#askkpmg webinar series · 09/04/2020 · session 3: covid19 - channel islands business outlook...

#askKPMGWebinar SeriesSession 3: COVID19 - Channel Islands business outlook9 April 2020

Agenda— Introduction

— Private Equity Valuations

— Tax update

— Government support for employees wages

— Wrap up and Questions

— Practical cyber demonstration

Introduction

Rob Kirkby, Advisory Partner

Webinar presenters

John CaseyAdvisory ManagerM: +44 (0)7700 718883johncasey1@kpmg.com

Ben HoneywoodAudit DirectorM: +44 (0)7700 329829 benhoneywood@kpmg.com

Rob KirkbyAdvisory Partner M: +44 (0)7797 764861rkirkby@kpmg.com

Paul EastwoodTax Director M: +44 (0)7797 789917peastwood@kpmg.com

Matej JurkicDigital Senior ManagerM: +44 (0)7781 162269mjurkic@kpmg.com

Document Classification: KPMG Public

© 2020 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Introduction

Format of the webinar

Asking questions

Future webinars and updates

Other topics

UK Economic update

2019 2020 2021

GDP 1.4 -7.8 8.4

Consumer spending 1.4 -13.5 14.8

Investment 0.4 -16 17.1

Unemployment rate 3.8 7.6 6.3

Inflation 1.8 1 1.3

Base interest rate 0.75 0.1 0.1

The unwind?

Private Equity Valuations IPEV – Special valuation guidelines: COVID 19

Ben Honeywood, Audit Director – Private Equity Group

Introduction to IPEVInternational Private Equity and Venture Capital Valuation Guidelines (“IPEV”) established in 2006 to provide a principles-based framework for PE / VC valuation.

Guidelines are for the purpose of financial reporting and are consistent with all financial reporting standards and widely endorsed by 50+ global PE industry bodies including BVCA and Invest Europe.

Not intended to be used for transaction purposes - however financial reporting should be a proxy for a transaction value.

Latest guidelines introduced in 2018 – principles largely consistent since establishment.

Widely used across the PE and VC market.

Core of IPEV principles

FV is and remains the most suitable measure of reporting and measurement for Private Equity Portfolio Companies and PE Funds.

Fair value, as ever, represents the amount that would be received to sell an asset in an orderly transaction between market participants at the measurement date; market participant assumptions in the current market environment should be taken into account – fair value is not a ‘fire sale’ price.

Special Valuation Guidance – 31 March 2020 valuations“The special valuation guidance reinforces key valuation principles in order to ensure the robustness of information making its way to investors and other stakeholders; in the current global crisis it is vitally important that that information continues to flow in a timely and consistent manner”

Recognition — We are living in unprecedented times;— Valuation will be challenging, and more judgement is needed;— Therefore, now more than ever, we need robust processes and documentation;— Valuer needs to identify the impact of the current situation on an asset by asset basis.

Market participant assumptions may be laden with uncertainty, ultimately driving lower asset values.

http://www.privateequityvaluation.com/Valuation-Guidelines

Approach to multiplesKey components of any analysis to form a view on the valuation @ 31 Marcha. Performance / relative standing pre CV19 vrs

peers;b. Current impact of the CV19 and potential

impact to come (revenue, customers, supply chain, productivity and employees);

c. To establish a full year from Q1 2020 onwards, and prepare adjustable scenario plans based on lock down cases;

d. Evaluating liquidity (working capital, debt facilities and cash flows) alongside scenario planning.

e. Bounce back potential – speed of recovery of market and portfolio company

f. Strategic value – are market participants still keen to own this asset notwithstanding the current uncertainty

Key is to avoid a situation where valuations are not being marked down at March and then a significant reduction in June.

Other multiples considerationsUse an appropriate multiple which reflect the current market environment including risk and uncertainty in projections and historical results i.e likely to be lower than 31 Dec 2019

Transaction comps and offers should carry less weight where pre-covid 19.

Earnings should be maintainable – this is challenging – how would a potential buyer to come up with a maintainable earnings…

Be careful of forward earnings – many quoted companies have pulled reporting their forward earnings, hence market cops are no longer available.

Fund investments – LP perspectiveFund interests - Last reported Net Asset Value (NAV) if based on the fair value of underlying investments is generally the starting point for estimating fair value.

Last reported NAV in many cases is 31 December 2019.

Given the potential significant change in value of underlying investments, LPs will need to not only cash adjust last reported NAV and adjust for publicly traded positions but will need to adjust for the value change of underlying holdings—hence the need for GPs to report as timely as possible.

Note: from a LP perspective, not running a valuation is not an option, as would result in PE allocations being valued at a more inflated position to public market allocations – this will distort their allocation %, which may result in artificial pressure to sell down PE positions and / or held making PE investments, impacting fund raising.

Tips and pitfallsUse your policy as an anchor to enable consistency over a period and robustness

Price of recent investments was encouraged to be supplemented with alternative valuation techniques in the 2018 update to the Guidelines – this is even more relevant now since those recent transaction prices are no longer reliable indicators of fair value.

Consider triangulation where market is multiples are particularly volatile and / or unreliable.

Be careful not to double dip – be cautious not to be exposed to the ‘dominator effect’, where comps earnings have not reduced, yet their multiples have come down significantly.

When valuations have been complied – take a step back in the current environment – what would you pay for this asset in todays market – if not, ask why? Does it make sense

Does the original investment thesis still hold?

May need to be innovative – consider a range, consider increased disclosure

SummaryThe current situation requires more robust preparation, review and internal challenge.

More important than ever to apply the overriding market participant view i.e what a willing buyer / seller would transact at as at the valuation date.

The final answer cannot be divorced from the wider economic environment and uncertainty which we are experiencing - Greater uncertainty translates into greater risk and lower values.

This will not be easy and will mean more work.

Tax update

Paul Eastwood, Tax Director

MDR - context

EU work on non-cooperative jurisdictions Commitments Given

—Introduce economic substance requirements from 1st January 2019.

—Permit access to company beneficial ownership register for law enforcement and tax authorities.

—Introduce MDR based on OECD work on mandatory disclosure rules for the Common Reporting Standard Avoidance Arrangements and Opaque Offshore Structures, by 31st December 2019.

—92 countries assessed on three criteria: 1. tax transparency 2. good governance 3. real economic activity

—Countries assessed as non-cooperative faced sanctions and blacklisting.

—Countries committed to making changes to become cooperative avoided blacklisting.

OECD MDR on CRS Avoidance Arrangements and Opaque Offshore Structures— Model rules build on the principles in BEPS Action 12 and provide a

framework for national disclosure regimes— Much more limited in scope than EU’s DAC6— Similar to Hallmarks D(1) and D(2)— Focus on schemes and arrangements to frustrate CRS reporting and on

entities and arrangements that have the effect of obscuring the beneficial ownership of income and assets

— Intermediaries must disclosure details of arrangements meeting the set hallmarks of “CRS Avoidance Arrangements” or “Opaque Offshore Structures”

— The disclosure needs to be made to the intermediary’s national tax authority— The disclosure is required to be made within 30 days of implementation— Similar definitions of intermediaries.

Progress in Jersey and GuernseyJersey:— Consultation during 2019— Legislation lodged 31 December 2019— Debate of legislation has been delayed

twice— Scheduled for debate on 16 June 2020— No guidance issued currently

Guernsey:— Regulations: (The Income Tax (Approved

International Agreements) (Implementation) (Mandatory Disclosure Rules) Regulations 2020 made on 11 March 2020

— Come into force on date to be determined by Policy & Resources

— Multilateral Competent Authority Agreement to enable the sharing of information will need signing

Taxation of the Digital Economy— Initiative being led by the OECD— Two “Pillars”— Pillar One – ensure large and highly profitable Multinational

Enterprises, including digital companies, pay tax wherever they have significant consumer-facing activities and generate their profits

— About where tax should be paid (“nexus” rules)— And on what portion of profits they should be taxed (“profit

allocation” rules)— OECD secretariat – “unified approach”— Tension between jurisdictions – position of US— January 2020 statement “commitment to bridge the remaining

differences”

Taxation of the Digital Economy (cont…)

— Pillar Two – critical for zero-tax jurisdictions— Global Anti-Base Erosion (“GloBE”) Proposal— Seeking to ensure that all internationally

operating businesses pay a minimum level of tax — Address remaining BEPS issues— Building on recent US tax reforms— Design of the pillar still on-going— Indications coming out of the OECD broadly

positive— Ambitious timetable before Covid-19

Government support for employees wagesJohn Casey, Advisory Manager

Government Co-Funded Payroll SchemeAims— to maintain employment in severely

affected selected industries — to maintain existing employment

relationships so that businesses are able to retain trained staff

— to allow the business or self-employed individual a greater chance to remain solvent during the pandemic

— ensuring that businesses and employment income can restart quickly once restrictions are eased

Distinction between UK scheme and Channel Islands’ schemes

Jersey – Government Co-Funded Payroll Scheme

Jersey’s Payroll Scheme has two phases: Phase 1 and Phase 2—Commonalities between Phase 1 and Phase 2:

—“Significant detriment”—Inclusion of the self-employed—Dedicated online form—Publication of “appropriate information”—Upper estimate of entire cost - £105m which equates to the

support of up to 27,000 jobs

Phase 1 of the Jersey Payroll SchemeSupport of £200 per week per employee who has been paid

—at least £320 per week or

—at least £1,390 per calendar month

Covers period from 20 March to 31 March 2020

Industries covered:— Hotels, Restaurants,

Bars—Wholesale and Retail

(excluding essential retail)

—Fisheries—Hairdressing and other

beauty treatment

The maximum subsidy available is 80% of the lower of each qualifying worker’s:

— rate of pay for the relevant period or

— £2,000 a month

Phase 2 of the Jersey Payroll Scheme

Covers period from 1 April to 30 June 2020

Excluded industries— Finance, legal, accounting,

management, consulting and professional services

— Real estate— Property development— Agriculture— Medical, dental care— Freight— Supermarkets— Information and communication

Guernsey – Government Co-Funded Payroll Scheme

80% of Guernsey’s minimum

Included sectors

Must have been trading for at least 6

months, since 1 September

2019Grant to

small business and

the self-employed

Wrap up and questions

Cyber demo: basic home network hygiene

Matej Jurkic, Digital Advisory Senior Manager

Agenda: basic home network hygiene

Your router, your gate to the world

How to find your router IP address

Router software update

Who is on my network?

Changing ‘admin’ password

Changing wi-fi password and hiding your wi-fi name

Routers

Router IP address

— Usually located in the manual

— Common addresses

• 192.168.0.1, 192.168.1.1, 192.168.2.1

— Go to the Start menu (Windows) and type “cmd” in the search box

— Enter command “ipconfig” and press enter.

Reaching the router admin interface

Landing page

Router update

Who’s on my network?

Change the admin password

Default router admin passwords:

https://www.routerpasswords.com/

Hide wi-fi name and change password

Thank you

Document Classification: KPMG Confidential

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 endeavour 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.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

#askkpmg webinar series · 09/04/2020 · session 3: covid19 - channel islands business outlook...

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