assets/(liabilities) before netting or cash collateral offset

   12,634,036    97,240    (96,355 )
                

The Group’s total derivative asset and liability position as presented on the balance sheet was as follows:

 

     2005  
     Contract
notional
amount
   Fair value  
      Assets    Liabilities  
     £m    £m    £m  

Derivative assets/(liabilities) designated as held for trading

   17,804,964    136,166    (136,903 )

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 )
                

 

    

As at

01.01.05

 
     Contract
notional
amount
   Fair value  
      Assets    Liabilities  
     £m    £m    £m  

Derivative assets/(liabilities) designated as held for trading

   12,381,890    92,490    (93,217 )

Derivative assets/(liabilities) designated in hedge accounting relationships

   89,894    1,721    (1,212 )
                

Total recognised derivative assets/(liabilities)

   12,471,784    94,211    (94,429 )
                

 

62


BARCLAYS PLC

3. Loans and advances to banks

 

     2005     As at
01.01.05
    2004  
     £m     £m     £m  

By geographical area

      

United Kingdom

   4,624     5,813     3,949  

Other European Union

   5,423     4,274     1,813  

United States

   13,267     8,459     7,668  

Africa

   880     425     425  

Rest of the World

   6,915     6,781     5,725  
                  
   31,109     25,752     19,580  

Reverse repurchase agreements

   —       —       61,075  

Less: Allowance for impairment/provision

   (4 )   (24 )   (23 )
                  

Total loans and advances to banks

   31,105     25,728     80,632  
                  

Of the total loans and advances to banks, placings with banks were £12.7bn (2004: £66.7bn). Placings with banks have decreased primarily due to the reclassification of reverse repurchase agreements to a separate balance sheet category.

 

63


BARCLAYS PLC

4. Loans and advances to customers

 

     2005     As at
01.01.05
    2004  
     £m     £m     £m  

Retail business

   144,039     108,506     106,296  

Wholesale business

   128,303     101,366     100,497  
                  
   272,342     209,872     206,793  

Reverse repurchase agreements

   —       —       58,304  

Less: Allowances for impairment/provisions

   (3,446 )   (2,613 )   (2,688 )
                  

Total loans and advances to customers

   268,896     207,259     262,409  
                  

By geographical area

      

United Kingdom

   163,759     148,197     146,248  

Other European Union

   38,923     26,350     26,210  

United States

   22,925     21,813     20,982  

Africa

   33,221     2,776     2,759  

Rest of the World

   13,514     10,736     10,594  
                  
   272,342     209,872     206,793  

Reverse repurchase agreements

   —       —       58,304  

Less: Allowance for impairment/provisions

   (3,446 )   (2,613 )   (2,688 )
                  

Total loans and advances to customers

   268,896     207,259     262,409  
                  

By industry

      

Financial institutions

   43,102     36,865     25,132  

Agriculture, forestry and fishing

   3,785     2,247     2,345  

Manufacturing

   13,779     9,477     9,044  

Construction

   5,020     3,637     3,278  

Property

   16,325     5,747     8,992  

Energy and water

   6,891     3,194     3,709  

Wholesale and retail distribution and leisure

   17,760     11,897     11,099  

Transport

   5,960     3,812     3,742  

Postal and communication

   1,313     828     834  

Business and other services

   24,247     20,924     23,223  

Home loans1

   89,529     78,030     80,855  

Other personal

   35,543     27,400     27,602  

Finance lease receivables

   9,088     5,814     6,938  
                  
   272,342     209,872     206,793  

Reverse repurchase agreements

   —       —       58,304  

Less: Allowance for impairment/provisions

   (3,446 )   (2,613 )   (2,688 )
                  

Total loans and advances to customers

   268,896     207,259     262,409  
                  

As at 1st January 2005, total loans and advances decreased £55.1bn to £207.3bn (2004: £262.4bn) primarily due to the reclassification of reverse repurchase agreements to a separate balance sheet category.

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.

 

64


BARCLAYS PLC

5. Allowance for impairment on loans and advances/provisions for bad and doubtful debts

 

     2005     2004  
     £m     £m  

At beginning of period1

   2,637     2,946  

Acquisitions and disposals

   555     21  

Exchange and other adjustments

   125     (33 )

Unwind of discount

   (76 )   —    

Amounts written off (see below)

   (1,587 )   (1,582 )

Recoveries (see below)

   222     255  

Amounts charged against profit (see below)

   1,574     1,104  
            

At end of period

   3,450     2,711  
            

Amounts written off

    

United Kingdom

   (1,302 )   (1,280 )

Other European Union

   (56 )   (63 )

United States

   (143 )   (50 )

Africa

   (81 )   (15 )

Rest of the World

   (5 )   (174 )
            
   (1,587 )   (1,582 )
            

Recoveries

    

United Kingdom

   160     217  

Other European Union

   13     9  

United States

   15     14  

Africa

   16     4  

Rest of the World

   18     11  
            
   222     255  
            

Impairment/provisions charged against profit:

    

New and increased impairment allowances/provisions

    

United Kingdom

   1,763     1,358  

Other European Union

   113     131  

United States

   105     85  

Africa

   109     47  

Rest of the World

   39     134  
            
   2,129     1,755  
            

Less: Releases of impairment allowance/provision

    

United Kingdom

   (221 )   (120 )

Other European Union

   (25 )   (20 )

United States

   (14 )   (14 )

Africa

   (56 )   (16 )

Rest of the World

   (17 )   (20 )
            
   (333 )   (190 )
            

Recoveries

   (222 )   (255 )
            

Impairment charged against profit/net specific provisions charge

   1,574     1,310  

General provision release2

   —       (206 )
            

Net charge to profit3

   1,574     1,104  
            

1 Due to the adoption of IAS 32 and IAS 39 on 1st January 2005 and the consequent restatement of the impairment allowance, the period end value at 31st December 2004 does not correspond to the opening value at the beginning of 2005. The period end and opening values are reconciled on page 66.
2 The distinction between specific and general provisions which was made in UK GAAP does not exist under IFRS.
3 This excludes other credit provisions and impairment on available for sale assets detailed on page 40.

 

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5. Allowance for impairment on loans and advances/provisions for bad and doubtful debts (continued)

 

     2005    2004
     £m    £m

Allowance/specific provisions

     

United Kingdom

   2,266    1,683

Other European Union

   284    149

United States

   130    155

Africa

   647    70

Rest of the World

   123    90
         

Total allowance/specific provisions

   3,450    2,147

General provisions1

   —      564
         
   3,450    2,711
         

A reconciliation of UK GAAP provisions to IFRS impairment allowances is as follows:

 

      £m  

UK GAAP provision as at 31st December 2004

   2,711  

IFRS interest and fees not recognised

   (157 )

UK GAAP interest in suspense as at 31st December 2004

   40  

UK GAAP fees in suspense as at 31st December 2004

   19  

Additional impairment allowances resulting from the application of revised Calculation methodologies at 1st January 2005

   24  
      

IFRS impairment allowances as at 1st January 2005

   2,637  
      

1 The distinction between specific and general provisions which was made in UK GAAP does not exist under IFRS.

 

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BARCLAYS PLC

6. Potential credit risk loans

The following tables present an analysis of potential credit risk loans (non-performing and potential problem loans).

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Potential credit risk loans

        

Summary

        

Impaired loans1

   4,550    3,536    3,550

Accruing loans which are contractually overdue

        

90 days or more as to principal or interest

   609    538    550
              
   5,159    4,074    4,100

Restructured loans

   51    15    15
              

Total non-performing loans

   5,210    4,089    4,115

Potential problem loans

   929    795    798
              

Total potential credit risk loans

   6,139    4,884    4,913
              

Geographical split Impaired loans1:

        

United Kingdom

   2,965    2,680    2,697

Other European Union

   345    308    301

United States

   230    284    284

Africa

   831    115    116

Rest of the World

   179    149    152
              

Total

   4,550    3,536    3,550
              

Accruing loans which are contractually overdue 90 days or more as to principal or interest

        

United Kingdom

   539    501    513

Other European Union

   53    34    34

United States

   —      1    1

Africa

   17    1    1

Rest of the World

   —      1    1
              

Total

   609    538    550
              

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.

 

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BARCLAYS PLC

6. Potential credit risk loans (continued)

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Restructured loans:

        

United Kingdom

   5    2    2

Other European Union

   7    —      —  

United States

   16    13    13

Africa

   23    —      —  

Rest of the World

   —      —      —  
              

Total

   51    15    15
              

Total non-performing loans:

        

United Kingdom

   3,509    3,183    3,212

Other European Union

   405    342    335

United States

   246    298    298

Africa

   871    116    117

Rest of the World

   179    150    153
              

Total

   5,210    4,089    4,115
              

Potential problem loans:

        

United Kingdom

   640    655    658

Other European Union

   26    32    32

United States

   12    27    27

Africa

   248    67    67

Rest of the World

   3    14    14
              

Total

   929    795    798
              

Total potential credit risk loans:

        

United Kingdom

   4,149    3,838    3,870

Other European Union

   431    374    367

United States

   258    325    325

Africa

   1,119    183    184

Rest of the World

   182    164    167
              

Total

   6,139    4,884    4,913
              

Allowance coverage of non-performing loans1:

   %    %    %

United Kingdom

   64.6    64.2    68.1

Other European Union

   70.1    69.9    60.9

United States

   52.8    53.7    57.0

Africa

   74.3    71.6    68.4

Rest of the World

   68.7    75.3    71.9
              

Total

   66.2    64.5    66.9
              

Allowance coverage of total potential credit risk loans1:

   %    %    %

United Kingdom

   54.6    53.2    56.5

Other European Union

   65.9    63.9    55.6

United States

   50.4    49.2    52.3

Africa

   57.8    45.4    43.5

Rest of the World

   67.6    68.9    65.9
              

Total

   56.2    54.0    56.0
              

1 In 2004, the geographical coverage ratios include an allocation of general provisions.

 

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BARCLAYS PLC

6. Potential credit risk loans (continued)

Since 1st January 2005, non-performing loans (NPLs) increased 27% to £5,210m (1st January 2005: £4,089m). Excluding Absa NPLs of £725m at the year-end, NPLs increased 10%. Other than Absa, the increase in NPLs occurred mainly in the UK retail businesses with NPLs in the wholesale and corporate businesses decreasing modestly.

Potential problem loans (PPLs) increased 17% from the beginning of the year to £929m (1st January 2005: £795m). Excluding Absa PPLs of £176m at the year-end, PPLs decreased 5%. Excluding Absa, retail businesses PPLs increased 38%, but this was more than offset by the 30% decline in PPLs to wholesale and corporate businesses.

Potential Credit Risk Loans (PCRLs) increased 26% to £6,139m (1st January 2005: £4,884m). Excluding Absa PCRLs of £901m at the year-end, PCRLs increased 7%. Other than Absa, the increase in PCRLs occurred mainly in the UK retail businesses.

The value of PCRLs at 31st December 2004 was restated for the adoption of IFRS on 1st January 2005. This restatement has not been applied to the numbers for 2004 and, as a consequence, these numbers are not directly comparable with the current values. In addition, due to enhanced modelling, PCRLs in the mortgage business have been restated. The restatement has been applied to the prior periods shown, causing increases of £172m at 31st December 2004 and at 1st January 2005. This restatement does not reflect changes in credit quality but arises from the application of revised methodology.

Including Absa, the NPL and PCRL coverage ratios increased to 66.2% and 56.2% respectively at the end of 2005. These ratios are higher than those excluding Absa due to the fact that Absa has a higher proportion of retail lending which, in general, tends to carry a higher level of coverage than corporate lending.

Excluding Absa, coverage of NPLs and PCRL by the stock of impairment allowances, at 64.8%, (1st January 2005: 64.5%) and 55.5% (1st January 2005: 54.0%) were broadly in line with those reported at 1st January 2005.

7. Available for sale financial investments

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Debt securities

   50,024    46,059    —  

Equity securities

   1,250    675    —  

Treasury bills

   2,223    1,143    —  

Other eligible bills

   —      220    —  
              

Available for sale financial investments

   53,497    48,097    —  
              

As at 1st January 2005, financial instruments have been classified and measured in accordance with IAS 39. In general, investment securities held under UK GAAP have been classified as available for sale under IFRS.

 

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BARCLAYS PLC

8. Other assets

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Sundry debtors

   3,569    3,042    3,711

Prepayments

   722    415    467

Balances arising from off-balance sheet instruments

   —      —      18,174

Accrued income

   329    190    3,563
              

Other assets

   4,620    3,647    25,915
              

As at 1st January 2005, balances arising from off-balance sheet instruments were reclassified to derivative financial instruments.

Also from 1st January 2005, accrued income no longer includes accrued interest, which is now included within the classes of financial instruments to which the accrued interest relates.

9. Insurance assets, including unit-linked assets

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Reinsurer’s share of provisions

   114    109    109

Assets held to cover linked liabilities

   —      —      5,870

Assets held to cover non-linked liabilities

   —      —      2,597
              

Insurance assets, including unit-linked assets

   114    109    8,576
              

In 2005, investment and insurance contracts are separately accounted for in accordance with IAS 39 and IFRS 4. At 1st January 2005, this has resulted in the majority of the assets within the life assurance businesses being classified as financial assets designated at fair value. These assets are held both in respect of linked liabilities to customers under investment contracts and also held on own account. In 2004, assets held to cover linked liabilities and provision for linked liabilities were aggregated and reported as insurance assets and insurance contract liabilities.

10. Insurance contract liabilities, including unit-linked liabilities

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Long term business provision:

        

Provision for linked liabilities

   1,532    1,460    5,821

Provision for non-unit linked liabilities

   2,187    2,100    2,520

Provision for claims outstanding

   48    36    36
              

Insurance contract liabilities, including unit-linked liabilities

   3,767    3,596    8,377
              

In 2005, investment and insurance contracts are separately accounted for in accordance with IAS 39 and IFRS 4. In 2004, assets held to cover linked liabilities and provision for linked liabilities were aggregated and reported as insurance assets and insurance contract liabilities.

 

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BARCLAYS PLC

11. Other liabilities

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Obligations under finance leases payable

   289    353    353

Balances arising from off-balance sheet financial instruments

   —      —      18,009

Sundry creditors

   6,131    5,021    3,851

Accruals and deferred income

   4,711    4,495    6,820

Short positions in securities

   —      —      53,903
              

Other liabilities

   11,131    9,869    82,936
              

As at 1st January 2005, balances arising from off-balance sheet instruments were reclassified to derivative financial instruments and short positions in securities were reclassified to trading portfolio liabilities.

Also from 1st January 2005, accruals and deferred income no longer includes accrued interest, which is now included within the classes of financial instruments to which the accrued interest relates.

12. Other provisions for liabilities

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Customer loyalty provisions

   —      —      12

Redundancy and restructuring

   74    97    97

Undrawn contractually committed facilities and guarantees

   55    55    55

Onerous contracts

   79    39    39

Sundry provisions

   309    212    213
              

Other provisions for liabilities

   517    403    416
              

As at 1st January 2005, the customer loyalty provision has been reclassified to other liabilities.

Other provisions for liabilities rose £101m to £517m (2004: £416m), principally reflecting the inclusion of Absa (£45m) and property costs relating to the head office relocation to Canary Wharf (£40m).

13. Retirement benefit liabilities

The Group’s IAS 19 pension deficit across all schemes as at 31st December 2005 was £2,879m (2004: £2,464m). This comprises net recognised liabilities of £1,737m (2004: £1,786m) and unrecognised actuarial losses of £1,142m (2004: £678m). The net recognised liabilities comprises retirement benefit liabilities of £1,823m (2004: £1,865m) and assets of £86m (2004: £79m).

The Group’s IAS 19 pension deficit in respect of the main UK scheme as at 31st December 2005 was £2,535m (2004: £2,220m). The actuarial funding position of the main UK pension scheme as at 31st December 2005, estimated from the formal triennial valuation in 2004, was a surplus of £900m (2004: deficit of £50m).

Cash contributions to the Group’s schemes totalled £373m in 2005 (2004: £279m), including £354m to the main UK scheme (2004: £255m). The Pensions Protection Fund (PPF) solvency ratio1 for the main UK scheme as at 31st December 2005 was estimated to be 110%.

 


1 The PPF solvency ratio represents the funds assets as a percentage of pension liabilities calculated using a section 179 valuation model to be finalised in March 2006 and agreed with the PPF.

 

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BARCLAYS PLC

14. Legal proceedings

Proceedings, including a class action, have been brought in the United States against a number of defendants, including Barclays, following the collapse of Enron. In each case the claims are against groups of defendants. Barclays considers that the claims against it are without merit and is defending them vigorously. The trial of the class action claims relating to Enron is currently scheduled to begin in October 2006. A court ordered mediation commenced in September 2003 but no material progress has been made towards a resolution of the litigation, although certain other defendants have reached settlements. In addition, in respect of investigations relating to Enron, Barclays is continuing to provide information in response to enquiries by regulatory and governmental authorities in the United States and elsewhere. It is not possible to estimate Barclays possible loss in relation to these matters, nor the effect that it 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 investigation of transactions between Barclays and Enron. Barclays has also been in negotiations in the Enron bankruptcy proceedings. Barclays does not expect that the amount of any settlement with the Commission or in the bankruptcy proceedings would have a significant adverse effect on its financial position or operating results.

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.

15. Contingent liabilities and commitments

 

      2005    As at
01.01.05
   2004
     £m    £m    £m

Contingent liabilities

        

Acceptances and endorsements

   283    303    303

Guarantees and assets pledged as collateral for security

   38,035    30,011    30,011

Other contingent liabilities

   8,825    8,245    8,245
              
   47,143    38,559    38,559
              

Commitments

        

Standby facilities, credit lines and other commitments

   203,785    134,051    134,051
              

Contingent liabilities increased 22% (£8.5bn) to £47.1bn (1st January 2005: £38.6bn) due to increases in securities lending activity within Barclays Global Investors. The inclusion of Absa increased contingent liabilities by £1.6bn.

Commitments increased 52% (£69.7bn) to £203.8m (1st January 2005: £134.1bn) primarily because of the inclusion of Absa and new facilities within Barclays Capital, Barclaycard and UK Banking. The inclusion of Absa increased commitments by £23.6bn.

 

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BARCLAYS PLC

16. Market risk

Barclays policy is that the market risks associated with business activities are clearly identified, assessed and controlled within agreed limits and that the market risks arising from trading activities are concentrated in Barclays Capital.

Barclays uses a ‘value at risk’ measure as the primary mechanism for controlling market risk. Daily Value at Risk (DVaR) is an estimate of the potential loss which might arise from unfavourable market movements, if the current positions were to be held unchanged for one business day, measured to a confidence level of 98%. Daily losses exceeding the DVaR figure are likely to occur, on average, twice in every one hundred business days.

In 2005, the DVaR methodology for credit spread risk was enhanced. The original methodology was currency dependent and incorporated seven credit categories, these being interest rate swaps and six credit rating based categories. The enhanced ‘specific credit spread’ method replaces the rating and currency based approach with a name specific approach and was rolled out in phases across a number of business lines. The enhanced model captures concentration risk and responds quickly to changing market conditions and individual company circumstances. ‘Specific credit spread’ risk is reported within credit spread risk in the table on page 74.

Also in 2005, a methodology enhancement was introduced for inflation products. Inflation risk is reported within Interest rate risk in the table on page 74.

The impact of these methodology changes was not material and has not been reflected in the 2004 comparative data.

 

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BARCLAYS PLC

16. Market risk (continued)

Analysis of Barclays Capital’s market risk exposures

Barclays Capital’s market risk exposure, as measured by average total Daily Value at Risk, decreased by 7% in 2005. This was mainly a consequence of increased geographical and product diversification resulting from business growth.

DVaR

 

     Twelve months to
31st December 2005
     Average     High1    Low1
     £m     £m    £m

Interest rate risk

   25.3     44.8    15.4

Credit spread risk

   23.0     28.3    19.0

Foreign exchange risk

   2.8     5.3    1.4

Equities risk

   5.9     8.2    3.9

Commodities risk

   6.8     11.4    4.5

Diversification effect

   (31.9 )   —      —  
               

Total DVaR2

   31.9     40.4    25.4
               

 

     Twelve months to
31st December 2004
     Average     High1    Low1
     £m     £m    £m

Interest rate risk

   25.0     53.6    15.1

Credit spread risk

   22.6     32.9    16.0

Foreign exchange risk

   2.4     7.4    0.9

Equities risk

   4.2     7.9    2.2

Commodities risk

   6.0     14.4    2.2

Diversification effect

   (25.9 )   —      —  
               

Total DVaR

   34.3     46.8    24.0
               

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 The year-end total DVaR for 2005 was £37.4m (2004: £31.9m).

 

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BARCLAYS PLC

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

 

     2005     2004  
     £m     £m  

Net movements in available for sale reserve

   (109 )   —    

Net movements in cash flow hedging reserve

   (119 )   —    

Currency translation differences arising during the year

   300     (58 )

Tax

   50     —    

Other movements

   (102 )   —    
            

Amounts included directly in equity

   20     (58 )

Profit for the year

   3,841     3,301  
            

Total recognised income and expense for the year

   3,861     3,243  
            

Attributable to:

    

Equity holders of the parent

   3,379     3,196  

Minority interests

   482     47  
            
   3,861     3,243  
            

The consolidated statement of recognised income and expense reflects the accumulated income and expense for the year, including items taken directly to equity and reserves.

In accordance with IAS 39, gains or losses arising from the change in fair value of available for sale assets are recognised in the available for sale reserve except for impairment losses and foreign exchange gains or losses on monetary items such as debt securities, which are recognised in income. 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 income.

In accordance with IAS 39, 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 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 gains and losses deferred in this reserve are transferred to income in the same period or periods during which the hedged item effects profit or loss.

Exchange differences arising on the net investments in foreign operations and effective hedges of net investments are recognised in the translation reserve and transferred to income on the disposal of the net investment.

Tax comprises tax on items taken directly to reserves, including tax on the available for sale reserve and cash flow hedging reserve.

Other movements primarily reflects the change in insurance liabilities taken directly to reserves.

 

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BARCLAYS PLC

SUMMARY CONSOLIDATED CASH FLOW STATEMENT

 

     2005     2004  
     £m     £m  

Net cash (outflow)/inflow from operating activities

   (10,498 )   5,171  

Net cash outflow from investing activities

   (5,181 )   (6,998 )

Net cash inflow from financing activities

   15,119     2,960  

Net gain on exchange rate changes on cash and cash equivalents

   (237 )   (470 )
            

Net (decrease)/increase in cash and cash equivalents

   (797 )   663  

Cash and cash equivalents at beginning of period

   21,602     13,854  
            

Cash and cash equivalents at end of period

   20,805     14,517  
            

The opening cash and cash equivalents balance has been adjusted by £7.1bn to reflect the application of IAS 32 and IAS 39.

In 2005 the inflow from securitisations of £14.0bn (2004: £4.2bn) is included in net cash inflow from financing activities and net cash outflow from operating activities.

 

76


BARCLAYS PLC

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 2005, 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, 1st March 2006
Dividend Record Date   Friday, 3rd March 2006
2006 Annual General Meeting   Thursday, 27th April 2006
Dividend Payment Date   Friday, 28th April 2006
2006 Trading Update*   Thursday, 25th May 2006
2006 Interim Results Announcement*   Thursday, 3rd August 2006

* Note that these announcement dates are provisional and subject to change.

 

Economic data

   2005    2004

Period end - US$/£

   1.72    1.92

Average - US$/£

   1.82    1.83

Period end - €/£

   1.46    1.41

Average - €/£

   1.46    1.47

Period end - R/£

   10.87    10.86

Average - R/£

   11.57    11.83

 

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BARCLAYS PLC

OTHER INFORMATION

For further information please contact:

 

Investor Relations      Media Relations
Mark Merson/James S Johnson      Stephen Whitehead/Chris Tucker
+44 (0) 20 7116 5752/2927      +44 (0) 20 7116 6060/6223

More information on Barclays can be found on our website at the following address:

www.investorrelations.barclays.co.uk

 

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BARCLAYS PLC

Index of Main Reference Points

 

Acquisitions and disposals    58
Additional information    57
Allowance for impairment on loans and advances    65
Amortisation of intangible assets    42
Available for sale financial investments    69
Balance sheet (consolidated)    4-5
Barclaycard    8, 26
Barclays Capital    7, 18
Barclays Global Investors    7, 20
Basis of preparation    57
Capital ratios    47
Capital resources    46
Cash flow statement - summary (consolidated)    76
Change in accounting estimate    59
Competition and regulatory matters    60
Contingent liabilities and commitments    72
Derivative financial instruments    61
Dividends on ordinary shares    45
Daily Value at Risk (DVaR)    74
Earnings per share    45
Economic capital    50
Economic capital demand    51
Economic capital supply    53
Economic data    77
Financial highlights    2
Goals reporting    55
Group share schemes    59
Group structure changes from 2004    57
Head office functions and other operations    9, 34
Hedge accounting    59
IFRS    ii
Impairment charge and other credit provisions    40
Income statement (consolidated)    3
Insurance assets    70
Insurance contract liabilities    70
International Retail and Commercial Banking    8, 29

excluding Absa

   8, 30

Absa

   8, 32
Legal proceedings    72
Loans and advances to banks    63
Loans and advances to customers    64
Market risk    73
Net fee and commission income    37
Net premiums from insurance contracts    39
Net claims and benefits paid on insurance contracts    39
Net interest income    36
Operating expenses    41
Other assets    70
Other information    77
Other liabilities    71
Other income    39
Other provisions for liabilities    71
Performance ratios    2
Potential credit risk loans    67
Principal transactions    38
Profit attributable to minority interests    44
Profit before tax    1
Recent developments    60
Reconciliation of regulatory capital    48
Results by business    6
Results timetable    77
Retirement benefit liabilities    71
Risk asset ratio    47
Risk Tendency    56
Share capital    59
Share of post-tax results of associates and joint ventures    44
Staff costs    42
Staff numbers    43
Statement of recognised income and expense (consolidated)    75
Summary of key information    1
Tax    44
Total assets    11, 49
UK Banking    6, 12
UK Business Banking    6, 16
UK Retail Banking    6, 14
Wealth Management    7, 22
Wealth Management-closed life assurance activities    7, 24
Weighted risk assets    11, 49

 

79


BARCLAYS BANK PLC

BARCLAYS BANK PLC IS A WHOLLY OWNED SUBSIDIARY OF BARCLAYS PLC

The Directors report the following results of the Barclays Bank PLC Group for the year ended 31st December 2005:

CONSOLIDATED INCOME STATEMENT

 

     2005     2004  
     £m     £m  

Continuing operations

    

Interest income

   17,232     13,880  

Interest expense

   (9,157 )   (7,047 )

Net interest income

   8,075     6,833  

Fee and commission income

   6,430     5,509  

Fee and commission expense

   (725 )   (662 )

Net fee and commission income

   5,705     4,847  

Net trading income

   2,321     1,487  

Net investment income

   858     1,027  

Principal transactions

   3,179     2,514  

Net premiums from insurance contracts

   872     1,042  

Other income

   178     140  
            

Total income

   18,009     15,376  

Net claims and benefits paid on insurance contracts

   (645 )   (1,259 )
            

Total income net of insurance claims

   17,364     14,117  

Impairment charge and other credit provisions

   (1,571 )   (1,093 )
            

Net income

   15,793     13,024  
            

Operating expenses excluding amortisation of intangible assets

   (10,448 )   (8,514 )

Amortisation of intangible assets

   (79 )   (22 )

Operating expenses

   (10,527 )   (8,536 )
            

Share of post-tax results of associates and joint ventures

   45     56  

Profit on disposal of associates and joint ventures

   —       45  
            

Profit before tax

   5,311     4,589  

Tax

   (1,439 )   (1,279 )
            

Profit for the year

   3,872     3,310  
            

Profit attributable to minority interests

   177     47  

Profit attributable to equity holders

   3,695     3,263  
            
   3,872     3,310  
            

The information in this announcement, which was approved by the Board of Directors on 20th February 2006, does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985 (the ‘Act’). Statutory accounts will be delivered to the Registrar of Companies in accordance with Section 242 of the Act.

 

85


BARCLAYS BANK PLC

CONSOLIDATED BALANCE SHEET

 

     2005    As at
01.01.05
   2004
     £m    £m    £m

Assets

        

Cash and balances at central banks

   3,506    3,238    1,753

Items in the course of collection from other banks

   1,901    1,772    1,772

Treasury bills and other eligible bills

   —      —      6,658

Trading portfolio assets

   155,730    110,044    —  

Financial assets designated at fair value:

        

—held on own account

   12,904    9,799    —  

—held in respect of linked liabilities to customers under investment contracts

   83,193    63,124    —  

Derivative financial instruments

   136,823    94,211    —  

Loans and advances to banks

   31,105    25,728    80,632

Loans and advances to customers

   268,896    207,259    262,409

Debt securities

   —      —      130,311

Equity shares

   —      —      11,518

Available for sale financial investments

   53,703    48,227    —  

Reverse repurchase agreements and cash collateral on securities borrowed

   160,398    139,574    —  

Other assets

   4,620    3,647    25,915

Insurance assets including unit linked assets

   114    109    8,576

Investments in associates and joint ventures

   546    429    429

Goodwill

   6,022    4,518    4,518

Intangible assets

   1,269    139    139

Property, plant and equipment

   2,754    2,282    2,282

Deferred tax assets

   686    1,641    1,388
              

Total assets

   924,170    715,741    538,300
              

BARCLAYS BANK PLC

CONSOLIDATED BALANCE SHEET

 

     2005   

As at

01.01.05

    2004  
     £m    £m     £m  

Liabilities

       

Deposits from banks

   75,127    74,735     111,024  

Items in the course of collection due to other banks

   2,341    1,205     1,205  

Customer accounts

   238,684    194,478     217,492  

Trading portfolio liabilities

   71,564    59,114     —    

Financial liabilities designated at fair value:

       

—held on own account

   33,385    5,320     —    

Liabilities to customers under investment contracts

   85,201    64,609     —    

Derivative financial instruments

   137,971    94,429     —    

Debt securities in issue

   103,328    76,154     83,842  

Repurchase agreements and cash collateral on securities lent

   121,178    98,582     —    

Other liabilities

   11,131    9,903     82,970  

Current tax liabilities

   747    621     621  

Insurance contract liabilities, including unit-linked liabilities

   3,767    3,596     8,377  

Subordinated liabilities:

       

—Undated loan capital – non convertible

   4,397    4,208     6,149  

—Dated loan capital – convertible

   38    15     15  

—Dated loan capital – non convertible

   8,028    6,383     6,113  

Deferred tax liabilities

   700    1,397     1,362  

Other provisions for liabilities

   517    403     416  

Retirement benefit liabilities

   1,823    1,865     1,865  
                 

Total liabilities

   899,927    697,017     521,451  
                 

Shareholders’ equity

       

Called up share capital

   2,348    2,316     2,316  

Share premium account

   8,882    6,531     6,531  

Available for sale reserve

   257    336     —    

Cash flow hedging reserve

   70    302     —    

Other shareholders’ funds

   2,490    2,494     —    

Translation reserve

   156    (58 )   (58 )

Retained earnings

   8,462    6,657     7,849  
                 

Shareholders’ equity excluding minority interests

   22,665    18,578     16,638  

Minority interests

   1,578    146     211  
                 

Total shareholders’ equity

   24,243    18,724     16,849  
                 

Total liabilities and shareholders’ equity

   924,170    715,741     538,300  
                 

 

86


BARCLAYS BANK PLC

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

 

     2005     2004  
     £m     £m  

Net movements in available for sale reserve

   (77 )   —    

Net movements in cash flow hedging reserve

   (119 )   —    

Currency translation differences arising during the year

   300     (58 )

Tax

   50     —    

Other movements

   (102 )   —    
            

Amounts included directly in equity

   52     (58 )

Profit for the year

   3,872     3,310  
            

Total recognised income and expense for the year

   3,924     3,252  
            

Attributable to:

    

Equity holders

   3,659     3,205  

Minority interests

   265     47  
            
   3,924     3,252  
            

The consolidated statement of recognised income and expense reflects the accumulated income and expense for the year, including items taken directly to equity and reserves.

In accordance with IAS 39, gains or losses arising from the change in fair value of available for sale assets are recognised in the available for sale reserve except for impairment losses and foreign exchange gains on monetary items such as debt securities, which are recognised in income. 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 income.

In accordance with IAS 39, 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 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 gains and losses deferred in this reserve are transferred to income in the same period or periods during which the hedged item effects profit or loss.

Exchange differences arising on the net investments in foreign operations and effective hedges of net investments are recognised in the translation reserve and transferred to income on the disposal of the net investment.

Tax comprises tax on items taken directly to reserves, including tax on the available for sale reserve and cash flow hedging reserve.

Other movements primarily reflects the change in insurance liabilities taken directly to reserves.

 

87


BARCLAYS BANK PLC

CONSOLIDATED CASH FLOW STATEMENT

 

     20051     2004  
     £m     £m  

Net cash (outflow)/inflow from operating activities

   (10,468 )   5,204  

Net cash outflow from investing activities

   (5,321 )   (7,033 )

Net cash inflow from financing activities

   14,829     2,962  

Net gain on exchange rate changes on cash and cash equivalents

   (237 )   (470 )
            

Net (decrease)/increase in cash and cash equivalents

   (1,197 )   663  

Cash and cash equivalents at beginning of period

   21,602     13,854  
            

Cash and cash equivalents at end of period

   20,405     14,517  
            

 


  1 The opening cash equivalents balance includes the impacts of adopting IAS 32 and IAS 39 and IFRS 4, which have not been applied to 2004 comparatives, in accordance with IFRS 1.

 

88


BARCLAYS BANK PLC

NOTES

 

1. Basis of preparation

The Group has adopted the requirements of International Financial Reporting Standards and International Accounting Standards (collectively IFRS) as adopted by the European Union for the first time for the purpose of preparing financial statements for the year ended 31st December 2005. The reconciliations required by IFRS 1 will be provided in the 2005 Annual Report. The Group has applied IFRS from 1st January 2004, with the exception of the standards relating to financial instruments and insurance contracts, which are applied only with effect from 1st January 2005. The impacts of adopting IAS 32, IAS 39 and IFRS 4 are not included in the 2004 comparatives in accordance with IFRS 1 and financial instruments and insurance contracts are accounted for in accordance with UK GAAP in 2004. Therefore, the results for 2005 are not entirely comparable to those for 2004 in affected areas. Dashes have been used to indicate where changes in policy cause an item to be not applicable and where there is no amount to report.

 

2. Authorised share capital

Ordinary shares

The authorised ordinary share capital of Barclays Bank PLC at 31st December 2005 was 3,000 million (2004: 3,000 million) ordinary shares of £1 each.

 

Preference shares

   2005    2004
     ‘000    ‘000

Authorised share capital – shares of £1 each

   1    1

Authorised share capital – shares of £100 each

   400    —  

Authorised share capital – shares of US$0.01 each1

   —      150,000

Authorised share capital – shares of US$0.25 each1

   80,000    —  

Authorised share capital – shares of US$100 each

   400    —  

Authorised share capital – shares of €100 each

   400    400

 

3. Issued share capital

Ordinary shares

The issued ordinary share capital of Barclays Bank PLC at 31st December 2005 comprised 2,318 million (2004: 2,309 million) ordinary shares of £1 each.

The whole of the issued ordinary share capital of Barclays Bank PLC is beneficially owned by Barclays PLC.

Preference shares

 

The issued preference share capital of Barclays Bank PLC at 31st December 2005 comprised £30m (2004: £7m) of preference shares of the following denominations:

 

     2005    2004
     ‘000    ‘000

Issued and fully paid shares of £1 each

   1    1

Issued and fully paid shares of £100 each

   75    —  

Issued and fully paid shares of US$0.01 each

   —      —  

Issued and fully paid shares of US$0.25 each

   —      —  

Issued and fully paid shares of US$100 each

   100    —  

Issued and fully paid shares of €100 each

   240    100

 

4. Staff numbers

On a full time equivalent basis the total permanent and contract staff at 31st December 2005 was 113,300 (2004: 78,400). Additionally, temporary and agency staff totalled 7,000 (2004: 4,300).

 

 
  1 On 1st June 2005, Barclays Bank PLC consolidated the 150,000,000 preference shares of US$0.01 into 6,000,000 preference shares of US$0.25 each, and authorised a further 74,000,000 of such shares.

 

89