Forward guidance: Why it matters and how to get it right

INVESTORS do not just focus on a company’s past performance; they also buy into its future.

In a market where confidence drives capital, forward guidance – the practice of sharing credible statements about future performance and strategy – matters more than ever.

Singapore’s stock market is gaining momentum. The Monetary Authority of Singapore has announced initiatives such as the S$5 billion Equity Market Development Programme to catalyse investor demand and a S$30 million Value Unlock programme to help listed companies strengthen investor engagement and sharpen shareholder value creation.

While these two programmes are significant levers, they cannot replace the power of clear communication from listed companies themselves. With investor interest in Singapore stocks picking up, companies have a golden opportunity to strengthen fundamentals, enhance communications and demonstrate value creation.

In our many engagements with investors, forward-looking statements – commonly referred to as earnings or forward guidance – rank high on investors’ wish lists. Research analysts and institutional investors consistently emphasise the importance of anticipated earnings and the strategy the business will employ to achieve those results.

Yet, few companies provide such statements. Why? Misperceptions. Let us clarify three biggest myths.

Myth 1: Forward guidance is frowned upon by the authorities

Many companies fear regulatory backlash if projections miss the mark. One common misconception is that forward guidance will attract regulatory scrutiny – particularly if the forward guidance subsequently proves inaccurate – and result in disciplinary consequences.

In reality, companies can and should offer such guidance. While not mandatory, Singapore Exchange Regulation (SGX RegCo) strongly encourages issuers to provide forward guidance to inform shareholders of their strategic direction and business targets.

The key lies in ensuring that the forward guidance is carefully prepared, based on credible methodologies and assumptions, and is realistic and defensible, in line with the principles set out in the Listing Rules.

SEE ALSO

Internal models, historical performance and external market data should underpin these projections. Offering a range rather than single-point estimates is acceptable when it reflects the inherent uncertainties.

If an issuer is not confident to provide quantitative forward guidance, giving forward-looking disclosures in narrative form around the companies’ strategies, or intended activities, would still be helpful.

These practical guidelines ensure that investors can reasonably rely on the forward guidance.

Issuers should decide, based on their own industry and business model, which metrics are appropriate for forward guidance. Examples observed in the market include traditional metrics such as revenue, earnings and costs, as well as other metrics such as assets under management or project completion milestones.

Myth 2: Companies need an auditor to sign off forward-looking guidance

Another myth is that an auditor must sign off on forward-looking statements.

This is not the case. Auditor confirmation applies only in specific circumstances under the Listing Rules, such as when a profit forecast is accepted from a vendor in a Chapter 10 transaction.

What truly matters is that the issuer follows the guidelines above, and the board stands by the issuer’s forward guidance.

Myth 3: Forward guidance must be updated immediately

A third misconception is that forward guidance must be updated immediately in response to changes in the issuer’s circumstances.

Again, that is not correct. Regulators understand that forward guidance relates to an uncertain future and therefore do not require instant updates for every change.

This means that issuers are not required to amend forward guidance immediately when a material event, such as winning or losing a major contract, occurs, or when there is firm evidence of significant deviations between projections and actual results.

Instead, they need only announce the material event or the existence of such significant deviations, and whether the forward guidance can still be relied on.

The magnitude of the differences between the forward guidance and the actual results, as well as any updates for future periods, need only be provided at the next financial report or business update.

For example, while preparing its financial statements for a particular period, if an issuer finds that actual results materially deviate from prior projections, it should promptly announce the fact that the actual results may materially deviate from the forward guidance – similar to a profit warning.

It would also be helpful if the issuer discloses whether the actual results would be better or worse than the forward guidance. The issuer need only provide the magnitude of the deviation, as well as updates to forward guidance for future periods, in the upcoming financial report or business update.

While issuers are encouraged to provide forward guidance consistently, issuers may also choose to pause or stop if they assess that conditions are too uncertain for guidance to be meaningful and disclose the reasons for doing so.

We would also encourage companies to update shareholders on their performance against previous guidance, even when such guidance has been met, as this helps to build trust.

Forward guidance is an opportunity, not a risk

There are three key points about forward guidance that issuers and investors should remember.

First, issuers are always and ultimately responsible for the accuracy and integrity of their announcements, including forward guidance. Importantly, all material information including forward guidance must be made public via SGXNet to ensure a level playing field.

Second, investors should equally recognise that forward guidance, by its nature, relates to an uncertain future. It would therefore not be reasonable to expect issuers to meet their projections with absolute certainty.

Third, in reviewing compliance with the Listing Rules, SGX RegCo will adopt a sensible approach. Forward-looking disclosures that issuers announce in good faith, accompanied by appropriate disclosures to enable investors to appreciate both the basis for the projections as well as the inherent uncertainties involved, should in the ordinary course of events not attract regulatory queries.

SGX RegCo continues to support disclosures that promote transparency and informed decision-making. Forward guidance should not be viewed as compliance, but a competitive edge. It signals confidence and builds credibility, which can underpin value.

Forward guidance, when thoughtfully and responsibly prepared, can be a useful tool in achieving these outcomes.

The writers are from SGX RegCo; Tan Boon Gin is CEO and Michael Tang is head of listing compliance