Issuing Fourth News - Surveying First Halves' Interim Management Statements

1. EXECUTIVE SUMMARY

   The Interim Management Statement (IMS) is now four years old. The UK Listing Authority introduced the IMS in 2007 for listed companies to meet the requirements of the EU Transparency Obligations Directive. Deloitte has been reviewing these reports since the very beginning. Indeed, this is the Firm's sixth survey because in the first year the IMSs were surveyed regularly to seek to establish general practice. In 2008 and 2009, the IMSs issued in the first half of the year were surveyed. Deloitte's 2010 survey addressed the IMSs issued in the second half of the year.

   This survey examines the current crop of first half's IMSs and has produced some interesting results:

   only a low percentage, 22%, of corporates clearly met all of the IMS content requirements. Many fail to describe adequately their financial position. This is an improvement from the practice in the first two years; investment trusts which are considered separately in this survey continue to be the stars in content compliance terms. 77% of trusts (second half IMSs: 77%) clearly met the content requirements; the average length of IMSs is two pages; 53% of corporates specifically mentioned economic difficulties in their first half IMS; 24% of corporates gave liquidity information on their access to external funding; and timing of reporting does not seem to be much of an issue for either corporates or investment trusts: 93% (second half IMSs: 97%) corporates and 90% (second half IMSs: 83%) investment trusts filed their IMS within the Disclosure and Transparency Rules' deadline. No sooner are UK listed companies getting accustomed to the new regime when a review is announced. The European Commission consulted in May 2010 on the modernisation of the Transparency Directive. The responses to that indicated support for the flexibility in the IMS rules and there were few calls for more prescription. An interesting response to the consultation was to question whether the requirements should be removed for small listed companies. The majority of respondents rejected this. While this may be a disappointment to some smaller companies, the silver lining is that respondents found the information they get useful. So, IMSs are here to stay in their present form, at least until the next review.

2. THE SURVEY

   Following the introduction in 2007 of the DTR requirements for listed companies to publish bi-annual IMSs, past Deloitte surveys have highlighted that some companies seemed to have difficulties in meeting the requirements. The IMS is no longer a new requirement. Companies have had over three full years' experience. So it was timely to carry out this survey to look at current practice and to consider whether it has changed or improved over the years.

   Deloitte has reviewed reporting in five previous surveys on IMSs. In the 2010 survey And there's more, the focus was on the IMSs published in the second half of the year. This year's survey focuses on the first half's IMSs and compares these primarily with the 2010 results.

   The main objectives of this survey were to consider:

   how companies met the DTR requirements in the IMSs published in the first half of the fourth year since its introduction; what information companies provided in their IMSs and how it was presented; and how the fourth year's first IMSs published compared to earlier IMSs. There were, as at 30 June 2011, 994 fully listed UK companies which formed the population for this survey. 39% of these companies were classified by the London Stock Exchange as being in the sectors of non-equity or equity investment instruments. Due to the specialised nature of investment trusts, and the particular needs of their investors, they were treated as a separate population, consistent with other Deloitte surveys on financial reporting, and a sample of 30 of these companies was used. Their findings are covered in Section 5 of this report.

   To achieve meaningful comparisons with previous findings, the sample of 100 companies was as consistent as possible with the randomly-selected sample used in recent surveys and with that used in the upcoming Deloitte survey of annual reports. One company had de-listed before the IMS deadline. A replacement company was picked at random from the same size category. The sample of 100 corporates contained 34, 33 and 33 companies from the top 350, middle group and smallest 350 companies by market capitalisation respectively. The sample of 30 investment trusts included ten trusts from each category. For companies with 31 December 2010 year ends, their fourth IMS was required to be published by 19 May 2011.

   The next two sections, "The IMS basics" and "Content of IMSs", refer to the main sample of 100 companies excluding the investment trusts which are separately discussed in the section "Investment Trusts' IMSs" from page 13. The rules allow companies to file a quarterly report instead of an IMS. Whilst no companies in the survey chose to provide a quarterly report, some comments on quarterly reports are included under "Quarterly reports".

3. THE IMS BASICS

   99 out of 100 companies issued information considered to be a first half IMS (second half IMSs: 98 companies). 93 companies reported within the DTR time frame (second half IMSs: 97 companies). The average length of an IMS was 2 pages (second half IMSs: 2.2 pages). This section considers the fundamental elements of IMS reporting such as the timing of publication, the overall structure and the length of IMSs. Comparisons with the findings of the previous Deloitte survey And there's more are included where relevant and relate to the IMSs published during the second half of the second year of reporting under the DTR.

   DTR 4.3.2 An issuer must make public a statement by its management during the first six-month period of the financial year and another statement by its management during the second six month period of the financial year.

   In the context of DTR 4.3.2. "making public" means the publication of the IMS in unedited full text via a RIS as required by DTR 6.3.5. In the sample of 100 companies surveyed:

   85 companies (second half IMSs: 93 companies) published information clearly labelled as an IMS. Nine of these companies referred to this as a "AGM and IMS"; 14 companies (second half IMSs: five companies) issued "AGM statements", "trading updates" or "Q1 results" statements which did not include "IMS" in the title; and one company (second half IMSs: two companies) did not issue any information that could be considered to be an IMS. This company was in the smallest 350 companies by market capitalisation. Figure 1 below summarises how companies labelled their IMSs.

   The company that did not publish any IMS information did not give any reason for its non-compliance and it has been issuing regular half-yearly financial statements and annual reports. There is no evidence that the company's shares were suspended from trading. Even if they had been suspended, this would not relieve the company from its continuing obligations under the DTR to publish an IMS. This was confirmed by the UKLA Technical Note: IMS Review (http://www.fsa.gov.uk/pubs/ukla/ims_review.pdf) which states that "these obligations do not fall away during a suspension and issuers must continue to comply". As a result, the discussion of findings below relates to the 99 companies that published a first half IMS.

   Speed and period of reporting

   DTR 4.3.3 The statement required by DTR 4.3.2R must be made in a period between ten weeks after the beginning, and six weeks before, the end of the relevant six-month period.

   The DTR effectively provides companies with two periods of approximately ten weeks to publish their IMSs.

   Figure 2 below illustrates in which week, since the start of the six month period, companies published their first half IMSs. As expected and in line with the findings of the previous surveys, the top 350 group of companies typically reported slightly earlier than the middle group and the smallest 350 companies.

   Of the companies surveyed 10 reported on the last day of the period specified by DTR 4.3.3 (second half IMSs: 12 companies), and six companies (second half IMSs: one company) reported outside the required timeframe. One of the companies reporting outside the timeframe was late by one working day which may have been due to some confusion over the actual deadline.

   29% of companies issued their IMSs for the first six month period of the current year during the same week that they issued their IMSs during the second six month period. 36% of companies issued their first IMSs earlier than their second and 32% issued their first IMSs later than their second. This is illustrated in Figure 3.

   DTR 4.3.4 The interim management statement must contain information that covers the period between the beginning of the relevant six-month period and the date of publication of the statement.

   Six companies (second half IMSs: four companies) did not indicate the period covered by the IMS. 65 companies (second half IMSs: 76 companies) explicitly stated the period being reported on, with 25 of these simply referring to the first quarter of the year. The remaining 28 companies (second half IMSs: 18 companies) used phrases such as "to date", "today" and "up to the date of publication".

   50 companies (second half IMSs: 42 companies) fully complied with DTR 4.3.4 by covering the period up until the date of publication. This includes 15 companies (second half IMSs: 20 companies) that covered the period up to the last working day before the date of publication of the IMS, which was considered to have met the requirement under DTR 4.3.4.

   As shown in Figure 4, the average delay between the reported date in the IMS and the date of publication was 10 days (second half IMSs: 11 days) with the maximum delay being 62 days (second half IMSs: 49 days). These figures are primarily attributable to those IMSs that cover the first quarter period and they show a slight...