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8/10/2019 IFRS Analyst Presentation Migration
http://slidepdf.com/reader/full/ifrs-analyst-presentation-migration 1/22
Full Migration of SAP’s Financial Reportingfrom U.S. GAAP to IFRS
Dr. Christoph Hütten
Chief Accounting OfficerSAP AG
8/10/2019 IFRS Analyst Presentation Migration
http://slidepdf.com/reader/full/ifrs-analyst-presentation-migration 2/22
© SAP 2008 / Page 2© SAP 2009 / Page 2
1988: SAP starts to report consol idated financials under German GAAP (HGB)
German requirement due to size and existence of subsidiaries
1999: SAP starts to report consolidated f inancials under U.S. GAAP
Obligation due to U.S. listing
Most major competitors located in the U.S.=> U.S. GAAP as the accounting language of the industry
IFRS (IAS) no alternative at that time
2002: European Union requires all publicly l isted European companies to report under IFRS
from 2005 onwards (U.S. listed companies to start 2007)
2004: SAP starts preparation for IFRS and defines reporting strategy for IFRS and U.S. GAAPbased on investor & analyst feedback
Focus of communication to capital markets continues to be on U.S. GAAP
Continue to prepare and file U.S. GAAP financial statements until financial communityunderstands comparability of SAP‘s IFRS reporting with competitors‘ U.S. GAAP reporting
Prepare IFRS financial statements in accordance with legal requirements=> no proactive communication beyond legal requirements
No voluntary IFRS financial statements prior to 2007
No „independent“ IFRS accounting strategy. Goal: Minimize the U.S. GAAP / IFRS differences
Internal Reporting continues to be based on U.S. GAAP
The History of SAP‘s Financial Reporting
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© SAP 2008 / Page 3© SAP 2009 / Page 3
2004-2008: Increasing U.S. GAAP/IFRS convergence and increasing IFRS acceptance worldwide
2008: SAP issues first IFRS financials
Minimal differences to U.S. GAAP financials
No differences in revenue except for different classification of discontinued operations
2008: SEC accepts from foreign issuers IFRS financials without U.S. GAAP reconcil iation
2008: SEC proposes roadmap to converge all U.S. issuers to IFRS unti l 2014
Final decision to be expected in 2009
Remarks of new SEC chairman Shapiro creates some confusion regarding SEC’s commitment
G20 meeting in April 2009 mandates worldwide transition to one global accounting standard
2008: SAP collects feedback from investors regarding full conversion to IFRS
Mixed feedback:
Some investors stated that this is a wise move
For some investors U.S. GAAP versus IFRS does not make a difference while
Some investors indicated they may need to consider sale of their SAP stake
Several investors asked for the migration not to be done short-term per end of 2008 but askedSAP to report U.S. GAAP and IFRS in parallel during 2009
To accustom the capital markets to IFRS@SAP
To have one year of consistency in SAP‘s external reporting after the changes in 2008
The History of SAP‘s Financial Reporting
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© SAP 2008 / Page 5
SAP‘s IFRS Roadmap
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 2010 etseq.
PressRelease
U.S.GAAP
U.S.GAAP
U.S.GAAP
U.S.GAAP
& IFRS 1
U.S.GAAP
& IFRS 1
U.S.GAAP
& IFRS 1
U.S.GAAP
& IFRS 1
U.S.GAAP
& IFRS 1
IFRSQuarterlyReport
U.S.GAAP
IFRS &U.S.
GAAP 2
U.S.GAAP
n.a. IFRS &U.S.
GAAP 2
IFRS &U.S.
GAAP 2
IFRS &U.S.
GAAP 2
n.a.
AnnualShare-holdersReport
n.a. n.a. n.a. IFRS &
U.S.GAAP 3
n.a. n.a. n.a. IFRS
Form 20-F n.a. n.a. n.a. U.S.GAAP
n.a. n.a. n.a. IFRS
Guidance Non-GAAP, derived from U.S. GAAP Non-IFRS 4
1 IFRS: only balance sheet & income statement plus comments on major U.S. GAAP/IFRS differences2 Full IFRS statements (incl. notes) plus U.S. GAAP-data from press release3
Full IFRS statements (incl. notes) plus U.S. GAAP short version (balance sheet, income statement, cash flowstatement) with reference to Form 20F
4 Derived from IFRS
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© SAP 2008 / Page 6
Benefits and Risks of Full IFRS Migration
Benefits
Communication to capital markets basedon single accounting regime eliminates
confusion that reporting under multipleGAAPs creates
Use of a global accounting standards fitsbetter to SAP as global company
IFRS is increasingly applied as local GAAPacross the world => Reduction in localGAAPs to be applied by SAP subsidiaries
Risks
Concern that SAP‘s financials changesignificantly
Concern that comparability toU.S. competitors is impaired
IFRS revenue recognition rules providemore flexibility
Differences in U.S. GAAP and IFRSrules regarding non-revenuetransactions
IFRS as a principle based standard isless strict
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© SAP 2008 / Page 7
Benefits and Risks of Full IFRS Migration
Risks Mitigation Measures
Resolution of SAP Executive Board to toapply U.S. GAAP revenue recognition rulesunless specifically prohibited by IFRS
Reference to application of U.S. GAAPrevenue recognition rules in the notes to thefinancials => to be audited by KPMG
Three years (2006-2009) of parallel U.S.GAAP and IFRS reporting to evidenceinsignificance of differences
IFRS requirement to consistently applyaccounting policies => obligation to continuecurrent U.S. GAAP-like accounting policies
Risks
Concern that SAP‘s financials changesignificantly
Concern that comparability toU.S. competitors is impaired
IFRS revenue recognition rules providemore flexibility
Differences in U.S. GAAP and IFRSrules regarding non-revenuetransactions
IFRS as a principle based standard isless strict
Strong support for convergenceIFRS/U.S. GAAP efforts
Training and information materialfor financial community
Further reduce differences on Non-GAAPand Non-IFRS level
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© SAP 2008 / Page 8
Classification of DifferencesBetween U.S. GAAP and IFRS
Differences betweenIFRS and U.S. GAAP
Avoidable differences Unavoidable differences
Differencesnot relevant to SAP
Differencesrelevant to SAP
Insignificantdifferences
Significantdifferences
Avoided via accounting
policy choice „ as close aspossible to U.S. GAAP“ or
Accepted in exceptionalcases at IFRS int roduct ion(Pensions, CTA)
Includes
non-software R&D expenses – themost important difference for manyother who migrated from U.S. GAAPto IFRS
most differences re. financialinstruments that are currentlydebated worldwide
Closely monitored but notconsidered as long as
clearly inconsequential
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Revenue RecognitionIFRS versus U.S. GAAP
IFRS revenue recognition (IAS 11, IAS 18)
IFRS revenue recognitionrules are rather broad
=> most U.S. GAAP practicesare in compliance with IFRS
Potential Unavoidable Differences
Multi Element Arrangements where Vendor Specific Evidence of Fair Value (VSOE) does not exist forelements other than software (Deferral under U.S. GAAP but possibly not under IFRS)
SAP has VSOE for all services
VSOE requirement may fall soon under U.S. GAAP
Custom Development and Consulting Arrangements where reliable estimates cannot be made (ZeroProfit Margin under IFRS, Completed Contract Method under U.S. GAAP)
SAP has a long history of custom development and consulting arrangements
SAP has hardly ever encountered Completed Contract Method scenarios under U.S. GAAP
Software contracts with payment terms > 12 months but high probability of payment
SAP very rarely has software contracts with payment terms > 12 months
U.S. GAAP revenuerecognition (SOP 97-2)
8/10/2019 IFRS Analyst Presentation Migration
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8/10/2019 IFRS Analyst Presentation Migration
http://slidepdf.com/reader/full/ifrs-analyst-presentation-migration 11/22
8/10/2019 IFRS Analyst Presentation Migration
http://slidepdf.com/reader/full/ifrs-analyst-presentation-migration 12/22© SAP 2008 / Page 12
Reconciling U.S. GAAP to IFRS OperatingIncome for Q1 2009 (€ millions)
Valuationdifferences
Classificationdifference
U.S. GAAPoperating
income +332
IFRSoperating
income +307
Discontinuedoperations
-6Pensions /termination
benefits-5
Recognition ofother provisions-8
Acquisition re-lated charges
-6
-25
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Non-IFRS Measures
Present: Non-GAAP
Currently, SAP provides guidance and reports performance against guidance based onNon-GAAP measures – in line with performance measures used internally
These Non-GAAP numbers differ from the respective U.S. GAAP numbers due toadjustments for
Deferred revenue writedown (from Business Objects acquisition)
Acquisition related charges
Future: Non-IFRS
Upon full migration to IFRS SAP will provide guidance and report performance againstguidance based on Non-IFRS measures – internal performance measures will be aligned
These Non-IFRS numbers differ from the respective IFRS numbers due to adjustments for
Deferred revenue writedown (from Business Objects acquisition)
– identical to Non-GAAP adjustment
Acquisition related charges – different from Non-GAAP adjustment due to (former) U.S. GAAP/IFRS differences in
accounting for business combinations
Discontinued operations – to eliminate U.S. GAAP/IFRS difference in accounting for discontinued operations
8/10/2019 IFRS Analyst Presentation Migration
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-3
U.S. GAAP to Non-GAAP versusIFRS to Non-IFRS - Q1 2009 (€ millions)
U.S. GAAPoperating
income +332
Non-GAAPoperating
income +410
Deferred
maintenancewritedown
Acquisition
relatedcharges
Discontinuedoperations
6611n/a
IFRSoperating
income +307
Non-IFRSoperating
income +397
7211
Non-GAAPoperatingincome atconstant
currencies+407
Currencyadjustment
Non-IFRSoperatingincome atconstant
currencies
+394
6 -3
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U.S. GAAP to IFRS versusNon-GAAP to Non-IFRS - Q1 2009 (€ millions)
U.S. GAAPoperating
income +332IFRS
operatingincome +307
Discontinuedoperations
Acquisition
relatedcharges
Non-GAAPoperating
income +410
Non-IFRSoperating
income +397
-6 -6-5
-8
Recognitionof provisions
Pensions/
Terminationbenefits
n/a n/a-5
-8
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U.S. GAAP/Non-GAAP versus IFRS/Non-IFRS –Q1 2009
Net Income (€ mill.) /EPS
Non-IFRSU.S. GAAP Non-GAAP IFRS
262
€0.22
262
€0.22204
€0.17
204
€0.17
196
€0.16
196
€0.16
262
€0.22
262
€0.22
Total Revenue (€ mil l.)
Non-IFRSU.S. GAAP
Non-GAAP IFRS
2,4092,4092,3972,3972,3972,397 2,4092,409
Equity (€ mil l.)
U.S. GAAP IFRS
7,4827,482 7,4097,409
Operating Income (€ mill .) /Operating Margin
Non-IFRSU.S. GAAP Non-GAAP IFRS
410
17.0%
410
17.0%
307
12.8%
307
12.8%
332
13.9%
332
13.9%
397
16.5%
397
16.5%
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Comparison of U.S. GAAP and IFRS Cash Flow – Q1 2009 (€ millions)
U.S.GAAP
IFRS
Operatingcash flow
Net income 204 196
Net loss from discontinued operations 6 0Income from continuing operations 210 196
Non-cash relevant changes in balance sheet items 1,177 1,189
Net cash provided by operating activities from continuingoperations
1,387 1,385
Investingcash flow
Net cash provided by investing activi ties from continuingoperations
-588 -588
Financingcash flow
Net cash provided by financing activities from cont inuingoperations
13 13
Net cash used in operating activities from discontinued operations -2 0
Effects of foreign exchange rates on cash and cash equivalents -67 -67
Cash and cash equivalents at the beginning of the period 1,277 1,277
Cash and cash equivalents at the end of the period 2,020 2,020
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Thank you!
8/10/2019 IFRS Analyst Presentation Migration
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Backup
8/10/2019 IFRS Analyst Presentation Migration
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Reconciling U.S. GAAP to IFRS Operating Incomefor 12 months ended 2008, based on press releaseannouncements (€ millions)
Valuationdifferences
Classificationdifference
U.S. GAAPoperating
income +2,842
IFRSoperating
income +2,731
Discontinuedoperations
-71Pensions /termination
benefits+1
Recognition ofother provisions-2
Acquisition re-lated charges
-39
-111
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U.S. GAAP to Non-GAAP versusIFRS to Non-IFRS for 12 months ended 2008, based onpress release announcements (€ millions)
U.S. GAAPoperating
income+2,842
Non-GAAPoperating
income+3,305
Deferredmaintenance
writedown
Acquisitionrelated
chargesDiscontinuedoperations
297166n/a
IFRSoperating
income+2,731
Non-IFRSoperating
income+3,304
336166
Non-GAAPoperatingincome atconstant
currencies+3,450
Currencyadjustment
Non-IFRSoperatingincome atconstant
currencies
+3,449
+145
71+145
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U.S. GAAP to IFRS versusNon-GAAP to Non-IFRS for 12 months ended 2008, basedon press release announcements (€ millions)
U.S. GAAPoperating
income
+2,842
IFRSoperating
income+2,731
Discontinuedoperations
Acquisition
relatedcharges
Pensions/
Terminationbenefits
-39-71
Non-GAAPoperating
income+3,305
Non-IFRSoperating
income+3,304
+1 -2
Recognitionof provisions
n/a n/a +1 -2