Just tell it to us straight

Continuous Disclosure states that company announcements should be 'accurate, complete and not misleading'. Matt Ryan discusses how the lines can become a bit blurred when a company is disclosing bad news...

The ASX guidance notes to Listing Rule 3.1 Continuous Disclosure indicate that announcements should be ‘accurate, complete and not misleading’ and should contain sufficient detail for investors to understand its ramifications.

That’s supposed to apply through good times and bad of course, and a few boards in this country could use a reminder of that. When a company hits strife it seems rhetoric, propaganda and spin show up in the place of meaningful disclosure. Some of it verges on farcical.

Take Vocation’s announcement of the ‘planned’ departure of CEO Mark Hutchinson or Billabong’s hilarious massaging of poor trading numbers in 2011:

Period Constant currency sales revenue growth Constance currency sales revenue growth adjusting for the impact of acquistions
For the three months to 30 Sep 2011 24.70% 6.20%
For the four months to 31 Oct 2011 17.20% 2.80%
For the five months to 30 Nov 2011 11.70% 0.40%

It doesn’t look too bad until you consider how far down the October and November sales must be to move the averages like that. Assuming no seasonality, November must have seen a decline of almost 10%. Wouldn't want to tell shareholders that, would we?

All jokes aside, though, poor disclosure is a major headache for investors. A couple of companies we own, Macmahon and Service Stream announced the departure of their respective managing directors over the past couple of years, and though the announcements probably aren’t misleading they sure aren’t enlightening and are far from accurate and complete.

Having spoken to directors of these companies, in the case of Macmahon apparently more aggressive cost-cutting is required and the highly paid CEO was first in line, and for Service Stream the board thought managing director’s visions too grand for a small service company.

Fine. But announcements that are vague and incomplete harm the company’s credibility and make investors suspicious. In the absence of meaningful information investors are left to fill in the blanks and you have to assume the worst.

That’s in no one’s interest. We prefer to hear bad news quickly and honestly every time. Just tell to it to us straight.

This article originally appeared on the Forager Funds' blog.

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