UK reports tend to emphasise a short-term view of performance at the expense of the longer-term.
KPMG International’s Survey of Business Reporting covers some 270 larger listed company annual reports, of which one tenth are from the UK FTSE100. The survey highlights the gap between the information investors need to assess the health and prospects of companies, and the information they are currently receiving through corporate reporting channels. UK Company reports scored well in a number of aspects of the survey - notably, they tended to be more concise, and delivered more focused risk discussions. However, they also share many of the challenges apparent in the global survey particularly when it comes to providing a deeper view of business strategy and performance. The result is that UK reports tend to emphasise a short-term view of performance at the expense of the longer-term.
This is reflected in the Financial Reporting Council’s (‘FRC’) reporting lab report published in October 2016, which focused on business model reporting. The FRC found that:
KPMG’s survey of business reporting in the UK highlighted three broad areas requiring attention:
A third of UK reports focused only on short-term matters such as efficiency programmes and incremental revenue initiatives. Addressing underlying competitive strengths, such as the customer experience, and explaining how these are being developed and protected could help companies to provide a longer-term perspective.
UK business model descriptions can lack depth and often focus on only a few aspects of the business. The most common gaps in descriptions related to know how and supplier relationships which can represent key areas of competitive advantage and challenge. The gaps in these descriptions can be carried through to the rest of the report, and they can also make it difficult for investors to interpret the implications of external factors and events without further guidance from the company.
The best company reports include a range of relevant measures covering, for example, brand, research, staff, customer base, product base, and efficiency. UK companies typically provide KPIs over two or three of these areas, but German companies, which scored particularly strongly in this area, average four or five.