Barclays 2006 Annual Report Download - page 31

Barclays PLC
Annual Report 2006 27
Operating review
1
2006/05
Barclaycard profit before tax decreased 40% (£258m) to £382m
(2005: £640m) as good income growth was more than offset by
higher impairment charges and increased costs from the continued
development of international businesses.
Income increased 8% (£222m) to £2,937m (2005: £2,715m).
Growth was driven by very strong momentum in the United States
and by strong performances in Barclaycard Business, FirstPlus,
SkyCard and continental European markets.
Net interest income increased 7% (£117m) to £1,843m (2005:
£1,726m). UK average extended credit card balances fell 7% to £8.0bn
(2005: £8.6bn), reflecting the impact of tighter lending criteria. UK
average consumer lending balances increased 16% to £11.9bn (2005:
£10.3bn) driven by secured lending in FirstPlus. International average
extended credit card balances rose 39% to £2.5bn (2005: £1.8bn).
Margins in credit cards improved to 8.73% (2005: 7.96%), due to the
impact of increased card rates and a reduced proportion of promotional
rate balances in the UK. Margins in consumer lending fell to 4.11%
(2005: 4.96%), due to a higher proportion of secured lending and
continued competitive pressure.
Net fee and commission income increased 8% (£82m) to £1,054m
(2005: £972m) as a result of increased contributions from Barclaycard
International, SkyCard, FirstPlus and Barclaycard Business. Barclaycard
reduced its late and overlimit fee charges in the UK on 1st August 2006
in response to the Office of Fair Trading’s findings.
Investment income of £15m (2005: £nil) represents the gain arising from
the sale of part of the stake in MasterCard Inc, following its flotation.
Impairment charges increased 36% (£395m) to £1,493m (2005:
£1,098m). The increase was driven by a rise in delinquent balances
and increased numbers of bankruptcies and Individual Voluntary
Arrangements. As a result of management action in 2005 and 2006 to
tighten lending criteria and improve collection processes, the flows of
new delinquencies reduced, and levels of arrears balances declined in
the second half of 2006 in UK cards and unsecured loans.
Operating expenses increased 8% (£76m) to £1,054m (2005: £978m).
This included a £38m gain from the sale and leaseback of property.
Excluding this item, underlying operating expenses increased 12%
(£114m) to £1,092m. This was largely as a result of continued
investment in Barclaycard International, particularly Barclaycard US,
and the development of UK partnerships.
Barclaycard International continued its growth strategy in the
continental European business delivering solid results. The Entercard
joint venture, which is based in Scandinavia, performed ahead of plan.
Barclaycard International loss before tax reduced to £30m (2005: loss
£37m), including the loss before tax for Barclaycard US of £56m
(2005: loss £59m). Barclaycard US continued to perform ahead of
expectations, delivering very strong growth in balances and customer
numbers and creating a number of new partnerships including US
Airways, Barnes & Noble, Travelocity and Jo-Ann Stores.
Barclaycard UK customer numbers declined 1.4 million to 9.8 million
(2005: 11.2 million). This reflected the closure of 1.5 million accounts
that had been inactive.
2005/04
Barclaycard profit before tax decreased 23% (£190m) to £640m (2004:
£830m). Excluding Barclaycard US loss before tax of £59m, profit before
tax fell 16% (£131m) to £699m.
Income increased 13% (£321m) to £2,715m (2004: £2,394m) driven
by good performances across the diversified UK cards and loans
businesses and Barclaycard Business, and by very strong momentum in
international cards. Excluding Barclaycard US income of £117m, income
increased 9%.
Net interest income increased 9% (£139m) to £1,726m (2004:
£1,587m) as a result of growth in average balances.
UK average extended credit balances rose 5% to £8.6bn (2004: £8.2bn)
and international average extended credit balances doubled to £1.8bn
(2004: £0.9bn). Excluding Barclaycard US average extended credit
balances of £0.9bn, international average extended credit balances
increased 26%.
UK average consumer lending balances increased 10% to £10.3bn
(2004: £9.4bn). Margins in the cards business improved during 2005
to 7.96% (2004: 7.34%) due to the impact of increased card rates and
a reduced proportion of total balances on promotional offers. Margins
in consumer lending fell to 4.96% (2004: 6.27%), due to the impact of
IAS 32 and IAS 39, competitive pressure and a change in the product
mix. Excluding the impact of the application of IAS 32 and IAS 39, net
interest income increased 12%.
Net fee and commission income increased 23% (£182m) to £972m
(2004: £790m) as a result of the inclusion of Barclaycard US and
increased contributions from Barclaycard Business and FirstPlus.
Excluding the impact of IAS 32 and IAS 39, net fee and commission
income increased 16%.
Impairment charges increased 44% (£337m) to £1,098m (2004:
£761m). The increase was driven by a rise in delinquent balances, lower
rates of recovery from customers, the inclusion of Barclaycard US, and
an increase in the size of the average loan book. Excluding Barclaycard
US impairment charges of £53m, impairment charges increased 38%.
Operating expenses rose 21% (£171m) to £978m (2004: £807m),
mostly as a result of the inclusion of Barclaycard US. Excluding
Barclaycard US operating expenses of £111m, operating expenses rose
7% reflecting continued investment in the UK and continental European
card businesses and the development of the UK Partnerships business.
Barclaycard International performed strongly, with Germany and Spain
delivering excellent results. Excluding Barclaycard US, Barclaycard
International profit before tax was £22m (2004: £8m), with income
ahead 22%. The loss before tax for Barclaycard US was £59m (2004:
loss of £2m).