City & Corporate: Companies make a virtue of doom

When Yell delivered its interim profit figures a couple of weeks ago it produced a surprisingly robust performance given what is happening in its advertising markets. But the good news was ignored. The only part of the statement to have any effect was the bit where chief executive John Condron announced further cost-cutting and the loss of more than 1,000 jobs.

The values of the stock market, and with it the PR approach of companies, has become inverted. Normally companies play up the good points and down-play those that disappoint. In recent weeks this has changed. Now companies seek to outdo each other with bad news. Thus Yell was followed by Virgin Media, which said 2,000 jobs would go, and BT planned to shed 10,000 jobs by next April. Its shares went up too, on that announcement.

This is not quite as bizarre as it looks. The market is convinced we are all doomed or if not that, at least destined to become insolvent. Instead it only takes comfort from those companies that are preparing themselves for tough times by doing what they can to reduce costs. Thus the bigger the programme of redundancies, the more the stock market likes it.

Companies over-spin on the way down, just as they do on the way up. Most observers think the BT statement looks more dramatic than it is. Several thousand people have already gone. Several thousand more will leave through natural wastage. Many of those who do finally go will be temporary workers rather than full-time employees. Perhaps we should note that BT is having trouble growing its revenues so switching the focus helps deflect attention from this.

It will be interesting to see how long the market retains its appetite for such masochism. Companies are now making a virtue of other cash conservation measures such as suspending share buy backs and stalling on capital investment projects. But there must come a point when investors wake up to the fact that whatever short-term comfort such announcements give, there is nothing at all to be cheerful about.

Anthony Hilton is City commentator on London's Evening Standard.

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