Barclays Plc - Final Results

Performance Highlights

 

Improved financial performance with Group return on tangible equity of 8.5% and earnings per share of 21.9p1

 

·

Delivering improving earnings for shareholders

·

Improving operating leverage and investing in medium term growth initiatives with a particular focus on capital light activities with attractive returns

·

Common equity tier 1 (CET1) ratio of 13.2% is at the end-state target of c.13%, with future profit generation supporting both investment and cash returns to shareholders

 

 

Returns1

Group RoTE targets of >9% in 2019 and >10% in 2020

·     Earnings per share (EPS) of 21.9p (2017: negative 3.5p) and Group return on tangible equity (RoTE) of 8.5% (2017: negative 1.2%), with profit before tax (PBT) up 20% to £5.7bn

·     Barclays UK RoTE of 16.7% (2017: 17.8%), as PBT decreased 3% to £2.4bn

·     Barclays International RoTE of 8.7% (2017: 4.4%), as PBT increased 10% to £3.9bn

Cost efficiency

 

Group cost guidance of £13.6-13.9bn1 in 2019, and cost: income ratio of <60% over time

·   Group operating expenses decreased 2% to £13.9bn in line with guidance after excluding a charge for Guaranteed Minimum Pensions (GMP)

·   The cost: income ratio, excluding litigation and conduct charges, improved to 66% (2017: 68%)

·  Creating capacity within the cost base through elimination of legacy costs and productivity savings via Barclays Execution Services (BX) to improve operating leverage and investment in medium term growth initiatives, while delivering a reduction in absolute costs in 2018

Capital and dividends

At end-state CET1 ratio        target of c.13%                  

6.5p total dividend for 2018

·    Generated 140bps of capital from profits, more than offset by 71bps impact from litigation and conduct charges, 53bps from ordinary dividends and Additional Tier 1 (AT1) coupons paid and foreseen, and 33bps from the decision to redeem Preference Shares and Additional Tier 1 (AT1) securities in December 2018

·  Capital returns policy updated - progressive ordinary dividend, supplemented by share buybacks as and when appropriate

 

·

Barclays Group profit before tax was £3.5bn (2017: £3.5bn) which included litigation and conduct charges of £2.2bn (2017: £1.2bn) principally related to a £1.4bn settlement with the US Department of Justice (DoJ) with regard to Residential Mortgage-Backed Securities (RMBS) and charges of £0.4bn (2017: £0.7bndue to Payment Protection Insurance (PPI) in Q118

·

Excluding litigation and conduct charges, Group profit before tax increased 20% to £5.7bn despite the adverse effect of the 3% depreciation of average USD against GBP. Income was stable and operating expenses reduced 2%. The cost: income ratio improved to 66% (2017: 68%) which included a £140m charge to reflect the estimated increase in pension obligations due to GMP. Credit impairment charges reduced 37% to £1.5bn including updates for consensus-based macroeconomic forecasts in the UK and US during the year and the prudent management of credit risk. This improvement was partially offset by a Q418 £150m specific charge for the impact of the anticipated economic uncertainty in the UK

·

Barclays UK profit before tax increased to £2.0bn (2017: £1.7bn). Excluding litigation and conduct, profit before tax decreased 3% to £2.4bn reflecting a 5% increase in impairment charges, due to a £100m charge for the anticipated economic uncertainty in the UK. Income was stable as lower interest margins were offset by strong balance sheet growth. Expenses increased 1% reflecting continued investment to grow the business and improve future operating efficiency. RoTE excluding litigation and conduct was 16.7% (2017: 17.8%)

·

Barclays International profit before tax increased to £3.8bn (2017: £3.3bn). Income growth in Markets and the Consumer, Cards and Payments business was offset by the non-recurrence of prior year one-offs, from a US asset card sale and a valuation gain on Barclays' preference shares in Visa Inc, and lower Banking income. Credit impairment charges decreased 56% primarily due to single name recoveries, updates for consensus-based macroeconomic forecasts in the UK and US, non-recurrence of single name charges in 2017 and the repositioning of the US cards portfolio towards a lower risk mix. Total operating expenses decreased 2% as continued investments in business growth, talent and technology were offset by lower costs for restructuring and structural reform. RoTE excluding litigation and conduct was 8.7% (2017: 4.4%), with the Corporate and Investment Bank (CIB) and Consumer, Cards and Payments delivering 7.1% and 17.3% (2017: 2.2% and 16.8%) respectively

·

Attributable profit was £1.4bn (2017: loss of £1.9bn). This reflected the non-recurrence of a £2.5bn loss related to the sell down of Barclays Africa Group Limited (BAGL) and a tax charge of £1.1bn compared to a 2017 charge of £2.2bn which included a one-off net charge of £0.9bn due to the re-measurement of US deferred tax assets (DTAs). Basic earnings per share was 9.4p (2017: loss per share of 10.3p) and excluding litigation and conduct was 21.9p (2017: loss per share of 3.5p)

·

Tangible net asset value (TNAV) per share was 262p (December 2017: 276p) as 21.9p of earnings per share, excluding litigation and conduct, was more than offset by the implementation of IFRS 9, impact of litigation and conduct charges, the redemption of Preference Shares and AT1 securities, as well as dividend payments. In Q418 TNAV increased by 2p, the third consecutive quarter of TNAV accretion

 

1

Excluding litigation and conduct, with returns targets based on a Barclays Group CET1 ratio of c.13%.

 

Barclays Group results

 

for the year ended

31.12.18

31.12.17

 

 

£m

£m

% Change

Total income

21,136

21,076

-

Credit impairment charges and other provisions

(1,468)

(2,336)

37

Net operating income

19,668

18,740

5

Operating costs

(13,627)

(13,884)

2

UK bank levy

(269)

(365)

26

 Operating expenses

(13,896)

(14,249)

2

GMP charge

(140)

-

 

Litigation and conduct

(2,207)

(1,207)

(83)

Total operating expenses

(16,243)

(15,456)

(5)

Other net income

69

257

(73)

Profit before tax

3,494

3,541

(1)

Tax charge

(1,122)

(2,240)

50

Profit after tax in respect of continuing operations

2,372

1,301

82

Loss after tax in respect of discontinued operation

-

(2,195)

 

Non-controlling interests in respect of continuing operations

(226)

(249)

9

Non-controlling interests in respect of discontinued operation

-

(140)

 

Other equity instrument holders1

(752)

(639)

(18)

Attributable profit/(loss)

1,394

(1,922)

 

 

 

 

 

Performance measures

 

 

 

Return on average tangible shareholders' equity1

3.6%

(3.6%)

 

Average tangible shareholders' equity (£bn)

 44.1

48.9

 

Cost: income ratio

77%

73%

 

Loan loss rate (bps)2

44

57

 

Basic earnings/(loss) per share1

9.4p

(10.3p)

 

Dividend per share

6.5p

3.0p

 

  

 

 

 

Performance measures excluding litigation and conduct3

 

 

 

Profit before tax

5,701

4,748

20

Attributable profit/(loss)

3,530

(772)

 

Return on average tangible shareholders' equity1

8.5%

(1.2%)

 

Cost: income ratio

66%

68%

 

Basic earnings/(loss) per share1

21.9p

(3.5p)

 

 

 

 

 

Balance sheet and capital management4

£bn

£bn

 

Tangible net asset value per share

262p

276p

 

Common equity tier 1 ratio

13.2%

13.3%

 

Common equity tier 1 capital

41.1

41.6

 

Risk weighted assets

311.9

313.0

 

UK leverage ratio

5.1%

5.1%

 

UK leverage exposure

999

985

 

Average UK leverage ratio5

4.5%

4.9%

 

Average UK leverage exposure5

1,110

1,045

 

 

 

 

 

Funding and liquidity

 

 

 

Group liquidity pool (£bn)

227

220

 

Liquidity coverage ratio

169%

154%

 

Loan: deposit ratio

83%

81%

 

 

 

 

 

 

 

Group Chief Executive Officer's Review

 

"2018 represented a very significant period for Barclays.

 

In the course of the year, having resolved major legacy issues and reduced the drag from low returning businesses, we started to see the earnings potential of the bank, as the strategy we have implemented began to deliver.

 

This was evident in the improved performance across the Group compared to 2017.

 

Excluding litigation and conduct, profits before tax were up by 20% to £5,701m and our Group Return on Tangible Equity was 8.5% for the year - close to our 2019 financial target of greater than 9%.

 

Earnings per share excluding litigation and conduct for the full year was 21.9p. Our CET1 capital ratio of 13.2% is at our target of around 13%, and we have grown tangible book value for three quarters in a row.

 

The progress made on these key measures demonstrates that our plan is working and we have a strong foundation on which to achieve our returns targets for this year and next.

 

The fundamental strength of our Group rests on a diversified, though connected, portfolio of businesses. Barclays is well diversified by geography, by product and by currency between our consumer and wholesale businesses, designed to produce consistent and attractive returns through the economic cycle. The results for 2018 demonstrate this.

 

Our overriding priority for 2019 and 2020 is the attainment of our returns targets. Beyond those we are also focusing on medium term revenue growth opportunities - opportunities which rely on technology rather than capital. Such investment and focus beyond the immediate was simply not a viable option during the many years of reshaping this company. The efficiencies we have driven have created the capacity to invest to strengthen and grow our business within our cost guidance of £13.6-13.9bn for 2019, although we have the ability to flex that investment to a degree to support our RoTE targets if the environment requires us to do so.

 

In 2018, based on our strong capital generation, Barclays restored the dividend to 6.5p and redeemed expensive preference shares dating from the financial crisis. This is excellent progress, but not sufficient.

 

Going forward the principal calls on future earnings should now be returns to shareholders and investing to grow the business. We will use the strong capital generation of the bank to return a greater proportion of those earnings to shareholders by way of dividends and to supplement those dividends with additional returns, including share buybacks. I am optimistic for our prospects to do more in 2019 and beyond."

 

James E Staley, Group Chief Executive Officer