HSBC 2012 Annual Report Download - page 27

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review
Financial summary > Consolidated income statement
25
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Financial summary
Use of non-GAAP financial measures ...................... 25
Constant currency ......................................................... 25
Underlying performance ............................................... 26
Consolidated income statement ................................. 29
Group performance by income and expense item ... 33
Net interest income ....................................................... 33
Net fee income .............................................................. 35
Net trading income ....................................................... 36
Net income/(expense) from financial instruments
designated at fair value ............................................. 37
Gains less losses from financial investments ............... 38
Net earned insurance premiums ................................... 38
Gains on disposal of US branch network, US
cards business and Ping An ...................................... 39
Other operating income ................................................ 39
Net insurance claims incurred and movement in
liabilities to policyholders ........................................ 40
Loan impairment charges and other credit risk
provisions ................................................................. 41
Operating expenses ....................................................... 42
Share of profit in associates and joint ventures ............ 43
Tax expense .................................................................. 44
Consolidated balance sheet ........................................ 45
Movement in 2012 ........................................................ 46
Economic loss .............................................................. 51
Reconciliation of RoRWA measures ......................... 52
Disposals, held for sale and run-off portfolios ......... 52
Critical accounting policies ........................................ 54
The management commentary included in the Report of the
Directors: ‘Overview’ and ‘Operating and Financial Review’,
together with the ‘Employees’ and ‘Corporate sustainability’
sections of ‘Corporate Governance’ and the ‘Directors’
Remuneration Report’ is presented in compliance with the
IFRS 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 372. There are times when we
measure our performance internally, using financial
measures which have been derived from our reported
results, in order to eliminate factors which distort
year-on-year comparisons so we can view our results
on a more like-for-like basis; these are considered
non-GAAP measures. ‘Constant currency’ and
‘underlying’ performance are non-GAAP measures
that we use throughout our Operating and Financial
Review and are described below. Other non-GAAP
financial measures are described and reconciled to
the closest reported financial measure when used.
Constant currency
The constant currency measure adjusts for the year-
on-year effects of foreign currency translation
differences by comparing reported results for 2012
with reported results for 2011 retranslated at 2012
exchange rates. Except where stated otherwise,
commentaries are on a constant currency basis, as
reconciled in the table overleaf.
The foreign currency translation differences
reflect the movements of the US dollar against most
major currencies during 2012.
We exclude the translation differences when
monitoring progress against operating plans and past
results because management believes the like-for-
like basis of constant currency financial measures
more appropriately reflects changes due to operating
performance.
Constant currency
Constant currency comparatives for 2011 referred to in the
commentaries are computed by retranslating into US dollars
for non-US dollar branches, subsidiaries, joint ventures and
associates:
• the income statements for 2011 at the average rates of
exchange for 2012; and
• the balance sheet at 31 December 2011 at the prevailing
rates of exchange on 31 December 2012.
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 ‘constant currency’ 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 period on the basis
described above.