"We received a lot of constructive feedback from the public during this consultation exercise. After much review and deliberation, we have fine-tuned the amendments to the listing rules to ensure that they are effective and relevant to market needs. We believe that adherence to high regulatory standards builds a robust and enduring marketplace and promotes investor
Following the public consultation and feedback received, the key changes made to the proposed enhancements in the consultation paper are as follows:
c. The proposal of requiring an annual confirmation from the Board and CEO with regards to internal control matters will not be included in the listing rules. This is currently addressed within the guidelines stipulated under the revised Code of Corporate Governance 2005 which was only introduced in July 2005.
The other significant enhancements to the listing rules are as follows:
Enhancing corporate governance
- 3. Increase the sponsorship disclosure requirement (badging) for issue managers from one to two years;
4. Enable SGX to require the appointment of a Compliance Adviser to facilitate the company's transition to become a listed entity.
5. Require the issue manager to confirm that the directors of an applicant have been informed of their obligations under the listing rules as well as the relevant Singapore laws and regulations.
- 6. Increase directors' awareness of listing obligations through on-going orientation programmes. Issuers are required to announce the directors' prior experience or training in the prospectus or via SGXNet. Similar announcements on SGXNet are also required on an on-going basis for the appointment of new directors.
- 7. Improve transparency and disclosure by encouraging issuers to adopt best practices set out in the Operating and Financial Review (OFR) Guide. Issuers are to follow the Guide when preparing the operating and financial review in their annual reports. This will be effective for all AGMs held on or after 1 January 2007.
8. Information on the listing fees and other charges for the provision of listing-related services currently in Practice Note 1.1 will be removed from the Listing Manual. This information will be posted on the SGX website.
A complete list of the listing rule amendments can be accessed from SGX's website at www.sgx.com.
1 SEPTEMBER 2006
The following sets out the relevant listing rules amendments, which come into effect from 1 September 2006 With exception:-
(a) Rule 1207(4) will be effective for all AGMs on or after 1 January 2007; and
(b) Rule 720 will be effective from 1 January 2008.. The purpose of the amendment is provided.
Definitions and Interpretation
1.1 To introduce a new term as follows.
Term Meaning
- "OFR Guide" Guide for the operating and financial review issued by the Council on Corporate Disclosure and Governance.
- Purpose of amendment: To introduce a new term for which reference is made in the Listing Manual.
1.2 Listing Rule 113 be amended as follows.
- (1) The requirement to have an issue manager ends once the issuer is admitted to listing, although it is recommended that the issuer retain the services of the issue manager for at least one year following its listing.
- (3) The sponsor is not required to be involved in all matters relating to the issuer's compliance with the listing rules. However, the Exchange encourages issuers to consider engaging their sponsors to assist them post listing.
- Purpose of amendment: To codify the practice of requiring issuers to include the name of their IPO sponsors in all the announcements and information documents issued by them. Also, the amendment extends the sponsorship disclosure requirement from one year to two years after listing.
Listing Rule 210(5)(a)
1.3 Listing Rule 210(5)(a) be amended as follows.
- 210 An issuer applying for listing of its equity securities on the SGX Mainboard must meet the following conditions:-
(5) Directors and Management
(a) The directors and executive officers should have appropriate experience and expertise to manage the group's business. As a pre-quotation disclosure requirement, an issuer must release a statement via SGXNET or in the prospectus, offering memorandum or introductory document identifying for each director, whether the person has prior experience (and what) or, if the director has no prior experience as a director of a listed company, whether the person has undertaken training in the roles and responsibilities of a director of a listed company.
Purpose of amendment: Rule 210(5)(a) will be amended to codify the practice of requiring issuers to announce the directors' prior experience or training prior to listing.
Listing Rule 221
1.4 Listing Rule 221 be amended as follows.
- 221 A foreign issuer must have at least two independent directors
Purpose of amendment: To ensure sufficient local representation on the board of a foreign issuer and the ability to take steps in the event of a problem.
Listing Rule 243
1.5 Listing Rule 243 be amended as follows.
- 243
- An applicant may consult the Exchange to resolve specific issues prior to the submission of an application. Unless the Exchange prescribes otherwise, the following sets out the usual main steps in the listing process:-
(3) Where a prospectus or offering memorandum is required to be issued, the applicant lodges the prospectus or offering memorandum with the relevant authority (if applicable) and submits a copy to the Exchange. The lodged copy of the prospectus should not be materially different from the prospectus or offering memorandum on which the eligibility-to-list letter was issued. The applicant must submit a written confirmation to the Exchange to this effect. If there are material differences, the Exchange may withdraw the eligibility-to-list letter;
(4) The Exchange will inform the applicant of any further information (additional to what is prescribed) that is required to be disclosed prior to commencement of trading. The applicant decides whether to include this information in its prospectus or offering memorandum, or to make pre-quotation disclosure through an announcement to the Exchange. Pre-quotation disclosure must be made not later than the market day before trading commences. Preferably, it should be made before the launch of the offer;
(5) If the listing entails an offer of securities to the public, the applicant invites applications to subscribe for or purchase the securities. After the offer closes, the applicant announces the outcome of the offer, and where appropriate, the level of subscription and the basis of allocation and allotment, and the subscription rate reflecting the true level of demand for the offer. In computing the subscription rate, subscriptions by connected persons and the persons mentioned in Rule 240 must be excluded;
(6) On satisfaction of the conditions expressed in the eligibility-to-list letter, the issuer is admitted to the Official List at the discretion of the Exchange. Trading of its listed securities commences on a date determined by the Exchange either on a deferred settlement basis or ready basis or such other basis as the Exchange may approve.
Purpose of amendment: To incorporate the procedures prescribed by Transitional Note 2 into Rules 243 and 244.
Listing Rule 244
1.6 Listing Rule 244 be amended as follows.
244 The Exchange will normally decide on an application that is complete in all material aspects, within six weeks of the date of submission. In the case of an application for secondary listing, the decision can normally be expected within 3 weeks of receipt of an application that is complete in all material aspects. However, the time taken may be longer depending on the circumstances.
- The Exchange will decide whether to issue an eligibility-to-list letter as soon as practicable after receipt of a complete application. If the applicant makes material amendments to the prospectus, the time may start to run from the date the material amendment is notified to the Exchange. On a case-by-case basis, the Exchange may agree to vary the procedures or time indicated if an issue involves a concurrent dual listing or international offering. Any proposed variation in procedures and timetable must be agreed with the Exchange before the submission of the application.
Purpose of amendment: To incorporate the procedures prescribed by Transitional Note 2 into Rules 243 and 244.
Listing Rule 246(4)
1.7 Listing Rule 246(4) be amended as follows.
- 246 The application must include:-
(b) all documents required by the listing rules to be included in the application has been or will be supplied to the Exchange;
(c) any other matters known to the issue manager which should be taken into account have been disclosed in the prospectus or otherwise in writing;
(d) if any further information becomes available before listing, it will inform the Exchange; and
(e) the directors of an applicant have been informed of their obligations under the listing rules as well as the relevant Singapore laws and regulations.
Listing Rule 246(12)
1.8 A new sub-rule 246(12) be introduced as follows.
- 246 The application must include:-
- (12) Confirmation by the applicant that it has obtained all requisite approvals, and is in compliance with laws and regulations, that would materially affect its business operations.
Purpose of amendment: To require the applicant to provide a confirmation that it has obtained all requisite approvals, and is in compliance with laws and regulations, that would materially affect its business operations.
Listing Rule 309(4)
1.9 Listing Rule 309(4) be amended as follows.
- 309 A trust deed required by Rule 308(5) must include the following provisions:-
- (4) Within three months of the expiration of the full year and the half year, the issuer must provide the trustee the consolidated profit and loss account and balance sheet (which must be prepared in accordance with the approved accounting standards) of the issuer and of any guarantor company. The accounts relating to the full year must be audited.
Purpose of amendment: Where an issue of debt securities is also offered to retail investors, the issuer must report its post-listing financial results in accordance with the approved accounting standards.
Listing Rule 310
1.10 Listing Rule 310 be amended as follows.
- 310
- An applicant may consult the Exchange to resolve specific issues prior to the submission of an application. Unless the Exchange prescribes otherwise, the following sets out the usual main steps in the listing process.
Purpose of amendment: To incorporate the procedures prescribed by Transitional Note 2 into Rules 310 and 311.
Listing Rule 311
1.11 Listing Rule 311 be amended as follows.
311
The Exchange will decide whether to issue an eligibility-to-list letter as soon as practicable after receipt of a complete application. If the applicant makes material amendments to the prospectus, offering memorandum or introductory document, the time may start to run from the date the material amendment is notified to the Exchange.
Purpose of amendment: To incorporate the procedures prescribed by Transitional Note 2 into Rules 310 and 311.
Listing Rule 315(5)
1.12 Listing Rule 315(5) be amended as follows.
315 After the issuer receives approval in-principle from the Exchange, the following documents must be submitted before the listing of the debt securities:-
(5) In the case of a foreign debt issuer, the names and addresses of its representatives
Purpose of amendment: To require the issuer's representatives to be easily contactable instead of being situated in Singapore.
Listing Rule 704
1.13 Listing Rule 704 be amended to include a new sub-Rule (7)(i) as follows.
- 704(7) Any appointment or resignation of any director, chief executive officer, general manager or other executive officer of equivalent rank, company secretary, registrar or auditors of the issuer. The announcement of an appointment of any director, chief executive officer, general manager or other executive officer of equivalent rank must contain the following details: -
(i) Information on whether the person has prior experience (and what) or, if the director has no prior experience as a director of a listed company, whether the person has undertaken training in the roles and responsibilities of a director of a listed company. (applicable only to the appointment of directors).
Purpose of amendment: To extend the proposal of requiring issuers to announce the directors' prior experience or training, to all existing issuers.
Listing Rule 705
1.14 Listing Rule 705 be amended to include a new sub-rule (4) as follows.
- 705(4) In the case of an announcement of interim financial statements (quarterly or half-yearly, as applicable), an issuer's directors must provide a confirmation that, to the best of their knowledge, nothing has come to the attention of the board of directors which may render the interim financial results to be false or misleading. In order to make this confirmation, Directors would not be expected to commission an audit of these financial statements. The confirmation may be signed by 2 directors on behalf of the board of directors.
Purpose of amendment: To strengthen accountability for interim financial results by requiring a "negative assurance" confirmation from the issuer's directors.
Listing Rule 707
1.15 Listing Rule 707 be amended as follows.
- 707(1) The time between the end of an issuer's financial year and the date of its annual general meeting (if any) must not exceed four months.
Purpose of amendment: To clarify that the timeframe for the holding of annual general meeting (as set out in Paragraph 10 of Appendix 2.2) applies to both Singapore and foreign incorporated issuers.
Listing Rule 710
1.15 Listing Rule 710 be amended as follows.
710 An issuer must:-
Purpose of amendment: To rationalize and consolidate the provisions relating to dealings in securities in Rule 1207.
Listing Rule 717
1.16 Listing Rule 717 be amended as follows.
717 An issuer must disclose in the annual report the names of the accounting firm
- Purpose of amendment: Amended so that an issuer does not need to disclose in its annual report the names of accounting firms for Singapore-incorporated subsidiaries that are not significant. Such disclosure will only be required for subsidiaries and associated companies (whether Singapore- or foreign-incorporated) that are significant.
Listing Rule 720
1.17 Listing Rule 720 be amended as follows.
Board Composition
720 An issuer must comply with Rule 210(5) and Rule 221 (if applicable) on a continuing basis.
- Purpose of amendment: To extend the requirements in Rules 210(5) and 221 as continuing listing obligations.
Listing Rule 747(2)
1.18 Listing Rule 747 be amended as follows.
747 A debt issuer must announce:-
- (2) the details of any interest payment(s) to be made (except for fixed rate notes listed solely on the Bonds Market)
Purpose of amendment: To clarify that the exception in Rule 747(2) applies only to fixed rate notes listed on the Bonds Market.
Listing Rule 887
1.19 A new Listing Rule 887 will be introduced as follows.
PART XIV REAL ESTATE INVESTMENT TRUST
887(1) Any issue of new units by a REIT may be made without the prior specific approval of unitholders in a general meeting if:-
- (i) the issue (together with any other issue of units in the same financial year) would not exceed 10% of the number of units in issue ; or
(ii) the following requirements are complied with:-
- (a) unitholders have given a general mandate, by ordinary resolution in a general meeting, for the issue of a number of units not exceeding 50% of the number of units in issue, of which the aggregate number of units issued other than on a pro rata basis to existing unitholders must not be more than 20% of the number of units in issue ; and
(b) the issue (together with any other issue of units in the same financial year, from the time the mandate is passed) does not exceed 50% of the number of units in issue, of which the aggregate number of units issued other than on a pro rata basis to existing unitholders must not be more than 20% of the number of units in issue.
- (2) For the purpose of Rule 887(1)(i) and (ii), the percentage of the number of units in issue is based on the number of units in issue at the end of the last financial year.
(3) The general mandate referred to in Rule 887(1)(ii)(a) may remain in force until the earlier of the following:-
- (i) the end of the financial year in which the mandate is passed; or
(ii) it is revoked or varied by ordinary resolution of the unitholders in a general meeting.
Listing Rule 1007
1.20 Listing Rule 1007 be amended as follows.
- 1007(1) If any of the relative figures computed pursuant to Rule 1006 is a negative figure, this Chapter may still be applicable to the transaction at the discretion of the Exchange, and issuers should consult the Exchange.
- (2) Where the disposal of an issuer's interest in a subsidiary is undertaken in conjunction with an issue of shares by that subsidiary, the relative figures in Rule 1006 must be computed based on the disposal and the issue of shares.
Purpose of amendment: To apply the materiality tests in Rule 1006 to the total dilution effect arising from both the disposal of shares in a subsidiary and the issue of shares by that subsidiary.
Listing Rule 1015
1.21 Listing Rule 1015 be amended to include a new sub-Rule (8) as follows.
- 1015(8) Rule 113(2) applies to an issuer which is the subject of a very substantial acquisition or a reverse takeover, with the necessary adaptations.
Purpose of amendment: To codify the sponsorship disclosure requirement for reverse takeovers.
Listing Rule 1207
1.22 Listing Rule 1207 be amended to include a new sub-Rule (18) as follows.
1207 The annual report must contain enough information for a proper understanding of the performance and financial conditions of the issuer and its principal subsidiaries, including at least the following:-
Dealings in Securities
(18) A statement whether and how the issuer has complied with the following best practices on dealings in securities:-
- (a) A listed issuer should devise and adopt its own internal compliance code to provide guidance to its officers with regard to dealing by the listed issuer and its officer in its securities;
(b) An officer should not deal in his company's securities on short-term considerations; and
(c) A listed issuer and its officers should not deal in the listed issuer's securities during the period commencing two weeks before the announcement of the company's financial statements for each of the first three quarters of its financial year, or one month before half year or financial year, as the case may be, and ending on the date of announcement of the relevant results.
Purpose of amendment: To consolidate the provisions relating to dealings in securities in Rule 1207.
Listing Rule 1207(4)
1.23 Listing Rule 1207(4) be amended as follows.
- (a) A review, in as much detail as
(i) Any development subsequent to the release of the issuer's preliminary financial statement, which would materially affect the issuer's operating and financial performance; , must be identified.
- (c) Issuers are encouraged (but not required) to follow the OFR Guide when preparing their reviews.
Purpose of amendment: To support the recommendation of CCDG.
Appendix 2.2 (Paragraph 10)
1.24 Appendix 2.2 (Paragraph 10) be amended as follows.
The interval between the close of an company's issuer's financial year and the date of the company's its annual general meeting (if any) shall not exceed four months. :-
(a) five months in the case of a company whose financial year commences before 1 January 2003; and
Purpose of amendment: To rationalize the rule as the commencement of financial year has become irrelevant.
Appendix 7.1 (Paragraph 21)
1.25 Appendix 7.1 (Paragraph 21) be amended as follows.
If Material information needs to must be disclosed when it arises, even if during trading hours, . The Exchange will expect the issuer to request a trading halt to facilitate the dissemination of the material information during trading hours. As a guide, a trading halt requested for dissemination of material information will last an hour after the release of the material information, or such other period as the Exchange considers it appropriate. The issuer may request a temporary suspension if it is unable to release the material information by the end of the trading halt. Otherwise, the Exchange will consider whether a temporary suspension in trading of the issuer's securities is necessary to enable the material information to be properly disseminated. As a guide, the temporary suspension may last an hour after the announcement has been released to the Exchange. Where material announcements are broadcast before 7.30am, between 12.30pm and 1pm, or after 5.05pm, a trading halt or a temporary suspension will not be necessary.
Purpose of amendment: To make it clear that issuers are required to release material announcements during trading hours.
Practice Note 1.1
1.26 Practice Note 1.1 will be deleted in its entirety.
- Purpose of amendment: Listing fees and other related charges, which are for services provided, will be removed from the Listing Manual and be made available to the public via the SGX website. It will ease the administrative procedures involved should there be any minor amendments to be made to listing fees schedule, e.g. imposing late payment charges, adding in listing fees for new products etc.
Practice Note 2.1 (Paragraph 6)
1.27 Paragraph 6 in Practice Note 2.1 will be deleted in its entirety.
Purpose of amendment: The requirements in paragraph 6 will be incorporated in Rules 113 and 1015.
Practice Note 2.1 (Paragraph 7)
1.28 Paragraph 7 in Practice Note 2.1 will be deleted in its entirety.
7. Director Disclosure
7.1 Rule 210(5) says that directors (and executive officers) should have appropriate experience and expertise to manage the group's business. The Exchange encourages new directors (who do not have prior experience as a director of a public listed company in Singapore) to undertake training in the roles and responsibilities of a director of a listed company.
Purpose of amendment: The requirements in paragraph 7 will be incorporated in Rule 210(5)(a).
Practice Note 2.1 (Paragraph 8)
1.29 Paragraph 8 in Practice Note 2.1 will be re-numbered as paragraph 6 and amended as follows.
86. FOREIGN APPLICANT'S CONNECTION TO SINGAPORE
Purpose of amendment: Consequential upon the amendment to Rule 221.
Practice Note 2.1
1.30 A new paragraph will be added to Practice Note 2.1 as follows.
- 7. COMPLIANCE ADVISER
7.3 The compliance adviser is expected to advise the board on the applicable rules and regulations. The Exchange would normally accept a lawyer, a corporate finance adviser or other professional parties, who are familiar with the rules and regulations applicable to a listed company, to be a compliance adviser.
Purpose of amendment: To give the Exchange power to require the appointment of a compliance adviser on a selective and "need-to" basis.
Practice Note 13.1 (Paragraph 2.1)
1.31 Practice Note 13.1 (Paragraph 2.1) be amended as follows.
Our trading hours is from 9.00 am to 12.30 pm and 2.00 pm to 5.00 pm. Opening Routine is a 30-minute session before trading commences at 9.00 am, i.e. 8.30 am to 9.00 am. Closing Routine will run for 6 minutes after 5.00 pm, i.e. 5.00 pm to 5.06 pm. Issuers should preferably release material price sensitive announcements before 7.30 am or after 5.05 pm.
Purpose of amendment: To make it clear that issuers are required to release material announcements during trading hours.
Best Practices Guide
1.32 Best Practices Guide be deleted as follows.
Best PracticeS Guide
INTRODUCTION
2. The SGX-ST considers it desirable that each listed issuer should devise and adopt its own internal compliance code to provide guidance to its officers with regard to dealing by the listed issuer and its officers in its securities. The Exchange believes that proper adherence to these best practices would promote a fair market, thereby enhancing investor confidence in the market.
- Purpose of amendment: To rationalize and consolidate the provisions relating to dealings in securities in Rule 1207.
Transitional Practice Note 2
1.33 Transitional Practice Note 2 be deleted as follows.
Transitional Practice Note 2
Transitional arrangements regarding
Equity Securities Listing Procedures
- __________
- Purpose of amendment: The deletion is proposed consequential on the transfer of the information in Transitional Practice Note 2 to Rules 243 and 244.
Transitional Practice Note 3
1.34 Transitional Practice Note 3 be deleted as follows.
SGX-ST Listing Rules
Transitional Practice Note 3
Transitional arrangements regarding
Debt Securities Listing Procedures
- Purpose of amendment: The deletion is proposed consequential on the transfer of the information in Transitional Practice Note 2 to Rules 310 and 311.
SGX-ST Listing Rules
Practice Note 7.4
Guide for Operating and Financial Review
Details | Cross references | Enquiries |
Issue date: [ ] 2006 Effective date: 1 July 2006 | Listing Rule 1207(4) | Please contact Issuer Regulation:- 6-236-8872 Linda Ong 6-236-8887 June Sim 6-236-8264 Lorraine Chay 6-236-8895 Siew Wun Mui 6-236-8880 Tang Yeng Yuen 6-236-8892 Ashley Seow |
1. Introduction
1.1 This Practice Note publishes the guide provided by the Council on Corporate Disclosure and Governance on the Operating and Financial Review in an annual report.
2. OFR Guide
Purpose of amendment: To support the recommendation of CCDG.
OPERATING AND FINANCIAL
REVIEW
- CONTENTS
Introduction………………………………………………………… 1
Objectives and Tenets of the Operating and Financial Review……… 2
- Principles and Guidelines…………………………………………… 3
INTRODUCTION
______________
- 1 Rule 1207(4) of the Listing Manual of the Singapore Exchange.
OBJECTIVES AND TENETS OF THE OPERATING AND FINANCIAL REVIEW
___________________________________________________________________
- 4 Information and analysis contained in the OFR should, as far as possible, be neutral and free from bias, dealing even-handedly with both good and bad aspects. The directors and management should ensure that material information is not omitted. Where the information in the OFR relates to financial information, it should be consistent with information in the audited financial statements. This should not be taken to mean that an audit of the OFR is required.
PRINCIPLES AND GUIDELINES
A) Presentation of the OFR
Principle 1
1 The OFR should focus on matters that are relevant to investors. It should be easy for users of financial reports to understand.
Guidelines
1.1 The OFR should be written in a style that is clear and readily understood. It should avoid the use of technical language as far as possible. Figures and graphics may be useful to assist understanding of discussions in the OFR.
1.2 To facilitate reference to OFR disclosures by users of the annual report, it could be useful to include the key discussions of the OFR in a distinct, stand-alone section of the annual report. However, companies may decide that, in the context of the format of their annual report, it would be preferable to incorporate some of the discussion within other sections of the annual report, such as the Chairman's statement or the Chief Executive Officer's statement.
1.3 While the approach adopted for the presentation of the OFR may evolve over time, or differ from that adopted by other companies, disclosure should be sufficient for the user to be able to compare the information presented in the OFR of the company with that in previous periods, and with information about other companies in the same industry or sectors, where practical.
B) Company Overview, Objectives and Strategy
Principle 2
2 The OFR should describe the nature of the company, its objectives and broad strategies, and explain the main areas of operation of the company's business, as context for the discussion and analysis of performance and financial position. The discussion in the OFR should cover the group business of the listed company, including its principal subsidiaries.
Guidelines
2.1 The OFR should discuss the objectives for the business and broadly, management's strategy for achieving them. Objectives may be defined in terms of financial performance. Non-financial objectives may also be discussed, where relevant.
2.2 Depending on the nature of the business, discussion of the company's business and operations might cover areas such as:-
Principle 3
3 The key financial and non-financial performance indicators used by management to assess the company and its performance should be discussed.
Guidelines
3.1 The OFR would normally include a range of financial and non-financial measures used to measure the company's performance. Comparability would be enhanced if the measures disclosed are accepted and widely used within the industry sector or more generally. Where practical, performance indicators should be compared with previous periods to outline trends.
3.2 The measures used should be defined, and the basis for calculation explained. Comparative amounts should be disclosed. Material changes in the financial measures disclosed, including significant changes in the underlying accounting policies applied, should be identified and explained. Comparative amounts should be restated on the new basis, where practical.
C) Operating Review
Principle 4
4 The OFR should discuss the significant features of performance for the period covered by the financial report, focusing on the overall company as well as those business or geographic segments that are relevant to an understanding of the performance as a whole.
Guidelines
4.1 The OFR should identify and explain the main factors that affect the activities and performance of the company, and in particular discuss those that either have varied in the past or are expected to change in the future. Discussion of past performance should be supplemented by known trends and factors that are likely to affect future performance.
4.2 Key components of the result of operations should be discussed, including major sources of revenues, where appropriate. The OFR should also discuss any significant changes in capital employed. The OFR should discuss the results in comparison with prior periods and any projections publicly disclosed by the company.
4.3 The OFR should set out the analysis of any significant effect on performance of changes in the industry or the environment in which the company operates and of developments within the company, for example:-
4.4 The analysis should cover any other special factors that have affected performance in the period under review, even where the effect cannot be quantified. Where unusual or infrequent events or transactions have affected the result for a period, the OFR should discuss their nature and impact on the company. The discussion should comment on the impact on future operations of significant post-balance sheet events. The OFR should enable users to assess the significance of the ongoing and core activities of the company and the sustainability of performance relating to those activities.
Principle 5
5 The OFR should discuss the dynamics and risk factors of the business.
Guidelines
5.1 This should include a discussion identifying the significant opportunities, risks and threats facing the business, together with a commentary on the strategies and processes applied to managing them, and in qualitative terms, the nature of their potential impact on performance. Known factors and influences that may have a material effect on future performance and financial position, particularly within the 12 months from the date when the financial statements are authorised for issue, should be discussed.
5.2 A commentary on the strengths and resources of the business that should assist the company in the pursuit of its objectives would be useful. This could include items that are not reflected in the balance sheet, e.g corporate reputation and brand equity, licences, patents, copyrights and trademarks, and research and development.
Principle 6
6 The OFR should comment on investments and measures to maintain and enhance the position and profitability of the company.
Guidelines
6.1 The nature of activities and expenditure by the company to maintain and enhance the position and profitability of the company should be discussed. It could include description of major projects that involve capital expenditure being undertaken by the company. Qualitative information as to the benefits expected from such activities and expenditure could be given.
D) Financial Review
Principle 7
7 The OFR should identify and explain significant matters which affect the company's financial condition. It should discuss the capital structure and capital management policies of the company, its treasury policy, the dynamics of the company's financial position and its funding and liquidity position.
Guidelines
7.1 The OFR should contain a discussion of the capital structure of the company, including the maturity profile of its debt, type of financial instruments used and currency and interest rate exposures. This could include comments on the company's debt rating and relevant ratios such as interest cover and debt/equity ratios. The purpose and effect of major financing transactions undertaken up to the date the financial statements are authorised for issue should be explained.
7.2 The discussion should cover the capital funding and treasury policies and objectives that are significant to the company's performance. The types of items that might be discussed include:-
7.3 To assist understanding of the cash flow and liquidity position of the company, the cash generated from operations, and other cash flows during the period under review should be discussed. The OFR should comment on any special factors that influenced cash flows in the current period and any known factors that may have a significant effect on future cash flows.
7.4 The company's liquidity and funding at the end of the period under review should be discussed. Discussion of significant funding requirements for capital expenditure and servicing of borrowings would be useful. The OFR could also comment on the level of borrowings, the seasonality of borrowing requirements, undrawn financing facilities and the maturity profile of both borrowings and undrawn committed borrowing facilities.
7.5 Where the company has entered into covenants with lenders which could have the effect of restricting the use of credit facilities and a material breach of a covenant has occurred or is expected to occur, the measures taken or proposed to remedy the situation should be disclosed.
7.6 To facilitate the user's understanding of the financial statements, it would be useful for the OFR to identify and discuss the critical accounting policies, estimates and judgements made that are key to the interpretation of the company's financial statements. Such information would be particularly relevant for areas where subjective judgements are involved or for companies with complex financial structures.
Principle 8
8 The OFR should discuss the overall return attributable to shareholders, including distributions and share repurchases.
Guidelines
- 8.1 All forms of shareholder returns, including share buy-backs, dividend distribution, other forms of return of capital and shareholder plans should be discussed and their effects should be explained. The OFR should also include a commentary on the various factors (including profitability) contributing to the dividend for the financial year, including the overall dividend policy.