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Is quarterly reporting really such a pain?

The Edge Singapore
The Edge Singapore • 4 min read
Is quarterly reporting really such a pain?
SINGAPORE (Jan 22): Ron Sim, founder, chairman and CEO of massage chair retailer OSIM International, famously blamed quarterly reporting requirements for “destroying value” by forcing investors to focus on short-term financials. This onerous requireme
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SINGAPORE (Jan 22): Ron Sim, founder, chairman and CEO of massage chair retailer OSIM International, famously blamed quarterly reporting requirements for “destroying value” by forcing investors to focus on short-term financials. This onerous requirement was reportedly one reason he chose to delist from the Singapore Exchange. He is now seeking to list his company — under the new name V3 Group — in Hong Kong.

Since 2003, it has been mandatory for companies with a market capitalisation of at least $20 million at the point of listing to report their financials every quarter. This threshold was later revised to $75 million. Now, in response to market feedback, SGX is mulling raising the threshold even further — to $150 million.

The feedback, according to SGX, is that quarterly financial statements cost money and distract management from applying their time and energy in more important areas such as growing their businesses. The European Union and the UK dropped quarterly reporting requirements in 2013 and 2014, respectively. “The main drivers are really the international regulatory landscape as well as feedback from stakeholders,” says Tan Boon Gin, CEO of SGX RegCo.

Undoubtedly, the cost of financial reporting for smaller companies takes up a larger proportion of revenue than it would for the bigger companies. Yet, in the 14-plus years since the introduction of quarterly reporting, surely the process has become cheaper, thanks to technology?

Alex Campbell, managing director for Asia at New Zealand-listed Xero, says his firm’s cloud-based accounting software is able to give users “real-time visibility” on their cash flow, expenses and invoices. As such, updated reports can be generated whenever required. Xero’s software works even for small and medium-sized enterprises (SMEs), Campbell says.

“Accounting doesn’t have to be a time-consuming or costly exercise for SMEs, as cloud technology can take care of much of the -manual work and data entry,” says Campbell, whose firm’s products are offered to SME clients via local banks such as DBS Group Holdings and United Overseas Bank. “Periodic accounting and reporting is a legacy of desktop and server-based accounting software, which continue to hold businesses back even today.”

As to quarterly reporting being a distraction, surely it is good discipline for management to spend time preparing and examining their results on a regular basis?

David Gerald, president of the Securities Investors Association (Singapore) (SIAS), says: “All well-managed companies have well-defined financial management systems, which document the financial position of the company at any moment in time. Thus, we do not expect much difficulty in companies to engage shareholders on an ongoing basis.”

Perhaps Singapore’s smaller companies just need to improve their business processes. According to a survey commissioned by accounting software company Sage, global SMEs spend an average of 120 working days a year on administrative tasks. These include accounting and meeting regulatory requirements. The survey, which covered 3,000 companies globally, put the average cost of these tasks at $80,000 a year.

Among the 250 local SMEs surveyed, -however, the average time spent was 168 days. Administrative tasks cost these companies an average of $160,000 a year and occupied 5.5% of their total manpower. Singapore was not the worst performer on the list. France and Spain allocated 7.7% and 10.5%, respectively, of their manpower on administrative duties. But Canada, Germany and the US were far more efficient, clocking 1.7%, 3.7% and 4.9%, respectively.

According to Sage, Singapore SMEs stand to recoup a collective US$8.7 billion ($11.5 billion) worth of manpower-hours by being more efficient in their administrative work. If this is true, then encouraging companies to upgrade their processes so that they can continue to report quarterly would benefit investors in more than one way.

Interestingly, while the Hong Kong Exchange requires companies listed on its Mainboard to report their financials only once every six months, companies listed on the secondary Growth Enterprise Market must report every quarter. The reasoning for this is that GEM is where the riskier companies are listed.

While it may not be fair to assert that small companies are also riskier in nature, they would certainly be more easily sunk by a single customer, a major currency movement or the inability to repay one loan.

Even the largest companies experience seasonality in their financial announcements. The telcos, for instance, tend to report sharp increases in customer acquisition costs around the periods when new phones are launched. Retailers enjoy a boost at festive seasons. Manufacturers do the most work just prior to the year-end shopping rush. Investors are typically able to understand well-explained reasons for such quarterly fluctuations. If companies garner poor valuations, quarterly reporting is probably not the reason.

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