Pieces of the puzzle are missing
When reviewing Annual Reports, we look at the report from the point of view of a potential stakeholder with little to no knowledge of the company. Looking at the story, key areas of focus should include an understanding of:
- who the company is and what they do
- why they do it
- the markets they operate in
- how they do it, their performance for the year and their priorities for the coming year.
So that the reader can understand this, it is important to include information such as the business model, the KPIs used to measure performance, and some discussion of the year’s market conditions. Although none of these are legal requirements for AIM reports, they are crucial for stakeholders to get a proper understanding of the business, the year it has had and future projections.
Lack of visibility
Another thing that stakeholders like to see is ownership. AIM reports often seem to neglect this: you can sometimes read an entire strategic report and not be introduced to the company directors. Equally, in governance sections, it is a shame not to see the committee chairs leading their reports. This is a missed opportunity to build engagement and show accountability.
Not tailoring it to the audience
It is jarringly obvious when content has been reused from elsewhere. One common example is when the Annual Report’s welcome statement reads more like a generic introduction for customers. The content in the Annual Report should generally be tailored to shareholders, and commercial content will tend to turn them off. Of course, how the company creates value for customers is relevant, but the wider context should be that satisfied customers ultimately generate value for shareholders.
Bad tone of voice
A detached, passive, third person style of writing throughout can be quite disengaging, and can make the document seem like a box-ticking exercise rather than a tailored, proactive communication. The best Annual Reports read like a direct communication with shareholders.
Failing to balance review with outlook
Although forward-looking detail is not legally required for AIM companies, it is still helpful to give some indication of future direction. If potential investors do not get any idea of the company’s plans going forward, they will not be able to properly assess whether the company can generate value in years to come, which could discourage them from investing altogether.
Even small companies have material operations. Sustainability reporting is not a legal requirement for AIM, but most stakeholders will want to see at least some acknowledgement of the key issues. For shareholders, sustainability considerations show that the company is capable of generating value in the long-term.
Next, find out how AIM companies can address these issues simply, cheaply and quickly.