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IFRS Update for Financial ServicesKPMG AG, Zurich
25 October 2018
Agenda
Alternative performance measures
IASB update
Alternative performance measures
4© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Issue date: 20 March 2018Effective date: 1 January 2019
Reconciliation statement
Not more prominent than
GAAP measures
Comparative information
Significant reconciling
items explained Clear referencingConsistency
Meaningful label
Clear and comprehensive
definitions
Alternative performance measures!
SIX Directive on the Use of Alternative Performance Measures
Directive “Alternative Performance Measures”
published by SIX
5© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Does it affect me?
Companies located in Switzerland andlisted on SIX Swiss Exchange
Companies not located in Switzerland but listed on SIX Swiss Exchange
- Press releases (not related to periodic financial reporting)
- Prospectuses relating to listing of securities
- Investor presentations
Out of scope
- Annual reports (including Business Reviews)
- Half year reports- Quarterly reports- Press releases (related to periodic
financial reporting)
In scope
Location and listing
Where do you publish your APMs?
Alternative performance measures!
6© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Relative total shareholder
return
Cost-incomeratio
Compen-sation ratio
Gross writtenpremiums
Combinedratio
New business
Adjusted profit
Underlying profit per
share
Alternative performance measures!
Organicrevenuegrowth
not in scope if defined in otherregulations applicable toissuers (e.g. solvency)
not only profit relatedmeasures but any reportedKPIs too
Which performance measures are in scope?
A financial measure
other than a GAAP measure
7© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Example of APM disclosure #1 Second quarter 2018 report - UBS
Alternative performance measures!
Source: Our financial results - Second quarter 2018 report – UBS, Our key figures, page 2
8© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Example of APM disclosure #2Half-year 2018 report – Helvetia Group
Alternative performance measures!
Source: Half-year results 2018 – Helvetia Group, Key figures and highlights at a glance, page 4
9© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Research study on APM –KPMG with University of St.Gallen
Company Industry Applied GAAP Reporting currency
ABB LTD Industrials US GAAP USDADECCO Industrials US GAAP EURARYZTA Consumer Goods IFRS EURBALOISE Financials IFRS CHFCLARIANT Basic Materials IFRS CHFCS GROUP Financials US GAAP CHFDUFRY Consumer Services IFRS CHFGEBERIT Industrials IFRS CHFGIVAUDAN Basic Materials IFRS CHFJULIUS BAER Financials IFRS CHFKUEHNE+NAGEL INT Industrials IFRS CHFLAFARGEHOLCIM Industrials IFRS CHFLOGITECH Technology US GAAP USDLONZA Health Care IFRS CHFNESTLE Consumer Goods IFRS CHFNOVARTIS Health Care IFRS USDPARTNERS GROUP Financials IFRS CHFRICHEMONT Consumer Goods IFRS EURROCHE Health Care IFRS CHFSCHINDLER Industrials IFRS CHFSGS Industrials IFRS CHFSIKA Industrials IFRS CHFSONOVA Health Care IFRS CHFSWATCH GROUP Consumer Goods Swiss GAAP FER CHFSWISS LIFE HOLDING AG Financials IFRS CHFSWISS RE Financials US GAAP USDSWISSCOM Telecommunications IFRS CHFUBS GROUP Financials IFRS CHFVIFOR Consumer Services IFRS CHFZURICH INSURANCE Financials IFRS USD
Alternative performance measures!
What do I need to do?
11© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 5 Label and explanation
Definition provided in a clear and comprehensible mannerDefinition provided, but not in a clear and comprehensible mannerDefinition provided indirectlyNo definition provided
27%
14%6%
53%
Alternative performance measures!
Clear and comprehensible definitions
Meaningful label - reflect the content and basis of calculation
Current industry status
Action! Give clear definition of each APM Avoid misleading labelsActions
12© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 5 Label and explanation (cont’d)
Source: Half year results 2018 - Standard Life Aberdeen plc, 5.1 Alternative performance measures, page 51
Alternative performance measures!
Example: Standard Life Aberdeen plc - half year results 2018
13© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 5 Label and explanation (cont’d)
Source: GAM Holding AG Annual Report 2017, Financial review, page 30
Alternative performance measures!
Example: GAM Holding AG - Annual Report 2017
14© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 6 Reconciliation statementAlternative performance measures!
Reference to a comparable IFRS measure
Current industry status
Disclosure of a reconciliation table between non-IFRS and IFRS measureDisclosure of both the adjustment types and magnitudesDisclosure of adjustment types without magnitudesNo disclosure of adjustment types and magnitudes
56%
9%
16%
19%
! Disclose reconciliation to IFRS measures Explain significant reconciling itemsActions
Significant reconciling items must be explained
15© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Source: Press Release Janus Henderson Group plc reports second quarter 2018 (Company Release - 7/31/2018 4:32 PM ET)
Alternative performance measures!
Example: Janus Henderson Group plc - second quarter 2018 report
Art. 6 Reconciliation statement (cont’d)
16© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 6 Reconciliation statement (cont’d)
Source: Novartis Q2 and H1 2018 Condensed Interim Financial Report – Supplementary Data, page 56
Alternative performance measures!
Example: Novartis - Q2 & H1 2018 Condensed Interim Financial Report
17© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 7 PresentationAlternative performance measures!
No more prominence than IFRS measures
Balance between APM and IFRS measures
! Do not give more prominence to APMsAction
Non-GAAP measure not displayed with more prominenceNon-GAAP measure displayed with more prominence
Current industry status
37.5%
62.5%
18© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 7 Presentation (cont’d)Example: HSBC Holdings plc - Interim Report 2018
Source: HSBC Holdings plc - Interim Report 2018, Highlights, page 4
Alternative performance measures!
19© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 7 Presentation (cont’d)
Source: HALF YEAR RESULTS 2018 –SGS, page 1
Alternative performance measures!
Example: SGS - HALF YEAR RESULTS 2018
20© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 8 ConsistencyAlternative performance measures!
Comparative information for previous periods
2
Current industry status
! Disclose comparatives Be consistent (impairment and reversal of
impairment, etc.)Actions
Comparative information is disclosed
Comparative information is not disclosed94%
6%
Consistent definitions and calculation basis
Explain if APMs are not consistent
If APMs are adjusted, comparatives need to be adjusted too
21© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 8 Consistency (cont’d)Alternative performance measures!
Example: UBS - second quarter 2018 report
Source: Our financial results - Second quarter 2018 report – UBS, Our key figures, page 2
22© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 8 Consistency (cont’d)
Source: The Adecco Group – 2017 Annual Report, Key figures, page 156
Alternative performance measures!
Example: Adecco Group – 2017 Annual Report
23© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 9 Use of referencesAlternative performance measures!
Use references (e.g. footnote, web link)
Documents must be publicly accessible at the time the APM is disclosed
Current industry status
! Use clear referencesAction
Footnote providedFootnote provided indirectlyNo footnote provided
11%9%
80%
24© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 9 Use of references (cont’d)Alternative performance measures!
Example: UBS - Second quarter 2018 report
Source: Our financial results - Second quarter 2018 report – UBS, Our key figures, page 2
2 Refer to the “Measurement of performance” section of our Annual Report 2017 for the definitions of our key performance indicators.2 Refer to the “Measurement of performance” section of our Annual Report 2017 for the definitions of our key performance indicators.3 Calculated as adjusted operating expenses / adjusted operating income before credit loss (expense) or recovery.
25© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Art. 9 Use of references (cont’d)
Source: Roche Half-Year Report 2018, Finance in brief, page 2
Alternative performance measures!
Example: Roche - Half-Year Report 2018
26© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Links between different requirementsAlternative performance measures!
ACTION
1) Presentation of the KPIs with equal prominence 2) Explanation on intention / reason for usingAPMs
3) Definition of «Core results» 4) Reconciliation table and details on theadjustments
1 This Annual Report includes non-IFRS financial measures such as core results, constant currencies and free cash flow. Novartis believes that investor understanding of the Group’s performance is enhanced by disclosing these non-IFRS measures. A definition of non-IFRS measures used by Novartis, and further details, including reconciliation tables, can be found starting on page 179.
© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Core resultsThe Group’s core results – including core operating income, core net income and core earnings per share – exclude fully the amortization and impairment charges of intangible assets, except software, and certain acquisition-related items. The following items that exceed a threshold of USD 25 million are also excluded: integration and divestment related income and expenses, divestment gains and losses, restructuring charges/ releases and related items, legal related items, impairments of property, plant and equipment and financial assets, as well as income and expense items that management deems exceptional and that are or are expected to accumulate within the year to be over a USD 25 million threshold.
Novartis believes that investor understanding of the Group’s performance is enhanced by disclosing core measures of performance since they exclude items that can vary significantly from year to year, the core measures enable better comparison of business performance across years. For this same reason, Novartis uses these core measures in addition to IFRS and other measures as important factors in assessing the Group’s performance.
Source: Novartis Annual Report 2017, page 6 / 179 / 181
**********************************************************
27© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Current industry status – need to change
Alternative performance measures!
Label andexplanation
Reconciliation
Presentation
Consistency
References
No change needed Significant need for change
State of compliance for SLI-listed companies compared to expected SIX regulation
28© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
How is it done in the EU? Alternative performance measures!
ESMA Guidelines on Alternative Performance Measures
Addressed to issuers, whose securities are admitted to trading on a regulated market and who are required to publish regulated information
Example: Barclays PLC - Interim Results Announcement, 30 June 2018
Source: Barclays PLC Interim Results Announcement, 30 June 2018, page 94 & 96
29© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
How is it done in the EU? (cont’d)Example: Extract from HSBC Holdings plc - Interim Report 2018
Source: HSBC Holdings plc - Interim Report 2018, Global businesses, page 32
Alternative performance measures!
What is next?
31© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
APMs - How prepared are you? (1/2)
Does my company disclose APMs (press release, business review)?1
Do my APMs tell the story that the company wants to tell?2
Does my company have a reliable and transparent policy (including definitions and reconciliation tables) for the APMs to be reported?
3
Is it possible to report these key figures consistently over a longer period?4
Are processes and control mechanisms sufficiently robust to produce reliable APMs?5
Alternative performance measures!
32© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
APMs - How prepared are you? (2/2)
Are APMs related to the compensation system? If yes, are appropriate governance processes and safeguards in place?6
Are the disclosures in the financial communication consistent with regulatory requirements?7
Are the APMs relevant if benchmarked against industry averages?8
Do they meet the expectations of stakeholder groups (especially financial analysts and investors)?9
Alternative performance measures!
Is an appropriate assurance concept in place? 10
IASB Update
34© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
New KPMG web toolOur new web tool enables you to generate a customized list of newly effective and forthcoming IFRS Standards® – based on your reporting period and whether you report under IFRS as issued by the IASB or as adopted by the EU.
IASB update!
35© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
New KPMG web tool (cont’d)IASB update!
36© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
IAS 19 - Plan amendment, curtailment orsettlement
On amendment, curtailment or settlement of a defined benefit plan, a company now uses
updated actuarial assumptions to determine its current service cost and net
interest for the remaining period.
The effect of the asset ceiling is disregardedwhen calculating the gain or loss on any
settlement of the plan and dealt with separatelyin other comprehensive income (OCI).
The amendments clarify that:
+
Dual reporting?
How it impactsme?
If the amendment is made to a defined benefit plan half waythrough the year, the current service cost and net interest for theremaining six months of the year are recalculated using the same actuarial assumptions as those used to remeasure the net definedbenefit liability (or asset).
Previously, the calculation would not have been updated until theyear-end.
IASB update!
37© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
IAS 19 amendment – mini caseBank A provides a defined benefit pension plan for its employees. On 1 September 2019, the plan is amended by decreasing the conversion factor from 6.4 to 6. Due to this plan amendment, the monthly current service cost decreased from CU 15m to CU 10m. The relevant financial information related to the plan is as follows:
IASB update!
in CU million 31.12.2018 31.08.2019 01.09.2019 31.12.2019
PV of obligation 1'500 1'500 1’300 1‘300
Fair value of plan assets 1'300 1'200 1’250 1’200
discount rate 2.0% 2.5% 2.5% 2.5%
DBO 200 300 50 100
Current service cost for the first 8 months 120 Current service cost for the remaining 4 months 40 Current service cost 160
Interest expense for the first 8 months 2.7 Interest expense for the remaining 4 months 0.4 Interest expense 3.1
What is the current service cost and interest expense for 2019?
Current service cost for the year 180 Interest expense for the year 4.0
Before IAS 19 amendment
Save-the-DateIFRS Update for Financial ServicesThursday, 16 May 2019
Bahnhofplatz 15, 8001 Zürich
39© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Presenters today
David MacharSenior Manager
Financial Services Accounting Advisory
+41 58 249 35 58davidmachar@kpmg.com
Anna FilatovichManager
Financial Services Accounting Advisory
+41 58 249 79 27annafilatovich@kpmg.com
Patricia BielmannPartner
Financial Services Accounting Advisory
+41 58 249 41 88pbielmann@kpmg.com
Appendix
41© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
KPMG publications and illustrative disclosures
Our Illustrative disclosures help you to prepare financial statements in accordance with IFRS.
Currently available: - 2018 Annual Illustrative
disclosures (September)- 2018 Interim Illustrative
disclosures (March)
To find our publications go to:kpmg.com/ifrs
Bridge the Gaps is our publication on the study of alternative performance measures performed in cooperation with the University of St Gallen.
Document Classification: KPMG Confidential
© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
The KPMG name, logo are registered trademarks or trademarks of KPMG International.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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