28th Feb 2005 08:00
HSBC Holdings PLC28 February 2005 HSBC HOLDINGS PLC 2004 FINAL RESULTS - HIGHLIGHTS •Operating income up 23 per cent to US$50,587 million (US$41,072 million in 2003). For the year (excluding goodwill amortisation): •Operating profit before provisions up 24 per cent to US$24,712 million (US$19,990 million in 2003). •Group pre-tax profit up 35 per cent to US$19,426 million (US$14,401 million in 2003). •Attributable profit up 32 per cent to US$13,658 million (US$10,359 million in 2003). •Return on average invested capital of 15.2 per cent (13.7 per cent in 2003). •Earnings per share up 26 per cent to US$1.25 (US$0.99 in 2003). For the year (as reported): •Operating profit before provisions up 24 per cent to US$22,898 million (US$18,540 million in 2003). •Group pre-tax profit up 37 per cent to US$17,608 million (US$12,816 million in 2003). •Attributable profit up 35 per cent to US$11,840 million (US$8,774 million in 2003). •Return on average shareholders' funds of 14.4 per cent (13.0 per cent in 2003). •Basic earnings per share up 30 per cent to US$1.09 (US$0.84 in 2003). Dividend and capital position: •Fourth interim dividend (in lieu of final dividend) of US$0.27 per share; total dividend for 2004 of US$0.66 per share, an increase of 10 per cent over 2003. •Tier 1 capital ratio of 8.9 per cent and total capital ratio of 12.0 per cent, unchanged from 2003. HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$17,608 MILLION HSBC made a profit on ordinary activities before tax of US$17,608 million in2004, an increase of US$4,792 million, or 37 per cent, compared with 2003. The Directors have declared a fourth interim dividend for 2004 of US$0.27 perordinary share (in lieu of a final dividend) which, together with the first,second and third interim dividends, each of US$0.13 per ordinary share alreadypaid, will make a total distribution for the year of US$0.66 per share (US$0.60per share in 2003), an increase of 10 per cent. The fourth interim dividend willbe payable on 4 May 2005. Net interest income of US$31,024 million in 2004 was US$5,426 million, or 21 percent, higher than 2003. Other operating income of US$19,563 million was US$4,089 million, or 26 per cent, higher than 2003. Operating expenses (excluding goodwill amortisation) of US$25,875 million roseUS$4,793 million, or 23 per cent. HSBC's cost:income ratio, excluding goodwillamortisation, improved to 51.1 per cent compared with 51.3 per cent in 2003. The charge for bad and doubtful debts was US$6,357 million in 2004, US$264million higher than in 2003. Gains on disposal of investments and tangible fixed assets of US$802 millionwere US$388 million higher than 2003. The tier 1 capital and total capital ratios for the Group remained strong at 8.9per cent and 12.0 per cent, respectively, at 31 December 2004. The Group's total assets at 31 December 2004 were US$1,277 billion, an increaseof US$243 billion, or 23 per cent, since 31 December 2003. At constant exchangerates, total assets grew by US$205 billion or 19 per cent. Geographical distribution of results Year ended Year endedFigures in US$m 31Dec04 31Dec03Profit before tax (excluding goodwill amortisation) % %Europe 6,172 31.7 4,862 33.7Hong Kong 4,753 24.5 3,730 25.9Rest of Asia-Pacific 1,877 9.7 1,426 9.9North America 6,180 31.8 4,257 29.6South America 444 2.3 126 0.9 19,426 100.0 14,401 100.0 Goodwill amortisation (1,818) (1,585)Group profit before tax 17,608 12,816 Tax on profit on ordinary activities (4,507) (3,120) Profit on ordinary activities after tax 13,101 9,696 Minority interests (1,261) (922) Profit attributable 11,840 8,774 Profit attributable (excluding goodwill amortisation) 13,658 10,359 Distribution of results by customer group Year ended Year endedFigures in US$m 31Dec04 31Dec03Profit before tax (excluding goodwill amortisation) % %Personal Financial Services 5,377 27.7 4,008 27.8Consumer Finance^ 3,667 18.9 2,225 15.5Total Personal Financial Services 9,044 46.6 6,233 43.3 Commercial Banking 4,169 21.5 3,158 21.9Corporate, Investment Banking and Markets 5,196 26.7 4,443 30.9Private Banking 693 3.6 563 3.9Other 324 1.6 4 -Group profit before tax (excluding goodwill amortisation) 19,426 100.0 14,401 100.0Goodwill amortisation (1,818) (1,585)Group profit before tax 17,608 12,816 ^ Comprises HSBC Finance Corporation's consumer finance business and the US residential mortgages and credit card portfolios acquired by HSBC Bank USA, N.A.('HSBC Bank USA') from HSBC Finance Corporation and its correspondents since December 2003. Comment by Sir John Bond, Group Chairman 2004 was another good year for HSBC. The solid performance of the first sixmonths continued and we were able to build on the record results of 2003. We grew profit attributable to shareholders by 35 per cent to US$11.8 billion.Excluding the amortisation of goodwill, which is the basis we use internally tomeasure our performance, profit attributable was US$13.7 billion. Thisrepresents US$1.25 per share, an increase of 26 per cent over 2003. Our earningsgrowth was well diversified across all our main geographical regions and ourcustomer groups, all of which achieved record results. Overall, our performancewas driven by broadly based revenue growth of 23 per cent and by particularlyfavourable credit conditions. In the light of this performance, and the Group's continuing capital strength,the Board has declared a fourth interim dividend of US$0.27 per share bringingthe total dividend for the year to US$0.66 per share, an increase of 10 per centover 2003. The dividend is payable on 4 May 2005 with a scrip dividendalternative available for shareholders who prefer this option. Throughout 2004 the economic environment remained broadly favourable. A gradualeconomic recovery in the US contributed to improved employment levels. Interestrates and inflation remained low, encouraging consumer confidence and spending.The remarkable economic progress of the People's Republic of China continued andits demand for raw materials and capital goods benefited both regional andinternational trading partners. In Hong Kong, a period of six consecutive yearsof deflation ended. The Hong Kong economy rebounded on strong trade flows,buoyed further by the impact of significantly expanded tourism from mainlandChina and by rising property prices. The UK continued to enjoy high levels ofemployment and, while property prices softened, the market remained resilient.Indeed, buoyant domestic housing markets were a significant factor in mosteconomies where they contributed to continued economic activity by bolsteringconsumer confidence and releasing equity to fund spending growth. During the last two years we have also completed the integration of a majorconsumer finance business in the US and a large commercial bank in Mexico, twoof the most important and successful acquisitions in our recent history. Inaddition we have strengthened the foundations for our future development inmainland China. 2004 was also a year of substantial investment in our established businesses. Inaddition to building out our investment banking capabilities we focused ondeveloping our credit card and consumer finance platforms internationally,reflecting the opportunities we see to harness both HSBC's underwriting andcollection skills and to achieve further economies of scale. Investing for the futureWe remain keenly aware of the need to balance short-term results with theinvestment necessary to secure the long-term future of our business. We areallocating resources continuously to strengthening our brand, developing ourpresence in areas where we have comparative advantage and entering new marketswith significant potential. For example:- •In 2004 we generated US$1.1 billion in pre-tax profits (before goodwill amortisation) from Mexico, Turkey, Bermuda and Malta, in all of which our presence five years ago was small or non-existent.•We grew pre-tax profits (before goodwill amortisation) from our overall personal financial services business in Brazil to US$51 million, reflecting the successful integration of the Losango acquisition supported by skills transfer from HSBC Finance Corporation. Additionally, some 36 per cent of Losango's commercial customer base has now become corporate customers of the Group, an increase of over 5,000 relationships.•In Personal Financial Services we grew fee and commission revenues by 26 per cent to reach US$4.6 billion representing a compound rate of growth over the last four years of 12 per cent as we have worked to diversify our reliance on deposit and lending margins.•Through acquisition and by using marketing, technology and collection capabilities, which have been greatly enhanced since the acquisition of HSBC Finance Corporation (formerly Household International) in 2003, we grew credit cards in issue outside the US by 48 per cent to reach 29 million cards now in force.•With an expanded product range, supported by greater cooperation across the HSBC Group, we drove revenues from commercial banking customers to US$8.4 billion, the highest level we have ever achieved.•Our Global Markets business maintained strong business momentum despite difficult market conditions and generated record pre-tax profits in foreign exchange and derivatives reflecting the investment made in these areas in the previous year. In 2004 we have continued to invest in Global Markets, a business that has achieved double digit growth in pre-tax profits over the last five years as we have expanded our business from regional to global strength.•We delivered strong results from providing transaction banking services to corporate and institutional clients as we reinforced our leadership positions in payments and cash management, trade services, and security services.•With its reorganisation substantially complete, Private Banking delivered 23 per cent growth in pre-tax profits, before goodwill amortisation, to US$693 million as instability in certain parts of the world underlined the relevance of the HSBC brand to this client base. This compares with a contribution of some US$200 million five years ago. During 2004 we made important investments for our future, both organically andthrough acquisition.•We invested approximately US$1.7 billion to take a 19.9 per cent stake in Bank of Communications Limited (BoCom), the fifth largest bank in mainland China with over 2,700 branches. We also signed a technical support agreement with BoCom to provide advice in the areas of governance and back office functions and agreed in principle to form a joint venture subsidiary to distribute credit cards when laws and regulations permit.•Also in China, we invested a further US$168 million to maintain our 10 per cent interest in Ping An Insurance, China's second largest insurance company as it came to the public markets through an IPO in both Hong Kong and Shanghai. We have expanded our relationship with Ping An to include a joint venture bank, Ping An Bank. Ping An Bank's long-term objective is to develop consumer banking businesses, including credit card and real estate mortgage lending activities when laws and regulations permit.•Hang Seng Bank invested US$208 million to acquire a 15.98 per cent stake in Fuzhou-based Industrial Bank Company Limited. The two parties entered into a cooperation agreement stipulating that Industrial Bank and Hang Seng Bank will form joint ventures in financial services activities, including credit cards and other unsecured personal loan businesses, as and when regulations permit.•In the UK, we acquired access to two prestigious customer bases through the acquisition of M&S Money and our partnership agreement with the John Lewis Group for the management of their store card businesses. We were able to take these opportunities by combining the strength of our banking relationships with two long standing customers in the retail sector with HSBC Finance Corporation's partnership skills in store card business.•In Brazil, we acquired further consumer finance operations, adding some 1.1 million customers to the 7 million acquired in 2003 when we bought Losango, the market leader.•In Corporate, Investment Banking and Markets we made a major investment in people adding almost 2,000 new staff. At the same time, some 1,500 departed. The areas benefiting principally from the increased resource and capabilities were investment banking advisory, equities sales and trading, research, asset backed financing and structured solutions.•In the rest of Asia-Pacific, we invested heavily in sales and marketing to grow our personal financial services businesses. Marketing expenditure grew by 42 per cent from US$88 million to US$125 million. The number of telesales employees working in the region grew by 330 per cent to 1,680 staff. Our branch-based sales force doubled to 1,950. The number of external sales employees grew by 48 per cent to 6,800.•In Hong Kong, the bank increased expenditure on marketing from US$84 million in 2003 to US$97 million in 2004, a rise of 15 per cent. The bank continued to invest in its branch network with refurbishments reaching US$9 million last year, up 11 per cent on the previous year. The bank continued to recruit sales staff, increasing the number of Financial Planning Managers by 17 per cent to some 630 staff.•In the US, we continued to win new retail services relationships, combining HSBC's traditional corporate capabilities with HSBC Finance Corporation's partnering skills. Important new accounts included American Suzuki Corporation, Helzberg Diamonds, Liz Claiborne, and Komatsu.•In the Middle East, we continued to build HSBC Amanah organically to become the leading international provider of Shariah compliant financial services.•In India, we invested US$68 million to take a 14.62 per cent stake in UTI Bank, which has the second largest retail banking network amongst private sector banks. We also took the opportunity to release resources and capital through thedisposal of operations which did not meet our own investment criteria and whichwere of greater value to the acquirers. These included our direct auto insurancebusiness in Canada, our securities operations in Poland and Thailand, and partof our personal trust business in the US. Credit QualityThe generally buoyant economic conditions remained favourable for credit qualitythroughout 2004. As a result, our delinquency experience in both personal andcorporate lending in aggregate was better than in 2003. In the case of corporatelending, provisioning requirements were unusually low. The level of newprovisions declined and we were able to make significant recoveries onpreviously impaired debt which was restructured or repaid in the improvedeconomic environment. Corporate, Investment Banking and MarketsWe are now some 21 months into the restructuring and expansion of ourcapabilities in investment banking advisory services, in equity sales andtrading, research, in asset backed financing and structured solutions. Theinvestment in senior management to support these initiatives is largelycomplete. The development of the infrastructure required to support them is alsowell advanced. Our corporate and institutional customer base continues to welcome the broaderrange of services we can now offer. This became evident through 2004 as weincreased our market share of global bond issuance and enhanced our equity,advisory and financing capabilities. We also saw growing interest in our asset backed securities services and ourincreased capacity to offer structured solutions for interest rate and foreignexchange management. In industry surveys we continued to move upwards, notably in league tablescovering corporate bond issuance. We were also pleased to receive advisorymandates to work with some world class companies including Ford, LNM Holdings,Neptune Orient and Saudi Aramco. There is still much to do but our strategy to develop this part of our businessis on course and we remain confident of its potential. We have a first ratecorporate and institutional client base and there is an opportunity to expandthe range of services we offer them in a way which will also create additionalvalue for our shareholders. Our BrandRecognition of the HSBC brand continues to grow. During the course of 2004,Household International adopted the HSBC name for much of its business. InFrance, CCF plans to follow suit with much of its operations later this year.According to Interbrand, a leading brand consultancy, the HSBC brand now ranksas the 33rd 'Best Global Brand' by value and first amongst British-basedcompanies. We were delighted to receive a number of awards during the yearincluding being named 'Global Bank of the Year' by The Banker magazine for thethird year in a row and the world's 'Best Bank' of the year by Euromoneymagazine. It is particularly gratifying to note that a number of the citationshighlight HSBC's overall conduct and commitment to good governance. It is ourobjective to make the HSBC brand synonymous with the highest standards ofbehaviour, fair value for customers, and corporate responsibility everywhere weoperate. OutlookAs we look forward, the external imbalances which have been a feature of theglobal economy in recent years remain a potential vulnerability for thefinancial markets. However, some of the concerns which made for an uncertaineconomic outlook in 2004 have been allayed to a degree. Despite the six interestrate increases in the US since the beginning of last year, the outstanding levelof consumer debt has proved manageable, largely because employment levels haveremained high and long-term interest rates have fallen. The US economy has alsoimproved its competitiveness through a weaker dollar without fuelling inflationor significantly disturbing the foreign capital inflows necessary to fundcontinuing current account deficits. Although investment in China has slowed the country's rate of real economicgrowth has remained strong. The world economy has withstood a significant periodof high oil prices and volatility in future price expectations. Indeed it hasalso shown an impressive resilience. The financial architecture, through whichrisks and potential shocks are managed and distributed to diversify theirimpacts, has proved robust. As the western world recognises the economic consequences of increasinglongevity, it has become clear that there is a growing need for higher savingsrates and for greater individual responsibility in funding personal retirementprovisions. If the current savings rates in some of the world's most developedeconomies remain too low, the risk increases of a sharp adjustment toconsumption patterns when significant numbers of people suddenly recognise theneed to make provision for their retirement. Currently, the world's excessliquidity, caused in part by the recycling of Asian trade surpluses at lowrates, is masking this possibility. Nevertheless, a sudden correction to thesavings imbalance is, we believe, a major risk in the world economic outlook. We continue to position HSBC to withstand sudden economic volatility and torespond to opportunities for profitable growth. We are investing increasingly incountries with comparative economic advantages including those where populationgrowth is generating economic momentum, where social costs are manageable andwhere savings rates will sustain self-financed expansion. In particular, we seeChina's economy as the most significant driver of economic growth over the nextdecade. China's importance to the oil producing and natural resource economieswill increase. Our investments in China during 2004 reflect our confidence inthe country's future. We also recognise the growth prospects of markets such asBrazil, India, Mexico, South Korea, Turkey and the Middle East, and for the samereasons we continue to invest in them. The considerable financial strength of ourbusinesses in the UK, the US and Hong Kong allows us to afford such investmentwhile maintaining a progressive dividend policy. Our principal focus for 2005 is to achieve further revenue growth together withimproved productivity. The opportunities available to HSBC to grow profitablyhave never been broader, either by geography or by customer group. The taskbefore us now is to ensure that we respond in full, and with the talents anddedication of my 253,000 colleagues around the world I am confident that weshall. I believe that we are uniquely well placed to meet the requirements bothof our shareholders and those of the wider communities we serve. Financial Overview 2003 Year ended 31Dec 2004 US$m US$m £m HK$m For the year (excluding goodwill amortisation) 14,401 Profit before tax 19,426 10,607 151,309 10,359 Profit attributable 13,658 7,457 106,382 For the year (as reported) 12,816 Profit before tax 17,608 9,615 137,149 8,774 Profit attributable 11,840 6,465 92,222 6,532 Dividends 7,301 3,986 56,867 At year-end 74,473 Shareholders' funds 86,623 44,784 673,321 74,042 Capital resources 90,780 46,933 705,633 643,556 Customer accounts and deposits by banks 777,290 401,859 6,041,8761,034,216 Total assets 1,276,778 660,094 9,924,395 618,662 Risk-weighted assets 759,210 392,512 5,901,339 US$ Per share US$ £ HK$ 0.99 Earnings before goodwill amortisation 1.25 0.68 9.74 0.84 Basic earnings 1.09 0.60 8.49 0.83 Diluted earnings 1.07 0.58 8.33 0.60 Dividends^ 0.66 0.35 5.14 6.79 Net asset value 7.75 4.01 60.24 Share information 10,960m US$0.50 ordinary shares in issue 11,172m US$172bn Market capitalisation US$190bn £8.78 Closing market price per share £8.79 Total shareholder return HSBC Benchmark against peer index^^ - over 1 year 105 110 ^ The fourth interim dividend of US$0.27 per share is translated at the closing rate on 31Dec04 (see Note 11 on page 27). Where required, this dividend will be converted into sterling or Hong Kong dollars at the exchange rates on 25 April 2005 (see Note 2 on page 15).^^ Total shareholder return (TSR) is as defined in the Annual Report and Accounts 2004. 2003 Year ended 31Dec 2004 Performance ratios (%) Excluding goodwill amortisation 13.7 Return on average invested capital^ 15.2 24.7 Return on average net tangible equity^^ 25.4 1.21 Post-tax return on average tangible assets 1.31 2.07 Post-tax return on average risk-weighted assets 2.23 On a reported basis 13.0 Return on average shareholders' funds 14.4 1.01 Post-tax return on average assets 1.12 1.78 Post-tax return on average risk-weighted assets 1.96 Efficiency and revenue mix ratios 51.3 Cost:income ratio (excluding goodwill amortisation) 51.1 As a percentage of total operating income: 62.3 - net interest income 61.3 37.7 - other operating income 38.7 25.3 - net fees and commissions 25.9 5.3 - dealing profits 5.1 Capital ratios 8.9 - tier 1 capital 8.9 12.0 - total capital 12.0 ^ Return on invested capital is based on cash-based attributable profit adjusted for depreciation attributable to revaluation surpluses. Average invested capital is measured as shareholders' funds after adding back goodwill amortised and goodwill previously written-off directly to reserves and deducting property revaluation reserves. This measure broadly reflects invested capital. ^^ Attributable profit excluding amortisation divided by average shareholders' funds after deduction of average purchased goodwill. Within this document, the Hong Kong Special Administrative Region of the People's Republic of China has been referred to as 'Hong Kong'. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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