HSBC 2015 Annual Report Download - page 50

Report of the Directors: Financial summary
Use of non-GAAP financial measures
HSBC HOLDINGS PLC
48
Financial summary
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.