RNS No 3158e
BARCLAYS PLC
6th August 1998
PART 2
BARCLAYS PLC
FINANCIAL REVIEW
Results by nature of income and expense
In the analysis below to assist in the analysis of the ongoing
business performance, income and cost totals excluding former
BZW businesses are also shown. For most of 1997, BZW
comprised Barclays Capital and the former BZW businesses,
operating as an integrated business with significant levels of
shared costs and infrastructure. Accordingly, the amounts
separately attributed to Barclays Capital and the former BZW
businesses in 1997 include estimates and allocations. Under
these circumstances it is not meaningful to provide a more
detailed analysis of income and costs than that set out below.
Half-year ended
Net interest income 30.6.98 31.12.97 30.6.97
#m #m #m
Interest receivable 5,014 4,797 4,407
Interest payable (2,874) (2,717) (2,374)
Profit on redemption/repurchase 3 (2) 4
of loan capital
2,143 2,078 2,037
Write-down of leases (40) - (77)
2,103 2,078 1,960
Excluding former BZW businesses and
write-down of leases 2,144 2,076 2,031
Net interest income rose by #113m, or 6%, excluding the
contribution from the former BZW businesses and the write-down
of leases following a further reduction in the rate of
Corporation Tax. Adjusting for these, the loss of interest
resulting from share repurchases and other business disposals,
underlying net interest income increased by 7%.
Retail Financial Services net interest income increased by 10%
to #1,381m, benefiting primarily from strong growth in the
United Kingdom in consumer and credit card lendings, current
accounts and home finance (where the cost of incentives fell
by #19m to #11m). Average balances in UK consumer lending
increased by 15% year on year while average savings balances
grew by 8% over the same period, benefiting from a policy of
more actively establishing a range of savings suited to
customers' needs. Overall, lending and deposit margins in UK
Retail Banking were broadly maintained, in part because of
volume growth in higher margin products.
Corporate Banking net interest income rose by 8% to #601m. A
further improvement in the credit quality of the lending book
and a change in its mix resulted in a small reduction in the
lending margin, while the deposit margin was maintained as a
result of a further increase in current account balances,
offset by strong growth in lower margin treasury products.
Overall banking business net margins fell from 3.47% to 3.38%
compared to the first half of 1997. The Group spread reduced
to 2.66% (1997: 2.75%) mainly reflecting increased holdings of
debt securities and other treasury assets and changes in the
funding mix. The contribution from the benefit of free funds
was at 0.72% (1997: 0.72%).
The net contribution from the central management of Group
capital reduced by #71m to a deficit of #59m (1997: surplus of
#12m), mainly as a result of increased interest allocations to
businesses reflecting higher short term interest rates and
increased levels of regulatory capital employed. A fall in
the managed rate earned on free funds and the cumulative
impact of share repurchases also affected interest earned in
the period. A continued narrowing of the gap between the
managed rate and market rates of interest eliminated the
contribution to the net margin from the central management of
Group interest rate exposure (1997 benefit of 0.18%).
Yields, spreads and margins - banking business
Domestic business is transacted by Retail Financial Services,
Corporate Banking, Barclays Capital and Group Treasury and is
conducted primarily in sterling. International business is
transacted by Barclays Capital, mainly with customers
domiciled outside the United Kingdom, and by overseas branches
and subsidiaries. International business is conducted
primarily in foreign currencies and includes foreign currency
loan capital.
The yields, spreads and margins shown below have been computed
on this basis, which generally reflects the domicile of the
borrower. They exclude profits and losses on the
redemption/repurchase of loan capital and the one-off write-
down of leases.
Half-year ended
30.6.98 31.12.97 30.6.97
#m #m #m
Gross yield (i)
Group 7.93 7.77 7.51
Domestic 8.96 8.61 8.11
International 6.09 6.20 6.29
Interest spread (ii)
Group 2.66 2.60 2.75
Domestic 3.36 3.37 3.43
International 1.33 1.13 1.38
Interest margin (iii)
Group 3.38 3.37 3.47
Domestic 4.44 4.55 4.41
International 1.51 1.17 1.52
Average UK base rate 7.29 7.01 6.09
Notes
(i) Gross yield is the interest rate earned on average
interest earning assets.
(ii) Interest spread is the difference between the interest
rate earned on average interest earning assets and the
interest rate paid on average interest bearing
liabilities.
(iii) Interest margin is net interest income as a percentage of
average interest earning assets.
Average interest earning assets and liabilities - banking
business
Half-year ended
30.6.98 31.12.97 30.6.97
Average interest earning assets #m #m #m
Group 126,543 123,494 117,320
Domestic 80,929 80,390 79,003
International 45,614 43,104 38,317
Average interest bearing liabilities
Group 109,181 105,125 99,690
Domestic 65,314 62,402 62,485
International 43,867 42,723 37,205
Half-year ended
Net fees and commissions 30.6.98 31.12.97 30.6.97
#m #m #m
Fees and commissions receivable 1,445 1,630 1,567
Less: fees and commissions (95) (110) (108)
payable
1,350 1,520 1,459
Excluding former BZW businesses 1,340 1,358 1,294
Excluding the contribution from the former BZW businesses and
the impact of other disposals, fees and commissions grew by
some 6%, primarily in Retail Financial Services.
Within Retail Financial Services, commissions in UK Retail
Banking were at similar levels to 1997. Barclaycard fees and
commissions rose by 7% reflecting volume growth in both the
card issuing and merchant acquiring businesses. An increase
in International Premier, Private, Savings and Investment
commissions reflected the continued focus in European Retail
Banking on growing high net worth business and increased
business levels and favourable market conditions in Barclays
Private Banking.
Fees and commissions in Corporate Banking rose by 5% to #293m
through strong growth in risk related commissions, customer
related foreign exchange income and increased money
transmission income, including greater contributions from
electronic banking products.
Retail Financial Services and Corporate Banking fees and
commissions include #38m (1997: #33m) in respect of foreign
exchange income on customer transactions with Barclays
Capital.
Barclays Capital commissions increased from #53m to #75m,
benefiting primarily from improved performances in the loans
businesses, particularly structured finance, and a change in
the income composition of structured capital markets.
Adjusting for business disposals, commissions in Barclays
Global Investors increased by 21%, assisted by favourable
market conditions and net new business growth in assets under
management.
Half-year ended
Dealing profits 30.6.98 31.12.97 30.6.97
#m #m #m
Interest rate related 114 60 127
Foreign exchange and commodities 43 63 69
Equities and other 40 17 38
197 140 234
Excluding former BZW businesses 198 137 205
Almost all dealing profits arise in Barclays Capital, where
they increased by 3% and 36% over the first and second halves
of 1997. There was strong growth in interest rate derivatives
and the government bond businesses continued to develop with a
significantly improved contribution from the US operation.
These performances were somewhat offset by weaker earnings in
sterling, resulting from an unfavourable interest rate
environment and trading losses in emerging markets. The
credit business performed well throughout the period with the
bond business recovering from the turbulence witnessed in the
Asian markets in the second half of 1997.
The contribution from foreign exchange and commodities fell by
38% to #43m, primarily because of lower revenues as a result
of weakening prices in global commodities. Revenues from the
equities derivatives business, refocused under the management
of Barclays Capital, improved over the first and second halves
of 1997.
There was a small decline in dealing profits earned by the
continental European and African businesses within Retail
Financial Services compared to the first half of 1997.
Half-year ended
Other operating income 30.6.98 31.12.97 30.6.97
#m #m #m
Income from associated undertakings 12 5 11
Dividend income from equity shares 8 11 9
Profits on disposal of investment 29 17 29
securities
Income from the long-term 47 17 44
assurance business
Property rentals 21 21 18
Other income 39 21 25
156 92 136
Life-fund charge - - (28)
156 92 108
Excluding former BZW businesses 154 94 100
Income from associated undertakings benefited from the
inclusion from 1st January 1998 of profits on an equity
accounted basis from the Group's Brazilian associate, Banco
Barclays e Galicia. This was offset by a reduced contribution
from Asian associated undertakings, compared to the first half
of 1997.
Profits on disposal of investment securities arose largely
from realisations by Private Equity in the ordinary course of
business.
Income from the long-term assurance business declined in the
second half of 1997 due to a further provision of #25m for the
cost of redress to personal pension customers (non priority
cases).
The higher level of other income in 1998 reflects premium
income on insurance underwriting activities which began in the
second half of 1997. Profits on disposals of properties at
#13m were #2m and #11m higher than in the first and second
halves of 1997 respectively.
BARCLAYS PLC
Half-year ended
Administrative expenses - staff 30.6.98 31.12.97 30.6.97
costs
#m #m #m
Salaries and accrued incentive 1,139 1,291 1,190
payments
Social security costs 84 97 103
Pension costs 21 30 35
Post-retirement health care 11 13 10
Other staff costs 131 142 124
1,386 1,573 1,462
Staff reduction and relocation 33 33 33
costs included above
Staff costs excluding former BZW 1,367 1,315 1,318
businesses
Number of staff at period end:
Retail Financial Services* 59,500 60,000 61,400
Corporate Banking 10,300 10,200 10,100
Barclays Capital** 4,600 7,400 7,200
Barclays Global Investors 1,500 1,500 1,500
Businesses in Transition 500 700 900
Other operations 3,100 3,000 2,900
Head office functions 400 400 400
Group total world wide 79,900 83,200 84,400
of which United Kingdom 59,500 61,100 60,800
* Retail Financial Services figures include staff who
represent a shared resource with Corporate Banking, but
exclude 1,000 Barclays Life advisers and field sales
managers (31st December 1997: 1,000, 30th June 1997: 900)
and 1,200 administrative staff (31st December 1997: 1,200,
30th June 1997: 1,200) whose costs are borne within the
long-term assurance fund.
** Figures include staff relating to former BZW businesses at
30.6.97 and 31.12.97.
Staff costs
Excluding costs incurred by the former BZW businesses, staff
costs rose by 4% in comparison with the first half of 1997.
This increase in costs reflects the 1997 annual pay award to
UK staff, as well as the impact of additional temporary staff.
Higher staff costs within Retail Financial Services in the
United Kingdom, Corporate Banking and Central Services
additionally reflected an increase in resources dedicated to
new products and customer service as well as Year 2000 and
Euro preparations. Staff costs within Barclays Capital were
slightly lower than in the first half of 1997.
The decrease in pension contributions reflected the reduction
in the contribution rate to the Group's main UK scheme from
2.5% of pensionable salary in 1997 to nil with effect from 1st
January 1998.
Staff numbers fell by 3,300 during the period, largely because
of the sale of former BZW businesses. In Retail Financial
Services, reductions of staff numbers in Africa and the
Caribbean and at Barclaycard were offset in part by the
creation of new customer service roles and product delivery
roles in the United Kingdom, particularly within Savings and
Investment. New initiatives also resulted in a modest
increase in Corporate Banking staff.
BARCLAYS PLC
Half-year ended
Administrative expenses - other 30.6.98 31.12.97 30.6.97
#m #m #m
Property and equipment expenses:
Hire of equipment 14 19 16
Property rentals 83 119 98
Other property and equipment 295 338 281
expenses
392 476 395
Stationery, postage and telephones 112 127 118
Advertising and market promotion 107 119 96
Travel, accommodation and 59 70 63
entertainment
Subscriptions and publications 21 18 19
Securities clearing and other 26 37 37
operational expenses
Sundry losses, provisions and 29 51 27
write-offs
Statutory and regulatory audit 2 3 3
and accountancy fees
Consultancy fees 58 63 40
Professional fees 40 59 40
Other expenses 15 16 19
861 1,039 857
Excluding former BZW businesses 851 940 779
Excluding costs of the former BZW businesses, administrative
expenses rose by 9% over the first half of 1997, reflecting
increased expenditure across the Group on customer orientated
and other initiatives (including work on Euro preparations and
Year 2000 compliance) as well as higher levels of allocated
fixed costs in Barclays Capital following sales of former BZW
businesses in this period.
In Retail Financial Services, Corporate Banking and Barclays
Global Investors, other property and equipment expenses and
consultancy costs included increased expenditure on software
development and other information technology costs related to
new products and delivery channels and customer service
enhancements.
There were higher levels of postage and telephone costs and
advertising and market promotion expenditure in the period,
reflecting increased activity across the Group, and within
Retail Financial Services in the United Kingdom in particular.
BARCLAYS PLC
Half-year ended
Depreciation and amortisation 30.6.98 31.12.97 30.6.97
#m #m #m
Property depreciation 45 56 50
Equipment depreciation 87 88 82
Goodwill amortisation 6 6 6
Loss on sale of equipment 1 3 -
Write-back of surplus properties (2) (12) (10)
137 141 128
Excluding former BZW businesses 137 133 123
The depreciation charge was higher than in the first six
months of 1997 following the move to Canary Wharf by Barclays
Capital in the second half of last year. The second half of
1997 also saw certain one-off charges in respect of equipment
and adaptation costs in the United Kingdom. In the first half
of 1997 property depreciation included a #7m charge in respect
of the local head office in Paris, which was subsequently
sold.
The write-back of surplus properties represents the recovery
of amounts previously written off against certain City of
London properties which have now been sold. Other gains on
property disposals totalling #13m (1997: #11m) have been
included in Other operating income.
BARCLAYS PLC
Provisions for bad and doubtful debts
Half-year ended
30.6.98 31.12.97 30.6.97
The charge for the period in #m #m #m
respect of bad and doubtful
debts comprises:
Specific provisions - credit risk
(net of releases and recoveries
of #155m:
(31st December 1997: #164m,
30th June 1997: #187m))
United Kingdom 145 139 143
Other European Union (2) (2) 11
United States (13) - (25)
Rest of the World 5 7 1
135 144 130
General provision - credit risk - 3 (35) (30)
charge/(credit)
138 109 100
Specific provision releases - (9) (2) (25)
country risk
General provision charge - - 30 15
country risk
Net charge 129 137 90
Total provisions for bad and doubtful debts at end of
period comprise:
Specific - credit risk
United Kingdom 801 765 762
Other European Union 225 245 282
United States 24 27 33
Rest of the World 45 41 43
1,095 1,078 1,120
Specific - country risk 31 44 48
Total specific provisions 1,126 1,122 1,168
General provisions - credit risk 686 683 721
- country risk 45 45 15
1,857 1,850 1,904
The #39m increase in the overall charge was mainly
attributable to a #3m credit risk general provision charge
compared with a release of #30m in the first half of 1997.
This reflected a lower level of releases in the Transition
businesses in the first half of 1998 and a release of general
provision in the first half of 1997 following the disposal of
part of the UK commercial mortgage portfolio.
In 1997 the Group raised a total general provision of #45m to
cover country transfer risks in major overseas markets in
which the Group operates.
Gross new and increased provisions fell by 9%, or #27m, to
#290m largely as a result of a #23m fall in Other European
Union as a result of favourable economic conditions.
Releases in the United Kingdom and the United States have
declined as the Transition portfolio is managed down.
Releases also included #25m in the first half of 1997
following the sale of part of the assets of Imry. Recoveries
in the United Kingdom increased mainly as a result of an
individual realisation of #25m within Corporate Banking.
Releases and recoveries are expected to slow further in the
second half of 1998 reflecting the current stage of the
economic cycle.
The net provision charge for the period as a percentage of
average loans and advances was 0.13% compared with 0.10% in
the first half of 1997.
BARCLAYS PLC
Half-year ended
Exceptional items 30.6.98 31.12.97 30.6.97
#m #m #m
Loss on sale or restructuring of BZW:
Profit/(loss) on sale of business 8 (57) -
assets
Staff reductions, property and
equipment, and other costs* - (283) -
Goodwill written off (11) (129) -
(3) (469) -
(Loss)/profit on disposal of (1) 2 42
other Group undertakings
(4) (467) 42
* In the first half of 1998, expenditure of #122m incurred in
respect of the restructuring of BZW was covered fully by the
provision of #283m raised in 1997.
The profit on sale of business assets of #8m and the goodwill
of #11m written off in the first half of 1998 relate to the
sale of the Australasian investment banking business.
Half-year ended
Write-down of fixed asset 30.6.98 31.12.97 30.6.97
investments
#m #m #m
- (19) -
The charge in 1997 was in respect of the write-down of certain
Asian banking associates.
Tax
The charge for the period assumes a UK corporation tax rate of
31% for the calendar year 1998 (1997: 31.5%). The increase
for the period in the effective tax rate to 29.5% (1997:
27.2%) resulted from a reversal of non-provided deferred tax
following the termination of certain leases compared with a
one-off benefit of tax free profits on the disposal of the
Group's residual interest in 3i Group plc in the first half of
1997.
Included in the charge is #1m (31st December 1997: #8m credit,
30th June 1997: #28m charge) in respect of advance corporation
tax on franked investment income and #12m (31st December 1997:
#7m, 30th June 1997: #3m) notional tax on the increase in the
shareholders' interest in the long-term assurance fund.
Earnings per ordinary share
Earnings per ordinary share is based upon the results after
deducting tax, profit attributable to minority interests and
dividends on staff shares.
Half-year ended
30.6.98 31.12.97 30.6.97
Earnings in period #887m #227m #903m
Earnings in period for the #913m #748m #909m
ongoing business
Weighted average of ordinary 1,519m 1,511m 1,526m
shares in issue
Earnings per ordinary share 58.4p 15.2p 59.2p
Earnings per ordinary share for
the ongoing business 60.1p 49.5p 59.6p
Dividends on ordinary shares
The Board has declared an interim dividend for the half year
ending 30th June 1998 of 15.5p per ordinary share, payable on
7th October 1998, in respect of shares registered in the books
of the company at the close of business on 21st August 1998.
For qualifying US and Canadian resident ADR holders, the
interim dividend of 15.5p per ordinary share becomes 77.5p per
ADS (representing four shares) inclusive of tax credit, before
deduction of UK withholding tax. The ADR depositary will mail
the dividend on 7th October 1998 to ADR holders on record as
at 21st August 1998.
For qualifying Japanese shareholders, the interim dividend of
15.5p per share becomes 19.375p per ordinary share inclusive
of tax credit, before deduction of UK withholding tax. The
dividend will be distributed in mid October to shareholders on
record as at 21st August 1998.
Shareholders may have their dividends reinvested in the
company's shares by participating in the dividend reinvestment
plan. The scope of the plan has recently been extended to
overseas shareholders although residents of the United States
and Canada and of some other territories are unable to
participate because of local legal and regulatory
requirements. Any shareholder who is unable to participate
for these reasons should contact The Plan Administrator to
Barclays, PO Box 82, Caxton House, Redcliffe Way, Bristol,
BS99 7FA with the exception of residents in the United States
and Canada. Information giving relevant dates for
participation in the plan will be available in the interim
report which will be mailed to all shareholders on 17th August
1998.
MORE TO FOLLOW
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