Time for a revamp of the annual report

SOME industry players are pushing companies to rethink their annual reports - both in terms of how information is presented, and what goes into them.

In their current forms, annual reports probably do not rank highly among investors' preferred resources to look through.

The thick tomes published by companies each year are part and parcel of the regular information set that investors receive, but the sheer amount of information and styles of presentation can make it difficult for the average investor to digest.

Beyond the medium, the type of information presented also deserves some consideration - to make the content of reports more useful for investors.

Modern channels

Historically, companies have sent hardcopy printed reports to investors each year. Even in the current digital era, most reports still take the form of PDFs - the soft-copy replicas of the books.

Erwin Groenendal, co-founder of corporate reports solutions platform, Tangelo Software, said: "The professional investor might still be okay with the PDF and Excel sheet with the numbers; but more and more, annual and integrated reporting is becoming a multi-stakeholder thing."

A wide range of stakeholders such as retail investors, employees, customers and the wider society would be interested in companies, and these stakeholders would want to understand companies' strategy and approach, especially on sustainability issues.

"They will look for information on the Internet, and they expect this information to be available in a website form, and not just like a single page with PDF downloads," Groenendal added.

A study of Straits Times Index (STI) constituents' FY20 annual reports conducted by Tangelo earlier this year found that 23 per cent of STI companies published a website version of their annual report.

This ranked ahead of countries such as Malaysia and New Zealand; but remained behind Europe, where 30 to 40 per cent of companies had website versions.

Even where websites were used in Singapore, the study also found that these versions ranked low on completeness. For instance, none included the financial statements and notes from the annual report. The websites also lacked interactive charts, or options to download custom PDFs or to export selected information to Excel. Most also did not have search functionality.

Said Groenendal: "If you want to read more, you still end up downloading PDFs."

Uantchern Loh, Asia-Pacific chief executive of stakeholder communications company, Black Sun, said: "PDF is a legacy issue; because people had to print last time, (they have) no choice." The medium is not as well-suited for digital consumption, Loh added. "You try reading an A3 spread on a mobile phone using PDF. It's not readable."

Companies are still producing PDF reports as they are required under listing rules to provide physical copies to shareholders who request them, Loh said. And with significant money spent already on these reports, companies may be less willing to spend extra for websites.

Loh therefore believes the requirement to provide physical copies should be eased, and investors who are interested in hardcopy annual reports can proceed to make the print versions themselves.

"If we look at the technology for Web-to-print, meaning that you do a website (and are) able to print nice PDFs from the Web, the technology is available already," he said.

Tangelo's Groenendal also said that companies do not necessarily need to drop the PDF version of reports, but they could come up with a multi-channel approach, with designs that could work for both Web and PDF.

Harold Woo, president of the Investor Relations Professionals Association (Singapore) (Irpas) believes that microsites could be more relevant to investors, and those that also allow for their metrics to be downloaded to Excel files could also be helpful for analysis.

Groenendal added that having machine readable information, and allowing standardised data downloads from websites could be helpful to investors and analysts who want to compare data between firms.

In the past, there was a need for manual inputs from hardcopy documents to a useful format, but he said that standardised machine readable formats make things simpler now.

This could also improve visibility for smaller companies that may have been skipped previously.

Rethinking content

Even as the channels to communicate information could be improved, the content within annual reports would matter equally to get greater interest from readers.

"Shareholders hardly read the whole book," Black Sun's Loh said, noting that most only glance through the book and very few would use it after the company's annual general meetings are over. Microsites for annual reports also see low traffic, adding to companies' reluctance to spend on them.

Reasons for the lack of interest could include static content, and companies treating annual reports as a box-ticking exercise to fulfil compliance requirements.

Several retail investors The Business Times spoke to said they do not normally read annual reports in detail, as the reports are long and contain many details that are irrelevant to their decision making.

Most wanted condensed reports with key financials summarised, and context on what drove the numbers during the year. Information that could easily be cross-compared with the industry would also be helpful, they said.

"As a whole, my view is the annual report needs to evolve and transform," Loh said, noting that additional focus should be spent on the content and storytelling in reports.

One way for companies to do better in presenting their information is having integrated reports.

Integrated reporting brings together annual reports, sustainability reports and financial reports, Loh said. "The value of it is it is able to help you develop reports with better storytelling, better value-creation stories, and integrate, basically bring all the technical reports together."

In Malaysia, integrated reporting is encouraged in the code of corporate governance. Observers noted that only a few companies are doing integrated reporting in Singapore.

Harold Woo of Irpas said: "The integrated report really has a very good breakdown of how value is created."

Efforts are under way to improve disclosures for material information.

In August, Singapore Exchange Regulation (SGX RegCo) proposed standalone annual sustainability reports be issued within 4 months from the end of a company's financial year - down from 5 months and in line with the timeline set for annual reports.

SGX RegCo has also sought feedback on an environmental, social and governance (ESG) data portal for better alignment between companies and investors over the use of ESG-related data and information. The planned portal would allow investors to access consistent and comparable ESG data in a structured format.

Groenendal suggested that companies do sustainability reporting in website form as well, as quantitative information could be presented in a more accessible way such as interactive charts.

"It's sometimes difficult to put a lot of information into a single chart. But if you let people play around with those charts, they can explore additional insights."

Disclosure

Irpas' Woo also pointed out examples of various initiatives being taken by companies in improving their annual reports. Disclosure on substantial shareholders is one example. Most companies provide a list of nominees holding shares on behalf of others.

But Woo noted that Singapore laws allow issuers to ask nominees to declare the beneficial ownership, and some companies do provide information on beneficial ownership in their annual reports.

In terms of reporting formats, Woo suggested that case studies, question-and-answer pieces, and summary factsheets for financials would be helpful.

When asked if stricter rules may be needed to push companies to do better, Woo said it may not be necessary to be so prescriptive.

"There are enough good examples around if companies bother to look at what is available in the market," Woo said. "There are a lot of best practices you can just pick up."