Voluntary quarterly reporting has reduced visibility on listed companies' outlooks

Singapore

THE adoption of a risk-based approach to quarterly reporting by the Singapore Exchange (SGX), effective Feb 7, has coincided with the worst pandemic in Singapore's history.

Just as investors and analysts are in need of more and timelier data about companies' financial and operational performance, most listed companies are no longer required to provide such information on a quarterly basis. This has led to reduced visibilities and difficulties making projections, said analysts.

Under the risk-based approach, issuers only need to report their numbers quarterly if they have a modified audit opinion on their latest financials, if their auditors have highlighted a material uncertainty, or if SGX has regulatory concerns about them.

The rationale for this change was to allow companies more leeway to focus on longer-term planning.

Since the transition to this approach, some companies have chosen to provide business updates in lieu of full quarterly financial statements. Others have dropped quarterly reporting entirely.

Most companies with December financial year-ends would not have been required to provide data at the end of March. Key financial numbers that would be needed to predict resilience during the Covid-19 pandemic, such as cash reserves, would only be available as at last December - before the pandemic set in. This has made it difficult for investors and analysts to assess whether companies have adequate liquidity.

Maybank Kim Eng Securities' Singapore head of research Thilan Wickramasinghe said business conditions are evolving very rapidly in this unprecedented crisis. Assessing companies by merely benchmarking to historical performances is therefore insufficient.

"Lower levels of transparency during times of high volatility increases uncertainty in assessing the near-term prospects of companies," he told The Business Times.

CGS-CIMB research head Lim Siew Khee agreed, stating in a research report that the level of detail of business updates provided by the companies has affected the current earnings read-through.

Issuers with a financial year ended March 31 have also been given an automatic two-month extension to file their full-year financial statements. This has prolonged the time between financial and operational disclosures for some companies.

Watch retailer Cortina Holdings, for instance, did not have to release a report for its Q3 FY2020 ended December following the end of quarterly reporting requirements. And it does not need to file its FY2020 results till July 30. The last set of numbers that Cortina shareholders have, therefore, is for Q2 FY2020, ended Sept 30, 2019. This was released in November last year.

Analysts are not the only ones missing the quarterly updates. A retail investor told BT that he prefers quarterly reporting, as it helps to keep investors updated in a more timely manner. The 48-year-old retiree monitors the SGXNet for disclosures from the companies he invests in for passive income.

He said: "Doing away with this requirement means a regression into greater opacity, when what we really need is greater transparency."

OCBC Credit Research analyst Ezien Hoo said that the coinciding of the waiver of the reporting requirement with the pandemic was unfortunate. Besides the frequency of reporting, however, she thinks that the quality and breadth of the reports, when made, are also important.

She said: "For example, companies listed in Hong Kong have semi-annual reporting. While it lacks timeliness versus quality reporting, the average semi-annual report contains more information than the average quarterly report here."

For companies that voluntarily provide trading updates, Ms Hoo suggested that they offer material data. This would include key headline financials, such as sales and gross profit, as well as key operating numbers specific to the company, such as a list of property assets for asset owners.

OCBC Credit Research expects the availability of information and accountability to investors to be a differentiator in credit selection over time. "Overall, we expect wider-spread dispersion between high-grade issuers, which tend to have robust disclosure, vis-à-vis issuers lower on the credit curve, which sometimes adhere only to the minimum standards, particularly issuers with heightened liquidity risk," said Ms Hoo.

Maybank's Mr Wickramasinghe also believes that companies that offer greater transparency and that incorporate this within their corporate governance frameworks are likely to outperform those that do not.

When approached, the SGX directed BT to its Regulator's Column. In April, SGX Regulation chief executive Tan Boon Gin had published an article covering what it expects of issuers' disclosures during the pandemic. He reminded issuers to provide updates on their companies' state of affairs and outlook, as well as an assessment of the strategy or steps taken to address the effects of the outbreak.

Issuers were also advised to provide information on how their operating and financial conditions may change.

When unable to gauge the financial impact, issuers are to provide a detailed explanation of the non-disclosure and sufficient information for investors themselves to assess the financial impact.