Final Results - Part 1

20th Feb 2007 07:02

Barclays PLC20 February 2007 Results Announcement 31st December 2006 BARCLAYS PLC PRELIMINARY ANNOUNCEMENT OF RESULTS FOR 2006 TABLE OF CONTENTS PAGESummary of key information 2Performance summary 3Financial highlights 4Group Chief Executive's Statement 5Consolidated income statement 9Consolidated balance sheet 11Results by business 13Results by nature of income and expense 44Analysis of amounts included in the balance sheet 59Additional information 70Notes 75Consolidated statement of recognised income and expense 90Summary consolidated cash flow statement 91Other information 92Appendix 1-Absa Group Limited results 94Appendix 2-Profit before business disposals 96Index 98 The information in this announcement, which was approved by the Board ofDirectors on 19th February 2007, does not comprise statutory accounts for theyears ended 31st December 2006 or 31st December 2005, within the meaning ofSection 240 of the Companies Act 1985 (the 'Act'). Statutory accounts for theyear ended 31st December 2006, which also include certain information requiredfor the joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLCto the US Securities and Exchange Commission (SEC), will be delivered to theRegistrar of Companies in accordance with Section 242 of the Act. Statutoryaccounts for the year ended 31st December 2005 have been delivered to theRegistrar of Companies and the Group's auditors have reported on those accountsand have given an unqualified report which does not contain a statement underSection 237(2) or (3) of the Act. The 2006 Annual Review and Summary FinancialStatement will be posted to shareholders together with the Group's full AnnualReport for those shareholders who request it. Forward-looking statements This document contains certain forward-looking statements within the meaning ofSection 21E of the US Securities Exchange Act of 1934, as amended, and Section27A of the US Securities Act of 1933, as amended, with respect to certain of theGroup's plans and its current goals and expectations relating to its futurefinancial condition and performance. These forward-looking statements can beidentified by the fact that they do not relate only to historical or currentfacts. 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-lookingstatements include, among others, statements regarding the Group's futurefinancial position, income growth, impairment charges, business strategy,projected levels of growth in the banking and financial markets, projectedcosts, estimates of capital expenditures, and plans and objectives for futureoperations. By their nature, forward-looking statements involve risk and uncertainty becausethey relate to future events and circumstances, including, but not limited to,the further development of standards and interpretations under InternationalFinancial Reporting Standards (IFRS) applicable to past, current and futureperiods, evolving practices with regard to the interpretation and application ofstandards under IFRS, as well as UK domestic and global economic and businessconditions, market related risks such as changes in interest rates and exchangerates, the policies and actions of governmental and regulatory authorities,changes in legislation, progress in the integration of Absa into the Group'sbusiness and the achievement of synergy targets related to Absa, the outcome ofpending and future litigation, and the impact of competition-a number of whichfactors are beyond the Group's control. As a result, the Group's actual futureresults may differ materially from the plans, goals, and expectations set forthin the Group's forward-looking statements. Any forward-looking statements madeby or on behalf of Barclays speak only as of the date they are made. Barclaysdoes not undertake to update forward-looking statements to reflect any changesin Barclays expectations with regard thereto or any changes in events,conditions or circumstances on which any such statement is based. The readershould, however, consult any additional disclosures that Barclays has made ormay make in documents it has filed or may file with the SEC. Absa Definitions 'Absa Group Limited' refers to the consolidated results of the South Africangroup of which the parent company is listed on the Johannesburg Stock Exchangein which Barclays owns a controlling stake. 'Absa' refers to the results for Absa Group Limited as consolidated into theresults of Barclays PLC; translated into Sterling with adjustments foramortisation of intangible assets, certain head office adjustments, transferpricing and minority interests. 'International Retail and Commercial Banking-Absa' is the portion of Absa'sresults that is reported by Barclays within the International Retail andCommercial Banking business. Barclays acquired a controlling stake in Absa Group Limited on 27th July 2005.Therefore, unless otherwise indicated, 2005 comparatives reflect results fromthat date and are not directly comparable to 2006. 'Absa Capital' is the portion of Absa's results that is reported by Barclayswithin the Barclays Capital business. Glossary of terms The cost:income ratio is defined as operating expenses compared to total incomenet of insurance claims. The cost:net income ratio is defined as operating expenses compared to totalincome net of insurance claims less impairment charges. The Return on average economic capital is defined as attributable profitcompared to average economic capital. 'Income' refers to total income net of insurance claims, unless otherwisespecified. 'Profit before business disposals' represents profit before tax and disposal ofsubsidiaries, associates and joint ventures. Details of the impact on eachbusiness and the Group can be found in Appendix 2 on page 96. RESULTS FOR THE YEAR TO 31ST DECEMBER 2006 ------------------------- -------- -------- -------- Group Results 2006 2005 £m £m % ChangeTotal income net of insurance claims 21,595 17,333 25 Impairment charges (2,154) (1,571) 37 Operating expenses (12,674) (10,527) 20 Profit before tax 7,136 5,280 35 Profit attributable to minority interests (624) (394) 58 Profit attributable to equity holders of the parent 4,571 3,447 33 Economic profit 2,704 1,752 54 p p % ChangeEarnings per share 71.9 54.4 32Diluted earnings per share 69.8 52.6 33Full year dividend per share 31.0 26.6 17 % %Tier 1 Capital ratio 7.7 7.0Return on average shareholders' equity 24.7 21.1 Profit before tax by business(1) £m £m % ChangeUK Banking 2,578 2,200 17 -------- --------UK Retail Banking 1,213 1,040 17UK Business Banking 1,365 1,160 18 -------- --------Barclaycard 382 640 (40)International Retail and Commercial Banking (IRCB) 1,270 633 101 -------- --------IRCB-ex Absa 572 335 71IRCB-Absa(2) 698 298 134 -------- --------Barclays Capital 2,216 1,431 55Barclays Global Investors 714 540 32Barclays Wealth 213 166 28 ------------------------- -------- -------- -------- (1) Summary excludes Barclays Wealth-closed life assurance activities and Headoffice functions and other operations. Full analysis of business profit beforetax is on page 17. (2) For 2005, this reflects the period from 27th July until 31st December 2005. PERFORMANCE SUMMARY "Barclays had an excellent year in 2006. We delivered outstanding performance inBarclays Capital and Barclays Global Investors. Momentum has accelerated in UKRetail Banking and Absa has outperformed our acquisition business plandelivering very strong growth. Conditions in UK cards and consumer loans weredifficult but Barclaycard UK consumer credit performance is beginning toimprove. We are well positioned to deliver further growth in the years ahead." John Varley, Group Chief Executive • Excellent financial results reflect the successful execution of strategy: - Income up 25% to £21,595m - Profit before tax up 35% to £7,136m - Earnings per share up 32% to 71.9p - Dividend per share up 17% to 31.0p - Economic profit up 54% to £2,704m - Return on average shareholders' equity of 25%. • Excluding gains on business disposals of £323m: - Profit before tax up 29% to £6,813m - Earnings per share up 23% to 66.8p. • Income growth of 25% was well ahead of expense growth of 20%. Expense growth reflected significant investment in organic growth across the business and performance related costs. • In UK Retail Banking accelerated income momentum drove very strong profit growth. • UK Banking delivered a further three percentage points underlying improvement in the cost:income ratio; the six percentage point target for 2005-2007 has been achieved a year ahead of schedule; we still target a further two percentage point improvement in 2007. • Outstanding growth in Barclays Capital was driven by continued expansion of the business, the success of past investment and the focus of our client driven model. • Barclays Global Investors delivered another year of excellent growth. Assets under management increased US$301bn to US$1.8trn. • Absa's first full year contribution was well ahead of the acquisition business plan. • Barclaycard profits were affected by industrywide impairment pressures in UK cards and unsecured loans; UK consumer credit performance is beginning to improve. • Capital ratios strengthened through retained earnings and active balance sheet management; the Tier 1 Capital ratio rose to 7.7%. • We delivered a Total Shareholder Return for 2006 of 25%. • Approximately 50% of profits came from outside the UK. FINANCIAL HIGHLIGHTS 2006 2005RESULTS £m £m----------Net interest income 9,143 8,075Net fee and commission income 7,177 5,705Principal transactions(1) 4,576 3,179Net premiums from insurance contracts 1,060 872Other income 214 147 -------- --------Total income 22,170 17,978Net claims and benefits paid on insurance contracts (575) (645) -------- --------Total income net of insurance claims 21,595 17,333Impairment charges (2,154) (1,571) -------- --------Net income 19,441 15,762Operating expenses (12,674) (10,527)Share of post-tax results of associates and joint ventures 46 45Profit on disposal of subsidiaries, associates and jointventures 323 - -------- --------Profit before tax 7,136 5,280 -------- -------- Profit attributable to equity holders of the parent 4,571 3,447Economic profit 2,704 1,752 PER ORDINARY SHARE p p--------------------Earnings 71.9 54.4Diluted earnings 69.8 52.6Full year dividend 31.0 26.6Net asset value 303 269 PERFORMANCE RATIOS % %--------------------Return on average shareholders' equity 24.7 21.1Cost:income ratio 59 61Cost:net income ratio 65 67 2006 2005BALANCE SHEET £m £m--------------- -------- --------Shareholders' equity excluding minority interests 19,799 17,426Minority interests 7,591 7,004 -------- --------Total shareholders' equity 27,390 24,430Subordinated liabilities 13,786 12,463 -------- --------Total capital resources 41,176 36,893 -------- -------- Total assets 996,787 924,357Risk weighted assets 297,833 269,148 CAPITAL RATIOS % %----------------Tier 1 ratio 7.7 7.0Risk asset ratio 11.7 11.3 (1) Principal transactions comprise net trading income and net investment income. GROUP CHIEF EXECUTIVE'S REVIEW Barclays had an excellent year in 2006. I start this review by thanking the123,000 employees of the Barclays Group, whose dedication and creativity helpedus achieve record results. Our strategy of 'earn, invest and grow' continued todeliver very strong growth in profits. Our ambition is to become one of thehandful of universal banks leading the global financial services industry. Ibelieve that the universal banking model is helping us drive the higher growthfor shareholders that I set out to achieve three years ago, by providing us withnew options in products, services and markets. In our business, strategy simply stated is anticipation followed by service: weanticipate the needs of customers and clients. We then serve them, by helpingthem achieve their goals. The needs of customers and clients are changing. Thedrivers of change include: the privatisation of welfare; wealth generation andwealth transfer; explosive growth in demand for banking products in emergingmarkets; the securitisation of assets and cash flows; the use of derivatives inrisk management; the significant growth in the use of credit cards for paymentand borrowing; and the opportunity for capital markets and private equity tofund infrastructure development around the world. To capitalise on these sources of growth, I have put a new structure in place bycreating Global Retail and Commercial Banking (GRCB) under the leadership ofFrits Seegers, who joined Barclays in July 2006. GRCB brings together: UKBanking, International Retail and Commercial Banking and Barclaycard. GRCB givesBarclays a single point of strategic direction and control to these businesses,thereby increasing our capability to drive growth and synergies globally and toenter new markets. We believe this will enable us to replicate success from onepart of the world in another. This GRCB structure mirrors the organisation ofInvestment Banking and Investment Management under Bob Diamond, which also givesa single point of strategic direction and control to a group of globalbusinesses which enjoy substantial synergies. My obligation as Group Chief Executive is to assemble the best team I can. Wehave added significantly to our management bench strength in 2006, particularlyin GRCB, and have concentrated on supplementing our existing talent with deepspecialist retail and commercial banking and card experience across a range ofinternational markets. Performance versus goals For the three years from 31st December 2003 to 31st December 2006, Barclaysdelivered a Total Shareholder Return (TSR) of 66% and was positioned 6th withinits peer group, which is second quartile. The TSR of the FTSE 100 Index for thisperiod was 54%. For the year to 31st December 2006, we delivered a TSR of 25%and were positioned 5th in our peer group. The TSR for the FTSE 100 for the yearwas 14%. Economic profit for 2006 was £2.7bn, which, added to the £3.3bn generated in2004 and 2005, delivered a cumulative total of £6.0bn for the goal period todate. This equates to compound annual growth in economic profit of 28% per annumover the period, which is well ahead of our target range. Group performance We made substantial progress on our strategic priorities and delivered recordfinancial results. Profit before tax increased 35% to £7,136m. Earnings pershare rose 32% to 71.9p, and economic profit was up 54% to £2,704m. Profitexcluding business disposals of £323m increased 29% to £6,813m, and earnings pershare increased 23% to 66.8p. We increased the total dividend payout to 31p, arise of 17%. Income grew 25% to £21,595m, well ahead of expense growth of 20%. The growth wasbroadly based by business and geography, reflecting momentum in each business.All businesses made significant contributions, with especially strongperformances from Barclays Capital, UK Banking and Barclays Global Investors,and a substantial contribution to income from Absa in its first full year ofownership. Excluding Absa, Group income grew 18%, compared with expense growthof 13%. The mix of income and profit continued to evolve. Approximately half ourprofits came from outside the UK, up from about 30% in 2003. Operating expenses increased 20% to £12,674m. The Group cost:income ratioimproved two percentage points to 59%. We continue to target top quartileproductivity for all businesses, and in 2006 the ratio improved or remained flatin all businesses. Operating expenses include gains on the sale of properties of£432m partly offset by accelerated incremental investment expenditure ofapproximately £280m. Impairment charges rose 37% to £2,154m. Excluding Absa, impairment charges onloans and advances increased 26%. The increase was mostly attributable to thechallenging credit environment in UK unsecured retail lending, which was partlydue to the continued rise in the level of personal insolvencies. In the secondhalf of 2006, as a result of a number of management actions, flows intodelinquency decreased and arrears balances declined across the UK cards andunsecured loans portfolios. We therefore believe that we passed the worst inBarclaycard UK impairment in the second half of 2006. UK mortgage impairmentcharges remained negligible, and the wholesale and larger corporate sectorscontinued to be stable with a low level of defaults. When I look at these results, I am pleased to see increased productivity in ouruse of capital, risk and costs. Return on average shareholders' funds improvedfour percentage points to 25%; profits grew much faster than Daily Value at Riskand risk weighted assets and the associated consumption of capital; and incomegrowth exceeded cost growth by five percentage points. Business performance In UK Banking we made significant strides towards our strategic priority ofbuilding the best bank in the UK. Strong growth in income enabled us to increaseour profit before tax 17% to £2,578m. The improvement in the cost:income ratiowas four percentage points in headline terms to 52% (2005: 56%). Excluding theimpact of property gains and accelerated investment, the improvement in thecost:income ratio was three percentage points making a cumulative total for2005-2006 of six percentage points. This means that we have achieved our targetof a six percentage point improvement over the period 2005-2007, one year aheadof schedule. We continue to target a further two percentage point improvement inthe cost:income ratio for 2007. UK Retail Banking delivered a 17% profit before tax increase to £1,213m. Thiswas driven by broadly based income growth of 7%, with particularly strongperformances in savings, Local Business and UK Premier and good growth incurrent accounts. Our mortgage market share and processing capacity alsoincreased strongly leading to a net market share of 4% in the second half of theyear. We doubled investment across the business. We focused on upgradingdistribution capabilities, transforming the performance of the mortgagebusiness, revitalising product offerings, and improving core operations andprocesses. The additional investment substantially offset the impact of propertygains, leading to broadly flat costs. In 2007 we expect to make furthersignificant investment, including the restructuring of the branch network andthe migration of Woolwich customers. UK Business Banking delivered very strong growth in profit before tax of 18% to£1,365m. Strong growth in loans and deposits drove income growth of 11%. Profitbefore business disposals grew 11%. UK Business Banking maintained itscompetitive position and also funded significant investment in improving itsinfrastructure and customer service. At Barclaycard profit before tax fell 40% to £382m. Good income growth of 8%,driven by very strong momentum in Barclaycard International, was more thanoffset by a further rise in impairment charges, principally in the UK lendingportfolios, and by higher costs, mainly as a result of continued investment inBarclaycard US. In the UK, high debt levels and changing attitudes to bankruptcyand debt default contributed to increased impairment charges. Actions that wehave taken, including more selective customer recruitment, limit management, andimproved collections, have led to a reduction of flows into delinquency andlower levels of arrears balances in cards and unsecured loans. It is thesetrends that cause us to believe that we passed the worst in Barclaycard UKimpairment in the second half of 2006. We continued to invest in Barclaycard US. Since we bought the business inDecember 2004, outstandings have grown from US$1.4bn to US$4.0bn, and cards inissue have increased from 1.1 million to 4.2 million. Income grew 73% in 2006.We are on track to become profitable in 2007. International Retail and Commercial Banking achieved a step change inprofitability to £1,270m (2005: £633m), reflecting the inclusion of Absa for afull year, the impact of corporate development activity and growth in keygeographies. International Retail and Commercial Banking-excluding Absa achieved a profitbefore tax of £572m (2005: £335m), including a gain of £247m from the disposalof our interest in FirstCaribbean International Bank. Excluding this gain,profit before tax was £325m (2005: £335m). Good organic growth in the businessesacross continental Europe was offset by incremental investment in distributioncapacity and technology across the businesses in 2006. We expect to double therate of investment in infrastructure and distribution in 2007. International Retail and Commercial Banking-Absa contributed £698m profit beforetax in the first full year of ownership and is performing well ahead of ouracquisition business case. Absa Group Limited achieved year on year growth inprofit before tax of 24% in Rand terms, reflecting very strong growth inmortgages, credit cards and commercial property finance. The benefits ofBarclays ownership are evident in 46% attributable earnings growth in both AbsaCard and Absa Capital (reported in Barclays Capital), with total synergybenefits well ahead of plan. Barclays Capital produced an outstanding performance with profit before taxrising 55% to £2,216m. Income growth of 39% was driven by doing more businesswith new and existing clients and was broadly based across asset classes andgeographies. Growth was particularly strong in areas where we have invested inrecent years, including commodities, equity products and credit derivatives.Profit growth was accompanied by improvements in productivity: income andprofits grew significantly faster than Daily Value at Risk, risk weightedassets, economic capital, regulatory capital and costs. The ratio ofcompensation costs to net income improved two percentage points to 49% and thecost:net income ratio improved three percentage points to 64%. We continued toinvest for future growth, increasing headcount 3,300 including 1,300 from theacquisition of HomEq, a US mortgage servicing business. Barclays Global Investors delivered excellent results, with profit before tax up32% to £714m. Income growth of 26% was attributable to increased managementfees, particularly in the iShares and active businesses. Assets under managementgrew US$301bn to US$1.8 trillion, including net new assets of $68bn, reflectingvery strong inflows in iShares and active assets. The cost:income ratio improvedtwo percentage points to 57%. Barclays Wealth profit before tax rose 28% to £213m. This reflected broadlybased income growth and favourable market conditions, partially offset by asignificant increase in investment in people and infrastructure to build aplatform for future growth. Total client assets increased 19% to £93bn. Thecost:income ratio improved three percentage points to 79%. In Head office functions and other operations the loss before tax decreased £64mto £259m, reflecting the head office relocation costs incurred in 2005. Capital management Our strong credit rating and disciplined approach to capital management remainsources of competitive advantage. Our capital management policies are designedto optimise the returns to shareholders whilst maintaining our credit rating. At the end of 2006, our tier 1 Capital ratio was 7.7% (2005: 7.0%). The improvedcapital ratio was driven by the strong capital generation of our businessportfolio, the impact of disposals, including our stake in FirstCaribbeanInternational Bank, and the efficient management of the balance sheet throughthe use of the capital markets. We have invested almost £2 billion to supportthe capital required for our organic growth throughout the portfolio at a veryattractive rate of return and we also increased the dividend to shareholders by17%. We commenced parallel running for Basel II at the end of 2006. Whilst there arestill areas in which the regulators have not yet defined the requirements fordetailed implementation, we continue to anticipate a modest benefit to ourcapital ratios from Basel II. For 2007 we will continue to report our capitalratios under Basel I. Executive management I want to acknowledge the significant contributions of two executive directorswho are leaving Barclays. David Roberts, previously Chief Executive ofInternational Retail and Commercial Banking, left Barclays at the end of 2006after 23 years of outstanding service. Naguib Kheraj has been a generator ofvery significant value for the Group over the last 10 years in a number ofdifferent roles at Barclays, most recently as Group Finance Director. He will beleaving us in 2007. I thank David and Naguib warmly for their dedication to thesuccess of Barclays and I wish them well for the future. Our new Group FinanceDirector, Chris Lucas joins us in April and brings a wealth of experience infinancial services. Outlook We enter 2007 with strong income momentum in Barclays, driven by high levels ofcustomer activity and good risk control. The global economic outlook continuesto be positive and we are well positioned to capture further growth in the yearsahead. John VarleyGroup Chief Executive CONSOLIDATED INCOME STATEMENT 2006 2005 £m £mInterest income 21,805 17,232Interest expense (12,662) (9,157) -------- --------Net interest income 9,143 8,075 -------- --------Fee and commission income 8,005 6,430Fee and commission expense (828) (725) -------- --------Net fee and commission income 7,177 5,705 -------- --------Net trading income 3,614 2,321Net investment income 962 858 -------- --------Principal transactions 4,576 3,179Net premiums from insurance contracts 1,060 872Other income 214 147 -------- --------Total income 22,170 17,978Net claims and benefits paid on insurance contracts (575) (645) -------- --------Total income net of insurance claims 21,595 17,333Impairment charges (2,154) (1,571) -------- --------Net income 19,441 15,762 -------- --------Operating expenses excluding amortisation of intangibleassets (12,538) (10,448)Amortisation of intangible assets (136) (79) -------- --------Operating expenses (12,674) (10,527)Share of post-tax results of associates and joint ventures 46 45Profit on disposal of subsidiaries, associates and jointventures 323 - -------- --------Profit before tax 7,136 5,280Tax (1,941) (1,439) -------- --------Profit after tax 5,195 3,841 -------- -------- Profit attributable to minority interests 624 394Profit attributable to equity holders of the parent 4,571 3,447 -------- -------- 5,195 3,841 -------- -------- p pEarnings per share 71.9 54.4Diluted earnings per share 69.8 52.6 Dividends per share:Interim dividend 10.5 9.2Final dividend 20.5 17.4 -------- --------Total dividend 31.0 26.6 -------- -------- £m £mInterim dividend 666 582Final dividend 1,307 1,105 -------- --------Total dividend 1,973 1,687 -------- -------- CONSOLIDATED BALANCE SHEET 2006 2005Assets £m £mCash and balances at central banks 7,345 3,906Items in the course of collection from other banks 2,408 1,901Trading portfolio assets 177,867 155,723Financial assets designated at fair value:- held on own account 31,799 12,904- held in respect of linked liabilities to customers under investment contracts 82,798 83,193Derivative financial instruments 138,353 136,823Loans and advances to banks 30,926 31,105Loans and advances to customers 282,300 268,896Available for sale financial investments 51,703 53,497Reverse repurchase agreements and cash collateral 174,090 160,398on securities borrowedOther assets 5,850 4,734Current tax assets 557 -Investments in associates and joint ventures 228 546Goodwill 6,092 6,022Intangible assets 1,215 1,269Property, plant and equipment 2,492 2,754Deferred tax assets 764 686 -------- --------Total assets 996,787 924,357 -------- -------- 2006 2005Liabilities £m £mDeposits from banks 79,562 75,127Items in the course of collection due to other banks 2,221 2,341Customer accounts 256,754 238,684Trading portfolio liabilities 71,874 71,564Financial liabilities designated at fair value 53,987 33,385Liabilities to customers under investment contracts 84,637 85,201Derivative financial instruments 140,697 137,971Debt securities in issue 111,137 103,328Repurchase agreements and cash collateral on securitieslent 136,956 121,178Other liabilities 10,337 11,131Current tax liabilities 1,020 747Insurance contract liabilities, including unit-linkedliabilities 3,878 3,767Subordinated liabilities 13,786 12,463Deferred tax liabilities 282 700Provisions 462 517Retirement benefit liabilities 1,807 1,823 -------- --------Total liabilities 969,397 899,927 -------- -------- Shareholders' equityCalled up share capital 1,634 1,623Share premium account 5,818 5,650Other reserves 390 1,377Retained earnings 12,169 8,957Less: treasury shares (212) (181) -------- --------Shareholders' equity excluding minority interests 19,799 17,426Minority interests 7,591 7,004 -------- --------Total shareholders' equity 27,390 24,430 -------- -------- -------- --------Total liabilities and shareholders' equity 996,787 924,357 -------- -------- FINANCIAL REVIEW Results by business The following section analyses the Group's performance by business. Formanagement and reporting purposes, Barclays is organised into the followingbusiness groupings: Global Retail and Commercial Banking • UK Banking, comprising - UK Retail Banking - UK Business Banking • Barclaycard • International Retail and Commercial Banking, comprising - International Retail and Commercial Banking-excluding Absa - International Retail and Commercial Banking-Absa, first included with effect from 27th July 2005 Investment Banking and Investment Management • Barclays Capital • Barclays Global Investors • Barclays Wealth • Barclays Wealth-closed life assurance activities Head office functions and other operations UK Banking UK Banking delivers banking solutions to Barclays UK retail and business bankingcustomers. It offers a range of integrated products and services and access tothe expertise of other Group businesses. Customers are served through a varietyof channels comprising the branch network, automated teller machines, telephonebanking, online banking and relationship managers. UK Banking is managed throughtwo business areas, UK Retail Banking and UK Business Banking. UK Retail Banking UK Retail Banking comprises Personal Customers, Home Finance, UK Premier andLocal Business (formerly Small Business). This cluster of businesses aims tobuild broader and deeper relationships with customers. Personal Customers andHome Finance provide a wide range of products and services to retail customers,including current accounts, savings and investment products, mortgages brandedWoolwich and general insurance. UK Premier provides banking, investment productsand advice to affluent customers. Local Business provides banking services tosmall businesses. UK Business Banking UK Business Banking provides relationship banking to Barclays larger and mediumbusiness customers in the UK. Customers are served by a network of relationshipand industry sector specialist managers who provide local access to an extensiverange of products and services, as well as offering business information andsupport. Customers are also offered access to the products and expertise ofother businesses in the Group, particularly Barclays Capital and Barclaycard. UKBusiness Banking provides asset financing and leasing solutions through aspecialist business. Barclaycard Barclaycard is a multi-brand credit card and consumer loans business which alsoprocesses card payments for retailers and merchants and issues credit and chargecards to corporate customers and the UK Government. It is one of Europe'sleading credit card businesses and has an increasing presence in the UnitedStates. In the UK, Barclaycard comprises Barclaycard, SkyCard and Monument brandedcredit cards, Barclays branded loans and FirstPlus secured lending. Barclaycardalso manages card operations on behalf of Solution Personal Finance. Outside the UK, Barclaycard provides credit cards in the United States, Germany,Spain, Italy, Portugal and Africa. In the Nordic region, Barclaycard operatesthrough Entercard, a joint venture with ForeningsSparbanken (Swedbank). Barclaycard works closely with other parts of the Group, including UK RetailBanking, UK Business Banking and International Retail and Commercial Banking, toleverage their distribution capabilities. International Retail and Commercial Banking International Retail and Commercial Banking provides Barclays personal andcorporate customers outside the UK with banking services. The products andservices offered to customers are tailored to meet the regulatory and commercialenvironments within each country. For reporting purposes from 2005, theoperations have been grouped into two components: International Retail andCommercial Banking-excluding Absa and International Retail and CommercialBanking-Absa. International Retail and Commercial Banking works closely with all other partsof the Group to leverage synergies from product and service propositions. International Retail and Commercial Banking-excluding Absa International Retail and Commercial Banking-excluding Absa provides a range ofbanking services, including current accounts, savings, investments, mortgagesand loans to personal and corporate customers across Spain, Portugal, France,Italy, Africa and the Middle East. International Retail and Commercial Banking-Absa International Retail and Commercial Banking-Absa represents Barclaysconsolidation of Absa, excluding Absa Capital which is included as part ofBarclays Capital. Absa Group Limited is one of South Africa's largest financialservices organisations serving personal, commercial and corporate customerspredominantly in South Africa. International Retail and Commercial Banking-Absaserves retail customers through a variety of distribution channels and offers afull range of banking services, including current and deposit accounts,mortgages, instalment finance, credit cards, bancassurance products and wealthmanagement services; it also offers customised business solutions for commercialand large corporate customers. Barclays Capital Barclays Capital is a leading global investment bank which provides largecorporate, institutional and government clients with solutions to theirfinancing and risk management needs. Barclays Capital services a wide variety of client needs, from capital raisingand managing foreign exchange, interest rate, equity and commodity risks,through to providing technical advice and expertise. Activities are organisedinto three principal areas: Rates, which includes fixed income, foreignexchange, commodities, emerging markets, money markets, sales, trading andresearch, prime services and equity products; Credit, which includes primary andsecondary activities for loans and bonds for investment grade, high yield andemerging market credit, as well as hybrid capital products, asset based finance,commercial mortgage backed securities, credit derivatives, structured capitalmarkets and large asset leasing; and Private Equity. Barclays Capital includesAbsa Capital, the investment banking business of Absa. Barclays Capital worksclosely with all other parts of the Group to leverage synergies from clientrelationships and product capabilities. Barclays Global Investors Barclays Global Investors (BGI) is one of the world's largest asset managers anda leading global provider of investment management products and services. BGI offers structured investment strategies such as indexing, global assetallocation and risk controlled active products including hedge funds andprovides related investment services such as securities lending, cash managementand portfolio transition services. In addition, BGI is the global leader inassets and products in the exchange traded funds business, with over 190 fundsfor institutions and individuals trading in fifteen markets globally. BGI'sinvestment philosophy is founded on managing all dimensions of performance: aconsistent focus on controlling risk, return and cost. BGI collaborates with theother Barclays businesses, particularly Barclays Capital and Barclays Wealth, todevelop and market products and leverage capabilities to better serve the clientbase. Barclays Wealth Barclays Wealth serves affluent, high net worth and intermediary clientsworldwide, providing private banking, asset management, stockbroking, offshorebanking, wealth structuring and financial planning services. Barclays Wealth works closely with all other parts of the Group to leveragesynergies from client relationships and product capabilities. Barclays Wealth-closed life assurance activities Barclays Wealth-closed life assurance activities comprise the closed lifeassurance businesses of Barclays and Woolwich in the UK. Head office functions and other operations Head office functions and other operations comprise: • Head office and central support functions• Businesses in transition• Consolidation adjustments. Head office and central support functions comprise the following areas:Executive management, Finance, Treasury, Corporate Affairs, Human Resources,Strategy and Planning, Internal Audit, Legal, Corporate Secretariat, Property,Tax, Compliance and Risk. Costs incurred wholly on behalf of the businesses arerecharged to them. Businesses in transition principally relate to certain lending portfolios thatare centrally managed with the objective of maximising recovery from the assets. Consolidation adjustments largely reflect the elimination of inter-segmenttransactions. SUMMARY OF RESULTS Analysis of profit attributable to equity holders of the parent 2006 2005 £m £mUK Banking 2,578 2,200 -------- --------UK Retail Banking 1,213 1,040UK Business Banking 1,365 1,160 -------- --------Barclaycard 382 640International Retail and Commercial Banking 1,270 633 -------- --------International Retail and Commercial Banking-ex Absa 572 335International Retail and Commercial Banking-Absa(1) 698 298 -------- --------Barclays Capital 2,216 1,431Barclays Global Investors 714 540Barclays Wealth 213 166Barclays Wealth-closed life assurance activities 22 (7)Head office functions and other operations (259) (323) -------- --------Profit before tax 7,136 5,280Tax (1,941) (1,439) -------- --------Profit after tax 5,195 3,841Profit attributable to minority interests (624) (394) -------- --------Profit attributable to equity holders of the parent 4,571 3,447 -------- -------- (1) For 2005, this reflects the period from 27th July until 31st December 2005. TOTAL ASSETS AND RISK WEIGHTED ASSETS Total assets 2006 2005 £m £mUK Banking 139,902 130,304 -------- --------UK Retail Banking 74,018 70,389UK Business Banking 65,884 59,915 -------- --------Barclaycard 27,628 25,771International Retail and Commercial Banking 68,848 63,556 -------- --------International Retail and Commercial Banking-ex Absa 38,451 34,195International Retail and Commercial Banking-Absa 30,397 29,361 -------- --------Barclays Capital 657,922 601,193Barclays Global Investors 80,515 80,900Barclays Wealth 7,285 6,094Barclays Wealth-closed life assurance activities 7,605 7,276Head office functions and other operations 7,082 9,263 -------- -------- 996,787 924,357 -------- -------- Risk weighted assets 2006 2005 £m £mUK Banking 84,903 79,929 -------- --------UK Retail Banking 34,942 32,803UK Business Banking 49,961 47,126 -------- --------Barclaycard 25,203 21,752International Retail and Commercial Banking 41,053 41,228 -------- --------International Retail and Commercial Banking-ex Absa 20,325 20,394International Retail and Commercial Banking-Absa 20,728 20,834 -------- --------Barclays Capital 137,635 116,677Barclays Global Investors 1,375 1,456Barclays Wealth 5,744 4,061Barclays Wealth-closed life assurance activities - -Head office functions and other operations 1,920 4,045 -------- -------- 297,833 269,148 -------- -------- Further analysis of total assets and risk weighted assets, can be found on page62. UK Banking 2006 2005 £m £mNet interest income 4,035 3,744Net fee and commission income 1,861 1,720 -------- --------Net trading income 2 -Net investment income 28 26 -------- --------Principal transactions 30 26Net premiums from insurance contracts 269 280Other income 63 33 -------- --------Total income 6,258 5,803Net claims and benefits on insurance contracts (35) (58) -------- --------Total income net of insurance claims 6,223 5,745Impairment charges (461) (327) -------- --------Net income 5,762 5,418 -------- --------Operating expenses excluding amortisation of intangibleassets (3,263) (3,212)Amortisation of intangible assets (2) (3) -------- --------Operating expenses (3,265) (3,215)Share of post-tax results of associates and joint ventures 5 (3)Profit on disposal of subsidiaries, associates and jointventures 76 - -------- --------Profit before tax 2,578 2,200 -------- -------- Cost:income ratio 52% 56%Cost:net income ratio 57% 59% Risk Tendency £515m £430mReturn on average economic capital 38% 33% Economic profit £1,431m £1,130m 2006 2005 Loans and advances to customers £123.9bn £118.2bnCustomer accounts £142.4bn £129.7bnTotal assets £139.9bn £130.3bnRisk weighted assets £84.9bn £79.9bn Key Fact Number of UK branches 2,014 2,029 UK Banking profit before tax increased 17% (£378m) to £2,578m (2005: £2,200m)driven principally by good income growth. Profit before business disposals grew14% (£302m) to £2,502m (2005: £2,200m). UK Banking has targeted a cost:income ratio reduction of two percentage pointsper annum in each of 2005, 2006 and 2007. In 2006 the cost:income ratio improvedthree percentage points to 53% (2005: 56%) excluding gains from property salesnot reinvested; this brings the cumulative improvement to six percentage pointsin two years. UK Banking continues to target a further two percentage pointimprovement in 2007 to 51%. UK Retail Banking 2006 2005 £m £mNet interest income 2,333 2,208Net fee and commission income 1,219 1,131 -------- --------Net trading income - -Net investment income - 9 -------- --------Principal transactions - 9Net premiums from insurance contracts 269 280Other income 42 16 -------- --------Total income 3,863 3,644Net claims and benefits on insurance contracts (35) (58) -------- --------Total income net of insurance claims 3,828 3,586Impairment charges (209) (150) -------- --------Net income 3,619 3,436 -------- --------Operating expenses excluding amortisation of intangibleassets (2,407) (2,390)Amortisation of intangible assets (1) - -------- --------Operating expenses (2,408) (2,390)Share of post-tax results of associates and joint ventures 2 (6) -------- --------Profit before tax 1,213 1,040 -------- -------- Cost:income ratio 63% 67%Cost:net income ratio 67% 70% Risk Tendency £225m £180mReturn on average economic capital 39% 35% Economic profit £693m £586m 2006 2005 Loans and advances to customers £67.6bn £64.8bnCustomer accounts £85.0bn £78.8bnTotal assets £74.0bn £70.4bnRisk weighted assets £34.9bn £32.8bn Key Facts Personal Customers--------------------Number of UK current accounts 11.5m 11.1mNumber of UK savings accounts 11.0m 10.8mTotal UK mortgage balances (residential) £61.9bn £59.6bnNumber of household insurance policies 825,000 616,000 Local Business and UK Premier-------------------------------Number of Local Business customers 630,000 630,000Number of UK Premier customers 297,000 286,000 UK Retail Banking profit before tax increased 17% (£173m) to £1,213m (2005:£1,040m), driven by good income growth and well controlled costs. There has beensubstantial additional investment to transform the business. Income increased 7% (£242m) to £3,828m (2005: £3,586m), continuing the momentumreported at the half year. Income growth was broadly based. There was strongincome growth in Personal Customers retail savings, Local Business and UKPremier and good growth in Personal Customers current account income. Salesvolumes increased, with a particularly strong performance from direct channels. Net interest income increased 6% (£125m) to £2,333m (2005: £2,208m). Growth wasdriven by a higher contribution from deposits, through a combination of goodbalance sheet growth and a stable liability margin. Total average customerdeposit balances increased 8% to £79.2bn (2005: £73.5bn), supported by newproducts. Growth of personal savings was above that of the market. Mortgage volumes improved significantly, driven by a focus on improvingcapacity, customer service, value and promotion. UK residential mortgagebalances ended the year at £61.9bn (2005: £59.6bn). Gross advances were 60%higher at £18.4bn (2005: £11.5bn), with a market share of 5% (2005: 4%). Netlending was £2.4bn, with performance improving during the year, leading to amarket share of 4% in the second half of the year. The mortgage margin wasreduced by changed assumptions used in the calculation of effective interestrates, a higher proportion of new mortgages and base rate changes. The newbusiness spread was in line with the industry. The loan to value ratio withinthe residential mortgage book on a current valuation basis was 34% (2005: 35%). There was good balance growth in non-mortgage loans, where Local Businessaverage balances increased 9% and UK Premier average balances increased 25%. Net fee and commission income increased 8% (£88m) to £1,219m (2005: £1,131m).There was strong current account income growth in Personal Customers and LocalBusiness. UK Premier delivered strong growth reflecting higher income frombanking services, mortgage sales and investment advice. Net premiums from insurance underwriting activities decreased 4% (£11m) to £269m(2005: £280m). There continued to be lower customer take-up of loan protectioninsurance. Net claims and benefits on insurance contracts improved to £35m(2005: £58m). Other income increased £26m to £42m (2005: £16m), principallyrepresenting the benefit from reinsurance. Impairment charges increased 39% (£59m) to £209m (2005: £150m). The increaseprincipally reflected balance growth and some deterioration in delinquency ratesin the Local Business loan book. Losses from the mortgage portfolio remainednegligible, with arrears at low levels. Operating expenses were steady at £2,408m (2005: £2,390m). Substantially all ofthe gains from the sale and leaseback of property of £253m have been reinvestedin the business to improve customer service and deliver sustainable performanceimprovements. Around half of the incremental investment was directed atupgrading distribution capabilities, including restructuring and improving thebranch network. Further investment was focused on upgrading the contact centres,transforming the performance of the mortgage business, revitalising the retailproduct range to meet customers' needs, improving core operations and processesand rationalising the number of operating sites. The level of investmentreflected in operating expenses in 2006 was approximately double the level of2005. The cost:income ratio improved four percentage points to 63% (2005: 67%). UK Business Banking 2006 2005 £m £mNet interest income 1,702 1,536Net fee and commission income 642 589 -------- --------Net trading income 2 -Net investment income 28 17 -------- --------Principal transactions 30 17Other income 21 17 -------- --------Total income 2,395 2,159Impairment charges (252) (177) -------- --------Net income 2,143 1,982 -------- --------Operating expenses excluding amortisation of intangibleassets (856) (822)Amortisation of intangible assets (1) (3) -------- --------Operating expenses (857) (825)Share of post-tax results of associates and joint ventures 3 3Profit on disposal of subsidiaries, associates and jointventures 76 - -------- --------Profit before tax 1,365 1,160 -------- -------- Cost:income ratio 36% 38%Cost:net income ratio 40% 42% Risk Tendency £290m £250mReturn on average economic capital 37% 31% Economic profit £738m £544m 2006 2005 Loans and advances to customers £56.3bn £53.4bnCustomer accounts £57.4bn £50.9bnTotal assets £65.9bn £59.9bnRisk weighted assets £50.0bn £47.1bn Key Fact Total number of Business Banking customers 150,000 144,000 UK Business Banking profit before tax increased 18% (£205m) to £1,365m (2005:£1,160m), driven by continued strong income growth. UK Business Bankingmaintained its market share of primary customer relationships. The 2006 resultincluded a £23m (2005: £13m) contribution from the full year consolidation ofIveco Finance, in which a 51% stake was acquired on 1st June 2005. Profit beforebusiness disposals increased 11% to £1,289m (2005: £1,160m). Income increased 11% (£236m) to £2,395m (2005: £2,159m), driven by strongbalance sheet growth. The uplift in income was broadly based across incomecategories. Net interest income increased 11% (£166m) to £1,702m (2005: £1,536m) driven bystrong balance sheet growth. There was strong growth in all business areas andin particular Larger Business. The lending margin improved slightly. Averagedeposit balances increased 11% to £44.8bn (2005: £40.5bn) with good growthacross product categories. The deposit margin was stable. Net fee and commission income increased 9% (£53m) to £642m (2005: £589m). Therewas a strong rise in income from foreign exchange and derivatives businesstransacted through Barclays Capital on behalf of Business Banking customers. Income from principal transactions was £30m (2005: £17m), primarily reflectingthe profit realised on a number of equity investments. As expected, impairment rates trended upwards during the year towards a morenormalised level. Impairment increased 42% (£75m) to £252m (2005: £177m), withthe increase mainly reflecting higher charges from Medium Business and balancegrowth. Impairment charges in Larger Business were stable. Operating expenses increased 4% (£32m) to £857m (2005: £825m). Cost growthreflected higher volumes, increased expenditure on front line staff and thecosts of Iveco Finance for a full year. Operating expenses included a credit of£60m on the sale and leaseback of property, of which approximately half wasreinvested in the business, including costs relating to the acceleration of therationalisation of operating sites and technology infrastructure. The cost:income ratio improved two percentage points to 36% (2005: 38%). Profit on disposals of subsidiaries, associates and joint ventures of £76m(2005: nil) arose from the sales of interests in vehicle leasing and Europeanvendor finance businesses. Barclaycard 2006 2005 £m £mNet interest income 1,843 1,726Net fee and commission income 1,054 972Net investment income 15 -Net premiums from insurance contracts 33 24 -------- --------Total income 2,945 2,722Net claims and benefits on insurance contracts (8) (7) -------- --------Total income net of insurance claims 2,937 2,715Impairment charges (1,493) (1,098) -------- --------Net income 1,444 1,617 -------- --------Operating expenses excluding amortisation of intangibleassets (1,037) (961)Amortisation of intangible assets (17) (17) -------- --------Operating expenses (1,054) (978)Share of post-tax results of associates and joint ventures (8) 1 -------- --------Profit before tax 382 640 -------- -------- Cost:income ratio 36% 36%Cost:net income ratio 73% 60% Risk Tendency £1,410m £1,100mReturn on average economic capital 10% 16% Economic profit £nil £183m 2006 2005 Loans and advances to customers £25.5bn £24.0bnTotal assets £27.6bn £25.8bnRisk weighted assets £25.2bn £21.8bn Key Facts Number of Barclaycard UK customers 9.8m 11.2mNumber of retailer relationships 93,000 93,000UK credit cards-average outstanding balances £9.4bn £10.1bnUK credit cards-average extended credit balances £8.0bn £8.6bnUK loans-average consumer lending balances £11.9bn £10.3bnInternational-average extended credit balances £2.5bn £1.8bnInternational-cards in issue 6.4m 4.3m Barclaycard profit before tax decreased 40% (£258m) to £382m (2005: £640m) asgood income growth was more than offset by higher impairment charges andincreased costs from the continued development of international businesses. Income increased 8% (£222m) to £2,937m (2005: £2,715m). Growth was driven byvery strong momentum in the United States and by strong performances inBarclaycard Business, FirstPlus, SkyCard and continental European markets. Net interest income increased 7% (£117m) to £1,843m (2005: £1,726m). UK averageextended credit card balances fell 7% to £8.0bn (2005: £8.6bn), reflecting theimpact of tighter lending criteria. UK average consumer lending balancesincreased 16% to £11.9bn (2005: £10.3bn) driven by secured lending in FirstPlus.International average extended credit card balances rose 39% to £2.5bn (2005:£1.8bn). Margins in credit cards improved to 8.73% (2005: 7.96%), due to the impact ofincreased card rates and a reduced proportion of promotional rate balances inthe UK. Margins in consumer lending fell to 4.11% (2005: 4.96%), due to a higherproportion of secured lending and continued competitive pressure. Net fee and commission income increased 8% (£82m) to £1,054m (2005: £972m) as aresult of increased contributions from Barclaycard International, SkyCard,FirstPlus and Barclaycard Business. Barclaycard reduced its late and overlimitfee charges in the UK on 1st August 2006 in response to the Office of FairTrading's findings. Investment income of £15m (2005: £nil) represents the gain arising from the saleof part of the stake in MasterCard Inc, following its flotation. Impairment charges increased 36% (£395m) to £1,493m (2005: £1,098m). Theincrease was driven by a rise in delinquent balances and increased numbers ofbankruptcies and Individual Voluntary Arrangements. As a result of managementaction in 2005 and 2006 to tighten lending criteria and improve collectionprocesses, the flows of new delinquencies reduced, and levels of arrearsbalances declined in the second half of 2006 in UK cards and unsecured loans. Operating expenses increased 8% (£76m) to £1,054m (2005: £978m). This included a£38m gain from the sale and leaseback of property. Excluding this item,underlying operating expenses increased 12% (£114m) to £1,092m. This was largelyas a result of continued investment in Barclaycard International, particularlyBarclaycard US, and the development of UK partnerships. Barclaycard International continued its growth strategy in the continentalEuropean business delivering solid results. The Entercard joint venture, whichis based in Scandinavia, performed ahead of plan. Barclaycard International lossbefore tax reduced to £30m (2005: loss £37m), including the loss before tax forBarclaycard US of £56m (2005: loss £59m). Barclaycard US continued to performahead of expectations, delivering very strong growth in balances and customernumbers and creating a number of new partnerships including US Airways, Barnes &Noble, Travelocity and Jo-Ann Stores. Barclaycard UK customer numbers declined 1.4m to 9.8m (2005: 11.2m). Thisreflected the closure of 1.5 million accounts that had been inactive. International Retail and Commercial Banking 2006 2005 £m £mNet interest income 1,659 1,050Net fee and commission income 1,303 705 -------- --------Net trading income 6 3Net investment income 188 143 -------- --------Principal transactions 194 146Net premiums from insurance contracts 351 227Other income 74 60 -------- --------Total income 3,581 2,188Net claims and benefits on insurance contracts (244) (205) -------- --------Total income net of insurance claims 3,337 1,983Impairment charges (167) (32) -------- --------Net income 3,170 1,951 -------- --------Operating expenses excluding amortisation of intangibleassets (2,111) (1,317)Amortisation of intangible assets (85) (47) -------- --------Operating expenses (2,196) (1,364)Share of post-tax results of associates and joint ventures 49 46Profit on disposal of subsidiaries, associates and jointventures 247 - -------- --------Profit before tax 1,270 633 -------- -------- Cost:income ratio 66% 69%Cost:net income ratio 69% 70% Risk Tendency £220m £175mReturn on average economic capital 37% 23% Economic profit £530m £205m 2006 2005 Loans and advances to customers £53.5bn £49.3bnCustomer accounts £22.5bn £22.6bnTotal assets £68.9bn £63.6bnRisk weighted assets £41.1bn £41.2bn Key Fact Number of international branches 1,613 1,516 International Retail and Commercial Banking profit before tax increased £637m to£1,270m (2005: £633m). The increase reflected the inclusion of a full year's profit before tax from International Retail and Commercial Banking-Absa of £698m(2005(1): £298m) and a profit of £247m on the disposal of Barclays interest inFirstCaribbean International Bank. (1) For 2005, this reflects the period from 27th July until 31st December 2005. International Retail and Commercial Banking-excluding Absa 2006 2005 £m £mNet interest income 610 562Net fee and commission income 448 377 -------- --------Net trading income 17 31Net investment income 66 88 -------- --------Principal transactions 83 119Net premiums from insurance contracts 111 129Other income 20 23 -------- --------Total income 1,272 1,210Net claims and benefits on insurance contracts (138) (161) -------- --------Total income net of insurance claims 1,134 1,049Impairment charges (41) (13) -------- --------Net income 1,093 1,036 -------- --------Operating expenses excluding amortisation of intangibleassets (799) (734)Amortisation of intangible assets (9) (6) -------- --------Operating expenses (808) (740)Share of post-tax results of associates and joint ventures 40 39Profit on disposal of subsidiaries, associates and jointventures 247 - -------- --------Profit before tax 572 335 -------- -------- Cost:income ratio 71% 71%Cost:net income ratio 74% 71% Risk Tendency £75m £75mReturn on average economic capital 39% 20% Economic profit £346m £115m 2006 2005 Loans and advances to customers £29.3bn £25.4bnCustomer accounts £11.4bn £10.4bnTotal assets £38.5bn £34.2bnRisk weighted assets £20.4bn £20.4bn Key Facts Number of international branches 868 798Number of Barclays continental Europe customers 820,000 800,000Number of continental European mortgage customers 252,000 221,000Continental European mortgages-average balances (Euros) €25.9bn €21.2bnContinental European assets under management (Euros) €26.4bn €22.6bn International Retail and Commercial Banking-excluding Absa profit before taxincreased 71% (£237m) to £572m (2005: £335m), including a gain on the disposalof the interest in FirstCaribbean International Bank of £247m. Profit beforebusiness disposals was £325m (2005: £335m). This reflected good growth incontinental Europe offset by a decline in profits in Africa caused by higherimpairment, and increased costs reflecting a step change in the rate of organicinvestment in the business. Income increased 8% (£85m) to £1,134m (2005: £1,049m). Excluding gains fromasset sales in 2005, income increased 11% (£116m) to £1,134m (2005: £1,018m). Net interest income increased 9% (£48m) to £610m (2005: £562m), reflectingstrong balance sheet growth in continental Europe, Africa and the Middle East,and the development of the corporate business in Spain. Total average customer loans increased 20% to £27.4bn (2005: £22.9bn). Mortgagebalance growth in continental Europe was particularly strong, with average Eurobalances up 22%. There was a modest decline in lending margins partly driven bya greater share of mortgage assets as a proportion of the total book incontinental Europe. Average customer deposits increased 17% to £10.8bn (2005:£9.2bn), with deposit margins stable. Net fee and commission income increased 19% (£71m) to £448m (2005: £377m). Thisreflected a strong performance from the Spanish funds business, where averageassets under management increased 11%, together with very strong growth inFrance, including the first full year contribution of the ING Ferri businesswhich was acquired on 1st July 2005. Net fee and commission income showed solidgrowth in Africa and the Middle East. Principal transactions decreased £36m to £83m (2005: £119m). 2005 included £23mfrom the redemption of preference shares in FirstCaribbean International Bank. Impairment charges increased £28m to £41m (2005: £13m). This reflected theabsence of one-off recoveries of £12m which arose in 2005 in Africa and theMiddle East, and strong balance sheet growth across the businesses. Operating expenses increased 9% (£68m) to £808m (2005: £740m). This includedgains from the sale and leaseback of property in Spain of £55m, just under halfof which were reinvested in accelerated staff restructuring and infrastructureupgrades. Excluding these net gains, operating expenses increased 14% to £840m(2005: £740m). Operating expenses also included incremental investmentexpenditure of £25m to expand the distribution network and enhance IT andoperational capabilities. Barclays Spain continued to perform strongly. Profit before tax increased 21%(£30m) to £171m (2005: £141m), excluding net one-off gains on asset sales of£32m (2005: £8m) and integration costs of £43m (2005: £57m). This was driven bythe continued realisation of benefits from Banco Zaragozano, together withstrong growth in assets under management and solid growth in mortgages. Africa and the Middle East profit before tax decreased 9% (£12m) to £126m (2005:£138m) driven by higher impairment charges reflecting one-off recoveries of £12mthat arose in 2005 and an increase in investment expenditure. Profit before tax increased strongly in Portugal reflecting good flows of newcustomers and increased business volumes. France also performed well as a resultof good organic growth and the acquisition of ING Ferri. The profit on disposal of subsidiaries, associate and joint ventures of £247m(2005: nil) comprised the gain on the sale of Barclays interest inFirstCaribbean. The share of post-tax results of FirstCaribbean InternationalBank included in 2006 was £41m (2005: £37m). International Retail and Commercial Banking-Absa 2006 2005(1) £m £mNet interest income 1,049 488Net fee and commission income 855 328 -------- --------Net trading income (11) (28)Net investment income 122 55 -------- --------Principal transactions 111 27Net premiums from insurance contracts 240 98Other income 54 37 -------- --------Total income 2,309 978Net claims and benefits on insurance contracts (106) (44) -------- --------Total income net of insurance claims 2,203 934Impairment charges (126) (19) -------- --------Net income 2,077 915 -------- --------Operating expenses excluding amortisation of intangibleassets (1,312) (583)Amortisation of intangible assets (76) (41) -------- --------Operating expenses (1,388) (624)Share of post-tax results of associates and joint ventures 9 7 -------- --------Profit before tax 698 298 -------- -------- Cost:income ratio 63% 67%Cost:net income ratio 67% 68% Risk Tendency £145m £100mReturn on average economic capital 34% 36% Economic profit £184m £90m 2006 2005Loans and advances to customers £24.2bn £23.9bnCustomer accounts £11.1bn £12.2bnTotal assets £30.4bn £29.4bnRisk weighted assets £20.7bn £20.8bn Key Facts Number of branches 749 718Number of ATMs 7,053 5,835Number of retail customers 8.3m 7.6mNumber of corporate customers 84,000 79,000 (1) For 2005, this reflects the period from 27th July until 31st December 2005. International Retail and Commercial Banking - Absa profit before tax increased134% to £698m (2005: £298m) reflecting the full year to 31st December 2006compared with the five months ended 31st December 2005. Barclays acquired acontrolling stake in Absa Group Limited on 27th July 2005. Appendix 1 on page 94 summarises the Rand results of Absa Group Limited for theyear to 31st December 2006 as reported to the Johannesburg Stock Exchange, andtheir impact in Sterling on the consolidated results of Barclays. In the commentary below, the comparable period referred to, for illustrativepurposes only, is the proforma full year to 31st December 2005 and is based onperformance in Rand. Absa Group Limited's profit before tax increased 24% reflecting a very goodperformance from banking operations, with retail, corporate and businessbanking operations performing exceptionally well. Absa Group Limited delivered areturn on equity of 27.4% (2005: 25.6%). Key factors impacting the resultsincluded very strong asset growth, strong revenue growth, an increased creditimpairment charge, the realisation of synergies from leveraging Barclaysexpertise and economies of scale and the sale of non-core operations. The SouthAfrican economy continued to expand at a solid pace with real growth expectedto be about 4.9% for 2006 (2005: 5.1%). Net interest income grew 27%. Loans and advances to customers increased 26%underpinned by very strong growth in mortgages, credit cards and commercialproperty finance. Non-interest income increased 12% reflecting higher transaction volumes, stronggrowth in insurance related earnings and gains on asset sales. As expected the impairment charge on loans and advances increased from the verylow levels of the prior year, particularly in Absa Home Loans, Absa Card andRetail Banking Services. Operating expenses increased 14% resulting from increased investment in thebusiness in order to support continued growth in volumes and customers. Excellent progress was made with the realisation of synergy benefits. In 2006synergies of R753m were delivered, in excess of the target originallycommunicated for the year. Integration costs for the period were in line withexpectations. Impact on Barclays results(1) Absa Group Limited's profit before tax of R11,417m is translated into Barclaysresults at an average exchange rate for 2006 of R12.47/£ (2005: R11.57/£).Consolidation adjustments reflected the amortisation of intangible assets of£75m and internal funding and other adjustments of £72m. The resulting profitbefore tax of £769m (2005: £337m) is represented with International Retail andCommercial Banking - Absa £698m, (2005: £298m) and Barclays Capital, £71m (2005:£39m). Absa Group Limited's total assets at 31st December 2006 were R495,112m (31stDecember 2005: R404,561m), growth of 22%. This is translated into Barclaysresults at a year-end exchange rate of R13.71/£ (31st December 2005: R10.87/£).The consolidation of total assets reflected the impact of the 21% depreciationin the Rand largely offsetting the growth in the Rand balance sheet. (1) For 2005, this reflects the period from 27th July until 31st December 2005. Barclays Capital 2006 2005 £m £mNet interest income 1,158 1,065Net fee and commission income 952 776 -------- --------Net trading income 3,562 2,231Net investment income 573 413 -------- --------Principal transactions 4,135 2,644Other income 22 20 -------- --------Total income 6,267 4,505Impairment charges (42) (111) -------- --------Net income 6,225 4,394 -------- --------Operating expenses excluding amortisation of intangibleassets (3,996) (2,961)Amortisation of intangible assets (13) (2) -------- --------Operating expenses (4,009) (2,963) -------- --------Profit before tax 2,216 1,431 -------- -------- Cost:income ratio 64% 66%Cost:net income ratio 64% 67%Compensation:net income ratio 49% 51% Average DVaR £37.1m £32.0mRisk Tendency £95m £110mReturn on average economic capital 41% 34% Average net income generated per member of staff ('000) £560 £498 Economic profit £1,181m £706m 2006 2005 Total assets £657.9bn £601.2bnRisk weighted assets £137.6bn £116.7bnCorporate lending portfolio £40.6bn £40.1bn Key Facts 2006 2005 League League table Issuance table Issuance position value position valueAll international bonds (all currencies) 1st US$271.9bn 2nd US$183.6bnSterling bonds 1st £27.3bn 1st £23.0bnInternational securitisations 2nd US$53.2bn 1st US$36.8bnUS investment grade corporate bonds 7th US$6.0bn 5th US$9.9bn Barclays Capital delivered record profit before tax and net income. Profitbefore tax increased 55% (£785m) to £2,216m (2005: £1,431m). This was the resultof a very strong income performance, driven by higher business volumes,continued growth in client activity and favourable market conditions. Net incomeincreased 42% (£1,831m) to £6,225m (2005: £4,394m). Profit before tax for AbsaCapital was £71m (2005(1): £39m). Excluding Absa Capital, profit before taxincreased 54%. Income increased 39% (£1,762m) to £6,267m (2005: £4,505m) as a result of verystrong growth across the Rates, Credit and Private Equity businesses. Incomeincreased in all geographic regions with significant contributions outside theUK from the US, continental Europe and Asia. The top line performance reflectedreturns from past investments and the strength of the global client franchise.Average DVaR increased 16% to £37.1m (2005: £32.0m) significantly below the rateof income growth. Secondary income, comprising principal transactions (net trading income and netinvestment income) and net interest income, is mainly generated from providingclient financing and risk management solutions. Secondary income increased 43%(£1,584m) to £5,293m (2005: £3,709m). Net trading income increased 60% (£1,331m) to £3,562m (2005: £2,231m) with verystrong contributions across the Rates and Credit businesses, in particularcommodities, fixed income, equities, credit derivatives and emerging markets.The performance was driven by higher volumes of client led activity andfavourable market conditions. Net investment income increased 39% (£160m) to£573m (2005: £413m) driven by investment realisations, primarily in PrivateEquity, offset by reduced contributions from credit products. Net interestincome increased 9% (£93m) to £1,158m (2005: £1,065m) driven by a full yearcontribution from Absa Capital. Corporate lending remained flat at £40.6bn(2005: £40.1bn). Primary income, which comprises net fee and commission income from advisory andorigination activities, grew 23% (£176m) to £952m (2005: £776m). This reflectedhigher volumes and continued market share gains in a number of key markets, withstrong contributions from issuances in bonds, European leveraged loans andconvertibles. Impairment charges of £42m (2005: £111m), including impairment on available forsale assets of £83m (2005: nil), were 62% lower than prior year reflectingrecoveries and the continued benign wholesale credit environment. Operating expenses increased 35% (£1,046m) to £4,009m (2005: £2,963m),reflecting higher performance related costs, increased levels of activity andcontinued investment across the business. The cost:net income ratio improved to64% (2005: 67%) and the compensation to net income ratio improved to 49% (2005:51%). Performance related pay, discretionary investment spend and short-termcontractor resource costs represented 50% of operating expenses (2005: 46%).Amortisation of intangible assets principally relates to mortgage service rightsobtained as part of the purchase of HomEq, a US mortgage servicing businessacquired on 1st November 2006. Total headcount increased 3,300 during 2006 to 13,200 (2005: 9,900) and included1,300 from the acquisition of HomEq. Organic growth was broadly based across allregions and reflected further investments in the front office, systemsdevelopment and control functions to support continued business expansion. (1) For 2005, this reflects the period from 27th July until 31st December 2005. Barclays Global Investors 2006 2005 £m £mNet interest income 10 15Net fee and commission income 1,651 1,297 -------- --------Net trading income 2 2Net investment income 2 4 -------- --------Principal transactions 4 6 -------- --------Total income 1,665 1,318 -------- --------Operating expenses excluding amortisation of intangibleassets (946) (775)Amortisation of intangible assets (5) (4) -------- --------Operating expenses (951) (779)Share of post-tax results of associates and joint ventures - 1 -------- --------Profit before tax 714 540 -------- -------- Cost:income ratio 57% 59%Average income generated per member of staff ('000) £666 £628 Return on average economic capital 228% 248% Economic profit £376m £299m 2006 2005 Total assets £80.5bn £80.9bnRisk weighted assets £1.4bn £1.5bn Key Facts Assets under management (£): £927bn £881bn -------- ---------indexed £566bn £570bn-iShares £147bn £113bn-active £214bn £198bn -------- --------Net new assets in period (£) £37bn £48bnAssets under management (US$): US$1,814bn US$1,513bn -------- ---------indexed US$1,108bn US$980bn-iShares US$287bn US$193bn-active US$419bn US$340bn -------- --------Net new assets in period (US$) US$68bn US$88bnNumber of iShares products 191 149Number of institutional clients 2,900 2,800 Barclays Global Investors delivered another year of outstanding results. Profitbefore tax increased 32% (£174m) to £714m (2005: £540m), reflecting very strongincome growth and higher operating margins. The performance was broadly basedacross products, distribution channels and geographies. Net fee and commission income increased 27% (£354m) to £1,651m (2005: £1,297m).This growth was attributable to increased management fees, particularly in theiShares and active businesses, and securities lending, offset by lower incentivefees. Incentive fees decreased 9% (£18m) to £186m (2005: £204m). Higher assetvalues, driven by higher market levels and good net new inflows, contributed tothe growth in income. Operating expenses increased 22% (£172m) to £951m (2005: £779m) as a result ofsignificant investment in key growth initiatives, ongoing investment in productdevelopment and infrastructure and higher performance-based expenses. The cost:income ratio improved two percentage points to 57% (2005: 59%). Total headcount rose 400 to 2,700 (2005: 2,300). Headcount increased in allregions, across product groups and the support functions, reflecting continuedinvestment to support strategic initiatives. Total assets under management increased 5% (£46bn) to £927bn (2005: £881bn)primarily due to net new inflows of £37bn. The positive market move impact of£98bn was largely offset by £89bn of adverse exchange rate movements. In US$terms assets under management increased by US$301bn to US$1,814bn (2005:US$1,513bn), comprising US$68bn of net new assets, US$177bn of favourable marketmovements and US$56bn of positive exchange rate movements. Barclays Wealth 2006 2005 £m £mNet interest income 366 329Net fee and commission income 665 589 -------- --------Net trading income - -Net investment income - 5 -------- --------Principal transactions - 5Other income 5 (1) -------- --------Total income 1,036 922Impairment charges (2) (2) -------- --------Net income 1,034 920 -------- --------Operating expenses excluding amortisation of intangibleassets (817) (752)Amortisation of intangible assets (4) (2) -------- --------Operating expenses (821) (754) -------- --------Profit before tax 213 166 -------- -------- Cost:income ratio 79% 82%Cost:net income ratio 79% 82% Risk Tendency £10m £5mReturn on average economic capital 48% 38% Average net income generated per member of staff ('000) £138 £128 Economic profit £144m £109m 2006 2005 Customer accounts £25.2bn £23.1bnLoans and advances to customers £5.7bn £4.7bnTotal assets £7.3bn £6.1bnRisk weighted assets £5.7bn £4.1bn Key Fact Total client assets £93.0bn £78.3bn Barclays Wealth profit before tax showed very strong growth of 28% (£47m) to£213m (2005: £166m). Performance was driven by broadly based income growth andfavourable market conditions. This was partially offset by additional volumerelated costs and a significant increase in investment in people andinfrastructure to support future growth. Income increased 12% (£114m) to £1,036m (2005: £922m). Net interest income increased 11% (£37m) to £366m (2005: £329m) reflectinggrowth in both customer deposits and customer lending. Average customer depositsgrew 6% (£1.3bn) to £24.7bn (2005: £23.4bn). Average loans to customers grew 16%to £5.1bn (2005: £4.4bn), driven by increased lending to offshore and privatebanking clients. Asset and liability margins were higher relative to 2005. Net fee and commission income increased 13% (£76m) to £665m (2005: £589m). Thisreflected growth in client assets and higher transactional income, includingincreased sales of investment products to private banking and financial planningclients, and higher stockbroking volumes. Operating expenses increased 9% (£67m) to £821m (2005: £754m) with greatervolume related and investment costs more than offsetting efficiency gains.Investment costs included increased hiring of client facing staff andimprovements to infrastructure with the upgrade of technology and operationsplatforms. The cost:income ratio improved three percentage points to 79% (2005:82%). Total client assets, comprising customer deposits and client investments,increased 19% (£14.7bn) to £93.0bn (2005: £78.3bn) reflecting good net new assetinflows and favourable market conditions. Multi-Manager assets increased 68%(£4.1bn) to £10.1bn (2005: £6.0bn); this growth included transfers of existingclient assets. Barclays Wealth-closed life assurance activities 2006 2005 £m £mNet interest income (8) (14)Net fee and commission income 50 44 -------- --------Net trading income 2 -Net investment income 154 259 -------- --------Principal transactions 156 259Net premiums from insurance contracts 210 195Other income 11 11 -------- --------Total income 419 495Net claims and benefits on insurance contracts (288) (375) -------- --------Total income net of insurance claims 131 120Operating expenses (109) (127) -------- --------Profit/(loss) before tax 22 (7) -------- -------- Cost:income ratio 83% 106% Return on average economic capital (22)% (3)% Economic loss (£18m) (£7m) 2006 2005 Total assets £7.6bn £7.3bn Barclays Wealth - closed life assurance activities profit before tax was £22m(2005: loss £7m). The improvement was mostly due to lower funding costs andreduced customer redress costs in 2006. Profit before tax excluding customer redress costs was £89m (2005: £78m). Income grew 9% (£11m) to £131m (2005: £120m) principally due to reduced fundingcosts. Operating expenses decreased to £109m (2005: £127m). Costs relating to redressfor customers decreased to £67m (2005: £85m) whilst other operating expensesremained steady at £42m (2005: £42m). Head office functions and other operations 2006 2005 £m £mNet interest income 80 160Net fee and commission income (359) (398) -------- --------Net trading income 40 85Net investment income 2 8 -------- --------Principal transactions 42 93Net premiums from insurance contracts 197 146Other income 39 24 -------- --------Total income (1) 25Impairment releases/(charges) 11 (1) -------- --------Net income 10 24 -------- --------Operating expenses excluding amortisation of intangibleassets (259) (343)Amortisation of intangible assets (10) (4) -------- --------Operating expenses (269) (347) -------- --------Loss before tax (259) (323) -------- -------- Risk Tendency £10m £25m 2006 2005 Total assets £7.1bn £9.3bnRisk weighted assets £1.9bn £4.0bn Head office functions and other operations loss before tax decreased £64m to£259m (2005: loss £323m). Net interest income decreased £80m to £80m (2005: £160m) reflecting a reductionin net interest income in Treasury following the acquisition of Absa GroupLimited. Treasury's net interest income also included the hedge ineffectivenessfor the period, which together with other related Treasury adjustments amountedto a gain of £11m (2005: £18m) and the cost of hedging the foreign exchange riskon the Group's equity investment in Absa, which amounted to £71m (2005: £37m). Group segmental reporting is performed in accordance with Group accountingpolicies. This means that inter-segment transactions are recorded in eachsegment as if undertaken on an arm's length basis. Adjustments necessary toeliminate the inter-segment transactions are included in Head office functionsand other operations. The impact of such inter-segment adjustments reduced £72m to £147m (2005:£219m). These adjustments related to internal fees for structured capital marketactivities of £87m (2005: £67m) and fees paid to Barclays Capital for capitalraising and risk management advice of £16m (2005: £39m), both of which reducenet fees and commission income. In addition the impact of the timing of therecognition of insurance commissions included in Barclaycard and UK RetailBanking reduced to £44m (2005: £113m). This reduction was reflected in adecrease in net fee and commission income of £242m (2005: £258m) and an increasein net premium income of £198m (2005: £145m). Principal transactions decreased £51m to £42m (2005: £93m). 2005 includedhedging related gains in Treasury of £80m. 2006 included £55m (2005: £nil) inrespect of the economic hedge of the translation exposure arising from Absaforeign currency earnings. The impairment charge improved £12m to a release of £11m (2005: £1m charge) as anumber of workout situations were resolved. Operating expenses decreased £78m to £269m (2005: £347m) primarily due to theexpenses of the 2005 Head office relocation to Canary Wharf not recurring in2006 (2005: £105m) and the gains of £26m (2005: £nil) from the sale andleaseback of property offset by increased costs, principally driven by majorproject expenditure including work related to implementing Basel II. More to follow This information is provided by RNS The company news service from the London Stock Exchange

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