Firms can learn from WaterCare report

Friday 7th December 2001

Annual reports are a useful way of communicating with stakeholders and work as well for unlisted organisations as those required by Stock Exchange rules to produce one.

Often, organisations that produce discretionary reports do a better job than those companies forced to produce them.

One example of this is by Auckland water supplier WaterCare, a local authority trading enterprise owned by several councils. With revenue of $157 million and assets of $1.3 billion, it would dwarf many listed companies.

It has produced a two-part report, or separate reports depending on your viewpoint. One is a 40-page "concise report", presumably aimed at those who want a basic overview of the organisation, and the other is an "in depth" report that fills 92 pages of small type.

There is no mistaking the company's desire to supply stakeholders, a surprisingly diverse bunch (13 groups according to the report), with as much information as they are ever likely to need about the business and its objectives.

Even so, for those who find the full report a bit on the brief side, the company helpfully prints a symbol in certain areas telling readers that fuller details can be found on its website - a nice link between the traditional and modern forms of communication.

The report strongly pushes the trendy triple bottom line concept, covering environmental and social impacts as much as economic ones.

While many reports that attempt this look forced and awkward, the WaterCare ones manage to look natural and integrated.

It has clear vision and mission statements and displays them prominently. At the beginning of each bottom line report it also shows what objectives it set at the beginning of the year and what it achieved.

These are all concepts that listed companies are familiar with but many do not communicate.

The report avoids the temptation to over illustrate or over design, a fault common with organisations that don't have the profit motive as their primary driving force.

Instead it delivers a large amount of information in an appealing and reader friendly manner (with the exception of eye-scrunching tables using white text on a shiny silver background).

Ironically, WaterCare has been accused of squeezing rather more out of its customers than is justified. At first glance, this would appear to be so, with operating expenses making up just 61% of revenue, leaving a very healthy gross margin.

However, it has large capital expenditure needs and asset write offs and costs associated with the decommissioning of oxidation ponds reduced its net surplus to $24.2 million. This is the third increase in a row, following four years of deficits.

The language of the document occasionally leans towards the bureaucratic but thankfully refrains from exaggeration or self-aggrandisement.

On the whole, it is entirely readable, at least for those who want to familiarise themselves with the intricacies of sludge lagoons, sewer pipes and microbiological pathogens.

There is little to fault about this report. It provides large amounts of information, in such a way that one can find what is of interest and skip the rest, and does so in a clear and straightforward manner.

It is attractive without being flashy and it tells its story without unnecessary hype or spin.

One of the most impressive things about the reports is a seven-page "statement of service performance" that outlines the company's objectives in all three service categories and carries a tick or a cross in the margin of each measurement according to whether it met those standards.

If only listed companies would adopt such an approach. Objectives might include "return on capital exceeded cost of capital", "increased earnings and dividends per share above the rate of inflation" or even "raised revenue, lowered costs".

Investors could then tell at a glance how well a company was performing without having to read all the numbers and more easily compare one business with another.

Come on you listed companies, read a WaterCare report and learn.

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

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