Barclays 2007 Annual Report Download - page 41

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Business review
Barclays PLC Annual Report 2007 39
Operating expenses decreased 1% (£36m) to £3,973m (2006: £4,009m).
The cost:net income ratio improved to 63% (2006: 64%) and the
compensation cost:net income ratio improved by two percentage points
to 47% (2006: 49%). Performance related pay, discretionary investment
spend and short term contractor resources represented 42% (2006: 50%)
of the cost base. Amortisation of intangible assets of £54m (2006: £13m)
principally related to mortgage service rights.
Total headcount increased 3,000 during 2007 to 16,200 (2006: 13,200)
including 800 from the acquisition of EquiFirst. The majority of organic
growth was in Asia Pacific.
2006/05
Profit before tax increased 55% (£785m) to £2,216m (2005: £1,431m).
This was the result of a very strong income performance, driven by
higher business volumes, continued growth in client activity and
favourable market conditions. Net income increased 42% (£1,831m)
to £6,225m (2005: £4,394m). Profit before tax for Absa Capital was
£71m (2005: £39m).
Income increased 39% (£1,762m) to £6,267m (2005: £4,505m) as a
result of very strong growth across the Rates, Credit and Private Equity
businesses. Income increased in all geographic regions. Average DVaR
increased 16% to £37.1m (2005: £32.0m) significantly below the rate
of income growth.
Secondary income increased 43% (£1,584m) to £5,293m
(2005: £3,709m).
Net trading income increased 60% (£1,331m) to £3,562m (2005:
£2,231m) with very strong contributions across the Rates and Credit
businesses, in particular, commodities, fixed income, equities, credit
derivatives and emerging markets. The performance was driven by
higher volumes of client led activity and favourable market conditions.
Net investment income increased 39% (£160m) to £573m (2005: £413m)
driven by investment realisations, primarily in Private Equity, offset by
reduced contributions from credit products. Net interest income increased
9% (£93m) to £1,158m (2005: £1,065m) driven by a full year contribution
from Absa Capital.
Primary income grew 23% (£176m) to £952m (2005: £776m). This
reflected higher volumes and continued market share gains in a number of
key markets, with strong contributions from issuances in bonds, European
leveraged loans and convertibles.
Impairment charges of £42m (2005: £111m), including impairment on
available for sale assets of £86m (2005: £nil), were 62% lower than prior
year reflecting recoveries and the continued benign wholesale credit
environment.
Operating expenses increased 35% (£1,046m) to £4,009m (2005:
£2,963m), reflecting higher performance related costs, increased levels
of activity and continued investment across the business. The cost:net
income ratio improved to 64% (2005: 67%) and the compensation to
net income ratio improved to 49% (2005: 51%). Performance related pay,
discretionary investment spend and short-term contractor resource costs
represented 50% of operating expenses (2005: 46%). Amortisation of
intangible assets principally relates to mortgage service rights obtained
as part of the purchase of HomEq.
Total headcount increased 3,300 during 2006 to 13,200 (2005: 9,900)
and included 1,300 from the acquisition of HomEq. Organic growth was
broadly based across all regions and reflected further investments in the
front office, systems development and control functions to support
continued business expansion.
2007 2006 2005
£m £m £m
Income statement information
Net interest income 1,179 1,158 1,065
Net fee and commission income 1,235 952 776
Net trading income 3,739 3,562 2,231
Net investment income 953 573 413
Principal transactions 4,692 4,135 2,644
Other income 13 22 20
Total income 7,119 6,267 4,505
Impairment charges and other credit provisions (846) (42) (111)
Net income 6,273 6,225 4,394
Operating expenses excluding amortisation of intangible assets (3,919) (3,996) (2,961)
Amortisation of intangible assets (54) (13) (2)
Operating expenses (3,973) (4,009) (2,963)
Share of post-tax results of associates and joint ventures 35 ––
Profit before tax 2,335 2,216 1,431
Balance sheet information
Total assets £839.7bn £657.9bn £601.2bn
Performance ratios
Return on average economic capital 33% 41% 34%
Cost:income ratio 56% 64% 66%
Cost:net income ratio 63% 64% 67%
Compensation:net income ratio 47% 49% 51%
Other financial measures
Risk Tendency £140m £95m £110m
Economic profit £1,172m £1,181m £706m
Risk weighted assets £169.1bn £137.6bn £116.7bn
Average DVaR £42.0m £37.1m £32.0m
Average net income generated per member of staff (’000) £466 £575 £498
Corporate lending portfolio £52.3bn £40.6bn £40.1bn