The future’s bright (possibly)
29 November 2016
The old Chinese curse “May you live in interesting times” seems to have been created specifically for 2016. The last 12 months (and the last 6 in particular!), have seen a number of surprising events that have led to market volatility and uncertainty amongst the masses. To me, this period has underlined the difficulty that comes in trying to predict the future, particularly with things that are largely out of our control.
But on a personal level, it’s much easier to try to predict the future. We make choices and take actions all the time that can influence what happens, allowing us to have a better idea of where we might end up – and the same is true for companies, where a great deal of strategic planning, stress testing and scenario mapping takes place to ensure that profits can be preserved.
Companies looking for investment promote their business in many different ways - focusing on their strong board with its vast experience, explaining a clear strategy or trumpeting their past performance to demonstrate their success to date. Yet what surprisingly few do is give a clear perspective on what they are going to do in the future – the exact time that they want others to invest in them for.
Playing it close to the chest
We’ve done some research and found that whilst many companies can give a clear view on their debt maturity profile years into the future, only a third of companies provide clear quantitative strategic ambitions beyond the current period in their annual report.
I find this particularly interesting as this year has also seen the introduction of the viability statement, meaning companies making a clear statement of a future period they’ll be viable for and explaining why they have chosen that time frame. 97% of companies that have reported so far claim that their viability statement is based on their strategic plans and 73% of companies have a viability period of 3 years.
So we know that companies have strategic plans of 3 years or beyond, but we haven’t really seen an increase in companies reporting what these plans actually are.
This is really frustrating for investors looking to generate strong returns. I understand the reluctance to reveal too much about future intentions – the need to protect competitive advantage, inability to predict changes in external factors beyond the company’s control, or the desire to protect the company’s reputation if things don’t go to plan but there are clear benefits to reporting better on the future – not least moving away from the ‘earnings game’ where a company is only considered to be as good as its latest figures.
Our new practical reporting guide - A foot in the past and an eye to the future - takes a look at this issue, outlining 8 principles to improving forward-looking information and offers a number of examples from companies who are being clear about their future. Take a look and challenge yourself to give greater confidence to your investors that your company knows where it’s going.