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Analysis of results by business
Retail Financial Services
The following section analyses the Group’s performance within the businesses, showing selected income and expenditure information extracted from the Group’s profit and loss account. As inter-business activities are included within these figures, the total income and expenditure for the businesses do not equate to the amounts reported in the Group’s results.
Financial performance
2000 1999 1998
£m £m £m
Net interest income 2,761 2,471 2,390
Net fees and commissions 1,419 1,300 1,267
Income from long-term
assurance business* 171 44 109
Other operating income 169 143 61
Total income 4,520 3,958 3,827
Total costs (2,392) (2,326) (2,439)
Provisions for bad and
doubtful debts (418) (320)
Operating profit** 1,710 1,312 1,142
* 1999 figures included a £75m provision for the possible cost of redress to personal pension customers (2000 and 1998 £nil).

** Including the two months results of The Woolwich since acquisition and £6m of fair value adjustments.

Retail Financial Services performed strongly with a 30%, or £398m, increase in operating profit to £1,710m. Total income increased by 14% to £4,520m. Adjusted for the impact of the personal pension redress provision of £75m in 1999 and for the two months results of The Woolwich, operating profit and total income rose 19% and 8%, respectively.

Net interest income increased 12%, to £2,761m, primarily as a result of strong growth in lending and deposit balances. In the UK, current accounts and average UK savings balances benefited from good volume growth despite pressure on margins.

Net fees and commissions grew 9%, or £119m, to £1,419m. There was good growth in Retail Customers and Wealth Management.

Income from long-term assurance business increased 44% or £52m, adjusting for the £75m personal pension provisions raised in 1999. No additional provision for possible redress for personal pension customers has been taken in the year.

Total customer funds (excluding The Woolwich), which include assets under management and on-balance sheet deposits, grew 4% to £123bn (1999 £118bn). Assets under management (excluding The Woolwich) increased 4%, or £2bn, to £57bn, primarily due to growth in Private Banking and managed investment portfolios. Deposits (excluding The Woolwich) grew 6% as a result of strong growth in European and offshore banking as well as in current accounts and UK savings, specifically ISAs. Loans to customers (excluding The Woolwich) rose 9% to £36bn (1999 £33bn).

For The Woolwich total customer funds were £23.5bn, assets under management were £3.0bn, deposits were £20.5bn and loans to customers were £32.7bn.

Total customers registered for on-line banking were 1,700,000 (1999 500,000) at the end of 2000, confirming Barclays position as the UK’s leading on-line bank. On-line personal customers now have 2.7 products, compared to 2.3 for all personal current account customers.

Total costs were held flat at £2,294m after adjusting for the impact of two months results for The Woolwich (1999 £2,326m). This was despite a significant increase in strategic investment expenditure, up 49%, or £47m, to £143m and higher revenue related costs up 12%, or £13m, to £125m.

Total staff costs, excluding restructuring costs, were down 2% compared with 1999 resulting principally from the job reduction programmes carried out during 1999 and 2000.

Provisions rose 31% to £418m (1999 £320m). Adjusted for The Woolwich and an £11m release of general provision in 1999 relating to the disposal of Merck Finck, the underlying increase in provisions was 24%. This growth was mainly attributable to the volume growth in personal and small business unsecured lending and as a result of difficult market conditions in Kenya and Zimbabwe.

Operating profit increased in 1999 by 15%, or £170m, to £1,312m. Adjusting for the impact of the personal pension redress provision, operating profit rose by 21%. This increase was primarily due to an increase in net interest income arising from strong volume growth in UK consumer lending and strong growth in fees and commissions resulting from increased volumes in Private Banking, Stockbrokers and UK Premier. In addition a decrease in total costs of 5% resulted from lower operating costs achieved through efficiency improvements, particularly in the branch network.
Retail Customers
2000 1999 1998
£m £m £m
Net interest income 2,015 1,916 1,865
Net fees and commissions 780 735 777
Income from long-term
assurance business* 161 32 98
Other operating income 139 114 42
Total income* 3,095 2,797 2,782
Total costs (1,573) (1,588) (1,714)
Provisions for bad and
doubtful debts (398) (325) (243)
Operating profit* 1,124 884 825
* 1999 includes a £75m provision for possible redress for personal pension customers (2000 and 1998 £nil).

Operating profit in Retail Customers increased 27%, or £240m, to £1,124m. Adjusted for the impact of the provision for the redress of personal pension customers of £75m during the year ended 31st December 1999, operating profit increased by 17% and total income by 8% to £3,095m.

Net interest income increased by 5%, mainly as a result of good volume growth in current accounts and average UK savings balances. Net fees and commissions increased by 6% mainly as a result of additional current account and overdraft lending activity and higher fee income from the Additions

accounts, which more than offset the absence of £19m ATM commissions received during 1999. Additions accounts increased by 21% to 1,050,000 (1999 871,000).

Total costs were flat at £1,573m resulting from the implementation of a number of improvements in operational and processing activities throughout the network, including centralisation of call centres. These savings have been partially offset by the additional costs associated with significant increased strategic investment of £110m (1999 £79m) in infrastructure, particularly in on-line banking.

Total customer funds, which include assets under management and on-balance sheet deposits increased by 4% to £50bn (1999 £48bn). Loans to customers rose slightly to £24bn (1999 £23bn).

UK Personal Customers
Average current account deposits increased 9% to £9.5bn (1999 £8.7bn) reflecting the rise in the number of current account customers due to the improvement of the current account proposition.

Average UK savings balances grew 7% to £20.9bn (1999 £19.6bn), ahead of market growth. Overall average margins remained broadly flat.

Average UK mortgage lending increased 7% to £17.3bn (1999 £16.1bn). Gross new lendings remained flat at £4.8bn (1999 £4.8bn) and market share of balances outstanding was broadly maintained at 4%. Average margins decreased from 1.21% to 1.12% during the year as a result of a change in the mix of products, reflecting the high level of sales of the base rate tracker mortgages.

Average consumer lending balances increased 7% to £6.4bn. Against a background of increasing and historically high consumer debt, the risk assessment criteria were further tightened to improve the overall quality of the portfolio and as a result consumer lending balance growth was slower than the market.

In November, individual pricing was introduced on the Barclayloan product as part of a drive to increase product penetration for existing customers and further improve asset quality.

Income from payment protection and underwriting benefited in line with improved volumes of consumer lending, overdraft, credit card and mortgage lending.

Annual premium income of UK based unit trusts, managed investment portfolios and life and pension products totalled £222m (1999 £238m). Sales of managed investment portfolios were broadly similar at £80m and sales of UK based unit trusts were down 9% at £89m because of exceptionally high sales in the period up to the withdrawal of PEPs in 1999. Sales of life pension products were down 14% at £53m; this was primarily as a result of the cessation of endowment sales.

In 1999 operating profit increased by 7% to £884m. Excluding a further provision of £75m (1998 £nil) for the possible cost of redress to personal pension customers (non-priority cases) operating profit increased by 16%.

UK Small Business
Total income within UK Small Business increased 9% during the year as a result of growth in its customer base, combined with new product development and enhanced customer information management techniques. Deposits grew 4% to £6.7bn and lending balances grew 8% to £1.8bn.

Fees and commissions were maintained at similar levels to 1999, despite significant continuing competitive pressures on money transmission tariffs. Margins were also held at levels similar to last year.

Total costs fell 4% during the year, benefiting from increased efficiency arising from the continued centralisation of non-customer facing activities. Removal of processing from the branch network has enabled relationship managers increasingly to focus on customer activity.

UK Small Business launched a series of innovative new products and services during 2000. Most significant was the launch in August of the internet portal Clearlybusiness.com, a joint e-commerce development with Freeserve, which offers advice and information on starting-up and running a successful small business.

The number of Small Business customers registered for on-line banking continued to grow, up 123% to 150,000 (1999 67,000).

Africa
Operating profit rose by 24%, or £24m, to £122m. Total income across Africa increased 20% to £290m. Overall costs increased £5m to £140m, predominantly due to the high inflationary environment in Zimbabwe. Provisions increased to £28m (1999 £9m), reflecting the difficult political and economic situations experienced during the year in Kenya and Zimbabwe.
The Woolwich
Period from
25th October to
31st December 2000
£m
Net interest income 119
Net fees and commissions 49
Income from long-term
assurance business 5
Other operating income 4
Total income 177
Total costs (99)
Provisions for bad and
doubtful debt (8)
Operating profit before
fair value amortisation 70
Amortisation of fair value adjustments (6)
Operating profit after fair value amortisation 64
Operating profit for the period from 25th October to 31st December 2000 was £70m before the amortisation of fair value adjustments (note 55) and includes £3m of mortgage incentives and £8m of software costs which have been written off in accordance with Barclays’ accounting policies.

Net new lending on UK mortgages was £2.2bn for the year 2000, 40% higher than last year and gross new lending was £6.7bn, both representing a market share performance above The Woolwich’s 5.3% market share of UK mortgage balances outstanding. As a result total UK mortgage balances rose 8.4% to £28.5bn at the end of 2000. The overall mortgage margin based on Barclays’ accounting policies decreased slightly during the year to 0.83%.

Retail savings balances rose to £19.0bn (1999 £18.3bn) with increases being experienced in both UK mainland and offshore operations. This reversed previous years’ trends of net annual outflows which were the result of competition from both established providers and new entrants to the market. The overall deposit margin for the full year was maintained at 1.28% despite continuing intense competition for retail funds.

Funds under management as at 31st December 2000 were £3bn, being composed of unit trust balances and life assurance assets.

Total costs of £99m for the period included £14m ongoing strategic investment expenditure primarily to support the Open Plan proposition as well as the cost of Sedgwick Independent Financial Consultants which became a subsidiary in October 2000. The Woolwich exceeded its targeted number of Open Plan customers for 2000 and ended the year with 544,000 (1999 44,000).
Wealth Management
2000 1999 1998
£m £m £m
Net interest income 634 555 525
Net fees and commissions 590 565 490
Income from long-term
assurance business 5 12 11
Other operating income 26 29 19
Total income 1,255 1,161 1,045
Total costs (738) (725)
Provisions for bad and
doubtful debts (12) 5 (3)
Operating profit 522 428 317
Operating profit in Wealth Management increased 25%, or £106m, to £522m after adjusting for the contribution of £12m from Merck Finck in 1999. The principal sources of profit growth were the UK (15% to £161m), continental Europe (31% to £98m), the Caribbean (62% to £76m) and offshore banking (23% to £184m).

Total income grew 10% to £1,255m, after adjusting for the adverse impact of exchange rate movements and the sale of Merck Finck.

Net interest income increased 14%, or £79m, to £634m as a result of good growth in lending and deposit balances across the businesses. Particularly strong growth was achieved in the UK with mortgage volumes increasing 19% and also in continental Europe where lending and deposits grew 24% and 15% respectively on a comparable basis.

Net fees and commissions grew 10%, or £52m, to £590m on a comparable basis. This growth is attributable to increased investment sales, introduction of new fee-based products and higher dealing commissions. Stockbroking volumes in the UK increased to 8,100 average deals per day (1999 6,600), and the leading position in the UK, as measured by retail client orders was maintained.

Total customer funds, which include assets under management and on balance sheet deposits, grew 9% to £74bn (1999 £68bn excluding discontinued businesses) despite adverse market movements. Loans to customers grew 20% to £12bn (1999 £10bn).

Business as usual costs reduced 6%, or £46m, absorbing the impact of inflation and volume growth through business efficiency improvements. Strategic investment expenditure grew £21m to £33m in 2000, arising from major initiatives to strengthen our customer propositions. The key features were the development of a single banking and investment relationship for our customers including the qualification of UK relationship managers to provide investment advice, and the development of a seamless multi-channel service.

Across the business there are now 225,000 customers who are registered to use internet services (1999 73,000). In 1999 operating profit in Wealth Management rose by 35% to £428m predominantly driven by strong growth in UK Premier Banking, Private Banking, Offshore Services, Stockbrokers and the Continental European retail businesses.