One year later; your next stop before the IFRS 16 finish line 20 March 2018

Transcription

1 IFRS 16 Seminar One year later; your next stop before the IFRS 16 finish line 20 March 2018

2 The contacts at KPMG in connection with this presentation are: Ruben Rog Partner KPMG Advisory N.V. T: E: Niels Ebbinkhuijsen Director KPMG Advisory N.V. T: E: 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 2

3 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 3

4 Agenda for today 13:00 13:30 Registration 13:30 13:50 Welcome and introduction 13:50 14:30 KLM the path to early adoption 14:30 15:10 Ahold Delhaize a transition project in action 15:10 15:30 Break for coffee and a sandwich 15:30 16:00 LeasePlan a lessor perspective 16:00 16:50 KPMG s Global IFRS 16 Lead Brian O Donovan 16:50 17:15 Tax perspective 17:15 Drinks reception 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 4

5 Today s presenters (1/2) Welcome Introduction Client perspective Client perspective Ruben Rog Partner CMAAS KPMG NL Niels Ebbinkhuijsen Wim Molenaar Accounting & Reporting Air France KLM Wouter Nijmeijer & Maryke Keet Director CMAAS KPMG NL Senior Vice President Accounting & Reporting, Risk & Controls Ahold Delhaize & Director Financial Reporting Ahold Delhaize 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 5

6 Today s presenters (2/2) Client perspective KPMG Global IFRS 16 Lead Tax perspective Ajolt Bos Lease Accounting Specialist LeasePlan Brian O Donovan Partner KPMG International Standards Group Johan Swagers Senior Manager KPMG Meijburg 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 6

7 Polling statements and questions

8 A few polling statements and questions to start Please get your mobile phone Go to: Fill in the code: And lets get started! 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 8

9 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 9

10 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 10

11 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 11

12 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 12

13 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 13

14 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 14

15 One year further - what has happened?

16 IFRS 16: One year further some observations from KPMG PROJECT STATUS Majority AEX companies is in (IT) implementation mode; Smaller listed companies and private equity owned companies are behind ACCOUNTING JUDGEMENTS Challenges of determination of: - Discount rate; - Lease term Considering short cuts from a materiality perspective Regulators EU endorsement is a fact; No lighter approach allowed; ESMA limited instructions for IFRS 16, but still focussed on IFRS 9 and IFRS 15 Silence from most tax authorities COMMUNICATIONS Need to determine plan to communicate with investors Seems limited interest from analysts and financing institutions to date Current disclosure on operating leases Observations PRACTICAL CHALLENGES Data collection: - Availability of necessary data points; - who owns the process? How does the lease process going forward look like? How to include IFRS 16 in budget/forecasting process? TRANSITION Limited early adoption (in general) Most companies would ideally go fully retrospective but is rather complex Presentation of 5 year summary and non-gaap measures 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 16

17 Disclosure on IFRS 16 in 2017 financial statements some observations 35 Dutch listed companies have issued their 2017 financial statements 20% of Dutch listed companies have quantified the expected impact of IFRS 16 in their latest financial statements 4 companies reported that they are planning to apply the full retrospective approach to transition. The other companies have chosen either the modified retrospective approach (45%) or have not yet decided (43%) 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 17

18 For further information: CMAAS IFRS 16 newsletter and publications If you would like to stay up to date with IFRS 16, please sign up to our IFRS 16 newsletter You can do this by leaving your address with our KPMG staff during this seminar In addition, we have multiple publications dealing with the complex issues of IFRS 16 (Transition, discount rate, lease liability etc.). Please indicate to us what publications you would like to receive and leave your contact details so we can send the publications to you KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 18

19 IFRS implementatie KLM Maart 2018 Richard van der Laan Wim Molenaar

20 Agenda Introduction Main structuring choices Fleet Lease duration fleet Real Estate Other Maintenance Discount rate to use Financial Impact Risk Management Project Planning (timeline, resources) IT Tooling 20

21 High over scenario s for aircraft Lease duration: Low (prime contractual period of the lease) Medium (Lease with extentions / discounts taken into account) High (max allowed duration under the contract, no discounts) (Or 20 years) Discount rate Incremental Borrowing Rate Implicit Rate 21

22 IFRS 16 Structuring Aircraft lease contracts Aircraft lease contracts: The contractual lease term will be used as a basis for the lease debt calculation (KLM almost 100 aircraft) KLM will only have a view on a potential renewal 15 to 12 months prior the renewal option date. Before this period no renewals are taken into account. Extensions are included in the debt calculation in case of: An engine contract with a duration longer than the contractual lease term, the longer term is applied in the calculation (not exceeding the latest ending date of the lease contract). Applicable for KLC Embraer 190 Cabin retrofit investments with a depreciation longer than the contractual lease term indicating that it is reasonable certain that the lease will be renewed. Renewal exceptions deviating from the months rule may occur following broader re-negotiations (multiple contracts) with the lessor because of the fleet profile. For aircraft the discount rate used corresponds to the implicit rate of the contract. For other contracts (buildings, cars, other) the incremental rate (IBR) will be used 22

23 IFRS 16 Structuring Real Estate Contracts Lease of areas in AFKLM hubs: AMS, CDG, ORY no effective substitution right (strong position) reciprocal notice-period > 12 months Maintenance building: no effective substitution right (due to the customization investment) Lease of land in airport other than hub (with building in owned property): no effective substitution right (due to the building construction investment) Lease of customized lounges in airport other than hub: no effective substitution right (due to the customization investment) Lease of buildings in town: no effective substitution right and not contractually allowed Lease durations corresponds to contract commitments The discount rate used corresponds to the IBR of each contract 23

24 IFRS 16 Structuring Other contracts Capitalization of other lease contracts Lease of cars (high number of contracts, low value) Lease of pool components (low number of contracts, high value) Lease of engines Lease durations corresponds to contract commitments The discount rate used corresponds to the Incremental Borrowing Rate of each contract 24

25 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 25

26 IFRS 16 Structuring Maintenance Today, the accounting of the normal maintenance (overhaul of airframe and engines) is different to the property type of the aircraft: Aircraft owned: maintenance costs are capex no EBITDA impact Aircraft leased: maintenance costs are covered by a provision reversal EBITDA impact The Group has taken the opportunity of IFRS 16 deployment to revisit these two maintenance accounting schemes and to align them as much as possible. Discussions on Aircraft Return Obligations 26

27 IFRS 16 Structuring Implicit Rate Methodology to determine the Implicit Rate used as the discount rate for Aircraft Population: all operational leased aircraft contracts at the date of the first application of IFRS 16, customized implicit rate for each and every single contract Excel formula: IRR Internal Rate of Return (expressed on a monthly basis). Mathematical formula: 27

28 AFKL Implicit rate methodology Implicit Rate: methodology on fleet in service prior to 2018 (100% potential) Mathematical formula 1. Initial value The Initial value that includes 100% of potential - If the aircraft is directly leased = AVR MID value (using historical AVR at the inception of the lease) - If the aircraft is directly leased but no AVR available (few cases) = historical purchased price of a similar aircraft model - If the aircraft is purchased first, then sold and leased back = selling price booked 2. Rents Rents all along the length of the contract, set accordingly to the schedule of payments on a monthly basis, including base rent, supplemental rent, variable rent for the fixedin-substance part 3. Residual value The residual value needs to be at the same level of potential as the level of the initial value - AVR MID value: residual value at 50% of potential (filtered by year of creation and expected ending year) - Adding AVR s Half to full life value: costs that bring the potential from 50% to 100% 28

29 AFKL Implicit rate methodology Full retrospective method: Multiple «hoops» = calculation of multiple Implicit Rates for each period during the lease Implicit rate #0 Implicit rate #1 Implicit rate #2 Implicit rate #

30 Incremental Borrowing Rate Defined Terms: lessee s incremental borrowing rate: The rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Main characteristics: Nature and valuation of the underlying asset The economic environment in time and space, by using data specific to the region of the lease The lessee, because credit rates are often company dependents The duration of the lease IBRi = Government Bonds(Duration)i + Spreadi 30

31 Incremental Borrowing Rate (2) IBRi = Government Bonds(Duration)i + Spreadi Government bonds Economic environment: time Spread Client specifity Economic environment: space Nature of the underlying asset Duration of the lease Value of the underlying asset 31

32 Special Topic Internal Settlements Situation 1 Situation 2 Lease invoice Depreciation Interest Options:Settle internally for the external lease cost Settle internally for depreciation and interest 32

33 Risk management changes due to IFRS16 introduction Due to IFRS16, the on-balance sheet debt will increase with operating lease contracts. These contracts are largely denominated in USD. Consequently, the on-balance sheet debt denominated in USD will increase. This debt is to be periodically revaluated against latest currency exchange rates. The right-of-use asset however is recognized based on the currency conversion rate at the moment of inception of the contract (and remains stable during the contract period) mismatch Therefore, without additional measures, due to IFRS16, both balance sheet and P&L will be subject to increased reported currency volatility Key question: How to mitigate this increased currency risk and keep results as stable as possible? 33

34 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 34

35 Risk management changes due to IFRS16 introduction Outcome of studies and possible alternatives is a combination of following solutions (agreed with external auditors): A) Natural hedge Use future USD network revenues (passenger, cargo) as hedged item Designate USD debt as financial instrument to hedge future USD network revenues + B) Real hedging For subsidiaries without USD revenues, forward contracts will be used Remarks: Regarding A) (majority), the ROX revaluation of the debt (i.e. the financial instrument ) is recorded in OCI (part of Equity). When reimbursement of the debt occurs, the related OCI part is recycled into the P&L. The recycling impact is booked in revenues ( hedged item ). Conditional for applying this methodology as long as the debt ( hedging instrument ) does not exceed the USD network revenues ( hedged item ) 35

36 36 Projectplanning

37 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 37

38 38 Tooling

39 39 IT Landscape

40 IFRS 16: Leases Ahold Delhaize's experience with IFRS 16 March 20, 2018

41 Ahold Delhaize's experience with IFRS 16 Presenting to you today 41 Wouter Nijmeijer SVP Accounting & Reporting, Risk & Controls Maryke Keet Director Financial Reporting

42 Ahold Delhaize's experience with IFRS 16 Agenda 42 Ahold Delhaize background Project setup, governance and timeline IT tool selection Local resources for data enrichment Accounting challenges, policy choices and practical expedients Training & communication Internal controls

43 Ahold Delhaize - Background

44 Ahold Delhaize's experience with IFRS 16 Our banners and where we operate 44

45 Ahold Delhaize's experience with IFRS 16 Group highlights FY

46 Ahold Delhaize's experience with IFRS 16 Group highlights FY Net equity: 15,170 million Current finance lease liabilities: 1,430 million Operating lease commitments:

47 Ahold Delhaize's experience with IFRS 16 Group highlights FY Approximately 14,000 lease contracts (excluding I/C leases, low value, short term and lessor operating leases) Approximately 10,000 real estate Remainder mainly car leases Both lessee and lessor contracts

48 Training & communication Project setup, governance and timeline

49 Ahold Delhaize's experience with IFRS 16 Project governance 49 Work streams are adjusted in different phases of the project based upon needs. For example, a country coordinator brought in when OpCo activities increased.

50 Ahold Delhaize's experience with IFRS 16 Original project timeline 50 Phase 1 Phase 2 Phase 3 Phase 4 Phase weeks weeks weeks weeks 1 Year AD YE SteerCo March 23 SteerCo May 8 SteerCo June 12 AD strategic planning * Possible IFRS 16 Parallel Reporting Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Project set-up and scoping Data inventory and high-level impact assessment Solution Design Implementation Monitor Objectives: Objectives: Objectives: Objectives: Objectives: Set the project up through the definition of project scope, objectives, project governance, and a project-, communication and resourcing plan. Ensure Executive buy-in. Define a detailed plan for Phase 2 and kick-off the project with the head office, US and European Project Teams, including training. Gaining a detailed understanding of transition and ongoing impacts through identification of the inscope lease universe. Inventorying of these leases in a data repository and performing high-level impact assessment. Sensitivity analysis activities as well as an IT gap assessment. Definition and selection of a flexible, effective and sustainable solution that meets project and stakeholder goals and objectives. Detailed design of the solution and implementation plan across all locations, identification of relevant work streams and stakeholder areas affected. On-time and on-budget build and test of the chosen IFRS 16 solution. Full implementation of the new standard and updated processes across all locations, relevant work streams and stakeholder areas affected. Go-live and parallel run of a solution that can be trusted to deliver complete and accurate results to internal stakeholders and the investor community. * Budget 2018 and LTP based on IAS 17

51 IT tool selection

52 Ahold Delhaize's experience with IFRS 16 IT tool selection 52 No single software vendor completely ready to go live A lot of tools available see slide Key decisions to be made: Purpose - accounting engine versus asset management tool Centralized versus decentralized organizational approach End state or temporary solution Alignment and interfacing with ERP systems

53 Ahold Delhaize's experience with IFRS 16 IT tool data capture / calculation 53 Preparation for data capture: Determine all policy choices upfront Establish data capture elements / data fields Prepare initial transfer of data from existing lease systems Determine data enrichment requirements and enrich the data Key challenge: Data structure for enrichment purposes versus (to be determined) IT tool data structure

54 Ahold Delhaize's experience with IFRS 16 IT solution vendors (examples) 54 Vendor Tagetik Sigma conso Anaplan Lease Accelerator Powerplan KPMG lease tool EY lease tool SAP Nakisa Peoplesoft Innervision LOIS Leverton Accruent CoStar AMT Sequentra Trimble Manhattan Planon LCM SAP Flexible real estate SAP Ariba IBM Tririga Tool type CCH Tagetik Lease Accounting Solution SigmaConso IFRS16 IFRS 16 application Lease accounting Lease accounting Lease accounting Lease accounting Lease Administration Lease administration Lease Accounting Contract data extraction Lease Administration Real estate and Lease administration Real estate and Lease administration Lease administration Lease administration Real estate and Lease administration Truck lease accounting Real estate management Contract management tool Real estate management OTHERS

55 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 55

56 Local resources for data enrichment

57 Ahold Delhaize's experience with IFRS 16 Resources 57 Indication of data enrichment and capture efforts: For The Netherlands: Approximately 540 man-days (students) will be spent to enrich and capture data points for approximately 2,500 real estate contracts. Straight forward contracts takes approximately 1,5 hours and complex contracts can take up to 8 hours. For the Czech Republic: Approximately 294 man-days (students) will be spent to enrich and capture data points for approximately 1,100 real estate and 400 other lease contracts. Lessee contracts take approximately 5 hours (but up to 16 in complex situations) and lessor contracts approximately 2 hours This excludes time spent on accounting issues, extracting and converting available data to standardized format in a database, coordination, reporting process development and system implementation.

58 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 58

59 Accounting challenges, policy choices and practical expedients

60 Ahold Delhaize's experience with IFRS 16 Accounting policy decisions 60 Accounting policy decisions options Early adoption Modified vs. full retrospective approach Single discount rate applied to portfolio Adjust right-of-use (ROU) asset with onerous lease provision instead of impairment test Exemption for leases ending < 12 months Exclude direct costs from ROU asset Use hindsight Measure ROU asset at the lease liability or as if Standard was previously applied using the discount rate per transition date Grandfather lease definition: use existing lease assessment under IAS 17 / IFRIC 4 Portfolio approach for similar lease contracts versus lease-by-lease Short-term leases exemption (policy decision by asset category) Low-value leases exemption (policy decision on asset level) Separating non-lease components from lease components (policy decision by asset class)

61 Ahold Delhaize's experience with IFRS 16 Accounting challenges 61 Intercompany leases Mismatch lessor (operating lease) and lessee accounting Treat all intercompany as either operating or finance lease? Impact on management reporting / statutory financials? Lessor accounting: sub-leases Classify operating / finance lease based on head lease instead of underlying asset How to allocate the value a single head-lease to multiple sub-leases for the classification of operating versus finance lease? How to estimate the residual value and gain/loss on the contract to account for finance sub-leases? Materiality How to reconcile a $5,000 threshold in the basis of conclusions with IAS 1 concept (principles based)? Which lease contracts are really important to the business?

62 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 62

63 Ahold Delhaize's experience with IFRS 16 Accounting challenges 63 Lease term and lease commitments not shown in balance sheet Indicators for assuming extension options: past practice versus economic incentive? Impact on 2017 disclosures (if disclosed commitments differ from reasonably certain extension options)? Dedicated supplier agreements / embedded leases What clauses and factors are indicative for control over identified assets, in particular regarding substitution rights? Non lease components Which components (Common Area Maintenance, Insurance, etc.) are separable?

64 Ahold Delhaize's experience with IFRS 16 Accounting topics still open 64 Discount rate Mixed property Cash flow statement presentation Impairment of lease receivables under IFRS 9

65 Training & communication

66 Ahold Delhaize's experience with IFRS 16 Training & communication 66 Training IFRS 16 technical training to Finance community of each banner during first half of 2017 General awareness training to wider organization 2 day workshop, in October 2017, where all OpCos discussed their approach along with continued IFRS 16 training and discussion of project Weekly OpCo calls feedback on issues / questions raised, including technical guidance Weekly meetings with the central project team Weekly meeting with the IT department and Planon to monitor implementation of the lease calculation tool Temporary calculation engine training for UAT purposes Communication Regular Steering Committee meetings (approximately every 6 weeks) Twice per year an update has been issued to the Audit Committee on progress of the implementation IFRS 16 project website - regularly updated with instructions, guidance and other documents

67 Internal controls Thank you

68 Ahold Delhaize's experience with IFRS 16 Internal controls 68 Three areas: To be created once-off controls: i.e. Data capture and conversion controls IT system implementation controls: Execution of already existing controls around implementation of new IT systems Revision of existing controls embedded in current processes due to changes in processes

69 Ahold Delhaize's experience with IFRS 16 Data capture controls* 69 Data Governance (Kick-off) Data Collection Data Maintenance Reporting 1 2 Local IFRS 16 team lead confirms understanding of IFRS 16 data requirements. Local IFRS 16 team lead establishes, communicates and confirms the final data capture strategy and resource plan Control Objective**: All contracts and key information are located and collected to ensure completeness of contract population. Manual and automated upload of files to Shared file is reviewed for accuracy and completeness. Transfer of files from local shared files to the data capture tool is reviewed for completeness. 6 7 Automated data validation checks Automated data validation checks prevent users from entering inappropriate character types dependent upon field type. Changes made to existing data (entered pre cut-off) and new contract additions (or amendments) submitted are reviewed for accuracy and completeness. 8 Local teams review the integrity of the final data within the data capture tool for reasonableness and to ensure that the data capture tool reconciles with source data base. Buy in Completeness Enrichments / Changes Analytical Review 1 2 IFRS 16 Data Field Requirements Template provided to local teams 3 Local Contract Database Export Data 4 Load Data Landing Zone (Shared File) Source Files Transfer of Source Files to DCT 5 Data capture tool (Local) Data capture strategy and resource plan Log into front engine Amend / Enrich Submit changes * This list of controls is not intended to be exhaustive, but provides a minimum set of controls that should be followed (specific to Ahold Delhaize).

70 Ahold Delhaize's experience with IFRS 16 Data Conversion Controls 70 Transfer from DCT to Bypass Solution 9 Creation of IFRS 16 JE s / adjustment layer Data Capture Tool Bypass Solution / Calculation Engine JE s entered into reporting systems (local and global) Log into Bypass Amend / Submit changes Add new contracts Accounting Decisions Output 9 Transfer of files from data capture tool to bypass solution is reviewed for completeness. Local team follows up on exceptions. 11 IFRS 16 accounting decisions (or assumptions) made which drive the output of the calculation are documented, reviewed and approved by local management. 13 IFRS 16 Journal Entries are entered into local reporting system and reviewed / approved to ensure accuracy / completeness. 10 Changes made to existing data in the bypass tool and new contract additions are reviewed for accuracy and completeness. 12 New IFRS 16 figures are analytically reviewed and approved by local management. Analytical Review of Output

71 Questions?

72 Lease accounting 2019: Lessor perspective Preparing for a smooth landing Ajolt Bos 20 March

73 Agenda Introduction LeasePlan and its customer base Our solutions for Lease accounting 2019 Market observations Q&A 73

74 Company profile World s leading fleet management company 32 countries >150,000 clients 1.7 million cars Corporate Head Office in Amsterdam Founded in 1963 Dutch origin Owned by consortium of long-term investors, including pension funds and investments funds Strong growth in SME and international clients 74

75 Project team Lease accounting Reinoud Schilder Tax director Jef van Oosterbos Global Segment Director Commercial Operations Ajolt Bos Lease Accounting specialist Ron Droog Project Manager Lease Accounting 75

76 Global market presence: IFRS & US-GAAP LeasePlan has offices in 32 countries 76

77 Agenda Introduction LeasePlan and its customer base Our solutions for Lease accounting 2019 Market observations Q&A 77

78 Imbalance: financial impact vs admin burden High value / Low volume Low value / High volume Exemptions Administrative burden to collect and process large volumes of data 78

79 Lifecycle events 79

80 LeasePlan solutions Raw Data solution Car-by-car data Portfolio approach Methodology for applying accounting at higher level Reduced administrative burden 80

81 Raw data solution Data fields (examples) Monthly lease installment 572,64 Lease contract duration 48 Centralised country level data Start date contract 21/12/2013 End date contract 20/12/2017 Currency indicator EUR Contract number (Contractual) interest rate - Monthly lease component 288,85 Monthly service component 283,79 Re-measurement indicator 0 Identifies relevant IFRS 16 data points Collates data for your global fleet Uploads data to secure portal 81

82 Portfolio approach IFRS16 This Standard specifies the accounting for an individual lease. However, as a practical expedient, an entity may apply this Standard to a portfolio of leases with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this Standard to the portfolio would not differ materially from applying this Standard to the individual leases within that portfolio. If accounting for a portfolio, an entity shall use estimates and assumptions that reflect the size and composition of the portfolio. US GAAP ASC842 ( ) lessees and lessors are permitted to apply the leases guidance at a portfolio level. The Board acknowledged that an entity would need to apply judgment in selecting the size and composition of the portfolio in such a way that the entity reasonably expects that the application of the leases model to the portfolio would not differ materially from the application of the leases model to the individual leases in that portfolio. 82

83 Portfolio approach Portfolio data Source: lease data Definition of portfolios with similar characteristics Portfolio level posting schemes 83

84 Defining the portfolios Portfolios have been defined in order to mirror the underlying assets contained within them Duration portfolios: defined around concentrations of units Typical fleet composition. Clients may use as many portfolios as required. 35 or less or more Value portfolios: defined as within a % of the mid point > 1153 Ranges are small enough such that either extreme (e.g. 364 / 440) will approximate the average of the portfolio (i.e. 402) 84

85 Portfolio accounting Average remaining periods per object Average contract duration per object Average lease payment per object Number of objects at end of period Number of additions/disposals.... Lease liability Additions/disposals Payments Interest Right of use asset Additions/disposals Depreciation 85

86 Agenda Introduction LeasePlan and its customer base Our solutions for Lease accounting 2019 Market observations Q&A 86

87 Market observations Webinar: ± 40% not yet started First focus on real estate, car leases lower prio Trust in tool suppliers Pragmatic approach (e.g. discount rate / materiality) Still discussion on interpretation (short term exemption) No shift in demand due to new lease accounting rules 87

88 Main benefits of operational car leasing stay intact Not spending capital on buying assets A predictable mobility cost Avoidance of residual value and maintenance risk Operational flexibility Efficient servicing and administration 88

89 89

90 90

91 Leases seminar March 2018 KPMG International Standards Group For Internal Use Only

92 Agenda Transition method Hot topics Resources

93 Transition method

94 Key transition questions will you? Early adopt? Grandfather the assessment of which contracts are leases? Use a retrospective or modified retrospective approach? Measure ROU assets equal to the lease liability? Use any of the practical expedients? #4 & #5 modified retrospective approach only 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 94

95 Retrospective vs modified retrospective Approach Date of equity adjustment Full retrospective IFRS 16 1 IFRS 16 1 January 2018 IAS 17 2 Modified retrospective IAS 17 IFRS 16 1 January Note: (1) Comparatives in 2019 annual report will reflect balances under IFRS 16. (2) The 2018 Annual Report will reflect balances under IAS 17 (3) The 2019 annual report will include an explanation of the differences between the balances recognised on transition to IFRS 16 and previously disclosed operating lease commitments 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 95

96 Modified retrospective lease liability Lease liability = + Present value of remaining rentals Present value of payments at end of lease Discount at lessee s incremental borrowing rate at date of initial application 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 96

97 Modified retrospective ROU asset Measurement options for ROU asset Measure retrospectively using transition discount rate Correct P&L Key benefit for individually significant leases Lease liability +/- prepaid/accrued payments No historical information needed Key benefit for high volume, low value leases Apply this option on a lease-by-lease basis 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 97

98 Ongoing impact on comparability The chart shows total lease expense for an entity with: Portfolio of 120 leases Annual rental of 100 Lease terms of 10 years New lease written as each lease expires Zero inflation 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 98

99 Optional practical expedients PE#1 Account for leases expiring within 12 months as short term leases. Lease liability ROU asset PE#2 Apply single discount rate to similar leases. PE#4 Exclude initial direct costs from ROU asset. PE#3 Use of hindsight e.g. determining lease term. PE#5 Onerous contracts adjust ROU asset. Note: (1) Modified retrospective approach only 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 99

100 Choosing a transition method Comparability of information and investor perceptions Significance of change in accounting Availability of historical information Costs Future profit trends Systems and processes Disclosure requirements Contract structure and volume of contracts 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 100

101 Hot topics

102 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 102

103 Five hot topics Use of hindsight on transition Lease term and penalties Rent reviews in dispute Separating components Pre adoption disclosures 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 103

104 Use of hindsight on transition 1 Sept 2006 Sept 2011 Sept 2016 Jan 2019 Commencement Market rent review Market rent review DIA IFRS KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 104

105 Lease term and penalties Non-cancellable period Lease term Optional renewal periods if lessee reasonably certain to exercise Periods after optional termination date if lessee reasonably certain not to exercise Determine the period for which the contract is enforceable. A lease is no longer enforceable when the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 105

106 Rent reviews in dispute Rent review date Rent review signed Year 1 Year 5 Year 10 Lease liability? 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 106

107 Separating components Right to use an office building Cleaning and maintenance services Property taxes and insurance Lease component Non-lease component Not a component 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 107

108 Pre-adoption disclosures Transition method? Practical expedients? Expected impact? Project status? 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 108

109 What questions do you have? 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 109

110 Thank you

111 Tax perspective

112 Local GAAP remains leading for tax Local GAAP in most countries the starting point for computation of taxable income exceptions may exist! Local GAAP Tax rules Tax Return Qualification of lease for tax purposes is based on commercial accounting concepts Public consultation - HMRC consultation ongoing since 2016, no legislation yet Changes made to US GAAP Potential impact on federal and state tax positions No changes expected or announced Leasebesluit continues to be in place Other countries: Limited activity, but cannot be ruled out that tax authorities take over IFRS concepts! 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 112

113 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 113

114 Deferred tax Right of Use Asset and Lease Liability will create temporary differences between Tax and IFRS books, thus creating new deferred tax positions what about the initial recognition exemption? Tax books Local GAAP IFRS 16 No impact expected Temporary differences Front loaded effect = net deferred tax asset during the lease 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 114

115 IFRS 16 Potential Tax impacts Tax accounting take aways What should each company implementing IFRS 16 at least consider from a tax accounting perspective? 1. make sure that your tax department / tax accounting team is involved in your IFRS 16 implementation project 2. jurisdiction by jurisdiction review to determine any local changes to tax rules and/or local GAAPs 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 115

116 IFRS 16 Potential Tax impacts Other tax areas potentially impacted 1 Non-deductibility and / or withholding tax on lease liability interest 2 Non-deductibility of depreciation expense on the ROU asset 3 Existing (tax) lease structures to be tested for continued working as intended 4 Transfer pricing and valuation models relying on EBITDA should be revisited. Benchmarking more complex 5 Wage tax impact for incentive plans based on EBITDA metrics 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 116

117 Can IFRS16 also be applied for tax purposes? Is it possible? Is it beneficial? Dutch tax accounting governed by sound business principle: goedkoopmansgebruik Main rules: as long as the accounting standard is in line with rules of business economics (bedrijfseconomische beginselen) and not contrary to general tax principles or specific tax rules Thus, can IFRS16 be considered as: i. in line with rules of business economics; and ii. not contrary to tax rules and principles Why not? 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 117

118 Can IFRS16 also be applied for tax purposes? Is it possible? Is it beneficial? Additional liability: many countries apply debt:equity rules or other forms interest deductibility restrictions Increased EBITDA: could be beneficial for interest restrictions based on EBITDA New rules expected: any interest above 30% of EBITDA non-deductible Additional asset: is the depreciation on the ROU deductible? Adjustment in equity upon adoption of IFRS16: for tax purposes through P&L? 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 118

119 New rules on interest deductions. Dutch implementation of the European Anti Tax Avoidance Directive Net interest expenses will be deductible up to 30% of the tax payer s EBITDA Based on tax books! Entry into force: 1 January 2019 EUR 1m is always deductible No group escapes No grandfathering for existing liabilities Initial conclusions: 1. IFRS16 increases EBITDA, so increased ability to deduct interest, 2. but additional interest as a result of the lease liability KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 119

120 Other. How to define the lease liability for tax purposes? Is the lease liability a loan for tax purposes? Lease liability consists of discounted future payment obligations, so should it rather be treated as a provision for tax purposes? Is the interest element included in the tax definition of interest? The lease liability includes an interest element, but is it a payment obligation on which interest is due? If both questions are answered negative: would the interest in relation to the lease liability not be caught under interest restriction measures, such the 30% EBITDA rule? 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 120

121 What Questions Do You Have? 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 121

122 Resources First Impressions Transition Options Lease Definition Discount Rates Lease Payments Illustrative Disclosures IFRS 16 Webinar (Podcast) IFRS 16 Leases website IFRS 16 Update mail 2018 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 122

123 Thank you

124 KPMG on social media KPMG app 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 KPMG Advisory N.V., registered with the trade register in the Netherlands under number , is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks of KPMG International.