At this time of year there is a gentle frenzy in the plc. community. Pre-close trading statements are released and preliminary annual result statements are being prepared in earnest.
How much value is actually added by pre-close trading statements? Twelve months ago, pub retailer Enterprise Inns stopped issuing them, claiming the market had become “too data hungry”. Expeditors, a US logistics company, have long deemed them totally unnecessary. The move by these two companies and others to abandon the ritual is easy to understand.
Trading statements can in practice be a complete waste of time, let’s face it. They range from the sublime to the farcical at times.
Some companies prefer to populate their one pager with a litany of excuses rather than inform their audience of the real economic drivers of revenues and profits. Top of the excuse list has to be… the weather! Apparently a few inches of snow not only causes commuter trains to stop running, but also impacts footfall at house building sites (wellies anyone?) and poor sales of CDs at HMV (online competition and downloads?).
Next on the list is the general state of the world economy. Anything but runaway growth across the western world inspires struggling companies to claim that demand is sluggish/flat due to ‘general economic conditions’. This of course is baloney and usually a euphemism for more sinister micro-economic factors at play such as obsolete products, low cost competition, and market share erosion.
Another classic is explaining away weak results on one less trading day compared to the previous year. This is often due to the scheduling of public holidays - how inconsiderate of the Roman Emperor Constantine to make Easter such a moveable feast!
One has to ask - what sort of investors do trading statements target? Any investor, or more accurately speculator, who has a panic attack when earnings 'miss the street' does not tend to last too long and rarely controls large pools of money. Let’s be clear about this – minor, random events that are beyond management’s control have zero impact on the long term development of a share price. Of infinitely greater importance are high or improving financial quality, sustainable franchises, and the efficient allocation of shareholder funds. These criteria are the core of intelligent equity investment and the foundations for management to build a long term, supportive investor base.
CEOs worried about communicating to short term investors would be wise to pay heed to Clint Eastwood. ‘If you want a guarantee buy a toaster’.
