Barclays 2006 Annual Report Download - page 27

Barclays PLC
Annual Report 2006 23
Operating review
1
2006/05
UK Retail Banking profit before tax increased 17% (£173m) to £1,213m
(2005: £1,040m), driven by good income growth and well controlled
costs. There has been substantial additional investment to transform
the business.
Income increased 7% (£242m) to £3,828m (2005: £3,586m),
continuing the momentum reported at the half year. Income growth
was broadly based. There was strong income growth in Personal
Customers retail savings, Local Business and UK Premier and good
growth in Personal Customers current account income. Sales volumes
increased, with a particularly strong performance from direct channels.
Net interest income increased 6% (£125m) to £2,333m (2005:
£2,208m). Growth was driven by a higher contribution from deposits,
through a combination of good balance sheet growth and a stable
liability margin. Total average customer deposit balances increased 8%
to £79.2bn (2005: £73.5bn), supported by new products. Growth of
personal savings was above that of the market.
Mortgage volumes improved significantly, driven by a focus on improving
capacity, customer service, value and promotion. UK residential mortgage
balances ended the year at £61.9bn (2005: £59.6bn). Gross advances
were 60% higher at £18.4bn (2005: £11.5bn), with a market share of 5%
(2005: 4%). Net lending was £2.4bn, with performance improving during
the year, leading to a market share of 4% in the second half of the year.
The mortgage margin was reduced by changed assumptions used in the
calculation of effective interest rates, a higher proportion of new
mortgages and base rate changes. The new business spread was in line
with the industry. The loan to value ratio within the residential mortgage
book on a current valuation basis was 34% (2005: 35%).
There was good balance growth in non-mortgage loans, where Local
Business average balances increased 9% and UK Premier average
balances increased 25%.
Net fee and commission income increased 8% (£88m) to £1,219m
(2005: £1,131m). There was strong current account income growth in
Personal Customers and Local Business. UK Premier delivered strong
growth reflecting higher income from banking services, mortgage sales
and investment advice.
Net premiums from insurance underwriting activities decreased 4%
(£11m) to £269m (2005: £280m). There continued to be lower
customer take-up of loan protection insurance. Net claims and benefits
on insurance contracts improved to £35m (2005: £58m). Other income
increased £26m to £42m (2005: £16m), principally representing the
benefit from reinsurance.
Impairment charges increased 39% (£59m) to £209m (2005: £150m).
The increase principally reflected balance growth and some
deterioration in delinquency rates in the Local Business loan book.
Losses from the mortgage portfolio remained negligible, with arrears
at low levels.
Operating expenses were steady at £2,408m (2005: £2,390m).
Substantially all of the gains from the sale and leaseback of property
of £253m have been reinvested in the business to improve customer
service and deliver sustainable performance improvements. Around half
of the incremental investment was directed at upgrading distribution
capabilities, including restructuring and improving the branch network.
Further investment was focused on upgrading the contact centres,
transforming the performance of the mortgage business, revitalising
the retail product range to meet customers’ needs, improving core
operations and processes and rationalising the number of operating
sites. The level of investment reflected in operating expenses in 2006
was approximately double the level of 2005.
The cost:income ratio improved four percentage points to 63%
(2005: 67%).
2005/04
Profit before tax increased 4% (£38m) in 2005 to £1,040m (2004:
£1,002m). Profit before tax increased 8% excluding the impact of
£42m profit on business disposals in 2004.
Income increased 3% (£98m) to £3,586m (2004: £3,488m). There was
good growth in Personal Customer current accounts, Local Business
and UK Premier, whilst income from Personal Customers retail savings
was weaker. The application of IAS 32 and IAS 39 from 1st January 2005
resulted in the reclassification of certain lending related fees from net
fee and commission income to net interest income.
Net interest income increased 5% (£101m) to £2,208m (2004:
£2,107m). Growth was driven by higher contributions from Home
Finance and Local Business, partly offset by some margin pressure on
savings and deposits.
UK residential mortgage balances ended the period at £59.6bn
(2004: £61.7bn). Total average customer deposit balances increased
5% to £73.5bn (2004: £69.7bn).
Net fee and commission income decreased 2% (£18m) to £1,131m
(2004: £1,149m) with lending related fees impacted by the application
of IAS 32 and IAS 39 from 1st January 2005.
Income from principal transactions was £9m (2004: £nil) representing
the gain on the sale of the investment in Gresham, an insurance
underwriting business.
Net premiums from insurance underwriting activities increased 12%
(£31m) to £280m (2004: £249m). In 2004 there was a provision
relating to the early termination of contracts. Excluding this provision,
there was a slight underlying reduction in net premiums.
Impairment charges increased 117% (£81m) to £150m (2004: £69m).
Excluding UK mortgage releases of £10m (2004: £40m), impairment
charges increased 47%, reflecting some deterioration in the
delinquencies experience and balance growth in overdrafts and Local
Business.
Operating expenses decreased 3% (£71m) to £2,390m (2004:
£2,461m). The cost:income ratio improved four percentage points to
67% (2004: 71%).