Canadian regulators recently responded to current events by issuing the following notice:
- In light of recent COVID-19 developments and their impact on market participants, the Canadian Securities Administrators (CSA) will provide temporary relief from some regulatory filings required to be made on or before June 1, 2020.
- The blanket relief will provide a 45-day extension for periodic filings normally required to be made by issuers, investment funds, registrants, certain regulated entities and designated rating organizations on or before June 1, 2020. This will include financial statements, management’s discussion and analysis, management reports of fund performance, annual information forms, technical reports, and certain other filings.
- Issuers choosing to rely on this exemption and that are complying with the conditions of the relief will not need to file applications for management cease trade orders as they will not be noted in default.
(For those who aren’t familiar with the workings of Canadian securities regulation, a company that fails to file its financial statements on time will usually be subject to an order that ceases all trading in its stocks. However, if the company proactively approaches the regulator in advance and commits among other things to providing adequate alternative disclosure during the period of the default, then trading is allowed to continue, subject to placing individual cease trade orders on key management and insiders who might have access to material undisclosed information. The CSA had announced that it would continue to apply this existing policy in responding to COVID-19-related defaults, albeit with a bit more flexibility than usual, before reversing course two days later and announcing the “blanket relief”).
Obviously I support this kind of emergency measure. Even so, however inevitable it may be, it constitutes yet another step that will damage the credibility and perceived necessity of periodic financial reporting in the long run. As I’ve noted before, the December 31, 2019 audited financial statements already carry a severe risk of being viewed as immediately irrelevant, given how they’ll largely fail to reflect all that’s transpired since that date. If the CSA is willing to tolerate those financial statements not being filed on their usual due dates, then it can hardly say it truly matters if they’re not filed 45 days later either (by which time they’ll be little more than museum pieces). Put another way, one might reasonably ask: if formal financial information isn’t necessary to support trading during one of the most volatile and risk-laden periods in memory, then why would it be so necessary at any other, calmer time? I’m not saying there’s no answer to that question, only that I’m not sure the CSA – regardless of its assurance about “remain(ing) focused on investor protection as we adjust our regulatory expectations during this trying time” – has even contemplated what it is.
Anyway, here now is another better than average example of recent MD&A disclosure, this one from Boyd Group Services Inc. (“one of the largest operators of non-franchised collision repair centers in North America in terms of number of locations and sales”). I don’t know if I’ve ever before seen an MD&A that so conversationally referred to something being observed “over the past few days.”
- Worldwide, we are all adjusting and adapting to daily changes as a result of the COVID-19 pandemic. While the impact on the Company thus far has not been material, this could change quickly. The outbreak of contagious illness such as this can impact operations, including staffing and the volume and pace at which collision repair shops can fix damaged vehicles and may lead to the temporary closure of facilities. The pandemic could also result in decreased demand for services, as well as interruptions to the supply chain, including temporary closure of supplier facilities. In fact, over the past few days the Company has noted a weakening of demand, possibly from customers deferring repairs to avoid exposure and the result of reduced miles driven and less road congestion as fewer people travel to schools, offices, sporting and other public events and places. Given the high level of uncertainty surrounding COVID-19 impacts, the Company is in the process of making many proactive changes and contingency plans relating to the current environment and will continue to work to address COVID19 challenges as they evolve, so as to minimize the risk and impact to our employees, customers and shareholders.
- While long-term, the Company will continue to pursue accretive growth through a combination of organic growth (same store sales growth) as well as acquisitions and new store development, our immediate focus is on preserving financial flexibility as we deal with the uncertain impacts of COVID-19. Boyd will be taking a near-term pause on closing and funding acquisitions until we have greater clarity. After the pause, acquisitions will continue to include both single location acquisitions as well as multi-location acquisitions. Our long-term goal of doubling the size of the business and revenues (on a constant currency basis) during the five-year period ending in 2020 could be delayed due to uncertainty surrounding the COVID-19 pandemic. Boyd’s conservative financial strategy has positioned the Company with a strong balance sheet and financial flexibility to deal with the current uncertain economic environment.
The opinions expressed are solely those of the author