Barclays 2006 Annual Report Download - page 52

Barclays PLC
Annual Report 2006
48
Financial review
Results by nature of income and expense
Impairment charges (continued)
2005/04
Total impairment charges and other credit provisions increased 44%
(£478m) to £1,571m (2004: £1,093). This reflected some large one-off
releases and recoveries in 2004, the impact of acquisitions in 2005 and
changes in methodology.
In the UK, pressure on household cash flows due to a range of factors
and the high level of household indebtedness led to a greater strain on
personal budgets. This resulted in a deterioration in consumer credit
quality which was evident from higher average delinquency balances
and shorter periods between delinquency and charge-off. Smaller
business customers also showed some limited deterioration in credit
quality. Wholesale and corporate credit conditions remained steady.
As a result of an increase in impairment charges to the retail portfolios,
and to a lesser extent in the wholesale and corporate portfolios, the
impairment charges for the Group (excluding Absa charges of £20m)
for the full year were £1,547m (2004: £1,093m). Impairment charges
excluding Absa amounted to 0.57% (2004: 0.48%), as a percentage of
period-end total non-trading loans and advances.
Retail impairment charges, excluding Absa charges of £10m, increased
to £1,244m (2004: £811m), accounting for just under 80% of the
Group’s impairment charges. Excluding Absa, retail impairment charges
amounted to 1.10% (2004: 0.72%) of the period-end total non-trading
loans and advances. The increase was predominantly in the UK cards
and consumer loans portfolios.
In the wholesale and corporate businesses, excluding Absa impairment
charges of £10m, impairment charges increased to £303m
(2004: £282m). The increase occurred largely in UK Business Banking
and reflected the fact that the 2004 results included a large one-off
recovery of £57m. Underlying impairment charges excluding this
item were broadly flat. Wholesale and corporate impairment charges,
excluding Absa, were 0.19% (2004: 0.25%) of period-end total
non-trading loans and advances.
Absa’s impairment charge of £20m for the five-month period was low
in a benign credit environment and also reflected a reduction in the
number and value of non-performing loans and a higher level of
releases and recoveries.
Operating expenses
2006 2005 2004(a)
£m £m £m
Staff costs (Note 8) 8,169 6,318 5,227
Administrative expenses 3,980 3,443 2,766
Depreciation (Note 25) 455 362 297
Impairment loss – intangible
assets (Note 24) 799
– property and equipment (Note 25) 14 ––
Operating lease rentals 345 316 215
Gain on property disposals (432) ––
Amortisation of intangible assets 136 79 22
Operating expenses 12,674 10,527 8,536
2006/05
Operating expenses increased 20% (£2,147m) to £12,674m (2005:
£10,527m). The inclusion of Absa contributed operating expenses of
£1,496m (2005(b) 664m). Group operating expenses excluding Absa
grew 13%, reflecting a higher level of business activity and an increase
in performance related pay.
Administrative expenses increased 16% (£537m) to £3,980m (2005:
£3,443m). The inclusion of Absa contributed administrative expenses
of £579m (2005(b): £257m). Group administrative expenses excluding
Absa grew 7% principally as a result of higher business activity in UK
Banking and Barclays Capital.
Operating lease rentals increased 9% (£29m) to £345m (2005: £316m).
The inclusion of Absa contributed operating lease rentals of £73m
(2005(b): £27m), which more than offset the absence of double
occupancy costs incurred in 2005, associated with the Head office
relocation to Canary Wharf.
Operating expenses were reduced by gains from the sale of property of
£432m (2005: £nil) as the Group took advantage of historically low
yields on property to realise gains on some of its freehold portfolio.
Amortisation of intangible assets increased 72% (£57m) to £136m
(2005: £79m) primarily reflecting the inclusion of Absa for the full year.
The Group cost:income ratio improved to 59% (2005: 61%). This
reflected improved productivity. The Group cost:net income ratio was
65% (2005: 67%).
2005/04
Operating expenses increased 23% (£1,991m) to £10,527m (2004:
£8,536m). The inclusion of Absa added operating expenses of £664m
to the second half of 2005. Group operating expenses excluding Absa
grew 15% reflecting higher business activity.
Administrative expenses increased 24% (£677m) to £3,443m (2004:
£2,766m). The inclusion of Absa added administrative expenses of
£257m in the second half of 2005. Group administrative expenses
excluding Absa grew 15% principally as a result of higher business
activity in Barclays Capital and Barclays Global Investors and the
inclusion of Barclaycard US for the full year.
Administrative expenses included non-recurring costs relating to the
write-down of capitalised IT related assets held centrally of £60m
(2004: £nil). Impairment losses of £9m (2004: £9m) reflected a further
charge for the impairment of certain capitalised IT related assets
following a review of their likely future economic benefit.
Operating lease rentals increased 47% (£101m) to £316m (2004:
£215m). The inclusion of Absa added operating lease rentals of £27m
in the second half of 2005. Operating lease rentals excluding Absa
increased primarily as a consequence of the double occupancy costs
associated with the Head office relocation to Canary Wharf.
The Group cost:income ratio remained steady at 61%. This reflected
improved productivity in UK Banking, Barclays Global Investors and
Barclays Wealth; and a stable performance by International Retail and
Commercial Banking, offset by an increase in non-recurring operating
expenses in Head office and other functions.
The Group cost:net income ratio was 67% (2004: 66%).
Notes
(a) Does not reflect the application of IAS 32, IAS 39 and IFRS 4 which became effective from 1st January 2005.
(b) For 2005, this reflects the period from 27th July until 31st December 2005.