Barclays 2005 Annual Report Download - page 106

excluding amortisation of intangible assets rose 23% (£1,934m) to
£10,448m (2004: £8,514m). Amortisation of intangible assets was £79m
(2004: £22m). Impairment charges and other credit provisions rose 44%
to £1,571m (2004: £1,093m).
Earnings per share rose 7% to 54.4p (2004: 51.0p), diluted earnings per share
rose 6% to 52.6p (2004: 49.8p). Dividends per share rose 11% to 26.6p
(2004: 24.0p). Return on average shareholders’ funds was 21% (2004: 22%).
Economic profit was up 12%, in line with our expectations and a reflection of
tight capital management as well as a good business performance.
Non-performing loans increased £1,095m (27%) to £5,210m. Potential
problem loans increased £131m to £929m. Coverage of non-performing
loans was broadly steady at 66.2% (2004: 66.9%) while the coverage of
potential credit risk loans also remained stable at 56.2% (2004: 56.0%).
Our capital position remained healthy. Shareholders’ equity excluding
minority interests increased £1,556m (10%) to £17.4bn, primarily due to
profit retention. Total assets increased £386bn (80%) to £924bn. Weighted
risk assets increased £50bn (23%) to £269bn. The tier 1 capital ratio
decreased to 7% (2004: 7.6%) and the risk asset ratio decreased to 11.3%
(2004 11.5%).
Business Performance
There was good growth in profit before tax for the Group as a whole with
momentum in the core UK businesses and strong growth in our global
product businesses. Our Group as a whole, and the businesses within it,
are gaining momentum both in terms of balance sheet and assets under
management. Overall, our performance in 2005 reflects consistent execution
of our strategy, and has strengthened our position for future growth.
UK Banking produced good profit growth, up 8%, to £2,455m (2004:
£2,265m) and outperformed its productivity target for 2005 with the
cost:income ratio improving by three percentage points. In UK Banking
our ambition is to build the best bank in the UK – and we are making
good progress.
UK Retail Banking achieved solid income growth of 4% in 2005. Operating
expenses decreased 3% through strong cost control whilst continuing
targeted reinvestment to improve customer service and the branch network.
Profit before tax grew 7% to £1,027m (2004: £963m). Excluding the gain of
£42m on the sale of our stake in Edotech in 2004, underlying profit before
tax increased 12%. UK Retail Banking continued to make good progress on
its transformation programme, including launching a new general insurance
proposition with Aviva, a new initiative in current accounts and making
ongoing investments in branding, branches and customer service.
UK Business Banking profit before tax increased 10% to £1,428m
(2004: £1,302m), driven by strong income and balance sheet growth.
Operating expenses grew slower than income leading to an improved
cost:income ratio of 35%. UK Business Banking put in another strong
performance based on its business model of relationship management
and industry specialisation.
Barclays Capital continued its very strong growth of recent years, with
profit before tax in 2005 rising 25% to £1,272m (2004: £1,020m). Income
growth of 27% was broadly-based across products and geographies.
The year also saw continued investment in building Barclays Capital’s scale
and diversity in terms of geography, products and people. As a result of
investment and the profit performance, operating expenses grew 28%.
Market risk was well controlled with DVaR falling 6% to £32m as a result
of increased diversification. The rate of growth of earnings once again
exceeded the rate of growth of capital consumption.
Barclays Global Investors achieved outstanding results, with profit before
tax rising 61% to £542m (2004: £336m), reflecting strong growth in net
new assets and a continuing improvement in operating margins. Income
growth of 48% was driven by significant increases in management fees,
incentive fees, and securities lending revenues. Operating expenses rose
40%, reflecting higher performance-based compensation and significant
investment in the platform and in innovative new products. Barclays Global
Investors was one of the leaders in its product markets through operational
excellence and a ‘one firm’ approach to meeting client needs.
Profit before tax in Wealth Management rose by 56% to £172m (2004:
£110m) – a very strong performance driven by broad-based income growth
of 11% and improved cost efficiency. Operating expenses grew by only 3%
as efficiency savings funded significant cost restructuring and investment
programmes. Our stated goal is to position our Wealth Management
business as a leading European wealth manager. During 2005 the
transformation of the business for future growth began to deliver results.
Barclaycard profit before tax fell 19% to £687m (2004: £843m), driven
by higher levels of impairment in the UK and continued investment in
the International businesses. Income growth of 15% reflected good
performances by the UK cards and loans businesses and very strong
international growth. Operating expenses rose 21%, reflecting continued
heavy investment in the business, particularly internationally. Barclaycard
US, previously Juniper, grew strongly in line with plan, and cards in Spain
and Germany performed strongly. We now have over 4.3 million
international cards in issue.
International Retail and Commercial Banking was transformed by the
acquisition of Absa. International Retail and Commercial Bank excluding
Absa increased profit before tax 21% to £355m (2004: £293m). Income
growth of 20% reflected strong balance sheet growth in Europe and
Africa. Operating expenses grew in line with income as we accelerated the
integration of Banco Zaragozano. Excluding integration costs of £57m,
Barclays Spain increased profit before tax 25% to £156m (2004: £125m).
We completed the acquisition of a majority stake in Absa Group Limited
in July 2005. For the five-month period of Barclays ownership, Absa
contributed £335m to profit before tax. The performance of Absa is ahead
of the business plan that underpinned the acquisition.
Head office functions and other operations loss before tax increased to
£532m (2004: £235m). This was driven by accounting adjustments to
eliminate inter-segment transactions of £204m (2004: £69m) and non-
recurring costs of £165m (2004: £32m) including the costs of Head office
relocation and a write-off of capitalised IT-related assets.
Across our portfolio, a continuing focus throughout 2005 was on exploiting
opportunities for the business in our portfolio to work together. Synergies
realised during the year included product offerings from Barclays Global
Investors and Barclaycard through our retail businesses in Spain whilst
Barclays Capital is now one of the leading debt issuers in Iberia. Our
portfolio enables us to continually provide more sophisticated financing and
risk management solutions to our larger clients from UK Business Banking
through Barclays Capital. We are also beginning to apply our skills to Absa’s
portfolio, particularly in wholesale markets and credit card services.
Capital Strength
Our capital position and strong credit rating are sources of competitive
advantage. At the end of 2005, our risk asset ratio was 11.3%, and our Tier 1
capital ratio was 7.0%. This strong capital position enhances our ability to
pay dividends and invest confidently in business growth. When we look at
the balance sheet, we focus capital management on five areas: maintaining
our double A credit rating; generating sufficient capital to support weighted
risk asset growth in the business; financing corporate activity, delivering
dividend growth; and using share buy-backs to manage any excess capital.
Barclays PLC
Annual Report 2005
104
Financial review
Overview