Investor Relations - A Practical Guide - Investis

Annual Reports
Richard Carpenter, Managing Partner, Merchant
Reporting changes
The corporate reporting environment in the UK and
overseas has gone through significant change in
recent years. Annual report content in the UK has
been subject to regulatory and legislative change
that has impacted both the front and back sections
of annual reports – ranging from the once
mandatory Operating and Financial Review (OFR),
through to the Business Review and Enhanced
Business Review and the implementation of
International Financial Reporting Standards (IFRS)
for the accounts.
The technological environment has changed
significantly too. Many companies are looking to
move their reporting into an online format. That
progression has been helped by changing
legislation both in the UK (the Companies Act
2006) and overseas allowing companies to default
to online or electronic communications with their
shareholders – rather than sending printed
material.
Key document
Due to its statutory nature, the production of the
annual report should be seen as a key activity in
any company’s investor relations programme. In
many ways, the annual report is a direct extension
of a one-on-one meeting with investors – it gives
the strategic detail of the results information that is
released at the time of the preliminary
announcement. As with any other key part of the
investor relations programme, the publication date
of the annual report should be set well in advance
as part of a company’s financial calendar.
Content
The annual report remains an absolutely key part
of the overall shareholder and stakeholder
communications mix. Many companies view it as
the document that brings together all of their key
messages throughout the year. It is, in that regard,
a sort of ‘convenience publishing’ tool for
investors. It should bring together a description of
the business; the context in which the business is
operating; an overview of strategy, performance
and operations; plus key governance information,
including risks and uncertainties. Last, but certainly
not least, it should present the main financials,
together with detailed explanatory notes. In essence,
the report should give readers an in-depth
understanding of the company, its performance and,
crucially, its prospects going forward.
This latter aspect of the annual report’s role has
grown in prominence in recent years with
companies paying more attention to the ‘forwardlooking
information’ they include within the
document. As such, there needs to be a clear
balance in giving some indication of future
prospects without making unrealistic statements
that could compromise the directors’ legal
obligations. Companies that are adept at
presenting this type of forward-looking information
tend to concentrate their efforts on talking about
their plans for the future – for example, strategy –
and setting those plans in the context of the
threats and opportunities that they currently see in
their marketplace. It is increasingly common to
also use externally-sourced statistics to back up
that sort of case – for example, overviews from
industry bodies that analyse the sector.
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