HSBC 2002 Annual Report Download - page 39

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of Household for a consideration of approximately
US$14.2 billion. The agreement remains subject to a
number of conditions including shareholders’
approval and regulatory approvals.
HSBC’s financial performance has also been and
may continue to be affected by both actual changes
in, and speculation about, market exchange rates,
such as the US dollar-pound sterling exchange rate,
and government-established exchange rates, such as
the managed exchange rate between the Hong Kong
dollar and the US dollar. In 2002, the decline in the
value of the US dollar against sterling and the euro
had a significant effect on the results reported in
Europe, while the strengthening of the US dollar
against the Argentine peso and Brazilian real
significantly affected the results reported in South
America.
HSBC has economic, financial market, credit,
legal, political and other specialists who monitor
economic and market conditions and government
policies and actions. However, because of the
difficulty involved in predicting with accuracy
changes in economic or market conditions or in
governmental policies and actions, HSBC cannot
fully anticipate the effects that such changes might
have on its financial performance and business
operations. HSBC believes that the most important
external factors affecting its business in 2003 will be
the impact on the world economy of possible conflict
in the Middle East, and low expected growth rates in
the US and in European economies.
So far during the economic and stock market
downturn consumers and small business customers
have proved surprisingly resilient. Policy initiatives
to maintain economic activity through low interest
rates have been effective. Although equity markets
have fallen, property markets have supported
consumer confidence and have attracted savings and
investment flows. However, this cannot be a long
term solution for repairing world economic growth
prospects. Overcapacity still burdens many of the
world’ s industries, leading to corporate activity
focussed on rationalisation rather than expansion. It
is a period of cost reduction rather than revenue
growth. Demand for investment funding remains
very modest. Pension provision and, in the US
retirement health benefits obligations, entered into by
companies during a more benign economic climate,
are likely to place a severe strain on future corporate
profits. Employment levels remain a key factor in
economic recovery. During the current uncertainties,
HSBC believes completion of the Household
acquisition announced last year will improve its
geographical balance. This will also change the
character of risks within HSBC’ s financial
framework by increasing the proportion of earnings
from the personal sector which, long term, has more
predictable revenue and cost characteristics.
Summary
Year ended 31 December
Figures in US$m 2002 2001
†
2000†
Net interest income .............. 15,460 14,725 13,723
Other operating income........ 11,135 11,163 10,850
Total operating income ...... 26,595 25,888 24,573
Operating expenses excluding
goodwill amortisation...... (14,954 ) (14,605) (13,577 )
Goodwill amortisation.......... (854 ) (799) (510)
Operating profit before
provisions ....................... 10,787 10,484 10,486
Provisions for bad and
doubtful debts.................. (1,321 ) (2,037) (932 )
Provisions for contingent
liabilities and
commitments................... (39 ) (649) (71 )
Loss from foreign currency
redenomination in
Argentina......................... (68 ) (520)
–
Amounts written off fixed
asset investments............. (324 ) (125) (36)
Operating profit ................. 9,035 7,153 9,447
Share of operating loss in join
t
ventures........................... (28 ) (91 ) (51)
Share of operating profit in
associates ........................ 135 164 75
Gains/(losses) on disposal of:
- investments ...................... 532 754 302
- tangible fixed assets......... (24 ) 20 2
Profit on ordinary activities
before tax ....................... 9,650 8,000 9,775
Tax on profit on ordinary
activities .......................... (2,534 ) (1,988) (2,409)
Profit on ordinary activities
after tax.......................... 7,116 6,012 7,366
Minority interests................. (877 ) (1,020 ) (909)
Profit attributable to
shareholders................... 6,239 4,992 6,457
Cash basis profit before tax* 10,513 8,807 10,300
Cash basis profit attributable to
shareholders*................... 7,102 5,799 6,982
* Cash based measurements are after excluding the impact of
goodwill amortisation.
†The figures for 2001 and 2000 have been restated to reflect the
adoption of UK Financial Reporting Standard 19 ‘Deferred Tax’,
details of which are set out in Note 1 on pages 195 to 197.