New planning guidelines and targets for renewable energy in key Australian markets
Victoria and South Australia are tightening their guidelines and planning policies for renewable energy facilities.
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On December 19, 2016 the Financial Reporting Lab published an implementation study on the disclosure of dividends, examining how companies have responded to investor calls for better disclosure of dividends, as set out in the Lab’s November 2015 project report, “Disclosure of dividends – policy and practice”.
Summary of findings from the 2015 project report
Lab project participants identified good disclosure of dividend policy as providing an understanding of the board’s considerations in setting the policy, the rationale for the approach selected, and sufficient detail to understand how the policy will operate.
Lab project participants identified good disclosure of dividend practice as providing the key judgements and constraints considered by the board in applying the dividend policy, the availability of dividend resources (cash and distributable profits) to pay dividends, and clear linkage from the disclosed policy to the application of the policy in the period.
Investors found that bringing together various elements of disclosure to provide a focused narrative is helpful.
An area of particular interest to investors is the availability of resources needed to pay a sustainable dividend stream.
How practice is changing based on the Lab’s review of dividend disclosures in annual reports published between December 2015 and July 2016
In summer 2016 the Lab undertook a review of FTSE 350 dividend disclosures to assess how practice had changed following its 2015 project report. 177 companies published their annual reports in the scope period. The Lab identified 120 annual reports for detailed review and found enhancements in reporting from 28 companies.
Key areas where companies enhanced disclosure include examples that explain the details of the dividend policy and how it is intended to operate, add context on factors considered in adopting the policy (with some including the approach to capital management), explain the relevance of dividend resources, and bring together disclosure related to dividends.
Examples of good practice
The implementation study includes examples of good practice for various types of disclosure, as follows:
disclosure that details the policy and provides insight into factors relevant to the setting of the dividend;
disclosure which provides information on dividend resources;
disclosure which confirms sufficiency and availability of distributable reserves, narratively;
disclosure which brings relevant dividend information together; and
disclosure which brings relevant dividend information together.
Areas for further improvement
The implementation study notes that improvements identified often focus on additional disclosure around distributable profits; however, the Lab believes that enhancements in the following areas would also be welcomed by investors:
more detailed disclosure of how dividend policies operate in practice, with more clarity on factors considered in both the setting of the policy and in dividend declaration; and
disclosure of risks and constraints where they impact dividend policy and declaration decisions (especially pertinent to concerns around pension deficits, the potential impact of Brexit and other factors that may have a bearing on capital management decisions).
On December 21, 2016 the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 were published in their final form. The Regulations amend Part 15 of the Companies Act 2006 (CA 2006) in order to implement Articles 1(1) and (3) of the Non-Financial Reporting Directive (Directive 2014/95/EU) and to complete transposition of Article 23(1) of the Accounting Directive (Directive 2013/34/EU).
The final Regulations require companies which are not small or medium-sized and which have more than 500 employees to include a non-financial statement in their strategic report. The final Regulations are in substantially the same form as the draft regulations published in November 2016. For further information, click here.
On December 20, 2016 the European Securities and Markets Authority (ESMA) published an updated version of its questions and answers (Q&A) on the Market Abuse Regulation (MAR). These were previously updated in July 2016.
The Q&A includes several new questions and answers and confirms that:
Communications to clients containing purely factual information on one or several financial instruments or issuers do not constitute an ‘investment recommendation’ under MAR, provided that they do not explicitly or implicitly recommend or suggest an investment strategy.
Communications intended for distribution channels or for the public which only report or refer to a previously disseminated investment recommendation and do not include any new elements of opinion or valuation or confirmation of a previous opinion or valuation do not constitute an investment recommendation under MAR. Such a communication would still be subject to Article 7 of Commission Delegated Regulation (EU) 2016/958 (on technical arrangements for objective presentation of investment recommendations), if it is disseminated by the producer of the investment recommendation, and therefore such a communication shall include, the date and time of first issuance of the investment recommendation.
Recommendations relating to derivatives traded solely outside a trading venue are within the scope of Article 20 of MAR insofar as their price or value depends on, or has an effect on the price or value of a financial instrument referred to in Article 2(1)(a), (b) or (c) of MAR.
Where a recommendation relates to a derivative, and where a unique identifier exists for the derivative, such identifier has to be used to determine whether there has been a change in a previous recommendation given by the producer on the same financial instrument.
On December 20, 2016 the European Securities and Markets Authority (ESMA) published version 26 of its questions and answers (Q&A) on prospectuses. These were previously updated in July 2016. The Q&A includes one new question on the application of the ESMA guidelines on Alternative Performance Measures (APM Guidelines) to prospectuses.
ESMA clarifies how to apply the APM Guidelines when constituent parts of a prospectus straddle the date on which the APM Guidelines came into force, namely July 3, 2016. In short, the applicability of the APM Guidelines is determined with reference to the publication date of the prospectus, therefore:
Where a registration document containing APMs was published before July 3, 2016 and that registration document is combined with a securities note published on or after that date, the APM Guidelines do not apply to the registration document but only to the securities note and the summary, where applicable. Equally, where the information contained in such a registration document is incorporated by reference into a prospectus or a base prospectus published on or after July 3, 2016, the APM Guidelines do not apply to the registration document but only to the remainder of the prospectus or base prospectus.
Where a registration document containing APMs was approved but not published before July 3, 2016 and that registration document is combined with a securities note published on or after July 3, 2016, or the information contained in that registration document is incorporated by reference into a prospectus or a base prospectus published on/after July 3, 2016, the APM Guidelines apply to the registration document as well as to the securities note and the summary, where applicable, or to the prospectus/base prospectus. In these instances, the registration document should be updated through the mechanism set out in Article 12(2) of the Prospectus Directive.
Where a prospectus or registration document published before July 3, 2016 is supplemented on or after July 3, 2016 and the supplement contains APMs, the APM Guidelines apply to the supplement.
On December 21, 2016 the European Securities and Markets Authority (ESMA) published a feedback statement setting out the digital format which issuers in the EU must use to report their company information from January 1, 2020. The feedback statement concludes that Inline XBRL is the most suitable technology to meet the EU requirement for issuers to report their annual financial reports in a single electronic format because it enables both machine and human readability in one document.
The feedback statement follows publication in September 2015 of “Draft Regulatory Technical Standard (RTS) on European Single Electronic Format (ESEF)” to fulfil certain requirements of the Transparency Directive. Under Article 4(7) of the Transparency Directive ESMA must develop a draft regulatory technical standard specifying the electronic reporting format for annual financial reports from January 1, 2020 and the feedback statement provides an overview of the feedback received.
The main conclusions in the feedback statement are:
Issuers must prepare their annual financial reports in the human readable XHTML format, which can be read by standard browsers without the need for specialised tools.
Only where annual financial reports contain IFRS consolidated financial statements must issuers label this information using XBRL, which is machine-readable. The XBRL data is embedded directly into the XHTML document through the Inline XBRL format. ESMA may extend mandatory labelling of information using XBRL to other parts of the annual financial report or to financial statements prepared under third country GAAP at a later stage.
The IFRS Foundation’s Taxonomy should be used to transfer financial information into structured data for the electronic reporting of IFRS financial statements.
ESMA will focus on developing the detailed technical rules, field test its proposed solution and then submit the RTS to the European Commission for endorsement towards the end of 2017.
Hacking, corporate espionage and data breaches are on the rise around the globe.