Barclays





In Section 1:


Introduction Chairman's Statement Group Chief Executive's Statement Financial Performance Group Finance Director The Leadership Team
	Economic profit In order to deliver our relative total shareholder return goal, we have a goal relating to economic profit: the goal is to double economic profit over the period 2000 to 2003 inclusive, thereby generating Ł6.1 billion of cumulative economic profit. We derive the cumulative total by taking economic profit in the base year (1999) and compounding it over four years at 19%, the arithmetical effect of which is to double 1999 economic profit in 2003. The sum of these economic profit contributions for the four years is Ł6.1 billion. Although economic profit for 2002 of Ł1.24 billion was slightly higher than in 2001, the cumulative total of economic profit produced in the years 2000 to 2002 inclusive was Ł3.9 billion, which represents 93% of the goal of Ł4.2 billion required at the end of 2002. To achieve the four year goal, we need to generate Ł2.2 billion of economic profit in 2003 – a tough challenge. Three years ago when we set this goal, our study of stock market history indicated that a compound annual growth rate in economic profit of 19% would be required to deliver top quartile total shareholder return performance during the period 2000 to 2003. The reality to date is that a compound annual growth rate of economic profit equivalent to some 15% across the years 2000 to 2002 inclusive has enabled us to meet our primary top quartile total shareholder return goal. Absolute value An absolute value goal was established in the belief, over time, that growth in total shareholder return would track growth in economic profit. As we adopted a doubling of economic profit goal over the four year period 2000 to 2003 inclusive, the absolute value goal similarly seeks to double total shareholder return over the same period. We monitor this goal by tracking the performance of Ł100 invested in Barclays on 31st December 1999 which should be worth Ł200 by 31st December 2003 from a combination of share price growth and dividends (treated as if re-invested in Barclays shares). Despite achieving top quartile total shareholder return and a compound annual growth rate of economic profit of some 15% across the years 2000 to 2002 inclusive, at the end of 2002, Ł100 invested in Barclays stock on 31st December 1999 was worth Ł96. The fall in the stock market has resulted in our being significantly off the pace against this goal. We derive some comfort, but only some, from the fact that if you had invested Ł100 over the same period in a basket of stocks made up of our peer group, it would have been worth Ł89 at the end of December 2002; or if you had invested in the FTSE 100 index, it would have been worth Ł61. Costs We seek opportunities to enhance value by reducing costs in ways that will not impair the service we provide to customers. We set a goal at the end of 1999 of reducing the annual run rate of costs by Ł1 billion by the end of 2003, thereby absorbing the impact of inflation and volume-related growth over the period. We remained well ahead of the goal at the end of 2002, by which time Ł910 million of cost run rate savings had been captured, comprising Ł545 million in total for 2000 and 2001, and a further Ł365 million delivered in 2002. With a year left of the four year period, 91% of the target has already been achieved. The major components of savings to date include cost reduction initiatives in Personal Financial Services, Business Banking and Barclays Private Clients, sourcing efficiencies from a radical restructuring of purchasing, increased centralisation of information technology and operations, and the simplification and reduction of central functions expenditure (such as finance and human resources). Success in achieving this goal will deliver two benefits: the savings themselves, which help protect and enhance our profits; and the embedding, deep within the organisation, of a strong efficiency culture. Each business is benchmarked relative to its competitors and a top quartile efficiency standard is identified (this is depicted in the chart headed ‘Cost:income benchmarking'). Business performance relative to that benchmark is reviewed regularly and all business leaders have efficiency targets as an integral part of personal performance contracts. We believe that if we could achieve top quartile productivity in all businesses, then the annual cost run rate saving would exceed Ł300 million. I believe the goals are serving shareholders well, because they have galvanised the whole of the Barclays Group in pursuit of stretching financial objectives. It is no coincidence that the most profitable three years in Barclays history are the three years during which we have been pursuing them. We will communicate another set of stretching goals to take effect at the end of this cycle: goals that will cause us to strive to deliver superior relative shareholder returns on a sustained basis. Chart 1 shows performance against our goal of doubling economic profit over 2000 to 2003 inclusive. Economic profit in the base year, 1999, was Ł971 million. Chart 2 shows the value, by the end of 2002, of Ł100 invested in Barclays on 31st December 1999 compared with the value of Ł100 invested in our peer group or in the FTSE 100 over the same period.	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