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The reports are the watered-down result of an attempt to introduce full US-style quarterly reporting to the EU. Companies are required to explain material events and transactions and describe the financial position and performance.
According to Radley Yeldar, a communications consultancy, the UK companies that have so far had to put out IMS reports under the directive have produced efforts ranging from a bare 28 words in two lines (Severn Trent) to 13,000 words in 29 pages (British Energy). “The basics of clear communication seem to have gone out of the window,” said Richard Carpenter, development director at the consultancy. “Investors are faced with huge variation in the quality and quantity of information provided.”
Of the companies that have so far produced IMS reports, Radley Yeldar found 14% of companies had not met the requirement to discuss the company’s financial position. Most used figures to support their statements but this was not universal. “Companies are clearly uncertain about what should be included in the new Interim Management Statements,” said Mr Carpenter. “The FSA needs to clarify its position on the content of IMS and encourage investors to be more vocal about what they want to see.”
The Financial Services Authority issued some guidance in April but made clear that it wanted the markets to come up with an appropriate form for the statements. The change applies to financial years beginning after January 20 2007, so many companies, with reporting years matching the calendar, will not begin producing IMS reports until 2008.
The Directive comes at a point when many investors consider the financial reporting system to be broken, with annual reports becoming longer, but less useful.