7th Dec 2005 08:24
Standard Chartered PLC07 December 2005 Standard Chartered PLC Pre-close trading update 7 December 2005 Standard Chartered PLC will be holding discussions with analysts ahead of itsclose period for the full year ending 31 December 2005. This statement detailsthe information that will be covered in those discussions. The full year results for 2005 will be presented in compliance withInternational Financial Reporting Standards ("IFRS"). References to 2004 aremade in relation to the full year results under IFRS excluding one-off itemsidentified in our 2004 Annual Report (amounting to USD 85 million) and thegoodwill impairment charge under IFRS identified on 12 May (amounting to USD 67million). Operating profit before tax ("OPBT") for 2004 on this basis was USD2,233 million (and including one-off items and goodwill impairment, it was USD2,251 million). The following sections will outline Standard Chartered's progress in 2005,starting with a review of how Consumer Banking and Wholesale Banking haveperformed on an underlying basis excluding SC First Bank (previously known asKorea First Bank ("KFB")), followed by an update on SC First Bank's progress andcomments on other relevant areas. All comments are made on a full year comparison basis unless otherwise stated. 1. Introduction Overview Standard Chartered has continued to make progress into the second half of 2005and we expect to deliver a strong performance for the full year. Based on ourperformance to date, we are broadly in line with the OPBT consensus figure for2005. Overall, Standard Chartered continues to achieve strong growth in client incomein both businesses across multiple markets, client segments and products. Underlying performance excluding SC First Bank On an underlying basis excluding SC First Bank, income for the second half isanticipated to be broadly in line with the first half. Net interest margins haveremained broadly stable. Looking at the year as a whole, expense growth is expected to be broadly in linewith income growth, as indicated in guidance provided earlier. We take adynamic approach to managing expense growth, pacing investments to reflectincome growth and the overall performance of the business. We continue topursue multiple process redesign, restructuring and hubbing activities acrossthe Group to improve efficiency; and we are disciplined and focused in ourinvestments for future growth. 2. Consumer Banking (excluding SC First Bank) Overall, organic income growth year on year in the Consumer Banking businessremains strong. Markets such as Malaysia, Other APR, MESA and Africa areperforming particularly well with double-digit income and asset growth. The balance of income growth has changed as a result of the rising interest rateenvironment. Whilst Wealth Management and SME are achieving excellent incomegrowth, Mortgage margins and volume growth have been affected by rising interestrates in key markets. We are achieving good growth in income and assets inCards and Loans. Following the acquisition of Prime Credit in 2004, we havecontinued to make good progress with our Consumer Finance business. In Hong Kong, though asset levels have remained broadly flat, we are seeingencouraging signs of income growth. Income in Singapore is slightly down due to continued margin pressures in themortgage business. We are changing the shape of the business and are seeing goodasset growth in SME. India is also experiencing margin pressures, particularly in mortgages, but isstill benefiting from good levels of asset growth. We consider India to be avery attractive market in the medium term, and therefore, are continuing toinvest significantly in growing the business. This will have a negative impacton the near term profitability. Other APR is seeing strong income growth particularly in markets such asThailand, China and Indonesia on a year on year basis. In order to maximise the growth opportunities in our markets, we areimplementing a wide range of efficiency measures to create room for continuedinvestment in people, products and services. In the second half, we haveexpanded our branch network in countries such as China, Pakistan and Japan andlaunched the Consumer Finance business in India. The Consumer Banking loan impairment charge is increasing in line with overallcustomer assets and asset mix, and also as a result of the changes requiredunder IAS 32 and 39. We see continued deterioration in the unsecured market in Taiwan. We identifiedthe issue at an early stage and have taken measures to manage our exposure. 3. Wholesale Banking (excluding SC First Bank) On a year on year basis, Wholesale Banking continues to demonstrate good incomemomentum delivering broad based growth in all our key client segments and acrossmultiple products and geographies. Client driven income continues to perform strongly with Financial Institutions,Global Corporates, and Local Corporates client segments showing highdouble-digit growth. Own account income is broadly flat on a year on yearbasis, with the second half unlikely to match the first half. Our investments in enhancing our Global Markets' capabilities have contributedto strong growth in our Rates and FX and Corporate Finance businesses. Our CashManagement business has benefited from the rising interest rate environment inmany of our markets. Markets such as Hong Kong, Malaysia, Other APR, India and MESA are seeing highdouble-digit income growth. The worsening economic situation in Zimbabwe hasimpacted the performance of our business in Africa. Whilst we continue to reengineer to improve efficiencies in Wholesale Banking,we are investing to expand our client coverage and product capabilities,especially in India and Greater China. The quality of the Wholesale Banking loan book is good. Our robust riskmanagement practices enable us to continue to benefit from the benign creditenvironment in our geographies and good success in recoveries. 4. SC First Bank On 12 September, KFB began operating under its new name, "SC First Bank"following a country-wide rebranding exercise, which was completed within asingle weekend. All of SC First's 407 branches, 2,100 ATM machines,approximately 16,000 web pages and countless documents, were rebranded duringthis exercise. On 28 November, we merged Standard Chartered Korea's branch intoSC First Bank. Overall, integration is ahead of schedule. As expected, the income run rate in the second half to date is broadlycomparable to the underlying run rate seen in the first two and a half months.As highlighted at the 2005 Interims, we have been making significant investmentsin rebranding, new products and services, alignment of processes and systems,and training and recruitment of our people in the second half. We are maintaining our leading position in the Korea mortgage market. We arealso making good progress with new product launches in Cards and Loans, WealthManagement and SME Banking. We are moving rapidly to build SC First Bank's Wholesale Banking capabilities.We have established the largest dealing room in Korea and have built new salesteams for specific client segments and products and have set up offshore Koreansales desks in key locations. Early indications of business momentum areencouraging. We are very pleased with the acquisition and the progress of the integration todate. 5. Zimbabwe The economic situation in Zimbabwe has continued to worsen, with the officialcurrency rate depreciating from 9,900 at June 2005 to 69,000 and with inflationlevels in excess of 400% at the end of November. Our primary concern in Zimbabwe continues to be the well-being of our staff andthe protection of our franchise. We took a further hyperinflation charge during the third quarter and, given theextent to which the situation has deteriorated, we will recognise an impairmentcharge, which has the consequence of negating our net exposure in Zimbabwe. The total hyperinflation charge for the first three quarters of 2005 isapproximately USD 60 million. Based on the current situation, we anticipate thatthe impairment charge will be of the order of USD 40 million. The impairmentcharge will be normalised. 6. Other items As outlined in the 2005 Interims, under IFRS, we reclassified £500 million debtinstruments to equity and £200 million of equity to debt. Whilst the Group iseconomically hedged at the level of EPS and Return on Equity ("ROE"), thisre-classification has increased the volatility of reported income and OPBT, withrespect to movements in the USD/£ exchange rates. 7. Conclusion In summary, the Group is performing well. Income momentum is robust, and we aretightly managing expenses and risks. Our acquisitions are delivering; theintegration of SC First Bank is ahead of schedule. Overall, the Group'sbusinesses are well-balanced and are delivering broad based growth. Bryan Sanderson, Chairman, commented, " Standard Chartered's performancecontinues to be robust. We are making good progress towards our strategic goals." Mervyn Davies, Group Chief Executive, commented, " We have good momentum in bothbusinesses. The integration of SC First Bank is progressing very well. We aredriving performance through client focus, geographic diversity and innovation inproducts. " The pre-close conference call, hosted by Peter Sands, Group Finance Director,will be webcast live on the Standard Chartered's website by following this linkhttp://investors.standardchartered.com from 0930 GMT onwards. A recording of theconference call will also be available shortly after the event. For further information, please contact: Romy Murray, Head of Investor Relations (44) 207 280 7245 Sean Farrell, Head of Media Relations(44) 207 280 7163 Ruth Naderer, Head of Investor Relations, Asia Pacific (852) 2820 3075 This document contains forward-looking statements, including such statementswithin the meaning of Section 27A of the US Securities Act of 1993 and section21E of the Securities Exchange Act of 1934. These statements concern or mayaffect future matters. Forward-looking statements can be identified by the factthat they do not relate to historical or current events. Forward-lookingstatements often use words such as anticipate, target, expect, estimate, intend,plan, goal, believe, will, may, should, would, could or other words of similarmeaning. These statements may include Standard Chartered's future strategies,business plans, and results and are based on the current expectations of thedirectors of Standard Chartered. They are subject to a number of risks anduncertainties that might cause actual results and outcomes to differ materiallyfrom expectations outlined in these forward-looking statements. These factorsare not limited to regulatory developments but include stock markets, IT,developments, and general economic, competitive and general operatingconditions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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