Among the benefits of investing in a stock market-listed company is transparency. All London-listed firms are required to report important bits of information which could have an impact on their share price in a timely fashion.

If you’ve ever wondered what the different types of announcements mean, read on as we’ll explain the importance of the main ones.

Most companies communicate with the market through the Regulatory News Service (better known as RNS) – a service
owned by the London Stock Exchange (LSE).

Close to 300,000 announcements are processed by RNS each year and more than 70% of all regulatory and potentially price-sensitive UK company announcements originate from RNS. Alternative distributors of regulatory news include PRNewswire, GlobeNewswire and BusinessWire.

Rather than go to each distributor’s own website to find the announcements, the easiest way is to use a specialist financial data website such as Sharesmagazine.co.uk (click the ‘Market News’ tab). Here you find all the main announcements in a single place.

The bulk of the announcements will be made at 7am which gives investors one hour to digest the news before the UK stock market opens. However, further announcements do trickle out throughout the day, albeit you’ll find that very few of these will relate to financial results or trading updates.

WHAT HAS TO BE DISCLOSED AND WHEN?

When, why and how companies update the market is governed by a series of rules from the Financial Conduct Authority, the London Stock Exchange and European Union.

The central point is a company must notify through an approved regulatory information service like RNS any inside information relating to the company.

For an item of news to be classed as ‘inside information’ it must meet the following criteria:

- Be of a precise nature and specific to the company

- Not be generally available

- Be likely to have a significant effect on the price of the shares (be price sensitive) if it were generally available

These are not always hard and fast rules – a 10% movement either way has been used as a rule of thumb for a ‘significant’ effect on a share price but the FCA has historically been very clear there is no ‘10% rule’. A company will usually consult with its stockbroker to determine whether information is price sensitive.

A company needs to ask: would a hypothetical ‘reasonable investor’, out to maximise their economic self-interest, be likely to use the information in making their investment decision?

Relevant information could include:

- Changes to a company’s financial position

- A significant improvement or deterioration in trading

- A major new development such as a big contract win

- A change in the value of a big asset

Information must be released as soon as possible. When news is unexpected, say for example a contract has been lost overnight or a company has been affected by a natural disaster, they can delay for a short time to establish all the facts.

However, if there is a risk that information leaks to the market then a holding statement will need to be made with as much information as possible.

A company can also hold off if putting news out would prejudice its ‘legitimate interests’. However, it needs to ensure it has taken steps to keep the details confidential.

If a company is in financial difficulties, for example, and is negotiating with lenders then it could delay announcing it is having these discussions. Yet it would still need to announce that it was having financial problems.

In theory the rules help ensure a level playing field for investors and prevent unscrupulous individuals from taking advantage of insider knowledge to trade the shares before information becomes more widely known.

WHAT IS NOT INCLUDED IN RNS ANNOUNCEMENTS?

Companies do not have to make an announcement in response to unsubstantiated rumours but if speculation hits the mark, then they need to rapidly consider if inside information should be released.

Outside of explicit guidance given on trading in updates and half year/full year results, some companies will give analysts some guidance in private to help them come up with earnings forecasts.

The rules say that just because information is unpublished it doesn’t make it inside information. Companies can offer a steer to analysts so long as what they’re telling them wouldn’t be price sensitive because, for example, it revealed a big decline in sales.

THE MAIN TYPES OF RNS ANNOUNCEMENTS

TRADING UPDATE

Trading updates are your chance to discover the latest health of a business. They are often short in length but can have a major influence over the direction of a share price.

Investors want to know if trading is above or below or in line with market expectations. These events can often be triggers for analysts to downgrade or upgrade earnings forecasts which in turn help to influence current market sentiment.

For example, many investors like to buy into stocks which have had their earnings forecasts upgraded, even if the share price has already moved upwards off the back of the trading update. In this situation, investors hope that positive trading momentum will continue.

You can find earnings forecasts on various media or financial data websites such as Reuters, Stockopedia and SharePad, although some will require a subscription for access.

Some companies don’t like issuing announcements every time they win a new contract, so trading updates can often be the perfect time in which to bundle up this information.

COMPANIES CAN BE FINED A LARGE AMOUNT OF MONEY FOR INFERIOR DISCLOSURE

There are consequences for failing to meet the required reporting standards. Last year, FTSE 100 mining firm Rio Tinto (RIO) was fined £27m for breaching its disclosure and transparency rules by failing to write down the value of its Mozambique mines in its half year results in 2012.

WATCH THE WORDING CLOSELY

Trading updates can also be important lead indicators for potential future problems. Watch out if a company says that trading is ‘broadly’ in line, as this implies it isn’t quite as good as expected and needs an improvement to hit forecasts for the full year.

The same applies to companies which say trading is ‘second-half weighted’. That means they expect to make more money in the second half of their financial year than the first. Ultimately it raises the risk of a profit warning if the second half doesn’t play out as expected.

Finally, it is worth noting that ‘interim management statement’ is simply another term for trading update. Companies also use terms such as ‘operational update’; or in the case of mining companies, ‘production results’. The latter will give you an insight into how much material has been produced but you have to wait until full or half year results to get financial information.

FINAL / INTERIM RESULTS

Financial results are very important as they give you a full breakdown of how a company has earned its money, plus most stocks will give you insightful commentary on how they are coping with challenges and embracing opportunities.

Yet it is vital that you understand the stock market is forward looking and full year results are the presentation of historical information. The market is MORE interested in the outlook statement in a set of results than the numbers themselves.

That’s not to say the historical numbers are irrelevant; far from it. The financial review section should give you a breakdown of costs and the key drivers of profit (or loss) plus commentary on dividends and debt.

The consolidated income statement will show you the breakdown of revenue, expenses, profit, finance costs and tax. The consolidated balance sheet shows a breakdown of assets into intangibles (like brands), property, plant and equipment, deferred taxation assets, trade and other receivables and cash. You will also see a breakdown of equity and liabilities.

Other important bits of information include the cash flow statement and footnotes which will explain any exceptional items and information on borrowings.

Just in case you didn’t know, final refers to the full year and interim means half year.

ANNUAL REPORT

Annual reports tend to be published a few weeks after full year results come out. The stock market announcement is usually just a link to read the report.

The report itself should provide insight into a company’s strategy plus provide additional information not in the full year results such as how much money the directors are paid.

DIRECTOR/PDMR SHAREHOLDING

These announcements can be a bit complicated to read as they are usually in table format and contain loads of technical information.

In a nutshell they are telling you if a director of a company has bought or sold shares. They reveal the price and the number of shares in the transaction.

It is rare to see a reason behind the transaction. Typically the only explanations given are that the director is selling shares to pay a tax bill or to buy a house. In our experience, it’s also often down to someone getting divorced or they’ve simply been given shares as part of their bonus payment and want to cash out and spend the proceeds on themselves.

Director dealing announcements are worth tracking as a large purchase or sale can send a strong signal to the market. After all, these directors are the ones who should know a business
the best and they have the inside track on whether things are going well or not.

The PDMR bit in the announcement refers to ‘person discharging managerial responsibilities’. It is either a director or a senior executive who has regular access to inside information about the business.

Trading by connected persons such as a director’s husband or wife will also be subject to these types of announcements to the stock market.

HOLDING(S) IN COMPANY

This tends to appear in a table format and shows the name of a company or person buying or selling shares in a stock where they have a holding of 3% or more.

These announcements provide insight into whether someone is building a stake in a business, such as an activist investor who could help to realise hidden value in a stock, or someone who could potentially make a takeover bid down the line.

AGMs / EGMs

Annual general meeting (AGM) announcements often include a trading update so are well worth monitoring. The results of AGMs are also important to follow as you will see if shareholders have voted for or against remuneration deals and the current structure of the board.

Emergency general meeting (EGM) announcements are very important as they often involve a major shareholder calling for changes to the board or to vote against the company’s strategy. It tends to be a matter that is too serious or urgent to wait until the next AGM.

INTENTION TO FLOAT / AIM SCHEDULE 1

These announcements tell you which companies are set to join the UK stock market, either on AIM or London’s Main Market.

Most companies going to the Main Market will issue an intention to float announcement. They normally issue a subsequent announcement confirming the float price – or you’ll perhaps get the indicated float price range prior to final pricing for the largest companies.

AIM companies have a mixed reputation with issuing intention to float announcements. A lot of them will only issue the obligatory Schedule 1 announcement which is a standard form giving scant details on a company intending to carry out an initial public offering (IPO). (DC/TS)

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