The allure of the annual report (Part I)

First off, thanks to SMOL for telling me that my comments section is koyak again. I thought I fixed it after Ladykiller told me the last time but no it seems that I totally suck at tech. Apologies to those who tried to leave a comment and couldn't. Alright in today's post I'll be running through on what I look out for in the annual report. I am no expert so this is just what I do on a normal basis.

Reading the annual report of a company is a must in my books and there's some sort of mystic feel I get when I see the cover. That disappears in a flash as I quickly note down the total number of pages of the annual report, most of which I have to read. There is loads to absorb, dig around, cross reference in an annual report and each company has their own style of presenting it.

I also have the tendency to go and read all the current news on the company or even go and google the information that I don't quite understand in the annual report. Since I write a post about most of the stocks I research on, there are some key things I look for to guide me in deciding whether to abandon reading any further or to continue trudging on. 

As an example, I will be using Christian Dior SA (CDI) 2013 annual report, analysis of which will be in an upcoming post. 

Financial Year End 
I take note of this as CDI's YE is 30 June and it was noted in the later pages that approximately 30% of their annual revenue comes in the 4th quarter of the calendar year (October to December). That means the 2nd quarter's financial results or the 1st half financial results should be fantastic in terms of them being in line to reach their targets for the year. If not I would have to see how far they are from their targets before deciding whether to press on reading the annual report or just moving on to the next company. 

Chairman's Message
This is an interesting portion of the annual report that could be totally useful or useless. By right, it should tell you a nice little summary of what had transpired in the year and some reasons for the results and what to expect in the coming year. Unfortunately it could also end up as fluff which means you just spent your precious reading time and yet learn absolutely nothing new about the company. I like to read a rational and neutral voice in this paragraph, detailed with reasons and explainations and backed by some key figures for the year. Confidence is fine but not over the top unrealistic boldness.

Financial Highlights
I check to see whether there are any oddball figures, whether previous year's numbers have been restated, do some simple top line and bottom line calculations just to see whether y-o-y movements have been going up or down. If numbers have been restated, I usually jump to the financial statements or notes section to take a quick look at the reason. If it's just due to implementation of a new accounting standard or an update of an accounting standard, I usually just read it and see the changes. The fact is that there are lots of changes to the accounting standards in the years to come due to the ongoing merger of IAS and US GAAP standards.

I take a look at FCF, Net financial debt/Total equity ratio, EPS and DPS and compare it with its peers as well as over the past years. Next, I will identify which segment is the top earner and whether it's revenues correspond with its operating profits. I will also compare this with how the industry, economy and competitors are doing to see whether their top earner will continue to do well in the future (future being defined as the time where I'm going to buy and then sell the shares). This lets me sorta do some crystal ball reading into the viability of the stock price moving in the direction that I think it will go. I will also cross reference it with the chairman's message to see whether he also thinks the top earner will continue to do well or there are other segments that he thinks will do better in the future.

Consolidated Results
I take a look at the figures based on actual exchange rates and am pleasantly surprised that they did better than the previous year. Overall the luxury industry has a tough few years so this is good but would it stay good is the question I have in mind. CDI had a few acquisitions in the year and I note down those that I need to investigate further in the annual report and on the web.

Of interest to me was the revenue by invoicing currency as I wanted to see how exposed they are to their reporting currency. The revenue by geographical region of delivery was also important given that they are in luxury and not in FMCG thus any adverse changes could impact the share price negatively.

Results by Business Group
I made it to this section as the consolidated results were good enough to warrant further investigation. The analysis of revenue by business activity and breakdown of revenue by geographical region was useful information as it allows me to note down where and from what it's revenue is being generated. Interestingly they only gave this analysis for the haute couture busines segment as the other segments only have three sections namely: Highlights, Main Developments and Outlook. This could be because haute couture is the smallest business segment thus warranting additional information.

As I was reading this annual report, I was concurrently reading LVMH's annual report as both companies have some commonalities between them. In this manner, I shorten the amount of time needed for peer analysis as well as gain an insight on the outlooks for both companies that are competing in the same sector. I was also deciding on which one would be a better stock to buy as ACCICB have been following LVMH for a while. In this case as CDI and LVMH are related, the information being related should be fairly similar as well.

This is getting lengthy and I am nowhere near completing it. Plus I have trouble typing it in my iPad so I would have to continue the rest in the next post


  1. Hello Googirl,

    From your nick, I was thinking you must be super die-hard fanatical rabid employee of Google; comments must also support g+?


    Glad to know you have revert the comment settings back to "default" ;)

    I must apologize as I got eyes not see Tarzan (泰山).

    The way you analyse International stocks, you are either an insider like ladykiller (only your time frame is in years while his is in hours/days); or you're an ex-insider and now happy Lady of Leisure singing Tammy Wynette's Stand by your Man ;)

    You go girl!

    1. Hello SMOL,

      Nah the only reason I'm called Googirl is because I'm damn good at Google as in I can find things that others can't and much faster as well. The nick was given to me by ACCICB! But if Google wants to offer me a job I can't say No! Haha

      Thanks for the compliments but I'm far from you and Ladykiller's standard! In fact I've never done a research analyst job in my life and doubt that I'll be hired as one! Haha

    2. Now that we are on the topic of names... Actually I snickered a little bit when I first saw yours. I encourage you to refrain from checking it out on urban dictionary. Hehehehehe. Of course now you're gonna check it.

      Also, I am glad you fixed your comments box, there was a post in December I wanted to comment on.

      Anyway, don't discount yourself. I know absolutely nothing about fundamental analysis. If you measure us on a scorecard of accounting sleuthing, there is no way I can speak logically about anything. I just have a pair of balls and a trigger happy mouse clicking finger, and not half the brain you have.

    3. I found out what Googirl meant in the urban dictionary when I just started this blog. Too bad for those who think that this blog is written in that direction though :P

      Fixing this comments box was a bitch! To be honest with markets behaving as it is and with the SNB and its shocking news yesterday, I wish I was a trader... a good one of course... as there was lots of $$$$ to be made yesterday. You must have been busy!

  2. I quite like the blog.
    I also enjoy the avatar.
    eyes also feel less tired.

    1. Hello SMK,

      Thanks for coming by and glad you like the blog and avatar. Hope the blog helps you in your investing journey!

  3. Hi Googirl,

    I love the luxury goods sector, especially leather goods: a handful of players, with 20-40% operating margins, and zero technology change. The only thing they have to do is keep their prices and branding consistent and resist the temptation to cut prices during the downturns. Unfortunately all the shares have been too expensive over the past few years - I'm waiting for a downturn to buy.

    My understanding is that Dior is mostly LVMH, which is mostly Vuitton. LVMH was pretty skimpy with the segment results - not giving a revenue/profit breakdown for Vuitton example.

    For 'revenue by invoicing' currency, is that based on the store's location, or the visitor's (i.e.: tourist's) home country? The latter would be very useful.

  4. Hi BlackCat,

    I share a similar love for the luxury sector but it has been a tough market since the crackdown of gift giving in China. Growth ain't easy and competition is keener than ever. When it comes to when's the right time to buy, it depends on your investment horizon on whether you are looking for dividends or pure capital gains or a mix of both. Dior is mostly LVMH although the they do have some brands that each of them possess on their own. I would think that revenue by invoicing currency would be based on the store's location as their POS systems would be linked to their accounting systems thus providing the breakdown of revenue by currency. I agree with the latter being vey useful but then they don't always get the visitor to leave their information down when the store is very busy.


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