Barclays 2013 Annual Report Download - page 248

Financial review
Income statement commentary
2013
Profit before tax increased to £2,868m (2012: £797m). Excluding the
adjusting items for movements in own credit, gain on disposal of
investment in BlackRock, Inc., provisions for PPI and interest rate
hedging products redress, and goodwill impairment, adjusted profit
before tax decreased 32% to £5,167m.
Income increased 12% to £27,935m. Adjusted income excluding own
credit and gain on disposal of investment in BlackRock, Inc. decreased
4% to £28,155m. The decrease reflected reductions in the Investment
Bank, the Head Office and Africa RBB, partially offset by growth in
Barclaycard and UK RBB.
Total net interest income was broadly stable at £11,600m, with lower
net interest income in Head Office, Africa RBB and the Investment Bank
offset by increases in Barclaycard, UK RBB and Corporate Banking.
Customer net interest income for RBB, Barclaycard, Corporate Banking
and Wealth and Investment Management increased to £10,365m
(2012: £9,839m) driven by growth in customer assets, partially offset
by contributions from Group structural hedging activities.
Total income in the Investment Bank decreased 9% to £10,733m driven
by a decrease in FICC income of £1,141m, partially offset by increases in
Equities and Prime Services of £489m, and Investment Banking of
£63m. Exit Quadrant income also decreased £309m due to accelerated
disposals and a £111m reversal of income relating to a litigation matter
in Q413.
Credit impairment charges improved 8% to £3,071m, with a loan loss
rate of 64bps (2012: 70bps). This reflected lower impairments in the
wholesale businesses, mainly Corporate Banking in Europe and UK. In
the RBB and Barclaycard businesses, Africa RBB arrears rates improved,
particularly for South Africa home loans, however, impairment was
higher in UK RBB and Barclaycard partly due to the non-recurrence of
provision releases in 2012, and the Edcon acquisition in Barclaycard.
Higher impairment in Europe reflected exposure to the renewable
energy sector in Spain and weaker performance in European
mortgages.
As a result, net operating income for the Group after impairment
charges increased 15% to £24,864m. Net adjusted operating income
excluding movements on own credit and gain on disposal of
investment in BlackRock, Inc. decreased 4% to £25,084m.
Operating expenses increased 5% to £21,972m in 2013. Adjusted
operating expenses excluding £1,350m (2012: £1,600m) provision for
PPI redress, £650m (2012: £850m) provision for interest rate hedging
products redress and £79m (2012: £nil) of goodwill impairment, were
up 7% to £19,893m, reflecting £1,209m (2012: £nil) of costs to achieve
Transform, £220m provisions for litigation and regulatory penalties in
Q413 in the Investment Bank, mainly relating to the US residential
mortgage-related business and UK bank levy of £504m (2012: £345m).
The cost: income ratio decreased to 79% (2012: 84%). The adjusted
cost: income ratio excluding movements on own credit, gains on
disposal of investment in BlackRock, Inc., provisions for PPI and interest
rate hedging products redress, and goodwill impairment increased to
71% (2012: 63%).
The tax charge for continuing operations for 2013 was £1,571m
(2012: £616m) on profit before tax of £2,868m (2012: £797m),
representing an effective tax rate of 54.8% (2012: 77.3%). The effective
tax rate on adjusted profit before tax increased to 39.0% (2012: 28.4%),
mainly due to a charge of £440m reflecting the write down of deferred
tax assets in Spain. The adjusted effective tax rate excluding the write
down was 30.5% (2012: 28.4%), which primarily reflected profits
outside of the UK taxed at local statutory tax rates that are higher
than the UK statutory tax rate of 23.25% (2012: 24.5%) and the
impact of the increase in the non deductable UK bank levy to
£504m (2012: £345m).
2012
Barclays delivered profit before tax of £797m in 2012, a decrease from
£5,770 in 2011. Excluding the adjusting items for movements in own
credit, gains on debt buy-backs, loss/gains on acquisitions and
disposals, impairment of investment in BlackRock, Inc, provision for PPI
and interest rate hedging products redress, and goodwill impairment,
adjusted profit before tax increased 39% to £7,599m.
Income decreased 23% to £25,009m. Adjusted income excluding own
credit, debt buy back gains and gains on disposal of investment in
BlackRock, Inc. increased 3% to £29,361m. Income increased despite
challenging economic conditions, the continuing low interest rate
environment and non-recurrence of £1,061m gains from the disposal
of hedging instruments in 2011.
Customer net interest income for RBB, Barclaycard, Corporate Banking
and Wealth and Investment Management remained stable at £9,839m
(2011: £12,033m) while the net interest margin for these businesses
declined to 184bps (2011: 204bps), principally reflecting the non-
recurrence of gains from the disposal of hedging instruments in 2011.
Total income in the Investment Bank increased 15% to £11,775m driven
by increases in Fixed Income, Currency and Commodities (FICC), Equities
and Prime Services, and Investment Banking, particularly in the Americas.
Credit impairment charges decreased 40% to £3,340m. Adjusted credit
impairment charges excluding impairment of investment in BlackRock,
Inc decreased 12%, principally reflecting improvements in Barclaycard,
Corporate Banking and UK RBB. This was partially offset by higher
charges in the Investment Bank, Africa RBB and Europe RBB.
Impairment charges as a proportion of Group loans and advances as at
31 December 2012 improved to 70bps, compared to 77bps for 2011.
As a result, net operating income for the Group after impairment
charges decreased 19% to £21,669m. Net adjusted operating income
excluding movements on own credit, gains on debt buy-backs, loss/
gains on acquisitions and disposals, impairment of investment in
BlackRock, Inc., provision for PPI and interest rate hedging products
redress and goodwill impairment increased 5% to £26,021m.
Operating expenses increased 1% to £21,012m in 2013. Adjusted
operating expenses excluding £1,600m (2011: £1,000m) provision for
PPI redress and £850m (2011: £nil) provision for interest rate hedging
products redress, were down 4% to £18,562m, including £125m (2011:
£408m) of restructuring charges.
The cost: income ratio increased to 84% (2011: 65%). The adjusted cost:
income ratio excluding movements on 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 improved to 63% (2011: 68%).
The tax charge for continuing operations for 2012 was £616m (2011:
£1,902m) on profit before tax of £797m (2011: £5,770m), representing
an effective tax rate of 77.3% (2011: 33.0%). The high effective tax rate
in 2012 is a result of the combination of losses in the UK, primarily
relating to the own credit charge of £4,579m (2011: gain of £2,708m)
with tax relief at 24.5% (2011: 26.5%) and profits outside the UK taxed
at higher rates.
Adjusted profit reconciliation
2013
£m
2012
£m
Adjusted profit before taxa5,167 7,599
Own credit (220) (4,579)
Gain on disposal of investment in BlackRock, Inc. –227
Provision for PPI redress (1,350) (1,600)
Provision for interest rate hedging
products redress (650) (850)
Goodwill impairment (79) –
Statutory profit before tax 2,868 797
Selected financial statistics on an adjusted basis
Adjusted basic earnings per share 16.7p 35.5p
Adjusted dividend payout ratio 38.9% 18.3%
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246 Barclays PLC Annual Report 2013