Welcome back!

First here is my moodle link: https://moodle.cqu.edu.au/mod/forum/discuss.php?d=370170

and my blog link: https://wordpress.com/posts/michaelahasablog.wordpress.com

Now we may begin...

When I clicked on connect groups website via the spreadsheet link I had mixed feelings. On the one hand I felt a little doubtful that I would like this company. I do think, that if you like the company, their values and what they stand for, are familiar with their industry or at least find their industry intriguing it makes the whole assignment a lot easier and more enjoyable. I didn’t recognise the name but managed to find out some information about who they are and what exactly it is that they do. A handy timeline as well as the press releases on their website provided theses details. Also on this note I ended up clicking on the values of the company too and here’s what I found….

Ahh here it is…. They Connect people to information and to each other.

Background on Connect group

Connect group PLC, based in Swindon in the UK (don’t know where that is but this map might help)

The website states that Connect group is the leading… in The UK and Wales formed in 2006 originally trading as Smiths news PLC after demerging from its parent company WH Smith PLC. Numerous company acquisitions consequently led to Smiths news PLC rebranding to form Connect group PLC in 2014. Connect group PLC has two distinct branches which serve its two product markets, Tufnell’s (mixed freight delivery) and Smiths news (magazine and newspaper wholesale) and since it’s establishment in 2006 has received numerous awards.

For more Information on connect group please click on its website link: https://www.connectgroupplc.com/

or any of the hyperlinks in this post

Where are they going?

Connect group are currently working towards integrating the operations of Tufnell’s and Smiths news to streamline the process. They also recently launched an APP in January of 2019.

Step 3.5 Reading Connect group’s annual report

Read through your company’s annual report and identify areas of its business that seem critical to you and any areas you are having trouble understanding… Okay I’ll give it a go. Connect groups annual report is long

The chairman’s statement was the first thing I read (figured it would provide some kind of general overview). According to the chairman the part of Connect groups’ strategy involving the integration of Tufnell’s and Smiths News operations was unsuccessful despite their best efforts. Furthermore, the chairman stated that this failed integration was making things worse in some areas particularly when considering the profitability of Tufnell’s. The statement concluded with a sour note on operational efficiency targets coupled with additional losses in My Parcel made adding to difficulties. Also contributing to their (I’m assuming financial) losses was the “protracted” (because it lasted longer than was expected) disposal of the Books business which also caused a distraction at a critical period. What Books business? And How big of a (financial?) distraction are we talking about? Despite all this there was a ‘Performance recovery plan’ in place to help rebuild the groups’ strengths…

Reading further I found that the reflection of the year past to provide some insight as to the plan exactly in addition to providing bolstering highlights of successes alongside the acknowledged shortfalls connect group had in the previous financial year.

My experience reading this part of the annual report made me kind of sad to be honest… there was some business jargon which the average customer probably wouldn’t understand. My point is that if the customer is also a key stakeholder with genuine interests in a firm’s annual reports, and these reports are supposed to be marketing document, why not use plain English? (but that’d just make it too easy, right?)

I really enjoyed the Q and A Session with the new CEO OF Connect Group Mr. Jos Opdeweegh, and how it highlighted some of the reasons for changes in the current strategy of the group such the need for Connect Group to adopt a more customer centred approach in each of its companies acknowledging that not every single aspect of the models for Tufnell’s Smiths news PLC and DMD will be able to be integrated. Just in case you wanted to meet Mr. Opdeweegh yourself here is a video on YouTube that I stumbled upon.

https://www.youtube.com/watch?v=-ZEfFQJRWjE

I also found it really helpful that the strategic goals and future plans of the company were succinctly listed in a ‘Top Priorities’ list on the right-hand side of page 5 of their annual report. This list I thought coupled with the Q and A session was well placed as the very next item following the chairman’s address.

Another item in the table of contents I thought would be interesting was the independent auditor’s report. As I did not know or remember what an audit actually was I googled it.. and according to Certified Public Accountants Australia (CPA) An independent audit is supposed to verify that the financial statements prepared in accordance with the proper financial reporting framework. Just briefly glancing at the independent auditor’s report was enough for me to clarify that from an

external perspective the group had prepared their financial statements correctly in accordance with the United Kingdom Accounting Standards, including FRS 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice). GREAT!

I also noted the highlighted changes in the auditing approach to be something good due to the changes influencing the group’s performance in the financial year.

Did I just spend an entire hour doing something pointless…? Though I enjoyed the way the auditing approach laid out with a brief description of the matter in question, how the scope of their audit helped respond to the matter and key observations overall I found that the auditor’s report was a bit of a difficult read with all the notes it referenced I couldn’t really understand the notes themselves, maybe after I do the spreadsheet something will click?

Areas of its business that seem important to you?????

Connect group is currently facing challenges achieving operational efficiency through integrating Tufnell’s and Smiths news. Though the opportunity of streamlined process may increase customer satisfaction they have acknowledged in their 2018 annual report that some areas of their business need to remain specialised.

Though this does not appear to be stopping Connect group from forging onwards. Despite being unsuccessful in meeting these challenges yet it seems they are not planning to abandon this project entirely. Instead, having had some success in certain areas, are changing their strategy to adopt a more consumer centred approach in the future.

Overall I feel like learning to analyse the annual report of Connect group is an interesting and challenging task for me so far and while looking at the exemplars helped some, but I found myself trying to imitate their blog posts looking at the same items they looked at and attempting to apply that to my own firm (they got it right after all), but I soon found that not everything fits. Also trying to flag what looks important in a big document like this, I found myself trying to read each page word for word (even though the instructions mentioned that we didn’t have to!) I didn’t know what exactly I was supposed to be looking for.

Concerns

I found myself to be unsuccessful in finding any further information on challenges and opportunities Connect group is facing other than the press releases found on their website and a few videos on vimeo and YouTube. They do not appear to be active on Facebook and as far as I could see had no company blog or anything like that (which was a little disappointing but maybe I need to use different key words in my searches?)

I found face to face discussions with others in my class to be more useful than anything else as it was easier to bounce ideas back and forth as they occurred. There is a bit of a time delay in blogging (This frustrated me a lot in the beginning) but I do feel like I am slowly getting used to staying active online, so that’s a win for me.

On a side note, and this post is long enough as it is but bear with me for just a few more sentences. The last concern (at least that I can think of right now) is that I feel like maybe I could be overthinking step 3 (it took me longer than expected) or am I just not getting it? Am I missing the point entirely?

And finally my favourite 3 blogs at this point in time are:

Aldrex’s blog

I found this blog to be very easy to follow and was also concise and to the point (unlike my own jumbled thoughts with lots of side notes) I also enjoyed how Chapters 2 and 3.1 and 3.2 were integrated into her experience of reading Datadot’s annual report. As well as this I feel like I can identify with some of her thoughts, having had similar doubts as to whether or not my own company was communicating the ‘Hard truth and nothing but the truth’ a company’s share prices go up when it announces its loss because of preceding information divulged by analysts driving more investment into the firm , consequently leading to a firm’s actual loss being less than expected… Is this whole disappointed sob story also a marketing ploy to try and inject more money into the business????

I found it interesting that Datadot it seems is also implementing a ‘recovery strategy’ of sorts , but how are they doing it? Also would this strategy be effective if adapted and applied to Connect group and vice versa? Though our companies are different and are responding to financial challenges in different ways, they both have the same goal and the central idea seems to remain the same.

RINA’S blog

I really enjoyed the layout of Rina’s blog and found that her writing flowed well and was easy to read. I found I could relate well to some of the experiences she had in staying on track with the pace of this course and confusion as to where to start in analysing the annual report. I really liked that her KCQ’s were set out as numbered paragraphs too as well as being clear and easy to read.

Rina: I thought your blog was well structured and your writing flowed very well in each of your posts. Also I found it very helpful that your KCQ’s were all numbered and easily distinguishable from each other.

Brandons blog

I thought would be interesting as our companies are both in the same industry of business support services. Brendan’s blog was well set out and I enjoyed the style of writing. Along with the comments he had on some of the chapter readings I also really found the way he presented his company Cabcharge to be refreshingly engaging.

My experience filling in the spreadsheet

Maria’s video was very easy to follow, and I really enjoyed the step by step tutorial filling in the spreadsheet (even if I did find the process of typing everything out line by line to be excruciatingly painful especially when connect group chose to rename a few of their items which I later found out were different names for the same thing).

I found everything to be fairly straight forward apart from some minor difficulties tailoring my spreadsheet (attached separately in my blog) at first to fit my currency and getting negative numbers to appear in brackets instead of with minus signs. Also not having a title/ total row for other comprehensive income had me a little confused but my figures ended up matching my spreadsheet. In addition I found it took me longer to condense the income statements into my spreadsheet in particular as almost all of the items in my Comprehensive Income statement had been named differently in the annual reports I was using, but I think I did it right (at least I hope so) the totals matched but I’m not sure I used my formulas correctly or maybe I should have ordered the items differently?

Overall my experience left me with mixed emotions, what should’ve been an easy task turned out to be more complicated than I first thought, but maybe I made it more complicated than it has to be…

Readings and thoughts on Chapters 2, 3.1 and 3.2

Chapter 2

Building again on a question I had when I started reading my annual report. If customers are also key stakeholders who have genuine interests in understanding and using a firm’s financial statements, why all the jargon and tricky terms the average person probably wouldn’t know? Does that not take power from them and create another barrier in place of the first?

Also, why do customers have an interest in using the financial statements of a firm? Suppliers, government bodies etc. that makes sense as they are partners in the business or important legal entities who will make sure that firms don’t “cook the books” so to speak?

Something that really struck me in chapter 2 was the idea of managers of a firm having an unbarred access to any information in the firm, I understand managers are trusted individuals within a firm and need to make important decisions on a day to day basis, but is anyone else wondering if this might not leave the door open for unethical behaviour? (they probably have to sign confidentiality agreements and the like) but could they not for instance if they were unhappy with their pay or something do something spiteful that could be harmful to the operations of the firm? And then play it off as ‘an honest mistake?’ or cover it up really well?

I happen to like rules (the more specific the better) they help me make decisions (I find myself to be an indecisive person at the best of times and rules make things easier for me after all the only other way that I can see to overcome indecisiveness is through experience and using that experience to guide future similar decisions but I can’t exactly experience every single thing myself and truth be told I don’t think I’d really want to. No, sometimes it’s better to observe and learn from someone else’s mistakes rather than to put yourself in a situation personally). I also believe they provide some form of order, equalising us. I am interested in learning what kinds of rules will come into play here,

finding out how they will influence my views and perceptions when viewing Financial statements as well as if and how exactly I can use them to my advantage.

Games have rules… Accounting has rules too

I found these rules necessitate a trade-off of sorts between a firm (for example a financial firm like a bank) and it’s equity investors(us) with the power to demand certain information from it’s equity investors the rules now require firms to provide information (in the form of annual reports etc.) to their equity investors. Give and Take.

Also why is it that the Double entry Accounting system omits consideration of the firm’s impact on other parties? Would it just have made the model overly complex? Or was this information just not as important? If it is important where can we get this information, will it be useful? and if so, How? (if this may indeed influence our views and perhaps provide a different perspective too) why was it not included? Am I thinking too much?

Secondly, the explanations of who makes the rules, understanding where the rules come from and how they came to be drives home some of the reasons we have rules in the first place.

However, in terms of some of the rules being written and some of them unwritten, are we just assuming the unwritten ones are pretty much like etiquette? Like how when you were younger you learnt that picking your nose in public is frowned upon but pushing and shoving other kids in school was part of the ‘class rules’ written down because they were so important no one should forget them? And then when you were older you realised that there are laws against assault but picking your nose is still just picking your nose (like its rude, VERY rude and actually quite gross) but you won’t go to jail for picking your nose.

Also I found it interesting to note that over 140 countries adopt IFRS with the USA being a notable exception, but why is this? Do they just have their own regulatory standards? Do they need to? Why? This seemed important too.

Some companies don’t need to report, this makes sense I suppose if everyone had to provide annual reports it would probably be very hard to keep track of every single company too, but, how do they know if they have to report or not? Is there a set of guidelines somewhere?

As much as I like rules, I am beginning to think not having a rule for everything may be a good thing as it makes things less complex (I can imagine it would be difficult to have to work within all the guidelines if there were too many rules). However, I also think it should be noted that a lack of rules or even just guidelines may also makes things more confusing too. Especially when morale affects decision making. People may ‘skimp’ on doing things because of the extra effort or time required if they have a choice too.

Ahh here it is…. AASB’s conceptual framework that’ the guide. Hold on it does not recognise quite a few of those potential users of Financial statements…BUT not-for- profit entities do? Why is there a difference? Surely something like that would be necessary and beneficial to both types of businesses, whether for profit or not. What ‘accrual’ thing to do!

Accrual Accounting

A firm will only recognise economic transactions when they actually occur, so the second they sell a product or provide a service it goes down as a transaction regardless of whether or not they have been paid or not?

I particularly found the bus travel example easier to understand.

The reason for accrual accounting is just timing so we can view a firm’s particular position at any period of it’s lifecycle. This makes sense you wouldn’t really want to learn about the life of someone you’d met at their funeral.

Going concern Assumption

Items of going concern was something that was in the independent auditor’s report for Connect group. It makes sense that financial statements are prepared assuming ‘business as usual’ If there was good reason to consider that the firm might soon be ceasing activities. After all a company has a financial obligation to its shareholders to take steps that mitigate damages before declaring insolvency therefore I would think that a firm would want to put off providing such information as long as possible because it may cause shareholders to try and get rid of their shares fairly quickly. The fact that financial statements are prepared under the going concern assumption appears to be a way for firms to build and retain investor confidence.

But these items listed in the independent auditor’s report, are they simply a current valuation of a firm’s assets prepared just in case the business should suddenly have to cease its operations?

Materiality

Information that will usually have a negative effect on the decision-making processes of people who use it? Isn’t that being dishonest and only showing the good side?

From this it seems to me like materiality also interacts with faithful representation in the same way relevance does.

2.4 The keys

I liked that the ‘two keys’ to ‘understanding the game’ seemed applicable to the current assignment and would assist us in focusing on the key value drivers of a firm…. What are they key value drivers of the firm though? It makes sense that picking out relevant and a faithfully represented information would be of use when valuating a firm… but how are we supposed to distinguish those things from all the other ‘noise’ in a firm’s annual report?

Furthermore, going back to materiality… would including material information alongside all the good stuff not make a firm’s annual report more realistic in the image it portrays to its users? How do we trust these firms to give a relevant and faithful representation of what’s going on if they may themselves create a lack of transparency, either with industry jargon or deliberately presenting information in a confusing way?

Ahh here it is…

Comparability, Verifiability, timeliness and understandability…

It felt like these concepts basically answered my previous questions relating to trusting the firm as, as far as I could see, there wasn’t much difference in how connect group had set out it’s financial statements. I also found useful information in the explanation for why the first foot note is the longest, as well as how we could use this footnote to our advantage when analysing the comparability of our firm’s financial statements. Additionally, I liked that we could think of

comparability as something that enhances or adds value to the relevance and faithful representation of a firm’s financial statements.

Verifiable information, I liked the way this concept was explained using Einstein’s relativity theory and how much more convincing something needs to be if you can’t physically see it to be perceived as true. The same idea applies to a firm. If the information in a firm’s financial statements could not be verified, for example by a government body or independent auditor, it’d be difficult I think, to act on the information given if you were not sure that it was true.

The concept of timeliness makes sense in that it is a lot like using yesterday’s news to make decisions for today. Though we can use history to a certain extent to make better decisions for today and tomorrow because no one knows what the future holds it would be foolish to make a decision for the future based solely on past results, because of this it becomes necessary that we address the present as well in order to make better decisions. How we do that is influenced by the timeliness the information presented to us. Unfortunately, this blog post is a lot like old news right now, but the only thing left to do is try not to make this mistake again (onwards!)

Understandability or the extent to which I can understand and subsequently interpret the information presented to me will affect whether I perceive the information to be useful when making decisions to act on it or not.

In a way all these concepts appear to me, to be interlinked and almost inseparable from each other because each one seems to be dependent on the others in order to exist.

Chapter 3.1 A business at rest

The idea of footnotes giving us an uncluttered view of the balance sheet makes sense (even if they are still difficult to understand) but perhaps with time and as I get more used to exploring them this will get easier.

It was interesting to consider 1% as being able to make such a big difference in terms of the ownership of company shares in subsidiary companies.

I liked that there was more written clarity as to why we should only consider the group financial statements for the purpose of this assignment. However why is it that the activities of the legal entity of the parent company are not important to us right now? Do these activities not to some extent also influence the activities of the subsidiary companies?

As to the ownership of subsidiary companies and minority shareholders (non-controlling interests) hey connect group has those! Wait so if owned by the company or by the equity investors who owns those shares? Staff? Aren’t they also equity investors as owners of shares in the firm too?

If business is not static, why are the financial statements of a firm not living documents on a website/ App or the like already? As soon as a transaction occurs the numbers are automatically updated online as well (based on accrual accounting principles). Would this be feasible if it does exist? if not why not? Is it impractical? It could streamline a process, increase transparency and timeliness, relevance and faithful representation (to an extent anyway).

With advances made possible by technology today, is something like this possible? Does it exist? Where can I find it? It could put us all ‘right in the middle of all the action’ so to speak.

3.2 Business on the move

I enjoyed the visual of a firms income statement, statement of changes in equity and cashflow fitting in between each balance sheet as a way of showing the changes and movement within the firm from one balance sheet to the next.

An active glossary of which terms are just different ways of saying the same thing would be awesome right about here…

The non- controlling interests (or those interests of minority shareholders) being deducted from profit or loss makes sense, as annual reports are prepared for the use of the equity investors of the (parent company?) and the firm only. Where do minority shareholders get their information from then? Is the figure displayed next to the ‘non-controlling interests’ item what they would look at and not the net profit figure, which is only beneficial and relevant to equity investors of the parent company?

I understood the idea of other comprehensive income being separate from the income statement but… Is this because the income statement represents reoccurring day to day transactions of the firm, and other comprehensive income may be view as a sort of once off income only applicable to that period?

I enjoyed the explanation of how exactly a visual of the fundamental accounting equation is displayed using the balance sheet and income statements.

From the section on the Statement Of Changes In Equity (SOCIE), I feel like the point was to demonstrate what it is that the SOCIE is supposed to show us. That is that the SOCIE illustrates what happened to shareholders equity (or rather what the firm did with the equity investments made by the shareholders) in a period.

The Cash flow statement seems to be important in that it is free of the judgment biases which exist in the preparation of the balance sheet, income statement and Statement of Changes in Equity. This appears to possibly enable us to be able to draw key insights from the other financial statements through the use of the cashflow statement as well.

I enjoyed the way a brief summary (revision) of what we learnt was also included in this chapter section as it helped to cement some of the key concepts for me.

Now understanding what I do from the readings I am actually beginning to think that perhaps these chapter readings would have been better placed after doing a company background but before reading the annual report to further understanding of the report itself.

Comment’s on other student’s Blog’s and Feedback sheets

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