Annual Reports and Voting – HLMA, AUTO, PAY and TEP

It’s that time of year when many companies issue their annual reports and request that we vote on AGM resolutions. I pity our postman as I still receive most of the reports on paper (they are easier to read in that form) and they are getting to be very heavy. Here are some examples and brief comments:

Halma (HLMA): 248 pages.  Emphasises “sustainable growth over 50 years” and included a tribute to co-founder David Barber who died recently. Report is full of non-essential bumf which I doubt anyone reads. I voted against the Remuneration Report – total remuneration of CEO £3.5 million last year and against the Chair of the Remuneration Committee plus several other non-exec directors who either seemed superfluous or have too many jobs.

Auto Trader Group (AUTO): 170 pages. A clear description of the business and future developments but do we really need 20 pages of bumf on “Making a difference” (ESG etc). Interesting to note that the average price of a used car advertised on their web site rose by 22% last year. There is clearly a shortage of second-hand vehicles as new car sales have been depressed for a number of reasons. People are holding on to their cars for longer it seems. Again I voted against the Remuneration Report and the Chair of the Remuneration Committee (single figure of pay for the CEO last year was £1.7 million). Cannot see any reason for such generous pay for directors. Also as with Halma I voted against share buy-backs and calling General Meetings on 14 days notice.

Paypoint (PAY): 162 pages. This is a complex business providing payment and other services to retailers and SMEs. Their markets have been changing as mobile top-ups have declined and bill payments in cash also. Romanian business was disposed of and a settlement with Ofgem re competition infringements of £12.5 million has been booked as a prior-year adjustment. You can spend a long time reading this Report without getting a very clear understanding of where the profits came from and their future prospects.

Total pay of the CEO last year was £911k which is down on the previous year. Does that reflect the Ofgem settlement? I have no idea as the 11-page Remuneration Report does not explain. Again lots of ESG bumf under the heading “Responsible Business”.

Telecom Plus (TEP) also published their Final Results last week. This company is clearly going to benefit from the failure of numerous energy suppliers. The National Audit Office has blamed the Ofgem regulator for light touch regulation and allowing businesses to be set up with poor financial resources. Gareth Davies, head of the NAO, said: “Consumers have borne the brunt of supplier failures at a time when many households are already under significant financial strain having seen their bills go up to record levels. A supplier market must be developed that truly works for consumers”. Certainly regulation has been lax but the setting of price caps that stopped world market gas prices from being passed on to customers was also quite irrational.

With a lot of the competition to Telecom Plus being removed from the market their prospects are looking up and the share price has zoomed upwards.

Needless to point out that I hold shares in all the aforementioned companies. They have many things in common – high levels of repeat revenue, have high returns on capital and appear to be well managed. But they have not been immune to the general bearish view of the stock market by investors at present.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Is Information Overload Getting Worse?

It’s that time of year when one is deluged with Annual Reports. Is it just me or have the size of Annual Reports got substantially larger in the last few years? The latest report received is for Spirent Communications (SPT) which is only a mid-sized company (profits last year of £106 million) but the Annual Report spreads to 210 pages – Cover Photo is above. That includes 29 pages for the Remuneration Report alone! Are we really expected to read all of this? When one has a large portfolio such as I have, the volume of reading required is more than can be justified.

Annual Reports are likely to get even longer in future with more ESG reporting being mandated. Some of the detail is important but a lot of it is simple “boiler-plate” stuff. For example the Independent Auditors Report of 10 pages mainly consists of statements such as “We have nothing to report in respect of these matters”. Why do we need telling that?

No doubt auditors love all the work required to put these statements together but the company management must also waste time on putting together such extended Annual Reports – including 4 pages on “stakeholder engagement” in the case of Spirent.

It surely is time to take an axe to these over-voluminous Annual Reports. This could be done by having reporting only on exceptions, or by off-loading non-essential detail to an on-line page. The objective should be to get all Annual Reports down to under 100 pages in size, even for FTSE-100 companies, with small companies as low as 50 pages.

Too much information clouds the picture for any reader and enables important detail to be lost in the welter of trivia.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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