Critical assessment of annual report of Wm Morrison Supermarkets

Published: 2021-06-28 22:45:04
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Introduction An annual report is a portrait of the business of a firm. In fact, it is the most important way for a company to disclose information to the public (Dainelli et al. , 2013). Such information includes both financial and non-financial information, which might be quite useful for investors and potential investors of the company to make their decisions. Wm Morrison Supermarkets Plc (abbreviated as “Morrisons” below) is “the UK’s fourth largest food retailer by sale” (Morrisons, 2013). This report will use Morrisons as an example to make a critical evaluation of corporate annual report.
There will be mainly four parts in this report. First of all, an overview of the annual report of Morrisons will be provided. On this basis, the second part will critically assess the section of “Performance and Strategy Review” of the annual report of Morrisons. The third part asses the section of “Governance”. Then, the fourth part will evaluate the reliability of the annual report of Morrisons. Finally, a conclusion will be given. 1. 0 Overview of the Annual Report of Morrisons The annual report 2013 of Morrisons includes 116 pages and comprises of mainly three parts, 1) performance and strategy review, 2) governance, and
3) financial statements. The first and second parts are mainly qualitative information while the third part is mainly quantitative information about the financial accounts of the company. This report focuses on the qualitative information of this annual report. 2. 0 Performance and Strategy Review This part is intended to provide investors with useful information about the business strategy and current performance of Morrisons. Based on such information, investors can make estimation about the future prospects of the company.
In this section of the annual report of Morrisons, detailed information about the strategy and performance of the company is provided. Investors and potential investors can get the following useful information. From the business model of Morrisons stated in Page 2, it can be seen what is the core business of Morrisons and where they do the business. Then from page 3 to page 5, it tells how Morrisons do differently from its competitors and how it competes in the market place. Also, the current position of Morrisons in the market place is analyzed.
The annual report further discloses the new channels of Morrisons to the market. From such information, investors can judge whether this business model will be effective in helping Morrisons gain competitive advantage and obtain sustainable growth in the future. The limitation with the information in this aspect is that it mainly focuses on the favorable things for the company. It identifies the strengths and advantages of Morrisons over its competitors but mentions little about its weaknesses and disadvantages. This may lead to the overconfidence of investors about the future prospects of Morrison.
Following the business model and marketplace information, chairman’s review and chief executive’s review are available in the annual report. These are the reviews about historical, current and future operations of the company by the board chairman and chief executive officer. They analyze the business environment, the performance and position, threatens & opportunities, and the strengths & weaknesses of the company, which represent the opinions of the director board and management board of Morrisons. From their reviews, investors can see how senior management of the company considers the future prospect of the company.
The confidence director board and management board tends to make investors be confident about the future prospects about the company. However, chairman’s review and chief executive’s review also have the problem of misleading investors. In fact, the annual report is a useful channel for a company to disclose favorable information. It could be used as a useful marketing tool (Lee, 1994). Both board chairman and chief executive have the incentive to select to disclose only the information that could make investors confident about the company.
The third aspect in this section is about the specific strategic objectives of Morrisons and how to achieve these strategic objectives. Morrisons have further identified their key performance indicators (KPIs) to measure the success of financial performance and operational excellence, including financial KPIs and non-financial KPIs. These indicators are the ones the board considers to be important for stakeholders, customers, suppliers and colleagues to assess the achievement of the strategy. By reading such information, investors can see how Morrisons are performing and what are the future prospects like to be.
According to annual report of Morrison, it tends to show that the company is “driving the topline, increasing the efficiency, and capturing growth”. This will convey information to investors that the company is currently performing quite well and have good future prospects. However, the as the company has the incentive to attract more investors and keep high stock price in the stock market. Therefore, it could choose to only measure and disclose the KPIs that could reflect good performance of the company (Alves et al. , 2012). The information in this aspect could be biased to some extent.
The fourth aspect in this section is financial review. This aspect also tends to increase investor confidence as well. It provides a summary about the financial results of the company in the past few years, including the cash flows, investment, capital structure, and returns to shareholders. Cash flow analysis reflects strong working capital management. Acquisition activities show expansion of the operational activities of the company and thus great future growth potential. The growing returns to shareholders indicate high value of the company for investors.
Similar to the information about KPIs, the financial review could be biased as well. The company could choose to only disclose the good financial information in this part. The fifth aspect in this section is managing risks and uncertainties. This aspect identifies the risks and uncertainties in the operation of Morrison. The measures that can be taken to manage these risks and uncertainties are also stated in this part. Such information can help investors to have an overall understanding about the risk management of the company thus make better anticipation about the future prospects of the company.
But the information disclosed in the annual report is not sound as well. Some other risks and uncertainties might be neglected in the annual report but such risks and uncertainties could be fatal to the regular operation of the company in the future (Abraham and Shrives, 2014). Finally, there are several pages that address the corporate social responsibility of Morrisons. Morrisons think about more beyond selling products. They care for lifecycle of products, for reduction in carbon emission, for charity program, for customers, for farmers, for communities, and so on. This makes Morrisons more than a business organization.
It is a member of our community and cares about the balanced development of our community (Ashcroft, 2012). More investors with high moral standards might be attracted to invest in Morrisons. 3. 0 Governance Following the section of “performance and strategy review”, there is another section that focuses on the governance of Morrisons. It introduces the structure of board of directors and management board. The photos and resume of the members of the two boards are provided. Investors could get information from the annual report that the management team of Morrisons is highly qualified and experienced in corporate management.
They are capable of managing the company efficiently. After the introduction of management team, there is a corporate governance report. This report compares the corporate governance structure of Morrisons to the UK Corporate Governance Code and concludes that Morrisons is fully compliant with the Code. This report provides information for investors that the company can be directed and controlled efficiently thus various agency problems could be mitigated properly and corporate objectives could be achieved.
After the governance report, the statement of directors’ responsibility in respect of the annual report and financial statements and the independent auditor’s report are provided. These two parts states clearly the respective responsibilities of directors and auditors. In the independent auditor’s report, the auditor’s opinion about the financial statements of Morrisons is given. The auditor of Morrisons is the KPMG Audit Plc. It gives standard audit opinion to Morrison’s financial statements (in accordance with the IFRSs and provide a true and fair view of the state of the company.
This independent auditor’s report increases the reliability of the financial accounts of Morrisons. 4. 0 Reliability of the Annual Report of Morrison Based on the analysis above, it can be seen that the first 59 pages of Morrisons’ provide some relevant and useful information to investors and potential investors about Morrison’s performance and future prospects. However, there are some limitations with the information, especially the unaudited qualitative information. As it is stated in the above section, the company has the incentive to provide positive information that favors its firm image and stock market price.
Thus, it can choose to disclose mainly the positive aspects of its business. Such information is biased. In other words, the reliability of the annual report is limited to some extent. Investors might be misled when they are making their decisions. Information from other sources is also needed to make a more comprehensive and all-round analysis about Morrisons. Compared to unaudited qualitative information, the audited quantitative information in the financial statements of the company is more reliable. But such audited information also needs to be analyzed together with other information to make right decisions.
5. 0 Conclusion In conclusion, this report has critically assessed the annual report of Morrisons, the fourth largest food retailer in the UK. The qualitative information in the annual report could provide important and relevant information for investors and potential investors. From the annual report, it can be see what the company does, how it competes in the market place, what the objectives of the company are, what measures it takes to achieve these objectives, how the company is currently performing, how it manages its risks and uncertainties, etc.
All of such information can help investors and potential investors determine the performance and future prospects of the company. However, the information is biased and its reliability is limited to some extent. It is unaudited information and the company has the incentive to provide mainly positive information. Thus, the reliability of the annual report is limited and information from other sources is also needed to help investors make good decisions.

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