Annual reports in Australia: A missed opportunity?

Last week, KPMG International released a 44-page report based on a survey of business reporting, conducted with 270 listed companies across the globe, including 15 in Australia.

The report (which I have read so you don’t have to) has some good and bad news for local companies.

First the good news. You can all pat your self on the back for managing to cut the average report size down to 155 pages, compared with a global average of 204.  (The French average sits at a whopping 304 pages). About 42 percent of the content of annual reports worldwide is the financial statements, averaging 70 pages in Australia.

This shows that Australian companies are perhaps finally realising that more does not equal better when it comes to business reporting. I am sure annual report readers (and writers) are rejoicing about this.

But, on the downside, unfortunately, it seems that when Australian companies collectively slashed and burned their annual report content, they forgot to report on some of the stuff that investors and stakeholders like to see. You know, stuff like business strategy and market share. Instead, we are among the world leaders in reporting the fascinating topic of executive remuneration (are you still awake?)

If KPMG was a teacher and Australian companies were a recalcitrant school kid, the report might simply read, “Not bad effort overall, but could do better”.

How can Australian companies improve their annual reports?

The KPMG report identified six key areas where companies in Australia (and worldwide) can improve their annual reports:

• Give investors the information they need

While 42 percent of annual report content is about the financials, only 14 per cent looks at business strategy – and in Australia this percentage falls to 5 percent. Although much of the financial detail may be required for governance, most investors will be more interested in current performance and strategies for growth than in past financial data. Your annual report should provide information on how your business resources are being managed in order to meet future business needs

• Keep the report content clear and relevant

Australia does OK here, with an average of 155 pages compared with the global average of 204. But we still face the universal problems of repetition (usually because every department wants to crow about their achievements, even if those achievements overlap other departments) and too much bureaucrateeze (is that even a word?). And even though our financials come in at the shorter end of the scale, they could be further pared down. There is no need in most cases for the financials to be so very detailed (but rather a case of “it’s the way it has always been done”).

• Provide a longer-term view using operational KPIs

The front section of your report should include non-financial performance indicators, such as customer satisfaction and sales, brand and market share, intellectual capital, operational efficiency, staff performance, and product performance. No Australian reports even came close to covering all the above, and none reported on brand and market share.

• Provide practical KPIs that align with strategy

ASIC provides guidance to listed companies to help them provide “useful and meaningful information to shareholders or unit holders when preparing an operating and financial review (OFR) in a directors’ report” (RG247, if anyone cares). It stresses that a high-quality OFR is “important in meeting the information needs of shareholders and unit holders”. Yet, only 14 per cent of Australian companies report on customer retention (or growth); 7 per cent reported on staff retention (or retaining corporate knowledge); and none reported on lead indicators that demonstrated strategies for business efficiencies.

• Provide deeper analysis of strategy

Australia reports fell well short of their international couterparts in regards to strategy, with a staggering 86 per cent concentrating on short-term initiatives, rather than long-term vision. compared with 44 per cent globally. On top of this, only 50 per cent of the Australian reports surveyed includes reporting on customer-focus or staff knowledge and expertise and key parts of their business model.

• Focus risk analysis on what is important for the future

While Australian reports on average identified 10 key business risks, not a single one focused on intangible risks (such as reputation and brand – a growing threat with the rise of keyboard jockies and social media). The KPMG survey points out that investors (and stakeholders) want to know that the board is focused on short, medium and longer-term strategies, issues and risk, and that it is providing effective oversight.

With annual report season just around the corner, it is time for Australian companies to take a look at how they structure their annual reports, and what they report on. At the moment it appears they are missing (or neglecting) their opportunity to truly impress stakeholders and investors.

But help is at hand. Black Coffee Communication has teamed up with a selection of experienced designers, photographers, proofreaders, copywriters and more to launch Annual Report Writing, giving Australian companies, government departments, non-profits and member organisations the chance to grab those opportunities.

Till next time

Nicole