Annual Financial Report - 2 of 56

RNS Number : 5944S

HSBC Holdings PLC

18 March 2016

 

Use of non-GAAP financial measures	48
Consolidated income statement	50
Group performance by income and expense item	51
Net interest income	51
Net fee income	53
Net trading income	54
Net income from financial instruments designated at fair value	54
Gains less losses from financial investments	55
Net insurance premium income	56
Other operating income	56
Net insurance claims and benefits paid and movement in liabilities to policyholders	57
Loan impairment charges and other credit risk provisions	57
Operating expenses	58
Share of profit in associates and joint ventures	60
Tax expense	60
Consolidated balance sheet	61
Movement in 2015	62
Reconciliation of RoRWA measures	64
Critical accounting estimates and judgements	64

The management commentary included in the Strategic Report, the Report of the Directors: 'Financial Review', together with the 'Employees' and 'Corporate sustainability' sections of 'Corporate Governance' and the 'Directors' Remuneration Report' is presented in compliance with the IFRSs Practice Statement 'Management Commentary' issued by the IASB.

Use of non-GAAP financial measures

Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements starting on page 336. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort year-on-year comparisons. These are considered non-GAAP financial measures.

The primary non-GAAP financial measure we use is 'adjusted performance'. Other non-GAAP financial measures are described and reconciled to the most relevant reported financial measure when used.

Adjusted performance

Adjusted performance is computed by adjusting reported results for the year-on-year effects of foreign currency translation differences and significant items that distort year-on-year comparisons. 'Significant items' are excluded from adjusted performance because management and investors would ordinarily identify and consider them separately in order to better understand the underlying trends in a business.

These items, which are detailed in the tables starting on pages 66 and 77, include:

·   gains or losses on the disposal or reclassification of subsidiaries, associates and joint ventures;

·   fines, penalties, customer redress and associated provisions, together with settlements and provisions relating to legal matters when their size or historical nature mean they warrant separate consideration;

·   costs incurred to achieve the productivity and cost reduction targets outlined in the Investor Update of June 2015; and

·   credit spread movements on our long-term debt designated at fair value.

We consider adjusted performance provides useful information for investors by aligning internal and external reporting, identifying and quantifying items management believe to be significant and providing insight into how management assesses year-on-year performance.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies during 2015. We exclude the translation differences when deriving constant currency data because using this data allows us to assess balance sheet and income statement performance on a like-for-like basis to better understand the underlying trends in the business.

Foreign currency translation differences Foreign currency translation differences for 2015 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates: •     the income statements for 2014 at the average rates of exchange for 2015; and •     the balance sheet at 31 December 2014 at the prevailing rates of exchange on 31 December 2015. No adjustment has been made to the exchange rates used to translate foreign currency denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC's operations have been translated at the appropriate exchange rates applied in the current year on the basis described above.

Significant items

The tables starting on pages 66 and 77, detail the effect of significant items on each of our geographical segments and global businesses in 2015 and 2014.

The following table reconciles selected reported items for 2015 and 2014 to adjusted items at a Group level.

Reconciliation of reported and adjusted items

		2015		2014		Change
		$m		$m		%
Revenue1
Reported		59,800		61,248		(2)
Currency translation				(4,775)
Own credit spread2		(1,002)		(417)
Acquisitions, disposals and dilutions		-		(9)
Other significant items		(1,033)		1,180
Adjusted		57,765		57,227		1
Loan impairment charges and other credit risk provisions
Reported		(3,721)		(3,851)		3
Currency translation				683
Acquisitions, disposals and dilutions		-		-
Other significant items		-		-
Adjusted		(3,721)		(3,168)		(17)
Total operating expenses
Reported		(39,768)		(41,249)		4
Currency translation				3,278
Acquisitions, disposals and dilutions		-		40
Other significant items		3,586		3,355
Adjusted		(36,182)		(34,576)		(5)
Adjusted cost efficiency ratio		62.6%		60.4%
Share of profit in associates and joint ventures
Reported		2,556		2,532		1
Currency translation				(39)
Acquisitions, disposals and dilutions		-		-
Other significant items		-		-
Adjusted		2,556		2,493		3
Profit before tax
Reported		18,867		18,680		1
Currency translation				(853)
Own credit spread2		(1,002)		(417)
Acquisitions, disposals and dilutions		-		31
Other significant items		2,553		4,535
Adjusted		20,418		21,976		(7)

For footnotes, see page 99.

 

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