PLC QTRLY - Q2 2024

This is our regular quarterly update to help our listed company clients and other market participants keep up to date with key developments relevant to issuers on the Main Market and AIM market of the London Stock Exchange.

Introduction of new UK Listing Rules

On 11 July 2024 , the FCA published the final version of the new UK Listing Rules (UKLR). The UKLR, which are designed to create a simpler UK listing regime that is attractive to a wider range of companies, will apply from 29 July 2024.

Details of the key changes affecting premium listed companies can be found here and details of the key changes affecting standard listed companies can be found in our blog post here.

Listing regime: sponsor competence

On 26 April 2024, the FCA published Handbook Notice 118, confirming changes made to the FCA Handbook to amend the criteria for approval as a sponsor. These include:

• Extending the requirement for a sponsor to have submitted a sponsor declaration to the FCA from within the previous three years to within the previous five years.
• Allowing competence to be demonstrated through experience gained from providing corporate finance advisory services in the previous five years to issuers with securities admitted (or proposed to be admitted) to a UK recognised investment exchange and a market capitalisation of at least £30 million.

The revised sponsor competence requirements seek to ensure that a sufficient number and range of appropriately qualified sponsors will be available to support the needs of listed issuers.

FCA publishes proposed changes to Knowledge Base guidance

In Primary Market Bulletin 48, the FCA consulted on proposed changes to the FCA Knowledge Base to reflect the proposed changes to the UK listing regime. This first consultation focused on the existing technical notes that the FCA considers the most essential in supporting the understanding of the UKLR or most frequently used by market participants.

In relation to guidance on the UKLR other than the sponsor regime, the FCA proposed the amendment of 11 existing technical notes and the deletion of 9 technical notes to reflect requirements that will not be carried over into the UKLR, including the financial information and track record eligibility requirements; the independent business and control of the business eligibility requirements (except where there is a controlling shareholder); the profits test for classification of transactions; shareholder votes for related party transactions; and requirements for circulars to include working capital statements, profit forecasts and estimates and pro forma financial information complying with the Prospectus Regulation.

In relation to the sponsor regime, the FCA proposed the amendment of 13 existing technical notes and the introduction of a new technical note on the role of a sponsor in relation to the process for modified transfer of listing category.

The FCA also confirmed the final technical notes relating to sponsor competence rules and published a draft of the new Procedures, Systems and Controls Confirmation Form that the FCA will ask applicants for listing to submit with their formal listing application.

FCA issues reminder of annual financial report requirements

In Primary Market Bulletin 49, the FCA reminded issuers of their disclosure and filing requirements for annual financial reports (AFRs) and commented on compliance rates.

Examples of non-compliance with the requirements of the Disclosure Guidance and Transparency Rules (DTRs) relating to AFRs which the FCA had noticed included:

• AFRs having been made public via a regulatory announcement, but the report not having been filed on the National Storage Mechanism (NSM).
• Announcements of AFRs not containing a statement to indicate that the full report is available on the NSM.
• Announcements not containing a statement indicated the website on which the AFR is available.
• AFRs containing consolidated financial statements that have not been correctly tagged.
• AFRs filed on the NSM but not in XHTML format as required.

The FCA also warned that it will temporarily suspend the listings of securities where issuers are unable to publish their AFR within the prescribed timeline (at the latest four months after the end of each financial year), until the issuer is able to comply with its periodic financial reporting obligations.

FCA publishes findings of LTIP compliance review

During 2023, the FCA reviewed 25 premium listed commercial companies over a three-year period, assessing their compliance with the Listing Rules in relation to long term incentive plans (LTIPs) and the nature of the metrics and performance conditions tied to LTIPs.

In Primary Market Bulletin 49, the FCA noted that its review had found a high level of compliance with the Listing Rules relating to LTIPs, including the requirements to seek shareholder approval and to disclose the full text or a description of the principal terms of the LTIP in the shareholder circular. The FCA envisages continuing to use thematic reviews in the future to assess how companies have complied with these requirements.

The most commonly used LTIP performance metrics were found to be total shareholder return, return on capital employed and earnings per share. Although there are no specific Listing Rules requirements for non-financial metrics, the use of these metrics doubled between 2020 and 2022, with the majority of non-financial metrics used relating to sustainability.

New Takeover Panel publications

Takeover Panel proposes to narrow scope of companies subject to the Code

On 24 April 2024, the Takeover Panel published a public consultation on narrowing the scope of companies subject to the Takeover Code (Code) to refocus the application of the Code on companies which are registered and listed (or were recently listed) in the UK.

The Code currently applies to offers for public or private companies which have their registered office in the UK, the Channel Islands or the Isle of Man if:

• Any of their securities are admitted to trading on a UK regulated market such as the Main Market of the London Stock Exchange, a UK multilateral trading facility such as AIM or a stock exchange in the Channel Islands or the Isle of Man, or
• They are considered by the Panel to have their place of central management and control in the United Kingdom, the Channel Islands or the Isle of Man and, in the case of private companies, any of their securities have been admitted to trading on a UK regulated market or a UK multilateral trading facility or on any stock exchange in the Channel Islands or the Isle of Man at any time during the 10 years prior to the relevant date (or if certain other conditions are satisfied).

If the Panel's proposals are implemented, the Code will only apply to companies which fall within the first of these two limbs (or did within the last three years). Abolishing the second limb would reduce the risk of companies being unaware that they are subject to the Code and provide clarity that UK-incorporated companies with only overseas listings will not be subject to the Code.

Transitional arrangements would apply for three years from the implementation date to companies to which the Code will cease to apply as a result of the proposed changes.

The consultation is open until 31 July 2024. A response statement setting out the final amendments to the Code is expected to be published in Autumn 2024, with implementation following one month later.

Takeover Panel issues new guidance on private sale processes

On 30 April 2024, the Takeover Panel published a revised version of Practice Statement 31 on formal sale processes, private sale processes, strategic reviews and public searches for potential offerors. The revised version introduces a formalised regime for private sale processes (the initiation of discussions on a private basis with more than one potential offeror).

The changes are designed to address the reluctance of many company boards to undertake a formal sales process and to balance disclosure requirements with the ability to maintain confidentiality during negotiations.

Where a company is genuinely initiating a private sale process, the Panel will normally grant a dispensation from the requirements in Rules 2.4(a) and (b) of the Code to identify any potential offeror with which the company is in talks in any announcement, whether made voluntarily or due to rumour or speculation, except where a potential offeror has been specifically identified in any relevant rumour or speculation. Any potential offeror that is not identified in an announcement will not be subject to a "put up or shut up" deadline.

Any company wishing to explore a private sales process should consult the Panel before initiating the process and liaise closely with the Panel throughout the process.

New Practice Statement on intentions statements

On 15 May 2024, the Takeover Panel published Panel Bulletin 7, relating to the Code requirement for a bidder to explain in the offer document the long-term commercial justification for the offer and state its intentions with regard to the target's business, employees and pension schemes.

Panel Bulletin 7 notes that the Panel does not consider these requirements to be satisfied by arguments that:

• The offeror is not certain about expected synergies and has therefore not formulated any intentions.
• While some headcount reduction is envisaged, the offeror need not disclose the detail of that intention or, where the offeror considers that the reduction will not be material, it need not disclose any intention in relation to the continued employment of employees.
• The offeror's only intention for the next 12 months is to conduct a strategic review and it will only formulate its intentions after that review has concluded.
• The offeror's post-offer intention statements satisfy the relevant requirements of the Code because they are in "standard form" or similar to statements made by another offeror in relation to a different offeree company.

The Panel expects that an offeror will almost always have developed specific intentions in relation to the target's business, employees and pension schemes and requires any such intentions to be stated in the firm offer announcement and the offer document. Any statement made should be specific and bespoke and should appropriately reflect the bidder's unique business rationale and intentions. Only exceptionally, where a bidder has no intention to make any changes, should a negative statement be included.

Developments in sustainability reporting

UK Sustainability Disclosure Requirements

On 16 May 2024, the UK Government published an implementation update on its development of sustainability disclosure requirements.

Following the publication of the International Sustainability Standards Board (ISSB)'s global sustainability disclosure standards in June 2023 (as reported in PLC QTRLY Q2 2023), the UK government aims to make UK-endorsed ISSB standards available in Q1 2025. These will be known as UK Sustainability Reporting Standards (UK SRS).

Subject to a positive endorsement decision by the UK government:

• Following a consultation process, the FCA will be able to use the UK SRS to introduce requirements for UK-listed companies to report sustainability-related information.
• The UK government will also decide on disclosure requirements against UK SRS for UK companies that do not fall within the FCA's regulatory perimeter.

The government expects a decision regarding future requirements to be taken in Q2 2025, with any changes being effective for accounting periods beginning on or after 1 January 2026.

In relation to transition plan disclosures, the implementation update notes that the FCA plans, through its consultation on implementing UK-endorsed ISSB standards, to consult on strengthening its expectations for transition plan disclosures with reference to the Transition Plan Taskforce (TPT)'s final Disclosure Framework published in October 2023 (as reported in PLC QTRLY Q4 2023). Given the important role of transition planning across the economy, the government also plans to consult on how the UK's largest companies can most effectively disclose their transition plans.

Climate transition plans: TPT publishes sector-specific guidance

On 9 April 2024, the TPT released its final set of sector-specific guidance documents, including "deep-dive" guidance for the seven key sectors of asset managers; asset owners; banks; electric utilities and power generators; food and beverage; metals and mining; and oil and gas, as well as summary guidance for 30 other sectors. The seven key sectors were selected because of their greenhouse gas emissions, their need for (or provision of) transition finance and the quality of existing guidance on transitional planning disclosures.

This sector specific guidance is intended for use by companies within the relevant sectors alongside the TPT's final Disclosure Framework and accompanying sector-neutral guidance documents published in October 2023.