Q1 results season isn’t quite over and I’ve had lots of questions about the lingo used by company management when discussing their recent performance. So I’ll have a go at explaining some of the most commonly used, help you better understand the results being published next week. I may even do a Part 2 next week.

For example, when a company reports sales, revenues or profits, the management will always provide a “reported” growth rate. However, this may include all manner of exceptionals and one-offs, such as acquisitions, disposals or currency movements which can distort the figure. In which case they should also provide an underlying, organic or like-for-like growth figure which excludes these one-offs to offer a truer reflection of the real growth during the period.

A great example comes from the Retail sector which often looks at same store sales growth or like–for-like (LFL) growth. This only includes growth from stores open for the whole period in question, to isolate the underlying growth of the shop base, excluding all those new openings and/or closures, which can often be considerable; especially when growing quickly, which can mask slowing underlying growth, which could be a worry.

For companies doing lots of business round the world and sensitive to currencies, you may hear management talk about growth at constant currencies or excluding currency movements. This may seem overly complex but, as above, it at least lets us know how the business is faring without the artificial flattering or damage from currency moves. If revenues are up only because your sales are worth more thanks to FX moves, this means sales growth is actually flat. Something perhaps worth keepinh an eye on.

For example, British Airways owner IAG today reported Q1 fuel unit costs up just 0.6% which sounds like it did a great job hedging against the 30% oil price rally from March 2017 to March 2018. However, if its main currencies GBP, EUR and USD hadn’t moved, management said that the same fuel unit cost growth would actually have been +10.4%, implying that hedging only helped offset two thirds of the oil price rally. Meaning the other 10% came from favourable currency moves. Which we obviously can’t assume will continue forever.

Other terms you may hear include pre-exceptional or adjusted which strip out major changes in the budiness to disclose the real rate of growth and how fast the business is truly growing. After all, if a company’s sales or profit growth jumps from 1% to 5% just because it acquires another company, this disguises the growth of the original business, which we still need to monitor. Especially if it’s getting better, or worse.

I could go on, but that’s a lot already. I think I’ll leave it there and continue the theme next week (part 2), looking at a few more explanations of results season jargon.

If you like what you’ve read and fancy learning even more about how to understand company results and what’s going on behind the jargon, get access to our award-winning research. As of next week you’ll benefit from a range of publications telling you what’s going on the in markets, highlighting key levels on the UK Index Index and its blue-chip constituents’ shares and of course trade ideas for you to consider.

Enjoy our long weekend.

Mike van Dulken, Head of Research, 4 May 2018