Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, August 28, 2008

Guidance on guidance

2 countries separated etc. Following my post regarding the SEC guidance on the use of web postings and news releases (which highlighted the distinction with the highly structured European, TOD inspired rules - and by the way prompted some challenging observations!), the US National Investor Relations Institute has sent a timely reminder of the use of quarterly EPS guidance.

It reminds us that no one size fits all, and that for some companies this form of guidance is appropriate, however that for all companies “a focus on long-term business value drivers by all financial markets participants - public companies, financial analysts, investors and the media – will lead to reduced volatility and a lower cost of capital” is essential.

Meanwhile for most European companies, guidance has always required word smithing. Some companies play a “hotter…colder” game with analysts who want to check their numbers against the investor relations team. But in these darker days, what about more extreme cases - such as when companies say they do not have a clue?

BMW and Allianz are among those European companies that have traditionally provided US-style guidance, but have dropped the practice. Both announced last week they were dropping the practice, saying that market conditions made "accurate earnings predictions" impossible.

Investors traditionally attach a significant premium to those companies that communicate well, and for consistency of performance. Does that mean they are likely to punish companies that don’t – or cannot – forecast accurately? Not judging by the BMW and Allianz examples, where share prices since their announcements have remained stable – or even rising.

Nonetheless, as always this blog will argue that communication of longer term strategies is essential, however admitting you do not know about the short term is simply to recognise reality.


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