3rd Mar 2008 08:15
HSBC Holdings PLC03 March 2008 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED 2007 CONSOLIDATED RESULTS - HIGHLIGHTS . Net operating income before loan impairment charges and other credit risk provisions up 37.6 per cent to HK$127,009 million (HK$92,325 million in 2006).. Pre-tax profit up 51.4 per cent to HK$78,761 million (HK$52,016 million in 2006).. Pre-tax profit excluding dilution gains up 42.3 per cent to HK$74,026 million.. Attributable profit up 53.9 per cent to HK$58,028 million (HK$37,709 million in 2006).. Return on average shareholders' equity of 32.1 per cent (31.1 per cent in 2006).. Assets up 25.4 per cent to HK$3,952 billion (HK$3,151 billion at the end of 2006).. Capital adequacy ratio of 11.6 per cent; core capital ratio of 8.8 per cent. (Total capital ratio of 13.5 per cent and tier 1 capital ratio of 12.3 per cent at 31 December 2006).. Cost efficiency ratio of 37.1 per cent (41.4 per cent for 2006). Within this document, the Hong Kong Special Administrative Region of thePeople's Republic of China has been referred to as 'Hong Kong'. Comment by Vincent Cheng, Chairman The Hongkong and Shanghai Banking Corporation Limited reported another year ofrecord profit in 2007, driven by the successful execution of our strategy androbust economic conditions and markets. Profit before tax was up 42.3 per centto HK$74,026 million, excluding dilution gains arising from our strategicinvestments in mainland China. Profit before tax in Hong Kong was up 41.6 percent to HK$53,792 million and up 44.1 per cent in the Rest of Asia-Pacific toHK$20,166 million, excluding the dilution gains noted above of HK$4,735 million. We continue to implement our core strategies of building an emerging markets-ledand financing-focused Global Banking and Markets business, a wealth managementand consumer banking focused Personal Financial Services operation and aCommercial Banking business that capitalises on Asia's growing trade andinvestment flows. Our customer group business expansion is self funding andfully exploits the Group's unique reach to capture geographic and cross-customergroup opportunities. HSBC continued investing for the future in 2007. In Taiwan we agreed to acquireselected businesses and operations of The Chinese Bank, increasing our presenceon the island from eight to 47 outlets. We also acquired the factoring companyChailease Credit Services, which gave us a leading position in this key regionalmarket segment. We increased our own branch network in mainland China by almost100 per cent to 62 outlets. We remain the leading foreign bank in China and wereone of the first foreign banks to locally incorporate on the Mainland. The bankwas also the first international bank to launch a rural bank in mainland China. We continued to grow our physical network in other parts of the region as well,with the number of our own branded outlets in the Rest of Asia-Pacific(excluding China) growing by just over 25 per cent from 218 to 276. In South Korea, HSBC entered into an agreement with Lone Star to acquire 51.02per cent of Korea Exchange Bank. The transaction, with a consideration ofapproximately US$6,450 million, is subject to regulatory approvals and otherconditions being met. We made significant progress growing our regional insurance platform tocomplement existing operations in Hong Kong, Singapore and Malaysia. HSBC formeda joint life insurance company in India with Canara Bank and Oriental Bank ofCommerce with access to 40 million customers through 3,600 outlets. Recently thebank purchased just under 50 per cent of Hana Life from Hana Financial Group ofKorea for a consideration of US$58.4 million. In Vietnam, HSBC took a 10 percent stake in BaoViet Holdings (formerly Vietnam Insurance Corporation), thecountry's leading insurer, for a consideration of US$255 million with rights totake up to 25 per cent of the company, subject to certain limitations andconditions. In China the bank received approval to set up a joint ventureinsurance company under the Closer Economic Partnership Arrangement between theMainland and the Hong Kong Special Administrative Region. In Taiwan the banklaunched an insurance operation upon receiving an insurance branch licence. The group's strategic investments, Bank of Communications, Ping An Insurance,Bank of Shanghai, and Industrial Bank through our subsidiary Hang Seng Bank,continue to progress well. Hang Seng Bank recently agreed to subscribe for 20per cent of the enlarged share capital of Yantai City Commercial Bank for aconsideration of US$103 million. In Vietnam, we raised our stake in VietnamTechnological and Commercial Joint-Stock Bank (Techcombank) from 10 per cent to15 per cent which was subsequently diluted by the issue of additional shares to14.44 per cent. Personal Financial Services reported exceptional profit before tax growth, up49.8 per cent to HK$32,786 million. This was driven by strong performance in netinterest income, up 19.8 per cent due to a rise in deposits. In addition, feeincome rose 85.3 per cent as a result of significant growth in wealth managementsales in Hong Kong with contributions from key markets in the region. Fee incomefrom stockbroking and custody services increased on the back of buoyant equitymarket conditions. Retail securities volume was up 160 per cent with more than80 per cent of the transactions performed online. During the year HSBC launchedour global Premier offering, aimed at the internationally mobile mass affluent.Of our 10.9 million HSBC PFS customers in the region, up 10 per cent in 2007,more than 546,000 are Premier, which is up 25 per cent on a year ago. Commercial Banking reported pre-tax profit of HK$18,754 million, up 25.5 percent. Net interest income rose 21.9 per cent on strong balance sheet growthresulting from customer acquisition, up by more than 34,000 to 403,800 acrossAsia. Net fee income was up 18.5 per cent, boosted by increasing sales of wealthmanagement and insurance products to existing customers. The cross-border GlobalLinks referral system generated over HK$32.1 billion in deals in 2007. Global Banking and Markets enjoyed an exceptional year with pre-tax profit up62.7 per cent to HK$24,804 million, supported by strong equity market conditionsand a significant improvement in net interest income driven by better investmentreturns. In Hong Kong we continue to lead in key activities, including foreignexchange, debt capital markets, structured products, payments and cashmanagement and securities services. Debt underwriting enjoyed a record year asthe business focused on meeting existing clients' expanding capital needs. Ourinvestment banking and equity capital markets businesses made significantprogress, advancing to No.1 in the targeted Hong Kong High Yield Bond leaguetable. The global economic outlook remains uncertain with expectations of a continuedslowdown in the United States. Further fallout from the US sub-prime lendingsituation and turbulent market conditions are bound to affect the economicprospects of Asia's dynamic economies. Our strong capital base and liquidityposition us well in the current environment. The flight to quality has benefitedHSBC amid the recent economic and market uncertainty. We will continue to investin our business expansion in the region during 2008 to ensure we fully exploitthe medium and long-term opportunities arising from Asia's economic development. Results by Customer Group Global Personal Banking Intra- Financial Commercial and Private segmentFigures in HK$m Services Banking Markets^ Banking Other elimination Total Year ended 31Dec07 Net interest income/(expense) 36,039 17,075 15,348 47 (4,536) (1,212) 62,761 Net fee income 19,474 5,948 9,294 105 120 - 34,941 Net trading income 1,761 1,033 11,547 62 950 703 16,056 Net income/(loss) from financial instruments designated at fair value 6,966 (72) 31 - (1,233) 509 6,201 Gains less losses from financial investments 23 1 427 - 441 - 892 Gains arising from dilution of investments in associates - - - - 4,735 - 4,735 Dividend income 16 6 134 - 537 - 693 Net earned insurance premiums 22,363 1,200 132 - - - 23,695 Other operating income 1,323 249 714 20 7,137 (5,387) 4,056 Total operating income 87,965 25,440 37,627 234 8,151 (5,387) 154,030 Net insurance claims incurred and movement in policyholders' liabilities (26,217) (703) (101) - - - (27,021) Net operating income before loan impairment charges and other credit risk provisions 61,748 24,737 37,526 234 8,151 (5,387) 127,009 Loan impairment charges and other credit risk provisions (4,770) (784) (248) - (3) - (5,805) Net operating income 56,978 23,953 37,278 234 8,148 (5,387) 121,204 Operating expenses (24,698) (7,946) (13,718) (241) (5,962) 5,387 (47,178) Operating profit/(loss) 32,280 16,007 23,560 (7) 2,186 - 74,026 Share of profit in associates and joint ventures 506 2,747 1,244 - 238 - 4,735 Profit/(loss) before tax 32,786 18,754 24,804 (7) 2,424 - 78,761 Share of profit/(loss) before tax 41.6% 23.8% 31.5% - 3.1% - 100% Advances to customers 495,964 347,219 347,761 4,002 17,140 - 1,212,086 Customer accounts 1,263,290 576,078 629,528 9,660 7,550 - 2,486,106 Year ended 31Dec06 Net interest income/(expense) 30,090 14,006 9,104 45 (4,201) 2,055 51,099 Net fee income/ (expense) 10,512 5,018 6,937 101 (164) - 22,404 Net trading income/(loss) 889 796 8,682 14 825 (2,288) 8,918 Net income/(loss) from financial instruments designated at fair value 3,364 (384) 74 (1) (616) 233 2,670 Gains less losses from financial investments 108 - 226 - 1,132 - 1,466 Dividend income 9 10 55 - 675 - 749 Net earned insurance premiums 20,741 972 133 - - - 21,846 Other operating income 2,262 348 430 14 7,005 (4,406) 5,653 Total operating income 67,975 20,766 25,641 173 4,656 (4,406) 114,805 Net insurance claims incurred and movement in policyholders' liabilities (21,902) (478) (100) - - - (22,480) Net operating income before loan impairment charges and other credit risk provisions 46,073 20,288 25,541 173 4,656 (4,406) 92,325 Loan impairment charges and other credit risk provisions (4,528) (446) 250 - (85) - (4,809) Net operating income 41,545 19,842 25,791 173 4,571 (4,406) 87,516 Operating expenses (19,913) (6,531) (11,219) (167) (4,815) 4,406 (38,239) Operating profit/(loss) 21,632 13,311 14,572 6 (244) - 49,277 Share of profit in associates and joint ventures 257 1,634 671 - 177 - 2,739 Profit/(loss) before tax 21,889 14,945 15,243 6 (67) - 52,016 Share of profit/(loss) before tax 42.1% 28.7% 29.3% - (0.1%) - 100.0% Advances to customers 446,990 276,172 301,069 3,312 16,239 - 1,043,782 Customer accounts 1,121,286 438,943 417,335 7,253 4,650 - 1,989,467 ^ Global Banking and Markets was previously referred to as Corporate Investment Banking and Markets Personal Financial Services reported a profit before tax of HK$32,786 million,an increase of 49.8 per cent over 2006. This was driven by strong growth inoperating income, partly offset by investment in continued business expansion inthe rest of the Asia-Pacific region. Net interest income increased by HK$5,949 million, or 19.8 per cent, comparedwith 2006. In Hong Kong, net interest income rose by HK$3,659 million, or 16.3per cent, as average customer account balances grew following a series ofdeposit campaigns and rate offers to address customers' demand for short-termproducts amid the buoyant stock market and during IPO subscription periods. Inaddition, the relaunch of our global HSBC Premier attracted new funds, andspreads improved as a result of tactical deposit pricing and higher foreigncurrency interest rates. An active property market was underpinned by strongeconomic conditions, supported by stable domestic interest rates throughout theyear. However, customer appetite for higher mortgage borrowing remained mutedand intense competition led to a tightening of spreads. In the rest of Asia-Pacific, net interest income rose by HK$2,290 million, or29.7 per cent, driven by strong deposit growth across the region. As a result ofthe group's focus on growing the mass-affluent HSBC Premier customer base,deposits increased in a number of countries, particularly Singapore, mainlandChina and India, and deposit spreads improved on the back of higher interestrates. Several Mainland branches were granted approval to offer certain renminbideposit products to local residents in late 2006 and since local incorporationin March 2007, we have been gradually rolling out our renminbi services to localresidents. Following regulatory inspection and confirmation, branches in 11priority cities have commenced renminbi business to local residents. Additionalbranches were added in the key economic zones of the Pearl River Delta, theYangtze River Delta and the Bohai Rim, leading to significant deposit growth.HSBC's own branded network has 18 branches and 44 sub-branches. HSBC has thelargest branch network among foreign banks and remains focused on offeringPremier services. HSBC Direct was launched in South Korea in February 2007 following the launch inTaiwan in the third quarter of 2006, and both areas have progressed well,with over 240,000 customers generating deposits of more than HK$9 billion sincelaunch. Interest earned on credit cards was higher in India, the Philippines andThailand, reflecting growth in the number of cards in circulation and higherlevels of receivables as the relationships mature. In India, HSBC has 2.6million credit cards in circulation. Income from consumer lending also rose,notably from personal instalment loans in India and Indonesia, and spreadswidened as a result of higher pricing. Net fee income of HK$19,474 million was 85.3 per cent higher than in 2006,driven by strong business growth and favourable investment market sentiment inHong Kong. Fee income from stockbroking and custody services rose as transactionvolumes were significantly higher, reflecting buoyant stock market conditionsand a large number of IPOs in Hong Kong in 2007. The retail securities volumeregistered over 160 per cent growth with over 80 per cent of transactionsperformed online. The growth rate slowed in the last few months of the year,when US sub-prime concerns and contractionary monetary policy in mainland Chinaled to equity market falls. Throughout 2007, sales of unit trusts and structured investment productsincreased significantly as investors were encouraged by informative and targetedcampaigns to boost investment awareness, and by the launch of new funds,particularly those comprising China stocks. Strong investment sales wererecorded in mainland China, India, South Korea and Taiwan. HSBC was grantedpermission to offer residents of mainland China renminbi-denominated productsthrough its 'Qualified Domestic Institutional Investor' offerings. Net fee income from credit cards was HK$274 million, or 20 per cent higher thanin 2006. The group maintained its leadership position in Hong Kong and now hasmore than 4.9 million cards in circulation throughout the territory. This wasaugmented by a 15 per cent rise in cardholder spending as retail sales growthremained high. In the rest of Asia-Pacific, expansion of the cards businesscontinued, particularly in India and the Philippines. The number of cards incirculation rose by 14 per cent to a total of 7.7 million, and reward programmeshelped drive a 30.2 per cent increase in cardholder spending. Income from insurance business (included within 'Net interest income', 'Net feeincome', 'Net income from financial instruments designated at fair value', 'Netearned insurance premiums', the change in present value of in-force businesswithin 'Other operating income', and after deducting 'Net insurance claimsincurred and movement in policyholders' liabilities'), increased by 37%, withcontinued focus on retirement planning services. The launch of newinvestment-linked insurance products contributed to growth in life assurancepremium income. Sales of general insurance products also grew, supported by moreefficient usage of alternative distribution channels such as the internet. The charge for loan impairment increased by HK$242 million to HK$4,770 million,mainly due to the rapid expansion in the credit card business and changes incollection methods and regulatory restrictions on collections in India. In HongKong, higher loan impairment charges, mainly against credit card lending, werelargely volume-driven but were partly offset by higher collective impairmentreleases. In the rest of Asia-Pacific, impairment charges rose in line withvolume growth in cards and personal loans in India, Thailand and Australia.Delinquency rates also rose in Thailand as a result of higher minimum repaymentrules for cards, coupled with a deterioration in credit conditions. In Taiwan, impairment charges against credit card lending were lower on accountof improved delinquency rates whereas prior year impairment levels were severelyaffected by the imposition of a mandatory government debt negotiation schemewhich led to market-wide credit losses. However, conditions continue to bemonitored closely in light of proposed legislation in respect of personalbankruptcy arrangements due to be introduced in 2008. In Indonesia higherrecoveries were a result of improved collection efforts. The reduction in theimpairment charges also benefited from greater collection efforts. Operating expenses were HK$4,785 million, or 24 per cent, higher than in 2006,principally driven by continued investment in organic growth across the rest ofthe Asia-Pacific region. In Hong Kong, operating expenses rose by 15.8 per cent.Staff costs were higher primarily as a result of sales incentives and otherperformance-related pay, in addition to salary rises. Premises costs werehigher, comprising branch refurbishments along with rises in commercial rentals.Marketing expenses rose as a result of ongoing promotion of the HSBC brand andcampaigns to boost business activities, particularly for wealth managementproducts and credit cards. In the rest of Asia-Pacific, costs increased byHK$3,055 million, or 34.0 per cent, notably in India, mainland China, Indonesiaand the Philippines. Headcount rose by 18.6 per cent as sales and supportfunctions were strengthened to support business growth. Premises costs rose asnew outlets were opened in Indonesia, India, the Philippines, Sri Lanka,Bangladesh and mainland China. Following the launch of the consumer financebusiness in the region last year, India and Indonesia continued to incurinvestment costs to strengthen their market presence. South Korea increasedstaff, infrastructure and marketing expenditure related to the launch of HSBCDirect. Income from associates of HK$506 million includes improved results from Bank ofCommunications and Industrial Bank. HSBC was the recipient of four major awards from The Asian Banker this year:Best Retail Bank in Hong Kong, Best Regional Retail Business in Asia, Excellencein Bancassurance and Excellence in Internet Banking (Channel), affirming thegroup's leading position in personal banking in the region. Commercial Banking reported profit before tax of HK$18,754 million, an increaseof 25.5 per cent over 2006, driven by strong balance sheet growth. Net interest income increased by HK$3,069 million, or 21.9 per cent, comparedwith 2006. This reflected growth in advances and deposits from SME customers,particularly from mainland China, resulting from product development and activemarketing efforts, coupled with improvements in deposit spreads. In Hong Kong, net interest income rose by HK$1,540 million, or 14.8 per cent.Stable domestic interest rates persisted through most of 2007, followed by cutsin the latter part of the year. As a result, margins were higher than in 2006,despite competitive pressures. Foreign currency deposits achieved significantgrowth on the back of rises in global interest rates and spreads improved as aresult of active management of savings rates offered to customers. Promotionalactivities and continued emphasis on the SME segment contributed to the growthof 'BusinessVantage' accounts. Non-trade lending balances increased as theeconomy continued to grow and demand for credit remained strong. Cross-borderlending to manufacturers with operations in mainland China continued to bestrong as intra-Asia trade accelerated. However, asset spreads were generallytighter as a result of market competition, particularly for corporate andmid-market business customers. In the rest of Asia-Pacific, net interest income grew by 42.8 per cent. Theopening of new branches, increased commercial presence through call centres andenhancement of Business Internet Banking across the region contributed tocustomer acquisition. These factors helped deliver deposit and loan growth,coupled with the widening of spreads, notably in India and mainland China.Efforts were made to increase liability balances by conducting various depositgarnering campaigns in Taiwan, mainland China and Australia. Trade balances grewin South Korea, mainland China, Vietnam and India, and the business wasstrengthened by the acquisition of Chailease Credit Services, a Taiwanesefactoring company, in May 2007. The group continued to develop its cross-bordercapabilities and its cross-border referral system Global Links establishedcombined business opportunities across different geographical boundaries.Country desks were established by South Korea and Taiwan in mainland China, anda new commercial banking unit was acquired in South Africa. Net fee income rose by HK$930 million, or 18.5 per cent, and was largelyattributable to higher cash management, remittance and trade fees, particularlyin Hong Kong and India, driven by increased trade flows and enhancements tocustomer service. Fees from sales of unit trusts and structured investmentproducts rose as the robust Hong Kong stock market boosted investment appetiteand demand for investment products. Earnings from customer foreign exchangetrades also rose, reflecting an increase in cross-border payments. Remittanceincome was boosted by an enhanced billing system and introduction of same-dayprocessing. The net charge for loan impairment was HK$338 million higher than in 2006primarily due to fewer corporate releases in Hong Kong, mainland China,Australia and Indonesia, coupled with new specific charges against a number ofcustomers in Thailand. These increases were partly offset by a release ofcollective impairment provisions in Hong Kong. Credit quality generally remainedstable in Hong Kong and elsewhere in the region, and there were recoveries inMauritius and Singapore. Operating expenses increased by 21.7 per cent over 2006, largely attributable tohigher staff costs as the number of client-facing staff increased in Hong Kong,India and mainland China to support SME initiatives, insurance businessexpansion and product development. This included staffing of commercial-onlybanking branches in Hong Kong. Performance-related costs also rosesignificantly, in line with the improved results. The group continued to placestrong emphasis in leveraging its direct channel capabilities and the number ofinternet-based transactions increased, contributing to efficiencies thatmitigated the increased cost of processing higher volumes. There are now over100,000 customers registered as Business Internet Banking users in Hong Kong.The Business Internet Banking site was enhanced in the first quarter, leading toprocessing cost efficiencies. Call centres were also re-engineered to improvetheir ability to promote the sale of packaged products. Direct channelsconstituted 47 per cent of the total number of transactions. In the rest of theAsia-Pacific region, higher costs reflected the increased sales force to supportinitiatives and business expansion. Higher IT and infrastructure costs andmarketing expenditure were incurred in these countries and territories as aresult of branch expansion. Income from associates of HK$2,747 million includes improved results from Bankof Communications and Industrial Bank. Commercial Banking was presented with a number of awards for its SME businessincluding the Best SME Partner from the Hong Kong Chamber of Small and MediumBusiness. Global Banking and Markets reported profit before tax of HK$24,804 million, 62.7per cent higher than in 2006. Significant growth was recorded in Global Marketstrading businesses and fees from securities services. Net interest income increased by HK$6,244 million, or 68.6 per cent, comparedwith 2006. Balance sheet management revenues rose significantly, reflecting thereplacement of maturing low-yield assets at higher yields, as well as falling USdollar interest rates in the second half of 2007, leading to lower cost offunds. Global Banking also contributed to the increase as deposit balances inpayments and cash management grew on new client acquisition and organic businessgrowth, and margin spreads improved in a number of Asian countries. Thiscompensated for the drop in interest income from corporate lending, largely onaccount of margin compression in Hong Kong which was principally due to surplusliquidity in the market. Strong growth in income was recorded in India andmainland China with increased focus on emerging markets activities. Net fee income increased by HK$2,357 million, or 34.0 per cent compared with2006. In Hong Kong, higher revenues in the securities and fund services businessreflected increased client volumes, driven by continuing investor confidence inthe local stock markets and high IPO activity. In addition, there were strongperformances from South Korea, Australia, and Singapore, and capabilities in theregion were strengthened by the acquisition of Westpac's sub-custody business inAustralia and New Zealand last year. Investment banking benefited from strongcapital markets, and underwriting revenues from IPO activities in Hong Kong grewsignificantly. Fee income from asset management increased by 41 per cent due tothe successful launch of a number of funds, notably in China. Structured financereported lower fees, reflecting lower transaction volumes over the same periodlast year. Net trading income rose by 33.0 per cent to HK$11,547 million. Foreign exchangeand interest rate derivatives profits were higher as market volatility providedgood trading opportunities and higher sales volumes, particularly in Hong Kong,India and Thailand, reflecting increasing inward investment into Asia and agrowing demand for risk management and investment products from customers. Theequities and equity derivatives businesses in Hong Kong, which have been builtup significantly over the past two years, capitalised on the strong regionalstock market performances and returned excellent results. In particular, therewas significant growth in structured equity derivatives, attributable tocross-sales to personal and private banking customers. There was a net charge for loan impairment of HK$248 million compared with a netrelease of HK$250 million in 2006. Although the corporate credit environmentthroughout the region generally remained benign, there were lower releases, anda new specific allowance was made against a mainland China exposure. Operating expenses increased by 22.3 per cent compared with 2006, reflectingheadcount increases to support business expansion in all areas and higherperformance-related remuneration. IT costs also rose to support business growth. Income from associates of HK$1,244 million includes improved results from Bankof Communications and Industrial Bank. Other includes income and expenses relating to certain funding, investment,property and other activities that are not allocated to the customer groups. Gains of HK$4,735 million were made on the dilution of the group's interests inBank of Communications, Industrial Bank and Techcombank. These three associatesraised new capital during 2007, but the group did not subscribe for anyadditional shares issued under these offers and, as a result, its percentageshareholdings decreased. However, the assets of all three increasedsubstantially as a result of the new issues, and consequently the group's shareof the associates' underlying net assets increased by HK$4,735 million. Thisone-off increase was regarded as a gain arising from deemed disposals of part ofthe group's interests in associates, and has been recognised in the incomestatement. These gains were slightly offset by lower gains from financial investments as2006 included profit on the disposal of part of the group's stake in UTI Bank.In addition, there were lower profits made on property sales in 2007 comparedwith 2006. Consolidated Income Statement Year ended Year endedFigures in HK$m 31Dec07 31Dec06 Interest income 144,153 115,928Interest expense (81,392) (64,829)Net interest income 62,761 51,099Fee income 41,149 26,554Fee expense (6,208) (4,150)Net fee income 34,941 22,404Net trading income 16,056 8,918Net income from financial instruments designated at fair value 6,201 2,670Gains less losses from financial investments 892 1,466Gains arising from dilution of investments in associates 4,735 -Dividend income 693 749Net earned insurance premiums 23,695 21,846Other operating income 4,056 5,653Total operating income 154,030 114,805Net insurance claims incurred and movement in policyholders' liabilities (27,021) (22,480)Net operating income before loan impairment charges and other credit risk provisions 127,009 92,325Loan impairment charges and other credit risk provisions (5,805) (4,809)Net operating income 121,204 87,516Employee compensation and benefits (26,431) (21,042)General and administrative expenses (18,039) (14,949)Depreciation of property, plant and equipment (2,096) (1,905)Amortisation of intangible assets (612) (343)Total operating expenses (47,178) (38,239)Operating profit 74,026 49,277Share of profit in associates and joint ventures 4,735 2,739Profit before tax 78,761 52,016Tax expense (13,456) (9,411)Profit for the year 65,305 42,605 Profit attributable to shareholders 58,028 37,709Profit attributable to minority interests 7,277 4,896 Extract from the Consolidated Balance Sheet Figures in HK$m At 31Dec07 At 31Dec06 ASSETSCash and short-term funds 794,923 518,022Items in the course of collection from other banks 20,357 46,519Placings with banks maturing after one month 60,328 104,037Certificates of deposit 97,358 73,200Hong Kong SAR Government certificates of indebtedness 108,344 102,374Trading assets 360,704 338,792Financial assets designated at fair value 63,152 50,514Derivatives 180,440 99,167Advances to customers 1,212,086 1,043,782Financial investments 532,243 484,841Amounts due from Group companies 364,724 161,118Investments in associates and joint ventures 39,832 25,534Goodwill and intangible assets 12,309 10,428Property, plant and equipment 33,356 29,159Deferred tax assets 1,566 1,245Retirement benefit assets 123 2,191Other assets 70,094 59,917Total assets 3,951,939 3,150,840 LIABILITIESHong Kong SAR currency notes in circulation 108,344 102,374Items in the course of transmission to other banks 31,586 57,226Deposits by banks 169,177 108,125Customer accounts 2,486,106 1,989,467Trading liabilities 265,675 272,545Financial liabilities designated at fair value 38,147 36,554Derivatives 173,322 98,659Debt securities in issue 84,523 69,195Retirement benefit liabilities 1,537 465Amounts due to Group companies 65,846 31,356Other liabilities 70,203 56,478Liabilities under insurance contracts issued 91,730 61,350Current tax liabilities 5,833 4,500Deferred tax liabilities 5,148 4,284Subordinated liabilities 18,500 16,353Preference shares 90,328 76,464Total liabilities 3,706,005 2,985,395 EQUITYShare capital 22,494 22,494Other reserves 83,952 35,514Retained profits 107,908 80,942Proposed fourth interim dividend 6,500 6,500Total shareholders' equity 220,854 145,450Minority interests 25,080 19,995 245,934 165,445Total equity and liabilities 3,951,939 3,150,840 Consolidated Statement of Recognised Income and Expense Year ended Year endedFigures in HK$m 31Dec07 31Dec06 Available-for-sale investments:- fair value changes taken to equity 35,801 25,115- fair value changes transferred to the income statement on disposal or impairment (959) (1,464)- fair value changes transferred to the income statement on hedged items due to hedged risk (594) (105) Cash flow hedges:- fair value changes taken to equity 555 (165)- fair value changes transferred to the income statement 632 2,277 Property revaluation:- fair value changes taken to equity 3,291 1,977 Share of changes in equity of associates and joint ventures 14 (186)Exchange differences 6,292 2,779Actuarial (losses)/gains on post-employment benefits (3,568) 93 41,464 30,321Net deferred tax on items taken directly to equity 45 (738)Total income and expense taken to equity during the year 41,509 29,583Profit for the year 65,305 42,605Total recognised income and expense for the year 106,814 72,188 Total recognised income and expense for the year attributable to:- shareholders 98,085 66,448- minority interests 8,729 5,740 106,814 72,188 Consolidated Cash Flow Statement Year ended Year endedFigures in HK$m 31Dec07 31Dec06 Operating activitiesCash generated from operations 292,331 88,942Interest received on financial investments 21,393 17,527Dividends received on financial investments 585 711Dividends received from associates 1,208 766Taxation paid (11,942) (6,159) Net cash inflow from operating activities 303,575 101,787 Investing activitiesPurchase of financial investments (436,191) (402,459)Proceeds from sale or redemption of financial investments 443,128 361,794Purchase of property, plant and equipment (3,197) (2,085)Proceeds from sale of property, plant and equipment and assets held for sale 1,214 4,176Purchase of other intangible assets (1,271) (1,142)Net cash outflow in respect of the acquisition of and increased shareholding in subsidiary companies (134) (22)Net cash inflow in respect of the sale of subsidiary companies 111 409Net cash inflow/(outflow) in respect of the purchase of interests in business portfolios 1,999 (775)Net cash outflow in respect of the purchase of interests in associates and joint ventures (3,628) (462)Proceeds from the sale of interests in business portfolios 1,948 16,501Proceeds from the sale of interests in associates 238 -Net cash inflow/ (outflow) from investing activities 4,217 (24,065) Net cash inflow before financing 307,792 77,722 FinancingIssue of preference share capital 13,587 4,277Change in minority interests 688 976Repayment of subordinated liabilities (463) (1,018)Issue of subordinated liabilities 2,345 4,661Ordinary dividends paid (23,000) (18,757)Dividends paid to minority interests (5,153) (3,841)Interest paid on preference shares (5,144) (3,935)Interest paid on subordinated liabilities (1,166) (946)Net cash outflow from financing (18,306) (18,583) Increase in cash and cash equivalents 289,486 59,139 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
HSBC Holdings