1/4: HSBC Holdings FY03 PT 1
HSBC Holdings PLC
01 March 2004
HSBC Holdings PLC
2003 FINAL RESULTS - HIGHLIGHTS
•Operating income up 54 per cent to US$41,072 million (US$26,595 million
in 2002).
For the year (excluding goodwill amortisation):
•Operating profit before provisions up 72 per cent to US$19,990 million
(US$11,641 million in 2002).
•Group pre-tax profit up 37 per cent to US$14,401 million (US$10,513
million in 2002).
•Attributable profit up 46 per cent to US$10,359 million (US$7,102 million
in 2002).
•Return on average invested capital of 13.7 per cent (12.9 per cent in
2002).
•Earnings per share up 30 per cent to US$0.99 (US$0.76 in 2002).
For the year (as reported):
•Operating profit before provisions up 72 per cent to US$18,540 million
(US$10,787 million in 2002).
•Group pre-tax profit up 33 per cent to US$12,816 million (US$9,650
million in 2002).
•Attributable profit up 41 per cent to US$8,774 million (US$6,239 million
in 2002).
•Return on average shareholders' funds of 13.0 per cent (12.4 per cent in
2002).
•Basic earnings per share up 25 per cent to US$0.84 (US$0.67 in 2002).
Dividend and capital position:
•Third interim dividend (in lieu of final dividend) of US$0.24 per share;
total dividend for 2003 of US$0.60 per share, an increase of 13 per cent
over 2002.
•Tier 1 capital ratio of 8.9 per cent; total capital ratio of 12.0 per
cent (2002: tier 1 capital ratio of 9.0 per cent and total capital ratio of
13.3 per cent).
The figures for 2002 have been restated in this document to reflect the adoption
of Urgent Issues Task Force Abstracts 37 'Purchases and sales of own shares',
and 38 'Accounting for ESOP trusts', details of which are set out in Note 1 on
page 17.
HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$12,816 MILLION
HSBC made a profit on ordinary activities before tax of US$12,816 million in
2003, an increase of US$3,166 million, or 33 per cent, compared with 2002. Of
this increase, over 70 per cent arose from two recent major acquisitions;
Household contributed US$1,827 million while HSBC Mexico contributed US$441
million in its first full year.
The Directors have declared a third interim dividend for 2003 of US$0.24 per
ordinary share (in lieu of a final dividend) which, together with the first
interim dividend of US$0.24 per ordinary share and the second interim dividend
of US$0.12 already paid, will make a total distribution for the year of US$0.60
per share (US$0.53 per share in 2002), an increase of 13.2 per cent. The
dividend will be payable on 5 May 2004.
Net interest income of US$25,598 million in 2003 was US$10,138 million, or 66
per cent, higher than 2002. Of this increase, Household contributed US$8,305
million and HSBC Mexico US$874 million. Excluding these acquisitions, and in
terms of constant currency, net interest income was marginally higher.
Other operating income of US$15,474 million was US$4,339 million, or 39 per
cent, higher than 2002. Of this increase, Household contributed US$1,878 million
and HSBC Mexico US$599 million.
Operating expenses (excluding goodwill amortisation) rose US$6,128 million, or
41 per cent, of which Household contributed US$3,406 million and HSBC Mexico
US$881 million. HSBC's cost:income ratio, excluding goodwill amortisation,
improved to 51.3 per cent compared with 56.2 per cent in 2002.
The charge for bad and doubtful debts was US$6,093 million in 2003, US$4,772
million higher than in 2002. This was essentially all attributable to
acquisitions. Of the increase, Household accounted for US$4,575 million and HSBC
Mexico US$110 million.
Gains on disposal of investments and tangible fixed assets of US$414 million
were US$94 million lower than 2002 reflecting lower sales of investment debt
securities in the US.
The tier 1 capital and total capital ratios for the Group remained strong at 8.9
per cent and 12.0 per cent, respectively, at 31 December 2003.
The Group's total assets at 31 December 2003 were US$1,034 billion, an increase
of US$276 billion, or 36 per cent, since 31 December 2002. Of this increase,
US$131 billion were assets (including the related goodwill) added as at the date
of the acquisition of Household. Excluding this and at constant exchange rates,
total assets grew by US$92 billion or 11.2 per cent.
Geographical distribution of results
Year Year
ended ended
Figures in US$m 31Dec03 31Dec02
Profit/(loss) before tax
(excluding goodwill
amortisation)
% %
Europe 4,862 33.7 4,160 39.5
Hong Kong 3,730 25.9 3,710 35.3
Rest of Asia-Pacific 1,426 9.9 1,293 12.3
North America 4,257 29.6 1,384 13.2
South America 126 0.9 (34) (0.3)
14,401 100.0 10,513 100.0
Goodwill amortisation (1,585) (863)
Group profit before tax 12,816 9,650
Tax on profit on ordinary
activities (3,120) (2,534)
Profit on ordinary activities
after tax 9,696 7,116
Minority interests (922) (877)
Profit attributable 8,774 6,239
Profit attributable (excluding
goodwill amortisation) 10,359 7,102
Distribution of results by customer group
Year Year
ended ended
Figures in US$m 31Dec03 31Dec02^
Profit/(loss) before tax
(excluding goodwill
amortisation)
% %
Personal Financial Services 4,008 27.8 3,391 32.3
Consumer Finance^^ 2,225 15.5 - -
Total Personal Financial
Services 6,233 43.3 3,391 32.3
Commercial Banking 3,158 21.9 3,014 28.7
Corporate, Investment
Banking and Markets 4,443 30.9 3,896 37.1
Private Banking 563 3.9 413 3.8
Other 4 - (201) (1.9)
Group profit before tax
(excluding goodwill
amortisation) 14,401 100.0 10,513 100.0
Goodwill amortisation (1,585) (863)
Group profit before tax 12,816 9,650
^ In 2003, North America implemented a revised transfer pricing system to
transfer interest rate risk from the business units to Corporate,
Investment Banking and Markets. The figures for 2002 have been restated
to reflect the impact of transfer pricing had it been in place on a
similar basis.
^^ Comprises Household since 28 March 2003, the date of acquisition.
Comment by Sir John Bond, Group Chairman
Overall, 2003 was a good year for HSBC. Our record results show the diversity of
our business against a backdrop of improvement in most of the world's major
economies. They reflect the trust which more than 110 million customers we serve
around the world place in us for their various financial needs. Our performance
also benefited from a strong contribution from recent acquisitions, an expanded
geographical reach and our continuing investment in new products and services,
in systems, and in our people. The dedication and talents of my colleagues
throughout HSBC are amongst our greatest strengths.
Profit attributable to shareholders in 2003 rose 41 per cent to US$8,774 million
on revenues which were 54 per cent higher at US$41,072 million. Profit
attributable excluding the amortisation of goodwill, which is the measurement
basis we believe best reveals our true performance, exceeded US$10 billion for
the first time rising 46 per cent to US$10,359 million. On a per share basis
earnings attributable to shareholders amounted to US$0.84 or US$0.99 before
goodwill amortisation, increases of 25 and 30 per cent respectively. The Board
has approved a third interim dividend of US$0.24 per share taking the total
dividend for the year to US$0.60 per share, an increase of 13 per cent over
2002.
2003 was the final year of our five year strategic plan "Managing for Value".
The results for the year contributed to meeting the target of doubling our total
shareholder return over the five year period. We also significantly
out-performed our benchmark peer group of nine banks.
Our 2003 results and, indeed, the achievement of our TSR targets owe much to the
improved geographical distribution of profits that has characterised HSBC's
progress in recent years. Our diversification has been all the more important
given that, for almost all the life of 'Managing for Value', Hong Kong was
undergoing deflation. For much of our history Hong Kong was our single largest
market and as recently as 1998 accounted for 37 per cent of pre-tax profits. In
2003 Hong Kong's share of pre-tax profits was 26 per cent. That said, the
resilience and flexibility of our business there has been impressive and our
team has managed our business through this difficult period with extraordinary
skill, achieving a profit growth which, although modest, is remarkable in the
circumstances. Happily, the economic outlook for Hong Kong is now improving.
Hong Kong enjoys a unique position in the Asia Pacific region. Our confidence in
its long term prospects remains undiminished and our new strategic plan
specifically calls for continued investment in Hong Kong.
Integration of Recent Acquisitions
Two of our principal tasks during 2003 were integrating Household and HSBC
Mexico (formerly GFBital) successfully into HSBC after they joined our Group in
early 2003 and late 2002 respectively. In both cases the progress has exceeded
our expectations. We have achieved synergies and overall results ahead of our
original business cases. The following are highlights of the Household
integration:
•Technology integration and other synergies - We have made significant
progress in integrating Household and HSBC technology teams and systems,
including initiatives to consolidate data centres and to convert HSBC credit
card portfolios onto the Household loan processing system. Based on the
joint strengths of HSBC and Household, we have also renegotiated a wide
range of supplier contracts, including telecommunications. Also, we have
achieved efficiency savings in a number of other areas through the
integration of various functions including purchasing, human resources and
facilities.
•Global processing opportunities - Processing costs have been reduced in
Household's consumer lending and auto finance businesses by using HSBC's
processing centres in India.
•Sharing best practices - We have made good progress in exporting and
using Household's consumer credit business models and other practices in
HSBC's operations both in the US and internationally. Shared practices
include Household's credit risk management, card management, collections,
retail services and customer focused technology.
•Expanding business opportunities - We are developing a number of
initiatives including offering a broader range of products, such as mortgage
insurance and HSBC banking services, to existing Household customers, cross
referring consumer finance and retail services customers between Household
and HSBC and automating the HSBC auto finance loan process. Also, in
conjunction with HSBC Bank USA, Household has initiated a customer referral
programme. Household has also developed near prime and prime products to
provide customers with a "full spectrum" of options. As at 31 December 2003,
4,600 near prime loans totalling almost US$600 million have been written by
Household branches.
•Cross border payments - Globally, the largest bilateral remittance flow
is that between the US and Mexico at around US$10 billion a year. Working
closely with HSBC Mexico, Household is developing a remittance capability
between customers in the US and their families and friends in Mexico. This
initiative includes a web-based option in which the recipient is able to
access the funds via an ATM using a stored value card and a remittance
service via HSBC branches and kiosks in Mexico. Both services will provide
cross-selling opportunities.
In addition, all the commitments given to regulators in relation to improvements
in business practices were fulfilled. Household aims to be a leader in best
practice in the consumer finance industry.
Progress in Mexico has also been ahead of expectations:
•We have bedded down the new management structure, blending local and
international expertise.
•We took full control of our insurance joint venture, buying out ING, and
we purchased a pension management company to complement it.
•We are strengthening operational, credit, technology and audit controls
to bring them to HSBC standards.
•We exceeded our financial targets. We achieved 18 per cent core deposit
growth and more than 20 per cent growth in consumer lending. Non-performing
loans declined by 52 per cent as we cleansed the loan portfolio. We achieved
a cash return on cash invested of 20 per cent in the first year.
Our platform for further growth in Mexico is firmly in place.
The Brand
One objective of "Managing for Value" was to establish HSBC and our hexagon
symbol as a global consumer brand and to make it synonymous with integrity,
trust and excellent customer service. Building our brand has been one of the
most conspicuous successes of the plan. The careful management and further
development of the brand is one of our most important responsibilities and we
have consolidated our position by taking re-branding opportunities arising from
recent acquisitions.
We re-branded our operations in Mexico as HSBC at the end of January this year
to coincide with the visit of the HSBC Holdings plc Board to the country. We
re-launched our private banking operations as HSBC Private Bank at the beginning
of 2004, retiring the HSBC Republic brand which had been used since the
acquisition of the Republic Bank of New York and Safra Republic Holdings in
1999. In the US, Household's prime credit card business, its retail services
business and its auto finance business will all be re-branded HSBC in the course
of this year to build on the market position of HSBC amongst prime and business
customers.
Customer Groups
All our major geographical businesses and customer groups performed well in
2003. Across all our businesses credit performances were sound. At the end of
2003, non-performing loans were US$15,074 million. After excluding the
acquisition of Household, non-performing loans fell US$172 million to US$10,368
million with the level of new provisions reflecting the improving economic
outlook.
Personal Financial Services
Low interest rates and lower unemployment fuelled demand for mortgages and other
lending products in many of our personal markets. Excluding Household we grew
residential mortgages across the Group by 15 per cent over the year. We achieved
particularly good growth in the UK, US, Canada, Korea and New Zealand, the last
reflecting the acquisition of a retail banking business from AMP Bank. We
achieved this in part by more targeted cross-selling to HSBC's own current
account customers. We grew non-mortgage personal lending by over 20 per cent
with particularly good growth in the UK, US and France. Worldwide we achieved 20
per cent growth in credit cards in issue. The increase reflected stronger
marketing in the UK, the contribution of businesses acquired in Turkey and in
Mexico in 2002 and 15 per cent organic growth in Asia. Sales of repayment
protection insurance reached record levels.
Continuing nervousness over the sustainability of growth in equity market
valuations hit sales of traditional investment and investment-linked insurance
products. However, those incorporating capital protection features were again
successful in Asia, particularly in Hong Kong, where increased sales generated
commission income of US$130 million. With customers remaining cautious and
preferring liquidity, we attracted record savings levels with deposits growing
13 per cent to US$291 billion. Hong Kong, the UK, France and Canada led the way
with particularly strong inflows while current account balances grew faster than
the underlying rate of economic activity. Current account balances in the UK
exceeded £10 billion for the first time at year-end 2003.
We are beginning to see significant trends in customer channel preferences.
Responding to those preferences has enabled us to achieve a 7 per cent increase
in products in use by our customers. The number of customers registered for our
e-banking services more than trebled in 2003 reflecting both the acquisition of
Household and the value of our investments in the internet and telephone-based
services. Registered users of personal internet banking increased by 200 per
cent to 13.5 million. More than 60 per cent of them use the service regularly
with over 325 million internet log-ons recorded during the year. The internet
generated sales of more than 2.3 million products with some 87 million
transactions migrating to this channel during 2003. As a result of this
heightened online activity, calls to our call centres increased by the lowest
rate in years. A third of all personal loans in the UK were arranged by
telephone while in Hong Kong the internet accounted for 39 per cent of retail
broking revenues which rose to US$80 million. Online transactions now account
for 74 per cent of all retail stock trades conducted by our operations in Hong
Kong.
Consumer Finance
During 2003 Household achieved generally good organic loan growth which it
supplemented with portfolio acquisitions. The strongest growth was in the real
estate portfolio and particularly in the mortgage services business. With
interest rates at their lowest level for 25 years, strong demand for refinancing
as well as debt consolidation loans contributed to the solid increase in the
real estate secured portfolio. Household also achieved growth in its branch
based consumer lending business in the second half of the year with an expanded
range of products a contributing factor.
In retail services new partners in the US included Suzuki, Saks Inc., and
Gottshalks. Synergy benefits with HSBC included new opportunities in store cards
and point of sale financing and were instrumental in the signing of the John
Lewis Partnership in the UK as a new business partner.
Household's credit quality, specifically its delinquency and charge off levels
improved in the second half of 2003. Early delinquency rates also showed
improvement in the fourth quarter as a result of the recovery in the US economy
and tighter underwriting in some products. There are grounds for optimism that
these trends will continue during the first half of 2004.
Commercial Banking
The payment of interest on qualifying current accounts, imposed by the
Competition Commission in the UK, came into effect in 2003. We absorbed the
costs, taking the opportunity, at the same time, to stress to our customers the
advantages of businesses banking with HSBC. This helped us increase our leading
position in the UK business start-up market to 21 per cent and attract record
levels of business current and deposit account balances. Business internet
banking was launched in 13 more countries and territories, bringing the total to
20, and the number of registered users more than doubled to 540,000.
In Hong Kong, we launched a number of schemes to help customers worst affected
by the outbreak of SARS in the first half of the year. However, the dramatic
turnaround in both business activity and confidence in the second half,
undoubtedly helped by the relaxing of restrictions on visitors from mainland
China, meant that the economic impact on our customers was less than expected.
Credit quality remained sound.
With demand for credit remaining soft, we focused on increasing revenues from
fees by capitalising on our position as 'The world's local bank' and by
extending our range of products for commercial customers. As a result we saw
growth in money transmission revenues, in trade finance fees and in wealth,
savings and insurance products.
Corporate, Investment Banking and Markets
Our Global Markets business excelled as our CIBM activities achieved record
results in 2003. In bond issuance, we increased our market shares in Europe and
the US and maintained our market-leading position in Asia, excluding Japan.
Continuing synergy benefits resulting from the Group's acquisition of CCF in
2000 and a greater focus on debt origination have resulted in HSBC building a
top eight position in the international debt issuance league in 2003 compared to
a 1999 ranking of 18th.
Currency and interest rate volatility led to strong demand for risk management
and structured products, justifying our decision to expand our capabilities in
this area through increased investment in people and systems in 2002. Concerns
about market concentration in the structuring and delivery of complex products
and reputational damage from corporate scandals elsewhere in the market enabled
HSBC to expand profitable relationships with an enlarged customer group.
We re-focused our Markets business in the US where profitability improved
markedly as a result of the non-recurrence of bond losses suffered in 2002. We
gained market share in foreign exchange, particularly in New York, and built up
our currency options business, managed globally from London, and our credit
derivatives business, managed from New York.
In Corporate Banking, debt restructuring and well-marketed equity raising helped
to reduce the number of major companies in financial difficulties around the
world and to keep corporate credit costs low. Demand for credit through bank
facilities, however, remained muted and in line with the modest recovery in
corporate investment activity. Instead, corporate borrowers focused their
borrowing requirements on taking advantage of the low credit spreads available
in bond markets. Attractive bank financing opportunities were few.
We restructured our Investment Banking operations in 2003 and focused the
business more sharply. We concentrated our global advisory businesses on areas
most relevant to our customers and where we have a competitive advantage. While
staff numbers fell, selective recruitment enabled us to strengthen the team and
revenues from our advisory businesses grew to US$158 million in 2003. We were
entrusted with a number of landmark deals during the year in areas related to
capital structuring, corporate reorganisation and broad strategic advice. These
deals spanned our global client footprint.
Pressure on brokerage commissions and the likelihood of major structural change
to the shape of the industry prompted us to reorganise our equities business
with a significant reduction in headcount. Our revised business strategy, which
fully integrates equities as part of our overall markets proposition,
concentrates on areas where we have a competitive advantage and we returned to
modest profit in the fourth quarter as markets improved.
Private Banking
Our Private Banking operations recorded strong results with pre-tax profits
growing by 36 per cent. New business initiatives and a general improvement in
investment markets led to increased client activity across a range of products.
In particular, an increase in discretionary mandates together with strong demand
for client-tailored structured products contributed to increased fee revenues
and dealing income. We grew funds under management by 18 per cent reflecting
both net inflows of client assets and improving market conditions. Results were
strong across most geographies.
Strategy
In November 2003, we launched our new five year strategic plan, which we call
"Managing for Growth". Using the delivery platform which HSBC has constructed
around the world and harnessing all our strengths it aims to accelerate our
overall rate of revenue growth. At the same time, however, we shall not
compromise our traditionally conservative risk profile which has served us well.
Our plan also calls for the strategic management of costs. This partly reflects
the transforming effect of technology, including the internet, and the extent to
which customers can now choose to conduct their business with us themselves. It
also reflects the need to free up resources by reducing or eliminating our
involvement in businesses limited in scope or potential in order to allocate
additional resources to areas which demonstrate strong growth prospects.
In addition, our strategies always allow us to respond to opportunities to
expand our geographical reach and product range through acquisitions,
investments and joint ventures. Indeed, the last 12 months have already seen a
number of such developments. Following the acquisition of Household
International, we acquired in December Lloyds TSB's business interests in Brazil
including its market leading consumer finance subsidiary Losango with over 7
million customers. We also agreed to acquire an interest in UTI Bank in India.
As we continued to develop our business in The People's Republic of China, Hang
Seng Bank agreed to take a 15.9 per cent stake in Industrial Bank and we
announced a joint credit card venture with Bank of Shanghai.
In February this year we were delighted to complete our US$1.3 billion
acquisition of the Bank of Bermuda. In addition to providing HSBC with a strong
position in the local banking market in Bermuda, where potential exists for
further expansion, the acquisition adds significant scale and geographical
spread to our existing international fund administration, private banking,
trustee and payments and cash management businesses. We are now working on
integration.
Outlook
Turning to 2004, we have already seen growth in consumer spending and borrowing;
in increased merger and acquisition activity; and a modest resumption of growth
in demand for equity investment products. We see improving prospects for
economic growth and private sector employment, particularly in the United States
and in Hong Kong.
In emerging markets, such as Brazil, Mexico and the ASEAN countries, relatively
stable currencies and historically low interest rates are promoting consumer
activity, fuelling domestic growth and reducing export dependence.
However, we remain very conscious of the changing nature of the global economy
and the speed of change. China plays an increasingly important role, not only
through its export growth, but also as the fastest growing market for commodity
producing countries and for those developed countries which are supplying the
technology, equipment and services to support its economic expansion.
Nor do we underestimate the impact on sentiment and consumer spending of
globally strong property prices, which continue to rise faster than underlying
wage growth in many developed markets. While such rises are understandable in
the context of low interest rates and limited appetite for alternative
investment opportunities, in the long run property prices have to be linked to
income growth.
The picture therefore is one of improving sentiment and stronger growth
prospects in the near term, but with the potential risk that structural
imbalances might lead to economic weakness or dislocation.
Against this backdrop we are concentrating on building our businesses steadily.
We expect to see lending to consumers around the world rise as a proportion of
our total lending, with the emphasis on real estate secured lending.
We also expect to see business in the US grow in importance to HSBC as we fulfil
the potential of the Household acquisition and as the US economy shows its
flexibility and responds to the lower value of its currency.
We look forward to the future with confidence. We are second to none in terms of
geographic and product diversification. We believe that China, India, Brazil and
Mexico will become increasingly important to the global economy. We also believe
many of the world's largest companies see the same opportunities as we do, and
therefore we will use HSBC's position as 'The world's local bank' to serve their
needs.
We have built a capital strength that allows us to develop our businesses
wherever we see opportunities. Alternatively, such strength gives us resilience
if economic conditions deteriorate.
We have an excellent customer base with opportunities across the board:in
Personal Financial Services; in Commercial Banking where we have the largest
international middle market franchise in the world; in Corporate, Investment
Banking and Markets; and Private Banking. We have a talented workforce. And we
have a commitment to do business only when it is in the interests of our
customers and in line with our wider responsibilities to the communities we
serve.
In so doing we protect and strengthen the value of our brand and this lies at
the heart of our ability to create value for our shareholders who have entrusted
to us, directly or indirectly, an important element of their long-term savings
and pensions provisions.
Financial Overview
2002^ Year ended 31Dec03
US$m US$m £m HK$m
For the year (excluding
goodwill amortisation)
10,513 Profit before tax 14,401 8,813 112,141
7,102 Profit attributable 10,359 6,340 80,666
For the year (as reported)
9,650 Profit before tax 12,816 7,843 99,799
6,239 Profit attributable 8,774 5,370 68,325
5,001 Dividends 6,532 3,998 50,865
At year-end
51,765 Shareholders' funds 74,473 41,705 578,134
57,430 Capital resources 74,042 41,464 574,788
Customer accounts and
548,371 deposits by banks 643,556 360,392 4,995,925
758,605 Total assets 1,034,216 579,161 8,028,618
430,551 Risk-weighted assets 618,662 346,451 4,802,673
US$ Per share US$ £ HK$
Earnings before goodwill
0.76 amortisation 0.99 0.61 7.71
0.67 Basic earnings 0.84 0.51 6.54
0.66 Diluted earnings 0.83 0.51 6.46
0.53 Dividends^^ 0.60 0.34 4.65
5.46 Net asset value 6.79 3.80 52.71
Share information
US$0.50 ordinary shares
9,481m in issue 10,960m
US$105bn Market capitalisation US$172bn
Closing market price per
£6.87 share £8.78
Total shareholder return HSBC Benchmark
against peer index^^^
- over 1 year 136 132
- since 1 January 1999 211 126
^The figures for 2002, excluding capital resources, have been restated to
reflect the adoption of Urgent Issues Task Force Abstracts 37 'Purchases and
sales of own shares', and 38 'Accounting for ESOP trusts' details of which are
set out in Note 1 on page 17.
^^The third interim dividend of US$0.24 per share is translated at the closing
rate on 31 December 2003 (see Note 16 on page 33). Where required, this
dividend will be converted into Sterling or Hong Kong dollars at the exchange
rates on 26 April 2004 (see Note 2 on page 17).
^^^ Total shareholder return (TSR) is as defined in the Annual Report and
Accounts 2003. HSBC's governing objective for its five year strategic plan
ended 31 December 2003 was to beat the TSR of its defined peer group benchmark.
An additional target objective was set to achieve a doubling of TSR over the
five years beginning on 1 January 1999.
2002^ Year ended 31Dec03
Performance ratios (%)
Excluding goodwill amortisation
12.9 Return on average invested capital^^ 13.7
20.1 Return on average net tangible equity^^^ 24.7
1.11 Post-tax return on average tangible assets 1.21
1.95 Post-tax return on average risk-weighted assets 2.07
On a reported basis
12.4 Return on average shareholders' funds 13.0
0.97 Post-tax return on average assets 1.01
1.74 Post-tax return on average risk-weighted assets 1.78
Efficiency and revenue mix ratios
56.2 Cost:income ratio (excluding goodwill amortisation) 51.3
As a percentage of total operating income:
58.1 - net interest income 62.3
41.9 - other operating income 37.7
29.4 - net fees and commissions 25.3
4.9 - dealing profits 5.3
Capital ratios
9.0 - tier 1 capital 8.9
13.3 - total capital 12.0
^ The figures for 2002 have been restated to reflect the adoption of Urgent
Issues Task Force Abstracts 37 'Purchases and sales of own shares', and 38
'Accounting for ESOP trusts' details of which are set out in Note 1 on page 17.
^^Return on invested capital is based on cash-based attributable profit adjusted
for depreciation attributable to revaluation surpluses. Average invested capital is
measured as shareholders' funds after adding back goodwill amortised and
goodwill previously written-off directly to reserves and deducting property
revaluation reserves. This measure broadly reflects invested capital.
^^^Attributable profit excluding amortisation divided by average shareholders'
funds after deduction of average purchased goodwill.
Within this document, the Hong Kong Special Administrative Region of the
People's Republic of China has been referred to as 'Hong Kong'.
Consolidated Profit and Loss Account
31Dec02 Year ended 31Dec03
US$m US$m £m HK$m
28,595 Interest receivable 39,968 24,460 311,231
(13,135) Interest payable (14,370) (8,794) (111,899)
15,460 Net interest income 25,598 15,666 199,332
11,135 Other operating income 15,474 9,470 120,496
26,595 Operating income 41,072 25,136 319,828
Operating expenses excluding
(14,954) goodwill (21,082) (12,902) (164,166)
(854) Goodwill amortisation (1,450) (887) (11,291)
Operating profit before
10,787 provisions 18,540 11,347 144,371
Provisions for bad and doubtful
(1,321) debts (6,093) (3,729) (47,446)
Provisions for contingent
(39) liabilities and commitments (35) (21) (273)
Loss from foreign currency
(68) redenomination in Argentina (9) (6) (70)
Amounts written off fixed
(324) asset investments (106) (65) (825)
9,035 Operating profit 12,297 7,526 95,757
Share of operating loss in
(28) joint ventures (116) (71) (903)
Share of operating profit in
135 associates 221 135 1,721
Gains/(losses) on disposal of:
532 - investments 451 276 3,512
(24) - tangible fixed assets (37) (23) (288)
Profit on ordinary activities
9,650 before tax 12,816 7,843 99,799
Tax on profit on ordinary
(2,534) activities (3,120) (1,909) (24,295)
Profit on ordinary activities
7,116 after tax 9,696 5,934 75,504
Minority interests:
(505) - equity (487) (298) (3,792)
(372) - non-equity (435) (266) (3,387)
Profit attributable to
6,239 shareholders 8,774 5,370 68,325
(5,001) Dividends (6,532) (3,998) (50,865)
1,238 Retained profit for the year 2,242 1,372 17,460
Consolidated Balance Sheet
At 31Dec02^ At 31Dec03
US$m US$m £m HK$m
ASSETS
Cash and balances
7,659 at central banks 7,661 4,290 59,472
Items in the course
of collection
5,651 from other banks 6,628 3,712 51,453
Treasury bills and
18,141 other eligible bills 20,391 11,419 158,295
Hong Kong Government
certificates of
9,445 indebtedness 10,987 6,153 85,294
Loans and advances
95,496 to banks 117,173 65,617 909,614
Loans and advances
352,344 to customers 528,977 296,227 4,106,448
175,730 Debt securities 205,722 115,204 1,597,020
7,664 Equity shares 12,879 7,212 99,980
Interests in joint
190 ventures 10 6 78
1,116 Interests in associates 1,263 707 9,805
Other participating
651 interests 690 386 5,356
Goodwill and intangible
17,192 assets 28,640 16,038 222,332
14,181 Tangible fixed assets 15,748 8,819 122,252
45,763 Other assets 63,128 35,352 490,061
Prepayments and accrued
7,382 income 14,319 8,019 111,158
758,605 Total assets 1,034,216 579,161 8,028,618
LIABILITIES
Hong Kong currency notes
9,445 in circulation 10,987 6,153 85,294
52,933 Deposits by banks 70,426 39,439 546,717
495,438 Customer accounts 573,130 320,953 4,449,208
Items in the course of
transmission to other
4,634 banks 4,383 2,454 34,025
34,965 Debt securities in issue 153,562 85,995 1,192,102
72,090 Other liabilities 94,669 53,012 734,911
Accruals and deferred
7,574 income
Provisions for
liabilities and charges 13,760 7,706 106,819
1,154 - deferred taxation 1,670 935 12,964
3,683 - other provisions 5,078 2,844 39,421
Subordinated liabilities
3,540 - undated loan capital 3,617 2,026 28,079
14,831 - dated loan capital 17,580 9,845 136,474
Minority interests
2,122 - equity 2,162 1,211 16,784
4,431 - non-equity 8,719 4,883 67,686
4,741 Called up share capital 5,481 3,069 42,549
47,024 Reserves 68,992 38,636 535,585
51,765 Shareholders' funds 74,473 41,705 578,134
758,605 Total liabilities 1,034,216 579,161 8,028,618
^ The figures for 2002 have been restated to reflect the adoption of Urgent
Issues Task Force Abstracts 37 'Purchases and sales of own shares', and 38
'Accounting for ESOP trusts' details of which are set out in Note 1 on page 17.
Consolidated Cash Flow Statement
Year ended 31Dec
Figures in US$m 2003 2002
Net cash inflow from operating activities 22,675 16,426
Dividends received from associated
undertakings 108 114
Returns on investments and servicing of
finance:
Interest paid on finance leases and similar
hire purchase contracts (37) (29)
Interest paid on subordinated loan capital (882) (870)
Dividends paid to minority interests - equity (514) (480)
- non-equity (392) (357)
Net cash (outflow) from returns on
investments and servicing of finance (1,825) (1,736)
Taxation paid (2,631) (1,371)
Capital expenditure and financial
investments:
Purchase of investment securities (218,196) (130,166)
Proceeds from sale and maturities of
investment securities 206,099 122,495
Purchase of tangible fixed assets (1,981) (1,723)
Proceeds from sale of tangible fixed assets 346 328
Purchase of intangible assets (87) -
Net cash (outflow) from capital
expenditure and financial investments (13,819) (9,066)
Acquisitions and disposals:
Net cash inflow/(outflow) from acquisition
of and increase in stake in subsidiary
undertakings (2,137) 264
Net cash inflow from disposal of subsidary
undertakings 556 -
Purchase of interest in associated
undertakings and other participating
interests (47) (649)
Proceeds from disposal of associated
undertakings and other participating
interests 3 341
Net cash (outflow) from acquisitions and
disposals (1,625) (44)
Equity dividends paid (4,242) (3,609)
Net cash inflow/(outflow) before
financing (1,359) 714
Financing:
Issue of ordinary share capital 845 337
Net purchases of own shares acquired for
market making purposes (138) -
Own shares acquired to meet share awards
and share option awards (301) (5)
Cash received on exercise of share options 181 64
Increase in non-equity minority interests 4,104 -
Decrease in non-equity minority interests (206) (50)
Subordinated loan capital issued 2,358 4,105
Subordinated loan capital repaid (1,464) (1,923)
Net cash inflow/(outflow) from financing 5,379 2,528
Increase/(decrease) in cash 4,020 3,242
Other Primary Financial Statements
Statement of total consolidated recognised gains and losses for the year ended
31Dec 31Dec
2003 2002
US$m US$m
Profit for the financial year attributable to 8,774 6,239
shareholders
Unrealised (deficit) on revaluation of investment
properties:
- subsidiaries (28) (22)
- associates (10) (1)
Unrealised (deficit) on revaluation of land and
buildings (excluding investment properties):
- subsidiaries (292) (297)
Exchange and other movements 5,318 3,781
Total recognised gains and losses for the year 13,762 9,700
Reconciliation of movements in consolidated shareholders' funds for the year
ended
31Dec 31Dec
2003 2002
US$m US$m^
Profit for the financial year attributable to
shareholders 8,774 6,239
Dividends (6,532) (5,001)
2,242 1,238
Other recognised gains and losses relating to the
year 4,988 3,461
New share capital subscribed, net of costs 862 337
Purchases of own shares acquired to meet share awards
and share option awards (301) (5)
Own shares released on vesting of share awards and
exercise of options 162 45
Amortisation of shares in restricted share plan 19 19
Net purchases and sales of own shares for market
making purposes (138) -
Total net change in shareholders' funds arising from
own shares adjustments (258) 59
Reserve in respect of obligations under CCF share option (41) (41)
New share capital issued in connection with the
acquisition of Household 13,405 -
Net reserve in respect of obligations under Household
share options 84 -
Net reserve in respect of the equity component of
Household 8.875 per cent Adjustable Conversion-Rate
Equity Security Units 3 -
Amounts arising on shares issued in lieu of
dividends 1,423 1,023
Net addition to shareholders' funds 22,708 6,077
Shareholders' funds at 1Jan as reported 52,406 46,388
Prior period adjustment (as explained in Note 1) (641) (700)
Shareholders' funds at 1Jan restated 51,765 45,688
Shareholders' funds at 31Dec 74,473 51,765
^The figures for 2002 have been restated to reflect the adoption of Urgent
Issues Task Force Abstracts 37 'Purchases and sales of own shares', and 38
'Accounting for ESOP trusts' details of which are set out in Note 1 on page 17.
Additional Information
1. Accounting policies
The accounting policies adopted are consistent with those described in the
Annual Report and Accounts 2002 except as noted below.
The presentation of shares in HSBC Holdings held by HSBC changed in 2003
following the adoption of the Urgent Issues Task Force ('UITF') Abstracts 37
'Purchases and sales of own shares' and 38 'Accounting for ESOP Trusts'. HSBC
Holdings shares held on HSBC's own account are now deducted from shareholders'
funds; previously they were included in equity shares and other assets. No gains
or losses are recognised on purchases, sales or cancellation of own shares. The
change in accounting policy has been reflected by way of a prior period
adjustment. The comparative figures have been restated as follows:
Consolidated profit and loss account
UITF Abstract 38 does not impact on the profit and loss account. Profit and loss
account comparative figures have not been restated upon the adoption of UITF
Abstract 37 since the effect is immaterial. The effect on the results for the
current period of the adoption of UITF Abstract 37 is to reduce profits by US$39
million arising from the increase in the market value of own shares held within
long term assurance assets attributable to policy holders.
Consolidated balance sheet
Other Assets Equity Own shares Profit and loss
Figures in US$m Shares held reserve account
At 31Dec02
Under previous policy 45,855^ 8,213 - 33,335
Adoption of UITF Abstract 37
and 38 (92) (549) (646) 5
Under new policy 45,763 7,664 (646) 33,340
^This excludes US$29 million of intangible assets, which have now been combined
with Goodwill on the face of the balance sheet.
2. Dividend
The Directors have declared a third interim dividend for 2003 of US$0.24 per
ordinary share. The dividend will be payable on 5 May 2004 to shareholders on
the Register at the close of business on 19 March 2004. The dividend will be
payable in cash, in US dollars, sterling or Hong Kong dollars, or a combination
of these currencies, at the exchange rates on 26 April 2004, with a scrip
dividend alternative. Particulars of these arrangements will be mailed to
shareholders on or about 30 March 2004, and elections will be required to be
made by 22 April 2004.
The dividend payable in cash on shares held through Euroclear France, the
settlement and central depositary system for Euronext Paris, will be converted
into euros at the exchange rate on 26 April 2004 and paid on 5 May 2004 through
CCF, HSBC's paying agent.
The dividend payable in cash to holders of American Depositary Shares (ADSs),
each of which represents five ordinary shares, will be paid in US dollars or as
a scrip dividend of new ADSs on 5 May 2004, or will be invested in additional
ADSs for participants in the dividend reinvestment plan operated by the
depositary.
The Company's shares will be quoted ex-dividend in London, Hong Kong and Bermuda
on 17 March 2004 and in Paris on 22 March 2004. The ADSs will be quoted
ex-dividend in New York on 17 March 2004.
3. Earnings and dividends per share
Year-ended Year-ended
Figures in US$ 31Dec03 31Dec02
Earnings per share (excluding goodwill
amortisation) 0.99 0.76
Basic earnings per share 0.84 0.67
Diluted earnings per share 0.83 0.66
Dividends per share 0.60 0.53
Dividend pay out ratio^ 61% 70%
^ Dividends per share expressed as a percentage of earnings per share(excluding
goodwill amortisation).
Basic earnings per ordinary share was calculated by dividing the earnings of
US$8,774 million by the weighted average number of ordinary shares, excluding
own shares held, outstanding in 2003, of 10,421 million shares (2002 earnings of
US$6,239 million and 9,339 million shares).
Diluted earnings per share was calculated by dividing the basic earnings, which
require no adjustment for the effects of dilutive potential ordinary shares, by
the weighted average number of ordinary shares outstanding, excluding own shares
held, plus the weighted average number of ordinary shares that would be issued
on ordinary conversion of dilutive potential ordinary shares (being share
options outstanding not yet exercised) in 2003 of 10,539 million shares (2002:
9,436 million shares).
The cash earnings per share was calculated by dividing the basic earnings, after
adding back the amortisation of goodwill, by the weighted average number of
ordinary shares outstanding, excluding own shares held.
4. Taxation
Year ended Year ended
Figures in US$m 31Dec03 31Dec02
UK corporation tax charge 547 684
Overseas taxation 2,590 1,217
Joint ventures 1 (6)
Associates 19 17
Current taxation 3,157 1,912
Deferred taxation (37) 622
Total charge for taxation 3,120 2,534
Effective tax rate 24.3% 26.3%
The Company and its subsidiary undertakings in the UK provided for UK
corporation tax at 30 per cent, the rate for the calendar year 2003 (2002: 30
per cent). Overseas tax included Hong Kong profits tax of US$483 million (2002:
US$408 million) provided at the rate of 17.5 per cent (2002: 16 per cent) on the
profits assessable in Hong Kong. Other overseas taxation was provided for in the
countries of operation at the appropriate rates of taxation.
At 31 December 2003, there were potential future tax benefits of US$963 million
(31 December 2002: US$885 million) in respect of trading losses, allowable
expenditure charged to the profit and loss account but not yet allowed for tax,
and capital losses which have not been recognised because recoverability of the
potential benefits is not considered certain.
Analysis of overall tax charge
Year ended Year ended
Figures in US$m 31Dec03 31Dec02
Taxation at UK corporate tax rate of 30.0% 3,845 2,895
Impact of differently taxed overseas profits
in principal locations (366) (472)
Tax free gains (17) (19)
Argentine losses (25) 87
Goodwill amortisation 476 261
Acquisition accounting adjustments (331) -
Prior period adjustments (230) (90)
Other items (232) (128)
Timing differences impact on deferred tax 37 (622)
Current tax charge 3,157 1,912
Accelerated capital allowances 1 (23)
Timing differences on lease income 187 90
Provisions for general bad debts (356) 29
Relief for losses (52) 125
Other short term timing differences 183 401
Deferred tax charge (37) 622
Overall tax charge 3,120 2,534
5. Subordinated liabilities
At At
Figures in US$m 31Dec03 31Dec02
Dated subordinated loan capital which is repayable:
- within 1 year 858 956
- between 1 and 2 years 718 862
- between 2 and 5 years 1,863 1,957
- over 5 years 14,141 11,056
17,580 14,831
6. Assets charged as security for liabilities
HSBC has pledged assets as security for liabilities included under the following
headings:
Amount of liability secured
At At
Figures in US$m 31Dec03 31Dec02
Deposits by banks 1,487 1,661
Customer accounts 3,709 4,204
Debt securities in issue 33,584 1,437
Other liabilities 3,122 2,884
41,902 10,186
The amount of assets pledged to secure these amounts is US$111,448 million (31
December 2002: US$44,457 million). This is mainly made up of items included in
'Debt securities' and 'Loans and advances to customers' of US$109,131 million
(31 December 2002: US$41,640 million).
This information is provided by RNS
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