UK: In Many Styles - The Second Year’s Interim Management Statements

Last Updated: 27 August 2009
Article by Deloitte Audit Group

Executive summary

"The present letter is a very long one, simply because I had no leisure to make it shorter" is a famous quotation of the 17th century French mathematician, Pascal. Sadly what drives much corporate communication from UK public companies in the 21st century is a need to comply with the numerous disclosure rules. So what would happen if the rules were cut back to only a few?

Clues to the answer may be found in the way companies have responded to the need to publish twice a year an Interim Management Statement (IMS). The rules are short. The IMS must describe the financial position and performance, and explain material events and transactions, including their financial impact, that have occurred, during the relevant period. In addition, a few rules on timing are added. So how do companies fare?

This year's Deloitte survey of IMSs found:

  • 2% (2008: 6%) of companies and 36% (2008: 21%) of investment trusts clearly complied with all of those few rules;
  • 1% of companies failed to issue an IMS either in 2008/9 or in the first year, 2007/8, when the new IMS regime came into force. It was difficult to spot from the relevant company website any obvious reason for this omission. Perhaps the company has simply missed that a new regime has come into effect;
  • common omissions were failing (a) to give any information on financial position (24% of corporates), (b) to explain the financial impact of transactions or events (29%) and (c) to meet the timing requirements (3% of companies); and
  • investment trusts, having received guidance from the Association of Investment Companies, perform better in meeting the rules than corporates.

While these are some of the facts from this year's survey, the more interesting finding is the variety of styles used by companies in writing their IMSs. Some are short and sharp. Others tell more of the story of the period under review. These style findings cannot be neatly categorised by accountants! But the IMSs make interesting reading. They are manageable in size, being on average under two pages.

Rightly or otherwise the style becomes associated with the characteristics of those managing the individual companies. Who is taking the time to write a good IMS? Who is packing the report with detail? Who is simply taking last year's report and updating for this year's performance? The answer to the last question is relatively easy to find and this survey found that a majority of reporters followed the format of the previous period's IMSs. Perhaps that tried and tested twice format is perfect. Perhaps time is short, especially in the current economic environment when so many opportunities and challenges are faced daily.

Finding a style that suits and sticking to it is a mantra associated with the fashion industry. But, in these early days of the IMS, it may be wise to check that the chosen style of report is suitable.

The survey

Following the introduction of the DTR requirement for listed companies to publish a bi-annual IMS in 2007, the Deloitte survey First IMpressionS1, undertaken in 2008, highlighted that companies seemed to have some difficulties in implementing the new requirements. Since then, companies have gained more experience in preparing IMSs.

The main objectives of this survey were to consider:

  • how companies met the DTR requirements in the first IMSs published in the second year since the introduction of the IMS;
  • what information companies provided in their IMSs and how it was presented; and
  • how the second year's first IMSs published compared to the first and second IMSs published in the first year.

There were as at 31 March 2009 ,053 fully listed UK companies which formed the population for this survey. 40% 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 was used. From the remaining population of 627 companies, a sample of 100 companies was randomly selected.

The two samples have been stratified into three categories based on market capitalisation: companies within the top 350 listed companies by market capitalisation, companies ranked from 351-703 and companies within the smallest 350 listed companies by market capitalisation.

To achieve meaningful comparisons with previous findings, the sample of companies from the Deloitte survey of preliminary announcements, Down The wiRe, was carried forward, as far as possible. As a result of movements between the market capitalisation strata over the recent months, the sample could not be identical. One replacement company was selected at random from the appropriate population. The sample of 100 corporates contained 34, 33 and 33 companies from the top 350, middle and smallest 350 companies respectively. The sample of 30 investment trusts included ten trusts from each category.

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. In addition, there are some companies which chose to provide full quarterly reports, containing, as a minimum, the primary statements and related notes as well as a management commentary. Some comments on the quarterly reports, from companies initially selected but then replaced in the above two samples, are included under "Quarterly reports" (see page 19).

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