Barclays 2013 Annual Report Download - page 240

Transform Financial Commitments and Leverage Plan
On 12 February 2013, Barclays announced six Transform Financial Commitments based on the results
of its strategic review. On 30 July 2013, Barclays also announced its Leverage Plan in order to achieve the PRA
3% leverage ratio target by June 2014. These metrics, alongside the financial KPIs used in the prior year
(see pages 241 and 242) were used by management to assess performance during 2013.
Financial review
Key performance indicators
Transform Financial Commitments
Performance metric Definition
Why it is important to the business and
performance update
Return on average shareholders’ equity (RoE) RoE is calculated as profit for the year
attributable to ordinary equity holders of the
parent divided by average shareholders’ equity
for the year excluding non-controlling and
other equity interests. Shareholders’ equity is
made up of share capital, retained earnings
and other reserves.
Adjusted RoE excludes post tax adjusting
items for movements in own credit, gains on
debt buy-backs, loss/gains on acquisitions
and disposals, impairment of investment in
BlackRock, Inc., provisions for PPI and interest
rate hedging products redress, and goodwill
impairment. Average shareholders’ equity for
adjusted RoE excludes the impact of own
credit on retained earnings.
This measure indicates the return generated
by the management of the business based on
the shareholders’ equity. Achieving a target
RoE demonstrates the organisation’s ability to
execute its strategy and align management’s
interests with shareholders’. RoE lies at the
heart of our capital allocation and
performance management process.
Adjusted RoE decreased to 4.5% (2012: 9.0%)
principally reflecting the decrease in profit
before tax, £440m write down of deferred tax
assets relating to Spain and the rights issue
equity raised of £5.8bn.
Transform commitment: deliver a return on
equity in excess of cost of equity in 2016.
Adjusted
2013 – 4.5%
2012 – 9.0%
2011 – 6.7%
2016 Target –
> Cost of Equity
Statutory
2013 – 1.0%
2012 – (1.2%)
2011 – 5.9%
Operating expenses Defined as total operating expenses.
Adjusted operating expenses exclude
provisions for PPI and interest rate hedging
products redress, and goodwill impairment
Barclays views operating expenses as a key
stategic battleground for banks in the next
decade. Those who actively manage costs
and control them effectively will gain a
competitive advantage.
Adjusted operating expenses increased 7%
to £19.9bn reflecting £1.2bn of costs to
achieve Transform, provisions for litigation and
regulatory penalties in Q4 2013 in the
Investment Bank and an increase in UK bank
levy to £504m (2012: £345m).
Transform commitment: deliver a cost
reduction of £1.7bn in order to reduce
operating expenses excluding costs to
achieve Transform to £16.8bn in 2015.
Adjusted
2013 – £19,893m
2012 – £18,562m
2011 – £19,289m
2015 Target –
£16,800m
Statutory
2013 – £21,972m
2012 – £21,012m
2011 – £20,886m
Cost: income ratio The cost: income ratio is defined as operating
expenses compared to total income net of
insurance claims.
The adjusted cost: income ratio excludes
movements on own credit, gains on debt
buy-backs, loss/gains on acquisitions and
disposals, provisions for PPI and interest rate
hedging products redress, and goodwill
impairment.
This is a measure management uses to assess
the productivity of the business operations.
Restructuring the cost base is a key execution
priority for management and includes a review
of all categories of discretionary spending and
an analysis of how the business can be run to
ensure that costs increase at a slower rate
than income.
The adjusted cost to income ratio increased to
71% (2012: 63%) primarily due to reductions
in income.
Transform commitment: reduce cost to
income ratio excluding cost to achieve
transform of mid-50s by 2015.
Adjusted
2013 – 71%
2012 – 63%
2011 – 68%
2015 Target –
mid-50s
Statutory
2013 – 79%
2012 – 84%
2011 – 65%
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238 Barclays PLC Annual Report 2013