FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
For the month of July 2006
HSBC Holdings plc
42nd Floor, 8 Canada
Square, London E14 5HQ, England
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F).
Form 20-F X Form 40-F ......
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934).
Yes....... No X
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- ..............)
HSBC HOLDINGS PLC
2006 INTERIM RESULTS - HIGHLIGHTS
- Total operating income up 15 per cent to US$34,334 million (US$29,789
million in the first half of 2005).
For the half-year:
- Net operating income up 14 per cent to US$28,295 million (US$24,752
million in the first half of 2005).
- Group pre-tax profit up 18 per cent to US$12,517 million (US$10,640
million in the first half of 2005).
- Profit attributable to shareholders of the parent company up 15 per cent
to US$8,729 million (US$7,596 million in the first half of 2005).
- Return on average invested capital of 17.2 per cent (16.5 per cent in
the first half of 2005).
- Basic earnings per ordinary share up 13 per cent to US$0.78 (US$0.69 in
the first half of 2005).
Dividend and capital position:
- Second interim dividend for 2006 of US$0.15 per share which, together
with the first interim dividend for 2006 of US$0.15 per share already
paid, represents an increase of 7 per cent over the first and second
interim dividends for 2005.
- Tier 1 capital ratio of 9.4 per cent and total capital ratio of 13.4 per
cent.
HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$12,517 MILLION
HSBC made a profit before tax of US$12,517 million, an increase of US$1,877
million, or 18 per cent, over the first half of 2005.
Net interest income of US$16,731 million was US$1,415 million, or 9 per cent,
higher than the first half of 2005.
Net operating income before loan impairment charges and other credit risk
provisions of US$32,185 million was US$4,156 million, or 15 per cent, higher
than the first half of 2005.
Operating expenses of US$16,139 million rose US$1,719 million, or 12 per cent,
compared with the first half of 2005. On an underlying basis, and expressed in
terms of constant currency, operating expenses increased by 11 per cent.
HSBC's cost efficiency ratio was 50.1 per cent compared with 51.4 per cent in
the first half of 2005.
Loan impairment charges and other credit risk provisions were US$3,890 million
in the first half of 2006, US$613 million higher than the first half of 2005.
The tier 1 capital and total capital ratios for the Group remained strong at 9.4
per cent and 13.4 per cent, respectively, at 30 June 2006.
The Group's total assets at 30 June 2006 were US$1,738 billion, an increase of
US$236 billion, or 16 per cent, since 31 December 2005.
Geographical distribution of results
Half-year to Half-year to Half-year to
Figures in US$m 30Jun06 30Jun05 31Dec05
Profit before tax
% % %
Europe 3,600 28.8 2,886 27.2 3,470 33.6
Hong Kong 2,654 21.2 2,419 22.7 2,098 20.3
Rest of Asia-Pacific 1,657 13.2 1,280 12.0 1,294 12.5
North America 4,272 34.1 3,713 34.9 3,159 30.6
South America 334 2.7 342 3.2 305 3.0
12,517 100.0 10,640 100.0 10,326 100.0
Tax expense (3,272) (2,658) (2,435)
Profit for the period 9,245 7,982 7,891
Profit attributable to
shareholders of the parent
company 8,729 7,596 7,485
Profit attributable to
minority interests 516 386 406
Distribution of results by customer group
Half-year to Half-year to Half-year to
Figures in US$m 30Jun06 30Jun05 31Dec05
Profit before tax
% % %
Personal Financial Services 5,908 47.2 5,219 49.1 4,685 45.4
Commercial Banking 2,862 22.9 2,374 22.3 2,587 25.0
Corporate, Investment
Banking and Markets 3,144 25.1 2,301 21.6 2,862 27.7
Private Banking 600 4.8 451 4.2 461 4.5
Other 3 - 295 2.8 (269) (2.6)
12,517 100.0 10,640 100.0 10,326 100.0
Comment by Stephen Green, Group Chairman
In the first half of the year, HSBC achieved strong revenue growth in new
business streams in which we have invested and also in our emerging markets
businesses generally. At the same time, our businesses in the mature economies
continued to perform well. Furthermore, we have grown our income strongly and
faster than our costs, in line with our strategy of 'Managing for Growth'.
Profit attributable to shareholders for the first half of 2006 rose by 15 per
cent to US$8.7 billion - a new high - and represented earnings per share of
US$0.78, a rise of 13 per cent. The Directors have approved a second interim
dividend of US$0.15 per share, taking the total dividends declared to date in
respect of 2006 to US$0.30 per share (US$0.02, or 7 per cent, higher than in the
prior period).
Income grew by US$4.5 billion and costs rose by US$1.7 billion. Net operating
income growth compared with the first half of 2005 was 14 per cent. It is a
measure of the success of the investments we have made in support of our
'Managing for Growth' strategy that growth in net operating income was 65 per
cent more than in the first half of 2005. This has been achieved almost entirely
organically; the effect of acquisitions made in 2005 and 2006 was small.
Our cost efficiency ratio improved to 50.1 per cent. Cost growth, including
significant investment in our business, in the first half of 2006 was
US$100 million lower than the increase in the first half of 2005. Substantially,
this reflects the completion during 2005 of the major investment phase of our
Corporate, Investment Banking and Markets strategy.
Operating environment
The global operating environment has been broadly favourable, with a stable US
economy and a resurgent Japan counterbalancing the tightening effect of higher
interest rates in most countries and increased energy costs.
The credit environment was generally stable, with corporate and commercial
credit continuing to be benign. Retail credit deterioration, where it occurred,
was largely offset by improved performance in other retail portfolios.
Global equity markets enjoyed strong gains for a large part of the period,
encouraging an expansion in investment flows and a receptive marketplace for
mergers and acquisitions activity and initial public offerings.
A key element of our strategy - and a competitive advantage - is to manage our
businesses around the world in a joined-up way. Linking our customer bases in
the developed world to our capabilities in emerging markets remains a core
competitive strength of HSBC and one whose potential we are increasingly
tapping. We also continue to export products and services developed in mature
economies to the faster growing emerging markets. As a result, our emerging
market operations have provided increases of 20 per cent or more in pre-tax
profit in a range of countries: Brazil, mainland China, India, Malaysia, Mexico,
the Middle East and the Philippines. Furthermore, strong interest in emerging
markets by corporates and investors played to our strengths in foreign exchange,
in custody, in asset management and in cross-border transactional and investment
banking.
Investment in our existing businesses has proved to be the most attractive use
of capital in recent years when, in our view, enthusiasm for emerging market and
consolidation targets has run ahead of value. The Group's return on equity
improved to 18.1 per cent in the first half of 2006 driven by improved returns;
capital ratios strengthened modestly.
Investing in the customer experience in Personal Financial Services
In Personal Financial Services, we continue to invest in areas designed to grow
the customer base and to improve customer experience.
We are positioning HSBC to provide for our customers' future needs. We published
a major global study on the future of retirement, based on a survey of 21,000
people and 6,000 companies in 20 countries and territories. As retirement issues
will become ever more important to our customers, we are now planning how best
to configure financial services in an ageing world.
We are working hard to improve our existing services. In the UK, we started an
ambitious programme to upgrade the branch network, committing to spend some
US$715 million in the single largest refurbishment programme in recent history.
We have extended our opening hours at our top branches to reflect retail, not
banking, hours.
Improvement programmes have been launched in many other countries including the
US, Mexico, Turkey and mainland China. Also, in the US we launched a new
internet savings proposition at the end of 2005 which, to date, has added US$5
billion in deposits, diversifying our funding base and increasing our brand
visibility.
We invest where we see growth. So, for example, strong growth in Mexico has led
us to recruit 1,700 new employees in 2006, principally in front office,
collections, credit cards and in sales of microfinance, mortgages and
investments.
We continue to see strong demand for new financial services in emerging markets,
particularly in consumer finance. We are using HSBC Finance's expertise to drive
this business. In emerging markets, we are piloting 23 consumer finance offices
in India and four centres in Indonesia. We also opened branches in 2006 in the
Czech Republic, Ireland, Poland and Slovakia.
Growing businesses in Commercial Banking
Small and medium-sized enterprises ('SMEs') are vital to any successful economy.
This very important sector grew to 2.4 million customers, an increase of 8 per
cent. One million of them are now registered for internet banking services, and
online transaction volumes increased by 2.9 per cent.
As the world's local bank, we are working with many of our customers to support
their increasingly international businesses - an area where we see opportunities
to improve our service and profitability. For example, we completed the roll-out
of a cross-border referral system connecting 4,000 relationship managers in over
50 countries.
We also aim to serve our customers' local needs. Among many such initiatives, I
would highlight: HSBC Business Direct, a fee-free internet and phone banking
service in the UK; new commercial cards in Hong Kong and the UK; a dedicated SME
centre in Sri Lanka; and commercial insurance initiatives in Brazil, Indonesia
and China.
Real momentum in Corporate, Investment Banking and Markets
In the first half of 2006 we moved from the build phase in this business into
full execution mode. Our overall investment spend was considerably lower and,
most encouragingly, cost growth was largely in performance-related expenses as
revenue growth accelerated.
The results are clear. Pre-tax profit rose 37 per cent, compared to the first
half of 2005. In the first half of 2005 net operating income was broadly
unchanged on the first half of 2004 while costs rose by some US$650 million. In
the first half of 2006 net operating revenues grew by US$1,368 million, while
cost growth, largely in performance-related pay and the volume-driven businesses
in Global Transaction Banking, was US$429 million. This translated into a
positive gap between revenue growth and cost growth of 12 per cent.
Under the leadership of Stuart Gulliver, we restructured the business into four
principal product lines: Global Markets, Global Banking, Group Investment
Businesses and Global Transaction Banking.
Whilst financial performance remains somewhat constrained, due to the continuing
impact on balance sheet management revenues of the flat interest rate yield
curves in major currencies, this is more than offset by strong growth in sales
and trading revenues and in transactional banking revenues.
All elements of the Global Markets business developed strongly in 2006 and past
investment in structured derivatives, asset-backed securities, equity and equity
derivative products and fixed income capabilities paid off. Our share of
international bond issuance rose, placing HSBC fourth in global market share.
We captured a growing number of headline investment banking deal positions,
including four of the five largest deals announced during the period in Europe,
where our ability to offer a combination of financing, structuring, hedging and
advice gave a strong competitive edge.
Group Investment Businesses also delivered a record result across its broad
range of activities, boosted by exceptional performance fees in emerging market
funds and higher assets under management in emerging markets.
Global Transaction Banking had another record period, primarily driven by strong
growth in emerging markets, and the beneficial effect of the higher interest
rate environment on larger balances.
Building one of the world's leading Private Banks
The transformation of our Private Banking business has been one of the great
successes in HSBC. In just a few years, the private banking arms of the various
Group entities have been knitted together into one global proposition for our
high net worth customers.
We rebranded as HSBC Private Bank in 2004 and a measure of our success is that
pre-tax profits of US$600 million in the first half of 2006 have more than
doubled over the past three years.
We have succeeded by extending the product range available to customers, in
particular in the area of alternative investments, and by adding capabilities
relevant to our wealthiest customers in the areas of residential property
advice, trust and tax advice.
Client assets increased by 22 per cent to US$305 billion, benefiting from net
new money of US$18.6 billion in the first half of 2006. Again we are managing
the business in a more joined-up way, with increasing cross-referrals from the
wider Group contributing some US$2.9 billion of net new money. Regional
expansion within the UK and France, as well as a good start from the recently
launched onshore operations in Dubai and India, have established a solid
foundation for further growth.
The credit environment
The generally benign credit environment has been driven by continuing strong
global growth, stable employment patterns in major economies, modest
inflationary pressures and good liquidity, which have kept asset prices - most
importantly residential real estate values - high.
There is now evidence of slowing residential housing markets, particularly in
the US. The consequent effect on future price appreciation, together with the
impact of higher interest rates on adjustable rate mortgages that reach reset
dates, will put pressure on some borrowers. Although overall retail credit
experience in the US has been favourable in the first half of 2006, we began to
see some deterioration in certain segments amongst recent mortgage originations.
We are taking action to mitigate the potential effects.
In the UK, the unsecured personal sector again contributed the major portion of
the impairment charge in the period, largely as a result of rising bankruptcy
filings and individual voluntary arrangements. Although the charge was
considerably higher than the first half of 2005, it was in line with that
incurred in the second half of last year. We are seeing an improvement in the
credit quality of more recent originations.
Excessive consumer indebtedness is increasingly an issue in the public domain.
Banks have an obligation here. We were the first major UK bank to share positive
credit information, and we have deliberately reduced our market share of
unsecured lending in the UK.
In the first half of 2006, we have seen public policy interventions in a number
of countries, both emerging and developed. It is clearly in everyone's interest
to ensure regulation targets individuals who need support and does so without
causing unintended consequences, as we have seen in several countries.
Outlook
The world economy remains fundamentally strong. China continues to grow at an
intense pace, attracting huge investment flows and providing a massive
opportunity for the world's exporters.
During the first half of 2006, the Federal Reserve in the US continued to
increase interest rates and was followed by many other central banks. Consumers
are experiencing significantly higher energy prices. Concerns about inflation
persist although there is little evidence of any significant pick-up in either
wages or inflationary expectations. We remain alert, however, to the possibility
that these factors, together with slowing housing markets, may constrain
economic growth.
The apparent collapse of the Doha round of the WTO is disappointing. Overall, we
believe that trade liberalisation is a force for good in terms of economic
development, which is intimately related to people's wellbeing. We are concerned
by signs that the world is heading towards a more protectionist trading system,
when in fact we should be moving in the other direction.
In any event, we will continue to position HSBC to take best advantage of the
changing nature of the world's economy. We have a unique set of franchises
around the world: well over 100 million customers in more than 200 countries and
operations in 76 economies. Our diversification combined with our strong capital
position is a crucial strength.
We believe that we are well positioned to take advantage of opportunities as
they arise. Indeed, earlier this month we announced an agreement to acquire
Grupo Banistmo, the leading banking group in Central America. This will improve
our franchise in Panama and extend it to Costa Rica, Honduras, Colombia,
Nicaragua and El Salvador.
We aspire to be the number one brand in financial services. Customer experience
will remain a key driver of our success in achieving this, so we will focus
relentlessly on improving the quality of that experience. Technology will play
an increasingly important role in this.
However, at its heart, banking is a people business, and our people will be at
the forefront of our success. Engaging our 280,000 colleagues is critical to the
delivery of our strategy, and with well over 100,000 participants, we believe
that HSBC has one of the largest employee bases in the world with an interest in
their company's shares. It is the talent and dedication of the HSBC team around
the world that will secure success for our people, our customers and our
shareholders.
Financial Overview
30Jun05 31Dec05 Half-year to 30Jun06
US$m US$m US$m GBPm HK$m
For the half-year
10,640 10,326 Profit before tax 12,517 6,997 97,107
Profit attributable to
shareholders of the parent
7,596 7,485 company 8,729 4,880 67,720
4,575 3,175 Dividends 5,263 2,942 40,830
At period-end
86,713 92,432 Total shareholders' equity 101,381 54,949 787,426
101,722 105,449 Capital resources 116,636 63,217 905,912
Customer accounts and
812,211 809,146 deposits by banks 916,881 496,949 7,121,415
1,466,810 1,501,970 Total assets 1,738,138 942,071 13,500,118
794,834 827,164 Risk-weighted assets 872,893 473,108 6,779,760
US$ US$ Per ordinary share US$ GBP HK$
0.69 0.67 Basic earnings 0.78 0.44 6.05
0.68 0.67 Diluted earnings 0.77 0.43 5.97
0.41 0.28 Dividends^ 0.46 0.26 3.57
Net asset value at the
7.73 8.03 period-end 8.71 4.72 67.65
Share information
US$0.50 ordinary shares in
11,222m 11,334m issue 11,481m
US$179bn US$182bn Market capitalisation US$202bn
Closing market price per
GBP8.90 GBP9.33 ordinary share GBP9.52
Over 1 Over 3 Over 5
year years years
Total shareholder return to
30Jun06^^ 112.2 154.7 145.0
Benchmarks: FTSE 100 118.0 160.3 122.0
MSCI World 117.5 161.9 135.2
^ The second interim dividend for 2006 of US$0.15 per share is translated at the
closing rate on 30 June 2006 (see Note 7 on page 20). Where required, this
dividend will be converted into sterling or Hong Kong dollars at the exchange
rates on 25 September 2006 (see Note 7 on page 20).
^^ Total shareholder return ('TSR') is as defined in the Annual Report and
Accounts 2005 on page 220.
30Jun05 31Dec05 Half-year to 30Jun06
Performance ratios (%)
16.5 15.3 Return on average invested capital^ 17.2
17.6 16.1 Return on average total shareholders' equity 18.1
1.18 0.95 Post-tax return on average total assets 1.12
2.09 1.93 Post-tax return on average risk-weighted assets 2.21
Efficiency and revenue mix ratios (%)
51.4 51.0 Cost efficiency ratio 50.1
As a percentage of total operating income:
51.4 50.2 - Net interest income 48.7
23.6 23.2 - Net fee income 24.4
9.7 9.3 - Net trading income 12.4
Capital ratios (%)
8.7 9.0 - Tier 1 capital 9.4
12.8 12.8 - Total capital 13.4
^ Return on invested capital is based on the profit attributable to ordinary
shareholders. Average invested capital is measured as average total
shareholders' equity after adding back goodwill previously written-off directly
to reserves, deducting average equity preference shares issued by HSBC Holdings
and deducting/(adding) average reserves for unrealised gains/(losses) on
effective cash flow hedges and available-for-sale securities. This measure
reflects capital initially invested and subsequent profit.
Consolidated Income Statement
30Jun05 31Dec05 Half-year to 30Jun06
US$m US$m US$m GBPm HK$m
29,202 30,892 Interest income 35,785 20,004 277,620
(13,886) (14,874) Interest expense (19,054) (10,651) (147,821)
15,316 16,018 Net interest income 16,731 9,353 129,799
8,558 8,928 Fee income 10,441 5,837 81,001
(1,514) (1,516) Fee expense (2,061) (1,152) (15,989)
7,044 7,412 Net fee income 8,380 4,685 65,012
Trading income excluding net
1,804 1,852 interest income 3,112 1,740 24,143
Net interest income on trading
1,087 1,121 activities 1,149 642 8,914
2,891 2,973 Net trading income 4,261 2,382 33,057
Net income from financial
instruments designated at fair
547 487 value 260 145 2,017
Gains less losses from financial
354 338 investments 493 276 3,825
95 60 Dividend income 222 124 1,722
2,396 3,040 Net earned insurance premiums 2,834 1,584 21,986
1,146 1,587 Other operating income 1,153 645 8,945
29,789 31,915 Total operating income 34,334 19,194 266,363
Net insurance claims incurred and
movement in policyholders'
(1,760) (2,307) liabilities (2,149) (1,201) (16,672)
Net operating income before loan
impairment charges and other credit
28,029 29,608 risk provisions 32,185 17,993 249,691
Loan impairment charges and other
(3,277) (4,524) credit risk provisions (3,890) (2,175) (30,179)
24,752 25,084 Net operating income 28,295 15,818 219,512
(7,869) (8,276) Employee compensation and benefits (8,992) (5,027) (69,760)
(5,444) (5,739) General and administrative expenses (6,065) (3,390) (47,052)
Depreciation of property, plant and
(831) (801) equipment (748) (418) (5,803)
Amortisation and impairment of
(276) (278) intangible assets (334) (187) (2,591)
(14,420) (15,094) Total operating expenses (16,139) (9,022) (125,206)
10,332 9,990 Operating profit 12,156 6,796 94,306
Share of profit in associates and
308 336 joint ventures 361 202 2,801
10,640 10,326 Profit before tax 12,517 6,998 97,107
(2,658) (2,435) Tax expense (3,272) (1,829) (25,384)
7,982 7,891 Profit for the period 9,245 5,169 71,723
Profit attributable to shareholders
7,596 7,485 of the parent company 8,729 4,880 67,720
Profit attributable to minority
386 406 interests 516 289 4,003
Consolidated Balance Sheet
At30Jun05 At31Dec05 At 30Jun06
US$m US$m US$m GBPm HK$m
ASSETS
Cash and balances at central
8,905 13,712 banks 24,343 13,194 189,072
Items in the course of
11,717 11,300 collection from other banks 12,425 6,734 96,505
Hong Kong Government
12,196 12,554 certificates of indebtedness 12,588 6,823 97,774
165,159 190,257 Trading assets 226,650 122,844 1,760,391
Trading assets which may be
repledged or resold by
50,142 42,652 counterparties 72,645 39,374 564,234
Financial assets designated at
14,033 15,046 fair value 16,855 9,135 130,913
63,594 73,928 Derivatives 104,665 56,728 812,933
155,141 125,965 Loans and advances to banks 162,482 88,065 1,261,998
706,724 740,002 Loans and advances to customers 814,209 441,301 6,323,961
179,574 176,301 Financial investments 187,438 101,591 1,455,831
Financial investments which may
be repledged or resold by
9,113 6,041 counterparties 4,896 2,654 38,027
Interests in associates and
5,067 7,249 joint ventures 7,795 4,225 60,544
32,500 33,200 Goodwill and intangible assets 34,544 18,723 268,303
15,032 15,206 Property, plant and equipment 15,277 8,280 118,656
26,765 26,596 Other assets 27,542 14,929 213,916
11,148 11,961 Prepayments and accrued income 13,784 7,471 107,060
1,466,810 1,501,970 Total assets 1,738,138 942,071 13,500,118
At 30Jun05 At 31Dec05 At 30Jun06
US$m US$m US$m GBPm HK$m
LIABILITIES AND EQUITY
Liabilities
Hong Kong currency notes in
12,196 12,554 circulation 12,588 6,823 97,774
101,747 69,727 Deposits by banks 83,139 45,061 645,741
710,464 739,419 Customer accounts 833,742 451,888 6,475,674
Items in the course of transmission
9,533 7,022 to other banks 9,532 5,166 74,035
162,459 174,365 Trading liabilities 228,116 123,639 1,771,777
Financial liabilities designated at
58,420 61,829 fair value 64,354 34,880 499,838
62,101 74,036 Derivatives 103,660 56,184 805,127
184,483 188,072 Debt securities in issue 209,309 113,445 1,625,703
5,727 4,869 Retirement benefit liabilities 3,722 2,017 28,909
26,169 26,515 Other liabilities 31,669 17,165 245,969
Liabilities under insurance
12,428 14,144 contracts issued 15,663 8,489 121,655
10,421 12,689 Accruals and deferred income 12,584 6,821 97,740
3,329 1,966 Provisions 2,286 1,239 17,755
15,652 16,537 Subordinated liabilities 20,404 11,059 158,478
1,375,129 1,403,744 Total liabilities 1,630,768 883,876 12,666,175
Equity
5,610 5,667 Called up share capital 5,741 3,112 44,590
4,952 6,896 Share premium account 7,236 3,922 56,202
25,000 23,646 Other reserves 26,394 14,306 205,002
51,151 56,223 Retained earnings 62,010 33,609 481,632
86,713 92,432 Total shareholders' equity 101,381 54,949 787,426
4,968 5,794 Minority interests 5,989 3,246 46,517
91,681 98,226 Total equity 107,370 58,195 833,943
1,466,810 1,501,970 Total equity and liabilities 1,738,138 942,071 13,500,118
Consolidated Statement of Recognised Income and Expense
30Jun05 31Dec05 Half-year to 30Jun06
US$m US$m US$m
Available-for-sale investments:
70 (470) - Fair value changes taken to equity (476)
- Fair value changes transferred to income statement
(103) (137) on disposal or impairment (319)
Cash flow hedges:
(293) 201 - Fair value changes taken to equity 147
- (106) - Fair value changes transferred to income statement (177)
Share of changes in equity of associates and joint
68 93 ventures (44)
(3,665) (592) Exchange differences 3,203
Actuarial gains/(losses) on post-employment
358 (1,170) benefits 1,477
(3,565) (2,181) 3,811
(125) 562 Net deferred tax on items taken directly to equity (196)
Total income and expense taken to equity during the
(3,690) (1,619) period 3,615
7,982 7,891 Profit for the period 9,245
4,292 6,272 Total recognised income and expense for the period 12,860
- Attributable to shareholders of the parent
4,056 5,856 company 12,292
236 416 - Attributable to minority interests 568
4,292 6,272 12,860
Consolidated Cash Flow Statement
Half-year Half-year Half-year
to to to
30Jun06 30Jun05 31Dec05
US$m US$m US$m
Cash flows from operating activities
Profit before tax 12,517 10,640 10,326
Adjustments for:
Non-cash items included in profit before tax 762 1,022 336
Change in operating assets (101,775) (61,792) (20,918)
Change in operating liabilities 135,226 57,777 13,156
Elimination of exchange differences (7,000) 7,089 (4,774)
Net gain from investing activities (752) (354) (338)
Share of profits in associates and joint ventures (361) (308) (336)
Dividends received from associates 32 57 57
Tax paid (1,983) (1,811) (2,808)
Net cash from/(used in) operating activities 36,666 12,320 (5,299)
Cash flows from investing activities
Purchase of financial investments (181,454) (91,507) (286,596)
Proceeds from the sale of financial investments 177,762 82,562 286,134
Purchase of property, plant and equipment (803) (1,227) (1,660)
Proceeds from the sale of property, plant
and equipment 915 340 280
Purchase of intangible assets (352) (90) (759)
Net cash outflow from acquisition of and increase
in stake of subsidiaries (5) - (1,662)
Net cash inflow from disposal of subsidiaries 23 566 139
Net cash outflow from acquisition of and increase
in stake of associates (208) (682) (1,887)
Proceeds from disposal of associates 319 161 261
Net cash used in investing activities (3,803) (9,877) (5,750)
Cash flows from financing activities
Issue of ordinary share capital 414 94 596
Issue of preference shares 374 - 1,298
Net purchases and sales of own shares for
market-making purposes (78) 27 (82)
Purchases of own shares to meet share awards
and share option awards (589) (288) (478)
Own shares released on vesting of share awards
and exercise of options 137 65 212
Subordinated loan capital issued 3,716 1,928 165
Subordinated loan capital repaid (273) (896) (225)
Dividends paid to the shareholders of the parent
company (3,202) (4,197) (1,738)
Dividends paid to minority interests (533) (419) (89)
Net cash used in financing activities (34) (3,686) (341)
Net increase/(decrease) in cash and cash equivalents 32,829 (1,243) (11,390)
Cash and cash equivalents at the beginning of the
period 141,307 160,956 152,925
Exchange differences in respect of cash and cash
equivalents 4,490 (6,788) (228)
Cash and cash equivalents at the end of the period 178,626 152,925 141,307
1. Accounting policies
The accounting policies adopted by HSBC for these interim consolidated financial
statements are consistent with those described in the Annual Report and Accounts
2005 except for 'Amendments to IAS 39 and IFRS 4 - Financial Guarantee
Contracts', which was adopted by HSBC on 1 January 2006. HSBC has
retrospectively adopted the amendment in accordance with IAS 8 'Accounting
Policies, Changes in Accounting Estimates and Errors'. Retrospective adoption of
the amendment had no material impact on HSBC's consolidated financial
statements.
In accordance with the amendment, HSBC accounts for certain types of financial
guarantee contracts it issues as financial liabilities. Financial guarantee
contracts are initially recognised at fair value and subsequently measured at
the higher of the initial fair value less cumulative amortisation, determined in
accordance with IAS 18 'Revenue', and, in the event HSBC has to reimburse the
holder for any loss incurred, the amount that would be recognised as a
provision.
2. Dividend
The Directors have declared a second interim dividend for 2006 of US$0.15 per
ordinary share, a distribution of approximately US$1,725 million. The second
interim dividend will be payable on 4 October 2006, to holders of ordinary
shares on the Register at the close of business on 18 August 2006. 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 quoted by HSBC Bank plc
in London at or about 11:00 am on 25 September 2006, and with a scrip dividend
alternative. Particulars of these arrangements will be mailed to shareholders on
or about 30 August 2006, and elections must be received by 20 September 2006. As
this dividend was declared after the balance sheet date, it has not been
included in 'Other liabilities' at 30 June 2006.
The dividend will be payable on shares held through Euroclear France, the
settlement and central depositary system for Euronext Paris, on 4 October 2006
to the holders of record on 18 August 2006. The dividend will be payable in
cash, in euros at the exchange rate on 25 September 2006, or as a scrip
dividend. Particulars of these arrangements will be announced through Euronext
Paris on 17 August 2006 and 23 August 2006.
The dividend will be payable on American Depositary Shares ('ADSs'), each of
which represents five ordinary shares, on 4 October 2006 to holders of record on
18 August 2006. The dividend of US$0.75 per ADS will be payable in cash in US
dollars or as a scrip dividend of new ADSs. Particulars of these arrangements
will be mailed to holders on or about 25 August 2006. Elections must be received
by the depositary on or before 15 September 2006. Alternatively, the cash
dividend may be invested in additional ADSs for participants in the dividend
reinvestment plan operated by the depositary.
HSBC Holdings plc ordinary shares will be quoted ex-dividend in London, Hong
Kong and Bermuda on 16 August 2006 and in Paris on 21 August 2006. The ADSs will
be quoted ex-dividend in New York on 16 August 2006.
3. Earnings and dividends per share
Half-year to Half-year to Half-year to
Figures in US$ 30Jun06 30 Jun05 31Dec05
Basic earnings per
ordinary share 0.78 0.69 0.67
Diluted earnings per
ordinary share 0.77 0.68 0.67
Dividends per ordinary
share 0.46 0.41 0.28
Dividend payout ratio^ 59% 59% 42%
^ Dividends per ordinary share expressed as a percentage of earnings per
ordinary share.
Basic earnings per ordinary share was calculated by dividing the earnings
attributable to ordinary shareholders of the parent company, of US$8,684
million, by the weighted average number of ordinary shares outstanding,
excluding own shares held, of 11,148 million (first half of 2005: earnings of
US$7,596 million and 11,007 million shares; second half of 2005: earnings of
US$7,464 million and 11,069 million shares).
Half-year Half-year Half-year
to to to
Figures in US$m 30Jun06 30Jun05 31Dec05
Profit attributable
to shareholders of
the parent company 8,729 7,596 7,485
Dividend payable on
preference shares
classified as equity (45) - (21)
Profit attributable
to the ordinary
shareholders of the
parent company 8,684 7,596 7,464
Diluted earnings per ordinary share was calculated by dividing the basic
earnings, which require no adjustment for the effects of dilutive potential
ordinary shares (including share options outstanding not yet exercised), 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 all the dilutive potential ordinary shares in 2006, of
11,304 million (first half of 2005: 11,152 million shares; second half of 2005:
11,190 million shares).
4. Taxation
Half-year Half-year Half-year
to to to
Figures in US$m 30Jun06 30Jun05 31Dec05
United Kingdom corporation
tax charge 536 340 352
Overseas tax 2,254 2,045 1,948
Current tax 2,790 2,385 2,300
Deferred tax 482 273 135
Tax expense 3,272 2,658 2,435
Effective tax rate 26.1% 25.0% 23.6%
HSBC Holdings and its subsidiaries in the United Kingdom provided for UK
corporation tax at 30 per cent (2005: 30 per cent). Overseas tax included Hong
Kong profits tax of US$387 million (first half of 2005: US$362 million; second
half of 2005: US$277 million) provided at the rate of 17.5 per cent (2005: 17.5
per cent) on the profits for the period assessable in Hong Kong. Other overseas
subsidiaries and overseas branches provided for taxation at the appropriate
rates in the countries in which they operate.
The following table reconciles the overall tax expense which would apply if all
profits had been taxed at the UK corporation tax rate:
Analysis of overall tax expense
Half-year Half-year Half-year
to to to
Figures in US$m 30Jun06 30Jun05 31Dec05
Taxation at UK corporate
tax rate of 30 per cent
(2005: 30 per cent) 3,756 3,192 3,098
Impact of overseas
profits in principal
locations taxed at
different rates (187) (142) (200)
Tax-free gains (97) (76) (144)
Adjustments in respect of
prior period liabilities 36 (45) (142)
Low income housing tax credits (55) (53) (57)
Other items (81) (105) (40)
Impact of profits from associates
and joint ventures (100) (113) (80)
Overall tax expense 3,272 2,658 2,435
5. Capital resources
At 30Jun06 At 30Jun05 At 31Dec05
Capital ratios (%)
Total capital ratio 13.4 12.8 12.8
Tier 1 capital ratio 9.4 8.7 9.0
Composition of capital
Figures in US$m
Tier 1:
Shareholders' funds 101,381 86,713 92,432
Minority interests and
preference shares 6,734 6,180 6,741
Innovative tier 1 securities 9,601 9,629 9,383
Less: Goodwill capitalised and
intangible assets (33,992) (31,344) (32,821)
Other regulatory adjustments^ (1,586) (2,052) (1,332)
Total qualifying tier 1
capital 82,138 69,126 74,403
Tier 2:
Reserves arising from
revaluation of property and
unrealised gains on AFS
equities 2,040 1,794 1,593
Collective impairment
allowances 9,087 8,905 8,749
Perpetual subordinated debt 3,665 3,678 3,640
Term subordinated debt 27,446 22,101 24,519
Minority and other interests
in tier 2 capital 425 501 425
Total qualifying tier 2 capital 42,663 36,979 38,926
Unconsolidated investments (6,441) (3,008) (6,437)
Investments in other banks (1,419) (1,146) (1,147)
Other deductions (305) (229) (296)
Total regulatory capital 116,636 101,722 105,449
Total risk-weighted assets 872,893 794,834 827,164
The above figures were computed in accordance with the EU Banking Consolidation
Directive and the FSA policy statement PS05/5 'Implications of a Changing
Accounting Framework'.
^ Other regulatory adjustments mainly arise from the implementation of IFRSs in
conjunction with the FSA's policy statement PS05/5.
6. Registers of shareholders
The Overseas Branch Register of shareholders in Hong Kong will be closed for one
day, on Friday 18 August 2006. Any person who has acquired shares registered on
the Hong Kong Branch Register but who has not lodged the share transfer with the
Hong Kong Branch Registrar should do so before 4:00 pm on Thursday 17 August
2006 in order to receive the second interim dividend for 2006, which will be
payable on 4 October 2006. Transfers may not be made to or from the Hong Kong
Overseas Branch Register while that Branch Register is closed.
Any person who has acquired shares registered on the Principal Register in the
United Kingdom but who has not lodged the share transfer with the Principal
Registrar should do so before 4:00 pm on Friday 18 August 2006 in order to
receive the dividend.
Any person who has acquired shares registered on the Overseas Branch Register of
shareholders in Bermuda but who has not lodged the share transfer with the
Bermuda Branch Registrar should do so before 4:00 pm on Friday 18 August 2006 in
order to receive the dividend.
Transfers of American Depositary Shares should be lodged with the depositary by
12 noon on Friday 18 August 2006 in order to receive the dividend.
7. Foreign currency amounts
The sterling and Hong Kong dollar equivalent figures in the interim consolidated
income statement and balance sheet are for information only. These are
translated at the average rate for the period for the income statement and the
closing rate for the balance sheet as follows:
Period-end 30Jun06 30Jun05 31Dec05
Closing : HK$/US$ 7.767 7.774 7.754
GBP/US$ 0.542 0.558 0.581
Average : HK$/US$ 7.758 7.793 7.763
GBP/US$ 0.559 0.534 0.566
8. Litigation
HSBC, through a number of its subsidiaries, is named in and is defending legal
actions in various jurisdictions arising from its normal business. None of these
proceedings is regarded as material litigation.
9. Dealings in HSBC Holdings plc shares
Except for dealings as intermediaries by HSBC Bank plc, HSBC Financial Products
(France) SNC and The Hongkong and Shanghai Banking Corporation Limited, which
are members of a European Economic Area exchange, neither the Company nor any
subsidiary undertaking has bought, sold or redeemed any securities of the
Company during the six months ended 30 June 2006.
10. Statutory accounts
The information in this news release does not constitute statutory accounts
within the meaning of Section 240 of the Companies Act 1985 ('the Act'). The
Interim Report 2006 was approved by the Board of Directors on 31 July 2006. The
statutory accounts for the year ended 31 December 2005 have been delivered to
the Registrar of Companies in England and Wales in accordance with Section 242
of the Act. The auditor has reported on those accounts. Its report was
unqualified and did not contain a statement under Section 237(2) or (3) of the
Act.
This news release does not constitute the unaudited interim consolidated
financial statements which are contained in the Interim Report. The unaudited
interim consolidated financial statements have been reviewed by the Company's
auditor, KPMG Audit Plc, in accordance with the guidance contained in Bulletin
1999/4: Review of interim financial information issued by the Auditing Practices
Board. On the basis of its review, KPMG Audit Plc was not aware of any material
modifications that should be made to the unaudited interim consolidated
financial statements as presented for the six months ended 30 June 2006 in the
Interim Report to the shareholders. The full report of its review is included in
the Interim Report to the shareholders.
11. Forward-looking statements
This news release contains certain forward-looking statements with respect to
the financial condition, results of operations and business of HSBC. These
forward-looking statements represent HSBC'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. Certain statements, such as those that
include the words 'potential', 'estimated', and similar expressions or
variations
on such expressions may be considered 'forward-looking statements'.
12. Corporate governance
HSBC is committed to high standards of corporate governance. HSBC Holdings plc
has complied with the applicable code provisions of the Combined Code on
Corporate Governance issued by the Financial Reporting Council ('the Combined
Code') throughout the six months to 30 June 2006, save that the Group Chairman
did not on appointment meet the Combined Code's independence criteria. On 26 May
2006 S K Green, who had previously served as Group Chief Executive, became Group
Chairman. In accordance with the provisions of the Combined Code in the
circumstance where a Chief Executive becomes a Chairman, the Board consulted
major shareholders in advance of the appointment. Sir Brian Moffat, the senior
independent non-executive Director and the Chairman of the Nomination Committee,
wrote to all shareholders to explain the Board's decision and the reasons for
the appointment. These were also described on pages 200 and 201 of the Annual
Report and Accounts 2005.
HSBC Holdings plc has complied with all applicable code provisions of the Code
on Corporate Governance Practices in Appendix 14 to the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited throughout the
six months to 30 June 2006.
The Board of HSBC Holdings plc has adopted a code of conduct for transactions in
HSBC Group securities by Directors that complies with The Model Code in the
Listing Rules of the Financial Services Authority and with The Model Code for
Securities Transactions by Directors of Listed Issuers ('Hong Kong Model Code')
set out in the Rules Governing the Listing of Securities on The Stock Exchange
of Hong Kong Limited, save that The Stock Exchange of Hong Kong Limited has
granted certain waivers from strict compliance with the Hong Kong Model Code,
primarily to take into account accepted practices in the UK, particularly in
respect of employee share plans. Following a specific enquiry, each Director has
confirmed he or she has complied with the code of conduct for transactions in
HSBC Group securities throughout the period.
The members of the Board of Directors of HSBC Holdings plc are:
S K Green, Baroness Dunn*, Sir Brian Moffat+, M F Geoghegan, Lord Butler+, R K F
Ch'ien+, J D Coombe+, R A Fairhead+, D J Flint, W K L Fung+, S Hintze+, J W J
Hughes-Hallett+, Sir Mark Moody-Stuart+, S W Newton+, S M Robertson+, H Sohmen*,
and Sir Brian Williamson+.
* Non-executive Director
+ Independent non-executive Director
The Group Audit Committee has reviewed the interim results for the six months to
30 June 2006.
13. Interim Report
The Interim Report 2006 will be mailed to shareholders on or about 11 August
2006. Further copies may be obtained from Group Corporate Affairs, HSBC Holdings
plc, 8 Canada Square, London E14 5HQ, United Kingdom; or from Group Public
Affairs, The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road
Central, Hong Kong; or from Employee Communications, HSBC - North America, 2700
Sanders Road, Prospect Heights, Illinois 60070, USA; or from the HSBC website:
www.hsbc.com.
A Chinese translation of the Interim Report 2006 may be obtained on request from
Computershare Hong Kong Investor Services Limited, Hopewell Centre, 46th Floor,
183 Queen's Road East, Hong Kong.
The Interim Report 2006, and this results announcement, will be available on the
Stock Exchange of Hong Kong's website: www.hkex.com.hk.
Custodians or nominees who wish to distribute copies of the Interim Report 2006
to their clients may request copies for collection by writing to Group Corporate
Affairs at the address given above.
14. Final results for 2006
The results for the year to 31 December 2006 will be announced on Monday 5 March
2007.
15. Proposed interim dividends for 2006
The Board has adopted a policy of paying quarterly dividends on the ordinary
shares. Under this policy it is intended to have a pattern of three equal
interim dividends with a variable fourth interim dividend. The proposed
timetables for the dividends payable on the ordinary shares in respect of 2006
are:
Third interim dividend for 2006
Announcement 6 November 2006
American Depositary Shares quoted ex-dividend in New York 21 November 2006
Shares quoted ex-dividend in London, Hong Kong and Bermuda 22 November 2006
Record date and closure of Hong Kong
Overseas Branch Register of shareholders for one day 24 November 2006
Shares quoted ex-dividend in Paris 27 November 2006
Payment date 18 January 2007
Fourth interim dividend for 2006
Announcement 5 March 2007
Shares quoted ex-dividend in London, Hong Kong and Bermuda;
American Depositary Shares quoted ex-dividend in New York 21 March 2007
Record date and closure of Hong Kong
Overseas Branch Register of shareholders for one day 23 March 2007
Shares quoted ex-dividend in Paris 26 March 2007
Payment date 10 May 2007
16. News release
Copies of this news release may be obtained from Group Corporate Affairs, HSBC
Holdings plc, 8 Canada Square, London E14 5HQ, United Kingdom; The Hongkong and
Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong; HSBC
Bank USA, N.A., 452 Fifth Avenue, New York, NY 10018, USA; HSBC France,
Direction de la Communication, 103 avenue des Champs Elysees, 75419 Paris Cedex
08, France. The news release will also be available on the HSBC website:
www.hsbc.com.
17. For further information contact:
London Hong Kong
Richard Beck David Hall
Director of Communications & Public Policy Head of Group Public Affairs (Asia)
Telephone: +44 20 7991 0633 Telephone: +852 2822 1133
Patrick McGuinness Gareth Hewett
Senior Manager Investor Relations Senior Manager External Relations
Telephone: +44 20 7992 1938 Telephone: +852 2822 4929
Chicago Paris
Lisa Sodeika Chantal Nedjib
Executive Vice President, Managing Director, Corporate Communications
Corporate Affairs Telephone: +33 1 40 70 7729
Telephone: +1 847 564 6394
Linda Recupero Gilberte Lombard
Executive Vice President, Investor Relations Director
Group Public Affairs Telephone: +33 1 40 70 2257
Telephone: +1 212 525 3800
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HSBC Holdings plc
By:
Name: P A Stafford
Title: Assistant Group Secretary
Date: 31 July 2006