16th Feb 2005 08:00
Standard Chartered PLC16 February 2005 Part 1 TO CITY EDITORS 16 February 2005FOR IMMEDIATE RELEASE STANDARD CHARTERED PLC RESULTS FOR 2004 HIGHLIGHTS STANDARD CHARTERED PLC RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 Results • Profit before tax rose 39 per cent to $2,158 million from $1,550 million* in 2003. • Net revenue up 13 per cent to $5,367 million from $4,740 million* in 2003. • Normalised cost income ratio at 53.5 per cent (2003: 53.6 per cent*). • Debt charge down 60 per cent to $214 million (2003: $536 million). • Normalised earnings per share up 40 per cent at 125.9 cents (2003: 90.1 cents*). • Normalised return on equity reaches 20.1 per cent (2003: 15.7 per cent*). • Annual dividend per share increased by 10.6 per cent to 57.5 cents. Significant achievements • Record profits exceeding $2 billion for the first time driven by good revenue growth and excellent risk management. • Consumer Banking and Wholesale Banking each achieved $1 billion in operating profit. • Achieved Return on Equity goal of 20 per cent. • Incorporated Hong Kong operations to help expansion in China. • Made significant progress on acquisitions and alliances - Korea First Bank, Bank Permata, Bohai Bank and PrimeCredit. • Raised 20 per cent of funds necessary to achieve Corporate Responsibility target of restoring sight to 1 million people. Commenting on these results, the Chairman of Standard Chartered PLC, BryanSanderson, said: "I am delighted to be reporting on another successful year for StandardChartered. We have demonstrated our ability to drive good revenue growth andcontinue our strong profit momentum. At the same time, we have achieved anumber of significant acquisitions and alliances that will enable us to expandin key markets and products." * Comparative restated (see note 12 on page 51). STANDARD CHARTERED PLC - TABLE OF CONTENTS Page Summary of Results 3 Chairman's Statement 4 Group Chief Executive's Review 6 Financial Review Group Summary 11 Consumer Banking 12 Wholesale Banking 14 Risk 17 Capital 32 Financial Statements Summarised Consolidated Profit and Loss Account 34 Summarised Consolidated Balance Sheet 35 Other Statements 36 Consolidated Cash Flow Statement 37 Notes on the Financial Statements 38 Unless another currency is specified, the word "dollar" or symbol "$" in thisdocument means United States dollar. STANDARD CHARTERED PLC - SUMMARY OF RESULTSFOR THE YEAR ENDED 31 DECEMBER 2004 2004 2003* $m $m RESULTS Net revenue 5,367 4,740Provisions for bad and doubtful debts and contingent liabilities (214) (536)Profit before taxation 2,158 1,550Profit attributable to shareholders 1,479 1,024 BALANCE SHEET Total assets 141,688 120,202 Shareholders' funds: Equity 7,759 6,880 Non-equity 676 649 Capital resources 16,123 14,110 INFORMATION PER ORDINARY SHARE Cents Cents Earnings per share - normalised basis 125.9 90.1 - basic 121.2 82.0Dividend per share 57.5 52.0Net asset value per share 658.3 588.0 RATIOS % % Post-tax return on equity - normalised basis 20.1 15.7Cost income ratio - normalised basis 53.5 53.6Capital ratios: Tier 1 capital 8.6 8.6 Total capital 15.0 14.5 * Comparative restated (see note 12 on page 51). Results on a normalised basis reflect the Group's results excluding amortisationof goodwill, profits/losses of a capital nature, profits/losses on repurchase ofshare capital and subordinated debt and a donation to the Tsunami relief fund(see note 7 on page 46). STANDARD CHARTERED PLC - CHAIRMAN'S STATEMENT I am delighted to be reporting on another successful year for StandardChartered. We have demonstrated our ability to drive good revenue growth andcontinue our strong profit momentum. At the same time, we have achieved anumber of significant acquisitions and alliances that will enable us to expandin key markets and products. In addition, the incorporation of our business in Hong Kong will enable us totake advantage of the Closer Economic Partnership Agreement with China. Thiswill open up further opportunities for us in the Pearl River Delta region. 2004 Results Our primary focus is on performance. We have continued to build on our track record. We have seen improvement in all our key financial metrics. There has been broadbased revenue growth in almost all our geographies and our bad debt performancehas been excellent. Profit before tax is up 39 per cent, supported by revenuegrowth of 13 per cent. Our profits have nearly doubled in three years. We haveagain achieved excellent earnings per share growth of 40 per cent and we haveachieved our return on equity goal of 20 per cent, on a normalised basis. As a result of 2004's performance, the Board is recommending a dividend of 57.5 cents. Positioned for growth We are confident that this broad and balanced growth is sustainable. We arewell positioned for growth in the future having achieved a number of strategicgoals. Last year, we acknowledged that there were a number of markets and productsectors where we needed to build a bigger presence. In 2004, we added a number of acquisitions and alliances complementing ourorganic growth. Most recently, we entered into an agreement to acquire KoreaFirst Bank for approximately Korean Won (KRW) 3.4 trillion ($3.3 billion), whichwe have financed with a placing of Standard Chartered PLC ordinary shares forapproximately GBP 1.1 billion ($2 billion) together with other fundingresources. This acquisition is still subject to regulatory approvals. However,it is very clear that this will be a new engine of earnings growth for theGroup. We will be a partner in Bohai Bank, a unique opportunity to start a newnational bank in China. Through a consortium with PT Astra International Tbk,we also acquired a controlling interest in PT Bank Permata Tbk, Indonesia'ssixth largest bank. Completing the transfer of the ANZ project finance teamwill deepen our Wholesale Banking expertise, while PrimeCredit in Hong Konggives us access to the consumer banking sub-prime sector. Each of these will give us competitive advantage in our chosen markets. Corporate Governance We believe good governance and good performance reinforce each other. In thepast year there has been an intensified focus on regulation in the financialservices industry and we are working even more closely with our regulatorsaround the world. I have also placed great importance on reinforcing our Board strength. During2004, we announced the appointment of three new high-calibre Non-ExecutiveDirectors: Jamie Dundas, Oliver Stocken and Val Gooding. Their appointmentsextend the skills base of the Board and add further to its existing diversity. We have a Board which provides a good balance of support and challenge to theBank's senior management. Jamie Dundas has an outstanding record in areas relevant to Standard Chartered,including experience in Hong Kong and a background in banking. Former Barclays Group Finance Director, Oliver Stocken is Deputy Chairman of 3iPLC, and has wide experience as a company director. Val Gooding, chief executive of BUPA and a non-executive director at CompassGroup PLC, brings marketing and brand expertise to the Group. She waspreviously with British Airways, her final role being Director, Asia Pacific. I would like to thank Lord Stewartby, Sir Ralph Robins and David Moir whoretired from the Board in 2004. Lord Stewartby left after 14 years of serviceto the Group, most recently as non-executive Deputy Chairman, the SeniorIndependent Director and the Chairman of the Audit and Risk Committee. Sir Ralph had over 15 years of service on our Board. David was with StandardChartered for 46 years and made an invaluable contribution, including asChairman and Director of Standard Chartered Nakornthon Bank in Thailand andDeputy Chairman and Director of Standard Chartered Bank Malaysia Berhad. I would like to thank them all for the tremendous guidance and support they havegiven. Corporate Responsibility 2004 ended on a tragic note for the world when the Asian Tsunami struck afterChristmas. We operate in five of the countries most affected by the Tsunami. Sadly, two of our staff were lost in the Tsunami and a number of our staff havelost family members. I am proud of the way our staff responded to this crisis. Staff donations are over $450,000. Because of the scale of this disaster,Standard Chartered has made an initial corporate $5 million donation to relieffunds. We are also making good progress with our Seeing is Believing campaign and sofar have achieved 20 per cent of our target of raising funds to restore thesight of one million people suffering from curable blindness. We are alsoactively promoting our Living with HIV programme, to raise awareness ofHIV/AIDS. However, corporate responsibility is about more than community support. We haveestablished a Corporate Responsibility Committee, which I chair. This Committeeworks to align business strategy with the corporate responsibility aspirationsof the Group. Our approach to corporate responsibility has become an integralpart of our values as a company. In summary 2004 has been a year of significant progress. We have built on our track recordof performance, establishing good growth momentum. We have achieved a number ofstrategic goals. As a result, we are now a stronger bank with a morediversified earnings base. Bryan Sanderson CBE Chairman 16 February 2005 STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW 2004 has been a good year for the Group. We have momentum and scale in ourmarkets and we are pleased with the strategic progress we have made. Over the last three years, we have pursued a focused agenda. We set ourselves ambitious performance goals and have consistently deliveredagainst them. We have strengthened the infrastructure and technology of theBank; we have developed a robust risk management capability; we are re-invigorating our brand; we have increased staff engagement and deepened ourtalent pool. Our organic, broad based growth has given us the shareholdersupport and confidence to make acquisitions and alliances. During 2004, we delivered against a balanced scorecard of growth andperformance. Profit before tax was $2,158 million, a 39 per cent increase from$1,550 million. Return on equity rose from 15.7 per cent to 20.1 per cent.Cost-income ratio improved to 53.5 per cent. Earnings per share saw an increasefrom 90.1 cents to 125.9 cents. All these figures are on a normalised basis. For the first time, both our Wholesale and Consumer Banking businesses producedmore than $1 billion each in operating profit. We are in dynamic markets and at the core of our strategy is organic growth. Wewill supplement this organic growth with selective acquisitions and alliancesthat extend our customer or geographic reach, or broaden our product range. Looking to the year ahead our industry faces a number of challenges: risingsophistication and regionalisation of local banks; new entrants including non-bank financial institutions; margin compression in many of our markets;increasingly demanding regulatory requirements; sophisticated customersdemanding more for less; the risk of a major disruption from an unexpectedevent; and an unrelenting war for talent. Like all international businesses,retaining and attracting the best people in a highly competitive industry isalways a challenge. Companies have to invest heavily in recruiting anddeveloping the right talent. Many of these challenges are not new. What is different today is the pace andintensity of change. To compete successfully and grow, we need to be able to anticipate and reactquickly to changes. We have to accept that different markets are at differentstages of development so we need different strategies for them. We have been disciplined on costs and processes and innovative on products. Weare standardising our technology platforms and we are absolutely focused oncustomers. This enables us to be more nimble and able to anticipate and respondto the changing industry environment. 2005 PRIORITIES Our strategic intent is to be the world's best international bank - leading theway in Asia, Africa and the Middle East. We have set out our top priorities for2005: • - Expand Consumer Banking customer segments and products• - Continue Wholesale Banking transformation• - Integrate Korea First Bank and deliver growth• - Accelerate growth in India and China• - Deliver further technology benefits• - Embed Outserve into our culture Consumer Banking Consumer Banking is a business on the move, getting more innovative every year. It continues to grow its revenue base on the back of both good asset growthoutside Hong Kong and an increase in non interest income from our wealthmanagement business. Consumer Banking also benefited from a faster thananticipated reduction in personal bankruptcies in Hong Kong. Operating profit increased by 42 per cent and we achieved revenue growth ofeight per cent. There was strong performance in many markets, reflecting our increasingly broadbased geographic and product mix. Our challenge is to invest at the right pacein growing markets and, at the same time, increase productivity and innovationin our more mature markets like Singapore and Hong Kong. We are seeing returns on our investments in product capabilities, networkexpansion and systems. For example, our Consumer Banking business in the MiddleEast and South Asia (MESA) region enjoyed revenue growth of 23 per cent in 2004,following significant investment in the second half of 2003. Innovative products have also set us apart in many of our markets. A goodexample is Manhattan Card. Manhattan is the first credit card in India andSingapore to have risk-based pricing. It is an example of customer segmentationdriving product innovation. With our recent launch in three cities in India, wenow have approximately 120,000 cards in issue outside of Hong Kong, and 620,000in Hong Kong. We will launch Manhattan in three more cities in India in thenext few months. MortgageOne is another example. This portfolio grew over 50 per cent in HongKong and accounts for 80 per cent of new mortgage sales in Malaysia. Innovation in channels is also proving an important contributor to growth. In the Republic of Korea (Korea), we have an innovative approach to customerservice. Our personal loans sales staff use a bus to travel to localneighbourhoods, bringing our sales people and personal loan products directly toour customers' doorstep. Such innovation on distribution channels has become abig part of Standard Chartered, and we will continue to offer new and originalideas and approaches across all our markets. Looking ahead, we will increase customer segmentation to grow key segments suchas youth and the international banking sector. We will increase the size of ourSmall and Medium Enterprises (SME) business. Our Priority Banking offering willbe expanded in our key markets and we will be looking at opportunities to extendthe reach of our consumer finance business across Asia following our acquisitionof Advantage Limited (PrimeCredit) in Hong Kong. Wholesale Banking In 2004, our Wholesale Banking business enjoyed a year of robust revenueperformance. We have executed well on the strategy we laid out a few years agoand delivered on our promises. Overall operating profit for Wholesale Banking is up by 28 per cent. We havegrown revenues by 14 per cent and, significantly, customer revenues by 19 percent. Disciplined investments in key sales and control functions have delivered goodresults across all geographies, products and all four of our customer segments. We have deepened our customer relationships and are now a top three bank to 25per cent of our customers. However, there is still room to further improve cross-sell ratios and strengthenour product capabilities. The acquisition of the ANZ project finance portfoliois one example of how we are doing this. The emergence of China and India as economic powerhouses is changing thedynamics of trade and new trade corridors are opening, particularly between ourmarkets. Our acquisition of Sumitomo Mitsui Banking Corporation's business in India givesus a strong position in the trade corridor between Japan and India and ournetwork in the Middle East and Africa will also prove important in giving usleverage as trade corridors change. On-going initiatives and integration of our acquisitions will greatly benefitour Wholesale Banking business, adding to the many opportunities we see tocontinue to grow revenues, which we will do within our usual jaws discipline andpaced capital growth. Korea First Bank Our recent acquisition of Korea First Bank, subject to regulatory approval, isthe biggest in the history of Standard Chartered. We will execute it well andbuild our presence in Korea, expanding our reach in Asia. The scale of opportunities in Korea is tremendous. It is the world's 10thlargest economy, Asia's third largest and its economy is expected to grow byfour per cent in 2005. Korea's banking sector generates a revenue pool overthree times the size of Hong Kong. Korea First Bank is the seventh largest banking group in Korea by assets, with amarket share of approximately six per cent and over three million retailcustomers. It has one of the lowest levels of non-performing loans in theindustry. We have appointed an experienced integration team in Korea. We are buildingrelations with the regulators, labour unions, the local community and the staffof Korea First Bank. These are important relationships to us. Retaining key management talent is also very important and we are pleased withthe quality of senior management in Korea First Bank. Full year results for Korea First Bank will be announced in March. We will givemore details at our interim results following completion of this acquisition. In advance of this, the following gives a flavour of potential synergies. Korea First Bank Consumer Banking Korea First Bank has the country's fifth largest distribution network. It hasover 400 branches located throughout the country and 2,100 ATMs. In a countrywith 60 per cent internet penetration, it has a user-friendly internet bankingplatform, and a strong mobile banking business. An example of one opportunity is our personal loan product, which can beintroduced to Korea First Bank. With our strong credit scoring system and ourtested instalment loan product, we have grown personal loans into an almost $200million business, in just one year. Korea First Bank's own instalment loanbusiness is relatively small and we have built our business from just onebranch. We see good potential in distributing this through Korea First Bank'sbranch network. Our success in personal loans has been due to excellent customer segmentation,good credit quality, driven off credit bureau data, and innovative distributionchannels, like the sales bus mentioned earlier. Korea First Bank Wholesale Banking Standard Chartered will build a leading Wholesale Banking franchise in Korea byleveraging our international network, product capability and managementprocesses as well as Korea First Bank's customer base. One example of a growth opportunity is fee based income. At Korea First Bank,non-interest income represents less than 25 per cent of total revenues - atStandard Chartered this is over 40 per cent. Building a trade and cash management business will be a key priority - we canleverage our international network and products to generate new fee income. In parallel, we will strengthen Korea First Bank's Global Markets productcapability, developing the necessary infrastructure as well as training forstaff. We see good opportunities in foreign exchange and derivatives as well as in debtcapital markets. It is clear there are significant revenue opportunities and the combination ofour expertise with that of Korea First Bank will help realise the opportunitieswe see in the market. We are now even more confident that this acquisition willbe EPS accretive in 2006. India and China India and China are our two biggest long-term opportunities. We are well ontrack in both these markets. With 10 new branches, taking our total network to 75 branches in 27 cities, weare the largest international bank in India. We have focused on growing ourdistribution network and asset base, as well as broadening revenue streams. Asa result, we have strong market share in mortgages, credit cards, wealthmanagement, fixed income and trade finance in India. We are investing heavily in India because we see the scale of the opportunity. Our focus on growing our customer base and expanding revenue may slow the paceof operating profit growth in the short term, but it will put us in a strongposition to benefit in the medium term. There is no doubt that we can build onour position as the leading international bank in India. In China, our strategy has three strands: organic growth, strategic investmentsand taking advantage of opportunities in the Pearl River Delta. We are growingrevenues at over 30 per cent per annum and we have strengthened our network withadditional Renminbi (RMB) licences in Xiamen, Beijing and Nanjing. We now havefive RMB licences and we are allowed to conduct RMB business with localcorporates in 13 cities. We have also added a branch licence in Guangzhou. Our ambition is to remain aleading bank in China. In parallel with this organic growth, we have signed a framework agreement totake a 19.99 per cent stake in Bohai Bank - the first bank with a nationallicence for many years. This will be the first time that a foreign bank hasbeen allowed to participate and take a management role in the establishment of anational bank. Bohai Bank will be able to open branches and sell products throughout China andwe will be a significant part of this exciting new bank. When we mention ourbusiness in China we have to talk about Hong Kong, which is now very much aregional hub, integral to developing opportunities in China. We have seen a good performance in Hong Kong and the outlook for the economy isgood. Overall, consumer confidence is being restored. We are seeing inflationfor the first time in many years, and unemployment is down. A rise in tourism,with 21 million visitors in 2004, and more than 24 million expected in 2005,will continue to help the economy. But margin compression is increasing, and loan demand is not growing as fast asthe economy. We are focusing on productivity to ensure we have the capacity togrow in a maturing market. We believe that our strategy in Hong Kong will payoff. Delivering technology benefits Across the industry, the key themes are data centre consolidation, security,service delivery channels for customers, and pressure to reducetelecommunications costs. We will continue our efforts to ensure we can stayahead of changes in the industry. Improvements in our technology platform have underpinned much of our ability togrow. Our Global Shared Service Centres in Chennai and Kuala Lumpur continue todevelop scale and efficiencies. We estimate that our Shared Service Centreshave generated annual cost savings of $80 million. We have created economies ofscale and tighter control has meant our technology production costs are downyear-on-year. This has created capacity for increased investment in businessapplications and infrastructure. The stability and efficiency of our operations have been enhanced. Movingforward, we will continue to emphasise standardising technology as we migrate toa lower cost and modern core banking platform globally. We have completed our Know Your Customer roll out and we have migrated ourplatforms to meet changing reporting requirements under International FinancialReporting Standards. Outserve In line with our brand promise to be The Right Partner, we believe that servicewill be a differentiator for us in an increasingly competitive banking industry. To this end, we began a series of internal initiatives in 2004 to build ourservice culture and processes. We call these initiatives "Outserve" and webelieve it will have a profound impact on our shareholder value. Outserve comprises four key components: the voice of the customer, process improvements, metrics and measurements, change management and communication. We have taken the best methodologies on Voice of Customer, and developed animproved model tailored to our industry and market needs. Our service metrics include over 100 indicators to monitor every aspect of thecustomer experience. We are managing culture change and improving the way we communicate aboutcustomers. Our top 220 leaders in the company, including myself, are completingFirst Hand Days, where we experience somebody else's job on the front line tounderstand service issues and remove blockages to improved service. We are obsessive about our customer service and will use this as a source ofdistinction because we believe that our Outserve initiative will create revenue,reduce customer attrition and create value. OUTLOOK We have had a strong performance in 2004 and the revenue momentum into 2005 is good. Both of our businesses have good growth potential and we have robust controls in place. We continue to make progress towards our ambitious goals to be a leader in India and China. The smooth integration of Korea First Bank is a high priority. We will continue to produce strong profit growth for our shareholders in the short term. However, we will also focus on building a long term sustainable business. Overall, Standard Chartered is in good health and we are optimistic about the future. Mervyn Davies CBE Group Chief Executive 16 February 2005 STANDARD CHARTERED PLC - FINANCIAL REVIEW GROUP SUMMARY The Group delivered another strong performance in the year ended 31 December2004 with a record profit before tax of $2,158 million, up 39 per cent on theprevious year. Normalised earnings per share has grown by 40 per cent to 125.9cents. (Refer to note 7 on page 46 for the details of basic and dilutedearnings per share). This performance is the result of broadly based organic growth across bothbusinesses and a significantly improved debt performance. The results have alsobenefited from several one-off items, described on page 12, which togethergenerated profit of $85 million before tax. Operating profit before taxadjusted to exclude these one-off items increased by 34 per cent compared to2003. Prior period figures have been restated, principally to reflect the fulladoption of the provisions of FRS 17 " Retirement Benefits". See note 12 on page51. The Group has made several acquisitions in 2004. In August, it acquired 100 percent of Advantage Limited (" PrimeCredit"), a consumer finance business in HongKong, and increased its share in Standard Chartered Bank Nepal Limited from 50per cent to 75 per cent. In November, the Group entered into a consortiumagreement with PT Astra International Tbk to acquire a controlling interest inPT Bank Permata Tbk ("Permata"), an Indonesian commercial bank. The Group'seffective interest in Permata at 31 December 2004 was 31.55 per cent. It hasbeen accounted for as a joint venture. In December 2004 the Group acquired fromANZ part of its project finance business, a team of specialists and a portfolioof loan commitments amounting to $1.26 billion. Together these acquisitionscontributed $8 million to profit before tax in 2004. Net revenue has grown by 13 per cent in total to $5,367 million compared to2003. The increase is 11 per cent when adjusted for the one-off items above. Business momentum is strong and revenue has grown at twice the pace of revenuegrowth a year ago. Revenue from outside Hong Kong and Singapore, our two mostmature and competitive markets, now comprise 64 per cent of the Group's totalrevenue and grew at 19 per cent over 2003. Net interest income grew by seven per cent to $3,168 million. A fall ininterest margins from 2.8 per cent to 2.7 per cent has been offset by 10 percent growth in average earning assets. Interest spread fell from 2.5 per centto 2.4 per cent. Other finance income at $10 million compares with a finance charge of $13million in 2003, principally as a result of contributions made to the UK andHong Kong funds. Net fees and commissions increased by 15 per cent from $1,156 million to $1,334million. Growth was seen in most markets, driven by wealth management,mortgages and corporate advisory services. Dealing profits grew by 23 per cent from $525 million to $648 million, largelydriven by customer led foreign exchange dealing. In particular, retail foreignexchange performed well. Other operating income at $207 million compares to $104 million in 2003. Theincrease reflects the one-off items partly offset by a fall in profits oninvestment securities as a result of a programme to reduce the risk in the bookin 2003. Total operating expenses increased from $2,643 million to $2,996 million. Ofthis increase $44 million arose from accelerated goodwill amortisation. Theadjusted cost increase, excluding goodwill and one-off items, was 11 per cent,in line with adjusted revenue growth. The normalised cost income ratio hasfallen from 53.6 per cent in 2003 to 53.5 per cent in 2004. The Group'sinvestment programmes over recent years in market expansion, new products,distribution outlets and sales capabilities have been paying back in goodrevenue growth. This investment continued in 2004 together with increased spendon the Group's regulatory and control infrastructure. Provisions for bad and doubtful debts fell from $536 million to $214 million, areduction of 60 per cent. This includes a $55 million release from the Group'sgeneral provision. This performance is a direct result of significantlystrengthened risk management discipline, as well as a favourable creditenvironment. One-off items from Corporate Activity In January 2004, the Group sold its investment in BOC Hong Kong (Holdings)Limited realising a net profit of $36 million and in May 2004, it disposed ofits investment in KorAm Bank realising a net profit of $95 million. These gainswere partially offset by a $23 million premium paid on the repurchase of surplussubordinated debt in India and are reported in other operating income. One-off costs of $18 million were incurred on incorporating the Group's businessin Hong Kong and, at the end of December, the Group agreed to donate $5 millionto the Tsunami relief effort. The effect of these gains and charges, all of which arose from corporatedecisions taken at the centre and which are non-recurring in nature, have notbeen attributed to either Consumer Banking or Wholesale Banking in the businesssegmental results. CONSUMER BANKING Consumer Banking has built up strong momentum with operating profit up 42 percent in 2004 to $1,064 million. The accelerated investment in growthopportunities in 2003 is delivering results. Revenue increased by eight percent, which is twice the rate that was achieved in 2003, to $2,693 million. This was driven by loan growth of 18 per cent outside Hong Kong and an increasedcontribution across all product segments, in particular the SME business. Investing for growth has led to a 10 per cent increase in costs when compared to2003. The specific bad debt charge fell by 43 per cent. The debt charge inHong Kong fell significantly and charges elsewhere also improved. In addition,$29 million of general provision held against the consumer portfolio has beenreleased in 2004. Hong Kong delivered an increase in operating profit of 77 per cent to $462million. This resulted from a lower debt charge, cost efficiencies and improvedmortgage margins, although these showed some decline in the second half. Revenuewas flat at $954 million. Improved margins in mortgages and a good performancein wealth management was offset by subdued loan demand across the market. Costswere tightly controlled and, in the fourth quarter, an operational efficiencyprogramme was initiated to reduce back office costs and improve productivity. In Singapore, operating profit was broadly flat at $180 million in an intenselycompetitive environment. Although asset growth was strong at 16 per cent andthere was good performance in wealth management and the SME business, revenuewas offset by contracting margins, particularly in the mortgage business. Costgrowth was five per cent, largely supporting product investment. Operating profit in Malaysia was up 17 per cent to $75 million with strongperformance across all products and a lower debt charge. Revenue grew by eightper cent. Continued margin pressure in the mortgage portfolio was more thanoffset by higher volume. Revenue from wealth management increasedsignificantly, driven by unit trust sales. Costs increased by nine per cent asa result of significant infrastructure investment. In Other Asia Pacific, operating profit at $97 million was 11 per cent higherthan in 2003 with revenue up 18 per cent. Thailand, Taiwan, Indonesia and Koreaperformed well across a broad range of products. Costs increased by 23 per centas the Group continued to invest in China and Korea. In India, strong asset growth and a lower debt charge drove operating profit upby 100 per cent to $78 million, despite contracting margins in both mortgagesand deposit accounts. Costs increased by 22 per cent to $153 million as aresult of continued investment in enhanced risk management, new products anddelivery channels to support rapid business growth. Operating profit in the United Arab Emirates (UAE) increased by 42 per cent to$64 million with revenue up by 22 per cent, driven by credit cards, personalloans and wealth management. Costs were 11 per cent higher than in 2003,reflecting further investment in infrastructure and product capability. Elsewhere in MESA operating profit grew by 38 per cent to $69 million withstrong performances in wealth management, cards and personal loans, particularlyin Bangladesh, Pakistan and Bahrain. In Africa, operating profit increased from$7 million to $17 million with revenue up by 28 per cent to $218 million. Thiswas largely a result of strong asset growth as new products were launched in anumber of countries, including Nigeria, South Africa and Kenya, together withimproved margins in Zimbabwe. Costs have grown by 23 per cent. This was drivenby continued investment in South Africa and inflationary pressures. The Americas, UK and Group Head Office has seen an increase in operating profitof 10 per cent to $22 million, mostly through firm cost control. The re-focusedinternational banking offering has delivered good profit growth, with revenueslargely booked in Hong Kong, Singapore and Dubai. The following tables provide an analysis of operating profit by geographicsegment for Consumer Banking: 2004 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Net revenue 954 330 175 393 258Costs (415) (116) (86) (231) (153) Specific (88) (40) (18) (69) (29) General 11 6 4 3 2Charge for debts (77) (34) (14) (66) (27)Income from joint venture - - - 1 -Operating profit 462 180 75 97 78 2004 Other Americas Middle UK & East & Group Consumer Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Net revenue 124 172 218 69 2,693Costs (51) (93) (195) (48) (1,388) Specific (10) (11) (6) - (271) General 1 1 - 1 29Charge for debts (9) (10) (6) 1 (242)Income from joint venture - - - - 1Operating profit 64 69 17 22 1,064 2003* Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Net revenue 954 328 162 333 223Costs (411) (110) (79) (188) (125)Specific charge for (282) (40) (19) (58) (59)debtsOperating profit 261 178 64 87 39 2003* Other Americas Middle UK & East & Group Consumer Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Net revenue 102 138 170 78 2,488Costs (46) (83) (159) (58) (1,259)Specific charge for debts (11) (5) (4) - (478)Operating profit 45 50 7 20 751 * Comparative restated (see note 12 on page 51). STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) An analysis of Consumer Banking revenue by product is set out below: Revenue by product 2004 2003* $m $m Cards and Personal Loans 1,117 1,043Wealth Management / Deposits 891 805Mortgages and Auto Finance 638 603Other 47 37 2,693 2,488 * Comparative restated (see note12 on page 51). Cards and personal loans have delivered increased revenue of seven per cent in avery competitive price environment. Assets have grown by 25 per cent outside ofHong Kong. Hong Kong has returned to profitability despite a seven per centdecline in cards outstandings. Wealth management revenue has increased by 11 per cent to $891 million withstrong demand for investment products, partially offset by compression indeposit margins. Mortgages and auto finance revenue has grown by six per cent to $638 milliondriven by new products, increased fee income and, in Hong Kong, improvedmortgage margins. Costs in Consumer Banking have increased by 10 per cent to $1,388 million. Thiswas a direct result of the investment which began in 2003 to expand distributionoutlets and launch new products and services in key growth markets. The specific net charge for debts in Consumer Banking has fallen by 43 per centto $271 million. The specific net debt charge in Hong Kong fell significantlyas bankruptcy losses continued to fall sharply due to the improving economicenvironment. Other areas showed a stable or improving performance whilesustaining strong business growth. WHOLESALE BANKING Wholesale Banking delivered a strong broadly based performance across allgeographies, products and customer segments. Operating profit was up 28 per centat $1,190 million. This was achieved on controlled economic capital, throughexpanding product capabilities and deepening customer relationships. Revenueincreased by 14 per cent to $2,566 million. Customer revenues were up by 19 percent. Costs increased by 12 per cent due to increased investment in productcapabilities such as debt capital markets and derivatives, increased spend oninfrastructure and controls, and an increase in performance driven compensation.There was a net specific debt release in 2004 of $2 million compared to acharge of $68 million in 2003. This reflected success in changing the riskprofile of the business and also a benign credit environment. In addition, a $26million release was made from the general provision held against the Wholesaleportfolio (2003: $10 million). STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The following tables provide an analysis of operating profit by geographicsegment for Wholesale Banking: 2004 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Net revenue 418 183 95 422 231Costs (221) (110) (57) (277) (97) Specific (54) (2) 11 22 3 General 6 3 1 4 2Charge for debts (48) 1 12 26 5Amounts written off fixed asset - - - - 2 investmentsIncome from joint venture - - - 1 -Operating profit 149 74 50 172 141 2004 Other Americas Middle UK & East & Group Wholesale Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Net revenue 147 205 366 499 2,566Costs (48) (75) (162) (357) (1,404) Specific 6 7 (6) 15 2 General 2 2 - 6 26Charge for debts 8 9 (6) 21 28Amounts written off fixed - - - (3) (1)asset investmentsIncome from joint venture - - - - 1Operating profit 107 139 198 160 1,190 2003* Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Net revenue 401 158 73 348 243Costs (207) (100) (57) (241) (87) Specific (23) 7 21 (41) (1) General - - - - -Charge for debts (23) 7 21 (41) (1)Amounts written off fixed asset - - - - (4) investmentsOperating profit 171 65 37 66 151 2003* Other Americas Middle UK & East & Group Wholesale Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Net revenue 132 177 273 447 2,252Costs (45) (62) (123) (328) (1,250) Specific 9 9 (5) (44) (68) General - - - 10 10Charge for debts 9 9 (5) (34) (58)Amounts written off fixed - - - (7) (11)asset investmentsOperating profit 96 124 145 78 933 * Comparative restated (see note 12 on page 51). STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) In Hong Kong, net revenue grew by four per cent from $401 million to $418million. The growth was largely from foreign exchange and derivatives on theback of strong trade flows. Costs were $14 million higher at $221 million withcontinued investment in the front office partially offset by a reduction intechnology costs. Revenue in Singapore grew by 16 per cent. Strong customer revenue, particularlyfrom global markets products, more than offset a decline in revenue from assetand liability management. Costs increased by 10 per cent to $110 million mainlydue to investment in risk and governance infrastructure. In Malaysia, revenue increased from $73 million to $95 million with good growthin global markets products facilitated by a wider product mix and advisoryservices. Costs were held flat at $57 million through tight control. The Other Asia Pacific region delivered strong results with excellentcontributions in all countries and, in particular, from Korea and Taiwan. Revenue grew by 21 per cent to $422 million. This increase was broadly spreadacross the commercial banking and global markets product range. Costs increasedby 15 per cent to $277 million reflecting investment in product capability inthe region. In India, profit on the sale of investment securities arising as a result of aprogramme to reduce the risk in the book was significantly lower in 2004. Excluding the effect of this, revenue grew by around 12 per cent. Thisreflected broad based product growth and positive contribution from all customersegments. The increase in costs of 11 per cent to $97 million is the result ofinvestment in new businesses, people and infrastructure to capture furthergrowth opportunities. In the UAE revenue increased by 11 per cent to $147 million, driven largely byforeign exchange, cash management and structured global markets products. Elsewhere in the MESA region revenue grew by $28 million to $205 million, led bysignificant cross-selling of global markets products. The increase in costs inthe region was due to expansion into new markets, investment in new products,infrastructure and continued strengthening of risk and governance functions. In Africa, revenue at $366 million was 34 per cent higher than in 2003. Highcommodity prices and relative economic stability in a number of key markets havecontributed to this result. The contribution from Botswana and Zimbabwe wasparticularly strong. Costs grew by 32 per cent, mainly due to inflationarypressure and expansion in Nigeria and South Africa. The Americas, UK and Group Head Office has seen revenue increase by 12 per centto $499 million. Strong fees and commissions were partially offset by reducedyield on asset and liability management. An analysis of Wholesale Banking revenue by product is set out below: Revenue by product 2004 2003* $m $m Trade and Lending 868 815Global Markets 1,209 1,054Cash Management and Custody 489 383 2,566 2,252 * Comparative restated (see note 12 on page 51). STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Trade and lending revenue has increased by seven per cent to $868 million. Trade finance, underpinned by strong intra-Asian trade flows, has outstrippedlending growth. Global markets revenue has grown strongly at 15 per cent. Investment in newproduct capability in debt capital markets, asset backed securities, structuredtrade and derivatives has started to deliver good returns. Revenue from assetand liability management was lower than in 2003 due to the shape of the yieldcurves, but the decline has stabilised. Cash management and custody revenue was up by 28 per cent. Cash management grewon the back of higher transaction volumes and an increase of more than 30 percent in average balances. Custody increased by more than 40 per cent with assetsunder administration up by more than 50 per cent. Costs in Wholesale Banking increased by 12 per cent. This was due to furtherinvestment for growth, increased spending on infrastructure and controls andhigher performance driven costs, largely due to variable compensation. The Wholesale Banking had a net specific debt release of $2 million compared toa $68 million charge in the previous period. Gross provisions were down by 37per cent and recoveries down by 13 per cent. This has been achieved throughcontinued enhancement of risk management processes and improvement in the riskprofile, together with a favourable credit environment. $26 million of generalprovision was released against the Wholesale portfolio in 2004 (2003: $10million). RISK Through its risk management structure the Group seeks to manage efficiently thecore risks: credit, market, country and liquidity risk arise directly throughthe Group's commercial activities whilst business, regulatory, operational andreputational risk are normal consequences of any business undertaking. The keyelement of risk management philosophy is for the risk functions to operate as anindependent control working in partnership with the business units to provide acompetitive advantage to the Group. The basic principles of risk management followed by the Group include: • - ensuring that business activities are controlled on the basis of risk adjusted return;• - managing risk within agreed parameters with risk quantified wherever possible;• - assessing risk at the outset and throughout the time that we continue to be exposed to it;• - abiding by all applicable laws, regulations, and governance standards in every country in which we do business;• - applying high and consistent ethical standards to our relationships with all customers, employees and other stakeholders; and• - undertaking activities in accordance with fundamental control standards. These controls include the disciplines of planning, monitoring, segregation, authorisation and approval, recording, safeguarding, reconciliation and valuation. Risk Management Framework Ultimate responsibility for the effective management of risk rests with theCompany's Board of Directors. The Audit and Risk Committee reviews specificrisk areas and guides and monitors the activities of the Group Risk Committeeand the Group Asset and Liability Committee. All the Executive Directors of Standard Chartered PLC and members of theStandard Chartered Bank Court are members of the Group Risk Committee which ischaired by the Group Executive Director responsible for Risk ("GED Risk"). ThisCommittee has responsibility for determining the Group standards and policiesfor risk measurement and management, and also delegating authorities andresponsibilities to various sub committees. The committee process ensures that standards and policy are cascaded downRelated Shares:
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