Focus on: listed entities

With federal and state governments progressively re-opening the Australian economy, the share market has responded positively having now risen 31.8 per cent off its low on 23 March, so that the S&P/ASX 200 remains only 16.3 per cent below its 20 February calendar year high. That said, there is still a long period of market volatility ahead.

Despite uncertainty over the past few months, communication by listed companies to their shareholders has been of utmost importance. Most listed companies have provided the market with updates on the impact of the current environment on their business, and management’s actions to ensure their staff are protected and the company is well positioned. In the face of uncertainty, many companies have also withdrawn earnings guidance and have been reluctant to make statements about the future performance of their business.

The extent of the impact on companies, not only during the shutdown but also operating in a somewhat changed environment, is only just coming to light as the economy re-opens. Shareholders and the broader market will only understand the full extent of this impact when listed companies announce their profit results for the period ending 30 June in the upcoming August reporting season.

Companies should take care in how they present their next profit results, particularly as ASIC will no doubt be closely monitoring financial reporting during this next upcoming profit reporting season. There may be a temptation to report extrapolated earnings pre-COVID, or treat the shutdown as a one-off abnormal impact when there may be long-term impacts on the business. Shareholders and market participants will expect reporting to be a true reflection of the company’s performance over the period rather than be faced with having to unravel creative accounting or analysis which may be based on uncertain assumptions. More importantly, they will look to management for commentary about their expectations for future performance.

Treasurer Josh Frydenberg’s recent temporary amendment of the Corporations Act to relax continuous disclosure requirements in an effort to encourage companies to make forward-looking statements is positive in protecting Directors from potential shareholder class actions. The market is hungry for informed guidance, however management should still take considerable care in preparing their statements on future performance in uncertain times.

Some considerations for companies in preparing to report full or half year results:

Retaining market trust is key in the current environment – shareholders are relying on management to report profit results which reflect the true past performance of the company, and then to be upfront in noting challenges the company is facing in the current environment that may impact company performance, either short term or long term.
Management analysis of company performance should be provided with sufficient detail and clear assumptions to support financial statements, and give analysts information with which to make informed assessments as to possible performance moving forward.
Management should be well prepared to give considered and honest responses to a broad range of questions from market participants.
Due consideration should be given to thorough disclosure on all aspects of the result, including ensuring group discussions with institutional investors and analysts are made available to the broader market with links to the recorded call/webcast replay placed on the company website as soon as possible after the discussion concludes.
Prepare well in advance.

Should you need support in preparing for your results, GRACosway’s investor relations team has in-house corporate experience in reporting results during challenging market conditions, and is well-placed to provide you with strategic counsel and hands-on support. For further information, please contact Partner – Investor Relations, Kylie Ramsden on +61 412 340 850 or Contact Us.