Investor Relations

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IMPLEMENTING BEST PRACTICES IN INVESTOR RELATIONS 109and journalists legitimately want to know where a company is heading.Companies must make this highly sensitive information available to thepublic at large, and not to just a few select individuals. Selective disclosureis highly reprehensible, and the legal consequences can be rather seriousand costly.3.5.3.1 Forecasts, objectives, outlookand guidanceDepending on market regulations, these terms can have very different meaningsand can imply legal obligations that it is better to be aware of ahead oftime. In some cases, forecasts must be approved by statutory auditors andnot simply calculated by management.Objectives are a bit more flexible and can often be used to communicateapproximate targets or ranges, although the latter must not be too wide ifthey are to be credible.Outlooks leave a good deal of leeway, depending on the time horizoncovered by the company’s strategic objectives and the type of qualitativeand/or quantitative indicators used.The translation of these terms into other languages may not be withoutconsequences, depending on the applicable regulations.3.5.3.2 Selecting guidance indicatorsAs discussed above, companies should allow the market to evaluate theirperformance based on the same indicators used internally. The idea is stayaway from too generic long-term goals and to provide some kind of a dashboardcombining standard financial information (sales, profitability, cashflow, etc.) and operating data that are specific to the company (geographicfootprint, new clients, utilization rates for industrial facilities, etc.). It is alsoan opportunity to give more explanations about the business model, in fullconsistency with which the objectives are announced.The IRO is the best person to identify the indicators analysts are followingand to give this information back to accounting and reporting departments.Demand for this information will be met bearing in mind constraints relatingto the internal information systems and the possibly strategic (thereforeconfidential) nature of the information being sought. It is recommendedthat companies study the analysts’ valuation models when deciding on theindicators to be communicated to the outside world and guided upon: Thisanalysis will allow the IRO to anticipate the consequences the selection ofspecific objectives may have on the company’s share price.Whatever objectives the company ends up using, it will in all cases need toprovide factual information about the working assumptions behind, whether
110INVESTOR RELATIONSthese relate to the macroeconomic environment or factors that are specificto its businesses (“Our projected guidance assumption of 90.3 million dollarsin nonoperating items, excluding the foreign operations, is contingentupon the final results of our 2008/2009 loan agreement.”). It may also benecessary to review the key risk factors associated with the realization ofthese targets. This is, by the way, an additional opportunity to show that themanagement team is aware of a range of possible long-term scenarios andhas a clear strategy for dealing with each.Depending on their type and degree of reliability, objectives may bequalitative (“Net income for the current year should be slightly higherthan in the previous year”);quantitative (“Sales are expected to exceed 850 million euros in threeyears’ time”);Ranges (“Management expects cash flow from operations to back tobetween 300 and 400 million dollars in the medium term”);Worst-case or best-case scenarios (“A 10% increase in oil prices wouldadd some 300 million dollars to our cost structure”; “Given the exposurethat our large development pipeline gives us to short-term interest ratefluctuations, increases or decreases in short-term interest rates couldhave positive or negative impact on our financial results.”).Absolute values should be avoided and targets should always be expressedin the conditional.The importance of the objectives delivered to the market should notbe overestimated or underestimated: In the event of an inquiry by marketauthorities or lawsuit, listed companies may be required to justify their disclosurecontent and procedures. Targets should be as consistent as possibleto the company’s internal earnings forecasts and based on information availableat the time the forward-looking statements are made.3.5.3.3 Choice of time horizonThe market expects companies to provide earnings forecasts for the currentquarter, half year, full year, and the following year, at least, as wellas indications for the ensuing years. The level of precision that analysts inparticular seem to be counting on is sometimes absurd. Indeed, companiesare supposed to help analysts do their job efficiently, but not do it for them.Every IRO will tell you that these boundaries can be a source of misunderstandingbetween the issuer and the markets.
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INVESTOR RELATIONS
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Investor RelationsPrinciples and In
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ContentsList of IllustrationsIntrod
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CONTENTSvii3.3 Understanding Market
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CONTENTSix4 Measuring The Value Of
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IntroductionAll things being equal,
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INTRODUCTIONxiiion the primary mark
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CHAPTER 1Competing forCapitalBringi
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COMPETING FOR CAPITAL 3FoundersShar
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COMPETING FOR CAPITAL 5attract and
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COMPETING FOR CAPITAL 7OfferDemandS
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COMPETING FOR CAPITAL 9are robust e
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COMPETING FOR CAPITAL 11 Develop an
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COMPETING FOR CAPITAL 13image long
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COMPETING FOR CAPITAL 15ensure that
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COMPETING FOR CAPITAL 17The company
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COMPETING FOR CAPITAL 19will benefi
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COMPETING FOR CAPITAL 21Because deb
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COMPETING FOR CAPITAL 23Pre-IPOEsta
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SEVEN KEYS TO SUCCESSFUL INVESTOR R
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Page 74 and 75: SEVEN KEYS TO SUCCESSFUL INVESTOR R
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IMPLEMENTING BEST PRACTICES IN INVE
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MEASURING THE VALUE OF INVESTOR REL
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Resources6.1 The CEO Investor Relat
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RESOURCES 1736.3 Earnings Presentat
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RESOURCES 175Today’s investor day
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RESOURCES 1776.5 Investor Relations
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RESOURCES 179Your commitment to sen
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D-7 Audit committee meetingFinal ro
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Indexaccounting standards, 35, 57,
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INDEX 185disclosure, 2, 9, 11, 44,
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INDEX 187investor relations - conti
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INDEX 189risk, 4, 6, 38, 54, 72, 87
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