IR Monitor – Monday 23rd March

Welcome to FTI Consulting’s weekly IR Monitor.

As the impact of the Covid-19 outbreak spreads across the globe, this week we look at the varying ways markets, investors, creditors and corporates might respond to the uncertainty. We open by looking at the FCA’s decision to suspend results for at least two weeks, and follow up with an assessment of the not-unprecedented suggestion of shutting markets altogether, a potential solution with a whole host of pitfalls. Following this, we assess the hit investors will take after multiple companies have announced that they will be cutting their dividends in the rush to conserve cash. Next, we discuss the challenges posed by the outbreak for companies, in assessing how best to disclose and assess Covid-19-related gains and losses, and take a look at how companies should respond to short-sellers in the present environment. Finally, we report on how the crisis posed by the outbreak will force corporates to put their money where their mouths are, having talked up their ‘stakeholder capitalism’ credentials over the past few years.

This week’s news

The FCA calls for a delay to results

The Financial Times, CityAM and many others reported that the FCA has requested listed companies to delay their upcoming results announcements by at least two weeks, as the impact of the Coronavirus makes itself known on company balance sheets. This has been supported by the FRC. The delay should allow those companies reporting, who number around 40 in the main market this week, to make more accurate assessments of the impact of the outbreak, and ease the pressure on FCA and audit firm staff.

This morning alone the following companies have announced delays to their results: CPP Group plc (AIM), JPMorgan American Investment Trust plc (Main), Kingfisher plc (Main), RockRose Energy plc (Main), SDX Energy Plc (AIM), S&U plc (Main), Zoo Digital Group plc (AIM), Zotefoams plc (Main), A.G. BARR p.l.c. (Main), Igas Energy PLC (Main), Integrated Diagnostics Holdings Plc (Main), Lamprell plc (Main), Mears Group PLC (Main), Medica Group PLC (Main), STM Group Plc (Aim), Ten Entertainment Group plc (Main), and Time Out Group plc (AIM).

Will closing the markets really help?

Both Bloomberg and Reuters Breakingviews discussed the possibility of markets being shut altogether to try to stem the tide of losses, as market falls repeatedly trigger measures such as circuit-breakers to temporarily halt trading. Reuters points out that this wouldn’t be the first time, with the NYSE closing for over four months during the First World War and for a few days in the immediate aftermath of 9/11, and Egypt’s exchange shutting as a result of the Arab Spring. Both were sceptical of the value and likelihood of big exchanges shutting, with Bloomberg pointing out that the Trump administration would be hesitant to close them altogether, and Reuters taking the view that the market reaction has so far been rational.

Investors take a hit as companies cut dividends

As a result of the coronavirus crisis, investors have felt a dividend hit of at least £600 million as some of Britain’s largest companies race to conserve cash. The Times reports that about 20 companies have cut or delayed dividends in recent weeks across a range of industries. On Thursday, around half a dozen firms including Playtech and Elementis took action to halt dividends, while others are currently reviewing their payouts. Crest Nicholson, for instance, cancelled its final dividend of 21.8p per share, due to be paid next month, which is worth £56 million. Similarly, Micro Focus, the software company, said it would consider paying a second interim dividend for the financial year “once there is some visibility”, after halting its £165.1 million final dividend.

This morning alone, companies such as Shell, ITV, IWG, Fullers and Stagecoach have announced a suspension of the dividend.

Disclosure in the time of Coronavirus

Bloomberg‘s Distressed Daily newsletter pointed out that the Covid-19 outbreak presents a unique set of challenges to firms around accounting and disclosure. As firms across a whole host of sectors, particularly travel and aviation, take unforeseen losses owing to a downturn in economic activity, the language and techniques they use to account for these when communicating with creditors will need careful consideration. Some will inevitably fall foul of creditors and investors as they seek to massage these losses into particular provisions that weren’t made for the purpose. With the full impact of the outbreak yet to fully make itself known in company accounts, investors and creditors will be waiting nervously.

The Impact of COVID on AGMs

The Chartered Governance Institute reported that, given the spread of Covid-19, companies should be considering contingency plans when planning their upcoming AGM. The guidance report, which has been jointly produced with Slaughter and May, advises that companies have just five options for navigating this new environment including postponing, delaying convening and adjourning the AGM. Sky News also reports that a sixth option may be available soon, as the London Stock Exchange and other City institutions called on the government to pass emergency legislation allowing companies to hold remote AGMs amid the outbreak. Although companies should alter their plans as necessary in reaction to governmental advice and new legislation, now is the time to start considering these options.

Short seller activism

Although short selling, when used appropriately, can be positive for markets, companies have found that some forms of it amount to stock price manipulation. This week, IR Magazine’s The Ticker podcast discusses the ins and outs of short seller activism and its impact on the markets with an analysis of how IR teams should respond to a situation where they face a short seller. The podcast then questions how experts identify the differences between fundamental and predatory short-sellers, how you can understand the amount of short-selling in your stock and also discuss the varied responses IR teams take when managing engagement with short-sellers.

And finally…ESG reports are not enough

As the coronavirus crisis escalates, businesses now have a chance to prove what they often claim: that they serve both society and their stakeholders. Producing ESG reports are simply not enough, reports the Financial Times. With governments in crisis mode reacting to virus developments across the world, companies now have a reciprocal obligation to take action and help ease the burden across society. The likes of luxury giant LVMH repurposing its perfume factories to produce hand sanitiser and the UK’s GSK offering rivals free use of its immune response-boosting agent mark just a few examples of many company efforts thus far. But with reputations at stake and profiteering likely to be noted in future years, how far will companies go to help in this unprecedented pandemic?

Conferences

Digital Consumer Retail Conference (virtual) (25 March)
European Real Estate Conference (26-27 March)