COVID-19 – enough with the interesting times!

I remembered a speech of IASB Chair Hans Hoogervorst’s from a few years ago, containing the following passage:

  • You have probably heard of the familiar curse: ‘may you live in interesting times’. Although this proverb is usually attributed to ancient China, it is actually nowhere to be found in Chinese literature. The closest Chinese proverb I have been able to find dates from the 17th century. It says: ‘Better to be a dog in a peaceful time, than to be a human in a chaotic period.’
  • Whatever the origin of these words of wisdom, it is clear that both proverbs apply to current times. The world order as we knew it is evidently under pressure. Transatlantic relations have never been as rocky as currently is the case. Brexit was a rough reminder that an ever closer European Union cannot be taken for granted. While one of the main motivations for Brexit was for Britain to close free trade deals with the rest of the world, the prospects for such deals are worsening by the day. We are seeing a strong resurgence of protectionism and the rule based trade system of the World Trade Organization is in grave danger.
  • When global standards are under such pressure, it is fair to ask how IFRS Standards are faring in these difficult times. The answer to this question is: surprisingly well, but we cannot take our progress for granted.

At the time, I said “I might have counselled more reflection on whether the current chaos described – which I’m certainly no admirer of – is sufficient, even for passing rhetorical purposes, to make a human life (that, say, of Hoogervorst himself) inferior to that of a peaceful dog.” I expect this is a test that most of us continue to pass today. But if the times were interesting two years ago, they’re almost unbearably so now. I’m sure I’m not the only one wondering with anxiety whether we’re engaged in some version of destroying the world in order to save it. Anyway, sticking to the mandate of this blog (which isn’t so easy to do at present), and applying that same question about how IFRS standards are faring, I suppose you’d say they’re doing fine in the sense that COVID-19 isn’t generating too much new disquiet about the standards themselves (although aficionados of IFRS 9 may be heading into testing times). But as I noted previously, the problem is much greater than that, in that the whole notion of rationally analyzing financial reports for the purpose of earning risk-appropriate returns from informed long-term investing is taking a hit from which it may be hard-pressed to recover.

Anyway, let’s look at a few more examples of companies addressing COVID-19 in their disclosures. This is from the outlook section in the MD&A of Intertape Polymer Group Inc.:

  • Revenue in 2020 is expected to be between $1,135 and $1,200 million. This range reflects expectations for the remainder of 2020, rather than the first quarter of 2020 as the COVID-19 virus effects have not materially impacted results to date. The outlook range reflects management’s best estimate as of March 12, 2020 of potential uncertainties over the remainder of 2020 given COVID-19. The range excludes any significant unforeseen fluctuations in raw material prices which can have a direct impact on selling prices…. The company is providing wider revenue and adjusted EBITDA ranges to reflect the uncertainty of the currently unknown and potential effects of COVID-19, which represent management’s best estimate as of March 12, 2020.

Of course, for other entities the uncertainty about the effects would likely be so great that even an expanded range of guidance might be rendered meaningless.

Medical Facilities Corporation doesn’t address the issue at all in its “outlook” section (although that section doesn’t provide quantitative guidance) but mentions it among its “risk factors”:

  • The Corporation’s and Facilities’ operations and financial results could potentially be impacted by a pandemic, epidemic or outbreak of a contagious disease in the markets in which they operate…While the current coronavirus (COVID-19) outbreak is presently not affecting the Corporation’s and Facilities’ operations, an outbreak in one of the communities in which the Facilities operate could potentially necessitate the temporary closure of one or more of Facilities. Furthermore, the treatment of someone presenting symptoms of COVID-19 at a Facility may result in a temporary shutdown, the diversion of patients or staffing shortages.
  • Management cannot presently estimate the overall operational and financial impact that such an outbreak and facility closure(s) could have on the Corporation’s results. Any potential long-term effect of the COVID-19 outbreak on business operations, financial and stock price performance, strategy, capital allocation and risk mitigation remains to be seen.

It’s a tough balancing act for everyone, but for a medical-industry business where the potential impact can be so succinctly imagined and described, a few mentions on page 40 of a 44 page document, deep into a “risk factors” section that starts on page 36, might not seem like much…

Once again, take care and stay safe.

The opinions expressed are solely those of the author

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