John Flint, Group Chief Executive, said:
“These are good results that demonstrate progress against the plan that I outlined in June 2018. Profits and revenue were both up despite a challenging fourth quarter, and our return on tangible equity is significantly higher than in 2017. This is an encouraging first step towards meeting our return on tangible equity target of more than 11% by 2020.”
Key highlights
• Progress made against our eight strategic priorities, including accelerated growth from Asia and our international network, growth in our UK customer base, delivery of more sustainable finance, improved capital efficiency and investments in technology.
• Reported profit before tax of $19.9bn in 2018 was 16% higher than in 2017, reflecting revenue growth in all of our global businesses. Adjusted profit before tax of $21.7bn in 2018 was 3% higher than in 2017, excluding the effects of foreign currency translation differences and movements in significant items.
• Reported revenue of $53.8bn was 5% higher, notably driven by a rise in deposit revenue across our global businesses, primarily in Asia, as we benefited from wider margins and grew our balances. These increases were partly offset by lower revenue in Corporate Centre. Adjusted revenue of $53.9bn was 4% higher, excluding the effects of foreign currency translation differences and movements in significant items.
• Reported operating expenses of $34.7bn were 1% lower, as higher costs, including investments made to grow the business and enhance our digital capabilities were more than offset by net favourable movements in significant items, mainly the non-recurrence of costs to achieve expenditure in 2017. Adjusted operating expenses of $33.0bn were 6% higher, excluding the effects of foreign currency translation differences and movements in significant items.
• Adjusted jaws for 2018 was negative 1.2%, due to lower adjusted revenue in 4Q18 (down 8% on 3Q18), from weakness in markets. Operating expenses were higher from investments in business growth. We reiterate our commitment to the discipline of positive adjusted jaws.
• Return on average tangible equity rose to 8.6% from 6.8%, up 1.8 percentage points.
• Reported loans and advances to customers increased by $32bn. Excluding foreign currency translation differences, loans and advances grew by $66bn or 7% from 1 January 2018.
• Common equity tier 1 ('CET1') ratio of 14.0% and CRD IV leverage ratio of 5.5%.
• Maintained the dividend at $0.51 per ordinary share; total dividends in respect of the year of $10.2bn; confident of maintaining at this level.
|
Financial highlights and key ratios |
|||||||
|
|
|
Year ended 31 Dec |
|
||||
|
|
|
2018 |
2017 |
Change |
|||
|
|
Footnotes |
$m |
$m |
% |
|||
|
Reported profit before tax |
|
19,890 |
17,167 |
15.9 |
|
||
|
Adjusted profit before tax |
1 |
21,719 |
21,133 |
2.8 |
|
||
|
Return on average ordinary shareholders' equity (annualised) |
|
7.7 |
% |
5.9 |
% |
|
|
|
Return on average tangible equity |
|
8.6 |
% |
6.8 |
% |
|
|
|
Adjusted jaws |
2 |
(1.2 |
%) |
|
|
||
For footnotes, see page 2.
We use adjusted performance to understand the underlying trends in the business. The main differences between reported and adjusted are foreign currency translation and significant items.
|
Capital and balance sheet |
||||||
|
|
At 31 Dec |
|
||||
|
|
2018 |
2017 |
Change |
|||
|
|
% |
% |
|
|||
|
Common equity tier 1 ratio |
14.0 |
|
14.5 |
|
|
|
|
Leverage ratio |
5.5 |
|
5.6 |
|
|
|
|
|
$m |
$m |
$m |
|||
|
Loans and advances to customers |
981,696 |
|
962,964 |
|
18,732 |
|
|
Customer accounts |
1,362,643 |
|
1,364,462 |
|
(1,819 |
) |
|
Risk-weighted assets ('RWAs') |
865,318 |
|
871,337 |
|
(6,019 |
) |
|
Highlights |
|
|
|
Year ended 31 Dec |
|||
|
|
|
2018 |
2017 |
||
|
|
Footnotes |
$m |
$m |
||
|
Reported |
|
|
|
||
|
Revenue |
3 |
53,780 |
|
51,445 |
|
|
Change in expected credit losses and other credit impairment charges |
|
(1,767 |
) |
N/A |
|
|
Loan impairment charges and other credit risk provisions |
|
N/A |
(1,769 |
) |
|
|
Operating expenses |
|
(34,659 |
) |
(34,884 |
) |
|
Profit before tax |
|
19,890 |
|
17,167 |
|
|
Adjusted |
|
|
|
||
|
Revenue |
3 |
53,940 |
|
51,661 |
|
|
Change in expected credit losses and other credit impairment charges |
|
(1,767 |
) |
N/A |
|
|
Loan impairment charges and other credit risk provisions |
|
N/A |
(1,713 |
) |
|
|
Operating expenses |
|
(32,990 |
) |
(31,231 |
) |
|
Profit before tax |
|
21,719 |
|
21,133 |
|
|
Significant items affecting adjusted performance |
|
|
|
||
|
Revenue |
|
|
|
||
|
Customer redress programmes |
|
53 |
|
(108 |
) |
|
Disposals, acquisitions and investment in new businesses |
|
(113 |
) |
274 |
|
|
Fair value movements on financial instruments |
|
(100 |
) |
(245 |
) |
|
Operating expenses |
|
|
|
||
|
Costs of structural reform |
|
(361 |
) |
(420 |
) |
|
Costs to achieve |
|
– |
|
(3,002 |
) |
|
Customer redress programmes |
|
(146 |
) |
(655 |
) |
|
Disposals, acquisitions and investment in new businesses |
|
(52 |
) |
(53 |
) |
|
Gain on partial settlement of pension obligation |
|
– |
|
188 |
|
|
Past service costs of guaranteed minimum pension benefits equalisation |
|
(228 |
) |
– |
|
|
Restructuring and other related costs |
|
(66 |
) |
– |
|
|
Settlements and provisions in connection with legal matters and other regulatory matters |
|
(816 |
) |
198 |
|
1 Adjusted performance is computed by adjusting reported results for the year-on-year effects of foreign currency translation differences and significant items which distort year-on-year comparisons.
2 Includes UK bank levy.
3 Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
|
Statement by Mark E Tucker, Group Chairman |
Our ability to meet our targets depends on being able to help our customers manage the present uncertainty and capture the opportunities that unquestionably exist.
HSBC is in a strong position. Our performance in 2018 demonstrated the underlying health of the business and the potential of the strategy that John Flint, our Group Chief Executive, announced in June.
Despite a challenging external environment in the fourth quarter, all of our global businesses delivered increased profits and the Group achieved a higher return on tangible equity in 2018. Asia again contributed a substantial portion of the Group's profits, notably in Retail Banking and Wealth Management and Commercial Banking. Overall, the Group delivered reported profit before tax of $19.9bn, up 16% on 2017, and adjusted profit before tax of $21.7bn, up 3%.
This performance allows us to approve a fourth interim dividend of $0.21, bringing the total dividend for 2018 to $0.51.