ESMA Guidelines on Alternative Performance Measure

ESMA, the European Securities and Markets Authority, published its Guidelines on Alternative Performance Measures[i] (“APM Guidelines”) in May last year. The Guidelines are effective for all regulated information published on or after 3^rd July 2016 under various EU regulations (MAR, Transparency Directive, Prospectus Directive).

As part of its mandate to monitor regulatory financial information published in accordance with chapter 16 of the Securities Market Act (2007:528), the Exchange has followed up this requirement for the quarterly reports published by issuers in 2016. Three issuers were requested to supply further information in its 2016 annual reports (see the Exchange’s 2016 annual report on the supervision of financial reporting). Continued monitoring as well as our ongoing review of issuers’ annual reports for 2016 show that there seems to be room for further improvement regarding adherence to the APM Guidelines.

Some of the key requirements in the APM Guidelines are:

• Disclosure of definitions should be made in a clear and readable way (§21)
• Reconciliation should be made between the APM and the most directly related IFRS line item (§26)
• The use of APMs should be described (§33)

The Exchange has noted that many issuers are using terms such as “Adjusted EBITA” and that the definitions of such measures include other APMs such as “non-recurring items” or “non-comparable items”. Such embedded APMs often lack definitions.

Definitions of measures like “Operating profit” should be clear, understandable and reflect their content. Excluding items of an operating nature from a measure on operating profit is misleading according to IFRS (BC56 of IAS 1). Items that have affected past periods and / or are expected to affect future periods can rarely be labelled or presented as non-recurring items, which could be the case for restructuring costs or impairment losses[ii].

The Exchange highlights this issue in order to give issuers an opportunity to, where relevant, arrange for improvements in this area. The use and definitions of APMs will be a subject to further monitoring and enforcement action will be taken where necessary.

For further information about this exchange notice please contact Issuer Surveillance, telephone +46 8405 60 00, or iss@nasdaq.com.

[i] ESMA/2015/141, 05/10/2015

[ii] ESMA Public Statement European common enforcement priorities