Many British companies issued updates on trading on Monday, withdrawing earnings guidance, scrapping their dividends and suspending share buy backs, despite pleas from the U.K. regulator that they delay statements as soon as possible to prevent investors from acting on out-of-date information.
Anglo-Dutch energy major Royal Dutch Shell RDSA, +4.61%, British broadcaster ITV and shared office group IWG, were among several companies that issued statements about the impact of the coronavirus outbreak on their profitability.
The loss of income from today alone totals some £500 million and takes the running aggregate this year to some £1.5 billion, marking a big blow for portfolio builders and savers looking for income at a time when interest rates on cash have collapsed to new historic lows, said Russ Mould, investment director at AJ Bell.
The string of comes less than 48 hours after Britain’s financial regulator “strongly requested” that all listed companies delay publishing preliminary results for at least two weeks to allow them to better assess how the coronavirus pandemic is affecting the profitability of their businesses.
Late on Saturday, the Financial Conduct Authority said it was writing to all companies with shares traded in London that were intending to publish preliminary financial statements in the next few days and asking them to refrain from issuing them to the market.
The watchdog said the FCA, the Financial Reporting Council, which regulates auditors, and the Prudential Regulation Authority, the Bank of England division that regulates banks, are close to setting out details of a package to ensure that listed companies take time to prepare appropriate disclosures.
Mould said the FCA’s desire to avoid stoking panic is “perfectly understandable” but the call for a delay in the publication of preliminary results leaves firms in a difficult position. “Companies are duty bound to update the market once it becomes clear that their results are likely to be notably ahead or behind forecasts,” he said.
“In the absence of information, people will make things up. This isn’t a positive step and has now got people posing the question of shutting down markets. This would be a catastrophe and represents the single biggest policy risk to the financial world right now. You don’t give up on price discovery because you don’t like the price. You don’t remove liquidity and access to savings when people are seeing a shuddering halt in their cash flows,” Mould added.
Shell on Monday said it had suspended its $25 billion share buyback program and cut capital expenditure by $5 billion this year, to ensure “financial strength and resilience.” It also cut operating costs by $3-$4 billion over the next 12 months, which it estimates will contribute $8-9 billion of free cash flow on a pretax basis. Shell’s A shares were trading 5% higher.
IWG IWG, -17.53%, the world’s largest co-working office provider, said it had scrapped its final dividend and suspended a £100 million share buyback program as it tries to cope with the closure of offices world-wide. The company said, given the evolving nature of the COVID-19 pandemic, it is too early to provide earnings guidance in relation to the remainder of the current financial year.
Shares in IWG were trading down 18.47% at 12:30 GMT.
Stavros Siokos, managing partner at Astarte Capital, the real assets specialist, said: “Any business model based on ‘sharing’ real assets, such as common workspaces, will face serious challenges in the years to come. The mega trend toward common living and office spaces is now in peril and the market is pricing this in.
“The short-term impact will be significant but on a long-term basis the behavioral economics of millennials will shift and the idea of ‘sharing’ real assets will be challenged. A huge amount of capital went into this space but there was little operational expertise. We also expect the same negative trend to extend to any other real assets involving common sharing such as houses and cars,” Siokos added.
Britain’s biggest commercial free-to-air broadcaster, ITV, told investors it wouldn’t give guidance on for annual advertising sales and results for the next two months. The impact from the virus has forced it to pause productions of several top shows in the U.K. and internationally, which accounted for about half of the company’s revenues in 2019 at £1.8 billion.
ITV, which has been hit by advertising weakness as multiple industries decide not to promote their products when people can’t get to the shops to buy them, pulled its final dividend of 5.4 pence per share. It said this would save the company around £300 million. Shares in ITV were trading 5.95% lower.