UK regulator ended mandatory requirement last year
Last November, the Financial Conduct Authority (FCA), the UK’s financial regulator, gave companies permission to drop quarterly reporting. The move followed a recommendation by eminent economist John Kay, who argued that management wastes too much time focused on the short term.
This week FTSE 100-listed National Grid became the latest – and largest – company to take advantage of the rule change. On Tuesday it announced it would stop producing interim management statements (IMS), which UK companies typically produce between half-year and full-year results, with immediate effect.
Following the spirit of Kay’s initial advice, the power grid operator said the aim of the move was to put a greater focus on the long term. In a statement, finance director Andrew Bonfield says ‘mandatory requirements to publish information can frequently provide an unnecessary focus on matters of little relevance to a long-term business.’
Since the November decision, United Utilities has also announced it will end quarterly reporting. Other companies, such as British Land, are said to be considering their options, according to a report in the Financial Times.
The size and profile of National Grid could encourage other companies to follow suit. In addition, the fact that John Dawson, head of IR at the company, is the former chair of the UK's IR Society adds credibility to the move.
The decision for each company will largely depend on the nature of its business. National Grid invests in very long-term assets, producing low-risk returns for investors. As a result, the firm believes quarterly market updates are not required.
Companies in faster-moving industries, on the other hand, may feel four regular updates are necessary to keep investors properly informed. Others may want to retain quarterly reporting to sweeten shareholders in the US, where the practice is mandatory. Size is another issue: larger companies find it easier to shoulder the burden of additional disclosure.
In response to the FCA’s November decision, the IR Society released a policy statement saying it believes ‘the voluntary use of IMS is a positive in that it reduces focus on the short term and gives companies more flexibility on both timing and content. Over time, those companies in slower-moving industries may consider a reduction in the frequency of their reports to the market.’
