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ESMA publishes further Q&A on alternative performance measures guidelines

On 30 October 2017, the European Securities Markets Authority (‘ESMA’) published six new questions and answers in its Questions and Answers (Q&A) document, on the implementation of the ESMA Guidelines on Alternative Performance Measures (‘APMs’) for listed issuers.

The six new questions (Q12 to Q17) are:

(a)   Do financial measures originally defined or specified in the applicable financial reporting framework and adjusted with the aim of isolating the effect of foreign currency on these measures qualify as APMs?

(b)   Does a segment measure of profitability – which is determined on a different accounting basis than the basis defined or specified in the applicable reporting framework – fall within the definition of an APM in the Guidelines?

(c)   In which circumstances is the scope exemption in paragraph 19 (4th bullet) of the Guidelines  applicable (i.e. issuers are not required to apply the Guidelines when APMs are used to explain compliance with the terms of an agreement or legislative requirement such as lending covenants or the basis of calculating the director or executive remuneration)?

(d)   How should an issuer define the APM measure “Organic growth”?

(e)   Do the Guidelines require a numeric reconciliation of the APM to “the most reconcilable line item, total or subtotal” presented in the financial statements or is it sufficient to include a qualitative explanation of the items which adjust the financial statements’ figures?

(f)    May APMs representing a biased measure of performance (i.e. a measure that includes one-off gains but disregards one-off related losses) violate the Guidelines even if they are correctly labelled?

An alternative performance measure is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. The Guidelines apply to APMs disclosed by issuers or persons responsible for drawing up a prospectus.

The purpose of this Q&A document is to promote common supervisory approaches and practices in the implementation of these Guidelines