Dropping quarterly reports won't work for all companies
Last November’s decision by UK regulator Financial Conduct Authority to remove the requirement for companies to publish quarterly disclosures has intensified the discussion in Asia, where policies on mandatory quarterly reporting differ from country to country.
In Singapore, for example, quarterly reporting is a requirement for listed companies with a market capitalization above $75 mn. It is also necessary for the larger listed companies in Malaysia and Thailand, while in Hong Kong and Jakarta businesses need only update the market semi-annually.
Most recently, National Grid became the latest FTSE 100 company to announce that it would cease publication of its quarterly reports, with Andrew Bonfield, the firm’s finance director, estimating that the move could save the firm up to a month of senior management time each year. The decision received a mixed reception from the media, however.
In freeing up valuable management time and lowering compliance costs, the scrapping of quarterly reporting could allow companies to take a more long-term view of their business. In addition, in the age of high-frequency trading, it arguably counters ‘short-termism’ among investors: Warren Buffett is just one high-profile investor to suggest the need for such an approach, holding investments through cycles.
The case in Asia
Needless to say, transparency and disclosure are essential ingredients for a fair and efficient marketplace. Abolishing mandatory quarterly reporting here in Asia would not ‒ and should not ‒ mean companies immediately then update the market only twice a year.
Listed companies will always be obliged to abide by rules relating to the timely and fair disclosure of price-sensitive information and, even under an annual reporting framework, best practice suggests they should continue to update the market through more informal quarterly trading updates. This model has proved successful in the UK.
In our discussions with Asia-based sell-side analysts on the question, some are receptive to the idea of well-managed listed companies and real estate investment trusts moving to half-yearly reporting, as these are generally well-governed entities with a higher level of predictability in earnings. Such a move would halve the aggregate annual duration of a company’s quiet period, a practice observed by many corporates, lasting anywhere from two to three weeks per quarterly announcement.
But it is strongly believed that a shift away from quarterly reporting is not for every corporate. Companies operating in cyclical industries with more unpredictable earnings, such as commodities and oil & gas, would need to continue to update the investment community regularly and manage expectations.
In reality, investor engagement goes far beyond quarterly financial statements, which the economist John Kay has said investors often find ‘useless or misleading’. By their very nature, quarterly announcements are backward-looking. This highlights the importance of integrated reporting – another topic of debate in Asia – which aims to communicate how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term.
Companies should, and must, view reporting as a regular opportunity to tell this story but also supplement it with frequent engagement outside of the financial calendar through meetings, presentations, webinars and other online platforms that provide valuable channels for informing and updating, as well as receiving feedback. This consistent transparency is what is needed to maintain investor confidence and sustain access to the increasingly competitive capital markets.
Angela Campbell-Noë is the senior partner of Tulchan Asia, part of Tulchan Group, an international financial communications agency
