1/5: HSBC Holdings 2002 (2/3)

HSBC Holdings PLC
03 March 2003

Consolidated Cash Flow Statement
                                                                                          Year ended 31Dec
Figures in US$m                                                                           2002                  2001

Net cash inflow from operating activities                                               16,426                12,915

Dividends received from associated undertakings                                            114                   113

Returns on investments and servicing of finance:
Interest paid on finance leases and similar hire purchase contracts                        (29 )                 (27 )
Interest paid on subordinated loan capital                                                (870 )              (1,116 )
Dividends paid to minority interests - equity                                             (480 )                (472 )
- non-equity                                                                              (357 )                (599 )
Net cash (outflow) from returns on investments
 and servicing of finance                                                               (1,736 )              (2,214 )

Taxation paid                                                                           (1,371 )              (2,106 )

Capital expenditure and financial investments:
Purchase of investment securities                                                     (130,171 )            (148,826 )
Proceeds from sale and maturities of investment securities                             122,559               145,361
Purchase of tangible fixed assets                                                       (1,723 )              (1,873 )
Proceeds from sale of tangible fixed assets                                                328                   557
Net cash (outflow) from capital expenditure
 and financial investments                                                              (9,007 )              (4,781 )

Acquisitions and disposals:
Net cash inflow/(outflow) from acquisition of
 and increase in stake in subsidiary undertakings                                          264                  (834 )
Net cash inflow from disposal of subsidiary undertakings                                     -                    26
Purchase of interest in associated undertakings
 and other participating interests                                                        (649 )                (154 )
Proceeds from disposal of associated
 undertakings and other participating interests                                            341                    79
Net cash (outflow) from acquisitions
 and disposals                                                                             (44 )                (883 )

Equity dividends paid                                                                   (3,609 )              (3,528 )

Net cash inflow/(outflow) before financing                                                 773                  (484 )

Financing:
Issue of ordinary share capital                                                            337                   112
Redemption of preference share capital                                                     (50 )                (825 )
Subordinated loan capital issued                                                         4,105                   456
Subordinated loan capital repaid                                                        (1,923 )                (965 )
Net cash inflow/(outflow) from financing                                                 2,469                (1,222 )

Increase/(decrease) in cash                                                              3,242                (1,706 )


Other Primary Financial Statements

Statement of total consolidated recognised gains and losses for the year ended
                                                                                                 31Dec
                                                                                        2002                    2001
                                                                                        US$m                    US$m ^

Profit for the financial year attributable to shareholders                             6,239                   4,992
Unrealised (deficit) on revaluation of investment properties:
 - subsidiaries                                                                          (22 )                   (18 )
 - associates                                                                             (1 )                    (5 )
Unrealised (deficit) on revaluation of land
 and buildings (excluding investment properties):
 - subsidiaries                                                                         (297 )                  (227 )
Exchange and other movements                                                           3,781                  (1,242 )

Total recognised gains and losses for the year                                         9,700                   3,500

Reconciliation of movements in consolidated shareholders' funds for the year
ended

                                                                                                 31Dec
                                                                                        2002                    2001
                                                                                        US$m                    US$m ^

Profit for the financial year attributable to shareholders                             6,239                   4,992
Dividends                                                                             (5,001 )                (4,467 )
                                                                                       1,238                     525

Other recognised gains and losses relating to the year                                 3,461                  (1,492 )
New share capital subscribed, net of costs                                               337                     112
Reserve in respect of obligations under CCF share options                                (41 )                   (16 )
Amounts arising on shares issued in lieu of dividends                                  1,023                     866
Net addition to shareholders' funds                                                    6,018                      (5 )

Shareholders' funds at 1 January                                                      46,388                  46,393

Shareholders' funds at 31 December                                                    52,406                  46,388

^ The figures for 2001 have been restated to reflect the adoption of UK
Financial Reporting Standard 19 'Deferred Tax' details of which are set out in
Note 1 on page 15.

Additional Information

1. Accounting policies


The accounting policies adopted are consistent with those described in the
Annual Report and Accounts 2001 except as noted below.

The Group has adopted the provisions of the UK Financial Reporting Standard 
('FRS') FRS 19 'Deferred Tax' with effect from 1 January 2002. This has required
a change in the method of accounting for deferred tax. Deferred tax is now
recognised in full, subject to recoverability of deferred tax assets.
Previously, deferred tax assets and liabilities were recognised only to the
extent they were expected to crystallise. As deferred tax liabilities have
generally been fully provided, the main impact of the change in method for the
Group has been the recognition of deferred tax assets previously not recognised.

The change in accounting policy has been reflected by way of a prior period
adjustment. The comparative figures have been restated as follows:
Consolidated profit and loss account - tax on profit on ordinary activities

                                                                                Year ended
Figures in US$m                                                           31 December 2001

Under previous policy                                                               (1,574 )
Adoption of FRS 19                                                                    (414 )
Under new policy                                                                    (1,988 )

The effect on the results for the current period of the adoption of FRS 19 is
immaterial.

Consolidated balance sheet
                                                                      Provisions
                                                                 for liabilities        Minority
                              Intangible               Other         and charges       interests
Figures in US$m             Fixed assets              assets      - deferred tax         -equity        Reserves

At 31Dec01
Under previous policy             14,581              38,247               1,109           2,199          41,301
Adoption of FRS 19                   (17 )               385                 (52 )            11             409
Under new policy                  14,564              38,632               1,057           2,210          41,710

The increase in HSBC's tax charge for 2001 as restated can be explained as
follows:

- reversal of a benefit taken in 2001 under UK Statement of Standard Accounting
Practice 15 in respect of deferred tax assets attributable under FRS 19 to prior
periods;

- reversal of a benefit taken in 2001 under SSAP 15 in respect of the release of
a provision for additional UK tax on remittances, such provision not being
permissible under FRS 19; and

- establishment of a provision required under FRS 19 in respect of a possible
claw-back of capital allowances.

2. Dividend


The Directors have declared a second interim dividend for 2002 of US$0.325 per
ordinary share, an increase of 12.1 per cent. The dividend will be payable on 6
May 2003 to shareholders on the Register at the close of business on 21 March
2003. The dividend will be payable in cash, in US dollars, sterling or Hong Kong
dollars, or a combination of these currencies, at the exchange rates on 28 April
2003, with a scrip dividend alternative. Particulars of these arrangements will
be mailed to shareholders on or about 1 April 2003, and elections will be
required to be made by 24 April 2003.

The dividend payable in cash on shares held through Euroclear France, the
settlement and central depositary system for Euronext Paris, will be converted
into euros at the exchange rate on 28 April 2003 and paid on 6 May 2003 through
CCF, HSBC's paying agent.

The dividend payable in cash to holders of American Depositary Shares (ADSs),
each of which represents five ordinary shares, will be paid in US dollars on 6
May 2003.

The Company's shares will be quoted ex-dividend in London and in Hong Kong on 19
March 2003 and in Paris on 24 March 2003. The ADSs will be quoted ex-dividend in
New York on 19 March 2003.

3. Earnings and dividends per share
                                                                   Year ended 31Dec
Figures in US$                                                   2002                         2001

Cash earnings per share                                          0.76                        0.63

Basic earnings per share                                         0.67                        0.54

Diluted earnings per share                                       0.66                        0.53

Dividends per share                                              0.53                        0.48

Dividend pay out ratio ^                                          70 %                        76 %

^ Dividends per share expressed as a percentage of cash earnings per share.

Basic earnings per ordinary share was calculated by dividing the earnings of
US$6,239 million by the weighted average number of ordinary shares outstanding,
excluding own shares held by trustees to satisfy employee share options and
awards, of 9,339 million shares (2001 earnings of US$4,992 million and 9,237
million shares).

Diluted earnings per share was calculated by dividing the basic earnings, which
require no adjustment for the effects of dilutive potential ordinary shares, by
the weighted average number of ordinary shares outstanding, excluding own shares
held, plus the weighted average number of ordinary shares that would be issued
on conversion of all the dilutive potential ordinary shares (being share options
outstanding not yet exercised) of 9,436 million shares (2001: 9,336 million
shares).

The cash earnings per share was calculated by dividing the basic earnings, after
adding back the amortisation of goodwill, by the weighted average number of
ordinary shares outstanding, excluding own shares held.

4. Taxation
                                                             Year ended                 Year ended
Figures in US$m                                                 31Dec02                    31Dec01

UK corporation tax charge                                           684                       416

Overseas taxation                                                 1,217                     1,570
Joint ventures                                                       (6 )                     (13 )
Associates                                                           17                        26
Current taxation                                                  1,912                     1,999

Deferred taxation                                                   622                       (11 )

Total charge for taxation                                         2,534                     1,988

Effective tax rate                                                 26.3 %                    24.9 %

The Company and its subsidiary undertakings in the UK provided for UK
corporation tax at 30 per cent, the rate for the calendar year 2002 (2001: 30
per cent). Overseas tax included Hong Kong profits tax of US$408 million (2001:
US$450 million) provided at the rate of 16 per cent (2001: 16 per cent) on the
profits assessable in Hong Kong. Other overseas taxation was provided for in the
countries of operation at the appropriate rates of taxation.

At 31 December 2002, there were potential future tax benefits of US$885 million
(31 December 2001: US$906 million) in respect of trading losses, allowable
expenditure charged to the profit and loss account but not yet allowed for tax,
and capital losses which have not been recognised because recoverability of the
potential benefits is not considered certain.

Analysis of overall tax charge
                                                                                       Year ended           Year ended
Figures in US$m                                                                           31Dec02              31Dec01

Taxation at UK corporate tax rate of 30.0%                                                  2,895                2,400

Impact of differently taxed overseas profits in principal locations                          (472 )               (616 )
Tax free gains                                                                                (19 )               (102 )
Argentine losses                                                                               87                  336
Goodwill amortisation                                                                         261                  263
Prior period adjustments                                                                      (90 )               (167 )
Other items                                                                                  (128 )               (126 )
Timing differences impact on deferred tax                                                    (622 )                 11
Current tax charge                                                                          1,912                1,999
Accelerated capital allowances                                                                 (23 )                84
Timing differences on lease income                                                              90                  97
Provisions for general bad debts                                                                29                 (46 )
Relief for losses                                                                              125                 (85 )
Short term timing differences and other                                                        401                 (61 )
Deferred tax charge                                                                            622                 (11 )

Overall tax charge                                                                           2,534               1,988

5. Subordinated liabilities
Figures in US$m                                                                      At 31Dec02             At 31Dec01

Dated subordinated loan capital which is repayable:
- within 1 year                                                                             956                  1,393
- between 1 and 2 years                                                                     862                    950
- between 2 and 5 years                                                                   1,957                  2,165
- over 5 years                                                                           11,056                  7,493
                                                                                         14,831                 12,001

6. Assets charged as security for liabilities

HSBC has pledged assets as security for liabilities included under the following
headings:
                                                                                     Amount of liability secured
Figures in US$m                                                                       At 31Dec02            At 31Dec01
Deposits by banks                                                                          1,661                   290
Customer accounts                                                                          4,204                 5,371
Debt securities in issue                                                                   1,437                 1,692
Other liabilities                                                                          2,884                 3,175
                                                                                          10,186                10,528

The amount of assets pledged to secure these amounts is US$44,457 million (31
December 2001: US$32,757 million). This is mainly made up of items included in '
Debt securities' and 'Treasury bills and other eligible bills' of US$40,799
million (31 December 2001: US$30,682 million).

7. Capital resources

Figures in US$m                                                               At 31Dec02               At 31Dec01

Capital ratios (%)

Total capital ratio                                                                 13.3                     13.0

Tier 1 capital ratio                                                                 9.0                      9.0

Composition of capital

Figures in US$m

Tier 1:
Shareholders' funds                                                               52,406                   45,979
Minority interests                                                                 3,306                    3,515
Innovative tier 1 securities                                                       3,647                    3,467
Less: property revaluation reserves                                               (1,954 )                 (2,271 )
: goodwill capitalised and intangible assets                                     (17,855 )                (14,989 )
: own shares held ^                                                                 (601 )                   (628 )
Total qualifying tier 1 capital                                                   38,949                   35,073

Tier 2:
Property revaluation reserves                                                      1,954                    2,271
General provisions                                                                 2,348                    2,091
Perpetual subordinated debt                                                        3,542                    3,338
Term subordinated debt                                                            12,875                    9,912
Minority and other interests in tier 2 capital                                       775                      693
Total qualifying tier 2 capital                                                   21,494                   18,305

Unconsolidated investments                                                        (2,231 )                 (1,781 )
Investments in other banks                                                          (638 )                   (627 )
Other deductions                                                                    (144 )                   (116 )
Total capital                                                                     57,430                   50,854

Total risk-weighted assets                                                       430,551                  391,478

^ This principally reflects shares held in trust to fulfil the Group's
obligations under employee share option plans.

The above figures were computed in accordance with the EU Banking Consolidation
Directive. The comparative figures for 2001 have not been restated for the
impact of FRS 19, details of which are set out in Note 1.

8. Foreign exchange exposure

The Group's foreign exchange exposure comprises trading exposures and structural
foreign currency translation exposure. Foreign exchange trading exposure
comprises those which arise from foreign exchange dealing within Treasury and
currency exposures originated by commercial banking businesses in HSBC. The
latter are transferred to local treasury units where they are managed, together
with exposures which result from dealing activities, within limits approved by
the Group Executive Committee.

The Group's structural foreign currency translation exposures are represented by
the net asset value of the holding company's foreign currency equity and
subordinated debt investments in its subsidiaries, branches and associated
undertakings. Gains or losses on structural foreign currency exposures are taken
to reserves. The Group's structural foreign currency exposures are managed with
the primary objective of ensuring, where practical, that the Group's and
individual banking subsidiaries' tier 1 capital ratios are protected from the
effect of changes in exchange rates.

9. Contingent liabilities and commitments

The total contract amounts of contingent liabilities and commitments which, at
31 December 2002, were US$276,884 million (31 December 2001: US$242,504 million)
are credit-related instruments which include acceptances, letters of credit,
guarantees and commitments to extend credit. The contractual 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 are expected
to expire without being drawn upon, the total of the contract amounts is not
representative of future liquidity requirements.

10. Reconciliation of operating profit to net cash flow from operating
activities

                                                                                 Year ended              Year ended
Figures in US$m                                                                     31Dec02                 31Dec01

Operating profit                                                                      9,035                   7,153
Change in prepayments and accrued income                                                355                     452
Change in accruals and deferred income                                                  190                  (2,207 )
Interest on finance leases and similar hire purchase contracts                           36                      27
Interest on subordinated loan capital                                                   862                   1,074
Depreciation and amortisation                                                         2,044                   1,933
Amortisation of discounts and premiums                                                   (8 )                  (640 )
Provisions for bad and doubtful debts                                                 1,321                   2,037
Loans written off net of recoveries                                                  (1,931 )                (1,893 )
Provisions for liabilities and charges                                                  879                   1,229
Provisions utilised                                                                  (1,331 )                  (542 )
Amounts written off fixed asset investments                                             324                     125
Net cash inflow from trading activities                                              11,776                   8,748

Change in items in the course of collection from other banks                            124                   1,009
Change in treasury bills and other eligible bills                                       715                   2,200
Change in loans and advances to banks                                                16,550                  19,601
Change in loans and advances to customers                                           (35,332 )               (16,072 )
Change in other securities                                                            2,543                 (20,307 )
Change in other assets                                                               (7,055 )                (1,856 )
Change in deposits by banks                                                          (3,505 )                (8,546 )
Change in customer accounts                                                          31,161                  19,799
Change in items in the course of transmission to other banks                            716                    (827 )
Change in debt securities in issue                                                    2,935                  (1,437 )
Change in other liabilities                                                          (1,580 )                 9,179
Elimination of exchange differences ^                                                (2,622 )                 1,424

Net cash inflow from operating activities                                            16,426                  12,915

^ Adjustment to bring changes between opening and closing balance sheet
amounts to average rates. This is not done on a line-by-line basis, as it cannot
be determined without unreasonable expense.


                      This information is provided by RNS
            The company news service from the London Stock Exchange