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HSBC 2007 Interim Results Presentation to Investors and Analysts

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1. HSBC Holdings plc 2007 Interim Results Presentation to investors and analysts 2. Forward-looking statements This presentation and subsequent discussion may contain…
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  • 1. HSBC Holdings plc 2007 Interim Results Presentation to investors and analysts
  • 2. Forward-looking statements This presentation and subsequent discussion may contain certain forward- looking statements with respect to the financial condition, results of operations and business of the Group. These forward-looking statements represent the Group’s expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Additional detailed information concerning important factors that could cause actual results to differ materially is available in our Annual Report. 2
  • 3. 2007 interim results Key financial results Revenue Costs Up 16% ex-dilution gains, or 20% US$18.6bn up 15% to US$38.5bn as reported Loan impairment charges Profit before tax US$6.3bn up 63%; Up 5% ex-dilution gains, or 13% to US$14.2bn as reported down 5% from 2H06 Attributable profit EPS Up 13% ex-dilution gains, or 25% Up 10% ex-dilution gains, or 22% to US$10.9bn as reported to US$0.95 as reported 3
  • 4. 2007 interim results Regional highlights Pre-eminent in Asia Strengthening regional business in Latin America PBT up 30% ex-dilution gains, or 55% to US$6.7bn as reported PBT US$1.0bn up 16% Progress in North America Challenges absorbed in Europe PBT down 35% to US$2.4bn from 1H06 and up 163% from 2H06 PBT up 13% to US$4.1bn 4
  • 5. 2007 interim results Customer group highlights Challenges in Core strength in Personal Financial Services Commercial Banking PBT down 20% to US$4.7bn PBT US$3.4bn up 20% Record profits at Corporate, Leveraging the Group in Investment Banking and Private Banking Markets PBT up 30% to US$0.8bn PBT up 32% to US$4.2bn and positive jaws of over 6 percentage points 5
  • 6. Douglas Flint Financial performance – first half, 2007
  • 7. 2007 interim results % Change US$bn 1H06 2H06 1H07 vs 1H06 vs 2H06 Net operating income before loan 32.2 33.2 38.5 + 19.6 + 16.0 impairment charges Loan impairment charges (3.9) (6.7) (6.3) + 63.1 -5.0 Net operating income 28.3 26.5 32.2 + 13.6 + 21.3 Total operating expenses (16.1) (17.4) (18.6) + 15.3 + 6.9 Profit before tax 12.5 9.6 14.2 + 13.1 + 48.0 Profit attributable to shareholders 8.7 7.1 10.9 + 24.8 + 54.3 Earnings per share (US$) 0.78 0.62 0.95 + 21.8 + 53.2 Dividends per share (US$), 0.30 0.51 0.34 + 13.3 in respect of half year Tier 1 ratio (%) 9.4 9.4 9.3 7
  • 8. 2007 interim results Noteworthy items Gains arising from dilution of interest in Chinese associates, US$1,076m Tax rate, at 18.7%, driven by geographical mix and tax free disposals Gain on sale of 8 Canada Square expected to be recognised in 2H07, US$1.3bn 8
  • 9. 2007 interim results Adjusted for dilution gains % Change 1H07 1 US$bn 1H06 2H06 vs 1H06 vs 2H06 Net operating income before loan 32.2 33.2 37.4 + 16.3 + 12.8 impairment charges Loan impairment charges (3.9) (6.7) (6.3) + 63.1 -5.0 Net operating income 28.3 26.5 31.1 + 9.8 + 17.3 Total operating expenses (16.1) (17.4) (18.6) + 15.3 + 6.9 Profit before tax 12.5 9.6 13.1 + 4.5 + 36.7 Profit attributable to shareholders 8.7 7.1 9.9 + 13.3 + 40.1 Earnings per share (US$) 0.78 0.62 0.86 + 10.3 + 38.7 Dividends per share (US$), 0.30 0.51 0.34 + 13.3 in respect of half year Tier 1 ratio (%) 9.4 9.4 9.3 (1) Excludes gains arising from dilution of interest in Chinese associates 9
  • 10. Underlying growth Excluding dilution gains, 1H07 vs 1H06 and 2H06 Restated Rest of Acquisitions/Dilution % Change ex Dilution Gains US$bn 1H06 2H06 1H07 Disposals Gain HSBC v 1H06 v 2H06 Net operating income before loan impairment 33.3 33.8 38.5 0.4 1.1 37.0 + 11.3 + 9.7 charges Loan impairment (4.0) (6.7) (6.3) (0.1) (6.2) + 57.4 -6.9 charges Net operating Income 29.3 27.1 32.2 0.3 1.1 30.8 + 5.0 + 13.8 Total operating (16.8) (17.8) (18.6) (0.2) (18.4) + 9.7 + 3.6 expenses Profit before tax 12.9 9.7 14.2 0.1 1.1 13.0 + 1.0 + 33.4 (1) At constant currency (2) Gains arising from dilution of interest in Chinese associates 10
  • 11. Asia Growth in profit before tax (%)1 Business mix Profit before tax, 1H071 1H07 v 1H06 1H07 v 2H06 4% 40% 38 32% 38 30 30 PFS CMB US$5.6bn 25 77 25 24% Customer lending, 30 June 2007 36 39 CIBM 39 36 4% 1% 26% 40% PB 27 97 97 27 US$178.1bn Other 29% Total 30 27 27 30 (1) Excludes gains arising from dilution of interest % % in Chinese associates 0 20 40 60 0 20 40 60 80 100 11
  • 12. Middle East Business mix Growth in profit before tax (%) Profit before tax, 1H07 1H07 v 1H06 1H07 v 2H06 7% 21% PFS -22 67 -22 -21 67 36% CMB US$0.6bn 36% 19 29 29 Other 19 Customer lending, 30 June 2007 CIBM 77 1111 24% 26% PB 0 0 0 0 US$17.0bn 50% Total 8 27 27 8 % % -30 -20 -10 0 10 20 30 0 20 40 60 12
  • 13. Latin America Business mix Growth in profit before tax (%) Profit before tax, 1H07 1H07 v 1H06 1H07 v 2H06 1% 25% 39% -13 -13 PFS 10 10 CMB US$1bn 64 49 64 49 35% Customer lending, 30 June 2007 CIBM -9 -9 28 28 21% 48% -9 PB 233 233 -9 31% US$40.6bn Total 15 16 15 16 % % -20 0 20 40 60 80 -10 0 10 20 30 40 50 13
  • 14. North America Business mix Growth in profit before tax (%) Profit before tax, 1H07 1H07 v 1H06 1H07 v 2H06 2% 18% PFS -51 -51 298 298 20% 61% CMB US$2.4bn -3 33 -3 -1% Other Customer lending, 30 June 2007 25 CIBM 25 489 489 8% 2% 12% PB -21 58 58 -21 US$281.3bn 78% Total -35 -35 163 163 % % -60 -20 20 60 -30 -10 10 30 50 14
  • 15. Europe Business mix Growth in profit before tax (%) Profit before tax, 1H07 1H07 v 1H06 1H07 v 2H06 12% 1% 15% of which UK US$2.4bn -39 -34 PFS -34 -39 31% 41% US$4.1bn 7 15 CMB 15 7 Customer lending, 30 June 2007 39 52 CIBM 6% 39 52 35% 39% PB 18 27 18 27 US$428.1bn 20% Total 20 13 13 20 % % -60 -20 20 60 -50 -30 -10 10 30 50 15
  • 16. Personal Financial Services Regional mix Growth in profit before tax (%) Profit before tax, 1H07 1H07 v 1H06 1H07 v 2H06 31% 48% 30 38 Asia 38 30 US$4.7bn 13% Latin 8% -13 -13 10 10 America Customer lending, 30 June 2007 -39 -34 Europe -39 -34 15% 4% 48% North -51 298 298 -51 America US$460.2bn 33% 33 33 Total -20 -20 % % -50 -30 -10 10 30 50 -60 -30 0 30 60 16
  • 17. Commercial Banking Regional mix Growth in profit before tax (%) Profit before tax, 1H07 1H07 v 1H06 1H07 v 2H06 14% 40% 25 7 25 7 Asia 36% US$3.4bn Latin 49 10% 64 49 64 America Customer lending, 30 June 2007 15 77 Europe 15 19% 27% North 3 -3 3 -3 America 7% US$185.9bn 47% Total 20 99 20 % % 0 20 40 60 -10 30 70 17
  • 18. Corporate, Investment Banking and Markets Regional mix Growth in profit before tax (%) Profit before tax, 1H07 1H07 v 1H06 1H07 v 2H06 11% 36 Asia 36 39 39 43% 40% Latin US$4.2bn -9 -9 28 28 America 6% Management view of total operating income Europe 39 39 52 52 Other 10% Principal Investments 9% North Global Markets Group Investment 25 42% 25 489 489 America Businesses 7% Balance Sheet Management 6% Total 56 32 32 56 US$8.5bn Global Banking 26% % % 0 20 40 60 80 -10 10 30 50 18
  • 19. Private Banking Regional mix Growth in profit before tax (%) Profit before tax, 1H07 1H07 v 1H06 1H07 v 2H06 8% 28% 27 Asia 27 97 97 1% US$0.8bn 63% Latin -9 233 -9 233 America Customer lending, 30 June 2007 14% 19% Europe 27 18 27 18 North -21 58 58 -21 America US$37.9bn 67% Total 27 30 30 27 % % -30 10 50 90 0 20 40 60 80 19
  • 20. Credit quality has remained broadly stable Loan impairment US$ millions As a % of average advances (annualised) charges/(net recoveries) 1H06 2H06 1H07 1H06 2H06 1H07 Personal Financial Services Europe 847 991 1,127 1.37 1.41 1.53 Hong Kong 55 64 74 0.32 0.36 0.40 Rest of Asia-Pacific 289 256 252 2.07 1.75 1.68 North America 2,117 4,566 3,774 2.01 4.13 3.46 of which US mortgage services 338 1,833 760 1.39 7.16 3.25 Latin America 401 363 701 8.14 5.62 8.01 Total 3,709 6,240 5,928 1.82 2.84 2.63 20
  • 21. Credit quality has remained broadly stable US$ millions As a % of average advances (annualised) Loan impairment charges/(net recoveries) 1H06 2H06 1H07 1H06 2H06 1H07 Commercial Banking Europe 145 241 256 0.43 0.64 0.61 Hong Kong 38 31 1 0.37 0.27 0.01 Rest of Asia-Pacific (19) (10) 54 (0.20) (0.10) 0.46 North America 31 43 46 0.20 0.25 0.27 Latin America 65 132 74 1.92 2.98 1.25 Total 260 437 431 0.36 0.54 0.49 Loan impairment US$ millions As a % of average advances (annualised) charges/(net recoveries) 1H06 2H06 1H07 1H06 2H06 1H07 Corporate, Investment Banking and (109) (10) (24) (0.12) (0.01) -0.02 Markets Private Banking 29 4 9 0.20 0.02 0.05 21
  • 22. Capital strength – HSBC’s hallmark Consistently strong Tier 1 capital ratios (%) % 100 10% 9.4% 9.3% 9.0% 8.9% % 90 9% 16.0% 19.7% 21.7% 21.3% % 8% 80 % 7% 70 6% % 60 5% % 50 84.0% 4% % 40 80.3% 78.7% 78.3% 3% % 30 2% 20 1% 10 0 31 Dec 2004 31 Dec 2005 31 Dec 2006 30 June 2007 Shareholders’ funds less deductions Other Tier 1 capital 22
  • 23. Improving capital efficiency US$bn % 140 20 US$119bn 18 120 16 US$102bn 100 US$93bn 14 12 80 10 60 8 6 40 4 20 2 0 0 1H05 2H05 1H06 2H06 1H07 Return on average invested capital (%, RHS) Tier 1 ratio (%, RHS) Average invested capital employed (US$bn) 23
  • 24. Michael Geoghegan Business achievements – first half, 2007
  • 25. Rebalancing towards developing markets Composition of group profit before tax 13,083 13,500 12,517 10,640 10,326 11,250 49.6% 9,569 9,000 58.6% US$m 57.8% 44.9% 59.2% 6,750 4,500 50.4% 55.1% 41.4% 42.2% 2,250 40.8% 0 1H07 1 1H05 2H05 1H06 2H06 Asia and Latin America Europe and North America (1) Excludes gains arising from dilution of interest in Chinese associates 25
  • 26. Developing countries – world’s largest and most profitable international emerging markets bank • Pre-eminent international bank in Asia +33% • Strength in Greater China Profit before tax +27% 6,000 • Leveraging the customer group Asia 5,000 US$m connections 4,000 • Significant growth in India, Singapore, 3,000 4,9921 Malaysia, UAE, Egypt, Brazil and Turkey 3,922 2,000 3,752 • Building regional business in Latin 1,000 America 0 1H06 2H06 1H07 Profit before tax Asia excluding Middle East (1) Excluding gains arising from dilution of interest in Chinese associates Middle East +8% Latin America (including Saudi Arabia) +16% US$m US$m +27% +15% 650 1,200 1,000 520 800 390 600 606 559 1,000 260 476 870 865 400 130 200 0 0 1H06 2H06 1H07 1H06 2H06 1H07 26
  • 27. Developed countries – a diversified Group • Challenging environment in UK PFS Profit before tax • Strong performance in CMB, CIBM North America +163% and PB in Europe US$m 3,741 3,741 • Success in the US direct proposition 4,000 -35% 3,000 • Expanded CMB network in the US 2,435 2,435 2,000 • Strong growth in Canada 927 927 1,000 • Good progress in managing the US 0 1H06 2H06 1H07 mortgage services portfolio Europe +13% • Satisfactory performance from US US$m +20% consumer finance, ex mortgage 5,000 4,050 services 3,600 4,000 3,374 1,644 3,000 1,253 930 2,000 2,444 2,406 2,347 1,000 0 1H06 2H06 1H07 UK Rest of Europe 27
  • 28. US Consumer Finance – making good progress US Mortgage Services • Reduced portfolio • Stopped underwriting sub-prime mortgages from correspondents • Centralised collection activities • Developed sophisticated calling programme – over 19,000 customers contacted in last 6 months Other results • Consumer finance, excluding mortgage services – profit before tax of US$1.6bn 28
  • 29. US Mortgage Services – loan portfolio 2nd Liens US$bn Total Portfolio ARMs Stated Income At 31 December 2006 49.5 27.1 10.1 11.8 -16% -30% -18% -20% At 30 June 2007 41.4 19.0 8.2 9.4 29
  • 30. Corporate, Investment Banking and Markets – success in emerging markets-led and financing-focused strategy • Benefit from geographic network and Profit before tax strengthened product capabilities +32% US$m • Asia and LatAm contributed 49% of CIBM +56% profit 4,500 4,158 • Global Markets success broadly based 4,000 3,500 • Global Banking strength in financing and 1,674 3,144 3,000 payments and cash management 2,662 1,202 2,500 • Group Investments Businesses continued 436 1,102 2,000 253 expansion in emerging markets 349 74 1,500 277 198 Growth in revenue1, 1H07 v 1H06 1,000 1,795 + 159% 1,316 1,288 100 500 + 42% 0 % 50 + 26% + 26% 1H06 2H06 1H07 + 21% + 11% + 7% 0 Asia Latin Am erica North Am erica Europe Global Global Global Global BSM Group Group Principal Principal Other Total Other Total Markets Banking Investment Investment Markets Banking Investment Investment Businesses Businesses (1) Management view of total operating income 30
  • 31. CIBM – CIBM – key transactions major awards May 2007 April 2007 April 2007 Transaction value GBP1.8bn GBP3.4bn Regional Awards Euromoney Islamic Finance Awards Best Risk US$1.2bn • Best Risk Management in Asia • Best International Islamic Bank • Best Foreign Exchange in Asia Management House • Best Project Finance in Asia • Best Sukuk House • Best Risk Management in Middle East • Best Cash Management in the Middle East Bookrunner and Bookrunner and Bookrunner and • Best Project Finance House • Best Cash Management in North America • Best Project Finance Deal – Rabigh Refinery and Country Awards Mandated Lead Mandated Lead Mandated Lead Petrochemical Project • Best Risk Management in Asia • Best Bank in Hong Kong Arranger Arranger Arranger • Best Sukuk Deal – Khazanah Nasional Berhad • Best Debt House in Hong Kong • Best Debt House in Saudi Arabia • Best M&A House in Saudi Arabia • Best Bank in Honduras May 2007 Pending June 2007 US$758 million Foreign Exchange Poll 2007 SGD650 million Singapore Transaction value Ranked #1 Telecommunications • Cross-border deal of the year 2007 Best Cash US$11.6bn • Who’s best where? – Asia and Middle East – Arcelor-Mittal IB – M&A-Public Limited Management House • Best for currencies – Hong Kong dollar Bookrunner and Offer • Best for currencies – Chinese Yuan • Financing package of the year 2007 Acquisition of a 30% Mandated Lead – BAA-Ferrovial • Best for currencies – Middle Eastern currencies stake in Warid Telecom Adviser/ Sole • Best for currencies – Asian currencies Arranger (Pvt) Limited Provider • Best for currencies – $/£ Adviser 31
  • 32. Private Banking – benefiting from Group connections • Client assets under management Profit before tax +30% increased by US$m 11 % to US$370 billion +27% 900 • Cross-referral business – over 780 800 US$1.5bn of client assets referred 700 into Private Banking 614 600 600 • Extended footprint in Canada and Panama 500 400 300 200 100 0 1H06 2H06 1H07 32
  • 33. Insurance – developing our income stream PBT by region, 1H07 • Insurance contributed US$1.6bn* or Latin America 16% Europe 30% 11% to group profit • Three transactions initiated: North America acquired remaining 50% of life & 21% general insurer Erisa in France; J/V Asia 33% with Aviva in UK and plan to create J/V with Canara Bank and OBC in PBT by source of business, 1H07 India Other Incl Ping An 17% • Saudi Takaful IPO 7x over subscribed Manufacturing 50% • Established HSBC Insurance brand Distribution – with high quality ‘brand’ 33% experience Note: The results of Insurance are reported within customer groups, primarily PFS * Excludes the effect of the $485m Ping An dilution gain 33
  • 34. Joining up the company (a) HSBC Premier • Launched simultaneously in 35 markets in May 2007 • Comprehensive and consistent proposition to mass affluent customers across many markets • Over 250 International HSBC Premier centres worldwide • Since launch in May 2007 – 75,000 new customers at 30 June 07 • Targeted to attract 4 million new HSBC Premier customers 34
  • 35. Joining up the company (b) Commercial Banking – strengthening international links • Strategy: to be the best bank Profit before tax +20% for small business and the leading US$m international business bank 4,000 +9% • Expanded customer base to 3,422 3,500 3,135 2.7m with emphasis on growth 3,000 2,862 in emerging markets 1,236 1,158 2,500 • Global links cross-referral system 1,076 2,000 generated 37% more referrals 477 493 • Direct channel usage increased 464 352 1,500 214 237 helped by enhanced business 1,000 internet banking platform 1,357 1,270 1,085 500 0 1H06 2H06 1H07 Asia Latin America North America Europe 35
  • 36. Joining up the company (c) The benefits of common IT platforms Rationalising internet Whirl – reducing cost platform – shared in per credit card account over 60 markets by 16% Stockholm Sheffield Moscow Edmonton Amsterda Liverpool Warsaw m Dublin Vancouver Quebec Calgary Dusseldorf Winnipeg London Genev Belgium Syracus Luxembourg Jersey Montreal Toronto Prague Paris a Bratislava Buffalo e Boston San Chicago Monte Beijing Dalian Budapest Milan Francisco New York Thessalanild Carlo Pusan Istanbul Yerevan New Jersey Madrid Barcelona Burma Tianjin Almaty Los Shangha Tokyo Athens Tel AvivBeirut Baghdad Chandigar Valencia Angeles Osaka Chengdu i Guangzho Cairo AmmanKuwait h Wuhan Bermuda ork Chongqing From Hong Kong wY Kolkot Ramallah Amman Alexandra Miami Xiamen Ne u Cairo New Delhi Dhaka Ramallah To Nassau Kaohsiun Taipei Ahmedaba a Shenzhen Dubai Hong g Jeddah Damman Riyadh Macau d Cayman Kong From Manila Muscat Mexico City Abha VisakChittagong Islands Mumbai go hica Hanoi Manila Salalah Bangalor Pune To C Implementing HSBC Direct launched Hyderabad Bangkok Cebu Colón Guam e To ChenoiPenang Ho Chi Minh C Isla ook Panama Trivandrum Ipoh Kota Kinabalu MaléColombo nds Brunei Kuala Lumpur Fr Singapore Batam Kuching om HSBCnet throughout in Korea and Canada – Ho Semarang ng Jakarta Surabaya Ko Bandung ng Latin America Asian deposits now Johannesbur g Cook Brisban Islands Sao Paulo Port Louis e Curitiba exceed US$1bn Santiago Aucklan Adelaid Perth Cape Montevideo d Auckland e Town Sydney Melbourn Buenos Wellington e Aires Wellington Christchurc Christchurch h 36
  • 37. Stephen Green
  • 38. Outlook – HSBC well positioned • Robust global economic growth and • Asset prices very stretched in reduced dependence on US economy several markets and risk premia rising • US economy still expected to grow • Concern about inflation with interest despite weak housing market rates unlikely to fall • Emerging markets continue to benefit • Risks of asset price dislocation where from strong trade and investment flows credit structures are stretched Group is positioned to: • Invest for diversified growth • Maintain strong capital ratios • Continue prudent stance on risks 38
  • 39. 2007 interim results Key financial results Revenue Costs Up 16% ex-dilution gains, or 20% US$18.6bn up 15% to US$38.5bn as reported Loan impairment charges Profit before tax US$6.3bn up 63%; Up 5% ex-dilution gains, or 13% down 5% from 2H06 to US$14.2bn as reported Attributable profit EPS Up 13% ex-dilution gains, or 25% Up 10% ex-dilution gains, or 22% to US$10.9bn as reported to US$0.95 as reported 39
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