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Home > Blogs > Ian Fraser > The spin-free cycle of Next's corporate reporting bodes well for future transparency

The spin-free cycle of Next's corporate reporting bodes well for future transparency

Annual report | The spin-free cycle of Next's corporate reporting bodes well for future transparency Ian Fraser

The chief executive’s statement that accompanies a listed company's annual results is often so laced with corporate spin and disingenuousness that it's as good as useless. The document is increasingly being used to puff (embellish) the past year's performance, to present a distinctly rose-tinted vision of the future, and of course to shy away from telling investors anything about the true risks and challenges the business and its sector face.

Examples which I would suggest are worth revisiting include the almost laughably misleading 2007 annual reports of banks including RBS, HBOS, Northern Rock, Landsbanki, Glitnir and Kaupthing.

It is therefore refreshing that the UK-based retailer Next has produced a 2010 final results statement that is admirably free of the usual spin and jargon. Written by the retailer's chief executive, Lord Wolfson, the document provides a clear-eyed assessment of the group’s performance in 2010 and its prospects for 2011. What is most striking, however, is that Wolfson does not shy away from providing his readers with hard facts, even when these are likely to be negative for Next and its sector. Here are some excerpts:

"The year ahead will be yet another challenging year for retailers and, if anything, things are likely to get worse before they get better.  Retailing will feel like walking up the down escalator - we will have to work hard to stand still! ..."

"Retail in the UK is going to be different over the next few years. The consumer environment is likely to be dominated by the challenges of global inflation, public sector cuts and limited growth in consumer credit.  These factors mean that retailers cannot plan for never-ending growth in like for like sales that many have enjoyed over the last fifteen years ..."

"In the year ahead we expect the consumer environment to be somewhat more challenging than it was in 2010. It seems likely that recent worldwide inflation in fuel, food and other essential commodities will further add to the financial pressure on the consumer. We believe inflation is exerting a greater burden on our customers' finances than government cuts or lack of credit."

Wow - that is amazing. It may not work wonders for the Next share price, but at least it provides investors with reliable information on which they can act. It’s worth pointing out, also, that Wolfson also explains how Next is well placed to ride out the challenges ahead thanks to having its cost base under control.

The Guardian journalist Nils Pratley was clearly impressed. He reported on the figures used by Wolfson to explain the impact of share buybacks. Wolfson explained that were the company to spend £160m on repurchasing shares at £20 each, then enhance earnings-per-share would be enhanced by 5%. As Pratley pointed out "almost no other large public company provides such arithmetic".

Here's what Pratley had to say about Wolfson's calculations about the impact of inflation - currently 4%-5% in the UK - on consumers' future spending power:

"The arithmetic is again interesting. The back-of-the-beer-mat calculation (which was literally how Wolfson presented it) suggests inflation in three areas could cost consumers £21bn this year. That's £10bn from transport; £7bn in food and drink; and £4bn in housing costs."

This is a welcome break from the sort of CEO's statement that is designed to obfuscate, for example by swamping investors in a sea of useless and self-serving verbiage. I'm glad that Wolfson has broken ranks. It might even be the start of something; you never know.

Further reading on financial reporting, annual reports, transparency and truth:



Tags: annual report , corporate culture , financial statements , transparency
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