# Annual Review Delivering growth

# Barclays PLC Chairman Marcus Agius

# 2006 was an excellent year with a total shareholder return of 25%

Barclays had an excellent 2006. Profit before tax rose by 35%, with outstanding performances from Barclays Capital and Barclays Global Investors. Of particular note is the continued turnaround in UK Retail Banking, which this year delivered very strong growth along with UK Business Banking. We also saw a very strong performance from Absa, in its first full year contribution and are ahead of plan in delivering the income and cost synergies from the acquisition.

Profit before tax at Barclaycard decreased as good income growth was offset by higher impairment charges and increased costs from the continued development of the international businesses. We started to see in the second half of 2006 the benefit of the actions taken to address the deterioration in the UK consumer credit environment.

The Group declared a final dividend for the year of 20.5p per share, making a total payment for the year of 31p, an increase of 17%. We delivered a total shareholder return (share price appreciation plus reinvested dividend payments) of 25% for the year.

The strong performance for the year is a tribute to the immense contribution made by my predecessor, Matthew Barrett, initially as Chief Executive and subsequently as Chairman. Profit before tax increased from £2.5bn to £7.1bn during his time with the Group and Barclays would not be in the strong position it is today without his contribution. I look forward to working with the Board and the executive team to build on this platform and continue to take Barclays forward.

## Corporate governance

As Chairman, it is my responsibility to ensure that the highest standards of corporate governance are in place and I am committed to maintaining Barclays strong reputation in this area.

2006 saw a number of Board changes. On the executive side, Frits Seegers joined Barclays as a Director and Chief Executive of Global Retail and Commercial Banking in July. Gary Hoffman, who was Chairman of UK Banking and of Barclaycard, was appointed as Group Vice Chairman. He is accountable for a range of issues, including corporate responsibility, public policy and equality and diversity. David Roberts, previously Chief Executive of International Retail and Commercial Banking, left Barclays at the end of the year. I would like to thank David for his significant contribution to the Group.

On the non-executive side, Fulvio Conti joined the Board as previously reported. Fulvio is Chief Executive Officer of Enel SpA, the Italian energy group. Sir David Arculus retired from the Board after serving for nine years. Bob Steel resigned as a Director, following his appointment as Under Secretary of the Treasury of the United States of America.

Finally, Chris Lucas will be joining the Group and the Board on 1st April 2007 as Group Finance Director. Chris was previously with PricewaterhouseCoopers and has worked across financial services for most of his career. He will succeed Naguib Kheraj who will be leaving the Board on 31st March 2007. Naguib has made an outstanding contribution to Barclays, for which we are most grateful. We wish him well for the future.

## Responsible banking

A key objective of the Board is for Barclays to be a leader in the area of corporate responsibility. 2006 saw significant progress towards this objective.

We continued to give high priority to financial inclusion and improving access to banking services and affordable credit. The number of UK Cash Card accounts designed for low income and vulnerable people increased by 22% to 464,000, while Absa remains the leading bank provider of Mzansi basic bank accounts and launched an innovative new service to help beneficiaries of social grants.

In terms of environmental management, Barclays UK operations are now carbon neutral. Our involvement in the Business Leaders’ Initiative on Human Rights continues and we retain membership of the Dow Jones Sustainability and FTSE4Good ethical indices. We achieved third position in the Business in the Community Corporate Responsibility Index.

Full details are contained in our eighth Corporate Responsibility report, and at www.barclays.com/corporateresponsibility.

### Highlights

| Increase in income | Rise in profit before tax | Earnings per share | Full year dividend per share |
| --- | --- | --- | --- |
| 25% | 35% | up 32% | up 17% |
| £21,595m | £7,136m | 71.9p | 31.0p |

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# Barclays today

## John Varley Group Chief Executive Barclays PLC

We are committed to building a leading universal bank and we’re already one of the largest financial services companies in the world by market capitalisation.

Operating in over 50 countries and employing 123,000 people, we move, lend, invest and protect money for over 27 million customers and clients the world over.

Our business purpose is to help our customers and clients achieve their objectives. Our goal is to deliver top quartile total shareholder return relative to our peers, consistently over time.

### Global Retail and Commercial Banking

Frits Seegers Chief Executive Global Retail and Commercial Banking

*   **UK Retail Banking**: Deanna Oppenheimer, Chief Executive. Profit before tax £1,213m.
*   **UK Business Banking**: Chris Grigg, Chief Executive. Profit before tax £1,365m.
*   **Barclaycard**: Antony Jenkins, Chief Executive. Profit before tax £382m.
*   **International Retail and Commercial Banking (IRCB)**: Steve Booysen (Absa), Leo Salom (Western Europe), Ahmed Khizer Khan (Emerging Markets). Profit before tax £1,270m.

(Total UK Banking Profit before tax £2,578m)

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# Investment Banking and Investment Management

Bob Diamond President Barclays PLC and Chief Executive Investment Banking and Investment Management

*   **Barclays Capital**: Grant Kvalheim and Jerry del Missier, Co-Presidents. Profit before tax £2,216m.
*   **Barclays Global Investors (BGI)**: Blake Grossman, Chief Executive. Profit before tax £714m.
*   **Barclays Wealth**: Tom Kalaris, Chief Executive. Profit before tax £213m.

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# Group Chief Executive’s review

## Delivering on our strategy

John Varley Group Chief Executive Barclays PLC

> our strategy of earn, invest and grow continued to deliver strong growth in profits

I start this review by thanking the 123,000 employees of the Barclays Group, whose dedication and creativity helped us achieve record results in 2006. Our strategy of ‘earn, invest and grow’ continued to deliver very strong growth in profits. Our ambition is to become one of the handful of universal banks leading the global financial services industry. I believe the universal banking model is helping us drive the higher growth for shareholders that I set out to achieve three years ago, by providing us with new options in products, services and markets.

In our business, strategy simply stated is anticipation followed by service: we anticipate the needs of customers and clients. We then serve them, by helping them achieve their goals.

The needs of customers and clients are changing. The drivers of change include: the privatisation of welfare; wealth generation and wealth transfer; explosive growth in demand for banking products in emerging markets; the securitisation of assets and cash flows; the use of derivatives in risk management; the significant growth in the use of credit cards for payment and borrowing; and the opportunity for capital markets and private equity to fund infrastructure development around the world.

To capitalise on these sources of growth, I have put a new structure in place by creating Global Retail and Commercial Banking (GRCB) under the leadership of Frits Seegers, who joined Barclays in July 2006. GRCB brings together: UK Banking, International Retail and Commercial Banking and Barclaycard. GRCB gives Barclays a single point of strategic direction and control to these businesses, thereby increasing our capability to drive growth and synergies globally and to enter new markets.

We believe this will enable us to replicate success from one part of the world in another. This GRCB structure mirrors the organisation of Investment Banking and Investment Management under Bob Diamond, which includes Barclays Capital, Barclays Global Investors and Barclays Wealth, and also gives a single point of strategic direction and control to a group of global businesses which enjoy substantial synergies.

## Group performance

We made substantial progress on our strategic priorities and delivered record financial results. Profit before tax increased 35% to £7,136m. Earnings per share rose 32% to 71.9p, and economic profit was up 54% to £2,704m. We increased the total dividend payout to 31p, a rise of 17%.

Income grew 25% to £21,595m, well ahead of expense growth of 20%. The growth was broadly based by business and geography, reflecting momentum in each business. Approximately half our profits came from outside the UK, up from about 30% in 2003.

Operating expenses increased 20% to £12,674m. The Group cost:income ratio improved two percentage points to 59%.

Impairment charges rose 37% to £2,154m. The increase was mostly attributable to the challenging credit environment in UK unsecured retail lending which was partly due to the continued rise in the level of personal insolvencies. In the second half of 2006, as a result of a number of management actions, flows into delinquency decreased and arrears balances declined across the UK cards and unsecured loans portfolios. We therefore believe that we passed the worst in Barclaycard UK impairment in the second half of 2006.

When I look at these results, I am pleased to see increased productivity in our use of capital, risk and costs. Return on average shareholders’ funds improved four percentage points to 25%; profits grew much faster than Daily Value at Risk and risk weighted assets and the associated consumption of capital; and income growth exceeded cost growth by five percentage points.

## Outlook

We enter 2007 with strong income momentum in Barclays, driven by high levels of customer activity and good risk control. The global economic outlook continues to be positive and we are well positioned to capture further growth in the years ahead.

## It’s your choice

An increasing number of shareholders are choosing to communicate via email and manage their Barclays shareholding online by logging onto Barclays e-view. This year we are updating our Articles of Association to allow us to communicate with you electronically by putting shareholder documents on our website. This is as a result of the Companies Act 2006, which allows companies to provide their Annual Report and Annual Review electronically rather than by post. Later this year we will write to ask you if you would like to continue to receive the Annual Review by post or if you would prefer to access it on the internet. This gives you greater choice about the documents you receive and how you receive them.

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# Business review: UK Retail Banking

## Building the best retail bank in the UK

Deanna Oppenheimer Chief Executive UK Retail Banking

Our UK Retail Banking business provides a wide range of products and services to personal and smaller (local) business customers, including current accounts, savings and investment products, Woolwich branded mortgages and general insurance.

> the UK retail bank transformation is well under way

The year in review: We believe that the UK Retail Banking transformation is well under way. Profit before tax increased 17%, and a 7% rise in total income to £3,828m reflects growth in deposits, mortgage and loan balances as well as current accounts which increased by 375,000 during the year. Costs remained steady at £2,408m with gains from the sale and leaseback of property being substantially reinvested in the business to improve customer service.

Performance:
*   Income: £3,828m (2005: £3,586m)
*   Impairment charge: (£209m) (2005: £150m)
*   Operating expenses: (£2,408m) (2005: £2,390m)
*   Associates and joint ventures: £2m (2005: (£6m))
*   Profit before tax: £1,213m (2005: £1,040m)

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# Business review: UK Business Banking

## Continued strong growth

Chris Grigg Chief Executive UK Business Banking

UK Business Banking provides relationship banking to larger and medium business customers via a network of relationship and industry sector specialists.

> our relationship strength provides the fuel to improve and deliver greater value for customers

The year in review: Leveraging good market conditions, UK Business Banking had another year of strong growth in 2006. Profit before tax increased by 18% to £1,365m, and income rose 11% on the back of good balance sheet growth. Costs increased 4% – reflecting higher volumes and the recruitment of front line staff – with approximately half the gains from sale and leaseback of property being reinvested in the business to improve customer service.

Performance:
*   Income: £2,395m (2005: £2,159m)
*   Impairment charge: (£252m) (2005: £177m)
*   Operating expenses: (£857m) (2005: £825m)
*   Associates and joint ventures: £79m (2005: £3m)
*   Profit before tax: £1,365m (2005: £1,160m)

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# Business review: Barclaycard

## Accelerating international growth

Antony Jenkins Chief Executive Barclaycard

Our Barclaycard business is a multi-brand credit card and consumer loans business which also processes card payments for retailers and merchants and issues credit and charge cards to corporate customers and the UK Government.

> three out of every four new cards we issue are now outside the UK

The year in review: 2006 was a year of contrasts, with a tough environment in the UK, but more positive market conditions elsewhere. Profit before tax decreased 40% to £382m as good income growth was more than offset by higher impairment charges and increased costs from the continued development of the international businesses.

Performance:
*   Income: £2,937m (2005: £2,715m)
*   Impairment charge: (£1,493m) (2005: £1,098m)
*   Operating expenses: (£1,054m) (2005: £978m)
*   Associates and joint ventures: (£8m) (2005: £1m)
*   Profit before tax: £382m (2005: £640m)

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# Business review: International Retail and Commercial Banking

## Investing for future growth

Steve Booysen Absa, Leo Salom Western Europe, Ahmed Khizer Khan Emerging Markets

International Retail and Commercial Banking provides Barclays personal and corporate customers outside the UK with banking services. The products and services offered to customers are tailored to meet the regulatory and commercial environments within each country.

The year in review: Profit before tax increased £637m to £1,270m reflecting the inclusion of a full year’s contribution from International Retail and Commercial Banking – Absa of £698m and a gain on the disposal of the interest in FirstCaribbean International Bank of £247m.

Performance:
*   Income: £3,337m (2005: £1,983m)
*   Impairment charge: (£167m) (2005: £32m)
*   Operating expenses: (£2,196m) (2005: £1,364m)
*   Associates and joint ventures: £296m (2005: £46m)
*   Profit before tax: £1,270m (2005: £633m)

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# Business review: Barclays Capital

## Record profits spread across products and geographies

Grant Kvalheim and Jerry del Missier Co-Presidents Barclays Capital

Barclays Capital is the world’s fastest growing investment bank providing large corporate, institutional and government clients with solutions to their financing and risk management needs.

> we have been the fastest growing investment bank since the turn of the century

The year in review: Barclays Capital turned in a record performance in 2006. Profit before tax increased 55% to £2,216m, and net income rose by 42%, with good growth geographically and across the product range.

Performance:
*   Income: £6,267m (2005: £4,505m)
*   Impairment charge: (£42m) (2005: £111m)
*   Operating expenses: (£4,009m) (2005: £2,963m)
*   Profit before tax: £2,216m (2005: £1,431m)

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# Business review: Barclays Global Investors

## One of the largest institutional asset managers in the world

Blake Grossman Chief Executive Barclays Global Investors

Barclays Global Investors (BGI) is now one of the largest institutional asset managers in the world. In the past six years it has grown client assets under management by over US$1.0trn, and now manages funds for some 2,900 clients in 52 countries, employing 2,700 people.

> our success to date has been built on an understanding of the three pillars of performance – risk, return and cost

The year in review: 2006 was another very good year for BGI. Profit before tax increased 32% to £714m reflecting strong income growth and higher operating margins. Assets under management are now more than US$1.8trn.

Performance:
*   Income: £1,665m (2005: £1,318m)
*   Operating expenses: (£951m) (2005: £779m)
*   Associates and joint ventures: – (2005: £1m)
*   Profit before tax: £714m (2005: £540m)

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# Business review: Barclays Wealth

## Our mission: to be the premier European wealth manager

Tom Kalaris Chief Executive Barclays Wealth

Barclays Wealth is the UK’s leading wealth manager in terms of assets under management and the largest retail multi-manager.

> demographic and economic factors make the wealth management market particularly attractive

The year in review: Profit before tax grew strongly to £213m, representing an increase of 28% on 2005. Total client assets rose to £93bn on the back of excellent new net asset flows and strong market growth. Income increased by 12% to £1,036m and once again our cost:income ratio improved by three percentage points.

Performance:
*   Income: £1,036m (2005: £922m)
*   Impairment charge: (£2m) (2005: (£2m))
*   Operating expenses: (£821m) (2005: £754m)
*   Profit before tax: £213m (2005: £166m)

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# Summary Financial Statement

## Summary consolidated income statement
For the year ended 31st December

| | 2006 £m | 2005 £m |
| --- | --- | --- |
| Net interest income | 9,143 | 8,075 |
| Net fee and commission income | 7,177 | 5,705 |
| Other income | 5,850 | 4,198 |
| **Total income** | **22,170** | **17,978** |
| Net claims and benefits incurred on insurance contracts | (575) | (645) |
| **Total income net of insurance claims** | **21,595** | **17,333** |
| Impairment charges | (2,154) | (1,571) |
| **Net income** | **19,441** | **15,762** |
| Operating expenses | (12,674) | (10,527) |
| Share of post-tax results of associates and joint ventures | 46 | 45 |
| Profit on disposal of subsidiaries, associates and joint ventures | 323 | – |
| **Profit before tax** | **7,136** | **5,280** |
| Tax | (1,941) | (1,439) |
| **Profit after tax** | **5,195** | **3,841** |
| Profit attributable to minority interests | 624 | 394 |
| Profit attributable to equity holders of the parent | 4,571 | 3,447 |

### Dividends
*   Interim dividend 10.50p (2005: 9.20p): £666m (2005: £582m)
*   Proposed final dividend 20.50p (2005: 17.40p): £1,307m (2005: £1,105m)
*   Earnings per share: 71.9p (2005: 54.4p)
*   Diluted earnings per share: 69.8p (2005: 52.6p)

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# Summary consolidated balance sheet
As at 31st December

| Assets | 2006 £m | 2005 £m |
| --- | --- | --- |
| Cash and other short-term funds | 9,753 | 5,807 |
| Trading and financial assets designated at fair value | 292,464 | 251,820 |
| Derivative financial instruments | 138,353 | 136,823 |
| Loans and advances to banks | 30,926 | 31,105 |
| Loans and advances to customers | 282,300 | 268,896 |
| Available for sale financial investments | 51,703 | 53,497 |
| Reverse repurchase agreements and cash collateral on securities borrowed | 174,090 | 160,398 |
| Property, plant and equipment | 2,492 | 2,754 |
| Other assets | 14,706 | 13,257 |
| **Total assets** | **996,787** | **924,357** |

| Liabilities | 2006 £m | 2005 £m |
| --- | --- | --- |
| Deposits and items in the course of collection due to banks | 81,783 | 77,468 |
| Customer accounts | 256,754 | 238,684 |
| Trading and financial liabilities designated at fair value | 125,861 | 104,949 |
| Liabilities to customers under investment contracts | 84,637 | 85,201 |
| Derivative financial instruments | 140,697 | 137,971 |
| Debt securities in issue | 111,137 | 103,328 |
| Repurchase agreements and cash collateral on securities lent | 136,956 | 121,178 |
| Insurance contract liabilities, including unit-linked liabilities | 3,878 | 3,767 |
| Subordinated liabilities | 13,786 | 12,463 |
| Other liabilities | 13,908 | 14,918 |
| **Total liabilities** | **969,397** | **899,927** |

### Shareholders’ equity
*   Shareholders’ equity excluding minority interests: £19,799m (2005: £17,426m)
*   Minority interests: £7,591m (2005: £7,004m)
*   **Total shareholders’ equity**: £27,390m (2005: £24,430m)
*   **Total liabilities and shareholders’ equity**: £996,787m (2005: £924,357m)

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# Board and Executive Committee

*   **Marcus Agius**, Chairman.
*   **Sir Richard Broadbent**, Senior Independent Director.
*   **Leigh Clifford**, Non-executive Director.
*   **Fulvio Conti**, Non-executive Director.
*   **Dr Danie Cronjé**, Non-executive Director.
*   **Professor Dame Sandra Dawson**, Non-executive Director.
*   **Sir Andrew Likierman**, Non-executive Director.
*   **Sir Nigel Rudd**, Deputy Chairman.
*   **Stephen Russell**, Non-executive Director.
*   **Sir John Sunderland**, Non-executive Director.
*   **John Varley**, Group Chief Executive.
*   **Robert E Diamond Jr**, President, Barclays PLC and CEO, Investment Banking and Investment Management.
*   **Gary Hoffman**, Group Vice Chairman.
*   **Naguib Kheraj**, Group Finance Director.
*   **Chris Lucas**, Group Finance Director (from 1st April 2007).
*   **Frederik (Frits) Seegers**, Chief Executive, Global Retail and Commercial Banking.
*   **Paul Idzik**, Chief Operating Officer.

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# Corporate responsibility review

> responsible banking means making informed, reasoned, ethical decisions

We regard corporate responsibility as embodied in the concept of ‘responsible banking’. Based on the values enshrined in our Guiding Principles, responsible banking means making informed, reasoned and ethical decisions in everything we do.

Priorities:
*   Our customers
*   Financial inclusion
*   Responsible lending
*   Environment and climate change
*   Supply chain management
*   Our employees
*   Community investment

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# Summary corporate governance report

> good corporate governance is more than just a statement of compliance

For the year ended 31st December 2006, we have complied with the provisions set out in section 1 of the UK Combined Code on Corporate Governance.

### Our committees
*   **Board Audit Committee**: Reviews accounting policies, internal control, and external auditors.
*   **Board HR and Remuneration Committee**: Sets executive remuneration, approves awards, and looks at HR issues.
*   **Board Corporate Governance and Nominations Committee**: Reviews Board composition and appointments.
*   **Board Risk Committee**: Approves risk appetite, limits, and monitors risk profile.

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# Summary remuneration report

> Barclays policy is to use reward to drive a high-performance culture

Barclays policy is to use reward to drive a high-performance culture. Outstanding performance will therefore attract outstanding reward.

The reward package for executive Directors is made up of four main parts:
*   Base salary;
*   Annual Performance Bonus, 75% of which is cash and 25% of which is deferred in the form of Barclays shares;
*   Performance Share Plan (PSP);
*   Pension and other benefits.

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# 2006 Annual Remuneration

### Directors’ aggregate emoluments and other benefits

| | 2006 £m | 2005 £m |
| --- | --- | --- |
| Aggregate emoluments | 32.0 | 17.3 |
| Gains made on the exercise of share options | 5.5 | 0.3 |
| Amounts paid under long-term incentive schemes | – | – |
| Actual pension contributions to money purchase scheme | – | 0.1 |
| **Total** | **37.5** | **17.7** |

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# Shareholder support

### Help
*   **Barclays Shareholder Helpline**: Within UK 0870 609 4535; From overseas +44 121 415 7004.
*   **Email**: questions@share-registers.co.uk
*   **Registrar**: The Registrar to Barclays PLC, The Causeway, Worthing, BN99 6DA.
*   **Textphone**: Within UK 0870 600 3950; From overseas +44 121 415 7028.
*   **Online**: www.investorrelations.barclays.com

### 2007 diary
*   **9 March 2007**: On record date for payment of the 2006 final dividend
*   **4 April**: Final date for joining or leaving the dividend reinvestment plan for the 2006 final dividend
*   **26 April**: Annual General Meeting
*   **27 April**: Final dividend for 2006 to be paid
*   **2 August**: Interim results for 2007 announced
*   **17 August**: On record date for payment of the 2007 interim dividend
*   **7 September**: Final date for joining or leaving the dividend reinvestment plan for the 2007 interim dividend
*   **1 October**: Interim dividend for 2007 to be paid