Interim Results - Part 2

Barclays PLC 03 August 2006 PART 2 OF 2 FINANCIAL REVIEW Results by nature of income and expense Net interest income Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Cash and balances at central banks 7 6 3 Financial instruments 1,406 1,305 967 Loans and advances to banks 523 251 439 Loans and advances to customers 7,883 7,275 5,669 Other 725 747 570 -------- -------- -------- Interest income 10,544 9,584 7,648 -------- -------- -------- Deposits from banks (1,263) (1,102) (954) Customer accounts (1,844) (1,530) (1,185) Debt securities in issue (2,388) (1,913) (1,355) Subordinated liabilities (340) (312) (293) Other (305) (352) (161) -------- -------- -------- Interest expense (6,140) (5,209) (3,948) -------- -------- -------- Net interest income 4,404 4,375 3,700 -------- -------- -------- Group net interest income increased 19% (Â£704m) to Â£4,404m (2005: Â£3,700m). The inclusion of Absa added net interest income of Â£600m in the first half of 2006. Group net interest income excluding Absa grew 3%. A component of the benefit of free funds included in Group net interest income is the structural hedge which functions to reduce the impact of the volatility of short-term interest rate movements. The contribution of the structural hedge decreased to Â£47m (2005: Â£58m), largely due to the impact of relatively higher short-term interest rates and lower medium-term rates. Interest income includes Â£48m (2005: Â£30m) accrued on impaired loans. Business margins Half-year ended 30.06.06 31.12.05 30.06.05 % % % UK Retail Banking assets 0.86 1.01 0.83 UK Retail Banking liabilities 1.98 1.97 2.01 UK Business Banking assets 1.86 1.87 1.87 UK Business Banking liabilities 1.44 1.38 1.54 Barclaycard assets 6.64 6.70 6.48 -------- -------- -------- Barclaycard assets-cards 8.78 8.35 7.56 Barclaycard assets-loans 4.34 4.78 5.15 -------- -------- -------- International Retail and Commercial Banking-ex Absa assets(1) 1.24 1.26 1.47 International Retail and Commercial Banking-ex Absa liabilities(1) 2.12 2.03 2.00 International Retail and Commercial Banking-Absa assets(1), (2) 3.45 3.52 - International Retail and Commercial Banking-Absa liabilities(1), (2) 2.41 2.39 - Wealth Management assets 1.11 0.99 0.98 Wealth Management liabilities 1.08 1.02 1.06 Average balances Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m UK Retail Banking assets 64,989 65,689 66,511 UK Retail Banking liabilities 77,566 74,867 72,072 UK Business Banking assets 51,103 45,879 42,059 UK Business Banking liabilities 43,671 41,837 39,234 Barclaycard assets 25,727 24,729 23,759 -------- -------- -------- Barclaycard assets-cards 13,307 13,233 13,126 Barclaycard assets-loans 12,420 11,496 10,633 -------- -------- -------- International Retail and Commercial Banking-ex Absa assets(1) 26,245 24,847 20,931 International Retail and Commercial Banking-ex Absa liabilities(1) 10,174 9,372 9,065 International Retail and Commercial Banking-Absa assets(1) 24,228 20,225 - International Retail and Commercial Banking-Absa liabilities(1) 13,455 13,338 - Wealth Management assets 4,891 4,560 4,229 Wealth Management liabilities 24,521 24,257 22,603 (1) International Retail and Commercial Banking business margins, average balances and business net interest income have been restated on a consistent basis to reflect changes in methodology. (2) For the second half of 2005, this reflects the five month post-acquisition period on an annualised basis. Business net interest income Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m UK Retail Banking assets 276 336 273 UK Retail Banking liabilities 762 744 718 UK Business Banking assets 471 433 390 UK Business Banking liabilities 312 292 300 Barclaycard assets 846 828 770 -------- -------- -------- Barclaycard assets-cards 579 553 496 Barclaycard assets-loans 267 275 274 -------- -------- -------- International Retail and Commercial Banking-ex Absa assets(1) 162 158 153 International Retail and Commercial Banking-ex Absa liabilities(1) 107 96 90 International Retail and Commercial Banking-Absa assets(1) 414 308 - International Retail and Commercial Banking-Absa liabilities(1) 161 138 - Wealth Management assets 27 22 21 Wealth Management liabilities 132 124 120 -------- -------- -------- Business net interest income 3,670 3,479 2,835 -------- -------- -------- Reconciliation of business interest income to Group net interest income Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Business net interest income 3,670 3,479 2,835 Other: - Barclays Capital 495 540 525 - Barclays Global Investors 7 9 6 - Other 232 347 334 -------- -------- -------- Group net interest income 4,404 4,375 3,700 -------- -------- -------- Business net interest income is derived from the interest rate earned on average assets or paid on average liabilities relative to the average Bank of England base rate, local equivalents for international businesses or the rate managed by the bank using derivatives. The margin is expressed as annualised business interest income over the relevant average balance. Asset and liability margins cannot be added together as they are relative to the average Bank of England base rate, local equivalent for international businesses or the rate managed by the bank using derivatives. The benefit of capital attributed to these businesses is excluded from the calculation of business margins and business net interest income. Average balances are calculated on daily averages for most UK banking operations and monthly averages elsewhere. Within the reconciliation of Group net interest income, there is an amount captured as Other. This relates to: benefit of capital, excluded from the business margin calculation, Head office functions and other operations; net funding on non-customer assets and liabilities; and Wealth Management - closed life assurance activities. (1) International Retail and Commercial Banking business margins, average balances and business net interest income have been restated on a consistent basis to reflect changes in methodology. UK Retail Banking assets margin improved slightly to 0.86% (2005: 0.83%) reflecting a stable mortgage margin, despite the impact of new product launches and a higher contribution from non-mortgage assets. UK Retail Banking liabilities margin was broadly stable at 1.98% (2005: 2.01%). UK Business Banking assets margin was broadly stable at 1.86% (2005: 1.87%). The UK Business Banking liabilities margin decreased 10 basis points to 1.44% (2005: 1.54%), although it improved relative to the second half of 2005. Barclaycard cards margin increased 122 basis points to 8.78% (2005: 7.56%). Margins in the cards business improved principally due to the impact of increased card rates in the second half of 2005 and the continued roll-off of promotional rate balances through the first half of 2006. Barclaycard loans margin decreased 81 basis points to 4.34% (2005: 5.15%). Margins in the loans business continued to reduce due to both a change in the product mix, with a higher weighting to secured loans, and competitive pressures. International Retail and Commercial Banking - excluding Absa assets margin decreased 23 basis points to 1.24% (2005: 1.47%) largely reflecting growth in mortgage assets as a proportion of total assets in Europe, revised competitive pricing strategies aimed at increasing market share, and competitive pressures. International Retail and Commercial Banking - excluding Absa liabilities margin increased 12 basis points to 2.12% (2005: 2.00%) mainly as a consequence of increased margins in Africa and the acquisition of the ING Ferri business in France. International Retail and Commercial Banking - Absa assets margin of 3.45% (Second half 2005: 3.52%) was broadly stable compared to the margin for the first five months of Barclays ownership. The liabilities margin of 2.41% (Second half 2005: 2.39%) remained consistent. Wealth Management assets margin increased 13 basis points to 1.11% (2005: 0.98%) principally due to a change in product mix and pricing. Wealth Management liabilities margin was broadly stable at 1.08% (2005: 1.06%). Net fee and commission income Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Fee and commission income 4,077 3,558 2,872 Fee and commission expense (425) (393) (332) -------- -------- -------- Net fee and commission income 3,652 3,165 2,540 -------- -------- -------- Fee and commission income rose 42% (Â£1,205m) to Â£4,077m (2005: Â£2,872m). The inclusion of Absa increased fee and commission income by Â£479m in the first half of 2006. Excluding Absa, fee and commission income grew 25%, driven by a broad based performance across the Group, particularly within Barclays Global Investors reflecting increases in both management and incentive fees, higher asset values, higher market levels and a strong investment performance. Fee and commission expense increased 28% (Â£93m) to Â£425m (2005: Â£332m), largely reflecting the inclusion of Absa, which added Â£43m, and increases in Barclaycard. Net fee and commission income increased 44% (Â£1,112m) to Â£3,652m (2005: Â£2,540m). The inclusion of Absa increased net fee and commission income by Â£436m in the first-half of 2006. Group net fee and commission income excluding Absa grew 27%, reflecting growth across all businesses. Total foreign exchange income was Â£457m (2005: Â£298m) and consisted of revenues earned from both retail and wholesale activities. Foreign exchange income earned on customer transactions by UK Retail Banking, UK Business Banking, International Retail and Commercial Banking, Barclaycard, Barclays Global Investors and Wealth Management, both externally and with Barclays Capital, is reported in those respective business units within fee and commission income. The foreign exchange income earned in Barclays Capital and in Treasury is reported within trading income. Principal transactions Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Rates related business 1,636 873 859 Credit related business 565 272 317 -------- -------- -------- Net trading income 2,201 1,145 1,176 -------- -------- -------- Cumulative gain from disposal of available for sale assets/investment securities 120 33 87 Dividend income 18 9 13 Net income from financial instruments 86 214 175 designated at fair value Other investment income 150 229 98 -------- -------- -------- Net investment income 374 485 373 -------- -------- -------- Principal transactions 2,575 1,630 1,549 -------- -------- -------- Most of the Group's trading income is generated in Barclays Capital. Net trading income increased 87% (Â£1,025m) to Â£2,201m (2005: Â£1,176m) due to strong performances across Barclays Capital Rates and Credit businesses, in particular in fixed income, equities, commodities and credit derivative products. This was driven by higher volumes of client-led activity across a broad range of products and geographical regions and by the continued return on prior year investments. The inclusion of Absa increased net trading income by Â£31m in the first-half of 2006. Group net trading income excluding Absa grew 85%. Net investment income remained flat at Â£374m (2005: Â£373m). The inclusion of Absa increased net investment income by Â£32m in the first-half of 2006. The cumulative gain from disposal of available for sale assets and investment securities increased 38% (Â£33m) to Â£120m (2005: Â£87m) driven by investment realisations primarily in Private Equity. Fair value movements on certain assets and liabilities have been reported within net trading income or within net investment income depending on the nature of the transaction. Fair value movements on insurance assets included within net investment income contributed Â£46m (2005: Â£149m). Net premiums from insurance contracts Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Gross premiums from insurance 536 524 385 contracts Premiums ceded to reinsurers (26) (23) (14) -------- -------- -------- Net premiums from insurance contracts 510 501 371 -------- -------- -------- Net premiums from insurance contracts increased 37% (Â£139m) to Â£510m (2005: Â£371m). The inclusion of Absa increased net premiums from insurance contracts by Â£124m in the first half of 2006. Group net premiums from insurance contracts excluding Absa increased 4% reflecting growth in UK consumer lending. Other income Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m (Decrease)/increase in fair value of assets held in respect of linked liabilities to customers under investment contracts (2,960) 2,349 6,885 Decrease/(increase) in liabilities held in respect of linked liabilities to customers under investment contracts 2,960 (2,349) (6,885) Property rentals 28 29 25 Other 33 69 24 -------- -------- -------- Other income 61 98 49 -------- -------- -------- Certain asset management products offered to institutional clients by Barclays Global Investors are recognised as investment contracts. Accordingly the invested assets and the related liabilities to investors are held at fair value and changes in those fair values are reported within Other income. Net claims and benefits paid on insurance contracts Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Gross claims and benefits paid on insurance contracts 235 398 296 Reinsurers' share of claims paid (2) (40) (9) -------- -------- -------- Net claims and benefits paid on insurance contracts 233 358 287 -------- -------- -------- Net claims and benefits paid on insurance contracts decreased 19% (Â£54m) to Â£233m (2005: Â£287m). The inclusion of Absa increased net claims and benefits by Â£54m. Net claims and benefits paid on insurance contracts excluding Absa decreased 38%, principally reflecting lower claims and benefits in Wealth Management - closed life assurance activities due to market conditions in the period. Impairment charges Half-year ended 30.06.06 31.12.05 30.06.05 Impairment charges on loans and Â£m Â£m Â£m advances - New and increased impairment allowances 1,257 1,184 945 - Releases (151) (199) (134) - Recoveries (125) (124) (98) -------- -------- -------- Impairment charges on loans and advances (see note 5) 981 861 713 Credit provisions Charges for the period in respect of provision for undrawn contractually committed facilities and guarantees provided (7) - (7) -------- -------- -------- Impairment charges on loans and advances and credit provisions 974 861 706 Impairment on available for sale assets 83 4 - -------- -------- -------- Total impairment charges 1,057 865 706 -------- -------- -------- Total impairment charges increased 50% (Â£351m) to Â£1,057m (2005: Â£706m). Impairment charges on loans and advances and credit provisions Impairment charges on loans and advances and credit provisions increased 38% (Â£268m) to Â£974m (2005: Â£706m). Excluding Absa, the increase was 30% and reflected the continued challenging credit environment in UK unsecured retail lending. Steady conditions in the wholesale sector persisted, with a low level of corporate defaults. In the UK, consumers faced continued pressure on household cash flows. High debt levels and changing social attitudes to bankruptcy and debt default contributed to increased impairment charges. In UK credit cards, the quality of new business continued to improve, reflecting a continued tightening of underwriting standards. Despite these improvements, the value of debt in arrears rose because of an increase in the average value of debt per customer whilst the number of customers in delinquency decreased. In unsecured loans, delinquency rates were steady in the first half of 2006 and customers in delinquency decreased but the higher rate of bankruptcy has increased the level of charge-offs. Impairment on unsecured loans grew but at a slower rate than seen in UK Cards. In UK Home Finance, delinquencies were flat and amounts charged-off remained low. Smaller business continued to see some deterioration in delinquency rates from a historically low base. Group impairment charges on loans and advances on an annualised basis amounted to 0.61% (2005: 0.52%), as a percentage of period-end total loans and advances of Â£320,831m (30th June 2005: Â£275,188m). Retail impairment charges increased to Â£839m (2005: Â£582m), including Â£39m in respect of Absa. Retail impairment charges on loans and advances on an annualised basis amounted to 1.25% (2005: 1.06%) of period end loans and advances of Â£134,534m (30th June 2005: Â£109,566m). In the wholesale and corporate businesses, impairment charges on loans and advances increased to Â£142m (2005: Â£131m), including Â£13m in respect of Absa. The increase occurred primarily in UK Business Banking and reflected the growth in lending balances and the inclusion of Iveco Finance. The wholesale and corporate impairment charge on an annualised basis amounted to 0.15% (2005: 0.16%) as a percentage of period end total loans and advances of Â£186,297m (30th June 2005: Â£165,622m). Impairment on available for sale assets Impairment charges of Â£83m related to losses on assets in the available for sale portfolio where an intention to sell caused the losses to be treated as other than temporary in nature. This impairment charge arose from interest rate movements rather than credit deterioration. There was a corresponding gain which was recognised in net trading income. Operating expenses Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Staff costs (refer to page 52) 4,147 3,464 2,854 Administrative expenses 1,916 2,061 1,382 Depreciation 207 210 152 Impairment loss - property and equipment 6 - - - intangible assets - 9 - Operating lease rentals 168 179 137 Gains on sale and leaseback of property (238) - - Amortisation of intangible assets 63 62 17 -------- -------- -------- Operating expenses 6,269 5,985 4,542 -------- -------- -------- Operating expenses increased 38% (Â£1,727m) to Â£6,269m (2005: Â£4,542m). The inclusion of Absa added operating expenses of Â£781m. Group operating expenses excluding Absa grew 21%, reflecting a higher level of business activity and an increase in performance related pay. Operating expenses were reduced by gains from the sale and leaseback of property of Â£238m (2005: Â£nil) as the Group took advantage of historically low yields on property to realise gains on some of its freehold portfolio. The gains within UK Banking of Â£145m were largely offset by incremental investment. Administrative expenses increased 39% (Â£534m) to Â£1,916m (2005: Â£1,382m). The inclusion of Absa added administrative expenses of Â£314m in the first half of 2006. Group administrative expenses excluding Absa grew 16% principally as a result of higher business activity in Barclays Global Investors, Barclays Capital and Barclaycard International. Operating lease rentals increased 23% (Â£31m) to Â£168m (2005: Â£137m). The inclusion of Absa added operating lease rentals of Â£43m in the first half of 2006 which more than offset the absence of double occupancy costs incurred in 2005, associated with the head office relocation to Canary Wharf. The increase in the amortisation of intangible assets primarily arises following the acquisition of Absa Group Limited on 27th July 2005. The Group cost:income ratio remained flat at 57% (2005: 57%). This reflected improved productivity across all businesses, which was offset by the inclusion of Absa. The Group cost:net income ratio was 63% (2005: 63%). Staff costs Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Salaries and accrued incentive payments 3,364 2,780 2,256 Social security costs 292 215 197 Pension costs - defined contribution plans 55 36 40 - defined benefit plans 142 115 156 Other post retirement benefits 15 14 13 Other 279 304 192 -------- -------- -------- Staff costs 4,147 3,464 2,854 -------- -------- -------- Staff costs increased 45% (Â£1,293m) to Â£4,147m (2005: Â£2,854m). The inclusion of Absa added staff costs of Â£347m. Excluding the impact of Absa, staff costs increased 33%. Salaries and accrued incentive payments rose 49% (Â£1,108m) to Â£3,364m (2005: Â£2,256m). The inclusion of Absa added Â£316m. Excluding Absa, salaries and accrued incentive payments rose 35%, principally due to performance related payments in Barclays Capital and Barclays Global Investors. Pension costs comprise all UK and international pension schemes. Included in pension costs is a charge of Â£147m (2005: Â£155m) in respect of the Group's main UK pension schemes. Staff numbers As at 30.06.06 31.12.05 30.06.05 Staff numbers: UK Banking 41,500 39,800 40,600 -------- -------- -------- UK Retail Banking 33,600 32,000 33,000 UK Business Banking 7,900 7,800 7,600 -------- -------- -------- Barclaycard 8,400 7,800 7,200 International Retail and Commercial Banking 47,000 45,400 12,400 -------- -------- -------- International Retail and Commercial Banking-ex Absa 13,300 12,700 12,400 International Retail and Commercial Banking-Absa 33,700 32,700 - -------- -------- -------- Barclays Capital 10,500 9,900 8,400 Barclays Global Investors 2,400 2,300 2,100 Wealth Management 7,500 7,200 7,200 Head office functions and other operations 1,000 900 900 Total Group permanent and fixed term contract staff worldwide 118,300 113,300 78,800 Agency staff worldwide 8,700 7,000 4,300 -------- -------- -------- Total including agency staff 127,000 120,300 83,100 -------- -------- -------- Staff numbers are shown on a full-time equivalent basis. Total Group permanent and contract staff comprised 61,900 (31st December 2005: 59,100) in the UK and 56,400 (31st December 2005: 54,200) internationally. UK Banking staff numbers increased by 1,700 to 41,500 (31st December 2005: 39,800), primarily reflecting the inclusion in UK Retail Banking of mortgage processing staff involved in activities previously outsourced. Barclaycard staff numbers rose by 600 to 8,400 (31st December 2005: 7,800), reflecting growth of 200 in Barclaycard US, and increases in operations and customer facing staff in the UK. International Retail and Commercial Banking increased staff numbers by 1,600 to 47,000 (31st December 2005: 45,400). International Retail and Commercial Banking - excluding Absa increased staff numbers by 600 to 13,300 (31st December 2005: 12,700), mainly due to growth in continental Europe. International Retail and Commercial Banking - Absa increased staff numbers by 1,000 to 33,700 (31st December 2005: 32,700), reflecting continued growth in the business. Barclays Capital staff numbers rose by 600 to 10,500 (31st December 2005: 9,900). Growth was broadly based across all regions and reflected investments in the front office, systems development and control functions to support greater business volumes. The growth year on year includes the impact of Absa Capital staff, which were included from July 2005. Barclays Global Investors increased staff numbers by 100 to 2,400 (31st December 2005: 2,300) reflecting investment to support strategic initiatives. Wealth Management staff numbers rose by 300 to 7,500 (31st December 2005: 7,200) to support the expansion of the business. Head office functions and other operations staff numbers grew 100 to 1,000 (31st December 2005: 900). Agency staff numbers rose by 1,700 to 8,700 (31st December 2005: 7,000), largely due to an increase in Absa. Share of post-tax results of associates and joint ventures Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Profit from associates 29 38 15 Profit/(loss) from joint ventures 1 (9) 1 -------- -------- -------- Share of post-tax results of associates and joint ventures 30 29 16 -------- -------- -------- The share of post-tax results of associates and joint ventures increased 88% (Â£14m) to Â£30m (2005: Â£16m). The increase in profit from associates primarily reflects the addition of the Absa associates. Tax The charge for the period is based upon a UK corporation tax rate of 30% for the calendar year 2006 (full-year 2005: 30%). The effective rate of tax for the first half of 2006, based on profit before tax, was 29.2% (2005: 26.6%). The effective tax rate differs from 30% as it takes account of the different tax rates which are applied to the profits earned outside the UK, disallowable expenditure, tax-free income and adjustments to prior year tax provisions. The effective tax rate for 2006 is higher than in the prior period principally due to the higher tax rates applicable to international operations. The tax charge for the first half of the year includes Â£640m (2005: Â£477m) arising in the UK and Â£432m (2005: Â£238m) arising overseas. Profit attributable to minority interests Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Absa Group Limited minority interests 122 116 - Preference shares 85 80 33 Reserve capital instruments 47 28 65 Upper tier 2 instruments 7 4 7 Barclays Global Investors minority interests 26 22 19 Other minority interests 7 10 10 -------- -------- -------- Profit attributable to minority interests 294 260 134 -------- -------- -------- Profit attributable to minority interests increased Â£160m to Â£294m (2005: Â£134m) largely reflecting the acquisition of Absa Group Limited on 27th July 2005 and the associated preference share funding. Earnings per share Half-year ended 30.06.06 31.12.05 30.06.05 Profit attributable to equity holders of the parent Â£2,307m Â£1,606m Â£1,841m Dilutive impact of convertible options (Â£17m) (Â£29m) - -------- -------- -------- Profit attributable to equity holders of the parent including dilutive impact of convertible options Â£2,290m Â£1,577m Â£1,841m Basic weighted average number of shares in issue 6,353m 6,335m 6,337m Number of potential ordinary shares(1) 177m 156m 141m -------- -------- -------- Diluted weighted average number of shares 6,530m 6,491m 6,478m -------- -------- -------- Basic earnings per ordinary share 36.3p 25.4p 29.1p Diluted earnings per ordinary share 35.1p 24.3p 28.4p The calculation of basic earnings per share is based on the profit attributable to equity holders of the parent and the weighted average number of shares excluding own shares held in employee benefit trusts, currently not vested and shares held for trading. When calculating the diluted earnings per share, the profit attributable to equity holders of the parent is adjusted for the conversion of outstanding options into shares within certain subsidiary entities. The weighted average number of ordinary shares excluding own shares held in employee benefit trusts currently not vested and shares held for trading, is adjusted for the effects of all dilutive potential ordinary shares, totalling 177 million (2005: 141 million). (1) Potential ordinary shares reflect the dilutive impact of share options outstanding. Dividends on ordinary shares The Board has decided to pay, on 2nd October 2006, an interim dividend for the year ended 31st December 2006 of 10.5p per ordinary share for shares registered in the books of the Company at the close of business on 18th August 2006. The interim dividend of 9.2p per ordinary share for the year ended 31st December 2005 was paid on 3rd October 2005 and the final dividend for the year ended 31st December 2005 of 17.4p per ordinary share was paid on 28th April 2006. Shareholders who have their dividends paid direct to their bank or building society account will receive a consolidated tax voucher detailing the dividends paid in the 2006-2007 tax year in mid-October 2006. The amount payable for the 2006 interim dividend is Â£667m (half-year ended 31st December 2005: Â£1,105m; half-year ended 30th June 2005: Â£582m). This amount excludes Â£16m payable on Barclays shares held by employee benefit trusts (half year ended 31st December 2005: Â£24m; half year ended 30th June 2005: Â£12m). For qualifying US and Canadian resident ADR holders, the interim dividend of 10.5p per ordinary share becomes 42p per ADS (representing four shares). The ADR depositary will mail the dividend on 2nd October 2006 to ADR holders on the record on 18th August 2006. For qualifying Japanese shareholders, the final dividend of 10.5p per ordinary share will be distributed in mid-October to shareholders on the record on 18th August 2006. Shareholders may have their dividends reinvested in Barclays PLC shares by participating in the Barclays Dividend Reinvestment Plan. The plan is available to all shareholders, including members of Barclays Sharestore, provided that they do not live in or are subject to the jurisdiction of any country where their participation in the plan would require Barclays or The Plan Administrator to take action to comply with local government or regulatory procedures or any similar formalities. Any shareholder wishing to obtain details and a form to join the plan should contact The Plan Administrator by writing to: The Plan Administrator to Barclays, Share Dividend Team, The Causeway, Worthing, West Sussex, BN99 6DA; or, by telephoning 0870 609 4535. The completed form should be returned to The Plan Administrator on or before 8th September 2006 for it to be effective in time for the payment of the interim dividend on 2nd October 2006. Shareholders who are already in the plan need take no action unless they wish to change their instructions in which case they should write to The Plan Administrator. Analysis of amounts included in the balance sheet Capital resources As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Shareholders' equity excluding minority interests 17,988 17,426 16,099 -------- -------- -------- Preference shares 3,435 2,977 2,971 Reserve capital instruments 1,922 1,868 1,929 Upper tier 2 instruments 586 581 586 Absa minority interests 1,397 1,351 - Other minority interests 211 227 200 -------- -------- -------- Minority interests 7,551 7,004 5,686 -------- -------- -------- Total shareholders' equity 25,539 24,430 21,785 Subordinated liabilities 13,629 12,463 11,309 -------- -------- -------- Total capital resources 39,168 36,893 33,094 -------- -------- -------- The authorised share capital of Barclays PLC is Â£2,500m (31st December 2005: Â£2,500m) comprising 9,996 million (31st December 2005: 9,996 million) ordinary shares of 25p shares and 1 million (31st December 2005: 1 million) staff shares of Â£1 each. Called up share capital comprises 6,509 million (31st December 2005: 6,490 million) ordinary shares of 25p each and 1 million (31st December 2005: 1 million) staff shares of Â£1 each. Total capital resources increased Â£2,275m to Â£39,168m since 31st December 2005. Shareholders' equity, excluding minority interests, increased Â£562m since 31st December 2005. The current period increase reflects profits attributable to equity holders of the parent of Â£2,307m, increases in share capital and share premium of Â£75m and other increases in retained reserves of Â£120m. Offsetting these movements were dividends paid of Â£1,105m, decreases in the available for sale and cash flow hedging reserves of Â£216m and Â£242m respectively, a Â£332m decrease in the translation reserve and a Â£45m decrease due to changes in treasury and ESOP shares. Subordinated liabilities rose Â£1,166m since 31st December 2005 reflecting capital raisings of Â£1,926m and accrued interest of Â£15m; offset by exchange rate movements of Â£352m, redemptions of Â£129m, fair value adjustments of Â£280m and amortisation of issue expenses of Â£14m. Minority interests increased Â£547m since 31st December 2005. The increase primarily reflected the issue, during April 2006, of 30,000,000 preference shares of US$25 each (US$750m; Â£419m) with a 6.625% dividend. Capital ratios Risk weighted assets and capital resources, as defined for supervisory purposes by the Financial Services Authority, comprised: As at 30.06.06 31.12.05 30.06.05 Risk weighted assets: Â£m Â£m Â£m Banking book On-balance sheet 190,979 180,808 159,927 Off-balance sheet 33,010 31,351 30,090 Associated undertakings and joint ventures 6,351 3,914 3,299 -------- -------- -------- Total banking book 230,340 216,073 193,316 -------- -------- -------- Trading book Market risks 27,477 23,216 26,432 Counterparty and settlement risks 33,107 29,859 22,658 -------- -------- -------- Total trading book 60,584 53,075 49,090 -------- -------- -------- Total risk weighted assets 290,924 269,148 242,406 -------- -------- -------- Capital resources: Tier 1 Called up share capital 1,628 1,623 1,616 Eligible reserves 18,061 16,837 15,544 Minority interests(1) 7,629 6,634 5,237 Tier one notes(2) 941 981 957 Less: intangible assets (7,242) (7,180) (4,880) -------- -------- -------- Total qualifying tier 1 capital 21,017 18,895 18,474 -------- -------- -------- Tier 2 Revaluation reserves 25 25 25 Available for sale-equity gains 188 223 - Collectively assessed impairment allowances 2,593 2,306 2,067 Minority Interests 479 515 494 Qualifying subordinated liabilities(3) Undated loan capital 3,200 3,212 3,210 Dated loan capital 8,157 7,069 6,560 -------- -------- -------- Total qualifying tier 2 capital 14,642 13,350 12,356 -------- -------- -------- Less: Supervisory deductions: Investments not consolidated for supervisory purposes (946) (782) (696) Other deductions (998) (961) (713) -------- -------- -------- (1,944) (1,743) (1,409) -------- -------- -------- Total net capital resources 33,715 30,502 29,421 -------- -------- -------- Tier 1 ratio 7.2% 7.0% 7.6% Risk asset ratio 11.6% 11.3% 12.1% (1) Includes reserve capital instruments of Â£2,158m (31st December 2005: Â£1,735m; 30th June 2005: Â£1,679m). Minority interests include an issue of Â£500m of reserve capital instruments raised during the first half of 2006 which is eligible for inclusion in tier 1 capital. This issue is classified within subordinated liabilities on the balance sheet. (2) Tier one notes are included in subordinated liabilities in the consolidated balance sheet. (3) Subordinated liabilities are included in tier 2, subject to limits laid down in the supervisory requirements. At 30th June 2006, the Tier 1 capital ratio was 7.2% and the risk asset ratio was 11.6%. From 31st December 2005, net total capital resources rose Â£3.2bn and risk weighted assets increased Â£21.8bn. Tier 1 capital rose Â£2.1bn, including Â£1.2bn arising from profits attributable to equity holders net of dividends paid. Minority interests within Tier 1 capital increased Â£1.0bn primarily due to the issuance of Â£0.5bn of Reserve Capital Instruments and Â£0.6bn of preference shares. Tier 2 capital increased Â£1.3bn mainly as a result of the issuance of Â£1.4bn of loan capital. The weakening of the Rand against Sterling had a positive impact on capital ratios for the first half of 2006. Reconciliation of regulatory capital Capital is defined differently for accounting and regulatory purposes. A reconciliation of shareholders' equity for accounting purposes to called up share capital and eligible reserves for regulatory purposes, is set out below: As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Shareholders' equity excluding minority interests 17,988 17,426 16,099 Available for sale reserve (9) (225) (374) Cash flow hedging reserve 172 (70) (328) Retained earnings Defined benefit pension scheme 1,302 1,215 1,401 Additional companies in regulatory consolidation and non-consolidated companies (101) (145) 5 Foreign exchange on RCIs and upper tier 2 loan stock 398 289 390 Other adjustments (61) (30) (33) -------- -------- -------- Called up share capital and eligible reserves for regulatory purposes 19,689 18,460 17,160 -------- -------- -------- Total assets and risk weighted assets Total assets increased 7% to Â£986.1bn (31st December 2005: Â£924.4bn). Risk weighted assets increased 8% to Â£290.9bn (31st December 2005: Â£269.1bn). UK Retail Banking total assets increased 1% to Â£70.9bn (31st December 2005: Â£70.4bn). Risk weighted assets increased 3% to Â£33.8bn (31st December 2005: Â£32.8bn), due to asset growth, small changes in the asset weighting mix and a reduced benefit from credit mitigation transactions in mortgages. UK Business Banking total assets increased 6% to Â£63.5bn (31st December 2005: Â£59.9bn), reflecting strong growth in loans and advances to customers. Risk weighted assets increased 8% to Â£50.8bn (31st December 2005: Â£47.1bn), broadly in line with total asset growth. Barclaycard total assets increased 3% to Â£26.6bn (31st December 2005: Â£25.8bn) driven by growth in lending balances. Risk weighted assets increased by 10% to Â£24.0bn (31st December 2005: Â£21.8bn) primarily due to balance sheet growth and a reduction in securitised balances. International Retail and Commercial Banking - excluding Absa total assets increased 5% to Â£35.8bn (31st December 2005: Â£34.2bn) primarily reflected strong volume growth in continental European mortgages. Risk weighted assets increased 5% to Â£21.4bn (31st December 2005: Â£20.4bn), reflecting the balance sheet growth. International Retail and Commercial Banking - Absa total assets were Â£29.3bn (31st December 2005: Â£29.4bn) and risk weighted assets Â£20.7bn (31st December 2005: Â£20.8bn). In Rand terms assets grew 21% to R386bn (31st December 2005: R319bn) and risk weighted assets grew 20% to R273bn (31st December 2005: R226bn). Growth in Rand terms was more than offset by the depreciation in the Rand exchange rate against Sterling. Barclays Capital total assets increased 10% to Â£659.3bn (31st December 2005: Â£601.2bn). This was mainly attributable to increases in debt and equity securities held in the trading portfolio and in reverse repurchase agreements, as the business continued to grow in Europe, the US and Asia. Settlement balances were also higher compared to December as a result of seasonal fluctuations in trading related activity. Risk weighted assets increased 12% to Â£130.5bn (31st December 2005: Â£116.7bn). This increase reflected the growth in the business. Barclays Global Investors total assets decreased 4% to Â£77.3bn (31st December 2005: Â£80.9bn). The substantial majority of total assets related to asset management products where equal and offsetting balances are reflected within liabilities to customers. Risk weighted assets decreased 5% to Â£1.4bn (31st December 2005: Â£1.5bn). Wealth Management total assets increased 12% to Â£6.8bn (31st December 2005: Â£6.1bn) principally reflecting good growth in lending balances. Risk weighted assets increased 21% to Â£4.9bn (31st December 2005: Â£4.1bn). Head office functions and other operations total assets remained flat at Â£9.3bn (31st December 2005: Â£9.3bn). Risk weighted assets decreased 15% to Â£3.4bn (31st December 2005: Â£4.0bn). Economic capital Barclays assesses capital requirements by measuring the Group risk profile using both internally and externally developed models. The Group assigns economic capital primarily within seven risk categories: Credit Risk, Market Risk, Business Risk, Operational Risk, Insurance Risk, Fixed Assets and Private Equity. The Group regularly enhances its economic capital methodology and benchmarks outputs to external reference points. The framework has been enhanced to reflect default probabilities during average credit conditions, rather than those prevailing at the balance sheet date, thus seeking to remove cyclicality from the economic capital calculation. The framework also adjusts economic capital to reflect time horizon, correlation of risks and risk concentrations. Economic capital is allocated on a consistent basis across all of Barclays businesses and risk activities. A single cost of equity is applied to calculate the cost of risk. Economic capital allocations reflect varying levels of risk. The total average economic capital required by the Group, as determined by risk assessment models and after considering the Group's estimated portfolio effects, is compared with the supply of economic capital to evaluate economic capital utilisation. Supply of economic capital is calculated as the average available shareholders' equity after adjustment and including preference shares. The economic capital methodology will form the basis of the Group's submission for the Basel II Internal Capital Adequacy Assessment Process (ICAAP). Economic capital demand(1) Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m UK Banking 5,000 4,900 4,800 -------- -------- -------- UK Retail Banking 2,400 2,400 2,300 UK Business Banking 2,600 2,500 2,500 -------- -------- -------- Barclaycard 3,000 2,950 2,650 International Retail and Commercial Banking 1,850 1,700 1,100 -------- -------- -------- International Retail and Commercial Banking-ex Absa 1,150 1,150 1,100 International Retail and Commercial Banking-Absa(2) 700 550 - -------- -------- -------- Barclays Capital 3,600 3,100 2,700 Barclays Global Investors 150 150 150 Wealth Management 350 400 400 Wealth Management - closed life assurance activities 50 50 50 Head office functions and other operations(3) 250 300 250 -------- -------- -------- Business unit economic capital 14,250 13,550 12,100 Capital held at Group centre(4) 900 950 1,600 -------- -------- -------- Economic capital requirement (excluding goodwill) 15,150 14,500 13,700 Average historic goodwill and intangible assets(5) 7,900 7,150 5,800 -------- -------- -------- Total economic capital requirement(6) 23,050 21,650 19,500 -------- -------- -------- UK Retail Banking economic capital allocation remained unchanged at Â£2,400m. UK Business Banking economic capital allocation increased Â£100m to Â£2,600m as asset growth was offset by changes to estimates of risk correlation. Barclaycard economic capital allocation increased Â£50m to Â£3,000m, reflecting portfolio growth in the UK and Barclaycard US. International Retail and Commercial Banking - excluding Absa economic capital remained unchanged at Â£1,150m as portfolio growth in primarily in Africa, Italy and Spain was offset by changes to estimates of risk correlation. International Retail and Commercial Banking - Absa economic capital increased Â£150m to Â£700m, after excluding the risk borne by the minority interest. The allocation reflects six months of ownership, compared to the five months held in the second half of 2005. (1) Calculated using a five point average over the year. For the half-year a three point average is used. (2) For the second half of 2005 average economic capital demand for Absa relates to 5 months. (3) Includes Transition Businesses and capital for central function risks. (4) The Group's practice is to maintain an appropriate level of excess capital, held at Group centre, which is not allocated to business units. This variance arises as a result of capital management timing and includes capital held to cover pension contribution risk. (5) Average goodwill relates to purchased goodwill and intangible assets from business acquisitions and (with effect from 2006) capitalised software. Absa goodwill is included for 5 months of the second-half of 2005. As at 30th June 2006 Absa goodwill and intangibles amounted to Â£1,800m and total goodwill and intangibles was Â£8,100m. (6) Total period-end economic capital requirement as at 30th June 2006 stood at Â£24,100m (31st December 2005: Â£21,850m; 30th June 2005: Â£20,750m). Barclays Capital economic capital allocation increased Â£500m to Â£3,600m, reflecting underlying growth in derivative and loan portfolios and a methodology enhancement to include specific market risk not previously measured in DVaR and growth in Private Equity investments. Wealth Management economic capital allocation decreased Â£50m to Â£350m following changes in estimates of risk correlation. Capital held at the Group centre decreased Â£50m to Â£900m as a result of growth in the businesses being partially offset by an increase in available funds to support economic capital (see Economic capital supply on page 65). Economic capital supply The capital resources to support economic capital comprise adjusted shareholders' equity including preference shares but excluding other minority interests. Preference shares have been issued to optimise the long-term capital base of the Group. The capital resources to support economic capital are impacted by a number of factors arising from the application of IFRS and are modified in calculating available funds for economic capital. This applies specifically to: â€¢ Cashflow hedging reserve - to the extent that the Group undertakes the hedging of future cash flows, shareholders' equity will include gains and losses which will be offset against the gain or loss on the hedged item when it is recognised in the income statement at the conclusion of the future hedged transaction. Given the future offset of such gains and losses, they are excluded from shareholders' equity when calculating economic capital. â€¢ Available for sale reserve - unrealised gains and losses on such securities are included in shareholders' equity until disposal or impairment. Such gains and losses are excluded from shareholders' equity for the purposes of calculating economic capital. Realised gains and losses, foreign exchange translation differences and any impairment charges recorded in the income statement will impact economic profit. â€¢ Retirement benefits liability - the Group has recorded a deficit with a consequent reduction in shareholders' equity. This represents a non-cash reduction in shareholders' equity. For the purposes of calculating economic capital, the Group will not deduct the pension deficit from shareholders' equity. The average supply of capital to support the economic capital framework is set out below(1): Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Shareholders' equity excluding 10,750 10,650 11,000 minority interests less goodwill(2) Retirement benefits liability 1,300 1,350 1,500 Cashflow hedging reserve 50 (200) (250) Available for sale reserve (50) (250) (300) Preference shares 3,100 2,950 1,750 -------- -------- -------- Available funds for economic capital excluding goodwill 15,150 14,500 13,700 Average historic goodwill and intangible assets(2) 7,900 7,150 5,800 -------- -------- -------- Available funds for economic capital(3) 23,050 21,650 19,500 -------- -------- -------- (1) Averages for the period will not correspond to period-end balances disclosed in the balance sheet. Numbers are rounded to the nearest Â£50m for presentational purposes only. (2) Average goodwill relates to purchased goodwill and intangible assets from business acquisitions, and (with effect from 2006) capitalised software. (3) Available funds for economic capital as at 30th June 2006 stood at Â£24,100m (31st December 2005: Â£21,850m; 30th June 2005: Â£20,750m). Economic profit Economic profit comprises: â€¢ Profit after tax and minority interests; less â€¢ Capital charge (average shareholders' equity excluding minority interests multiplied by the Group cost of capital). The Group cost of capital has been applied at a uniform rate of 9.5%(1). The costs of servicing preference shares are included in minority interests. The economic profit performance in 2006 and 2005 is shown below: Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Profit after tax and minority 2,307 1,606 1,841 interests -------- -------- -------- Addback of amortisation charged on acquired intangible assets(2) 23 22 7 -------- -------- -------- Profit for economic profit purposes 2,330 1,628 1,848 -------- -------- -------- Average shareholders' equity excluding minority interests (3), (4) 10,750 10,650 11,000 Adjust for unrealised loss/(gains) on cashflow hedge reserve(4) 50 (200) (250) Adjust for unrealised gains on available for sale financial instruments (4) (50) (250) (300) Add: retirements benefits liability 1,300 1,350 1,500 Goodwill and intangible assets arising on acquisitions (4),(5) 7,900 7,150 5,800 -------- -------- -------- Average shareholders' equity for economic profit purposes (3),(4) 19,950 18,700 17,750 -------- -------- -------- Capital charge at 9.5% (945) (880) (844) -------- -------- -------- Economic profit 1,385 748 1,004 -------- -------- -------- (1) The Group's cost of capital for 2006 is unchanged from 2005 at 9.5%. (2) Amortisation charged for purchased intangibles only, adjusted for tax and minority interests. (3) Average ordinary shareholders' equity for Group economic profit calculation is the sum of adjusted equity and reserves plus goodwill and intangible assets arising on acquisition, but excludes preference shares. (4) Averages for the period will not correspond exactly to period end balances disclosed in the balance sheet. Numbers are rounded to the nearest Â£50m for presentation purposes only. (5) Absa goodwill is included for 5 months for the second half of 2005. As at 30th June 2006 Absa goodwill and intangibles amounted to Â£1,800m (31st December 2005: Â£1,800m). Economic profit generated by business Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m UK Banking 641 577 553 -------- -------- -------- UK Retail Banking 314 316 270 UK Business Banking 327 261 283 -------- -------- -------- Barclaycard 55 68 115 International Retail and Commercial Banking 187 135 70 -------- -------- -------- International Retail and Commercial Banking-ex Absa 94 45 70 International Retail and Commercial Banking-Absa 93 90 - -------- -------- -------- Barclays Capital 671 323 383 Barclays Global Investors 195 170 129 Wealth Management 77 60 49 Wealth Management - closed life assurance activities 4 1 (8) Head office functions and other operations (143) (323) (17) -------- -------- -------- 1,687 1,011 1,274 Historic goodwill and intangibles arising on acquisition (376) (340) (275) Variance to average shareholders' funds (excluding minority interest) 74 77 5 -------- -------- -------- Economic profit 1,385 748 1,004 -------- -------- -------- Economic profit for the Group increased 38% (Â£381m) to Â£1,385m (2005: Â£1,004m). The rise in economic profit was greater than the increase in both profit before tax and earnings per share. This was due to the efficient use of capital across the Group more than offsetting the increased share of minority interests. Barclaycard economic profit decreased 52% (Â£60m) to Â£55m (2005: Â£115m), comprising a 14% decrease in profit before tax and a 14% increase in the economic capital charge, arising from the impact of portfolio growth on average economic capital. International Retail and Commercial Banking - excluding Absa economic profit increased 34% (Â£24m) to Â£94m (2005: Â£70m), comprising a 28% increase in profit before tax and an increase in the economic capital charge of 5%. The increase in economic capital charge reflects the impact of portfolio growth in Africa and Spain on economic capital, partly offset by changes to estimates of risk correlation. Barclays Capital economic profit increased 75% (Â£288m) to Â£671m (2005: Â£383m), comprising a 66% increase in profit before tax and a 36% increase in the economic capital charge. The increase in economic capital charge reflects the impact of portfolio growth in loan and derivative portfolios on economic capital, partly offset by methodology enhancements. Wealth Management economic profit increased 57% (Â£28m) to Â£77m (2005: Â£49m), comprising a 31% increase in profit before tax and a decrease in the economic capital charge of 8%, reflecting the benefit of changes to estimates of risk correlation on average economic capital. Group performance management Performance relative to the 2004 to 2007 goal period Barclays will continue to use goals to drive performance. At the end of 2003, Barclays established a new set of four year performance goals for the period 2004-2007 inclusive. The primary goal is to achieve top quartile Total Shareholder Return (TSR) relative to a peer group(1) of financial services companies and is unchanged from the prior goal period. TSR is defined as the value created for shareholders through share price appreciation, plus re-invested dividend payments. The peer group is regularly reviewed to ensure that it remains aligned to our business mix and the direction and scale of our ambition. In terms of progress towards Group goals, Barclays delivered Total Shareholder Return (TSR) of 38% and was positioned 7th within its peer group (third quartile) for the goal period commencing 1st January 2004. The TSR of the FTSE 100 Index for this period was 42%. At the time of setting the TSR goal, we estimated that achieving top quartile TSR would require the achievement of compound annual growth in economic profit(2) in the range of 10% to 13% per annum (Â£6.5bn to Â£7.0bn of cumulative economic profit) (3) to support top quartile TSR over the 2004-2007 goal period. Economic Profit for the first half of 2006 was Â£1.4bn, a 38% increase on the first six months of 2005. This, when added to the Â£1.8bn and Â£1.6bn generated in 2005 and 2004 respectively, delivers a cumulative total of Â£4.8bn for the goal period to date which is well ahead of the target range. (1) Peer group for 2006 remained unchanged from 2005: ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, JP Morgan, Lloyds TSB, Royal Bank of Scotland and UBS. (2) Economic profit is defined on page 66. (3) Restated for IFRS. Risk Tendency As part of its credit risk management system, the Group uses a model-based methodology to assess the point-in-time expected loss of credit portfolios across different customer categories. The approach is termed Risk Tendency and applies to credit exposures in both wholesale and retail sectors. Risk Tendency provides statistical estimates of losses expected to arise within the next year based on averages in the ranges of possible losses expected from each of the current portfolios. This can be contrasted with impairment allowances required under accounting standards, which are based on objective evidence of impairment as at the balance sheet date. Since Risk Tendency and impairment allowances are calculated for different purposes and on different bases, Risk Tendency does not predict loan impairment. Risk Tendency is provided to present a view of the evolution of the quality and scale of the credit portfolios. As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m UK Banking 470 430 400 -------- -------- -------- UK Retail Banking 195 180 170 UK Business Banking 275 250 230 -------- -------- -------- Barclaycard 1,340 1,100 980 International Retail and Commercial Banking 195 175 75 -------- -------- -------- International Retail and Commercial Banking-ex Absa 70 75 75 International Retail and Commercial Banking-Absa 125 100 - -------- -------- -------- Barclays Capital 125 110 80 Wealth Management 10 5 5 Transition Businesses(1) 25 25 35 -------- -------- -------- 2,165 1,845 1,575 -------- -------- -------- Risk Tendency increased 17% (Â£320m) to Â£2,165m (31st December 2005: Â£1,845m). The principal increase in Risk Tendency occurred in Barclaycard, where Risk Tendency rose Â£240m to Â£1,340m, reflecting the deterioration of credit conditions in the UK credit card and unsecured loan market and enhancements to the methodology. Risk Tendency growth in the other businesses largely reflected credit conditions and loan growth. (1) Included within head office functions and other operations. ADDITIONAL INFORMATION Group reporting changes in 2006 Barclays announced on 16th June 2006 the impact of certain changes in Group structure and reporting on 2005 and 2004 results. Barclays has realigned a number of reportable business segments based on the reorganisation of certain portfolios better to reflect the type of client served, the nature of the products offered and the associated risks and rewards. The Group's policy for the internal cost of funding and the segmental disclosure of risk weighted assets was also revised with effect from 1st January 2006. The restatements have no impact on the Group Income Statement or Balance Sheet. Group structure changes - effective 1st January 2006 UK Retail Banking comprises Personal Customers, Local Business (formerly Small Business), UK Premier and Home Finance (formerly Mortgages). A number of smaller business clients previously within UK Business Banking are now managed and reported within UK Retail Banking. UK Business Banking comprises Larger Business and Medium Business including Asset and Sales Finance. A number of financial institution, large corporate and property clients previously within UK Business Banking are now managed by and reported in Barclays Capital. A number of smaller business clients previously within UK Business Banking are now managed and reported within UK Retail Banking. Certain portfolios have been reclassified as businesses in transition and are now managed and reported in Head office functions and other operations. International Retail and Commercial Banking - Absa. The majority of Absa Corporate and Merchant Banking has been relaunched as Absa Capital and is being managed and reported in Barclays Capital. Barclays Capital has added a number of financial institutions, large corporates and property companies previously managed within UK Business Banking and International Retail and Commercial Banking - Absa. Head office functions and other operations. Certain lending portfolios previously managed within UK Business Banking have been reclassified as businesses in transition. These businesses are now centrally managed with the objective of maximising the recovery from these assets. The structure remains unchanged for: Barclays Global Investors; Wealth Management; Wealth Management - closed life assurance activities; Barclaycard and; International Retail and Commercial Banking excluding - Absa. Changes to internal cost of funding - effective 1st January 2006 All transactions between the businesses are conducted on an arm's length basis. Internal charges and transfer pricing adjustments are reflected in the performance of each business. Head office functions and other operations contains a centralised Treasury function which manages the Group's capital base, generating a net interest income. Previously the net interest income was allocated to the businesses based on the level of economic capital held by each business as a proportion of that held by the Group, which ensured a nil net interest income result in Treasury. The allocation is now determined by applying Treasury's effective rate of return on capital to the average economic capital held by each business. Changes to risk weighted assets by business - effective 1st January 2006 Under the Group's securitisation programme, certain portfolios of loans and advances to customers and other assets subject to securitisation or similar risk transfer are adjusted in calculating the Group's risk weighted assets. With effect from 1st January 2006 the costs associated with each securitisation, which were previously held centrally, will be allocated to the relevant businesses. The regulatory capital adjustments arising from the securitisation programme will be attributed to the business which bears the costs. Acquisitions and disposals On 1st January 2006 Barclays completed the sale to Absa Group Limited of the Barclays South African branch business. This business consists of the Barclays Capital South African operations and Corporate and Business Banking activities previously carried out by the South African Branch of International Retail and Commercial Banking - excluding Absa, together with the associated assets and liabilities. On 29th June 2006, a wholly-owned subsidiary of Barclays Bank PLC acquired a 16% minority equity stake in Greenergy International Limited, a UK based fuels and biofuels company, for a cash consideration of Â£12m. Basis of Preparation There have been no significant changes to the accounting policies described in the 2005 Annual Report. Therefore the information in this announcement has been prepared using the accounting policies and presentation applied in 2005. Future accounting developments IFRS 7 ('Financial Instruments Disclosures') and an amendment to IAS 1 ('Presentation of Financial Statements') on capital disclosures were issued by the IASB in August 2005 for application in accounting periods beginning on or after 1st January 2007 and have been adopted by the European Commission. The new or revised disclosures will be adopted by the Group for reporting in 2007. Consideration will be given during 2006 to the implications, if any, of the following International Financial Reporting Interpretations Committee (IFRIC) interpretations issued during 2005 and 2006 which first apply to accounting periods beginning on or after 1st January 2007: â€¢ Interpretation 7 - Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies â€¢ Interpretation 8 - Scope of IFRS 2 â€¢ Interpretation 9 - Reassessment of Embedded Derivatives â€¢ Interpretation 10 - Interim Financial Reporting and Impairment. Share capital The Group manages its debt and equity capital actively. The Group's authority to buy back ordinary shares was renewed at the 2006 Annual General Meeting. Group share schemes The independent trustees of the Group's share schemes may make purchases of Barclays PLC ordinary shares in the market at any time or times following this announcement of the Group's results for the purposes of those schemes' current and future requirements. The total number of ordinary shares purchased would not be material in relation to the issued share capital of Barclays PLC. Filings with the SEC The results will be furnished as a Form 6-K to the US Securities and Exchange Commission as soon as practicable following the publication of these results. Competition and regulatory matters The scale of regulatory change remains challenging, arising in part from the implementation of some key European Union (EU) directives. Many changes to financial services legislation and regulation have come into force in recent years and further changes will take place in the near future. Concurrently, there is continuing political and regulatory scrutiny of the operation of the retail banking and consumer credit industries in the UK and elsewhere. In the EU as a whole, this includes an inquiry into retail banking in all 25 member states by the European Commission's Directorate General for Competition. The inquiry is looking at retail banking in Europe generally and the Group is co-operating with the inquiry. The outcome of the inquiry is unclear, but it may have an impact on retail banking in one or more of the EU countries in which the Group operates and therefore on the Group's business in that sector. In the UK, in September 2005 the Office of Fair Trading (OFT) received a super-complaint from the Citizens Advice Bureau relating to payment protection insurance (PPI). As a result of its inquiries, the OFT commenced a market study on PPI in April 2006. The impact of the study is not known at present. In relation to UK consumer credit: â€¢ The OFT has carried out investigations into Visa and MasterCard credit card interchange rates. The decision by the OFT in the MasterCard interchange case was set aside by the Competition Appeals Tribunal in June 2006. The OFT's investigation in the Visa interchange case is at an earlier stage and a second MasterCard interchange case is ongoing. The outcome is not known but these investigations may have an impact on the consumer credit industry in general and therefore on the Group's business in this sector. â€¢ The OFT also has a continuing investigation into the level of late and over-limit fees on credit cards. The OFT announced its findings on 5th April 2006 requiring a response from credit card companies by 31st May 2006. Barclaycard responded by confirming that it will be reducing its late and over-limit fees on credit cards. The OFT announced in January 2006 that it would be reviewing the undertakings given following the conclusion of the Competition Commission Inquiry in 2002 into the supply of banking services to Small and Medium Sized Enterprises. The OFT commenced the review in April 2006 and anticipates that it will take nine months. The Group is cooperating fully with that review. Recent developments Barclays announced on 13th March 2006, that it had signed a non-binding Letter of Intent with Canadian Imperial Bank of Commerce (CIBC) for the sale of Barclays 43.7% stake in FirstCaribbean International Bank (FirstCaribbean) to CIBC. On 29th June 2006 Barclays announced that it had entered into a definitive agreement for the sale of the stake to CIBC for approximately US$1.08 billion. CIBC has the option of paying for the transaction in cash, CIBC common shares, or a combination of cash and shares, the relative proportions of which CIBC will determine before completion. Barclays would not intend to be a long term holder of any CIBC shares it may receive in connection with this transaction. The transaction, which is subject to a number of conditions, including the receipt of applicable regulatory approvals, is anticipated to complete in late 2006. Barclays announced on 22nd June 2006 that it had entered into an agreement to purchase the US mortgage servicing business of HomEq Servicing Corporation from Wachovia Corporation for a consideration of US$469 million. NOTES 1. Assets held in respect of linked liabilities to customers under investment contracts/liabilities arising from investment contracts As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Non-trading financial instruments fair valued through profit and loss held in respect of linked liabilities 79,334 83,193 69,792 Cash and bank balances within the funds 2,046 2,008 1,816 -------- -------- -------- Assets held in respect of linked liabilities to customers under investment contracts 81,380 85,201 71,608 -------- -------- -------- Liabilities arising from investment contracts (81,380) (85,201) (71,608) -------- -------- -------- 2. Derivative financial instruments The tables set out below analyse the contract or underlying principal and the fair value of derivative financial instruments held for trading purposes and for the purposes of managing the Group's structural exposures. Derivatives are measured at fair value and the resultant profits and losses from derivatives held for trading purposes are included in net trading income. Where derivatives are held for risk management purposes and when transactions meet the criteria specified in IAS 39, the Group applies hedge accounting as appropriate to the risks being hedged. As at 30.06.06 Contract notional Fair value amount Assets Liabilities Derivatives designated as held for Â£m Â£m Â£m trading Foreign exchange derivatives 1,407,480 20,865 (20,885) Interest rate derivatives 17,863,507 80,471 (80,625) Credit derivatives 897,769 5,473 (5,075) Equity and stock index and commodity derivatives 587,142 29,099 (31,721) -------- -------- -------- Total derivative assets/(liabilities) held for trading 20,755,898 135,908 (138,306) -------- -------- -------- Derivatives designated in hedge accounting relationships Derivatives designated as cash flow hedges 31,724 135 (351) Derivatives designated as fair value hedges 15,982 267 (313) Derivatives designated as hedges of net investments 12,292 591 (12) -------- -------- -------- Total derivative assets/(liabilities) designated in hedge accounting relationships 59,998 993 (676) -------- -------- -------- Total recognised derivative assets/(liabilities) 20,815,896 136,901 (138,982) -------- -------- -------- Total derivative notionals as at 30th June 2006 have grown from 31st December 2005 primarily due to increases in the volume of fixed income derivatives, which reflects the continued growth in our client base and increased use of electronic trading platforms in Europe and the US. Credit derivative values have also increased significantly due to growth in the market for these products. As at 31.12.05 Contract notional Fair value amount Assets Liabilities Derivatives designated as held for Â£m Â£m Â£m trading Foreign exchange derivatives 1,184,074 18,485 (17,268) Interest rate derivatives 15,374,057 81,028 (79,701) Credit derivatives 609,381 4,172 (4,806) Equity and stock index and commodity derivatives 637,452 32,481 (35,128) -------- -------- -------- Total derivative assets/(liabilities) held for trading 17,804,964 136,166 (136,903) -------- -------- -------- Derivatives designated in hedge accounting relationships Derivatives designated as cash flow hedges 40,080 232 (483) Derivatives designated as fair value hedges 33,479 423 (331) Derivatives designated as hedges of net investments 5,919 2 (254) -------- -------- -------- Total derivative assets/(liabilities) designated in hedge accounting relationships 79,478 657 (1,068) -------- -------- -------- Total recognised derivative assets/(liabilities) 17,884,442 136,823 (137,971) -------- -------- -------- As at 30.06.05 Contract notional Fair value amount Assets Liabilities Derivatives designated as held for Â£m Â£m Â£m trading Foreign exchange derivatives 1,031,529 17,912 (17,174) Interest rate derivatives 13,362,136 93,435 (91,197) Credit derivatives 398,126 3,110 (2,897) Equity and stock index and commodity derivatives 376,436 18,492 (20,815) -------- --------- -------- Total derivative assets/ (liabilities) held for trading 15,168,227 132,949 (132,083) -------- --------- -------- Derivatives designated in hedge accounting relationships Derivatives designated as cash flow hedges 22,839 283 (300) Derivatives designated as fair value hedges 38,857 694 (401) Derivatives designated as hedges of net investments 313 6 - -------- --------- -------- Total derivative assets/ (liabilities) designated in hedge accounting relationships 62,009 983 (701) -------- --------- -------- Total recognised derivative assets/(liabilities) 15,230,236 133,932 (132,784) -------- --------- -------- 3. Loans and advances to banks As at 30.06.06 31.12.05 30.06.05 By geographical area Â£m Â£m Â£m United Kingdom 7,848 4,624 6,026 Other European Union 10,209 5,423 11,992 United States 10,888 13,267 9,180 Africa 1,375 880 409 Rest of the World 5,014 6,915 7,630 -------- -------- -------- 35,334 31,109 35,237 Less: Allowance for impairment (4) (4) (12) -------- -------- -------- Total loans and advances to banks 35,330 31,105 35,225 -------- -------- -------- Of the total loans and advances to banks, placings with banks were Â£18.1bn (2005: Â£21.1bn). 4. Loans and advances to customers As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Retail business 134,534 144,039 109,566 Wholesale and corporate business 150,963 128,303 130,385 -------- -------- -------- 285,497 272,342 239,951 Less: Allowances for impairment (3,400) (3,446) (2,828) -------- -------- -------- Total loans and advances to customers 282,097 268,896 237,123 -------- -------- -------- By geographical area United Kingdom 164,417 163,759 165,382 Other European Union 43,528 38,923 35,479 United States 26,523 22,925 22,588 Africa 29,694 33,221 3,046 Rest of the World 21,335 13,514 13,456 -------- -------- -------- 285,497 272,342 239,951 Less: Allowance for impairment (3,400) (3,446) (2,828) -------- -------- -------- Total loans and advances to customers 282,097 268,896 237,123 -------- -------- -------- By industry Financial institutions 56,616 43,102 44,791 Agriculture, forestry and fishing 3,449 3,785 2,426 Manufacturing 13,951 13,779 12,717 Construction 4,430 5,020 4,478 Property 16,929 16,325 7,797 Energy and water 5,527 6,891 4,976 Wholesale and retail distribution and leisure 16,902 17,760 13,844 Transport 5,252 5,960 5,169 Postal and communication 1,394 1,313 1,164 Business and other services 29,453 24,247 28,721 Home loans(1) 89,001 89,529 75,435 Other personal 31,865 35,543 30,287 Finance lease receivables 10,728 9,088 8,146 -------- -------- -------- 285,497 272,342 239,951 Less: Allowance for impairment (3,400) (3,446) (2,828) -------- -------- -------- Total loans and advances to customers 282,097 268,896 237,123 -------- -------- -------- The industry classifications have been prepared at the level of the borrowing entity. This means that a loan to the subsidiary of a major corporation is classified by the industry in which that subsidiary operates even though the parent's predominant business may be a different industry. Loans and advances grew 5% (Â£13,201m) to Â£282,097m (31st December 2005: Â£268,896m). (1) Excludes commercial property mortgages. 5. Allowance for impairment on loans and advances Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m At beginning of period 3,450 2,840 2,637 Acquisitions and disposals (3) 532 23 Exchange and other adjustments (105) 62 63 Unwind of discount (48) (46) (30) Amounts written off (see below) (996) (923) (664) Recoveries (see below) 125 124 98 Amounts charged against profit (see below) 981 861 713 -------- -------- -------- At end of period 3,404 3,450 2,840 -------- -------- -------- Amounts written off United Kingdom (751) (682) (620) Other European Union (54) (40) (16) United States (18) (119) (24) Africa (167) (77) (4) Rest of the World (6) (5) - -------- -------- -------- (996) (923) (664) -------- -------- -------- Recoveries United Kingdom 80 95 65 Other European Union 10 9 4 United States 13 9 6 Africa 17 15 1 Rest of the World 5 (4) 22 -------- -------- -------- 125 124 98 -------- -------- -------- Impairment charged against profit: New and increased impairment allowances United Kingdom 1,042 936 827 Other European Union 56 68 45 United States 44 68 37 Africa 102 92 17 Rest of the World 13 20 19 -------- -------- -------- 1,257 1,184 945 -------- -------- -------- Less: Releases of impairment allowance United Kingdom (84) (124) (97) Other European Union (25) (15) (10) United States (16) 9 (23) Africa (15) (52) (4) Rest of the World (11) (17) - -------- -------- -------- (151) (199) (134) -------- -------- -------- Recoveries (125) (124) (98) -------- -------- -------- Total impairment charges on loans and advances(1) 981 861 713 -------- -------- -------- (1) This excludes other credit provisions and impairment on available for sale assets detailed on page 50. Half-year ended 30.06.06 31.12.05 30.06.05 Allowance Â£m Â£m Â£m United Kingdom 2,428 2,266 2,174 Other European Union 259 284 282 United States 128 130 149 Africa 474 647 76 Rest of the World 115 123 159 -------- -------- -------- 3,404 3,450 2,840 -------- -------- -------- 6. Potential credit risk loans The following tables present an analysis of potential credit risk loans (non-performing and potential problem loans). As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Potential credit risk loans Summary Impaired loans(1) 4,630 4,550 3,735 Accruing loans which are contractually overdue 90 days or more as to principal or interest 618 609 613 -------- -------- -------- 5,248 5,159 4,348 Restructured loans 46 51 23 -------- -------- -------- Total non-performing loans 5,294 5,210 4,371 Potential problem loans 935 929 731 -------- -------- -------- Total potential credit risk loans 6,229 6,139 5,102 -------- -------- -------- Geographical split Impaired loans(1): United Kingdom 3,164 2,965 2,870 Other European Union 461 345 305 United States 172 230 237 Africa 657 831 122 Rest of the World 176 179 201 -------- -------- -------- Total 4,630 4,550 3,735 -------- -------- -------- Accruing loans which are contractually overdue 90 days or more as to principal or interest United Kingdom 528 539 576 Other European Union 67 53 31 United States 2 - 1 Africa 21 17 5 Rest of the World - - - -------- -------- -------- Total 618 609 613 -------- -------- -------- (1) Impaired loans are non-performing loans where, in general, an impairment allowance has been raised. This classification may also include non-performing loans which are fully collateralised or where the indebtedness has already been written down to the expected realisable value. As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Restructured loans United Kingdom 2 5 - Other European Union 10 7 7 United States 17 16 16 Africa 17 23 - Rest of the World - - - -------- -------- -------- Total 46 51 23 -------- -------- -------- Total non-performing loans United Kingdom 3,694 3,509 3,446 Other European Union 538 405 343 United States 191 246 254 Africa 695 871 127 Rest of the World 176 179 201 -------- -------- -------- Total 5,294 5,210 4,371 -------- -------- -------- Potential problem loans United Kingdom 599 640 561 Other European Union 51 26 58 United States 35 12 43 Africa 248 248 66 Rest of the World 2 3 3 -------- -------- -------- Total 935 929 731 -------- -------- -------- Total potential credit risk loans United Kingdom 4,293 4,149 4,007 Other European Union 589 431 401 United States 226 258 297 Africa 943 1,119 193 Rest of the World 178 182 204 -------- -------- -------- Total 6,229 6,139 5,102 -------- -------- -------- Allowance coverage of non-performing % % % loans United Kingdom 65.7 64.6 63.1 Other European Union 48.1 70.1 82.2 United States 67.0 52.8 58.7 Africa 68.2 74.3 59.8 Rest of the World 65.3 68.7 79.1 -------- -------- -------- Total 64.3 66.2 65.0 -------- -------- -------- Allowance coverage of total potential % % % credit risk loans United Kingdom 56.6 54.6 54.3 Other European Union 44.0 65.9 70.3 United States 56.6 50.4 50.2 Africa 50.3 57.8 39.3 Rest of the World 64.6 67.6 77.9 -------- -------- -------- Total 54.6 56.2 55.7 -------- -------- -------- As at 30.06.06 31.12.05 30.06.05 Allowance coverage of non-performing % % % loans: Retail 63.2 62.3 64.3 Wholesale and corporate 66.8 74.2 66.3 --------- --------- --------- Total 64.3 66.2 65.0 --------- --------- --------- Allowance coverage of total potential credit risk loans: Retail 56.9 57.1 59.2 Wholesale and corporate 50.4 54.4 49.8 --------- --------- --------- Total 54.6 56.2 55.7 --------- --------- --------- In the half year to 30th June 2006, Group non-performing loans (NPLs) increased 2% to Â£5,294m (31st December 2005: Â£5,210m). Retail NPLs increased 3% and wholesale and corporate NPLs were broadly flat. Potential problem loans (PPLs) were broadly flat at Â£935m (31st December 2005: Â£929m). Retail PPLs increased 25% and wholesale and corporate PPLs declined 12%. Potential Credit Risk Loans (PCRLs) increased 1% from 31st December 2005 to Â£6,229m (31st December 2005: Â£6,139m). Retail PCRLs increased 5% and wholesale and corporate PCRLs declined 5%. 7. Available for sale financial investments As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Debt securities 49,908 50,024 59,227 Equity securities 1,400 1,258 848 Treasury bills and other eligible bills 2,498 2,223 1,068 --------- --------- --------- 53,806 53,505 61,143 Less: Allowance for impairment (90) (8) - --------- --------- --------- Available for sale financial investments 53,716 53,497 61,143 --------- --------- --------- 8. Other assets As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Sundry debtors 3,980 3,569 2,789 Prepayments 962 722 530 Accrued income 834 329 172 Insurance assets, including unit linked assets 90 114 107 -------- -------- -------- Other assets 5,866 4,734 3,598 -------- -------- -------- 9. Other liabilities As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Obligations under finance leases payable 102 289 338 Sundry creditors 5,772 6,131 5,477 Accruals and deferred income 4,893 4,711 3,834 -------- -------- -------- Other liabilities 10,767 11,131 9,649 -------- -------- -------- 10. Other provisions for liabilities As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Redundancy and restructuring 90 74 70 Undrawn contractually committed facilities and guarantees 50 55 48 Onerous contracts 44 79 42 Sundry provisions 290 309 226 -------- -------- -------- Other provisions for liabilities 474 517 386 -------- -------- -------- 11. Other reserves As at 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Available for sale reserve 9 225 374 Cash flow hedging reserve (172) 70 328 Capital redemption reserve 309 309 309 Other capital reserve 617 617 617 Translation reserve (176) 156 (35) -------- -------- -------- Other reserves 587 1,377 1,593 -------- -------- -------- Movements in other reserves reflect the relevant amounts recorded in the consolidated statement of recognised income and expense on page 88. The movements include related tax impacts but exclude amounts attributable to minority interests. 12. Retirement benefit liabilities The Group's IAS 19 pension deficit across all schemes as at 30th June 2006 was Â£1,843m (31st December 2005: Â£2,879m). This comprises net recognised liabilities of Â£1,893m (31st December 2005: Â£1,737m) and unrecognised actuarial gains of Â£50m (31st December 2005: Â£1,142m unrecognised actuarial loss). The net recognised liabilities comprises retirement benefit liabilities of Â£1,976m (31st December 2005: Â£1,823m) and assets of Â£83m (31st December 2005: Â£86m). The Group's IAS 19 pension deficit in respect of the main UK scheme as at 30th June 2006 was Â£1,469m (31st December 2005: Â£2,535m). The primary reason for this change was the increase in the discount rate from 4.83% pa at 31st December 2005 to 5.32% pa at 30th June 2006, reflecting the increase in AA corporate bond yields over the period. This change in assumptions had the effect of decreasing the liabilities measured for IAS19 purposes by Â£1,738m and more than offset the effect of an increase in the inflation assumption to 2.9% (31st December 2005: 2.75%). The actuarial funding position of the main UK pension scheme as at 30th June 2006, estimated from the formal triennial valuation in 2004, was a surplus of Â£1,300m (31st December 2005: surplus of Â£900m). The Pensions Protection Fund (PPF) solvency ratio(1) for the main UK scheme as at 30th June 2006 was estimated to be 116% (31st December 2005: 110%). (1) The PPF solvency ratio represents the funds assets as a percentage of pension liabilities calculated using a section 179 valuation model. 13. Legal proceedings Barclays has for some time been party to proceedings, including a class action, in the United States against a number of defendants following the collapse of Enron; the class action claim is commonly known as the Newby litigation. On 20th July 2006 Barclays received an Order from the United States District Court for the Southern District of Texas Houston Division which dismissed the claims against Barclays PLC, Barclays Bank PLC and Barclays Capital Inc. in the Newby litigation. This Order, unless successfully challenged by the Plaintiffs, ends the Newby litigation for Barclays. Barclays considers that the remaining Enron claims against it are without merit and is defending them vigorously. It is not possible to estimate Barclays possible loss in relation to these matters, nor the effect that it might have upon operating results in any particular financial period. Barclays has been in negotiations with the staff of the US Securities and Exchange Commission with respect to a settlement of the Commission's investigation of transactions between Barclays and Enron. Barclays has also been in negotiations in the Enron bankruptcy proceedings. Barclays does not expect that the amount of any settlement with the Commission or in the bankruptcy proceedings would have a significant adverse effect on its financial position or operating results. Barclays is engaged in various other litigation proceedings both in the United Kingdom and a number of overseas jurisdictions, including the United States, involving claims by and against it, which arise in the ordinary course of business. Barclays does not expect the ultimate resolution of any of the proceedings to which Barclays is party to have a significant adverse effect on the financial position of the Group and Barclays has not disclosed the contingent liabilities associated with these claims either because they cannot reasonably be estimated or because such disclosure could be prejudicial to the conduct of the claims. 14. Contingent liabilities and commitments As at 30.06.06 31.12.05 30.06.05 Contingent liabilities Â£m Â£m Â£m Acceptances and endorsements 248 283 271 Guarantees and assets pledged as collateral for security 33,417 38,035 35,703 Other contingent liabilities 8,354 8,825 8,503 -------- -------- -------- 42,019 47,143 44,477 -------- -------- -------- Commitments Standby facilities, credit lines and other commitments 204,860 203,785 163,037 -------- -------- -------- Contingent liabilities decreased 11% (Â£5.1bn) to Â£42.0bn (31st December 2005: Â£47.1bn). Commitments increased 1% (Â£1.1bn) to Â£204.9bn (31st December 2005: Â£203.8bn). 15. Market risk Market risk is the risk that the Group's earnings, capital, or ability to meet its business objectives, will be adversely affected by changes in the level or volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates, equity prices and commodity prices. Barclays Capital's market risk exposure, as measured by average total Daily Value at Risk (DVaR), increased in the first half of 2006 to Â£36.2m. This was mainly due to an increase in non-interest rate trading risk. Total DVaR as at 30th June 2006 was Â£36.4m (31st December 2005: Â£37.6m(1)). (1) This was previously reported as Â£37.4m. The increase is due to the inclusion of Absa Capital. Analysis of Barclays Capital's market risk exposures The daily average, maximum and minimum values of DVaR were calculated as below: DVaR Half-year ended 30th June 2006 ------------------- Average High(1) Low(1) Â£m Â£m Â£m Interest rate risk 20.5 25.2 14.6 Credit spread risk 24.2 27.5 20.9 Foreign exchange risk 4.5 7.7 2.0 Equities risk 7.7 10.0 6.0 Commodities risk 8.4 13.9 5.7 Diversification effect (29.1) - - ------- -------- ------- Total DVaR 36.2 43.0 31.3 ------- -------- ------- Half-year ended 31st December 2005 ------------------- Average High(1) Low(1) Â£m Â£m Â£m Interest rate risk 26.2 34.1 18.6 Credit spread risk 22.4 27.6 19.0 Foreign exchange risk 2.7 5.4 1.6 Equities risk 6.8 8.3 3.9 Commodities risk 7.7 11.4 5.4 Diversification effect (32.2) - - ------- -------- ------- Total DVaR 33.6 40.7 27.2 ------- -------- ------- Half-year ended 30th June 2005 ------------------- Average High(1) Low(1) Â£m Â£m Â£m Interest rate risk 24.6 44.8 15.4 Credit spread risk 23.6 28.3 19.4 Foreign exchange risk 2.9 5.3 1.6 Equities risk 5.2 7.3 3.9 Commodities risk 5.8 7.6 4.5 Diversification effect (31.7) - - ------- ------- ------- Total DVaR 30.4 37.4 25.4 ------- ------- ------- (1) The high (and low) DVaR figures reported for each category did not necessarily occur on the same day as the high (and low) DVaR reported as a whole. Consequently a diversification effect number for the high (and low) DVaR figures would not be meaningful and it is therefore omitted from the above table. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED) Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net movements in available for sale reserve (313) (195) 86 Net movements in cash flow hedging reserve (419) (147) 28 Currency translation differences arising during the period (595) 277 23 Tax 267 168 (118) Other movements 30 (112) 10 -------- -------- -------- Amounts included directly in equity (1,030) (9) 29 Profit for the period 2,601 1,866 1,975 -------- -------- -------- Total recognised income and expense for the period 1,571 1,857 2,004 -------- -------- -------- Attributable to: Equity holders of the parent 1,561 1,506 1,873 Minority interests 10 351 131 -------- -------- -------- 1,571 1,857 2,004 -------- -------- -------- The consolidated statement of recognised income and expense reflects all items of income and expense for the period, including items taken directly to equity in accordance with IFRS. Movements in individual reserves include amounts which relate to minority interests; the impact of such amounts is then reflected in the amount attributable to such interests. Income and expense recognised directly in equity is recorded on a gross basis with any related tax recorded on the separate tax line. The available for sale reserve reflects gains or losses arising from the change in fair value of available for sale financial assets except for impairment losses and foreign exchange gains or losses on monetary items such as debt securities, which are recognised in the income statement. When an available for sale asset is impaired or derecognised, the cumulative gain or loss previously recognised in the available for sale reserve is transferred to income. The movement in the first half of 2006 reflects net unrealised losses from changes in fair value and the transfer of net realised gains to the income statement on disposal of assets. Cash flow hedging aims to minimise exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss. The portion of the gain or loss on the hedging instrument that is deemed to be an effective hedge is recognised in the cash flow hedging reserve. The movement in the first half of 2006 primarily reflects net unrealised losses from changes in the fair value of the hedging instruments. The gains and losses deferred in this reserve will be transferred to the income statement in the same period or periods during which the hedged item is recognised in the income statement. Exchange differences arising on the net investments in foreign operations and effective hedges of net investments are recognised in the translation reserve and transferred to income on the disposal of the net investment. The movement in the period primarily reflects the impact of changes in the value of the Rand on the minority interest in Absa Group Limited and changes in the value of the US Dollar on net investments which are economically hedged through dollar-denominated preference share capital, but where the hedging item is not revalued for accounting purposes. Other movements primarily reflect the change in insurance liabilities taken directly to reserves. SUMMARY CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED) Half-year ended 30.06.06 31.12.05 30.06.05 Â£m Â£m Â£m Net cash inflow/(outflow) from operating activities 8,280 (28,082) 17,584 Net cash (outflow)/inflow from investing activities (1,159) 6,213 (11,394) Net cash inflow from financing activities 1,837 12,593 2,526 -------- -------- -------- Net (gain)/loss on exchange rate changes on cash and cash equivalents (386) 301 (539) -------- -------- -------- Net increase/(decrease) in cash and cash equivalents 8,572 (8,975) 8,177 Cash and cash equivalents at beginning of period 20,805 29,780 21,603 -------- -------- -------- Cash and cash equivalents at end of period 29,377 20,805 29,780 -------- -------- -------- OTHER INFORMATION Registered office 1 Churchill Place, London, E14 5HP, England, United Kingdom. Tel: +44 (0) 20 7116 1000. Company number: 48839. Website www.barclays.com Registrar The Registrar to Barclays PLC, The Causeway, Worthing, West Sussex, BN99 6DA, England, United Kingdom. Tel: + 44 (0) 870 609 4535. Listing The principal trading market for Barclays PLC ordinary shares is the London Stock Exchange. Ordinary shares are also listed on the New York Stock Exchange and the Tokyo Stock Exchange. Trading on the New York Stock Exchange is in the form of ADSs under the ticker symbol 'BCS'. Each ADS represents four ordinary shares of 25p each and is evidenced by an ADR. The ADR depositary is The Bank of New York whose international telephone number is +1-212-815-3700, whose domestic telephone number is 1-888-BNY-ADRS and whose address is The Bank of New York, Investor Relations, PO Box 11258, Church Street Station, New York, NY 10286-1258. Filings with the SEC Statutory accounts for the year ended 31st December 2005, which also include certain information required for the joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLC to the US Securities and Exchange Commission (SEC), can be obtained from Corporate Communications, Barclays Bank PLC, 200 Park Avenue, New York, NY 10166, United States of America or from the Director, Investor Relations at Barclays registered office address, shown above. Copies of the Form 20-F are also available from the Barclays Investor Relations' website (details below) and from the SEC's website (www.sec.gov). Results timetable Ex-dividend date Wednesday, 16th August 2006 Dividend Record Date Friday, 18th August 2006 Dividend Payment Date Monday, 2nd October 2006 Full Year Trading Update* Tuesday, 28th November 2006 2006 Preliminary Results* Tuesday, 20th February 2006 *Note that these announcement dates are provisional and subject to change. Economic data 30.06.06 31.12.05 30.06.05 Period end - US$/Â£ 1.85 1.72 1.79 Average - US$/Â£ 1.79 1.82 1.88 Period end - â‚¬/Â£ 1.45 1.46 1.48 Average - â‚¬/Â£ 1.46 1.46 1.46 Period end - ZAR/Â£ 13.19 10.87 11.96 Average - ZAR/Â£ 11.31 11.57 11.63 For further information please contact: Investor Relations Media Relations -------------------- ----------------- Mark Merson/James S Johnson Jason Nisse/Alistair Smith +44 (0) 20 7116 5752/2927 +44 (0) 20 7116 6223/6132 More information on Barclays can be found on our website at the following address: www.investorrelations.barclays.com APPENDIX Absa Group Limited results(1) This appendix summarises the Rand results of Absa Group Limited for the half year to 30th June 2006, as reported to the Johannesburg Stock Exchange, and their impact in Sterling on the consolidated interim results of Barclays. Absa Group Limited's profit before tax increased 16% (R688m) to R4,881m (2005: R4,193m), reflecting very good performances from banking operations which were well spread across all business segments. Absa's bancassurance offering was negatively affected by increased equity market volatility. Net interest income grew strongly by 28% (R1,575) to R7,163m (2005: R5,588m) as credit demand remained strong. Loans and advances to customers increased by 14% to R367bn (31st December 2005: R322bn). Mortgages and credit cards remained the core drivers of this growth. Margins contracted modestly reflecting an increased reliance on wholesale funding as well as increased competition. Non-interest income increased 3% (R183m) to R6,600m (2005: R6,417m). Increased retail transaction volumes were partially offset by the closure of Absa Group's international operations outside Africa, and lower fair value gains in respect of the listed equity portfolio. Impairment charges increased 5% (R26m) to R594m (2005: R568m). The increase largely arose in Absa Home Loans and Retail Banking Services. The ratio of non-performing loans to total advances continued its downward trend and improved to 1.3% (2005: 2.0%). Operating expenses increased 15% (R1,091m) to R8,357m (2005: R7,266m), principally due to the further expansion of the Group's branch and ATM network and regulatory and compliance expenditure. Absa Capital has demonstrated very strong growth in profit after tax for the six months under review of 22% (R111m) to R617m (2005: R506m). Total income increased by 90% compared with the comparable period. Absa Group has made good progress with integration and the realisation of synergy benefits. Included in Absa Group Limited's results for 2006 are R262m (Â£23m) of integration costs and R197m (Â£17m) of sustainable pre-tax synergy benefits. Total revenue and cost synergies identified to date are expected to improve Absa Group Limited's pre-tax profits by approximately R1.4bn per annum four years after the completion of the transaction. Implementation costs totalling R1.8bn are expected to be incurred over the first three years. Absa Group Limited's profit before tax of R4,881m is translated into the Barclays results at an average exchange rate for the period of R11.31/Â£. Consolidation adjustments reflect amortisation of intangible assets of Â£42m and internal funding costs and other adjustments of Â£28m. The resulting profit before tax of Â£362m is represented within International Retail and Commercial Banking - Absa (Â£317m) and Barclays Capital (Â£45m). (1) Absa Group's interim reporting period has changed from the six months ended 30th September to the six months ended 30th June. This change was necessitated by the need to align Absa's financial reporting with that of Barclays. To facilitate evaluation and interpretation, these results are compared with unaudited proforma results for the six months ended 30th June 2005. Half-year ended 30.06.06 30.06.05 Proforma -------- -------- Rm Rm -------- -------- Interest and similar income 17,977 13,977 Interest expense and similar charges (10,814) (8,389) -------- -------- Net interest income 7,163 5,588 Impairment losses on loans and advances (594) (568) -------- -------- 6,569 5,020 -------- -------- Fee and commission income 5,113 4,881 Fee and commission expense (272) (224) -------- -------- Net fee and commission income 4,841 4,657 -------- -------- Insurance premium revenue 1,549 1,243 Premiums ceded to reinsurers (141) (169) -------- -------- Net insurance premium income 1,408 1,074 -------- -------- Gross claims and benefits paid on insurance contracts (622) (508) Reinsurance recoveries 15 21 -------- -------- Net claims and benefits paid (607) (487) Changes in insurance and investment liabilities (564) (257) Gains and losses from banking and trading activities 461 264 Gains and losses from investment activities 629 663 Other operating income 432 503 -------- -------- Net operating income 13,169 11,437 Operating expenses (8,357) (7,266) Share of profit of associated and joint venture companies 69 22 -------- -------- Operating profit before income tax 4,881 4,193 -------- -------- -------- Cost:income ratio 61% 61% Cost:net income ratio 63% 64% Index of Main Reference Points Acquisitions and disposals 71 Additional information 72 Allowance for impairment on loans and advances 78 Analysis of profit attributable 16 Appendix 92, 93 Assets held in respect of linked liabilities 74 Available for sale financial investments 82 Balance sheet (consolidated) 10, 11 Barclaycard 13, 24, 25 Barclays Capital 14, 32, 33 Barclays Global Investors 14, 34, 35 Business margins 43 Basis of preparation 72 Business net interest income 44 Capital ratios 59 Capital resources 58 Cash flow statement - summary (consolidated) 89 Changes to internal cost of funding 71 Changes to risk weighted assets by business 71 Chief Executive's Half-year review 5 Competition and regulatory matters 73 Contingent liabilities and commitments 85 Derivative financial instruments 74 Dividends on ordinary shares 57 Daily Value at Risk (DVaR) 87 Earnings per share 56 Economic capital 62 Economic capital demand 63 Economic capital supply 65 Economic data 90 Economic profit 66 - by business 67 Filings with the SEC 72, 90 Financial highlights 4 Future accounting developments 72 Glossary of terms ii Group performance management 68 Group reporting changes in 2006 70 Group share schemes 72 Group structure changes 70 Head office functions and other operations 15, 40 Impairment charges 49 Income statement (consolidated) 9 International Retail and Commercial Banking 13, 26, 27 - excluding Absa 13, 28, 29 Legal proceedings 85 Loans and advances to banks 76 Loans and advances to customers 77 Margins (business) 43 Market risk 86 Net fee and commission income 46 Net premiums from insurance contracts 48 Net claims and benefits paid on insurance contracts 48 Net interest income 42 Operating expenses 51 Other assets 83 Other income 48 Other information 90 Other liabilities 83 Other provisions for liabilities 83 Performance summary 2 Potential credit risk loans 80 Principal transactions 47 Profit attributable to minority interests 55 Profit before tax 1 Recent developments 73 Reconciliation of business interest income to group net interest income 44 Reconciliation of regulatory capital 60 Results by business 12 Results timetable 90 Retirement benefit liabilities 84 Risk asset ratio 4, 59 Risk Tendency 69 Risk weighted assets 17, 59, 61 Share capital 58, 72 Share of post-tax results of associates and joint ventures 55 Staff costs 52 Staff numbers 53 Statement of recognised income and expense (consolidated) 88 Summary of key information 1 Tax 55 Tier 1 ratio 4, 59 Total assets 17, 61 UK Banking 12, 18, 19 UK Business Banking 12, 22, 23 UK Retail Banking 12, 20, 21 Wealth Management 14, 36, 37 Wealth Management-closed life assurance activities 14, 38, 39 - Absa 14, 30, 31 93 This information is provided by RNS The company news service from the London Stock Exchange

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Wednesday, 22nd May 2024

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