Barclays 2006 Annual Report Download - page 35

Barclays PLC
Annual Report 2006 31
Operating review
1
2006/05
International Retail and Commercial Banking – excluding Absa profit
before tax increased 71% (£237m) to £572m (2005: £335m), including
a gain on the disposal of the interest in FirstCaribbean International
Bank of £247m. Profit before business disposals was £325m (2005:
£335m). This reflected good growth in continental Europe offset by a
decline in profits in Africa caused by higher impairment, and increased
costs reflecting a step change in the rate of organic investment in
the business.
Income increased 8% (£85m) to £1,134m (2005: £1,049m). Excluding
gains from asset sales in 2005, income increased 11% (£116m) to
£1,134m (2005: £1,018m).
Net interest income increased 9% (£48m) to £610m (2005: £562m),
reflecting strong balance sheet growth in continental Europe, Africa
and the Middle East, and the development of the corporate business
in Spain.
Total average customer loans increased 20% to £27.4bn (2005:
£22.9bn). Mortgage balance growth in continental Europe was
particularly strong, with average Euro balances up 22%. There was a
modest decline in lending margins partly driven by a greater share of
mortgage assets as a proportion of the total book in continental Europe.
Average customer deposits increased 17% to £10.8bn (2005: £9.2bn),
with deposit margins stable.
Net fee and commission income increased 19% (£71m) to £448m
(2005: £377m). This reflected a strong performance from the Spanish
funds business, where average assets under management increased
11%, together with very strong growth in France, including the first
full year contribution of the ING Ferri business which was acquired on
1st July 2005. Net fee and commission income showed solid growth
in Africa and the Middle East.
Principal transactions decreased £36m to £83m (2005: £119m).
2005 included £23m from the redemption of preference shares in
FirstCaribbean International Bank.
Impairment charges increased £28m to £41m (2005: £13m). This
reflected the absence of one-off recoveries of £12m which arose in
2005 in Africa and the Middle East, and strong balance sheet growth
across the businesses.
Operating expenses increased 9% (£68m) to £808m (2005: £740m).
This included gains from the sale and leaseback of property in Spain
of £55m, just under half of which were reinvested in accelerated staff
restructuring and infrastructure upgrades. Excluding these net gains,
operating expenses increased 14% to £840m (2005: £740m).
Operating expenses also included incremental investment expenditure
of £25m to expand the distribution network and enhance IT and
operational capabilities.
Barclays Spain continued to perform strongly. Profit before tax increased
21% (£30m) to £171m (2005: £141m), excluding net one-off gains on
asset sales of £32m (2005: £8m) and integration costs of £43m (2005:
£57m). This was driven by the continued realisation of benefits from
Banco Zaragozano, together with strong growth in assets under
management and solid growth in mortgages.
Africa and the Middle East profit before tax decreased 9% (£12m) to
£126m (2005: £138m) driven by higher impairment charges reflecting
one-off recoveries of £12m that arose in 2005 and an increase in
investment expenditure.
Profit before tax increased strongly in Portugal reflecting good flows of
new customers and increased business volumes. France also performed
well as a result of good organic growth and the acquisition of ING Ferri.
The profit on disposal of subsidiaries, associate and joint ventures of
£247m (2005: £nil) comprised the gain on the sale of Barclays interest
in FirstCaribbean International Bank. The share of post-tax results of
FirstCaribbean International Bank included in 2006 was £41m
(2005: £37m).
2005/04
International Retail and Commercial Banking – excluding Absa
performed strongly, with profit before tax increasing 16% (£47m)
to £335m (2004: £288m). The performance was broad-based, featuring
stronger profits in all geographies.
Income increased 18% (£162m) to £1,049m (2004: £887m).
Net interest income increased 6% (£33m) to £562m (2004: £529m),
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 £22.9bn (2004:
£17.8bn). Mortgage balance growth in continental Europe was
particularly strong with average euro balances up 25%.
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.
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 International Bank.
Impairment charges decreased 58% (£18m) to £13m (2004: £31m).
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 71% (2004: 70%).
Barclays Spain performed very strongly with profit before tax, excluding
integration costs, up 19% to £149m (2004: £125m). Including
integration costs, profit before tax was up 11% to £92m (2004: £83m).
Africa and the Middle East profit before tax increased 10% to £138m
(2004: £125m) reflecting continued investment and balance sheet
growth across the businesses.
The post-tax profit from associates decreased £10m to £39m
(2004: £49m) due to a lower contribution from FirstCaribbean
International Bank.