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Better use of financial indicators by listed companies is necessary

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Dutch listed companies could apply alternative, financial performance indicators more consistently and more transparently in their press releases. This is in the interest of investors. Investigation by the Netherlands Authority for the Financial Markets (AFM) shows that year-on-year these companies use increasingly different indicators to represent their financial performance in press releases.

It is evident from interviews conducted by the AFM with investors, analysts, the Association of Stockholders and Eumedion that they require indicators such as organic growth, net debt position and underlying EBIT in order to gain insight to the performance of a company. It is therefore all the more important that investors are able to compare the same indicators year-on-year, which indicators have been established in an unambiguous manner.

In addition, the European Securities and Markets Authority (ESMA) recently drew up a consultation document containing the guidelines for using alternative, financial performance indicators. This document contains guidelines for definitions, calculation/reconciliation, comparability, prominence, presentation and consistent use of these indicators. The aim is to increase the transparency and comparability of financial information. The consultation period during which market parties can respond will end on 14 May 2014. ESMA expects to publish the definitive guidelines in the fourth quarter of 2014.

AFM investigation

In anticipation of the ESMA consultation document, the AFM performed an investigation into the use of these indicators in press releases by listed companies in the Netherlands.
The investigation focused on indicators that are needed by investors such as organic growth, net debt position and underlying earnings before interest and taxes (EBIT).

The main conclusions of the investigation are:

  • Consistency (year-on-year the same financial performance indicators) in press releases has declined, in particular since the second half of 2011. The greatest decline took place at AEX companies, where several companies did not publish their organic growth figure towards the end of 2012. The AFM has also identified a decline in consistency at the AMX. It is recommended that indicators be reported consistently because consistent financial performance indicators are very important for investors. 

  • Indicators such as organic growth and net debt position are mainly reported by AEX and AMX companies. It is recommended that companies report the calculation of net debt position in a transparent manner, especially in times of adverse economic conditions. 

  • Reports of underlying earnings have increased. It is important for investors that companies report the calculation of the underlying earnings in a transparent manner. The majority of AEX companies reports the calculation of the underlying earnings. This calculation is lacking in most cases involving the AMX, ASCX and companies that are listed locally. Transparency about the calculation of the indicator that is considered important by investors constitutes an important point for improvement.

The AFM calls on market parties to respond to the ESMA consultation.

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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