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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