IFRS Update for Financial Services€¦ · SIX Directive on the Use of Alternative Performance Measures Directive “Alternative Performance Measures” published by SIX

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


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?



Relative total shareholder

return

Cost-incomeratio

Compen-sation ratio

Gross writtenpremiums

Combinedratio

New business

Adjusted profit

Underlying profit per

share


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


Example of APM disclosure #1 Second quarter 2018 report - UBS


Source: Our financial results - Second quarter 2018 report – UBS, Our key figures, page 2


Example of APM disclosure #2Half-year 2018 report – Helvetia Group


Source: Half-year results 2018 – Helvetia Group, Key figures and highlights at a glance, page 4


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


What do I need to do?


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%


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


Art. 5 Label and explanation (cont’d)

Source: Half year results 2018 - Standard Life Aberdeen plc, 5.1 Alternative performance measures, page 51


Example: Standard Life Aberdeen plc - half year results 2018


Art. 5 Label and explanation (cont’d)

Source: GAM Holding AG Annual Report 2017, Financial review, page 30


Example: GAM Holding AG - Annual Report 2017


Art. 6 Reconciliation statementAlternative performance measures!

Reference to a comparable IFRS measure


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


Source: Press Release Janus Henderson Group plc reports second quarter 2018 (Company Release - 7/31/2018 4:32 PM ET)


Example: Janus Henderson Group plc - second quarter 2018 report

Art. 6 Reconciliation statement (cont’d)


Art. 6 Reconciliation statement (cont’d)

Source: Novartis Q2 and H1 2018 Condensed Interim Financial Report – Supplementary Data, page 56


Example: Novartis - Q2 & H1 2018 Condensed Interim Financial Report


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


37.5%

62.5%


Art. 7 Presentation (cont’d)Example: HSBC Holdings plc - Interim Report 2018

Source: HSBC Holdings plc - Interim Report 2018, Highlights, page 4



Art. 7 Presentation (cont’d)

Source: HALF YEAR RESULTS 2018 –SGS, page 1


Example: SGS - HALF YEAR RESULTS 2018


Art. 8 ConsistencyAlternative performance measures!

Comparative information for previous periods

2


! 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


Art. 8 Consistency (cont’d)Alternative performance measures!

Example: UBS - second quarter 2018 report



Art. 8 Consistency (cont’d)

Source: The Adecco Group – 2017 Annual Report, Key figures, page 156


Example: Adecco Group – 2017 Annual Report


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


! Use clear referencesAction

Footnote providedFootnote provided indirectlyNo footnote provided

11%9%

80%


Art. 9 Use of references (cont’d)Alternative performance measures!

Example: UBS - Second quarter 2018 report


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.


Art. 9 Use of references (cont’d)

Source: Roche Half-Year Report 2018, Finance in brief, page 2


Example: Roche - Half-Year Report 2018


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

**********************************************************


Current industry status – need to change


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


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


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


What is next?


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



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


Is an appropriate assurance concept in place? 10

IASB Update


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!

https://home.kpmg.com/xx/en/home/services/audit/international-financial-reporting-standards/ifrs-toolkit/ifrs-new-standards-effective-dates-tool.html


New KPMG web tool (cont’d)IASB update!


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!


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


Presenters today

David MacharSenior Manager

Financial Services Accounting Advisory

+41 58 249 35 [email protected]

Anna FilatovichManager



Patricia BielmannPartner



Appendix


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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