11th May 2005 07:01
Barclays PLC11 May 2005 IFRS Transition Report 2004/2005 BARCLAYS PLC TABLE OF CONTENTS Section 1 - IFRS ResultsIntroduction Consolidated income statement Consolidated balance sheet Results by business Results by nature of income and expense Analysis of amounts included in the balance sheets Group performance ratios Total assets and weighted risk assets Capital ratios Additional information Section 2 - UK GAAP/IFRS reconciliationsSpecial purpose audit report Basis of preparation Provisional accounting policies Detailed reconciliations Income statement reconciliations Balance sheet reconciliations Differences between UK GAAP and IFRS Other information The information in this announcement does not comprise statutory accounts withinthe meaning of Section 240 of the Companies Act 1985 (the 'Act'). Statutoryaccounts for the year-ended 31st December 2004, which also include certaininformation required for the joint Annual Report on Form 20-F of Barclays PLCand Barclays Bank PLC to the US Securities and Exchange Commission (SEC), havebeen delivered to the Registrar of Companies in accordance with Section 242 ofthe Act. 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 "anticipate","target", "expect", "estimate", "intend", "plan", "goal", "believe", or otherwords of similar meaning. By their nature, forward-looking statements involverisk and uncertainty because they relate to future events and circumstances,including, but not limited to, the further development of standards andinterpretations under IFRS applicable to past, current and future periods,evolving practices with regard to the interpretation and application ofstandards under IFRS and pending tax elections with regards to certainsubsidiaries, as well as UK domestic and global economic and businessconditions, market related risks such as changes in interest rates and exchangerates, the policies and actions of governmental and regulatory authorities,changes in legislation, 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 including its most recent Annual Report on Form 20-F. INTRODUCTION This Transition Report (the 'Report') sets out the financial results of BarclaysPLC under International Financial Reporting Standards (IFRS) from 1st January2004. The Report is prepared in accordance with the transitional provisions setout in IFRS 1, 'First-time Adoption of International Financial ReportingStandards', and other relevant standards and is based on the application of IFRSexpected to apply as at 31st December 2005. The Report provides certain restated comparative data in a format based on theusual presentation layout of Results Announcements. It also summarises the mainpolicy differences between UK GAAP and IFRS as currently expected to apply andsets out the Group's provisional accounting policies for the year ending 31stDecember 2005. Whilst the change in accounting standards has no impact on the underlyingeconomics or risk of the business, the 2004 results under IFRS are differentfrom the Group's previously provided 2004 results under UK GAAP. Commencing withreporting for 2005, there will be additional impacts arising from the first-timeapplication of IAS 32 (Financial Instruments: Disclosure and Presentation), IAS39 (Financial Instruments: Recognition and Measurement) and IFRS 4 (InsuranceContracts). The 2004 results under UK GAAP announced on 11th February 2005 are restated inthis document. These restated 2004 financial results will, subject to possiblechanges arising as the application of IFRS develops, form the comparatives thatwill be used for 2005 performance discussions, commencing with the TradingUpdate on 26th May 2005. However, since the standards relating to financialinstruments and insurance contracts have not been applied to 2004, thesecomparatives are significantly different from the numbers to be reported from1st January 2005. In this Report all comparisons, unless otherwise stated, are between thefinancial results under IFRS and the previously reported UK GAAP data for thecorresponding period or date. Profit comparisons at the divisional level arebased on the analysis of results by business division previously provided inResults Announcements which excluded goodwill amortisation. IFRS Results: Income Statement The 2004 IFRS income statement shows a reduction in profit before tax of £23mfrom the reported 2004 UK GAAP figure of £4,603m. Earnings per share for 2004 onan IFRS basis were 51.0p as against 51.2p under UK GAAP. The magnitude of the change to total operating income and costs under IFRS in2004 is principally the result of the requirement to consolidate the insurancebusinesses, including life assurance, on a line by line basis rather than theprevious recognition of the change in embedded value and net premium oninsurance underwriting within other operating income. For 2004, thispresentation increased operating income by £1,401m and created net claims andbenefits on insurance contracts of £1,310m (treated as costs under IFRS) andadded £142m to operating expenses. From 2005 the income statement will be affected by the implementation of IAS 32/39 including those impacts relating to liability and equity classifications,hedging, impairment and effective interest calculations. In addition IFRS 4requires the separation of investment and insurance contracts. To the extentthat such contracts are identified as being of an investment nature they havebeen classified accordingly and consequently the amounts payable to customerswill be offset against the income received on underlying assets. Over half ofthe life assurance activities of the Group will therefore be accounted for asinvestment business in 2005, whereas all is accounted for as insurance businessin 2004. IFRS Results: Balance Sheet The balance sheet restatements cover all previously reported balance sheets for2004 and also the opening balance sheet for 2005, which includes the impacts offinancial instruments and insurance contracts. The aggregate differences betweenthe UK GAAP balance sheet as at 31st December 2004 and the IFRS balance sheet at1st January 2005 are significant in terms of the categorisation and magnitude ofbalances recorded. Balance sheet assets under IFRS as at 1st January 2005 total£716bn, an increase of £193bn over those reported under UK GAAP as at 31stDecember 2004, primarily as a result of the application of IAS 32 and 39. Themost significant adjustments in terms of balance sheet totals are: • The grossing up of previously netted positions (primarily derivative assets and liabilities subject to master netting agreements, repurchase contracts and cash collateral balances), amounting to £120bn; • The recognition of balances relating to certain asset management products offered to institutional pension funds which are required to be recognised as financial instruments, amounting to £65bn; and • The consolidation of conduit financing vehicles, amounting to £12bn. IFRS Results: Total Shareholders' Equity Total shareholders' equity (including minority interests) at 1st January 2005 of£18.6bn is £0.2bn higher than the combined shareholders' funds and minorityinterests under UK GAAP at 31st December 2004. Excluding minority interests the shareholders' equity under IFRS is £15.2bn at1st January 2005, a reduction of £2.2bn compared to shareholders' funds under UKGAAP at 31st December 2004. At 1st January 2005, retained earnings and otherreserves are £2.8bn lower than the profit and loss reserve under UK GAAP at 31stDecember 2004. This is partially offset by increases to shareholders' equitywhich arise from the creation of unrealised reserves relating to available forsale securities (£0.3bn) and cash flow hedges (£0.3bn). The reduction in retained earnings includes the following significant impacts: • Pensions - the elimination of all UK GAAP pensions entries and creation of a net deficit for all Group schemes (reduction in retained earnings of £1.8bn); • UK Life Fund - the move from an Embedded Value accounting treatment to the Modified Statutory Solvency Basis (total reduction in retained earnings of £0.6bn arising from the insurance businesses); and • Dividends - under IFRS dividends are recognised when approved by shareholders, rather than in the period to which they relate (increase in retained earnings of £1.0bn). • Financial instruments - the re-stating of financial instruments moved from debt to equity under IFRS, at exchange rates prevailing at the date of issue, rather than at the exchange rate at 31st December 2004 (reduction in retained earnings of £0.4bn). Minority interests have increased by £2.4bn consequent on the inclusion ofReserve Capital Instruments (RCIs) and certain other capital instrumentspreviously recorded as debt. IFRS Results: Regulatory Capital The impacts of changes in shareholders' equity are not reflected in changes inregulatory capital on a strictly equivalent basis. The Financial ServicesAuthority in the UK ('FSA') which is Barclays' lead regulator has issued policystatement 05/5 on the interpretation of IFRS related changes which affect theregulatory capital outcome. We have also sought individual guidance on a numberof areas where the outcome required clarification. The impact on the Tier 1 Capital ratio as at 1st January 2005 is a reductionfrom 7.6% to 7.1%. The Group's Risk Asset Ratio under IFRS as at 1st January 2005 is 11.9% comparedto 11.5% under UK GAAP as at 31st December 2004. This increase primarilyreflects the Group's ability to include collectively assessed impairmentallowances in Tier 2 capital, replacing the similarly treated UK GAAP generalprovisions. Hedging While the introduction of IFRS has had little impact on the Group's economichedging activities, IAS 39 significantly changes hedge accounting by specifyingthe accounting methods and introducing stringent conditions on when hedgeaccounting can be applied. IAS 39 sets out three forms of hedge accounting: cashflow hedge accounting, fair value hedge accounting and hedges of net investmentsin overseas entities. All forms of hedge accounting result in hedgingderivatives being carried at fair value in the balance sheet. To the extent thatthe hedge is effective, cash flow hedge accounting and hedges of net investmentsresult in the gains and losses on the hedging instruments being taken initiallyto equity and subsequently recycled to the income statement in the same periodsas the hedged items affect profit or loss. Fair value hedge accounting resultsin the gain or loss on the hedged item attributable to the hedged risk adjustingthe carrying amount of the hedged item and being recognised immediately in theincome statement. Ineffective elements of hedges are recognised immediately inthe income statement. IFRS hedge accounting can be contrasted with UK GAAP where hedging derivativesmay be carried at cost and income is recognised on an accruals basis to matchthe hedged items. IFRS hedge accounting will not only result in additional assetand liability amounts being recognised on the balance sheet, but the incomestatement will also include more variability due to hedge ineffectiveness andeconomic hedges that do not meet the stringent hedge accounting conditions. Incomparison with UK GAAP, cash flow hedge accounting will result in equityvolatility and fair value hedge accounting will result in additional fair valueamounts being included in the balance sheet and additional income statementvolatility. IFRS hedge accounting has been applied prospectively to all hedges designatedand documented as at 1st January 2005. This results in the creation of aninitial cash flow hedging reserve and the recognition of fair value movements onitems subject to fair value hedge accounting. In addition, qualifying UK GAAPhedged positions result in adjustments to the carrying amount of financialassets and liabilities as at 1st January 2005 to reflect this hedging. Update from December 2004 Analyst and Investor Briefing In December 2004, the Group provided a briefing to analysts and investors on theanticipated impact of IFRS. In that briefing, indicative rounded estimates weregiven in order to convey the direction and approximate scale of the impacts ofIFRS based broadly on 2003 results. As anticipated, the numbers provided in thatbriefing are different from those reflected in the Report due to: • Market movements;• Finalisation of 2004 UK GAAP results; and• Clarification of accounting and regulatory treatments. The December briefing indicated that, excluding the impacts of the standards onfinancial instruments and insurance, the Group's profit before tax would riseunder IFRS by approximately £75m. The actual impact on the 2004 income statementis a £23m decline in reported profit before tax. The principal reason for thisdifference is that the embedded value result of the closed life assuranceactivities under UK GAAP for 2004 was higher than anticipated and ahead of 2003. The December briefing also indicated a reduction in shareholders' equityexcluding minority interests of £1.3bn. This report indicates a reduction of£2.2bn which is analysed on pages 65 to 79.Movements since the presentation include: • A reduction from the impact of re-stating financial instruments moved from debt to equity under IFRS, at exchange rates prevailing at the date of issue, rather than at the exchange rate at 31st December 2004; • An increased negative impact from the IFRS pensions treatment; • A reduction arising from the clarification of accounting treatments surrounding certain capital market transactions, which resulted in timing differences over the recognition of profits; and • A reduction arising from the application of a revised income profile to certain loan insurance activities. In relation to minority interests, the December briefing highlighted an expectedincrease of £1.6bn arising from the reclassification of Reserve CapitalInstruments from debt to equity. This increase has now risen to £2.4bnreflecting the reclassification of £0.4bn of Tier 2 capital as equity and afurther £0.4bn from the requirement to translate all of these issues at theexchange rate prevailing on their date of issue. The instruments are classifiedas minority interests because they are issued by a subsidiary. Implications for 2005 It is expected that the Group's results for 2005 will also reflect thefollowing: • Closed life assurance activities - the move to Modified Statutory Solvency Basis of accounting, which is effectively an accruals basis of accounting for these activities, should result in less volatility than under embedded value accounting and a profit before endowment redress costs and tax of about £45m is expected for 2005, similar to the result in 2004 on a comparable basis; • IAS 32 and 39 - some of this impact is relatively predictable such as Effective Interest Rate which is expected to reduce profit before tax by about £60m and which will involve interest-related fees and costs being included in net interest rather than in fees and commissions. Other elements are inherently unpredictable, such as: the profit impact from the continuation of the Group's economic structural hedging position, which will depend upon the effectiveness of the hedging; and the level of the impairment allowance, which will be more volatile in response to changes in the external environment; • Insurance underwriting - the Group transferred some loan insurance underwriting activities in house at the beginning of 2005. Under the previous arrangement the Group recognised sales commissions at the point of sale of the loan but no underwriting income as the underwriting was carried by third parties. The new arrangement has long-term economic benefits for the Group but results in a timing difference in income recognition because the income will be recognised over the life of the loans. The relevant business lines will record the sales commission and the underwriting income in line with that which would apply to a third party arms length agreement. On consolidation, an adjustment will be made to align the total result with the required insurance accounting under IFRS. The change is expected to have a negative impact of about £80m on income in 2005; and • Instruments classified as minority interests - instruments classified as debt under UK GAAP to minority interests under IFRS with the associated funding cost moving from interest expense to the minority interest line in the income statement. The combined impact is an expected increase in profit before tax of approximately £145m. The post tax benefit is offset by an increase in profit attributable to minority interests of a similar amount. Group Goals 2004 marked the start of the Group's new four-year goal period covering 2004 to2007 inclusive. The primary goal is to achieve top quartile Total ShareholderReturn (TSR). The Group continues to believe that achievement of a compoundannual growth rate of 10-13% in economic profit calculated on a consistent basisover the four-year goal period is likely to be required for the achievement ofthe primary goal. The introduction of IFRS has necessitated a review of the derivation of economiccapital in the calculation of economic profit resulting in items being excludedwhich do not represent cash movements in shareholders' equity. Additionally, theGroup has determined that the cost of capital for goodwill carried in relationto the acquisition of the Woolwich, previously charged at 8.5% should be broughtinto line with the Group's overall cost of capital at 9.5%. This has the effectof reducing economic profit for 2004 by £41m. The impact of all of these changes(set out in detail on pages 36 and 37) and of IFRS on the income statement, isto decrease economic profit for 2004 from £1,885m, as reported in February 2005,to £1,568m as reported here. Business Performance Reporting The Group's performance by business division is set out on pages 10 to 21. Thepresentation differs from that which was provided in the Annual Report for 2004in the following respects: • The Private Clients and International Retail and Commercial Banking businesses which were formerly aggregated are now reported as distinct business divisions, reflecting the revised management structure; • The results for the Private Clients - closed life assurance activities are provided separately from those for the rest of Private Clients. The introduction of IFRS requires that the results of the life assurance activities are recorded on a line by line basis rather than the previous single line presentation. As a result of this, it is now considered appropriate to report this activity separately; and • The 2004 results of Barclaycard and UK Retail Banking have been restated to reflect the 2005 change in allocation of branch network costs and insurance sales between the two divisions. This has the impact of increasing Barclaycard's profit before tax by £59m and reducing UK Banking's profit before tax by the same amount. Following the line by line consolidation of insurance activities in the incomestatement, the cost:income ratios have been redefined as follows: • The cost:income ratio is defined as operating expenses plus net claims and benefits compared to total operating income; • The operating expenses:income less net claims ratio is defined as operating expenses compared to total operating income less net claims and benefits on insurance contracts; and • The operating expenses:net income less net claims ratio is defined as operating expenses compared to net operating income less net claims and benefits on insurance contracts. Further Developments in IFRS Reporting The information in this document has been prepared on the basis of the Group's expectation of the standards that will be applicable as at 31st December 2005. Future Group financial information prepared on the basis of IFRS may differ from the data contained herein for the following reasons: • Further standards and interpretations may be issued that are applicable for 2005 reporting or which are applicable to later accounting periods but with an option to adopt for earlier periods. Specifically we anticipate that the European Union may enable the adoption of the Exposure Draft (ED) amendments to IAS 39 covering the use of fair values for non-trading financial liabilities. If available for use in 2005, the Group would consider adopting this ED, which would have the effect of increasing retained earnings by £70m at 1st January 2005; • Different practice may develop with regard to interpretation and application of the standards; and • The relevant tax legislation is not final and consequently tax balances could change as elections are made in respect of a large number of subsidiaries. CONSOLIDATED INCOME STATEMENT Year- ended Half-year ended 31.12.04 31.12.04 30.06.04Continuing operations £m £m £mInterest income 13,880 7,315 6,565Interest expense (7,047) (3,815) (3,232) -------- -------- --------Net interest income 6,833 3,500 3,333 -------- -------- --------Fee and commission income 5,560 2,887 2,673Fee and commission expense (662) (329) (333) -------- -------- --------Net fee and commission income 4,898 2,558 2,340 -------- -------- --------Net trading income 1,487 684 803Net investment income 1,048 725 323 -------- -------- --------Principal transactions 2,535 1,409 1,126Net premiums from insurance contracts 1,042 506 536Other operating income 110 64 46 -------- -------- --------Total operating income 15,418 8,037 7,381Impairment loss on loans and advances andother credit risk provisions (1,093) (504) (589) -------- -------- --------Net operating income 14,325 7,533 6,792Net claims and benefits on insurancecontracts (1,310) (896) (414)Operating expenses (8,536) (4,562) (3,974)Share of results of associates and jointventures 56 42 14Profit on disposal of associates and jointventures 45 - 45 -------- -------- --------Profit before tax 4,580 2,117 2,463Tax (1,279) (634) (645) -------- -------- --------Profit for the year 3,301 1,483 1,818 -------- -------- -------- Profit attributable to minority interests 47 27 20Profit attributable to shareholders 3,254 1,456 1,798 -------- -------- -------- 3,301 1,483 1,818 -------- -------- -------- p p pBasic earnings per ordinary share 51.0 23.0 28.0 Diluted earnings per ordinary share 50.7 22.8 27.9 CONSOLIDATED BALANCE SHEET As at 01.01.051 31.12.04 30.06.04 01.01.04Assets £m £m £m £mCash and balances atcentral banks 3,238 1,753 1,829 1,726Items in the course ofcollection fromother banks 1,772 1,772 2,527 2,006Treasury bills and othereligible bills 6,658 6,547 7,177Trading portfolio assets 113,241Non-trading financialinstruments fair valued through profit and loss:- held on own account 2,367- held in respect oflinked liabilities tocustomers underinvestment contracts 63,124Derivative financialinstruments 94,340Loans and advances tobanks 25,728 80,632 83,034 66,993Loans and advances tocustomers 210,959 262,409 252,053 230,772Debt securities 130,311 119,840 99,896Equity shares 11,399 8,599 7,094Available for salefinancial investments 48,491Reverse repurchaseagreements and cashcollateral on securitiesborrowed 139,574Other assets 3,595 25,915 21,344 22,728Insurance assets,including unit-linkedassets 153 8,576 8,165 8,274Investments inassociates and jointventures 429 429 442 438Goodwill 4,518 4,518 4,398 4,393Intangible assets 139 139 62 64Property, plant andequipment 2,282 2,282 2,108 2,123Deferred tax assets 1,642 1,388 1,383 1,348 -------- -------- -------- --------Total assets 715,592 538,181 512,331 455,032 -------- -------- -------- -------- 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39and IFRS 4 which have not been applied to the 2004 comparatives, in accordancewith IFRS 1. CONSOLIDATED BALANCE SHEET As at 01.01.051 31.12.04 30.06.04 01.01.04Liabilities £m £m £m £mDeposits from banks 74,735 111,024 115,836 94,092Items in the course ofcollection due toother banks 1,205 1,205 1,442 1,286Customer accounts 194,488 217,492 206,170 184,796Trading portfolioliabilities 59,114Liabilities to customersunder investment contracts 64,609Derivative financialinstruments 95,218Debt securities in issue 80,754 83,842 69,431 61,469Repurchase agreementsand cash collateral onsecurities lent 98,582Other liabilities 9,859 82,936 79,546 74,068Current tax liabilities 621 621 697 514Insurance contractliabilities, includingunit-linked liabilities 3,596 8,377 7,944 8,023Subordinated liabilities:- Undated loan capital - non convertible 4,208 6,149 6,233 6,310- Dated loan capital - convertible to preference shares 15 15 15 17- Dated loan capital - non convertible 6,383 6,113 6,220 6,012Deferred tax liabilities 1,365 1,362 1,284 1,257Other provisions forliabilities 403 416 329 380Retirement benefitliabilities 1,865 1,865 2,028 1,885 -------- -------- -------- --------Total liabilities 697,020 521,417 497,175 440,109 -------- -------- -------- -------- Shareholders' equityCalled up share capital 1,614 1,614 1,613 1,642Share premium account 5,524 5,524 5,437 5,417Less: treasury shares (119) (119) (115) (84)Available for sale reserve 314Cash flow hedging reserve 302Capital redemption reserve 309 309 305 274Other capital reserve 617 617 617 617Translation reserve (58) (58) (43) -Retained earnings 6,739 7,983 7,164 6,774 -------- -------- -------- --------Shareholders' equity excludingminority interests 15,242 15,870 14,978 14,640Minority interests 3,330 894 178 283 -------- -------- -------- --------Total shareholders' equity 18,572 16,764 15,156 14,923 -------- -------- -------- -------- -------- -------- -------- --------Total liabilities andshareholders' equity 715,592 538,181 512,331 455,032 -------- -------- -------- -------- 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39and IFRS 4 which have not been applied to the 2004 comparatives, in accordancewith IFRS 1. Results by business The following section analyses the Group's performance by business. Profit attributable to shareholders UK GAAP Year- Year- ended ended Half-year ended 31.12.04 31.12.04 31.12.04 30.06.04 £m £m £m £mUK Banking 2,415 2,265 1,103 1,162 -------- -------- -------- --------UK Retail Banking 1,068 963 405 558UK Business Banking 1,347 1,302 698 604 -------- -------- -------- --------International Retail andCommercial Banking 311 293 148 145Barclaycard 860 843 384 459Barclays Capital 1,042 1,020 432 588Barclays Global Investors 347 336 185 151Private Clients 144 110 46 64Private Clients-closed lifeassurance activities (4) (52) (51) (1)Head office functions and otheroperations (206) (235) (130) (105) -------- -------- -------- --------Profit before tax and UK GAAP goodwill amortisation 4,909 4,580 2,117 2,463 -------- -------- -------- --------Goodwill amortisation (306) - - - -------- -------- -------- --------Profit before tax 4,603 4,580 2,117 2,463Tax (1,289) (1,279) (634) (645) -------- -------- -------- --------Profit for the year 3,314 3,301 1,483 1,818Profit attributable to minorityinterests (46) (47) (27) (20) -------- -------- -------- --------Profit attributable toshareholders 3,268 3,254 1,456 1,798 -------- -------- -------- -------- The presentation of results by business differs from that provided in 2004 inthe following respects: • International Retail and Commercial Banking and Private Clients are reported as completely separate business divisions and not aggregated, reflecting changes in management accountability; • The results for the Private Clients-closed life assurance activities are provided separately from those for the rest of Private Clients. The introduction of IFRS requires that the results of the life assurance activities are recorded on a line by line basis rather than the previous single line presentation. In order that the presentation of the underlying financial performance is not distorted, it is considered appropriate to report the life assurance activity separately; and • The 2004 results of Barclaycard and UK Retail Banking have been restated to reflect the 2005 change in allocation of branch network costs and insurance sales between the two divisions. This has the impact of increasing Barclaycard's profit before tax by £59m and reducing UK Banking's profit before tax by the same amount. The share of results of associates and joint ventures is reported after taxunder IFRS. Following the line by line consolidation of insurance activities in the incomestatement, the cost:income ratios have been redefined as follows: • The cost:income ratio is defined as operating expenses plus net claims and benefits compared to total operating income; • The operating expenses:income less net claims ratio is defined as operating expenses compared to total operating income less net claims and benefits on insurance contracts; and • The operating expenses:net income less net claims ratio is defined as operating expenses compared to net operating income less net claims and benefits on insurance contracts. UK Banking Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Net interest income 3,477 1,780 1,697 Net fee and commission income 1,936 974 962 -------- -------- -------- Net trading income - - - Net investment income 5 4 1 -------- -------- -------- Principal transactions 5 4 1 Net premiums from insurance contracts 249 100 149 Other operating income 37 31 6 -------- -------- -------- Total operating income 5,704 2,889 2,815 Impairment loss on loans and advances and other credit risk provisions (199) (46) (153) -------- -------- -------- Net operating income 5,505 2,843 2,662 Net claims and benefits on insurance contracts (46) (20) (26) Operating expenses (3,241) (1,722) (1,519) Share of results of associates and joint ventures 5 2 3 Profit on disposal of associates and joint 42 - 42 ventures -------- -------- -------- Profit before tax 2,265 1,103 1,162 -------- -------- -------- Memo - UK GAAP profit before tax excluding goodwill amortisation (as restated)2,415 1,186 1,229 -------- -------- -------- Cost:income ratio 58% 60% 55% Operating expenses:income less net claims ratio 57% 60% 54% Operating expenses:net income less net claims ratio 59% 61% 58% Loans and advances to customers (period £114.1bn £114.1bn £109.1bn end) Customer accounts (period end) £114.8bn £114.8bn £113.1bn Total assets £119.6bn £119.6bn £114.4bn Return on average economic capital 34% 32% 35% Economic profit 1,158 565 593 The reduction in profit before tax is mainly due to the increased costs associated with share based payments and pensions, which have also resulted in an increase in the cost:income ratios. The non-life insurance activities are presented on separate income statement lines, although the net result is not changed by the introduction of IFRS. In 2004, UK Banking announced that it is targeting cost:income ratio improvements of 2% per annum in 2005, 2006 and 2007. The relevant comparator for this target is the operating expenses:income less net claims ratio based on a starting point of 57%. UK Retail Banking Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Net interest income 2,059 1,046 1,013 Net fee and commission income 1,123 554 569 -------- -------- -------- Net trading income - - - Net investment income 1 1 - -------- -------- -------- Principal transactions 1 1 - Net premiums from insurance contracts 249 100 149 Other operating income 26 22 4 -------- -------- -------- Total operating income 3,458 1,723 1,735 Impairment loss on loans and advances and other credit risk provisions (60) 2 (62) -------- -------- -------- Net operating income 3,398 1,725 1,673 Net claims and benefits on insurance contracts (46) (20) (26) Operating expenses (2,433) (1,300) (1,133) Share of results of associates and joint ventures 2 - 2 Profit on disposal of associates and joint ventures 42 - 42 -------- -------- -------- Profit before tax 963 405 558 -------- -------- -------- Memo - UK GAAP profit before tax excluding goodwill amortisation (as restated) 1,068 468 600 -------- -------- -------- Cost:income ratio 72% 77% 67% Operating expenses:income less net claims ratio 71% 76% 66% Operating expenses:net income less net claims ratio 73% 76% 69% Loans and advances to customers (period £65.6bn £65.6bn £64.4bn end) Customer accounts (period end) £72.4bn £72.4bn £70.7bn Total assets £68.9bn £68.9bn £67.3bn Return on average economic capital 31% 25% 36% Economic profit 473 183 290 The reduction in profit before tax is mainly due to the increased costs associated with share based payments and pensions, which have also resulted in an increase in the cost:income ratios. UK Business Banking Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Net interest income 1,418 734 684 Net fee and commission income 813 420 393 -------- -------- -------- Net trading income - - - Net investment income 4 3 1 -------- -------- -------- Principal transactions 4 3 1 Other operating income 11 9 2 -------- -------- -------- Total operating income 2,246 1,166 1,080 Impairment loss on loans and advances and other credit risk provisions (139) (48) (91) -------- -------- -------- Net operating income 2,107 1,118 989 Operating expenses (808) (422) (386) Share of results of associates and joint ventures 3 2 1 -------- -------- -------- Profit before tax 1,302 698 604 -------- -------- -------- Memo - UK GAAP profit before tax excluding goodwill amortisation 1,347 718 629 -------- -------- -------- Cost:income ratio 36% 36% 36% Operating expenses:net income ratio 38% 38% 39% Loans and advances to customers (period £48.5bn £48.5bn £44.7bn end) Customer accounts (period end) £42.4bn £42.4bn £42.4bn Total assets £50.7bn £50.7bn £47.1bn Return on average economic capital 37% 38% 35% Economic profit 685 382 303 The reduction in profit before tax is mainly due to the increased costs associated with share based payment and pensions, which have also resulted in an increase in the cost:income ratios. International Retail and Commercial Banking Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Net interest income 534 277 257 Net fee and commission income 288 145 143 -------- -------- -------- Net trading income - - - Net investment Income 135 71 64 -------- -------- -------- Principal transactions 135 71 64 Net premiums from insurance contracts 300 155 145 Other operating income 25 12 13 -------- -------- -------- Total operating income 1,282 660 622 Impairment loss on loans and advances and other credit risk provisions (31) (12) (19) -------- -------- -------- Net operating income 1,251 648 603 Net claims and benefits paid on insurance contracts (390) (208) (182) Operating expenses (617) (330) (287) Share of results of associates and joint ventures 49 38 11 -------- -------- -------- Profit before tax 293 148 145 -------- -------- -------- Memo - UK GAAP profit before tax excluding goodwill amortisation 311 167 144 -------- -------- -------- Cost:income ratio 79% 82% 75% Operating expenses:income less net claims ratio 69% 73% 65% Operating expenses:net income less net claims ratio 72% 75% 68% Loans and advances to customers (period £20.7bn £20.7bn £17.6bn end) Customer accounts (period end) £10.1bn £10.1bn £9.7bn Total assets £28.4bn £28.4bn £25.1bn Return on average economic capital 20% 22% 18% Economic profit 111 54 57 The reduction in full-year profit before tax is mainly due to the increased costs associated with share based payments and pensions. The 2004 income statement presentation under IFRS includes separate line items relating to the insurance businesses: net premiums from insurance contracts and net claims and benefits paid on insurance contracts. In addition, investment income on assets backing insurance policies is separately presented. Under UK GAAP, the results of the insurance businesses were presented on a net basis. There is no change in the measurement of the insurance result in 2004. Under IFRS, the share of results of associates and joint ventures is presented after tax. In 2005, investment and insurance contracts will be separately accounted for in accordance with IAS 39 and IFRS 4. This will result in investment income and premiums and claims relating to investment contracts being presented on a net basis in other operating income. Therefore, the 2004 figures provided above will not be directly comparable to the results to be reported in 2005. Barclaycard Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Net interest income 1,600 790 810 Net fee and commission income 790 416 374 Net premiums from insurance contracts 22 11 11 -------- -------- -------- Total operating income 2,412 1,217 1,195 Impairment loss on loans and advances and other credit risk provisions (761) (404) (357) -------- -------- -------- Net operating income 1,651 813 838 Net claims and benefits on insurance contracts (5) (3) (2) Operating expenses (807) (428) (379) Share of results of associates and joint ventures 4 2 2 -------- -------- -------- Profit before tax 843 384 459 -------- -------- -------- Memo - UK GAAP profit before tax excluding goodwill amortisation (as restated) 860 444 416 -------- -------- -------- Cost:income ratio 34% 35% 32% Operating expense:income less net claims ratio 34% 35% 32% Operating expenses:net income ratio 49% 53% 45% Loans and advances to customers (period £22.3bn £22.3bn £20.1bn end) Total assets £23.1bn £23.1bn £20.7bn Return on average economic capital 23% 20% 25% Economic profit 350 148 202 The reduction in profit before tax reflects the increased costs associated with share based payments and pensions. Barclays Capital Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Net interest income 991 535 456 Net fee and commission income 603 331 272 -------- -------- -------- Net trading income 1,463 679 784 Net investment income 318 132 186 -------- -------- -------- Principal transactions 1,781 811 970 -------- -------- -------- Total operating income 3,375 1,677 1,698 Impairment loss on loans and advances and other credit risk provisions (102) (53) (49) -------- -------- -------- Net operating income 3,273 1,624 1,649 Operating expenses (2,253) (1,192) (1,061) Share of results of associates and joint - - - ventures -------- -------- -------- Profit before tax 1,020 432 588 -------- -------- -------- Memo - UK GAAP profit before tax excluding goodwill amortisation 1,042 443 599 -------- -------- -------- Cost:income ratio 67% 71% 62% Operating expenses:net income ratio 69% 73% 64% Average net revenue per member of staff ('000) £481 £221 £260 Total assets £346.9bn £346.9bn £330.2bn Return on average economic capital 35% 32% 38% Economic profit 521 230 291 The introduction of IFRS has not had a material impact on the 2004 restated results. Barclays Global Investors Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 Continuing operations £m £m £m Net interest income 5 1 4 Net fee and commission income 882 464 418 -------- -------- -------- Net trading income 3 3 - Net investment income 3 3 - -------- -------- -------- Principal transactions 6 6 - Other operating income - (1) 1 -------- -------- -------- Total operating income 893 470 423 Operating expenses (556) (284) (272) Share of results of associates and joint ventures (2) (1) (1) Profit on disposal of associates and joint 1 - 1 ventures -------- -------- -------- Profit before tax 336 185 151 -------- -------- -------- Memo - UK GAAP profit before tax excluding goodwill amortisation 347 189 158 -------- -------- -------- Cost:income ratio 62% 60% 64% Average net revenue per member of staff ('000) £464 £247 £217 Total assets £0.8bn £0.8bn £0.7bn Return on average economic capital 166% 185% 147% Economic profit 195 108 87 The introduction of IFRS has not had a material impact on the 2004 restated results. Private Clients Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Net interest income 303 155 148 Net fee and commission income 529 268 261 -------- -------- -------- Net trading income - - - Net investment income - - - -------- -------- -------- Principal transactions - - - Other operating income 7 4 3 -------- -------- -------- Total operating income 839 427 412 Impairment loss on loans and advances and other credit risk provisions 1 1 - -------- -------- -------- Net operating income 840 428 412Related Shares:
Barclays