Professionally prepared annual reports, whether distributed in print or digital formats, serve as vital communication tools when thoughtfully implemented. For many stakeholders, annual reports represent the most comprehensive source of information that they receive from a company regarding its operations, financial status, current positioning, and future plans.
Public companies must meet certain disclosure requirements that are set by securities laws and regulations. The annual report is intended to meet those requirements, but beyond that, the annual report should be treated as an investment – and as such, it deserves careful planning and should be subjected to appropriate measurement criteria. While investments in annual reports vary among public companies, few organizations identify measurable objectives or define their expectations for the resources they choose to spend on the preparation of these reports.
The reporting requirements can be met at a bare minimum with copies of the audited financial statements, notes to the financial statements, and the management discussion and analysis (known as the “MD&A”). But you should consider what additional or further information your investors would be interested in knowing. Ask yourself the following questions:
- How can the annual report be used to build confidence among the investment community, bankers, customers, employees, suppliers, and other stakeholders?
- What messages does the company need to communicate via the annual report to its shareholders, investors and other stakeholders?
- Should the annual report contribute to the company’s marketing and sales initiatives, and if yes, how?
Maximizing Value for Investors
An annual report can play a pivotal role in an investor’s initial evaluation process. Investors may view annual reports that are overly elaborate with skepticism; therefore, it is essential that your company’s annual reports maintain a professional tone suitable for its size, industry, and performance, and that they are appropriate for the intended audience.
Revisions to disclosure and reporting requirements in recent years are changing attitudes within the financial community, and raising expectations regarding the contents of annual reports. As a result, companies are improving the quantity and quality of disclosure, cognizant of the growing competition for the attention of investors. An open and honest presentation, especially in difficult times, will go a long way to earn confidence and credibility. Investors have zero tolerance for exaggeration and evasiveness, and a keen ability to detect both. Attempts to cover up or whitewash a company’s poor performance will almost certainly be found out, and the company branded as untrustworthy.
To meet stakeholder expectations, annual reports should include:
- A thorough discussion of the company’s competitive position;
- Honest analyses of challenges facing the organization and its sector;
- Clear segmentation of products and business units.
Investors evaluate companies based primarily on anticipated future performance rather than historical results. The following areas are particularly significant to the investment community:
- Corporate Strategy and Planning: Articulate the company's vision, growth objectives, and actionable strategies. Investors need assurance that targets are realistic and achievable, often seeking this information in the president’s Letter to Shareholders, Operations Review, and to a certain extent, the MD&A.
- Leadership Quality: The caliber of leadership is as critical as strategic direction, as far as the financial community is concerned. Investors assess executives’ understanding of industry trends, their responses to past challenges, and their preparedness for future developments. These assessments are informed through the Operations Review, Letter to Shareholders, and MD&A.
- Performance Results: Stakeholders expect precise and factual presentations of the previous year’s outcomes, highlighting both achievements and areas for improvement. This information is typically found in the MD&A and financial statements.
It is important to recognize that omissions can influence perceptions as strongly as inclusions. When preparing the annual report – particularly the Operations Review – you need to research what the prevailing investor sentiment is towards both the company and its industry. Leverage insights from industry associations and specialized research firms, complemented by recent data on shareholder and market perception.
Consistency Across Communications
Acknowledging employee contributions remains standard practice in annual reports. Employees are motivated when there is alignment between the report and their daily experiences. Leadership’s vision and expertise, as conveyed in the report, further reinforce engagement. Other stakeholders also value consistency between the annual report, public statements, press releases, and observed company actions – any perceived discrepancies can damage reputation.
Leveraging Marketing Opportunities
Develop a plan for distributing and utilizing the annual report to maximize its impact. Surplus reports held in storage diminish value; ideally, only a minimal backup supply should remain by the time the next annual report cycle begins.
Clarity and Accessibility
While industry-specific terminology may be commonplace internally, annual reports should be accessible to a broad audience, including investors and customers who may lack technical familiarity. Any specialized terms must be clearly explained to ensure comprehension.
Establishing a Production Timeline for the Annual Report
- Your first priority must be to ensure all applicable regulatory deadlines are met.
- Secondly, you need to outline a production schedule, working backwards from the date of the annual general meeting.
- The timeline must accommodate final proofing, pre-press preparations, content and photography deadlines, selection of vendors such as writers, photographers, and designers, theme selection, and all necessary preparatory logistics.
- Allow sufficient time for distribution of the final product to stakeholders – typically one month prior to the meeting – and coordinate with your transfer agent and printer with that date top of mind.
