Barclays 2004 Annual Report Download - page 114

Financial review
Analysis of results by business
112
Provisions fell 60% (£151m) to £102m (2003: £253m), reflecting the
significant decline in non-performing and potential problem loan
balances as a result of a more stable wholesale credit environment.
Profit before tax in 2003 increased 29% to £836m (2002: £646m),
due to very strong operating income growth and an improving credit
environment. Revenue related costs increased with the strong
performance.
Operating income increased 17% to £2,726m (2002: £2,326m)
reflecting broadly based growth across most products in Rates and
Credit. Secondary income increased 17% to £2,066m (2002: £1,767m)
driven by strong growth in dealing profits. Primary income grew 15%
to £551m (2002: £481m) with good performances across the Credit
businesses.
Operating expenses grew 22% to £1,638m (2002: £1,347m) reflecting
increased revenue related costs due to the strong financial
performance and growth in BAU costs associated with higher business
volumes and front-office hiring.
Provisions fell 24% to £253m (2002: £334m) reflecting ongoing
improvements in the quality of the loan book and the recovery in
the large corporate credit environment.
Barclays Global Investors
2004 2003 2002
£m £m £m
Net interest income 599
Net fees and commissions 882 662 538
Other operating income 61–
Operating income 893 672 547
Goodwill amortisation (18) (13) (13)
Other operating expenses (545) (480) (439)
Operating expenses (563) (493) (452)
Operating profit 330 179 95
Loss from joint ventures (2) (1) (1)
Exceptional items 1––
Profit on ordinary activities
before tax 329 178 94
Barclays Global Investors (BGI) delivered another year of record
performance. Profit before tax increased 85% (£151m) to £329m
(2003: £178m) reflecting substantial income growth and continued
discipline in cost management. Foreign exchange movements
impacted growth in income and costs. Approximately 55% of income
is generated in the US and 31% in the UK and continental Europe.
Net fees and commissions increased 33% (£220m) to £882m
(2003: £662m), with strong income generation across both the active
and index businesses and particularly in investment management fees.
These resulted from strong net new sales, growth in sales of higher
margin products and stronger global equity markets, partially offset
by adverse foreign exchange movements. Securities lending income
growth was also very strong, benefiting from increased volumes.
Successful income generation continued across a diverse range of
products, distribution channels and geographies and active product
investment performance remained strong. BGI’s commitment to
innovation continued as a number of iShare (Exchange Traded Funds)
products were launched during 2004. There was significant growth in
global iShares with assets under management up 88% to US$130bn
at the year-end.
Operating expenses increased 14% (£70m) to £563m (2003: £493m)
primarily as a result of higher performance based expenses and
benefited from foreign exchange movements.
Total assets under management increased 19% (£111bn) to £709bn
(2003: £598bn). The growth included the significant generation of
net new assets of £65bn. An increase of £97bn attributable to
market movements was partially offset by £51bn of adverse exchange
rate movements.
Barclays Global Investors profit before tax in 2003 increased 89%
(£84m) to £178m (2002: £94m) and reflected very strong top-line
income growth and good control of costs.
Net fees and commissions in 2003 increased 23% (£124m) to £662m
(2002: £538m), reflecting good income generation across a diverse
range of products, distribution channels and geographies. The increase
was largely driven by growth of investment management fees. These
resulted from strong net new sales, growth in the sales of higher
margin products, good investment performance and the recovery of
equity markets towards the year end, which more than compensated
for the adverse impact of foreign exchange translation movements.
Operating expenses in 2003 increased by 9% (£41m) to £493m
(2002: £452m) due to higher revenue related costs, partly offset by
the impact of foreign exchange translation movements.
Head office functions and other operations
2004 2003(a) 2002(a)
£m £m £m
Head office functions and
central items (201) (192) (155)
Transition businesses 7(25) (125)
Restructuring costs (12) (16) (21)
Loss on ordinary activities
before tax (206) (233) (301)
Note
(a) Comparative figures have been restated to reflect the aggregation of Head
office functions and other operations, which were formerly reported
separately.
Head office functions and central items costs increased 5% (£9m) to
a loss of £201m (2003: loss £192m). Central items included internal
fees charged by Barclays Capital for structured capital market activities
of £63m (2003: £89m).
The improved performance of Transition Businesses, from a loss of
£25m to a profit of £7m, primarily reflected provisions released in the
current year.
Head office functions and central items costs increased in 2003 by
24% (£37m) to a loss of £192m (2002: loss £155m).
The improved performance of Transition Businesses, from a loss
in 2002 of £125m to a loss in 2003 of £25m, primarily reflected
a reduced provisions charge in respect of various South American
Corporate Banking exposures.