{"id":3283,"date":"2020-08-22T20:53:49","date_gmt":"2020-08-22T20:53:49","guid":{"rendered":"https:\/\/thefinanceghost.com\/?p=3282"},"modified":"2020-08-22T20:53:49","modified_gmt":"2020-08-22T20:53:49","slug":"understanding-listed-company-reporting-on-the-jse-2","status":"publish","type":"post","link":"https:\/\/thefinanceghost.com\/index.php\/2020\/08\/22\/understanding-listed-company-reporting-on-the-jse-2\/","title":{"rendered":"Understanding listed company reporting on the JSE"},"content":{"rendered":"

T<\/span>his is a term that you will hear often. \u201cCompany X released earnings today\u201d or \u201cCompany Y announced a dip in revenue\u201d \u2013 but what does it actually mean?<\/p>\n

The basics: listed companies must report detailed financials<\/h4>\n

Listed companies (i.e. those that trade on a stock exchange like the JSE) are required to announce certain information to stakeholders. Note the careful use of the word \u201cstakeholders\u201d instead of \u201cshareholders\u201d because there are several groups that take a keen interest in a listed company\u2019s performance, ranging from trade unions and environmental groups to industry bodies and governmental agencies.<\/p>\n

Oh yes, competitors too. They love earnings announcements as much as anyone else.<\/p>\n

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The framework for reporting: JSE rules + accounting rules<\/h4>\n

International Financial Reporting Standards (IFRS) govern the accounting decisions applied by the company. The JSE requires companies to apply IFRS in full and the auditors sign off that this is being done correctly in all material respects.<\/p>\n

The IFRS rules are incredibly complex, but are\u00a0just one part of the broader regulatory framework that listed companies must operate within.<\/p>\n

The Issuer Regulation department of the JSE develops and publishes the rules for listed companies. The latest version is Service Issue 27 and is 415 glorious pages long. Experts in this field are known as JSE Approved Executives and they work for companies that are approved JSE Sponsors.<\/p>\n

Companies must appoint a JSE Sponsor to assist with compliance with the rules and to be the liaison between the company and the JSE. The Sponsor also releases announcements on SENS and plays a critical role in implementation of corporate actions.<\/p>\n

Like most business models in the compliance field, it\u2019s a tough way to make a living. The retainers are unbelievably low (many JSE companies are paying their Sponsors less than R20k per month) and so Sponsors only make money when companies undertake corporate actions (like a capital raise). The Sponsors are paid separate fees for the supporting documents behind corporate actions (like circulars to shareholders).<\/p>\n

Earnings updates: a six-monthly financial love letter to shareholders<\/h4>\n

JSE-listed companies are required to report twice a year. This is important, because otherwise investors would have to make decisions using information that could be a year out of date.<\/p>\n

In the US, companies need to report every quarter i.e. 3 months. That\u2019s why I write about \u201cquarterly earnings\u201d when I focus on US companies. It\u2019s great in terms of keeping shareholders up to date with the fortunes of the company, but this rule gets criticised for incentivising short-term behaviour by executives. Personally, I love quarterly reporting.<\/p>\n

A JSE-listed company will issue interim earnings (the first six months of the financial year) and full year earnings (the full twelve-month period). The earnings for the second six months are not separately reported but can be derived by subtracting the interim earnings from full year earnings.<\/p>\n

Note: this only works for income and expenses. A balance sheet (assets and liabilities) is always a snapshot of a point in time <\/em>(e.g. financial position at 30 June) rather than a period in time <\/em>(e.g. the six months ended 30 June).<\/p>\n

Trading statements<\/h4>\n

A company must <\/em>issue a trading statement when there is a reasonable degree of certainty that financial results will differ by at least 20% from the results for the corresponding prior period.<\/p>\n

That\u2019s a mouthful, so let\u2019s work through an example.<\/p>\n

Let\u2019s assume that the company year-end is December and that it is currently June. The company will soon close off its interim period (the six months ended June).<\/p>\n

Things have gone badly and results are likely to be around 30% down vs. the first six months of the prior year (the corresponding prior period). The company needs to release a trading statement alerting the market to this fact, even though results for the six months ended June will only be formally released sometime in August.<\/p>\n

A trading statement is therefore an early warning system. It\u2019s used for positive and negative updates e.g. a company that expects earnings to be more than 20% higher must also issue a trading statement.<\/p>\n

In the absence of a trading statement, shareholders must wait for a formal earnings release.<\/p>\n

Voluntary updates<\/h4>\n

At any point in time, a company may issue an update to the market. Retailers frequently do this to give an update on sales performance, particularly where the results are either extremely positive or there is other news to announce e.g. a store renovation programme.<\/p>\n

Companies going through a turnaround often publish voluntary updates fairly regularly to keep shareholders appraised of progress.<\/p>\n

Revenue vs. earnings vs. headline earnings<\/h4>\n

Revenue is a company\u2019s turnover plus other sources of income like royalties or services.<\/p>\n

Earnings is usually another word for profit after tax. This is a profit number that does not strip out any extraordinary or once-off items. It\u2019s a true reflection of what actually happened in a given period but isn\u2019t necessarily the best way for investors to assess the underlying trends.<\/p>\n

Headline Earnings is the most commonly quoted measure in South Africa. It has a number of pre-defined rules that try to strip out once-offs etc. and give shareholders a view of the maintainable profitability of the business.<\/p>\n

The best way to understand: read<\/h4>\n

There is no doubt that the best way to get your head around this is to read as much as possible. You\u2019ll pick up on companies issuing trading statements and other news over SENS.<\/p>\n

The investor relations section of corporate websites is where you\u2019ll find results announcements, SENS announcements, integrated annual reports and analyst presentations. I highly recommend that you poke around a few investor relations sections to see the reporting infrastructure in action.<\/p>\n","protected":false},"excerpt":{"rendered":"

This is a term that you will hear often. \u201cCompany X released earnings today\u201d or \u201cCompany Y announced a dip in revenue\u201d \u2013 but what does it actually mean? The basics: listed companies must report detailed financials Listed companies (i.e. those that trade on a stock exchange like the JSE) are required to announce certain information to stakeholders. Note the …<\/p>\n","protected":false},"author":1,"featured_media":3283,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[26],"tags":[302,310,304,306,37,303,309,305],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/posts\/3283"}],"collection":[{"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/comments?post=3283"}],"version-history":[{"count":0,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/posts\/3283\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/posts\/3283"}],"wp:attachment":[{"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/media?parent=3283"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/categories?post=3283"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thefinanceghost.com\/index.php\/wp-json\/wp\/v2\/tags?post=3283"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}