Annual Report: 5 Key Principles by UK’s Investor Relations Society
There is a lot to cover in a well prepared Annual Report and the content should be precise and to the point – quantity does not always equal quality.
Purpose of the Annual Report
From an investor and analyst perspective, the key objectives of an Annual Report are:
- To educate and inform shareholders (potential as well as current)
- To set out a strategy and report on how that strategy is being implemented
- To report on performance during the period under review and put that performance in the context of the company’s strategy and markets
- To explain the risks and factors that could influence the performance of the business
- To provide direction and clarity on corporate governance issues, and to explain how decisions on governance are related to the performance and strategy of the business
- To fulfil other legal and regulatory responsibilities
In addition, many companies see the Annual Report as an opportunity to build their corporate reputation with a wider group of stakeholders and showcase their company to customers, prospective business partners, staff and their local community.
Key principles for Annual Reports
(1) Simplicity: The Annual Report should be written in such a way that someone without specialist industry or financial knowledge can benefit equally from those that have. It should be laid out coherently and organised in such a way that key information is easy to find and understand. As best practice, make sure the key messages are well highlighted and linked closely to the strategy, risks or another element of relevant reporting.
(2) Targeted: The target audience for the Annual Report includes professional investors (whether they are existing shareholders or not), analysts, retail shareholders, employees and other stakeholders. The use of additional publications can support the effectiveness of the Annual Report in communicating with these broader stakeholders. However, there should be consistency between the different reports recognising the cross-over in use of different materials.
(3) Consistency: Shareholders will expect to be able to track progress on key issues over time and make comparisons with last year. Unless important to communication, try and ensure the style of writing, vocabulary and definitions are consistent across the document.
(4) Connectivity: Clearly demonstrate the strategic linkages between key reporting contents such as KPIs, risk, sustainability and remuneration; this can be achieved both graphically and in the narrative text. Direct linkages between key disclosures not only provides external stakeholders with a holistic view of the business, it also provides internal stakeholders with an understanding of the link between current performance and plans for the future and an insight into how management gains an accurate picture of the extent to which the strategy in place is allowing the company to perform.
(5) Concise: There is a lot to cover in a well prepared Annual Report and the content should be precise and to the point – quantity does not always equal quality. Clear, concise, well structured text should be used with short sentences, keeping in mind that this is a factual, informative document, rather than marketing collateral. Use crossreferencing if attention needs to be drawn to important points.