ESMA has issued updated guidelines on the application of its Guidelines on Alternative Performance Measures (APMs) in the context of COVID-19. APMs are measures of financial performance, etc. other than those defined or specified in IFRS, such as Operating Results, EBIT, EBITDA, Free Cash Flows etc. The updated guidelines are particularly relevant to issuers contemplating making adjustments to existing and/or including new APMs in disclosures to the market related to financial reporting, e.g. in connection with quarterly reports or updates to their financial forecast.
The European Securities and Markets Authority (ESMA) has on 17 April 2020 issued a new Q&A that includes information on Alternative Performance Measures (APMs) in the context of COVID-19. The objective of the new Q&A is to provide guidance to issuers, whose securities are admitted to trading on a regulated market, on how to present the impact of COVID-19 for the purpose of the ESMA Guidelines on Alternative Performance Measures (APM Guidelines). The APM Guidelines apply to issuers using APMs when disclosing financial information to the market, e.g. in annual financial reports, half-yearly financial reports, quarterly financial statements, prospectuses and ad-hoc disclosures of inside information.
APMs are financial measures of historical or future financial performance, financial position, or cash flows, other than financial measures defined or specified in the financial reporting framework applicable to the issuer, which is typically IFRS for listed companies in Denmark. By way of example, APMs include financial measures such as Operating Results, EBIT, EBITDA, Free Cash Flows etc.
ESMA acknowledges that in light of the COVID-19 situation, an issuer may decide to disclose new or adjust definitions of existing APMs in its financial disclosures, such as its quarterly reports or ad-hoc disclosures of inside information. However, ESMA also observes that this approach may not be appropriate under all circumstances relating to COVID-19 in light of the requirement set out in the APM Guidelines that the definition and calculation of an APM should be consistent over time.
ESMA indicates that new or adjusted definitions of APMs may not always provide reliable and more useful information to the market, for instance, if the impacts of COVID-19 have a pervasive effect on the overall financial performance, position, and/or cash flows of the issuer. Instead, such APMs may mislead the users’ understanding of the true and fair view of the issuer’s assets, liabilities, financial position and profit or loss.
ESMA recommends that:
For more information, read the new Q&A here.
Read our newsletter on ESMA recommendations concerning COVID-19, the duties of disclosure and financial information here.