Is it right to ask companies to delay their results because of coronavirus? It’s complicated

The move was made with the best of intentions as the pandemic takes hold, writes James Moore

Kingfisher, which owns B&Q, observed the moratorium on results requested by the FCA but put out a trading statement instead (Reuters)

Was the Financial Conduct Authority right to call for a moratorium on company results?

B&Q owner Kingfisher and Irn Bru maker AG Barr were two of the first major companies to be affected by its letter “strongly requesting” all public companies hold back, which was sent over the weekend.

The former nonetheless provided a fairly detailed trading update, with fourth quarter and full year sales figures, news on the dividend (wisely suspended), and the cash and debt position (both of considerable import and correctly included), along with coronavirus measures and the company’s view on the outlook.

In response, the shares shot up by more than 10 per cent. I imagine you can count on the fingers of one hand the number of times a company has put its divvy on hold, however sensibly, and been cheered to the rafters.

AG Barr was more succinct, which is an observation rather than a criticism.

It similarly covered the company’s virus response, the impact on trading outlook (10 per cent of its business comes from hospitality which gave analysts something to work with), combined with a picture of the company’s financial health.

Its shares fell by a little, but the market was down by more. So again, well played.

I’m given to understand both were ready to go with full results statements, having updated their missives to take account of the latest virus developments.

They had to take very quick decisions about what to include in the trading statements they ultimately put out upon receipt of the letter but responded to the “strong request” in the way that you would expect that a responsible company would.

Had either been storing up a nasty not expected by the market (it’s fair to say that the market is pretty much expecting nasties all round especially from retailers and those companies reliant on hospitality as AG Barr partly is) they’d have had to update investors anyway.

In the wake of the FCA request, they could simply have put out a sentence announcing a delay by reference to it. But both will have been aware that nature abhors a vacuum, all the more so in a febrile climate, which is why they did what they did.

“In the absence of information, people will make things up,” said AJ Bell’s investment director Russ Mould. While he said he understood the FCA’s decision, he was concerned that it wasn’t “a positive step” and might increase the numbers of people calling for a market shutdown.

They have been growing but it would be a dangerous step to take. Per Mould, you don’t give up on price discovery because you don’t like the price.

Moreover, you cannot and should not remove liquidity and people’s ability to access their savings when some are seeing a shuddering halt in their cash flows, and some may be facing potential unemployment.

The option to sell has to be there even if it’s a bad one.

The FCA, explaining its rationale, said it was concerned that “the unprecedented events of the last couple of weeks mean that the basis on which companies are reporting and planning is changing rapidly”.

“It is important that due consideration is given by companies to these events in preparing their disclosures. Observing timetables set before this crisis arose may not give companies the necessary time to do this,” it said.

That’s understandable. Auditors, rightly under pressure to raise their game, may well have to issue negative assessments about companies’ status as “going concerns” in the wake of the current, unprecedented events.

The FCA is in discussions with the Financial Reporting Council and the Prudential Regulation Authority about a package of measures aimed at ensuring companies take the necessary time to prepare appropriate disclosures and address the current challenges.

Very sensible at a time when huge swathes of commerce are basically reliant upon government intervention to keep the show on the road. The watchdog’s intentions can’t be faulted.

But perhaps the better option would have been for it to stress that the option to delay results was open, subject to the usual requirements to let the market know in timely fashion about the unexpected and the unanticipated, and would be smiled upon without making it seem like a compulsion.

It’s worth remembering that while delays can sometimes be helpful, only rarely do they solve anything.