3/4: Hang Seng 1H03 (1/3)

HSBC Holdings PLC 04 August 2003 HANG SENG BANK LIMITED 2003 INTERIM RESULTS - HIGHLIGHTS * Operating profit before provisions up 3.8 per cent to HK$6,073 million (HK$5,849 million for the first half of 2002). * Operating profit up 0.9 per cent to HK$5,617 million (HK$5,568 million for the first half of 2002). * Pre-tax profit down 0.8 per cent to HK$5,928 million (HK$5,978 million for the first half of 2002). * Attributable profit down 3.8 per cent to HK$5,022 million (HK$5,223 million for the first half of 2002). * Return on average shareholders' funds of 24.4 per cent (24.1 per cent for the first half of 2002). * Total assets up 1.6 per cent to HK$482.3 billion (HK$474.7 billion at 31 December 2002). * Earnings per share down 3.7 per cent to HK$2.63 (HK$2.73 per share for the first half of 2002). * First interim dividend per share maintained at HK$2.10 (HK$2.10 per share for the first half of 2002). * Total capital ratio of 14.0 per cent (14.2 per cent at 31 December 2002); tier 1 capital ratio of 12.3 per cent (11.9 per cent at 31 December 2002). * Cost:income ratio of 23.1 per cent (23.7 per cent for the first half of 2002). Note: Certain figures for 2002 have been restated to reflect the adoption of Hong Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on 'Income taxes', details of which are set out in Note 1 of the additional information. HANG SENG BANK ATTRIBUTABLE PROFIT DOWN 3.8 PER CENT TO HK$5,022 MILLION Hang Seng Bank Limited (the bank) and its subsidiary and associated companies (Hang Seng) reported an unaudited profit attributable to shareholders of HK$5,022 million for the first half of 2003, a decrease of 3.8 per cent compared with the first half of 2002 but an increase of 6.9 per cent compared with the second half of 2002. Earnings per share of HK$2.63 were 3.7 per cent lower than the first half of 2002. Operating profit before provisions rose by HK$224 million, or 3.8 per cent, to HK$6,073 million, attributable to the encouraging 20.9 per cent growth in other operating income, which outweighed the fall of 4.3 per cent in net interest income. Operating profit grew by 0.9 per cent to HK$5,617 million, after taking into account the net charge for bad and doubtful debts which rose by 62.3 per cent to HK$456 million. Profit before tax amounted to HK$5,928 million, which was HK$50 million, or 0.8 per cent, lower than the first half of 2002. This was affected by the deficit on property revaluation following an interim property revaluation exercise and lower profits from associated companies. The taxation charge was HK$91 million, or 12.1 per cent, higher, mainly due to the increase in the Hong Kong profits tax rate from 16.0 per cent to 17.5 per cent. Compared with the second half of 2002, operating profit before provisions and profit before tax increased by 12.3 per cent and 12.6 per cent respectively. Total assets were HK$7.6 billion, or 1.6 per cent, higher at HK$482.3 billion, compared with HK$474.7 billion at 31 December 2002. Advances to customers recorded a modest growth of 0.7 per cent during the first half of 2003, mainly in corporate lending and trade advances, while mortgages under the Government Home Ownership Scheme (GHOS) continued to fall. Customer deposits increased by 1.3 per cent from the end of 2002, with a further shift of time deposits to savings reflecting customers' preference for liquidity in the low interest rate environment. Investment in debt securities also rose, with funds re-deployed from lower yielding interbank placings. Shareholders' funds (excluding proposed dividends) declined by HK$61 million, or 0.2 per cent, to HK$36,715 million at 30 June 2003. This was the net result of the increase in retained profits, and the reductions in the long-term equity investment revaluation reserve due to the disposal of long-term equities and property revaluation reserves following the interim property revaluation exercise. The return on average total assets was 2.1 per cent (2.2 per cent for the first half of 2002). The return on average shareholders' funds was 24.4 per cent, compared with 24.1 per cent in the first half of 2002 and 21.9 per cent in the second half of 2002. The advances to deposits ratio fell to 54.0 per cent at 30 June 2003 compared with 54.3 per cent at 31 December 2002, the effect of a faster pace of growth in customer deposits than customer advances during the first half of 2003. Hang Seng continued to maintain a strong liquidity position, with the average liquidity ratio for the first half of 2003 (calculated in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance) at 45.0 per cent (43.4 per cent for the first half of 2002). Note: Certain figures for 2002 have been restated to reflect the adoption of Hong Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on 'Income taxes', details of which are set out in Note 1 of the additional information. The total capital ratio at 30 June 2003 was 14.0 per cent (14.2 per cent at 31 December 2002) and the tier 1 capital ratio was 12.3 per cent (11.9 per cent at 31 December 2002). The cost:income ratio fell by 60 basis points to 23.1 per cent, compared with 23.7 per cent for the first half of 2002. The Directors have declared a first interim dividend of HK$2.10 per share (HK$2.10 per share for the first half of 2002), which will be payable on Thursday, 4 September 2003 to shareholders on the Register of Shareholders as of Wednesday, 27 August 2003. The dividend as declared should not be taken as an indication of the level of profit or dividend for the full year. Acknowledging the increasing importance of dividend flows to our shareholders, the Board has decided to move to a programme of quarterly dividends, starting in January 2004. Further details will be announced in due course. Comment by David Eldon, Chairman "Despite the effects of the SARS outbreak and sluggish economy in the first half of 2003, Hang Seng achieved a creditable growth in operating profit of 0.9 per cent to HK$5,617 million, reflecting the resilience of the bank's core business. Attributable profit, however, fell by 3.8 per cent to HK$5,022 million due to a higher rate of profits tax and a further decline in the value of properties held. "The Hong Kong economy will remain difficult in the second half of 2003. Growth in major export markets continues to slacken, while domestically demand remains sluggish, unemployment high and asset prices weak. The banking sector will continue to face the challenges of subdued loan demand and narrowing margins. "Hang Seng will continue to build on its financial strength, clear customer focus and operating efficiency to create value for shareholders and customers. In particular, we will strengthen support to commercial customers in the Pearl River Delta." Contents The financial information in this news release is based on the unaudited consolidated accounts of Hang Seng Bank Limited and its subsidiary and associated companies for the six months ended 30 June 2003. Highlights of Results and Chairman's Comment Contents Consolidated Profit and Loss Account (Unaudited) Consolidated Balance Sheet (Unaudited) Consolidated Statement of Changes in Equity (Unaudited) Economic Profit (Unaudited) Consolidated Cash Flow Statement (Unaudited) Financial Review Net interest income Other operating income Operating expenses Provisions for bad and doubtful debts Profit on tangible fixed assets and long-term investments Taxation Earnings per share Dividends per share Cash and short-term funds Placings with banks maturing after one month Certificates of deposit Securities held for dealing purposes Advances to customers Provisions against advances to customers Non-performing advances to customers and provisions Overdue advances to customers Rescheduled advances to customers Repossessed assets Segmental analysis of advances to customers by geographical area Gross advances to customers by industry sector Long-term investments Other assets Current, savings and other deposit accounts Deposits from banks Other liabilities Shareholders' funds Capital resources management Liquidity ratio Reconciliation of cash flow statement Contingent liabilities, commitments and derivatives Segmental analysis Cross border claims Additional Information Accounting policies Comparative figures Property revaluation Market risk Foreign currency positions Material related-party transactions Statutory accounts Ultimate holding company Statement of compliance Register of shareholders News release Consolidated Profit and Loss Account (Unaudited) Half-year ended Half-year ended Half-year ended 30Jun03 30Jun02 31Dec02 Figures in HK$m restated ^ restated ^ Interest income 6,662 7,617 7,343 Interest expense (1,442) (2,164) (1,991) Net interest income 5,220 5,453 5,352 Other operating income 2,674 2,212 2,070 Operating income 7,894 7,665 7,422 Operating expenses (1,821) (1,816) (2,016) Operating profit before provisions 6,073 5,849 5,406 Provisions for bad and doubtful debts (456) (281) (290) Operating profit 5,617 5,568 5,116 Profit on tangible fixed assets and long-term investments 341 343 118 Net deficit on property revaluation (48) __ (36) Share of profits of associated companies 18 67 66 Profit on ordinary activities before tax 5,928 5,978 5,264 Tax on profit on ordinary activities (846) (755) (552) Profit on ordinary activities after tax 5,082 5,223 4,712 Minority interests (60) __ (15) Profit attributable to shareholders 5,022 5,223 4,697 Retained profits at beginning of period - as previously reported 19,440 19,499 20,756 - arising on change in accounting policies __ 254 249 - as restated 19,440 19,753 21,005 Transfer of depreciation to premises revaluation reserve 35 40 39 Realisation on disposal of premises and investment properties 23 2 7 Exchange adjustments (1) 2 1 Proposed dividends (4,015) (4,015) (6,309) Retained profits at end of period 20,504 21,005 19,440 Figures in HK$ Earnings per share 2.63 2.73 2.46 Dividends per share 2.10 2.10 3.30 ^ Certain figures for 2002 have been restated to reflect the adoption of Hong Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on ' Income taxes', details of which are set out in Note 1 of the additional information. Consolidated Balance Sheet (Unaudited) At 30Jun03 At 30Jun02 At 31Dec02 Figures in HK$m restated ^ restated ^ Assets Cash and short-term funds 67,309 88,438 77,784 Placings with banks maturing after one month 27,738 42,192 30,919 Certificates of deposit 29,625 26,822 30,120 Securities held for dealing purposes 1,047 1,209 1,198 Advances to customers 226,171 225,746 224,562 Amounts due from immediate holding company and fellow subsidiary companies 7,596 10,425 7,471 Long-term investments 99,077 54,918 79,169 Investments in associated companies 675 1,051 672 Tangible fixed assets 9,555 11,237 10,439 Other assets 13,515 8,640 12,320 482,308 470,678 474,654 Liabilities Current, savings and other deposit accounts 419,083 408,295 413,693 Deposits from banks 2,359 2,287 1,072 Amounts due to immediate holding company and fellow subsidiary companies 757 1,896 1,615 Other liabilities 18,850 14,584 14,745 441,049 427,062 431,125 Capital resources Minority interests 529 __ 444 Share capital 9,559 9,559 9,559 Reserves 27,156 30,042 27,217 Proposed dividends 4,015 4,015 6,309 Shareholders' funds 40,730 43,616 43,085 41,259 43,616 43,529 482,308 470,678 474,654 ^ Certain figures for 2002 have been restated to reflect the adoption of Hong Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on ' Income taxes', details of which are set out in Note 1 of the additional information. Consolidated Statement of Changes in Equity (Unaudited) At 30Jun03 At 30Jun02 At 31Dec02 Figures in HK$m restated ^ restated ^ Shareholders' funds at beginning of period 43,085 44,391 43,616 Unrealised deficit on revaluation of premises (432) __ (409) Deferred tax adjustment on revaluation of premises arising from adoption of HKSSAP 12 17 8 86 Unrealised deficit on revaluation of investment properties - bank and subsidiary companies (288) __ (270) - associated company __ __ (13) Long-term equity investment revaluation reserve - unrealised deficit on revaluation (48) (395) (474) - realisation on disposal (320) (277) (146) Deferred tax adjustment on revaluation of long-term equity investment arising from adoption of HKSSAP 12 4 17 12 Exchange adjustments (1) 2 1 Net losses recognised in shareholders' funds for the period (1,068) (645) (1,213) Profit attributable to shareholders for the period 5,022 5,223 4,697 Dividends paid (6,309) (5,353) (4,015) Shareholders' funds at end of period 40,730 43,616 43,085 ^ Certain figures for 2002 have been restated to reflect the adoption of Hong Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on ' Income taxes', details of which are set out in Note 1 of the additional information. Economic Profit (Unaudited) Economic profit is calculated from profit after tax, adjusted for non-cash items, and takes into account the cost of capital invested by Hang Seng's shareholders. For the first half of 2003, the return on invested capital was HK$5,110 million, or 33.2 per cent. The economic profit of HK$2,802 million represented a return of 18.2 per cent to shareholders in excess of the 15.0 per cent benchmark cost of capital invested by shareholders. The benchmark cost of capital was, in management's view, above the true cost of capital under the current low interest rate environment and was applied to ensure consistency with earlier periods. The trend of economic profits in the analysis indicates that Hang Seng continues to create value for its shareholders. Half-year ended Half-year ended Half-year ended 30Jun03 30Jun02 31Dec02 restated ^ restated ^ HK$m % HK$m % HK$m % Average invested capital 31,067 31,513 32,372 Return on invested capital ^ ^ 5,110 33.2 5,268 33.7 4,775 29.3 Cost of capital (2,308) (15.0) (2,341) (15.0) (2,444) (15.0) Economic profit 2,802 18.2 2,927 18.7 2,331 14.3 ^ Certain figures for 2002 have been restated to reflect the adoption of Hong Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on ' Income taxes', details of which are set out in Note 1 of the additional information. ^ ^ Return on invested capital represents profit after tax adjusted for non-cash items. Consolidated Cash Flow Statement (Unaudited) Half-year ended Half-year ended 30Jun03 30Jun02 Figures in HK$m restated ^ Net cash inflow/(outflow) from operating activities 10,113 (8,896) Cash flows from investing activities Net cash outflow from investment in an associated company __ (35) Purchase of long-term investments (58,294) (38,148) Proceeds from sale or redemption of long-term investments 41,874 27,324 Purchase of tangible fixed assets (84) (92) Proceeds from sale of tangible fixed assets 36 2 Dividends received from an associated company 12 21 Interest received from long-term investments 1,249 937 Dividend received from long-term investments 37 46 Net cash outflow from investing activities (15,170) (9,945) Cash flows from financing activities Dividends paid (6,309) (5,353) Cash outflow from financing activities (6,309) (5,353) Decrease in cash and cash equivalents (11,366) (24,194) Cash and cash equivalents at beginning of period 76,817 111,206 Effect of foreign exchange rate changes 1,729 2,500 Cash and cash equivalents at end of period 67,180 89,512 Note: The presentation of the consolidated cash flow statements has been regrouped to comply with the Hong Kong Statement of Standard Accounting Practice 15 (HKSSAP 15) on 'Cash Flow Statement'. The comparative figures have been reclassified to conform with the current period's presentation. For the purpose of the cash flow statement, cash and cash equivalents comprise cash and balances with banks maturing within one month, and treasury bills and certificates of deposit with less than three months' maturity from the date of acquisition. ^ Certain figures for 2002 have been restated to reflect the adoption of Hong Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on ' Income taxes', details of which are set out in Note 1 of the additional information. Financial Review Net interest income Half-year ended Half-year ended Half-year ended Figures in HK$m 30Jun03 30Jun02 31Dec02 Net interest income 5,220 5,453 5,352 Average interest-earning assets 437,045 442,284 437,229 Net interest spread 2.33 % 2.38 % 2.33 % Net interest margin 2.41 % 2.49 % 2.43 % Net interest income decreased by HK$233 million, or 4.3 per cent, compared with the first half of 2002. Average interest-earning assets fell by HK$5.2 billion, or 1.2 per cent. Net interest margin narrowed by 8 basis points to 2.41 per cent with a reduction in net interest spread of 5 basis points to 2.33 per cent and a fall in contribution from net free funds of 3 basis points to 0.08 per cent. Net interest income was affected by the fall in the average mortgage portfolio yield, contraction in the GHOS mortgages portfolio together with the narrowing of time deposit spread. The above factors resulted in a reduction of 9 basis points in the net interest spread. This was partly offset by the growth in savings and current accounts and the expansion of the fixed rate debt securities portfolio which continued to benefit from lower interest rates. The favourable impact on net interest spread was about 4 basis points. The contribution from net free funds was affected by further decline in market interest rates and fell by 3 basis points. Compared with the second half of 2002, net interest income reduced by HK$132 million, or 2.5 per cent, with a 2 basis point fall in net interest margin to 2.41 per cent. Net interest spread was maintained at the same level of 2.33 per cent. The contribution from net free funds decreased by 2 basis points to 0.08 per cent. The average yield on the residential mortgage portfolio, excluding GHOS mortgages and staff loans, fell to 170 basis points below BLR for the first half of 2003, before accounting for the effect of cash incentive payments. This compared with 138 basis points and 160 basis points below BLR in the first and second halves of 2002 respectively. Cash incentive payments on new mortgage loans of HK$45 million have been written off against interest income in the first half of 2003 compared with HK$44 million and HK$61 million in the first and second halves of 2002 respectively. Other operating income Half-year ended Half-year ended Half-year ended Figures in HK$m 30Jun03 30Jun02 31Dec02 Dividend income - listed investments 35 44 38 - unlisted investments 2 9 8 37 53 46 Fees and commissions - securities/stockbroking 124 130 114 - retail investment funds 685 472 228 - insurance 45 185 158 - account services 111 129 126 - remittance 63 62 66 - cards 258 292 306 - credit facilities 113 146 124 - import/export 105 99 118 - other 96 75 72 Fees and commissions receivable 1,600 1,590 1,312 Fees and commissions payable (159) (156) (141) 1,441 1,434 1,171 Dealing profits - foreign exchange 352 280 324 - securities and other trading activities 9 10 6 361 290 330 Insurance underwriting 538 125 208 Rental income from investment properties 104 113 112 Other 193 197 203 2,674 2,212 2,070 Other operating income recorded strong growth of HK$462 million, or 20.9 per cent, and contributed 33.9 per cent of total operating income, compared with 28.9 per cent for the first half of 2002. With a 48.8 per cent growth in sales of retail investment funds to HK$22.6 billion, total income from the distribution and management of retail investment funds rose, including the popular Hang Seng Investment Series of capital guaranteed funds and index funds, by 45.1 per cent to HK$685 million for the first half of 2003. Insurance fees and underwriting profit together grew by 88.1 per cent compared with the first half of 2002, reflecting rapid growth in individual life insurance premiums and the embedded value of the long-term insurance business. (The decrease in insurance fees and commissions and a corresponding increase in insurance underwriting profit was mainly due to the regrouping of commissions received from Hang Seng Life Limited (HSLL) to underwriting profit after HSLL became a subsidiary of the bank in November 2002.) Card services income decreased by 11.6 per cent, affected by the outbreak of SARS in the second quarter of 2003. At the end of June 2003, total cards in issue under the Hang Seng brand was maintained at 940,000. Fee income from credit facilities fell while trade services income improved, benefiting from the improvement in external trade. Dealing profits recorded strong growth of 24.5 per cent, mainly in foreign exchange income. Compared with the second half of 2002, other operating income grew by 29.2 per cent, benefiting from the substantial growth of 200.4 per cent in income from retail investment funds and the 59.3 per cent increase in income from insurance including fees and underwriting profit. Analysis of income from wealth management business included in other operating income Half-year ended Half-year ended Half-year ended Figures in HK$m 30Jun03 30Jun02 31Dec02 Investment income - Retail investment funds 685 472 228 - Securities/stockbroking 124 130 114 - Margin trading/private banking 65 36 32 874 638 374 Insurance income - Life (including embedded value) ^ 365 263 299 - General and others 158 117 140 523 380 439 Total 1,397 1,018 813 ^ The embedded value and underwriting profit of HSLL for the first and second halves of 2002 which were reported as share of profits of associated companies instead of other operating income were re-grouped under this heading to conform with the current period presentation for the purpose of comparison in this analysis. Income from wealth management comprising income from investment and insurance grew strongly by 37.2 per cent to HK$1,397 million for the first half of 2003, representing 52.2 per cent of total other operating income. Operating expenses Half-year ended Half-year ended Half-year ended Figures in HK$m 30Jun03 30Jun02 31Dec02 Staff costs - salaries and other costs 908 915 952 - retirement benefit costs 91 98 94 999 1,013 1,046 Depreciation 171 174 178 Premises and equipment - rental expenses 88 84 87 - other 280 282 359 368 366 446 Other operating expenses 283 263 346 1,821 1,816 2,016 Cost:income ratio 23.1 % 23.7 % 27.2 % Staff numbers (full-time equivalent) 7,174 7,321 7,279 Operating expenses increased marginally by HK$5 million, or 0.3 per cent, to HK$1,821 million compared with the same period last year. Staff costs decreased by HK$14 million, or 1.4 per cent, attributable to the reduction of 147 staff members on a full-time equivalent basis. Premises and equipment expenses were maintained at the same level. Other operating expenses increased by HK$20 million, or 7.6 per cent, mainly due to the increase in processing charges. Compared with the second half of 2002, operating expenses fell by 9.7 per cent, with reductions in staff costs, IT expenditure under premises and equipment costs and marketing expenditure under other operating expenses. The cost:income ratio for the first half of 2003 was 23.1 per cent, 60 basis points lower than the same period last year and 4.1 percentage points lower than the second half of 2002. Provisions for bad and doubtful debts Half-year ended Half-year ended Half-year ended Figures in HK$m 30Jun03 30Jun02 31Dec02 Net charge/(release) for bad and doubtful debts Advances to customers Specific provisions - new provisions 666 528 703 - releases (182) (222) (63) - recoveries (22) (25) (20) 462 281 620 General provisions (6) __ (330) Net charge to profit and loss account 456 281 290 The net charge for bad and doubtful debts amounted to HK$456 million, an increase of HK$175 million, or 62.3 per cent, over the same period last year. New and additional specific provisions rose by HK$138 million, or 26.1 per cent, to HK$666 million, reflecting higher provisions on residential mortgages and credit card advances due to the rise in unemployment and personal bankruptcies and the fall in value of property collateral. Releases and recoveries were reduced by HK$43 million, or 17.4 per cent, to HK$204 million, reflecting the decrease in recoveries from residential mortgages and taxi loans. Following the semi-annual review of the general provisioning level at 30 June 2003, a small release of HK$6 million was made. Compared with the second half of 2002, the net charge for bad and doubtful debts rose by HK$166 million, affected by the release of HK$330 million in general provisions at the end of 2002. Specific provisions, however, decreased by HK$158 million, or 25.5 per cent, to HK$462 million. New and additional specific provisions decreased slightly, with the increase in provisions on residential mortgages more than offset by the reduction in credit card and corporate advances. Higher releases and recoveries were recorded, mainly from commercial banking customers. Profit on tangible fixed assets and long-term investments Half-year ended Half-year ended Half-year ended 30Jun03 30Jun02 31Dec02 Figures in HK$m Profit on disposal of long-term equity investments - realisation of amounts previously recognised in revaluation reserves at beginning of period 358 316 212 - loss arising in current period (38) (39) (66) 320 277 146 Profit less loss on disposal of held-to-maturity debt securities 40 75 (29) Profit less loss on disposal of tangible fixed assets 7 __ 1 Provision for impairment of long-term investments (26) (9) __ 341 343 118 Profit on disposal of tangible fixed assets and long-term investments was maintained at the same level as the corresponding period last year. The increase in profits on disposal of listed equities was partly offset by the reduction in profits on the disposal of debt securities and the impairment loss provision made for listed equity investments. Taxation Taxation in the consolidated profit and loss account represents: Half-year ended Half-year ended Half-year ended 30Jun03 30Jun02 31Dec02 Figures in HK$m restated ^ restated ^ Current tax - provision for Hong Kong profits tax Tax for the period 839 777 524 Benefit of previously unrecognised tax losses (3) (7) (7) Over-provision in respect of prior years __ (25) (34) 836 745 483 Current tax- taxation outside Hong Kong Tax for the period 2 3 3 2 3 3 Deferred tax Origination and reversal of temporary differences 31 (3) 56 Effect of increase in tax rate on deferred tax balances (9) __ __ Benefit of previously unrecognised tax losses now recognised (17) __ __ 5 (3) 56 Share of associated companies' taxation 10 10 3 Total charge for taxation 846 755 552 Effective tax rate 14.3 % 12.6 % 10.5 % ^ Certain figures for 2002 have been restated to reflect the adoption of Hong Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on ' Income taxes', details of which are set out in Note 1 of the additional information. The current tax was provided for based on the estimated assessable profit for the first half of 2003 and, for the bank and subsidiaries operating in the Hong Kong SAR, using the Hong Kong profits tax rate of 17.5 per cent (16.0 per cent for 2002). For subsidiaries and branches operating in other jurisdictions, the appropriate tax rates prevailing in the countries in which they operate are used. The effective tax rate for the first half of 2003 increased to 14.3 per cent from 12.6 per cent for the first half of 2002, mainly reflecting the 1.5 percentage points increase in the Hong Kong profits tax rate. Following the adoption of the HKSSAP 12 which became effective on 1 January 2003, deferred tax assets and liabilities arise from deductible and taxable temporary differences between the carrying amounts of assets and liabilities for financial reporting purpose and the tax bases respectively. Deferred tax assets also arise from unused tax losses and unused tax credits. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. The carrying amount of deferred tax is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilised. The impact of the change in accounting policy on deferred tax following the adoption of the HKSSAP 12 in the current period profit and loss account and reserves and the related prior year adjustment are set out in Note 1 of additional information on page 50. Earnings per share The calculation of earnings per share for the first half of 2003 is based on earnings of HK$5,022 million (HK$5,223 million in the first half of 2002) and on the weighted average number of ordinary shares in issue of 1,911,842,736 shares (unchanged from the first half of 2002). Dividends per share Half-year ended Half-year ended Half-year ended 30Jun03 30Jun02 31Dec02 HK$ HK$m HK$ HK$m HK$ HK$m per share per share per share First interim 2.10 4,015 2.10 4,015 __ __ Second interim __ __ __ __ 2.80 5,353 Special interim __ __ __ __ 0.50 956 2.10 4,015 2.10 4,015 3.30 6,309 Cash and short-term funds Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02 Cash in hand and balances with banks and other financial institutions 3,544 3,873 3,518 Money at call and placings with banks maturing within one month 58,726 79,846 67,170 Treasury bills 5,039 4,719 7,096 67,309 88,438 77,784 Remaining maturity of treasury bills: - within three months 3,720 3,520 5,777 - one year or less but over three months 1,319 1,199 1,319 5,039 4,719 7,096 Placings with banks maturing after one month Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02 Remaining maturity: - three months or less but over one month 19,638 32,375 27,996 - one year or less but over three months 8,100 9,817 2,923 27,738 42,192 30,919 Certificates of deposit Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02 Remaining maturity: - three months or less but not repayable on demand 2,952 3,242 1,772 - one year or less but over three months 5,915 5,542 7,312 - five years or less but over one year 20,758 17,937 21,036 - over five years __ 101 __ 29,625 26,822 30,120 This information is provided by RNS The company news service from the London Stock Exchange

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