There is no doubt that our current economic climate is at best challenging, at worst, unsettling. When reporting on annual performance, it has never been more important to be transparent and accountable. However, this can sometimes seem really difficult, especially to smaller quoted companies with fewer years of reporting experience. Making optimistic predictions about the future may feel unreasonably ambitious, but being upfront and honest about risks is more important than ever to reassure shareholders and stakeholders that you are doing everything possible to address those issues.
A tight narrative with strong key messages will not only give you a really firm framework for your annual report but will also help strengthen your communications. For a smaller company, the more uses the annual report can have, the better, so in fact, a properly considered narrative is critical to engaging with an audience beyond investors.
We have looked at some key areas where you can add real value to your report and start telling the story about your company.
‘Purpose’ has developed from something of a buzzword to an essential linchpin of your storytelling. It could equally be described as vision, mission, aims or objectives. It would help if you told whatever you call it in clear terms and explained what you are trying to achieve, to what benefit and for who. It goes above just financial performance as there are growing requirements for a narrative on the value of social purpose and what companies are doing to contribute positively towards their wider network of shareholders, employees, customers and communities.
With the upcoming requirement to report on stakeholder engagement, this is a key area of focus. Companies will need to demonstrate how stakeholder engagement is essential for the delivery of strategy; for example, they will need to show the relationship with their customers and how they are considered when making company decisions. These disclosures will sit within the strategic report and also within the Directors’ report. But they shouldn’t stop here. The stakeholder agenda should be seen as an opportunity to create an even richer purpose.
Weaving these messages through the narrative of key sections of your report, such as strategy, CEO report, and your business model, will help you to create a truly integrated annual report.
The business model should give a unique overview to any reader of how the business makes money and how and why revenue generation can be sustained. The challenge is to give enough information so that the model can be interpreted as a standalone piece but brief enough to exist as a ‘model’! A clear business model can be built year after year. Yes, it may change graphically, but the fundamental elements can be built on as your company grows.
The KPI section should work to support and uphold the business model, giving investors a quick yet thorough overview of the company’s performance. The metrics need to be trusted and reliable, so they need to be fully transparent, and they need to be consistent, which means it is really important to report on the same KPIs over a number of years. This can at times expose areas where the company has underperformed, but by reporting on the downs as well as the ups, it is possible to show a sincere reporting practice.
If you are looking for ways to improve your integrated narrative, KPIs are a great tool. Their broad reach of financial and non-financial reporting allows references to be made throughout not only in the strategic report but also in the sustainability section.
The KPIs should not be just seen as part of the investor reporting process, but they should be the toolkit of metrics used internally on a continual basis to monitor performance. In addition, they will drive the business model and strategy, which will all form critical parts of the internal workings of the corporate machine.
Sustainability or Corporate Social responsibility?
The terms are commonly interlinked and seem pretty interchangeable. However, this is an increasingly important section of your annual report for many reasons. Reporting on non-financial factors such as environmental and climate change continue to be areas of great interest and concern to stakeholders as a heightened awareness of global environmental risks becomes engrained in society.
This section will cover several specific areas such as health and safety compliance, climate change, diversity and social responsibility, both within the workplace and the broader environment you operate in, and they all contribute to the bigger picture about the behaviour of your company.
By linking them closely to your purpose and business model and reporting the data in your non-financial KPI section, your report will begin to be truly integrated.
Investors today need to understand your company’s overall sustainability and non-financial value. According to Nick Shephard in Why poorly integrated reporting is pointless, 30 years ago, 80% of corporate value was represented by financial capital. Today there has been a shocking reversal, with 80% of shareholder value being non-financial. This means that clear, honest and transparent reporting of these areas is critical in determining overall business risk.
Arguably Governance is one of the most regulated areas of your annual report and will be subject to more regulatory content than any other.
Only a short time ago, AIM companies were required to apply a recognised corporate governance code. This aimed to get boards and their audit committees to see financial reporting as a priority.
While the introduction of this regulation has hopefully helped to provide a suitable reporting framework for smaller companies, it has also possibly required more explanation around your business model and strategy.
It would be a shame to have carefully crafted your report just to exist in one format. Instead, you can maximise your effort by producing it digitally to live online and incorporate it into your current IR site or by creating a summary microsite, giving investors a quick snapshot before downloading the full version.
Whatever your requirements, you can find out more about how Perivan’s team can help you with your annual reports – from expert design and print to highly secure information-sharing – on our website, or contact us to have a no-obligation chat about how we can help. You can rely on us to offer a solution — all provided by one team, making the process more straightforward for you.