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July 30, 2012

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Patrick Kiss

An IR Club (http://www.irclub.de) survey from March 2012 showed comparable results for German companies:

70% of the IR departments summarize a consensus out of the analysts' reports

26% make regular surveys among analysts (eventually supported by service providers)

4% use the consensus numbers collected by vendors

Tim Human

Thanks Patrick. Anecdotally it seems that the practice is more common in Europe than North America.

Roderick Cameron

Can't understand why more companies haven't brought this practice hasn't been brought into 21st century using transparency management tools such as vuma.com.

David Collins - Catalyst Global IR

It is clear that ALL companies should be tracking and producing an internal consensus of analyst estimates - otherwise they are exposing themselves to undo risk by allowing third parties to develop and manage key milestones for their investor expectations and valuation.

For years we have been working to mitigate this risk by developing an internal consensus. In this process we have identified multiple instances where major consensus databases were not up to date, did not have all analysts included, had inaccurate information and/or were misleading because their consensus dropped certain estimates that did not meet their "criteria."

The problem is that the broader investment community is just responding to the number - and is unaware of the various factors that can influence it - or even make it wrong or misleading.

I can't see how anyone would argue against performing this process - given its importance, but the real question is what you do with this information with respect to the broader investment community.

We have never provided our internal estimates to Wall Street at large - not because it's a good or bad idea, but because there is no getting away from an implied endorsement risk of providing estimates that are not your own, even a consensus.

Instead, we took the lower risk route working to make sure the public consensus truly reflected the actual estimates of the analyst universe covering our clients.

We have used our internal numbers to confirm or "fix" the consensus databases by alerting the data providers to updates they don't have, analyst coverage they were not aware of and/or even getting analysts to revise their methodology so that their estimates will be included in (and will exert influence on) the consensus.

Through this process we have also learned the methodology behind the consensus calculation and who's in and out, for which periods, and why. And as we know, all estimates are not created equal, as some firms/analysts have far broader reach and influence than others - so a consensus lacking a key analyst can be far from an accurate representation of what Wall Street is expecting. With the knowledge of the consensus' formulate, you can work to get analysts to move into greater alignment (sometimes!).

All of this can be done without subscribing to these generally high-priced services - as the data providers recognize this verification process is good for all parties, as it ensures the consensus numbers are accurate.

Hope this is helpful as the dialog seemed to gloss over a few factors that I feel are very import an to the spirit of this article.

Rebecca Updegraph

David, I agree with most of your points - when I was an IRO a few years ago we also did our own internal analysis of estimates, though we did not publish them externally in any way for the reasons you mention. In my experience, however, it was very difficult to gather the data without subscribing to a service as well as directly receiving the data from our covering analysts for comparative purposes in enough detail. Plus if anything the providers would likely prefer that you not try to do it yourself - at least not without ALSO buying their product - as then they wouldn't have any customers for their product, or perhaps I'm missing your point?

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