Forecast minefield

Author: | Published: 1 Sep 2007

Issuers often publish forward-looking financial information, sometimes because they are required to do so and sometimes by choice. When this information is declared in the context of a securities offering, additional disclosure obligations apply to protect investors.

There is nothing wrong with making a profit forecast, but a forecast is by nature uncertain, so tends to make issuers cautious. Unless there is a general safe harbour for forward-looking statements, which in many jurisdictions there isn't, a forecast is subject to the regulatory framework protecting investors from false or misleading statements. This area is also highly regulated under EU rules.

The EU Prospectus Regulation regulates profit forecasts in the context of a securities offering. Cesr recommendations provide additional guidance. In many European jurisdictions, there is little developed law or practice on what constitutes a profit forecast or on the procedures for drawing one up. The EU rules require profit forecasts in...