How often do PR companies advise clients to “own their communications”? After all, if a company doesn’t own it, who does? And yet, particularly with financial communications, it is becoming increasingly difficult for companies to be in control of their communications destiny as they have been in the past.
Companies are faced with regulatory changes, with the MAR (Market Abuse Regime) legislation meaning far less control on the timing of updating the market with new information. And with the Investment Association recommending against quarterly reporting, companies are under gathering pressure to downscale, or do away with, their historic reporting of Q1 and Q3 trading.
As a result, the traditional annual reporting calendar becomes less meaningful than it used to be. The good thing about these changes is that it does open up the calendar for more added value communications with the investment community, such as hosting capital market events. These are becoming more necessary as, in many sectors, the quality of sellside research coverage continues to deteriorate. The bad news is that this eats up a lot of time for the investor relations and communications departments if they are to deliver a top quality product.
I also sense we might be witnessing a further tightening of the screw. Company auditors, under increased pressure from the Financial Reporting Council and after recent disasters such as Patisserie Valerie, appear to be adopting a tougher negotiating stance with companies as they finish their year-end audits.
Last week, Thomas Cook seemed to have the rulebook thrown at it in several ways. Firstly, although it was due to release full year results on the Thursday, the company was obliged to bring those forward to Tuesday as, under MAR, the underlying EBIT was going to be well short of market expectations. As a former sellside analyst, I can tell you that this type of unplanned profit warning never goes down well, particularly when the analysts of only 3 broking houses were able to make the hastily arranged company conference call.
What was even more interesting is that the reason there was a miss on underlying EBIT was mainly down to a number of costs being booked through that line rather than reported as one-off exceptional costs. I can only presume that the auditors had toughened up their stance in the final negotiations with the company.
And the sorry story doesn’t end there. The company still had to release, as originally planned, its full year results on Thursday, and appears to have been unable to give too much comfort on the financial position vis-à-vis banking covenant. The share price has continued to spiral down even this week, meaning that it is now under 20% of the value in May.
From the outside, it might appear easy to say to companies “be prepared”. But that looks sound advice when the oversight from auditors, and from financial markets as a whole, looks set to tighten over the key December reporting season.
At the very least companies should have a thorough planning process around major corporate events and fully involve their bench of advisors. After all, once you have lost control of your communications, as Thomas Cook appears to have done, there may be only one way that the share price can go.
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