Achieving excellence: Best Small Cap or AIM company report

Nominations are now open for the Best Small Cap or AIM company report 2015, Peter Swabey offers some thoughts on style and approach 

The FRC has launched a programme of measures to help smaller quoted companies improve the quality of their corporate reports. This follows its discussion paper – Improving the Quality of Reporting by Smaller Listed and AIM Quoted Companies – which details the findings of its review of reporting by these companies. The review found evidence that smaller quoted companies believe investors pay little attention to their annual report and hence do not prioritise its preparation to a higher standard. In fact, it found that investors do value these reports, not least because smaller quoted and AIM companies are less likely to be covered in depth by analyst reports. It also identified that many of these companies lack sufficient skilled resources and are not always up to date with reporting requirements.

Although I have no reason to dispute the findings of the FRC review, our panel judging the reports of the Small Cap or AIM companies nominated found it a very tough category to assess. Each of the shortlisted reports had stronger and weaker sections, but any of them would have brought credit to a much larger FTSE company.

This was the first year in which companies could ‘tell their own story’ through the strategic report and, as I noted in my article in the May issue of Governance and Compliance, many seized this opportunity. This was also the case with a number of smaller companies and some of their reporting was very good. That said, most of the comments that I have made in previous articles in this series are equally applicable to Small Cap and AIM reports, so it is helpful to review some of these with particular reference to examples in this sector.

Tell your story

The FRC report found that resources sometimes constrain companies from taking advantage of the opportunity to use the report as a chance to tell its story. Because of this, ‘business reviews, and subsequently, strategic reports, are not always balanced or comprehensive, as required, or appear to be inconsistent with other information in the annual report.’ Reports must be written objectively – at least one report that the panel reviewed did not have any bad news at all. It may be true that this particular company had a very good year, but a quick Google search found that this might not have been the case. Perhaps greater balance in this report, as the FRC has noted, was required.   

This is a huge opportunity for the company secretary, in conjunction with colleagues, to differentiate their company from its competitors, both in commercial terms and in terms of competition for investor interest and consequently money. Some companies gave the impression that the old operations review has been ‘cobbled together’ with KPIs, chair and CEO reports to form a strategic report that reads like separate reports, rather than rewriting the entire document and taking a new approach.

Examples of good practice

AZ Electronic Materials SA produced a report that was easy to read, with very good ‘at a glance’, performance highlights and strategy in action sections. Its product is not simple to explain, but it does so with a concise summary and case studies, and excellent use of graphics. The Q&A boxes also work well. The strategy is clearly set out and priorities outlined, with key drivers of strategy, progress and forward focus sections. There are detailed KPIs with relevant links to strategy and a straightforward description of the business model.

Partnership Assurance Group plc produced a very well written report, its first as a listed company, with a distinct style and approach which makes it very easy to read. An excellent description of what the company does and its strategic objectives is followed by an interesting discussion of performance and future, including its position in its marketplace and how it differentiates itself, its key resources and its relationships. There is a valuable section on objectives – the judges particularly like the ‘why this objective matters’ sections.

The Vitec Group ethics section is innovative and excellent. The remuneration report is also good and links individual elements of remuneration to strategy in a meaningful way. The audit committee and external auditor reports are outstanding, going further than many FTSE 350 company reports.

A single guiding hand

This is a huge opportunity for the company secretary as ‘owner’ of corporate reporting, to ensure that the report is published with a consistent written style. One of the reports that the panel reviewed seemed to undergo a total change of style from the strategic report to governance section; from well-presented to ‘just words’, which felt a little formulaic without diagrams and charts and – in a sharp contrast to the strategic section – no links back to strategy. I have no idea if someone else wrote this section, but this is the impression conveyed. Here, the company missed the opportunity to make much more of some really good things that it did in the governance space, which we could only find from a close read. Everything was there, but sometimes lost in slightly boiler-plate reporting. This is one example, but was relatively common across reports in this sector.

Example of good practice

The Vitec Group offers a transparent, well written, report and accounts, starting from the informative and tone-setting chair’s letter through the rest of the narrative. There is a simple overview, including a clear statement of what it does, key data such as divisions, brands, people, revenue and geographical locations, with links to other parts of the accounts and website. There is a strong statement of purpose, markets and strategic priorities, followed by progress with strategic priorities. The business model section is excellent, giving a real sense of culture and includes graphs with cross referencing and a statement of strategic focus.

Think about the risks

With risks, quantity is not better than quality. There were a number of reports that noted every risk that they could think of, in a rather US style, but without enough detailed analysis of those risks, their significance and, most importantly, their mitigation.

Examples of good practice

AZ Electronic Materials SA provided a good and honest risk discussion and a table which includes not just risk, impact and mitigation, but also the change to the risk from last year. This was clearly linked to strategy.

Shanks Group plc included a very good risk section, with a discussion of risks management framework, actual risks, progress made and planned improvements for the future.

The annual reports of all FTSE 350 companies are automatically included in the CGIUKI Awards, but those for listed companies outside the FTSE 350 need to be nominated. If you think your company, or one you work with, produces a report that is worthy of an award, nominate them on the CGIUKI website. You can also see the Winners Book produced for the CGIUKI Excellence in Governance Awards 2014 here. It would be great if we can again demonstrate to the FRC that smaller companies really do achieve the highest quality corporate reporting.

Small Cap and AIM


The Vitec Group plc


AZ Electronic Materials SA


Partnership Assurance Group plc
Shanks Group plc

Peter Swabey is Policy and Research Director at The Chartered Governance Institute UK & Ireland

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