6th Mar 2006 08:15
HSBC Holdings PLC06 March 2006 HSBC HOLDINGS PLC 2005 FINAL RESULTS - HIGHLIGHTS • Total operating income up 10 per cent to US$61,704 million (US$55,988 million in 2004). For the year: • Net operating income up 10 per cent to US$49,836 million (US$45,162 million in 2004). • Group pre-tax profit up 11 per cent to US$20,966 million (US$18,943 million in 2004). • Profit attributable to shareholders of the parent company up 17 per cent to US$15,081 million (US$12,918 million in 2004). • Return on average invested capital of 15.9 per cent (15.0 per cent in 2004). • Earnings per share up 15 per cent to US$1.36 (US$1.18 in 2004). Dividend and capital position: • Fourth interim dividend for 2005 of US$0.31 per share, an increase of 15 per cent; total dividends declared in respect of 2005 of US$0.73 per share, an increase of 11 per cent over 2004. • Tier 1 capital ratio of 9.0 per cent and total capital ratio of 12.8 per cent. HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$20,966 MILLION HSBC made a profit before tax of US$20,966 million, an increase of US$2,023million, or 11 per cent, over 2004. Net interest income of US$31,334 million was US$235 million, or 1 per cent,higher than 2004. Net operating income before loan impairment charges and other credit riskprovisions of US$57,637 million was US$6,284 million, or 12 per cent, higherthan 2004. Operating expenses of US$29,514 million rose US$3,027 million, or 11 per cent,compared with 2004. On an underlying basis and expressed in terms of constantcurrency, operating expenses increased by 9 per cent. HSBC's cost efficiency ratio was 51.2 per cent compared with 51.6 per cent in2004. Loan impairment charges and other credit risk provisions were US$7,801 millionin 2005, US$1,610 million higher than 2004. The tier 1 capital and total capital ratios for the Group remained strong at 9.0per cent and 12.8 per cent, respectively, at 31 December 2005. The Group's total assets at 31 December 2005 were US$1,502 billion, an increaseof US$222 billion, or 17 per cent, since 31 December 2004. Financial statements for the year to 31 December 2005 are prepared in accordancewith current IFRSs. Comparative figures for 2004 are also prepared under IFRSsbut reflect transition arrangements on the move to reporting under IFRSs andtherefore individual lines may not be strictly comparable. In particular,comparative figures do not reflect the impact of IAS 32 'Financial Instruments:Disclosure and Presentation', IAS 39 'Financial Instruments: Recognition andMeasurement' and IFRS 4 'Insurance Contracts' (see Note 1 'Accounting policies'on page 16). Geographical distribution of results Year ended Year endedFigures in US$m 31Dec05 31Dec04Profit before tax % %Europe 6,356 30.3 5,756 30.4Hong Kong 4,517 21.5 4,830 25.5Rest of Asia-Pacific 2,574 12.3 1,847 9.8North America 6,872 32.8 6,070 32.0South America 647 3.1 440 2.3 20,966 100.0 18,943 100.0 Tax expense (5,093) (4,685) Profit for the year 15,873 14,258 Profit attributable to shareholders of the parent company 15,081 12,918 Profit attributable to minority interests 792 1,340 Distribution of results by customer group Year ended Year endedFigures in US$m 31Dec05 31Dec04Profit before tax % %Personal Financial Services 9,904 47.2 8,497 44.9Commercial Banking 4,961 23.7 4,057 21.4Corporate, Investment Banking and Markets 5,163 24.6 5,288 27.9Private Banking 912 4.4 697 3.7Other 26 0.1 404 2.1Total 20,966 100.0 18,943 100.0 Comment by Sir John Bond, Group Chairman Our results reflect our success in growing revenues and improving productivity,in line with our Managing for Growth strategic plan. They are a tribute to thetalents and dedication of the 284,000 people who work for HSBC in meeting ourcustomers' needs. Overall, 2005 was a year of sustained progress for HSBC andour all round performance during the last three years has brought impressivereturns to our shareholders. We grew profit attributable to shareholders by 17 per cent to US$15.1 billion.This represents US$1.36 per share, an increase of 15 per cent. Our earningsremained well diversified both geographically and by customer group. We havecontinued to invest in the future of our business, particularly the growth ofour personal financial services in Asia, but at the same time we improvedproductivity as the level of expenditure on the development of our investmentbanking businesses passed its peak. We also achieved good growth and furtherefficiencies in our core UK personal and commercial banking businesses.Worldwide, we grew our commercial banking business strongly on the back ofrecent investment. For the year as a whole, revenue growth of 12 per centexceeded cost growth by 1 percentage point. A strong second half performancereversed a 4 percentage point deficit at the interim stage. The Board has declared a fourth interim dividend of US$0.31 per share taking thetotal dividend in respect of 2005 to US$0.73 per share, an increase of 10.6 percent over the dividends for 2004. The dividend is payable on 11 May 2006 toshareholders on the register on 24 March 2006, with a scrip dividend alternativeavailable for shareholders who prefer this option. The business climateEconomic conditions in 2005 reflected the growing impact of globalisation andthe imbalance between resource producers and consumers. International tradeflows were dominated by China's growing share of world manufacturing and byfurther increases in commodity prices, notably energy prices. Trade in servicescontinued to expand, partly reflecting India's growing role. Other emergingmarkets such as Mexico, Turkey and eastern Europe benefited from their proximityto the major consumer markets and from continued foreign investment. Resourcerich countries such as Australia, Brazil and Canada enjoyed the strong globaldemand for commodities. Liquidity in the oil exporting countries from higher oilprices fuelled major infrastructure investment and, through the recycling ofpetro-dollars, boosted asset prices elsewhere in the world. The US currentaccount deficit widened further as strong domestic demand and higher energyprices raised the value of US imports. Worldwide consumer spending remained resilient, supporting economic expansion.Risk premia fell across most asset classes as investors sought higher yieldswhich in turn led to increased enthusiasm for emerging markets. The world's bestperforming stock markets included Japan, where domestic growth recovered, and arange of emerging markets, for example Egypt, Saudi Arabia, Russia and Turkey. Core businesses, new initiativesHSBC's core businesses in the US, Hong Kong and the UK produced robustperformances and we made good progress in a number of key areas of focus. Inparticular, we stabilised the risk adjusted margins in our consumer financebusiness in the US. We held costs flat and significantly increased revenues inour UK personal and commercial businesses. We improved deposit spreads in HongKong during the course of the year. We achieved robust growth in globaltransaction banking for corporate clients on the back of strong trade flows andwe obtained our best ever ranking in foreign exchange surveys and debt capitalmarkets league tables. We also grew our loan books without materially changingthe risk profile of the portfolio. Technology remains the key to productivity improvements and to increasing ourcoverage in many markets without the need for establishing a significantphysical presence. At the same time, the investments we have made during thelast decade in developing HSBC's geographical coverage and product capabilitiesand in building our brand, allowed us to benefit from the prevailing economicconditions in many of our major markets and to capture returns for ourshareholders from an ever more diversified revenue base. In addition to theperformance of our core businesses, we achieved incremental revenues from anumber of new or developing areas. For example: • Our operations in mainland China performed well in 2005. We expanded our branch network and we retain the largest presence in China of any international bank. In addition, the contribution to earnings from our strategic investments continued to grow. Those in Bank of Communications, Industrial Bank, Ping An Group and Bank of Shanghai accounted for over 70 per cent of our earnings in mainland China in 2005. With the addition of HSBC Jintrust Fund Management Co Ltd to our holdings, HSBC is well placed to benefit from China's continued economic development and from the liberalisation of its financial services sector which membership of the WTO will bring. • In India, we expanded our global resourcing activities including increasing our largest IT development centre to 2,500 people. We also used our expertise and knowledge of the country to build the world's largest equity investment fund focused on India. Through a combination of third party and internal distribution we have grown the GIF Indian Equity fund from US$2.6 billion in 2004 to US$4.7 billion at the end of 2005. • We achieved record results in Mexico, Turkey and the Middle East, increasing their aggregate contribution to the Group's profit before tax by US$490 million, or 42 per cent. The results reflected the benefits of co-operation with other parts of the HSBC Group in areas as varied as consumer finance, capital markets, payments and cash management, Amanah (Islamic) finance and insurance. • Exceptional liquidity in the Middle East generated strong investment flows. Our businesses in Saudi Arabia and Dubai more than doubled commissions from retail brokerage. HSBC also advised on many outward investments by clients in the region, including Dubai International Capital's acquisition of Tussauds Group for US$1.5 billion in the UK. We also benefited from regional growth in infrastructure spending, notable assignments including the Shuaibah and Taweelah water and power projects in Saudi Arabia and Abu Dhabi respectively. • The worldwide fall in risk premia generated strong demand for the higher yields available from emerging markets and structured products. In addition to the GIF Indian Equity fund described above, our GIF BRIC (Brazil, Russia, India and China) Freestyle fund, also managed by HSBC Halbis Partners, attracted considerable support, growing from US$21 million, to US$2.1 billion, during the course of 2005. HSBC brought a growing number of initial public offerings to investors, notably the Polish gas company PGNiG, Middle Eastern telecom provider Investcom and three of the five largest in Hong Kong this year, including Bank of Communications. In addition, HSBC used its experience in emerging markets to advise on a number of cross-border deals, most notably Bank of America's US$3 billion investment in China Construction Bank. • Exceptional liquidity in private equity markets afforded us opportunities to realise attractive gains on historical investments and to refinance companies with expensive capital structures. • Responding to demand from the investment markets, we achieved significant growth across all businesses in the manufacture and distribution of bespoke products and solutions, mainly for corporate clients. In Global Markets we grew market share significantly and profitably in complex derivative products, reflecting recent investment in this area. Sinopia, the Group's specialist manager of quantitative, structured and guaranteed investment products delivered 80 per cent growth in revenues. • Strong investment flows into emerging market equities and into alternative investment funds, brought significant growth in the Group's sub-custody and clearing business, where we are particularly strong in Asia. They also benefited our fund administration business, which was well positioned to meet clients' service requirements for traditional and alternative investments, following the integration of Bank of Bermuda. Revenue growth exceeded 40 per cent in our sub-custody business, and 25 per cent in the global custody and fund administration business. Benign credit conditionsThroughout 2005, credit conditions remained broadly favourable, particularly inthe US which, despite steadily rising interest rates, experienced continuedeconomic growth, lower unemployment and rising wages. Due to the effect ofhurricanes and accelerated bankruptcy filings ahead of a change in the law,credit charges in the US initially increased during the second half but are nowreturning to more normal levels. In the UK, 2005 saw a significant rise in personal bankruptcies following anearlier relaxation in the law and a general expansion in credit availability. Inresponse to the increased levels of personal credit charges, the steps we tookon both underwriting and collection processes began to have a positive effectduring the second half. Furthermore, HSBC has been at the forefront of effortsin the UK to broaden access to information sharing in order to strengthenresponsible lending practices. Worldwide, corporate credit performance was strong with net recoveries in thelarge corporate sector and a low level of charges in the commercial bankingsector. These conditions may not prove sustainable. Corporate, Investment Banking and MarketsWe are a little more than half way through our five year strategic plan fordeveloping our Corporate, Investment Banking and Markets business and we areprogressing well and gaining momentum in the areas of investment. Cost growthpeaked during the year and there is clear evidence of positive client responseto our expanded product capabilities. We have established leadership positions in foreign exchange, ('FX') in transaction banking, in project and export finance, and in funds administration.We have developed strongly and gained market share in debt capital markets globally, and in government bond trading in Europe. In higher added value products our significant investment in quantitative skills and support systems has been rewarded with strong growth in market share in FX options and structuredderivatives. Our investment in recruiting a number of senior advisory bankers significantlyincreased our coverage of major corporate relationships, building on thefoundations already in place and expanding the range of opportunities available. Organic investmentWith considerable excess capital in the banking sector and relatively fewinvestment opportunities available, prices for potential acquisitions were highin 2005. In line with our strategy, we concentrated on organic growth. We madeonly two significant investments in the year. We doubled our stake in Ping AnInsurance in China, in August, to 19.9 per cent, at a cost of US$1.0 billion. InDecember we completed the acquisition of Metris, a US-based sub-prime creditcard business with four million clients, and complementary to HSBC Finance, forUS$1.6 billion. During the last 12 months, organic investment has created some excitingopportunities for the future. For example, in the US we launched a nationaldirect online savings product. By December this was attracting deposits at therate of US$75 million per week and had garnered US$1 billion in total. In Asia,we expanded our card base to reach 10.3 million cards with 2.1 million cardsadded during the year. We established consumer finance operations in Argentina, Australia and India,while in Mexico we launched several new products including 'Tu Cuenta' anintegrated current account, deposit and card product, which has attracted some2,300 customers per day since its launch in February. In Turkey, our PersonalFinancial Services business reported a three-fold increase in pre-tax profits,reflecting strong organic growth and an increase in customers to 2.2 million. Group Private Banking grew strongly in all regions; net new money inflows wereUS$35.7 billion. We continued to invest in Asia, particularly in India, Japanand Taiwan and we expanded our support of clients from mainland China. In Europewe established regional offices in the UK, France and Russia, and we alsoexpanded our geographical presence in the US. We continued to release capital through the sale of interests which lay outsideour core business or which lacked critical mass. These included the disposal ofthe support functions of our fleet management business in the UK and thecontribution of our Asian merchant acquiring business into a joint venture. Inaggregate, we realised disposal gains of US$652 million in 2005. Last month weannounced completion of the sale of our 21.16 per cent interest in Laiki Groupfor a consideration of US$235 million and the sale of 7.19 per cent from ourinterest in UTI Bank for US$142 million. A profit on sale of US$170 million willbe included in our results for the first half of 2006 from these disposals. OutlookIn the near term, the outlook is encouraging. The world economy continues togrow steadily. The US economy is strong, the UK resilient, Japan and Germany arerecovering and the emerging markets are buoyant. Longer term prospects are more uncertain. Apart from the possibility, howeverremote, of a sudden shock to the world's financial system, we remain concernedabout the unprecedented level of trade imbalances. Similarly, the implicationsof demographic change and of ageing populations for financial markets andbusinesses will be profound. It is inevitable that, at some stage, a process ofadjustment will begin but the timing is open to question. So far, the financialmarkets are taking a benign view of these potential sources of instability. Progressively, globalisation is forcing countries and businesses operatingwithin them to re-evaluate their comparative advantages and to adjust to a worldin which emerging markets compete not only in terms of cost but also in skillsand technology. The globalisation of the services industry, spurred on by newtechnologies and the rapid fall in communication costs, will afford hugeopportunities but also pose significant challenges to many areas of economicactivity including financial services. Incipient protectionism, resulting from areluctance to face up to the new competitive realities, remains a threat to thecontinuing growth of the world economy. In certain mature markets, under-funded pension plans threaten to become adrain on companies' resources. Combined with the rising cost of long-termhealthcare they pose a considerable challenge to policy makers. Continuingproductivity growth is therefore increasingly important. Only if it is achievedwill financial markets be able to offer returns with a meaningful premium to therisk-free rate embodied in government debt. Without such productivity gains andassociated financial returns the affordability of pension and healthcarepromises will become increasingly burdensome. The challenge to society ofmanaging the equitable distribution of wealth created between competinggenerations may well become one of the most pressing of the next decade. In this environment HSBC, with its unique international footprint, is determinedto continue to deliver profitable growth and value to its severalconstituencies. Success ensures that we can offer good employment prospects toan ever more diverse workforce. It means that we can afford to continue toinvest in expanding the platforms by which we deliver services to our customers.It enables us to contribute to the savings and retirement needs of those whoinvest in HSBC directly, or indirectly through pension plans and investmentfunds. Building on our achievements, our priority for the rest of 2006 is to continueto implement our Managing for Growth strategy. We will achieve this by beingdistinctive, reinforcing our brand values of trust and integrity in all ourdealings with customers. We will make ourselves even more relevant by broadeningthe product, channel and geographical coverage we offer. Furthermore, we willensure that the scale and complexity needed to compete successfully will beseamless from the perspective of our customers and manageable from that of ourcolleagues. Our businesses in Asia, Turkey, Mexico, Brazil and the Middle East see strongopportunities for growth on the back of investments already made. We also seeopportunities to strengthen our position in our franchises in the UK, Hong Kong,North America and France. We believe there is growing momentum from thedevelopment of our new business streams within Corporate, Investment Banking andMarkets businesses. Overall, HSBC is well positioned for further growth. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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