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"Annual reports are a key vehicle to deliver information. Surveys of investors and analysts continue to rank annual reports in the top five as information sources."

– Investor Relations Guide

The annual report is a powerful piece of communication that receives a lot of attention. With so much importance placed on one document, it can appear to be an overwhelming task just to create an annual report – let alone a successful one. Developing an effective annual report that captures and addresses its audiences is an involved, complex process. However, there are simple steps that can lead to the creation of a successful annual report.

I’ve been producing annual reports for well over a decade. During that time, I’ve seen and experienced a lot. And I’m sure I’ll experience a lot more. Fortunately, I’ve gained a few insights that have helped me survive in the crazy world of the annual report.

More times than not, a successful annual report is the result of a strong foundation. I’ve found the key to creating an effective annual report is to have a solid internal foundation, use capable outside producers and cover the basics.

A Solid Internal Foundation
Be prepared to produce the annual report. Take the time to assess what you have available to work with and what you need in the annual report. What is your annual report budget? Who needs to have a voice in the content of the annual report? Whom do you need to get on your team to help produce the annual report? And what are the key dates in your annual report production process?

Dollars and Sense
Before you begin the annual report process, determine (or find out) how much money you have to spend. Your budget may dictate some directions of the annual report – such as a fully designed annual report or a wrap 10-K.

Depending on your specific situation, the amount of money spent on the annual report will vary from company to company. There are many factors that affect the cost of an annual report, such as printing quantity, photography, design, etc. A typical annual report, including design agency services and printing, can cost anywhere between $100,000 and $1,000,000.

The Internet is an important communication tool. Budget anywhere from $10,000 to $100,000 and up for an HTML online version of your annual report.

Shop Talk
When you kick off the annual report, be sure to set up meetings with key management. Start each meeting with a list of prepared questions and bring a tape recorder (to hear what words or phrases people stress). Consider talking to other department heads to get input on what messages they would like to see come through in the annual report. From these meetings, you will be able to find common themes and determine important audiences and objectives for your annual report.

It’s important to keep senior management in the loop during the entire annual report process. If everyone approves each stage of development, you’re less likely to have to redo any sections.

Team Players
No one can do it alone. Choose a good internal staff. Find the people that will be the most effective and help you the most with the annual report production. Typically, an annual report team consists of representatives from investor relations, accounting, legal and marketing (or corporate communications) as well as the chief financial officer.

Right on Time
Find out when the board of directors has set the record and shareholder meeting dates. These dates will provide the framework for you to set the mailing date and your annual report production schedule. Pass these dates along to whoever is designing your annual report so they can be sure to make all of their key design, copy, proof and print dates work within your final delivery date.

Use Capable Outside Producers
Even if you have a lot of resources, you can’t do it all in-house. And your outside interaction can be as little as dealing with the printer or more, such as coordinating art direction, photography, writers, etc. If you use extensive agency services, then most of the external contact responsibilities will reside with them.

Choose the right design firm. The right firm can create a powerful and convincing annual report for you – and likewise, the wrong design firm can create an annual that fails to fully communicate the investment merits of your company.

Select a design firm that specializes in producing annual reports. They are complicated and constantly changing projects and "general purpose" design forms cannot fully grasp the difficulties of annual report production. When selecting your annual report firm, use the following criteria to judge potential firms:

  • Strong design capabilities (can they get your message across?)

  • Access to resources (if they don’t handle it, do they have someone who can?)

  • Photographers

  • Printers

  • Freelance writers

  • Online annual report capabilities (can they make you look as good online as in print?)

  • Reputation in the IR community (do they know about investor relations?)

  • High level of professionalism (the AR is too important a job to not be handled by a professional)

  • Chemistry (how well do you get along with them?)

  • Strong relationships (do they keep their annual report clients year after year?)

Other Resources
Annual report producers should also take advantage of other available resources. Always consult your corporate counsel, as they will have a good working knowledge of the legal requirements for your annual report. Other helpful resources, besides your design firm, are your stock exchange representative, your financial printer and, if you are a member, the National Investor Relations Institute (NIRI). If these resources are unable to help you directly, they will know where to turn to get the information or resources that you need.

Cover the Basics
Every annual report has to fulfill certain criteria. The most basic need is to satisfy legal requirements. But the most important necessity for any annual report is that it connects with its intended audience and delivers clear and concise information. Not only should the annual report talk to its audience, but it should be consistent – in design and copy as well as in the tone of the shareholder letter and the narrative.

The Legal Bottom Line
Every annual report must satisfy the SEC requirements, which are:

  • Audited financial statements

  • Notes to financial statements

  • An auditor’s report

  • Management’s Discussion & Analysis (MD&A)

  • A breakdown on industry segments for three years

  • Financial reporting and changing prices information

  • Information on the market for common stock

  • A listing of officers and directors

  • Information on any litigation

  • Significant accounting policies

  • Minimum five-year financial summary

  • Minimum two-year quarterly breakdown of stock prices (highs and lows)

The SEC also has requirements on type size. For example, type must be "at least as large and legible as 10pt. Times Roman" in the financial section of the annual report. An 8pt. typeface is allowed for financial tables.

Other equally important legal considerations for your annual report are your company’s state of incorporation and your stock exchange (NYSE, NASDAQ, AMEX) requirements.

Who Are You Talking To? How Are You Talking to Them?
Know the issues that affect your business. Understand your audiences and what will generate a favorable response to your company. Use design and message development that is appropriate to your market. And above all, captivate and reward your readers.

Address investor and analyst concerns. Depending on your industry and the results of the fiscal year, the emphasis on this audience group will vary from company to company. However, the general questions for investors and analysts that should be answered every year in the book are, "Why should I invest in this company?" and "How should I value this company?"

Again, based on your business, the annual report should also answer your customer and employee information needs. Most companies also use the annual report as a way to speak to employees about what the company is doing and where it is going. Including photography and quotes from customers and employees can strengthen the effectiveness of your annual report with these audiences.

Internal, External, AR Basics
It can be a daunting task producing an effective annual report. The key is to break it down. Annual report producers can have a successful experience and annual report if they establish a solid internal foundation, use capable external resources and cover the basics.

You can do it!

Ronald Warren has approximately 20 years of investor relations experience. He is Vice-President – Investor Relations, Corporate Communications & Corporate Secretary for SmartVideo. Warren has also held investor relations positions with Theragenics Corporation, Rollins Corporation and ATC, Inc. He has served on the Board of the Atlanta Chapter of the National Investor Relations Institute and has frequently spoken at NIRI workshops and seminars on the topics of annual reports and investor relations.

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