Key performance indicators
Financial
Profit before tax
Profit before tax is one of the two primary profitability measures used to assess performance and represents total income less impairment charges and operating expenses.
Profit before tax is a key indicator of financial performance to the majority of our stakeholders.
| 2006 | 2007 | 2008 |
|---|---|---|
| £7,136m | £7,076m | £6,077m |
Economic Profit
Economic Profit (EP) is the other primary profitability measure used by Barclays. EP is profit after tax and minority interests less a capital charge (average shareholders’ equity and goodwill excluding minority interests multiplied by the Group cost of capital).
Barclays believes that economic profit encourages both profitable growth and the efficient use of capital. Barclays has a set of four year performanc egoals for the period 2008 to 2011 inclusive. The primary goal is to achieve compound annual growth in economic profit in the range of 5% to 10% (£9.3bn to £10.6bn of cumulative economic profit) over the 2008 to 2011 goal period. Given the increase in the cost of capital and regulatory capital requirements in 2008 we intend to publish new goals in 2009.
Shareholder returns
Total shareholder return (TSR) is defined as the value created for shareholders through share price appreciation, plus reinvested dividend payments. We compare Barclays performance with a group of international peers and aim for top quartile performance. Return on average shareholders' equity is calculated as profit after tax divided by the average shareholders' equity during the year, which is made up of share capital, retained earnings and other reserves.
These measures indicate the returns shareholders are receiving for their investment in Barclays both in terms of relative share price movements and the business performance. These metrics demonstrate the alignment of Barclays strategy and operations with the interests of shareholders.
| Total shareholder return | ||
|---|---|---|
| 2006 | 2007 | 2008 |
| 2nd quartile |
3rd quartile |
2nd quartile |
| Return on average shareholders' equity | ||
|---|---|---|
| 2006 | 2007 | 2008 |
| 24.7% | 20.3% | 16.5% |
Capital ratios
Capital requirements are part of the regulatory framework governing how banks and depository institutions are managed. Capital ratios express a bank's capital as a percentage of its risk weighted assets. Tier 1 capital is defined by the UK FSA with Equity Tier 1 broadly being tangible shareholders' funds within Tier 1. The 2008 pro-forma ratios reflect the conversion of Mandatorily Convertible Notes and inclusion of all innovative instruments in Tier 1 capital.
The Group's capital management activities seek to maximise shareholders' value by optimising the level and mix of its capital resources.
The Group's capital management objectives are to:
- Maintain sufficient capital resources to meet the minimum regulatory capital requirements set by the UK FSA and the US Federal Reserve Bank's requirements that a financial holding company be 'well capitalised'
- Maintain sufficient capital resources to support the Group's Risk Appetite and economic capital requirements
- Support the Group's credit rating
- Ensure locally regulated subsidiaries can meet their minimum capital requirements
- Allocate capital to businesses to support the Group's strategic objectives, including optimising returns on economic and regulatory capital.
| 2006 | 2007 | 2008 | Pro- forma 2008 |
|---|---|---|---|
| Equity Tier 1a | |||
| 5.3% | 5.1% | 5.8% | 6.7% |
| Tier 1a | |||
| 7.7% | 7.6% | 8.6% | 9.7% |
Note
a Capital ratios for 2008 and 2007 are calculated on a Basel II basis, whilst the 2006 ratios are on a Basel I basis
We expect to maintain our Equity Tier 1 and Tier 1 ratios at levels which significantly exceed the current minimum requirements of the UK FSA for the duration of the current period of financial and economic stress.
Adjusted Gross Leverage
Adjusted gross leverage is defined as the multiple of adjusted total tangible assets over total qualifying Tier 1 capital. Adjusted total tangible assets are total assets less derivative counterparty netting, assets under management on the balance sheet, settlement balances, goodwill and intangible assets. Tier 1 capital is defined by the UK FSA. The 2008 Pro forma ratio reflects the conversion of Mandatorily Convertible Notes and inclusion of all innovative instruments in Tier 1 capital.
Barclays believes that there will be more capital and less leverage in the banking system, as a key measure of stability, which is consistent with the views of regulators and investors. Barclays expects adjusted gross leverage to reduce further over time.
| 2007 | 2008 | Pro-forma 2008 |
|---|---|---|
| 33x | 28x | 24x |
