COVID-19-related ad hoc corporate disclosures in Germany: a Freshfields analysis

Freshfields has analysed the 245 ad hoc announcements made by companies listed in Germany between mid-February and mid-April 2020 relating to the COVID-19 pandemic. The study (PDF) draws three main conclusions:

1. A wide range of sectors have been affected

Our study shows that 43 per cent of all companies listed in Germany made ad hoc announcements relating to the COVID-19 pandemic. The companies mostly affected were in the automotive, manufacturing, logistics, trade, consumer goods and retail sectors.

2. A ‘market standard’ for the content of ad hoc announcements developed rapidly

Despite the initial lack of guidance from BaFin, the DAX/MDAX companies developed an appropriate and lawful 'market standard' for the content of COVID-19-related ad hoc announcements remarkably quickly. Most of the announcements were forecast adjustments and, during the peak phase of the pandemic, forecast withdrawals/surrenders. Feeling they were no longer able to forecast accurately, companies decided rightly (but contrary to BaFin guidelines at that time) to withdraw existing forecasts without publishing new ones. BaFin later consented to that view by publishing a set of FAQs.

3. Companies successfully stress tested their internal processes to analyse and assess inside information

Most of the internal company processes for analysing and assessing what might be considered inside information managed the stress test caused by the COVID-19 pandemic very well. Although a considerable number of companies published several ad hoc announcements referencing COVID-19, this is not a sign of inadequate capital markets communication. Since the ad hoc publicity obligation must be reviewed on a situation-by-situation and case-by-case basis, several ad hoc announcements may be necessary, especially in the case of dynamic and difficult/unforeseeable developments, such as the COVID-19 pandemic.

Going forward

Against this background, although a few companies have disclosed new forecasts, most companies are still out in the market with no forecast for the current calendar year. However, in light of emerging half-year figures, companies will now have to evaluate in the upcoming days and weeks whether they are obliged to disclose a new forecast via an ad hoc announcement as requested by BaFin as a general rule.

This evaluation is particularly relevant for those companies that had to provide estimates of their foreseeable earnings and other key performance indicators (KPIs) to certain stakeholders, for example because of:

1. negotiations relating to financing arrangements following a breach of covenants; or
2. restructuring negotiations with employee bodies.

As long as such negotiations are based solely on several realistic future market-development scenarios, no ad hoc announcement needs to be made. But once the company commits to and/or clarifies a particular scenario as the most realistic one, the statutory notification duty kicks in. For this reason, companies should at all times carefully analyse whether their data on KPIs already qualifies as a forecast that is subject to ad hoc disclosure requirements.

Issuers’ reaction to the COVID-19 pandemic represents a blueprint for crisis management in capital markets communication. In future, crisis management will become increasingly relevant in capital markets communication, not least because of the existing ‘VUCA’ (volatility, uncertainty, complexity, ambiguity) circumstances. This is important for issuers and their corporate bodies, as inadequate capital markets communication can lead to tough civil penalties, administrative fines, being named and shamed, and criminal sanctions.