​In June 2015 the European Securities and Markets Authority (“ESMA”) published guidelines on Alternative Performance Measures (“APMs”) (05/10/2015│ESMA/2015/1415en, the “Guidelines”)1. The Guidelines replace the previous CESR guidelines of October 2005 and apply to relevant disclosures made on or after 3 July 2016.

APMs can be useful to issuers and investors because they can provide additional insight into an issuer’s financial performance, financial position and/or cash flow. However, problems may arise when APMs are presented inconsistently, defined inadequately or obscure financial results determined in accordance with the applicable financial reporting framework. The express purposes of the Guidelines are therefore to promote the usefulness and transparency of APMs and to improve the comparability, reliability and/or comprehensibility of APMs.

The Guidelines are addressed to, among others, issuers2 who publish APMs and who fall within the scope of the Transparency Directive3, the Prospectus Directive4 and/or the Market Abuse Regulation5.

An APM is defined as “a financial measure of historical or future financial performance, position or cash flows of an entity which is not a financial measure defined or specified in the applicable financial reporting framework applied by the entity6”. Examples of APMs are financial measures of a company’s performance, its financial state of affairs and future expectations when such information has not been derived directly from the financial statements (drawn up in accordance with EU-adopted IFRS or local GAAP, such as revenue, profit or loss or earnings per share) such as net debt, earnings before interest, taxation, depreciation and amortisation (EBITDA) and other adjusted operating measures, free cash flows (FCF) and various measures of operating or financial gearing. APMs are typically found in management reports contained in annual or semi-annual reports, prospectuses, earnings releases and other ad hoc disclosures.

Issuers are under no obligation to disclose any APMs but when they do, they must make every effort to comply with each of the principles contained in the Guidelines, which can be summarised as follows:

• Disclosure principles: APMs, their components and the basis of calculation adopted, including details of any material hypotheses or assumptions used must be defined; it must also be indicated whether the APM or any of its components relate to the (expected) performance of the past or future reporting periods.

• Presentation: The definitions of all APMs used must be disclosed in a clear and readable way; APMs must be given meaningful labels.

• Reconciliations: A reconciliation must be disclosed of each APM to the most directly reconcilable line item, subtotal or total presented in the financial statements of the corresponding period, separately identifying and explaining the material reconciling items; the most directly reconcilable line item, subtotal or total presented in the financial statements relevant for that specific APM must also be presented.

• Explanation of the use of APMs: the use of APMs, their relevance and reliability must be explained.

• Prominence and presentation of APMs: APMs must not be displayed with more prominence, emphasis or authority than the measures directly stemming from financial statements, and must not distract from the presentation of such measures.

• Comparatives: APMs must be accompanied by comparatives for the corresponding previous periods or, in situations where APMs relate to forecasts or estimations, by the last historical information available; reconciliations must be presented for all comparatives presented.

• Consistency: The definition and calculation of an APM must be consistent over time; redefinitions of APMs should be exceptional in which case the changes and the reasons why these changes result in reliable and more relevant information on the financial performance must be explained, and restated comparative figures must be provided. If an issuer stops disclosing an APM, the issuer must explain the reason for considering that this APM no longer provides relevant information7.

• Compliance by reference:  Except in certain cases and for comparatives for the corresponding previous periods, disclosures required by the guidelines may be replaced by a direct reference to other documents previously published which contain these disclosures on APMs and are readily and easily accessible to users.

Notwithstanding the application of the Guidelines, investors and all other users of financial information will have to continue to exercise care when interpreting APMs to understand how the issuer is using them.

_ _ _

1 These guidelines are comparable with the IOSCO’s Statement on NON-GAAP Financial Measures (June 2016).

2 In the case of issuers of depository receipts ‘the issuer’ means the issuer of the underlying securities.

3 Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are traded on a regulated market and amending Directive 2001/34/EC, as amended.

4 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading, as amended.

5 Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation).

6 Which for the purpose of the Guidelines will be any of the following: (i) International Financial Reporting Standards (IFRS) as adopted in the EU pursuant to Regulation (EC) No 1606/2002 on the application of international accounting standards or (ii) the accounting requirements stemming from the transposition of the European Accounting Directives (78/660/EEC, and 83/349/EEC or 2013/34/EC) into the legal system of the Member States of the European Union or (iii) Generally Accepted Accounting Principles (GAAP) laying down equivalent requirements in accordance with Commission Regulation (EC) No 1569/2007 establishing a mechanism for the determination of equivalence of accounting standards applied by third country issuers of securities pursuant to Directive 2003/71/EC and 2004/109/EC of the European Parliament and of the Council for issuers that are exempted from the requirement of preparing IFRS as endorsed in the EU.

7 In the context of prospectuses ESMA has pointed out that, while APMs included in prospectuses must be used consistently for the financial periods covered in the prospectus, the Guidelines do not extend to APMs used across different prospectuses in terms of time or the nature of securities that are described in the prospectus (e.g. taking into account the fact that the relevance of performance measurements may differ depending on the type of securities being issued there is no obligation to explain  in a prospectus for equity securities for example why it contains APMs different to those used by the same issuer at the same time in a prospectus for non-equity securities).

Contacts

Laurent Schummer

Partner

Corporate Law, Mergers & Acquisitions, Private Equity & Real Estate, Capital Markets

Caroline Motzer

Counsel

Capital Markets

Yvan Stempnierwsky

Of Counsel

Financial Reporting and Accounting Standards

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