Barclays 2009 Annual Report Download - page 40

Reconciliation of economic profit 2009 2008 2007
£m £m £m
Profit attributable to equity
holders of the Parent 9,393 4,382 4,417
Addback of amortisation charged
on acquired intangible assetsb348 254 137
Profit for economic profit
purposes 9,741 4,636 4,554
Average shareholders’ equity
for economic profit purposesc,d
(rounded to nearest £50m) 38,950 27,400 23,700
Post-tax cost of equity 12.5% 10.5% 9.5%
Capital charge a(4,866) (2,876) (2,264)
Economic profit 4,875 1,760 2,290
Tax 2009 2008 2007
£m £m £m
Profit before tax from
continuing operations 4,585 5,136 6,223
Tax charge at average UK
corporation tax rate of 28%
(2008: 28.5%, 2007: 30%) 1,284 1,464 1,867
Prior year adjustments (220) (171) (17)
Differing overseas tax rates (27) 175 (82)
Non-taxable gains and income
(including amounts offset by
unrecognised tax losses) (112) (859) (136)
Share-based payments (38) 201 71
Deferred tax assets not
recognised/(previously
not recognised) 27 (504) (159)
Change in tax rates (12) (1) 24
Other non-allowable expenses 172 148 131
Tax charge 1,074 453 1,699
Effective tax rate 23% 9% 27%
Notes
aThe Group cost of equity changed from 1st January 2009 from 10.5% to 12.5%.
bAmortisation charged for purchased intangibles, adjusted for tax and non-controlling
interests.
cAverage ordinary shareholders’ equity for Group economic profit calculation is the sum
of adjusted equity and reserves plus goodwill and intangible assets arising on acquisition,
but excludes preference shares.
dAverages for the period will not correspond exactly to period end balances disclosed on the
balance sheet. Numbers are rounded to the nearest £50m for presentation purposes only.
38 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Financial review
Income statement commentary
continued
Tax
2009/08
The effective tax rate for 2009, based on profit before tax on continuing
operations, was 23.4% (2008: 8.8%). The effective tax rate differs from
the UK tax rate of 28% (2008: 28.5%) because of non-taxable gains and
income, different tax rates applied to taxable profits and losses outside
the UK, disallowed expenditure and adjustments in respect of prior years.
The low effective tax rate of 8.8% on continuing operations in 2008 mainly
resulted from the Lehman Brothers North American businesses acquisition.
2008/07
The effective rate of tax for 2008, based on profit before tax on continuing
operations, was 8.8% (2007: 27.3%). The effective tax rate differs from the
2007 effective rate and the UK corporation tax rate of 28.5% principally due
to the Lehman Brothers North American businesses acquisition.
Discontinued operations
Profit after tax from discontinued operations
2009/08
Profit after tax from discontinued operations increased £6,173m to
£6,777m, reflecting the gain on sale of the discontinued operations of
£6,331m (2008: £nil) and other profit before tax of £726m (2008: £604m).
The results for 2009 included 11 months of operations compared to
12 months for 2008.
2008/07
The profit after tax from discontinued operations increased 6% to £604m,
reflecting an 8% appreciation of the average value of the US Dollar against
Sterling and a £128m decrease in operating expenses, principally reflecting
reduced performance related costs, offset by a decline in income from fees
and commissions and a reduction in trading income.
Economic profit
Economic profit comprises:
–Profit after tax and non-controlling interests; less
– Capital charge (average shareholders’ equity excluding non-controlling
interests multiplied by Barclays cost of equity).
The Group cost of equity has been applied at a uniform rate of 12.5%a. The
costs of servicing preference shares are included in non-controlling interests.
As such, preference shares are excluded from average shareholders’ equity
for economic profit purposes.
Discontinued operations 2009 2008 2007
£m £m £m
Profit for the year from
discontinued operations,
including gain on disposal 6,777 604 571