Interim Results

Barclays PLC 05 August 2005 Interim Results Announcement June 2005 BARCLAYS PLC INTERIM ANNOUNCEMENT OF RESULTS FOR 2005 TABLE OF CONTENTS PAGE Summary 1 Performance summary 2 Financial highlights 3 Half-year review 4 Consolidated income statement 7 Consolidated balance sheet 8 Group performance ratios 10 Results by business 11 Results by nature of income and expense 36 Additional information 59 Notes 65 Consolidated statement of recognised income and expense 80 Summary consolidated cashflow statement 81 Other information 82 Index 83 BARCLAYS PLC The information in this announcement, which was approved by the Board of Directors on 4th August 2005, does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985 (the 'Act'). Statutory accounts for the year-ended 31st December 2004 were prepared under UK GAAP and included 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) and which contained an unqualified audit report under Section 235 of the Act and which did not make any statements under Section 237 of the Act, have been delivered to the Registrar of Companies in accordance with Section 242 of the Act. This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and Section 27A of the US Securities Act of 1933, as amended, with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition and performance. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as 'aim', 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', or other words of similar meaning. Examples of forward-looking statements include, among others, statements regarding the Group's future financial position, income growth, impairment charges, business strategy, projected levels of growth in the banking and financial markets, projected costs, estimates of capital expenditures, and plans and objectives for future operation. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, the further development of standards and interpretations under IFRS applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS and pending tax elections with regards to certain subsidiaries, as well as UK domestic and global economic and business conditions, market related risks such as changes in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, the outcome of pending and future litigation, the impact of competition, and the Group's ability to increase earnings per share from acquisitions such as Absa (which may be affected by, among other things, the ability to realise expected synergies, integrate businesses, and costs associated with the acquisition and integration) - a number of which factors are beyond the Group's control. As a result, the Group's actual future results may differ materially from the plans, goals, and expectations set forth in the Group's forward-looking statements. Any forward-looking statements made by or on behalf of Barclays speak only as of the date they are made. Barclays does not undertake to update forward-looking statements to reflect any changes in Barclays expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Barclays has made or may make in documents it has filed or may file with the SEC including its most recent Annual Report on Form 20-F. The Group has applied IFRS from 1st January 2004, with the exception of the standards relating to financial instruments and insurance contracts which are applied only with effect from 1st January 2005. Therefore the impacts of adopting IAS 32, IAS 39 and IFRS 4 are not included in the 2004 comparatives in accordance with IFRS 1 and financial instruments and insurance contracts are accounted for under UK GAAP in 2004. The results for 2005 are therefore not entirely comparable to those for 2004 in affected areas. For a fuller discussion of the transitional impacts of IFRS, please refer to the IFRS Transition Report 2004/2005, released 11th May 2005. 5th August 2005 BARCLAYS PLC 'We made good progress in all the main elements of the Group's strategy, particularly our international growth plans. The profit growth in the first half demonstrates that our strategy is delivering strongly and that we are benefiting from a mix of business that is well diversified by sector, income type and geography.' John Varley, Group Chief Executive RESULTS FOR SIX MONTHS TO 30TH JUNE 2005 (UNAUDITED) Half-year ended 30.06.05 30.06.04 % Change Â£m Â£m Total income, net of insurance claims 7,922 6,967 14 Impairment charges and other credit provisions (706) (589) 20 Operating expenses (4,542) (3,974) 14 Profit before tax 2,690 2,463 9 Profit attributable to shareholders 1,841 1,798 2 Economic profit 1,004 964 4 Earnings per share 29.1p 28.0p 4 Proposed interim dividend per share 9.2p 8.25p 12 Post-tax return on average shareholders' equity 23.4% 24.3% Highlights of business profit Â£m Â£m % Change before tax UK Banking 1,275 1,162 10 Barclays Capital 703 588 20 Barclays Global Investors 242 151 60 Wealth Management1 89 64 39 Barclaycard 379 459 (17) International Retail and Commercial Banking 188 145 30 In this document the income statement analysis compares, unless stated otherwise, the half-year ended 30th June 2005 to the corresponding period of 2004. Balance sheet comparisons, unless stated otherwise, relate to the corresponding position at 31st December 2004. 2004 comparatives do not include additional impacts arising from the first time application of IAS 32 (Financial instruments: Disclosure and Presentation), IAS 39 (Financial instruments: Recognition and Measurement) and IFRS 4 (Insurance Contracts), which were applied from 1st January 2005. 1 Formerly Private Clients BARCLAYS PLC PERFORMANCE SUMMARY â€¢ We made progress on each of our four strategic priorities: - Building the best bank in the UK - Accelerating growth of global product businesses - Developing retail and commercial banking activities in selected markets outside the UK - Enhancing operational excellence â€¢ The financial results reflect this progress: - Total income1 up 14% to Â£7,922m - Profit before tax up 9% to Â£2,690m - Earnings per share up 4% to 29.1p - Dividend per share up 12% to 9.2p - Return on average shareholders' equity of 23.4% â€¢ Income growth was well diversified by business, income type and geography. Non-interest income1 rose 16% and was over half of total income1. â€¢ In addition to strong organic growth, we continue to capture the benefits expected from recent acquisitions. â€¢ The increase in operating expenses1 was driven by significant investment directed at future growth in investment banking, asset management, international retail and commercial banking, international credit cards and by higher performance related costs. This was complemented by a strong focus on cost control in other areas. â€¢ Impairment charges and other credit provisions rose 20%, driven principally by an increase in delinquencies and a reduction in recoveries in UK credit cards. Impairment charges rose at a slower rate in unsecured loans, were steady in UK mortgages and decreased in the wholesale and corporate businesses. Asset quality remains strong. â€¢ UK Banking showed good growth with profit2 up 10% to Â£1,275m and made progress on its productivity commitment with the cost:income1 ratio improving by three percentage points. â€¢ Barclays Capital delivered another excellent performance with profit2 up 20% to Â£703m. Growth, both by product and geography, reflected the continued development through organic investment. â€¢ Barclays Global Investors outstanding results continued with profit2 up 60% to Â£242m, attracting US$61bn of net new assets under management and delivering strong investment performance. â€¢ Wealth Management profit2 grew significantly, up 39% to Â£89m, reflecting growth across the businesses, driven by good trends in transaction volumes and growth in the balance sheet. â€¢ Barclaycard profit2 fell 17% to Â£379m. Strong income growth was more than offset by a significant rise in impairment losses, principally in the UK card portfolio. Barclaycard profits were also adversely impacted by continued investment in international development. â€¢ International Retail and Commercial Banking achieved very strong growth with profit2 up 30% to Â£188m. There was progress in all geographies, and excellent performance in Spain. â€¢ The acquisition of a majority stake in Absa completed at the end of July. 1 Trends in income and expenses are expressed after the deduction of 'net insurance claims and benefits paid'. 2 Profit before tax. BARCLAYS PLC FINANCIAL HIGHLIGHTS (UNAUDITED) Half-year ended 30.06.05 31.12.04 30.06.04 RESULTS Â£m Â£m Â£m ------- Net interest income 3,700 3,500 3,333 Net fee and commission income 2,540 2,532 2,315 Principal transactions 1,549 1,398 1,116 Net premiums from insurance contracts 371 506 536 Other income 49 75 56 Total income 8,209 8,011 7,356 Net claims and benefits paid on insurance contracts (287) (870) (389) Total income, net of insurance claims 7,922 7,141 6,967 Impairment charges and other credit provisions (706) (504) (589) Net income 7,216 6,637 6,378 Operating expenses (4,542) (4,562) (3,974) Share of results of associates and joint ventures 16 42 14 Profit on disposal of associates and joint ventures - - 45 Profit before tax 2,690 2,117 2,463 Profit attributable to shareholders 1,841 1,456 1,798 Economic profit 1,004 604 964 PER ORDINARY SHARE p p p ------------------ Earnings 29.1 23.0 28.0 Proposed dividend 9.2 15.75 8.25 Net asset value 249 246 232 PERFORMANCE RATIOS % % % ------------------ Post-tax return on average shareholders' equity 23.4 18.9 24.3 Cost:income ratio1 57 64 57 Cost:net income ratio 63 69 62 As at 30.06.05 01.01.05 31.12.04 30.06.04 BALANCE SHEET Â£m Â£m Â£m Â£m ------------- Shareholders' equity excluding minority interests 16,099 15,287 15,870 14,978 Minority interests 5,686 3,330 894 178 Total shareholders' equity 21,785 18,617 16,764 15,156 Loan capital 11,309 10,606 12,277 12,468 Total capital resources 33,094 29,223 29,041 27,624 Total assets 850,123 715,600 538,181 512,331 Weighted risk assets 242,406 219,758 218,601 203,333 30.06.05 01.01.05 31.12.04 30.06.04 % % % % Tier 1 ratio 7.6 7.1 7.6 7.7 Risk asset ratio 12.1 11.8 11.5 12.2 ECONOMIC DATA ------------- Period end - US$/Â£ 1.79 1.92 1.81 Average - US$/Â£ 1.88 1.83 1.82 Period end - â‚¬/Â£ 1.48 1.41 1.49 Average - â‚¬/Â£ 1.46 1.47 1.48 1 Total income, net of insurance claims BARCLAYS PLC HALF-YEAR REVIEW Barclays had a strong half-year, delivering good profit growth, investing heavily for the future and making progress in each of our four strategic priorities: - Building the best bank in the UK - Accelerating growth of global product businesses - Developing retail and commercial banking activities in selected markets outside the UK - Enhancing operational excellence Our overall profit performance demonstrated the benefits of our universal bank model and the diversification and growth characteristics of our mix of businesses. Our investment in the first half was directed particularly at the global product businesses and International Retail and Commercial Banking. Profit before tax increased 9% to Â£2,690m (2004: Â£2,463m). Earnings per share rose 4% to 29.1p (2004: 28.0p). We have increased the proposed interim dividend by 12% to 9.2p (2004: 8.25p). Total income1 grew 14% to Â£7,922m (2004: Â£6,967m). Income growth was broadly based - by business and by income type - and reflected both underlying momentum and return on the investments made in prior years. Margins held up well across the portfolio as a whole. Operating expenses1 in the first half rose 14% to Â£4,542m (2004: Â£3,974m) in line with growth in income. The substantial majority of the expense growth was attributable to three factors: the very strong performance in the wholesale and institutional businesses driving higher variable costs; investment spend in the global product and international businesses; and the one-off expense of head office relocation. Costs in all other areas were tightly controlled, and were lower than the prior year in UK Banking. Impairment charges and other credit provisions increased 20% to Â£706m (2004: Â£589m). This growth was driven by an increase in the size of the book, higher delinquency and lower recoveries in the Barclaycard UK card business. Impairment was stable in UK mortgages, and fell in corporate and wholesale reflecting the benign credit environment. In UK Banking, we set a target in 2004 to deliver a 2 percentage point improvement per annum in the cost:income ratio in each of 2005, 2006 and 2007. The first half showed a 3 percentage point improvement relative to 2004 and this resulted in an increase of 10% in profit before tax. UK Business Banking continued to perform well with strong growth on both sides of the balance sheet resulting in strong income growth at stable margins. Tight cost discipline and a good risk performance also contributed to excellent profit growth of 20%. In UK Retail Banking, income was broadly flat, but we benefited from a strong focus on costs, delivering a 4% reduction in operating expenses despite continuing heavy investment. We continued to build on the customer initiatives taken last year, delivering significant improvement in key customer service metrics. We have also launched new products in general insurance, mortgages and current accounts. Good growth in current accounts and overdrafts was largely offset by margin pressure in savings and a weak performance in mortgages. Excluding the effect of the sale of our interest in Edotech in 2004, underlying profit before tax was up 6%. 1 Trends in income and expenses are expressed after the deduction of 'net insurance claims and benefits paid'. BARCLAYS PLC HALF-YEAR REVIEW Barclays Capital delivered record results in the first half, increasing profit before tax by 20% to Â£703m (2004: Â£588m). Performance was broadly based across products and geographies, reflecting delivery from past investments and continued strengthening of the client franchise. The risk management performance was excellent in volatile and sometimes difficult market conditions. Average DVaR, at Â£30.4m, was lower than the average for 2004. We continue to invest heavily in Barclays Capital, building on the breadth and depth of its capabilities. Barclays Global Investors (BGI) had another outstanding first half performance, increasing profit before tax by 60% to Â£242m (2004: Â£151m). BGI now has US$1.4 trillion of assets under management, and continued to generate strong flows of net new assets and growth in higher margin products, reflecting ongoing investment in the business. BGI delivered strong investment performance in active products, with most funds outperforming their benchmarks. BGI also delivered further significant improvement in operating margin and improved the cost:income1 ratio to 59% (2004: 64%). Wealth Management performed strongly. Profits2, which rose 39%, totalled Â£89m (2004: Â£64m). Growth in this business was underpinned by higher asset and liability volumes and higher levels of client activity across most of the wealth businesses. We continued to invest in new products, to improve customer service and to make progress with the integration of Gerrard. The cost:income1 ratio improved by 4 percentage points. Barclaycard profits2 fell 17% to Â£379m (2004: Â£459m) as a result of higher impairment charges and international investment. Income growth of 11% reflected good balance growth in the consumer loan businesses, stability in card margins, the momentum in international cards and a first-time contribution from Juniper. Operating expenses grew from the continued investment in the international businesses, principally the acquisition of Juniper. The integration and development of Juniper is in line with plan, with good growth in new partnerships signed. Barclaycard International continued to make good progress in Spain and Germany. Barclaycard announced new business extensions, including a joint venture with ForeningsSparbanken in Scandinavia, and a partnership with Sky TV in the UK. International Retail and Commercial Banking, where profit2 rose 30% to Â£188m (2004: Â£145m), performed strongly, driven by expansion in continental Europe, particularly in mortgages. There was continued good progress with the integration of Banco Zaragozano, where synergies are running ahead of plan. The growth of International Retail and Commercial Banking will be accelerated in the second half by the completion of the acquisition of a majority stake in Absa in South Africa and by the acquisition of the ING Ferri business in France. Good capital management enhances shareholder returns and continues to be a core focus. In the first half of 2005, we raised Â£2.3bn of preference share capital to fund organic growth and the acquisition of a majority stake in Absa. The Tier 1 capital ratio reported at 30th June 2005 has reduced by 90 basis points following completion of the Absa transaction. We intend to run a tighter capital structure and we have optimised the use of preference share capital in our funding mix over the past 18 months. This has enabled us to buy back Â£700m of shares in 2004 and fund Â£3.1 billion of acquisitions and joint ventures without issuing ordinary shares. We continue to target the maintenance of our Aa1/AA/AA+ credit ratings and have factored this into our capital management plans. Whilst we would continue to adjust our capital levels to reflect the environment and our business mix, our current focus is to rebuild capital ratios to approximately 7.25% for the Tier 1 ratio. This is expected to be achieved in 2006 through the natural evolution of retained earnings. 1 Trends in income and expenses are expressed after the deduction of 'net insurance claims and benefits paid'. 2 Profit before tax. BARCLAYS PLC HALF-YEAR REVIEW We continue our progressive approach to dividends. With our annual dividend approximately twice covered by earnings, the balance between income distribution to shareholders and earnings retention to fund growth is appropriate. We expect to grow dividends per share approximately in line with earnings per share over the longer term. We would look to smooth this, with dividend growth lower than earnings growth in years where earnings growth is exceptionally high, and the converse when earnings growth in a particular year is below trend. We expect to continue the practice of weighting the annual dividend towards the final dividend to maintain flexibility, consistent with the practice and balance of prior years. In terms of progress towards Group goals, Barclays ranked in the second quartile of its Total Shareholder Return (TSR) peer group2 for the goal period starting 1st January 2004. Cumulative economic profit growth for this period has exceeded our stated compound annual target range of 10-13%. We have completed the transition to International Financial Reporting Standards (IFRS). Our first half results included the implementation of IAS 32, IAS 39 and IFRS 4. This will introduce more volatility to reported earnings. In the first half of 2005, this volatility had a positive effect on earnings in some areas, particularly in the Group Treasury. The other key impacts on the income statement in 2005 have been a change in the reporting of insurance income and a reclassification between interest income and fee and commission income. The net effect of the incremental IFRS changes in 2005 has been a modest reduction in reported earnings per share. The economic outlook for the remainder of the year continues to be fairly positive. We expect the strong economic performances in the US and China to continue to benefit the global economy. Although the rate of growth in the UK is expected to be below the level of the past few years, it is still expected to be in line with the longer term trend. We continue to see some softness in the UK consumer sector, but the wholesale and corporate sector is in very good health. The outlook for interest rates and unemployment is reassuring from a credit risk perspective. For the full year, excluding significant acquisitions and disposals, we continue to target double digit income1 growth, with expense1 growth broadly in line with this. Impairment charges are expected to be approximately in line with Risk Tendency. In the second half of this year, we will also account for five months of earnings from Absa (net of the associated funding and hedging costs), which we expect to be modestly accretive to earnings per share. We can now welcome to the Group our new colleagues from Absa. Absa's Chairman, Dr Danie Cronje, joins the Barclays Board as a non-executive Director on 1st September 2005. We are excited about the prospects for the enlarged business both in South Africa and across the continent of Africa. We are also delighted to have strengthened the Barclays Board during the first half through the appointment of Robert E. Diamond Jnr. as an executive Director and President of the Group, and through the appointment of Robert Steel and John Sunderland as non-executive Directors. John Varley Group Chief Executive 1 Trends in income and expenses are expressed after the deduction of 'net insurance claims and benefits paid'. 2 Peer group for 2005 unchanged from 2004: ABN Amro, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, JP Morgan Chase, Lloyds TSB, Royal Bank of Scotland and UBS. BARCLAYS PLC CONSOLIDATED INCOME STATEMENT (UNAUDITED) Half-year ended 30.06.05 31.12.04 30.06.04 Continuing operations Â£m Â£m Â£m Interest income 7,648 7,315 6,565 Interest expense (3,948) (3,815) (3,232) --------- --------- --------- Net interest income 3,700 3,500 3,333 --------- --------- --------- Fee and commission income 2,872 2,861 2,648 Fee and commission expense (332) (329) (333) --------- --------- --------- Net fee and commission income 2,540 2,532 2,315 --------- --------- --------- Net trading income 1,176 684 803 Net investment income 373 714 313 --------- --------- --------- Principal transactions 1,549 1,398 1,116 Net premiums from insurance contracts 371 506 536 Other income 49 75 56 --------- --------- --------- Total income 8,209 8,011 7,356 Net claims and benefits paid on insurance contracts (287) (870) (389) --------- --------- --------- Total income, net of insurance claims 7,922 7,141 6,967 Impairment charge and other credit provisions (706) (504) (589) --------- --------- --------- Net income 7,216 6,637 6,378 Operating expenses (4,542) (4,562) (3,974) Share of results of associates and joint ventures 16 42 14 Profit on disposal of associates and joint ventures - - 45 --------- --------- --------- Profit before tax 2,690 2,117 2,463 Tax (715) (634) (645) --------- --------- --------- Profit for the period 1,975 1,483 1,818 --------- --------- --------- Profit attributable to minority interests 134 27 20 Profit attributable to shareholders 1,841 1,456 1,798 --------- --------- --------- 1,975 1,483 1,818 --------- --------- --------- p p p Basic earnings per ordinary share 29.1 23.0 28.0 Diluted earnings per share 28.9 22.8 27.9 Proposed dividends per ordinary share: Interim 9.2 - 8.25 Final - 15.75 - Proposed dividend Â£582m Â£1,010m Â£528m BARCLAYS PLC CONSOLIDATED BALANCE SHEET (UNAUDITED) As at 30.06.05 01.01.05 31.12.04 30.06.04 Assets Â£m Â£m Â£m Â£m Cash and balances at central banks 4,106 3,238 1,753 1,829 Items in the course of collection from other banks 2,208 1,772 1,772 2,527 Treasury bills and other eligible bills 6,658 6,547 Trading portfolio assets 134,235 110,033 Financial assets designated at fair value: - held on own account 9,747 9,799 - held in respect of linked liabilities to customers under investment contracts 69,792 63,124 Derivative financial instruments 133,932 94,211 Loans and advances to banks 35,225 25,728 80,632 83,034 Loans and advances to customers 237,123 207,259 262,409 252,053 Debt securities 130,311 119,840 Equity shares 11,399 8,599 Available for sale financial investments 61,143 48,097 Reverse repurchase agreements and cash collateral on securities borrowed 149,400 139,574 Other assets 3,491 3,647 25,915 21,344 Insurance assets, including unit-linked assets 107 109 8,576 8,165 Investments in associates and joint ventures 438 429 429 442 Goodwill 4,590 4,518 4,518 4,398 Intangible assets 120 139 139 62 Property, plant and equipment 2,407 2,282 2,282 2,108 Deferred tax assets 2,059 1,641 1,388 1,383 ------- ------- ------- ------- Total assets 850,123 715,600 538,181 512,331 ------- ------- ------- ------- BARCLAYS PLC CONSOLIDATED BALANCE SHEET (UNAUDITED) As at 30.06.05 01.01.05 31.12.04 30.06.04 Liabilities Â£m Â£m Â£m Â£m Deposits from banks 84,538 74,735 111,024 115,836 Items in the course of collection due to other banks 2,809 1,205 1,205 1,442 Customer accounts 217,715 194,478 217,492 206,170 Trading portfolio liabilities 65,598 59,114 Financial liabilities designated at fair value: held on own account 8,231 5,320 Liabilities to customers under investment contracts 71,608 64,609 Derivative financial instruments 132,784 94,429 Debt securities in issue 93,328 76,154 83,842 69,431 Repurchase agreements and cash collateral on securities lent 122,076 98,582 Other liabilities 9,649 9,869 82,936 79,546 Current tax liabilities 786 621 621 697 Insurance contract liabilities, including unit-linked liabilities 3,589 3,596 8,377 7,944 Subordinated liabilities: - Undated loan capital-non convertible 4,366 4,208 6,149 6,233 - Dated loan capital-convertible to preference shares 13 15 15 15 - Dated loan capital-non convertible 6,930 6,383 6,113 6,220 Deferred tax liabilities 1,891 1,397 1,362 1,284 Other provisions for liabilities 386 403 416 329 Retirement benefit liabilities 2,041 1,865 1,865 2,028 ------- ------- ------- ------- Total liabilities 828,338 696,983 521,417 497,175 ------- ------- ------- ------- Shareholders' equity Called up share capital 1,616 1,614 1,614 1,613 Share premium account 5,554 5,524 5,524 5,437 Less: treasury shares (239) (119) (119) (115) Available for sale reserve 374 314 Cash flow hedging reserve 328 302 Capital redemption reserve 309 309 309 305 Other capital reserve 617 617 617 617 Translation reserve (35) (58) (58) (43) Retained earnings 7,575 6,784 7,983 7,164 ------- ------- ------- ------- Shareholders' equity excluding minority interest 16,099 15,287 15,870 14,978 Minority interests 5,686 3,330 894 178 ------- ------- ------- ------- Total shareholders' equity 21,785 18,617 16,764 15,156 ------- ------- ------- ------- ------- ------- ------- ------- Total liabilities and shareholders' equity 850,123 715,600 538,181 512,331 ------- ------- ------- ------- BARCLAYS PLC Group performance ratios As at 30.06.05 01.01.05 31.12.04 30.06.04 Net asset value per ordinary share (excluding minority interests) 249p 236p 246p 232p Half-year ended 30.06.05 31.12.04 30.06.04 % % % Post-tax return on average shareholders' equity (excluding minority interests) 23.4 18.9 24.3 Cost:income ratios The cost:income ratios are defined as follows: â€¢ The cost:income ratio is defined as operating expenses compared to total income, net of insurance claims; and â€¢ The cost:net income ratio is defined as operating expenses compared to total income, net of insurance claims, less impairment charges. Half-year ended 30.06.05 31.12.04 30.06.04 % % % Cost:income ratio 57 64 57 Cost:net income ratio 63 69 62 BARCLAYS PLC FINANCIAL REVIEW Results by business The following section analyses the Group's performance by business. For management and reporting purposes, Barclays is organised into the following business groupings: â€¢ UK Banking, comprising - UK Retail Banking - UK Business Banking â€¢ Barclays Capital â€¢ Barclays Global Investors â€¢ Wealth Management â€¢ Wealth Management - closed life assurance activities â€¢ Barclaycard â€¢ International Retail and Commercial Banking â€¢ Head office functions and other operations UK Banking UK Banking delivers banking solutions to Barclays UK retail and business banking customers. It offers a range of integrated products and services and access to the expertise of other Group businesses. Customers are served through a variety of channels comprising the branch network, automated teller machines, telephone banking, online banking and relationship managers. UK Banking is managed through two business areas, UK Retail Banking and UK Business Banking. UK Retail Banking UK Retail Banking comprises Personal Customers, Mortgages, Small Business and UK Premier. This cluster of businesses enables the building of broader and deeper relationships with both existing and new customers. Personal Customers and Mortgages provide a wide range of products and services to 14 million retail customers, including current accounts, savings, mortgages, and general insurance. Small Business provides banking services to 580,000 small businesses. UK Premier provides banking, investment products and advice to some 280,000 affluent customers. UK Business Banking UK Business Banking provides relationship banking to the Group's larger and medium business customers in the United Kingdom. Customers are served by a network of relationship and industry sector specialist managers who provide local access to an extensive range of products and services, as well as offering business information and support. Customers are also offered access to the products and expertise of other businesses in the Group, particularly Barclays Capital. UK Business Banking provides asset financing and leasing solutions through a specialist business to customers in the United Kingdom and continental Europe. BARCLAYS PLC Barclays Capital Barclays Capital is a leading global investment bank which provides large corporate, institutional and government clients with solutions to their financing and risk management needs. Barclays Capital services a wide variety of client needs, from capital raising and managing foreign exchange, interest rate and commodity risks, through to providing technical advice and expertise. Activities are organised into three principal areas: Rates, which includes fixed income, foreign exchange, commodities, emerging markets, money markets sales, trading and research, prime brokerage and equity related activities; Credit, which includes primary and secondary activities for loans and bonds for investment grade, high yield and emerging market credits, as well as hybrid capital products, asset based finance, commercial mortgage backed securities, credit derivatives, structured capital markets and large asset leasing; and Private Equity. Barclays Global Investors Barclays Global Investors (BGI) is one of the world's largest asset managers and a leading global provider of investment management products and services. BGI offers structured investment strategies such as indexing, tactical asset allocation and risk-controlled active products. BGI also provides related investment services such as securities lending, cash management and portfolio transition services. In addition, BGI is the global leader in Exchange Traded Funds, with over 130 funds for institutions and individuals trading in eleven global markets. BGI's investment philosophy is founded on managing all dimensions of performance: a consistent focus on controlling risk, return and cost. Wealth Management Wealth Management (formerly Private Clients) serves affluent, high net worth and corporate clients, primarily in the UK and continental Europe, providing private banking, offshore banking, stockbroking, asset management and financial planning services. Wealth Management - closed life assurance activities Wealth Management - closed life assurance activities comprise the closed life assurance businesses of Barclays and Woolwich in the UK. BARCLAYS PLC Barclaycard Barclaycard is a multi-brand credit card and consumer lending business with an increasing international presence and is one of the leading credit card businesses in Europe. In the UK, Barclaycard manages the Barclaycard branded credit cards and other non-Barclaycard branded card portfolios including Monument, SkyCard and Solution Personal Finance. In consumer lending, Barclaycard manages both secured and unsecured loan portfolios, through Barclays branded loans, being mostly Barclayloan, and also through the FirstPlus and Clydesdale Financial Services businesses. Outside the UK, Barclaycard operates in the United States, through Juniper Financial Corporation, in Germany, Spain, Greece, Italy, Portugal, Republic of Ireland and across Africa. In the Nordic region, Barclaycard operates through Entercard, the joint venture with ForeningsSparbanken (Swedbank). Barclaycard Business processes card payments for retailers and issues purchasing and credit cards to business customers and to the UK Government. Barclaycard works closely with other parts of the Group, including UK Retail Banking, UK Business Banking and International Retail and Commercial Banking, to leverage their distribution capability. International Retail and Commercial Banking International Retail and Commercial Banking provides a range of banking services, including current accounts, savings, investments, mortgages and loans to personal and corporate customers across Spain, Portugal, France, Italy, the Caribbean, Africa and the Middle East. International Retail and Commercial Banking works closely with other parts of the Group, including Barclaycard, UK Banking, Barclays Capital and Barclays Global Investors, to leverage synergies from product and service propositions. Head office functions and other operations Head office functions and other operations comprise: â€¢ head office and central support functions â€¢ discontinued businesses in transition â€¢ consolidation adjustments Head office and central support functions comprise the following areas: Executive Management, Finance, Treasury, Communications, Human Resources, Strategy and Planning, Internal Audit, Legal, Corporate Secretariat, Property, Tax, Compliance and Risk. Costs incurred wholly on behalf of the businesses are recharged to them. Discontinued businesses in transition principally relate to South American and Middle Eastern corporate banking businesses. These businesses are centrally managed with the objective of maximising recovery from the assets. Consolidation adjustments largely reflect the elimination of inter segment transactions. BARCLAYS PLC SUMMARY OF RESULTS (UNAUDITED) Analysis of profit attributable to shareholders Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m UK Banking 1,275 1,103 1,162 -------- -------- -------- UK Retail Banking 549 405 558 UK Business Banking 726 698 604 -------- -------- -------- Barclays Capital 703 432 588 Barclays Global Investors 242 185 151 Wealth Management 89 46 64 Wealth Management - closed life assurance activities (2) (51) (1) Barclaycard 379 384 459 International Retail and Commercial Banking 188 148 145 Head office functions and other operations (184) (130) (105) -------- -------- -------- Profit before tax 2,690 2,117 2,463 Tax (715) (634) (645) -------- -------- -------- Profit for the period 1,975 1,483 1,818 Profit attributable to minority interests (134) (27) (20) -------- -------- -------- Profit attributable to shareholders 1,841 1,456 1,798 -------- -------- -------- BARCLAYS PLC TOTAL ASSETS AND WEIGHTED RISK ASSETS Total assets As at 30.06.05 01.01.05 31.12.04 30.06.04 Â£m Â£m Â£m Â£m UK Banking 134,322 128,573 119,561 114,404 -------- -------- -------- -------- UK Retail Banking 67,518 69,064 68,861 67,255 UK Business Banking 66,804 59,509 50,700 47,149 -------- -------- -------- -------- Barclays Capital 566,675 454,437 346,901 330,235 Barclays Global Investors 68,630 61,201 798 711 Wealth Management 5,215 5,050 5,007 4,409 Wealth Management - closed life assurance activities 6,653 6,551 6,425 6,092 Barclaycard 23,777 22,878 23,059 20,693 International Retail and Commercial Banking 29,505 28,723 28,448 25,114 Head office functions and other operations 10,756 3,669 3,464 6,275 Goodwill 4,590 4,518 4,518 4,398 -------- -------- -------- -------- 850,123 715,600 538,181 512,331 -------- -------- -------- -------- Weighted risk assets As at 30.06.05 01.01.05 31.12.04 30.06.04 Â£m Â£m Â£m Â£m UK Banking 100,355 92,590 91,913 87,506 -------- -------- -------- -------- UK Retail Banking 37,010 37,835 37,111 36,458 UK Business Banking 63,345 54,755 54,802 51,048 -------- -------- -------- -------- Barclays Capital 90,828 79,511 79,949 72,715 Barclays Global Investors 1,474 1,233 1,230 1,004 Wealth Management 4,589 4,187 4,018 3,632 Barclaycard 21,666 21,595 20,188 18,404 International Retail and Commercial Banking 19,430 18,701 19,319 17,292 Head office functions and other operations 4,064 1,941 1,984 2,780 -------- -------- -------- -------- 242,406 219,758 218,601 203,333 -------- -------- -------- -------- Weighted risk assets at 1st January 2005 have been restated from those reported in the IFRS Transition Report, reflecting a review of the treatment of certain assets and offsets. BARCLAYS PLC UK Banking Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net interest income 1,919 1,780 1,697 Net fee and commission income 868 974 962 -------- -------- -------- Net trading income (2) - - Net investment income 19 4 1 -------- -------- -------- Principal transactions 17 4 1 Net premiums from insurance contracts 141 100 149 Other income 15 31 6 -------- -------- -------- Total income 2,960 2,889 2,815 Net claims and benefits on insurance contracts (33) (20) (26) -------- -------- -------- Total income, net of insurance claims 2,927 2,869 2,789 Impairment charges and other credit provisions (148) (46) (153) -------- -------- -------- Net income 2,779 2,823 2,636 Operating expenses (1,498) (1,722) (1,519) Share of results of associates and joint ventures (6) 2 3 Profit on disposal of associates and joint ventures - - 42 -------- -------- -------- Profit before tax 1,275 1,103 1,162 -------- -------- -------- Cost:income ratio 51% 60% 54% Cost:net income ratio 54% 61% 58% Risk Tendency Â£420m Â£375m Â£360m Return on average economic capital 34% 32% 35% Economic profit Â£592m Â£565m Â£593m As at 30.06.05 01.01.05 31.12.04 30.06.04 Loans and advances to Â£125.4bn Â£119.6bn Â£114.1bn Â£109.0bn customers Customer accounts Â£131.0bn Â£124.6bn Â£114.8bn Â£113.1bn Total assets Â£134.3bn Â£128.6bn Â£119.6bn Â£114.4bn Weighted risk assets Â£100.4bn Â£92.6bn Â£91.9bn Â£87.5bn Key Facts 30.06.05 31.12.04 30.06.04 Number of UK branches 2,053 2,061 2,064 UK Banking profit before tax increased 10% (Â£113m) to Â£1,275m (2004: Â£1,162m), driven by good income growth, well controlled risk and strong cost management as operating expenses were held below 2004 levels. UK Banking has continued to make good progress towards achieving its strategic aims of delivering integrated banking solutions to customers, enhancing the customer service experience, capturing revenue growth opportunities and improving productivity. UK Banking is targeting cost: income ratio improvements of 2 percentage points per annum in 2005, 2006 and 2007. During the first half of 2005 UK Banking made good progress towards achieving this target with the cost:income ratio improving by 3 percentage points to 51% (2004: 54%). BARCLAYS PLC UK Retail Banking Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net interest income 1,041 1,046 1,013 Net fee and commission income 550 554 569 -------- -------- -------- Net trading income - - - Net investment income 9 1 - -------- -------- -------- Principal transactions 9 1 - Net premiums from insurance contracts 141 100 149 Other income 12 22 4 -------- -------- -------- Total income 1,753 1,723 1,735 Net claims and benefits on insurance contracts (33) (20) (26) -------- -------- -------- Total income, net of insurance claims 1,720 1,703 1,709 Impairment charges and other credit provisions (72) 2 (62) -------- -------- -------- Net income 1,648 1,705 1,647 Operating expenses (1,092) (1,300) (1,133) Share of results of associates and joint ventures (7) - 2 Profit on disposal of associates and joint ventures - - 42 -------- -------- -------- Profit before tax 549 405 558 -------- -------- -------- Cost:income ratio 63% 76% 66% Cost:net income ratio 66% 76% 69% Risk Tendency Â£160m Â£150m Â£150m Return on average economic capital 34% 25% 36% Economic profit Â£256m Â£183m Â£290m As at 30.06.05 01.01.05 31.12.04 30.06.04 Loans and advances to Â£64.9bn Â£66.0bn Â£65.6bn Â£64.4bn customers Customer accounts Â£74.6bn Â£73.1bn Â£72.4bn Â£70.7bn Total assets Â£67.5bn Â£69.1bn Â£68.9bn Â£67.3bn Weighted risk assets Â£37.0bn Â£37.8bn Â£37.1bn Â£36.5bn Key Facts 30.06.05 31.12.04 30.06.04 Personal Customers ------------------ Number of UK current accounts 10.9m 10.7m 10.6m Number of UK savings accounts 10.7m 10.6m 10.5m Total UK mortgage balances (residential) Â£61.0bn Â£61.7bn Â£60.8bn Small Business and UK Premier ----------------------------- Number of Small Business customers 580,000 566,000 567,000 Number of UK Premier customers 280,000 273,000 269,000 BARCLAYS PLC UK Retail Banking profit before tax decreased 2% (Â£9m) to Â£549m (2004: Â£558m). Profit before tax increased 6% excluding the impact of a Â£42m profit on the disposal of a stake in Edotech in the first half of 2004. Total income net of insurance claims increased 1% (Â£11m) to Â£1,720m (2004: Â£1,709m). There was a good performance in current accounts, whilst income from mortgages and retail savings was weaker. Net income was flat at Â£1,648m (2004: Â£1,647m). Net interest income increased 3% (Â£28m) to Â£1,041m (2004: Â£1,013m). Growth was driven by a higher contribution from current accounts (both deposits and overdrafts), which was offset by margin pressure in retail savings. Excluding the impact of the application of IAS 32 and IAS 39 from 1st January 2005, net interest income increased 1%. UK average residential mortgage balances increased 1% to Â£61.4bn (2004: Â£60.6bn). The mortgage business focused on higher margin new business rather than volume during the period, which resulted in an improved margin on new business. Gross advances were Â£5.2bn (2004: Â£9.2bn), an estimated market share of 4%. UK residential mortgage balances ended the period at Â£61.0bn (31st December 2004: Â£61.7bn). The estimated loan to value ratio within the residential mortgage book on a current valuation basis was 34% (31st December 2004: 35%). Average overdraft balances within Personal Customers increased 11% and average Small Business loan balances rose 10%. Total average customer deposit balances increased 5% to Â£71.0bn (2004: Â£67.5bn). There was strong growth in UK Premier with average deposits up 12% and good growth in Small Business where average deposit balances were 5% higher. Personal Customer average current account balances increased 4% and average retail savings balances by 3%. Net fee and commission income decreased 3% (Â£19m) to Â£550m (2004: Â£569m), as lending related fees were impacted by the application of IAS 32 and IAS 39 from 1st January 2005. Excluding this impact, net fee and commission income was 1% higher. Higher fee income was generated by value-added fee-based current accounts, reflecting higher account numbers and a broader product range. Income from principal transactions was Â£9m (2004: Â£nil) representing the gain on the sale of the investment in Gresham, an insurance underwriting business, ahead of the launch of the new general insurance offering. Net premiums from insurance underwriting activities decreased 5% (Â£8m) to Â£141m (2004: Â£149m), due to a lower insurance take up on consumer lending activity. Impairment charges increased 16% (Â£10m) to Â£72m (2004: Â£62m), in line with expectations. The increase has principally arisen in Personal Customer overdrafts and Small Business loans reflecting balance growth. The quality of the mortgage portfolio remains high. Mortgage arrears balances remained at a low level, despite some modest deterioration in the period. Operating expenses decreased 4% (Â£41m) to Â£1,092m (2004: Â£1,133m) as cost saving initiatives focused on the back and middle office more than offset cost pressures arising from investment in frontline customer service, inflation and volume growth. Investment in the infrastructure of the business continued during the first half of 2005. The cost:income ratio improved by 3 percentage points to 63% (2004: 66%). BARCLAYS PLC UK Business Banking Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net interest income 878 734 684 Net fee and commission income 318 420 393 -------- -------- -------- Net trading income (2) - - Net investment income 10 3 1 -------- -------- -------- Principal transactions 8 3 1 Other income 3 9 2 -------- -------- -------- Total income 1,207 1,166 1,080 Impairment charges and other credit provisions (76) (48) (91) -------- -------- -------- Net income 1,131 1,118 989 Operating expenses (406) (422) (386) Share of results of associates and joint ventures 1 2 1 -------- -------- -------- Profit before tax 726 698 604 -------- -------- -------- Cost:income ratio 34% 36% 36% Cost:net income ratio 36% 38% 39% Risk Tendency Â£260m Â£225m Â£210m Return on average economic capital 35% 38% 35% Economic profit Â£336m Â£382m Â£303m As at 30.06.05 01.01.05 31.12.04 30.06.04 Loans and advances to Â£60.5bn Â£53.6bn Â£48.5bn Â£44.7bn customers Customer accounts Â£56.4bn Â£51.6bn Â£42.4bn Â£42.4bn Total assets Â£66.8bn Â£59.5bn Â£50.7bn Â£47.1bn Weighted risk assets Â£63.3bn Â£54.8bn Â£54.8bn Â£51.0bn Key Facts 30.06.05 31.12.04 30.06.04 Total number of Business Banking customers 182,000 179,000 179,000 Customers registered for online banking/Business Master 70,300 66,900 66,800 BARCLAYS PLC UK Business Banking profit before tax increased 20% (Â£122m) to Â£726m (2004: Â£604m), as a result of strong income growth and lower impairment losses. Both Larger Business and Medium Business performed well. The asset and sales finance business performed very strongly and future growth will be enhanced by the acquisition of a 51% stake in Iveco Finance, which completed during June 2005. Total income increased 12% (Â£127m) to Â£1,207m (2004: Â£1,080m). Net income increased 14% (Â£142m) to Â£1,131m (2004: Â£989m). Net interest income increased 28% (Â£194m) to Â£878m (2004: Â£684m). Excluding the impact of the application of IAS 32 and IAS 39 from 1st January 2005, net interest income increased by 12%. Balance sheet growth was very strong. The application of IAS 32 and IAS 39 from 1st January 2005 has resulted in the grossing up of previously netted positions (assets and liabilities subject to master netting agreements). These amounted to Â£8.7bn as at 30th June 2005. Average lending balances (excluding previously netted balances) increased 21% to Â£51.7bn (2004: Â£42.7bn), with particularly strong growth in the large corporate segment. UK Business Banking's market share of lending balances increased over the period. Average deposit balances (excluding previously netted balances) increased 10% to Â£44.4bn (2004: Â£40.4bn). Adjusting for the income reclassification, there has been a modest decline in both the lending and deposit margins. The impact of the Iveco transaction was to increase both period end total assets and weighted risk assets by Â£1.8bn. Net fee and commission income decreased 19% (Â£75m) to Â£318m (2004: Â£393m). Excluding the impact of the IAS 32 and IAS 39, net fee and commission income increased 8%, as a result of higher underlying lending fees and higher fees from the asset and sales finance business. Income from principal transactions was Â£8m (2004: Â£1m). The majority of the increase represented gains on the sale of venture capital investments. Impairment charges decreased 16% (Â£15m) to Â£76m (2004: Â£91m). The overall credit profile of the portfolio was maintained and the average credit quality of new lending was above that of the average for the overall book. Operating expenses increased 5% (Â£20m) to Â£406m (2004: Â£386m), reflecting volume growth and higher expenditure on front line staff. The cost:income ratio improved by 2 percentage points to 34% (2004: 36%). BARCLAYS PLC Barclays Capital Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net interest income 483 535 456 Net fee and commission income 350 331 272 -------- -------- -------- Net trading income 1,115 679 784 Net investment income 158 121 176 -------- -------- -------- Principal transactions 1,273 800 960 Other income 11 11 10 -------- -------- -------- Total income 2,117 1,677 1,698 Impairment charges and other credit provisions (48) (53) (49) -------- -------- -------- Net income 2,069 1,624 1,649 Operating expenses (1,366) (1,192) (1,061) -------- -------- -------- Profit before tax 703 432 588 -------- -------- -------- Cost:income ratio 65% 71% 62% Cost:net income ratio 66% 73% 64% Risk Tendency Â£75m Â£70m Â£80m Return on average economic capital 40% 32% 38% Average net income per member of staff ('000) Â£257 Â£221 Â£260 Economic profit Â£346m Â£230m Â£291m As at 30.06.05 01.01.05 31.12.04 30.06.04 Total assets Â£566.7bn Â£454.4bn Â£346.9bn Â£330.2bn Weighted risk assets Â£90.8bn Â£79.5bn Â£79.9bn Â£72.7bn Key Facts1 30.06.05 30.06.04 League League table Issuance table Issuance position value position value Global all debt 4th $163.5bn 5th $122.3bn European all debt 2nd $116.0bn 3rd $80.9bn All international bonds 4th $96.0bn 6th $75.9bn (all currencies) All international bonds 3rd â‚¬44.3bn 3rd â‚¬35.4bn (Euros) Sterling bonds 2nd Â£8.3bn 2nd Â£7.7bn US investment grade 4th $5.1bn 12th $2.1bn bonds 1 League tables compiled by Barclays Capital from external sources including Dealogic and Thomson Financials. BARCLAYS PLC Barclays Capital continued to perform strongly delivering record first half profit before tax and net income despite difficult market conditions, particularly during the second quarter. Profit before tax increased 20% (Â£115m) to Â£703m (2004: Â£588m) reflecting very strong income growth driven by higher business volumes and client activity levels. Net income increased 25% (Â£420m) to Â£2,069m (2004: Â£1,649m). Total income increased 25% (Â£419m) to Â£2,117m (2004: Â£1,698m) as a result of strong growth across the Rates and Credit businesses. Income by asset category was broadly based with particularly strong income growth from credit products and commodities. Areas of investment in 2004, such as commercial mortgage backed securities, equity derivatives and commodities, performed well. Average DVaR decreased 20% to Â£30.4m (2004: Â£38.1m) primarily due to better diversification and was broadly in line with DVaR for the second half of 2004 (Â£30.7m). Secondary income, comprising principal transactions (net trading income and net investment income) and net interest income, is mainly generated from providing financing and client risk management solutions. This increased 24% (Â£340m) to Â£1,756m (2004: Â£1,416m). Trading income increased 42% (Â£331m) to Â£1,115m (2004: Â£784m) due to strong performances across the Rates and Credit businesses, in particular from commodities, foreign exchange, structured capital markets and credit derivatives. This was driven by higher volumes of client led activity across a broad range of products and geographic regions and the continued return on prior year investments. Net investment income decreased 10% (Â£18m) to Â£158m (2004: Â£176m), due to lower contributions from structured capital markets and private equity realisations. Net interest income increased 6% (Â£27m) to Â£483m (2004: Â£456m). Primary income, comprising net fee and commission income from advisory and origination activities, grew 29% (Â£78m) to Â£350m (2004: Â£272m). This reflected increased volumes and market share gains in a number of key markets with particularly strong performances from primary bonds and loans. Other income of Â£11m (2004: Â£10m) reflected income from operating leases. Impairment charges of Â£48m (2004: Â£49m) were broadly in line with prior year as the wholesale credit environment remained stable. Operating expenses increased 29% (Â£305m) to Â£1,366m (2004: Â£1,061m), reflecting the ongoing costs associated with staff hired during 2004 and the first half of 2005 and higher business volumes. Performance related costs increased due to the strong profit performance. Investment expenditure, primarily in the front office continued to be significant, but decreased, relative to 2004, reflecting the reduced pace of hiring in the first half of 2005. The cost:net income ratio increased to 66% (2004: 64%). Total staff costs to net income was in line with the prior year at 53%. Approximately half of the total operating expenses comprised performance related pay, discretionary investment spend and short-term contractor resource, consistent with the experience in the first half of 2004. Total headcount increased by 500 during the first half of 2005 to 8,300 (31st December 2004: 7,800). Almost 60% of the increase was in the front office, spread across product, client coverage and distribution across all geographies. The remainder was directed at the continued strengthening of the back office and control environment, mostly in lower cost jurisdictions. BARCLAYS PLC Barclays Global Investors Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net interest income 7 1 4 Net fee and commission income 570 464 418 --------- -------- -------- Net trading income 2 3 - Net investment income 4 3 - --------- -------- -------- Principal transactions 6 6 - Other income - (1) 1 --------- -------- -------- Total income 583 470 423 Operating expenses (342) (284) (272) Share of results of associates and joint ventures 1 (1) (1) Profit on disposal of associates and joint ventures - - 1 --------- -------- -------- Profit before tax 242 185 151 --------- -------- -------- Cost:income ratio 59% 60% 64% Average income per member of staff ('000) Â£299 Â£247 Â£217 Return on average economic capital 247% 185% 147% Economic profit Â£129m Â£108m Â£87m As at 30.06.05 01.01.05 31.12.04 30.06.04 Total assets Â£68.6bn Â£61.2bn Â£0.8bn Â£0.7bn Weighted risk assets Â£1.5bn Â£1.2bn Â£1.2bn Â£1.0bn Key Facts 30.06.05 31.12.04 30.06.04 Number of institutional clients 2,700 2,600 2,600 Assets under management: -indexed Â£517bn Â£478bn Â£429bn -active Â£169bn Â£147bn Â£134bn -managed cash and other Â£95bn Â£84bn Â£71bn Total assets under Â£781bn Â£709bn Â£634bn management Total assets under $1,401bn $1,362bn $1,151bn management (US$) Number of iShares products 135 132 123 Total iShares assets under Â£84bn Â£68bn Â£52bn management1 1 Included in indexed assets BARCLAYS PLC Barclays Global Investors (BGI) delivered another excellent performance. Profit before tax increased 60% (Â£91m) to Â£242m (2004: Â£151m) reflecting substantial income growth coupled with tight cost control and focused investment spend. Net fee and commission income increased 36% (Â£152m) to Â£570m (2004: Â£418m). This was driven by a sharp rise in management and incentive fees across all areas, particularly in the active and iShares businesses. Higher margin assets under management and strong investment performance contributed to the significant income growth along with higher market levels. In addition, securities lending income growth was strong, reflecting increased volumes in this area. Very strong income and profit performance continued across a diverse range of products, distribution channels and geographies. The trend of net new revenue generation from an increasingly higher margin product mix continued. Active product investment performance remained very good and most funds outperformed their benchmarks. The growth in global iShares continued at pace with assets under management up 24% (Â£16bn) to Â£84bn from 2004 year-end and up 62% (Â£32bn) from June 2004. Operating expenses increased 26% (Â£70m) to Â£342m (2004: Â£272m) primarily as a result of higher performance based expenses and investment in growth initiatives including Fixed Income and Alternative Assets. The cost:income ratio of 59% showed continued improvement over the prior year (2004: 64%). Total headcount rose by 200 in the period to 2,100 (31st December 2004: 1,900) driven by the targeted ongoing investment for future growth of the business. Headcount increased in all regions, across both product groups and the support functions. Total assets under management increased 10% (Â£72bn) to Â£781bn (31st December 2004: Â£709bn). The growth included Â£33bn of net new assets, Â£32bn attributable to favourable exchange rate movements and Â£7bn as a result of market movements. The increase in the US$ assets under management from US$1,362bn (31st December 2004) to US$1,401bn includes US$61bn of net new assets and US$11bn of market movements, partially offset by adverse exchange rate movements of US$33bn. BGI manages assets denominated in numerous currencies with the majority being in US dollars. BARCLAYS PLC Wealth Management Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net interest income 165 155 148 Net fee and commission income 283 268 261 -------- -------- -------- Net trading income - - - Net investment income 5 - - -------- -------- -------- Principal transactions 5 - - Other income (1) 4 3 -------- -------- -------- Total income 452 427 412 Impairment charges and other credit provisions (1) 1 - -------- -------- -------- Net income 451 428 412 Operating expenses (362) (382) (348) -------- -------- -------- Profit before tax 89 46 64 -------- -------- -------- Cost:income ratio 80% 89% 84% Cost:net income ratio 80% 89% 84% Risk Tendency Â£5m Â£5m Â£5m Return on average economic capital 37% 23% 43% Average net income per member of staff ('000) Â£63 Â£60 Â£59 Economic profit Â£49m Â£23m Â£47m As at 30.06.05 01.01.05 31.12.04 30.06.04 Loans and advances to Â£4.5bn Â£4.2bn Â£4.1bn Â£3.6bn customers Customer accounts Â£22.6bn Â£21.4bn Â£21.3bn Â£20.4bn Total assets Â£5.2bn Â£5.1bn Â£5.0bn Â£4.4bn Weighted risk assets Â£4.6bn Â£4.2bn Â£4.0bn Â£3.6bn Key Facts 30.06.05 31.12.04 30.06.04 Total customer funds Â£74.2bn Â£70.8bn Â£69.0bn BARCLAYS PLC Wealth Management profit before tax increased 39% (Â£25m) to Â£89m (2004: Â£64m), reflecting broad based income growth and tight control of costs. Total income increased 10% (Â£40m) to Â£452m (2004: Â£412m). Net interest income increased 11% (Â£17m) to Â£165m (2004: Â£148m) reflecting good balance sheet growth. Total average customer deposits increased 9% to Â£22.2bn (2004: Â£20.4bn) driven by strong growth from offshore and private banking clients. Total average loans increased 27% to Â£4.2bn (2004: Â£3.3bn), largely as a result of an increase in lending to corporate clients in the offshore business. The deposit margin remained stable whilst the lending margin declined modestly. Net fee and commission income increased 8% (Â£22m) to Â£283m (2004: Â£261m). The increase was driven principally by sales of investment products to private banking and financial planning clients together with the growth in equity markets. Operating expenses increased 4% (Â£14m) to Â£362m (2004: Â£348m). Growth was driven by investment in new customer propositions, Gerrard integration costs and the continued investment in customer service and geographic expansion. Core operating costs remained in line with 2004 levels. The cost:income ratio improved to 80% (2004: 84%). The integration of the Gerrard business continued to progress well with profits ahead of 2004 and expectations. Total customer funds, comprising customer deposits and assets under management, increased to Â£74.2bn (31st December 2004: Â£70.8bn). Multi-Manager assets increased to Â£4.1bn (31st December 2004: Â£1.6bn), including existing customer assets. BARCLAYS PLC Wealth Management - closed life assurance activities Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net interest income (15) (33) (20) Net fee and commission income 18 - - -------- -------- -------- Net trading income - - - Net investment income 115 517 79 -------- -------- -------- Principal transactions 115 517 79 Net premiums from insurance contracts 100 195 167 Other income 1 1 3 -------- -------- -------- Total income 219 680 229 Net claims and benefits on insurance contracts (167) (639) (179) -------- -------- -------- Total income, net of insurance claims 52 41 50 Endowment redress costs (40) (64) (33) Other operating expenses (14) (28) (18) -------- -------- -------- Loss before tax (2) (51) (1) -------- -------- -------- Cost:income ratio 104% 224% 102% Return on average economic capital (15)% (117)% 11% Economic (loss)/profit Â£(8)m Â£(79)m Â£2m As at 30.06.05 01.01.05 31.12.04 30.06.04 Total assets Â£6.7bn Â£6.6bn Â£6.4bn Â£6.1bn BARCLAYS PLC From 1st January 2005, following the application of IAS 39 and IFRS 4, life assurance products are divided into investment contracts and insurance contracts. Investment income from assets backing investment contracts, and the corresponding movement in investment contract liabilities, has been presented on a net basis in other income. Therefore the line by line results for 2005 are not directly comparable to those reported for 2004. Wealth Management - closed life assurance activities loss before tax was stable at Â£2m (2004: loss of Â£1m). Profit before tax excluding endowment redress costs was Â£38m (2004: Â£32m). Total income decreased Â£10m to Â£219m (2004: Â£229m). The decrease was offset by a broadly similar reduction in net claims and benefits of Â£12m. Costs relating to redress for customers in respect of sales of endowment policies increased 21% (Â£7m) to Â£40m (2004: Â£33m). Other operating expenses decreased by 22% to Â£14m (2004: Â£18m). BARCLAYS PLC Barclaycard Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net interest income 863 790 810 Net fee and commission income 454 416 374 Net premiums from insurance contracts 10 11 11 -------- -------- -------- Total income 1,327 1,217 1,195 Net claims and benefits on insurance contracts (2) (3) (2) -------- -------- -------- Total income, net of insurance claims 1,325 1,214 1,193 Impairment charges and other credit provisions (508) (404) (357) -------- -------- -------- Net income 817 810 836 Operating expenses (439) (428) (379) Share of results of associates and joint ventures 1 2 2 -------- -------- -------- Profit before tax 379 384 459 -------- -------- -------- Cost:income ratio 33% 35% 32% Cost:net income ratio 54% 53% 45% Risk Tendency Â£980m Â£860m Â£810m Return on average economic capital 20% 20% 25% Economic profit Â£115m Â£148m Â£202m As at 30.06.05 01.01.05 31.12.04 30.06.04 Loans and advances to Â£23.1bn Â£22.2bn Â£22.3bn Â£20.1bn customers Total assets Â£23.8bn Â£22.9bn Â£23.1bn Â£20.7bn Weighted risk assets Â£21.7bn Â£21.6bn Â£20.2bn Â£18.4bn Half-year ended Key Facts 30.06.05 31.12.04 30.06.04 Number of Barclaycard UK customers 11.2m 11.2m 10.8m Number of retailer relationships 92,000 90,000 89,000 UK credit cards-average Â£10.2bn Â£9.9bn Â£9.3bn outstanding balances UK credit cards-average extended Â£8.8bn Â£8.5bn Â£7.9bn credit balances UK loans-average consumer Â£9.9bn Â£9.6bn Â£9.2bn lending balances International-average Â£1.7bn Â£1.0bn Â£0.8bn extended credit balances International-cards in issue 3.7m 2.9m 1.8m BARCLAYS PLC Barclaycard profit before tax decreased 17% (Â£80m) to Â£379m (2004: Â£459m) as good income growth was more than offset by higher impairment charges together with increased costs arising from continued investment in the business. Excluding Juniper, profit before tax fell 15% to Â£391m. Total income, net of insurance claims, increased 11% (Â£132m) to Â£1,325m (2004: Â£1,193m) driven by good performances across the diversified UK cards and loans businesses, strong momentum in the international cards business and continued growth in Barclaycard Business. Excluding Juniper, income increased by 7% (Â£84m). Net income fell 2% (Â£19m) to Â£817m (2004: Â£836m) as a result of the rise in impairment charges. Net interest income increased 7% (Â£53m) to Â£863m (2004: Â£810m) reflecting growth in balances. UK average extended credit balances rose 11% to Â£8.8bn (2004: Â£7.9bn) and international average extended credit balances more than doubled to Â£1.7bn (2004: Â£0.8bn). Excluding Juniper, international average extended credit balances increased 28%. UK average consumer loan balances increased 8% to Â£9.9bn (2004: Â£9.2bn). Margins in the cards business declined from the levels in the first half of 2004, falling to 7.56% (2004: 7.83%), but increased from those in the second half of 2004 (6.88%), due to the flow through of the UK rate rises and a reduced impact from promotional offers. Margins in consumer lending fell from 2004 levels to 5.15% (2004: 6.31%), due to competitive pressure, change in the product mix and the impact of IAS 39 moving fee and commission expenses to net interest income. Excluding the impact of the application of IAS 32 and IAS 39 from 1st January 2005, net interest income increased by 5%. Net fee and commission income increased 21% (Â£80m) to Â£454m (2004: Â£374m) reflecting the inclusion of Juniper for the full period and increased contributions from FirstPlus and Barclaycard Business. Excluding the impact of IAS 32 and IAS 39, net fee and commission income increased 16%. Impairment charges increased to Â£508m, an increase of 26% relative to the second half of 2004 and 42% relative to the first half of 2004. The increase was driven largely by an increase in the size of the book and a rise in delinquent balances and severity rates. The increases arose primarily in the UK cards business and reflected the UK industry wide credit experience in the first part of 2005. In UK consumer loans and internationally (excluding Juniper), the rate of increase in impairment charges was lower. Non-performing card and loan balances increased significantly, driven by the growth in delinquent balances. Operating expenses rose 16% (Â£60m) to Â£439m (2004: Â£379m) as a result of the inclusion of Juniper. Excluding Juniper, operating expenses rose 3%, mainly reflecting investment in international growth and the development of multi-brand businesses with partners in the UK. Costs in the UK cards and loans business were flat. In the UK, the FirstPlus business and Barclaycard Business performed well. The SkyCard program was launched in April and customer recruitment was ahead of expectations at the end of the period. Barclaycard International continued to make good progress with its growth strategy. The businesses in Germany and Spain performed particularly strongly. In June Barclaycard formed a new joint venture with Swedbank to develop a card business in the Nordic region. Barclaycard International profit before tax was Â£1m (2004: Â£1m). Excluding Juniper, profit before tax increased to Â£13m and total income rose 28%. Juniper performance and integration proceeded in line with expectations, with strong growth in balances and customer account numbers and a steady stream of new partnerships being established. BARCLAYS PLC International Retail and Commercial Banking Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net interest income 288 277 257 Net fee and commission income 171 145 143 -------- -------- -------- Net trading income 6 - - Net investment income 67 71 64 -------- -------- -------- Principal transactions 73 71 64 Net premiums from insurance contracts 60 155 145 Other income 14 12 13 -------- -------- -------- Total income 606 660 622 Net claims and benefits on insurance contracts (85) (208) (182) -------- -------- -------- Total income, net of insurance claims 521 452 440 Impairment charges and other credit provisions (8) (12) (19) -------- -------- -------- Net income 513 440 421 Operating expenses (345) (330) (287) Share of results of associates and joint ventures 20 38 11 -------- -------- -------- Profit before tax 188 148 145 -------- -------- -------- Cost:income ratio 66% 73% 65% Cost:net income ratio 67% 75% 68% Risk Tendency Â£75m Â£65m Â£75m Return on average economic capital 24% 22% 18% Economic profit Â£70m Â£54m Â£57m As at 30.06.05 01.01.05 31.12.04 30.06.04 Loans and advances to customers Â£21.7bn Â£20.8bn Â£20.7bn Â£17.6bn Customer accounts Â£9.6bn Â£9.5bn Â£10.1bn Â£9.7bn Total assets Â£29.5bn Â£28.7bn Â£28.4bn Â£25.1bn Weighted risk assets Â£19.4bn Â£18.7bn Â£19.3bn Â£17.3bn Half-year ended Key Facts 30.06.05 31.12.04 30.06.04 Number of international branches 799 830 837 Number of Barclays Africa and the Middle East customer accounts 1.3m 1.4m 1.5m Number of Barclays Spain customers 0.5m 0.5m 0.5m Number of Openplan customers in Spain 52,000 47,000 44,000 European mortgages - â‚¬19.9bn â‚¬18.1bn â‚¬16.0bn average balances (Euros) European assets under management (Euros) â‚¬19.5bn â‚¬17.1bn â‚¬17.2bn BARCLAYS PLC International Retail and Commercial Banking performed very strongly with profit before tax increasing 30% (Â£43m) to Â£188m (2004: Â£145m). There was progress in all geographies, with very good growth in Spain, where profit before integration costs rose 30%, driven by the successful realisation of synergies from the integration of Banco Zaragozano. From 1st January 2005, following the application of IAS 39 and IFRS 4, life assurance products are divided into investment contracts and insurance contracts. Investment income from assets backing insurance contracts, and the corresponding movement in investment contract liabilities, has been presented on a net basis in other income. Therefore the line by line results for 2005 are not directly comparable to those reported for 2004. Total income, net of insurance claims, increased 18% (Â£81m) to Â£521m (2004: Â£440m). Net income increased 22% (Â£92m) to Â£513m (2004: Â£421m). Net interest income increased 12% (Â£31m) to Â£288m (2004: Â£257m) as a result of good balance growth in Spain, Italy, Africa and the Middle East. Total average customer loans increased 28% to Â£20.8bn (2004: Â£16.3bn), reflecting growth across the portfolio. Mortgage balance growth in Europe was strong with average Euro balances up 24% including the benefit of recent mortgage campaigns in France. Average lending balances in Africa and the Middle East increased 38%. Competitive pressures in key European markets and a change in the overall product mix, with a higher weighting to mortgages, have contributed to slightly lower lending margins. Average customer deposits increased 10% to Â£9.1bn (2004: Â£8.3bn), mainly in Africa and the Middle East. Excluding the impact of the application of IAS 32 and IAS 39 from 1st January 2005, net interest income increased by 5%. Net fee and commission income increased 20% (Â£28m) to Â£171m (2004: Â£143m). This reflected a strong performance in Spain from increased fund management related fees, together with good growth in France. Spain's assets under management increased by 18%. Sales of mortgage related insurance products in Italy have also contributed. Fee income showed solid growth in Africa and the Middle East. Excluding the impact of IAS 32 and IAS 39, net fee and commission income increased 25%. Principal transactions increased 14% (Â£9m) to Â£73m (2004: Â£64m). This reflected gains from investment realisations, including the sale of a preference share holding in FirstCaribbean, partly offset by the change in accounting for insurance businesses. Impairment charges decreased 58% (Â£11m) to Â£8m (2004: Â£19m) with the reduction mainly in Africa and the Middle East. Operating expenses increased 20% (Â£58m) to Â£345m (2004: Â£287m). The majority of the increase was attributable to integration costs in Spain and the continued expansion of the business in Africa and the Middle East. The cost: income ratio was 66% (2004: 65%). Barclays Spain performed very strongly with profit before tax, pre integration costs, up 30% to Â£82m (2004: Â£63m). This was driven by benefits from the accelerated integration of Banco Zaragozano, together with growth in mortgages and assets under management. The integration of Banco Zaragozano is well ahead of plan. BARCLAYS PLC In Spain, Openplan continued to grow strongly reflecting the successful targeting of new customer segments. Total customer numbers increased in the period to 52,000 (31st December 2004: 47,000). The recent re-launch of Openplan in Portugal has contributed to a strong performance, supported by further expansion in the branch network, and customer numbers reached 10,600 by 30th June (31st December 2004: 8,900). Africa and the Middle East profit before tax increased 12% to Â£65m (2004: Â£58m) reflecting balance sheet growth across the businesses, particularly in Egypt, UAE and South Africa. The post-tax profit from associates increased Â£9m to Â£20m (2004: Â£11m) reflecting an increased contribution from FirstCaribbean. BARCLAYS PLC Head office functions and other operations Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net interest expense (10) (5) (19) Net fee and commission expense (174) (66) (115) -------- -------- -------- Net trading income 55 2 19 Net investment income 5 (2) (7) -------- -------- -------- Principal transactions 60 - 12 Net premiums from insurance contracts 60 45 64 Other income 9 17 20 -------- -------- -------- Total income (55) (9) (38) Impairment charges and other credit provisions 7 10 (11) -------- -------- -------- Net (loss)/income (48) 1 (49) Other operating expenses (136) (132) (57) Share of results of associates and joint ventures - 1 1 -------- -------- -------- Loss before tax (184) (130) (105) -------- -------- -------- Loss before tax increased Â£79m to Â£184m (2004: loss Â£105m), reflecting increased costs and the impact of the elimination of inter-segment transactions. Group segmental reporting is prepared in accordance with Group accounting policies as if each business segment were a stand alone company. This means that inter-segment transactions are recorded in each segment as if undertaken on an arms length basis. Consolidation adjustments necessary to fully eliminate the inter-segment transactions, including adjustments to eliminate timing differences on the recognition of inter-segment cost and income, are included in Head office functions and other operations. The consolidation adjustments amount to a loss to Head office functions and other operations of Â£132m. The most significant adjustments include: internal fees for structured capital market activities arranged by Barclays Capital of Â£63m (2004: Â£45m); the timing of the recognition of insurance commissions between UK Retail Banking and Barclaycard included as a net fee and commission expense of Â£49m (2004: Â£nil) and net fees paid to Barclays Capital for capital raising and currency management of Â£32m (2004: Â£nil). Net trading income of Â£55m (2004: Â£19m) arose as a result of hedging-related transactions in Treasury. The hedge ineffectiveness from 1st January 2005, together with other related Treasury adjustments, amounted to a gain of Â£12m (2004: Â£nil) and was reported in net interest income. Other income comprises mainly property rental income. Impairment gains reflect recoveries made on loans previously written off in the transition businesses. Operating expenses rose Â£79m to Â£136m (2004: Â£57m). Of this increase, Â£47m reflected non-recurring costs relating to the head office relocation to Canary Wharf. BARCLAYS PLC FINANCIAL REVIEW Results by nature of income and expense Net interest income Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Interest income 7,648 7,315 6,565 Interest expense (3,948) (3,815) (3,232) -------- -------- -------- 3,700 3,500 3,333 -------- -------- -------- Group net interest income increased 11% (Â£367m) to Â£3,700m (2004: Â£3,333m), reflecting growth in average balances across all businesses. Growth in net interest income was most notable in UK Banking, partly due to the growth in average lending balances and deposit balances and the reclassification of certain lending related fees from net fee and commission income to net income with the application of IAS 32 and IAS 39 from 1st January 2005. Net interest income also improved in Barclaycard and International Retail and Commercial Banking, as a result of strong growth in balances. The increase in net interest income also reflects the application of IAS 32 and IAS 39 with effect from 1st January 2005, under which Reserve Capital Instruments and other capital instruments were classified from debt under UK GAAP to minority interests under IFRS. The associated funding cost has moved from interest expense to profit attributable to minority interests. 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 has decreased to Â£58m (2004: Â£206m), largely due to the impact of higher short-term interest rates. BARCLAYS PLC FINANCIAL REVIEW Divisional margins Margin Half-year ended 30.06.05 31.12.04 30.06.04 % % % UK Retail Banking assets 0.77 0.74 0.72 UK Retail Banking liabilities 2.01 2.13 2.16 UK Business Banking assets 1.88 1.53 1.56 UK Business Banking liabilities 1.44 1.53 1.48 Wealth Management assets 0.98 0.92 1.03 Wealth Management liabilities 1.06 1.09 1.06 Barclaycard assets 6.48 6.58 7.12 Barclaycard assets - cards 7.56 6.88 7.83 Barclaycard assets - loans 5.15 6.23 6.31 International Retail and Commercial Banking assets 1.42 1.48 1.69 International Retail and Commercial Banking liabilities 1.54 1.56 1.42 Average balance Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m UK Retail Banking assets 65,348 64,746 64,040 UK Retail Banking liabilities 70,972 69,491 67,529 UK Business Banking assets 51,726 46,493 42,663 UK Business Banking liabilities 44,400 42,629 40,373 Wealth Management assets 4,229 3,829 3,329 Wealth Management liabilities 22,603 21,466 20,816 Barclaycard assets 23,759 22,246 20,965 -------- -------- -------- Barclaycard assets - cards 13,126 12,012 11,105 Barclaycard assets - loans 10,633 10,234 9,860 -------- -------- -------- International Retail and Commercial Banking assets 22,327 20,547 17,693 International Retail and Commercial Banking liabilities 9,633 9,175 8,846 Divisional interest income Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m UK Retail Banking assets 250 242 229 UK Retail Banking liabilities 707 743 723 UK Business Banking assets 482 359 330 UK Business Banking liabilities 317 329 296 Wealth Management assets 21 18 17 Wealth Management liabilities 120 117 110 Barclaycard assets 770 732 746 -------- -------- -------- Barclaycard assets - cards 496 413 435 Barclaycard assets - loans 274 319 311 -------- -------- -------- International Retail and Commercial Banking assets 159 152 150 International Retail and Commercial Banking liabilities 74 72 63 -------- -------- -------- 2,900 2,764 2,664 -------- -------- -------- BARCLAYS PLC FINANCIAL REVIEW Reconciliation of divisional interest income to Group net interest income1 Half-year-ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Divisional interest income 2,900 2,764 2,664 Other: - Barclays Capital 483 535 456 - Barclays Global Investors 7 1 4 - Other 310 200 209 -------- -------- -------- Group net interest income 3,700 3,500 3,333 -------- -------- -------- UK Retail Banking assets margin increased 5 basis points to 0.77% (2004: 0.72%). The application of IAS 32 and IAS 39 increased the assets margin for 2005 by 1 basis point. Excluding the impact of IAS 32 and IAS 39 the higher assets margin reflected stable mortgage margins and improved contributions from Personal Customer overdrafts and Small Business loans. UK Business Banking assets margin increased 32 basis points to 1.88% (2004: 1.56%). The application of IAS 32 and IAS 39 had a significant effect on the UK Business Banking assets margin for 2005, increasing it by 34 basis points. UK Business Banking liabilities margin also experienced some modest downward pressure, decreasing 4 basis points to 1.44% (2004: 1.48%). Wealth Management assets margin decreased 5 basis points to 0.98% (2004: 1.03%) due to some modest pressure in the business. The application of IAS 32 and IAS 39 did not impact the assets margin. Relative to the second half of 2004, asset margins improved by 6 basis points. Wealth Management liabilities margin was stable at 1.06% (2004: 1.06%). Barclaycard cards margin decreased 27 basis points to 7.56% (2004: 7.83%). The application of IAS 32 and IAS 39 increased the cards margin in the first half of 2005 by 12 basis points. Margins in the cards business declined from the level of the first half of 2004 but increased on those of the second half of 2004 (6.88%). Barclaycard loans margin decreased 116 basis points to 5.15% (2004: 6.31%). The application of IAS 32 and IAS 39 reduced the loans margin in the first half of 2005 by 47 basis points. Margins in the loans business reduced due to competitive pressure and change in the product mix. International Retail and Commercial Banking assets margin decreased 27 basis points to 1.42% (2004: 1.69%). The application of IAS 32 and IAS 39 increased the assets margin for 2005 by 8 basis points. Excluding the impact of IAS 32 and IAS 39 the assets margin reflected margin erosion from strong growth in continental European mortgage balances and competitive pressures. International Retail and Commercial Banking liabilities margin rose 12 basis points to 1.54% (2004: 1.42%). 1 Divisional interest income is the difference between the interest rate earned on average assets or paid on average liabilities relative to the average Bank of England base rate or local equivalents for international businesses. The margin is expressed as annualised divisional interest over average balance. Asset and liability margins cannot be added together as they are relative to the average Bank of England base rate or local equivalent for international businesses. Average balances are calculated on daily averages for most UK banking operations and monthly averages elsewhere. 2005 figures are not strictly comparable to those in 2004 with the application of IAS 32 and IAS 39 from 1st January 2005 affecting the asset margin. Within the reconciliation of Group net interest income, there is an amount captured as Other. This relates to: benefit of capital, including the restatement of Reserve Capital Instruments and other capital instruments; Head office functions and other operations; net funding on non customer assets and liabilities; and Wealth Management - closed life assurance activities. BARCLAYS PLC FINANCIAL REVIEW Net fee and commission income Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Fee and commission income 2,872 2,861 2,648 Fee and commission expense (332) (329) (333) -------- -------- -------- 2,540 2,532 2,315 -------- -------- -------- Net fee and commission income increased 10% (Â£225m) to Â£2,540m (2004: Â£2,315m), reflecting increases across the business. The application of IAS 32 and 39 caused the reclassification of Â£109m from net fee and commission income to net interest income in the first half of 2005. Excluding IAS 32 and 39 growth was 14% reflecting increases across all businesses. Fee and commission income receivable rose 8% (Â£224m) to Â£2,872m (2004: Â£2,648m). The increase was driven by Barclays Global Investors, reflecting strong investment performance and higher market levels and Barclays Capital, due to increased business volumes and improved market share; and Barclaycard fee and commission income increased as a result of including Juniper for the full period, and higher contributions from FirstPlus and Barclaycard Business. Total foreign exchange income was Â£298m (half-year ended 31st December 2004: Â£260m; half-year ended 30th June 2004: Â£260m) and consisted of revenues earned from both retail and wholesale activities. The 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 business units, within fee and commission income. The foreign exchange income earned in Barclays Capital is reported within trading income. BARCLAYS PLC FINANCIAL REVIEW Principal transactions Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Net trading income Rates related business 859 443 698 Credit related business 317 241 105 -------- -------- -------- 1,176 684 803 -------- -------- -------- Net investment income Cumulative gain from disposal of available for sale assets/investment securities 87 129 70 Dividend income 13 11 6 Net income from financial instruments designated at fair value 175 - - Income from assets backing insurance policies - 581 136 Other investment income 98 (7) 101 -------- -------- -------- 373 714 313 -------- -------- -------- Most of the Group's trading income is generated in Barclays Capital. Trading income increased 46% (Â£373m) to Â£1,176m (2004: Â£803m) due to strong performances across the Rates and Credit businesses, in particular from commodities, foreign exchange, structured capital markets and credit derivatives. This was driven by higher volumes of client led activity across a broad range of products and geographic regions and the return on prior year headcount investment. Net investment income rose by 19% (Â£60m) to Â£373m (2004: Â£313m) reflecting gains on the disposals of short term investments and fair value movements. Following the application of IAS 39 at 1st January 2005, certain assets and liabilities have been designated at fair value. Fair value movements on these items of Â£175m are taken to net investment income. Fair value movements on insurance assets included within this category contributed Â£149m. From 1st January 2005, investment and insurance contracts are separately accounted for in accordance with IAS 39 and IFRS 4. This has resulted in investment income and the corresponding movement in investment contract liabilities being presented on a net basis within other income. In 2004, all contracts were accounted for as insurance contracts and the gross income relating to these contracts was reported as income from assets backing insurance policies. BARCLAYS PLC FINANCIAL REVIEW Net premiums from insurance contracts Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Gross premiums from insurance contracts 385 519 550 Premiums ceded to reinsurers (14) (13) (14) -------- -------- -------- Net premiums from insurance contracts 371 506 536 -------- -------- -------- The change in accounting for investment contracts results in a substantial decline in reported net premiums from insurance contracts in the Wealth Management - closed life assurance activities and International Retail and Commercial Banking businesses. There is a corresponding decline in net claims and benefits on insurance contracts. Other income Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Increase in fair value of assets held in respect of linked liabilities to customers under investment contracts 6,885 Increase in liabilities held in respect of linked liabilities to customers under investment contracts (6,885) Property rentals 25 28 18 Other income 24 47 38 -------- -------- -------- 49 75 56 -------- -------- -------- In accordance with IAS 39, from 1st January 2005, asset management products offered to institutional pension funds by Barclays Global Investors are recognised as investment contracts. This results in a substantial increase in the fair value of assets held in respect of linked liabilities to customers under investment contracts and the related liabilities compared to the increase which has followed the change in accounting for investment contracts in the Wealth Management - closed life assurance activities and International Retail and Commercial Banking businesses. BARCLAYS PLC FINANCIAL REVIEW Net claims and benefits paid on insurance contracts Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Gross claims and benefits paid on insurance contracts 296 880 395 Reinsurers' share of claims paid (9) (10) (6) -------- -------- -------- Net claims and benefits paid on insurance contracts 287 870 389 -------- -------- -------- The change in accounting for investment contracts results in a substantial decline in reported net claims and benefits paid on insurance contracts in Wealth Management - closed life assurance activities and International Retail and Commercial Banking. There is a corresponding decline in net premiums from insurance contracts. BARCLAYS PLC FINANCIAL REVIEW Impairment charges and other credit provisions Half-year ended 30.06.05 31.12.04 30.06.04 Impairment charges Â£m Â£m Â£m The charges for the period in respect of impairment for loans and advances comprise: - New and increased 945 927 828 - Releases (134) (267) (129) - Recoveries (98) (140) (115) -------- -------- -------- Total impairment charges 713 520 584 Other credit provisions Charges for the period in respect of provision for undrawn contractually committed facilities and guarantees provided (7) (16) 5 -------- -------- -------- Total impairment charges and other credit provisions 706 504 589 -------- -------- -------- Period-on-period comparison is affected by the adoption of IAS 39 on 1st January 2005, which has changed the absolute value and calculation basis of the impairment charges and Potential Credit Risk Loans (PCRLs). The high level of household indebtedness in the UK and lower discretionary incomes have led to strains on household budgets and resulted in a deterioration in consumer credit risk. Wholesale and corporate credit conditions remained satisfactory though loan markets were very competitive. Overall, an increase in retail impairment charges was partly offset by lower wholesale impairment charges, resulting in impairment charges for the half-year of Â£706m (2004: Â£589m). As a percentage of period-end total non-trading loans and advances, impairment charges on an annualised basis were 0.51% (2004: 0.53%). Retail impairment charges increased to Â£582m (2004: Â£417m), accounting for over 80% of the Group's impairment charges and amounting to 1.06% (2004: 0.83%) of the period-end total non-trading loans and advances. The increase was predominantly in the UK cards portfolio. The mortgage impairment charge was low. There was some deterioration in mortgage arrears though they remain low and below the level of mid-2003. In the wholesale and corporate businesses, impairment charges declined to Â£131m (2004: Â£161m). The decrease occurred largely in UK Business Banking which included a number of recoveries. Wholesale and corporate impairment charges were 0.16% (2004: 0.26%) of period-end total non-trading loans and advances. In the second half of 2004, the credit loss was reduced by a number of one-off items, including an exceptional recovery of Â£57m in UK Business Banking and a release of mortgage provisions of Â£40m. The absence of such items means that the increase in the impairment charge in the first half of 2005 relative to the second half of 2004 appears greater than the increase in the underlying trends. BARCLAYS PLC FINANCIAL REVIEW Operating expenses Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Staff costs (refer to page 45) 2,854 2,720 2,507 Administrative expenses 1,382 1,553 1,213 Depreciation 152 156 141 Amortisation of intangible assets 17 13 9 Impairment loss - intangible assets - 5 4 Operating lease rentals 137 115 100 -------- -------- -------- 4,542 4,562 3,974 -------- -------- -------- Operating expenses increased 14% (Â£568m) to Â£4,542m (2004: Â£3,974m). Administrative expenses increased 14% (Â£169m) to Â£1,382m (2004: Â£1,213m) principally as a result of higher business activity in Barclays Capital and Barclays Global Investors and the inclusion of Juniper in Barclaycard. There was a strong focus on cost control, particularly in UK Retail Banking. Amortisation of intangible assets increased Â£8m to Â£17m (2004: Â£9m), primarily due to the acquisition of Juniper in December 2004. Operating lease rentals increased by Â£37m to Â£137m (2004: Â£100m) as a consequence of the double occupancy costs associated with the head office relocation to Canary Wharf. The Group cost:income ratio remained steady at 57%. This reflected improved productivity in UK Banking, Barclays Global Investors and Wealth Management, offset by increases in Barclays Capital, Barclaycard and International Retail and Commercial Banking, reflecting increased investment. The Group cost:net income ratio was 63% (2004: 62%). BARCLAYS PLC FINANCIAL REVIEW Staff costs Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Salaries and accrued incentive payments 2,256 2,124 1,974 Social security costs 197 172 167 Pension costs - defined contribution plans 40 39 53 - defined benefit plans 156 126 109 Other post retirement benefits 13 16 13 Other 192 243 191 -------- -------- -------- 2,854 2,720 2,507 -------- -------- -------- Included in salaries and accrued incentive payments is Â£130m (half-year ended 31st December 2004: Â£115m; half-year ended 30th June 2004: Â£89m) arising from equity settled share based payments. Staff costs increased by 14% (Â£347m) to Â£2,854m (2004:Â£2,507m). Salaries and accrued incentive payments rose by 14% (Â£282m) to Â£2,256m (2004: Â£1,974m), primarily due to increased headcount in Barclays Capital and performance related payments primarily 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£155m (2004: Â£140m) in respect of the Group's main UK pension schemes. BARCLAYS PLC FINANCIAL REVIEW Half-year ended 30.06.05 31.12.04 30.06.04 Staff numbers: UK Banking 40,700 41,800 40,700 -------- -------- -------- UK Retail Banking 32,900 34,400 33,500 UK Business Banking 7,800 7,400 7,200 -------- -------- -------- Barclays Capital 8,300 7,800 6,900 Barclays Global Investors 2,100 1,900 1,900 Wealth Management 7,200 7,200 7,100 Barclaycard 7,200 6,700 6,600 International Retail and Commercial Banking 12,400 12,100 12,000 Head office functions and other operations 900 900 1,000 -------- -------- -------- Total Group permanent and contract staff worldwide 78,800 78,400 76,200 Temporary and agency staff worldwide 4,300 4,300 5,600 -------- -------- -------- Total including temporary and agency staff 83,100 82,700 81,800 -------- -------- -------- Staff numbers are shown on a full-time equivalent basis. Total Group permanent and contract staff comprise 59,200 (31st December 2004: 60,000) in the UK and 19,600 (31st December 2004: 18,400) internationally. Since 31st December 2004, permanent and contract staff numbers increased by 400. The implementation of restructuring programmes resulted in a decrease of 800 staff, which was offset by the recruitment of additional staff throughout the Group. UK Banking staff numbers fell by 1,100 to 40,700 (31st December 2004: 41,800), reflecting the cost management programme in UK Retail Banking offset by an increase in UK Business Banking frontline staff and the inclusion of 200 Iveco Finance staff. Barclays Capital staff numbers rose by 500 to 8,300 (31st December 2004: 7,800), reflecting the continued expansion of the business. Barclays Global Investors increased staff numbers in line with business growth plans to 2,100 (31st December 2004: 1,900). Barclaycard staff numbers rose by 500 to 7,200 (31st December 2004: 6,700), reflecting growth in Juniper and an increase in customer facing staff, particularly in partnership activities. International Retail and Commercial Banking increased staff numbers by 300 to 12,400 (31st December 2004: 12,100), mainly due to growth in continental Europe. Head office functions and other operations staff numbers remained stable at 900 (31st December 2004: 900). The number of staff who were under notice at 30th June 2005, was 1,700. BARCLAYS PLC FINANCIAL REVIEW Share of results of associates and joint ventures (after tax) Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Profit from joint ventures 1 - - Profit from associates 15 42 14 --------- --------- --------- 16 42 14 --------- --------- --------- Profit from associates in the first half of 2005 primarily relates to the investment in FirstCaribbean. Tax The charge for the period is based upon a UK corporation tax rate of 30% for the calendar year 2005 (full-year 2004: 30%). The effective rate of tax for the first half of 2005 was 26.7% (2004: 26.3%). This excludes tax on associates and joint ventures whose results are stated on an after tax basis. This is lower than the standard rate due to the beneficial effects of lower tax on overseas income and certain non-taxable gains. Profit attributable to minority interests Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Preference shares 33 2 - Reserve capital instruments 65 - - Upper Tier 2 instruments 7 - - Other minority interests 29 25 20 -------- --------- --------- 134 27 20 -------- --------- --------- Profit attributable to minority interests has increased due to the inclusion of reserve capital instruments within minority interests in accordance with IAS 39, together with an increase in the preference share capital of subsidiary undertakings and the related dividends payable. Other minority interests include the share of earnings in Barclays Global Investors attributable to employee shareholders. BARCLAYS PLC FINANCIAL REVIEW Earnings per share Half-year ended 30.06.05 31.12.04 30.06.04 Profit attributable to the members of Barclays PLC Â£1,841m Â£1,456m Â£1,798m Basic weighted average number of shares in issue 6,337m 6,341m 6,421m Potential ordinary shares1 38m 32m 31m -------- -------- -------- Diluted weighted average number of shares 6,375m 6,373m 6,452m -------- -------- -------- p p p Basic earnings per ordinary share 29.1 23.0 28.0 Diluted earnings per ordinary share 28.9 22.8 27.9 Dividends on ordinary shares The Board has decided to pay, on 3rd October 2005, an interim dividend for the year ending 31st December 2005 of 9.2p per ordinary share, for shares registered in the books of the Company at the close of business on 19th August 2005. 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 2004/2005 tax year in mid-October 2005. The amount payable for the 2005 interim dividend is Â£582m (half-year ended 31st December 2004: Â£1,010m; half-year ended 30th June 2004: Â£528m). This amount excludes Â£12m payable on shares held by employee benefit trusts (half-year ended 31st December 2004: Â£7m; half-year ended 30th June 2004: Â£3m). Dividends payable are no longer accrued but rather are recognised when they are paid. For qualifying US and Canadian resident ADR holders, the interim dividend of 9.2p per ordinary share becomes 36.8p per ADS (representing four shares). The ADR depositary will mail the dividend on 3rd October 2005 to ADR holders on the record on 19th August 2005. For qualifying Japanese shareholders, the interim dividend of 9.2p per ordinary share will be distributed in mid-October to shareholders on the record on 19th August 2005. 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 12th September 2005 for it to be effective in time for the payment of the interim dividend on 3rd October 2005. 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. 1 Potential ordinary shares reflect the dilutive effect of share options outstanding. BARCLAYS PLC Analysis of amounts included in the balance sheet Capital resources As at 30.06.05 01.01.05 31.12.04 30.06.04 Â£m Â£m Â£m Â£m Shareholders' equity excluding minority interests 16,099 15,287 15,870 14,978 -------- -------- -------- -------- Preference shares 2,971 690 690 - Reserve capital instruments 1,929 1,907 Upper Tier 2 instruments 586 586 Other minority interests 200 147 204 178 -------- -------- -------- -------- Minority interests 5,686 3,330 894 178 -------- -------- -------- -------- Total shareholders' equity 21,785 18,617 16,764 15,156 Loan capital 11,309 10,606 12,277 12,468 -------- -------- -------- -------- 33,094 29,223 29,041 27,624 -------- -------- -------- -------- The authorised share capital of Barclays PLC is Â£2,500m (2004: Â£2,500m) comprising 9,996 million (2004: 9,996million) ordinary shares of 25p shares and 1 million (2004: 1 million) staff shares of Â£1 each. Called up share capital comprises 6,461million (December 2004: 6,454 million; June 2004: 6,447 million) ordinary shares of 25p each and 1 million (2004: 1 million) staff shares of Â£1 each. Total capital resources increased since 1st January 2005 by Â£3,871m to Â£33,094m. Shareholders' equity excluding minority interests increased by Â£812m since 1st January 2005. The increase included profits attributable to shareholders of Â£1,841m, available for sale movements of Â£60m, Â£32m of proceeds from shares issued, cashflow hedge movements of Â£26m, tax credits of Â£26m and foreign exchange movements of Â£23m and other movements of Â£31m. These were offset by dividends of Â£1,017m1, increases in ESOP shares of Â£120m and tax adjustments of Â£90m. Loan capital rose by Â£703m reflecting raisings of Â£1,011m, fair value uplift of Â£156m and exchange rate movements of Â£41m offset by redemptions of Â£458m, accrued interest of Â£44m and amortisation of issue expenses of Â£3m. Minority interests increased by Â£2,356m since 1st January 2005 primarily reflecting the issue of preference shares during the first six months of 2005: â€¢ 140,000 preference shares of Euro 100 each (â‚¬1.4bn; Â£978m) with a 4.75% dividend â€¢ 100,000 preference shares of US$100 each (US$1.0bn; Â£551m) with a 6.278% dividend â€¢ 75,000 preference shares of Â£100 each (Â£750m) with a 6% dividend The impact of IAS 32 resulted in the reclassification of certain capital instruments from debt to minority interests. This accounts for substantially all of the increase in minority interests between 31st December 2004 and 1st January 2005. 1 This amount includes Â£7m dividend on shares held by employee benefit trusts. BARCLAYS PLC Capital ratios Weighted risk assets and capital resources, as defined for supervisory purposes by the Financial Services Authority (FSA), comprise: As at 30.06.05 01.01.05 31.12.04 30.06.04 Weighted risk assets: Â£m Â£m Â£m Â£m Banking book On-balance sheet 159,927 148,328 148,621 138,021 Off-balance sheet 30,090 28,191 26,741 23,894 Associated undertakings and joint ventures 3,299 3,020 3,020 3,386 -------- -------- -------- -------- Total banking book 193,316 179,539 178,382 165,301 -------- -------- -------- -------- Trading book Market risks 26,432 22,106 22,106 20,338 Counterparty and settlement risks 22,658 18,113 18,113 17,694 -------- -------- -------- -------- Total trading book 49,090 40,219 40,219 38,032 -------- -------- -------- -------- Total weighted risk assets 242,406 219,758 218,601 203,333 -------- -------- -------- -------- Capital resources: Tier 1 Called up share capital 1,616 1,614 1,614 1,613 Eligible reserves 15,544 14,933 15,670 15,245 Minority interests1 5,237 2,824 2,890 2,227 Tier one notes2 957 920 920 951 Less: intangible assets (4,880) (4,747) (4,432) (4,427) -------- -------- -------- -------- Total qualifying Tier 1 capital 18,474 15,544 16,662 15,609 -------- -------- -------- -------- Tier 2 Revaluation reserves 25 25 25 25 Collectively assessed impairment allowances 2,067 2,046 General Provisions 564 713 Minority Interests 494 397 - - Qualifying subordinated liabilities3 Undated loan capital 3,210 3,176 3,573 3,595 Dated loan capital 6,560 5,647 5,647 5,773 Other - 3 2 2 -------- -------- -------- -------- Total qualifying Tier 2 capital 12,356 11,294 9,811 10,108 -------- -------- -------- -------- Tier 3: short term subordinated liabilities3 - 286 286 267 -------- -------- -------- -------- Less: Supervisory deductions: Investments not consolidated for supervisory purposes (696) (781) (1,047) (923) Other deductions (713) (496) (496) (343) -------- -------- -------- -------- (1,409) (1,277) (1,543) (1,266) -------- -------- -------- -------- Total net capital resources 29,421 25,847 25,216 24,718 -------- -------- -------- -------- Tier 1 ratio 7.6% 7.1% 7.6% 7.7% Risk asset ratio 12.1% 11.8% 11.5% 12.2% 1 Includes Reserve Capital Instruments of Â£1,679m (01.01.05: Â£1,627m; 31.12.04: Â£1,627m; 30.06.04: Â£1,656m). 2 Tier one notes are included in undated loan capital in the consolidated balance sheet. 3 Subordinated liabilities are included in Tiers 2 or 3, subject to limits laid down in the supervisory requirements. BARCLAYS PLC Capital ratios (continued) Capital ratios strengthened from 1st January 2005 with the addition of Â£3.6bn in net total capital resources. This more than offset the growth in weighted risk assets. The risk asset ratio increased 30 basis points and the Tier 1 capital ratio increased 50 basis points. Tier 1 capital rose Â£2.9bn, including retained profit of Â£0.8bn. In accordance with IFRS, no amount has been provided for the 2005 interim dividend which will impact the capital ratios when paid. Minority interests increased Â£2.4bn primarily due to the issuance of Â£2.3bn of preference shares by Barclays Bank PLC. This increase included funding for balance sheet growth and for the acquisition of a majority stake in Absa which closed subsequent to the half-year end. Tier 2 capital increased Â£1.1bn largely due to the issue of loan stock. The Tier 3 debt matured in April 2005. The increase in weighted risk assets since 1st January 2005 comprised a rise of Â£13.8bn in the Banking book and a rise of Â£8.9bn in the Trading book. A reconciliation of accounting capital to regulatory capital is as follows: 30.06.05 01.01.05 Â£m Â£m Shareholders' equity excluding minority interests 16,099 15,287 Available for sale reserve (374) (314) Cashflow hedging reserve (328) (302) Defined benefit pension scheme 1,401 1,252 Additional companies in regulatory consolidation and non-consolidated companies 5 266 Foreign exchange on Reserve Capital Instruments and Upper Tier 2 loan stock 390 459 Other adjustments (33) (101) --------- --------- Called up share capital and eligible reserves for regulatory purposes 17,160 16,547 --------- --------- The difference between shareholders' equity excluding minority interests and called up share capital and eligible reserves for regulatory purposes, arises from the treatment of regulatory capital versus the treatment of accounting capital. The available for sale reserve in respect of debt instruments is reversed for regulatory capital purposes. Equity net losses are written back but net gains are included in Tier 2 capital. The effect of cashflow hedging is eliminated from the calculation of regulatory capital. For regulatory capital purposes the defined benefit pension scheme post tax deficit is replaced with a liability calculated for regulatory purposes. For regulatory capital purposes the Reserve Capital Instruments and Upper Tier 2 loan stock are converted to sterling at the exchange rates ruling at the reporting date rather than the exchange rates at issue date which are used for financial reporting. BARCLAYS PLC Total assets and weighted risk assets Total assets increased 19% to Â£850.1bn (1st January 2005: Â£715.6bn). Weighted risk assets increased 10% to Â£242.4bn (1st January 2005: Â£219.8bn). Securitised assets are excluded from weighted risk assets but included in total assets. UK Banking total assets increased 4% to Â£134.3bn (1st January 2005: Â£128.6bn). Weighted risk assets increased 8% to Â£100.4bn (1st January 2005: Â£92.6bn). UK Retail Banking total assets decreased 2% to Â£67.5bn (1st January 2005: Â£69.1bn). This was mainly attributable to lower period end UK residential mortgage balances. Weighted risk assets decreased 2% to Â£37.0bn (1st January 2005: Â£37.8bn). UK Business Banking total assets increased 12% to Â£66.8bn (1st January 2005: Â£59.5bn). Weighted risk assets increased 16% to Â£63.3bn (1st January 2005: Â£54.8bn), reflecting strong growth in lending balances. The acquisition of a 51% stake in Iveco Finance, completed in June, increased total assets and weighted risk assets by Â£1.8bn. Excluding the impact of Iveco Finance, assets and weighted risk assets increased by 9% and 12% respectively. Barclays Capital total assets increased 25% to Â£566.7bn (1st January 2005: Â£454.4bn), due to the impact of market movements on derivatives financial instruments and growth in settlement balances and debt securities, as the expansion of the business continued. Weighted risk assets increased 14% to Â£90.8bn (1st January 2005: Â£79.5bn), reflecting increased business volumes and expansion of the credit derivatives business to meet client demand. Barclays Global Investors total assets increased 12% to Â£68.6bn (1st January 2005: Â£61.2bn) due to growth in asset management products held on the balance sheet. Equal and offsetting balances are reflected within liabilities to customers. Weighted risk assets rose 25% to Â£1.5bn (1st January 2005: Â£1.2bn), primarily driven by growth in the securities lending business. Wealth Management total assets increased 2% to Â£5.2bn (1st January 2005: Â£5.1bn). Weighted risk assets increased 10% to Â£4.6bn (1st January 2005: Â£4.2bn) reflecting the growth in lending balances. Barclaycard total assets increased 4% to Â£23.8bn (1st January 2005: Â£22.9bn). Weighted risk assets were in line at Â£21.7bn (1st January 2005: Â£21.6bn). International Retail and Commercial Banking total assets increased 3% to Â£29.5bn (1st January 2005: Â£28.7bn) and weighted risk assets increased 4% to Â£19.4bn (1st January 2005: Â£18.7bn). Head office and other operations total assets increased 192% to Â£10.8bn (1st January 2005: Â£3.7bn), excluding goodwill. The increase includes assets acquired for hedging purposes and cash raised from preference share issues during the period relating to the funding for the acquisition of Absa which closed in July. Weighted risk assets increased 116% to Â£4.1bn (1st January 2005: Â£1.9bn) reflecting assets held for hedging purposes. BARCLAYS PLC 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. During 2004, the framework was 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 capital calculation. The framework also adjusts 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. Capital allocations are adjusted to 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 diversification benefits, is compared with the supply of capital to evaluate 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). Capital demand The average demand for capital from the Group's businesses via the economic capital framework is set out below: Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m UK Banking 5,150 4,800 4,450 -------- -------- -------- UK Retail Banking 2,250 2,200 2,150 UK Business Banking 2,900 2,600 2,300 -------- -------- -------- Barclays Capital 2,400 2,100 2,050 Barclays Global Investors 150 150 150 Wealth Management 400 350 300 Wealth Management - closed life assurance activities 50 100 100 Barclaycard 2,650 2,500 2,450 International Retail and Commercial Banking 1,100 1,000 1,000 Head office functions and other operations1 200 200 200 -------- -------- -------- Business unit economic capital 12,100 11,200 10,700 Capital held at Group centre2 1,600 1,500 1,300 -------- -------- -------- Economic capital requirement (excluding goodwill) 13,700 12,700 12,000 Average historic goodwill3 5,800 5,650 5,550 -------- -------- -------- Total economic capital requirement 19,500 18,350 17,550 -------- -------- -------- 1 Includes Transition Businesses and capital for central functional risks. 2 The Group's practice is to maintain an appropriate level of excess capital, held at Group centre, which is not allocated to business units. This variance arises as a result of capital management timing and includes capital held to cover pension contribution risk. 3 Average goodwill relates to purchased goodwill and intangibles from business acquisitions. BARCLAYS PLC UK Retail Banking economic capital allocation increased Â£50m to Â£2.25bn. The impact of growth was offset by a risk transfer transaction within UK mortgages. UK Business Banking economic capital allocation increased Â£300m to Â£2.9bn as a consequence of asset growth and the addition of the Iveco Finance business. Barclays Capital economic capital increased by Â£300m to Â£2.4bn reflecting underlying growth in loan and derivative portfolios and the Group-wide annual recalibration of business and operational risk economic capital. Wealth Management ongoing business economic capital allocation increased Â£50m to Â£400m as a consequence of general growth across all businesses and the recalibration of business and operational risk economic capital. Wealth Management - closed life assurance activities economic capital allocation reduced Â£50m to Â£50m reflecting the impact of IFRS removing the volatility associated with embedded value accounting. Barclaycard economic capital allocation increased by Â£150m to Â£2.65bn, due to growth in outstandings and the acquisition of Juniper. International Retail and Commercial Banking economic capital allocation increased by Â£100m to Â£1.1bn due to the Group-wide annual recalibration of business and operational risk economic capital together with growth exposure in Africa and Spain. Capital held at the Group centre rose Â£100m to Â£1.6bn, as a result of the increase in available funds to support economic capital (see Capital supply). Capital supply The Group has determined that the impacts of IFRS should be modified in calculating available funds for economic capital. This applies specifically to: â€¢ Cashflow hedge 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 at the conclusion of the future hedged transaction. Given the future offset of such gains and losses, they are excluded from shareholders' equity upon which the capital charge is based. 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 will be excluded from shareholders' equity for the purposes of calculating the capital charge. Realised gains and losses and any impairment charges recorded in the income statement will impact economic profit. â€¢ Pension 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 deriving the capital charge, the Group will not deduct the pension deficit from shareholders' equity upon which the capital charge is based, a policy that is also followed for regulatory purposes. 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. BARCLAYS PLC The average supply of capital to support the economic capital framework is set out below1: Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Shareholders' equity excluding minority interests, less goodwill2 11,000 10,600 10,300 Pension liability 1,500 1,750 1,700 Cashflow hedge reserve (250) Available for sale reserve (300) Preference shares 1,750 350 - -------- -------- -------- Available funds for economic capital excluding goodwill 13,700 12,700 12,000 Average historic goodwill2 5,800 5,650 5,550 -------- -------- -------- Available funds for economic capital 19,500 18,350 17,550 -------- -------- -------- 1 Averages for the period will not correspond to period-end balances disclosed in the balance sheet. Numbers are independently rounded to the nearest Â£50m for presentational purposes only. 2 Average goodwill relates to purchased goodwill and intangibles from business acquisitions. BARCLAYS PLC 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%. Prior periods have been restated on a comparable basis. The economic profit for the Group is set out below: Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m Profit after tax and minority interests 1,841 1,456 1,798 Addback of amortisation charged on acquired intangible assets 7 6 - -------- -------- -------- Profit for economic profit purposes 1,848 1,462 1,798 -------- -------- -------- Average shareholders' equity for economic profit purposes1 17,750 18,000 17,550 -------- -------- -------- Capital charge at 9.5% (844) (858) (834) -------- -------- -------- -------- -------- -------- Economic profit 1,004 604 964 -------- -------- -------- 1 Average ordinary shareholders' equity for Group economic profit calculation is the sum of adjusted equity and reserves plus goodwill, but excludes preference shares. BARCLAYS PLC Economic profit generated by business Half-year ended 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m UK Banking 592 565 593 -------- -------- -------- UK Retail Banking 256 183 290 UK Business Banking 336 382 303 -------- -------- -------- Barclays Capital 346 230 291 Barclays Global Investors 129 108 87 Wealth Management 49 23 47 Wealth Management - closed life assurance activities (8) (79) 2 Barclaycard 115 148 202 International Retail and Commercial Banking 70 54 57 Head office functions and other operations (19) (138) (8) -------- -------- -------- 1,274 911 1,271 Historic goodwill (275) (268) (265) Variance to average shareholders' funds (excluding minority interest) 5 (39) (42) -------- -------- -------- Economic profit 1,004 604 964 -------- -------- -------- Economic profit for the Group increased 4% (Â£40m) to Â£1,004m (2004: Â£964m). The rise in economic profit was less than the increase in profit before tax due to the increased share of minority interests and the growth in average shareholders' funds. BARCLAYS PLC 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 losses known to have been incurred 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 30.06.05 31.12.04 30.06.04 Â£m Â£m Â£m UK Banking 420 375 360 -------- -------- -------- UK Retail Banking 160 150 150 UK Business Banking 260 225 210 -------- -------- -------- Barclays Capital 75 70 80 Wealth Management 5 5 5 Barclaycard 980 860 810 International Retail and Commercial Banking 75 65 75 Transition Businesses 20 20 10 -------- -------- -------- 1,575 1,395 1,340 -------- -------- -------- Risk Tendency increased from Â£1,395m at 31st December 2004 to Â£1,575m, an increase of Â£180m (13%). The largest increase occurred in Barclaycard, which rose Â£120m to Â£980m. The increase reflects the deteriorating credit conditions in the UK credit card market. Risk Tendency increased in UK Business Banking due to the acquisition of the Iveco business and the growth in the loan book. This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW IR MGGGRMDVGKZZ

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Thursday, 23rd May 2024

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