Monday, April 30, 2007

Writing an annual report - no pain, no gain

It's annual report writing time again - a daunting task for many of us.

If planned and handled properly, it's a fun task to do.
Before starting to write an annual report, there are several questions that must be answered.

On which stock exchange is the company listed?
Each stock exchange has its own rules.
The NASDAQ has more stringent requirements than the AIM (London Stock Exchange).Stock exchanges are on the merger & takeover warpath, which will influence the requirements of the absorbed stock exchange.

Who is responsible for what?
In general, it’s the CFO that coordinates the writing of the annual report, not in the least since the majority of its contents consist of financials.
In some companies, this task is outsourced or is given to corporate communications to handle.

An annual report is a team effort:
  • The CFO is responsible for the financials (based on the accountant reports);
  • The chairman and CEO are responsible for the business overview;
  • The CEO is responsible for description of products, markets and operations;
  • The lawyer and nomad (nominated advisor)/broker are responsible for the overall content and final check that the report complies with the stock exchange rules and regulations;
  • Corporate Communications is responsible for production.

What is the goal of the annual report?
Does the company produce it because it’s mandatory or does the company also want to use it as a marketing tool?
Is the main audience investors and the financial community or also prospects, potential partners and the public in general?
Does the annual report serve as a "crisis management" tool, dealing with bad news/bad results?

What is the timeline?
Producing an annual report requires a strict time plan.
All stock exchanges have a strict due date.
The required filing dates vary by country.
Most U.S. and European companies have a year-end filing date of December 31, and their Annual Reports tend to be filed between April 1 and June 30.
Japanese companies tend to file their report during the month of July, and Australian companies file starting September 15th.
Working backwards, closing files and printing takes about 2 weeks.
A healthy internal deadline is therefore at least one month before the due date.
It’s finalizing the text part that is time consuming, since the different executives have to sign off on their part.
From experience, it will take about 3 months to get all the text written and approved.

How should the annual report look?
The annual report should reflect the company.
For industrial companies, it should look serious and reflect their business.
A good example is the annual report of MAN, a leading European motor vehicle, engine and mechanical engineering group with annual sales of around €13 billion.
A company active in the telecom field can be funkier.
An example is Adamind, a provider of software that enables mobile multimedia content and converged communications services.
Depending on the budget and industry, companies can opt for having the financial pages in black and white and only the text pages (with graphs and illustrations) in color.

What should be inside the annual report?
The average annual report has several sections, some of them mandatory (depending on the stock exchange), others customary.

General part

  • Highlights – it gives a snapshot of the financial situation of the past year(s)
  • Directors, Secretary, and Advisors
  • Chairman’s statement – it covers changing developments, goals achieved/missed, actions taken and industry conditions
  • CEO’s statement – it covers the financials, deals, milestones
  • Marketing part- covers products, markets. (not mandatory)
  • Corporate Governance Statement – it covers the broad, committees, internal control, going concern, relations with shareholders
  • Directors’ report – included biographies
  • US analysts like to see a stock price overview, consisting of stock symbol, high/low history and price/dividend trends (not mandatory)

Financial part

  • Independent Auditor’s Report/ CPA Opinion Letter – consists of a one-page letter from the external accountant/CPA to the shareholders
  • Consolidated income statements
  • Consolidated balance sheets
  • Statement of changes in equity
  • Consolidated statements of cash flows
  • Notes to the consolidated financial statements
  • Appendices – consisting of list of group companies, brands, patents etc. (not mandatory)
    Shareholder information – consists of the contact details

Final Steps
Once the annual report is ready it must be sent out to the stock exchange (to meet the deadline) and shareholders.
It must also be published in pdf form on the corporate website.
Printed copies should be available for any interested party to receive upon request.

It's finished and you can relax -until the next annual report!

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