Report Card: GPG oversimplifies and doesn't tell investors enough

By David McEwen

Friday 14th June 2002

Sir Ronald Brierley wants to run his business, Guinness Peat Group, in his own way. In GPG's latest annual report, he has a tilt at disclosure regulations that are inflicted on listed companies.

"GPG has a relatively simple corporate message in terms of profit, balance sheet and an asset portfolio profile. Shareholders may find it surprising therefore that it requires a 70-page annual report to convey this information.

"Unfortunately, that is a product of the unceasing demands of a proliferating range of 'corporate governance' academics and 'do-gooders' which results in pages and pages of superfluous dross which is utterly meaningless but, nevertheless, expensive to compile."

Most shareholders might sympathise with his views when times are good and the company is profitable. They might be less forgiving when adverse events hurt the company, especially if they were able to prepare for such events as a result of some mandatory disclosure in the annual report.

Sir Ron and colleagues have resorted to a halfway measure - a "summarised" annual report. This is well short of the 70-pages level he despises, coming in at a slim 16 pages plus cover.

While some shareholders might find this level of disclosure adequate, there are others who will not.

Offering readers the opportunity to see the full report on request isn't quite the same as giving them immediate access to information about the performance of their company. Surely it is preferable from an investor relations view to present as much information as possible and let the readers decide what is relevant.

Even a casual reader may question the worth of a summarised annual report when the first page carries a warning that the financial statement "does not contain sufficient information to allow as full an understanding of the results and state of affairs of Guinness Peat Group plc as would be provided by the full annual financial statements and directors' report."

As is GPG's practice, much of the information presented to shareholders comes in the form of a letter from Sir Ron. This year it is a dry statement of the various asset purchases and sales GPG made during the year.

One illustration is particularly interesting. A "simplified balance sheet" tots up the value of GPG's major assets to the nearest million (decimal points are apparently too complicated) and deducts debts and funds raised from noteholders. This leaves shareholders' funds of £319 million supporting £421 million in assets. This is a very conservative ratio, not least as £164 million are described as "cash at bank."

The more traditional balance sheet at the back of the book shows £318.8 million in shareholder funds plus £17.1 million in "equity minority interests," making the actual total slightly larger. It's not often one finds information in the back half of the book that is more positive than the traditional highlights at the front.

The financial information in the report is pared down to a bare minimum and is far less useful as a result.

For example, a "financial profile of operations" offers information about each of GPG's major investments and their assets, revenues and profits. However, only 2001 figures are given, eliminating the chance for readers to make any comparison with the previous year or years.

Other basics like profit and loss account, balance sheet and share capital are there but nothing about cashflow and not a single note to the accounts.

Sir Ron and friends cover the basics but their summarised annual report is a poor example of investor communications.

It is hard to see how any serious investor can learn about the company, its performance or its prospects from this document.

Apart from a modest saving in printing costs, and allowing Sir Ron to make a point, there is little sense in having two reports. The "superfluous dross" of which he speaks is required to be compiled by law or listing rule.

If the information is to hand, why not present it to stakeholders? Most may not read every note or statutory declaration but there is a fair bet that even a cursory read of a full report would be more useful than one containing selectively chosen content.

David McEwen is an investment adviser and author of weekly sharemarket newsletter McEwen's Investment Report. Web: www.mcewen.co.nz; email: davidm@mcewen.co.nz

Comments from our readers

No comments yet