16 Sep REPORTING SEASON TRENDS: WHAT TO KEEP IN MIND FOR AGM SEASON
1. Distilling the impact of COVID-19
As expected, we have seen during reporting season that COVID-19 has had a material impact on corporate earnings. Investors are interested in understanding this impact versus underlying industry and business trends but precisely quantifying this can be challenging. Now, as we move into AGM season and in the lead up to the next reporting season, investors will want to see that companies are strategically assessing their response to COVID-19 and balancing the need to deliver short term profitability whilst keeping an eye on the long-term. Clear messaging about the strategy, and how it has been affected by the pandemic will remain a point of focus. A company’s approach to managing and supporting its people will also remain of interest, particularly as government support is reduced and ultimately withdrawn. And, of course, investors will continue to focus on balance sheet strength, debt levels and capital management.
2. Without guidance investors are looking for more detail
As most companies have pulled earnings guidance, investors and analysts continue to look for indicators that will guide their forecasts for future earnings. This heightens the need for commentary on market dynamics and increased disclosure on post balance date performance. Companies should consider providing more detail than usual at upcoming AGMs or when reporting results for those with September balance dates. For example, as part of AGM communications we recommend that first quarter trading commentary is provided. And, for those companies with September year ends, we recommend providing post balance date trading performance commentary as part of the FY20 financial results.
3. JobKeeper payments under scrutiny
JobKeeper subsidies have caught the attention of media and politics with several companies accessing these payments and still delivering reasonable earnings and in some cases reporting increased profits and continuing to pay shareholder dividends. This has become a philosophical dilemma in some respects and has attracted criticism in the media. While companies continue to access government subsidies, investors expect ongoing disclosure of these subsidies. Companies preparing for their AGM will also need to be mindful of executive remuneration in the context of government subsidies. Proxy firms have already commented publicly that they will be scrutinising those companies that pay executive bonuses while also taking advantage of government subsidies.
4. Dividend – to pay or not to pay that is the question
Dividends are expected to fall by around 20% this year with some companies cutting dividends altogether according to Investor Daily (25 August 2020). Whilst this is never popular with investors, particularly retail investors, there has been general acceptance of reduced dividend income this year given earnings impacts and uncertainty associated with COVID-19. As we move into AGM season and towards September and December year end reporting, there will be continued interest from investors in how the board is looking at dividend policy and what markers can be provided for a return of dividend payments.
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