The annual report is not new on the menu of IR tools, but this year it’s being served up with a combination of simplicity and spice that gives it a new flavor altogether. In the US, Sarbanes-Oxley and its rules around reporting on financial controls have had a big impact. Luckily, production can be speeded up to meet tight reporting deadlines, but the pressure for companies to achieve maximum transparency has never been higher.
This year a lot of companies have thrown away the management discussion and analysis (MD&A) boilerplate and taken a fresh look at this section of their 10K, often redesigning it to meet the SEC’s ideal of plain English and transparency. This has changed the look of a lot of books, with MD&A and other sections getting sharper and more concise. In terms of web reports, companies are moving away from PDFs of the print version and toward navigable HTML reports. As always, a lot of attention is paid to the chairman’s letter, and designers keep coming up with ways to make their book stand out from the pile.
Once you take care of the minimum disclosure necessary for a 10K or 20F, there’s virtually no limit to what can be added to an annual report. But Robert Grupp, VP of corporate communications for Pennsylvania-based Cephalon, which uses Baker Brand Communications for its annual, has noticed a trend towards smaller annual reports over the last few years as many companies have taken the simple route with a 10K wrap. However, he thinks this trend is on its way out. Cephalon decided against a bare-bones 10K wrap because, like many companies, it wants its annual to explain the company, its offering, its strategy and its results to a lot of different stakeholders.
‘It is becoming increasingly difficult to communicate intangible assets, and the annual report is the flagship opportunity to do that,’ Grupp says. ‘Our audiences have very little time to read long narrative, and through the nature of our book, the hope is that investors or other important audiences will page through and take away a few important messages.’
Wrap party
By contrast, Tanya Jernigan, VP of IR for California’s Impac Mortgage Holdings, is a 10K wrap believer. ‘In terms of technology, most people have access to financial information the day it’s filed,’ she says. ‘So why spend all that money and time printing a document that comes out later? The focus should be on sending a message to shareholders, which can be done just as effectively with a 10K wrap.’ Design company Mentus helped Impac cut costs in half by coupling the 10K with the annual report, resulting in one document instead of two separate ones as in the past. Also, in an effort to make the company easy to understand, all charts and copy have been simplified.
At one of Mentus’ new clients, AtheroGenics, manager of corporate communications Donna Glasky has a different view. She thinks annual reports are getting more creative in both cover design and narrative. Since AtheroGenics went public in August 2000, she’s made sure her company’s annuals are no exception.
After winning top awards from the League of American Communications Professionals (LACP) for the past four years, AtheroGenics wanted to do something even better with this year’s annual. Glasky went on the LACP web site and looked at her favorite reports. When she realized that all her picks led back to Mentus, Glasky decided to move her business there.
‘The writing and concept for the narrative has gotten jazzier and a lot more fun to read, which helps folks who don’t know the industry that well,’ Glasky says. ‘We have to make sure all of our messages are in there, and we have to make sure it’s clean and neat and aesthetically pleasing while including the company’s milestones.’
Graphic power
Having worked on Camden Property Trust’s annual report for six years, VP of marketing and communications Trish Hoffman has noticed a recent trend toward powerful graphics. Pictures communicate a message the second you pick up a book, before words even come into play, she says. A less-is-more approach to the shareholder letter is appropriate for an audience that typically has little time to read a report.
Camden decided a couple of years ago to forgo including all the company’s accomplishments in the chairman’s letter. Instead, some are displayed graphically right at the front of the book while others are included in the text of the letter.
How does Hoffman measure the success of Camden’s annual? ‘Sometimes we measure our success in awards, but sometimes those doing the awarding are not our target audience,’ she says. ‘We have been recognized by the International Association of Business Communicators, among others, and coupled with feedback we get directly, that is how we evaluate how we are doing. Our real priority is to develop a synergy with a designer and come to an understanding about particular styles we like.’
Deborah Wasser, senior VP of IR at Veeco Instruments, has cost conservation on her mind when planning the annual report. Today Veeco spends about half as much on its annual report as it did five years ago. That’s because it has switched to a glossy 10K wrap from a full book. Wasser says Veeco will not get rid of its print annual report, even if the SEC passes its proposal to let shareholders opt in to print versions rather than opt out as they do today.
‘There is a big open question about whether more annual reports will be distributed electronically,’ Wasser points out. ‘Ultimately, regulations may end up letting companies distribute only electronic reports, and then we will obviously have to make decisions about what makes sense for our company. For now, though, regardless of what regulations tell us we can do, we will continue to do a printed book because it serves many purposes.’
Focus finding
Veeco’s recent strategy has been improving its operational performance. The company has restructured its book so it tells a very different story than it has for the last ten years, moving the focus from Veeco’s technology to operational efficiency and profitability.
‘Insight into management strategy is the most important thing investors want to read about. The strategy for the future of the company should be clear. If all the book does is report on the past year, there’s probably no point in producing it,’ says Wasser.
Tom Glover, director of public relations for ITT Industries, is on the same page. While working on ITT’s annual report with design firm Addison, he’s aware that the annual report is still one of the first sources of information anyone turns to when they’re looking into a company.
‘We keep in mind that our employees probably read our annual report as closely, if not more closely, than anyone else,’ Glover says. ‘For global, multi-industry companies like ITT, the annual is another channel we can use to educate all kinds of key audiences about who we are and what we do.’
According to Natalie Cox, director of corporate communications at Nova Chemicals, the SEC’s shortened 60-day filing deadline has sent companies using the annual report as both a financial document and a corporate branding vehicle into a spin. And she believes elaborate annual reports are disappearing.
‘There will be a more basic approach to required filings – 10K wraps instead of four-color books, for example,’ Cox predicts. ‘Companies will provide their MD&A and financial statements in a basic format, then perhaps produce a separate narrative or promotional piece, which may include substantial background on the company.’
Like Wasser, Cox believes paper will survive. ‘The electronic version of the report is used more and more each year. However, the printed version will always be a viable and necessary alternative, just as face-to-face communications and one-on-one customer relationships remain an important element of doing business,’ she says.
Providing answers
For Dan McCarthy at PPL Corporation, the top priority in creating the annual report is still to provide answers to shareholders’ questions in the most transparent way possible. As PPL’s director of corporate communications, McCarthy is responsible for setting the tone of the annual report. He believes the chairman’s letter is emerging as the focus of most reports produced by his company and its peers, especially with shareholders seeking assurances about company strategy and direction in addition to financial information.
‘Reports are now less about glitz and more about delivering important messages in memorable ways,’ McCarthy concludes. ‘Good photography and design are very important, but a no-nonsense message is what will really win the day with today’s investors.’
