Guidance¹ can be defined as providing prospective information, of a quantitative or qualitative nature, on the future of a company's operations or securities. If the data is quantitative, it is called a forecast or estimate.

Management forecasting is an advanced stage of communication with investors and other market agents. Its application should therefore undergo a thorough and discriminating analysis.

The rules established by the CVM on "Forecasts" include, most prominently:

• forecasts/estimates must be included in quarterly releases, as well as in item 11 of the annually-issued Reference Form (RF) and Standardized Financial Statements (SFS), and should be revised periodically after no more than one year (whenever third-party projections are used, the sources should be indicated);

• they should also include any relevant assumptions and parameters that influence the forecast/estimates, which should be reasonable and should specify that the data is hypothetical and does not comprise a promise of performance;

• a comparison of forecasts/estimates vs. actual performance must be provided both in the quarterly releases and the annual RFs and SFSs, pointing out the reasons for any divergence;

• annual RFs should disclose which projections are being replaced by new ones and which ones are being repeated, as well as any modifications to the relevant assumptions and parameters that back the new projections/estimates or lead to abandonment of past projections/estimates, with due explanation of reasons.

Under item 11.1 of their RFs, companies should also identify:

• the purpose of their projections;

• the projected periods and the validity periods of the projections;

• the assumptions used for each projection, indicating the assumptions that could be influenced by the company's management and those that are outside the company's control; and

• the values of the indicators which are objects of forecasts.

Disclosing new projections or modifying existing ones implies the need to anticipate or update the relevant RF item.

The recently issued CVM Instruction 482 revoked the provisions of Instruction 400 on projections (the term used in the previous rule was "forecasts"). Starting August 1st, when the amendments to Instruction 400 will come into effect, the subject will be regulated only by Instruction 480.

Therefore, come August, projections included in public offering prospectuses will no longer need to be supported by the opinion of auditors on the relevant assumptions. On the other hand, given that CVM Instruction 482 determines that RFs must be incorporated into such prospectuses as references, companies that decide to disclose projections in their Reference Forms must also include them in their prospectuses, by extension. The insertion of any prospective information in public distribution prospectuses should undergo careful analysis due to the applicable liabilities.

Managers and IR departments should therefore review their practices in relation to projections. Any disclosures of this nature must also present the relevant RF item, based on the applicable rules, and must comply with CVM Instruction 358 on material information.

¹The CVM provides recommendations on the practice of presenting expectations on future performance (guidance) in item 24 of CVM/SEP Official Circular No. 001/2010. Regarding this subject, see also Advisory Pronouncement No. 04 of 04/17/08 by the Advisory Committee for Information Disclosure to the Market (Codim).