Courtesy of Hock Lock Siew

Published February 20, 2009
Extraordinary times call for extra clarity
By CHEW XIANG

WHERE do you hide a tree? In a forest. Where do you hide a poor quarter's performance? In the full-year results.

Six years after quarterly reporting was made mandatory for all but the smallest listed companies, a number of blue chips still did not separately reveal fourth quarter results in their financial statements for the full year ending Dec 31.

These aren't fly-by-night companies with things to hide. They include blue chips such as ST Engineering, Hyflux, ComfortDelGro, Singapore Land and its parent United Industrial Corporation. No doubt there are plenty more.

In normal times, separate figures for the fourth quarter along with the full year results would be something nice to have, rather than a necessity. Not having them doesn't breach SGX listing rule 705, which sets out companies' continuing obligations with regards to financial statements.
But, as Members of Parliament were keen to stress in the Budget debates this month, these are 'extraordinary times'. During the three months to December, every conceivable economic and financial indicator sank without trace; confidence went through the floor and is still puddling in depression; trade, jobs, clients and accounts receivable have all but vanished.

How companies fared in this disastrous quarter is important because that is likely to be a far better guide to their performance in the coming months than their full-year showing, which for many would have included three quarters of strong results. When Oct-Dec results for many companies are likely to be poor, focusing on full-year results can be misleading.

For instance, Hyflux on Wednesday reported a record net profit (up 79 per cent) and sales (up 187 per cent) for FY2008, a fact highlighted in a number of media reports. But much of the boost came in the first three quarters of the year; Q4 net profit actually fell 32 per cent year on year, from $19.6 million in 2007 to $13.4 million, due to higher impairments and cost of sales.

Both ChannelNewsAsia and Today stressed Hyflux's record full year earnings without mentioning its quarterly performance. But investors need to know the full picture, especially retail investors without access to professional data suppliers or a good range of analyst reports.
And not disclosing the quarter's performance runs the risk that mistakes get made. Predictably, some of those that tried to ferret out Q4 data got it wrong: DBS Vickers issued a report yesterday which said that net profit fell 42 per cent year-on-year; this newspaper reported a 41.7 per cent drop in Q4 earnings and so too did Bloomberg (42 per cent) and The Straits Times, which had quoted Bloomberg. The problem was that 2007 earnings had been restated and those that relied on the original financial statements were caught out.

Mistakes can be corrected in due time, but the confusion, especially for traders or investors in the stock, is indelible.

And right now, it's not just headline and bottom line figures that matter. Investors also need to know how balance sheets, debt levels and cashflows have been affected by the gyrations of the past four months, as well as details of how line items have responded. For instance: how much has receivables changed? How heavy were the impairments taken over the period?
They can of course compare nine-month financial statements with the full-year version and do some simple arithmetic, but why should they have to?