UK PE portfolio companies’ reporting falls short

Compliance with industry-wide transparency and disclosure guidelines fell in 2016, while the standard of reporting also took a hit.

Reporting standards among UK private equity portfolio companies dropped in 2016, as compliance with the Walker guidelines fell compared to a year earlier, according to a report from the Private Equity Reporting Group.

Compliance by companies covered by the guidelines fell seven percentage points to 88 percent, the group’s report showed. Of the portfolio companies reviewed, just 57 percent achieved an overall good or excellent level of quality of disclosure – down from 95 percent in 2015.

“This decrease in standards is primarily due to a higher proportion [nearly half] of the sample being new to the process and continued improvements in corporate reporting by the FTSE 350, the benchmark for judging compliance,” the report said.

The addition of new reporting requirements, about which there was a lack of awareness, also contributed to the falling standards.

Criteria where some weakness was noted included review of financial position; balanced and comprehensive analysis of development and performance during the year and position at the year-end; financial and non-financial key performance indicators; trends and factors affecting the future development, performance or position of the company; environmental factors; and human rights issues.

Name and shame

As in previous years, 20 percent of companies had not published their audited report and accounts on their website at the time of the report, while even more had not been publishing their accounts within six months of year-end. The group will start to name companies publicly that do not meet this requirement in next year’s report.

“In the current environment there is an increased emphasis on the transparency and conduct of the largest privately-held businesses in the UK. Given its experience with the Walker Guidelines, the private equity industry is well placed to demonstrate how good practice in narrative reporting can be applied to private companies,” said Nick Land, chairman of the Private Equity Reporting Group.

He added the industry must increase its efforts to improve the quality of reporting in 2017.

The Walker guidelines, penned by David Walker at the request of the British Private Equity and Venture Capital Association, are a set of non-binding disclosure and transparency reporting recommendations established in 2007 that are designed to substantiate private equity’s contribution to the UK economy in terms of jobs growth and investment.

In addition to the enhanced disclosure requirements, the guidelines include requirements on data provision by private equity firms and portfolio companies to the BVCA, and recommend adopting standards and guidelines on valuation and reporting to limited partners.

The Private Equity Reporting Group was established to monitor conformity with the guidelines, and to make recommendations to the BVCA for changes to the guidelines if needed.