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FTSE 350 annual reports ‘disjointed’ says EY

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1st Oct 2015
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Sprawling corporate strategy narratives and a template approach to reporting are tarnishing an overall improvement in FTSE 350 annual reports, according to Big Four accountant EY.

In a study of 100 annual reports from 2014, the firm found only 9% of UK PLCs clearly articulated the links between their strategy, business model, key performance indicators, approach to executive remuneration, and principal risks.

However, the study also observed that 85% of companies are complying with all or all but one of the provisions in the UK corporate covernance code. 

Commenting on the findings Ken Williamson, UK partner and head of corporate governance at EY said: “Shareholders use annual reports to gain insights into both the progress of the business over the year and its future direction, and so it’s important they can see how things like risks and remuneration relate back to the company’s strategy and objectives.

“However what we are seeing at the moment are often disjointed, unconnected narratives, which don’t explain how key performance indicators relate back to the corporate strategy.

“By using what can sometimes feel like a ‘template’ approach to the annual report, UK PLCs are missing an opportunity to provide a rounded view of their business and instil their investors with greater confidence.”

Williamson went on to praise companies in the study for keeping pace with the vast number of regulatory requirements introduced over the past five years, but argued that when done well the annual report should be much more than a legal or marketing document.

Average length of reports growing

EY’s analysis also found that the average annual report in the FTSE 350 is now 167 pages, a small increase from 2013 but up from an average of 148 pages seen in 2012.

The review noted that this increase preceded the new strategic reporting and director’s remuneration regulations, so annual reports are likely to expand even more in years to come.

Andrew Hobbs, EY’s UK corporate governance and public policy partner, warned companies not to cloud their statements with irrelevant information by “copying and pasting sections of the report which rarely change from year to year”, and instead to keep it “specific, focussing on what the company has done and will do”.

Tick box exercise

Williamson concluded by advising companies to ensure that reporting protocol doesn’t become a purely “tick box exercise”. He added: “Companies with December year ends will now be planning for their next annual report and so it is an ideal opportunity to take stock and fine tune.

“Ultimately the annual report is about providing confidence to investors and the capital markets. Approached in the right way some of these new reporting requirements may lead boards to have a better decision-making process.”

The EY Annual Reporting in 2014 analysis is based on a sample of 100 annual reports of FTSE 350 companies with September-December 2014 year-ends.

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