IFRS Update for Financial Services

KPMG AG, Zurich

25 October 2018 Agenda

Alternative performance measures

IASB update Alternative performance measures ! Alternative performance measures SIX Directive on the Use of Alternative Performance Measures Issue date: 20 March 2018 Effective date: 1 January 2019

Significant Reconciliation reconciling statement items explained Clear Consistency referencing

Directive Not more Meaningful “Alternative prominent than label Performance Measures” GAAP measures published by SIX Clear and Comparative comprehensive information definitions

Location and listing

Companies located in Switzerland and Companies not located in Switzerland but listed on SIX Swiss Exchange listed on SIX Swiss Exchange

Where do you publish your APMs?

In scope Out of scope

- Annual reports (including - Press releases (not related to periodic Business Reviews) financial reporting) - Half year reports - Prospectuses relating to listing of - Quarterly reports  securities - Press releases (related to periodic - Investor presentations financial reporting) 

Relative total Gross written shareholder premiums return New Combined business ratio

A financial Adjusted measure Cost-income profit other than ratio a GAAP measure

Underlying Compen- profit per sation ratio share Organic revenue growth

not only profit related not in scope if defined in other measures but any reported regulations applicable to KPIs too  issuers (e.g. solvency)

Second quarter 2018 report - UBS

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

Half-year 2018 report – Helvetia Group

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

Reporting Company Industry Applied GAAP currency ABB LTD Industrials US GAAP USD ADECCO Industrials US GAAP EUR ARYZTA Consumer Goods IFRS EUR BALOISE Financials IFRS CHF CLARIANT Basic Materials IFRS CHF CS GROUP Financials US GAAP CHF DUFRY Consumer Services IFRS CHF GEBERIT Industrials IFRS CHF GIVAUDAN Basic Materials IFRS CHF JULIUS BAER Financials IFRS CHF KUEHNE+NAGEL INT Industrials IFRS CHF LAFARGEHOLCIM Industrials IFRS CHF LOGITECH Technology US GAAP USD LONZA Health Care IFRS CHF NESTLE Consumer Goods IFRS CHF NOVARTIS Health Care IFRS USD PARTNERS GROUP Financials IFRS CHF RICHEMONT Consumer Goods IFRS EUR ROCHE Health Care IFRS CHF SCHINDLER Industrials IFRS CHF SGS Industrials IFRS CHF SIKA Industrials IFRS CHF SONOVA Health Care IFRS CHF SWATCH GROUP Consumer Goods Swiss GAAP FER CHF SWISS LIFE HOLDING AG Financials IFRS CHF SWISS RE Financials US GAAP USD SWISSCOM Telecommunications IFRS CHF UBS GROUP Financials IFRS CHF VIFOR Consumer Services IFRS CHF ZURICH INSURANCE Financials IFRS USD

 Clear and comprehensible definitions

 Meaningful label - reflect the content and basis of calculation

Current industry status

Definition provided in a clear and comprehensible manner 27% Definition provided, but not in a clear and comprehensible manner 53% Definition provided indirectly 14% No definition provided 6%

 ActionActions Give clear definition of each APM !  Avoid misleading labels

Example: Standard Life Aberdeen plc - half year results 2018

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

Example: GAM Holding AG - Annual Report 2017

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

 Reference to a comparable IFRS measure

 Significant reconciling items must be explained

Current industry status

Disclosure of a reconciliation table between non-IFRS and IFRS measure 19% Disclosure of both the adjustment types and magnitudes 16% 56% Disclosure of adjustment types without magnitudes 9% No disclosure of adjustment types and magnitudes

 Disclose reconciliation to IFRS measures ! Actions  Explain significant reconciling items

Example: Janus Henderson Group plc - second quarter 2018 report

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

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

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

 No more prominence than IFRS measures

 Balance between APM and IFRS measures

Current industry status

37.5% Non-GAAP measure not displayed with more prominence Non-GAAP measure displayed with more prominence

62.5%

! Action  Do not give more prominence to APMs

Example: HSBC Holdings plc - Interim Report 2018

Source: HSBC Holdings plc - Interim Report 2018, Highlights, page 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. 18 ! Alternative performance measures Art. 7 Presentation (cont’d) Example: SGS - HALF YEAR RESULTS 2018

Source: HALF YEAR RESULTS 2018 – SGS, page 1

 Comparative information for previous periods

2 Consistent definitions and calculation basis

 Explain if APMs are not consistent

 If APMs are adjusted, comparatives need to be adjusted too

Current industry status 6%

Comparative information is disclosed Comparative information is not disclosed 94%

 Disclose comparatives Actions  Be consistent (impairment and reversal of ! impairment, etc.)

Example: UBS - second quarter 2018 report

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

Example: Adecco Group – 2017 Annual Report

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

 Use references (e.g. footnote, web link)

Documents must be publicly accessible at the time the APM  is disclosed

Current industry status 11% Footnote provided 9% Footnote provided indirectly No footnote provided 80%

! Action  Use clear references

Example: UBS - Second quarter 2018 report

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

2 Refer toto thethe “Measurement“Measurement of of performance” performance” section section of ourof our Annual ReportAnnual 2017Report for 2017 the definitions for the definitions of our key of ourperformance key performance indicators. indicators.3 Calculated as adjusted operating expenses / adjusted operating income before credit loss (expense) or recovery.

Example: Roche - Half-Year Report 2018

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

1) Presentation of the KPIs with equal prominence 2) Explanation on intention / reason for using APMs

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.

3) Definition of «Core results» 4) Reconciliation table and details on the Core results adjustments The 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 ********************************************************** ACTIONaddition to IFRS and other measures as important factors in assessing the Group’s performance.

© 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of Source: Novartis Annual Report 2017, page 6 / 179 / 181 the KPMG network of independent firms affiliated with KPMG International © 2018 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independentCooperative firms affiliated (“KPMG with International”),KPMG International a Swiss Cooperative legal entity. All rights reserved. (“KPMG International”), a Swiss legal entity. All rights reserved. 26 ! Alternative performance measures Current industry status – needto change

State of compliance for SLI-listed companies compared to expected SIX regulation

No change needed Significant need for change

Label and explanation

Reconciliation

Presentation

Consistency

References

 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 © 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. 28 ! Alternative performance measures Howisit 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

© 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. 29 What is next? ! Alternative performance measures APMs - How prepared are you? (1/2)   Does my company disclose APMs (press release, business 1 review)?

2 Do my APMs tell the story that the company wants to tell?

Does my company have a reliable and transparent policy 3 (including definitions and reconciliation tables) for the APMs to be reported?

Is it possible to report these key figures consistently over a 4 longer period?

Are processes and control mechanisms sufficiently robust to 5 produce reliable APMs?

© 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. 31 ! Alternative performance measures APMs - How prepared are you? (2/2)   Are APMs related to the compensation system? If yes, are 6 appropriate governance processes and safeguards in place?

Are the disclosures in the financial communication consistent 7 with regulatory requirements?

Are the APMs relevant if benchmarked against industry 8 averages?

Do they meet the expectations of stakeholder groups (especially 9 financial analysts and investors)?

10 Is an appropriate assurance concept in place?

© 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. 32 IASB Update ! IASB update New KPMG web tool Our 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.

On amendment, curtailment or settlement of The effect of the asset ceiling is a defined benefit plan, a company now uses disregarded when calculating the gain or loss on any updated actuarial assumptions to settlement of the plan and dealt with determine its current service cost and net separately + in other comprehensive income (OCI). interest for the remaining period.

How it impacts If the amendment is made to a defined benefit plan half way me? through the year, the current service cost and net interest for the remaining six months of the year are recalculated using the same Dual actuarial assumptions as those used to remeasure the net defined reporting?benefit liability (or asset).

Previously, the calculation would not have been updated until the year-end.

Bank 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:

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

What is the current service cost and interest expense for 2019?

Current service cost for the first 8 months 120 Current service cost for the remaining 4 months 40 Before IAS 19 amendment Current service cost 160 Current service cost for the year 180 Interest expense for the year 4.0 Interest expense for the first 8 months 2.7 Interest expense for the remaining 4 months 0.4 Interest expense 3.1

Bahnhofplatz 15, 8001 Zürich Presenters today

Patricia Bielmann Partner Financial Services Accounting Advisory

+41 58 249 41 88 [email protected]

David Machar Anna Filatovich Senior Manager Manager Financial Services Financial Services Accounting Advisory Accounting Advisory

+41 58 249 35 58 +41 58 249 79 27 [email protected] [email protected]

Our Illustrative disclosures help you to prepare financial Bridge the Gaps is our statements in accordance with publication on the study of IFRS. alternative performance measures performed in Currently available: cooperation with the University - 2018 Annual Illustrative of St Gallen. disclosures (September) - 2018 Interim Illustrative disclosures (March)

To find our publications go to: kpmg.com/ifrs

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