HSBC Bank Malta plc - Full-Year Results & Dividend Announcement

On 18 February, HSBC Bank Malta plc issued their preliminary profit statement for the year ended 31 December 2007.

The key highlights are:
• Net operating income up 12.9% to €198.7 million;
• Expenses rise by 4.9% to €82.6 million;
• Cost to income of 42.1%;
• Pre-tax profit of €114.7 million (+19%);
• Deposits grow 17.5% to €4 billion; loans rise by 7.6% to €2.8 billion;
• Pre-tax return on equity of 41.5%;
• Gross final dividend of €0.148 per share.

The Board of Directors recommended a final ordinary gross dividend of €0.148 per share (€0.0962 net of tax), 20 per cent higher than last year’s final dividend but 3.9 per cent below the 2007 interim dividend. Once approved during the Annual General Meeting scheduled for 4 April 2008, the final dividend will be paid on 29 April 2008 to all those shareholders appearing on the Company’s share register as at close of trading on Tuesday 26 February. The equity begins trading ex-dividend as from Wednesday 27 February 2008. Following the interim ordinary gross dividend of €0.154 per share paid in August 2007, the total ordinary dividend in respect of the 2007 financial year amounts to €0.302 per share with the dividend payout ratio remaining unchanged at 75 per cent. In August 2007, HSBC had also paid a special gross dividend of €0.093 per share.  The payout ratio including the special dividend works out at 98.1 per cent compared to 112.5 per cent in 2006 and 170.9 per cent the previous year.

During 2007, HSBC Bank Malta plc and its subsidiaries generated net interest income of €126.2 million, an increase of 15.4 per cent over the previous year resulting from the strong growth in loans (+7.6 per cent) as well as customer deposits (+17.5 per cent). The Group’s non-interest income rose by 8.7 per cent during 2007 to €72.5 million. The largest component, net fee and commission income, increased by 5 per cent to €31 million, while trading profits mainly from foreign exchange edged 1.8 per cent higher to €16.8 million. Other operating income climbed from €5.4 million to €15.8 million arising from the growth in new insurance business and revaluation gains in investment properties. Income from insurance activities declined to €5 million due to a sharp drop in gains from the investment portfolio.

HSBC Bank Malta’s total net operating income during the financial year ended 31 December 2007 grew by 12.9 per cent to €198.7 million. On the other hand, non-interest expenses increased by 4.9 per cent to €82.6 million. Employee and compensation benefits were marginally lower at €49.8 million while general and administrative expenses rose 17.4 per cent to €26.7 million. The Directors attributed this increased expenditure to the euro conversion project and the adoption of the legislation related to the Single Euro Payments Area (SEPA) as well as a rise in other regulatory costs. Despite the increase in expenditure, the higher growth in operating income contributed to a further improvement in the cost to income ratio to 42.1 per cent in 2007 from 45.5 per cent the previous year.

After accounting for amortisation of goodwill, HSBC’s operating profit before impairment allowances amounted to €114.7 million, representing a rise of 19.5 per cent over the comparative period. After four years of net impairment reversals, HSBC incurred a slight net impairment provision of €42,000. The Directors reported an overall improvement in the credit quality of the loan portfolio leading to a further decline in non-performing loans to €81.5 million, equivalent to 2.8 per cent of total gross loans – a strong improvement from the levels seen in recent years.

The HSBC Bank Malta Group generated a record pre-tax profit of €114.7 million during the year under review, 19 per cent higher than the profitability achieved in 2006. This is the seventh successive year of record profits for HSBC. After deducting tax of €38.3 million, the profits for the year amounted to €76.4 million resulting in earnings per share of €0.262.

Total assets as at 31 December 2007 amounted to €4.9 billion, 11% higher than the previous year with loans rising by 7.6 per cent to €2.8 billion. CEO Mr Shaun Wallis explained that the growth in lending was spread across both personal use including mortgages as well as for commercial use. Holdings of treasury bills and balances with the Central Bank of Malta increased to €472 million from €304 million in December 2006. On the liabilities side, customers’ deposits surged by 17.5 per cent to €4 billion. This rise was not only as a result of the increase in deposits ahead of the conversion to the euro but also following significant redemptions in the local bond funds during the summer months in response to the rise in interest rates. The stronger rise in deposits compared to loans resulted in a drop in the ratio of advances to deposits to 69.9 per cent (2006: 76.3 per cent). Shareholders’ funds decreased by a further 6 per cent in 2007 to €276.7 million resulting in a net asset value per share of €0.948.

The strong rise in profitability and drop in shareholders’ equity resulted in a significant improvement in HSBC’s financial ratios. The pre-tax return on equity surged to a record 41.5 per cent (2006: 32.8 per cent), while on a post-tax basis the ROE is 25.9 per cent. Likewise, the Group’s return on assets improved to 2.67 per cent. HSBC reported that the capital solvency ratio as at 31 December 2007 was 11.3 per cent with Mr Wallis noting that the minimum internal threshold at HSBC is of 10 per cent. The CEO confirmed HSBC’s belief that any excess capital should be returned to shareholders.

Based on the share price of €4.599 prior to the announcement of the results, the price to earnings multiple dropped to 17.6 times following the increased profitability. Moreover, the rise in ordinary dividends led to an improvement in the gross dividend yield to 6.57 per cent per annum. HSBC Malta’s CEO confirmed that the Bank will continue distributing 75 per cent of their yearly profits to shareholders.

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