Annual reports contain too many ‘bland statements’

Companies are too often issuing bland statements in their annual reports,
according to a report by Merchant.

Of the companies in the study, 280 received either zero or one out of a
maximum of five for their market opportunity communications.

Robert Moser, managing partner of the annual reports, websites and corporate
literature experts, said: ‘There were a lot of answers such as “the market looks
good”­ how is an analyst supposed to put a value on that? It’s an extraordinary
situation that analysts are not being given adequate information. Analysts want
good information ­ why are Plcs not providing that?’

The survey looked at the UK’s top 500 companies’ efforts to communicate with
the market.

The study addressed core reporting issues including strategy, market
opportunities and business reports, as well as added value factors such as
corporate social responsibility relationship, corporate governance and customer
Moser also criticised the replacement of the Operating and Financial Review for
the less demanding Business Review.

‘Despite the new legislation, the quality hasn’t improved. Maybe more red
tape is needed. Once the OFR was removed, things got watered down. If you took
an average over the past 12 months, companies have not got better.’

The research also showed that those companies which most clearly communicated
their strategy and market opportunities in 2006 outperformed the FTSE 100 in the
subsequent 12 months.

On average, the FTSE 100 companies had a total shareholder return increase of
approximately 13% between July 2006 and July 2007. However, 10 companies
identified in July 2006 as the best communicators of strategy had a TSR of about
24% and the eight companies judged as being the best communicators of market
opportunities had a TSR of about 18%.

‘We don’t suggest that better communication directly causes a rise in share
price but there is a correlation,’ Moser said. ‘These things are key indicators
of good companies. If corporates are highly effective in their communications to
the City, then you can be sure that internally they’re just as robust and their
people understand the market they operate in.’

The size of annual reports also increased last year with the average FTSE 100
tome rising by eight pages to 140 while across the 500 report size increased to
100 pages from 92.

Moser added: ‘We were surprised to see that despite the additional pages in
annual reports this year, only 69 companies out of the FTSE 500 scored above
average in explaining their strategy and markets.’

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