Barclays PLC (BCS) 2005 Q4 法說會逐字稿

Thank you, Matt, and good morning. Before I get going, can I introduce my colleagues who will be helping Matt, Naguib and me with the questions and answers today. They are Bob Diamond, who is President of the Group; Gary Hoffman, Chairman of UK Banking and of Barclaycard; David Roberts, Chief Executive of International Retail and Commercial Banking; and Paul Idzik, Chief Operating Officer.

Our ambition, as you know, is to position Barclays as one of the handful of universal banks leading the global industry. And our portfolio of businesses both legitimizes this ambition and helps us with its realization. We have a simply stated business purpose -- this is to help our customers and clients achieve their goals.

In executing our strategy, we are clear about what we are seeking to achieve on behalf of our owners. That is higher growth. This is what drives our investment priorities, and this is what has led us to expand our business range and geographical presence. We know that our owners expect good short-term profit performance. But we also know that they want us to invest for the future.

Our business model is different to our competitors. We are not shy about that. It involves being prepared to invest to grow. It involves developing businesses aggressively in response to our view of sources of growth in the industry. It involves creating a good balance of businesses and a broad base of income and profit growth. But it also involves being disciplined about earnings, because we believe in the principal of earn, invest and grow.

My first slide shows the growth trends of recent years in each of the income, cost and profit lines. The point it makes is that we have invested heavily through the cost line, which has enabled us to push income. And profits have grown sharply by consequence, especially in the last three years.

We've been pursuing the same strategy for several years. It is summarized on the slide in front of you. You know it well. So how are we doing against our own measures, and versus our competitors? My next two slides look at these subjects.

The first slide shows you good progress in earnings per share and dividends. Note in particular the uptick in 2003, 2004 and 2005. The next slide shows that we rank fourth in total shareholder return over the last five years. The slide also shows the TSR of the FTSE banks and the FTSE 100, which we have significantly outperformed.

The compound growth in income over the period is 13% and the compound growth in dividend is also 13%.

The slides show, I believe, that our shareholders are being rewarded as we implement our strategy. So to reiterate what I said when we last met in August, we are doing what we said we would. We are delivering good profit growth. We're benefiting from having a portfolio of businesses which is integrated, but well spread. And we are accelerating the pace of strategic execution because the strategy we have is a good one, and it is working well.

Over the next few minutes, I'm going to talk firstly about our organic performance, then about nonorganic activities, and then I'll talk about where we're headed in the area of profit diversification.

Organic performance first, and I will start with Barclays Capital. In our capital markets and investment banking business, we have been purposeful in choosing what to compete in and where. Barclays Capital is a client-focused business with a client-focused business model. The business is not particularly sensitive to the direction or absolute level of interest rates. It is the level of client activity that determines our success here.

We've taken the formula of offering financing and risk management services to our clients and applied it with discipline to a steadily expanding array of activities.

Headcount has grown significantly in Bar Cap over the course of the last two years. We employed 6000 people at the end of 2003. And today, we employ 9000. But we have expanded the business in a way that is very demanding of short-term performance, and of short- and medium-term returns.

So what is driving Bar Cap's record profits in 2005? The answer is continuing good performance in the rates and credit businesses, with additional growth from newer areas in which we've recently invested, such as equities, commodities and credit derivatives.

70% of our profit in Barclays Capital now comes from outside the United Kingdom, and some 25% of last year's income growth in Barclays Capital was generated by equities and commodities.

I'm often asked what I regard as the optimal size of Barclays Capital. Of course, in the universal banking model, we want to have a balanced portfolio of businesses. Investment banking plays a significant strategic role in a universal bank, and we make excellent returns on capital at Bar Cap.

So in these circumstances, Barclays Capital's size will be determined by three things -- first, of course, our ability to manage risk; second, our wish to satisfy client demand -- it's very clear that increasing numbers of companies will choose to access the capital markets to meet their financing and risk management requirements; and third, our ability to compete successfully.

We feel unconstrained by market share, and that remark is particularly true of our continental European, North American and Asia-Pacific businesses.

Let me give you three statistics about Barclays Capital from several series that I follow closely. First, productivity per head is a key measure in Barclays Capital. And on this score, we are doing well. In 2005, income per head was just under half a million pounds, which ranks with the best in the industry.

Second, if you look at Barclays Capital's performance in investment-grade debt in the U.S. domestic market, we ranked fifth in 2005, up from 10th in 2004.

Third, I follow carefully the number of clients where Bar Cap's relationship generates more than 1 million pounds of income per annum. The chart on screen now shows the growth of this client base.

1 January 2006 marked the 10th anniversary of the acquisition of Wells Fargo Nikko Investment Advisers, which became Barclays Global Investors.

Our profit in 2005 amounted to about twice the original purchase price. This growth has been wholly organic. Over the 10-year period, income has grown about eight times, and assets under management have grown from $250 billion to over 1.5 trillion.

The story at BGI illustrates my main themes for today -- performance and the pursuit and capture of growth by business and geographical diversification.

We've steadily expended BGI's business base by geography, by product and by client, offering investment solutions which are grounded in quantitative science. To our indexed business, we have added the active. To our predominantly equities business, we've added fixed income. To the traditional asset classes, we've added exchange-traded funds and alternative investment.

Just like Barclays Capital, you couldn't say of BGI that it represents a vanilla business. Its investment approach and its global reach are genuinely distinctive in today's money management industry. A strong investment track record across all durations and all asset classes has driven net new money inflow during 2005 of $88 billion.

And in BGI, as in Barclays Capital, we feel unconstrained by market share. In particular, we're seeing brisk growth in the areas of fixed income, cash management, exchange-traded funds and alternative investments. And of course, the growth of BGI is underpinned both by demographics and by the fiscal pressure on governments to provide creative retirement solutions.

I said when we met in August that I felt that we had turned the corner in wealth management, based on the evidence of 2004 and the first half of 2005. And the full-year figures corroborate that view.

Of course, I'm ultimately interested in the raw P&L performance of Wealth Management. But more interesting at this stage of businesses development is the picture of customer and asset growth, both of which showed good progress during the year.

I want Wealth Management to be an engine of growth in Barclays. It's a classic synergy play. In our UK and international distribution base and in our manufacturing and structuring capability across the Group, we have the necessary ingredients for a very successful business.

When I talk about engines of growth, two other businesses come rapidly to mind. And I say this because I want you to know what I expect of them. Those businesses are UK Retail Banking and Barclaycard. I will talk about UK Retail Banking in the context of UK Banking as a whole, and then I will turn to Barclaycard.

So first of all, UK Retail Banking. You've heard me say before that if we constructed a synthetic competitor in the UK market made up of all the best bits of our actual competitors, the profit generated by that synthetic competitor would exceed by several hundred million pounds the profit that we currently generate. That profit increment would mostly be attributable to bigger and better performances in the businesses of mortgages, long-term savings and investments, and general insurance.

We have been laying the tracks which enable us to move towards these destinations. Let me touch on one -- our performance in mortgages, which has been weak.

What have we been doing to address this? We appointed a new head of the business in the fourth quarter of last year. We've taken back in house the servicing of mortgages, which is important to improving our productivity. We're directing attention and resource at service levels, sales and retentions. We have launched new products. We are more competitive now in the introducer channel.

The early signs are that the business is responding to the measures that we have taken. But I stress, the signs are early. But I believe you can see in the aggregate 2005 financial performance of UK Retail Banking, including the half-on-half figures, some helpful signs of forward momentum.

Now, when you're looking at the performance of a retail business, you have to look at customer flows. That's because the ability to attract new customers is a critical sign of your franchise health. These flows were encouraging in UK Retail Banking in 2005 -- 400,000 new current account holders, 500,000 new registrants for our online baking service, 250,000 new savings account customers, 140,000 new customers of our Additions account. We also saw new flows of customers into both Premier and Small Business.

We know that in UK Retail Banking, we have a big business that is capable of performing better. And although we have a lot further to go, we are on the move.

UK Business Banking, which is the second component of our UK Banking business, is the biggest profit contributor to Barclays. It performed well in 2005. As well as being a substantial source of profit in its own right, it is a business rich with opportunity to create synergies -- with Barclays Capital, with Wealth Management, with UK Retail Banking.

The business model is based on relationship management and industry expertise. Our relationship teams are divided into sector specialists. And it's a formula that is both distinctive and well-proven.

Despite the international ambitions that I will talk about in a moment, UK Banking will always be very important to Barclays, which is why, although I am pleased with the performance of UK Business Banking, I make the comments that I do about the scale of the opportunities ahead of us in UK Retail Banking.

Barclaycard has long been an engine of growth for our shareholders. Compound growth in profit over the four years up to and including 2004 was 16%.

But as you have seen in 2005, Barclaycard's profits fell. This was largely driven by the UK Cards and Loans business. Our profit performance in 2005 was held back by impairment growth. And I think it's too early to call the turn in the credit cycle in UK Cards and Loans. But credit card businesses are cyclical and we understand them. And I'm also encouraged by the strength of the income line in 2005 in this part of Barclaycard.

Besides UK Cards and Loans, there are three other components to the Barclaycard business -- our partnerships business in the UK, Business Barclaycard, and Barclaycard International. And these businesses all performed well in 2005.

You will recall that we set ourselves a goal back in 2003 of developing the international cards division into a business of the same heft and contribution as the UK cards business within 10 years. And we are working on accelerating that delivery of that goal. That's because the diversification strategy in Barclaycard International is going well.

We now have over 4,250,000 international cards in issue. We have multiple sources of momentum -- in Scandinavia, through our joint venture with Swedbank; in Barclaycard US, previously Juniper; in Spain; and now, in South Africa.

There are a handle of credit card companies in the world that have genuinely exportable competence, and Barclaycard is one of them. So this will continue to be an area of strategic emphasis for us.

International Retail and Commercial Banking represents one of our two principal avenues for profit diversification, the other being our global businesses. As you've seen, we are now reporting IRCB in two components -- IRCB ex Absa and Absa. And that's to help you track the Absa performance over time.

The non-Absa piece has developed strongly. Our Iberian businesses are at the vanguard of this, but I'm also pleased to see the progress we've made this year in developing our businesses in Italy, France and the Caribbean.

When I talk about progress, I'm not just referring to financial performance. I'm also referring to customer flows and to balance growth in loans, deposits and assets under management. A good example of this is Spain.

Our view has been that the Zaragozano acquisition would enable us to create a business that had earning power exceeding 200 million pounds pretax with a view to hitting that milestone in 2008. You will see from our results announcement today that before restructuring charges, the PBT of our enlarged Spanish business has already gone through 150 million pounds, two years into the four-year integration cycle.

The core engine in Spain is a strong retail banking platform. Through the Zaragozano purchase, we increased the number of customers and the number of branches by about 200%. We acquired a franchise that had good but underdeveloped customer relationships. We've seen this on the retail side, where we've been able to rev up materially the pace of activity in savings and investments, credit cards and mortgages. And we've seen it on the commercial side, where the SME business represents a significant and profitable development opportunity for us.

Across these relationships and these distribution channels, we overlay our investment banking and money management capability. Bar Cap is now one of the leading debt underwriters in Spain. And part of the reason we have been successful in investment management there is because the business has worked well with BGI.

We felt very confident that we were buying well when we acquired Zaragozano. And as our Spanish profits grow, we feel that our confidence was well-founded. We have the same confidence in the Absa acquisition.

What you look for in M&A activity, I know, is the right pricing, good timing and then successful integration, and strong underlying business performance. I believe that we bought our controlling stake in Absa at a good price and at a good time. And what we have bought is a very good bank.

As in the case of Spain, we have a strong retail banking platform, but with Absa, we have acquired a powerful retail brand to go with it. That's a good combination in a market that is seeing spectacular growth in demand for banking products. Here, too, we can bring our core capabilities to complement what Absa already does. Credit cards, SME and investment banking are the areas where we're directing the most attention at the moment. As you've seen, Absa is performing very strongly. And that's before we introduce the boost of added product capability.

This talk of increased activity outside the UK brings me to the subject of profit diversification. The pursuit of profit diversification is not an abstract exercise. We look at the world through the lens of economic profit. We seek to make decisions about the absolute size and relative growth rates of pools of economic profit in the financial services industry over the coming years, and then to ensure that our own geographical presence, business portfolio and capabilities are well aligned with those growth opportunities.

So for example, in developing our investment banking activities outside the UK, in choosing to buy businesses in Spain, the United States -- our purchase of Juniper -- and South Africa, and in investing heavily in the growth of Barclays Global Investors in mainland Europe or in Japan, we are making judgments about future economic profit growth.

All of the profit of IRCB comes from outside the United Kingdom. And of course, that profit has been significantly increased by the Absa transaction. In addition, non-UK activities now generate over 70% of the profit of both Barclays Capital and BGI. You'll note from this that when I refer to non-UK activities, I am referring to the fastest-growing parts of Barclays.

I would like to see more of our profits come from outside the UK. Currently, about 40% of our profits come from outside the UK. That is up from 20% five years ago. We expect that the plans we have for our existing portfolio of businesses will enable us to achieve an approximately even balance between UK and international profits over the course of the next three years.

This next slide shows another and equally important route to profit growth, which is business diversification. I believe that the increasing diversification of our businesses has improved both our quality of earnings and our prospects for growth. The slide shows the current composition of our portfolio by business activity. This is broadly distributed and much more so than the Barclays of five years ago.

In the context of this diversification, we may choose to acquire businesses in the coming years. But you can see that the business that we've recently acquired are contributing to our grow through diversification objective. But I am also confident that we can get to the 50/50 UK/non-UK balance without further acquisition. As I have said before, we see M&A as the servant, not the master of strategy.

Our diversification strategy has to have marketing credibility. And by that, I mean that a brand that seeks geographical diversification is a brand that must be well-known outside its home market.

The Barclays brand travels well. For example, over the past 18 months, we've opened three branches a month in Portugal. We now have 70 branches there. And we plan a further 30 openings this year. We also plan to open branches in Italy during 2006. Two out of three new Barclaycard customers recruited last year came from outside the UK.

I have talked about the portfolio businesses and I've talked about geographical presence. Let me finish by talking briefly about the third pillar of our business -- our people.

The development of our people and the nurturing of talents within Barclays is the key to lifting performance and to creating differentiating capabilities. It's also the key to driving our two overriding operational priorities -- good execution on behalf of customers and excellent customer service.

We now have over 110,000 people within the Group. And nearly half of them are outside the UK. Barclays is changing, and we are increasingly a magnet for talent.

This has been another record year for the group. Our performance has been driven by three things -- portfolio, presence and people. And our good performance was broadly-based, which gives us confidence about sustainability and growth.

So let me hand you over now to Naguib, who will talk you through 2005 in more detail.

Thanks, John, and good morning, everybody. Before I go into the numbers, let me just remind you, 2005 figures include all the IFRS standards. 2004 comparables exclude IAS 32, IAS 39 and IFRS 4. We will talk about trends in income and costs net of insurance claims and benefits payable.

These results are slightly ahead of what we discussed at the end of November due to a stronger than expected final quarter. For the year as a whole, profit before tax is up 15% at 5.3 billion pounds. Earnings per share are up 7%. And we had a return on equity of 21.1%, enabling us to pay a dividend of 26.6 pence per share, an 11% increase on last year.

Income has grown by 23% to 17.3 billion pounds. Excluding Absa, income and costs both grew 16%, reflecting very strong organic growth at the top line and continued investment to drive future growth.

As we signaled in November, impairment charges were broadly in line with this tendency, up 44%. But on an underlying basis, the increase was 24%. I'll talk more about this later.

At the bottom line, economic profit was up 12% with a compound annual growth rate of 18% for the current goal period, comfortably ahead of the 10 to 13% target that we set for ourselves.

The increase in profits is broadly based across the Group. Three businesses have generated profit growth of roughly 200 million pounds -- Barclays Capital, Barclays Global Investors and UK Banking. And you can see that in just five months, Absa has transformed the contribution made by International Retail and Commercial Banking. This has helped internationalize our profits, with about 40% now coming from outside the UK.

The head office column includes two large one-off items -- the move to Canary Wharf and the write-off of some capitalized IT assets, amounting to about 130 million pounds, as well as accounting adjustments resulting from IFRS of 140 million. We don't expect this adjustment under IFRS to increase significantly going forward.

One of the strengths of our portfolio is we have been able to absorb these changes and a drop in profits in Barclaycard and yet still deliver profit growth of 700 million pounds.

Turning to the businesses, profit was up 8% in UK Banking. We committed to improve the cost income ratio by 2 percentage points a year for three years from 2005. In the first year, we are ahead of schedule with a 3 percentage point improvement.

Profits were up 7% in UK Retail on a reported basis or 12% excluding the sale of Edotech in 2004. We told you it would take some time for the changes we have been making to have a financial impact. And we are pleased to see that is beginning to happen. Growth picked up in the second half, so income was up 4% for the full year compared with just 1% at the half year. This gives us some momentum as we go into 2006.

There were good income contributions from current accounts, mortgages and small business. This was partially offset by a reduced contribution to margin from our hedges as medium-term interest rates fell and some modest margin compression in retail savings. Costs in UK Retail fell by 3%, even though we continued to invest in technology in the branch network to improve customer service.

Retail impairment increased to 142 million pounds. But bear in mind in 2004 there was a 40 million pound release in general mortgage provisions. Impairment charges were fairly stable between the first and second halves of 2005, and mortgage impairment remained negligible.

Business Banking profits were up 10%. Income grew 12%, driven by strong balance sheet growth with broadly stable lending margins. Again, there was a reduced contribution from the structural hedge and some modest compression in deposit margins.

The rate of cost growth was lower than income growth, so the cost/income ratio improved to 35%. Impairment in business banking was broadly flat, excluding the West Quay recovery in 2004. Adjusting for that one-off recovery, profit growth was 15%.

Barclays Capital has had another very strong year, with profits up 25%. Income growth of 27% continues to be more diversified, both by geography and by product with particularly strong contributions from commodities, foreign exchange, credit derivatives and equity derivatives. You've seen us make significant investment in these areas recently, and they generated excellent revenue growth.

Equity products and commodities accounted for about a quarter of revenues and over 1 billion pounds of revenues last year. The main driver of revenue growth was higher volumes of client-led activity across an increasingly wide range of products.

Once again, the rate of profit growth in Barclays Capital exceeded that of both regulatory and economic capital consumption, and average DVaR was actually slightly lower in 2004 -- 2005 than 2004.

We have continued to invest in the business, though not at the same pace as in 2004. The investments are targeted at specific market opportunities where we know we can compete. Headcount's grown by 1200 in 2005, bringing the total to 9000. And over half of this increase was in the front office, which should drive future revenue growth in 2006.

Barclays Global Investors delivered another outstanding profit increase of 61% to 542 million pounds. In dollars, assets under management increased to 1.5 trillion, including $88 billion of net new assets.

The strongest growth was in exchange-traded funds, where assets under management grew 48% to just under $200 billion. In addition, our active business now has 340 billion under management. And it has continued to deliver outperformance across the board. Average alpha on our flagship equity products was 200 basis points in 2005, compared to 100 basis points in 2004.

BGI now has a very healthy balance in its profit mix -- just over half comes from the active business, 20% from exchange-traded funds, with the balance from the institutional index business.

We are investing in BGI to build new revenue streams and ensure that the infrastructure keeps pace with its growing scale. Headcount grew by 400 to 2300, and despite this, the cost/income ratio improved 3 points to 59%, making us one of the most efficient asset management companies in the world.

Profits in Wealth Management were up 56% to 172 million pounds, driven by growth in loans, deposits and funds under management, as well as a higher level of client transactions. The cost/income ratio improved 6 percentage points.

In Barclaycard, there was strong income growth of 15%, which was driven by good balance growth in UK loans and international cards, as well as better margins in UK cards. Profits were down 19% as a result of increased impairment charges and ongoing investment in international expansion.

Barclaycard US, formerly Juniper, contributed a third of the income growth and is performing according to plan, with the loss of about $100 million resulting from increased marketing spend. That investment is delivering good results. Balances are up 56% since completion, and the number of cards in issue more than doubled to 2.2 million last year. We remain on track to become profitable in 2007, and we're targeting $150 million of pre-tax profits in 2008.

International cards outside the U.S. delivered strong income growth of 22%. And our joint venture with Swedbank is performing in line with expectations.

UK card margins improved as a result of the full-year effect of rate increases in 2004 and a reduction in promotional balances. Margins on loans decreased as a result of the impact of IAS 32 and 39, competitive pressure and a change in mix with a higher weighting to secured loans.

The majority of the increase in impairment is in Barclaycard UK, where the main drivers were an increase in the average size of balances in arrears rather than the number; reduced recoveries, reflecting a rise in personal bankruptcies; and book growth in loans. The rate of increase in impairment was slower in the second half than the first half. We continue to focus on actions to address the flow into arrears and maximize recoveries. Impairment in Barclaycard International increased in line with book growth.

Excluding Absa, IRCB profits were up 21%, with growth across the board. About 40% of this year's profits came from Barclays Spain, which delivered a 25% increase in profit before tax and integration costs to 156 million pounds.

Banco Zaragozano is now branded as Barclays and we are one year ahead of plan delivering synergies. We are continuing to use the branch network successfully to sell Barclays products such as open-plan mortgages and BGI phones. We are also starting to replicate this model in Portugal through organic growth, and we had another year of strong growth in Italy.

The acquisition of ING Ferri has strengthened our French business, and we're pleased to see a healthy level of topline growth there.

As I said earlier, the Absa acquisition has transformed the scale and shape of IRCB. Its profit contribution in the five months since completion was 335 million pounds after a 42 million pound charge for the amortization of intangible assets. As a stand-alone entity, Absa reported growth in profit before tax of 28% for the nine months ending in December, demonstrating both the strength of the business we bought into and a very healthy economy.

Absa's earnings from retail banking were up 21%, driven by strong growth in advances and an increase in transaction volumes. Commercial and wholesale earnings were very strong. And loan impairment charges were at historically low levels. There was also exceptionally strong performance in the financial services division, with earnings up 32%.

Absa's performance is well ahead of the acquisition business case. The annualized return on investment for the first five months was 13% in rand and 11% in sterling. And the market value and of our investment is up substantially. We are pleased with the progress on the integration, which is going according to plan. We have now completed the sale of our South African branch to Absa. And though it is early days, we are beginning to exploit our capabilities in investment and corporate banking, as well as in credit cards, in South Africa.

Turning to the balance sheet and the areas where this drives income, we've seen good overall growth. Looking at the UK, business bank lending was up 22% and consumer loans were up 13%, but our market share in mortgages was disappointing and we saw a 4% decline in the book.

UK card extended credit was down 5% as a result of lower promotional balances and consumers reducing their credit card debts. The 40% increase in international card balances reflects the rapid growth of the business, particularly in the U.S. And there's also been very good growth in IRCB loans of 22% as a result of successful growth in European mortgages, as well as corporate lending in Africa. Loan growth in Absa was very strong at 27%, reflecting the strength of the economy.

On the other side of the balance sheet, there has also been good growth in liabilities. In UK Retail, deposits have grown 6%, and they are up 9% in UK Banking. Wealth Management is up 8%, IRCB is up 9%, excluding Absa, and deposit growth in Absa was 26%. In addition to on-balance-sheet growth, we've also seen growth in assets under management of 11% in BGI, 12% in Wealth Management and 28% in IRCB, excluding Absa.

I'd like to focus in more detail now on some areas I know you are interested in, starting with costs, which have grown in line with income. A third of this growth is attributable to the inclusion of Absa for five months this year. The balance reflects ongoing investment in 2005 in our global businesses and IRCB, as well as profit-driven compensation in Barclays Capital and BGI.

I have told you in the past that about 50% of Barclays Capital's cost base has significant flexibility built into it. So we are able to manage costs according to revenue performance, and that remains the case.

UK banking costs were flat. And costs growth in Wealth Management were modest as a result of tight cost control, despite ongoing investment in both businesses.

Turning to the credit environment, impairment was up in line with expectations by 44%, but the underlying rate of growth in impairment was actually 24%. The headline figure was affected by a number of factors, including large one-off recoveries and releases in 2004, the impact of acquisitions in 2005, and changes in methodology, including IFRS.

Potential credit risk loans have grown at a slower rate than assets. Excluding Absa, they have increased 7%, almost all of which was in retail rather than corporate lending. Our coverage ratios are 56% for potential credit risk loans and 65% for non-performing loans. This is above the 10-year average and consistent with 2004. So we are comfortable both with coverage levels and the quality of our asset book.

Looking forward to 2006, the UK consumer credit environment is likely to remain challenging. We have had exceptionally low impairment losses in the UK small and medium business sectors in recent years, and they may trend towards a more normal level in 2006.

Moving on to capital management, we've made some significant changes in our capital structure, which are important for optimizing returns to shareholders. So I want to rewind in order to give you a fuller picture.

Over the past two years, we have addressed the level of surplus capital we're holding and used our resources more effectively. So in 2004, we bought back 700 million pounds of shares and started to change the mix of our core capital by introducing preference shares.

At the beginning of 2005, our Tier 1 ratio restated for IFRS was 7.1%. During 2005, we've made the Absa acquisition, grown weighted risk assets by 21 billion pounds, made a number of other smaller acquisitions and paid 1.6 billion pounds in dividends.

At the end of 2005, our Tier 1 ratio was almost unchanged at 7%. This is a reflection both of our ability to generate strong cash flow and use the capital markets efficiently. We have altered the mix of our Tier 1 so we have more preference share capital than in the past. The cost of this, at about 6%, compares very favorably with our cost of equity at 9.5% and our return on equity of 21%.

We expect to continue to see strong growth in weighted risk assets in 2006. But cash flow from retained earnings and dynamic management of our balance sheet should move our Tier 1 ratio back towards our target of 7.25% this year.

We will continue our policy of disciplined capital management going forward, and buybacks remain an important part of our toolkit. They are also a benchmark against which we evaluate investment opportunities. Our practice of maintaining healthy dividend growth with a cover of around 2 times led to an 11% increase in the dividend this year.

We have been asked a lot of questions about the interaction between regulatory and economic capital and the way in which we manage them. Let me start by saying no single measure of capital use is perfect. We actively manage both regulatory and economic capital, and make capital allocation decisions bearing both in mind, though the difference between the two will be less significant under BASEL II.

This slide shows the estimated return on both economic capital and the equity component of regulatory capital for each business in 2005. I take away two important messages from the data. Firstly, in Barclaycard, attributed economic capital's much higher than regulatory capital, whereas in Barclays Capital, it is the reverse. So these are complementary from a group perspective. The diversification in our portfolio allows us to make more efficient use of our overall capital.

Second, each of our businesses makes very good returns which are well above the cost of equity. In this analysis, we take the impact of goodwill in the center. If we allocated it to the divisions, it would significantly affect the numbers in two areas -- UK Retail and IRCB.

The overall return on equity for the group was 21%, and this includes the full effect of goodwill. Looking specifically at Barclays Capital, where all the growth has been organic, the return on the equity component of regulatory capital was 21% in 2005.

No financial presentation would be complete without a comment on pensions in today's environment. Our principal exposure is in the UK, where we closed the defined benefit scheme to new members nine years ago. Whilst we reported an IAS 19 deficit in the UK fund of 2.5 billion pounds, the conventional actuarial valuation shows an estimated surplus of 900 million. Both valuations already reflect mortality assumptions that were updated at the end of 2004.

We also made special cash contributions in 2003 and 2004 totaling 750 million pounds. And we resumed regular contributions in 2005 of 350 million pounds. We continue to pay close attention to managing risk in the pension fund, but we are comfortable with the overall funding position as it stands.

Looking forward to 2006, we're going into the year with strong momentum. As we have seen before, our expectations for revenue, costs and impairment are slightly ahead of market consensus. We will be looking to maintain our rate of organic investment, and we are on track to deliver a healthy level of earnings growth.

Our confidence in growth in 2006 is underpinned by the strength of our results in 2005. We are delighted that profits were so broadly based across the group in 2005. We are pleased with productivity gains in UK Banking and the early signs of turnaround in UK retail. The investment in our global businesses is delivering very strong profit growth. And our profits are increasingly international. All this translates into a really good result for shareholders.

Thanks very much, and back to you, John.

Thank you, Naguib.

It is John-Paul Crutchley from Merrill Lynch. A couple of questions. Firstly, a point of clarification, if I may. The cost/income target in the UK Banking business -- clearly, you have outperformed on what you set out to achieve in 2005. I just wanted to clarify, having done 3%, are you now still looking to achieve 2% each for the next consecutive years? Or have you viewed it as hitting 3% of the 6% that you set out to [multiple speakers]

No, we think it's right to leave the target at 2% for each of '06 and '07, notwithstanding that we outperformed in '05.

Second, I just wonder -- maybe one for Naguib on capital and risk asset growth, because I'm trying to reconcile in my mind the clear growth you've got in a number of businesses, which will obviously lead to capital consumption and risk asset growth, combined with the aspiration to get back to nearer the 7.25 by the end of '06 or into I guess early 2007. I guess of a swingline business does tend to be Barclays Capital in terms of capital consumption, given it's a very dynamic balance sheet. I was just wondering if you can just talk about how you see capital consumption throughout the Group into 2006.

I think you make a very good point, J.P. It is a very dynamic process. And we do manage capital on a dynamic basis as we go through the year. And you can see last year in the second half of the year, we upped the pace of securitization activity to manage our regulatory capital consumption.

So we have many tools open to us to manage that growth. We do expect strong growth in weighted risk assets in 2006. But our cash flow from earnings is also very strong. So our view is we ought to be headed very much towards that 7.25% during the course of next year.

It's Ian Smillie from ABN Amro. Could I ask you about the margin implications that will come from growing the mortgage book, and I guess potentially the credit card book, faster again? Obviously, the H2 margin performance was good, but balances went backwards in both [counts].

You are right. You picked up that mortgage margin improved in the UK last year. We don't see that growing the book would result in a big pressure on margins. Actually, new business margins across the industry firmed in 2005. And that you see reflected in our overall numbers.

It's Tom Rayner at Citigroup here. Could I just ask a sort of broad question about your divisional analysis? Because when I look at slide 13, excluding Barclaycard, everything is growing quite nicely pretax from -- I think the range is plus 7 to plus 61%. Even stripping out Absa, pretax is up 13% on that basis. When I look at group diluted EPS, the growth is I think 5.6. And ex a restatement, an apparent restatement, that growth would have been sub 4%. I just wondered if you could help sort of reconcile the disparity between the sort of very strong pretax and the --

Clearly the principal driver of that discrepancy between PBT growth and EPS growth is minorities. But I will let Naguib just talk about it.

In the minorities line, you've got three big things going on. You've obviously got the minority in Absa, where we don't own 44% of the business that comes out. We have also used preference share funding much more actively in 2005. And the dividends on the preference shares show as minority interest.

And then the third issue is an IFRS accounting change, where some of our Tier 1 and Tier 2 capital got reclassified under IFRS. And the cost of servicing that moved from the net interest line to the minority interest line. Those three things account for the big growth in minority interest.

Tom, the simple number I have in my head -- there's about a 500 million pound delta between profit growth and earnings growth. And the 500 is made up of 340 attributable to what Naguib's just talked about and 160 tax. And that's a simple way of reconciling the two items.

And sorry, just a quick follow-up. On slide 20, the return on capital by division that you gave us -- is that allocated those items as part of that calculation?

Allocated which items, sorry?

The items you've just mentioned -- the additional preference share, [funding] costs, etc.

No, they are based on the pretax earnings that we report by division and then tax-adjusted.

Simon, good morning.

Yes, get the nasty ones out of the way first. Simon Samuels --

No, no, you said that. I did not say that.

Simon Samuels from Citigroup. A couple of things, actually, if I could. One is I'm just interested in your comments in terms of the outlook comments that are made about the exceptionally low provisions in UK SME can't continue.

If I look at your UK Business Banking division, in the second half, its impairment charges were about 125 million pounds, which obviously annualizes to 50. Your risk tendency in June in that division was 260 and now reached 280. So it's basically charge-offs seems to be at risk tendency in that division. I know that division is more than just the SME bit.

But I was wondering if you could just comment about whether you are expecting that division to report impairment charges going forward above that risk tendency? Because essentially what I am saying is you are already at risk tendency in that division. And you seem to be saying it's about to get worse.

Simon, we have to be careful, as you know, how we answer that question. But we are very deliberate in giving you the forward-looking risk tendency -- not synonymous, as you know, with impairment, from conversations we've had before. But nonetheless, we give you that risk tendency figure.

But I think the point that Naguib and I are making is simply this, that if you look at impairment as a percentage of the average loan book in Business Banking, it is 30 basis points, up from 28 basis points in 2004. That's low. You know it in this room just as well as I know it. That's low by historical standards. And at some stage, we should expect to see some normalization of that.

Remember that the asset book in business banking grew 23% during the course of 2005. That will be another source of impairment growth, of course, in 2006. So we are saying in a sense, no more, no less than that. What we have at the moment and what we've had over the course of the last few years is a very benign environment. And at some stage, you'll start to see a trend towards normalization.

If I could just secondly ask you about -- I think you said last year you kindly guided the market, you were forecasting or expecting double-digit revenue growth and sort of similar cost growth for '06 -- sorry, for '05, and obviously organically, you have exceeded those numbers. I was just wondering the thought process behind not sort of giving a similar forward-looking comment this time around?

Well, we have tried to give some guidance in a number of areas, as you have heard from what particularly Naguib has said. And I think our approach will be to think about consensus as we come into these meetings each time. And if we feel we need to give some guidance, and you have had a bit in relation to consensus this morning from Naguib, then we will give it. I recognize that by the standards of Barclays over the course of the last few years, the guidance we gave you a year ago was quite specific. We're choosing to be a little less specific today. But you should read nothing particular into that.

Anything you want to add?

No, I would say last year at this time, there was a bigger discrepancy between our outlook and consensus. So it made sense to be much more specific.

Do you mind if I just -- one very quick one -- and then I promise I'll shut up. Just on the Tier 1 outlook, I think, again, six months ago, you very clearly saying that the Tier 1 ratio would go above 7.25 in the second half of '06. So that's been sort of six months ago. Now it is moving towards that during the course of '06. I know these are small numbers, but I was just wondering if you could just tell us kind of what has changed in terms of your expected generation of Tier 1 capital?

Well, we have seen very strong balance sheet growth. So you've had strong balance sheet growth in business banking, in IRCB, in Bar Cap and in Absa. If you look at the growth in Absa, the balance sheet growth and the weighted risk asset consumption growth has been very, very rapid.

And I think these are just very small differences at the margin, Simon. There's a lot of things that go into landing the exact Tier 1 ratio. A 0.1% here or there isn't really the issue. We are managing around a target of 7.25. And we're very comfortable heading towards that in

It's Mark Thomas of Keefe, Bruyette. Three in principal questions on litigation risk, if I may. First of all, if there was a large litigation charge, would you anticipate some clawback in terms of the three-year [rolling] bonuses that we may have seen in Barclaycard -- Barclays Capital.

Secondly, my understanding of operational risk under BASEL II is that if you are using the advanced system, you actually have to take previous actual losses within the model. So could you actually give us some indication as to how you might think the operational risk charge may be affected?

And thirdly, given those two factors, would there be any incentive in taking a settlement early if there was, should we say, an outstanding litigation issue?

Well, Mark, you always pose interesting questions. Let me comment on the bonus point. And then Naguib might want to comment on the BASEL point. I think we are talking hypothesis here. And I would be very surprised indeed if ever we felt it right to do what you suggested. That's not the way that we run the business. And it seems to me to be quite out with the bounds of expectation. But I make that point in the sense all the more stridently, because we're talking hypothetical circumstances.

Naguib, BASEL?

I think all of this is predicated on -- you're clearly going at this with an assumption that we are about to take some big litigation charge, which is not what we're saying. So we don't think going into how it might affect the BASEL II calculations is terribly constructive at this point.

[inaudible -- microphone inaccessible]

I don't know. Robert, do you know how that would be reflected in the BASEL calculations?

This is Robert Le Blanc, who is Head of Risk.

When you look at operational risk for BASEL, you would do it based on internal loss history. So anything that affected that loss history would be something we would include in our estimation. As we're not expecting anything, as Naguib said, the effect would be not present either. But the basis of your question is a correct interpretation of BASEL.

Two unrelated questions, if I may. Robert Law of Lehman. Firstly, on the UK Retail Bank, on the revenue performance in the second half of the year, if I look at the margin slides you gave at the interim stage and compare them with today's, there's been about a 20 basis point rise in the margin in the second half of the year. Could you comment on the factors behind that? I know you've basically mentioned mortgages. Was that all it was? And comment on the sustainability of that margin trend, because I think it's basically hidden behind the revenue performance.

And the second unrelated question was on credit impairment. You said you're not quoting the top on credit impairment in retail or in Barclaycard. Could you give us some indication of the factors behind that, in particular, arrears -- new business arrears on credit cards?

Naguib is going to talk to your first question, Robert, and then I will deal with the second one.

You are right when you say that the impact on margins was partly driven by mortgages. I think the other things that we've had in retail banking in balance growth and overdrafts during the course of the year. The margins on those are obviously higher, and that affects the overall margin equation. I don't think there was any other big factor that I'd particularly highlight.

I think on the Barclaycard side, Robert, the business is continuing to grow strongly. It's got the international dimension to add to the UK dimension. We expect in the ordinary course of events with growth in the book and growth in activity, we would expect to see a growth in impairment. And as the international side diversifies quickly, that will of course also be a source of contribution.

In terms of the UK, in a sense, all I will do, I'm afraid, rather boringly, is to repeat what I said earlier, which is that if you ask me, is it time? Do we see the data that would cause us to be able to say, yes, we can see the turn, I think it's too early to call that.

Could I follow that up?

Yes, do. Of course.

In some of the other banks in their trading statements referred to declining arrears on new business. I wondered if you had seen that? And if you thought that was a function of actions taken by the banks, or whether it is genuinely experience of new business on a like-for-like basis?

It is an important question. What we have seen, and Naguib referred to it, was a decline in the rate of deterioration during the second half versus the first half. We have been cautious in our lending policy, I think appropriately cautious in our lending policy over the recent period of time. I'm talking over the course of the last couple of years.

If I look, for example, at near-prime balances as a percentage of total extended credit balances, they are about 8%, about 750 million pounds. The near-prime business is dominated by new to credit. If I look at flows into the book over the course of the last couple of years, near-prime would have represented about 15% of the flow. So the business is predominately, as you know, a prime lending business.

It's Stephen Andrews from UBS. I'm just trying to get a bit of clarity on where you feel consensus -- whether you've come to a consensus for '06. I was interested in Naguib's closing comments where he said, year-end forecasts for revenues, costs and impairments were still ahead of the Street.

Is it -- can I first ask where do you think consensus are for those lines? And secondly, for each of those lines -- I'm chancing my luck here -- but secondly, is the difference from consensus on each of those lines broadly equal?

Stephen, you're asking us for a forecast. And you are doing it very subtly, and very nicely, but you're asking us for a forecast. And you know, we can't give you that. But Naguib has got one thing that he will say.

I would say two things, actually. One is that I did use the word slightly. So I wouldn't ignore the --

We are into the minute points here.

And I think in terms of consensus, our IR people can provide you what we're working off as market consensus. Very happy to do that. We have a sheet with all the data on it.

It's David Williams from Morgan Stanley. Two questions. First of all, on the retail bank, obviously an interesting result -- your [meetings] were ahead of your target in terms of the cost to income ratio. Yet in my analysis, you are continuing to lose market share in the bank account market and also your DVaR mortgages. And your customer satisfaction ratings are still below your peer group. So are you right to be outperforming on the cost line? Or should you be investing more into the retail bank to really get those metrics in line with peers? And at what time going forward would you expect to be sort of equal in your peer group in that region?

Second question is on BGI. A very useful 2 basis point pickup in the revenue margins there, coming through very strongly. Is that a change in the business mix that you'd expect to be maintained going forward and potentially even increase? And is the business scaleable such as your cost income ratio can still move down, as Naguib said? It isn't now one of the most efficient businesses in the marketplace. So will cost growth increase in line with the revenue growth there? Thank you.

Naguib will handle the BGI one. Let me just give you a few comments about UK Retail Banking. The first thing to say is that, as you know, the productivity goal that we set is struck at UK Banking level, not at UK Retail Banking level. But I like the fact that in UK Retail Banking during 2005 versus 2004, you've got income growth of 4%, you've got cost contraction of 3%. So in other words, both sides of the P&L account are contributing to the improvement in efficiency.

Where do we end up at the end of 2005 in UK Retail Banking cost to income ratio? 67%. Is that too high? Yes. It's an improvement of 4 percentage points versus 2004, but we are still not on the pace of the best players in the market. And so it's right for us to be energetic in pursuit of further improvements. And that's one of the reasons why I am confident about the 2% in 2006 and 2007.

So we need to be pushing that business hard because we are off the pace of the best in terms of cost to income ratio. I talked very clearly in my presentation about what a synthetic competitor might look like in UK Retail Banking. And I told you the areas where I feel we need to be picking up the pace of our performance.

We've done quite well in general insurance in 2005, launched, as you know, a partnership with Norwich Union. We are attacking that market aggressively. I can see over time some good progress in long-term savings and investments. And I am impatient for the turnaround in mortgages in the way that I've talked about.

I think that what you are seeing -- it's a rather simplistic interpretation that I will give you, but what you are seeing in UK Retail Banking in 2005 is more business with existing customers and good flows of new customers into the business. And I gave you some statistics about that. So we feel that it is right for us to say we have turned the corner, but I don't feel, under any circumstances, that the business is performing as well as it should be. And we are at work on that.

Naguib, on BGI?

Yes, your two questions on BGI, you are right on the improvement in the revenue margin. That's really driven by the growth in exchange-traded funds and in the active business, both of which have a higher margin.

And in terms of scalability and the cost income ratio, I think really 59% is about as low as we would expect to see it go. It's possible it could go slightly lower, but I think the time of the big improvement in margins is now behind us as we invest in new product development and growth. I think those margins are amongst the best in the industry, and we'd expect to keep them there.

Bob, do you want to say anything just to add to what Naguib said? Do you have a microphone?

To be frank, I think Naguib hit it. If you look at the growth in assets under management, they've been pretty strong. It's been like 80 billion a year for the past four or five years. But if you look that at a compound growth rate, it's been about 15, 16, 17% in terms of the growth in assets under management. But the growth in revenues and profits have been 35% and 70%.

So what you are clearly seeing is the new business coming on as higher margins. It's a better mix. And as Naguib said, it is more active and it's more exchange-traded funds.

It's Simon Willis from NCB Stockbrokers. The question relates to the mortgage market. And last year, your mortgage balances were down by 4%. You've made various changes in terms of management and also products, and one or two other things. Could you comment on the trend in balances in the final quarter of last year, perhaps, then maybe coming into this year, and how you see the outlook relative to your expectations for overall risk-weighted asset growth, asset growth or risk-weighted asset growth for this year, and in particular, whether you think you may be able to reverse your loss of market share that you've seen for several years now in that area?

Well, let me give you some comments. And then I'll ask Gary Hoffman to comment as well. We don't give quarter-by-quarter performance updates, thank God. And so I'm going to resist the temptation to answer you on the fourth quarter and indeed in the first few weeks of 2006.

But I did say, and I careful to say it, that we have applied a lot of pressure and are applying a lot of pressure to the business. And we can see some signs of response. Now, I recognize that over the last weeks -- I'm talking for the market as a whole -- it's been an area of brisk activity. So of course, I'm looking to see whether we are holding our own or better in that pattern of risk or activity. And I refer you to the remarks that I made. But I'm not happy with the fact that we have such a big discrepancy between our share of stock and our share of flow.

Interestingly, if you look back over the course of last years, there have been -- I'm talking since we acquired the Woolich -- there have been times when we have reported to you as high as 13% net share of flow. So I do think of the net share of flow as dirigible. I think we can make it move.

I don't want to tell you that we are going to make it move in the first half of 2006. I'm not making any forecasts about the first half of 2006. But it is something that will respond to treatment. And as I have said, we are seeing some signs of response.

Gary, I was going to have you comment on the mortgage market. And I omitted to come to you. Would you just like to add to what I had to say?

Yes, as you have seen, our net market share was minus 3% in 2005. And we expect to improve performance in 2006. We won't give any promises, as John has said. We have undertaken some initiatives on the product side, so we have introduced some market-leading products under the Woolwich brand and the Barclays brand.

We've taken the servicing in-house from GHL as from the first of February. I was up in that servicing center myself on the first of February to see how people feel about that. And they feel very good about it.

So I am confident, given what we are doing on the product side, given what we're doing on the servicing side, that we can improve things beyond what we've done in the couple and three years. But we're not making any predictions, of course.

Peter Toeman from HSBC. Under Barclays Capital, there's a commentary about the impact of the flattening yield curve. I wondered if that was a factor which was mostly played out in '05 or whether there would in fact be more compression going forward?

Bob?

Naguib has in the package -- in his appendix a look at some of the breakdown of the different revenues categories in Barclays Capital. And I think unsurprisingly, one area that declined in 2005 was interest rate products.

I think the two things that we had signaled to you earlier on is we are expecting a change in shape of the yield curve and rising rates. But we also signaled that we didn't see that as impacting the business. It's much more than kind of and interest rate play.

And we didn't -- you can see from the results that our results were not the function of a big yield curve bet in 2003 and 2004. So in terms of the impact, I think you did see the impact in 2005. Interest rate products I think were down about 19%, something on that order. I wouldn't see -- if I look forward to 2006, I wouldn't make a big thing either way, in terms of that.

It is Alistair Ryan from UBS. Thinking back to perhaps more difficult times, sort of 2002, you used to break out your costs into three buckets -- business as usual, sort of revenue performance-related, and investment costs. Without encouraging you to go back down there, because I realize the lines are very difficult to [technical difficulty], it feels like the second half of 2005, the investment spend was perhaps stepped-up because revenues were coming in better than you had hoped early in the year. Is that a fair characterization? And have we got any way of [multiple speakers]

Yes, I think that one of the things that I look at very carefully is what income looks like half on half. And what you have seen, interestingly, ex Absa, second half versus first half, is income growth across Barclays of about 500 million pounds. That is quite unusual, actually, by the standards of our history, as you all know.

And so with that increased income opportunity, it felt right for us to be stepping up our investment. But as you've had from the analysis that Naguib gave you, we have been very clear about where it is right to be investing heavily. And as you know, we do measure carefully the efficiency ratios of each of our business is relative to themselves prior year, but more importantly, relative to the best in the market. And there are some businesses -- I refer to UK Retail Banking as one -- where I am not happy with the current cost income ratio and where we expect to improve it.

Can I add just two points to that? The area that I think people had had the most interest in the breakdown of costs was in Barclays Capital. And what we do give now is I think more helpful disclosure than the three-way split because it tries to give you a sense of what the flexibility in costs is, and we have been showing that data for about a year and a half now. That's the area where we've had the most interest.

The second thing I would say is you were right about the phasing of spend in the second half of last year. And it was particularly in UK Banking where we did have a view going into the year that we would weight the investment expenditure to the second half so that we could see what the strength of income was before committing it all, because we had a promise to the market on cost income ratio, and it therefore made sense to back-end some of that investment spend. And that is exactly what you saw.

Other questions? Michael, I am very pleased you are asking a question, because I think I rather rudely cut you off last August. And I've been feeling bad about that ever since. I want you to know it. So, if you want to have two questions this morning, you've got them.

Yes, to questions, promise no sub-prime.

Very good.

Firstly, just on the international profits, you have clearly restated the way that you collect that information quite strongly. I think at the half year, you said post Absa, your international profits was about 33%. It's gone up to 40% for the full year -- feels like high 40s if we annualize Absa. You are talking about this 50% goal still over the next three years. But clearly, that is on -- is that on new money, old money in terms of the profits? So is something scaled back? It feels like it's your international ambition.

Well, the 40%, Michael, is what I base the assessment at when I look at 50% over the course of the three years. And I make that point -- the 50% -- as I said, it's not a sort of abstract pursuit, this. I think that diversification of profit by business and by geography is good for sustainability. It's good for momentum. And it's good for quality of earnings.

So that's the way that I look at it. And your question gives me the opportunity of emphasizing that we believe that as a result of the momentum we've got in our businesses as the moment, partly that is IRCB, partly it is the global businesses that we can get to a 50% -- in other words, broad split within three years without further acquisition.

Do you want to say anything about the composition?

Yes, I think the area where we've done the most work looking at the way in which we classify earnings is in Barclays Capital, where we have looked much more carefully at where the client resides as opposed to the booking entity. And a lot of our historical exposure was based on the location of the booking entity as opposed to the location of the client. And that made quite a big difference.

But remember, Michael, when you look at, for example, Barclays Capital and Barclays Global Investors, a lot of the investment that we've been making over the short term, last couple of years, it's gone into diversification of profit. That would especially be true in Barclays Capital. Hence the comments I make about over 70% of its profit now coming from outside the UK. So you shouldn't be surprised, I'm certainly not, to see quite rapid acceleration of the non-UK component of the portfolio.

And just one number that isn't actually disclosed in the results that clearly all your peer group -- well, is the group net interest margin. On old basis, I mean, there's a lot of hoo-ha, basically, at the interim results in one of your competitors. You didn't give the number at the interim results. So I was wondering if you could --

Where we used to be was that we gave the big hairy number. But we didn't give the divisional breakout. And in a sense, understandably, the comments from within this room were for goodness sake, give us the divisional breakout; that is much more meaningful. We have moved to that. And now you're looking for the big hairy number. I know Naguib has got something to say about this subject.

I don't want to know about [multiple speakers]

Yes. I guess the decision that I took was that the Group net interest margin was not a particularly meaningful number because it is so affected by the mix on the balance sheet that the size of the balance sheet of Barclays Capital, where net interest margin is not really a relevant measure, made the group net interest margin a not very meaningful issue to focus on. That's why we've given the more granulate business-level information.

It comes from having a much more enlightened Finance Director than his predecessor -- that's what it is attributable to.

Tom, another one.

It's Tom Rayner again at Citigroup. I was just prompted to ask this actually when Bob referred us to slide 27 showing the income breakdown. Just noticed how strong commodities was in 2005. I'm not sure if you've given the half-and-half split before. But I was just wondering, is this a sustainable increase or is this really about rampant [multiple speakers] price?

Bob, do you want to talk about it?

Actually, very glad to get that question. We have been investing in the commodities business heavily for a couple of years now. And I have been asked a couple of times, has the performance last year -- and by the way, the split was fairly even. I haven't got it exact, but it wasn't a big number first half versus second half -- fairly even.

Strong rally in commodity prices last year -- was it a function of the spike in prices or is it sustainable? We think it is sustainable. So I'll clearly be on the hook for that. This is -- you see our DVaR numbers are not up year over year. So this wasn't got a hunch, bet a bunch. This was real client-driven business. We've really focused on the model.

I think the thing that particularly intrigues me is how much institutional money is moving into the commodities space. Hedge funds, but more importantly, endowments, and most importantly, and most recently, big state pension funds, big government pension funds since 2001, looking for equity-type returns with some diversification.

So we are seeing big pools of money with 5%, 10%, 15% allocated to commodities. And we did not see that a few years ago. So sustainable is the answer and we should be on the hook for that.

James Hamilton, WestLB. The financial business has performed well. I've just got a couple of quick questions on the UK operations. It appears from an economic profit breakout that the economic profit generation in the UK declined in 2005. Is this the start of a trend? Or is this a one-off?

And sort of related to that, your ambitions for growth in the UK -- clearly, household debt continues to increase at a multiple of household income growth and a very significant multiple of household disposable income growth. How much more capacity do you think there is for household debt to expand beyond income growth in the UK?

Why don't you take the first point.

I am not sure what number you are referring to on economic profit decline. UK Banking economic profit was actually up from 1158 to 1219. And the rate of growth of economic profit growth was held back because we allocated a lot more economic capital to Business Banking, reflecting the growth of the book.

I think on the point about consumer debt, what is very noticeable -- you know these statistics just as I know them, but lots and lots of consumers and citizens of this country have got debt. The overwhelming majority of those manage that debt well, in other words, they manage the impact of higher average interest rates quite comfortably.

But there is strong concentration around a relatively small percentage of the population that has very high levels of debt and for whom the higher average interest rates of 2005 represent a real problem. And I think you should distinguish in your mind -- we certainly distinguish in our minds between those two categories.

But when you look at the whole impairment scene over the course of the last 18 months, actually the number of people who are falling into arrears -- that has not increased significantly. What has happened is that for those who have fallen into difficulties, their average debt level, when they hit difficulties, has been higher. In other words, the severity has increased.

So I don't think that we are unduly concerned about the capacity issue. I think it's right, of course, for us to understand that generally consumers in 2005 and 2006 are cautious relative to how they were feeling in 2003 and 2004. And that is very closely associated, I think, with subdued house price inflation. But I don't believe -- we certainly don't regard this as an area where we are not going to see growth. You can look at the balance performance in 2005 and you can see growth.

One last question, if there is one.

It is Ed Firth from Soc Gen. Rather a feeble question to finish on, but if there's a space -- I noticed that in the Zaragozano restructuring charge, somewhere around 60 million I think, for this year, are we done now with those restructuring charges? Or are there some still more to come?

No, we would expect more in '06 and '07. They would drop out towards the end of '08.

This order of magnitude, or steadily declining or--?

No, they would be declining over the next three years.