Annual reports are ranked on their ability to effectively communicate a three-minute investment story
It is surely a disappointment to IROs that investors spend so little time reading the annual report. The rule of thumb is that a company has about three minutes to get its investment story across before a reader loses interest. That may even be a generous estimate; the SEC recently convened a working group to study whether investors pay attention to such reports at all.
Two years ago, we made our first attempt to identify companies that got their points across the quickest and most effectively. We reprise that experiment here with a new set of annual reports, ranking them on their ability to communicate a three-minute investment story.
1 - Land Securities (UK)
The 2008 annual report for a UK real estate investment trust is the favorite of four out of five judges. One even gives it a perfect score, the only 10 in the contest. Most striking is the sober essay from the chairman outlining what the correction in the property market means for the company. ‘The chairman’s message dealt with the troubled housing market head on, which was welcome,’ one judge says. It also appeals to another judge: ‘It takes the most important person in the company and positions him very well.’
The designers use contrasting handwritten arrows and marks to help the reader along. The notation makes it easy to scan the report, but there are many opportunities to go deeper. ‘It’s similar to WPP offering a six-minute read, but this is smarter,’ notes one judge.
2 - WPP (UK)
This global communications group’s annual report opens with a six-page ‘fast read’, giving investors a nicely condensed version of the lengthy annual report. The rest of the book is organized with simple declarative headers: Who we are, Why we exist, How we’re doing.
While it is well written, readers of the long form are bogged down in words. The volume makes it hard to work out how the company is performing today. ‘There’s some self-importance in the tone,’ one judge says. ‘That’s not attractive.’
The holding company does bring itself to life by including reports from each of the directors running an operating brand. WPP also includes a discussion of ‘how we behave’, in which it addresses its carbon footprint and marketing ethics, among other topics, displaying an unusually deep understanding of the firm’s CSR.
The report is weaker on its story for the future. ‘It is in the service industry; these are the first budgets to get cut,’ one judge points out. ‘I didn’t get a sense that the company acknowledges that future market risk.’
3 - Johnson & Johnson (US)
The healthcare company’s report is readable and well edited, in a magazine style. In a quick glance, ‘you get a sense of how the products change lives,’ one judge says. ‘It’s quite a compelling story, what the company does for the world.’
The pleasingly short book is very strong on CSR – for example, detailing four years of information on its water use and waste streams. Interestingly, Johnson & Johnson also includes data on the percentage of its employees who smoke or have high blood pressure. ‘That really impressed me,’ comments one judge. ‘Here’s a company that thinks about wider performance issues.’
The report does lack a table of contents, however, and one judge would like more design elements to signal a shift in topics.
4 - Barclays (UK)
The British financial services firm presents a massive 300-page report, but it is well introduced so readers get a good picture of the company in the first 10 pages. The firm doesn’t ignore current market turbulence, outlines exact profit goals and specifically discusses its outlook for 2008. It also defines its performance metrics in a way an entry-level investor can understand. Overall, the judges find it convincing, clear on risk and the best from the banking sector.
5 - Berkshire Hathaway (US)
Warren Buffett’s annual report is all about his letter to shareholders. It is candid and engaging, but presented on plain pages in a manner duller than any other. Buffett’s brilliance as an investor makes him impossible to ignore, but the style wouldn’t work for anyone else.
The consensus is that the book would benefit from some visuals, hierarchy to the content and more context. ‘The comparison between the firm’s performance and that of the S&P 500 is an effective, if narrow measure,’ one judge notes.
6 - Wienerberger (Austria)
The Viennese brick maker’s report is the least conventional. It opens with a series of photographs of meals abandoned and office plants withering, meant to show how busy staff members have been working toward profits. While a gimmick, it works to deliver the message that this is ‘a hard-working, hard-driving company,’ one judge says. ‘You have confidence that it will continue to push itself.’
Panelists fault the report on length, however. There are pages of remuneration and governance details that seem to cover ‘some good stuff struggling to get out,’ as one judge notes. Wienerberger compensates with some nice annotation running alongside dense blocks of text. But it also fails to situate itself in its sector: ‘Is this an obscure Austrian company or a global No 1?’ one judge asks.
7 - Thomson (US)
The information company has a few arresting initial pages. It opens with the most concise, authoritative and unassailable letter to shareholders explaining the two big business decisions of the year: the sale of Thomson Learning and the merger with Reuters. ‘It absolutely lays out the future strategy,’ one judge comments.
The sole imagery is full-page, black-and-white photographs of six clients that use Thomson products like Westlaw and Thomson One. One judge thinks it is too arty, but another feels it gives the book an edge. ‘It’s bold and very confident,’ she says. ‘This is a very serious company and it has a creative, innovative aspect to it.’
8 - Procter & Gamble (US)
Panelists get harsh with this consumer products company. Procter & Gamble’s (P&G) book has some nice detail, including a handy performance ‘report card’, and it answers every question an average investor might have. But the text veers toward ‘meaningless waffle punctuated by irritating buzzwords,’ one judge complains.
For such a branded company, P&G misses an opportunity to get readers to connect to its products. ‘The photos don’t seem real,’ a panelist says, while another says the company ‘feels isolated from the world as it is.’
The company introduces investors to leaders besides its high-profile CEO AG Lafley, but fails to demonstrate its forward-thinking attitude elsewhere. For instance, P&G tucks a page on sustainability on the inside back cover, which frustrates one reader: ‘I know it does more, but it hasn’t put it in the annual report.’
9 - Hysan (China)
Judges take note of this Hong Kong property investment company listing its seven competitive advantages (including a leading market share and a balanced portfolio) high in the report. ‘I instantly felt: here is a company that really knows what drives its value creation,’ one says.
The Hysan report is well organized, free of too much business cliche and gives a nice market overview of the local economy. But it ‘teases and disappoints’ on the CSR front. The report includes section headings like ‘I forge ahead’ and ‘I care’ but doesn’t do anything to back up those statements with examples.
10 - Cadbury Schweppes (UK)
Readers are amazed a company so brilliant at brand marketing can produce such a dull annual report. ‘Maybe it thinks investors are dull?’ one judge asks. The report is almost all text, with just a few photos of its iconic products.
The big news for the company is the separation of its beverage and confectionary businesses, and the outgoing chairman turns the annual report into his swan song, launching into a four-decade reflection on the corporate history. There is also surprisingly little discussion of CSR.
‘Cadbury has people whose day job it is to think about this stuff, but somebody else writes the annual report,’ one judge says.
11 - John Deere (US)
The tractor company has a great cover line: ‘Growing a business as great as its products’. But the story inside isn’t told quite so dynamically. The writing is dense and the company focuses too much on some obscure performance metrics like ‘shareholder value added’.
What it does well is position the business in the context of population growth, and changes in diet and affluence. ‘That ticked my box,’ one judge says. ‘Any time you put your story in the context of global conditions, you set yourself up as a thought leader,’ adds another.
12 - Thai Beverage (Thailand)
Though the beverage company’s report is long and unwieldy, it has a charm of its own, loaded as it is with great pictures of customers enjoying its products.
The executives obviously understand their own business, but they have some trouble conveying it clearly to others. Executives get bonus points for addressing the Thai economic slowdown and the effect of changing consumer tastes on its outlook. But Thai Beverage suffers for omitting discussion of how it will protect its market share.
13 - CRH (Ireland)
Although it doesn’t rank highly, one judge calls the annual report of this building materials firm one of the best. ‘Six pages in and I’ve pretty well got it,’ he says. A good feature is a color diagram illustrating what the company does, communicating different aspects of its business quickly and effectively. The company also ranks itself in its active markets, for example, ‘No 1 Asphalt – US’. ‘That is kind of bold,’ one reviewer says.
14 - China Mobile (China)
The mobile phone company is clearly massive and increasing its profits, but judges call its annual report ‘a nightmare’ and ‘not written to be read’. It opens with a lot of ancient company history that has one judge saying, ‘I had to keep going to find a page that mattered to me.’ A panelist describes the inclusion of a Q&A with executives as a good impulse, but notes the ridiculously skewed questions, like: ‘How can the company continue to be great?’ ‘Putting forward a perfect face is not appropriate for this environment,’ she points out.
15 - Danske Bank (Denmark)
The bank does little to set itself apart from rivals, and relies too much on general statements and bland business objectives. It says one of its aims is to develop a unique brand, which is crucial in the crowded retail banking sector, but doesn’t demonstrate how it will do that. Danske Bank seems to be performing well, but it fails to say how it will deal with the global financial crisis.
The methodology
We took a random sample of 15 global annual reports and asked our panel of five judges to spend just three minutes reading each one. They were asked to score each report from one to 10 for how well it told the company’s investment story, and to offer comments.
A company could earn up to two points for how well it explained what it did, three points for its discussion of performance and five points for outlining its future strategy. We added together the scores for each company to produce a ranking. This process was subjective and reflects the fact that the judges often had differing views.
The panel
Wendy Blattner is a principal, creative director and communications strategist with Sequel Studio in New York.
Tim Human is a London-based international correspondent for IR magazine.
Mary Lowengard is a writer and reader of annual reports.
Anna Snider is North American editor of IR magazine.
Mike Tuffrey, a trained chartered accountant, is a founder and director of Corporate Citizenship, a London and New York consultancy.
