New IRF study: Short-termism dominates financial guidance of large Swiss companies

• All but one of the SMI Expanded companies discuss forward-looking targets in their annual reporting
• 80% of companies use qualitative and quantitative targets at the same time
• 91% of the companies give a short-term guidance of one year, taking into account mainly the current market situation. The naming of concrete exogenous factors such as supply chain problems or the Ukraine war play a minor role here
• Forecasts and targets on environmental and social factors as standard: More than 90% of the companies comment on this
• Increased compared to the last survey four years ago are in particular justifications for the development of sales and non-financial indicators

Almost all Swiss companies included in the SMI Expanded index provided qualitative or quantitative guidance in their annual reporting for the 2022 financial year (98%), albeit with varying degrees of detail. In the period last surveyed by IRF in 2019, 81% of the companies examined at that time still did so. A large majority (80%) provide qualitative and quantitative information (2019: 55%). The proportion of companies reporting qualitative measures was 89% (2019: 74%). For quantitative measures, the rate was slightly higher at 91%. Compared to 2019, the proportion increased significantly (2019: 51%). Two out of three companies devote a separate chapter in the annual report to the forecast of future business development. 2 | 6 Oliver Seifried, Partner at IRF, comments: "Large listed Swiss companies are providing increasingly precise forecasts of future business development. This is remarkable in view of the volatile economic and political developments. Companies can better manage the expectations of the capital market with clear announcements. Investors appreciate these efforts towards transparency and the broadest possible visibility. This tends to lower the cost of capital for companies. In this context, it is relevant that companies present their forecast information consistently over the years and thus in a way that is easy to compare and understand."

In terms of quantitative targets, the companies by far most frequently commented on sales (82%) and EBIT/EBITA/EBITDA (62%). In 2019, the proportions were still weighted differently: 68% EBIT/EBITA/EBITDA and 61% sales. “We attribute this to different factors: growth has been easier to finance with the cheap capital of the last few years, so the focus of companies and investors has increasingly been on sales. In addition, the visibility of costs has fallen sharply and corresponding statements on the outlook for profitability have become more difficult", says Yasemin Diethelm-Ersan, Senior Consultant at IRF.

Around a third of companies reported dividend (33%; 2019: 29%), cash flow (31%; 2019: 26%) and earnings/earnings per share (27%; 2019: 16%). Earnings per share as a target value, which is widely used in the USA, remains unusual in Switzerland. Significantly fewer companies mentioned the expected return on equity or equity ratio (9%; 2019: 13%).

In the qualitative guidance criteria, the development of individual business areas or product groups leads the ranking of internal parameters. 38% of the companies surveyed provided guidance on this. In 2019, the figure was 53%. Cost-saving programmes and operational efficiency (29%; 2019: 21%) as well as geographic anchoring and development compared to the market average (18% each; 2019: 18% and 24% respectively) were mentioned less frequently. At least a quarter of the companies commented on their future market position (24%). In 2019, only 5% of the companies did so.

External factors are dominated by the description of the current market situation (78%; 2019: 84%) and the economic outlook (67%; 2019: 55%). By contrast, one in five companies (22%) made forecasts on currencies. In 2019, half as many companies did so (11%). Current exogenous factors such as supply chain problems due to resource issues (33%) and the Ukraine war (22%) were also taken into account in the guidance.

As this year's survey shows, over 90% of companies provided a short-term forecast over 12 months (91%; 2019: 74%). The proportion of companies that published medium- to long-term forecasts (time horizon: 2-3 years) in their annual reporting also increased significantly to 64% (2019: 42%), while 18% (2019: 16%) disclosed longer-term targets. It is true that two-thirds of companies now also publish medium-term targets. However, there is still a large gap between the expectations of long-term oriented investors and the short-term oriented disclosures.

Forecasts and targets on environmental and social factors have become standard in the annual reporting of large listed Swiss companies. 96% of the companies analysed provided information on environmental factors, of which more than half did so in qualitative and quantitative form. In 2019, this figure was 38%. 91% made statements on social factors – again, more than half of these were qualitative and quantitative. In 2019, this was 43% of the companies. On the one hand, the strong increase reflects the growing need for communication on the part of the sustainability-oriented financial community and investors. We also conclude that the large companies are already well prepared for the statutory obligation to report non-financial data as of the 2023 financial year and have formulated concrete, future-oriented goals.

IRF conducted a study on the financial guidance of Swiss companies for the eighth time in May and June 2023. The data was collected by analysing the content of those sections of the annual report and the presentation on the publication of the 2022 annual results in which the strategy or the outlook are discussed. The 46 companies from the SMI Expanded that had published their 2022 annual results at the time the study was conducted served as the object of the study. The SMI Expanded represents the 50 highest-capitalised stocks on the Swiss stock market.

Oliver Seifried, Partner, seifried@irf-reputation.ch
Yasemin Diethelm-Ersan, Senior Consultant, diethelm-ersan@irf-reputation.ch