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Okay. Let’s operate under the assumption that not everyone on High Street understands Italian. The headline means that Avanti Communications (LSE:AVN) is moving backward, losing 36.37% of its market cap today as its share price dropped 89.75 pence to 157.00 by 2:00 pm. In case you still don’t get the dark humor of the title, “avanti” is an Italian adverb meaning “forward”. “Indietro” is an Italian word meaning “backward”. So the headline means “Forward Moves Backward.” Get it? Avanti sure is getting it.
I’m going to go out on a limb and take a wild guess that no one in the Avanti boardroom really wanted to publish the company’s year end results this morning. They spent so much time polishing the wording that the paper it’s written on shines. Avanti share price has dropped 38.14% over the last four weeks, and a whopping 62.5% over the last year. Today’s fall took the stock to a new 52-week low, which was previously 215.25.
Essentially, Avanti said that “Revenues (were) below market consensus as a result of timing movements of certain contracts.” As if carefully hidden, and almost as an afterthought buried in the next major paragraph of the report, is the statement that says, “Revenues for the financial year ended 30 June 2013 are likely to be up to £10m below previous market consensus.”
Almost all of the rest of the report was, as the Avanti name implies, forward looking. We all know the standard disclaimers for forward-looking statements. It’s also hard for investors to swallow even the most optimistic forward-looking statements when the Key Performance Indicators (KPI) are saying something else. Which brings us to another point.
Also in the report, the Board made a statement that absolutely puzzles me. It said, “Our KPI reporting has not generated clarity, so in direct response to the question we are asked most often by shareholders, we will now report our backlog, (i.e. order book), for each of the next three years.” I’m confused. Isn’t coming in £10 million below consensus a clear KPI? Isn’t that something akin to Edward Smith telling his passengers not to abandon ship because they hadn’t heard of his future plans for the Titanic? Claims are that he was drunk that night. I have no idea of the state of mind of the Avanti board, but I’m willing to bet that the Board would have been better off leaving well enough alone by publishing the results, then ducking under the conference table.
When you are telling investors that you have done a poor job operationally, including failing to reasonably project consummation or failure of contracts, which I believe is an appropriate description of this incident, you can’t expect to inspire investor confidence by pointing them to the future. Why would a Board expect investors to believe them whilst they have been proving to them that they can’t? The fact that the Board is trying so hard is evidence, in my humble opinion, that Avanti is not going to move forward without some internal operational changes, and I do mean high-level personnel changes inclusive in that statement.
I hope that my attempt at an oxymoronic title didn’t turn me into a moron in your eyes. If it did, I want assure you that my next titles will prove to be much more attractive and easier to understand. We don’t want to lose you as readers, so please trust me that I will have much better titles in the future.
Good grief! I’m beginning to sound like Avanti!
In the immortal words of Captain Smith, “Just hang on. I can assure you that this won’t happen on our trip back to Liverpool!”
