Quarterly reports on a diet or in the trash? The Ministry is preparing changes, and companies are speaking out
Most companies listed on the Warsaw Stock Exchange do not want to abandon the publication of quarterly reports, but some would like to prepare reports with limited content – according to a survey conducted by Bankier.pl together with the Institute of Accounting and Taxes. The Ministry of Finance confirms that it is working on changing the regulations.
The issue has been heating up the market since spring, when the Ministry of Finance asked for opinions on changes to the regulation regulating, among others, publication of periodic and current reports. The proposal to abandon quarterly reports was then submitted by the Polish Financial Supervision Authority. The Office, in line with deregulatory trends, would like to give companies a free hand in publishing reports. In practice, these are reports for the first and third quarters, as annual and semi-annual reports must be published under EU regulations.
The supervisor position divided the market. The following people supported the elimination of the reports: business organizations or the Association of Stock Exchange Issuers (SEG, however, also allows for other solutions). The main protestors were the Association of Individual Investors and the Stock Exchange, which fear a decrease in market transparency.
Ministry of Finance: the working team is working
The issue of opting out of quarterly reports still remains open. In June, a new version of the Ministry of Finance regulation appeared, but it only sorted out the most urgent issues related to the publication of non-financial data. In response to our question, the ministry admits that work on broader changes is still ongoing.
“On September 4, a working meeting was held with representatives of, among others, issuers and investors (…). With regard to quarterly reports, proposals were considered to completely abandon their submission, to make it voluntary and to leave this obligation while significantly limiting the scope of these reports,” the Ministry of Finance replied to us.
As the Ministry of Finance adds, proposals for changes will be prepared by a working team composed of representatives of institutions associating issuers and investors, as well as the Polish Financial Supervision Authority, the Warsaw Stock Exchange and the ministry itself.
We ask the companies. Bankier.pl and IRiP survey
The voices of mainly market associations and institutions are heard on this matter. Bankier.pl together with the Institute of Accounting and Taxes, known, among others, from organizing The Best Annual Report competition, promoting the best annual reports, We decided to give the floor directly to the companies listed on the Warsaw Stock Exchange – which are subject to the obligation to publish reports and bear the related costs. What turns out?
The survey results may be a bit surprising because as many as 56% of companies stated that they did not support the elimination of quarterly reports, and the majority of them did not strongly support it. Only 41% are in favor of liquidation and 2% have no opinion.
48 companies responded to our survey (out of almost 400 to which we sent the survey). They represented the entire market – 14 were the largest companies (WIG20), 18 – medium-sized companies (mWIG40 and sWIG80), and 16 – the smallest, outside the main indices. We conducted our study between November 13 and 25.
Why such attachment to reporting? Among the arguments for maintaining the reports, the companies indicated the following: concerns about a decrease in market transparency (indicated by 27 companies – more than one answer could be selected) and the impact of reports on investor relations (16 companies). In turn, among the arguments for the liquidation of reports, the most important were: this will reduce costs and administrative burdens (18 responses) and that current reports ensure sufficient transparency (16 answers).
As for the consequences of abolishing reports, companies believed that it would affect the frequency of communication with investors (28 responses), the market's confidence in the company (27 responses) and the valuation of shares (26 responses). Only 16 companies out of 48 companies said that the lack of Q1 and Q3 reporting would not have any material impact.
Interestingly, nearly half of the surveyed companies (47.9%) declared that even if the legal obligation was abolished, they would voluntarily publish quarterly data, and over a third (35.4%) have no opinion on this matter yet.
Most or almost most companies also concluded that the gap left by quarterly reports would be filled not only with voluntary presentations, but also with current reports, an annual report or results conferences.
We also asked companies about their attitude towards the potential liquidation of semi-annual reports – this is a theoretical question, because these reports are required by EU law and no changes are planned for now. But even if it was a possibility, it would still be possible over three quarters of companies would not support the abolition of half-yearly reports. A small percentage of companies would support the changes.
Would small investors vote with their feet?
We also encouraged companies to answer several open questions, including: o the effects of the liquidation of periodic reports for individual and institutional investors and themselves.
It turns out that Many companies have the fate of small investors in mind in particular.
“They would have significantly worse access to information, and in addition, the difference between them and institutional investors would deepen. They would invest to an even greater extent in shares of large American companies instead of shares of companies listed on the Warsaw Stock Exchange” – this is one of the answers given.
Another much more concise but similar in tone response also caught attention: “Lack of transparency. Voting with your feet.”
On the other hand, another company stated that shareholders would benefit because the liquidation of reports would generate such savings that they would translate into its profits – and, consequently, into a better share valuation.
Companies are less concerned about how institutional investors would cope.
“Institutions base their analyzes on high-quality data and information on significant events anyway, and not on abbreviated quarterly reports, the analytical value of which is limited,” said one of the respondents in the survey.
Some companies express doubts whether the lack of the obligation to publish quarterly reports would actually be a relief for them. “We certainly wouldn't save money, because we practically have no additional costs. We would have to find a different formula for providing investors with the same information,” is one of the answers.
But there are also positive aspects. “Greater focus on the company's long-term goals, ability to implement the strategy and test it for a period longer than a quarter,” noted one of the companies.
Reports can be sent per diet
Many companies propose that quarterly reports should not be abolished, but rather slimmed down or replaced with a different set of information. “(Liquidation of reports – ed.) will have no impact if an obligation is imposed to periodically publish basic financial data, indicators that best describe the business and good qualitative commentary,” replied one of the companies.
“Our suggestion is to maintain periodic reports, but in a shortened form and without duplicating a number of unnecessary or irrelevant information and tables,” reads another opinion.
In general, the voice of companies can be summarized in several points:
- Format “light”: The idea is to keep quarterly reports, but limit them to a dozen or so pages (including key indicators and data, with a short commentary)
- Standardization: Opposition to complete freedom. Even simplified reports should be structured to ensure comparability.
- Access to information: Companies aggregate the most important financial and business data for management boards and banks anyway. Hiding them from shareholders is artificial.
- ESG under fire: The bureaucracy associated with non-financial reporting needs to be fought, not the part of reporting that most interests investors.
What's next? The market is waiting for the project of changes
We present the results of the survey conducted by Bankier.pl and IRiP as another voice in the discussion on the future of quarterly reports. It seems to be consistent with what the Association of Individual Investors and the Warsaw Stock Exchange say on behalf of their members, calling for keeping the reports, but in a slimmer form. Similar voices can also be heard from the institutional investor community. We will probably find out what direction the changes will take and whether we can expect a compromise solution only when the project of changes prepared by the Ministry of Finance sees the light of day.
