SGX RegCo warns against reporting earnings before coronavirus

Its use was found to be unreliable and misleading.

The Singapore Exchange Regulation (SGX RegCo) cautioned issuers against the use of earnings before interest, taxes, depreciation, amortisation and coronavirus (EBITDAC) in presenting their financial performance, the regulator said in a column.

SGX RegCo said that the use of such alternative performance measures (APMs) attempts to recast earnings as if the effects of the pandemic had not occurred. “Such hypothetical APMs are unreliable and present a misleading picture of financial performance to investors,” it said.

A separate press release from Fitch Ratings noted that a growing number of corporates have been presenting their 2020 interim results using EBITDAC, as companies affected by the pandemic have sought to flatter their results by excluding its impact on their earnings.

The agency also found such measures to be unreliable and open to manipulation, as it is difficult to accurately determine the impact of various factors, whether the pandemic or competition and secular industry trends, on their performances.

Meanwhile, SGX RegCo noted that APMs, such as EBIT, EBITDA and free cash flows, can be useful to investors when they provide additional insight into the financial performance and condition of issuers, and are often used to supplement information that are provided under relevant accounting standards.

“APMs, if used, should be presented consistently between periods with clear explanations on how they are calculated. Issuers must ensure that the APMs do not mislead investors and in particular, should not be used to present a more favourable view or to avoid presenting a less favourable view of the issuer’s performance,” the regulator said.

SGX RegCo released a column that aimed to emphasise immediate disclosure by issuers on the material developments brought about by the pandemic. Issuers are also expected to ramp up the scrutiny of high-risk areas such as cash balances and accounts receivables and other areas that require significant estimates like impairment.