Final Results - Part 1

21st Feb 2006 07:02

Barclays PLC21 February 2006 PART 1 Results Announcement 31st December 2005 BARCLAYS PLC PRELIMINARY ANNOUNCEMENT OF RESULTS FOR 2005 TABLE OF CONTENTS PAGESummary of key information 1Performance summary 2Financial highlights 4Group Chief Executive's Statement 5Group Finance Director's Review 8Consolidated income statement 11Consolidated balance sheet 12Results by business 14Results by nature of income and expense 44Analysis of amounts included on the balance sheet 56Additional information 68Notes 72Consolidated statement of recognised income and expense 86Summary consolidated cashflow statement 87Other information 88Index 90 BARCLAYS PLC, 1 CHURCHILL PLACE, LONDON, E14 5HP, ENGLAND, UNITED KINGDOM. TELEPHONE: +44 (0) 20 7116 1000. COMPANY NO. 48839 BARCLAYS PLC The information in this announcement, which was approved by the Board ofDirectors on 20th February 2006, does not comprise statutory accounts within themeaning of Section 240 of the Companies Act 1985 (the 'Act'). Statutoryaccounts, which also include certain information required for the joint AnnualReport on Form 20-F of Barclays PLC and Barclays Bank PLC to the US Securitiesand Exchange Commission (SEC), will be delivered to the Registrar of Companiesin accordance with Section 242 of the Act. The 2005 Annual Review and SummaryFinancial Statement will be posted to shareholders together with the Group'sfull Annual Report for those shareholders who request it. International Financial Reporting Standards The Group has applied International Financial Reporting Standards (IFRS) from1st January 2004, with the exception of the standards relating to financialinstruments and insurance contracts which are applied only with effect from 1stJanuary 2005. Therefore the impacts of adopting IAS 32, IAS 39 and IFRS 4 arenot included in the 2004 comparatives in accordance with IFRS 1 and financialinstruments and insurance contracts are accounted for under UK GAAP in 2004. The results for 2005 are therefore not entirely comparable to those for 2004 inaffected 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 theprovisional accounting policies expected to be applied in the preparation of the2005 financial statements. The Interim Results Announcement on 5th August 2005amended the reconciliations and the provisional accounting policies for the useof the fair value option. The financial information in this announcement hasbeen prepared in accordance with these amended accounting policies. A summary ofthe Group's significant accounting policies will be included in the 2005 AnnualReport. Dashes have been used to indicate where changes in policy cause an itemto be not applicable and where there is no amount to report. 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 IFRS applicableto past, current and future periods, evolving practices with regard to theinterpretation and application of standards under IFRS, as well as UK domesticand global economic and business conditions, market related risks such aschanges in interest rates and exchange rates, the policies and actions ofgovernmental and regulatory authorities, changes in legislation, progress in theintegration of Absa into the Group's business and the achievement of synergytargets related to Absa, the outcome of pending and future litigation, and theimpact of competition - a number of which factors are beyond the Group'scontrol. As a result, the Group's actual future results may differ materiallyfrom the plans, goals, and expectations set forth in the Group's forward-lookingstatements. Any forward-looking statements made by or on behalf of Barclaysspeak only as of the date they are made. Barclays does not undertake to updateforward-looking statements to reflect any changes in Barclays expectations withregard thereto or any changes in events, conditions or circumstances on whichany such statement is based. The reader should, however, consult any additionaldisclosures that Barclays has made or may make in documents it has filed or mayfile with the SEC. 21st February 2006 "Barclays delivered strong and broadly based profit growth in 2005. Fortypercent of our profits came from outside the UK as our wholesale andinternational businesses performed particularly well and as we started tobenefit from the Absa acquisition. We made good progress in the UK, and are wellpositioned across the group for further growth in 2006." John Varley, Group Chief Executive SUMMARY OF KEY INFORMATION(1) ----------------------------- ---------------------------------------------- --------- ------- ---------Group Results 2005 2004 % Change £m £mTotal 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 3,447 3,254 6parent Economic profit 1,752 1,568 12 Earnings per share 54.4p 51.0p 7Proposed full year dividend per share 26.6p 24.0p 11 Post-tax return on average shareholders' equity 21.1% 21.7% £m £m % ChangeSummary of divisional profit before tax(2)UK Banking 2,455 2,265 8 -------- --------UK Retail Banking 1,027 963 7UK Business Banking 1,428 1,302 10 -------- --------Barclays Capital 1,272 1,020 25Barclays Global Investors 542 336 61Wealth Management 172 110 56Barclaycard 687 843 (19)International Retail and Commercial Banking (IRCB) 690 293 135 -------- --------IRCB - ex Absa 355 293 21IRCB - 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 18. PERFORMANCE SUMMARY • The financial results reflect progress in implementing our strategy: - Total income(1) up 23% to £17,333m - Profit before tax up 15% to £5,280m - Earnings per share up 7% to 54.4p - Dividend per share up 11% to 26.6p - Economic profit up 12% to £1,752m - Return on average shareholders' equity of 21%. • UK Banking produced good profit(2) growth, up 8% to £2,455m, and outperformed its productivity target for 2005 with the cost:income(1) ratio improving by three percentage points versus the target of two percentage points. UK Retail Banking delivered an improvement in profits driven by higher income and lower costs and UK Business Banking maintained strong growth. • Barclays Capital maintained its excellent performance, with profit(2) rising 25% to £1,272m. Profit growth reflected the success of past investments and higher customer driven revenues across a broad range of asset classes. The rate of profit growth exceeded the rate of growth in capital consumption. • Barclays Global Investors achieved outstanding results, with profit(2) up 61% to £542m, and delivered a strong investment performance. Net new assets under management were US$88bn. • Wealth Management profit(2) grew significantly, up 56% to £172m. This reflected balance sheet growth across the business, higher assets under management and client activity, and disciplined cost control. • Barclaycard profit(2) fell 19% to £687m. Strong income(1) growth was offset by a significant rise in impairment charges, principally in the UK card portfolios. Barclaycard profits were also adversely impacted by higher costs, mainly as a result of investment in Barclaycard US (previously Juniper), which is performing on plan. • International Retail and Commercial Banking excluding Absa achieved very strong growth with profit(2) up 21% to £355m. There were particularly good performances in European mortgages, African corporate lending and in the Spanish business. • Absa's performance was excellent, reflecting good balance sheet growth, strong levels of customer activity and a benign credit environment. Absa's contribution to profit(2) was £335m reflecting five months of ownership and the annualised return on investment before hedging and funding costs in this period was 13%. • The Group's results also reflect the benefits realised from other recent acquisitions, including Banco Zaragozano in Spain, Gerrard in the UK, Barclaycard US and the Iveco Finance business. • Group income growth(1) excluding Absa, of 16%, was very strong and well diversified by business, income type and geography. Non-interest income(1) excluding Absa rose 20% and represented over half of total income(1). • The increase in operating expenses excluding Absa was in line with comparable income(1) growth. The increase was driven by significant investment directed to the global product businesses, higher performance related expenses, the expansion of International Retail and Commercial Banking and head office relocation costs. This was partly offset by a strong focus on cost control and by good progress on UK Banking productivity goals. (1) Total income net of insurance claims.(2) Profit before tax. PERFORMANCE SUMMARY • Impairment charges and other credit provisions rose 44%. This reflected some large one-off releases and recoveries in 2004, the impact of acquisitions in 2005 and changes in methodology. Excluding these factors, the underlying rate of growth in impairment charges was 24%. Stable credit conditions in the wholesale and corporate businesses were more than offset by a deterioration in the retail businesses. This was driven principally by a continued steady increase in arrears balances and lower rates of recovery from customers in UK credit cards. Impairment charges rose at a slower rate in unsecured loans and were minimal in UK mortgages. • Barclays primary performance goal is to achieve top quartile total shareholder return. In the first two years of the 2004-2007 goal period Barclays was positioned 5th within its peer group(1), which is second quartile. Compound annual growth in economic profit of 18% over the first two years of the goal period is ahead of the target range (10%-13%). (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. FINANCIAL HIGHLIGHTS 2005 2004RESULTS £m £m---------Net interest income 8,075 6,833Net fee and commission income 5,705 4,847Principal transactions(1) 3,179 2,514Net premiums from insurance contracts 872 1,042Other income 147 131Total income 17,978 15,367Net claims and benefits paid on insurancecontracts (645) (1,259)Total income net of insurance claims 17,333 14,108Impairment charge and other credit provisions (1,571) (1,093)Net income 15,762 13,015Operating expenses (including amortisation (10,527) (8,536)of intangible assets)Share of post-tax results of associates andjoint ventures 45 56Profit on disposal of associates and jointventures - 45Profit before tax 5,280 4,580Profit attributable to equity holders of theparent 3,447 3,254Economic profit 1,752 1,568 PER ORDINARY SHARE p p--------------------Earnings 54.4 51.0Diluted earnings 52.6 49.8Proposed full year dividend 26.6 24.0Net asset value 269 246 PERFORMANCE RATIOS % %--------------------Post-tax return on average shareholders' equity 21.1 21.7Cost:income ratio(2) 61 61Cost:net income ratio(3) 67 66 As at 2005 01.01.05 2004BALANCE SHEET £m £m £mShareholders' equity excluding minorityinterests 17,426 15,287 15,870Minority interests 7,004 3,330 894Total shareholders' equity 24,430 18,617 16,764Loan capital 12,463 10,606 12,277Total capital resources 36,893 29,223 29,041Total assets 924,357 715,600 538,181Weighted risk assets 269,148 219,758 218,601 CAPITAL RATIOS % % %Tier 1 ratio 7.0 7.1 7.6Risk 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. GROUP CHIEF EXECUTIVE'S STATEMENT I am pleased to report that 2005 was another record year for Barclays. Profitbefore tax grew 15% to £5.3bn. We increased our dividend 11%. This performanceis the consequence of having a well-grounded and robust strategy, andimplementing it well. Our ambition is to position Barclays as one of the handful of universal banksleading the global industry. Our portfolio helps us to achieve this, throughdiversity in both business and geography. We have a simply stated business purpose: to help our customers and clientsachieve their goals. Our strategic priorities are derived from that businesspurpose. They are: building the best bank in the UK; accelerating the growth ofour global product businesses; developing retail and commercial bankingactivities in selected countries outside the UK; and enhancing operationalexcellence. In executing our strategy, we are clear about what we are seeking to achieve onbehalf of our owners: higher earnings growth. This is what drives our investmentpriorities, and what has guided us towards further international expansion. Theacquisition of a controlling stake in the South African bank, Absa GroupLimited, which we completed in 2005; the development of our other InternationalRetail and Commercial Banking businesses; and the continued rapid growth ofBarclays Capital, Barclays Global Investors and Barclaycard International - allof these are designed to enable us to grow faster by ensuring that we have agood spread of activities both by business and by geography. We have a clear view about sources of growth in the financial services industryover the coming years. We see significant growth opportunities in the UK but wesee at least as many internationally. Our selective diversification bygeography, by product, and by customer segment helps us improve financialperformance, reduce risk, and create opportunities for synergies in product andcapital. Our performance in 2005 has been underpinned by three strong pillars: ourportfolio of businesses; our geographical presence; and the talent and skills ofour people. Our portfolio UK Banking is a bellwether business for us. If Barclays is to achieve itsambitions, then UK Banking must perform well. We made good progress in UKBanking during 2005, and both of its components - UK Business Banking and UKRetail Banking - achieved encouraging profit growth. We have made a publiccommitment to improve the productivity of this business by two percentage pointsin each of 2005, 2006 and 2007, and we out-performed that goal in 2005. We know that UK Retail Banking presents us with a significant growthopportunity. Our recruitment of customers was good in 2005 - 400,000 new currentaccount holders, 250,000 new savings customers, and over 500,000 new registrantsfor online banking. The business is not yet performing as strongly as we intend,but we have identified opportunities for improvement and have enhanced theresource and skill that we are directing towards these. UK Business Banking had a good year. Its business model - based on relationshipmanagement and industry sector specialisation - positions it well to capturebusiness, and 2005 was busy and successful. Barclays Capital had another record year. Barclays Capital is a client focusedbusiness. Its performance is not particularly sensitive to the direction orabsolute level of interest rates but rather to levels of client activity. Wehave taken the simple formula of offering financing and risk management servicesto clients, and applied it with discipline to a steadily expanding array ofactivities. The business base has expanded quickly through the investment of thelast two years. As a result of growth in Asia, in continental Europe, and inNorth America, over 70% of Barclays Capital income comes from outside the UK. Wehave expanded the business in a way that demands both short term performance andmedium term returns. Profits have grown very strongly. Meanwhile, we haveincreased the range of our investment banking activities through the developmentof significant income streams in the areas of mortgage backed securities, equityproducts, commodities, and derivative products across all asset classes. Barclays Global Investors achieved outstanding results. Assets under managementnow exceed US$1.5 trillion. As in the case of Barclays Capital, we areunconstrained by market share and, in particular, we are seeing brisk growth inthe areas of fixed income, cash management and exchange traded funds. 2005 was ayear of strong headcount growth in Barclays Global Investors (BGI), whichreflects our confidence in the position which BGI has in the industry. Thisposition is underpinned by BGI's investment performance track record - which isoutstanding - and by demographics and the fiscal pressure on governments toprovide retirement solutions for their citizens. Our goal is to position our Wealth Management business as a leading Europeanwealth manager. This is a business undergoing rapid transformation. The pick-upin profits in the last two years has been striking, but the most importantfeature of our progress is good growth in the client base, in assets undermanagement and lending balances. In Barclaycard, the challenging consumer environment and consequent risingimpairment in the UK contrasted with stable credit conditions and very goodgrowth in other markets. Our strategy has been to diversify our cards andconsumer lending business, adding a partnerships business in the UK in recentyears (providing Sky TV customers with a credit card offering would be a goodexample of this in 2005) and rapidly expanding Barclaycard International. We nowhave nearly 4.5 million cards in issue in the International business. Growthprospects here are underpinned by the rapid development of Barclaycard US(previously Juniper) which we acquired at the end of 2004, by our joint venturein Scandinavia with Swedbank launched in 2005, and by the Zaragozano and Absaacquisitions. The customer base of International Retail and Commercial Banking grewsignificantly during 2005 as a result of the acquisition of Absa, which addedover 7 million new customers to the Group. This transaction was the largestinvestment we have ever made outside the UK. Absa is a very good bank, and it isperforming strongly. The expected synergies with our pre-existing South Africanactivities, and the introduction into Absa of specialist skills in the areas ofinvestment banking, small and mid-corporate banking and credit cards, make usconfident that Absa represents a significant source of earnings growth for ourshareholders in the future. Outside Absa, the rest of the International Retail and Commercial Bankingportfolio performed strongly. In particular, we continue to make rapid progressin our Spanish business, where the integration of Banco Zaragozano, acquired in2003, is proceeding well. Spain represents another good example of where we cantake a strong retail and commercial banking platform, develop it by acquisition,and use it to introduce additional service offerings to our customers throughcollaboration with Barclays Capital, Barclays Global Investors and Barclaycard. Our presence The second pillar of our activities is the business spread and geographicalpresence that we continue to build. We have two principal sources of earningsdiversification: the first is in core banking activities outside the UnitedKingdom, of which Africa and Spain would be the best examples. The second isthrough the development of our global product businesses; investment banking,asset management, wealth management and credit cards. In 2005, about 40% of our profits came from outside the United Kingdom. Overtime we would like to see this percentage increase. We expect the plans we havefor our existing portfolio of businesses to enable us to achieve anapproximately even balance between UK and international profits over the nextthree years. We believe that we should ensure that our shareholders, through investing inBarclays, have appropriate exposure to the fastest growing economies in theworld. By consequence, we continue to invest in Asia through Barclays Capitaland Barclays Global Investors, which represent our principal sources of activityin that part of the world. During 2005, we opened a branch in Shanghai, addingto our representative office in Beijing; and our Indian business grew quickly,in particular in the area of debt issuance on behalf of Indian companies. We are - and will continue to be - selective about where we do business. Thestandard we set ourselves is that where we choose to operate, we are in aposition to compete with the best in the world. Our people The third pillar of our business - our people - is fundamental to what we do.Barclays has been in business for over 300 years. The common thread runningthrough its long history is that of relationships, and strong businessrelationships depend on talented people. Recruiting, developing and retainingthe best people is a strategic imperative for us, and we direct a lot of timeand effort at nurturing what we call 'franchise health': in other words, thestanding of Barclays in the minds of our people, our customers and thecommunities in which we live and work. We measure our people's level ofengagement regularly through our employee opinion surveys. The results of the2005 survey continued the positive trend of recent years, with good progress inemployee engagement and pride in Barclays. Our investment in people reflects a broader cultural change in our business. Aswe grow and as we diversify, it is important that the people of Barclays reflectthe customers, clients and societies which we serve. Central to the serviceethic are two things: first that we must lift our performance, month by monthand year by year. This is an intensively competitive industry, and our customersand clients have the right to expect us to be good at what we do. Second, wetake pride in being successful, because if we are successful as an organisation,then we contribute significantly to the societies in which we work. It isimportant for all our stakeholders - be they pensioners, employees, customers orgovernments - that Barclays does well. Long term success, as well as good short term performance, depends on having theright strategy and executing it effectively. Our performance in 2005 shows thatwe are doing what we said we would. We have accelerated the pace at which weexecute our strategy because the strategy is a good one, and it is serving ourshareholders and customers well. It is good to be able to report record profits in 2005. However, it is moreimportant still to be able to say that a portfolio of good businesses, alongwith a growing geographical presence and the talent of great people, position uswell for the future. John VarleyGroup Chief Executive GROUP FINANCE DIRECTOR'S REVIEW Group performance Barclays delivered strong financial results in 2005. Profit before tax was£5,280m, an increase of 15% from 2004. Earnings per share rose 7%, and economicprofit(1) was up 12%. Return on average shareholders' funds was 21% and we haveincreased the total dividend payout 11%. Income(2) rose 23%, an increase which was broadly spread across the Group withmost businesses reporting double digit income growth and UK Retail Bankingreturning to modest top line growth. Operating expenses grew in line with income, reflecting significant investmentdirected to the global product businesses, higher performance-related expenses,the expansion of International Retail and Commercial Banking and head officerelocation. Excluding the first time contribution of Absa, income and operatingexpenses increased 16%. Impairment charges increased 44% to £1,571m (2004: £1,093m). This reflected somelarge one-off releases and recoveries in 2004, the impact of acquisitions in2005 and changes in methodology. Excluding these factors, the underlying rate ofgrowth in impairment charges was 24%, driven by a continued increase in arrearsbalances and lower rates of recovery from customers in UK credit cards.Impairment charges rose at a slower rate in unsecured loans and were minimal inUK mortgages. Wholesale and corporate credit conditions were stable. Business performance UK Banking produced good profit growth(3), up 8%, to £2,455m (2004: £2,265m) andoutperformed its productivity target for 2005 with the cost:income(2) ratioimproving by three percentage points. UK Retail Banking achieved solid income(2) growth of 4% in 2005, with a markedpick-up in the second half of the year which we believe establishes goodmomentum for 2006. Operating expenses decreased 3% through strong cost controlwhilst continuing targeted reinvestment to improve customer service and thebranch network. Profit before tax grew 7% to £1,027m (2004: £963m). Excludingthe gain on the sale of our stake in Edotech in 2004, underlying profit beforetax increased 12%. UK Business Banking profit before tax increased 10% to £1,428m (2004: £1,302m),driven by strong income and balance sheet growth. Operating expenses grew slowerthan income leading to an improved cost:income(2) ratio of 35%. Barclays Capital continued its very strong growth of recent years, with profitbefore tax in 2005 rising 25% to £1,272m (2004: £1,020m). Income(2) growth of 27% was broadly based across products and geographies. The year also saw continued investment in building Barclays Capital's scale and diversity in terms of geography, products and people. As a result of investment and the profitperformance, operating expenses grew 28%. Market risk was well-controlled withDVaR falling 6% to £32m as a result of increased diversification. The rate ofgrowth of earnings once again exceeded the rate of growth of capitalconsumption. Barclays Global Investors achieved outstanding results, with profit before taxrising 61% to £542m (2004: £336m), reflecting strong growth in net new assets,very good investment performance and a continuing improvement in operatingmargins. Income(2) growth of 48% was driven by significant increases in management fees, incentive fees, and securities lending revenues. Operating expenses rose 40%, reflecting higher performance based compensation and significant investment in the platform and in innovative new products. (1) Economic profit is defined on page 64.(2) Total income net of insurance claims.(3) Profit before tax. Wealth Management profit before tax rose 56% to £172m (2004: £110m) - a verystrong performance driven by broad based income(1) growth of 11% and improved cost efficiency. Operating expenses grew only 3% as efficiency savings fundedsignificant cost restructuring and investment programmes. Barclaycard profit before tax fell 19% to £687m (2004: £843m) driven by higherlevels of impairment in the UK and continued investment in the Internationalbusiness. Income(1) growth of 15% reflected good performances by the UK cards and loans businesses and very strong international growth. Operating expenses rose 21%, reflecting continued heavy investment in the business, particularlyinternationally. The Barclaycard US business, previously Juniper, grew stronglyin line with plans, and cards in Spain and Germany performed strongly. International Retail and Commercial Banking was transformed by the acquisitionof Absa. International Retail and Commercial Banking excluding Absa increasedprofit before tax 21% to £355m (2004: £293m). Income(1) growth of 20% reflectedstrong balance sheet growth in Europe and Africa. Operating expenses grew inline with income(1) as we accelerated the integration of Banco Zaragozano.Excluding integration costs, Barclays Spain increased profit before tax 25% to£156m (2004: £125m). We completed the acquisition of a majority stake in Absa Group Limited in July2005. Absa Group Limited reported 28% growth in profit before tax to R7,031m forthe 9 month period to 31st December 2005(2). For the 5 month period of Barclaysownership, Absa contributed £335m to profit before tax and the performance ofAbsa is well ahead of the business plan that underpinned the acquisition. Head office functions and other operations loss before tax increased to £532m(2004: £235m). This was driven by accounting adjustments to eliminateinter-segment transactions of £204m (2004: £69m) and non-recurring costs of£165m (2004: £32m) including the costs of head office relocation andwrite-off of capitalised IT related assets. International Financial Reporting Standards Barclays applied International Financial Reporting Standards (IFRS) with effectfrom 1st January 2004, with the exception of IAS 32, IAS 39 and IFRS 4, whichwere applied from 1st January 2005. The effect of these changes is pervasivethroughout these results. Where possible, and where the difference causes asignificant issue with interpretation, we have sought to identify thediscontinuities caused by different standards being applied from 1st January2005 and have reported balance sheet data for both 31st December 2004 as well as1st January 2005 in order to enable appropriate comparisons to be made. At Grouplevel, we believe the application of IAS 32, IAS 39 and IFRS 4 has not had amaterial impact on attributable profits or earnings per share but havesignificantly increased balance sheet footings. We have previously reported indetail on the line items which would be affected by IFRS and the outcomes havebeen consistent with our earlier expectations. (1) Total income net of insurance claims.(2) Absa has changed its financial year-end to 31st December to conform with Barclays. The comparable period comprises unaudited results for the nine months ended 31st December 2004. Capital strength 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 rating. At the end of 2005, our tier 1 capital ratio was 7.0% and our risk asset ratiowas 11.3%. Over the past two years we have consciously sought to address theextent to which we are carrying surplus capital and to use our resources moreintensively. In 2004, we bought back approximately £700m in shares and we havechanged the mix of our core capital in both 2004 and 2005 by introducingpreference shares into the capital base. In 2005, we acquired Absa Group Limitedwithout issuing ordinary equity, made a number of other smaller acquisitions,increased weighted risk assets 10% excluding Absa and paid dividends of £1.6bn.Despite this we ended the year with a tier 1 ratio only marginally changed fromthe level post the impact of IFRS at the beginning of the year. This resultedfrom the strong cash flow generation of our business portfolio and the efficientmanagement of the balance sheet through the use of the capital markets. During 2006 we expect continued strong growth in capital investment in ourbusinesses to support organic growth and for our tier 1 capital ratio to movetowards our target of 7.25% through the combination of the impact of retainedearnings and continued efficient use of the debt capital markets. Outlook We expect the UK economy to show reasonable growth in 2006, but the creditenvironment in the consumer sector is likely to remain challenging. Impairmentcharges in the UK small and medium business sector have been exceptionally lowin the recent past and may trend towards more normal levels in 2006. The healthyglobal economy should provide a positive backdrop for all our businesses thisyear. We start 2006 with strong income momentum throughout Barclays and thispositions us well for another year of good earnings growth. Naguib KherajGroup Finance Director CONSOLIDATED INCOME STATEMENT 2005 2004 Continuing operations £m £m -------- --------Interest income 17,232 13,880Interest expense (9,157) (7,047) -------- --------Net interest income 8,075 6,833 -------- --------Fee and commission income 6,430 5,509Fee and commission expense (725) (662) -------- --------Net fee and commission income 5,705 4,847 -------- --------Net trading income 2,321 1,487Net investment income 858 1,027 -------- --------Principal transactions 3,179 2,514Net premiums from insurance contracts 872 1,042Other income 147 131 -------- --------Total income 17,978 15,367Net claims and benefits paid on insurance contracts (645) (1,259) -------- --------Total income net of insurance claims 17,333 14,108Impairment charge and other credit provisions (1,571) (1,093) -------- --------Net income 15,762 13,015 -------- --------Operating expenses excluding amortisation of intangibleassets (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 56Profit on disposal of associates and joint ventures - 45 -------- --------Profit before tax 5,280 4,580Tax (1,439) (1,279) -------- --------Profit for the year 3,841 3,301 -------- -------- Profit attributable to minority interests 394 47Profit attributable to equity holders of the parent 3,447 3,254 -------- -------- 3,841 3,301 -------- -------- p pBasic earnings per ordinary share 54.4 51.0Diluted earnings per share 52.6 49.8 Paid and proposed dividends per ordinary share:Interim paid 9.20 8.25Final proposed 17.40 15.75 Interim dividend £582m £528mProposed final dividend £1,105m £1,001m CONSOLIDATED BALANCE SHEET As at 2005 01.01.05 2004Assets £m £m £mCash and balances at central banks 3,906 3,238 1,753Items in the course of collection from otherbanks 1,901 1,772 1,772Treasury bills and other eligible bills - - 6,658Trading 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 tocustomersunder investment contracts 83,193 63,124 -Derivative financial instruments 136,823 94,211 -Loans and advances to banks 31,105 25,728 80,632Loans and advances to customers 268,896 207,259 262,409Debt securities - - 130,311Equity shares - - 11,399Available for sale financial investments 53,497 48,097 -Reverse repurchase agreements and cashcollateral on securities borrowed 160,398 139,574 -Other assets 4,620 3,647 25,915Insurance assets including unit-linked assets 114 109 8,576Investments in associates and joint ventures 546 429 429Goodwill 6,022 4,518 4,518Intangible assets 1,269 139 139Property plant and equipment 2,754 2,282 2,282Deferred tax assets 686 1,641 1,388 -------- -------- --------Total assets 924,357 715,600 538,181 -------- -------- -------- CONSOLIDATED BALANCE SHEET As at 2005 01.01.05 2004Liabilities £m £m £mDeposits from banks 75,127 74,735 111,024Items in the course of collection due to otherbanks 2,341 1,205 1,205Customer accounts 238,684 194,478 217,492Trading portfolio liabilities 71,564 59,114 -Financial liabilities designated at fair value:- held on own account 33,385 5,320 -Liabilities to customers under investmentcontracts 85,201 64,609 -Derivative financial instruments 137,971 94,429 -Debt securities in issue 103,328 76,154 83,842Repurchase agreements and cash collateral onsecurities lent 121,178 98,582 -Other liabilities 11,131 9,869 82,936Current tax liabilities 747 621 621Insurance contract liabilities includingunit-linked liabilities 3,767 3,596 8,377Subordinated 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 6,113Deferred tax liabilities 700 1,397 1,362Other provisions for liabilities 517 403 416Retirement benefit liabilities 1,823 1,865 1,865 -------- -------- --------Total liabilities 899,927 696,983 521,417 -------- -------- -------- Shareholders' equityCalled up share capital 1,623 1,614 1,614Share premium account 5,650 5,524 5,524Available for sale reserve 225 314 -Cash flow hedging reserve 70 302 -Capital redemption reserve 309 309 309Other capital reserve 617 617 617Translation reserve 156 (58) (58)Retained earnings 8,957 6,784 7,983Less: treasury shares (181) (119) (119) -------- -------- --------Shareholders' equity excluding minorityinterests 17,426 15,287 15,870Minority 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 -------- -------- -------- 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: • 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 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, Mortgages, Small Business and UKPremier. This cluster of businesses aims to build broader and deeperrelationships with both existing and new customers. Personal Customers andMortgages provide a wide range of products and services to retail customers,including current accounts, savings, mortgages, and general insurance. SmallBusiness provides banking services to small businesses. UK Premier providesbanking, investment products and advice to affluent customers. UK Business Banking UK Business Banking provides relationship banking to Barclays larger and mediumbusiness customers in the United Kingdom. Customers are served by a network ofrelationship and industry sector specialist managers who provide local access toan extensive range of products and services, as well as offering businessinformation and support. Customers are also offered access to the products andexpertise of other businesses in the Group, particularly Barclays Capital. UKBusiness Banking provides asset financing and leasing solutions through aspecialist business. 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 credits, as well as hybrid capital products, asset basedfinance, commercial mortgage backed securities, credit derivatives, structuredcapital markets and large asset leasing; and Private Equity. 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. BGI alsoprovides 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 140 fundsfor institutions and individuals trading in eleven markets globally. BGI'sinvestment philosophy is founded on managing all dimensions of performance: aconsistent 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 andfinancial planning services. Wealth Management - closed life assurance activities Wealth Management - closed life assurance activities comprise the closed lifeassurance businesses of Barclays and Woolwich in the UK. Barclaycard Barclaycard is a multi-brand international credit card and consumer lendingbusiness; it is one of the leading credit card businesses in Europe. In the UK, Barclaycard manages the Barclaycard branded credit cards and othernon-Barclaycard branded card portfolios including Monument, SkyCard and SolutionPersonal Finance. In consumer lending, Barclaycard manages both secured andunsecured loan portfolios, through Barclays branded loans, being mostlyBarclayloan, and also through the FirstPlus and Clydesdale Financial Servicesbusinesses. Outside the UK, Barclaycard provides credit cards in the United States throughBarclaycard US (previously Juniper), Germany, Spain, Greece, Italy, Portugal anda number of other countries. In the Nordic region, Barclaycard operates throughEntercard, a joint venture with ForeningsSparbanken (Swedbank). Barclaycard Business processes card payments for retailers and issues purchasingand credit cards to business customers and to the UK Government. 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 internationalpersonal and corporate customers with banking services. The products andservices offered to customers are tailored to meet the regulatory and commercialenvironments within each country. For reporting purposes in 2005, the operationshave been grouped into two components: International Retail and CommercialBanking excluding Absa encompasses Barclays operations in continental Europe,Africa and the Middle East and the Caribbean joint venture; and InternationalRetail and Commercial Banking - Absa represents the total business of Absa GroupLimited 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 ofbanking services, including current accounts, savings, investments, mortgagesand 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 withother parts of the Group, including Barclaycard, UK Banking, Barclays Capitaland Barclays Global Investors, to leverage synergies from product and servicepropositions. International Retail and Commercial Banking - Absa Absa Group Limited is one of South Africa's largest financial servicesorganisations serving personal, commercial and corporate customers predominantlyin South Africa. Absa serves retail customers through a variety of distributionchannels and offers a full range of banking services, including basic bankaccounts, mortgages, instalment finance, credit cards, bancassurance productsand wealth management services; for commercial and large corporate customersAbsa offers customised business solutions. As at 31st December 2005, Barclaysowned 56.6% of Absa Group Limited's ordinary shares and has voting control. 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 arerecharged to them. Discontinued businesses in transition principally relate to Middle Easterncorporate banking businesses and airline leasing activities. These businessesare 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 2005 2004 £m £mUK Banking 2,455 2,265 -------- --------UK Retail Banking 1,027 963UK Business Banking 1,428 1,302 -------- --------Barclays Capital 1,272 1,020Barclays Global Investors 542 336Wealth Management 172 110Wealth Management - closed life assurance activities (6) (52)Barclaycard 687 843International Retail and Commercial Banking 690 293 -------- --------International Retail and Commercial Banking - ex Absa 355 293International Retail and Commercial Banking - Absa 335 - -------- --------Head office functions and other operations (532) (235) -------- --------Profit before tax 5,280 4,580Tax (1,439) (1,279) -------- --------Profit for the year 3,841 3,301Profit attributable to minority interests (394) (47) -------- --------Profit attributable to equity holders of the parent 3,447 3,254 -------- -------- TOTAL ASSETS AND WEIGHTED RISK ASSETS Total assets As at 2005 01.01.05 2004 £m £m £mUK Banking 141,190 131,392 122,380 -------- -------- --------UK Retail Banking 69,193 71,850 71,647UK Business Banking 71,997 59,542 50,733 -------- -------- --------Barclays Capital 581,865 454,437 346,901Barclays Global Investors 80,900 61,371 968Wealth Management 6,094 5,659 5,616Wealth Management - closed life assuranceactivities 7,276 6,551 6,425Barclaycard 25,771 23,186 23,367International Retail and CommercialBanking 73,589 28,780 28,505 -------- -------- --------International Retail and CommercialBanking - ex Absa 34,195 28,780 28,505International Retail and CommercialBanking - 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 As at 2005 01.01.05 2004 £m £m £mUK Banking 94,195 92,590 91,913 -------- -------- --------UK Retail Banking 32,298 37,835 37,111UK Business Banking 61,897 54,755 54,802 -------- -------- --------Barclays Capital 96,095 79,511 79,949Barclays Global Investors 1,659 1,233 1,230Wealth Management 4,467 4,187 4,018Wealth Management - closed life assurance - - -activitiesBarclaycard 20,438 21,595 20,188International Retail and CommercialBanking 50,071 18,701 19,319 -------- -------- --------International Retail and CommercialBanking - ex Absa 21,637 18,701 19,319International Retail and CommercialBanking - 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 impactof securitisations, can be found on page 59. UK Banking 2005 2004 £m £mNet interest income 3,990 3,477Net fee and commission income 1,776 1,936 -------- --------Net trading income - -Net investment income 31 5 -------- --------Principal transactions 31 5Net premiums from insurance contracts 280 249Other income 26 37 -------- --------Total income 6,103 5,704Net claims and benefits on insurancecontracts (58) (46) -------- --------Total income net of insurance claims 6,045 5,658Impairment charge and other credit provisions (344) (199) -------- --------Net income 5,701 5,459 -------- --------Operating expenses excluding amortisation ofintangible assets (3,240) (3,239)Amortisation of intangible assets (3) (2) -------- --------Operating expenses (3,243) (3,241)Share of post-tax results of associates andjoint ventures (3) 5Profit on disposal of associates and jointventures - 42 -------- --------Profit before tax 2,455 2,265 -------- -------- Cost:income ratio 54% 57%Cost:net income ratio 57% 59% Risk Tendency £450m £375mReturn on average economic capital 33% 35% Economic profit £1,219m £1,158m As at 2005 01.01.05 2004 Loans and advances to customers £129.1bn £119.6bn £114.1bnCustomer accounts £133.6bn £124.6bn £114.8bnTotal assets £141.2bn £131.4bn £122.4bnWeighted risk assets £94.2bn £92.6bn £91.9bn Key Facts 2005 2004 Number of UK branches 2,029 2,061 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 pointsper 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 Bankinghas continued to make good progress towards achieving its strategic aims ofdelivering integrated banking solutions to customers, enhancing the customerservice experience, capturing revenue growth opportunities and improvingproductivity. UK Retail Banking 2005 2004 £m £mNet interest income 2,174 2,059Net fee and commission income 1,112 1,123 -------- --------Net trading income - -Net investment income 9 1 -------- --------Principal transactions 9 1Net premiums from insurance contracts 280 249Other income 17 26 -------- --------Total income 3,592 3,458Net claims and benefits on insurance contracts (58) (46) -------- --------Total income net of insurance claims 3,534 3,412Impairment charge and other credit provisions (142) (60) -------- --------Net income 3,392 3,352Operating expenses (2,359) (2,433)Share of post-tax results of associates andjoint ventures (6) 2Profit on disposal of associates and jointventures - 42 -------- --------Profit before tax 1,027 963 -------- -------- Cost:income ratio 67% 71%Cost:net income ratio 70% 73% Risk Tendency £170m £150mReturn on average economic capital 34% 32% Economic profit £557m £473m As at 2005 01.01.05 2004 Loans and advances to customers £63.6bn £66.0bn £65.6bnCustomer accounts £77.6bn £73.1bn £72.4bnTotal assets £69.2bn £71.9bn £71.7bnWeighted risk assets £32.3bn £37.8bn £37.1bn Key Facts 2005 2004 Personal Customers--------------------Number of UK current accounts 11.1m 10.7mNumber of UK savings accounts 10.8m 10.6mTotal UK mortgage balances (residential) £59.6bn £61.7bn Small Business and UK Premier-------------------------------Number of Small Business customers 592,000 566,000Number of UK Premier customers 286,000 273,000 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 ondisposal 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 forthe first half of 2005. There was good growth in current accounts, SmallBusiness and UK Premier, whilst income from retail savings was weaker. Theapplication of IAS 32 and IAS 39 from 1st January 2005, in particular EffectiveInterest Rate requirements, resulted in the reclassification of certain lendingrelated fees from net fee and commission income to net interest income. Net interest income increased 6% (£115m) to £2,174m (2004: £2,059m). Growth wasdriven by higher contributions from Mortgages and Small Business, partly offsetby some margin pressure on savings and deposits. Excluding the impact of theapplication of IAS 32 and IAS 39 from 1st January 2005, net interest incomeincreased 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 whichresulted in an improved new business spread. Gross advances were £11.5bn whichrepresented a market share of 4%. The loan to value ratio within the mortgagebook on a current valuation basis averaged 35% (2004: 35%). There was strongbalance growth in non-mortgage loans, as Small Business average loan balancesincreased 14% and within Personal Customers, average overdraft balancesincreased 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 growthin Small Business average deposits of 5%. Within Personal Customers, retailsavings average balances increased 5% and current account average balancesincreased 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 from1st January 2005. Excluding this impact, net fee and commission income growthwas 5%. There was strong growth in current account fees, including a highercontribution from value-added Additions accounts. UK Premier delivered stronggrowth reflecting higher income from investment advice. There was also goodgrowth from Small Business, including higher income from money transmission. Income from principal transactions was £9m (2004: £1m) representing the gain onthe sale of the investment in Gresham, an insurance underwriting business, aheadof 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 earlytermination of contracts. Adjusting for this, income was slightly lower as aresult of reduced insurance take-up on consumer loans. Impairment charges increased 137% (£82m) to £142m (2004: £60m). Excluding UKmortgage releases (£40m in 2004 and £10m in 2005) impairment charges increased52% (£52m) to £152m (2004: £100m). The increase principally reflected somedeterioration in the delinquency experience and balance growth in overdrafts andsmall 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). Thesuccessful execution of initiatives focused on reducing back and middle officeexpenditure continued. Regulatory costs reduced in 2005. Despite continuedinvestment in the business, the cost:income ratio improved four percentagepoints to 67% (2004: 71%). UK Business Banking 2005 2004 £m £mNet interest income 1,816 1,418Net fee and commission income 664 813 -------- --------Net trading income - -Net investment income 22 4 -------- --------Principal transactions 22 4Other income 9 11 -------- --------Total income 2,511 2,246Impairment charge and other credit provisions (202) (139) -------- --------Net income 2,309 2,107 -------- --------Operating expenses excluding amortisation ofintangible assets (881) (806)Amortisation of intangible assets (3) (2) -------- --------Operating expenses (884) (808)Share of post-tax results of associates andjoint ventures 3 3 -------- --------Profit before tax 1,428 1,302 -------- -------- Cost:income ratio 35% 36%Cost:net income ratio 38% 38% Risk Tendency £280m £225mReturn on average economic capital 32% 38% Economic profit £662m £685m As at 2005 01.01.05 2004 Loans and advances to customers £65.5bn £53.6bn £48.5bnCustomer accounts £56.0bn £51.5bn £42.4bnTotal assets £72.0bn £59.5bn £50.7bnWeighted risk assets £61.9bn £54.8bn £54.8bn Key Facts 2005 2004 Total number of Business Banking customers 183,000 179,000Customers registered for online banking/BusinessMaster 70,100 66,900 UK Business Banking profit before tax increased 10% (£126m) to £1,428m (2004:£1,302m), driven by strong income growth. Both Larger Business and MediumBusiness performed well in highly competitive markets and maintained theirrespective shares of primary banking relationships. In June 2005, UK BusinessBanking completed the acquisition of a 51% stake in Iveco Finance. Total income increased 12% (£265m) to £2,511m (2004: £2,246m), driven by strongbalance sheet growth. The application of IAS 32 and IAS 39 from 1st January2005, in particular Effective Interest Rate requirements, resulted in thereclassification of certain lending related fees from net fee and commissionincome to net interest income. Net interest income increased 28% (£398m) to £1,816m (2004: £1,418m). Excludingthe impact of the application of IAS 32 and IAS 39 from 1st January 2005, netinterest income increased by 13%. Balance sheet growth was very strong. The application of IAS 32 and IAS 39 from1st January 2005 has resulted in the grossing up of previously netted positions(assets and liabilities subject to master netting agreements). As at 31stDecember 2005 these balances were £8.9bn. Average lending balances (excludingpreviously netted balances) increased 23% to £54.9bn (2004: £44.6bn), with goodcontributions from all business areas and in particular large corporates. IvecoFinance 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. Excluding theimpact of the structural hedge the liabilities margin declined modestly. 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 incomeincreased 8%, as a result of higher lending and transaction fees. Income from principal transactions was £22m (2004: £4m). The majority of theincrease represented gains on equity investments. Impairment charges increased £63m to £202m (2004: £139m). Excluding the impactof a £57m recovery in the second half of 2004, the impairment charge was broadlystable. Corporate credit conditions remained steady during 2005 with potentialcredit risk loans unchanged, despite very strong loan growth. Operating expenses increased 9% (£76m) to £884m (2004: £808m), reflecting volumegrowth, increased expenditure on front line staff and the costs of Iveco Financesince acquisition. The cost:income ratio improved one percentage point to 35%(2004: 36%). Barclays Capital 2005 2004 £m £mNet interest income 926 991Net fee and commission income 724 603 -------- --------Net trading income 2,194 1,463Net investment income 401 297 -------- --------Principal transactions 2,595 1,760Other income 25 21 -------- --------Total income 4,270 3,375Impairment charge and other credit provisions (103) (102) -------- --------Net income 4,167 3,273 -------- --------Operating expenses excluding amortisation ofintangible 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 £85m £70mReturn on average economic capital 34% 35% Average net income per member of staff ('000) £496 £481 Economic profit £619m £521m As at 2005 01.01.05 2004 Total assets £581.9bn £454.4bn £346.9bnWeighted risk assets £96.1bn £79.5bn £79.9bn Key Facts(1) 2005 2004 League League table Issuance table Issuance position value position valueGlobal all debt 4th $329.2bn 4th $284.0bnEuropean all debt 2nd $221.6bn 1st $174.2bnAll international bonds (all currencies) 2nd $183.6bn 3rd $148.7bnAll international bonds (Euros) 4th €70.1bn 6th €59.0bnSterling bonds 1st £23.0bn 1st £18.5bnUS investment grade bonds 5th $9.9bn 10th $4.8bn (1) League tables compiled by Barclays Capital from external sources includingDealogic and Thomson Financial. Barclays Capital delivered record profit before tax and net income. Profitbefore tax increased 25% (£252m) to £1,272m (2004: £1,020m) as a result of thevery strong income performance driven by higher business volumes and clientactivity 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 ofstrong growth across Rates and Credit Businesses. Income by asset category wasbroadly based with particularly strong growth delivered by credit products,commodities, currency products and equity products. Income by geography was wellspread with significant growth in the US. Areas of investment in 2004, such ascommodities, commercial mortgage backed securities and equity derivatives,performed well, delivering significant income growth. Market risk was wellcontrolled with average DVaR falling 6% to £32m (2004: £34m) as a result ofincreased diversification across asset classes. Secondary income, comprising principal transactions (net trading income and netinvestment income) and net interest income, is mainly generated from providingfinancing 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 verystrong contributions across the Rates and Credit Businesses; commodities,foreign exchange, fixed income and credit derivatives performed particularlywell. These results were driven by the continued return on prior yearinvestments and higher volumes of client led activity across a broad range ofproducts and geographical regions. Net investment income increased 35% (£104m)to £401m (2004: £297m) driven by realisations from credit products. Net interestincome decreased 7% (£65m) to £926m (2004: £991m) reflecting flattening yieldcurves and the impact of IAS 32 and IAS 39. Primary income, comprising net fee and commission income from advisory andorigination activities, grew 20% (£121m) to £724m (2004: £603m). This reflectedhigher volumes and continued market share gains in a number of key markets, withstrong performances from both bonds and loans. Other income of £25m (2004: £21m) primarily reflected income from operatingleases. Impairment charges of £103m (2004: £102m) were in line with the prior yearreflecting the stable wholesale credit environment. Operating expenses increased 28% (£642m) to £2,895m (2004: £2,253m), reflectinghigher business volumes and the ongoing costs associated with staff hired during2004 and 2005 as part of the business expansion plan. Performance related costsincreased due to the strong profit performance. Investment expenditure,primarily in the front office, continued to be significant although less than2004 as headcount growth slowed. The cost:net income ratio remained stable at69% (2004: 69%). Total staff costs to net income of 56% was in line with 2004levels. Approximately half of operating expenses comprised performance relatedpay, 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). Growthoccurred across all regions with over half of the increase in the front office,spread across product, client coverage and distribution. Barclays Global Investors 2005 2004 £m £mNet interest income 17 5Net fee and commission income 1,297 882 -------- --------Net trading income 2 3Net investment income 4 3 -------- --------Principal transactions 6 6Other income - - -------- --------Total income 1,320 893 -------- --------Operating expenses excluding amortisation ofintangible assets (775) (555)Amortisation of intangible assets (4) (1) -------- --------Operating expenses (779) (556)Share of post-tax results of associates andjoint 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 Return on average economic capital 248% 166% Economic profit £299m £195m As at 2005 01.01.05 2004 Total assets £80.9bn £61.4bn £1.0bnWeighted risk assets £1.7bn £1.2bn £1.2bn Key Facts 2005 2004 Number of institutional clients 2,800 2,600Assets under management:-indexed £586bn £478bn-active £198bn £147bn-managed cash and other £97bn £84bnTotal assets under management £881bn £709bnTotal assets under management (US$) $1,513bn $1,362bnNet new assets in period £48bn £58bnNumber of iShares products 149 132Total iShares assets under management(1) £113bn £68bn (1) Included in indexed assets Barclays Global Investors (BGI) delivered another year of outstanding financialresults, achieving record revenues and profit before tax. The performance wasspread across a diverse range of products, distribution channels andgeographies. Profit before tax increased 61% (£206m) to £542m(2004: £336m) reflecting substantial income growth and focused investment spend. Net fee and commission income increased 47% (£415m) to £1,297m (2004: £882m),driven by significant increases in management, incentive and securities lendingrevenues. Higher margin assets under management, strong investment performanceand higher market levels contributed to the significant income growth, which wasstrong across all areas, particularly in the active and iShares businesses. Investment performance remained very good for the majority of active funds asthey outperformed their respective benchmarks. The growth in global iSharescontinued at pace, with related assets under management up 66% (£45bn) to £113bn(2004: £68bn). Operating expenses increased 40% (£223m) to £779m (2004: £556m) as a result ofhigher performance based expenses, significant investment in key growthinitiatives and ongoing investment in infrastructure required to supportbusiness growth. The cost:income ratio improved to 59%(2004: 62%). Total headcount rose by 400 to 2,300 (2004: 1,900). Headcount increased in allregions, across product groups and the support functions, reflecting theinvestments made to support strategic initiatives. Total assets under management increased 24% (£172bn) to £881bn (2004: £709bn).The growth included £48bn of net new assets, £53bn attributable to favourableexchange rate movements and £71bn as a result of market movements. In US$ 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, partiallyoffset by adverse exchange rate movements of US$58bn. BGI manages assetsdenominated in numerous currencies although the majority are held in US dollars. Wealth Management 2005 2004 £m £mNet interest income 335 303Net fee and commission income 589 529 -------- --------Net trading income - -Net investment income 5 - -------- --------Principal transactions 5 -Other income (1) 7 -------- --------Total income 928 839Impairment charge and other credit provisions (2) 1 -------- --------Net income 926 840 -------- --------Operating expenses excluding amortisation ofintangible 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 £5m £5mReturn on average economic capital 38% 32% Average net income per member of staff ('000) £129 £119 Economic profit £109m £70m As at 2005 01.01.05 2004 Loans and advances to customers £4.7bn £4.2bn £4.1bnCustomer accounts £23.1bn £21.4bn £21.3bnTotal assets £6.1bn £5.7bn £5.6bnWeighted risk assets £4.5bn £4.2bn £4.0bn Key Facts 2005 2004 Total customer funds £78.3bn £70.8bnMulti-Manager assets (included above) £6.0bn £1.6bn 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) reflectingstrong growth in loans and deposits. Total average customer deposits increased12% to £23.0bn (2004: £20.6bn) driven by strong growth from offshore and privatebanking 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). Theincrease was driven principally by sales of investment products to privatebanking and financial planning clients, stronger equity markets and higherclient transaction volumes. Operating expenses increased 3% (£24m) to £754m (2004: £730m). The business isbeing re-organised to establish an integrated global operating model andefficiency savings have enabled the funding of significant restructuringexpenditure and the initiation of major investment programmes in people andinfrastructure. The cost:income ratio improved six percentage points to 81%(2004: 87%). The integration of the Gerrard business continued to make good progress withprofits 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 assetsincreased to £6.0bn (31st December 2004: £1.6bn); this growth included existing customer assets. Wealth Management - closed life assurance activities 2005 2004 £m £mNet interest income (13) (53)Net fee and commission income 44 - -------- --------Net trading income - -Net investment income 259 596 -------- --------Principal transactions 259 596Net premiums from insurance contracts 195 362Other income 11 4 -------- --------Total income 496 909Net claims and benefits on insurance contracts (375) (818) -------- --------Total income net of insurance claims 121 91Operating expenses (127) (143) -------- --------Loss before tax (6) (52) -------- -------- Cost:income ratio 105% 157% Return on average economic capital (3)% (53)% Economic loss £(7)m £(77)m As at 2005 01.01.05 2004Total assets £7.3bn £6.6bn £6.4bn Wealth Management closed life assurance activities loss before tax reduced to£6m (2004: loss of £52m) predominantly due to lower funding and redress costs in2005. Profit before tax excluding customer redress costs was £79m (2004: £45m). From 1st January 2005, following the application of IAS 39 and IFRS 4, lifeassurance products are divided into investment contracts and insurancecontracts. Investment income from assets backing investment contracts, and thecorresponding movement in investment contract liabilities, has been presented ona net basis in other income. In addition, these standards have impacted thereporting of net claims and benefits paid. Total income decreased to £496m (2004: £909m), largely due to the application ofIFRS. The decrease was offset by a broadly similar reduction in net claims andbenefits. Operating expenses decreased 11% (£16m) to £127m (2004: £143m). Costs relatingto redress for customers decreased to £85m (2004: £97m) and other operatingexpenses decreased 9% (£4m) to £42m (2004: £46m). Barclaycard 2005 2004 £m £mNet interest income 1,773 1,600Net fee and commission income 972 790Net premiums from insurance contracts 24 22 -------- --------Total income 2,769 2,412Net claims and benefits on insurance contracts (7) (5) -------- --------Total income net of insurance claims 2,762 2,407Impairment charge and other credit provisions (1,098) (761) -------- --------Net income 1,664 1,646 -------- --------Operating expenses excluding amortisation ofintangible assets (961) (804)Amortisation of intangible assets (17) (3) -------- --------Operating expenses (978) (807)Share of post-tax results of associates andjoint ventures 1 4 -------- --------Profit before tax 687 843 -------- -------- Cost:income ratio 35% 34%Cost:net income ratio 59% 49% Risk Tendency £1,100m £860mReturn on average economic capital 16% 24% Economic profit £183m £350m As at 2005 01.01.05 2004 Loans and advances to customers £24.0bn £22.2bn £22.3bnTotal assets £25.8bn £23.2bn £23.4bnWeighted risk assets £20.4bn £21.6bn £20.2bn Key Facts 2005 2004 Number of Barclaycard UK customers 11.2m 11.2mNumber of retailer relationships 93,000 90,000UK credit cards - average outstanding balances £10.1bn £9.6bnUK credit cards - average extended credit £8.6bn £8.2bnbalancesUK loans - average consumer lending balances £10.3bn £9.4bnInternational - average extended credit £1.8bn £0.9bnbalancesInternational - cards in issue 4.3m 2.9m Barclaycard profit before tax decreased 19% (£156m) to £687m (2004: £843m) asstrong income growth was more than offset by higher impairment charges andincreased costs from the continued development of the International business.Excluding Barclaycard US (previously Juniper), which was acquired in December2004, 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 loansbusinesses and Barclaycard Business, and by very strong momentum ininternational cards. Excluding Barclaycard US, income increased 10%. Theapplication of IAS 32 and IAS 39 from 1st January 2005, in particular theEffective Interest Rate requirements, resulted in the reclassification of feeand commission expenses to net interest income. Net interest income increased 11% (£173m) to £1,773m (2004: £1,600m) as a resultof growth in average balances, although the rate of growth in the UK slowedduring 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, international average extended creditbalances increased 26%. UK average consumer lending balances increased 10% to£10.3bn (2004: £9.4bn). Margins in the cards business improved during 2005 to7.96% (2004: 7.34%) due to the impact of increased card rates and a reducedproportion of total balances on promotional offers. Margins in consumer lendingfell to 4.96% (2004: 6.27%), due to the impact of IAS 32 and IAS 39, competitivepressure and a change in the product mix. Excluding the impact of theapplication of IAS 32 and IAS 39, net interest income increased 14%. Net fee and commission income increased 23% (£182m) to £972m (2004: £790m) as aresult of the inclusion of Barclaycard US and increased contributions fromBarclaycard 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 increasewas driven by a rise in delinquent balances, lower rates of recovery fromcustomers, the inclusion of Barclaycard US, and an increase in the size of theaverage loan book. Excluding Barclaycard US, impairment charges increased 38%.The increases arose in the UK businesses as a result of the industry wide creditexperience during 2005. Within the portfolio, the greater increase arose in theUK cards business; impairment charges in the consumer lending business increasedat a lower rate. Non-performing loans increased significantly, driven by thegrowth in delinquent balances. Operating expenses rose 21% (£171m) to £978m (2004: £807m) mostly as a result ofthe inclusion of Barclaycard US. Excluding Barclaycard US, operating expensesrose 7% reflecting continued investment in the UK and continental European cardbusinesses and the development of the UK Partnerships business. Barclaycard International performed strongly, with Germany and Spain deliveringexcellent results. In June Barclaycard formed a new joint venture with Swedbankto develop a card business in the Nordic region; the business is performing inline with expectations. Excluding Barclaycard US, Barclaycard Internationalprofit before tax was £26m (2004: £8m), with income ahead 22%. Barclaycard USperformance and integration proceeded in line with expectations, with stronggrowth in balances and customers and the establishment of a number of newpartnerships. The loss before tax for Barclaycard US was £56m (2004: loss of£2m). International Retail and Commercial Banking 2005 2004 £m £mNet interest income 1,096 534Net fee and commission income 711 288 -------- --------Net trading income 40 -Net investment income 150 135 -------- --------Principal transactions 190 135Net premiums from insurance contracts 227 300Other income 62 25 -------- --------Total income 2,286 1,282Net claims and benefits on insurance contracts (205) (390) -------- --------Total income net of insurance claims 2,081 892Impairment charge and other credit provisions (33) (31) -------- --------Net income 2,048 861 -------- --------Operating expenses excluding amortisation ofintangible assets (1,356) (616)Amortisation of intangible assets (48) (1) -------- --------Operating expenses (1,404) (617)Share of post-tax results of associates andjoint ventures 46 49 -------- --------Profit before tax 690 293 -------- -------- Cost:income ratio 67% 69%Cost:net income ratio 69% 72% Risk Tendency £195m £65mReturn on average economic capital 23% 21% Economic profit £238m £111m As at 2005 01.01.05 2004 Loans and advances to customers £54.3bn £20.8bn £20.7bnCustomer accounts £33.4bn £9.5bn £10.1bnTotal assets £73.6bn £28.8bn £28.5bnWeighted risk assets £50.1bn £18.7bn £19.3bn 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, lifeassurance products are divided into investment contracts and insurancecontracts. Investment income from assets backing insurance contracts, and thecorresponding movement in investment contract liabilities, has been presented ona net basis in other income. In addition, these standards have impacted thereporting of net claims and benefits paid. Also the application of IAS 32 andIAS 39 from 1st January 2005, in particular the Effective Interest Raterequirements, resulted in the reclassification of certain lending related feesfrom net fee and commission income to net interest income. International Retail and Commercial Banking - excluding Absa 2005 2004 £m £mNet interest income 582 534Net fee and commission income 377 288 -------- --------Net trading income 31 -Net investment income 88 135 -------- --------Principal transactions 119 135Net premiums from insurance contracts 129 300Other income 23 25 -------- --------Total income 1,230 1,282Net claims and benefits on insurance contracts (161) (390) -------- --------Total income net of insurance claims 1,069 892Impairment charge and other credit provisions (13) (31) -------- --------Net income 1,056 861 -------- --------Operating expenses excluding amortisation ofintangible assets (734) (616)Amortisation of intangible assets (6) (1) -------- --------Operating expenses (740) (617)Share of post-tax results of associates andjoint ventures 39 49 -------- --------Profit before tax 355 293 -------- -------- Cost:income ratio 69% 69%Cost:net income ratio 70% 72% Risk Tendency £75m £65mReturn on average economic capital 20% 21% Economic profit £115m £111m As at 2005 01.01.05 2004 Loans and advances to customers £25.4bn £20.8bn £20.7bnCustomer accounts £10.4bn £9.5bn £10.1bnTotal assets £34.2bn £28.8bn £28.5bnWeighted risk assets £21.6bn £18.7bn £19.3bn Key Facts 2005 2004 Number of international branches 798 830Number of Barclays Africa and the Middle Eastcustomer accounts 1.3m 1.4mNumber of Barclays Europe customers 0.8m 0.7mNumber of European mortgage customers 229,000 153,000European mortgages - average balances (Euros) €21.2bn €16.9bnEuropean assets under management (Euros) €22.6bn €17.1bn International Retail and Commercial Banking excluding Absa performed strongly,with profit before tax increasing 21% (£62m) to £355m (2004: £293m). Theperformance 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), reflectingstrong balance sheet growth in Europe, Africa and the Middle East, and thedevelopment of the corporate businesses in Spain. Total average customer loans increased 28% to £22.8bn (2004: £17.8bn). Mortgagebalance growth in continental Europe was particularly strong with average Eurobalances up 25%. Average lending balances in Africa and the Middle Eastincreased 34%. Changes in the overall product mix, as a result of growth inEuropean mortgages and competitive pressures in key European markets contributedto 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). Thisreflected a strong performance from the Spanish funds business, where assetsunder management increased 15%, together with good growth in France, includingthe 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 incomeincreased 25%. Principal transactions reduced to £119m (2004: £135m), reflecting the change inaccounting for insurance business, partly offset by investment realisationsduring 2005 including a gain of £23m from the redemption of preference shares inFirstCaribbean. Impairment charges decreased 58% (£18m) to £13m (2004: £31m), mainly as a resultof releases and recoveries in Africa and the Middle East. In Europe, chargesremained broadly stable. Operating expenses increased 20% (£123m) to £740m (2004: £617m). The increasewas in line with the growth in income, and was due to higher integration costsin Spain, the continued expansion of the business in Africa and the Middle East,investments in the European distribution network, particularly in Portugal andItaly, and the acquisition of the ING Ferri business in France. The cost:incomeratio remained stable at 69% (2004: 69%). Barclays Spain continued to perform very strongly with profit before tax, preintegration costs, up 25% to £156m (2004: £125m). This was driven by thecontinued realisation of benefits from the accelerated integration of BancoZaragozano, 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 increasedstrongly in Italy and Portugal reflecting strong customer acquisition andincreased business volumes. France performed well as a result of good organicgrowth 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 thebusinesses, particularly in Egypt, United Arab Emirates and South Africa andlower impairment charges. The post-tax profit from associates decreased £10m to £39m (2004: £49m) due to alower contribution from FirstCaribbean. The underlying performance in 2005 wasstronger; Barclays results in 2004 included £28m relating to the gain made byFirstCaribbean on the sale of shares in Republic Bank Limited. International Retail and Commercial Banking - Absa Period from 27th July until 31st December 2005 £mNet interest income 514Net fee and commission income 334 --------Net trading income 9Net investment income 62 --------Principal transactions 71Net premiums from insurance contracts 98Other income 39 --------Total income 1,056Net claims and benefits on insurance contracts (44) --------Total income net of insurance claims 1,012Impairment 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 £120mReturn on average economic capital 33% Economic profit £123m Loans and advances to customers £28.9bnCustomer accounts £23.0bnTotal assets £39.4bnWeighted risk assets £28.4bn Key Facts 2005 Number of branches 718Number of ATMs 5,835Number of retail customers 7.6mNumber of corporate customers 82,000 Absa's profit before tax for the period from 27th July 2005 was £335m. Onconsolidation into Barclays results, a charge of £42m has been taken for theamortisation of intangible assets and is included within operating expenses. Theconsolidated results for Absa represent 100% of earnings, 43.4% of which isattributable to minority interests. This is deducted from Barclays results asprofit attributable to minority interests. Absa Group Limited continued to perform strongly and today reported profitbefore tax for the nine months to 31st December 2005 of R7,031m. This was anincrease of 28% over the comparable(1) period of 2004 and reflected excellentperformances across all business lines. The performance was driven by lendinggrowth of 27% on an annualised basis and the recruitment of 800,000 new retailcustomers over the period. The results also benefited from a favourable economicand equity market environment, the low levels of impairment charges and includedequity investment gains of R270m. Absa Group Limited experienced good net interest income growth in the periodsince acquisition from the personal, commercial and wholesale businesses. Theareas of strongest balance sheet growth were mortgages, credit cards andinstalment finance as the retail credit environment remained strong. The performance in net fees and commission income was driven by good retailcustomer transaction volume growth and a strong performance from insurancerelated activities. This growth was partly offset by income reclassification dueto the implementation of IFRS. Principal transactions growth was predominantly driven by higher treasurytrading income. Impairment charges for the period were low reflecting the benign creditenvironment, a reduction in non-performing loans and a higher level of releasesand recoveries. Operating expenses grew as Absa Group Limited invested in the expansion andimprovement of the branch and ATM network and in customer service initiatives,including increased staff numbers. Expense growth also reflected higher volumesand regulatory programme expenditure. The integration of Absa Group Limited progressed well. Included in Absa GroupLimited's results for 2005 are R211m (£18m)(2) of integration costs, R67m (£6m)(2) of sustainable pre-tax synergy benefits and R30m (£3m)(2) of one-off benefits. Total revenue and cost synergies identified to date are expected to improve Absa Group Limited's pre-tax profits by approximately R1.4 billion per annum four years after the completion of the transaction. Implementation costs totalling R1.8 billion are expected to be incurred over the first three years. (1) Absa has changed its financial year-end to 31st December to conform with Barclays. The comparable period comprises unaudited results for the nine months ended 31st December 2004.(2) Calculated using an average exchange rate of R/£ of 11.47, since the date of acquisition. Head office functions and other operations 2005 2004 £m £mNet interest expense (49) (24)Net fee and commission expense (408) (181) -------- --------Net trading income 85 21Net investment income 8 (9) -------- --------Principal transactions 93 12Net premiums from insurance contracts 146 109Other income 24 37 -------- --------Total income (194) (47)Impairment release/(charge) and other creditprovisions 9 (1) -------- --------Net loss (185) (48) -------- --------Operating expenses excluding amortisation ofintangible assets (343) (175)Amortisation of intangible assets (4) (14) -------- --------Operating expenses (347) (189)Share of post-tax results of associates and jointventures - 2 -------- --------Loss before tax (532) (235) -------- -------- Risk Tendency £10m £20m As at 2005 01.01.05 2004 Total assets £7.7bn £4.2bn £4.0bnWeighted risk assets £2.2bn £1.9bn £2.0bn Head office functions and other operations loss before tax increased £297m to£532m (2004: loss £235m), reflecting the elimination of inter-segmenttransactions and increased operating expenses. Group segmental reporting is prepared in accordance with Group accountingpolicies. This means that inter-segment transactions are recorded in eachsegment as if undertaken on an arms length basis. Consolidation adjustmentsnecessary to eliminate the inter-segment transactions, including adjustments toeliminate the timing differences on the recognition of inter-segment income andexpenses, 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 premiumsincluded in Barclaycard and UK Banking amounting to £113m (2004: £nil). In UK Banking, captive insurers pay commissions to other businesses for theintroduction of short term payment protection insurance. The recognition ofcommissions payable is generally spread over the term of the insurance to matchthe fact that claims arise over the term of the insurance. In Barclaycard, introducer commissions received from UK Banking's captiveinsurers are recognised as 'Net fees and commission' income at the time theservice is provided. This is on the basis that the introducer carries none ofthe 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 ofany policy. In 2004 and prior years, Barclaycard dealt with third party underwriters butfrom the start of 2005 this activity was undertaken with the captive insuranceoperation within UK Banking. In Head office functions and other operations, consolidation adjustments aremade: • 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: internalfees for structured capital markets activities arranged by Barclays Capital of£67m (2004: £63m); and the fees paid to Barclays Capital for capital raising andrisk management advice of £50m (2004: £nil). Previously capital raising feeswere amortised over the life of the capital raising and taken as a charge to netinterest 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 hedgingrelated transactions in Treasury. The hedge ineffectiveness from 1st January2005, together with other related Treasury adjustments, amounted to a gain of£18m (2004: £nil) and was reported in net interest income. The cost of hedgingthe 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 thetransition businesses. Operating expenses rose £158m to £347m (2004: £189m) and included non-recurringcosts 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 rose by £25m, representing anincrease of 16%. This information is provided by RNS The company news service from the London Stock Exchange

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