Stockholm (NordSIP) – According to a survey of the asset management industry conducted by Finncap, a British investment bank and a corporate and institutional stockbroker, the COVID19 pandemic has affected companies forecasts, operations and cash management in different ways. However, concerns are emerging that companies are prioritising directors over workers in their responses to the crisis.
Finncap surveyed approximately 20% of the asset management industry. Of this sample, 65% of companies surveyed stated they have reported on COVID19. “We look at three key areas: i) how are forecasts moving; ii) what mitigation strategies are companies employing, and; iii) how are companies conserving cash,” Raymond Greaves, Head of Research, at finnCap Group, explains. “There are a number of interesting conclusions: i) more than a third of companies are seeing minimal impact from COVID19, and a select few are seeing benefits, but most are seeing significant downside and are suspending forecasts; ii) Most affected companies are cutting Opex and, to a lesser extent, Capex; iii) the most popular strategy to conserve cash is to cut or defer the dividend.”
Concerns About Executive Pay
Operational responses to the Coronavirus have become a point of focus. The report found that cutting operation expenditure appears to be the preferred route, with 43% of companies surveyed reporting taking steps in this direction. 33% of companies also reported cutting discretionary capital expenditure. Cutting Director salaries seems to be the response of last resort from an operational point of view as only 15% of companies reported taking this step.
The relative safety of directors in light of operational cuts has raised some eyebrows. In a press release at the start of April, the British Pensions and Lifetime Savings Association (PLSA) reminded “pension schemes to be watchful of how the companies in which they invest respond to the Covid-19 pandemic and be prepared to hold directors to account as decisions now may impact their long-term investment prospects.”
“The guidance follows news that some firms nationwide are laying off or furloughing members of staff in a bid to manage their outgoings during the crisis while high-paid directors and chief executives maintain full pay and bonuses,” the PLSA explained. “Previously, the PLSA stated in its annual Stewardship Guide and Voting Guidelines – launched in February – that pension fund investors must be prepared to hold directors accountable on issues such as executive remuneration, which must ‘demonstrate some recognition of wider societal expectations, the general economic environment and the returns to long-term shareholders.’ However, given the current crisis, the PLSA has added that that investors must keep an eye on how those firms in which they invest manage the pandemic and consider voting against directors who they believe did not behave appropriately towards their workforces this AGM season.”
Caroline Escott, Policy Lead Investment & Stewardship at PLSA ominously warned investors “that the post-crisis memories of the public and policymakers tend to be long.”
In terms of cash management, cutting or suspending the dividend is the preferred route according to 32% of the companies. Only 11% of surveyed asset management companies are reportedly renegotiating with their lenders while only a meagre 7% are raising fresh equity.
According to Finncap, this order of priorities is understandable. “The easiest thing to do to conserve cash in a crisis is to cut the dividend (even if it angers shareholders and pension funds). Organising equity issue takes a great deal more time and effort and is not desirable if equity prices are low. However, if lockdowns continue for longer than expected, we would expect many more companies to have to go down this route.”
Winners and Losers
According to Finncap’s report, 7% of responders reported they had upgraded forecasts. 32% have downgraded forecasts, 32% have downgraded forecasts, and 38% have not changed forecasts. Companies upgrading their expectations operate in the tech, life sciences and food production and benefit from the crisis in a multitude of ways.
Working-from-home and online payment companies have benefitted by providing services that allow people to overcome the limited mobility imposed by the pandemic. Among life science companies, companies that offer disinfection goods and services as well as those that provide COVID19 treatments dominate. Meanwhile, food producers are benefiting from increased forward demand due to stockpiling.