Mark Leftly: Hiding results is bad news in any language
In The City: Virtually every company is trying to bluff its way to a profit
Most readers of this newspaper over the age of 30 should recognise the name Collaterlie Sisters, the finance correspondent of the very silly, very funny 1990s satirical news programme The Day Today.
The character did not have the show’s greatest line – which was (fact) “I hate Sebastian Coe” – nor live on for two decades and spawn a film, like sport presenter Alan Partridge.
But the way Ms Sisters demonstrated how businesses destroy the English language remains relevant to this day. This is an age where the directors of our biggest companies are using – or are at least authorising – ridiculous terminology to mislead, sound important and hide their mistakes.
Here’s a good one from Ms Sisters: “On now to the money markets and a quick look at the International Finance Arse. As you can see, the US and Japanese cheeks started off with a gap of 2.4 but increased trading forced the two together to form a unified arse at around lunchtime, which held for the rest of the day.”
Replace the two mentions of ‘arse’ with ‘system’ and the word ‘cheeks’ with ‘economies’ and you have something that sounds quite authoritative but means no more than the sentences that were broadcast.
Which brings us to Kazakhmys, the London-headquartered copper miner that mainly works in Kazakhstan and announced its half-year results last week. Even forgetting the collections of words that pass for sentences like “our mid-sized projects are attractive on a medium-term basis” – though only because I suspect they make sense to someone, somewhere – Kazakhmys used all manner of different ways of looking at its profit.
Kazakhmys suggested that the “key measure in assessing the underlying trading performance” was EBITDA (excluding exceptional items). I’m sure the board and its advisers do think that’s the ‘key measure’, as that meant the group turned a profit of $714m.
But leaving out exceptional items meant that Kazakhmys wasn’t including the $823m hit it had taken on selling its stake in ENRC, its fellow Kazakhstani miner. That investment has been a disaster, and to argue that the hit is “exceptional”is ridiculous, as such a huge write-down is a reflection of the poor judgement of Kazakhmys that must be reflected in its results.
The “key measure”, then – as it would be to any small business – is simply profit or loss. And once Kazakhmys’ hits had been included, the group made a loss of $962m.
Look it another way, Kazakhmys also suffered 11 fatalities during the six-month period covered by the results. It would not write that the group’s safety record was perfect, excluding exceptional accidents.
Not that Kazakhmys should be singled out, as virtually every company is trying to bluff its way to a profit, or at least less damning results. The construction industry loves its “exceptional items” as well. Typically, these are major contracts that have gone badly wrong, which are not at all unusual in an industry that is run on such fine margins that just one disastrous project can wipe out the group’s entire profit.
Bad construction contracts, be they budgets being poorly drawn up or deadlines missed, occur so often that it is simply a lie to discount them as one-offs.
And how many struggling construction companies have hidden their financial woes in the misleading work-in-progress figure? This term has been used to hide huge sums of money that they haven’t been, and perhaps never will be, paid – in other words, often a straight loss. Then there are the retailers with their “like-for-likes”, meaning they are comparing the sales at stores that have been open for at least a year. A disastrous expansion programme of stores over the previous 12 months is to be dismissed, then? Close those new stores down quick enough and you may take an almighty hit on your profit, but at least you could avoid putting them in the like-for-like “key measure” of trading.
Plenty of people will argue that breaking down information and providing a plethora of different financial measures with which to judge a business is helpful to shareholders. They’re probably right too, that there are occasions when a “like-for-like” is more significant than an absolute profit number.
The problem is when that lexicon is used to obscure accounts that are supposed to be a “true and fair reflection” of the financial state of a business.
Or when words like “underlying” and “on continuing operations” take precedence to the extent that a straight loss figure of $962m does not appear until page 18 of Kazakhmys’ half-year report.
Time to Commission more staff
Last week, I wrote about how the Competition Commission was poised to publish the much-delayed provisional findings of an inquiry into the private healthcare market.
This has been delayed until this coming Wednesday, with the CC insisting the change of date was in light of the bank holiday weekend.
The CC has taken some great strides in the past couple of years, with a number of hard-hitting inquiries that have carefully dissected complicated arguments through analysis of mountains of data.
However, the downside of taking on so much work is that the CC is badly under-resourced – private healthcare isn’t the first inquiry that has suffered from delays.
When the CC and the Office of Fair Trading are merged next year, the reform must include the hiring of more staff.
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