Interim Report - 21 of 24

(a)   Compliance with International Financial Reporting Standards

The interim condensed consolidated financial statements of HSBC have been prepared in accordance with the Disclosure Rules and Transparency Rules of the Financial Conduct Authority and IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ('IASB') and as endorsed by the EU. These interim consolidated financial statements should be read in conjunction with the Annual Report and Accounts 2014.

At 30 June 2015, there were no unendorsed standards effective for the half-year to 30 June 2015 affecting these interim consolidated financial statements, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to HSBC.

Standards applied during the half-year to 30 June 2015

There were no new standards applied during the half-year to 30 June 2015. During the period, HSBC applied a number of interpretations and amendments to standards which had an insignificant effect on these interim consolidated financial statements.

(b)   Use of estimates and judgements

Management believes that HSBC's critical accounting estimates and judgements are those which relate to impairment of loans and advances, goodwill impairment, the valuation of financial instruments, deferred tax assets, provisions for liabilities and interests in associates. There was no change in the current period to the critical accounting estimates and judgements applied in 2014, which are stated on pages 62 and 348 of the Annual Report and Accounts 2014.

(c)   Composition of Group

There were no material changes in the composition of the HSBC Group in the half-year to 30 June 2015.

(d)   Future accounting developments

Information on future accounting developments and their potential effect on the financial statements of HSBC are provided on page 345 of the Annual Report and Accounts 2014.

(e)   Going concern

The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources.

(f)    Accounting policies

The accounting policies applied by HSBC for these interim consolidated financial statements are consistent with those described on pages 345 to 457 of the Annual Report and Accounts 2014, as are the methods of computation.

		Half-year to
		30 June		30 June		31 December
		2015		2014		2014
		$m		$m		$m
Current tax
UK corporation tax charge		343		165		(96)
Overseas tax1		2,071		1,803		2,078
		2,414		1,968		1,982
Deferred tax		493		54		(29)
Tax expense		2,907		2,022		1,953
		21.33
Effective tax rate		21.3%		16.4%		30.8%

1   Overseas tax included Hong Kong profits tax of $714m (first half of 2014: $589m; second half of 2014: $546m). Subsidiaries in Hong Kong provided for Hong Kong profits tax at the rate of 16.5% (2014: 16.5%) on the profits for the period assessable in Hong Kong. Other overseas subsidiaries and overseas branches provided for taxation at the appropriate rates in the countries in which they operated.

Deferred taxation

Net deferred tax assets amounted to $4.5bn at 30 June 2015 (30 June 2014: $6.1bn; 31 December 2014: $5.6bn), mainly relating to timing differences in the US. Net deferred tax assets have fallen since 31 December 2014 mainly because the net assets of Brazilian operations were transferred to 'Held for Sale' (see Note 12). 

On 3 August 2015, the Directors declared a second interim dividend in respect of the financial year ending 31 December 2015 of $0.10 per ordinary share, a distribution of approximately $1,954m which will be payable on 2 October 2015. No liability is recognised in the financial statements in respect of this dividend.

Dividends to shareholders of the parent company

		Half-year to
		30 June 2015						30 June 2014						31 December 2014
		Per          share $		Total               $m		Settled       in scrip               $m		Per          share $		Total               $m		Settled        in scrip               $m		Per          share $		Total               $m		Settled        in scrip               $m
Dividends paid on ordinary shares
In respect of previous year:
- fourth interim dividend		0.20		3,845		2,011		0.19		3,582		1,827		-		-		-
In respect of current year:
- first interim dividend		0.10		1,951		231		0.10		1,906		284		-		-		-
- second interim dividend		-		-		-		-		-		-		0.10		1,914		372
- third interim dividend		-		-		-		-		-		-		0.10		1,918		226
Total		0.30		5,796		2,242		0.29		5,488		2,111		0.20		3,832		598
Total dividends on preference shares classified as equity (paid quarterly)		31.00		45				31.00		45				31.00		45

 

Total coupons on capital securities classified as equity

				Half-year to
				30 June 2015				30 June 2014				31 December 2014
		First		Per security		Total		Per security		Total		Per security		Total
		call date		$		$m		$		$m		$		$m
Perpetual subordinated capital securities1
- $2,200m issued at 8.125%		Apr 2013		1.016		89		1.016		89		1.016		90
- $3,800m issued at 8.000%		Dec 2015		1.000		152		1.000		152		1.000		152
Perpetual subordinated contingent convertible securities2
- $2,250m issued at 6.375%		Sep 2024		31.875		72		-		-		-		-
- $1,500m issued at 5.625%		Jan 2020		28.125		28		-		-		-		-
- €1,500m issued at 5.250%		Sep 2022		29.396		42		-		-		-		-
Total						383				241				242

1   Discretionary coupons are paid quarterly on the perpetual subordinated capital securities.

2   Discretionary coupons are paid semi-annually on the perpetual subordinated contingent convertible securities.

On 15 July 2015, HSBC paid a further coupon on the $2,200m subordinated capital securities of $0.508 per security, representing a total distribution of $45m. On 17 July 2015, HSBC paid a further coupon on the $1,500m subordinated contingent convertible securities, representing a total distribution of $42m. No liability is recognised in the financial statements in respect of these coupon payments.

In March 2015, HSBC issued $2,450m of contingent convertible securities issued at 6.375% which are classified as equity under IFRSs. Discretionary coupons are paid semi-annually on these contingent convertible securities and none were declared in the first half of 2015.

Profit attributable to ordinary shareholders of the parent company

		Half-year to
		30 June		30 June		31 December
		2015		2014		2014
		$m		$m		$m
Profit attributable to shareholders of the parent company		9,618		9,746		3,942
Dividend payable on preference shares classified as equity		(45)		(45)		(45)
Coupon payable on capital securities classified as equity		(383)		(241)		(242)
Profit attributable to ordinary shareholders of the parent company		9,190		9,460		3,655

 

Basic and diluted earnings per share

		Half-year to 30 June 2015						Half-year to 30 June 2014						Half-year to 31 December 2014
		Profit                $m		Number    of shares     (millions)		Amount   per share                    $		Profit                $m		Number     of shares     (millions)		Amount per share                    $		Profit                $m		Number     of shares     (millions)		Amount per share                    $
Basic1		9,190		19,249		0.48		9,460		18,847		0.50		3,655		18,960		0.19
Effect of dilutive potential ordinary shares				68						101						96
Diluted1		9,190		19,317		0.48		9,460		18,948		0.50		3,655		19,056		0.19

1   Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).

HSBC operates a matrix management structure which includes geographical regions and global businesses. HSBC considers that geographical operating segments represent the most appropriate information for users of the financial statements to best evaluate the nature and financial effects of HSBC's business activities and the economic environment in which it operates. HSBC's operating segments are Europe, Asia, Middle East and North Africa, North America and Latin America.

		Europe		Asia		MENA		North          America		Latin          America		Intra-HSBC                items		Total
		$m		$m		$m		$m		$m		$m		$m
Net operating income1
Half-year to 30 June 2015
Net operating income		11,469		14,065		1,289		4,126		3,558		(1,564)		32,943
- external		10,974		13,148		1,279		3,979		3,563		-		32,943
- inter-segment		495		917		10		147		(5)		(1,564)		-
Half-year to 30 June 2014
Net operating income		10,873		12,107		1,294		4,067		4,265		(1,439)		31,167
- external		10,335		11,343		1,271		3,948		4,270		-		31,167
- inter-segment		538		764		23		119		(5)		(1,439)		-
Half-year to 31 December 2014
Net operating income		10,698		11,570		1,254		4,085		4,007		(1,533)		30,081
- external		10,115		10,728		1,253		3,989		3,996		-		30,081
- inter-segment		583		842		1		96		11		(1,533)		-
Profit/(loss) before tax
Half-year to:
30 June 2015		2,205		9,400		901		690		432		-		13,628
30 June 2014		2,258		7,894		989		825		374		-		12,340
31 December 2014		(1,662)		6,731		837		592		(158)		-		6,340