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HSBC Managing Growth, Scale and Complexity
1. Goldman Sachs 10th Annual European Conference
MANAGING GROWTH,
SCALE AND COMPLEXITY
Douglas Flint
Group Finance Director
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.
Goldman Sachs 10th Annual European Conference 2
3. HSBC – record of growth
Dividends per Share / Earnings per Share
US cents
140
120
100
80
60
40
20
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
UK GAAP (excl goodwill amortisation) IFRS
DPS EPS
Goldman Sachs 10th Annual European Conference 3
4. Investor reactions to HSBC core values
BEAR BULL
Geographic Coverage
and Scale
• Too many moving parts? • Cross border differentiation
• Hard to see what drives • Cost synergies
performance
• Development opportunities
• Is it manageable? for human talent pool
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5. Investor reactions to HSBC core values
BEAR BULL
Diversified Risk Profile
• Over-exposed to US • Most diversified by
consumer geography, customer
segment and risk type
• Consumer finance model
transferable
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6. Investor reactions to HSBC core values
BEAR BULL
Emerging Market
Potential
• Not as leveraged as pure • Combination of emerging
plays markets and developed
economies offers powerful
• Absence of consolidation
synergies
premium
• Best positioned in China
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7. Strong growth in emerging markets pretax profits
% Change
% Change
US$m 2000*
2000* 2004
2004 2005
2005 2005/2004
2005/2004
Argentina 112 154 244 58
Brazil 208 281 406 44
China -26 32 334 944
India 87 178 212 19
Indonesia 70 76 113 49
Malaysia 116 214 236 10
Mexico 9 774 923 19
Saudi Arabia 30 122 236 93
South Korea 65 89 94 6
Taiwan 45 107 68 -36
Turkey 59 142 265 87
UAE 130 192 308 60
Total 905 2,361 3,439 +46
*2000 figures, UK GAAP excluding goodwill amortisation
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8. Investor reactions to HSBC core values
BEAR BULL
Capital Strength
• A drag on returns • Reflects discipline
• Source of advantage if
there are stresses
• Opportunity to leverage
returns
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9. Return on Average Invested Capital - 1998 to 2005
(%) US$m
20 100,000
80,000
15
60,000
10
40,000
5
20,000
0 0
1998 1999 2000 2001 2002 2003 2004 2005
UK GAAP IFRS
Average Invested Capital (RHS) Return on Average Invested Capital (LHS)
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10. Post tax return on average risk-weighted
assets
%
2.5
2.0
1.5
1.0
0.5
0.0
1998 1999 2000 2001 2002 2003 2004 2005
UK GAAP (excluding goodwill amortisation) IFRS
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11. Economic Profit - 1998 to 2005
Benchmark cost of
capital reduced from
12.5% to 10.0%
US$m
6,000
5,000
4,000
3,000
2,000
1,000
0
-1,000
1998 1999 2000 2001 2002 2003 2004 2005
UK GAAP IFRS
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12. HSBC financial framework
$bn
Tier 1 Capital (as at 31Dec05) 74
Net income attributable to
ordinary shareholders (2005) 15
Dividend payout 50 - 60%
Scrip dividend impact 15 - 40% (of dividends)
Available to fund organic growth and
acquisitions goodwill 50 - 60% (of net income)
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13. Fundamental strategic thinking
• A bank is a ‘leveraged’ play on the underlying economy, therefore the key challenge is to:
– Select the better performing economies
– Attract the most valuable clients in our chosen economies
• HSBC aims to produce a blend of earnings from:
– Developed mature-growth economies
– Developing higher-growth economies (considered on a risk-adjusted basis)
• Leveraging our internationality provides revenue generating and cost saving opportunities
– Leveraging through our local presence the increasing trade and other links between
developed and developing economies
– Transferring skills and best practice
– Managing resources globally
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14. HSBC’s ‘Broadbrush’ 25-year scenario
• Key economic areas will be:
– NAFTA
– Greater China
• 50% of the increase in world demand will come from
developing countries such as:
– China, India, Mexico and Brazil
• Major opportunities within the diaspora of:
– Chinese, Hispanic, Indian and many other expatriate communities
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15. HSBC – Profit before tax by Main Country - 2005
Consumer
Personal Financial Commercial
Finance
Services Banking
US$4-5bn US$500m – 1bn US$100m – 500m US$50 – 100m
United States Mexico Brazil South Korea
Hong Kong France Mainland China Australia
United Kingdom Canada Singapore Thailand
Switzerland Taiwan
Malaysia Rep. of Ireland
UAE Egypt
India Qatar
Saudi Arabia
Argentina
Turkey
Germany
Bermuda
Indonesia
Malta
Corporate, Investment Private
Banking & Markets Banking
Denotes significant acquisition in the last 10 years
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16. Longer term the recycling of capital through New
York or London will diminish
- ‘South-North’ and ‘South-South’ investment flows increasingly important
Chinese outward direct investment Most attractive business locations for trans-national
corporations 2005-06
USDm
100%
8,000
80%
6,000
60%
4,000 40%
2,000 20%
0 0%
Germany
UK
Brazil
US
China
Russia
Canada
Mexico
Thailand
India
1991 1993 1995 1997 1999 2001 2003 2005
Source: HSBC, CEIC Source: UNCTAD FDI Prospects 2005
Expected sources of FDI Latin America 2005-06 Expected sources of FDI Asia-Pacific 2005-06
US US
Spain China
Brazil Japan
China Australia
Canada India
0% 10% 20% 30% 40% 50% 60% 70% 80% 0% 10% 20% 30% 40% 50% 60% 70%
Source: UNCTAD FDI Prospects 2005 Source: UNCTAD FDI Prospects 2005
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17. Role of the Centre - Capital allocation
• Can we get scale?
• Have we comparative advantage and will it last?
• How consumptive of technology resource is it?
• How distracting will it be for existing management?
• How does the market value this business?
• Can we migrate the learning if successful?
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18. Role of the Centre – Driving IT efficiencies
from scale
Standardize applications used across the business
Standardize business processes
n
Standardize Back office
tio tion
ca a
Globalisation of customer base
pli olid
Ap ons
C
nd
ea
tic
P rac ture n
est hitec catio
B rc ifi Multiple applications on a single partitioned server
A mp l
si Replace many low end servers with one high-end server
Enable ‘follow the sun’ support
ols
nt/to ion
me dizat
uip r
Eq anda Advantages of skills transfer and Training
S t Advantages of skills transfer and Training
Increased purchasing leverage and Global best pricing
l&
ica
ph
o gra al tion
Ge ysic lida
Ph ons o Elimination of excess overheads and fixed costs
C Aggregation of demand, leverage economies of scale.
Aggregation of demand, leverage economies of scale.
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19. Role of the Centre - Leveraging Group skills
Mexico
• Internationality of Group key to ensuring success of acquisition
– Influx of Group talent
– Tightened controls (compliance and internal audit)
– Installed new systems (treasury, branches, trade services and credit card)
• Leverage Mexico’s ATM capabilities – location selection, direct sales
channel, charity donations.
Rolling out the consumer finance model
• Marketing skills Asia
• Sophisticated analytics Mexico
• Scaleable systems Brazil
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20. In Global Markets we have rolled out our
Asian financing model with great success
In Latin America
30
• Hub and spoke management
complemented by in-country
20 coverage expertise
10
• Strong local distribution coupled with
0
0 0 global emerging markets platform
2002 2003 2004 2005 provides optimal execution for issuers
Mandates - Bonds Mandates - Loans
In the Middle East and North Africa In Central and Eastern Europe
40 20
30
20 10
10
0 0 0
0 0
2002 2003 2004 2005 2002 2003 2004 2005
Mandates - Bonds Mandates - Loans Mandates - Bonds Mandates - Loans
Mandates at bookrunner or equivalent
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21. Role of the Centre – Maintaining a
consistent risk profile
%
10
8
As a % of Average
Risk-Weighted
Assets 6
4
2
0
2001 2002 2003 2004 2005
Credit Charges Revenues
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22. Role of the Centre – Managing scale and
complexity
• Tone from the top
• Collective Management
• Rotation of senior management
• Training at all levels
• Reward mechanisms
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23. Distribution remains the key competitive
advantage – and therefore highlights the
importance of the brand
HSBC Group international network
Manchester
Stockholm
Edinburgh Leeds
Isle of Man Birmingham
London Moscow
Belfast Brussels
Saskatoon Dublin Amsterdam
Calgary Winnipeg Montréal Cardiff Düsseldorf Warsaw
Vancouver Ottawa Québec St John’s Channel Islands Prague Frankfurt
Seattle Portland Luxembourg Zurich Bratislavia
Sioux Falls Toronto Fredericton Paris Geneva Budapest Almaty
Tigard Prospect Heights Boston Lugano Daegu
Chicago Barcelona Monaco Milan
Glastonbury Izmir Yerevan Beijing Daejon
San Francisco Kansas City Buffalo Madrid Rome Istanbul Dalian
Salinas Las Vegas New York City Ankara Tianjin Seoul
Chesapeake Bridgewater Valencia Athens Adana Inchon Tokyo
Beverly Hills Lewisville Baghdad Qingdao
Virginia Beach Philadelphia Nicosia Beirut Tehran Chandigarh
Los Angeles Dallas New Castle Algiers Valletta Suzhou Pusan
Bermuda Tel Aviv Ramallah Manama Osaka
San Diego Houston Washington Kuwait City Wuhan Shanghai
Brandon Atlanta Tripoli Doha New Delhi Chengdu
Tijuana CairoAmman Abu Dhabi Chongqing
Shenzhen
Torreón Monterrey Miami Jacksonville Alexandria Dammam Ahmedabad Xiamen
Dubai Guangzhou Taipei
Guadalajara Nassau Riyadh Dhaka Chittagong
Mexico City Mérida Cancún Muttrah Karachi Kolkata Macau Hong Kong
Jeddah Muscat Hanoi
Puebla Cayman Tortola (British Virgin Islands) Mumbai Visakhapatnam
Acapulco Islands Salalah Pune Hyderabad Ho Chi
Bangalore Manila
Bangkok Minh City
Veracruz Colón Chennai
Caracas Trivandrum Cebu City
Penang
Panama City Colombo Kuala
Kota Kinabalu
Medan Lumpur Labuan
Bandar Seri Begawan
Malé (Maldives) Singapore
Belém Kuching
Manaus Jakarta Semarang
Fortaleza
Recife Bandung Surabaya
Brasília Salvador
Ribeirão Preto
Campo Grande
Belo Horizonte
Corrientes Port Louis (Mauritius)
Posadas Rio de Janeiro
Salta São Paulo
Tucumán Curitiba Johannesburg
Resistencia Porto Alegre Brisbane
San Juan Santa Fé Durban Perth
Cook Islands Santiago Paraná Adelaide
Mendoza Punta del Este Sydney
Cape Town
Córdoba Montevideo Auckland
Neuquén Buenos Aires Melbourne
La Plata Wellington
Bahía Blanca Mar del Plata
Christchurch
Pergamino
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24. What is our unique point of view on the
world?
In a world where homogeneity and standardisation
dominate, we are building our business in the belief
that different people from different cultures and
different walks of life create value.
We believe that it is the combination of different
people, and the fusion of different ideas, that
provides the essential fuel for progress and success.
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25. What does this position
demand of each and every one
of us?
To provide people from different cultures
and different walks of life with the
financial support that helps them to live
the life that best reflects who they are and
what they want to achieve.
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