Report on Projects on Extra-Financials and how XBRL can help
16th XBRL International ConferenceVancouver5 Dec 2007
Ralf FrankEFFAS 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, M&A 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
Extensively used:
• Access to management / 1:1 meetings
• Analyst / investor meetings and roadshows
• Earnings releases• Company webpage• Quarterly / half-year reports• Aggregated financial data from
data vendors – KPIs, multiples
Cursory reception:
• Annual reports incl. financial statements esp. buy-side
• Prose • Company PR
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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
E S G"Zukunftsfaehigkeit"
(Sustainability of Success)
Energy Efficiency Health & Safety of ProductsContributions to Political
PartiesCustomer Satisfaction
Environmental Compatibility Staff TurnoverAnt--competitive Behaviour,
MonopolyRevenues from new products
Deployment of Renewable Energy Sources
Training & Qualification Corruption R&D Expenses
Maturity of Workforce Litigation Payments
Absenteeism
Restructuring-caused Relocation of Jobs
Unburned HydrocarbonInvestment Agreements Screening Human Rights
Number of Patents
NO,SOSupplier Agreements
Screening Human Rights
CO2
Waste
End of Lifycyle Impact
General
Specific
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Occupation of Respondents (N = 122)
Asset Owner/Pensionfund
Manager2%
Others16% Equity Sell Side
Analyst32%
Institutional Investor/Asset
Manager24%
Bond Analyst
4%
Equity Buy Side Analyst
22%
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Geographical Distribution of Respondents
USA15%
Holland4%
Luxemburg2% Japan
1%
Italy2%
France9%
Germany48%
Switzerland7%
Belgium2%
Austria2%
UK10%
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Institutions Involved in Survey
ABN AMRO Bank nvABP Vastgoed Holding BV
AllianzAllianz Dresdener Asset Managementampega Investment AGArgos Investment Managers
AXABanca di Intermediazione Mobiliare IMI S.p.A.
Bankgesellschaft BerlinBanque General du Luxembourg
BHF Bank AGBNP Paribas
CEROS Vermoegensverwaltung GmbHCHEUVREUX DE VIRIEUCommerzbank AGcreditmutuel
Dexia Banque Belgique SADresdner Kleinwort Wasserstein
EQUINET AGF&C Management Ltd.
Feri Finance AGFortis InvestmentsGoldman SachsHSBC Bank
JP Morgan Chase & CoKempen&CoKredietrustLAZARD
Legal&General Investment ManagersMerck FinckMerrill Lynch
Morgan Stanley Group Inc. ODDO & CIERothschild Bank AG
Sal. Oppenheim jr. & Cie KGaASAM Group Holding AG
Schweizerische RueckversicherungsgesellschaftSociete GeneraleUnion-InvestmentWestLB AG
Zürcher Kantonalbank
DWS / Deutsche Asset Management
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Perception of the 24 KPIs: Summary (1)
3,3
3,38
3,44
3,59
3,6
3,64
3,64
3,67
3,73
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4,02
4,19
0 1 2 3 4 5
Deployment of Renewable Energies (in General)
Staff turnover
Number of Patents
Handling of corruption
Litigation payments for non-compliance with laws and regulation incl.environmental and social
Training & qualification
Energy Efficiency (in General)
Anti-competitive behavior, anti-trust, monopoly practices
Health and safety of products & services (in General)
R&D Expenses
Revenues with New Products Introduced
Customer Satisfaction
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Perception of the 24 KPIs: Summary (2)
2,44
2,55
2,64
2,93
2,99
3,04
3,07
3,11
3,12
3,14
3,17
3,25
0 1 2 3 4 5
Unburned Hydrocarbon (UH) (in General)
Contributions to political parties
NO, SO and other air emissions by type and weight (in General)
Screening of investment agreements with rgds to human rights
Screening of SUPPLIER agreements with rgds to human rights
Absenteeism Rate
Waste
CO2 Emissions (in General)
Restructuring-caused relocation of jobs
End of life cycle impact / Reclaiming of Resources (in General)
Environmental Compatibility/Tolerance of Products sold (in General)
Maturity of Workforce
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Perception of Pillars
3,06
3,25
3,35
3,91
0 1 2 3 4 5
Environment
Social
Governance
"Zukunftsfähigkeit"
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What‘s 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!
www.effas.com
Ralf FrankC/o DVFA Society of Investment Professionals in [email protected]
EFFASThe European Federationof Financial Analysts Societies
Frankfurt am Main
Operational Office:Einsteinstrasse 5DE-63303 Dreieich/ Frankfurt
Tel. +49-61 03-58 33-48Fax. +49-61 03-58 33-35Email: [email protected]: www.effas.com