Companies should continue to update the market, but the markets must make changes to cope with Coronavirus, says Newgate Managing Partner, Giles Croot
The unprecedented call from the Financial Conduct Authority (FCA) at the weekend for listed companies to delay publishing preliminary results for at least two weeks has led to many companies mothballing them.
The FCA called for companies due to report over the following days to delay doing so while they better assess the impact the pandemic will have on them, following other regulators in Spain, Hong Kong and China in delaying the publication of results. In China, listed companies have also delayed filing annual reports because auditors are struggling to sign off accounts.
Was the FCA right to advocate the delay of results? On one hand, the move justifiably gives companies more time to consider the impacts the pandemic will have on them, given the highly unusual pressures on staff and the rapid rate at which the situation is now developing.
On the other hand, the delay merely serves to deprive shareholders and analysts – who understand that precise forecasts are impossible under the current circumstances – of valuable information on what companies are doing to address the challenges.
What should companies tell the market?
Delays notwithstanding, companies will still be obliged to give the market an update in the near future, at which time there will still be a great deal of uncertainty. The fundamental questions for companies are what they say and when they say it.
Regardless of the current situation, the objective with all RNS updates is to ensure that the market has all the relevant information necessary for making an informed investment decision. This means companies must tell the truth; impart relevant facts such as trading news, cash/debt position, contract wins and business losses; and give guidance when consensus expectations are wrong.
In the current situation with many businesses shutting down for an indefinite period, the greatest challenge for businesses and investors alike is the uncertainty. But investors will still need to know what the impact of coronavirus has been on a business; if it is still trading, how far sales have fallen, level of exposure to other affected countries; how much financial help they can get from existing lenders or from government; how long the business can survive at current levels of activity; and what management teams are doing to mitigate the impact.
Of course, many of these questions may be impossible to answer at this time. But in the same way as governments are being advised to tell the truth, give evidence to support their actions and provide regular updates, companies should do the same.
This does not mean they have to update on a daily basis like the Government but it does mean providing prompt updates when important information becomes available and businesses have greater clarity on their situation.
Businesses should explain how the current situation is affecting them, giving practical examples if it helps. They should provide guidance on how that is affecting sales and what mitigating actions they are taking. And explain what funding options they have. If they are seeking help from government, they can issue further statements when the details and value of this assistance becomes clear.
All companies should be considering their next communication with the market and their shareholders very carefully. Transparency, clarity and engagement will ultimately be rewarded by investors looking to help companies through this temporary liquidity crisis.
The markets must adapt
The FCA’s move also opens up the broader question of what the markets should be doing to change the way they operate in the face of these highly unusual conditions.
The FCA’s delay is not the only change that has been made to company reporting requirements. Yesterday, the Government Equalities Office and the Equality and Human Rights Commission said they will suspend enforcement action for companies that fail to report on the gender pay gap, citing the impact on business of the pandemic. Businesses can also apply for a 3-month extension to file their accounts with Companies House.
But while moves like these give companies some breathing space, these circumstances call for bolder thinking. Industries are reinventing the way they operate, from restaurants becoming food delivery services to personal trainers delivering online gym sessions.
The markets must surely adapt too. Those working in this industry face the same challenges. They too are parents, they too are obliged to follow government public health guidance, they too are juggling the responsibilities of work and childcare. There is currently a huge amount of pressure on workers, and if you are the primary carer for a child, being in the (home) office for 7am might be next to impossible.
That’s why there is a strong argument for reducing trading hours during this crisis. If the markets opened an hour or so later to limit the working day it would make it more inclusive. This would also give people more time, under these difficult circumstances, to digest the information in results before the markets opened.
Another potential solution is to publish results immediately after the market closes, giving even earlier access and even more time to digest them (perhaps when young children have gone to bed) and ask informed questions before the markets open again. This could provide a safe harbour, at a time when people are under pressures they will rarely, if ever, have faced before.
Big challenges call for bold measures and as challenges go this is one of the very biggest we have seen. The markets must stay open to provide businesses the access to capital they will need more than ever in the coming months. But they must adapt how they operate during this crisis.