27th May 2005 11:14
HSBC Holdings PLC27 May 2005 HSBC HOLDINGS PLC ANNUAL GENERAL MEETING The following is a statement given by Sir John Bond, Group Chairman, HSBCHoldings plc, at the Annual General Meeting held at the Barbican Hall, London,on Friday, 27 May 2005. Today is an opportunity for our shareholders to review HSBC's progress. 2004 wasanother good year for the Group and we were able to build on the record resultsof 2003. We grew profit attributable to shareholders by 35 per cent to US$11.8billion. Earnings per share were up 30 per cent and total dividends for the yearwere US$7.3 billion. Our earnings growth was well diversified across all ourmain geographical regions and our customer groups. In addition, we havecontinued to invest in the long-term future of our business. For the record, wehave achieved an 82 per cent increase in pre-tax profits and a 63 per centincrease in EPS over the last two years. At a time when equity markets remain subdued it is worth noting that, while theFTSE100 has declined by 18 per cent since we first embarked on our Managing forValue strategy in 1999, the HSBC share price has increased by 62 per cent.Looking at it another way, if you had invested £100 in HSBC in 1975 andreinvested the dividends it would now be worth £64,885 - a compound annualgrowth rate of 24 per cent over the last 30 years. HSBC manages its business through annual operating plans and five year strategicplans but we also try to identify the major influences on our industry over thenext quarter of a century. In our assessment, there will be three. First, we believe that there will be a rebalancing of the world economy. A muchhigher proportion of total world GNP will be contributed by the "so-called"emerging markets. Countries such as China, India, Brazil and Mexico are becomingincreasingly important on the world economic stage. Hence the significance ofour highly successful investment in Mexico in 2002. Hence too the importance ofthe US$3 billion we have already invested in China. This includes the 19.9 percent interest we acquired during 2004 in Bank of Communications, China's fifthlargest bank. Earlier this month and subject to regulatory approvals, weannounced our intention to invest a further US$1 billion in China to increaseour stake in Ping An Insurance, China's second largest life and third largestnon-life company, to 19.9 per cent. Secondly, demographic trends will be a major influence. We expect that, in mostof the developed world, the ratio of people in retirement to those in employmentwill continue to increase, intensifying the need for pensions and retirementrelated services. To give an example of how this trend directly affects ourbusiness in the UK, a one year increase in longevity adds about £300 million toour pensions liabilities. By contrast, emerging markets will experience risingincomes, and the growth of new consumer markets will create demand for all kindsof consumer financial services. Thirdly, the internet is a transforming technology which has the ability tochange the relationship between financial services companies and their customersby giving people greater ability to perform their transactions themselves attheir convenience. This will result in major changes in the way that banks arestructured and, perhaps, in the human resources they require. At the end ofMarch 2005, 19.6 million customers were registered to use our internet services,an increase of five million, or 34 per cent, in the last year alone. And in theUK, while visits to branches are falling, internet visits are rising by 40 percent a year. Already over 50 per cent of customer contact is now made over thetelephone and the internet. HSBC is responding in full measure to these profound influences and overall ourbusiness is in good shape. We meet regularly with our major institutionalinvestors to discuss the progress we are making and the challenges we face. Ithought it might be helpful to shareholders attending this meeting if I were tohighlight two subjects which have been discussed frequently in recent meetings. First, the performance of our consumer finance business in the United States.Shareholders will recall that we acquired HSBC Finance Corporation, formerlyHousehold International, in the Spring of 2003 at a cost of US$14.8 billion.Although consumer finance is not as well known here in the UK, it has a longhistory and a good growth record in the US. Using highly sophisticatedbehavioural analysis it caters for a range of customers, many of whom cannot beaccommodated by banks. At its best - and HSBC is determined to be the best -consumer finance provides people who may not be able to borrow from banks withaccess to credit in a responsible, transparent and fair manner. The HSBC FinanceCorporation model is highly acclaimed in the US. The acquisition has been successful, the integration was completed ahead ofschedule and the resulting benefits have been somewhat greater than we expected.In 2004 HSBC Finance Corporation made a record profit attributable toshareholders of US$2.7 billion, a cash return on cash invested of 18 per cent.It has pushed HSBC from 40th to one of the top six issuers of credit cards inthe world and to number three in store cards. It has also given us a consumerfinance skill set that previously we lacked and which we can extend into marketssuch as China, India, Mexico and Turkey. Secondly, we have been asked about our progress in building our corporate,investment banking and markets business, which we commonly refer to as CIBM.HSBC already has one of the world's largest corporate and institutional bankingbusinesses. In more recent years we have enjoyed conspicuous success indeveloping a global markets business. It is true to say, however, that we hadnot enjoyed the same degree of success in our equity capital markets business.Nor were we a truly significant force in investment banking advisory. Astrategic review of those businesses, supported by extensive research, led us toconclude that there was ample scope for a trusted name which could provide highcalibre equity capital markets and investment banking advisory services. Ourmajor corporate customers assured us that they would like to do more businesswith us if we could extend the range and quality of certain services. Accordingly, in 2003 we embarked on a five year plan to build CIBM as anintegrated business and, having considered carefully and discarded thepossibility of a major investment banking acquisition, we decided to build newbusiness streams organically and at a total cost of less than three per cent ofour total expenses. We recognise that markets are always impatient for evidenceof progress but HSBC is a long-term business which thinks long-term and investsfor the long-term. We remain confident that the course we have set for ourselvesis right for us and that, given active markets, the people we have recruitedwill in due course produce revenues which are multiples of their direct andindirect costs. Furthermore, we believe that the demand for the sophisticatedservices which our CIBM business offers will grow rapidly outside theestablished centres of London, New York and Hong Kong and in markets such asmainland China, India and South America. We will continue to keep shareholdersinformed of our progress. It is a tradition, and an entirely correct one, for Chairmen to pay tribute totheir colleagues at the AGM. HSBC cannot be successful without the talents, hardwork and dedication of our people so many of whom constantly stand ready to gothe extra mile. I take this opportunity to thank them warmly for their massivecontribution to the company's standing in our industry. It is precisely because our employees are such an asset to HSBC that it issaddening to have to comment on the current industrial dispute in the UK. Allowme to set out the facts as clearly and succinctly as I can. HSBC's policy is to pay fairly. We pay competitive market rates and we rewardperformance based on merit. We do so at all levels of the organisation and inevery country where we operate. At the end of 2004, the UK accounted for 22 per cent of our worldwide staff butfor 31 per cent of our total staff costs, 52 per cent of our total pension costsand 36 per cent of our total social security costs. Over the last three years wehave made two top-up payments to our UK pension fund totalling £584 million. Wehave also increased contributions to the scheme to 20 per cent of pensionablesalary. We are now paying an additional £1,000 a year to secure the retirementbenefits of a typical member of our clerical staff who is in the defined benefitpension scheme. HSBC employs a total of 55,000 staff in this country, of whom 25,180 areclerical staff. 10,519 of those are union members. Less than 30 per cent ofmembers voted and of those, over 30 per cent voted against the strike. Thismeans that only four per cent of our total staff in the UK voted to strike. When we were determining the appropriate amount of our 2005 pay award,independent research confirmed that some 60 per cent of our clerical staff areon better than market salaries. We therefore decided that we should channel payrises to those on lower salaries to bring them up to market levels. The largemajority of staff have received a bonus. Only one per cent of our staff receivedno pay rise and no bonus and most of them because of unsatisfactory performance. Our dispute with the union is about those who have received no rise, or a riseless than inflation. It is in essence, therefore, a dispute about HSBC's policyof paying market rates and rewarding performance. We recognise the right ofemployees to take strike action. However, it is deeply regrettable that four percent of our staff would vote for action to disrupt customer service andpotentially damage our business. I thank the 96 per cent of our colleagues whoare hard at work today to ensure that all our branches remain open. At last year's AGM I spoke in detail about the role of your Board and itsimportance to HSBC. I shall not therefore do so again although I would like tothank the members who, individually and collectively, contribute so much toHSBC's success. As usual there have been some changes to the composition of theBoard since our last meeting. Carole Taylor retired with effect from 14 March this year following her decisionto stand as a candidate for the Provincial Legislature of British Columbia inCanada. Carole was an outstanding director and HSBC's loss is British Columbia'sgain. William Aldinger retired on 29 April having overseen the integration of HSBCFinance Corporation into the enlarged HSBC Group. Bill had agreed at the time ofthe acquisition to stay on for a period of three years to oversee this processand it is a tribute to his energy and leadership that it was completed fasterthan planned. David Eldon retires today after a very distinguished career of 37 years withHSBC. His contribution has been immense. He has led our business in Asia throughsome challenging years and he has helped to lay the foundations of our future inmainland China. He has also overseen the continued development of our commercialbanking business around the world, a vitally important customer group for HSBC. I am pleased to welcome to today's meeting two new directors who were appointedto the Board in March, John Coombe and James Hughes-Hallett. John recentlyretired as Chief Financial Officer of GlaxoSmithKline plc. James is Chairman ofJohn Swire & Sons Limited. One of many areas where we look to our directors and others for support andguidance is the area of Corporate Social Responsibility. We are grateful to thedistinguished members of our Corporate Social Responsibility Committee forhelping us shape and enact policies and programmes and for encouraging us tocommunicate these more effectively than in the past. We published a summary ofour progress in our 2004 Annual Review. Copies of a full Corporate SocialResponsibility Report, for the specialists, and a short brochure, for thegeneral reader, are also available. Important though this area is, therefore, Ishall not comment on it at length today. However, I would like to highlight someparticularly important initiatives: In 2004 we announced our commitment to becoming carbon neutral by 2006. We werethe first major bank to do so. Secondly, shareholders will recall that at our meeting last year we announcedthe publication of a new internal guideline on lending to the forestry sector.We have today published a new guideline, this time on lending to the freshwatersector. Copies are available at www.hsbc.com. Education and the environment remain our principal areas of philanthropicsupport. In addition, we contributed both locally and at a Group level toappeals for funds for relief and reconstruction in south east Asia, in responseto the appalling tragedy of the tsunami last December. When we reported our 2004 results in February, I drew attention to the prospectsfor economic growth in Brazil, India, Mexico, South Korea, Turkey and the MiddleEast. I also highlighted the increasing importance of China in the worldeconomy. We have continued to see the emergence of these markets in the firstpart of 2005 and we are making encouraging progress in developing our personaland commercial businesses in them. Progress in our major developed markets has also been broadly favourable. In theUnited States, recent trends in employment and payroll data suggest that theeconomy is sustaining momentum. The credit experience of our US consumer financebusiness continued to improve. In Hong Kong, the economy is performing satisfactorily on the back of strongtrade, retailing and tourism. Consumer and corporate credit remain in goodhealth. In the UK, we are continuing to make progress in developing our business.However, recent rises in interest rates and a slowing residential propertymarket are affecting consumer confidence and the level of bad debts. Our investment in developing our CIBM business has continued as planned, therehave been encouraging indications of growing client recognition of the progresswe are making. Overall, the Group's results for the first quarter of 2005 are in line with ourexpectations. We believe that HSBC provides an excellent investment proposition. Our businessis unusually well diversified, both by customer group and by geography, givingus a wide spread of risk. Our operations in 77 countries and territoriesstraddle virtually every area of growth and both mature and emerging markets. Noone region accounts for more than a third of our earnings. Our financialstrength underpins our ability to invest in the long-term growth of our businessand protects us against sudden economic volatility. Although the world economy is growing more slowly than in 2004, we seesignificant scope for HSBC to build its business. In the developed world, wherecapacity exceeds demand, there will be further pressure on margins andconsolidation in the financial services industry. In emerging markets, however,demand and deregulation will bring new opportunities for growth. We aregenerating sufficient cash from our established businesses to respond to them.Few, if any, financial services companies can match our international footprintor would find it easy to replicate. We are pursuing our strategy for Managingfor Growth and in an increasingly open world there are exciting prospects forthe world's local bank. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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