Why British company reports and accounts make me optimistic

A version of this article earlier appeared in the Financial Times

I am a keen reader. A good book can teach you something new, raise your spirits, entertain you and challenge your preconceived views.

But last year the reading that moved me most came not from something found on the shelves of Waterstones but in the reports and accounts, presentations and interim updates of British companies.

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 from reading them. And often the words are as important as the numbers.

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.

My favourites

It is hard to pick favourites, but here are some highlights of 2022 and the reports I will be looking out for again in 2023.

Next: CEO Lord Wolfson’s annual reports offer an overview of the world of retail, the pace of technological change and the challenges faced by those operating within 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: Perhaps not as compelling a read as the Next report, but one set to challenge your perceptions of Britain’s manufacturing industry being in permanent decline. 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: A glimpse into the future of advertising and the powerful ways that smart use of data can shape how companies understand, attract and engage with customers. Next Fifteen call themselves “growth consultants”. Grand perhaps, but it demonstrates their focus on adding value.

Rolls Royce: The self-proclaimed “Pioneers of Power’” offer a view into what flying will be like in the future. And not just flying. A quarter of the Rolls Royce business is its Power Systems division, 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 the future. 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 till last. Boku provides a global payments network for mobile phones that reaches 7 billion consumers in more than 90 countries – a complex job 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 has enabled it to take on the giants in this field: “It’s not the big that beat the small, it’s the fast that beat the slow.” CEO Jon Prideaux takes us on tour of mobile payments, e-wallets and subscription services for toothbrushes, toilet roll, snacks and random vegetables. Probably the only report this year to include quotes from Steve Jobs and Cardinal Newman!

On the other hand

Of course, as with books, not all accounts are worth your time.

It is sometimes difficult to reconcile the fine statements some companies make with the reality of the numbers. The UK clearing banks talk in terms of sustainable growth coming from ever closer and deeper relationships with their customers. Yet their reports show how they are closing branches to reduce costs. How does this help them get closer?

So, yes, they can be heavily polished. But these reports 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 over-used and meaningless sentence written by chairmen in reports last year was: “We take ESG seriously.” As if anyone would say the opposite!

Well-read

I found disappointment and frustration reading reports last year, but a surprising amount of joy, too. Each company we own should have a compelling story to tell. It is in the shareholder reports that we 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 UK economy. It is just a collection of individual companies. This is true but together these individual tales of ingenuity and enterprise demonstrate how the UK is a far more robust and dynamic place than gloomy economists and over-pessimistic markets have given credit for this year.

These documents offer a reassuring message of hope and promise in the bleak midwinter and as we enter 2023.

James Henderson is co-manager of the Henderson Opportunities Trust and the Lowland Investment Company