Over the past seven years or so some of Europe’s annual reports have started to look more like those of their counterparts in the US. In most cases, that has been no bad thing. Many American companies have become adept at communicating with their shareholders, investing time, money and effort in the function. The content and quality of annual reports have obviously benefited.
But many of Europe’s larger companies have already played catch-up. Indeed, some are showing the US companies a thing or two about using the annual report to communicate. Still there are a whole lot of European laggards out there, too: companies which turn out dreary text and shabby graphics year after year. But, generally, you can see a slow trend toward the American art of better communication, disclosure and transparency in Europe’s annual reports. Early signs from those already released this year indicate that this trend is continuing.
Take this example. Back in 1990, the number of companies in the European top 100 (as defined by the Financial Times) making any reference to US generally accepted accounting principles in their reports was too small to notice. By the 1996 report season, 32 of Europe’s leading companies had a section explaining the reconciliation to US Gaap. More are set to follow this year.
That’s an indication of the globalization of capital raising, of course. Investors from the US are continuing to grow in importance. But, as more European companies feel attracted by the depth of the US capital market, their annual reports are being dragged in the US direction. European companies which don’t follow the trend are slowly beginning to stand out.
So what’s the message for European companies? The first rule is not to think that completely invoking ‘the American way’ will work wonders. European companies have different constituencies to those in the US and some of them may be wholly turned off by an American-style report. The trick is to take the positives and ignore the negatives. Here are some hints based on an analysis of what your peers are doing.
Up front
First up, covers matter. Photographic covers remain very widespread in the US, and in last year’s reports 68 of Europe’s top 100 companies used a front cover photograph. That’s up from 58 the year before. It tends to make for a more powerful impact, and does the first job that the report has to do – entice the reader into opening it, hopefully with the promise of an interesting read. Marks & Spencer illustrates the trend with a stunning photograph of a store on the cover of its report.
Outstanding quality is needed if you are going to use photos up front. The general standard of photography is so high today that shabby treatments like those on the cover of software company SAP (a sort of 1970s IT collage) just don’t work. One of the most striking covers of last year’s batch came from Allianz, the German insurance company. Below a reproduction of a beautiful painting of an English family of the 17th century, there are three headings, with brief text following. Beauty, novelty and messages work to pull you into the report, by stimulating curiosity about the subjects ‘trailered’ on the front cover.
Thematic failures
Sid Cato, an American assessor of annual reports, makes much of themes, suggesting that a report without one is rather weak. However, an examination of themes in European reports shows that they are not popular (employed by only 20 of the 100) and, when attempted, often fail to work.
There are themes and themes, of course. ConAgra used Building trend line earning power, a woolly theme which lacked application. Soci t G n rale’s Milestones since privatization is less than riveting. Certainly, too many of the European thematic reports go for clich d and vague global views: Our market is the world, claims BASF; Decisive actions in a world of choice, points out Aegon. At least BASF does continue to support its theme with photographs, but it is forgotten in a moment. Aegon’s theme is just not concrete enough. And the number of reports which went for a rough equivalent of Viag’s Creating enduring value last year was simply staggering. Safety in numbers, presumably.
If you are going for a theme, make it real. Ahold went for the global approach but at least it actually said something with its Leaders in global food retailing. It may not be the most exciting theme in the world but it put a message across straight away. Reuters’ Embracing the net also worked well (although the reader does become a little tired of internet references in a hard copy report). Reuters follows up this year with Breaking new ground and then proceeds to tell the reader all about why within the text.
Message central
The cover can deliver a message, as distinct from a theme, too. Many of last year’s offerings went for the shareholder value message. They can be credited with at least attempting to say something, even if it tended to lack originality. Take RWE, with the anything but snappy: Our objective is to obtain a long-term increase in shareholder value. Still, a few bonus points for at least trying to point the reader in some kind of direction.
Urgency and economy should drive messages at the front of a report. This means brevity, of course, but it also means a more striking, point-making style. US reports lead in using bullet-points and having good sub-headings; the sense of urgency of message delivery even extends to the ‘billboard’ fonts employed. Few European reports are getting the punchiness right yet but those that do are doing it with class.
Many of the US reports target the casual reader who might barely be persuaded to open the cover. The presence of the results inside the cover ensures that the main message of the report gets delivered to the rapid scanner. Many European reports – including those from Dutch companies like Heineken (but not Ahold or KPN), Swiss companies like Nestl , most Italian as well as many German companies – do not use a template that offers results at a glance inside the cover or on the first page.
Personally speaking
Where European reports really are beginning to change is in the use of direct personal speech. Indeed, they are almost getting as personal as their American counterparts. Whereas three years ago there was no chairman’s report from a company like Munich Re, today only a handful of European reports in the top 100 lack this essential display of the company’s persona. Chairmen – or their ghosts – are actually beginning to write in the first person and address shareholders as interested, intelligent people with legitimate concerns. The fine message from the chairman of Reuters in the 1997 report tackles the issue of the declining share price head on. Similarly, Boots opts for clarity and full disclosure of the company’s strategy in its chairman’s statement.
While many of this year’s leading European annual reports are still to be revealed, the best communicators should already be taking notes and planning ahead for next year’s project. For European companies, it is still worthwhile taking time out to look at reports from the US. That’s especially true if your company is intending to try and woo shareholders on the other side of the Atlantic. As noted, though, some of the best European reports have already taken that style on board, while retaining their European origins. A look at various aspects of the reports from Marks & Spencer, Reuters, Hoechst, ENI and Ahold will help show how it should be done.
Peter Clifton edited the 1997-98 Company Report Report, obtainable from Peter Prowse Associates on +44 1372 363 386. His views do not necessarily reflect those of Investor Relations magazine.
