Your EPS number is significantly ahead of expectations. Can you talk
through what’s behind this?
We’re certainly pleased to be growing EPS by 23% to 153.7 cents (87.6p) per
share, and that’s quite an achievement when you think we issued 10% more shares
at the beginning of 2005. Obviously, the key driver of our earnings per share
growth is the fact that we grew pre-tax profits by 19%.
There are three factors that explain how we brought EPS up to 23%. One is the
improvement in the tax rate, from 28% to 26.5%.
The second is that we had to reclassify some of our sterling instruments from
debt into equity under IFRS. That’s made our profits more volatile, as a result
of changes in the dollar/sterling exchange rate.
It actually had the effect of reducing our profit and increasing minorities,
and that had the effect of making EPS growth more than the profits.
The third factor is normalisation, which reduced 2004 profits – the
comparator – because we stripped out some gains on sales of stakes, and somewhat
increased our 2005 profits because of the adjustments we made to, for example,
In the second half of 2005, income growth slowed while expenses
accelerated. Is that a concern?
If you look at the year as a whole, expenses grew a bit faster than income,
but that’s entirely due to the inclusion of SC First Bank, which has a higher
On an underlying basis, excluding SC First Bank, income grew by 14%
year-on-year and expenses grew by 14%. So very much in line. The pattern of
income and expense growth in the second half was entirely expected. In SC First
Bank, we accelerated expenditure on integration of things like rebranding, new
systems, retraining, the merger of the SCB branch into SC First Bank.
Elsewhere, income growth slowed a little bit, largely due to own account
income being weaker, and expenses accelerated due to accelerating investment, p
articularly in markets like China, India and the UAE.
So you’re not concerned that costs are getting out of
We manage our costs very tightly with a relentless focus on increasing
productivity across the group. A good example of this is in our technology,
production and operations. Costs there grew by 3% year-on-year, which set
against double-digit increases in transaction volumes, is a real productivity
Should we expect more of the same in 2006, in terms of
We would anticipate that costs grow broadly in line with income growth. We’ll
continue to work to achieve further productivity increases. We’ll continue to
invest for future growth. We take account of the overall performance of the
business, so we flex the pace of our investment spend depending on how the year
and the business unfolds.
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