Welcome to reporting season for fiscal year 2022. Now, imagine your business is one of the 2000-plus ASX-listed entities poised to conduct a series of briefings on their FY22 results, in front of investors, analysts and the media.
Could you sufficiently justify your performance over the past 12 months? Would you be capable of providing believable earnings guidance for the year ahead? What impact would your disclosures have on staff morale and customer perceptions? And most importantly, what recommendation would the investment community label your organisation with thereafter?
Would it be the bountiful ‘buy’, the spiral-inducing ‘sell’ or the haven of ‘hold’?
Talk about being scrutinised, it doesn’t get any more confronting than this. Suddenly your board room doors are thrown open. People with spreadsheets are peeking into every corner of your cash flow. Key customers are being asked to rate you as a supplier. Your balance sheet is on display and you are being forced to justify why shareholders should believe your business will be a going concern in five years. Best of all, you get to line up and do it all again in six months!
For private companies this is a fictional scenario. There are 2.4m actively trading business in the Australian economy, with only 0.1 per cent obliged to partake in this wildly transparent reporting ritual.
But run with this thought for a moment: Just suppose you charged your leadership team with preparing your company for such briefings. And what if they had to get rock solid on their respective functional outlooks for the next year, because for the first time, external parties including mum and dad investors, would be critiquing them like never before?
And perhaps their first draft of expected full year earnings was unacceptable so that they had to go away and work on the P&L together, create multiple scenarios, put optimistic revenue hopes under the microscope, identify non-negotiable cost savings and return with a set of numbers that they were willing to defend in front of the likes of a fired-up Alan Kohler, preparing for his most candid 7pm business report segment. Would that be a help or a hindrance?
Bring it on
The ‘buy, hold or sell’ cycle builds commercial match fitness. Leadership teams of public companies must always be on their game, prepared for the unexpected and genuinely convinced of their plan. If not, a price gets paid.
Too many private companies are not match fit. Standards slip. Weight is gained. Accountabilities blurred. Attractiveness lost.
Imagine fronting up for your first pseudo investor presentation and being labelled a ‘sell’, after convincing yourself, like so many others, that you were at least a ‘hold’. What a wake-up call that would be.
And yet maybe, just maybe, this is what the business needs right now.
The bottom line is you always want the ‘buy’ recommendation, even if you’re not for sale. Because someday you might be.
I’ll check back in with you in six months.
Paul Allen is managing director of Margin Partners and the author of Take Back Your Margin. Email: paul@marginpartners.com.au
This article was first published in the July-August 2022 print issue of PKN Packaging News, p27.