In brief...

Every now and then we get the urge to put pen to paper so-to-speak and below are a few of our articles that we believe raise some interesting perspectives and might raise the odd eyebrow or two...

04/11/2020

How much material in the Annual Report is immaterial?

The FRC, in the opening of Section 1 of its Guidance on the Strategic Report, "encourages entities to experiment and be innovative in the drafting of their annual reports". When one considers each of the component objectives of the Strategic Report, there is a reasonable argument to suggest that the current 'report and repeat' format for many companies might require a reset...

There are clear guidelines as to what must be contained within the Strategic Report. There is also an objective to be comprehensive, relevant and concise. So beyond the numbers and the governance, what else is most relevant to the shareholder? We would argue that, at its most basic, it is a balancing act between a long-term Return On Investment versus the perceived Risks associated with achieving the business’s Strategic Objectives. As a Design and Communications Consultancy, we have reviewed many Annual Reports over recent years as we aim to get an understanding of a business. It is often the case that the most interesting and revealing information about a business is contained within the Principal Risks and Uncertainties and in accompanying Investor Presentations where the pertinent detail is provided in a more concise and targeted presentation. This approach is potentially the key to more effective shareholder communications when developing the content for the annual report.

While other stakeholders may have an interest in the information contained within the Strategic Report, clearly the primary audience for the annual report is the shareholder. And as a responsible shareholder it is reasonable to suggest that, given that they have already entrusted their investment towards the 'resource allocation decisions' within the business, they have a reasonable understanding of that business. And for those who have not yet signed-up, there are other more comprehensive channels than the annual report from where they can glean this information. The Strategic Report is after all considered the top layer of information for shareholders.

So what is material to the shareholder within the Strategic Report as guided by the FRC? It is not an exhaustive list however that is not to suggest it is an easy task. The greater challenge is to create a 'clear narrative flow' from what is typically segmented information often ticking the box to meet best practice. However by taking a step back, perhaps many of the mandatory moving parts could be addressed within a more effectively constructed narrative of the strategy presenting an overarching and compelling Investment Case. Ultimately, the Investment Case is a combination of a statement of Purpose; the Business Strategy to achieve this Purpose; the ability of Management to put the strategy into action; resulting in a sustainable and long-term ROI achieved through its execution; with responsible governance and stewardship by the Board. For example, if the Business Strategy was to be restructured to provide a concise overview of the industry through (i) markets & position, (ii) factors & trends, (iii) risks & materiality, (iv) resources & allocation, (v) competitors & peers, (vi) actions & impacts and (vii) performance & outlook, all delivered from the one pen and a singular tone-of-voice, might that provide a more engaging and comprehensive narrative flow for shareholders, and a more understandable reassurance that their investment is being carefully managed and allocated within an acceptable level of risk?

Among those components of the Strategic Report that are mandatory sits the Business Model in all its glory, often posed as a question of 'how do we create value?'. This year in particular, businesses of all scales might well instead ask ‘how are we doing?’ when addressing shareholder concerns. (At this juncture, it is important to note that assuming the Board has effectively engaged within their remit under S172, they will also have an active stakeholder engagement process for their other material stakeholders). Beyond beautifully designed flow diagrams illustrating Resources > Operations > Outputs > Outcomes which are undoubtedly a welcome punctuation to voluminous columns of text, it is questionable how insightful this presentation is to the shareholder's understanding of how the business performs and operates, especially in a publicly available document. In a recent publication, the FRC has identified ‘Five current questions investors seek information on’ focusing on ‘Resources’, ‘Action’ and ‘The future’, with 3 out of the 5 specific to cash and liquidity in the short-term. With Investor reassurance and their support being more important than ever in the current economic climate, is it worth considering that these 5 questions might be a more appropriate framework towards a more informative Business Model reflective of YE2020?

At Source, we have been designing and producing annual reports since before the days of the internet when these documents were indeed considered not only the record of truth but also a key marketing and investor relations tool. It was perhaps the only communication each year with the entire body of shareholders, received by post 20 working days in advance of tea and biscuits served at the AGM. Then, it was also remarkably shorter in terms of narrative, less comprehensive in terms of Financial Statements and Corporate Governance was simply implied rather than described. And PDFs were a format known only to designers and printers. Roll on a couple of decades and the highs and lows of corporate progress or otherwise is well documented and widely accessible. The corporate face of all businesses are now polished onto various screen formats and technology platforms. Yet remarkably, for many PLCs it would appear that the Annual Report is not developed as an integral component of their overarching corporate communications and is instead viewed as a solitary annual endeavour.

As Annual Reports now regularly breach the 200 page barrier, they are becoming increasingly impenetrable and less reader friendly, especially with the flicking forwards and backwards with those supposedly helpful linkages. As well as rethinking the structure of the Strategic Report, the time has come for entities to embrace the benefits of publishing digitally. Analysts can easily dive deep into the Financial Statements, exporting selected sections into various other usable digital formats. Narrative can be enriched by rich media and content that is relevant, but not material, can be directly referenced to an external online resource alongside other company information. It is no longer necessary to present the entire back story of the business as it has evolved; nor is it necessary to include every CSR initiative undertaken throughout the year; nor in fact is it required by law or regulation to include a Chairman's Statement or Chief Financial Officer's Report.

So perhaps it's time for a clean sheet of paper and a red pen as we experiment and be innovative in the drafting and content mapping of the annual report for YE2020.

21/08/2020

The digital journey to ESEF...

The Annual Report has always been considered the definitive publication of reliable truth as proclaimed by the C-Suite and subsequently approved by the company’s auditors, to be trusted by everyone who considers themselves a stakeholder. And perhaps now more than ever, stakeholder engagement has never been more important given the times we are living in. Undoubtedly the impact of Covid 19 will be the focus of much of the narrative of annual reports as many listed companies now turn their attention from the interim report to the year-end requirements.

Shareholders and stakeholders alike will seek out the value proposition and impacts and what that means in the ‘new-norm’. Long-termism will give way to short-termism as strategy and business models are modified to address the immediate challenges of a whole new set of risks and uncertainties presented by the pandemic. The communications and design teams will be burning the candles at both ends.

And among all these uncertainties, the certainty of ESEF filing looms large bringing with it a fair degree of confusion and complexity. The race is well and truly on as Company Secretaries field calls from emerging providers countering their own measured scare tactics with offers of the holy grail of iXBRL tagging. The role of the Auditor in this new world of acronyms and technical jargon also remains uncertain and undoubtedly many finance departments will look to them for comfort, the level of which achieved will depend greatly on the level of involvement demanded of the auditors by regulators.

But just like the pandemic, ESEF will force us (and our clients) to think differently. Technology is providing the tools to enhance our communication where person-to-person interaction is much less possible. Video conferencing apps that had not previously entered our lexicon are now the go-to solutions, simply because we have adapted our thinking to the possibility, or perhaps reality. The Annual Report is a critical and controllable primary communications tool, yet too often technology is not used to support or enhance this communication. It tends to get a single outing in a traditional format, almost disregarding the primary format in which it will be ultimately consumed. Beyond the cohort of shareholders who have yet to opt-in to receive their Annual Report digitally, the majority of reports are being read from a screen, but designed for paper. And static.

The ESMA ESEF requirements will result in a machine-comparable and human readable online publication through iXBRL tagging. For Irish and UK listed companies, this is likely to result in a printed version of the annual report for shareholder mailing, an xHTML version (incorporating those meddlesome iXBRL tags) published online to fulfil its ESEF filing obligations and a PDF version of the printed document available online. For some, the new ESEF requirements may be viewed as yet another compliance requirement, but for others, this will be the first step towards their integrated digital communications.

The potential for listed companies in particular to create more engaging corporate communications through HTML should not be underestimated. And as Annual Reports continue to grow in content, the argument for delivering this content in a dynamic environment, designed specifically for this medium, grows louder. If we consider the recipients as our audiences as opposed to readers then we might consider how we might channel the information, package the content and deliver these messages differently, creating a more rewarding user experience by publishing content in a more engaging, dynamic and accessible way.

Of course it can be argued that publishing a PDF online is making the annual report content digital. But by definition it is simply making the published version portable. Purposely created and intuitively structured, HTML supercharges the Annual Report, not only by designing for the intended medium, but by making it much more shareable, searchable and comparable.

It may also be comforting to know that we are here to guide you along the journey with some online examples below. So say goodbye to PDF. Say hello to HTML.

http://icg.annualreport19.com/

http://candc.annualreport20.com/

http://dublinport.annualreport19.com/

http://dublin.librariesunlimited.ie/

26/06/2020

Are machines really reading Annual Reports? The Digital Future of Financial Reporting and Stakeholder Engagement

Few annual reports make it onto bestseller lists, and most certainly none should ever appear in the fiction category, yet many provide essential reading for a variety of audiences, including machines. Financial Reports have been machine-readable through XBRL tagging for a number of years now and as we know, for all reporting periods commencing on or after the 1st January 2020, issuers must publish their Annual Reports in iXBRL in compliance with ESMA's ESEF reporting requirements. And that tiny little prefix of 'i' which is already bubbling to the fore of many conversations among Company Secretaries and CFOs, is to simply make the report human-readable!

Whether complying or explaining, the content within the annual report has amassed considerable weight over recent years as it bulks up to satisfy the growing appetite of regulators as they seek out more disclosures… more about vision & purpose, business model & strategy, materiality & performance, supply chains & sustainability, governance & stewardship and perhaps even equality & Directors' remuneration. Inevitably this results in more paper to print, more pages to turn and more cross referencing as the information is consumed, digested and occasionally regurgitated.

There is no doubt that the development of an Annual Report requires agility and stamina from all concerned. As the numbers settle into their final resting decimal place, finding an acceptable tolerance to the power of '000s, the Company Secretary is also going through the motions scrutinising over all things material and accountable under the broad remit of Corporate Governance.

But before the numbers are pored over and the RemCo report is thoroughly disseminated, the reader is enticed with carefully selected pull-quotes and images to leaf through the Strategic Report where the non-financial narrative is presented in all its finery. It is here that the CEO's vision is proclaimed and the shareholder's faith put to the test as the strategy for creating value for stakeholders is laid bare. An engaging narrative will delight the reader, so long as the plot is fair, balanced and understandable.

Too often it has been claimed by many in the corporate communications sector that the Annual Report presents the opportunity for PLCs to 'tell their story' with that same many proclaiming to be the storytellers. And of course wordsmithing has its rightful place but we believe annual reports should do just that, report. We need to encourage businesses to reexamine the objective of the Strategic Report and develop a narrative accordingly. As eyelids get heavy under the weight of the endless paragraphs of editorial it is incumbent on reporting specialists to explore innovative ways with their clients to engage with their audiences. Recognising the breadth of the task for any PLC to meet the best practices of financial reporting, often with resources stretched beyond their physical limits, there is undeniable logic to adopt a formula of 'report and repeat' when the next year-end approaches. But while there are many vested interests, there is only one primary stakeholder group for which this report is of particular importance. Shareholders above all else need reassurance that their investment is being managed at a level of risk that is acceptable to them. Investors need a Business Case that they can believe in and an Investment Case that they can share in.

And when the balancing act of the financials and non-financials is finally complete, the report is signed, dated, submitted and published for the record. Over the years, indeed decades, we have witnessed the ever declining volumes of printed annual reports as shareholders opt for receiving the documents electronically. Electronically simply means producing a PDF from the same artwork that was lovingly designed, skilfully printed and meticulously thread sewn before being carefully managed into the mailing pack and sent on its carbon-emitting journey to arrive at the doorstep of the awaiting shareholder.

But, thanks to ESMA all this is about to change and we believe for the better. iXBRL is another layer of transparency, achieved through technology. The biggest change is that the standard PDF will be superseded with an xHTML file of the entire report which includes inline XBRL tagging of the Primary Financial Statements, enabling comparisons with other issuers through predefined taxonomies (and extensions where required). So with all these additional technical requirements, why is this a change for the better?

Put simply, we believe this requirement will result in more effective and engaging corporate communications as it challenges agencies and issuers to adapt to this new reporting era. While PDFs provide a universally accessible format, they are designed for print and not a digital environment. Digital offers more. It's easier to navigate; it accommodates rich media; it's measurable; it's accessible - in every sense of the word. And it's designed for its natural environment so that it is responsive, more easily findable and totally searchable. And for all those 'see more on page...' instances it is wonderfully clickable - and iXBRL, through xHTML, makes it more comparable.

The conversation is changing. The way companies must report is evolving. For those who embrace the possibilities of digital engagement with their stakeholders, the opportunities to enhance their corporate image is expanding. Digital connects better and communicates more efficiently. Content that is structured for digital channels is more readily shared and reusable across both internal and external communications, creating further value to previously once-used data.

Undoubtedly ESEF reporting requirements will have an impact on the reporting schedule and process for all listed companies. At Source, we are already having these discussions with our clients as to how best we can not only meet and deliver these requirements but develop a digital shareholder engagement strategy. Some of our clients are already leading the way in terms of their digital communications and we believe that Digital, by design, will deliver a much greater return on investment across corporate communications and stakeholder engagement.

15/05/2020

Annual Reports - Online or On Paper?

The answer is simple: it depends who's reading it - or more to the point, how are they reading it? Over the years we have seen the volumes of printed annual reports reduce dramatically as the documents themselves expand to bursting point with the additional disclosure requirements. But of course that's not to suggest less readership - quite the contrary.

While the emphasis for most public companies will be directed towards shareholders and potential investors there is a growing list of stakeholders who want to know more... more about vision, purpose, strategy, performance, supply chains, sustainability, equality and perhaps some might have a passing interest in the Directors' remuneration? So for all of those stakeholders who are not on the list to receive a carefully crafted, lovingly designed and skillfully printed report through their letterbox, the same information will be published online, at the same time for their perusal.

But published how? We believe that content that is intended to be published online, should be designed for online. And that's exactly the approach we took with Irish Continental Group plc when we designed and produced their annual report in both HTML and printed formats. While we are delighted with the printed end result, put simply, HTML does more with the same content. It's easier to navigate; it accommodates rich media; it's measureable; it's accessible - in every sense of the word. And it's designed for its natural environment so that it is responsive, more easily findable and totally searchable. And for all those 'see more on page...' instances it is wonderfully clickable - so integrated reporting is more conveniently achievable.

Recent times have seen how we have all adapted to a new reality and embraced technology in many aspects of communications. And while working remotely, conducting meetings virtually and publishing digitally are not new concepts, I expect there will be a greater emphasis on digital engagement with stakeholders and maximising multi-channel communications in the very near future.

While we can't deliver you the printed report in all its CMYK glory, we can lead you to the HTML and PDF of the reports for comparison which can be found at ICG's corporate website: https://icg.ie/investors/reports-and-presentations/ (also designed and produced by Source) or directly at: http://icg.annualreport19.com/

It is also worth mentioning that ICG, its businesses and the wider Dublin Port community continue to work on the front line, safely facilitating the importing and exporting of essential goods, supporting our economy and providing a vital link in our supply chains across Ireland during this Covid-19 crisis.