28th Feb 2005 08:00
HSBC Holdings PLC28 February 2005 Earnings per share The calculation of earnings per share in 2004 is based on earnings of HK$11,395million (HK$9,539 million in 2003) and on the weighted average number ofordinary shares in issue of 1,911,842,736 shares (unchanged from 2003). Dividends per share 2004 2003 HK$ HK$ per share HK$m per share HK$m First interim 1.10 2,103 2.10 4,015Second interim 1.10 2,103 1.00 1,912Third interim 1.10 2,103 1.80 3,441Fourth interim 1.90 3,633 - - 5.20 9,942 4.90 9,368 Segmental analysis Segmental information is presented in respect of business and geographicalsegments. Business by customer group information, which is more relevant to HangSeng in making operating and financial decisions, is chosen as the primaryreporting format. For the purpose of segmental analysis, the allocation of revenue reflects thebenefits of capital and other funding resources allocated to the customer groupsor geographical segments by way of internal capital allocation and fundstransfer pricing mechanisms. Cost allocation is based on the direct costincurred by the respective customer groups and apportionment of managementoverheads. Rental charges at market rate for usage of premises are reflected asinter-segment income for the 'Other' customer group and inter-segment expensesfor the respective customer groups. (a) By customer group Hang Seng's business comprises five customer groups. Personal Financial Servicesprovides banking (including deposits, credit cards, mortgages and other retaillending) and wealth management services (including insurance and investment) topersonal customers. Commercial Banking manages middle market and smallercorporate relationships and specialises in trade-related financial services.Corporate and Institutional Banking handles relationships with large corporateand institutional customers. Treasury engages in interbank and capital marketactivities and proprietary trading. Treasury also manages the funding andliquidity positions of the bank and other market risk positions arising frombanking activities. 'Other' mainly represents management of shareholders' fundsand investments in premises, investment properties and long-term equities. Personal Financial Services (PFS) PFS reported a growth of 21.2 per cent in profit before tax, underpinned by thestrong growth in other operating income which outweighed the fall in netinterest income. A net release in provisions for bad and doubtful debts wasrecorded, the result of a substantial reduction in specific provisions due tothe significant improvement in credit card write-off and net release frommortgages, and a release in general provisions. Net interest income fell by 7.6 per cent, affected by the exceptionally low HKdollar interest rates, which reduced the spreads earned on deposits, and fiercecompetition in the mortgage market where yields suffered further declines. The impact of the reduction in spreads was mitigated by an increase of 0.2 percent in customer advances, and continued diversification of the loan portfoliothrough expansion of the higher yielding consumer lending business, with creditcard advances and other personal lending recording strong growth of 20.3 percent and 41.0 per cent respectively. Private sector residential mortgages roseslightly but mortgages granted under the GHOS scheme, which remained suspended,fell by 12.9 per cent. Credit cards in issue rose by 18.7 per cent to 1,153,000 during 2004 with cardspending increasing by 46.6 per cent over 2003, benefiting from the improvingeconomic environment and the introduction of new e-payment services. Other operating income rose by 28.8 per cent, driven by the growth in wealthmanagement business through the successful implementation of customersegmentation and product strategies. Investment services income rose by 48.7 percent, due to the growth in sales of retail investment products and funds undermanagement, securities services and private banking. Sales of investmentproducts rose by 29.8 per cent as new investment funds were launched to capturethe growth potential of the global, Asia, Hong Kong and mainland China equitiesmarkets, as well as the commodity and property markets. Riding on the activestock market, securities services grew in customer account and transactionvolume by 52.7 per cent and 40.6 per cent respectively. Leveraging on thestrength of the e-channel, new products such as the online warrant supermarketand customised services were launched to enhance convenience and create valuefor customers. Life insurance grew by 43.5 per cent in annualised premium and 23.2 per cent inunderwriting income. New products with special features to suit differentcustomer needs, including longer protection with shorter subscription periods,medical cover for the elderly, and flexible investment return pay-out patterns,were successfully launched. Commercial Banking (CMB) CMB reported growth of 83.1 per cent in profit before tax, driven by stronggrowth of 25.2 per cent in net interest income as customer advances grew by 37.5per cent in trade finance and in the manufacturing, wholesale and retail trade,and property investment sectors. Other operating income rose by 12.5 per cent,mainly from trade services, and net releases were recorded in specific andgeneral provisions. Progress was made in expanding the customer base and service scope of both themiddle market corporate (MME) and the small and medium enterprise (SME) segmentsin Hong Kong and mainland China. On the MME side, CMB further leveraged on its strong relationship managementteam, trade service capabilities, and the branches on the Mainland and in Macauto provide a total financial services solution to customers with businessoperations in both Hong Kong and mainland China. The product features offactoring and customised trade services were further enhanced to meet customerneeds. Trade finance and other lending to MME customers grew by 31.3 per cent. SME further strengthened its business banking team and focused on high growthindustries which benefited from the rebound of the local economy. BusinessInternet Banking and Integrated Business Solutions Accounts were also furtherrefined and developed so as to enhance the services to this sector. Advances tothe SME segment grew by 49.7 per cent, driven by strong growth in relation totrade finance, and in lending for the expansion of production capacity,distribution networks and property investment. Corporate and Institutional Banking (CIB) CIB recorded growth of 6.0 per cent in profit before tax, with an increase of9.8 per cent in net interest income following a growth of 12.3 per cent incustomer advances. The operating results benefited from a net release inprovisions for bad and doubtful debts, reflecting improvements in the operatingenvironment and a generally benign credit environment. CIB continued toparticipate actively in the loan syndication market and benefited from theincrease in market activities. CIB also teamed up with Treasury to provide morecomprehensive corporate financing solutions to customers. Treasury Treasury reported growth of 5.5 per cent in profit before tax. Net interestincome reduced marginally by 1.1 per cent as higher yielding securities maturedand were replaced at lower yields. Dealing profit rose by 33.1 per cent,reflecting the improvement in proprietary trading, the increase in corporatetreasury services and the growth in structured investment products. Other Profit before tax for the 'Other' customer group fell by 8.7 per cent comparedwith last year. Return on shareholders' funds further declined in the lowinterest rate environment despite the increase in profit on disposal ofinvestment properties and revaluation gains on property revaluation. Personal Corporate & Inter- Financial Commercial Institutional segmentFigures in HK$m Services Banking Banking Treasury Other elimination Total Year ended 31Dec04 Income and expenses Net interest income 5,706 1,332 596 1,854 202 - 9,690Other operating income 4,080 1,046 217 684 336 - 6,363Inter-segment income - - - - 320 (320) -Operating income 9,786 2,378 813 2,538 858 (320) 16,053Operating expenses^ (2,798) (843) (121) (156) (305) - (4,223)Inter-segment expenses (256) (53) (6) (5) - 320 -Operating profit before provisions 6,732 1,482 686 2,377 553 - 11,830Provisions for bad and doubtful debts 83 601 130 - - - 814Operating profit 6,815 2,083 816 2,377 553 - 12,644Profit/(loss)on tangible fixed assets and long-term investments - - - (5) 437 - 432Net surplus on property revaluation - - - - 148 - 148Share of profits of associated companies 6 72 - 32 33 - 143Profit on ordinary activities before tax 6,821 2,155 816 2,404 1,171 - 13,367 Share of pre-tax profit 51.0% 16.1% 6.1% 18.0% 8.8% - 100.0% Operating profit excluding inter-segment transactions 7,071 2,136 822 2,382 233 - 12,644 ^Included in operating expenses is depreciation of (104) (18) (3) (2) (190) - (317) At 31Dec04 Total assets 142,455 46,752 77,361 256,370 25,687 - 548,625Total liabilities 352,688 77,712 25,151 21,553 27,484 - 504,588Investments in associated companies 94 1,117 - 488 698 - 2,397Capital expenditure incurred during the year 104 17 2 2 23 - 148 Personal Corporate & Inter- Financial Commercial Institutional segmentFigures in HK$m Services Banking Banking Treasury Other elimination Total Year ended 31Dec03 Income and expenses Net interest income 6,175 1,064 543 1,874 523 - 10,179Other operating income 3,167 930 218 509 374 - 5,198Inter-segment income - - - - 345 (345) -Operating income 9,342 1,994 761 2,383 1,242 (345) 15,377Operating expenses^ (2,518) (799) (111) (148) (326) - (3,902)Inter-segment expenses (276) (57) (7) (5) - 345 -Operating profit before provisions 6,548 1,138 643 2,230 916 - 11,475Provisions for bad and doubtful debts (930) 11 127 - - - (792)Operating profit 5,618 1,149 770 2,230 916 - 10,683Profit on tangible fixed assets and long-term investments 12 28 - 48 373 - 461Net deficit on property revaluation - - - - (37) - (37) Share of profits of associated companies - - - - 30 - 30Profit on ordinary activities before tax 5,630 1,177 770 2,278 1,282 - 11,137 Share of pre-tax profit 50.6% 10.6% 6.9% 20.4% 11.5% - 100.0% Operating profit excluding inter-segment transactions 5,894 1,206 777 2,235 571 - 10,683 ^Included in operating expenses is depreciation of (122) (20) (2) (2) (183) - (329) At 31Dec03 Total assets 137,988 31,749 68,393 242,014 22,815 - 502,959Total liabilities 344,281 72,625 19,760 7,225 18,783 - 462,674Investments in associated companies - - - - 549 - 549Capital expenditure incurred during the year 77 19 4 1 41 - 142 (b) By geographical region The geographical regions in this analysis are classified by the location of theprincipal operations of the subsidiary companies or, in the case of the bankitself, by the location of the branches responsible for reporting the results oradvancing the funds. Figures in HK$m Hong Kong Americas Other Total Year ended 31Dec04 Income and expenses Operating income 14,333 1,594 126 16,053Profit on ordinary activities before tax 11,632 1,566 169 13,367 At 31Dec04 Total assets 463,924 69,675 15,026 548,625Total liabilities 490,087 9,315 5,186 504,588Capital expenditure incurred during the year 143 - 5 148Contingent liabilities and commitments 127,246 - 2,925 130,171 Year ended 31Dec03 Income and expenses Operating income 13,981 1,322 74 15,377Profit on ordinary activities before tax 9,781 1,295 61 11,137 At 31Dec03 Total assets 427,539 65,204 10,216 502,959Total liabilities 449,243 8,376 5,055 462,674Capital expenditure incurred during the year 130 - 12 142Contingent liabilities and commitments 107,588 122 1,671 109,381 Cash and short-term funds Figures in HK$m At 31Dec04 At 31Dec03 Cash in hand and balances with banks and other financial institutions 6,021 4,780Money at call and placings with banks maturing within one month 55,907 62,566Treasury bills 6,270 4,557 68,198 71,903 Remaining maturity of treasury bills:- within three months 1,167 174- one year or less but over three months 5,103 4,383 6,270 4,557 Placings with banks maturing after one month Figures in HK$m At 31Dec04 At 31Dec03 Remaining maturity:- three months or less but over one month 10,838 15,576- one year or less but over three months 5,143 2,253- five years or less but over one year 250 200 16,231 18,029 Certificates of deposit Figures in HK$m At 31Dec04 At 31Dec03 Remaining maturity:- three months or less but not repayable on demand 8,076 1,870- one year or less but over three months 12,742 10,171- five years or less but over one year 12,231 16,642- over five years 541 - 33,590 28,683 Securities held for dealing purposes Figures in HK$m At 31Dec04 At 31Dec03 Debt securities by remaining maturity:- three months or less but not repayable on demand 29 38- one year or less but over three months 165 191- five years or less but over one year 1,366 840- over five years 262 146 1,822 1,215Equity shares 44 17 1,866 1,232 Debt securities held for dealing purposes exclude treasury bills andcertificates of deposit which are included under the respective headings in thebalance sheet. Advances to customers Figures in HK$m At 31Dec04 At 31Dec03 Gross advances to customers 252,940 231,999Specific provisions (778) (1,432)General provisions (289) (1,101) 251,873 229,466 Remaining maturity:- repayable on demand 12,515 11,488- three months or less but not repayable on demand 24,701 20,341- one year or less but over three months 31,474 22,585- five years or less but over one year 94,841 89,565- over five years 86,343 81,402- overdue for more than one month 897 1,375- non-performing advances 2,169 5,243Gross advances to customers 252,940 231,999Provisions for bad and doubtful debts (1,067) (2,533) 251,873 229,466 Included in advances to customers are:- trade bills 3,053 2,226- provisions for bad and doubtful debts (8) (17) 3,045 2,209 Advances to customers (after deduction of interest in suspense and provisions)recorded a growth of HK$22.4 billion, or 9.8 per cent, to HK$251.9 billion at 31December 2004. Provisions against advances to customers SuspendedFigures in HK$m Specific General Total interest At 1 January 2004 1,432 1,101 2,533 293Amounts written off (761) - (761) (144)Recoveries of advances written off in previous years 109 - 109 -New provisions charged to profit and loss account 464 - 464 -Provisions released to profit and loss account (357) (812) (1,169) -Provisions recovered to profit and loss account (109) - (109) -Interest suspended during the year - - - 60Suspended interest recovered - - - (92)At 31 December 2004 778 289 1,067 117 Suspended interest comprises both suspended interest netted against 'Advances tocustomers' and suspended interest netted against accrued interest receivable in'Prepayments and accrued income'. Total provisions as a percentage of gross advances to customers are as follows: At 31Dec04 At 31Dec03 % % Specific provisions 0.31 0.62General provisions 0.11 0.48Total provisions 0.42 1.10 Total provisions as a percentage of gross advances to customers fell to 0.42 percent at 31 December 2004, compared with 1.10 per cent at the end of 2003.Specific provisions as a percentage of gross advances decreased by 31 basispoints to 0.31 per cent. The reduction mainly reflected the writing-off ofirrecoverable balances against provisions and repayments, and upgrading ofdoubtful accounts to performing status. General provisions fell by 37 basispoints to 0.11 per cent of gross advances to customers, compared with 0.48 percent at the end of 2003, reflecting the reduction in estimated latent losseswithin the loan portfolio, based on historical loss experience. Non-performing advances to customers and provisions Non-performing advances to customers on which interest has been placed insuspense or on which interest has ceased to accrue are as follows: Figures in HK$m At 31Dec04 At 31Dec03 Gross non-performing advances on which interest:- has been placed in suspense 2,171 5,182- accrual has ceased 48 134 2,219 5,316Suspended interest (50) (73) Gross non-performing advances^ (page 31) 2,169 5,243Specific provisions (778) (1,432)Net non-performing advances 1,391 3,811 Specific provisions as a percentage of gross non-performing advances^ 35.9% 27.3% Gross non-performing advances^ as a percentage of gross advances to customers 0.9% 2.3% ^Stated after deduction of interest in suspense. Non-performing advances to customers are those advances where full repayment ofprincipal or interest is considered unlikely and are so classified as soon assuch a situation becomes apparent. Non-performing advances may include advancesthat are not yet overdue for more than three months but which are considereddoubtful. Except in certain limited circumstances, all advances on whichprincipal or interest is overdue for more than three months are classified asnon-performing. Specific provisions are made to write down the carrying value ofthe advances to the discounted value of future recoverable amounts, includingthe realisation of collateral. Gross non-performing advances (after deduction of interest in suspense) fell byHK$3,074 million, or 58.6 per cent, to HK$2,169 million, compared with the endof 2003. Irrecoverable balances of HK$761 million were written off againstprovisions. Corporate non-performing advances reduced significantly by HK$2,332million, comprising large repayments and upgrades totalling HK$2,500 million anda small amount of HK$168 million from new non-performing accounts. The level ofnon-performing mortgages and card advances at 31 December 2004 also reducedcompared with the prior year, reflecting the improving economic environment, andfalling bankruptcy and unemployment levels. The ratio of gross non-performingadvances to gross advances to customers further improved to 0.9 per cent from2.3 per cent at the end of 2003. Overdue advances to customers The amounts of advances to customers which are overdue for more than threemonths and their expression as a percentage of gross advances to customers areas follows: At 31Dec04 At 31Dec03 HK$m % HK$m % Gross advances to customers^ which have been overdue with respect to either principal or interest for periods of: - six months or less but over three months 630 0.2 1,297 0.5- one year or less but over six months 401 0.2 858 0.4- over one year 572 0.2 1,152 0.5 1,603 0.6 3,307 1.4 Overdue advances to customers (as above) 1,603 0.6 3,307 1.4Less: overdue advances on which interest is still being accrued (424) (0.1) (1,108) (0.5)Add: advances overdue for periods of three months or less, or which are not yet overdue, and on which interest has been placed in suspense- included in rescheduled advances 430 0.2 1,536 0.7- other 560 0.2 1,508 0.7 Gross non-performing advances ^ (page 30) 2,169 0.9 5,243 2.3 ^Stated after deduction of interest in suspense. Advances with a specific repayment date are classified as overdue when theprincipal or interest is overdue and remains unpaid at the year-end. Advancesrepayable by regular instalments are treated as overdue when an instalmentpayment is overdue and remains unpaid at the year-end. Advances repayable ondemand are classified as overdue either when a demand for repayment has beenserved on the borrower but repayment has not been made in accordance with thedemand notice, or when the advances have remained continuously outside theapproved limit advised to the borrower for more than the overdue period inquestion. Rescheduled advances to customers The amount of rescheduled advances and its expression as a percentage of grossadvances to customers are as follows: At 31Dec04 At 31Dec03 HK$m % HK$m %Rescheduled advances to customers^ 1,553 0.6 2,608 1.1 ^Stated after deduction of interest in suspense. Rescheduled advances are those which have been rescheduled or renegotiated forreasons related to the borrower's financial difficulties. This will normallyinvolve the granting of concession terms and resetting the overdue account tonon-overdue status. A rescheduled advance will continue to be disclosed as suchunless the debt has been performing in accordance with the rescheduled terms fora period of six to 12 months. Rescheduled advances which have been overdue formore than three months under the rescheduled terms are reported as overdueadvances to customers (page 31). Rescheduled advances to customers were reduced by HK$1,055 million, or 40.5 percent, to HK$1,553 million at 31 December 2004, representing 0.6 per cent ofgross advances to customers. The reduction was mainly the result of therepayment and upgrade of certain corporate customers. Repossessed assets Collateral assets are repossessed through court proceedings or voluntarydelivery of possession in the course of recovery of non-performing advances.Upon repossession of the collateral assets, the advances are adjusted to the netrealisable value of the repossessed assets, usually resulting in a partialwrite-off of the advances against specific provisions. Advances with repossessedcollateral assets will continue to be accounted for as 'Advances to customers'and classified as non-performing. The aggregate valuation of the repossessedcollateral assets amounted to: Figures in HK$m At 31Dec04 At 31Dec03 Repossessed collateral assets 320 506 Segmental analysis of advances to customers by geographical area Advances to customers by geographical area are classified according to thelocation of the counterparties after taking into account the transfer of risk.In general, risk transfer applies when an advance is guaranteed by a partylocated in an area which is different from that of the counterparty. At 31December 2004, over 90 per cent of Hang Seng's advances to customers and therelated non-performing advances and overdue advances were classified under thearea of Hong Kong (unchanged from the position at 31 December 2003). Gross advances to customers by industry sector The analysis of gross advances to customers (after deduction of interest insuspense) by industry sector based on categories and definitions used by theHong Kong Monetary Authority is as follows: Figures in HK$m At 31Dec04 At 31Dec03 Gross advances to customers for use in Hong Kong Industrial, commercial and financial sectorsProperty development 12,818 16,828Property investment 44,755 34,555Financial concerns 3,996 6,109Stockbrokers 314 226Wholesale and retail trade 5,460 4,376Manufacturing 4,389 2,556Transport and transport equipment 11,173 10,139Other 22,017 17,727 104,922 92,516 IndividualsAdvances for the purchase of flats under the Government Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme 26,496 30,431Advances for the purchase of other residential properties 80,212 79,830Credit card advances 6,534 5,430Other 7,122 5,779 120,364 121,470Total gross advances for use in Hong Kong 225,286 213,986Trade finance 15,545 11,322Gross advances for use outside Hong Kong 12,109 6,691Gross advances to customers 252,940 231,999 Lending to the commercial sectors grew by HK$12.4 billion, or 13.4 per cent,during 2004. Property development and investment rose 12.0 per cent. Wholesaleand retail trade, manufacturing, and transport and transport equipment reportedstrong growth of 24.8 per cent, 71.7 per cent and 10.2 per cent respectively.Other, including conglomerates engaged in diversified lines of business, rose by24.2 per cent. Trade finance advances recorded an encouraging growth of HK$4.2 billion, or 37.3per cent. This reflected strong regional trade flows and the success of the bankin further expanding the commercial banking business by leveraging on strongrelationship management, customised trade solutions and e-services. Lending to individuals fell by HK$1.1 billion, or 0.9 per cent. Excluding thefall of HK$3.9 billion in mortgages under the suspended GHOS, there was a growthof 3.1 per cent in individual lending. Credit card advances grew by 20.3 percent with an expanded card base and card spending. Other lending to individuals,mainly personal and tax loans, together rose 23.2 per cent, reflecting improvedconsumer and investor confidence. Residential mortgages rose slightly by 0.5 percent, in an intensely competitive market environment. Despite the strong growthin new mortgages drawdown, early repayment rose significantly in an activeproperty market. Gross advances for use outside Hong Kong rose by HK$5.4 billion, or 81.0 percent, mainly reflecting the encouraging growth in the loan portfolios ofMainland branches. Long-term investments Carrying valueFigures in HK$m At 31Dec04 At 31Dec03 Held-to-maturity debt securitiesIssued by public bodies:- central governments and central banks 15,697 12,408- other public sector entities 12,349 12,365 28,046 24,773Issued by other bodies:- banks and other financial institutions 88,459 68,230- corporate entities 19,573 18,747 108,032 86,977 136,078 111,750Equity investmentsIssued by corporate entities 1,947 2,131 138,025 113,881 Held-to-maturity debt securities:- listed in Hong Kong 5,720 3,001- listed outside Hong Kong 27,138 24,687 32,858 27,688- unlisted 103,220 84,062 136,078 111,750 Equity investments:- listed in Hong Kong 1,076 1,313- listed outside Hong Kong 134 87 1,210 1,400- unlisted 737 731 1,947 2,131 138,025 113,881 Held-to-maturity debt securities are stated at cost, adjusted for theamortisation of premiums and accretion of discounts over the period from thedate of purchase to the date of maturity. Equity investments are stated at fairvalue. The carrying values are net of provisions for impairment. Investment in held-to-maturity debt securities rose by HK$24.3 billion, or 21.8per cent, to HK$136.1 billion, with funds re-deployed from interbank placings toenhance net interest yield. Over 95 per cent of the held-to-maturity debtsecurities will mature within five years. The fair value of the held-to-maturitydebt securities amounted to HK$137.0 billion, with an unrealised gain of HK$895million at 31 December 2004. The following table shows the fair value of held-to-maturity debt securities: Fair valueFigures in HK$m At 31Dec04 At 31Dec03 Held-to-maturity debt securitiesIssued by public bodies:- central governments and central banks 15,955 12,578- other public sector entities 12,670 12,763 28,625 25,341Issued by other bodies:- banks and other financial institutions 88,603 68,375- corporate entities 19,745 18,929 108,348 87,304 136,973 112,645 Held-to-maturity debt securities:- listed in Hong Kong 5,822 3,074- listed outside Hong Kong 27,154 24,790 32,976 27,864- unlisted 103,997 84,781 136,973 112,645 Maturity analysis of held-to-maturity debt securities: Carrying valueFigures in HK$m At 31Dec04 At 31Dec03 Remaining maturity:- repayable on demand - 78- three months or less but not repayable on demand 8,162 6,827- one year or less but over three months 20,742 17,474- five years or less but over one year 100,687 82,130- over five years 6,487 5,241 136,078 111,750 Investments in associated companies Figures in HK$m At 31Dec04 At 31Dec03 Share of net assets 2,095 549Goodwill unamortised 302 - 2,397 549 Investment in associated companies increased by HK$1,848 million, or 336.6 percent, to HK$2,397 million, reflecting Hang Seng's subscription of 15.98 per centin the enlarged share capital of Industrial Bank Co., Ltd (IB) in May 2004. The investment of 15.98 per cent in IB is accounted for as an associate usingthe equity method, as Hang Seng has representation on the Board of Directors ofIB, and on its executive committee. In accordance with the General TechnicalSupport and Assistance Agreement, Hang Seng is also assisting in the developmentof financial and operating policies in IB. Hang Seng has recognised its share of IB's net income from the date ofacquisition to 30 September 2004 based on the most up-to-date accountsavailable, which were prepared in accordance with International FinancialReporting Standards and which have been reviewed by IB's auditors. Goodwill onacquisition has also been amortised over the same period. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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