The Debate – What makes a good annual report?

Communicate your strategy

By Robert Moser

Research always shows that after meetings with directors, a plc’s annual report is the most important communication with the City. So why do so few plcs report effectively?

At Merchant, we have just benchmarked the annual reports of the FT500 and found that 60% do not immediately tell investors what the strategy is. At a time when government ministers are trying, via the operating and financial review (OFR), to encourage plcs to give shareholders more information, it is a surprise to find that less than 10% of them currently talk in detail about their markets or senior execs.

Investment analysts often tell us that what they need to hear from a plc is how fast their markets are growing, what the strategy is to tackle this opportunity, what a firm’s core skills are and how these are managed below main board level.

These elements are in very few reports this year, with the notable exceptions of companies like Geest, Speedy Hire and ABP, who are among a handful of listed companies who truly understand the value of reporting and invest time in making it work well.

Many others will disagree with that, however, and say that they too spend time and money on producing glossy reports – but design plus pictures does not add up to effective reporting.

To achieve that, great content is an essential requirement.

And content is currently being redefined in so many other ways too, from the combined code, to the OFR to international financial reporting standards. Sir David Tweedie, writing in the latest Merchant Handbook, points out that many people think that IFRS is solely about accounting. It clearly is not.

Sir David continues by saying that the new standards should lead to greater investment, growth and employment opportunities – as long as companies start explaining the impact of IFRS on company’s accounts as soon as possible.

So once again, it’s about communications, not the numbers.

  • Robert Moser is the managing director of annual report design agency Merchant. Email him for the latest ‘Merchant Handbook’ at

Don’t just advertise – inform
By John Davies

Rather than focusing on achieving a unique look for an annual report, ACCA believes that the challenge for UK plc is to ensure that the information in annual reports is meaningful and measurable for critical audiences.

Presentation is important. But stakeholders will read annual reports for financial or emotional interest – not for sleek design.

In addition, company reports should not only focus on the past year’s achievements, but also look at the pitfalls, including a discussion of future challenges. Too often reports focus on the good news, while avoiding issues that will face the core business in the future.

This is largely why ACCA has been so supportive of the aims of the OFR. We believe that the OFR is on the right lines in encouraging companies to report honestly and fairly, not on the causes for celebration and self-congratulation (these receive their fair share of coverage already) but on matters that have the potential to cause the company trouble. And companies should be giving their shareholders an account of what they are doing to address risk and threats.

There are a number of issues of substance where companies should think about how they can better reach their wider audiences and provide them with information of real interest.

One such area is sustainability reporting. A good sustainability report should be a high-level strategic document that addresses the issues, challenges and opportunities that sustainable development brings to the core business and its industry sector.

The extent to which risk management is addressed is also an issue which will be highly relevant to any informed reader. Likewise the adequacy of a company’s internal audit machinery, especially in the light of the Shell oil reserves affair and the subsequent FSA investigation.

By all means, concentrate on grabbing readers’ attention. But let’s avoid giving the impression that annual reports are all about that – the real challenge for companies is to convey real messages about the things that really matter to their stakeholders.

  • John Davies is head of business law at ACCA.

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