The increased political uncertainty - as a result of the ongoing Brexit development and the associated volatility in the market valuations of listed companies - has led to companies wondering how best to discuss this in their corporate reporting and investor relations communications.

In times of uncertainty, it is best to aim to be as clear as possible about the company’s position. Companies should discuss the causes of the uncertainty, as well as the impacts of the various possible outcomes on the success of the business. These impacts could be indirect or direct and result from a number of potential causes. It could be due to additional costs, loss of sales, disruption to supply chain or reduced ability to fulfil the delivery of services or goods to customers. Any steps taken to mitigate potential impacts should be discussed, as well as any associated costs with the preventive actions.

Companies belonging to the same sector often get seen as having similar exposure to risks and are presumed to be impacted in the same way. If there are key ways that a company is distinguished from its sector that change the exposure to risks, then these should be highlighted, in order to prevent an incorrect market valuation. For example, it could be that the geographical footprint differs between companies in a sector, which changes how those companies would be impacted by political and regulatory decisions. It could also be that the business models of companies differ significantly, such as some companies having a greater focus on services rather than products, or a focus on specialist products over low cost products. This could lead to a different mix of revenue streams, changing the risk profile of the business. Additionally, the cost structure of the business could be affected.

One response to reporting during uncertainty is demonstrating the sustainability of the company’s business model and how the business is well placed to deliver value over the long term. A key way to do this would be by outlining the strength of the company’s position through discussion of the assets that give the company a sustainable competitive advantage. Additionally, discussing the growth opportunities in its markets would be beneficial. This could be done by discussing the general trends in customer demand and changes in barriers to entry in the company’s markets.

In summary, clarity around the company’s position is key during times of uncertainty. Outlining the potential impacts on the company, explaining how the company’s risk profile differs from the rest of its sector and including information on how the company is well placed to deliver value over the long term are the main focus areas for dealing with corporate reporting during uncertainty.

If you would like assistance with understanding how to approach reporting during periods of uncertainty, get in touch with a member of our team.

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