COVID-19 and Alternative Performance Measures (APMs)

14 May 2020

Following the announcement of COVID-19 as a global pandemic in March 2020, and the associated actions taken by governments to tackle the health crisis, all businesses have been forced to rethink their strategies in just a matter of weeks. Many have had to take drastic actions in order to deal with the immense challenges brought about by the fast-changing and uncertain economic environment in which they now find themselves.

Where COVID-19 has had a significant effect on the development, performance or position of the business in the year under review, directors will need to explain those effects in the strategic report. One approach many companies will be considering is through the use of new or amended Alternative Performance Measures (APMs). With this in mind, the European Securities and Markets Authority (ESMA) has recently published guidance on the disclosure of APMs in the context of the COVID-19 crisis.

The new guidance has been published as an update to ESMA’s Q&A document on the application of its previously published Guidelines on Alternative Performance. It reminds companies that the definition and calculation of an APM should be consistent over time and companies will need to assess carefully whether any adjusted or new APMs would provide increased transparency and useful information, and improve the comparability, reliability and understandability of the measures presented.

In this respect, ESMA observes that it may not be appropriate to include new or adjusted APMs when the effects of COVID-19 have a pervasive effect on a company’s overall financial performance, position, and/or cash flows. Instead of amending or introducing new APM’s, ESMA encourages the use of narrative disclosures to explain the actual or expected effect of the virus on the operations and the performance of the business. This would include information on the key assumptions and estimations effected and measures taken to address the COVID-19 outbreak.

ESMA also published a review of compliance with its Guidelines in late 2019. In that review it called on companies to improve their disclosures regarding APMs and, in particular, urged enhancement in the disclosure of reconciliations, definitions and explanations of APMs used. ESMA also highlighted that ratios and subtotals included inside financial statements may also fall within the definition of an APM and thus should comply with the Guidelines. The FRC also conducted a Thematic Review of the use of APMs in 2017; its findings are consistent with and complement the ESMA Guidelines and explain the qualities that investors and the regulator look for in APMs used by businesses in the UK.


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