Barclays 2007 Annual Report Download - page 29

1
Business review
Barclays PLC Annual Report 2007 27
2006/05
UK Retail Banking profit before tax increased 10% (£105m) to £1,181m
(2005: £1,076m), driven by good income growth and well controlled costs.
There has been substantial additional investment to transform the business.
Income increased 7% (£269m) to £4,346m (2005: £4,077m), continuing
the momentum reported at the half year. Income growth was broadly based.
There was strong income growth in Personal Customers retail savings,
Local Business and UK Premier and good growth in Personal Customers
current account income. Sales volumes increased, with a particularly
strong performance from direct channels.
Net interest income increased 3% (£88m) to £2,765m (2005: £2,677m).
Growth was driven by a higher contribution from deposits, through a
combination of good balance sheet growth and a stable liability margin.
Total average customer deposit balances increased 8% to £76.5bn
(2005: £71.0bn), supported by new products. Growth of personal savings
was above that of the market.
Mortgage volumes improved significantly, driven by a focus on improving
capacity, customer service, value and promotion. UK residential mortgage
balances ended the year at £61.7bn (2005: £59.6bn). Gross advances
were 60% higher at £18.4bn (2005: £11.5bn), with a market share of 5%
(2005: 4%). Net lending was £2.4bn, with performance improving during
the year, leading to a market share of 4% in the second half of the year.
The mortgage margin was reduced by changed assumptions used in the
calculation of effective interest rates, a higher proportion of new mortgages
and base rate changes. The new business spread was in line with the
industry. The loan to value ratio within the residential mortgage book
on a current valuation basis was 34% (2005: 35%).
There was good balance growth in non-mortgage loans, where Local
Business average balances increased 9% and UK Premier average
balances increased 25%.
Net fee and commission income increased 16% (£167m) to £1,232m
(2005: £1,065m). There was strong current account income growth
in Personal Customers and Local Business. UK Premier delivered strong
growth reflecting higher income from banking services, mortgage sales
and investment advice.
Net premiums from insurance underwriting activities decreased 8%
(£30m) to £342m (2005: £372m). There continued to be lower customer
take-up of loan protection insurance. Net claims and benefits on insurance
contracts improved to £35m (2005: £61m).
Impairment charges increased 29% (£141m) to £635m (2005: £494m).
The increase principally reflected balance growth and some deterioration
in delinquency rates in the Local Business loan book. Losses from the
mortgage portfolio remained negligible, with arrears at low levels.
Operating expenses were steady at £2,532m (2005: £2,501m). Gains
from the sale and leaseback of property amounted to £253m (2005: nil).
Investment in the business to improve customer service and deliver
sustainable performance improvements was directed at upgrading
distribution capabilities, including restructuring and improving the branch
network. Further investment was focused on upgrading the contact centres,
transforming the performance of the mortgage business, revitalising the
retail product range to meet customers’ needs, improving core operations
and processes and rationalising the number of operating sites. The level
of investment reflected in operating expenses in 2006 was approximately
double the level of 2005.
The cost:income ratio improved three percentage points to 58%
(2005: 61%).
2007 2006 2005
£m £m £m
Income statement information
Net interest income 2,858 2,765 2,677
Net fee and commission income 1,183 1,232 1,065
Net premiums from insurance contracts 252 342 372
Other income 47 42 24
Total income 4,340 4,381 4,138
Net claims and benefits on insurance contracts (43) (35) (61)
Total income net of insurance claims 4,297 4,346 4,077
Impairment charges (559) (635) (494)
Net income 3,738 3,711 3,583
Operating expenses excluding amortisation of intangible assets (2,455) (2,531) (2,501)
Amortisation of intangible assets (8) (1) –
Operating expenses (2,463) (2,532) (2,501)
Share of post-tax results of associates and joint ventures 72 (6)
Profit before tax 1,282 1,181 1,076
Balance sheet information
Loans and advances to customers £82.0bn £74.7bn £72.1bn
Customer accounts £87.1bn £82.3bn £76.3bn
Total assets £87.8bn £81.7bn £78.1bn
Performance ratios
Return on average economic capital 28% 28% 26%
Cost:income ratio 57% 58% 61%
Cost:net income ratio 66% 68% 70%
Other financial measures
Risk tendency £470m £500m £415m
Economic profit £622m £589m £525m
Risk weighted assets £46.0bn £43.0bn £40.8bn