Barclays 2006 Annual Report Download - page 37

Barclays PLC
Annual Report 2006 33
Operating review
1
2006/05
International Retail and Commercial Banking – Absa profit before
tax increased 134% to £698m (2005: £298m) reflecting the full year
to 31st December 2006 compared with the five months ended
31st December 2005. Barclays acquired a controlling stake in Absa
Group Limited on 27th July 2005.
In the commentary below, the comparable period referred to, for
illustrative purposes only, is the proforma full year to 31st December
2005 and is based on performance in Rand.
Absa Group Limited’s profit before tax increased 24% reflecting a very
good performance from banking operations, with retail, corporate and
business banking operations performing exceptionally well. Absa Group
Limited delivered a return on equity of 27.4% (2005: 25.6%). Key factors
impacting the results included very strong asset growth, strong revenue
growth, an increased credit impairment charge, the realisation of
synergies from leveraging Barclays expertise and economies of scale
and the sale of non-core operations. The South African economy
continued to expand at a solid pace with real growth expected to be
about 4.9% for 2006 (2005: 5.1%).
Net interest income grew 27%. Loans and advances to customers
increased 26% underpinned by very strong growth in mortgages,
credit cards and commercial property finance.
Non-interest income increased 12% reflecting higher transaction
volumes, strong growth in insurance related earnings and gains on
asset sales.
As expected the impairment charge on loans and advances increased
from the very low levels of the prior year, particularly in Absa Home
Loans, Absa Card and Retail Banking Services.
Operating expenses increased 14% resulting from increased investment
in the business in order to support continued growth in volumes and
customers.
Excellent progress was made with the realisation of synergy benefits.
In 2006 synergies of ZAR753m were delivered, in excess of the target
originally communicated for the year. Integration costs for the period
were in line with expectations.
Impact on Barclays results
Absa Group Limited’s profit before tax of ZAR11,417m is translated into
Barclays results at an average exchange rate for 2006 of ZAR12.47/£
(2005: ZAR11.57/£). Consolidation adjustments reflected the
amortisation of intangible assets of £75m and internal funding and
other adjustments of £72m. The resulting profit before tax of £769m
(2005: £337m) is represented with International Retail and Commercial
Banking – Absa £698m, (2005: £298m) and Barclays Capital, £71m
(2005: £39m).
Absa Group Limited’s total assets at 31st December 2006 were
ZAR495,112m (31st December 2005: ZAR404,561m), growth of 22%.
This is translated into Barclays results at a year-end exchange rate of
ZAR13.71/£ (31st December 2005: ZAR10.87/£). The consolidation
of total assets reflected the impact of the 21% depreciation in the
Rand largely offsetting the growth in the Rand balance sheet.