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Quarterly reporting has ended; but top SGX-listed firms provide voluntary 'updates'
COMPANIES that place their profit and loss statement ahead of their balance sheet in their annual reports are focused on growth, while companies that do the opposite are more concerned about resilience.
That old and obscure piece of market folklore is probably complete nonsense. Yet, the underlying point - that companies reveal their true nature in what they choose to hide and highlight - might have some merit.
Since February, Singapore Exchange-listed companies no longer have to do quarterly reporting, unless they do not have a clean audit opinion or face regulatory compliance issues. The timing could not have been worse, given the Covid-19 pandemic.
Fortunately, many leading SGX-listed companies have chosen to continue engaging the market with quarterly "business updates". And some of these updates appear to be good substitutes for full financial reports.
In particular, the three banks - DBS, OCBC and UOB - each published Q1 2020 updates that were much more concise than their traditional quarterly financial reports, but still covered most things relevant to investors.
Their abridged income statements and balance sheets were informative, and they highlighted the key metrics that investors closely watch, from loan growth and net interest margins to return on equity and capital adequacy ratios.
Recognising concerns in the market about rising bad loans, the three banks also provided information on their exposure to potentially troubled industries - especially to the oil and gas sector. Interestingly, UOB also provided information on its exposure to Greater China.
While all three banks made reference to their digital capabilities helping to facilitate business in the midst of the Covid-19 crisis, it seemed to be an especially big deal at DBS.
The banks also summarised support they extended to their customers, staff and communities in the face of the pandemic, with UOB choosing to address the topic early in its presentation deck.
Room for improvement
However, there is room for improvement with some of the quarterly updates.
Singapore's two leading home-grown property development groups - CapitaLand and City Developments (CDL) - rolled out Q1 2020 updates that were brimming with information on the impact of Covid-19 on their various investment properties and development projects.
CDL offered information on the operational status of its hotels around the world, including room occupancy and average room rates by country. CapitaLand included charts on shopper traffic at its malls in Singapore and China, and data on its residential sales data around the region.
Yet, small-time investors looking for a quick top-down sense of what it all means for shares of these companies would probably have been left frustrated. Neither company provided an income statement with revenue or earnings figures. And only CapitaLand provided a net asset value per share figure.
This seems a strange omission given the information that the companies did provide. Both companies included information on their balance sheet strength, including interest cover ratios, which would have required items from their income statement like Ebitda (or earnings before interest, tax, depreciation and amortisation) in order to be calculated.
Would their Q1 updates have been much more difficult or expensive to produce if they included abridged balance sheets and profit and loss statements? Why withhold information useful to investors if it can be easily provided?
Similarly, some of the leading real estate investment trusts (Reits) - Ascendas Reit and Manulife US Reit - provided lots of information on their properties, their tenants, and their balance sheets. Ascendas Reit even provided its NAV per unit as at March 30.
But neither Reit provided an income statement, with information like revenue, net property income or distributable income, which would have given small-time investors a better sense of how to value their units.
Many leading locally listed companies were doing quarterly reporting long before the practice was made compulsory in 2003 for companies with market capitalisations above S$75 million. And some of them evidently recognise the risks of now suddenly denying investors information they have long relied upon.
CapitaLand Mall Trust and CapitaLand Commercial Trust both stated in February that, unlike the other units of the CapitaLand group, they would continue with quarterly reporting in the light of their proposed merger.
Keppel Corp said in March that it would continue with quarterly reporting in view of the voluntary pre-conditional partial offer by a unit of Temasek Holdings that was announced in October. It will subsequently move to half-yearly reporting, and provide interim business updates in between the half-year reports.
SGX has couched the retreat from quarterly reporting as a shift from a size-based approach to financial reporting to a risk-based approach, pointing out that it is now only companies with audit or regulatory concerns that have to report quarterly.
Yet, it is also an opportunity for the biggest locally listed companies that understand the importance of quarterly reporting to now experiment with alternative formats of providing investors with useful financial and non-financial information.
They should seek feedback from the market on what information would be most useful, and not begin from the assumption that there should be less financial information in their Q1 and Q3 updates than their half-yearly reports if the marginal cost of providing the extra information is negligible.
The reward for a company that makes the effort could be greater awareness in the market of its values and value, and shareholder expectations that are more in sync with its own long-term goals.