IFRS Transition Report-Part 2

Barclays PLC 11 May 2005 IFRS Transition Report 2004/2005 BARCLAYS PLC TABLE OF CONTENTS Section 1 - IFRS Results Introduction 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 reconciliations Special 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 within the meaning of Section 240 of the Companies Act 1985 (the 'Act'). Statutory accounts for the year-ended 31st December 2004, which also include certain information required for the joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLC to the US Securities and Exchange Commission (SEC), have been delivered to the Registrar of Companies in accordance with Section 242 of the Act. This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and Section 27A of the US Securities Act of 1933, as amended, with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition and performance. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', or other words of similar meaning. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, the further development of standards and interpretations under IFRS applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS and pending tax elections with regards to certain subsidiaries, as well as UK domestic and global economic and business conditions, market related risks such as changes in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, the outcome of pending and future litigation and the impact of competition - a number of which factors are beyond the Group's control. As a result, the Group's actual future results may differ materially from the plans, goals, and expectations set forth in the Group's forward-looking statements. Any forward-looking statements made by or on behalf of Barclays speak only as of the date they are made. Barclays does not undertake to update forward-looking statements to reflect any changes in Barclays expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Barclays has made or may make in documents it has filed or may file with the SEC including its most recent Annual Report on Form 20-F. INTRODUCTION This Transition Report (the 'Report') sets out the financial results of Barclays PLC under International Financial Reporting Standards (IFRS) from 1st January 2004. The Report is prepared in accordance with the transitional provisions set out in IFRS 1, 'First-time Adoption of International Financial Reporting Standards', and other relevant standards and is based on the application of IFRS expected to apply as at 31st December 2005. The Report provides certain restated comparative data in a format based on the usual presentation layout of Results Announcements. It also summarises the main policy differences between UK GAAP and IFRS as currently expected to apply and sets out the Group's provisional accounting policies for the year ending 31st December 2005. Whilst the change in accounting standards has no impact on the underlying economics or risk of the business, the 2004 results under IFRS are different from the Group's previously provided 2004 results under UK GAAP. Commencing with reporting for 2005, there will be 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). The 2004 results under UK GAAP announced on 11th February 2005 are restated in this document. These restated 2004 financial results will, subject to possible changes arising as the application of IFRS develops, form the comparatives that will be used for 2005 performance discussions, commencing with the Trading Update on 26th May 2005. However, since the standards relating to financial instruments and insurance contracts have not been applied to 2004, these comparatives are significantly different from the numbers to be reported from 1st January 2005. In this Report all comparisons, unless otherwise stated, are between the financial results under IFRS and the previously reported UK GAAP data for the corresponding period or date. Profit comparisons at the divisional level are based on the analysis of results by business division previously provided in Results Announcements which excluded goodwill amortisation. IFRS Results: Income Statement The 2004 IFRS income statement shows a reduction in profit before tax of £23m from the reported 2004 UK GAAP figure of £4,603m. Earnings per share for 2004 on an 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 in 2004 is principally the result of the requirement to consolidate the insurance businesses, including life assurance, on a line by line basis rather than the previous recognition of the change in embedded value and net premium on insurance underwriting within other operating income. For 2004, this presentation increased operating income by £1,401m and created net claims and benefits on insurance contracts of £1,310m (treated as costs under IFRS) and added £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 4 requires the separation of investment and insurance contracts. To the extent that such contracts are identified as being of an investment nature they have been classified accordingly and consequently the amounts payable to customers will be offset against the income received on underlying assets. Over half of the life assurance activities of the Group will therefore be accounted for as investment business in 2005, whereas all is accounted for as insurance business in 2004. IFRS Results: Balance Sheet The balance sheet restatements cover all previously reported balance sheets for 2004 and also the opening balance sheet for 2005, which includes the impacts of financial instruments and insurance contracts. The aggregate differences between the UK GAAP balance sheet as at 31st December 2004 and the IFRS balance sheet at 1st January 2005 are significant in terms of the categorisation and magnitude of balances 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 31st December 2004, primarily as a result of the application of IAS 32 and 39. The most 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 minority interests under UK GAAP at 31st December 2004. Excluding minority interests the shareholders' equity under IFRS is £15.2bn at 1st January 2005, a reduction of £2.2bn compared to shareholders' funds under UK GAAP at 31st December 2004. At 1st January 2005, retained earnings and other reserves are £2.8bn lower than the profit and loss reserve under UK GAAP at 31st December 2004. This is partially offset by increases to shareholders' equity which arise from the creation of unrealised reserves relating to available for sale 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 of Reserve Capital Instruments (RCIs) and certain other capital instruments previously recorded as debt. IFRS Results: Regulatory Capital The impacts of changes in shareholders' equity are not reflected in changes in regulatory capital on a strictly equivalent basis. The Financial Services Authority in the UK ('FSA') which is Barclays' lead regulator has issued policy statement 05/5 on the interpretation of IFRS related changes which affect the regulatory capital outcome. We have also sought individual guidance on a number of areas where the outcome required clarification. The impact on the Tier 1 Capital ratio as at 1st January 2005 is a reduction from 7.6% to 7.1%. The Group's Risk Asset Ratio under IFRS as at 1st January 2005 is 11.9% compared to 11.5% under UK GAAP as at 31st December 2004. This increase primarily reflects the Group's ability to include collectively assessed impairment allowances in Tier 2 capital, replacing the similarly treated UK GAAP general provisions. Hedging While the introduction of IFRS has had little impact on the Group's economic hedging activities, IAS 39 significantly changes hedge accounting by specifying the accounting methods and introducing stringent conditions on when hedge accounting can be applied. IAS 39 sets out three forms of hedge accounting: cash flow hedge accounting, fair value hedge accounting and hedges of net investments in overseas entities. All forms of hedge accounting result in hedging derivatives being carried at fair value in the balance sheet. To the extent that the hedge is effective, cash flow hedge accounting and hedges of net investments result in the gains and losses on the hedging instruments being taken initially to equity and subsequently recycled to the income statement in the same periods as the hedged items affect profit or loss. Fair value hedge accounting results in the gain or loss on the hedged item attributable to the hedged risk adjusting the carrying amount of the hedged item and being recognised immediately in the income statement. Ineffective elements of hedges are recognised immediately in the income statement. IFRS hedge accounting can be contrasted with UK GAAP where hedging derivatives may be carried at cost and income is recognised on an accruals basis to match the hedged items. IFRS hedge accounting will not only result in additional asset and liability amounts being recognised on the balance sheet, but the income statement will also include more variability due to hedge ineffectiveness and economic hedges that do not meet the stringent hedge accounting conditions. In comparison with UK GAAP, cash flow hedge accounting will result in equity volatility and fair value hedge accounting will result in additional fair value amounts being included in the balance sheet and additional income statement volatility. IFRS hedge accounting has been applied prospectively to all hedges designated and documented as at 1st January 2005. This results in the creation of an initial cash flow hedging reserve and the recognition of fair value movements on items subject to fair value hedge accounting. In addition, qualifying UK GAAP hedged positions result in adjustments to the carrying amount of financial assets 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 the anticipated impact of IFRS. In that briefing, indicative rounded estimates were given in order to convey the direction and approximate scale of the impacts of IFRS based broadly on 2003 results. As anticipated, the numbers provided in that briefing 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 on financial instruments and insurance, the Group's profit before tax would rise under IFRS by approximately £75m. The actual impact on the 2004 income statement is a £23m decline in reported profit before tax. The principal reason for this difference is that the embedded value result of the closed life assurance activities under UK GAAP for 2004 was higher than anticipated and ahead of 2003. The December briefing also indicated a reduction in shareholders' equity excluding 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 expected increase of £1.6bn arising from the reclassification of Reserve Capital Instruments from debt to equity. This increase has now risen to £2.4bn reflecting the reclassification of £0.4bn of Tier 2 capital as equity and a further £0.4bn from the requirement to translate all of these issues at the exchange rate prevailing on their date of issue. The instruments are classified as 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 the following: • 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 to 2007 inclusive. The primary goal is to achieve top quartile Total Shareholder Return (TSR). The Group continues to believe that achievement of a compound annual growth rate of 10-13% in economic profit calculated on a consistent basis over the four-year goal period is likely to be required for the achievement of the primary goal. The introduction of IFRS has necessitated a review of the derivation of economic capital in the calculation of economic profit resulting in items being excluded which do not represent cash movements in shareholders' equity. Additionally, the Group has determined that the cost of capital for goodwill carried in relation to the acquisition of the Woolwich, previously charged at 8.5% should be brought into line with the Group's overall cost of capital at 9.5%. This has the effect of 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, is to 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. The presentation differs from that which was provided in the Annual Report for 2004 in 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 income statement, 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 30.06.04 Continuing operations £m £m £m Interest income 13,880 7,315 6,565 Interest expense (7,047) (3,815) (3,232) -------- -------- -------- Net interest income 6,833 3,500 3,333 -------- -------- -------- Fee and commission income 5,560 2,887 2,673 Fee and commission expense (662) (329) (333) -------- -------- -------- Net fee and commission income 4,898 2,558 2,340 -------- -------- -------- Net trading income 1,487 684 803 Net investment income 1,048 725 323 -------- -------- -------- Principal transactions 2,535 1,409 1,126 Net premiums from insurance contracts 1,042 506 536 Other operating income 110 64 46 -------- -------- -------- Total operating income 15,418 8,037 7,381 Impairment loss on loans and advances and other credit risk provisions (1,093) (504) (589) -------- -------- -------- Net operating income 14,325 7,533 6,792 Net claims and benefits on insurance contracts (1,310) (896) (414) Operating expenses (8,536) (4,562) (3,974) Share of results of associates and joint ventures 56 42 14 Profit on disposal of associates and joint ventures 45 - 45 -------- -------- -------- Profit before tax 4,580 2,117 2,463 Tax (1,279) (634) (645) -------- -------- -------- Profit for the year 3,301 1,483 1,818 -------- -------- -------- Profit attributable to minority interests 47 27 20 Profit attributable to shareholders 3,254 1,456 1,798 -------- -------- -------- 3,301 1,483 1,818 -------- -------- -------- p p p Basic 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 01.01.04 Assets £m £m £m £m Cash and balances at central banks 3,238 1,753 1,829 1,726 Items in the course of collection from other banks 1,772 1,772 2,527 2,006 Treasury bills and other eligible bills 6,658 6,547 7,177 Trading portfolio assets 113,241 Non-trading financial instruments fair valued through profit and loss: - held on own account 2,367 - held in respect of linked liabilities to customers under investment contracts 63,124 Derivative financial instruments 94,340 Loans and advances to banks 25,728 80,632 83,034 66,993 Loans and advances to customers 210,959 262,409 252,053 230,772 Debt securities 130,311 119,840 99,896 Equity shares 11,399 8,599 7,094 Available for sale financial investments 48,491 Reverse repurchase agreements and cash collateral on securities borrowed 139,574 Other assets 3,595 25,915 21,344 22,728 Insurance assets, including unit-linked assets 153 8,576 8,165 8,274 Investments in associates and joint ventures 429 429 442 438 Goodwill 4,518 4,518 4,398 4,393 Intangible assets 139 139 62 64 Property, plant and equipment 2,282 2,282 2,108 2,123 Deferred 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 39 and IFRS 4 which have not been applied to the 2004 comparatives, in accordance with IFRS 1. CONSOLIDATED BALANCE SHEET As at 01.01.051 31.12.04 30.06.04 01.01.04 Liabilities £m £m £m £m Deposits from banks 74,735 111,024 115,836 94,092 Items in the course of collection due to other banks 1,205 1,205 1,442 1,286 Customer accounts 194,488 217,492 206,170 184,796 Trading portfolio liabilities 59,114 Liabilities to customers under investment contracts 64,609 Derivative financial instruments 95,218 Debt securities in issue 80,754 83,842 69,431 61,469 Repurchase agreements and cash collateral on securities lent 98,582 Other liabilities 9,859 82,936 79,546 74,068 Current tax liabilities 621 621 697 514 Insurance contract liabilities, including unit-linked liabilities 3,596 8,377 7,944 8,023 Subordinated 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 6,012 Deferred tax liabilities 1,365 1,362 1,284 1,257 Other provisions for liabilities 403 416 329 380 Retirement benefit liabilities 1,865 1,865 2,028 1,885 -------- -------- -------- -------- Total liabilities 697,020 521,417 497,175 440,109 -------- -------- -------- -------- Shareholders' equity Called up share capital 1,614 1,614 1,613 1,642 Share premium account 5,524 5,524 5,437 5,417 Less: treasury shares (119) (119) (115) (84) Available for sale reserve 314 Cash flow hedging reserve 302 Capital redemption reserve 309 309 305 274 Other capital reserve 617 617 617 617 Translation reserve (58) (58) (43) - Retained earnings 6,739 7,983 7,164 6,774 -------- -------- -------- -------- Shareholders' equity excluding minority interests 15,242 15,870 14,978 14,640 Minority interests 3,330 894 178 283 -------- -------- -------- -------- Total shareholders' equity 18,572 16,764 15,156 14,923 -------- -------- -------- -------- -------- -------- -------- -------- Total liabilities and shareholders' equity 715,592 538,181 512,331 455,032 -------- -------- -------- -------- 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in accordance with 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 £m UK Banking 2,415 2,265 1,103 1,162 -------- -------- -------- -------- UK Retail Banking 1,068 963 405 558 UK Business Banking 1,347 1,302 698 604 -------- -------- -------- -------- International Retail and Commercial Banking 311 293 148 145 Barclaycard 860 843 384 459 Barclays Capital 1,042 1,020 432 588 Barclays Global Investors 347 336 185 151 Private Clients 144 110 46 64 Private Clients-closed life assurance activities (4) (52) (51) (1) Head office functions and other operations (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 2,463 Tax (1,289) (1,279) (634) (645) -------- -------- -------- -------- Profit for the year 3,314 3,301 1,483 1,818 Profit attributable to minority interests (46) (47) (27) (20) -------- -------- -------- -------- Profit attributable to shareholders 3,268 3,254 1,456 1,798 -------- -------- -------- -------- The presentation of results by business differs from that provided in 2004 in the 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 tax under IFRS. Following the line by line consolidation of insurance activities in the income statement, 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 840 428 412 Operating expenses (730) (382) (348) Share of results of associates and joint - - - ventures -------- -------- -------- Profit before tax 110 46 64 -------- -------- -------- Memo - UK GAAP profit before tax excluding goodwill amortisation 144 63 81 -------- -------- -------- Cost:income ratio 87% 89% 84% Operating expenses:net income ratio 87% 89% 84% Loans and advances to customers (period £4.1bn £4.1bn £3.6bn end) Customer accounts (period end) £21.3bn £21.3bn £20.4bn Total assets £5.0bn £5.0bn £4.4bn Return on average economic capital 32% 23% 43% Economic profit 70 23 47 The reduction in profit before tax is mainly due to the increased costs associated with pensions and the capitalisation of software, which have also had the effect of increasing the cost:income ratios. Private Clients-closed life assurance activities Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Net interest income (53) (33) (20) Net fee and commission income 51 26 25 -------- -------- -------- Net trading income - - - Net investment income 596 517 79 -------- -------- -------- Principal transactions 596 517 79 Net premiums from insurance contracts 362 195 167 Other operating income 4 1 3 -------- -------- -------- Total operating income 960 706 254 Net claims and benefits on insurance contracts (869) (665) (204) Endowment redress costs (97) (64) (33) Other operating expenses (46) (28) (18) -------- -------- -------- Loss before tax (52) (51) (1) -------- -------- -------- Memo - UK GAAP (loss)/profit before tax excluding goodwill amortisation (4) 25 (29) -------- -------- -------- Cost:income ratio 105% 107% 100% Operating expenses:income less net claims ratio 157% 224% 102% Total assets £6.4bn £6.4bn £6.1bn Return on average economic capital (53)% (117)% 11% Economic (loss)/profit (77) (79) 2 For the year-ended 31st December 2004, under UK GAAP and using the Embedded Value basis of accounting, the Private Clients-closed life assurance activities resulted in a loss of £4m. The change in accounting policy to the Modified Statutory Solvency Basis, which is an accruals basis of accounting, has resulted in an increase in the loss of £48m since the net present value of profits inherent in the in-force policies is no longer recognised. The tax impact of this change has also resulted in the economic loss. 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. Head office functions and other operations Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Head office functions and central items (230) (140) (90) Transition businesses 7 17 (10) Restructuring costs (12) (7) (5) -------- -------- -------- Loss on operating activities before tax (235) (130) (105) -------- -------- -------- Memo - UK GAAP loss before tax excluding goodwill amortisation (206) (128) (78) -------- -------- -------- The increased loss in head office functions and central items is mainly due to the increased costs associated with share based payments and pensions. Results by nature of income and expense Net interest income Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Interest income 13,880 7,315 6,565 Interest expense (7,047) (3,815) (3,232) -------- -------- -------- 6,833 3,500 3,333 -------- -------- -------- The components of net interest income have increased mainly as the result of the consolidation of additional subsidiaries, including special purpose entities. Principal transactions Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 Net trading income Rates related business 1,141 443 698 Credit related business 346 241 105 -------- -------- -------- 1,487 684 803 -------- -------- -------- Net investment income Gain on disposal of investment securities 199 129 70 Dividend income 17 11 6 Other investment income 832 585 247 -------- -------- -------- 1,048 725 323 -------- -------- -------- 2,535 1,409 1,126 -------- -------- -------- Other investment income includes income from assets backing insurance policies in the long term assurance businesses. Under UK GAAP this was included in income from the long-term assurance business previously included in other operating income. Other operating income Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Property rentals 45 27 18 Other income 65 37 28 -------- -------- -------- 110 64 46 -------- -------- -------- Other income includes operating lease income, which was previously included in interest income. Impairment loss on loans and advances and other credit risk provisions Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m The charge for the period in respect of impairment for loans and advances comprises: - New and increased 1,755 927 828 - Releases (396) (267) (129) - Recoveries (255) (140) (115) -------- -------- -------- Total impairment charge for loans and advances 1,104 520 584 (Release)/charge for the period in respect of provisions for undrawn contractually committed facilities and guarantees provided (11) (16) 5 Charge for the period in respect of impairment of available for sale financial investments -------- -------- -------- Total impairment loss on loans and advances and other credit risk provisions 1,093 504 589 -------- -------- -------- The total impairment loss on loans and advances and other credit risk provisions is unchanged for 2004, although the charge in respect of provisions for undrawn contractually committed facilities and guarantees provided to customers is presented separately from impairment loss on loans and advances. Operating expenses Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Staff costs (refer to page 24) 5,227 2,720 2,507 Administrative expenses 2,766 1,553 1,213 Depreciation 297 156 141 Amortisation of intangible assets 22 13 9 Impairment loss - Intangible assets 9 5 4 Operating lease rentals 215 115 100 -------- -------- -------- 8,536 4,562 3,974 -------- -------- -------- Operating lease rentals were previously netted with income received from the sub-let of properties and included in other operating income. Staff costs Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Salaries and accrued incentive payments 4,098 2,124 1,974 Social security costs 339 172 167 Pension costs - defined contribution plans 92 39 53 - defined benefit plans 235 126 109 Other post retirement benefits 29 16 13 Other 434 243 191 -------- -------- -------- 5,227 2,720 2,507 -------- -------- -------- Included in salaries and accrued incentive payments is £169m (half-year ended 31st December 2004: £90m; half-year ended 30th June 2004: £79m) resulting from equity settled share based payments. Staff costs have increased due to the recognition of the additional cost of share based payments, including Sharesave and Incentive Share Option Plan (ISOP), and the increase in pension costs under IAS 19. Share of results of associates and joint ventures Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Profit from associates 56 42 14 Profit from joint ventures - - - -------- -------- -------- 56 42 14 -------- -------- -------- The share of results of associates and joint ventures is reported after tax, with no amortisation of goodwill and after aligning results with Group IFRS accounting policies as set on pages 43 to 59. Earnings per share Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 Profit attributable to the members of Barclays PLC £3,254m £1,456m £1,798m Basic weighted average number of shares (in issue) 6,381m 6,341m 6,421m Potential ordinary shares1 33m 32m 31m -------- -------- -------- Diluted weighted average number of shares 6,414m 6,373m 6,452m -------- -------- -------- p p p Basic earnings per ordinary share 51.0 23.0 28.0 Diluted earnings per ordinary share 50.7 22.8 27.9 Memo - UK GAAP Earnings per ordinary share 51.2 24.5 26.7 Fully diluted earnings per ordinary share 51.0 24.4 26.6 1 Potential ordinary shares reflect the dilutive effect of share options outstanding. Tax rate The charge for 2004 is based upon the UK GAAP financial statements and a UK corporation tax rate of 30% for the calendar year 2004 (2003: 30%). Analysis of amounts included in the balance sheets Assets held in respect of linked liabilities to customers under investment contracts/liabilities to customers under investment contracts 01.01.051 £m Non-trading financial instruments fair valued through profit and loss - held in respect of linked liabilities 63,124 Cash and bank balances within the funds 1,485 -------- 64,609 -------- -------- Liabilities to customers under investment contracts 64,609 -------- This comprises assets under management held on behalf of clients. Under UK GAAP the assets were included in assets under management and not included on the balance sheet. Derivative financial instruments The table below analyses the contract or underlying principal amounts and fair values of derivatives financial instruments held for trading purposes and for the purposes of risk management. As at 01.01.051 Gross Contract Fair Value Amount Assets Liabilities £m £m £m Derivative assets/liabilities held for trading 12,397,266 92,619 94,006 Derivative assets/liabilities held for risk 89,894 1,721 1,212 management -------- -------- -------- Total recognised derivative assets/liabilities 12,487,160 94,340 95,218 -------- -------- -------- From 1st January 2005, amounts previously described as balances from off-balance sheet financial instruments and included in other assets and other liabilities have been reclassified to derivative financial instruments and recognised according to the offset requirements of IFRS. IFRS requires financial assets and liabilities to be stated on a gross basis unless the Group has the ability and intention to settle them net. Under master netting agreements, the Group has the ability, but not the intention, to settle net. Under UK GAAP, such agreements qualified for net presentation, accordingly, the derivative balances recognised under IFRS are significantly higher than those under UK GAAP. 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in accordance with IFRS 1. Loans and advances As at 01.01.051 31.12.04 30.06.04 01.01.04 £m £m £m £m -------- -------- -------- -------- Loans and advances to banks 25,752 80,655 83,042 67,010 Less: impairment allowance (24) (23) (8) (17) -------- -------- -------- -------- 25,728 80,632 83,034 66,993 -------- -------- -------- -------- -------- -------- -------- -------- Loans and advances to customers 213,572 265,097 254,896 233,701 Less: impairment allowance (2,613) (2,688) (2,843) (2,929) -------- -------- -------- -------- 210,959 262,409 252,053 230,772 -------- -------- -------- -------- 236,687 343,041 335,087 297,765 -------- -------- -------- -------- The increase in loans and advances to banks and to customers in 2004 mainly results from the consolidation of additional entities, including special purpose entities. Loans and advances have decreased at 1st January 2005 due to the reclassification of trading portfolio assets and reverse repurchase agreements. These decreases have been partially offset by the increase due to the presentation on a gross basis of balances that qualified to be presented on a net basis under UK GAAP. Impairment allowance In 2004, the reduction in impairment allowance compared to UK GAAP provisions for bad and doubtful debts is due to the reclassification of the provision for undrawn contractually committed facilities and guarantees provided to other provisions for liabilities. The provision has not been remeasured, but has been presented in a separate place on the balance sheet. The total impairment allowance, including provision for undrawn contractually committed facilities and guarantees, as at 1st January 2005 under IFRS has increased slightly when compared to UK GAAP as a result of the application of revised calculation methodologies. A reconciliation of UK GAAP provisions to IFRS impairment allowances is as follows: £m UK GAAP provision as at 31st December 2004 2,766 UK GAAP interest in suspense as at 31st December 2004 40 -------- 2,806 UK GAAP fees in suspense as at 31st December 2004 19 Additional impairment resulting from the application of revised calculation methodologies at 1st January 2005 24 -------- 2,849 -------- Impairment allowance on loans and advances to banks 24 Impairment allowance on loans and advances to customers 2,613 Provision for undrawn contractually committed facilities and guarantees provided 55 Interest and fees not recognised 157 -------- 2,849 -------- Interest in suspense is not recognised under IFRS. Interest and fees that are not expected to be recoverable are not recognised in the income statement. Interest, representing the unwind of the discount rate applied to future cashflows included in the impairment allowance calculation, will be recognised on impaired loans from 2005. 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in accordance with IFRS 1. Potential credit risk loans As at 01.01.051 31.12.04 30.06.04 01.01.04 Potential credit risk loans £m £m £m £m Non-accrual loans 2,052 2,115 2,235 2,261 Accruing loans where there is an expectation of ultimate write-off (either partial or full) 1,255 1,334 1,343 1,450 Accruing loans 90 days overdue, against which no allowances have been made 509 521 569 590 Reduced rate loan 15 15 10 4 -------- -------- -------- -------- Total non-performing loans 3,831 3,985 4,157 4,305 Potential problem loans 753 756 824 1,327 -------- -------- -------- -------- Total potential credit risk loans 4,584 4,741 4,981 5,632 -------- -------- -------- -------- % % % % Allowance coverage of non-performing loans 68.8 69.0 69.7 69.6 -------- -------- -------- -------- Allowance coverage of total potential credit risk loans 57.5 58.0 58.1 53.2 -------- -------- -------- -------- The coverage ratios are calculated by dividing the impairment allowance either by the non-performing loans (NPLs) or the total potential credit risk loans (PCRLs). The coverage ratios differ from those previously published for the following reasons: • Treatment of provisions relating to undrawn contractually committed facilities and guarantees: - under UK GAAP provisions for losses on undrawn but committed facilities (such as loan commitments and guarantees) were included in the calculation; - under IAS 37, which became effective from the 1st January 2004, the equivalent provisions raised against such facilities are excluded. As a result, coverage ratios are lower than those previously reported. • Treatment of interest in suspense and income not recognised: - under UK GAAP, for purposes of the coverage ratio calculation, interest in suspense was included in the provisions and in the NPLs and PCRLs; - under IFRS, interest not recognised, by definition, is excluded from both allowance and NPLs and PCRLs. 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in accordance with IFRS 1. Potential credit risk loans (continued) As a result, both NPL and PCRLs coverage ratios will be lower. However, as this new treatment became effective from 1st January 2005, only the figures as at 1st January 2005, in the table above, have been affected. • Change to the underlying impairment allowance balances: - under IFRS, the 1st January 2005 opening impairment allowance balance is slightly higher than the 31st December 2004 closing UK GAAP balance due to the application of revised calculation methodologies. As a result, the coverage ratios as at 1st January 2005 are slightly higher than reported as at 31st December 2004 under UK GAAP. This partially offsets the decreases in the ratios mentioned above. The overall effect of the changes described above is for coverage ratios to be marginally lower than previously reported. Other assets As at 01.01.051 31.12.04 30.06.04 01.01.04 £m £m £m £m Sundry debtors 2,624 3,711 3,629 3,790 Prepayments 415 467 410 363 Balances arising from off-balance sheet financial instruments 18,174 14,000 15,812 Accrued income 556 3,563 3,305 2,763 -------- -------- -------- -------- 3,595 25,915 21,344 22,728 -------- -------- -------- -------- In 2004, other assets has reduced mainly due to the recognition of the shareholders' interest in the long term assurance business in the relevant lines in the balance sheet and the removal of the pension prepayment under SSAP 24. This has been partially offset by the recognition of balances relating to additional consolidated entities and deferred income in respect of financial guarantees provided to customers. The reduction in other assets as at 1st January 2005 primarily reflects the reclassification of balances arising from off balance sheet financial instruments to derivative financial instruments. From 1st January 2005, accrued income no longer includes accrued interest, which is included in the loan balances as part of the effective interest calculation. 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in accordance with IFRS 1. Other liabilities As at 01.01.051 31.12.04 30.06.04 01.01.04 £m £m £m £m Obligations under finance leases payable 353 353 352 110 Balances arising from off balance sheet financial instruments 18,009 12,829 14,797 Sundry creditors 4,763 3,851 3,531 4,038 Accruals and deferred income 4,743 6,820 5,396 5,189 Short positions in securities 53,903 57,438 49,934 -------- -------- -------- -------- 9,859 82,936 79,546 74,068 -------- -------- -------- -------- Current and deferred tax and other provisions for liabilities are no longer included in other liabilities. These items are presented separately on the face of the balance sheet. Proposed dividends formerly included within other liabilities, are not accrued under IFRS. Other liabilities includes liabilities arising on financial guarantees provided to customers. In 2005, other liabilities has reduced due to the reclassification of balances arising from off balance sheet financial instruments to derivative financial instruments and short positions in securities to trading portfolio liabilities. This is partly offset by the inclusion within other liabilities of customer loyalty provisions which have been reclassified from other provisions for liabilities to other liabilities and remeasured accordingly. Accruals and deferred income no longer includes accrued interest, which is included in customer balances as part of the amortised cost. Other provisions for liabilities As at 01.01.051 31.12.04 30.06.04 01.01.04 £m £m £m £m Customer loyalty provisions 12 15 32 Redundancy and restructuring 97 97 34 64 Undrawn contractually committed facilities and guarantees 55 55 85 82 Onerous leases 39 39 13 23 Sundry provisions 212 213 182 179 -------- -------- -------- -------- 403 416 329 380 -------- -------- -------- -------- In 2004, other provisions for liabilities no longer includes provision for pensions and post retirement benefits, which are presented separately. This reclassification is partially offset by the inclusion of the provision for undrawn contractually committed facilities and guarantees of £55m as at 31st December 2004 previously reported as part of credit risk provisions. As at 1st January 2005, the customer loyalty provision has been reclassified to other liabilities and remeasured accordingly. 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in accordance with IFRS 1. Capital resources As at 01.01.051 31.12.04 30.06.04 01.01.04 £m £m £m £m Shareholders' equity excluding minority interests 15,242 15,870 14,978 14,640 Minority interests 3,330 894 178 283 -------- -------- -------- -------- Total shareholders' equity 18,572 16,764 15,156 14,923 Loan capital 10,606 12,277 12,468 12,339 -------- -------- -------- -------- 29,178 29,041 27,624 27,262 -------- -------- -------- -------- In 2004, shareholders' equity excluding minority interests has decreased, primarily reflecting the impact of the recognition of the pension liability under IAS 19 and the derecognition of the embedded value on the long term assurance activities. This has been partially offset by the derecognition of the liability for the final proposed dividend. As at 1st January 2005, minority interests have increased and loan capital has decreased primarily due to the reclassification of reserve capital instruments and certain upper tier 2 instruments from loan capital to equity. The reclassification of RCIs and certain upper tier 2 instruments, together with other remeasurements necessitated by IAS 39, has reduced retained earnings. This reduction is partially offset by the recognition of the initial cash flow hedging and available for sale reserves. Group performance ratios As at 01.01.051 31.12.04 30.06.04 01.01.042 Net asset value per ordinary share (excluding minority interests) 236p 246p 232p 223p Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 % % % Post-tax return on average shareholders' equity (excluding minority interest) 22.0 19.2 24.6 Cost:income ratios Cost:income ratios are defined on page 11 and presented below for the Group: Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 % % % Cost:income ratio 64 68 59 Operating expenses:income less net claims ratio 61 64 57 Operating expenses:net income less net claims ratio 66 69 62 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in accordance with IFRS 1. 2 Since IFRS has been applied from 1st January 2004, it is not possible to determine the average shareholders' equity for this period. TOTAL ASSETS AND WEIGHTED RISK ASSETS Total assets As at 01.01.051 31.12.04 30.06.04 01.01.04 £m £m £m £m UK Banking 128,573 119,561 114,404 110,654 -------- -------- -------- -------- UK Retail Banking 69,064 68,861 67,255 66,720 UK Business Banking 59,509 50,700 47,149 43,934 -------- -------- -------- -------- International Retail and Commercial Banking 28,715 28,448 25,114 24,389 Barclaycard 22,878 23,059 20,693 20,327 Barclays Capital 454,437 346,901 330,235 279,391 Barclays Global Investors 61,201 798 711 537 Private Clients 5,050 5,007 4,409 3,840 Private Clients-closed life assurance activities 6,551 6,425 6,092 6,226 Head office functions and other operations2 3,669 3,464 6,275 5,275 Goodwill 4,518 4,518 4,398 4,393 -------- -------- -------- -------- 715,592 538,181 512,331 455,032 -------- -------- -------- -------- Weighted risk assets As at 01.01.051 31.12.04 30.06.04 £m £m £m UK Banking 91,202 91,913 87,506 -------- -------- -------- UK Retail Banking 36,787 37,111 36,458 UK Business Banking 54,415 54,802 51,048 -------- -------- -------- International Retail and Commercial Banking 19,386 19,319 17,292 Barclaycard 19,972 20,188 18,404 Barclays Capital 79,548 79,949 72,715 Barclays Global Investors 1,233 1,230 1,004 Private Clients 3,939 4,018 3,632 Head office functions and other operations 1,944 1,984 2,780 -------- -------- -------- 217,224 218,601 203,333 -------- -------- -------- Weighted risk assets for 30th June 2004 and 31st December 2004 have not been restated but are shown as reported to the Financial Services Authority (FSA). 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39 and IFRS 4 which have not been applied to the 2004 comparatives, in accordance with IFRS 1. 2 Head office functions and other operations includes the Group deferred tax asset which is not currently allocated by business. Capital ratios 01.01.051 Weighted risk assets: £m Banking book On-balance sheet 147,244 Off-balance sheet 26,741 Associated undertakings and joint ventures 3,020 -------- Total banking book 177,005 -------- Trading book Market risks 22,106 Counterparty and settlement risks 18,113 -------- Total trading book 40,219 -------- Total weighted risk assets 217,224 -------- Capital resources: Tier 1 Called up share capital 1,614 Eligible reserves 14,886 Minority interests2 2,824 Tier one notes3 920 Less: intangible assets (4,747) -------- Total qualifying tier 1 capital 15,497 -------- Tier 2 Revaluation reserves 25 Collectively assessed impairment allowances 2,046 Minority Interests 397 Qualifying subordinated liabilities 4 Undated loan capital 3,176 Dated loan capital 5,647 Other 3 -------- Total qualifying tier 2 capital 11,294 -------- Tier 3: short term subordinated liabilities4 286 -------- Less: Supervisory deductions: Investments not consolidated for supervisory purposes (781) Other deductions (496) -------- (1,277) -------- Total net capital resources 25,800 -------- Tier 1 ratio 7.1% Risk asset ratio 11.9% Capital ratios for prior periods have not been restated as these remain as reported to the FSA. The capital ratios above indicate the impact of IFRS first time adoption adjustments and have been prepared in accordance with the FSA's policy statement 05/5. 1 The figures at 1st January 2005 include the impacts of adopting IAS 32, IAS 39 and IFRS 4. 2 Includes Reserve capital instruments of £1,627m. 3 Tier one notes are included in undated loan capital in the consolidated balance sheet. 4 Subordinated liabilities are included in tiers 2 or 3, subject to limits laid down in the supervisory requirements. ADDITIONAL INFORMATION Economic Capital Capital Demand The demand for capital from the Group's businesses via the economic capital framework is set out below: Average, as at 31.12.04 30.06.04 £m £m UK Banking 4,650 4,450 --------- --------- UK Retail Banking 2,200 2,150 UK Business Banking 2,450 2,300 --------- --------- International Retail and Commercial Banking 1,000 1,000 Barclaycard 2,450 2,450 Barclays Capital 2,100 2,050 Barclays Global Investors 150 150 Private Clients 300 300 Private clients-closed life assurance activities 100 100 Head office functions and other operations1 200 200 --------- --------- Business unit economic capital 10,950 10,700 Capital held at Group centre2 1,400 1,300 --------- --------- Economic capital requirement (excluding goodwill) 12,200 12,000 Average historic goodwill 5,600 5,550 --------- --------- Total economic capital requirement 17,950 17,550 --------- --------- 1 Includes Transition Businesses and capital for central function risks. 2 The Group's practice is to maintain an appropriate level of excess capital, held at Group centre, which is not allocated to business units. This variance arises as a result of capital management timing and includes capital held to cover pension contribution risk. Capital Supply The supply of capital to support the economic capital framework is set out below: Average, as at 31.12.04 30.06.04 £m £m Shareholders' equity excluding minority interests less goodwill 10,450 10,300 Pension liability 1,750 1,700 Cashflow hedge reserve Available for sale reserve Preference shares 150 - --------- --------- Available funds for economic capital excluding goodwill 12,350 12,000 Average historic goodwill 5,600 5,550 --------- --------- Available funds for economic capital 17,950 17,550 --------- --------- Average ordinary shareholders' equity for Group economic profit calculation1 17,800 17,550 --------- --------- Shareholders' equity above has been adjusted as a result of the transition to IFRS. These changes do not affect the demand from the Group's businesses for economic capital, but do affect the amount held at Group centre. The Group has adjusted available funds for economic capital to reflect the impact of hedging, available for sale securities and pensions. These adjustments are explained more fully in the following section under economic profit. The capital resources to support economic capital comprise shareholders' equity including preference shares but excluding other minority interests. 1 Average ordinary shareholders' equity for Group economic profit calculation is the sum of adjusted equity and reserves plus goodwill. Economic Profit Year- ended Half-year ended 31.12.04 31.12.04 30.06.04 £m £m £m Profit after tax and minority interests 3,254 1,456 1,798 Addback of amortisation charged on acquired intangible assets 6 6 - -------- -------- -------- Profit for economic profit purposes 3,260 1,462 1,798 -------- -------- -------- Average shareholders' equity excluding minority interests less goodwill 10,450 10,450 10,300 Add/(deduct): reserve for unrealised (gains)/losses on effective hedges Add/(deduct): reserve for unrealised (gains)/losses on Available for sale financial instruments Add: pension fund net deficit 1,750 1,750 1,700 Goodwill and intangible assets arising on acquisitions 5,600 5,600 5,550 -------- -------- -------- Average shareholders' equity for economic profit purposes (rounded to the nearest £50m) 17,800 17,800 17,550 -------- -------- -------- Capital charge at 9.5% 1,692 858 834 -------- -------- -------- Economic profit 1,568 604 964 -------- -------- -------- Memo - UK GAAP economic profit 1,885 831 1,054 -------- -------- -------- The economic profit methodology under IFRS will continue to be made up of two components: • Profit after tax and minority interests; and • Capital charge (average shareholders' equity excluding minority interests multiplied by the Group's cost of equity capital charge). The Group cost of capital will now be applied at a uniform rate of 9.5% (previously the Woolwich goodwill component of £4,121m was charged at 8.5%). In general, the impact of IFRS on the Group's financial results will be reflected in the calculation of economic profit. One example of this is the treatment of goodwill where the absence of an annual amortisation charge removes the need for an adjustment to profit after tax and minority interests for economic profit purposes. In other cases the Group has determined that the impacts of IFRS should be modified in calculating economic profit. • Preference Shares - at the Barclays PLC Group level these shares are reported as a minority interest. Since they have been issued to improve the long-term capital base they are included in the funds available to support economic capital. The preference shareholders receive a fixed return rather than participating in the returns available to ordinary shareholders and consequently are excluded from the calculation of the capital charge. The preference dividend is reflected in the calculation of the return after tax and minority interests. Economic Profit (continued) • Hedging - to the extent that the Group undertakes the hedging of future cash flows, shareholders' equity will include gains and losses which will be offset at the conclusion of the future hedged transaction. Given the future offset of such gains and losses, they are excluded from shareholders' equity upon which the capital charge is based. • Available for sale securities - unrealised gains and losses on such securities are included in shareholders' equity until disposal or impairment. Such gains and losses will be excluded from shareholders' equity for the purposes of calculating the capital charge. Realised gains and losses and any impairment charge recorded in the income statement will impact economic profit. • Pensions - IFRS has required the Group to recognise a deficit with a consequent reduction in shareholders' equity. This represents a non-cash reduction in shareholders' equity. For the purposes of deriving the capital charge, the Group will not deduct the pension deficit from economic capital. Economic profit generated by business UK GAAP IFRS Year- Year- ended ended Half-year ended 31.12.04 31.12.04 31.12.04 30.06.04 £m £m £m £m UK Banking 1,271 1,158 565 593 -------- -------- -------- -------- UK Retail Banking 554 473 183 290 UK Business Banking 717 685 382 303 -------- -------- -------- -------- International Retail and Commercial Banking 127 111 54 57 Barclaycard 362 350 148 202 Barclays Capital 534 521 230 291 Barclays Global Investors 204 195 108 87 Private Clients 102 70 23 47 Private clients-closed life assurance activities 35 (77) (79) 2 Head office functions and other operations (149) (146) (138) (8) -------- -------- -------- -------- 2,486 2,182 911 1,271 Historical goodwill (490) (533) (268) (265) Variance to average shareholders' equity (excluding minority interest) (111) (81) (39) (42) -------- -------- -------- -------- Economic profit 1,885 1,568 604 964 -------- -------- -------- -------- This information is provided by RNS The company news service from the London Stock Exchange

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