HK&S Bank Corp Interim 05 Pt3

HSBC Holdings PLC 01 August 2005 23. Analysis of advances to customers by industry sector based on categories and definitions used by the Hong Kong Monetary Authority ('HKMA') The following analysis of advances to customers is based on the categories contained in the 'Quarterly Analysis of Loans and Advances and Provisions' return required to be submitted to the HKMA by branches of the bank and by banking subsidiary companies in Hong Kong. At 30Jun05 At 30Jun04 At 31Dec04 Figures in HK$m restated restated Gross advances to customers for use in Hong Kong Industrial, commercial and financial Property development 37,417 32,820 36,230 Property investment 92,976 85,480 93,696 Financial concerns 13,704 14,282 14,784 Stockbrokers 983 1,201 1,185 Wholesale and retail trade 34,679 29,625 32,099 Manufacturing 18,588 13,125 14,336 Transport and transport equipment 33,145 33,610 35,418 Others 47,570 41,332 41,134 279,062 251,475 268,882 Individuals Advances for the purchase of flats under the Hong Kong SAR Government's Home Ownership Scheme, Private Sector Participation and Tenants Purchase Scheme 39,131 45,057 41,845 Advances for the purchase of other residential properties 168,042 168,537 169,482 Credit card advances 22,205 20,189 23,162 Others 22,557 19,772 20,257 251,935 253,555 254,746 Gross advances to customers for use in Hong Kong 530,997 505,030 523,628 Trade finance 54,439 48,738 49,408 Gross advances to customers for use outside Hong Kong made by branches of the bank and subsidiary companies in Hong Kong 17,924 15,436 20,747 Gross advances to customers made by branches of the bank and subsidiary companies in Hong Kong 603,360 569,204 593,783 Gross advances to customers made by branches of the bank and subsidiary companies outside Hong Kong -Rest of Asia-Pacific 377,548 289,409 333,324 -Americas/Europe 4 12 14 Gross advances to customers 980,912 858,625 927,121 An explanation of the significant differences between the categories of advances and their definitions used by the HSBC Group and those used by the HKMA is given on page 18 of the Annual Report and Accounts for 2004. 24. Cross-border exposure The country risk exposures shown below are prepared in accordance with the HKMA Return of External Positions Part II: Cross-Border Claims (MA(BS)9) guidelines. Cross-border claims are on-balance sheet exposures to counterparties based on the location of the counterparties after taking into account the transfer of risk. The tables show claims on individual countries and territories or areas, after risk transfer, amounting to 10 per cent or more of the aggregate cross-border claims. Cross-border risk is controlled centrally through a well-developed system of country limits and is frequently reviewed to avoid concentration of transfer, economic or political risk. Banks and other Public financial sector Figures in HK$m institutions entities Other Total At 30Jun05 Americas United States 51,906 75,139 28,191 155,236 Other 40,686 13,491 47,349 101,526 92,592 88,630 75,540 256,762 Europe United Kingdom 91,103 27 26,182 117,312 Other 335,154 3,746 21,533 360,433 426,257 3,773 47,715 477,745 Asia-Pacific excluding Hong Kong 159,828 12,047 97,209 269,084 At 30Jun04 Americas United States 22,178 78,603 28,591 129,372 Other 41,665 15,244 48,098 105,007 63,843 93,847 76,689 234,379 Europe United Kingdom 72,230 16 27,131 99,377 Other 262,703 3,785 23,954 290,442 334,933 3,801 51,085 389,819 Asia-Pacific excluding Hong Kong 134,372 37,255 81,332 252,959 At 31Dec04 Americas United States 45,518 80,047 32,010 157,575 Other 43,044 16,143 47,297 106,484 88,562 96,190 79,307 264,059 Europe United Kingdom 86,613 27 23,294 109,934 Other 332,581 4,219 22,168 358,968 419,194 4,246 45,462 468,902 Asia-Pacific excluding Hong Kong 151,183 18,454 77,266 246,903 25. Current, savings and other deposits At 30Jun05 At 30Jun04 At 31Dec04 Figures in HK$m restated restated Current accounts and demand deposits 959,723 948,974 1,069,178 Savings accounts 563,002 501,459 516,237 Other deposit accounts 148,708 120,418 142,696 Customer accounts 1,671,433 1,570,851 1,728,111 Current, savings and other deposits decreased by HK$57 billion, or 3.3 per cent, compared with the end of 2004. In Hong Kong, current account balances and demand deposits fell in the first half of 2005 by HK$118 billion, or 13.3 per cent, reflecting the shift by customers into savings and time deposits, in line with the increases in market rates. In the rest of Asia-Pacific, customer accounts rose by HK$29 billion, or 7.0 per cent. Certain structured deposits that were previously recorded in 'Other deposit accounts' have, in accordance with revised accounting standards, been reclassified in 2005 to 'Trading liabilities'. The group's advances-to-deposits ratio increased to 58.3 per cent at 30 June 2005 from 53.2 per cent at 31 December 2004. 26. Trading liabilities At 30Jun05 At 30Jun04 At 31Dec04 Figures in HK$m restated restated Certificates of deposit in issue 83,048 - - Other debt securities in issue 22,976 - - Short positions in securities 52,402 35,810 37,281 Deposits by banks 5,044 - - Customer accounts 55,182 - - 218,652 35,810 37,281 Trading liabilities include customer deposits and certificates of deposit with embedded options or other derivatives, the market risk of which is managed in the trading book. 27. Financial liabilities designated as at fair value At 30Jun05 At 30Jun04 At 31Dec04 Figures in HK$m restated restated Customer accounts 1,192 - - Subordinated liabilities 995 - - 2,187 - - There was no such category in 2004. 28. Debt securities in issue At 30Jun05 At 30Jun04 At 31Dec04 Figures in HK$m restated restated Certificates of deposit 43,397 100,301 110,922 Other debt securities 16,203 31,387 44,240 59,600 131,688 155,162 The fall in debt securities in issue compared with the end of 2004 reflects the reclassification of certain securities as 'Trading liabilities', as detailed in Note 26. 29. Reserves At 30Jun05 At 30Jun04 At 31Dec04 Figures in HK$m restated restated Revaluation reserves - Premises revaluation reserve 5,065 3,207 3,561 - Available-for-sale investments reserve 2,399 - - - Cash flow hedge reserve (2,248) - - - Long-term equity investment revaluation reserve - 1,204 1,799 5,216 4,411 5,360 Foreign exchange reserve 303 (614) 843 Other reserves 444 191 322 5,963 3,988 6,525 Retained profits 58,759 46,215 51,497 64,722 50,203 58,022 The bank and its banking subsidiary companies operate under regulatory jurisdictions which require the maintenance of minimum impairment provisions in excess of those required under Hong Kong Accounting Standards. The effect of this requirement is to restrict the amount of reserves which can be distributed to shareholders by HK$1,017 million. 30. Contingent liabilities, commitments and derivatives Credit Risk- Contract equivalent weighted Figures in HK$m amount amount amount At 30Jun05 Contingent liabilities - Acceptances and endorsements 22,273 4,875 4,762 - Guarantees 157,375 134,910 48,035 - Other 40 40 40 179,688 139,825 52,837 Commitments - Documentary credits and short- term trade-related transactions 58,058 19,828 11,658 - Forward asset purchases and forward forward deposits placed 9,710 9,710 8,746 - Undrawn note issuing and revolving underwriting facilities 3,982 1,991 1,614 - Undrawn formal standby facilities, credit lines and other commitments: - one year and over 99,653 49,826 44,479 - under one year 715,575 - - 886,978 81,355 66,497 Exchange rate contracts - Spot and forward foreign exchange 2,545,957 41,632 10,641 - Other exchange rate contracts 971,018 42,392 12,576 3,516,975 84,024 23,217 Interest rate contracts - Interest rate swaps 4,367,557 53,818 13,740 - Other interest rate contracts 679,471 5,560 1,714 5,047,028 59,378 15,454 Other derivative contracts 163,291 8,805 3,116 Impact of counterparty netting agreements on derivatives exposure - (58,343) (12,693) At 30Jun04 Contingent liabilities - Acceptances and endorsements 19,538 3,908 3,782 - Guarantees 143,236 126,211 43,358 - Other 67 67 37 162,841 130,186 47,177 Commitments - Documentary credits and short-term trade-related transactions 51,706 13,922 10,170 - Forward asset purchases and forward forward deposits placed 4,320 4,320 2,140 - Undrawn note issuing and revolving underwriting facilities 4,126 2,063 1,686 - Undrawn formal standby facilities, credit lines and other commitments: - one year and over 70,567 35,283 33,817 - under one year 579,396 - - 710,115 55,588 47,813 Exchange rate contracts - Spot and forward foreign exchange 2,300,878 35,515 8,732 - Other exchange rate contracts 650,466 30,711 8,618 2,951,344 66,226 17,350 Interest rate contracts - Interest rate swaps 2,974,127 46,253 12,519 - Other interest rate contracts 695,439 2,652 682 3,669,566 48,905 13,201 Other derivative contracts 40,153 2,938 881 Impact of counterparty netting agreements on derivatives exposure - (41,574) (8,699) At 31Dec04 Contingent liabilities - Acceptances and endorsements 22,714 4,559 4,423 - Guarantees 157,833 136,474 48,837 - Other 35 35 33 180,582 141,068 53,293 Commitments - Documentary credits and short-term trade-related transactions 48,493 13,770 9,591 - Forward asset purchases and forward forward deposits placed 10,166 10,166 3,716 - Undrawn note issuing and revolving underwriting facilities 4,116 2,058 1,680 - Undrawn formal standby facilities, credit lines and other commitments: - one year and over 82,142 1,071 38,311 - under one year 657,682 - - 802,599 67,065 53,298 Exchange rate contracts - Spot and forward foreign exchange 2,411,793 46,694 11,759 - Other exchange rate contracts 696,883 39,635 11,180 3,108,676 86,329 22,939 Interest rate contracts - Interest rate swaps 3,754,053 57,131 14,679 - Other interest rate contracts 684,692 3,117 875 4,438,745 60,248 15,554 Other derivative contracts 71,395 4,030 1,222 Impact of counterparty netting agreements on derivatives exposure - (59,487) (12,535) The tables above give the nominal contract amounts, credit equivalent amounts and risk-weighted amounts of off-balance sheet transactions. The credit equivalent amounts are calculated for the purposes of deriving the risk-weighted amounts. These are assessed in accordance with the Third Schedule of the Hong Kong Banking Ordinance on capital adequacy and depend on the status of the counterparty and the maturity characteristics. The risk-weights used range from 0 per cent to 100 per cent for contingent liabilities and commitments, and from 0 per cent to 50 per cent for exchange rate, interest rate and other derivative contracts. The group has executed close-out netting agreements with certain counterparties, which allow for positive and negative mark-to-market values on different transactions to be offset and settled by a single payment in the event of default by either party. These have been taken into account in calculating total risk assets. Contingent liabilities and commitments are credit-related instruments which include acceptances, letters of credit, guarantees and commitments to extend credit. The contract amounts represent the amounts at risk should the contract be fully drawn upon and the client default. Since a significant portion of guarantees and commitments is expected to expire without being drawn upon, the total of the contract amounts is not representative of future liquidity requirements. Derivatives arise from futures, forward, swap and option transactions undertaken by the group in the foreign exchange, interest rate and equity markets. The contract amounts of these instruments indicate the volume of transactions outstanding at the balance sheet date; they do not represent amounts at risk. Replacement cost of contracts Figures in HK$m At 30Jun05 At 30Jun04 At 31Dec04 Exchange rate contracts 35,368 26,380 54,216 Interest rate contracts 39,518 35,328 41,486 Other derivative contracts 2,251 1,318 1,722 77,137 63,026 97,424 Less: netting adjustments (34,831) (24,115) (39,907) 42,306 38,911 57,517 The replacement cost of contracts represents the mark-to-market assets on all contracts with a positive value, i.e. an asset to the group. This comprises the mark-to-market assets on contracts with third parties and fellow subsidiary companies included in the balance sheet in 'Derivatives'. Replacement cost is a close approximation of the credit risk for these contracts as at the balance sheet date. The actual credit risk is measured internally as the sum of positive mark-to-market values and an estimate for the future fluctuation risk, using a future risk factor. The netting adjustments represent amounts where the group has in place legally enforceable rights of offset with individual counterparties to offset the gross amount of positive mark-to-market assets with any negative mark-to-market liabilities with the same customer. These offsets are recognised by the Hong Kong Monetary Authority in the calculation of risk assets for the capital adequacy ratio. 31. Foreign exchange exposure The group had the following structural foreign currency exposures which exceeded 10 per cent of the net structural foreign currency exposure in all currencies: Figures in HK$m Net structural position At 30Jun05 Chinese renminbi 21,128 Indian rupees 7,603 United States dollars 10,381 At 30Jun04 Australian dollars 3,330 Chinese renminbi 4,361 Indian rupees 4,064 Korean won 2,670 Singapore dollars 3,614 United States dollars (50,013) At 31Dec04 Australian dollars 4,911 Chinese renminbi 18,154 Indian rupees 4,979 Korean won 3,266 Singapore dollars 3,370 United States dollars (56,355) Thai baht 1,575 The group had the following non-structural foreign currency position which exceeded 10 per cent of the group's net foreign currency non-structural positions in all currencies: United States Singapore Brunei Figures in HK$m dollars dollars dollars At 30Jun05 Spot assets 85,892 5,470 Spot liabilities (77,505) (16,318) Forward purchases 147,882 - Forward sales (145,643) - 10,626 (10,848) At 30Jun04 Spot assets 983,440 Spot liabilities (970,080) Forward purchases 1,487,766 Forward sales (1,410,343) Net options position 892 91,675 At 31Dec04 Spot assets 1,126,118 83,986 5,129 Spot liabilities (1,042,445) (74,193) (15,134) Forward purchases 1,497,043 104,625 - Forward sales (1,516,913) (104,339) - Net options position (721) - - 63,082 10,079 (10,005) 32. Reconciliation of operating profit to cash generated from operations Half-year ended Half-year ended 30Jun05 30Jun04 Figures in HK$m restated Operating profit 23,243 23,620 Net interest income (21,410) (18,065) Dividend income (249) (111) Depreciation and amortisation 990 919 Impairment provisions 516 (1,562) Advances written off, net of recoveries (1,120) (2,568) Other provisions for liabilities and charges 245 358 Provisions utilised (47) (217) Employees' options granted cost free 140 100 Interest received 28,409 21,966 Interest paid (14,473) (8,383) Net cash inflow from trading activities 16,244 16,057 Change in treasury bills with original term to maturity of more than three months (6,609) (49,775) Change in placings with banks maturing after one month (20,867) (1,390) Change in trading assets (29,507) 5,872 Change in trading liabilities 55,628 6,808 Change in financial assets designated at fair value 425 - Change in financial liabilities designated at fair value (62) - Change in derivatives (7,063) 5,791 Change in financial investments held for backing liabilities to long-term policyholders (5,160) (3,796) Change in advances to customers (57,847) (31,005) Change in amounts due from fellow subsidiary companies 13,872 13,148 Change in deposits by banks 42,599 4,949 Change in other assets (14,816) (6,297) Change in customer accounts (21,684) 11,596 Change in amounts due to fellow subsidiary companies 7,530 20,668 Change in amounts due to ultimate holding company 192 285 Change in debt securities in issue (4,089) 16,732 Change in liabilities to customers under investment contracts 912 - Change in liabilities to customers under insurance contracts 6,213 - Change in liabilities to policyholders under long-term assurance business - 5,336 Change in other liabilities 27,064 8,275 Exchange adjustments (54) (450) Cash generated from operations 2,921 22,804 33. Analysis of cash and cash equivalents a. Changes in cash and cash equivalents during the period Half-year ended Half-year ended 30Jun05 30Jun04 Figures in HK$m restated Balance at beginning of period 411,535 316,678 Net cash inflow/(outflow) before the effect of foreign exchange movements 15,739 (18) Effect of foreign exchange movements (8,151) (877) Balance at end of period 419,123 315,783 b. Analysis of balances of cash and cash equivalents Half-year ended Half-year ended 30Jun05 30Jun04 Figures in HK$m restated Cash in hand and current balances with banks 62,923 63,700 Placings with banks 326,210 227,456 Treasury bills 26,822 22,251 Certificates of deposit 3,168 2,376 419,123 315,783 c. Analysis of net outflow of cash and cash equivalents in respect of acquisition of and increased shareholding in subsidiary companies Half-year ended Half-year ended 30Jun05 30Jun04 Figures in HK$m restated Cash consideration (1,872) (972) Cash and cash equivalents acquired 625 - (1,247) (972) d. Analysis of net flow of cash and cash equivalents in respect of sale of subsidiary companies Half-year ended Half-year ended Figures in HK$m 30Jun05 30Jun04 Sale proceeds 323 - 323 - 34. Segmental analysis The allocation of earnings reflects the benefits of shareholders' funds to the extent that these are actually allocated to businesses in the segment by way of intra-group capital and funding structures. Common costs are included in segments on the basis of the actual recharges made. Geographical information has been classified by the location of the principal operations of the subsidiary company or, in the case of the bank, by the location of the branch responsible for reporting the results or advancing the funds. Due to the nature of the group structure, the analysis of profits shown below includes intra-group items between geographical regions. Profit and loss account Rest of Americas/ Figures in HK$m Hong Kong Asia-Pacific Europe Total Half-year ended 30Jun05 Interest income 23,529 14,225 275 38,029 Interest expense (8,122) (8,366) (131) (16,619) Net interest income 15,407 5,859 144 21,410 Fee income 7,057 3,701 1 10,759 Fee expense (1,035) (845) (5) (1,885) Trading income 2,381 1,928 (113) 4,196 Net income from financial instruments designated at fair value (163) 107 - (56) Gains less losses from financial investments 359 (12) - 347 Dividend income 223 26 - 249 Net earned insurance premiums 6,746 229 - 6,975 Other operating income 3,555 518 11 4,084 Total operating income 34,530 11,511 38 46,079 Net insurance claims incurred and movement in policyholder liabilities (5,851) (288) - (6,139) Net operating income before loan impairment charges and other credit risk provisions 28,679 11,223 38 39,940 Loan impairment charges and other credit risk provisions (459) (69) 12 (516) Net operating income 28,220 11,154 50 39,424 Operating expenses (9,754) (6,406) (21) (16,181) Operating profit 18,466 4,748 29 23,243 Share of profit in associates 28 892 - 920 Profit before tax 18,494 5,640 29 24,163 Tax charge (2,873) (1,372) (3) (4,248) Profit after tax 15,621 4,268 26 19,915 Profit attributable to minority interests (2,279) (72) - (2,351) Profit attributable to shareholders 13,342 4,196 26 17,564 Half-year ended 30Jun04 Interest income 18,238 10,187 258 28,683 Interest expense (5,307) (5,084) (227) (10,618) Net interest income 12,931 5,103 31 18,065 Fee income 7,068 2,930 1 9,999 Fee expense (865) (740) (7) (1,612) Trading income 2,474 1,355 - 3,829 Net investment income on assets backing policyholder liabilities 53 41 - 94 Gains less losses from financial investments 548 34 - 582 Dividend income 104 7 - 111 Net earned insurance premiums 8,292 443 - 8,735 Other operating income 2,704 323 4 3,031 Total operating income 33,309 9,496 29 42,834 Net insurance claims incurred and movement in policyholder liabilities (6,995) (361) - (7,356) Net operating income before loan impairment charges and other credit risk provisions 26,314 9,135 29 35,478 Loan impairment charges and other credit risk provisions 1,747 (185) - 1,562 Net operating income 28,061 8,950 29 37,040 Operating expenses (8,500) (4,905) (15) (13,420) Operating profit 19,561 4,045 14 23,620 Share of profit in associates 24 - - 24 Profit before tax 19,585 4,045 14 23,644 Tax charge (2,929) (1,095) (3) (4,027) Profit after tax 16,656 2,950 11 19,617 Profit attributable to minority interests (2,330) - - (2,330) Profit attributable to shareholders 14,326 2,950 11 17,287 Half-year ended 31Dec04 Interest income 20,296 11,590 343 32,229 Interest expense (6,905) (6,171) (248) (13,324) Net interest income 13,391 5,419 95 18,905 Fee income 6,649 3,136 - 9,785 Fee expense (1,048) (838) (5) (1,891) Trading income 1,939 1,235 - 3,174 Net investment income on assets backing policyholder liabilities 2,138 188 - 2,326 Gains less losses from financial investments 813 101 1 915 Dividend income 44 8 - 52 Net earned insurance premiums 9,196 291 - 9,487 Other operating income 1,982 403 4 2,389 Total operating income 35,104 9,943 95 45,142 Net insurance claims incurred and movement in policyholder liabilities (9,762) (266) - (10,028) Net operating income before loan impairment charges and other credit risk provsions 25,342 9,677 95 35,114 Loan impairment charges and other credit risk provisions (63) (643) 6 (700) Net operating income 25,279 9,034 101 34,414 Operating expenses (9,418) (5,363) (17) (14,798) Operating profit 15,861 3,671 84 19,616 Share of profit in associates 28 247 - 275 Profit before tax 15,889 3,918 84 19,891 Tax charge (1,839) (1,119) (3) (2,961) Profit after tax 14,050 2,799 81 16,930 Profit attributable to minority interests (2,043) (27) - (2,070) Profit attributable to shareholders 12,007 2,772 81 14,860 Interest income and interest expense for the first half of 2005 include intra-group interest of HK$2,170 million (first half of 2004: HK$1,232 million; second half of 2004: HK$1,733 million). Fee income and fee expense for the first half of 2005 include intra-group fees of HK$180 million (first half of 2004: HK$116 million; second half of 2004: HK$192 million). Other operating income and operating expenses for the first half of 2005 include intra-group items of HK$1,364 million (first half of 2004: HK$626 million; second half of 2004: HK$680 million). 35. Capital adequacy The table below sets out an analysis of regulatory capital and capital adequacy ratios for the group. Figures in HK$m At 30Jun05 At 30Jun04^ At 31Dec04^ Composition of capital Tier 1: Shareholders' funds 93,216 124,346 147,495 Less: proposed dividend (6,000) (4,750) (4,800) property revaluation reserves^^^ (7,158) (10,856) (11,907) available-for-sale investments and equity revaluation (2,395) (1,070) (1,609) reserves classified as regulatory reserve (1,017) - - term preference shares - (3,900) (3,886) goodwill (6,043) (1,718) (5,771) others 2,244 - - Irredeemable non-cumulative preference shares 51,718 - - Minority interests^^ 14,666 14,318 14,384 Total qualifying tier 1 capital 139,231 116,370 133,906 Tier 2: Property revaluation reserves (@70%) 5,011 7,599 7,977 Available-for-sale investments and equity revaluation reserves (@70%) 1,677 749 1,126 Collective impairment provision and regulatory reserve 4,351 2,623 2,447 Perpetual subordinated debt 9,404 9,360 9,328 Term subordinated debt 4,160 1,997 1,814 Term preference shares 3,887 3,120 3,109 Irredeemable cumulative preference shares 7,373 - - Total qualifying tier 2 capital 35,863 25,448 25,801 Deductions (25,640) (8,634) (20,251) Total capital 149,454 133,184 139,456 Risk-weighted assets 1,221,620 1,068,628 1,173,432 ^ Comparative amounts for 30 June 2004 and 31 December 2004 are as previously reported. ^^ After deduction of minority interests in unconsolidated subsidiary companies. ^^^ Includes the revaluation surplus on investment properties which is now reported as part of retained profits. The group's capital adequacy ratios adjusted for market risks calculated in accordance with the HKMA Guideline on 'Maintenance of Adequate Capital Against Market Risks' are as follows: At 30Jun05 At 30Jun04 At 31Dec04 Total capital 12.2% 12.5% 11.9% Tier 1 capital 11.4% 10.9% 11.4% The group's capital adequacy ratios calculated in accordance with the provisions of the Third Schedule of the Banking Ordinance, which does not take into account market risks, are as follows: Total capital 12.1% 12.4% 11.9% Tier 1 capital 11.2% 10.8% 11.4% 36. Liquidity ratio The Banking Ordinance requires banks operating in Hong Kong to maintain a minimum liquidity ratio, calculated in accordance with the provisions of the Fourth Schedule of the Banking Ordinance, of 25 per cent. This requirement applies separately to the Hong Kong branches of the bank and to those subsidiary companies which are Authorised Institutions under the Banking Ordinance in Hong Kong. Half-year ended Half-year ended Half-year ended 30Jun05 30Jun04 31Dec04 The average liquidity ratio for the period was as follows: Hong Kong branches of the bank 48.6% 40.4% 41.7% 37. Property revaluation The group's premises and investment properties were revalued as at 30 June 2005 on the basis of open market value. Premises and investment properties in the Hong Kong SAR were valued by DTZ Debenham Tie Leung at 30 June 2005. The valuations were carried out by independent qualified valuers who are members of the Hong Kong Institute of Surveyors. Management considered that there had either been no material changes in the values of the properties located outside Hong Kong since 30 September 2004, when the properties were last revalued or reviewed, or that the values of the properties were not material. The property revaluation has resulted in an increase in the group's revaluation reserves of HK$1,504 million, net of deferred taxation of HK$410 million, as at 30 June 2005, and a credit to the profit and loss account of HK$1,038 million, of which HK$736 million represents the surplus on the revaluation of investment properties and HK$302 million relates to the reversal of previous revaluation deficits that had arisen when the value of certain premises fell below depreciated historical cost. 38. Transition to new Hong Kong Financial Reporting Standards and comparative figures The group has adopted the new Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards ('new HKFRS') which are equivalent to the new International Financial Reporting Standards, and are effective for accounting periods beginning on or after 1 January 2005. Comparative numbers have been restated to conform with the new accounting policies, except for those applicable to financial instruments and insurance contracts (HKAS 39 and HKFRS 4 respectively). Included in the appendix to this news release is the reconciliation of the consolidated income statements for the first and second half of 2004 and of the consolidated balance sheets at 30 June 2004 and 31 December 2004, as previously reported and as restated, showing the effects of the adoption of the new HKFRS (except HKAS 39 and HKFRS 4). Also included in the appendix is the restatement of the opening consolidated balance sheet at 1 January 2005, showing the effects of the adoption of HKAS 39 and HKFRS 4. 39. Accounting policies The accounting policies adopted in 2005 and 2004 are detailed in the appendix to this news release. This information is provided by RNS The company news service from the London Stock Exchange

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