Barclays 2007 Annual Report Download - page 11

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Business review
We are building significant momentum in GRCB. In particular, we have
been growing distribution to create a much broader business base for the
years ahead. During 2007, we opened over 600 new branches and sales
centres outside the United Kingdom, increasing by over one third the
number of distribution points across these parts of our GRCB business.
This growth is feeding through powerfully into activity levels. Income
increased 28% in International Retail and Commercial Banking – excluding
Absa in 2007. Absa performed well, including delivering on its synergy
target 18 months ahead of schedule.
In UK Banking, we delivered a further two percentage points improvement
in our cost:income ratio, excluding the impact of the settlement on
overdraft fees, bringing the total to eight percentage points improvement
over three years compared with our target of six percentage points. The
turnaround of UK Retail Banking continued during 2007, with strong
income growth in core product areas, including mortgages. We have
announced our intention to reduce UK Retail Banking’s cost:income ratio by
a further three percentage points over the next three years. In Barclaycard,
we have made excellent progress towards our goal of re-establishing
a leadership position in the United Kingdom and in the aggressive
expansion of our International Cards business. Profits in Barclaycard grew
strongly in 2007 as we reduced the impairment charge in the UK, and
moved Barclaycard International, including Barclaycard US, into profit.
In reviewing our use of capital and assets, our principal focus has been on
the risk weighted balance sheet rather than the nominal balance sheet.
Whilst we monitor internally a range of different ratios, our publicly
expressed target has been to maintain a ratio of Tier 1 capital to risk
weighted assets of 7.25%. At the end of 2007 we were comfortably ahead
of that target under both Basel I and Basel II measurement bases. Risk
weighted asset growth in 2007 was 19%, a brisker rate than in recent
years reflecting in part the syndication constraints of the second half of
the year. We expect the rate of growth in risk weighted assets in 2008 to
be slower than that of 2007.
We have increased the dividend by 10% to 34p (2006: 31p), which
includes a final dividend of 22.5p (2006: 20.5p). The maintenance of
our policy of growing dividends broadly in line with the rate of underlying
earnings over time reflects the Board’s confidence in the future. Our
dividend remains more than twice covered by earnings, which we believe
is consistent with the funding requirements of our organic growth plans.
We have announced new multi-year performance goals. These are
designed to stretch us, and we see them as reflective of the potential that
exists within our businesses and our people. As in 2003, when we last set
new goals, we aim to achieve significant growth in economic profit over
the next four years and thereby to deliver top quartile Total Shareholder
Return (TSR) relative to our competitor peer group.
Barclays PLC Annual Report 2007 9
Over the last four years Barclays achieved a cumulative total of £8.3bn
of economic profit, against a target range of £6.5bn to £7.0bn. Despite
exceeding our economic profit goal by some way, we ranked in the third
quartile of our peer group in terms of TSR which was a disappointing
outcome.
Our new goal is to generate a cumulative total of between £9.3bn and
£10.6bn of economic profit between 2008 and 2011. This represents an
annual growth rate in economic profit of 5% to 10%. We estimate that
if we achieve the upper end of the range, we will also achieve our goal of
top quartile TSR relative to our peer group.
I am pleased to report that our strategic collaboration with China
Development Bank is off to a good start. This is an important part of
our long term plans to develop a more significant presence in emerging
markets, particularly Asia where group profits more than doubled in 2007,
and I look forward to reporting to shareholders on the growing returns
that we will generate from this relationship in the coming years.
This has been a challenging year for our staff, and we have them to thank
for delivering the results we have achieved despite multiple distractions in
difficult market circumstances. I am proud of their commitment to putting
our customers first and I am confident that we enter our new goal period
with a team as good as any in the banking industry.
What is the outlook for 2008? We see another year in which global
economic growth will be 4%, or something close to that. The emerging
economies account for about a third of global GDP, but they account for
two thirds of global GDP growth and they continue to perform strongly.
However, in many economies of the developed world, there will be a slow-
down, and in particular we expect economic growth in the UK and the US
to be below the trend of recent years. In an environment such as this we
will have to be disciplined in our risk management and rigorous in our
approach to lending. But our experience of 2007 gives us confidence, and
we enter 2008 with a strong capital base, a consistent strategic direction,
a well diversified set of businesses and significant opportunities for growth
in the medium term.
John Varley
Group Chief Executive