BARCLAYS PLC annual report, Q4 FY2019

Business context and reporting period

Barclays PLC is a UK-based diversified banking group, reporting under IFRS as issued by the IASB. This Form 20-F covers the fiscal year ended December 31, 2019; it is an annual report, not a standalone fourth-quarter filing. Income statement comparisons are against 2018, and balance sheet comparisons are as of December 31, 2018. Amounts are in pounds sterling unless stated otherwise.

Key financial metrics

Management’s adjusted measures exclude litigation and conduct charges and are non-IFRS; statutory results are shown separately above. Reported total operating expenses were £15.434bn, including £1.849bn of litigation and conduct charges. Group operating costs excluding litigation and conduct were in line with 2019 guidance of below £13.6bn.

• Cash flow: Net cash used in operating activities was £12.295bn; net cash used in investing activities was £12.826bn; financing activities provided £0.690bn. Cash and cash equivalents decreased £27.778bn to £183.387bn. These banking-group cash flows are not a conventional measure of free cash flow.
• Capital and liquidity: CET1 ratio was 13.8% (13.2% in 2018); average UK leverage ratio was 4.5% (unchanged). Liquidity pool was £211bn (£227bn), and liquidity coverage ratio was 160% (169%), above the 100% regulatory minimum.
• Funding and balance sheet: Total assets were £1.140tn, total liabilities £1.075tn and total equity £65.7bn. Customer deposits at amortised cost were £415.8bn (£394.8bn); wholesale funding was £147.1bn (£154.0bn); debt securities in issue were £76.4bn (£82.3bn).
• Shareholder returns: Total 2019 dividend was 9.0p per ordinary share versus 6.5p in 2018; dividends for the year totalled £1.201bn.

Material changes versus 2018

• Total income rose 2%, while statutory profit before tax rose 25% and attributable profit rose 54%. Adjusted profit before tax, excluding litigation and conduct, increased 9% to £6.206bn.
• Adjusted operating expenses fell 2%, and the adjusted cost:income ratio improved by three percentage points. Management attributed progress to cost efficiencies, partly offset by continued investment.
• Credit impairment charges increased 30%, reflecting updated macroeconomic scenarios; the prior year included favourable scenario changes and a £150m UK economic uncertainty charge.
• The £1.4bn increase in the PPI provision in Q3 was the principal unusual item. The year-end PPI provision was £1.2bn; cumulative PPI provisions recorded were £11bn.
• Risk-weighted assets fell £16.8bn to £295.1bn, mainly due to a reduction in operational-risk RWAs and foreign exchange movements. CET1 capital decreased £0.3bn to £40.8bn, as profit generation was offset by dividends, the additional PPI provision, pension contributions, currency movements and AT1 redemption costs.
• Net loans and advances at amortised cost rose to £339.1bn from £326.4bn; deposits rose to £415.8bn from £394.8bn. Net exposure to credit risk after mitigation was £800.3bn, down from £807.4bn.

Outlook, commentary, risks and contingencies

• Barclays continues to target RoTE above 10% and a cost:income ratio below 60% over time. Management said global macroeconomic uncertainty and the low interest-rate environment make the RoTE target more challenging in 2020, while expecting a meaningful improvement in returns. The filing gives no specific 2020 cost figure.
• The Board intends to pay a progressive ordinary dividend and may supplement it with additional cash returns, including share buybacks, when appropriate, while balancing distributions, investment and capital strength.
• Key risks include uncertainty over the UK’s future trading relationship with the EU, low or negative interest rates and margin pressure, slowing global growth and geopolitical tensions, rising consumer and corporate debt, credit-cycle deterioration, market liquidity and valuation risk, cyber and operational resilience, climate-related exposures, and transition from LIBOR to alternative reference rates.
• Legal and regulatory matters remain uncertain. The Group reported £376m of provisions for legal, competition and regulatory matters; it states that outcomes may nevertheless result in significant costs or other adverse consequences. FCA and PRA investigations into CEO Jes Staley’s characterisation of his past relationship with Jeffrey Epstein remained ongoing at the report date.
• The filing states the Board considered the financial statements appropriate on a going-concern basis and found no material uncertainty casting significant doubt on that basis. KPMG issued an unqualified audit opinion; management and the auditor concluded internal control over financial reporting was effective at year-end, with no disclosed material weakness.

Most important facts for investors to verify

1. Reconcile statutory results with management’s non-IFRS measures, particularly the exclusion and treatment of litigation and conduct charges.
2. Track PPI claims, the remaining £1.2bn provision, and the assumptions used to estimate future redress and processing costs.
3. Review credit quality, impairment trends and the sensitivity of IFRS 9 expected credit losses to economic scenarios, especially for unsecured lending.
4. Confirm capital and liquidity headroom against evolving regulatory requirements, including the announced UK countercyclical buffer increase and MREL targets.
5. Monitor the outcome of legal, competition and regulatory matters, including the FCA/PRA investigation into the CEO, and assess any effect on provisions, conduct or leadership.
6. Assess whether the stated returns outlook, progressive dividend intention and potential additional distributions remain consistent with earnings, capital needs and subsidiary distribution capacity.