Corporate Earnings Announcements Often Too Long

Warmond, The Netherlands (July 16, 2005) — Those who invest in Dutch-based companies will have a lot to read in the coming weeks. The publication of interim earnings reports will send a deluge of fresh data over to American investors. However, despite the fact that the narratives are progressively longer, they are not necessarily becoming more informative. Based on recently conducted research Brightmen and Coolwords has developed the Five Points to Make concept, identifying the basic building blocks of corporate earnings releases.

Focus on value drivers

Ewold de Bruijne, Managing Director of Brightmen and Coolwords: “Research shows that earnings releases are becoming too long for investors to get the message. The main reason for this is that companies often do not focus on one specific theme. Instead, they disclose a growing number of historic financial details, but fail to convey their key message effectively. The Five Points to Make concept is meant to encourage companies to concentrate on providing factual information that identifies the main drivers for value creation going forward.”

Less is better

It is estimated that the average length of earnings release narratives has more than doubled in the past five years. Data on Canadian stock-listed companies for example, published last April, indicate an increase from 1,185 words in 2000 to 2,545 words in 2004. Dutch companies, many of which have operations in the United States and target American investors, publish even lengthier earnings press releases. Brightmen and Coolwords has found that the 25 companies included in the benchmark AEX Index on average use 3,202 words for their interim statements. Yet, only a few succeed in getting their message across, such as Ahold (NYSE: AHO), Unilever (NYSE: UN), and Akzo Nobel (NYSE: AKZOY). Surprisingly, most of the companies that communicate well, appear to use significantly less words than the average number.

Five Points to Make

A better way to address the needs of investors is to focus the story on what the company sees happening in its operating environment, on what progress it makes in the execution of its strategy, and on what will drive growth and value creation going forward. Brightmen and Coolwords identified the Five Key Points to Make as: Performance, Progress, Position, Peculiarities, and Prospects. The first point refers to the disclosure on historic sales performance, operating costs, financial position, and earnings. Next on the list comes an update on the progress made with the execution of initiatives that are key to growth and value creation going forward. This leads up to the third point: giving an indication of the company’s position in the markets in which it operates, preferably relative to its competitors. Fourth comes a specification of non-cash items, non-recurring charges and benefits, changes in goodwill and other financial items that have an impact on the reported bottom-line result. Brightmen and Coolwords has labelled these: peculiarities. The prospects, in conclusion, remain the most sought after guidance with regard to management’s own expectations concerning the future performance of the company.
About Brightmen and Coolwords
Brightmen & Coolwords is an agency specialised in corporate communications and financial PR. BnC mainly works for stock-listed companies, corporations preparing for an initial public offering, and financial institutions offering a full range of services in the form of advice, concept development, and production. B&C distinguishes itself by its specialist knowledge in the area of financial communication and creativity with regard to the actual construction of corporate stories. Companies hire Brightmen & Coolwords to work with them on the development of their key messages and to assist them with reaching out to their target audiences effectively.