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So, why does it take so long to get the results out?

In this month’s ‘Meet the Players’ feature we are looking at the role of Finance Director. The ‘player’ who has helped me to produce this article was Ash Mehta, Finance Director of AIM-listed Northbridge Industrial Services. Many readers will be familiar with Ash’s illuminating CityInsider articles which appear every month in Aimzine – see this month’s CityInsider article here.

There’s a very old joke: If an accountant's wife cannot sleep what does she say?
"Darling, tell me about your work."

Sentiments such as in this pun seem to follow the ‘numbers man’ around. However, the Finance Director’s role today is a key strategic and high profile one. It is common these days for Finance Directors to go on to become Chief Executives. Indeed, thirty one FTSE 100 companies are led by former Chief Financial Officers.

Results Timetable

In this article we are going to concentrate on the Finance Directors role in co-ordinating the issue of Company results. This is very much a current topic for Ash who is presently involved in the production of Northbridge’s final results which are due out at the end of March.

Ash explains that the preparation for the issue of results starts many months beforehand. He has a very long timetable of events which stretches from two months before the year end right up to the AGM which is held approximately two months after the issue of the results.

Larger companies have a number of accountants and a department to assist them. However, with a small AIM company there may only be one person and even that one may be part-time. With Northbridge, Ash counts himself lucky that he has a Group Financial Controller working with him.

As well as being Finance Director of Northbridge, Ash is Chief Executive of Orchard Growth Partners which provides part-time and interim strategic finance services to companies.

Ash Mehta                  

The Auditors Role

The Auditors play a key role in the results process (We will be covering the Auditors role in a future Meet the Players article – I can then tell my old joke about Auditors. It’s no better than the accountant’s one above!).

The Auditors will meet with the Finance Director several weeks before the year end to agree an audit timetable and consider some basic parameters for the accounts. For example they will determine materiality (Wikipedia’s has a lot to say about materiality here) for the results and the tests for going concern.

The going concern tests are particularly important in the current ‘challenging’ environment. Sometimes results can be delayed when companies have difficulties satisfying these tests. Thus, if a company you are invested in is late with its results, you should perhaps worry that the delay is caused by serious problems with going concern tests. [Ash wrote an excellent CityInsider column on the ‘Language of Going Concern’ last February which can be accessed here].

If all goes to plan, the Auditors will complete their final audit of the results some weeks before they are announced. The audit will cover all sections of the results including the statements by the Chief Executive and Chairman. The Auditors need to satisfy themselves that what is said in these statements is true and verifiable.

OK, ok. I will tell the Auditors joke now. Why did the auditor cross the road? Because he looked in the file and that's what they did last year.  I said it was no better than the accountant one.

tests for going concern

The Statements

The most read and influential items of the results are the statements from the Chief Executive and the Chairman. The tone of the statements is particularly important. There are several parties that will have input into the production of these items. For example the Brokers will like a statement to be positive to get the share price up so they can turn some stock at results time and get commissions, as well as helping the company be in a better position to issue shares to make acquisitions. On the other hand, the Nomad will be keen to ensure that the statements comply with regulations and are not over-egging performance.

In most AIM companies the Finance Director has the job of co-ordinating the production of results statements. With so many parties involved these will undergo scores of iterations before they are published. Sometimes there are items that companies would dearly love to convey to their investors but are unable to do so due to regulatory or disclosure factors.

IFRS

All AIM-listed companies are now required to produce results compliant with the International Financial Reporting Standards(IFRS). These standards have stringent requirements and require a lot of work to satisfy. Also, as more and more standards covering various topics are being harmonised under IFRS, there is something new every year that has to be converted from existing standards.

Ash explained that early on in his results timetable each year he needs to consider how changes in the IFRS may affect the results. This year, for example, there are new requirements under IFRS 3 for acquisition costs to be expensed through the profit and loss statement. Previously these costs, which could include advisory, legal, accounting, valuation and other professional or consulting fees, were added to goodwill. For some companies (NOT Northbridge, I must hasten to add) this IFRS change will mean that reported  profits might be lower than they would otherwise have been even though the company has done nothing different. This could in turn cause other difficulties such as unhappy shareholders and even compliance issues with banking covenants.

scores of iterations

Subsidiaries

A major logistics exercise for many AIM-listed companies is to collect accounting data from subsidiary companies. The subsidiaries may well be overseas and subject to very different laws and taxation regimes. Depending on size, a subsidiary’s figures may need to be audited before they can be included with the parent company’s accounts.

Ash, explained that it is a requirement that subsidiary accounts do need to be audited except where the subsidiary’s accounts would not bring a material change to the parent company’s results. Even where a small subsidiary’s accounts are not audited it is important that the Finance Director ensures that the numbers are correct and that controls and processes are in place and adhered to, providing assurance on the numbers.

What a lot to do

As results day approaches there are many things to finalise. This list is just a few of the items to complete:-

• Make arrangement for the printing of the Annual Report
• Brief Analysts in preparation for their results day notes
• Get directors to sign off for details of their emoluments
• Produce segmental reporting.....
• ...and reams of other information for the Notes to the Financial Statements.
• Arrange AGM venue and book date
• Consult with Solicitors regarding resolutions for the AGM
• Prepare results day presentations
• Get agreement for any dividend declaration

• Complete Directors Report

very different laws

and taxation regimes

Results Day and Beyond

On results day there is usually an early start with presentations to give to brokers and fund managers. The first of these may be as early as 7:30am in the City. The directors also need to make themselves available for questions from financial journalists. It may be that the Chief Executive and Finance Director have several presentations to give on results day and they may schedule in several days subsequently for presenting results to investors, fund managers and private client brokers.

Usually the printed Annual Report is available to send to shareholders a few weeks after the results RNS is issued.  In any case the Report, which includes the notice of the AGM, must be sent to shareholders at least 21 clear days in advance of the AGM.

The final act in the story is the AGM when the accounts are (hopefully) approved by shareholders.

Footnote

The process of producing Results for a list company is lengthy and complex. In this article I have only given a brief summary of some of the key parts of that process. The key message that I hope I have conveyed is that the Finance Directors role is not solely concerned with the numbers, but extends to the management of the whole results process.

usually an early start

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Written by: Michael Crockett

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