Barclays 2007 Annual Report Download - page 39

1
Business review
Barclays PLC Annual Report 2007 37
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 R753m 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 R11,417m is translated into
Barclays results at an average exchange rate for 2006 of R12.47/£
(2005: R11.57/£). 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
R495,112m (31st December 2005: R404,561m), growth of 22%.
This is translated into Barclays results at a year-end exchange rate of
R13.71/£ (31st December 2005: R10.87/£). The consolidation of total
assets reflected the impact of the 21% depreciation in the Rand largely
offsetting the growth in the Rand balance sheet.
2007 2006 2005
£m £m £m
Income statement information
Net interest income 1,137 1,049 488
Net fee and commission income 785 855 328
Net trading income/(expense) 1(11) (28)
Net investment income 70 122 55
Principal transactions 71 111 27
Net premiums from insurance contracts 227 240 98
Other income 78 54 37
Total income 2,298 2,309 978
Net claims and benefits incurred under insurance contracts (114) (106) (44)
Total income net of insurance claims 2,184 2,203 934
Impairment charges (173) (126) (19)
Net income 2,011 2,077 915
Operating expenses excluding amortisation of intangible assets (1,272) (1,312) (583)
Amortisation of intangible assets (61) (76) (41)
Operating expenses (1,333) (1,388) (624)
Share of post-tax results of associates and joint ventures 697
Profit on disposal of subsidiaries, associates and joint ventures 5––
Profit before tax 689 698 298
Balance sheet information
Loans and advances to customers £30.8bn £24.2bn £23.9bn
Customer accounts £13.1bn £11.1bn £12.2bn
Total assets £37.3bn £30.4bn £29.4bn
Performance ratios
Return on average economic capital 23% 34% 36%
Cost:income ratio 61% 63% 67%
Cost:net income ratio 66% 67% 37%
Other financial measures
Risk Tendency £255m £145m £100m
Economic profit £130m £184m £90m
Risk weighted assets £23.6bn £20.7bn £20.8bn