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Are Company Strategic Reports helpfully forward-looking for investors?

Strategic reports provide ‘very little insight’ into future prospects. Many strategic reports contain a mass of annual data and text, which is largely backward looking, finds a PriceWaterhouse (PwC) study. Information disclosed in companies’ annual reports is being buried in a mass of annual data and text, presenting investors with a tough challenge to unearth it, according to the research.

According to the firm’s “Searching for Buried Treasure” analysis, annual reports now weigh in at an average of 154 pages across the FTSE 350 and 197 pages in the FTSE 100.

Banks had the weightiest tomes with annual reports averaging out at 339 pages, close to three times the size of retailers’ reports – 139 pages on average. Explanatory notes to the financial statements of accounts are five times longer than the statements themselves in the FTSE 100. FTSE 350 companies’ strategic reports – which allow management to highlight their business strategy and key risks – weigh in at 41 pages on average, compared to the slimmer operating and financial reviews that were produced in 2008.

PwC found that investors want a brighter spotlight focused on the reporting of risk and strategy, but that many strategic reports contain a mass of annual data and text, which is largely backward looking and gives “very little insight” into a company’s current and future prospects.

Mark O’Sullivan, Corporate Reporting Director at PwC, said:

“Reports are getting larger – and in some cases are the length of a blockbuster novel. It’s vital that the key information – of the financial and non-financial variety – is included. But it also must be easy to find and understand. PwC’s analysis finds that as much as 41% of the FTSE 350 only felt comfortable looking as far ahead as next year and 30% were more vague, preferring to talk about “the future” in broad generic terms.

Many companies set out their strategy and business model, but they do this without explaining how the two connect, how risks affect strategic plans, what resources and relationships really drive the business and how these are being managed and progress measured through Key Performance Indicators.”

Remuneration reports are still a burning issue as shareholders push back on what they consider to be excessive pay packets. These reports are 21 pages long on average in the FTSE 100. Breakdowns show that once again, banks top the table as their remuneration summaries are 26 pages in length. However PwC did find that asset management companies produced the slimmest remuneration reports at eight pages.

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