2012 & 2011 Restatement Document

 

Overview of Reporting Changes

 

This document provides further details of the impact on the Group's results of the implementation of IFRS 10 Consolidated Financial Statements and IAS 19 Employee Benefits (Revised 2011), as disclosed in the 2012 Barclays PLC Annual Report.

It also outlines the impact to the Group's segmental results of the allocation of elements of the Head Office results to businesses and portfolio restatements between businesses.

Whilst the Head Office allocation and portfolio restatements affect the reported results of the individual businesses, they have no impact on the Group's primary statements.

Accounting Restatements

IFRS 10 and IAS 19 (Revised 2011) became effective on 1 January 2013 and result in the restatements to the Barclays PLC results for the years ended 31 December 2011 and 2012. The 2012 results restatement reflects the application of both IFRS 10 and IAS 19. The 2011 results restatement reflects only the application of IAS 19, in line with IFRS 10 transition relief guidance.

IFRS 10

IFRS 10 replaced requirements in IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation - Special Purpose Entities. This introduced new criteria to determine whether entities in which the Group has interests should be consolidated. The implementation of IFRS 10 resulted in the Group consolidating some entities that were previously not consolidated and deconsolidating some entities that were previously consolidated, principally impacting the consolidation of entities in the Investment Bank with credit market exposures.

IAS 19

The Group adopted IAS 19 (Revised 2011) from 1 January 2013 which, amongst other changes, requires actuarial gains and losses arising from defined benefit pension schemes to be recognised in full. Previously the Group deferred these over the remaining average service lives of the employees (known as the 'corridor' approach).

The financial impact on the Group for the year ended 31 December 2012 had IFRS 10 and IAS 19 been adopted is shown in the table below:

Impact of Accounting Restatements

Restatement Adjustments

 

	2012 as Published	IFRS 10	IAS 19	2012 as Restated		2011 as Restated (IAS 19 only)
Adjusted Income Statement	£m	£m	£m	£m		£m
Profit before tax	7,048	573	(22)	7,599		5,482
Tax	(2,025)	(134)	-	(2,159)		(1,299)
Profit after tax	5,023	439	(22)	5,440		4,183
Balance Sheet
Total assets	1,490,321	(144)	(1,842)	1,488,335		1,562,083
Total liabilities	1,427,364	333	652	1,428,349		1,498,124
Total shareholders' equity	62,957	(477)	(2,494)	59,986		63,959
Performance Measures
Adjusted return on average shareholders' equity	7.8%			9.0%		6.7%
Net asset value per share	438p	(4p)	(20p)	414p		446p
Capital
Core Tier 1 capital1	42,121	(399)	-	41,722		43,066
Core Tier 1 ratio (%)	10.9%			10.8%		11.0%

The positive financial impact of adopting IFRS 10 on the Group's results for the year ended 31 December 2012 principally reflects an increase in trading income and a reduction in impairment in the Investment Bank. However, there is a cumulative reduction in total shareholders' equity at 31 December 2012 of £477m as previously disclosed in the 2012 Barclays PLC Annual Report.

Following the adoption of IAS 19, retirement benefit assets reduced by £2.3bn (2011: £1.8bn) and retirement benefit liabilities increased by £1.0bn (2011: reduced £0.1bn) as at 31 December 2012, with additional deferred tax assets recognised of £0.8bn (2011: £0.5bn), of which £0.4bn has been recognised in deferred tax assets and £0.4bn in deferred tax liabilities. As a result total assets reduced by £1.8bn and total liabilities increased by £0.7bn. Profit after tax for the period reduced by £22m (2011: £83m) with other comprehensive income lower by £2.4bn (2011: £1.2bn), resulting in a £2.5bn reduction in shareholders' equity.

1        The implementation of IAS 19 has no overall impact on the existing Core Tier 1 capital base as current regulatory rules require banks to derecognise any defined benefit pension asset from its capital base.

 

Overview of Reporting Changes

 

Segmental Restatements

Head Office Allocations

As stated in the full year results announcement, the Group has determined that it will allocate more elements of the Head Office results to the businesses, so that the aggregate of those businesses' results is more closely aligned to the Group's results, including Group return on equity. Segmental reporting reflects the information as presented to key management. For each income and expense item previously recorded in Head Office, consideration has been given to whether there is a logical basis for increased allocation of such items to other businesses:

- Intra-group allocation of funding costs and other income items now includes the majority of the costs of subordinated debt instruments, preference shares and allocation of liquidity costs; increased allocation of intra-group interest; and the elimination of fees to the Investment Bank for Structured Capital Markets activities. The allocation of the funding costs is based on the capital demand created by each business for the instruments from which these costs arise and intra-group interest is allocated on tangible equity of the businesses

- Head Office operating cost items, including the UK bank levy and Financial Services Compensation Scheme, have been allocated to businesses wherever practicable using the most appropriate driver of that cost

- The businesses average allocated equity has been calculated as 10.5% of average risk weighted assets (previously 10.0%) adjusted for capital deductions. This increase reflects the assumptions the Group uses for planning purposes in line with the long term management targets previously disclosed in the Strategic Review on 12 February 2013

The residual Head Office result in the future will depend on the level of Group capital compared to the ratio used for allocation of capital to the businesses and other residual items which are not allocated to the businesses.

The effect of the changes in allocation methodology on the 2012 and 2011 profit before tax by business are summarised in the table below:

Impact of Head Office Allocations

Impact on Profit Before Tax

 

	2012	2011
	£m	£m
UK RBB	(220)	(136)
Europe RBB	(57)	(43)
Africa RBB	(98)	(80)
Barclaycard	(58)	(35)
Investment Bank	(701)	(573)
Corporate Banking	(111)	(24)
Wealth and Investment Management	(36)	(9)
Head Office and Other Operations	1,281	900
Total	-	-

The net effect of the intra-group allocations is to increase Head Office profit before tax by £1,281m. Non-controlling interests in Head Office also reduce by £388m as a result of the allocation of preference share costs. The restated profit attributable to equity holders of the parent for each business, on which return on average equity and return on average tangible equity are calculated, is provided on page 28.

The change in allocated equity reduces the average equity held at Head Office for the year ended 31 December 2012 from £8,939m to £4,313m.

As noted in the Strategic Review on 12 February 2013, the Head Office allocation has the effect of reducing the published returns of the individual businesses. The Group level returns and 2015 financial targets are unaffected by this intra-group reallocation.

The impact of the allocation of Head Office items to business units is to reduce the Return on Equity consumed by the Head Office by 3.5% (2011: 2.4%) from 4.3% to 0.8%.

 

Overview of Reporting Changes

 

Portfolio Restatements

Some portfolio restatements have been implemented in Q1 2013 to reflect the management of the relevant businesses. In this document, the 2012 and 2011 individual business results have been restated to reflect these changes:

- Ongoing Europe Retail and Business Banking credit cards operations are transferred to Barclaycard (which already includes the Group's credit card operations in the UK and US, South Africa and other countries). This results in a profit before tax reallocation of £52m (2011: £70m) between the two businesses

- Africa Retail and Business Banking - certain components are transferred to Corporate Banking and the Investment Bank:

-    This includes alignment of existing corporate client relationships from retail to Corporate Banking, primarily all African subsidiaries of Barclays' global corporate client base and large local clients. This results in a profit before tax reallocation of £28m (2011: £31m) to Corporate Banking

-    Barclays Africa sales and trading activity is transferred to the Investment Bank (which already includes Absa Capital, the South Africa-based investment banking operation). This results in a profit before tax reallocation of £17m (2011: £17m) to the Investment Bank

- Absa's debit cards operation is transferred from Barclaycard to Africa Retail and Business Banking (reflecting greater synergies with the Africa Retail and Business Banking business). This results in a profit before tax reallocation of £15m (2011: £18m) from Barclaycard to Africa Retail and Business Banking

Change in Business Allocation of Employees

The Group has changed the allocation of full time equivalent employees so that they are allocated to businesses based upon utilisation of underlying headcount rather than the entity they are employed by. The change in business allocation includes 1,700 Head Office employees that are now allocated across the businesses. There is no impact on the Group's overall headcount. This document reflects this new allocation basis in both 2012 and 2011.

Impact of Change in Allocation of Employees	2012 as Published	Head Office Allocation	Group Structure	2012 as Restated	2011 as Restated
UK RBB	34,800	100	(1,900)	33,000	32,400
Europe RBB	7,900	100	(500)	7,500	8,100
Africa RBB	41,700	200	(1,400)	40,500	42,700
Barclaycard	11,000	200	(100)	11,100	10,900
Investment Bank	24,000	700	900	25,600	24,400
Corporate Banking	10,300	200	2,500	13,000	14,000
Wealth and Investment Management	7,900	200	200	8,300	8,500
Head Office and Other Operations	1,600	(1,700)	300	200	100
Total	139,200	-	-	139,200	141,100