Report on Projects on Extra-Financials and how XBRL can help

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Report on Projects on Extra-Financials and how
XBRL can help
16th XBRL International Conference Vancouver 5
Dec 2007 Ralf Frank EFFAS XBRL Delegate
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On EFFAS

• Umbrella organisation of European Investment
  Professional Societies
• Headquartered in Frankfurt, Germany
• More than 18,000 individual members in 27
  European markets
• Members investment professionals e.g.Financial
  Analysts, Fund Managers, MA advisors
• Training qualification,
• Standard Setting
• Spokesman for investment professionals
  requirements and expectations on financial
  reporting of corporates

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The Workplace of an Investment Professional
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Sources of information of investment
professionals

• Cursory reception
• Annual reports incl. financial statements esp.
  buy-side
• Prose
• Company PR

• Extensively used
• Access to management / 11 meetings
• Analyst / investor meetings and roadshows
• Earnings releases
• Company webpage
• Quarterly / half-year reports
• Aggregated financial data from data vendors
  KPIs, multiples

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What matters most?

• Financial reporting more dialogue than reading
• Verbal statements from management have more
  impact than written company announcements
• Fast information more important than slow
  information
• Comparatively low granularity of corporate data
  processed
• Interactive media beats paper
• PDF paper behind glass not a solution!!!!!

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Investment Professionals and Corporate Data

• Insatiable eaters financial news on corporates
• but well supplied with food
• Reuters, Bloomberg, Thomson, FactSet,
• Aggregated financial statements
• Newsflow
• Historical data
• Research reports
• Recommendations, consensus data
• Downloads into Excel spreadsheets
• Buy-side feeds on in-depth sell-side research
• What benefit does a financial statement in
  XBRL-format provide the investment professional?
• Are we dealing with solutions looking for
  problems?

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Investment Professionals and XBRL

• Professionals prefer data directly from
  corporates
• Trade-off data quality in databases may
  sometimes be poor
• but data are ready available timeliness is
  key factor!
• Investment Professional Come back with XBRL
  when you have a substantial universe of
  corporates!
• Corporate Nobody ever asked me about reports in
  XBRL format!

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Handling of financial data for valuation

• Selection of data and line items (rather than
  analysing financial reports in their entirety)
• Comparatively low granularity of corporate data
  processed esp. on buy-side,
• Drill-down / scrutiny on certain aspects
  (depending on size of corporate, sector, time of
  year)
• Non-GAAP data
• EPS recurring vs. non-recurring items
• EBITDA and similar measures
• Operating profit
• Fair value remeasurements
• Extra-Financials required to justify financial
  performance

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Opportunities for XBRL

1. Granularity a special case
2. Extra-Financials the EFFAS Approach

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Decreased Granularity an Opportunity for XBRL?

• Small Mid Caps (SMC) have been outperforming
  large caps for the last 3-5 years globally!
• Sizeable market Europe 5,000 SMC
• The name of the game find the undervalued SMC
  before others do, invest and see the share price
  rise
• How do you find the undervalued SMC?
• Sell-side research scarce
• Entering SMC data off-shore expensive, hence data
  quality often poor

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Decreased Granularity an Opportunity for XBRL?

• SMCs need to proactively manage visibility!
• Q how to get on the radar screen of investors?
• A a digital calling card / profile statement
  in XBRL!
• Sits on the IR homepage of a corporate
• Sent to potential investors and financial
  analysts as mail attachment
• Fills Excel-based spreadsheets used by
  quantitative buy-side analysts
• Used to brief fund managers in Early Morning
  Meetings on investment opportunities
• Next step after briefing assign research order
  to sell-side

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Extra-Financials why?

• Open secret in capital markets extra-financials
  render plausibility to financials (Schroder test)
• Emergence of SRI (Socially Responsible Investors)
• Mainstream better understanding of relevance of
  environmental, social and governance issues (ESG)
• Packaged as Corporate Responsibility (CR)
• Problem reported in prose, little connection to
  financials
• Solution Key Performance Indicators (KPIs)
• Development through multi-stakeholder dialogue
  (investors, analysts, corporates, auditors,
  consultants)
• Investment Professionals in the lead!

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Quality Criteria for Extra-Financial KPIs

• Correlation to risk and/or success factors i.e.
  relevant for investment decisions
• Quantified - Comparable
• Benchmarkable from peer to peer
• Depict dynamic i.e. from reporting period to
  reporting period
• Accepted by mainstream investment professionals
• Manageable number (Key) e.g. 30 max
• Not yet another reporting scheme fit
  traditional reporting statements and niche
  formats

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Structure of KPIs

• BASIC RULE all KPIs are important. General KPIs
  are not more important than sector-specific ones!
• List of industry-specific KPIs is not exhaustive

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Occupation of Respondents (N 122)
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Geographical Distribution of Respondents
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Institutions Involved in Survey
ABN AMRO Bank nv
Feri Finance AG
ABP Vastgoed Holding BV
Fortis Investments
Allianz
Goldman Sachs
Allianz Dresdener Asset Management
HSBC Bank
ampega Investment AG
JP Morgan Chase Co
Argos Investment Managers
KempenCo
AXA
Kredietrust
Banca di Intermediazione Mobiliare IMI S.p.A.
LAZARD
Bankgesellschaft Berlin
LegalGeneral Investment Managers
Banque General du Luxembourg
Merck Finck
BHF Bank AG
Merrill Lynch
BNP Paribas
Morgan Stanley Group Inc.
CEROS Vermoegensverwaltung GmbH
ODDO CIE
CHEUVREUX DE VIRIEU
Rothschild Bank AG
Commerzbank AG
Sal. Oppenheim jr. Cie KGaA
SAM Group Holding AG
creditmutuel
Dexia Banque Belgique SA
Schweizerische Rueckversicherungsgesellschaft
Societe Generale
Dresdner Kleinwort Wasserstein
Union-Investment
DWS / Deutsche Asset Management
EQUINET AG
WestLB AG
FC Management Ltd.
Zürcher Kantonalbank
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Perception of the 24 KPIs Summary (1)
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Perception of the 24 KPIs Summary (2)
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Perception of Pillars
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Whats next?

• Commentary period to expire 31 Jan 2008
• In the process of marketing the standard to
  corporates and investment professionals
• Creating an XBRL version

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Thank you!
Ralf Frank C/o DVFA Society of Investment
Professionals in Germany Rf_at_dvfa.de EFFAS The
European Federation of Financial Analysts
Societies Frankfurt am Main Operational
Office Einsteinstrasse 5 DE-63303 Dreieich/
Frankfurt Tel. [phone] Fax. 49-61
03-58 33-35 Email info_at_effas.com Internet
www.effas.com
www.effas.com