31st Jul 2006 09:15
HSBC Holdings PLC31 July 2006 Half-year Half-year Half-year ended ended endedFigures in HK$m 30Jun06 30Jun05 31Dec05 Interest income 13,334 7,900 11,129Interest expense (6,959) (2,636) (5,325)Net interest income 6,375 5,264 5,804Fee income 2,078 1,792 1,602Fee expense (296) (215) (305)Net fee income 1,782 1,577 1,297Trading income excluding net interest expense 659 389 496Net interest (expense)/income on trading activities (879) 44 (350)Net trading income (220) 433 146Net income from financial instruments designated at fair value 82 50 (48)Dividend income 31 37 23Net earned insurance premiums 3,954 2,728 5,137Other operating income 392 410 388Total operating income 12,396 10,499 12,747Net insurance claims incurred and movement in policyholder liabilities (3,671) (2,409) (4,605)Net operating income before loan impairment charges and other credit risk provisions 8,725 8,090 8,142Loan impairment charges and other credit risk provisions (34) (302) (316)Net operating income 8,691 7,788 7,826Employee compensation and benefits (1,277) (1,125) (1,156)General and administrative expenses (907) (892) (1,084)Depreciation of premises, plant and equipment (150) (135) (145)Amortisation of intangible assets (4) (4) (5)Total operating expenses (2,338) (2,156) (2,390)Operating profit 6,353 5,632 5,436Profit on disposal of fixed assets and financial investments 574 348 129Net surplus on property revaluation 318 877 436Share of profits from associates 268 205 295Profit before tax 7,513 7,062 6,296Tax expenses (1,202) (924) (871)Profit for the period 6,311 6,138 5,425Profit attributable to minority interests (121) (93) (128)Profit attributable to shareholders 6,190 6,045 5,297 Dividends 4,206 4,206 5,736 Figures in HK$Earnings per share 3.24 3.16 2.77Dividends per share 2.20 2.20 3.00 At At At Figures in HK$m 30Jun06 30Jun05 31Dec05 AssetsCash and balances with banks and other financial institutions 13,763 7,816 9,201Placings with and advances to banks and other financial institutions 82,563 65,982 69,286Trading assets 14,543 13,812 12,600Financial assets designated at fair value 6,429 3,743 6,027Derivative financial instruments 2,161 1,552 1,715Advances to customers 266,505 260,512 260,680Financial investments 211,955 192,951 189,904Investments in associates 3,267 2,449 2,929Investment properties 3,161 3,913 4,273Premises, plant and equipment 6,553 6,559 6,750Interest in leasehold land held for own use under operating lease 587 601 594Intangible assets 1,857 1,426 1,636Other assets 14,945 10,917 15,225 628,289 572,233 580,820 LiabilitiesCurrent, savings and other deposit accounts 448,097 430,395 430,995Deposits from banks 22,131 34,753 12,043Trading liabilities 61,630 24,358 45,804Financial liabilities designated at fair value 950 995 967Derivative financial instruments 2,256 1,857 1,792Certificates of deposit and other debt securities in issue 8,312 11,158 10,023Other liabilities 10,821 10,380 14,138Liabilities to customers under investment contracts 544 542 561Liabilities to customers under insurance contracts 18,877 11,558 15,335Deferred tax and current tax liabilities 2,668 2,310 1,921Subordinated liabilities 7,005 1,496 3,511 583,291 529,802 537,090 Capital resourcesMinority interests 1,280 931 1,159Share capital 9,559 9,559 9,559Retained profits 28,627 26,222 26,052Other reserves 3,429 3,616 3,327Proposed dividends 2,103 2,103 3,633Shareholders' funds 43,718 41,500 42,571 44,998 42,431 43,730 628,289 572,233 580,820 Attributable to shareholders Share Other Retained Proposed Total Minority TotalFigures in HK$m capital reserves profits dividends interests equity Balance at 01Jan06 9,559 3,327 26,052 3,633 42,571 1,159 43,730 Premises revaluation reserve, net of tax - (21) 587 - 566 - 566- Unrealised surplus on revaluation - 469 - - 469 - 469- Depreciation charge on revaluation - (36) 36 - - - -- Realisation of revaluation surplus on disposal of premises - (454) 551 - 97 - 97 Available-for-sale investments, net of tax - 54 - - 54 - 54- Revaluation gains taken to equity - 175 - - 175 - 175- Transfer to income statement on disposal - (121) - - (121) - (121) Cash flow hedges, net of tax - (49) - - (49) - (49)- Revaluation losses taken to equity - (51) - - (51) - (51)- Transfer to income statement - 2 - - 2 - 2 Exchange and other movements - 118 2 - 120 - 120 Actuarial gains on defined benefit plans - - 2 - 2 - 2 Profit for the period - - 6,190 - 6,190 121 6,311 Dividends proposed during the period - - (4,206) 4,206 - - - Dividends approved and declared during the period - - - (5,736) (5,736) - (5,736) Balance at 30Jun06 9,559 3,429 28,627 2,103 43,718 1,280 44,998 Attributable to shareholders Share Other Retained Proposed Total Minority TotalFigures in HK$m capital reserves profits dividends interests equity Balance at 01Jul05 9,559 3,616 26,222 2,103 41,500 931 42,431 Premises revaluation reserve, net of tax - 156 81 - 237 - 237- Unrealised surplus on revaluation - 228 - - 228 - 228- Depreciation charge revaluation - (32) 32 - - - -- Realisation of revaluation surplus on disposal of premises - (40) 49 - 9 - 9 Available-for-sale investments, net of tax - (310) - - (310) - (310)- Revaluation losses taken to equity - (146) - - (146) - (146)- Transfer to income statement on disposal - (164) - - (164) - (164) Cash flow hedges, net of tax - (227) - - (227) - (227)- Revaluation losses taken to equity - (227) - - (227) - (227) Exchange and other movements - 92 21 - 113 - 113 Actuarial gains on defined benefit plans - - 167 - 167 - 167 Increase in subsidiary's capital - - - - - 100 100 Profit for the period - - 5,297 - 5,297 128 5,425 Dividends proposed during the period - - (5,736) 5,736 - - - Dividends approved and declared during the period - - - (4,206) (4,206) - (4,206) Balance at 31Dec05 9,559 3,327 26,052 3,633 42,571 1,159 43,730 Attributable to shareholders Share Other Retained Proposed Total Minority TotalFigures in HK$m capital reserves profits dividends interests equity Balance at 01Jan05 9,559 4,413 24,389 3,633 41,994 838 42,832 Premises revaluation reserve, net of tax - 609 26 - 635 - 635- Unrealised surplus on revaluation - 635 - - 635 - 635- Depreciation charge on revaluation - (26) 26 - - - - Available-for-sale investments, net of tax - (1,165) - - (1,165) - (1,165)- Revaluation losses taken to equity - (842) - - (842) - (842)- Transfer to income statement on disposal - (323) - - (323) - (323) Cash flow hedges, net of tax - (265) - - (265) - (265)- Revaluation losses taken to equity - (265) - - (265) - (265) Exchange and other movements - 24 (23) - 1 - 1 Actuarial losses on defined benefit plans - - (9) - (9) - (9) Profit for the period - - 6,045 - 6,045 93 6,138 Dividends proposed during the period - - (4,206) 4,206 - - - Dividends approved and declared during the period - - - (5,736) (5,736) - (5,736) Balance at 30Jun05 9,559 3,616 26,222 2,103 41,500 931 42,431 Economic Profit Economic profit is calculated from post-tax profit, adjusted for any surplus/deficit arising from property revaluation and depreciation attributable to therevaluation surplus, and takes into account the cost of capital invested by thebank's shareholders. For the first half of 2006, economic profit was HK$3,825million, an increase of HK$557 million, or 17.0 per cent, compared with the sameperiod last year. Post-tax profit, adjusted for the property revaluation surplus(net of deferred tax) and depreciation attributable to the revaluation, rose byHK$623 million. The cost of capital rose by HK$66 million, in line with growthin invested capital. The economic profit figure demonstrates that the bankcontinues to create value for its shareholders. Half-year ended Half-year ended Half-year ended 30Jun06 30Jun05 31Dec05 HK$m % HK$m % HK$m % Average invested capital 37,485 35,708 36,287 Return on invested capital^ 5,963 32.1 5,340 30.1 4,963 27.1Cost of capital (2,138) (11.5) (2,072) (11.7) (2,147) (11.7)Economic profit 3,825 20.6 3,268 18.4 2,816 15.4 ^Return on invested capital is based on post-tax profit excluding any surplus/deficit arising from property revaluation and depreciation attributable to therevaluation surplus. Consolidated Cash Flow Statement (unaudited) Half-year Half-year ended endedFigures in HK$m 30Jun06 30Jun05 Net cash inflow from operating activities 38,080 10,716 Cash flows from investing activities Dividends received from associates 20 55Purchase of available-for-sale investments (60,007) (37,760)Purchase of held-to-maturity debt securities (216) (184)Proceeds from sale or redemption of available-for-sale investments 34,844 11,816Proceeds from sale or redemption of held-to-maturity debt securities 28 28Purchase of fixed assets (143) (97)Proceeds from sale of fixed assets 2,599 94Interest received from available-for-sale investments 2,408 2,190Dividends received from available-for-sale investments 31 35Net cash outflow from investing activities (20,436) (23,823) Cash flows from financing activitiesDividends paid (5,736) (5,736)Interest paid for subordinated liabilities (108) __Proceeds from subordinated liabilities, including financial liabilities designated at fair value 3,495 2,492Net cash outflow from financing activities (2,349) (3,244) Increase/(decrease) in cash and cash equivalents 15,295 (16,351) Cash and cash equivalents at 01Jan 65,513 67,051Effect of foreign exchange rate changes 54 (235) Cash and cash equivalents at 30Jun 80,862 50,465 Financial Review Net interest income Half-year Half-year Half-year ended ended endedFigures in HK$m 30Jun06 30Jun05 31Dec05 Net interest income 6,375 5,264 5,804Average interest-earning assets 541,337 497,987 512,337 Net interest spread 1.82% 1.99% 1.87%Net interest margin 2.37% 2.13% 2.25% Net interest income was HK$6,375 million, an increase of HK$1,111 million, or21.1 per cent, compared with the first half of 2005, on the basis of excludingnet interest expenses of HK$847 million on the trading and fair valueportfolios. Average interest-earning assets (excluding the trading and fairvalue portfolios) grew by 8.7 per cent and net interest margin increased by 24basis points to 2.37 per cent. Net interest spread fell by 17 basis points to1.82 per cent, while contribution from net free funds rose by 41 basis points to0.55 per cent. The non-treasury portfolios performed well due to improvement in spreads onBLR-based loans, which benefited from a wider BLR/HIBOR gap, and the widening ofdeposit spreads, despite continued pressure on mortgage pricing and corporateloan margins. However, the treasury balance sheet management portfolio yieldswere further compressed under an environment of persistently rising interestrates and flat yield curves. Contribution from net free funds, including shareholders' funds andnon-interest-bearing deposits, increased significantly following the rise inmarket interest rates. The exclusion of net interest expenses in the trading andfair value portfolios also contributed to the increase in contribution of netfree funds. Compared with the second half of 2005, net interest income rose by HK$571million, or 9.8 per cent, on the basis of excluding net interest expenses in thetrading and fair value portfolios for both periods (HK$847 million in the firsthalf of this year and HK$340 million in the second half of last year). This wasmainly due to the 5.7 per cent increase in average interest-earning assets andthe increase in contribution from net free funds. The net interest margin rosefrom 2.25 per cent to 2.37 per cent. The average yield on the residential mortgage portfolio (excluding GHOSmortgages and staff loans) was 230 basis points below BLR for the first half of2006, compared with 223 basis points and 227 basis points below BLR for thefirst and second halves of 2005 respectively. Mortgage incentive paymentstotalled HK$44 million for the first half of 2006, compared with HK$55 millionand HK$42 million for the first and second halves of 2005 respectively. Net interest income, including net interest expenses of the trading and fairvalue portfolios, amounted to HK$5,528 million, a rise of HK$196 million, or 3.7per cent, over the same period last year. Compared with the second half of 2005,net interest income on this basis rose by HK$64 million, or 1.2 per cent. Half-year Half-year Half-year ended ended endedFigures in HK$m 30Jun06 30Jun05 31Dec05 Net interest income as per income statement 6,375 5,264 5,804Interest income less expense from: - trading financial instruments (879) 44 (350) - fair value financial instruments 32 24 10Total net interest income 5,528 5,332 5,464 Net fee income Half-year Half-year Half-year ended ended endedFigures in HK$m 30Jun06 30Jun05 31Dec05 - Stockbroking and related services 439 233 260- Retail investment products and funds under management 521 575 341- Insurance 59 77 39- Account services 121 110 115- Private banking 160 95 79- Remittances 75 67 74- Cards 403 334 371- Credit facilities 52 51 66- Trade services 176 180 195- Other 72 70 62Fee income 2,078 1,792 1,602Fee expense (296) (215) (305) 1,782 1,577 1,297 Net fee income rose by HK$205 million, or 13.0 per cent. This reflects thestrong growth of 88.4 per cent in securities broking and related servicesincome, the 68.4 per cent increase in private banking investment service incomeand advisory fees, and the 20.7 per cent rise in card services income. Paymentand cash management business also showed good progress, reporting growth inremittances and account services income of 11.9 per cent and 10.0 per centrespectively. Compared with the second half of 2005, net fees and commissions rose by HK$485million, or 37.4 per cent, with strong growth in income from securities brokingand related services, private banking and retail investment products. Net trading income Half-year Half-year Half-year ended ended endedFigures in HK$m 30Jun06 30Jun05 31Dec05 Trading profits:- Foreign exchange 610 277 508- Securities, derivatives and other trading activities 49 112 (12) 659 389 496Net interest (expense)/income on trading assets and liabilities (879) 44 (350) (220) 433 146 Trading profits reached HK$659 million, a rise of HK$270 million, or 69.4 percent, over the first half of 2005. Foreign exchange income increased by HK$333million, or 120.2 per cent, attributable to improved trading results andincreased customer activity. The increase in spreads earned on foreign exchangeoption-linked deposits and other instruments offered to retail and corporatecustomers also contributed to trading profit growth. Securities, derivatives andother trading fell by HK$63 million, due mainly to the decrease in turnover ofinterest rate option-linked products as customers became more focused on equityand foreign exchange-related activities. Compared with the second half of 2005,trading profits rose by HK$163 million, or 32.9 per cent, with improvements inboth foreign exchange and securities, derivatives and other trading results. Net interest expense on trading assets and liabilities for the first half of2006 was HK$879 million, compared with net interest income of HK$44 million forthe first half of 2005, due to the significant increase in structured depositsand other instruments issued in the trading portfolio. Net income from financial instruments designated at fair value Half-year Half-year Half-year ended ended endedFigures in HK$m 30Jun06 30Jun05 31Dec05 Net income/(expense)on assets designated at fair value which back insurance and investment contracts 57 31 (56) Net change in fair value of other financial assets and liabilities designated at fair value (7) (5) (2) Net interest income on financial assets and liabilities designated at fair value 32 24 10 82 50 (48) Net income from financial instruments designated at fair value amounted to HK$82million, compared with HK$50 million for the same period last year, mainlyreflecting the improvement in investment returns on life insurance portfolios. Other operating income Half-year Half-year Half-year ended ended endedFigures in HK$m 30Jun06 30Jun05 31Dec05 Rental income from investment properties 104 100 107Value of in-force long-term assurance business 185 160 156Other 103 150 125 392 410 388 Analysis of income from wealth management businesses Half-year Half-year Half-year ended ended endedFigures in HK$m 30Jun06 30Jun05 31Dec05 Investment income:- retail investment products and funds under management ^ 724 711 488- private banking 165 103 85- securities broking and related services 439 233 260- margin trading 30 33 30 1,358 1,080 863Insurance income:- life insurance -- underwriting including embedded value 350 334 535 -- investment income ^^ 347 209 197- general insurance and others 156 161 109 853 704 841Total 2,211 1,784 1,704 ^Income from retail investment products and funds under management includesincome reported under net fee income on the sale of unit trust funds and thirdparty investment products. It also includes profits generated from the issue ofstructured investment products, reported under net trading income. ^^Investment income from insurance funds includes income reported as netinterest income and net income from financial instruments designated at fairvalue. Wealth management income gained strong growth momentum in the first half of2006, reporting rises of 23.9 per cent over the first half of 2005 and 29.8 percent over the second half of 2005. Investment services income rose by 25.7 per cent, benefiting from the buoyantequities market and good investment sentiment. Securities broking business grewin turnover and market share, riding on the active stock market and the successof marketing programmes and special offers to promote active trading, IPOsubscriptions and the opening of securities accounts. Private banking continuedto grow in customer base and business volume. Retail investment productsachieved record sales, with equity, high-yield fixed income funds andmarket-linked instruments building on the success generated bycapital-guaranteed funds in the past few years. The bank also launched newequity, foreign exchange and other market-linked investment and deposit productsthat were designed to capture market growth trends and meet the diverse wealthmanagement needs of customers. Insurance income rose by 21.2 per cent to HK$853 million. Life insurancebusiness continued on an encouraging growth trend, reporting a 37.1 per centincrease in annualised new premiums, gaining market share and raising its marketshare ranking in Hong Kong to second place. The Monthly Income Retirement Plan,which provides guaranteed income after retirement with flexible premium paymentterm options and choice of retirement age, has been very successful in capturinga share of the large and lucrative retirement plan market. Loan impairment charges and other credit risk provisions Half-year Half-year Half-year ended ended endedFigures in HK$m 30Jun06 30Jun05 31Dec05 Loan impairment (charges)/ releases- individually assessed 29 (95) (214)- collectively assessed (63) (207) (102) (34) (302) (316)Of which:- new and additional (165) (666) (404)- releases 97 314 37- recoveries 34 50 51 (34) (302) (316) Loan impairment charges and other credit risk provisions decreased by HK$268million, or 88.7 per cent, to HK$34 million, reflecting benign creditconditions. There was a net release of HK$29 million on individually assessedprovisions, mainly due to recoveries from certain commercial banking customers.Of the collectively assessed charges, HK$59 million was made on card andpersonal loan portfolios, a rise of 7.3 per cent over the same period last year.A charge of HK$4 million was made on advances not identified individually asimpaired compared with a charge of HK$152 million made in the first half of2005. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
HSBC Holdings