IR Weekly- Monday 6th April

Welcome to FTI Consulting’s Investor Relations Weekly Newsletter

As the COVID-19 pandemic continues to shake the markets, this week we look at the battle over dividend payouts from UK banks. Following this, we discuss the implications of the current situation on executive renumeration, citing an open letter from Schroders. We then cover the shift in sentiment around share buybacks at a time where balance sheet resilience is proving critical and evaluate the measures UK companies are taking to strengthen balance sheets. We then look at the ways in which companies are trying to raise capital in an era of low investor sentiment. We then highlight the ways in which the pandemic is sharpening investor focus on social and governance factors in particular. Finally, we wonder whether the virus will spawn new financial terminology.

This week’s news

The battle over bank dividends

This week, the UK’s biggest lenders have been under pressure from both sides around their dividend payouts. The Telegraph wrote about investors urging banks to press ahead with payments due this year. Some argued that banks had built up large reserves on the instructions of regulators, so payouts should continue.

In the other corner, Financial Times reported on the Bank of England, which warned it was “ready to consider use of supervisory powers” so banks could help businesses and households through the coronavirus. In the end, the Old Lady of Threadneedle Street prevailed, sending banking stocks spiralling downwards.

CEO pay in the time of coronavirus

Forbes reported that a number of CEOs have decided to cut their pay due to the coronavirus. Some CEOs from international corporations have also pledged not to lay off their workers.

The Financial Times reported that, in a public letter addressed to UK companies, Schroders warned that executives must “share the pain” of the current economic shakeout due to the coronavirus. In the letter, Schroders also called groups to prioritise their staff, customers and suppliers. Measures to cut bonuses have also been backed by Tim Bush, head of corporate governance at Pensions & Investment Research Consultants. Bloomberg reported that Bush said that banks should not pay any bonuses to their senior executives.

Protecting the balance sheet

With many large companies seeking public bailouts in the wake of the coronavirus crisis, scrutiny around the wisdom of leverage-funded buybacks has risen in recent days.

An opinion piece in Financial Times discusses whether typical investor benchmarks around buybacks and minimising tax payments may not be useful yardsticks for judging how businesses are positioned to come through the crisis. Instead, balance sheet resilience and social responsibility are becoming important, with companies that have pledged to help the effort to fight coronavirus seeing large rises in share price.

In the week ending Friday 3rd April, 34 companies across the FTSE 350 took defensive measures to protect the balance sheet. 1 company offered a scrip alternative to a cash payment, 2 dividend payments were deferred while 3 companies chose to postpone making a decision at all about the final dividend. As last week, the vast majority of companies chose simply to cancel their dividends: 33 ordinary dividends were cancelled as were 3 special dividends (along with 6 share buyback programmes). The numbers above do not sum to 34 because some of these 34 companies took multiple measures at the same time. If you would like to see the full detail on who cut, and how, please do contact the IR team and we will send you the full analysis.

Raising capital in uncertain times

Reuters reported that companies are looking to raise capital via accelerated bookbuild transactions and rights issues, as the crash in investor sentiment leaves them looking for quick cash injections. Shareholders are also being asked to relax pre-emption rights to allow companies to issue up to 20% of their share capital without offering them to all shareholders, according to The Times. Schroders’ open letter urged shareholders to agree this relaxation with some caveats.

Coronavirus sharpens the need for socially responsible corporate behaviour

Financial Times’ Moral Money column reported on Jim Chanos’ decision to short companies that rely on gig workers. His logic is that the current pandemic will change attitudes towards such workers and force companies to give them proper benefits.

The current situation means that companies are being judged by societies and investors on how they treat their employees, their partners, and smaller businesses. FT Alphaville follows up with a list of three key questions that might be asked about company responses to the crisis from an ESG perspective.

And Finally …. Do we have to talk about EBITDAC? 

It might seem like a joke but Earnings Before Interest, Depreciation, Amortisation and the Coronavirus is now being considered as a new acronym.

This week, Aquis discussed the impact of COVID-19 on business valuations. The key question is whether the pandemic will be treated as an exceptional and non-recurring item on cash flow statements – will companies be able to report an EBITDAC? Or will the virus fundamentally affect company performance in a way that becomes the new normal?

Upcoming conferences

UBS HK/China Small & Mid-caps Corporate Day 2020, Hong Kong (7 April)

*Healthcare REIT Conference  (virtual) (7 April)

*Horizons in Oncology Day  (virtual) (8 April)