Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, May 28, 2009

The trouble with IMS’s...

One of the proposals when the Transparency Obligations Directive was in discussion in Brussels was whether to oblige companies to produce a full quarterly financial report, a l’Americain. After all went the argument, a significant number of European member states already require it; why not make it a pan EU requirement?

There are of course a great number of drawbacks to that as an idea, including a risk of increased short termism, so after a good amount of lobbying notably by the Quoted Companies Alliance, a solid (you might almost say British) compromise was reached.

The Interim Management Statement was born, and has been troubling companies and their advisors ever since. So we have been looking forward to a much trailed FSA review of IMS, and any “guidance” they can offer. And indeed it does offer a few clues that are worth considering, although it specifically rules out – probably to the relief of all – a template approach.

Aside from highlighting that some companies haven’t produced an IMS at all, the FSA review notes that the market regards IMS as useful communications opportunities, and that by and large there has been good compliance. However the review focuses especially on 2 issues: materiality and financial performance.

On whether a previous announcement is ‘material’ the FSA has declined to offer any further definition, although it does say that issuers may “find it helpful to consider the impact of an event/transaction on its financial position”. This still leaves a fairly wide margin of options.

On financial performance: ‘a general description of the financial position and performance of the issuer and its controlled undertakings during the relevant period’ as the DTR’s say, the FSA notes this is biggest problem area. This may be because of their statement in List! 14, that “We believe that IMS may not require financial data in certain circumstances.”

Some issuers have included data such as debt ratios, cash flow, gross and net assets, NAV’s and divi yields. In profiling this, the FSA may be giving a clue as to what they would like to see, although they do highlight that either narrative of financial data would be OK.

Finally they observe that different financial performance reporting indicators have grown up within different sectors, and that this is not a bad thing. So maybe when all is said and done, watching what the other guys do will continue to be the practical step. And after all, producing an IMS is a heck of a lot better than the originally planned quarterly report.


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