Barclays 2005 Annual Report Download - page 119

Barclays PLC
Annual Report 2005 117
3.3
International Retail and Commercial Banking profit before tax increased
£397m to £690m (2004: £293m). The increase reflected the inclusion
of Absa profit before tax of £335m for the period from 27th July 2005
and strong organic growth in Africa and Europe.
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. In
addition, these standards have impacted the reporting of net claims
and benefits paid. Also the application of IAS 32 and IAS 39 from
1st January 2005, in particular the Effective Interest Rate requirements,
resulted in the reclassification of certain lending related fees from net
fee and commission income to net interest income.
International Retail and Commercial Banking – excluding Absa
2005 2004
£m £m
Net interest income 582 534
Net fee and commission income 377 288
Net trading income 31 –
Net investment income 88 135
Principal transactions 119 135
Net premiums from insurance contracts 129 300
Other income 23 25
Total income 1,230 1,282
Net claims and benefits on
insurance contracts (161) (390)
Total income, net of insurance claims 1,069 892
Impairment charges and other
credit provisions (13) (31)
Net income 1,056 861
Operating expenses excluding amortisation
of intangible assets (734) (616)
Amortisation of intangible assets (6) (1)
Operating expenses (740) (617)
Share of post-tax results of associates
and joint ventures 39 49
Profit before tax 355 293
International Retail and Commercial Banking excluding Absa
performed strongly, with profit before tax increasing 21% (£62m) to
£355m (2004: £293m). The performance was broad based, featuring
stronger profits in all geographies.
Total income net of insurance claims increased 20% (£177m) to
£1,069m (2004: £892m).
Net interest income increased 9% (£48m) to £582m (2004: £534m),
reflecting strong balance sheet growth in Europe, Africa and the
Middle East, and the development of the corporate businesses in Spain.
Total average customer loans increased 28% to £22.8bn (2004:
£17.8bn). Mortgage balance growth in continental Europe was
particularly strong with average euro balances up 25%. Average
lending balances in Africa and the Middle East increased 34%. Changes
in the overall product mix, as a result of growth in European mortgages
and competitive pressures in key European markets contributed to
lower lending margins. Average customer deposits increased 7% to
£9.5bn (2004: £8.9bn), with deposit margins rising modestly.
Net fee and commission income increased 31% (£89m) to £377m
(2004: £288m). This reflected a strong performance from the Spanish
funds business, where assets under management increased 15%,
together with good growth in France, including the contribution of the
ING Ferri business which was acquired on 1st July 2005. Fee income
also showed solid growth in Italy, Africa and the Middle East. Excluding
the impact of IAS 32 and IAS 39, net fee and commission income
increased 25%.
Principal transactions reduced to £119m (2004: £135m), reflecting
the change in accounting for insurance business, partly offset by
investment realisations during 2005 including a gain of £23m from
the redemption of preference shares in FirstCaribbean.
Impairment charges decreased 58% (£18m) to £13m (2004: £31m),
mainly as a result of releases and recoveries in Africa and the Middle
East. In Europe, charges remained broadly stable.
Operating expenses increased 20% (£123m) to £740m (2004:
£617m). The increase was in line with the growth in income, and was
due to higher integration costs in Spain, the continued expansion of
the business in Africa and the Middle East, investments in the
European distribution network, particularly in Portugal and Italy, and
the acquisition of the ING Ferri business in France. The cost:income
ratio remained stable at 69% (2004: 69%).
Barclays Spain continued to perform very strongly with profit before
tax, pre-integration costs of £57m, up 25% to £156m (2004: £125m)
including integration costs, profit before tax was up 19% to £99m
(2004: £83m). This was driven by the continued realisation of benefits
from the accelerated integration of Banco Zaragozano, together with
good growth in mortgages and assets under management. The
integration of Banco Zaragozano continued to be well ahead of plan;
integration costs were £57m (2004: £42m). Profit before tax also
increased strongly in Italy and Portugal reflecting strong customer
acquisition and increased business volumes. France performed well as
a result of good organic growth and the acquisition of ING Ferri.
Africa and the Middle East profit before tax increased 14% to £142m
(2004: £125m) reflecting continued investment and balance sheet
growth across the businesses, particularly in Egypt, United Arab
Emirates and South Africa and lower impairment charges.
The post-tax profit from associates decreased £10m to £39m (2004:
£49m) due to a lower contribution from FirstCaribbean. The underlying
performance in 2005 was stronger; Barclays results in 2004 included
£28m relating to the gain made by FirstCaribbean on the sale of shares
in Republic Bank Limited.