Text size:

  • Small
  • Normal
  • Large

Without reports it can be a jungle out there

Investors and companies can reap the benefits of complete quarterly data of a business, and fuller reporting in the Gulf is key to attracting foreign interest.

Four times a year, journalists venture into the wilderness of financial statements on the hunt for the true state of the region's publicly traded companies. Unfortunately, they are often denied a closer look because of a lack of uniformity among these companies about how they report their financial positions.

A typical situation goes like this: A company issues an unexpected press release after 5pm with a careful selection of numbers relating to the previous three months. Then the dozing newspaper and wire reporters scramble to get a sense of their meaning, but generally fail to get much more information and end up focusing on how the net profit compared to the same quarter in the previous year. What would increase the ability of journalists and financial analysts to accurately report on the situation at these companies is if they uniformly released an audited financial statement - a detailed document that often exceeds 40 or 50 pages - at the same time as their announcements.

But as the Emirates Securities and Commodities Authority (ESCA) does not require this, few companies bother. Instead companies issue reports that range from a few lines to a full interim report with some greater level of detail. All ESCA requests is that companies make an announcement about their financial position within 30 days of the end of the quarter. The full statements are required to be submitted within three months of the end of the quarter.

The quality of financial information is about more than making the lives of business journalists and financial analysts easier. It has wider impacts on the economy and the perceived risk of companies. If an institutional investor from abroad does not get enough information, then it will require a premium from that company before it will invest in it. The riskier an economy seems, the less likely that money will flow there and support new businesses.

"Information is the prerequisite for making intelligent investment decisions and investors can't evaluate what they can't see," says Oliver Schutzman, the chief communications officer at Shuaa Capital. "That's why it's extremely important to provide an adequate level of detail on the financial position of a company." Of course, the very ability of financial statements to accurately convey a company's standing is being questioned on the global stage as watchdogs and political leaders search for the causes of the global economic recession. Consistency in reporting data is just a strand of the larger discussion.

"The great debate is coming up with one set of financial rules that can be used to prepare all financial statements that are widely understood and can be used to make proper financial decisions," says Amanda Line, the regional director of the Institute of Chartered Accountants in England and Wales. By using the international financial reporting standards (IFRS) as opposed to the generally accepted accounting principles (GAAP), the financial position of a company can look quite different, she says. Companies in the Gulf can use GAAP, IFRS or a variation of GAAP used in Saudi Arabia.

When it comes to financial reporting in the region or anywhere, Ms Line says the most important qualities are transparency and consistency. But the demand for these things should come from investors who refuse to tolerate less-than-adequate information. "We have confidence that investors will become increasingly strong and an important part of the way the markets function here," she says. "The onus is on them to become better educated and ask better questions, and not be as accepting of the answers."

Two recent reports from companies in the property sector provide a small example of the differences in quarterly reporting. One issued a press release and a one-page consolidated income sheet. The other sent out a press release and an audited 16-page report that included income and cash flow statements, its balance sheet and notes that explained some of the numbers in greater detail. Earnings statements should be "more than communicating periodic information", says Domluke da Silva, a spokesman for the local branch of the Certified Financial Analyst Institute.

"When companies release this information, it should be a complete set of information," Mr da Silva says. "Many companies just release a few numbers and it's really not helpful from the investor's perspective." Press announcements about the previous quarter and the full financial statements should be released simultaneously, he says. "It's what's good for the market." Another issue is that many of the companies send out their numbers and then do not make themselves available for more specific questions about the future of the company, according to Chet Riley, an analyst at Nomura Securities.

"In the real estate sector, you get much more disclosure in the United States, Australia and the UK," Mr Riley says. "When they report their numbers, whether its quarterly or full financials, you always get much more detail. You get information about yields, location of properties, leasing information ? This is important for bringing in institutional investors." For analysts, additional commentary usually comes in the form of a conference call with the company's top executives, including the chief financial officer.

Some companies, such as Sorouh Real Estate and Deyaar Development, have made significant improvements in transparency over the last two years. In a distinctive move, Sorouh even releases its financial statements before the markets open to allow the data to be digested over a full day. The added layers of information in the full financial statements are important for not only checking the announcements from companies, but to find out if they are only giving one side of the story.

bhope@thenational.ae

Back to the top

More articles


Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Miele coffee maker making Cappuccino at Miele Gallery in Sama Tower in Dubai. The cost of this coffee maker is around Dh 17,000. Pawan Singh / The National

Space-age coffee comes at a price from Miele

Miele have taken the coffee machine to a new level with its Dh17,000 offering that is built into your kitchen.

 The bridge of Seajacks Hydra, as the wind farm installation vessel undergoes finishing touches and testing works at Lamprell’s Hamriyah facility in Sharjah before its planned delivery on June 2, 2014. Jeffrey E Biteng / The National

In pictures: Building the Seajacks Hydra

The Seajacks Hydra, a wind farm installation vessel, is undergoing finishing touches and testing works at Lamprell’s Hamriyah facility in Sharjah before its planned delivery on June 2, 2014.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 The rush of new supply of hotel rooms pushed Dubai occupancy rates down to 87 per cent. Sarah Dea / The National

Dubai hotel room rates rise 10 per cent

The rush of new supply pushed occupancy rates down to 87 per cent, a dip of 2.6 per cent from the previous year. Winter months are the strongest for Dubai hotels, with occupancy and prices falling to half their peaks by July.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.

Events

To add your event to The National listings, click here

Get the most from The National