# Barclays PLC Strategic Report 2014

Helping people achieve their ambitions – in the right way

---

# What is this report?

The 2014 Annual Report includes a Strategic Report that summarises the key elements of the full report. The Strategic Report is in line with the regulations and best practice as advised by the Financial Reporting Council, and the Department of Business, Innovation & Skills. The design changes this year with increased infographics are intended to facilitate more effective communication with all our stakeholders, and to provide more concise and relevant narrative reports. These objectives are entirely in line with our aim to become more clear and transparent on our journey to be the ‘Go-To’ bank. We will continue to engage with stakeholders to identify ways in which we can further advance this agenda.

## The strategic report
An overview of our 2014 performance, a focus on our strategic direction, and a review of the businesses underpinning our strategy.

- **Building the ‘Go-To’ bank**: Page 04
- **Market and risk**: Page 05
- **Business model**: Pages 06-07
- **Goal, purpose and values**: Pages 02-03

## Shareholder information and contact details
Useful references to manage your Barclays shareholding: Pages 35-36

---

# How do I read the Strategic Report?

The focus of this Strategic Report is on making information highly accessible. The list of contents below maps the structure and flow of the report.

- **Our strategy remains on course**: Page 08
- **We are taking decisive action**: Page 09
- **And we are reshaping the business**: Page 10
- **Our Balanced Scorecard**: Page 11
- **For our stakeholders**: Pages 12-16
- **With this activity in our business units**: Pages 17-24
- **Your Board has set clear priorities**: Pages 25-26
- **Implementing fair and appropriate financial reward**: Pages 27-31
- **Financial highlights**: Page 32
- **Financial performance on track**: Page 33
- **With a solid capital base**: Page 34

## Status of the Strategic Report 2014
The Strategic Report 2014 is a standalone report which summarises the 2014 Annual Report and Accounts. For further information and a fuller understanding of the results and the state of affairs of the Group, please refer to the full 2014 Annual Report and Accounts at barclays.com/annualreport.

Details on how to obtain a copy of the full 2014 Annual Report and Accounts can be found in the Shareholder enquiries section.

## Report of the Auditor
The Auditor’s report on the full accounts for the year ended 31 December 2014 was unqualified, and their statement under section 496 (whether the Strategic Report and the Directors’ Report are consistent with the accounts) of the Companies Act 2006 was unqualified.

---

# Becoming ‘Go-To’: Our approach

## Chairman’s statement

The Barclays of today is a very different bank to the one that I joined in 2012.

From substantially improving our capital and leverage position to changing how we measure and reward performance through the Balanced Scorecard, we have made significant progress towards our goal of becoming the partner of choice for all our stakeholders. Indeed, we have accelerated the speed of this journey over the past 12 months. Our Purpose and Values are becoming embedded in the fabric of Barclays, fundamentally changing how we do business for the better.

In May of 2014 your Board endorsed a strategy update which created a reshaped Barclays, one that is better balanced, more focused, and positioned to succeed over the long term and deliver for shareholders. While there is much still to do, I am encouraged by the progress that we have made so far in executing those plans.

This report provides detail on the performance of our four core businesses: Personal & Corporate Banking, Barclaycard, Africa, and the Investment Bank. You will see that these operations are delivering positive results which are encouraging for shareholders.

Importantly, we have made significant advances in resolving legacy issues in the course of 2014 through working more closely and constructively than ever with our regulators across the world. The Board and I consider the conduct and practices that led to these issues are entirely inconsistent with the values to which we hold ourselves today. Our proactive efforts in resolving these issues will continue throughout 2015 and stand testament to our commitment to do business in the right way, putting issues that have been so damaging to our reputation behind us and supporting greater resilience, transparency, and sustainability for the long-term.

The banking sector will continue to face serious challenges associated with global uncertainty which is not only economic but also increasingly political and regulatory, in particular in several of the key geographies in which Barclays operates. Specifically, there will be significant change in the UK as we work to implement the ring-fencing requirements of the Financial Services (Banking Reform) Act 2013, as well as in the US to implement the provisions of the Dodd-Frank Act and other measures to complete the banking reform agenda; all of which are intended to eradicate the prospect of ‘too big to fail’. Despite the difficulties that they entail I have every confidence in Barclays’ ability to deliver against these challenges.

Barclays is 325 years old this year, 2015. By any standard of corporate longevity this is a remarkable achievement. The relentless focus of your Board and the Executive team has been, and will continue to be, on ensuring that the bank is primed for success for many more generations to come. We will continue to build on the solid foundations we have put in place to deliver on our commitments to customers, clients, colleagues, shareholders and broader society. Every year a new chapter is written into the history of this great institution and it has been a huge privilege to serve in the role of Chairman during what, I am sure, will be considered in the future to have been an important, positively transformational, period in Barclays’ history.

I wish this great bank, its shareholders, and John McFarlane, my successor as Chairman, every success for the future.

**Sir David Walker**
Chairman

### We will fulfil our purpose and achieve our goal
- **Our purpose**: is to help people achieve their ambitions in the right way
- **Our goal**: is to become the ‘Go-To’ bank for our clients, customers, colleagues and our stakeholders
- **Mission**: Individuals, corporations, countries and society need access to essential banking services. Achieving this will enable us to build a lower-risk, better performing bank.

---

## Chief Executive’s strategic review

Today’s Barclays is a stronger business with better prospects than at any time since the financial crisis.

The execution of our Transform Strategy, which I set out in February 2013 and updated in May 2014, has created a focused international bank, delivering on the right priorities for all of our stakeholders, and positioned for growth.

Group adjusted profit before tax has increased by 12% in 2014. Personal & Corporate Banking and Barclaycard continue to thrive and grow, Africa has done well despite currency headwinds, and we are starting to see the impact of the changes in strategy in our Investment Bank.

While there is still work to do, we have made sustained and consistent progress against our Transform 2016 targets during the year, providing strong evidence that our strategy is working.

In our Core business, which represents the future of Barclays, adjusted Return on Equity is at nearly 11% excluding Costs To Achieve Transform, tracking well towards the 12% plus we are targeting for 2016. Barclays Non-Core run down is ahead of target, with Risk Weighted Assets reducing by nearly £35bn in the year, and now standing at just over £75bn.

I have repeatedly said that cost is, and will continue to be, a strategic battleground for our industry, and working cost effectively is essential to our future success. To this end, we have taken out nearly £1.8bn of spend from our business in 2014. This remarkable achievement, with further reductions to come in 2015, will enable Barclays to boost returns and drive sustainable competitive advantages across the Group.

I am pleased that we have made substantial progress in strengthening our capital position in the past year. Our fully loaded Common Equity Tier 1 ratio has improved to 10.5%, taking into account the effect of the disposal of our Spanish business completed on 2 January 2015, as well as absorbing the impact of a further provision in the fourth quarter for ongoing investigations and litigation relating to Foreign Exchange, and compares to 9.1% a year ago. Equally important, our Leverage Ratio increased to 3.7%. This means we are now very well positioned to achieve the Transform 2016 targets of greater than 11% and 4% respectively. In terms of dividends, we have declared a cash dividend of 6.5p for 2014, despite the unwelcome impact of substantial conduct provisions. We have a growing confidence in the capital position of the Group and continue to target a 40%-50% dividend payout ratio over time.

We are also performing well against the targets in our Balanced Scorecard.

Barclays measures performance today not just on the basis of what we deliver but now also on how we deliver. You can read more about the Balanced Scorecard and our progress on pages 11 to 16 of this Strategic Report. While we still have work to do against those targets, I have no doubt that this approach will support strong and sustainable performance for shareholders, aligned with our Purpose and Values.

We remain focused on addressing outstanding conduct issues, including those relating to Foreign Exchange trading. I regard the behaviour at the centre of these investigations as wholly incompatible with our values, and I share the frustration of colleagues and shareholders that matters like these continue to cast a shadow over our business. But resolving these issues is an important part of our plan for Barclays and although it may be difficult, I expect that we will make significant progress in this area in 2015.

This will be a year of continued delivery for our customers, clients, and shareholders as we look to accelerate execution of our plans. Our work is not complete, but we are on the right track, making steady progress against our strategic targets, and with every colleague committed to driving performance – as they are – we can have strong confidence in our ability to deliver.

Thank you for your continued support.

**Antony Jenkins**
Group Chief Executive

### By upholding clear values and leading by example
- **Respect**: signifies valuing those we work with – our colleagues and other stakeholders.
- **Integrity**: demands that we act honestly, ethically and fairly.
- **Service**: means ensuring our customers and clients are always uppermost in our minds.
- **Excellence**: calls on us to use all our energy, skills and resources to deliver great service and outstanding sustainable results.
- **Stewardship**: is about being determined to leave things better than we found them.

---

# Stakeholders

Barclays strives to create value for all of our stakeholders, balanced across both the short and the long-term. By taking this more holistic and considered approach we believe that our activities can stimulate mutually supportive outcomes across our stakeholders, including a focus on sustainable long-term return on equity.

In order to measure progress and hold ourselves to account, we have designated five stakeholder groups and assigned targets and metrics of particular relevance to each of them in the 5Cs of our Balanced Scorecard:
- **Customers and Clients** who purchase our products and services
- **Colleagues** who deliver and support the delivery of our products and services
- **Communities** (via Citizenship) within which we operate
- **Regulators** (via Conduct) who grant us our licence to operate in their jurisdictions
- **Investors** (via Company) who commit capital to us, which underpins our products and services

## Building the ‘Go-To’ bank
Our outcome statements help us focus on what becoming ‘Go-To’ means for each of our stakeholders.

- **Customer and client**: We are the bank of choice for our customers and clients.
- **Colleagues**: Our colleagues are fully engaged. We create a diverse and inclusive environment where they can fulfil their potential.
- **Citizenship**: We have a positive impact on the communities in which we operate.
- **Conduct**: Our products and services are designed and distributed to meet our clients’ needs. We act with integrity in everything we do.
- **Company**: We create sustainable returns above the cost of equity. We understand and effectively manage risk and continuously improve control.

---

# Operating environment and approach to risk

Barclays is a global financial services provider operating in 50 countries, with home markets in the UK, US and South Africa, governed by global and local regulatory standards.

Our environment continues to change. Central banks have launched unprecedented monetary policies such as Quantitative Easing and near-zero interest rates to stimulate growth. Further regulatory change, such as structural reform in the UK and US will require banks to segregate activities in order to create a safer banking environment and increase focus on capital, liquidity and funding. Conduct issues have hurt Barclays – and the banking industry – causing loss of trust amongst stakeholders. Rebuilding trust is vital, enabling us to meet and exceed the growing needs of customers and clients. The power of technology has raised customer and client expectations, but also reduced the cost-to-serve through automation, process improvement and innovation while making customer experiences faster, more personalised and lower risk.

## Our Principal Risks

- **Credit Risk**: Financial loss should customers not fulfil contractual obligations to the Group.
- **Market Risk**: Earnings or capital impact due to volatility of trading book positions or inability to hedge the banking book balance sheet.
- **Funding Risk**: Failure to maintain capital ratios and liquidity obligations leading to inability to support normal business activity and meet liquidity regulatory requirements.
- **Operational Risk**: Losses or costs resulting from human factors, inadequate internal processes and systems or external events.
- **Conduct Risk**: Detriment caused to our customers, clients, counterparties, or the Bank and its employees through inappropriate judgement in execution of business activities.
- **Reputation Risk**: Damage to Barclays brand arising from any association, action or inaction perceived by stakeholders as inappropriate or unethical. From the 1st January 2015, Reputation Risk will be combined with Conduct Risk.

---

# Our business model

As a focused international bank, Barclays offers an integrated set of products and services across retail banking, wealth management, corporate banking and investment banking. We serve individuals, small and large businesses, corporations, institutions and governments.

Barclays seeks to satisfy the needs of our customers and clients by offering a well-rounded value proposition – a wide range of products and services – and thereby deliver a smoother income stream and sustainable returns. However, we do not seek to offer all things to all people.

## Our approach delivers broader economic benefits
- Superior service for customers and clients globally
- Challenging, meaningful and fulfilling careers for our people in a values-driven organisation
- Long-term sustainable returns for our investors, based on diversification of income streams and risk
- Employment and economic growth in the economies in which we operate
- Engagement with governments and society to address social issues and needs

```mermaid
graph TD
    A[We help create, grow and protect wealth] --> B[by providing essential banking services]
    B --> C[that generates income from supplying these services]
    C --> D[and provides sustainable returns over the long-term]
    D --> A
```

---

# Through our broad service offer

We maximise opportunities for value creation across our products and services.

| | Individual | Small and Medium Size Businesses | Corporates | Financial Institutions and Banks | Sovereigns and Institutions |
| :--- | :---: | :---: | :---: | :---: | :---: |
| **A safe place to save, invest, and manage cash** | Current accounts and overdrafts | | | | |
| | Savings, deposit and investment products | | | | |
| | Mobile and digital payments | | | | |
| | Stockbroking and trading services | | | Access to global financial markets | |
| | | Cash management, payment systems, and international trade services | | | |
| **Funds for purchases and growth** | Residential mortgages, consumer loans and credit cards | Commercial mortgages and business loans | | | |
| | | Asset and lease finance, trade and supplier finance and working capital solutions | | | |
| | | | Global capital markets | | |
| | | | Large corporate lending and bank credit lines | | |
| **Management of business and financial risks** | Foreign exchange rate hedging | | | | |
| | Fixed rate loans | | | | |
| | | Inflation and interest rate hedging | | | |
| **Financial and business support** | Wealth advisory and private banking services | Relationship managers and support | | | |
| | | Business seminars and start-up accelerator space | | | |
| | | | Global investment research, advice on mergers and acquisitions and industry corporate specialists | | |

---

# Our strategy remains on course

Our Transform programme was launched in 2013 to deliver our strategy of reshaping Barclays to generate sustainable returns and to meet the needs of all our stakeholders.

- **0-9 months – Turnaround**: Stabilise the organisation, provide context for the change to come, maintain short-term momentum.
- **0-4 years – Return Acceptable Numbers**: Improve business returns, define and execute plan to deliver return on equity above cost of equity.
- **0-5 years – Sustain FORward Momentum**: Become the ‘Go-To’ bank for our stakeholders – customers and clients, colleagues, investors, and wider society.

---

# Taking decisive action

The combined effect of external factors has led to decisive action in three areas announced on 8 May 2014:

1. **Identify core activities**: Building further on our strengths by concentrating resources on our Core activities.
2. **Invest for growth**: A focus on Core parts of the Group where we see major opportunities – Barclaycard and Africa.
3. **Free up resources**: Assets and activities no longer of strategic importance have been brought together within Barclays Non-Core, to be managed separately for capital efficient, yet rapid exit.

## Our 2016 targets

**Barclays Group**
- **Capital**: CRD IV Fully loaded CET1 ratio >11.0%
- **Leverage**: Leverage ratio >4.0%
- **Dividend**: Payout ratio 40-50%

**Barclays Core**
- **Returns**: Adjusted Return on Equity >12%
- **Cost**: Adjusted operating expenses <£14.5bn

**Barclays Non-Core (BNC)**
- **Returns**: Drag on adjusted RoE <(3%)

---

# Reshaping the business

Barclays will seek to improve returns significantly through repositioning, simplifying and rebalancing. We intend to be a focused international bank with four Core businesses.

- **Personal & Corporate Banking**: a combination of our leading UK retail, corporate and wealth businesses.
- **Barclaycard**: a high returning business with strong and diversified international growth potential.
- **Africa Banking**: a longer term regional growth business with clear competitive advantages.
- **Investment Bank**: an origination-led and returns-focused business.

---

# Our Balanced Scorecard

We have agreed eight key measures categorised into the 5Cs against which our stakeholders can hold us to account.

| Metric | Actual 2013 | Actual 2014 | Target 2018 |
| :--- | :--- | :--- | :--- |
| PCB, Barclaycard and Africa Banking weighted average ranking of Relationship Net Promoter Score (NPS) vs. peer sets | 3rd | 4th | 1st |
| Client Franchise Rank: Weighted average ranking of wallet share or customer satisfaction with priority clients in the Investment Bank | N/A | 5th | Top 3 |
| Sustained engagement of colleagues score | 74% | 72% | 87-91% |
| % women in senior leadership | 21% | 22% | 26% |
| Citizenship Plan – initiatives on track or ahead | 10/11 | 11/11 | Plan targets |
| Conduct Reputation (YouGov survey) | 5.2/10 | 5.3/10 | 6.5/10 |
| Adjusted Return on Equity | 4.1% | 5.1% | >Cost of equity |
| Fully Loaded CRD IV CET1 ratio | 9.1% | 10.3% | >11% |

---

# Consolidated income statement

| For the year ended 31 December | 2014 £m | 2013 £m |
| :--- | :--- | :--- |
| **Continuing operations** | | |
| Interest income | 17,363 | 18,315 |
| Interest expense | (5,283) | (6,715) |
| **Net interest income** | **12,080** | **11,600** |
| Fee and commission income | 9,836 | 10,479 |
| Fee and commission expense | (1,662) | (1,748) |
| **Net fee and commission income** | **8,174** | **8,731** |
| Net trading income | 3,331 | 6,553 |
| Net investment income | 1,328 | 680 |
| Net premiums from insurance contracts | 669 | 732 |
| Other income | 186 | 148 |
| **Total income** | **25,768** | **28,444** |
| Net claims and benefits incurred on insurance contracts | (480) | (509) |
| **Total income net of insurance claims** | **25,288** | **27,935** |
| Credit impairment charges and other provisions | (2,168) | (3,071) |
| **Net operating income** | **23,120** | **24,864** |
| Staff costs | (11,005) | (12,155) |
| Infrastructure costs | (3,443) | (3,531) |
| Administration and general expenses | (3,621) | (4,286) |
| Provision for PPI redress | (1,270) | (1,350) |
| Provision for interest rate hedging products redress | 160 | (650) |
| Provision for ongoing investigations and litigation relating to Foreign Exchange | (1,250) | – |
| **Operating expenses** | **(20,429)** | **(21,972)** |
| Share of post-tax results of associates and joint ventures | 36 | (56) |
| (Loss)/profit on disposal of subsidiaries, associates and joint ventures | (471) | 6 |
| Gain on acquisitions | – | 26 |
| **Profit before tax** | **2,256** | **2,868** |
| Taxation | (1,411) | (1,571) |
| **Profit after tax** | **845** | **1,297** |
| **Attributable to:** | | |
| Equity holders of the parent | (174) | 540 |
| Other equity holders | 250 | – |
| **Total equity holders** | **76** | **540** |
| Non-controlling interests | 769 | 757 |
| **Profit after tax** | **845** | **1,297** |

---

# Consolidated balance sheet

| As at | 31 December 2014 £m | 31 December 2013 £m |
| :--- | :--- | :--- |
| **Assets** | | |
| Cash and balances at central banks | 39,695 | 45,687 |
| Items in the course of collection from other banks | 1,210 | 1,282 |
| Trading portfolio assets | 114,717 | 133,069 |
| Financial assets designated at fair value | 38,300 | 38,968 |
| Derivative financial instruments | 439,909 | 350,300 |
| Available for sale investments | 86,066 | 91,756 |
| Loans and advances to banks | 42,111 | 39,422 |
| Loans and advances to customers | 427,767 | 434,237 |
| Reverse repurchase agreements and other similar secured lending | 131,753 | 186,779 |
| Prepayments, accrued income and other assets | 3,607 | 3,920 |
| Investments in associates and joint ventures | 711 | 653 |
| Property, plant and equipment | 3,786 | 4,216 |
| Goodwill and intangible assets | 8,180 | 7,685 |
| Current tax assets | 334 | 219 |
| Deferred tax assets | 4,130 | 4,807 |
| Retirement benefit assets | 56 | 133 |
| Non current assets classified as held for disposal | 15,574 | 495 |
| **Total assets** | **1,357,906** | **1,343,628** |
| **Liabilities** | | |
| Deposits from banks | 58,390 | 55,615 |
| Items in the course of collection due to other banks | 1,177 | 1,359 |
| Customer accounts | 427,704 | 431,998 |
| Repurchase agreements and other similar secured borrowing | 124,479 | 196,748 |
| Trading portfolio liabilities | 45,124 | 53,464 |
| Financial liabilities designated at fair value | 56,972 | 64,796 |
| Derivative financial instruments | 439,320 | 347,118 |
| Debt securities in issue | 86,099 | 86,693 |
| Subordinated liabilities | 21,153 | 21,695 |
| Accruals, deferred income and other liabilities | 11,423 | 12,934 |
| Provisions | 4,135 | 3,886 |
| Current tax liabilities | 1,021 | 1,042 |
| Deferred tax liabilities | 262 | 373 |
| Retirement benefit liabilities | 1,574 | 1,958 |
| Liabilities included in disposal groups classified as held for sale | 13,115 | – |
| **Total liabilities** | **1,291,948** | **1,279,679** |
| **Total equity** | | |
| Called up share capital and share premium | 20,809 | 19,887 |
| Other equity instruments | 4,322 | 2,063 |
| Other reserves | 2,724 | 249 |
| Retained earnings | 31,712 | 33,186 |
| **Total equity excluding non-controlling interests** | **59,567** | **55,385** |
| Non-controlling interests | 6,391 | 8,564 |
| **Total equity** | **65,958** | **63,949** |
| **Total liabilities and equity** | **1,357,906** | **1,343,628** |