When the time comes each year to kickoff the annual report process, someone invariably asks this question. According to a study just released by Rivel Research Group on how the buy-side makes investment decisions, the answer continues to be “yes.” A full 70 percent of respondents say the annual report helps them make their investment decisions, and 69 percent say they use it to monitor a company after they buy the stock.
While many companies continue to realize that the annual report is a powerful tool to reach and influence the investment community, others have lost sight of its full potential and have allowed their annual reports to become a redundant piece in their IR “tool kit.”
(Point of order: For purposes of this discussion, “annual report” means both 10-K “wraps” and those pieces that integrate the MD&A and notes from the 10-K.)
To make sure your company doesn’t fall into this trap – especially given the new market realities expected in the post-recession macroeconomic “reset” – ask yourself the following questions on whether you’re getting the most from your annual report:
How do we use it?
Is it aimed solely at meeting a reporting compliance for investors, or does it also have value as a marketing tool? Is it used with the media, bankers or even during new-employee orientation? Do we distribute it at trade shows, industry conferences, one-on-one meetings, etc.?
What information does it include?
Is it primarily a financial review of the past year’s performance, or does it contain forward-looking information on strategy and such intangible assets as new products and market position that might not easily be found anywhere else? Is this information differentiating our value proposition? Is it resonating with the right investors?
How popular is it?
Do we typically get a lot of requests for it from investors as well as other key stakeholders?
What other materials do we make available?
Do we also publish a corporate profile, for example, that contains similar, up-to-date information? Do we maintain a robust investor Web site that contains market data and provides updated insight on our progress against growth goals and operational milestones?
Despite the abundance of online information and other available tools, the annual report remains a valuable resource for institutional investors. Only a handful of highly visible mega-cap companies, such as Kraft, can hope to be successful in properly maintaining transparency on the qualitative and quantitative data that investors need to create their valuation models, without producing a formal annual report.
However you decide to use the annual report along with the wide range of other investor communication vehicles at your disposal, remember that communication today is more about access to insight than ever before – including financial performance, strategic objectives, market and earnings expectations, product lines and key investments, as well as such modern-day issues as social responsibility and community involvement.
Companies that make it easier for investors to locate the data they need quickly – such as an annual report that looks both backwards and forwards – can create a distinct value creation advantage for themselves.