ESMA report on use of alternative performance measures

The European Securities and Markets Authority (ESMA) has published a report on the use of alternative performance measures (APMs) by EU issuers and on the level of compliance with its APM Guidelines.

The Guidelines, which came into effect in July 2016, define an APM as being a financial measure that is not required as part of an issuer’s financial reporting obligations but which is presented voluntarily by an issuer as an aid to understanding the performance of its business. Examples include net debt, operating earnings and EBITDA. The purpose of the Guidelines is to promote the transparency and usefulness of APMs contained in certain announcements and documents issued by listed companies.

The report highlights that, whilst APMs are widely used, only a minority of issuers comply with all principles of the Guidelines. In light of its findings, ESMA encourages issuers to improve the transparency of disclosures provided in relation to APMs and sets out a number of recommendations (for example in relation to definitions and labels) to assist with compliance. It expects issuers to consider the findings and recommendations of the report when preparing their future communications to the market containing APMs, including in ad-hoc disclosures, financial reports and prospectuses.

Issuers are required to make every effort to comply with the Guidelines and ESMA says that it expects enforcers (the Financial Conduct Authority and Financial Reporting Council in the UK) to take action where appropriate.