Read between the lines when it comes to company announcements.
The directors of publicly quoted companies are legally obliged to provide accurate and honest information. But then there are the legalities -- and there are ways of phrasing things which take a little deciphering by private investors.
You know the kind of thing where "The last year was both rewarding and challenging" actually means; "we lost yet more money, but our big salaries, emoluments and essential international business travel arrangements are still in place"!?
Or, "we remain very excited about the prospects for..." actually means "nothing much has happened, but we still own the patent that no-one has any commercial interest in"!
Or, "despite challenging market conditions we have achieved strong turnover growth" really means "we are continuing to lose money and will be asking you for a bit more quite soon."
Treading carefully
Of course, I need to tread very carefully here to make sure I don't libel anybody. But once you get used to director-speak, it's difficult not to be a little cynical.
Take this statement from software company Touchstone when it first told shareholders of its plans to de-list: "...shareholders may be better served if the Group cancelled its AIM quotation".
Hmmmm ... which shareholders would they be then!? You and me? Not likely!
Or how about this from Hampson Industries (LSE: HAMP), the aerospace components supplier? A few weeks ago, the Chairman said: "We have continued to win new work and have delivered a creditable set of results despite the many challenges faced during the year. Our order-book and quotation pipeline have both increased since the year end which we see as a positive indicator".
To be fair, he went on to talk about the start of the year being "slower than we had anticipated". But last week, the shares fell by over 50% in one day after the company warned of a possible need to amend banking covenants after a drop in orders at a loss-making division.
Reading the runes
Were the clues in there with June's final results? You be the judge. But last week's negative update followed revelations that the company was facing legal action from a consortium of private investors which is suing the group for close to £4m alleging "fraudulent misrepresentation".
Here's another good one from cosmetic and medical laser system supplier Chromogenex a couple of years ago: "We have ... made cost reductions which will save over £0.5m per annum ... we have seen an improvement in sales and gross margins and expect an improved performance in the second half".
Then a few months later; "(We..)note that their [sic] has been a large movement in the share price of the Company. The Board are not aware of any factors behind this movement and today announce that there is no material information pertinent to the Company which has not previously been released to the market". Now let's face it -- such awful grammar should've given us a clue.
Then three days later: "The Company today announces that the Board has resolved to seek shareholder approval for the cancellation of admission to trading on AIM of the Ordinary Shares in the Company...". Personally, I'd call that a "factor". Or maybe one could say: " 'Their' was a good reason after all!"
Straight talk
On the other hand, you get refreshingly straight talk from time to time. As real estate company Panther Securities' (LSE: PNS) legendarily straight-talking Chairman Andrew Perloff told us with his company's final results in April, "I can't understand the 'bl***y' figures so how can any stranger understand them?" before adding: "I have not received a salary for five years and have not received any payment into my pension fund for thirteen years although it would have been personally tax efficient to have done so. My benefits are directly proportionate to every shareholder's individual holding. I do not trade in our shares and have never personally sold any, thus our shareholders' interests are well looked after."
If there were more directors like this, we'd all be a lot more trusting -- and better off!
The moral of the story
The moral of the story is to maintain a healthy cynicism. Concentrate on the figures more than the "speak". It's much harder to lie about figures. Make your own judgements about the business and its prospects. Often, those closest to a company are some of the least objective people around. And if you have any doubts, leave it out.
If you have any examples of inaccurate director-speak you'd like to get off your chest -- why not add them to the Comments section below?
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