2022: 10 must-haves in your annual report
An annual report is not just a regulatory requirement, but a platform to communicate your organisation’s business strategy, performance and culture. For investors, an annual report is the primary source of communication to understand your company better. Therefore, it must not only showcase your organisation’s performance during the year, but also elucidate its ethos, accomplishments and goals.
In India, it is mandatory for all companies registered under the Ministry of Corporate Affairs (under Section 217 of Companies Act, 2013) to submit an annual report every year.
As the world of corporate reporting is rapidly evolving, you will find a wide variety of reports being published, defined by unique approaches to content and design. However, all annual reports must include certain sections that will help your stakeholders analyse your company’s performance and make informed decisions.
1. Business model: A business model is used to share the strategic plan and structure of your company with the stakeholders (employees, executives, shareholders, and investors). Information disclosed in the model may include details on the organisation’s activities, key divisions, key markets, assets and liabilities, revenue and profit drivers, the sustainable economic value created for stakeholders, market share, investment plans, cash flow and return on equity.
2. Message from the management — A letter from the management is a crucial medium used by organisations to communicate their performance, attitude, values and promises. A good management letter should transparently address what went wrong and right during the year in the organisation. It should also highlight the key performance metrics in the context of the company’s strategy and goals, and the its goals and vision — in terms of both financial and non-financial performance.
3. Products and services offered — Your report must discuss in detail the products and services offered by your organisation to educate readers who may not be aware of the entire range of offerings. Further information would include details on the future growth path of each product/service, in addition to actions taken during the year with product-specific breakdowns. Finally, the Report may also introduce the latest offerings of your organisation, thereby indicating the long-term potential for your organisations’ growth.
4. Performance — This section is an absolute must-have as it shows all stakeholders the progress made by your organisation over the year. Your company’s performance must disclose information such as the revenue generated, EBITDA, breakdown of financials as per different products and markets, key performance indicators of the specific industry and organisation, distribution of expenses and return on investments. Some organisations may also include provident fund contributions and stock options. However, too many number and financial data can confuse readers. Therefore, it is best to showcase your performance using graphs and charts for easy readability.
5. Sustainability — Today, investors expect organisations to offer more disclosures regarding their non-financial/sustainability performance in their reports. Capital market participants, regulators and banks are looking for better standardisation in these disclosures among organisations, to drive accountability. This section of your report must include:
a. Your company’s sustainability ambition
b. A clear sustainability strategy
c. Governance structure and processes
d. Clear goals and targets
e. An overview of sustainability performance against key indicators
f. A statement from a member of the Board
Providing this information will allow stakeholders to make responsible investment decisions and emphasise the credibility of your organisation.
6. Culture and people — From upskilling programs to highlighting employee benefits, the culture and people section is not merely about improving performance or retaining employees, but also provides an insight into the organisation’s ‘likeability’ as an employer. This section of your report should talk about the overarching ability of your organisation to entice the next generation of the workforce, develop their skillsets, retain them and in turn, continue to generate value for all stakeholders.
7. Awards — Presenting the awards and recognitions won by your company is a further acknowledgment of the progress shown in the previous year while also acting as a point of encouragement for award winners within the organisation by highlighting their success. It could open numerous doors of opportunity for your organisation and establish instant credibility with potential investors.
8. Risk management — Every organisation must be aware of the inherent risks it faces to be able to mitigate them at the earliest. Your organisation must report on your approach to risk assessment, decisions made to mitigate them and steps taken to safeguard the company against potential risks. This information is of utmost importance to all stakeholders and should include specific breakdowns into the type of risk (strategic, operational, internal, financial, competitive, etc.) and their impact on the overall growth of the organization.
9. Board of Directors — The Board of Directors and the Management Team are the primary drivers of your organisation. They are responsible for protecting shareholder interests, establishing management policies, making decisions about important issues in the organisation and setting a roadmap to the future. Therefore, it is important for investors and other stakeholders to know them. This section will reinforce your organization as transparent, structured and ably led. In addition, it could be seen as a confidence-building measure for stakeholders who can get a better understanding of the level of expertise the leadership has, to successfully help the organisation grow.
10. Technology/innovation — The advent of Industry 4.0 and associated new technologies have ascertained that organisations can remain competitive and relevant only if they are innovating with the adoption of technology. Investing in technology and innovation is important for your organisation to keep up with the evolving demand and stay relevant. Having innovation-related information in your Annual Report shows that your organisation is willing and capable of innovation, which in turn improves the potential for long-term value generation and business resilience.
The quality of reporting influences perceptions of management quality and the decisions of investors. In fact, the quality of disclosures about strategy, risks, opportunities and other value drivers in your report can indirectly impact the cost of capital. Therefore, it is essential to create a purposeful Annual Report by weaving the must-haves into the narrative. This will give stakeholders, investors, customers, and employees a transparent and balanced view of your organisation’s annual progression that would foster confidence in your company’s future.
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