There are lots of tomes on how to invest successfully, but once you have grasped the basics, I think most people can better use their time elsewhere than burying themselves in more instruction manuals.
Over the years I have learned most from regularly reading the reports and accounts, presentations and interim updates of UK companies. New investors may find these intimidating, but they can often be uplifting; sometimes even entertaining.
These are the most important materials available to any investor — private or professional. I would counsel anyone buying a company’s shares to do so only after visiting its shareholder web page and reading these valuable documents. Being numerate helps, but you rarely need to be a qualified accountant to gain a sensible grasp of how a company is faring — and often the words are as important as the numbers.
Last year’s accounts give a glimpse of what 2023 might be like. If British businesses grow, compete and prosper — as many of these reports suggest is possible — the direst economic predictions we see today will be shown to be misplaced.
What’s a good example of an annual report?
It is hard to pick favourites, but here are some highlights of the past year from companies I will be looking out for in the coming months. Just look at what you can learn.
Next: Chief executive Lord Wolfson’s annual reports offer an overview of the world of retail, the challenges faced by those operating within it and the pace of technological change that is redefining it. Wolfson is vastly experienced, with a record of making the right strategic calls. He freely shares his insights on the direction in which the sector is heading. We do not own Next currently, but I never miss Wolfson’s commentary. It is good to read the reports of the companies you own, but — if you have time — it can help to read what their competitors are saying, too. It can sometimes highlight threats or opportunities you may have missed.
Spirax Sarco: This is perhaps not as compelling a read as the Next report, but it will challenge your perceptions of Britain’s manufacturing industry being in permanent decline. It is the briskly told tale of a UK engineering company succeeding on the global stage. Spirax specialises in engineering projects incorporating steam. Old-fashioned, you might think, but it is surprising how important steam is to heat or sterilise in industries from food production to drug manufacturing.
Next Fifteen: This offers a glimpse into the future of advertising and the powerful ways in which smart use of data can shape how companies understand, attract and engage with customers. Next Fifteen calls itself a “growth consultant” — rather grand, perhaps, but it demonstrates the company’s focus on adding value.
Rolls-Royce: Courtesy of the self-proclaimed “Pioneers of Power”, we get an insight into what flying will be like in the future. And not just flying — a quarter of Rolls-Royce’s business is its power systems division, which is heavily focused on renewable energies. The annual report lacks creative flair, but read this shareholder presentation and you will find it difficult not to be excited about what lies ahead. It can be genuinely greener and better, and British engineers are at the cutting edge of the journey to net zero.
Boku: I have saved my favourite until last. Boku provides a global payments network for mobile phones that reaches 7bn consumers in more than 90 countries — a complex job that it makes appear simple. In short, Boku’s technology helps merchants sell more. This year’s report includes the fascinating story of the company’s growth and the philosophy that enabled it to take on larger rivals in this field: “It’s not the big that beat the small — it’s the fast that beat the slow.” Chief executive Jon Prideaux takes us on a tour of mobile payments, e-wallets and subscription services for toothbrushes, toilet roll, snacks and random vegetables. This is probably the only report this year to include quotes from Steve Jobs and Cardinal Newman!
How can I spot the bad ones?
Of course, as with books, not all corporate reports are worth your time.
It is sometimes difficult to reconcile the fine statements some companies make with the reality of the numbers.
For example, UK clearing banks talk in terms of sustainable growth coming from ever-closer and ever-deeper relationships with their customers, yet their reports show how they are closing branches to reduce costs. How does this help them get closer?
Can I trust the language?
Yes. Reports can be heavily polished. But they are also audited and rarely can a coat of varnish completely mask blemishes. Look closely and you will find them, and those companies that do the most to hide bad news make me less likely to invest.
I tire of companies that labour their values too heavily. I prefer vision over values — and vision backed with investment and numbers over grand but vague ambitions and claims. The most overused and meaningless sentence written in reports this year has been “We take ESG seriously” — as if anyone would say the opposite.
What do reports tell you about UK plc?
I found disappointment and frustration in reading reports in 2022, but I found a surprising amount of joy, too. Each company you own should have a compelling story to tell. It is in the shareholder reports that you will find those stories — real-world tales of success, failure and, usually, a mix of both.
It is often said that a portfolio of shares is not a proxy for the British economy — it is just a collection of individual companies. This is true, but together these individual tales of ingenuity and enterprise demonstrate that the UK is a far more robust and dynamic place than gloomy economists and over-pessimistic investors have allowed over the past year.
James Henderson is co-manager of the Henderson Opportunities Trust and the Lowland Investment Company
