30th Jul 2007 09:15
HSBC Holdings PLC30 July 2007 HSBC HOLDINGS PLC 2007 INTERIM RESULTS - HIGHLIGHTS • Total operating income up 23 per cent to US$42,092 million (US$34,334 million in the first half of 2006). For the half-year: • Net operating income up 14 per cent to US$32,147 million (US$28,295 million in the first half of 2006). • Group pre-tax profit up 13 per cent to US$14,159 million (US$12,517 million in the first half of 2006). • Profit attributable to shareholders of the parent company up 25 per cent to US$10,895 million (US$8,729 million in the first half of 2006). • Return on average invested capital of 18.4 per cent (17.2 per cent in the first half of 2006). • Basic earnings per ordinary share up 22 per cent to US$0.95 (US$0.78 in the first half of 2006). Dividend and capital position: • Second interim dividend for 2007 of US$0.17 per ordinary share which, together with the first interim dividend for 2007 of US$0.17 per ordinary share already paid, represents an increase of 13 per cent over the first and second interim dividends for 2006. • Tier 1 capital ratio of 9.3 per cent and total capital ratio of 13.2 per cent. HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$14,159 MILLION HSBC made a profit before tax of US$14,159 million, an increase of US$1,642million, or 13 per cent, over the first half of 2006. Net interest income of US$18,230 million was US$1,499 million, or 9 per cent,higher than the first half of 2006. Net operating income before loan impairment charges and other credit riskprovisions of US$38,493 million was US$6,308 million, or 20 per cent, higherthan the first half of 2006. Operating expenses of US$18,611 million rose US$2,472 million, or 15 per cent,compared with the first half of 2006. On an underlying basis and expressed interms of constant currency, operating expenses increased by 10 per cent. HSBC's cost efficiency ratio was 48.3 per cent compared with 50.1 per cent inthe first half of 2006. Loan impairment charges and other credit risk provisions were US$6,346 millionin the first half of 2007, US$2,456 million higher than the first half of 2006. The tier 1 capital and total capital ratios for the Group remained strong at 9.3per cent and 13.2 per cent, respectively, at 30 June 2007. The Group's total assets at 30 June 2007 were US$2,150 billion, an increase ofUS$290 billion, or 16 per cent, since 31 December 2006. Geographical distribution of results Profit before tax Half-year to 30Jun07 30Jun06 31Dec06 US$m % US$m % US$m % Europe 4,050 28.6 3,600 28.8 3,374 35.3Hong Kong 3,330 23.5 2,654 21.2 2,528 26.4Rest of Asia-Pacific 3,344 23.6 1,657 13.2 1,870 19.5North America 2,435 17.2 3,741 29.9 927 9.7Latin America 1,000 7.1 865 6.9 870 9.1 14,159 100.0 12,517 100.0 9,569 100.0 Tax expense (2,645) (3,272) (1,943) Profit for the year 11,514 9,245 7,626 Profit attributable to shareholders of the parent company 10,895 8,729 7,060Profit attributable to minority interests 619 516 566 Distribution of results by customer group Profit before tax Half-year to 30Jun07 30Jun06 31Dec06 US$m % US$m % US$m % Personal Financial Services 4,729 33.4 5,908 47.2 3,549 37.1Commercial Banking 3,422 24.2 2,862 22.9 3,135 32.8Corporate, Investment Banking and Markets 4,158 29.4 3,144 25.1 2,662 27.8Private Banking 780 5.5 600 4.8 614 6.4Other 1,070 7.5 3 - (391) (4.1) Total 14,159 100.0 12,517 100.0 9,569 100.0 Statement by Stephen Green, Group Chairman HSBC produced record results for the first half of 2007, delivering profitbefore tax of US$14.2 billion, up 13 per cent, and earnings per share ofUS$0.95, up 22 per cent. The Directors have approved a second interim dividend of US$0.17 per share,which will be payable on 4 October 2007 with a scrip alternative, in accordancewith our planned schedule of quarterly dividends. The results were driven by excellent performances across Asia, and in Corporate,Investment Banking and Markets ('CIBM'), and Commercial Banking, which offsetthe impact of higher consumer finance impairment charges in the US and achallenging environment for our personal business in Europe. Our results benefited from two specific items. First, we recognised a gain ofUS$1 billion in attributable profit, as a result of the dilution of our holdingsin our mainland China associates. Excluding this exceptional gain, profit beforetax rose by 5 per cent and attributable profit by 13 per cent. Second, oureffective tax rate was unusually low at 18.7 per cent in this period. Thefollowing commentary excludes the impact of the dilution gain. Revenues grew by US$5.2 billion, or 16 per cent, against cost growth of US$2.5billion, or 15 per cent, contributing to an improved cost-efficiency ratio of49.7 per cent. Asia drove profit growth, with Hong Kong ahead by 25 per cent and the Rest ofAsia-Pacific by 37 per cent. Latin America and Europe delivered results ahead ofthe prior year period by 16 per cent and 13 per cent respectively. As expected,North America was lower by 35 per cent as a consequence of higher impairmentreserves. It is worth noting that our results for the first half of 2006benefited from exceptionally low impairment charges in the US as a result ofchanges in US bankruptcy law. At a customer group level, Commercial Banking delivered pre-tax profits 20 percent ahead of last year, and both CIBM and Private Banking were at least 30 percent ahead. Our Personal Financial Services businesses in Asia also deliveredvery strong results, with pre-tax profits 38 per cent ahead of the interim stagelast year. However, pre-tax profits in Personal Financial Services as a wholedeclined 20 per cent overall compared with the first half of 2006, owing tochallenging conditions in the UK and to the weaknesses we have alreadyhighlighted in our US correspondent mortgage business. The actions taken torestructure and manage down our exposure in this business are progressing well.The charge for impairments was lower than in the second half of last year and,importantly, was in line with our expectations. Within these results, the Group's Insurance operations made a significantcontribution and we see insurance as a growth opportunity for the future. From a strategic perspective, these results illustrate the value we are creatingfrom our position as the world's largest and most profitable internationalemerging markets bank, and from our unique global reach which allows us to actas a bridge between developed and developing markets for our customers. The strong growth we achieved in operating revenues reflects our focus onseeking out growth markets and has allowed us to continue to invest in organicexpansion while maintaining a strong capital position and growing dividends toshareholders. Average invested capital rose by US$17 billion as we pursued expansionopportunities around the world. Our tier one capital ratio remained strong at9.3 per cent. We see this as a competitive advantage, particularly in thecurrent economic environment, and in light of the opportunities we see to deploythis capital within our businesses. In an increasingly globalised world, the success we have reported today issupported by the integrity that is part of our global brand, and which webelieve constitutes a distinct competitive advantage. In less than a decade, wehave made 'HSBC' the 23rd most valuable brand in the world, according toInterbrand, and we are the fastest growing financial services brand. We willcontinue to invest in developing our brand and the experience it promises forthe customers and communities we serve around the world. We will also extend ourbrand to new markets and new business streams. As I set out earlier this year, we are refocusing our business to make the mostof the opportunities presented by three major trends that are reshaping theworld economy. First, emerging markets are growing faster than mature economies.Second, world trade is growing significantly faster than world GDP. Third,longevity is increasing around the world. As a result, we have positioned our business so that it is broadly balancedbetween Asia, Latin America, the Middle East and other developing economies, andslower-growing developed economies. As the world economy evolves, and trade andinvestment flows from and into emerging markets expand, HSBC has an excellentplatform for growth. It is the linkages between our business operations across83 countries and territories which deliver unique revenue opportunities and adistinctive competitive position. Increasing longevity is also creatingopportunities to grow our insurance and retirement businesses. All these factorscontributed to the growth we delivered in the first half of 2007. I want to thank all my colleagues for their contribution to these results. Ourprogress is clear evidence of the value we are delivering through our strategyof joining up the company for our customers, our shareholders and our people. As the world's local bank, our responsibilities extend beyond how successfullywe run our business. Climate change is one of the most significant issues of ourtime, which is why we announced in May the US$100 million HSBC ClimatePartnership, working with four world-class organisations to support initiativesby individuals, businesses and governments around the world to address thisissue. I am also delighted that Sir Nicholas Stern - author of the Stern Reporton the economics of climate change - has agreed to become an adviser on economicdevelopment and climate change to HSBC. Outlook The world economy remains remarkably buoyant. There is growing evidence ofeconomic decoupling, with US weakness not constraining economic activityelsewhere. Even in the US, which faces considerable housing andsub-prime-related difficulties, consumer spending has remained encouraginglyrobust and the labour market has been firm. The financial markets continue toenjoy record levels of activity, though muted in the past couple of months bynervousness about credit markets, and more sophisticated product structuring andrisk management services are enabling the diversification and spread of risk onan unprecedented scale. This buoyancy is supporting economic activity. We estimate that global growth this year will be close to last year's 3.8 percent. We believe emerging markets will remain particularly strong, stimulatingglobal demand for capital goods, providing an economic boost to Germany, Japanand other major exporters. The weakness in the housing market is likely to holdback US growth for 2007, which may be as low as 2 per cent. There are risks, however. Excess liquidity in global financial markets couldlead to further asset price dislocation. Perceptions of risk can change veryrapidly, affecting both credit spreads and liquidity, and history shows thatwhen market participants simultaneously seek to adjust risk exposures, marketinstability can follow. Among the potential triggers are higher global interestrates with a return to higher inflation, moves towards protectionism and greaterspillover effects from US housing market weakness. HSBC has always emphasised balance sheet strength to maintain strong liquidity and a sound capital base to take advantage of opportunities that arise in such circumstances. We remain cautious in our risk appetite. Our strategy is clear. We have well diversified earnings by both geography andcustomer. Our distribution network provides compelling opportunities for servingour customers around the world. We will continue to improve both customerexperience and operating efficiency through technology, especially in our directchannels. The outlook for HSBC is buoyed by our expectation of continuing stronggrowth in our developing markets businesses and their greater linkages internationally. We are on a journey with great opportunities to build on ourstrong current position, and I look forward to reporting our future progress. Review by Michael Geoghegan, Group Chief Executive Our first half results demonstrate sustainable growth and significant progressin working through the challenges of sub prime lending, whilst also unlockingreal value from our world class distribution network through Joining Up TheCompany. The world's largest and most profitable international emerging markets bank Our emerging markets operations continue to perform exceptionally well. Weprioritise investment in growing these businesses organically and we continue toextract value from strategic investments - this month our integration of GrupoBanistmo continued as we rebranded operations to HSBC in five Latin Americancountries. We have a strong presence in the world's most dynamic economies. In the BRICcountries - forecast to account for 40 per cent of world growth by 2025 - we arethe largest international bank in mainland China, the second largest and growingimpressively in India, and the third largest in Brazil. In Russia, we received abanking licence in May to start retail banking activities. Joining up the company for our customers The breadth of our international network means we can offer our customerscompelling global propositions that cannot be matched by purely domestic orregional competitors. Increasingly, we are joining up our businesses for ourcustomers across borders and across businesses. Our CIBM business achievedrecord results for the period by successfully executing its emerging markets-ledand financing-focused strategy. Our Commercial Banking business also grewstrongly as customers benefited from our international orientation and thedirect channels we are building for them. Personal Financial Services profit before tax declined by 20 per cent, largelyas a consequence of our experience with sub-prime correspondent mortgages in theUS and weakness in the UK. Meanwhile in Asia, pre-tax profit grew 38 per cent. We are increasingly connecting this business globally and in May rolled-out in35 countries our market-leading Premier proposition - a signature account forinternational HSBC Premier customers. First indications are encouraging andthere is an opportunity to gain significant global market share in this valuablesegment. We believe that, over time, we will add four million new mass-affluentcustomers. Private Banking achieved very strong results and continued to leverage closerlinks with other customer groups, particularly Commercial Banking, generatingalmost US$2 billion in total client assets from referrals. When our investmentbusiness recently launched the first multi-manager Chinese equity fund in HongKong, we were able to raise over US$1 billion from our retail and privatebanking customer base in the region. We also benefit from the ability to deliver global world-class propositions forour customers through the effective use of our technology. By building coresystems for use across the Group, we can share the development and support costsacross our operations, close down old systems, and share best practice in salesand service. In our cards business, the introduction of our Whirl global credit card platformacross the world, which now services 86 million accounts across 16 countries,has allowed us to improve services for our card customers and to cut our ITcosts per account by 16 per cent. We are adding 40,000 credit card customers tothe system each day. We are also introducing a new personal and business internet platform across theGroup. This has been implemented in 25 countries so far. Internet sales haverisen 68 per cent compared to the first half of 2006. The new infrastructure isallowing us to launch new services, including direct banking. Following earliersuccesses in the US and Taiwan, HSBC Direct, our online direct banking andsavings proposition, was launched in South Korea and Canada during the firsthalf of 2007. In Asia, the service has attracted over 120,000 customers, withtotal savings balances exceeding US$900 million. The US business has continuedto perform strongly; online savings balances have now reached US$12 billion withover 225,000 new accounts added this year. One of the compelling features of theHSBC Direct model is that it allows us to attract new customers who we do notreach through our existing channels. We continue to develop the HSBC Directmodel, with a view to rolling it out in other markets. In Latin America, we are introducing HSBC's systems into the newly-acquiredGrupo Banistmo companies, starting with Panama. We are also implementing HSBCnetthroughout Latin America to provide a full cash management system acrossthe region. Number one international bank in Asia We produced record results in Asia. Profit before tax grew impressively in allour major markets, with our operations in Hong Kong up by 25 per cent, ourbusinesses in mainland China by 69 per cent, in India by 39 per cent, inIndonesia by 115 per cent, in Malaysia by 13 per cent and in Singapore by 44 percent. Hong Kong produced very strong results. As a result of its leading position inwealth management, our business there was well-positioned to benefit from thebuoyant stock market activity during the period and the steady flow of mainlandChina companies listing on the Hong Kong Stock Exchange. We also continued toleverage our position as the leading financial institution in Hong Kong in tradefinance and in insurance. Increased foreign investment through Hong Kong intomainland China boosted Hong Kong's services and property sectors, and providedfurther opportunities for HSBC to generate revenue growth. Strong domestic interest in stock market investments within mainland China alsoencouraged listings on the Shanghai Stock Exchange during this period, and ourthree associates, Bank of Communications, Ping An Insurance and Industrial Bank,all successfully raised new capital. The resulting dilution of our interests wasconsiderably less than our share of the new monies raised, and our resultsreflect aggregate gains at the attributable profit level of some US$1 billion,or US$0.09 per share, which should be regarded as exceptional. We reinforced HSBC's position as the leading international bank in mainlandChina. Our domestic operations in mainland China, following local incorporation,grew strongly, with deposit and asset growth of over 50 per cent and 26 per centrespectively, compared with the same period last year. Pre-tax profits grew by69 per cent to US$473 million. We added seven outlets to what is already thelargest international branch network and recruited over 800 new staff to supportbusiness growth. In India, strong performance in CIBM drove the 39 per cent rise in profit beforetax. We significantly expanded our customer base and continued to invest heavilyin growing our business organically, particularly in consumer finance, whilemaintaining a largely unchanged cost efficiency ratio at 55 per cent. In Indonesia, where we are also investing in developing our consumer financebusiness and opened 20 new outlets in the period, profit before tax grew 115 percent to US$58 million. In Vietnam, a market with great long-term potential, weagreed to increase our stake in Techcombank and we are also growing our ownbusiness rapidly there. We grew profit before tax by 117 per cent to US$21 million in the first half, and increased headcount by a third. Across Asia as a whole, our Commercial Banking business performed very well,thanks in part to our success in growing the customer base. Commercial Bankingcustomers in Asia have increased by 6 per cent in the past year, withparticularly strong growth in mainland China and South Korea. Our success in Asia is being driven in large part by our success in joining upthe Group to leverage skills transfer and international reach. In particular, inour investment business, our Asian operations are capturing the leading share ofsecurities services revenues from custody and administration for internationalfunds groups. Reciprocally, we are producing developing market products, bothfor our own asset management group and for third parties to distribute in thedeveloped world. Similar linkages exist in capital markets activities,remittance services, cross-referral of commercial customers transacting overseasand in consumer finance expansion throughout Asia. Integration and development in Latin America on track Profit before tax for Latin America grew by 16 per cent. From a handful ofoffices a decade ago to some 4,000 in the region today, our operations nowaccount for 8 per cent of Group profit. We are one of the largest internationalbanks in the region, and we continue to develop our businesses in our majormarkets in Mexico, Brazil, Argentina and now across Central America. This was the first complete half-year contribution from Grupo Banistmo, theleading bank in Central America, following its acquisition in 2006. Pre-taxcontribution of US$49 million was in line with our expectations and integrationis proceeding well. Improved credit performance in Brazil, coupled with strong asset growthcontributed to pre-tax profit growth of 43 per cent. Growth in secured lendingand invoice financing has set the scene for sustained revenue growth, andinsurance sales in the existing customer base were also stronger. Revenue growth in Mexico remained strong at just over 23 per cent as we improvedmarket share. We have built a highly successful business in the last five years,which has already returned profits in excess of our total investment. In thefirst half of 2007, customer acquisition grew at a higher rate than forecast,and related costs affected profits through a rise in provisions which largelyoffset the expansion in revenues. HSBC in Mexico continued to build market sharewith credit cards, Tu Cuenta packaged accounts and Premier accounts all growingby over 45 per cent compared with the previous year. In Argentina, the successful integration of Banca Nazionale del Lavoro, awell-timed acquisition in May 2006, contributed to a 14 per cent rise in pre-taxprofits to US$95 million. Once again, CIBM, working with local management,helped HSBC in Argentina maintain leading positions in foreign exchange andtrade services for multinational companies operating there. Benefiting from organic growth in the Middle East Our Middle East businesses, excluding Saudi Arabia, grew strongly, with profitbefore tax up by 31 per cent. Our operations in the United Arab Emirates and inEgypt performed well as the region expanded its infrastructure development andits outward investment, supported by sustained high oil prices. Commercial Banking enjoyed higher revenues as a result of the region's highgrowth and increased trade flows. High liquidity in the region and demand frominstitutional customers led to strong sales of structured derivatives and otherproducts in CIBM. The rollout of additional branches and customer service units, the expansion ofthe direct sales force and sales of Premier products drove increased personalcustomer numbers and higher revenues. The contribution from Saudi Arabia was, however, lower as the stock marketdeclines which occurred in the second half of last year dampened market activityin the first half of 2007. Europe: investing in emerging markets and strong returns from UK Commercial Banking Within emerging Europe, profits in Turkey grew by 34 per cent, even as we opened25 new branches and installed 101 ATMs to develop our retail platform. Furtherexpansion is planned for the second half of the year. We obtained a licence tobegin retail business in Russia, where we aim to open over 35 branches in thenext three years. We intend to expand our operations in Poland, the Czech Republic and Slovakiafor personal customers, and we are looking at other markets in Central andEastern Europe. We will also be opening more branches in Armenia, expanding inKazakhstan, and we have applied for a licence to begin operations in Georgia. In continental Europe, our French operations were strongly ahead of thecomparable prior period, with profits growing by US$219 million, driven by CIBMrevenue growth. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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