How often should companies report their financial results? In the UK it is every six months and it appears the US could be heading in the same direction after US president Donald Trump used his favourite communication tool, social media network Twitter, to say he has asked the US stock market regulator (the SEC) to consider abandoning quarterly reporting.

In this situation, the UK could become a blueprint for how US companies update shareholders on their fortunes.

This situation does make a lot of sense whether you are a fan of Trump’s broader policies or not. Investors cannot judge whether a company is performing to the best of its abilities based on
13 weeks’ trading numbers. It is too short a period and encourages individuals to trade stocks on a very short-term view which goes against all the principles of taking a long-term view with investing.

The counter argument suggests that regular reporting is good for transparency and reduces the risks of nasty surprises.

Trump’s remarks were triggered by conversations with various company directors who believe less frequent disclosure of accounts would cut costs and be good for business.

WHAT HAPPENS IN THE UK?

In the UK, listed companies have to issue their results twice a year but other trading updates are at their discretion unless they have price-sensitive news to publish. This tends to involve information concerning a change in a company’s financial condition, its sphere of activity, its performance and its expectation of performance.

Ultimately the requirement to disclose material changes helps to reduce the number of companies hiding secrets from investors and avoids creating a false market in the shares.

Companies listed on London’s Main Market used to be required to produce two interim management statements (another word for a trading update), generally three and nine months into their financial year. In essence, you would get information from the company once a quarter – two of these being normal trading updates and two of them being financial results.

The rules changed in 2014 whereby companies were no longer required to produce an interim management statement, but they are still allowed to publish them on a voluntary basis.

Many companies still publish this information, although there are some examples where boards have decided to amend their reporting schedule. For example, Britvic (BVIC) said in 2015 that it would no longer issue a trading statement at the end of its financial year (1 October).

In 2017, engineer Goodwin (GDWN) said it would stop issuing quarterly statements in order to make better use of its resources and focus efforts on longer term targets and productivity.

At the time it said two out of every five FTSE 100 companies and three out of five FTSE 350 companies had already decided to go down the same route and not issue such reports.

Even if the SEC does switch to six-monthly reporting, it may take time for company executives to change how they make investment decisions.

Many US firms will have become accustomed to approving capital expenditure plans with three-month reporting front of mind – i.e. potentially making decisions they know could trigger a positive market reaction or in response to investor concerns following monitoring of quarterly reports.

By switching to six-monthly reporting, they may find investors take a different view towards how a company allocates capital and also expectations for producing positive results. (DC)

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