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Why are some company reports so short on reporting?

The annual report and accounts is the one big opportunity a public company has each year to help its investors understand what it does and what it is worth. Some appear more eager to seize it than others

15/08/2017

Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

What is the point of a company’s annual report and accounts?

All public companies are legally required to publish such a document which, as its name suggests, offers a comprehensive review of all of a business’s activities and financial information from the preceding year.

As to what it is actually for, however – well, that may depend on whom you ask.

Here on The Value Perspective, we spend a great deal of time reading and analysing companies’ reports and accounts. We do this to learn a business’s history, understand what it does and, if at all possible, gain some insight into how it is approaching the future – and  of course there are plenty of companies who set out to help us, and other investors with similar ambitions, in that regard.

Their reports and accounts can be informative and enlightening – and for that we are grateful.

Others, though, can be downright befuddling and bamboozling – and occasionally we find ourselves wondering if that is despite or actually because of the best efforts of a company’s investor relations department.

If we told some businesses their report and accounts left us none the wiser, might they actually take that as a compliment?

For the avoidance of doubt, we should stress we are ascribing no ulterior motives to the authors of the report and accounts, from which the following extracts are taken.

It may well be they and their employer – which will remain anonymous to all but those willing to spend about eight seconds on Google – genuinely believe they stand squarely in the ‘informative and enlightening’ camp.

So let’s play a game… what does this company do?

The business overview begins: “We deliver innovative supply chain solutions globally to customers in the communications (comprised of enterprise communications and telecommunications), consumer, diversified (comprised of industrial, aerospace and defence, healthcare, solar, green technology, semiconductor equipment and other), and enterprise computing (comprised of servers and storage) end markets.”

Any guesses? No?

Later we are told: “We believe our services and solutions create value for our customers by accelerating their time-to-market, and by providing higher quality, lower cost and reduced cycle times in our customers’ supply chains, resulting in lower total cost of ownership, greater flexibility, higher return on invested capital and improved competitive advantage for our customers in their respective markets.”

How about now? No, us neither.

A few pages on, we find: “We operate a network of sites in various geographies with specialised end-to-end supply chain capabilities tailored to meet specific market and customer product lifecycle requirements. In an effort to drive speed, quality and flexibility for our customers, we execute our business in centres of excellence strategically located in North America, Europe and Asia.”

And so it continues until, after a full six pages, and a growing suspicion that logistics probably features somewhere among the company’s activities, we find five words –“manufacturing services” and “circuit board assembly”.

Granted, they are mixed in among others such as “design” and “quality” and even “Six Sigma culture” but  they are definitely the ones we have been looking for.

And it has taken six pages to get there.

If the point of a set of report and accounts is to help the people who own a business understand what it does and what it is worth, then this one has not, to use its own words, “been tailored to meet the specific requirements of a key end market by delivering innovative solutions and executing excellence to accelerate users’ time-to-enlightenment”.

Or, as we would say, it has failed utterly.

 

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Author

Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

I joined Schroders in 2000 as an equity analyst with a focus on construction and building materials.  In 2006, Nick Kirrage and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Nick and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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