HSBC Holdings PLC
LSE:HSBA
HSBC Holdings PLC
HSBC Holdings PLC, one of the largest banking and financial services organizations in the world, traces its origins back to 1865 in Hong Kong and Shanghai. Initially established to facilitate trade between Europe and Asia, HSBC has evolved into a global powerhouse, operating in over 64 countries and territories. This extensive network provides access to emerging markets, primarily in Asia, making the bank a significant player in the Asia-Pacific region. Investors appreciate HSBC for its diversified business model, spanning retail banking, wealth management, commercial banking, and global banking and markets. The bank’s substantial balance sheet, combined with strong capital ratios, positions it well to navigate financial challenges and capitalize on growth opportunities.
In recent years, HSBC has strategically pivoted toward its Asian roots, signaling a long-term commitment to the region as a key growth driver. With a management focus on digital transformation and sustainability, the bank is investing in technology to enhance customer experience while promoting responsible banking practices. The firm has also reaffirmed its intention to distribute capital returns to shareholders through dividends and share buybacks, reflecting its confidence in future earnings potential. As an investor, one should consider HSBC's ability to leverage its historical strengths, robust market position, and forward-looking strategies in a dynamic global economy, making it a compelling candidate for those seeking exposure to international financial markets and robustness in risk management.
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Management
Georges Elhedery is a prominent banking executive who has held significant positions at HSBC Holdings PLC. He is notably recognized for his role as the Group Chief Financial Officer and Executive Director of HSBC. Prior to this, Elhedery served as the Co-Chief Executive Officer of the Global Banking and Markets division, where he was responsible for overseeing the bank’s strategies and operations in that sector. Elhedery joined HSBC in 2005 and has worked across different regions, including the Middle East and North Africa, where he took on leadership roles such as Head of Global Markets. His time at HSBC has also seen him serve in Hong Kong and London, gaining extensive experience in risk management, strategy development, and financial markets. Before his tenure at HSBC, Elhedery worked at other major financial institutions, enhancing his expertise in derivatives and cross-asset trading. Educated at the Ecole Polytechnique and the National School of Statistics and Economic Administration, Elhedery has a strong background in engineering and economics, which has contributed to his success in various strategic and analytical roles within the banking sector.
Jonathan Bingham is an executive officer at HSBC Holdings PLC. He holds strategic responsibilities within the firm, helping oversee various operations and initiatives. His role typically involves developing and implementing business strategies, managing key financial projects, and ensuring regulatory compliance. His contributions and decisions are crucial in steering the bank toward achieving its financial and organizational goals. Given HSBC’s significant global presence, an executive such as Bingham likely engages with international markets, addressing both opportunities and challenges faced by the banking industry. His expertise and leadership play a vital role in maintaining HSBC’s reputation and its competitive edge in the financial sector. Please verify with specific sources to get the most current and detailed information about his role and responsibilities within the company, as executive positions often change.
Ms. Manveen Pam Kaur is a renowned banking executive known for her role at HSBC Holdings PLC. She has served as the Group Chief Risk and Compliance Officer, a critical position where she was responsible for overseeing risk management and compliance across the organization's global operations. Pam Kaur joined HSBC in 2013, bringing with her extensive experience in risk management, finance, and operations. Before her time at HSBC, Pam Kaur held several significant roles in other prestigious financial institutions. She worked at Deutsche Bank as Global Head of Group Audit and held senior positions at the Royal Bank of Scotland, where she was the Group Head of Compliance and Anti-Money Laundering. Her career also includes key risk and audit positions at UBS and Citigroup. Pam Kaur is recognized for her leadership skills and deep understanding of global banking operations, contributing to the strategic management of risk in one of the world's largest banking institutions. Her career is marked by her ability to navigate complex regulatory environments and implement effective risk management frameworks.
Stephen Colin Moss is a seasoned executive in the banking industry, currently serving in a significant leadership role at HSBC Holdings PLC. Born in the United Kingdom, Moss has developed a comprehensive understanding of global banking operations through his extensive career at HSBC. His journey with HSBC began in 1992, and over the years, he has held various prominent positions within the organization, illustrating his versatility and expertise in the financial services sector. Moss's roles have spanned multiple regions, including Europe, the Middle East, Asia, and the Americas, contributing to his robust international banking experience. Stephen Moss has held the position of Regional Chief Executive, overseeing the bank's strategic initiatives and operations in critical markets. His leadership is characterized by a focus on fostering growth, enhancing operational efficiency, and driving customer satisfaction. His ability to navigate complex regulatory environments and economic landscapes has been instrumental in HSBC's continuous development and adaptation to the evolving global market. Moss is recognized for his adeptness in aligning the bank's business strategies with market demands while ensuring sustainable and ethical practices. His contributions have played a vital role in strengthening HSBC's position as a leading global financial institution.
Colin William Bell is a senior executive at HSBC Holdings PLC, currently serving as the CEO of HSBC Bank plc and HSBC Europe, having taken on the role in February 2021. Before becoming CEO, he was the Group Head of Financial Crime Risk and Group Money Laundering Reporting Officer at HSBC, where he was responsible for overseeing the bank's efforts to combat financial crime and ensure compliance with relevant regulations. Bell joined HSBC in 2016, bringing with him a wealth of experience in financial services and risk management. Prior to his tenure at HSBC, he held prominent positions at organizations such as UBS and Goldman Sachs. At UBS, he served as the Global Head of Compliance & Operational Risk Control. At Goldman Sachs, he worked in various roles, notably in compliance and risk management functions. With a strong background in compliance and risk, Bell has been instrumental in enhancing HSBC's approach to managing financial crime risk and strengthening the bank's regulatory compliance frameworks. His leadership in these areas is part of HSBC's broader strategic objectives to ensure financial integrity and maintain its reputation as a leading global financial institution. His appointment as CEO of HSBC Bank plc and HSBC Europe reflects his significant contribution to the company and his capacity to drive its European business forward.
Gregory L. Guyett is a prominent banking executive known for his extensive experience in the financial services industry. He holds the position of Co-CEO of Global Banking and Markets at HSBC Holdings PLC. In this role, he is responsible for overseeing the banking operations and strategic direction of HSBC's Global Banking and Markets division, which includes investment banking, corporate banking, and capital markets. Before joining HSBC, Guyett had a distinguished career at J.P. Morgan, where he served in several high-profile roles, including Head of Corporate Banking and Head of Investment Banking for Asia-Pacific. His leadership was key in developing J.P. Morgan's business strategies and expanding its presence in various markets. Guyett has a strong background in international banking and has worked in numerous regions, gaining valuable insights into the global financial market landscape. He is respected for his strategic vision, leadership skills, and ability to navigate complex financial environments. His contributions have been instrumental in shaping HSBC's approach to global banking, focusing on innovation, sustainable finance, and enhancing client relationships.
Barry O'Byrne is a prominent executive in the banking industry, known for his role with HSBC Holdings PLC. As of his tenure with the organization, he served as the CEO of Global Commercial Banking. In this role, he was responsible for leading HSBC's commercial banking operations on a global scale, focusing on providing financial services and solutions to mid-market enterprises and large corporate clients. O'Byrne joined HSBC in 2017, initially as the Chief Operating Officer for Global Commercial Banking, before assuming the CEO role in August 2019. Prior to his time at HSBC, he had significant experience in the banking and financial services industry, including various leadership roles. His leadership style is often noted for his strategic approach to enhancing customer experience and leveraging technology to drive business growth. Under his leadership, HSBC's commercial banking division aimed to expand its digital capabilities and strengthen its presence in key markets worldwide. O'Byrne's experience and insights have been instrumental in navigating the complex landscape of global finance, particularly in adapting to evolving market demands and fostering sustainable growth within the bank’s commercial banking segment.
Aileen Norma Taylor is a notable figure in the banking and finance industry, particularly known for her roles at HSBC Holdings PLC. At HSBC, she has served as the Group Company Secretary and Chief Governance Officer. In these roles, she was responsible for overseeing the bank’s governance framework, ensuring compliance with regulatory requirements, and supporting the board’s functions. Her work included managing the interface between management and the board, ensuring effective communication and facilitating strategic discussions. With a background in law, Aileen Taylor brought a wealth of experience in legal and governance matters to her role. Her expertise has been instrumental in strengthening HSBC's governance practices and ensuring robust compliance mechanisms within the organization. Prior to her time at HSBC, she held various significant positions that contributed to her reputation as a leader in corporate governance. Aileen's dedication to enhancing governance structures and her strategic approach to managing legal and regulatory challenges have made her a respected figure in her field. Her work continues to influence best practices in governance within the banking sector.
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Please standby, we're about to begin. Good day and welcome to the Polyus Third Quarter 2021 Financial Results Conference Call. Today's call is being recorded.
At this time, I'd like to turn the call over to Victor Drozdov. Please go ahead.
Thanks a lot. Hi, everyone. Welcome to our conference call for the third quarter financial results. Today, we have our CFO here with us. So Mikhail provide valuable comments on the financial results for the third quarter as well as we'll be answering your questions.
With that in mind, I'll pass the floor to Mikhail. Please go ahead.
Yes. Hello and thank you for joining our call. So I'll take you briefly through the key highlights of the quarter. So the revenue in the third quarter was $1.4 billion which is a 12% increase on the preceding quarter. That's a reflection of the underlying traditional performance across all of the deposits and total gold output has increased of this period by approximately 15% to 770,000 ounces.
Now looking at our sales in the third quarter, we sold approximately 760,000 ounces of refined gold which implies a 14% increase on the previous quarter. And we also sold approximately 11,000 ounces of gold contained in flotation concentrate during the period. Now our quarterly EBITDA increased to approximately US$1 billion which is up 10% quarter-on-quarter. In terms of our quarterly cost performance, as expected, we saw a step-up in our TCC figure as we highlighted during the previous calls. TCC rose by 9% quarter-on-quarter to $427 per ounce. In terms of key factors which I would like to underscore. First there is going to be a seasonal increase in output at the Alluvials operations. Secondly, inflation in cost consumables and spare parts. Next would be lower byproduct credit which amounted to our $5 per ounce in the third quarter versus $10 per ounce in the second quarter. And also finally, a cessation of the regional project regime at Verninskoye from August 2021. And that increased applicable MET rate from 2.4% to 6%.
Now in terms of positive developments, I would like to separately highlight the remarkable cost performance at Natalka. On a stand-alone basis, you see it was approximately $340 per ounce and that's the lowest number across operations during the period. And also our throughput at the mill reached a record high of 1,555 tons per hour in the reporting period which is mainly driven by operational enhancements and reduced circulation load at the combination circle.
Now, moving on to the cost performance for the first nine months. TCC is $403 ounce. That's a 10% increase over the respective period of 2020. So in terms of sort of major factors leading to a cost increase year-on-year, that would be a temporary decline in head grades at Olimpiada, inflation of consumables, substantially lower maintenance spending in 2020 given the COVID-19 restrictions and also changes in the mill extraction tax at Natalka and Verninskoye. Now we previously guided the range of $425 to $450 as a TCC for the fiscal year and that remains unchanged at this time. Just to remind you, that's based on RUB65 as an exchange rate and gold price of $1,300.
Now moving on to CapEx; we accelerated CapEx spending in the quarter as again, we highlighted to you at our calls. So we spent approximately US$230 million compared to approximately US$180 million in the preceding quarter. Just to sort of point out a few important developments, we acquired nine 220-tonne Caterpillar trucks for Olimpiada during the period and we also completed the construction of the pit stop for trucks maintenance on-site. And we also implemented a range of initiatives targeting achievement of 15 million tons in annualized capacity at Olimpiada from next year onwards and also initiatives aimed at improving efficiency of the BIO station complex. In terms of our CapEx guidance for the entire year, it remains unchanged at between US$1 billion and US$1.1 billion. Year-to-date, we spent approximately $540 million. And we are counting on a strong catch-up in the fourth quarter and we are comfortable it will take place.
We're also advancing our growth projects in accordance with the schedule. In terms of our developments at Mill-5, our largest brownfield project, we signed an agreement with a major contractor after construction. It's a Turkish company that has a proven track record of successfully operating at the major projects in Russia. And in terms of on-site activities, we completed the site preparation for the conveyor system and we are progressing with the construction of the crushed ore stockyard. We're also on track with the expansion initiatives at other operations. Namely at Olimpiada, we will reach a stable throughput capacity of 15 million tons in 2022. And at Kuranakh, we are on track to reach 7.5 million tons in capacity from 2024 onwards.
Now in terms of balance sheet, our figures, the cash on balance was up to almost US$1.7 billion. Our net debt came down to US$1.95 billion and our net debt-to-EBITDA ratio stood at 0.5x. In terms of free cash flow, free cash flow was approximately $470 million of levered free cash flow during the period which is basically flat over the second quarter number. Now as we mentioned at our previous call, we completed a whole number of proactive debt management initiatives after the close of the reporting period. So we issued Eurobonds in the overall amount of $700 million. And that's a 2028 maturity and the coupon rate is 3.25%. Secondly, we also launched a tender for approximately $600 million worth of outstanding Eurobonds and we also repaid some of the bilateral lines.
Now in terms of COVID-19-related developments, we allocated approximately $14 million to COVID prevention measures in the quarter. And overall, the annual tally will be approximately $100 million. So in terms of the impact of the COVID-related interruptions, there was indeed a shortage of shipping containers in China. We are facing extended transit times given the congestion of seaports at the Russian Far East. That's increasing the lead times for the consumables and spare parts. However, we are not seeing anything critical and anything that will substantially affect our cost line. Now in terms of sort of a quick update on the ESG front. So our scores continued to improve across all key ratings. So in November, we received a score of 57 and S&P Global CSA and Sustainalytics ESG Risk Rating of 25.0. And also MSCI confirmed our MSCI ESG rating at A.
That's all as for the management comments and we are ready to take your questions.
[Operator Instructions] We'll take our first question from Dan Shaw with Morgan Stanley.
Hi, thanks for taking my questions. Just a couple for me. And first one, just on the guidance. Just a quick clarification. In the press release that you noted that the ruble assumption underpinning your guidance number as $65. So is it fair for us to assume that CapEx and costs will come at the lower end of those ranges? That's the first question. And then just one second one on ESG. As you just mentioned it, when can we expect to the next sort of major update in terms of setting out your medium and longer-term targets, do you have a date in mind for that?
Hello, Dan. So in terms of ForEx assumption which underpins our guidance, that's indeed $65. So in terms of factual figures, given the spot or near spot ruble rate which, as you are quite aware, it's fairly volatile. You can reasonably expect that our TCC -- factual TCC will be below $425. And our CapEx figure will be at the lower end of the guidance. Again, assuming the sort of factual exchange rate. Now at $65, our TCC will be closer to the lower end. And our CapEx figure will be right in the mid of the provided guidance of $1 billion to $1.1 billion. Now in terms of sort of major ESG announcements, I think we will provide an update to the market around second quarter of next year.
Great. Thanks very much.
[Operator Instructions] We'll take our next question from Boris Sinitsyn with Ren Cap.
Hi gentlemen [ph]. Thanks. Just one question from my side, please. You mentioned the -- some disruptions in the supply chain, not affecting your costs so far. The question is, do you expect those to be continued in 2022? And do you think it might affect CapEx basically, not costs?
Well, first of all, we need to separate the sort of the interruptions in terms of transit time and the shipments and pricing effects. So -- and I said that the interruptions related to shipment and transit times are not materially affecting our cost line. They are obviously bearing a certain effect but again, it's fairly small. We are seeing an increase in the delivery time lines but we're seeing some delays for spare parts but again, there is nothing critical that we're seeing at this point. And obviously, there is nothing which can, to any extent, affect that continuity of the operations. That said, the cost inflation per se is a major challenge for the sector and that pertains to consumables, that pertains to labor domestically and that pertains to equipment and spare parts. Now that has been offset by the fact that we have long-term contracts for all of the consumables and they have fixed -- they have a mix of fixed and variable pricing which is providing an important buffer against the recent market developments. That said, still a certain part of the ongoing cost escalation will have to be absorbed by us as the consumer.
So, I would say that in terms of 2022 projections, CapEx is -- CapEx spending is not affected to the same extent as our OpEx. Because for capital spending, we have contracted most of the equipment and also most of the outside construction services. So we are fairly safe there. And the brunt of cost inflation will be felt through the P&L. But again, that is offset by the optimization initiatives and will be mitigated at least partially. Thank you.
Very clear. Thank you so much.
We'll take our next question from Yuriy Vlasov with Sova Capital.
Many, thanks. Two very quick questions from me. First, could you give us any breakdown of your Mill-5 at Blagodatnoye. How is it stretched across the years? And remind us what's the timing on Sukhoi Log feasibility study? When can we expect the next milestone there?
Yuriy, can you repeat your first question on Blagodatnoye? I mean...
Yes. Could you give us a CapEx breakdown on Blagodatnoye across the years? So how it's spread across the next three, four years, roughly -- in very rough estimates?
When talk about Blagodatnoye, obviously, you're talking about Mill-5, obviously, not about Mill-4?
Yes, yes, yes, Mill-5.
Well, the bulk of the spending will be taking place in 2023 and 2024. Spending rates in 2022 will be broadly comparable to 2021. Now secondly, in terms of Sukhoi Log feasibility, I think the major development will be obviously the approval of the feasibility study. That is slated to take place towards the end of the -- towards the end of the next year. We are confirming that we are on track. Now if there are any important developments that sort of take place until that date that warrant market attention, we will immediately inform you. But what we can relay to you at this point is that we are on track in terms of all of the milestones that we set previously. That pertains to engineering and that pertains to geological studies and that pertains to the study of the requisite infrastructure.
Sorry, a quick follow-up. Have you done -- have you completed your drilling on Sukhoi Log or is it still in the process?
Yuriy, can you repeat that again, sorry? What's the question on...
Have you completed the drilling on -- this is the question -- is it still work in process?
Well, the majority of the drilling that is required for the feasibility study has been completed with the perfected translation against the resource model. We have some outstanding drilling which is being done at the flanks but that's not required for the feasibility study. That is basically for the -- sort of, for the operations well beyond 2035. Thank you.
Okay. Many, thanks.
We'll take our next question from Nina Dergunova with Goldman Sachs.
Good day. Thank you very much for answering the questions. Most of my questions have been replied already; probably a few from my side. First one on consolidated CapEx guidance for next year. At the CMD, you mentioned that CapEx could increase about 10% and you also said now that for Blagodatnoye Mill-5 spending is stable. Can you name which major projects can trigger this 10% increase in CapEx next year?
Right. So the major increase will be at Sukhoi Log and that also will be at Kuranakh as we are commissioning the construction of the 7.5 project. And then all sort of items but nothing particularly material.
And what about stripping? What stripping do you expect and I acknowledge that this guidance that you provided us does include stripping?
This is not -- does not incorporate our stripping expense. Now in terms of sort of projections, the fourth quarter figure will be very much comparable to the average quarterly number during the first nine months and 2022 figure will be comparable to 2021 figure.
Understood. And the second question from my side. This year is a challenging year for Krasnoyarsk business units with lower grade recoveries. Can you give a scale of improvement in grades and recoveries next year?
Yes. Well, I think we'll be able sort of to provide a more precise guidance when we announce our figures for the 2021 fiscal year. Now what we guided previously is that there will be a substantial rebound in grades in 2022 and there will be a further increase in head grades in 2023 and that remains the case. So, Krasnoyarsk will see a stronger performance next year.
That is clear. Thank you very much. That's it for my side.
Thank you. [Operator Instructions] At this time, there are no additional questions in the queue.
Yes. Thanks, all guys, for attending our conference call. Once again, if you have any further follow-up questions, just drop us a line. So we're going to be waiting for those questions. Thanks a lot. Cheers. Bye.
That will conclude today's call. We appreciate your participation.