Speaking in tongues: what City phrases really mean when you read them in the news

Reading City announcements is a skill in itself. Companies rarely say anything that is technically untrue. They simply choose words that have been smoothed and rounded until almost nothing sharp is left. Learn to spot the most common dressings and the news stops sounding like business updates and starts sounding more like coded messages from a friend who is in trouble and would rather not worry you.

The financial press does the same thing, partly because the City lexicon has soaked into the way reporters write. So the same phrase can appear in a press release on Tuesday morning and a Reuters report by Tuesday lunchtime, and very few readers will pause to ask what it actually means. They should.

Take the most familiar of all: challenging conditions. When a chief executive says trading has taken place against challenging conditions, they are telling you that something has gone wrong and they would rather you did not look too closely at what. The conditions themselves usually have nothing to do with the share price drop that follows. Other companies operating in the same market often do fine. What challenging conditions really means is that the management team did not see the problem coming or did not have the right product mix to weather it. Substitute the words “we got caught out” and you will rarely be far off.

A close cousin is in line with expectations. The phrase sounds neutral, even reassuring. Read it carefully. Whose expectations? Almost always the company’s own, which were quietly trimmed lower three months ago after a discreet briefing to favoured analysts. A trading update that lands in line with expectations is no guarantee the business is doing well. It only tells you that whatever it is doing now is what someone at the company managed to flag in advance. The real test is what the share price did over the previous quarter while those expectations were being managed downwards.

Then there is the famous one-off item. Sit through enough results presentations and you will notice that companies have one-off items every single year. Sometimes they have several. The restructuring charge. The legal settlement. The impairment of an asset bought in a previous deal. The redundancy programme. The disposal loss. Each is presented as an unusual event that should be stripped out of the underlying figures, leaving a cleaner number for analysts to model. The trouble is that recurring one-off items are not one-off at all. They are the cost of doing business at a company that keeps making the same kinds of mistakes. When the adjusted profit figure looks healthy and the reported figure looks sickly, the gap between the two is the part the company would rather you did not see.

Transformational is another red flag dressed in formal wear. Acquisitions are often described as transformational by the management team announcing them, never by the shareholders three years later who have to live with the integration costs and the cultural mismatch. The word usually accompanies a deal that is too large for the buyer, too expensive at the price agreed, or too far outside the buyer’s previous experience. The most reliably transformational thing about most transformational deals is the share price fall they cause once the market has had a few days to think about them.

Strategic review is what companies announce when they have decided to do something but are not yet ready to say what. It can mean anything from selling off a struggling division to closing a factory to changing the management. Sometimes it means simply that the board cannot agree and is buying time. The phrase is so wide that it carries almost no information by itself. The only useful inference is that something is unsettled enough to need formal review, which is itself worth knowing because it suggests the next set of results may contain announcements that have been pencilled in for months.

The financial press has its own dialect for results and market moves. A share that has fallen sharply is described as having drifted, eased or come under pressure. A bidder offering an underwhelming premium is making an opportunistic approach. A profit that has missed forecasts is described as broadly in line. A company that has lost a chief executive in difficult circumstances has parted company with them by mutual agreement. None of these phrases is wrong, exactly. They are just smoothed. The job of the reader is to translate them back into the harder language they replaced.

A few others are worth memorising. Robust usually means that something is fine for now but the management does not want to put a number on for how long. Disappointing is reserved for results so bad that even the company cannot find a more flattering description. Mixed performance is what happens when one division has done well and another has done badly, and the headline figures average out to nothing very interesting. Confident in the long-term outlook is what executives say in the present tense when there is little encouraging to say about the present. And significant investment is the phrase preferred over higher costs whenever those costs can be linked to a future benefit, however vague.

The point of learning the dialect is not to become cynical about every announcement. Most companies most of the time are reporting straightforward news in the most measured way they can. The point is to notice when the language has thickened up. A trading update full of neutral, smoothed phrases is rarely a trading update telling you that everything is going as well as the share price suggests. When several of these phrases appear in the same statement, treat the document as a translation exercise. Read it twice. Read what it says, then read what it has stopped saying.

If you can develop the habit, you will start to notice patterns the rest of the market sometimes misses. The early signs of trouble in a company are almost never delivered in plain English. They arrive wrapped in the soft language of the City, and they reward the reader who has bothered to learn the code.

This post is drawn from The Street-Smart Trader by Ian Lyall. Republished with permission.

Street Smart is a series drawn from first-hand experience of the City of London, updated as each new chapter arrives.

Disclaimer: The value of investments can go down as well as up, and you may get back less than you invest. This article is for informational and educational purposes only and does not constitute financial advice. Always do your own research and consider seeking independent advice before making any investment decision.