Annual reporting mistakes you need to avoid

1/. Not informing shareholders
Research and workshops conducted by Heywood Innovation in Sydney and the Gold Coast have revealed that:

> several months after the event, there are still many companies that have little understanding of the new annual reporting Legislation, its implications and how these affect their shareholder communications
> there is a desire to find out what other companies are doing
> pre-Legislation many companies have already made attempts to migrate shareholders to online communications, but with limited success
> many retail and institutional shareholders have little or no knowledge of the Legislation

Communicating effectively with shareholders has always been a challenge. It does not stop with shareholders, as there are other stakeholders – analysts, employees, environmental groups – who also have expectations from communications such as the annual report. These objectives must be met while meeting core legal, financial and regulatory requirements.Have you told your shareholders about the changes in annual reporting Legislation? Are they blissfully unaware that a printed annual report is no longer coming their way unless they request one? Will this cause you considerable angst when they phone you up to find out why? Most shareholders at present have little or no understanding of the changes that will be implemented this year which will affect the way they access annual reporting information. Here is an opportunity to engage with them and apply some best practice communication that will ultimately save your company money and save the environment and stop the phone from ringing.

The less informed shareholders are, the more likely they will request a printed report and the more it will cost you.

Please be warned however. Telling them all this won’t have too much effect if you intend to simply place a pdf of your printed report on your website. One of those that is slow and difficult to view – one they love to hate. Demonstrate that you have their interests at heart by producing a fast and easy-to-access HTML online report – one that works just like a website that they feel comfortable with.

Remember this. If a shareholder doesn’t like what you’re offering online, if it is slow and difficult to use, they will opt for a printed report and it will take an awful lot of effort over the next few years to change their mind.

> Ensure that not only shareholders know about the new Legislation and the implications for the annual report moving online, but also your analysts and brokers. They'll wonder what's going on when they don't receive a printed annual report from you. Pay particular attention to your institutional shareholders.

> You will probably need different approaches to cover retail and institutional shareholders.

> Inform them that they will be contacted by mail or email when the next annual report is available to view on the company website/or they will receive a link in the email if they have so requested.

> Inform them if you intend to produce a 16-28 page Shareholder Review document (short form report) or continue with a concise report.

> Reinforce to them the company’s commitment to the environment.

> Your share registry will provide shareholders with the opportunity to request a printed report and will collect this information as it determines the new printing quantities. Note that this needs to be repeated every 12 months to accommodate for new shareholders. Shareholders must reply within a specified timeframe in order to receive a printed report.

> Consider a shareholder newsletter and the opportunity for shareholders to receive media releases.

> Be prepared for Legislation-related questions from shareholders at the next AGM.

2/. Not making a determined effort to collect shareholder preferences
The future of communicating with shareholders lies online. Shareholders can not only receive their annual report and NOM & Proxy online but they can also vote online. To achieve this with any degree of success requires that you have their email address and permission to send them financial information direct to their email box – such as when the online report is available for them to view on your website, details of the AGM etc. So how do you communicate this to your shareholders?

Most companies will leave this up to their share registry. Unfortunately they seem to do this in a somewhat half hearted way. The piece of paper that is being mailed to shareholders is not exactly best practice communication. No persuasive argument for the environmental benefits of online reporting, just a quick explanation and the opportunity to tick the box. Nevertheless, some of the larger companies are experiencing only around 5% of their shareholder base are still requesting a printed report.

Remember that each year shareholders must be given the opportunity to re-subscribe if they so wish.

Your share registry must be extra diligent when managing your shareholder database.

3/. Not considering an Annual Review
Producing an Annual Review as an alternative less expensive option to the printed annual report is gaining much support from shareholders. AMP, ANZ, Commonwealth Bank and Fosters are leading the way in producing a smaller A5-format booklet in sizes ranging from 16 to 28 pages. The Annual Review is essentially a short, easy-to-read overview of the more essential information normally contained in the Annual Report. Typical contents are: Investor Snapshot, Welcome, Chairman's Report, CEO's Report, Business Performance, Business Review, Five Year Summary, Director and Executive Remuneration, Our People, Our Customers, Our Community, Our Environment, Board of Directors, Directory and Important Dates.

4/. Opting for a PDF online report instead of HTML
A PDF relies on having a printed report available, from which the PDF is produced. PDFs are not meant for reading reports online. The traditional ‘portrait’ print format is different to the ‘landscape’ format PC screen, requiring scrolling and zooming to read down the page. Large reports can be slow to download. It is not possible to determine what shareholders are interested in as it is only possible to track the number of times the PDF file is accessed, not what pages are read. PDF files have been used extensively by companies to display annual reports on their websites. It is a very effective way to transfer data from one place to another.
Annual reports have relied on having a designed and print-ready file available from which a PDF is made and uploaded to the company’s website. Therefore design costs are incurred.

PDFs are not meant for reading documents online. The traditional ‘portrait’ print format is different to the ‘landscape’ format PC screen, requiring scrolling and zooming to read down the page. Large documents can be slow to download. They shift the requirement on to the reader to print pages from their PC.

It is not possible to determine what shareholders are interested in as it is only possible to track the number of times the PDF file is accessed, not what pages are read.

5/. Litho printing a small quantity of printed annual reports instead of considering digital printing
Digital printing is a toner based process, as opposed to litho printing which relies on liquid inks. Quality and speed of digital printing have come a long way in the last few years. The technology uses coloured toners similar to an office laser printer. The big advantage is that a specific quantity of annual reports, from one to many, can be printed with little or no wastage. ‘Press ready’ time is shorter than litho printing. The range of papers however is limited but seems to be constantly expanding. Embellishments such as varnishes and embossing are not possible.

A big benefit is that digital allows each document to be personalised or have variable data from a customer-supplied database printed anywhere in the report. This means you can impress say institutional shareholders by having their name on the front cover.

Professional digital printing (using toner) primarily uses an electrical charge to transfer toner or liquid ink to the substrate it is printed on. Digital print quality has steadily improved from early color and black & white copiers to sophisticated colour digital presses like the Xerox iGen3, the Kodak Nexpress and the HP Indigo Digital Press series. The iGen3 and Nexpress use toner particles and the Indigo uses liquid ink. All three are made for small runs and variable data, and rival offset in quality. Digital offset presses are called direct imaging presses; although these receive computer files and automatically turn them into print-ready plates, they cannot insert variable data.

Digital printing is more cost effective than litho printing in quantities up to 500, similar in price in quantities from 500 to 750 and more expensive in quantities above this.

Digital printing is less wasteful than litho printing. With digital, if you want 500 printed reports the press prints 500. With litho printing it's likely the printer will print maybe 700 or even 800 to ensure they get a good set of 500. This is because if they are short, it is very expensive to re-run the job to make up the balance. The litho printing process is more wasteful of paper, energy, water and it requires more chemicals and produces more waste.

Use customer data captured from CRM databases, Web sites, and call centers to drive variable text, images, and graphics in marketing communication materials. Variable information printing enables you to support high-value customer marketing programs and increases customer loyalty and response rates.

Wikipedia's take on digital printing:
For more information on digital printing visit http://en.wikipedia.org/wiki/Digital_printing

Details on one of the more popular digital presses, the iGen3
http://www.xerox.com/go/xrx/igen/iGen.jsp

6/. XBRL and its impact on annual reporting
As if the new annual reporting Legislation is not enough to contend with, along comes more technology in the financial arena to enhance investor communications. With yet another acronym to commit to memory, XBRL (eXtensible Business Reporting Language) – the financial equivalent of HTML and XML – promises to revolutionise the way financial information is generated and analysed.

There has long been a desire by global capital markets and investors to compare the financial reporting information of companies regardless of that company’s location around the globe. In other words, standardised reporting of public company results under a single world standard.

A global initiative – XBRL defines categories of financial data and ‘tags’ or ‘bar codes’ them, thus enabling users to search for, identify and retrieve them and pull them into any standard spreadsheet software such as MS Excel to view and analyse them, reducing or eliminating the need for manual re-entry and easing the data collection process. This saves time and increases the accuracy of the data.

It is suggested that XBRL will enable companies to realise significant savings in their internal and external audit costs over time.

Significantly, the US Securities and Exchange Commission (SEC) is moving to electronic filing of company accounts with an interactive database that uses XBRL. This follows a successful pilot program involving 25 companies. The SEC’s first step is to create a dictionary of terms. Once completed, all companies will be required to report to the SEC in XBRL format. This will also affect foreign companies with a US listing.

A sign of things to come in Australia?

For more information visit www.xbrl.org or www.microsoft.com/office/showcase/xbrl/default.mspx

7/. Not considering the environmental benefits of online reporting
Australian Legislation amendments mean that delivery of annual reports online is now the default option, unless shareholders specifically request a printed version. How can you maximise the print and processing cost savings and thus help save the environment?

There is now an opportunity to reduce quantities of printed annual reports quantities or eliminate them altogether and help the environment. We think this is a powerful argument that can be leveraged when outlining the online reporting benefits to shareholders to persuade them not to request a printed report.

Greenhouse gas emissions
> Manufacturing 26 sheets of A4-size paper emits the same amount of greenhouse gas as driving your car one kilometre.
Clean Up Australia

Trees
> One tree is used to produce 100 copies of an average (83 pages) annual
report.
> The average print run of a Top 200 Australian company is 186,000 copies
= 1,853 trees per company.
Chartered Secretaries Australia

Water consumption
> More water is consumed to produce one tonne of paper than any other commodity
> one litre of water is used to produce seven sheets of A4 paper, therefore
1.1 million litres of water are consumed for an average Top 200 Australian
company’s annual report.

energy
> Pulp and paper production is an energy-intensive activity and energy costs can represent up to 25% of the total manufacturing cost. It takes 13.5 GJ of energy to produce one tonne of paper. This is equivalent to using 552 litres of heavy crude oil.

8/. Not considering the new opportunities for video that HTML reporting offers
HTML reporting offers new opportunities to integrate video into your online annual report.

Video provides an interactive experience of people that is far more engaging than static photographs. At relatively small expense, video can unleash the Chairman and CEO in true dynamic style to give shareholders a 'real' experience of how competent they are in delivering the company's results and potential for the future. Video can reveal a lot more about a person than a static photo can. This requires a decision on what style of presentation best suits the subject and the objectives of the video. Is the subject dressed formally or informally... in the boardroom or in the workplace... delivering a monologue or engaged in active discussion with an interviewer in a Q&A scenario? Beware however that the larger the video file the longer the download time.

Tony Heywood is a Fellow of the Design Institute of Australia, founder of Heywood Innovation in Sydney Australia and joint founder of BrandSynergy in Singapore.

View some of Heywood’s work on www.heywood.com.au

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Online reporting – bit slow on the take up

Online reporting – bit slow on the take up

2008 represented a golden opportunity for Australian companies to embrace the benefits of online reporting, following the industry-shaking change in Legislation that went through in mid 2007. Sadly the take up so far has not been as thorough and fast as we had anticipated. There is a fair degree of caution and reticence to make changes to a time honoured print-based process that has been in place for decades.

As the company that introduced HTML reporting to Australia in 2001, we have a great headstart over our competitors, and an obligation to spread the good word about best practice annual reporting to the 2,000+ listed companies in Australia. Later in the year we will be producing a more in depth formal review of what has happened with online reporting in Australia in 2008.

Here were some key messages we have been pushing so far this year:

> HTML is the obvious choice for fast and effective access to information online.

> Interactive PDF versions of printed reports will slowly disappear.

> It makes sense to leverage the HTML medium and adopt video to provide a more convincing and expressive presentation by key players, that static photos cannot achieve.

> If the Chairman and CEO don’t feel comfortable in front of a video camera, consider audio files.

> Printed Shareholder Reviews of around 28 pages in length satisfy the requirement of keeping in touch with shareholders now that 80-90% are happy to access annual reports online. Some companies are mailing them to all shareholders.

> HTML reports can be produced quickly if financial tables are presented as images.

> XBRL is anticipated to be mandatory in 2010 in Australia, which means that all financial tables will need to be in HTML, not images. (see the 10 July blog post)

> Print quantities below 500 are likely to cost less when printed digitally than by the traditional litho process.

> Digital printing is more environmentally friendly than litho printing, particularly with less paper wastage.

> Many companies are resorting to bland, low cost, black & white printed full reports to mail to those shareholders who still request a hard copy of the annual report. Once shareholders receive these unexciting black & white reports in their mail box, they are less likely to want one again in 2009, unless they are really looking for the fine detail in the financials. By that time they may also have seen the company’s pdf-beating HTML annual report which will encourage them to transfer their attentions online.

> HTML reports can easily be enhanced with Flash animation if a more expressive and marketing-oriented online report is required.

> It is now relatively easy and cost-effective to also produce half year reports in HTML for consistency of delivery and ease of use.

> Traditional print designers are slow in advising their clients on the best course of action and don’t seem confident embracing the online medium.

If you are one of the 2,000+ listed companies who still haven’t made a decision as yet and are experiencing sleepless nights, give me a call on 02 8256 3999 or email lyn@heywood.com.au for details of our upcoming workshops.

Lyn Heywood is a Director of Heywood Innovation.

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CSR reports follow the online trend

There is a downhill trend in the number of CSR reports published by FTSE 100 companies according to new research conducted by corporate reporting consultancy Black Sun in the UK. Evidently 2005 was the peak year with 78 companies producing separate CSR reports. Numbers then fell to 65 in 2006 and then 57 in 2007.

“One obvious reason is that companies are cutting back on paper-based reports for cost and environmental reasons and shifting online, consistent with trends experienced in the USA, UK, Australia and New Zealand”, said Tony Heywood of Sydney-based communications company Heywood Innovation. “Stakeholders can now access the information more quickly and more selectively”.

Reporting of CSR issues inside annual reports however is on the increase. Black Sun reports that in 2007, 87 percent of companies discussed CSR in a dedicated section in their reports.

“Now that 80-90% of shareholders in countries like Australia are accepting their annual report information online, it makes sense that CSR information follows suit, either within the online annual report or in a dedicated online CSR document” said Heywood.

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What is XBRL and how will it affect Australian companies?

XBRL stands for eXtensible Business Reporting Language. It is an ‘XML’ language which helps to standardise the identifying and communicating of information between businesses and on the internet.

It is an open standard and free of any licence fees. It is already being put to practical use in a number of countries and implementations of XBRL are growing rapidly around the world. Of particular interest is the way it streamlines the processes associated with collecting and reporting financial information.

On May 14, 2008 the Securities and Exchange Commission voted unanimously to formally propose using new technology to get important information to investors faster, more reliably, and at a lower cost. At the centre of the SEC proposal is ‘interactive data’ ie XBRL to “uniquely identify individual items in a company’s financial statement so they can be easily searched on the Internet, downloaded into spreadsheets, reorganised in databases, so it can be compared and analysed by investors, analysts and journalists”.

The proposed rule would require all US companies to provide financial information using interactive data beginning next year for the largest companies, and within three years for all public companies.

XBRL is being referred to in the US as ‘Interactive Data’ and as ‘Standard Business Reporting’ in Australia and the Netherlands.

The government of Australia is supporting the adoption of XBRL to ease regulatory reporting and enhance its efficiency and accuracy. It is hoping to bring together multiple regulators across states and territories -12 agencies in all - that require financial-based reports, on a standard language (XBRL) on an electronic channel.

For XBRL to work, the content must be HTML or PDF to be searchable for XBRL tags which identify particular types of information which you can select, analyse and store.

Take a look at this www.xbrl.org/WhatIsXBRL/ for an explanation, and www.iasplus.com/pressrel/0708xbrl.pdf for an update on how it is being adopted around the world.

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Keep your annual report simple, clear, concise and consistent

Annual reports influence the perception investors have of a company. They are seen by them as the most credible and comprehensive overview of a company in which they wish to invest. They should attract the reader’s attention; educate and inform shareholders (potential as well as current); report on performance; outline the strategy and future direction of the company and fulfil legal and regulatory responsibilities.

Design agencies have an important role to play in adding value and appeal to the reporting process and integrate verbal and visual messages. Design, however, is not just about creating pretty pictures. Good design is an important strategic process in which creative solutions are found to meet the expectations of the company and satisfy the needs of the business. Good design results when the relationship between the client and designer is open and collaborative, and where the designer develops a clear sense of the client’s unique objectives, competitive advantage and day-to-day requirements.

SO WHAT MAKES A GOOD ANNUAL REPORT?

Simplicity: An annual report should be written for someone without specialist industry or financial knowledge and should be aimed at the broader range of shareholders including retail shareholders and prospective investors who may not have any industry or technical knowledge.

Clarity: An annual report should be laid out coherently and be clearly indexed (perhaps with the use of colour), so that it is easy to find key information. Structure and content should be guided by the key messages that reflect the concerns of analysts and shareholders. Jill Howry of Howry Design, a US design company, once said: “If a company cannot articulate why it believes in itself, how is anyone else going to believe in it?”

Concise & Consistent: The content should be precise and to the point while retaining substance. It should contain a clear description of what the company does and articulate progression from the previous years reporting - its ‘hits’ and ‘misses’. This is essential to give shareholders a quick and accessible summary of the business.

With the shift to online reporting in the US, UK, Australia and New Zealand as a result of changing legislation, 80-90% of shareholders now form a new majority who seek an engaging online experience. Are you going to give them one or are you still stuck in the print era?

Finally, the annual report should stand alone in its own right without the need to reference other publications or prior year reports. The annual report is also an important marketing tool that should enhance the brand and help build and manage the brand’s reputation.

Happy reporting!

Matthew White is a Senior Designer at Heywood Innovation.

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HI POD - The changing world of annual reporting

Listen to HI POD - The changing world of annual reporting

Tony Heywood is a Fellow of the Design Institute of Australia, founder of Heywood Innovation in Sydney Australia and joint founder of BrandSynergy in Singapore.

Are you keeping up with changing technology?

Web2 and social networking sites are wielding significant influence on the way we access information online. "But I'm an Investor Relations professional - what has this got to do with me?" you ask.

Well, as we're all well aware, legislation implemented last year now allows listed companies to use the internet to communicate with shareholders rather than mail printed documents.

Moving on from Print
Over the years we have all become familiar with print and the related time-frames and processes. Printing your annual report however in full colour as a marketing document is becoming a thing of the past. Many companies that want to maintain their communications in print are moving to a smaller more economical version called the Shareholder Review.

The Shareholder Review is written in plain English and contains only the 'bare essentials' from the annual report, usually within 28 pages. This serves well for those shareholders who do not have access to a computer or the internet. It also serves as a means of keeping in touch with shareholders once a year more cost-effectively.

Thinking of online
In our experience most companies that have canvassed their shareholders are pleasantly surprised that around 80 to 90% are happy to access their information online. So how are you going to engage this new online majority with an experience that they will be happy to come back to? One things for sure - shareholders want more than a PDF of the printed report and are welcoming HTML 'website' reports with open arms.

While on the subject of the web most Investor Relations professionals are unaware of how easy/difficult it is to access investor information on their own website. It is often not as easy as it should be. The viewer inevitably has to dig through several layers to get there. As this is the No.1 destination to which most investors are headed to access information, Investor Relations professionals need to be more intimately acquainted with their website, its functionality and attraction for shareholders.

Content is king. It's one thing getting them to the information as quickly and easily as possible, but is the online information engaging and not just a dump of 'old-style' content formatted for print consumption? Is it viewed more as an after thought than a new opportunity to impress shareholders with a new experience that will endear them to your company?

The company brand
The online experience you create for visitors will influence the way they perceive your brand. This is a critical consideration that is often reserved for consumers but this is rarely carried through to investors. In the print mindset the Annual Report performed some of this function when it had a marketing flavour to it. New considerations are required to satisfy the online needs. How a company treats its shareholders on the web says a lot about its attitude to all its stakeholders.

Web2
So what has all this got to do with Web2? It is becoming increasingly clear that regulators are using different means to disclose and disseminate information. The SEC in the US for example are thinking of using Twitter and Blog Talk Radio to disseminate information on XBRL. Most people would not have heard of these Web2 technologies. Australia might be a little behind the US but soon these will hit our shores and Investor Relations Professionals will be caught off-guard unless they consider becoming familiar with technology and its many uses.

Be prepared and get ahead of the pack
Heywood Innovation in Sydney is holding workshops and presentations to help companies get a better understanding of new Legislation-inspired choices and issues. In the 21st Century a year is a long time to get to grips with a new way to do something.

Partner with us and we will keep you informed and one step ahead of the pack in your communications with investors.

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