HSBC Holdings Regulatory News (HSBA)

6 Mar 2006 08:15

HSBC Holdings PLC06 March 2006 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED 2005 CONSOLIDATED RESULTS - HIGHLIGHTS • Operating profit excluding loan impairment charges and other credit risk provisions up 7.2 per cent to HK$45,408 million (HK$42,375 million in 2004). • Pre-tax profit up 3.9 per cent to HK$45,249 million (HK$43,536 million in 2004). • Attributable profit up 2.3 per cent to HK$32,873 million (HK$32,148 million in 2004). • Return on average shareholders' funds of 37.4 per cent (43.1 per cent in 2004). • Assets up 7.5 per cent to HK$2,673 billion (HK$2,487 billion at the end of 2004). • Total capital ratio of 12.4 per cent; tier 1 capital ratio of 11.7 per cent (11.9 per cent and 11.4 per cent at 31 December 2004). • Cost efficiency ratio of 41.2 per cent (38.8 per cent for 2004). Comparative figures have been restated to reflect the adoption of a number ofnew and revised Hong Kong Financial Reporting Standards and Hong Kong AccountingStandards, details of which are set out in the appendix. Within this document, the Hong Kong Special Administrative Region of thePeople's Republic of China has been referred to as 'Hong Kong'. Comment by Vincent Cheng, Chairman In 2005, The Hongkong and Shanghai Banking Corporation recorded a pre-tax profitof HK$45,249 million, an increase of 3.9 per cent over 2004. Over the course ofthe year, further investments were made in our customer group businesses. Theseresulted in significant increases in pre-tax profits in our Personal FinancialServices and Commercial Banking businesses of 24.9 per cent, to HK$21,640million, and 26.2 per cent, to HK$11,131 million, respectively. In Corporate,Investment Banking and Markets, a strong trading performance was offset by asharp decline in net interest income against a backdrop of exceptionallydifficult market conditions. Loan impairment charges and other credit provisionsrecorded a net charge of HK$2,064 million against a credit of HK$862 million inthe previous period, reflecting higher provisions against credit card lendingoutside Hong Kong, and higher individually assessed provisions in CommercialBanking in Hong Kong. Highlights include: • In Hong Kong, HSBC reinforced its position as the number one card issuer with 4.0 million cards in force. In the rest of Asia-Pacific, cards in issue grew by 32.7 per cent.• Card spending increased by HK$31.3 billion and receivables grew by 30.0 per cent.• Insurance income from personal customers rose by 19.3 per cent to HK$4,522 million.• In Commercial Banking, net interest income increased by HK$4,024 million, or 57.0 per cent.• Net fee income in Commercial Banking was 10.0 per cent higher, supported by strong trade finance activity in Hong Kong and mainland China.• In Corporate, Investment Banking and Markets, net fee income rose by 7.5 per cent to HK$5,388 million.• HSBC acted as the joint global co-ordinator of the Hong Kong Government's HK$22 billion Link Real Estate Investment Trust ('REIT')initial public offering ('IPO'), the largest ever real estate offering and REIT IPO in the world. Further progress was made with our investments in mainland China. At the end ofDecember 2005, Bank of Communications had issued 650,000 credit cards co-brandedwith HSBC. In August, we obtained formal approval to increase HSBC's stake inPing An by 9.91 per cent to 19.9 per cent. We also entered into an insuranceagency agreement to sell Ping An products through HSBC branches. We haveobtained regulatory approval to set up a fund management joint venture withShanxi Trust and Investment Corporation Limited, which is to be renamed HSBCJintrust Fund Management Company Limited and will be headquartered in Shanghai. Other investments to support the continued expansion of our businesses includethe acquisition of a 10.0 per cent stake in Vietnam Technological and CommercialJoint Stock Bank (Techcombank), Vietnam's third largest joint stock bank, andthe opening of three new branches in Korea. In Personal Financial Services,headcount rose to support business expansion in the region, including therecruitment of additional financial planning managers in Hong Kong and salesstaff in the rest of Asia-Pacific. In Commercial Banking, the number ofrelationship managers and support staff increased, although savings were madefrom initiatives to handle business through low cost channels. The prospects for the Hong Kong economy are encouraging in 2006. The territory'stwo-year recovery remains on track, with consumer spending continuing to be akey driver of economic growth coupled with revived confidence and improved jobprospects in the territory. However, competition in the financial servicesindustry is likely to remain intense, with a flat yield curve posing significantchallenges to interest rate management in the first half of the year. We are also encouraged by the prospects for mainland China and the rest ofAsia-Pacific. Fuelled by a growing United States economy and growingintra-regional trade coupled with strengthening domestic demand, the Mainlandand the rest of Asia-Pacific are expected to continue to experience solideconomic growth in 2006. Asia is expected to remain at the centre of the rapidgrowth of the global economy. Results by Customer Group Corporate, Investment Personal Banking Financial Commercial and PrivateFigures in HK$m Services Banking Markets Banking Other Total Year ended 31Dec05 Net interest income 26,801 11,089 8,725 63 (3,187) 43,491 Net fee income 8,050 4,524 5,388 55 80 18,097 Net trading income 683 638 7,215 10 (1,366) 7,180 Net income from financial instruments designated at fair value 666 (648) 122 - 244 384 Gains less losses from financial investments - 23 19 - 714 756 Dividend income 5 14 167 - 182 368 Net earned insurance premiums 18,437 756 147 - - 19,340 Other operating income^ 1,984 295 572 13 2,033 4,897 Total operating income 56,626 16,691 22,355 141 (1,300) 94,513 Net insurance claims incurred and movement in policyholder liabilities (16,889) (330) (72) - - (17,291) Net operating income before loan impairment charges and other credit risk provisions 39,737 16,361 22,283 141 (1,300) 77,222 Loan impairment charges and other credit risk provisions (1,344) (896) 165 - 11 (2,064) Net operating income 38,393 15,465 22,448 141 (1,289) 75,158 Operating expenses^ (16,932) (5,424) (9,642) (113) 297 (31,814) Operating profit 21,461 10,041 12,806 28 (992) 43,344 Share of profit in associates 179 1,090 446 - 190 1,905 Profit before tax 21,640 11,131 13,252 28 (802) 45,249 Share of pre-tax profit 47.8% 24.6% 29.3% - (1.7%) 100.0% Corporate, Investment Personal Banking Financial Commercial and Private TotalFigures in HK$m Services Banking Markets Banking Other restated Year ended 31Dec04 Net interest income 20,785 7,065 11,258 35 (2,173) 36,970 Net fee income 7,524 4,111 5,012 42 (408) 16,281 Net trading income 617 520 5,795 5 66 7,003 Net investment income on assets backing policyholder liabilities 1,088 81 - - (271) 898 Gains less losses from financial investments (13) 1 64 - 1,445 1,497 Dividend income 18 6 17 - 122 163 Net earned insurance premiums 13,186 751 148 - - 14,085 Other operating income^ 2,439 449 883 1 342 4,114 Total operating income 45,644 12,984 23,177 83 (877) 81,011 Net insurance claims incurred and movement in policyholder liabilities (11,441) (191) (93) - - (11,725) Net operating income before loan impairment charges and other credit risk provisions 34,203 12,793 23,084 83 (877) 69,286 Loan impairment charges and other credit risk provisions (1,290) 638 1,519 - (5) 862 Net operating income 32,913 13,431 24,603 83 (882) 70,148 Operating expenses^ (15,659) (4,784) (7,288) (74) 894 (26,911) Operating profit 17,254 8,647 17,315 9 12 43,237 Share of profit in associates 73 170 20 - 36 299 Profit before tax 17,327 8,817 17,335 9 48 43,536 Share of pre-tax profit 39.8% 20.3% 39.8% - 0.1% 100.0% ^ Other operating income and operating expenses in 'Other' include an adjustment of HK$4,305 million to eliminate intra-group items (2004: HK$4,953 million). Personal Financial Services reported profit before tax of HK$21,640 million,which was HK$4,313 million, or 24.9 per cent, higher than 2004. There was stronggrowth in Hong Kong of HK$4,482 million, or 27.6 per cent, in profit before tax,driven primarily by the widening of deposit spreads following the rises in HongKong dollar and US dollar interest rates this year. In the rest of Asia-Pacific,profit before tax fell by 15.9 per cent to HK$902 million due to higherimpairment provisions, while operating profit excluding loan impairment chargesincreased by 15.8 per cent, reflecting continued expansion across the region,particularly in mortgages and credit cards, and improved deposit spreads. Net interest income increased by HK$6,016 million, or 28.9 per cent, comparedwith 2004. In Hong Kong, net interest income improved by HK$4,656 million, or29.6 per cent. During 2005, interest rates in Hong Kong rose significantly,reflecting rising US dollar interest rates. In addition, adjustments to the HK$:US$ Linked Exchange Rate System reduced the likelihood of an upward realignmentof the Hong Kong dollar, prompting a reversal of much of the inward flows frominvestors that had depressed local market rates in 2004. This led to a wideningof deposit spreads to more normal levels compared with the exceptionally lowlevels experienced in 2004. Competition in the Hong Kong mortgage marketremained intense and margins were impacted by the rising cost of funds. In therest of Asia-Pacific, net interest income rose by HK$1,362 million, or 26.8 percent, reflecting strong asset and deposit growth across the region. Mortgagelending increased in Australia, Taiwan, Korea, Singapore and India, benefitingfrom increased use of a direct sales force and successful promotional campaigns,although spreads narrowed in the face of competitive pressures on pricing andhigher funding costs. Interest earned on credit cards was higher, notably inIndonesia, the Philippines, India and Taiwan, reflecting strong growth inreceivables. The deposit base expanded in a number of countries, particularlymainland China and Singapore, and rising interest rates led to a widening ofdeposit spreads. Net interest income in 2005 also includes income of HK$989million from held-to-maturity investments in the insurance business; such incomewas included in 'Net investment income on assets backing policyholderliabilities' in 2004. Net fee income of HK$8,050 million was 7.0 per cent higher than in 2004, largelyattributable to strong growth in the sales of wealth management and insuranceproducts throughout the rest of Asia-Pacific and higher credit card fee income.Total revenue from wealth management and insurance products for the group grewby HK$547 million, or 7.0 per cent. Fee income from unit trust sales fell by 21.5per cent, driven by a change in market sentiment in Hong Kong as, in the higherinterest rate environment and with a flattening yield curve, investors reducedtheir demand for longer-term equity-related investments. Sales of structureddeposit products in Hong Kong, however, remained strong as income grew by 69.2per cent, reflecting increased marketing effort, an enhanced product range andthe use of private placement arrangements. Broking and custody income decreasedby 6.0 per cent, in line with the fall in retail securities turnover in HongKong. Fee income from credit cards was HK$435 million, or 20.7 per cent, higher thanin 2004, as the group maintained its position as the largest card issuer in HongKong, with 4.0 million cards in force. In the rest of Asia-Pacific, cards inissue grew by 32.7 per cent. Innovative and targeted promotional campaigns,together with an enhanced rewards programme, led to increased card spending ofHK$31.3 billion in Hong Kong and the region, and receivables grew by 30.0 percent. The group has continued to grow and develop its insurance business. Overall,insurance income from personal customers rose by 19.3 per cent to HK$4,522million. Life assurance income grew, attributable to an enhanced range ofinsurance and investment products. Revenues from general insurance and themandatory provident fund business were also higher. The charge for loan impairment increased, by HK$54 million to HK$1,344 million,reflecting higher provisions against credit card lending in the rest ofAsia-Pacific, in line with the significant growth in receivables throughout theregion, and a sharp rise in provisions in Taiwan reflecting higher delinquencylevels. In Hong Kong, however, there were lower provisions in the credit card,mortgage and other personal lending portfolios, as the economy continued torecover with falling unemployment, lower bankruptcies and higher residentialproperty prices. Operating expenses increased by HK$1,273 million, or 8.1 per cent, over 2004.Headcount rose to support business expansion across the region and included therecruitment of additional financial planning managers in Hong Kong and salesstaff in the rest of Asia-Pacific. Performance-related pay rose in line with theincrease in sales revenues. Higher marketing costs were incurred, particularlyfor mortgages, credit cards, insurance and investment products, in order toraise brand awareness and increase market penetration, particularly in the restof Asia-Pacific. Investment in technology increased to support higher businessvolumes, new product lines and the continued development of alternativedistribution channels. The increase was partly mitigated by the impact of achange in the allocation of certain centrally borne expenses to customer groups. Income from associates includes a full 12 months' share of profits from Bank ofCommunications attributable to Personal Financial Services. Commercial Banking reported profit before tax of HK$11,131 million, an increaseof 26.2 per cent over 2004, attributable primarily to improved deposit spreads,as well as balance sheet growth. Profit before tax in Hong Kong grew by 5.3 percent to HK$7,504 million, and in the rest of Asia-Pacific to HK$3,615 millionfrom HK$1,681 million. Operating profit excluding loan impairment provisionsrose by 40.4 per cent and 22.8 per cent in Hong Kong and the rest ofAsia-Pacific respectively. Net interest income increased by HK$4,024 million, or 57.0 per cent, comparedwith 2004. This reflected a 10.3 per cent growth in advances since the end of2004, and improvements in deposit spreads following rises in Hong Kong dollarand US dollar interest rates, coupled with increased active management of thecommercial banking deposit base. The benefit was, however, partly offset bycompetitive pressure on lending margins. In Hong Kong, advances to the property,manufacturing, trading and retail sectors grew, with higher new lending andincreased utilisation of existing facilities. The introduction of Core BusinessBanking Centres in 2004, together with an increase in the number of dedicatedrelationship managers to serve key accounts, and the implementation of apre-approved lending programme for small- and medium-sized enterprises,contributed to the growth in lending and deposits. The group continued tobenefit from the growth in international trade and the expansion of the Mainlandeconomy. Business links between Hong Kong and mainland China continue to bedeveloped, and three new branches and a sub-branch, with commercial bankingpresence, were opened. Throughout the region, the sales force and number ofrelationship managers have increased to take advantage of cross-sellingopportunities for insurance and investment products, as well as expandinglending and deposit-taking activities. In the rest of Asia-Pacific, net interestincome increased, notably in Singapore, mainland China and Taiwan, as a resultof asset and deposit growth and improved deposit spreads. Net interest incomealso includes income of HK$694 million from held-to-maturity investments in theinsurance business; this was included in 'Net investment income on assetsbacking policyholder liabilities' in 2004. Net fee income at HK$4,524 million was 10.0 per cent higher than 2004. Tradefinance activity in Hong Kong and mainland China remained strong, and fee incomerose despite increased market competition. The marketing of foreign exchangeproducts such as swaps and options, and of remittance services to Hong Kongcustomers engaged in international trade was also successful in contributing torevenues. Growth in fees elsewhere in the region was strong, particularly inIndonesia, Bahrain, Vietnam and Thailand, attributable to the expansion oflending and particular focus on developing relationships with customers involvedin international trade. Income from the sale of wealth management products fell,reflecting a fall in demand for unit trusts in Hong Kong, partly offset bygrowth in structured deposits. Income from insurance increased by 6.4 per cent(or 10.7 per cent on an underlying basis, as 2005 includes the allocation ofcertain commissions to Personal Financial Services) despite intense marketcompetition, with a new commercial banking insurance division established inHong Kong to provide customer-focused commercial insurance solutions andservices. There was a swing of HK$1,534 million in loan impairment provisions to a netcharge of HK$896 million from a net credit of HK$638 million in 2004, as 2004benefited from a general provision release. In 2005, there were higher newindividual provisions, and lower releases and recoveries, in the bank in HongKong and Hang Seng Bank, partly offset by lower new provisions and higherreleases in mainland China, and an increase in releases in India. Operating expenses rose by HK$640 million, or 13.4 per cent, as the number ofrelationship managers and support staff increased, although savings were madefrom initiatives to handle business via low cost channels. This included theenhancement of internet banking for which customer numbers have increased byover 40 per cent. The proportion of commercial banking transactions handled atbranch counters fell by more than 10 per cent and now only account for around 65per cent of all transactions. In mainland China and Korea, costs were driven byincreased investment to expand the branch network. A change in the allocation ofcertain centrally borne expenses to customer groups also contributed to the costgrowth. Income from associates includes a full 12 months' share of profits from Bank ofCommunications and Industrial Bank attributable to Commercial Banking. Corporate, Investment Banking and Markets reported profit before tax ofHK$13,252 million, 23.6 per cent lower than 2004, as a result of a decline innet interest income in Global Markets which more than offset a strong tradingperformance. Net interest income fell by HK$2,533 million, or 22.5 per cent, compared withlast year. In Corporate and Institutional Banking, deposit spreads improvedfollowing rises in Hong Kong and US dollar interest rates, which together withgrowth in loans, contributed to an increase in net interest income of 41.4 percent. The payments and cash management business performed exceptionally well,with new mandates won as a result of further enhancements to the product rangeand the group's cross-border coverage. Liability balances increased followingthe successful implementation of complex cash management solutions across theregion. In addition, India, Taiwan and Korea benefited from the growth indeposits from securities custody and clearing customers. In Global Markets, theadoption of new accounting standards affected trading income through thereclassification of interest and dividend income on trading assets andliabilities from 'Net interest income' and 'Dividend income', to 'Net tradingincome'. This added HK$817 million to net interest income but was, however, morethan offset by the maturity of higher yielding assets, rising short-term ratesand flat yield curves, resulting in less profitable reinvestment opportunities.There was also a reclassification of HK$199 million from 'Net interest income'to 'Net income from financial instruments at fair value'. Net fee income rose by 7.5 per cent to HK$5,388 million, principally due to theinclusion of a full year's profits from the Bank of Bermuda businesses, whichwere integrated into the group at the end of 2004 and contributed HK$1,219million to revenues. Corporate and Institutional Banking saw an increase in feesand commissions from the securities custody and clearing business, whichbenefited from increased stock market activity across the region, notably inKorea and India. The group's expertise in trade services and a well-establishednetwork in Asia-Pacific were key factors in securing new business in 2005,resulting in fee growth, particularly in India. Investment banking revenuesdeclined, reflecting a decrease in structured finance transactions, althoughfee income from the underwriting advisory business rose, with HSBC acting as joint global co-ordinator for three of the five largest IPOs in Hong Kong this year. These were the Hong Kong Government's HK$22.0 billion REIT IPO, the largest ever real estate offering and REIT IPO in the world, the HK$16.8 billionIPO by Bank of Communications and the HK$9.5 billion IPO of China COSCO Holdings. Net trading income increased by HK$1,420 million, or 24.5 per cent, over 2004,notwithstanding the inclusion of the net interest expense of HK$817 million ontrading assets and liabilities this year. In Hong Kong, investments made inenhancing the structured products platform resulted in increased revenues inforeign exchange options, equity derivatives, structured credit derivatives andinterest rate derivatives, but were partly offset by lower revenues generatedfrom capital-guaranteed investment solutions provided to the personal andcommercial banking businesses, as retail investors switched to deposit productsin the higher interest rate environment. Debt securities trading benefited fromcorrect positioning, with tightening in short-term corporate spreads in the lowHong Kong dollar interest rate environment in the first quarter of 2005. Thiswas, however, partly offset by losses on certain high yield bonds, following thedowngrading of certain companies in the automobile sector during the secondquarter, as well as a difficult credit trading environment later in the year,reflecting low volatility in credit spreads. In the rest of Asia-Pacific, excellent progress was made in the roll-out ofstructured products, particularly in Korea, Singapore and Taiwan. Foreignexchange revenues also improved, notably in Indonesia, benefiting from currencyvolatility and the group's growing customer franchise in the region. There was a net release of loan impairment provisions of HK$165 million,HK$1,354 million lower than the release in 2004. The credit environment in HongKong remained stable, but there were lower releases and recoveries of individualand collective provisions this year. Operating expenses increased by 32.3 per cent compared with 2004, reflectinghigher staff costs and the inclusion of costs relating to the Asia-Pacificoperations of Bank of Bermuda. Headcount increased to support businessexpansion, including the build up of the investment banking division and therecruitment of senior relationship managers to extend coverage along industrysector lines. The cost base was further impacted by a change in the allocationof certain centrally allocated overheads to customer groups and a rise in costrecharges in respect of global management functions. Income from associates includes a full 12 months' share of profits from Bank ofCommunications and Industrial Bank attributable to Corporate, Investment Bankingand Markets. Other includes income and expenses relating to staff housing loans, certainproperty activities, and investment and other activities that are not allocatedto other customer groups. Net interest income was lower, reflecting an increase in preference sharesissued, coupled with higher funding costs. The surplus on property revaluationand profits from property sales were higher, offset by lower gains on thedisposal and revaluation of long-term investments. Consolidated Income Statement Year ended Year ended 31Dec05 31Dec04Figures in HK$m restated Interest income 80,199 57,947Interest expense (36,708) (20,977)Net interest income 43,491 36,970Fee income 21,671 19,476Fee expense (3,574) (3,195)Net fee income 18,097 16,281Net trading income 7,180 7,003Net income from financial instruments designated at fair value 384 -Net investment income on assets backing policyholder liabilities - 898Gains less losses from financial investments 756 1,497Dividend income 368 163Net earned insurance premiums 19,340 14,085Other operating income 4,897 4,114Total operating income 94,513 81,011Net insurance claims incurred and movement in policyholder liabilities (17,291) (11,725)Net operating income before loan impairment charges and other credit risk provisions 77,222 69,286Loan impairment charges and other credit risk provisions (2,064) 862Net operating income 75,158 70,148Employee compensation and benefits (17,736) (14,765)General and administrative expenses (12,095) (10,293)Depreciation of property, plant and equipment (1,825) (1,752)Amortisation of intangible assets (158) (101)Total operating expenses (31,814) (26,911)Operating profit 43,344 43,237Share of profit in associates 1,905 299Profit before tax 45,249 43,536Tax expense (8,051) (6,988)Profit for the year 37,198 36,548 Attributable to shareholders 32,873 32,148Attributable to minority interests 4,325 4,400 Extract from the Consolidated Balance Sheet At 31Dec05 At 31Dec04Figures in HK$m restated AssetsCash and short-term funds 502,730 510,644Placings with banks maturing after one month 69,554 74,711Items in the course of collection from other banks 17,782 13,479Certificates of deposit 53,831 51,743Hong Kong SAR Government certificates of indebtedness 97,344 92,334Trading assets 215,681 87,732Financial assets designated at fair value 37,073 -Derivatives 72,039 94,398Advances to customers 999,326 919,192Financial investments 394,497 472,332Amounts due from fellow subsidiary companies 101,173 82,592Investments in associates 23,061 16,343Goodwill and intangible assets 7,252 5,329Property, plant and equipment 29,805 27,204Deferred tax assets 1,272 1,711Retirement benefit assets 1,788 1,307Other assets 48,324 35,764Total assets 2,672,532 2,486,815 LiabilitiesHong Kong SAR currency notes in circulation 97,344 92,334Deposits by banks 83,802 74,980Customer accounts 1,735,110 1,728,111Items in the course of transmission to other banks 20,927 23,452Trading liabilities 250,198 37,281Financial liabilities designated at fair value 2,927 -Derivatives 72,009 92,362Debt securities in issue 61,468 155,162Retirement benefit liabilities 394 327Amounts due to fellow subsidiary companies 22,275 17,568Amounts due to ultimate holding company 2,502 553Other liabilities 46,628 37,158Liabilities to customers under investment contracts 30,364 28,516Liabilities under insurance contracts issued 41,845 26,422Current taxation 2,044 2,333Deferred taxation 3,729 3,395Subordinated liabilities 12,561 11,142Preference shares 71,980 55,602Total liabilities 2,558,107 2,386,698 EquityShare capital 22,494 22,494Other reserves 6,037 6,029Retained profits 64,303 50,484Proposed final interim dividend 4,500 4,800Shareholders' funds 97,334 83,807Minority interests 17,091 16,310 114,425 100,117Total equity and liabilities 2,672,532 2,486,815 Consolidated Statement of Changes in Equity Year ended Year ended 31Dec05 31Dec04Figures in HK$m restated Called up share capitalBalance at 1 January previously reported 74,213 51,603Effect of transition to HKFRS (51,719) (35,349)As restated 22,494 16,254New ordinary shares issued - 6,240Balance at 31 December 22,494 22,494 Property revaluation reserveBalance at 1 January previously reported 11,907 7,135Effect of transition to HKFRS (8,842) (4,817)As restated 3,065 2,318Unrealised surplus on revaluation 2,053 559Transfer of depreciation from retained profits (173) (157)Transfer from retained profits - 876Realisation on disposal of properties (523) (417)Deferred tax and other movements (340) (114)Balance at 31 December 4,082 3,065 Other reservesBalance at 1 January previously reported 5,492 5,060Effect of transition to HKFRS (excluding the effect of HKAS 39) (2,528) (3,697)As restated 2,964 1,363Effect of adoption of HKAS 39 1,333 -As restated 4,297 1,363Long-term equity investments: Fair value gains taken to equity - 1,610 Transfer to income statement on disposal - (1,033) Deferred tax and other movements - (43)Available-for-sale investments: Fair value losses taken to equity (1,317) - Transfer to income statement on disposal (587) - Transfer to income statement on change in fair value of hedged items 983 - Deferred tax and other movements 6 - Share of associates' available-for-sale reserve 557 -Cash flow hedges: Fair value losses taken to equity (2,522) - Transfer to income statement 538 - Deferred tax and other movements 342 -Exchange differences arising on monetary items that form part of a net investment in a foreign operation (790) 843Employees' options granted cost free by ultimate holding company 307 224Exchange and other movements 141 -Balance at 31 December 1,955 2,964 Retained profitsBalance at 1 January previously reported 51,083 37,764Effect of transition to HKFRS (excluding the effect of HKAS 39) (599) 1,235As restated 50,484 38,999Effect of adoption of HKAS 39 (39) -As restated 50,445 38,999Profit for the year attributable to shareholders 32,873 32,148Dividends (20,300) (20,300)Transfer of depreciation to property revaluation reserve 173 157Transfer to property revaluation reserve - (876)Realisation on disposal of properties 523 417Actuarial gains/(losses) on defined benefit plans 73 (453)Deferred tax and other movements 516 392Balance at 31 December 64,303 50,484 Dividend declared but not yet approved 4,500 4,800 Consolidated Cash Flow Statement Year ended Year ended 31Dec05 31Dec04Figures in HK$m restated Operating activitiesCash generated from operations 31,009 120,557Interest received on financial investments 14,759 12,780Dividends received on financial investments 339 187Dividends received from associates 108 52Taxation paid (7,313) (5,083)Net cash inflow from operating activities 38,902 128,493 Investing activitiesPurchase of financial investments (335,668) (289,647)Proceeds from sale or redemption of financial investments 366,294 269,007Purchase of property, plant and equipment (1,749) (1,369)Proceeds from sale of property, plant and equipment 1,153 846Purchase of other intangibles (670) (101)Net cash outflow in respect of acquisition of and increased shareholding in subsidiary companies (1,644) (972)Net cash inflow in respect of sale of subsidiary companies 151 39Net cash outflow in respect of purchase of business - (588)Net cash outflow in respect of purchase of interest in associates (3,358) (15,415)Proceeds from sale of interest in associates 10 12Net cash inflow/(outflow) from investing activities 24,519 (38,188) Net cash inflow before financing 63,421 90,305 FinancingIssue of ordinary share capital - 6,240Issue of non-cumulative irredeemable preference shares - 16,356Issue of cumulative irredeemable preference shares 16,567 -Increase in non-equity minority interests 362 -Repayment of loan capital - (1,771)Issue of subordinated liabilities 2,500 -Ordinary dividends paid (20,600) (23,950)Dividends paid to minority interests (3,983) (3,787)Interest paid on preference shares (1,574) (1,269)Interest paid on loan capital (555) (576)Net cash outflow from financing (7,283) (8,757) Increase in cash and cash equivalents 56,138 81,548 This information is provided by RNS The company news service from the London Stock Exchange