Why the best annual report is one that helps investors understand the company better

AS INVESTOR expectations and reporting requirements continue to evolve, the challenge for companies is increasingly not how much information they disclose, but how useful that information is.

As part of the Singapore Corporate Awards (SCA), the Best Annual Report Award has long recognised companies that go beyond statutory and regulatory requirements to communicate their performance and prospects clearly to investors and other stakeholders.

The SCA is organised by the Institute of Singapore Chartered Accountants, the Singapore Institute of Directors and The Business Times.

Over the years, annual reports have become broader and more comprehensive, incorporating increasingly detailed financial, governance, risk and sustainability information.

This is an encouraging development. But as disclosure requirements expand and many reporting practices become more established, simply providing more information is no longer enough.

The next stage of annual reporting is about moving from quantity to quality, from disclosure to explanation, from statements of intent to evidence of performance, and from reporting what happened to helping investors understand what may come next.

What makes information useful to investors?

Financial statements remain the foundation, but numbers rarely tell the whole story. Investors need to understand the drivers of earnings, the sustainability of margins, the allocation of capital and the relationship between current performance and longer-term strategy.

Clear explanations help them assess management’s decisions and the trade-offs involved.

Investors are also asking for more forward-looking information. This does not mean companies need to make precise forecasts.

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Rather, annual reports can explain strategic priorities, emerging industry developments, planned investments, capital allocation considerations and the assumptions underlying management’s direction.

Identifying a long list of risks is less useful than clearly explaining which risks matter most, how they are assessed, what could cause them to materialise and how management is responding.

Investors need to understand not just what could go wrong, but why it matters and what the company is doing about it.

In this regard, one aspect of risk management that remains relatively underdeveloped is business continuity.

Given recent experience with supply-chain disruption, geopolitical uncertainty, cyber risks and other operational shocks, more substantive discussion of resilience and continuity planning would be valuable.

Environmental and social accountability is also becoming more substantive.

Reference to frameworks such as ISSB, GRI, SASB or TCFD can provide a useful structure, but frameworks alone do not make a report informative. Investors ultimately need clear quantitative and qualitative disclosures on material climate and social issues, together with targets, progress and their implications for the business.

Given the above, companies need to be able to connect financial and non-financial performance, and translate increasingly complex information into clear and decision-useful insights. Accountants are well-placed to fill this role.

What does it take to lead the pack?

The big-cap companies continue to set the strongest overall benchmark. Their reports generally offer greater depth of analysis, clearer articulation of strategy and stronger connections between financial and non-financial performance.

In the SCA’s Big Cap category, Gold winner Singtel stood out in Business Plan and Prospects and Corporate Governance, while also performing strongly in Performance Review, Risk Assessment and Management, and clarity and presentation.

Singtel’s five-year financial summary is complemented by detailed analysis in its key businesses, giving investors a clear understanding of the drivers behind year-on-year performance.

Its sustainability reporting is similarly mature, combining multiple reporting frameworks, external assurance, targets and measurable progress across climate, social and governance areas.

The mid-cap category also produced several strong reports. Gold winner Singapore Post presented a well-integrated transformation story supported by strong financial and ESG disclosure.

However, the overall level of disclosure remains less consistent than among the big-cap companies, and there remains space for mid-cap companies to deepen the link between historical performance, strategic priorities and future direction.

This does not mean smaller companies should attempt to reproduce the length or complexity of big-cap annual reports. What matters is whether management explains the business clearly and provides information proportionate to the company’s circumstances.

Gold winner Hotel Royal performs well in Business Plan and Prospects, Risk Assessment and Management, and Corporate Governance. Its five-year financial information, trend charts and clearly structured risk tables are complemented by an engaging chairman’s Q&A.

Among real estate investment trusts and business trusts, Mapletree Logistics Trust stood out for financial transparency, strategic clarity and strong ESG and risk integration, and won the Gold award.

For first-year listed companies, Merit Award recipient Vin’s Holdings established a strong foundation with clear strategy, robust financial analysis and high-quality ESG disclosure.

From more to better disclosure

The differences across categories also reveal where annual reporting can continue to improve. One important area is strategic clarity. Large companies generally articulate their vision and business plans clearly.

The value of disclosing a mission and vision comes from showing how strategy, management actions and measurable outcomes connect back to that vision.

Among smaller companies, the strategic direction can sometimes be harder to discern, particularly when a company is undertaking a pivot or strategy review, or when its industry itself is facing uncertainty.

These are precisely the circumstances in which management explanation becomes most valuable.

Capital management is another area where disclosure remains uneven. Dividend policies, for example, are more commonly articulated among larger companies.

Smaller companies may pay no dividend or deliberately retain flexibility, but even in those circumstances, explaining how management thinks about distributions, reinvestment, liquidity and balance-sheet priorities can help investors understand capital allocation.

Corporate governance reporting has matured considerably, and many governance practices are now relatively well established. One area that remains less transparent is remuneration.

The relationship between executive remuneration, key performance indicators and specific performance targets can still be difficult for investors to understand.

While companies understandably need to protect commercially sensitive information, a clearer explanation of how incentive structures support long-term objectives would improve accountability.

The next stage of annual reporting

Increasing investor expectations and policy requirements will inevitably lead to more disclosure. But the answer cannot simply be longer reports containing more tables, frameworks and statements. 

The real opportunity is to turn that expanding information set into clearer insight. Companies should therefore regard minimum reporting requirements as the starting point rather than the destination.

Voluntary disclosure remains particularly valuable when it helps investors understand matters specific to a company’s strategy, risks, capital allocation and future prospects.

Moving beyond a compliance mindset would require the company to exercise increasingly sophisticated judgment to determine what information matters and how it should be communicated.

Professional accountants can play an important role in this, drawing on their business knowledge and professional expertise to help connect financial and non-financial information into meaningful insight.

Ultimately, the best annual report is the one that helps investors understand the company better. That movement from quantity to quality should be the defining direction for the next generation of annual reporting.

The writer is an assistant professor with the Singapore Institute of Technology