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 GermanyRf@dvfa.de

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: info@effas.comInternet: www.effas.com