CFM-II - Final Report

8/7/2019 CFM-II - Final Report

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Table of Contents

MEMORANDUM OF TRANSMISSION ..................................................................... 4

EXECUTIVE SUMMARY ................................................................................... 5

1. INTRODUCTION ..................................................................................... 6

2. LEGAL REQUIREMENTS OF AN ANNUAL REPORT ............................................... 7

3. SECTIONS OF A GOOD REPORT ................................................................... 8

3.1 LETTER FROM COMPANY CHAIRMAN/CEO ................................................. 8

3.2 SALES AND MARKETING ...................................................................... 8

3.3 FINANCIAL HIGHLIGHTS...................................................................... 8

3.4 MANAGEMENT DISCUSSION AND ANALYSIS ................................................ 8

3.5 CPA OPINION LETTER ........................................................................ 9

3.6 FINANCIAL STATEMENTS ..................................................................... 9

3.7 SUBSIDIARIES, BRANDS AND ADDRESSES ................................................... 9

3.8 COMPLETE LIST OF BOARD OF MEMBERS & OFFICERS ................................... 9

3.9 OUTSTANDING SHARE OF STOCK ........................................................... 9

3.10 SUMMARIZING THE REPORT ............................................................... 10

3.10.1 CONCLUSION ........................................................................... 10

3.10.2 RECOMMENDATIONS .................................................................. 11

3.10.3 ANNEXURES AND APPENDICES ....................................................... 11

3.10.4 BIBLIOGRAPHY AND REFERENCES ................................................... 12

4. EVALUATION OF ANNUAL REPORTS............................................................ 13

4.1 ELEMENTS AFFECTING READERS PERCEPTION CHANGE .............................. 13


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4.1.1 Inform - Communicate - Integrate Capitalize ................................... 14

5. THE CRITICAL STEPS TO SUCCESS ............................................................. 14

6. TIMELINE FOR PREPARING AN ANNUAL REPORT ............................................. 16

6.1 DISTRIBUTING ANNUAL REPORTS ......................................................... 17

7. CHECKLIST FROM START TO FINISH ........................................................... 18

8. CASE STUDIES ON EXCEPTIONAL ANNUAL REPORTS: ........................................ 19

8.1 ADIDAS ....................................................................................... 19

8.2 PODRAVKA ................................................................................... 21

8.3 INFOSYS ...................................................................................... 23

9. CONCLUSION ..................................................................................... 25

10. RECOMMENDATIONS .......................................................................... 26

10.1 Sales and Marketing Primer ............................................................... 26

10.2 Management Discussion and Analysis .................................................... 26

10.3 Stock Price .................................................................................. 26

10.4 Graphs and Diagrams ...................................................................... 26

10.5 Use of Themes .............................................................................. 26

10.6 Focus Areas ................................................................................. 26

11. BIBLIOGRAPHY ................................................................................. 27

12. REFERENCES ................................................................................... 27


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MEMORANDUM OF TRANSMISSION

TO: Prof. R.L.Raina, Communication

IIM Lucknow

FROM: Group-9, Section-E

DATE: February 3, 2010

SUBJECT: How to write annual reports

For the past several years, we have been providing consultancy services. It has

been our constant endeavour to provide the most authentic information and

reliable consulting. We hereby provide you with a report titled How to write

annual reports.

The report elucidates the requisite sections of an annual report along with its

legal requirements. The various timelines and the audiences & strategies for

distribution are mentioned. A checklist and evaluation criteria have also been

mentioned for the same. Reports of Adidas and Infosys are analysed towards the

end of this report.

Please come to us if you need additional information or if you have questions.

We would be happy to assist you in any way when implementing some of the

recommendations presented in this report.

We commend the report to you.

Yours Sincerely

Group -9, Section E


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EXECUTIVE SUMMARY

Purpose of the Report

The purposes of this report is to (1) understand the key features of a good annual report,

(2) elucidate the important legal requirements, (3) state a checklist which should be

followed to make a good annual report, and (4) explain the various parameters on which

to evaluate a report.

Secondary research was conducted using resources such as International Journal of

Commerce and Management.

Writing a Good Annual Report

Findings from professional and scholarly journals revealed that some authors haveidentified certain sections which are essential to make a good annual report. The report

elucidates all these sections. Writing an annual report is a long drawn process for which

planning needs to be done in advance. It is essential to understand the audience who will

receive the report. Readers generally evaluate an annual report based on its content,

design and form, and service and delivery. Summarizing the annual report is a crucial

activity and therefore conclusions, recommendations, annexure and bibliography should

be written with due diligence. Most firms do not follow these guidelines and make

unimpressive annual reports while some firms use very creative methods to write annual

reports.

Conclusions and Recommendations

Annual Reports of a company reach a number of stakeholders. For an outside reader, the

first impression of the company is formed by the quality of its annual report. So it is

important that the report be accurate and impressive. The difference between a complete

report and an excellent report lies in its presentation. The case studies presented in the

report show that excellent reports communicate more than just data and numbers. The

more the report talks to the reader, the better are the chances that the objective might

be accomplished.

Major recommendations are 1) Themes should be used in reports to communicate the

thrust areas of the company. 2) Management Discussion and Analysis should include the

vision of the company. 3) Annual report should focus on the key accomplishment rather

than activities.


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1.INTRODUCTIONAn Annual report is a comprehensive report on a company's activities throughout the

preceding year. Annual reports are intended to give shareholders and other interested

persons information about the company's activities and financial performance.Annual

reports also help shareholders understand how their investment is doing. They are also a

good starting point for people who are considering buying shares in a company for the first

time. Many individual shareholders choose to receive the Annual Review, which is a

shortened version of the Annual Report.

Annual reports traditionally begin with a review of the year from the companys Chairman

and Chief Executive. These are the most widely read parts of annual reports because they

provide a short summary of events during the year. Most reports also contain a longer and

more detailed review of the performance of the business. Many companies includeinformation on other issues of importance, such as new products and services, the

environment and social responsibility. There are also statements that describe how the

directors maintain control over the company (corporate governance) and how they are

paid (directors remuneration).

The purpose of this report is to understand the characteristics of a good annual report. It

also mentions the critical legal requirements of an annual report. The report also

highlights the key criterions on which an annual report is judged. Moreover, it discusses a

sample annual report and its key features. It also lists down imperative checklists which

are critical to follow while drafting an annual report.

The goals of this report are to (i) explain the key features of good annual report, (ii)

highlight the important legal requirements, (iii) emphasize on the checklist to be followed

while making an annual report and (iv) elucidate the various criterions on which a good

annual report is evaluated. Finally, the report draws conclusions from the collected

information and suggests recommendations based on those conclusions.


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2.LEGAL REQUIREMENTS OF AN ANNUAL REPORTThe Act in India that specifies the contents of a listed companys annual report is the

Companies Act 1956 (and the Companies Amendment Act, 2000). The main objects of the

Act are as under:

Sections 211 and 212 of this act clearly specify the content of an annual report andthe form and content of balance sheet, profit and loss statement respectively.

Section 212 of the Companies act requires the following item to be present in anAnnual report.

y Directors Reporty Auditors Reporty P and L statementy Balance Sheety Notes to Subsidiary Companies

Section 211 of the Companies act specifies the form and content of the Profit andLoss statement and Balance Sheet respectively

To sum up, the mandatory sections of a publicly traded companys annual report are:

1) Cover, Content, Directors' List, Highlights2) Management Discussion and Analysis3) API and New Product Lists4) Directors' Report5) Graphs6) Financial Report7) Annexure to the Directors' Report8) Auditors' Report and Annexure9) Balance Sheet and Profit and Loss Account - Standalone10)Cash flow statement and Schedules- standalone11)Financial Information on Subsidiary Companies12)Corporate Governance Report13)Auditors' Report - Consolidated14)Balance Sheet and Profit and Loss Account - Consolidated15)Consolidated Cash Flow Statement and Schedules


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3.SECTIONS OF A GOOD REPORTAn annual report becomes absolute when it comprises nine distinct sections. It is a

definite measure of considering an annual report as good. All these nine sections are

separately discussed as a part of following subheadings. However it is critical to note thatsections discussed in subheadings 1.5, 1.6, 1.7 & 1.8 are mandatory to be included in

every annual report. While section 1.4 is a requirement of the lenders & SECs while 1.9

being critical for analysts.

3.1 LETTER FROM COMPANY CHAIRMAN/CEOThis marks a beginning of an annual report & is limited to initial five pages. It comprises of

goals achieved & recent developments in the company. Actions taken in past one year to

improve upon current company conditions are also briefly mentioned under this section

only.

3.2 SALES AND MARKETINGThis section usually follows the letter from the company and is usually written by the

marketing department of the organization. It also comprises of the supply chain

management system of the company and the manner in which a market is segmented in

order to maximize the profits. It is ensured in this section that the scope of lines &

divisions is clearly mentioned.

3.3 FINANCIAL HIGHLIGHTSThis section briefly outlines the summary of financial figures of past 10 years of the

company. It is written by the Chief financial officer of the organization. It also mentions

risk factors & a letter to shareholders.

3.4 MANAGEMENT DISCUSSION AND ANALYSISThe objective of a Management Discussion & Analysis section is to provide an objective

and easily readable analysis of a companys financial activities based on currently known

facts, decisions, or conditions. The MD&A can provide taxpayers with readable information

surrounding company managements framework for decision making. The MD&A assists

taxpayers and stakeholders to hold the organization more accountable. The MD&A can be

a benchmark to determine if the company is meetings its stated objectives in its strategic


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plan. Also, an effective MD&A can strengthen internal management focus before financial

statements, written by CFO. IT also has arguments of noteworthy trends of past two years

3.5 CPA OPINION LETTERThe CPA opinion letter gives an excellent explanation of what the report bring about and

how financial officers attain their final conclusions. This section is written by the CPA firm

to give an estimate of their opinion on the company's financials.

3.6 FINANCIAL STATEMENTSThis section explains the three important financial statements from the annual report of a

fictitious company:

Income Statement How good the company is at making money

Cash Flow Statement How they're paying for their operations and their future growth

Balance Sheet What the company owns and owes

3.7 SUBSIDIARIES, BRANDS AND ADDRESSESThis section is provided by the legal department of the company. It states the legalaspects, terms & conditions, rules & a regulation the organizations abides by. It covers the

last few pages of the annual report.

3.8 COMPLETE LIST OF BOARD OF MEMBERS & OFFICERSThis section is written by the corporate secretary of the company & extends upto one or

two pages.

3.9 OUTSTANDING SHARE OF STOCKThis section is mainly important for analysts. If it is part of an annual report it is kept at

the near front. It contains the stock, trading, stock symbol, price, dividend trends, beta

values, high-low history. This section is also written by the corporate secretary of the

organizations


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detail, but keeps all that detail available if needed by any of your various readers. Each

appendix is numbered or lettered consecutively and given a title.

3.10.4BIBLIOGRAPHY AND REFERENCES

References usually come at the end of a text (essay or research report) and should containonly those works cited within the text.

A Bibliography is any list of references at the end of a text, whether cited or not. It

includes texts you made use of, not only texts you referred to in your paper, but your own

additional background reading, and any other articles you think the reader might need as

background reading.


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4.EVALUATION OF ANNUAL REPORTS4.1 ELEMENTS AFFECTING READERS PERCEPTION CHANGEThe main factors of an annual report which affect the readers perception are:

y Contenty Design and Formy Service and deliveryContent factors are used in the rating of the Annual Reports. Financial performance is a

core driver of a firms reputation amongst many of its stakeholders; the way in which this

information is communicated has a significant effect on perceptions. Even at times of

lower than expected performance, firms can maintain support when they transparently

and honestly communicate the real reasons behind lacking performance and explain stepsunderway to remedy the situation. A recent Deloitte study has shown that currently more

than 55% of the annual report consists of narrative content. Other studies show that there

is some divergence between narrative sections and the accounting data raising questions

about the necessity to regulate this discourse. Some researchers have noted that

companies expecting both good and bad earnings surprises will exhibit much clearer, more

truthful, sincere and legitimate communications in their reports than the composite

average firm would. Whatever previous and expected performance looks like, it makes

solid business sense to adhere to accurate and correct communications. Many content

factors must be taken into account when drawing together a report and companies should

combine corporate communications and marketing specialists with the financial experts to

get the most out of this exercise. An important step in the process must be to consider the

desired attitudes and behaviours of their target audiences. Content can then be drawn up

that portrays the facts accurately and brings across the required message whilst being

effective in strengthening and modifying stakeholder perceptions.

Design factors include the look and feel and especially the degree to which the companys

own corporate brand is conveyed through the report. The most admired companies are

able to stamp their own identity throughout the report on par with all other

communications output, whilst not allowing form to overtake function. Only through

consistency and authenticity can the annual report work in tandem with all other

corporate communications to manage the firms reputation collectively.


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Service and delivery factors are to do with the timely delivery of the reports, online

access to supporting information and general follow-up. Customer care of the reports

readers is essential in maintaining favourable reputation.

All of these factors mean that corporate reporting is more than a financial

communications or investor relations exercise it has taken place firmly as a key tool in

stakeholder engagement and an essential part of corporate reputation management.

Reports should be the first link for stakeholders by providing more than a financial picture

giving clear insight into the companys values, strategy, vision, internal structures and

operational aspects. Annual reports thus become an essential tool in reputation

management allowing companies to enhance the way all its readers perceive them on all

fronts.

4.1.1 Inform - Communicate - Integrate CapitalizeAnother model to evaluate the annual reports is the Inform-Integrate-capitalize model.

The raw material is the raison dtre of any annual report. Information is necessary but

its not sufficient, it may be written but is not per se self-explanatory. A report that

informs may be good but the one that communicates is better. The best reports are

substantial and stylish; made of facts and figures and faces; readable and visible; focused

on financials and business; stockholder and stakeholder-aimed. The annual report should

be valued as a key corporate vehicle and capitalize on it as much as you can. Some

companies clearly capitalize on their report (and besides, reporting practice) and still

regard it a key vehicle towards shareholders, investors, and a number of audiences.

5.THE CRITICAL STEPS TO SUCCESSTackling a project as important and encompassing as an annual report requires

organization. Use the following eight steps to ensure the process moves forward and does

not become an onerous burden to your organization.


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6.TIMELINE FOR PREPARING AN ANNUAL REPORTAnnual reports are printed to coincide with annual meetings, board meetings or other

special events. To ensure annual report being published and delivered on time, work

backward from the date of the meeting or event. Advance planning will let workingaround travel, vacations and the schedules of staff and volunteers. Plus, there will be time

to recruit sponsors to underwrite costs.

General guideline of steps to be taken when and the order in which they should be taken

Estimate budget 3 months out

Prepare detailed schedule 3 months out

Recruit sponsors 3 months out

Brainstorm theme, content, photos 3 months out

Select consultants (if needed) 2.5 months out

Draft, refine, proofread copy 2.5 months out

Approve initial design concept 2 months out

Draft layout 1.5 months out

Route for final approvals 1.5 months out

Request quotes from printers 7 weeks out

Choose printer 6 weeks out

Prepare final art for printer, proofread 4 weeks out

Send to printer 3 weeks out

Receive finished reports due date


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6.1 DISTRIBUTING ANNUAL REPORTSy Appropriate AudiencesBecause annual reports are generally expensive to produce, they are usually reserved for

VIPs community leaders, key donors, investors, partners and policy-makers. When you

need to make an impact at meetings to request funding or at meetings with government

officials, include a copy in the information package. Sending it to potential donors and

grant makers is also smart, as it summarizes your non-profits experience and track

record.

y Appropriate UsesMany nonprofits distribute their annual report at well-attended events like annual

meetings or fund raisers. This saves mailing costs, gives people a great first impression ofyour non-profit and gives them a reference they can keep. When celebrating benchmark

anniversaries, some nonprofits produce more lavish annual reports to mark the occasion.

Because reporters usually will not take the time to read annual reports, do not include

them in media kits or media pitches; use a one-page marketing sheet instead.

y DatabaseIf you do not already have your mailing list in a computer database, take the time to

create one that includes your various audiences from individuals to organizations to

businesses. While this can be time-consuming, think of it as an initial capital investment.

There is a variety of inexpensive, database management software programs available for

most computer systems that will make the job easier and the information more useful.

For example, the contact at a particular organization may change or a volunteer may get

an email address. If your staff does not have the time or the skill to manage the database

or handle mass mailings, you can hire companies to do this for you.


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7.CHECKLIST FROM START TO FINISH Assign responsibility to one person. Collect samples of other annual reports for ideas.

Establish the due date. Plot timelines and deadlines on your calendar. Allocate budget dollars or recruit underwriter(s) Hire a freelance writer and designer (if necessary and budget permits) or select a

public relations firm or ad agency.

Hold a brainstorming session to generate a theme and establish primary stories ormessages.

Develop your theme. Notify your accountant or your financial officer of what financial information will

be required and when.

Check with dignitaries and staff for photos. Request photography bids, hirephotographer, arrange and coordinate photo shoot (if necessary).

Collect financial information. Write the copy including headlines and photo captions. Decide on quantities. Solicit printing quotes. Select a printer, establish the delivery date.

Design and lay out the front and back covers and the inside pages. Select photos and write the captions. Choose ink colours, type fonts and paper stock. Edit and refine copy. Proofread everything triple-check the financials, the spelling of names and the

accuracy of telephone numbers.

Route for final approvals. Set up mailing database. Prepare the final art for printer (text, financials and photographs). Deliver art to the printer with instructions. Proof blue-line and colour proofs from the printer. Take delivery of annual reports. Distribute or mail annual reports. Thank sponsors.


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8.CASE STUDIES ON EXCEPTIONAL ANNUAL REPORTS:8.1 ADIDASThe Adidas annual report won the award for the best Annual Report for the year by Report

Watch. This is an independent company that keeps a close watch on company reports,

benchmarking and reporting best practices around the world. These awards are an

initiative to reward those that present information in the most succinct manner. The

reports were analyzed on ten parameters listed below:

1. Packaging2. Highlights3. Strategy4. Business5. Financials6. Investors7. Governance8. Accounting9. Responsibility10.Communication


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meal. If youhave successfullybakedyoursample of the annualreport,the emptypages

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8.3 INFOSYSInfosys is known for producing one of the best annual reports in India. In fact in the study

done by Reportwatch to rate the top 500 annual reports, Infosys was ranked 233, the

highest by an Indian company.

Apart from the normal requirements of a simple annual report, Infosys publishes its Human

Resource valuation, Brand valuation, Economic Value-Added (EVA) statement, Report on

environment, health and safety, audited US GAAP financial statements and Global

presence.

All the annual reports of Infosys, over the past 5 years, are weaved around one of their

staunch company value or strategy. In their latest report they start off with talking about

their initiatives to nurture talent throughout the country. This report was published on

100% recycled paper. These themes are supported by relevant pictures which make their

message even more appealing. The first few pages of Infosys annual report can be a treat

to read even for the literary lovers.


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THE THEMES OF INFOSYS REPORTS OVER THE YEARS:

Year Theme Tagline Initiatives Emphasized

2003-04 Managing ChangeNew Game. NewRules.

Global Delivery Model

Strategic Global Sourcing

Business Solutions

2004-05Riding valuepartnerships

Think Scale

Large accounts drive growth

Industry academia partnership

Infoscion

2005-06Dream and planbig

Changing Mindsets

25 years completed

Legacy and values of Infosys:

Redefining Indias image

Leader in corporate governance

People at its core

Giving back to Society

2006-07Winning in theflat world

Think Flat

Fuel for growth-cost

Faster innovation and co-creation

Money from information:Analytics+ information

Winning in the Turns

2007-08Valuing the

employees

Power of Talent

Campus Connect

Enable Empower and RetainTalent


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9.CONCLUSIONAnnual Reports of a company reach a number of stakeholders. For an outside reader, the

first impression of the company is formed by the quality of its annual report. So it is

important that the report be accurate and impressive. An annual report should have allthe sections without which it would be incomplete. But the difference between a

complete report and an excellent report lies in its presentation. The case studies

presented in the report show that excellent reports communicate more than just data and

numbers. They showcase the companys values and attitude. The reports presentation

supplements the claims made in it. There is an objective which has to be accomplished by

printing and distributing annual reports. It might be to attract investment from an investor

or to declare the companys accomplishments to the industry. The more the report talks

to the reader, the better are the chances that the objective might be accomplished.


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10. RECOMMENDATIONS10.1Sales and Marketing PrimerA comprehensive section on sales and marketing performance should be included in every

annual report. It should be written by the marketing department. It should clearly

describe where the company sells and where it makes most of its money. The scope of

lines, divisions and operations should be clear.

10.2Management Discussion and AnalysisEvery reader of the financial report is interested in knowing the vision of the management

of the company, more than merely the facts and figures. Therefore it is critical to

summarize management discussion and analysis before the financial statements. This

should be written by the CEO and should cover the discussion of significant trends over the

past two years.

10.3Stock PriceThis is required by the analysts. We recommend that it is best to have it at the start of the

report. It should have High/Low history and price/dividend trends over time.

10.4Graphs and DiagramsTo most people numbers make sense when represented graphically. Therefore we

recommend extensive use of graphs, diagrams and charts to depict the companys

performance.

10.5Use of ThemesAn annual report can also be a literary feast if a theme underlies it. For example Infosys

has a unique theme in the annual reports which depicts its annual performance in the

form of storyboarding.

10.6Focus AreasInstead of focusing on activities throughout the year, the report should focus on the

accomplishments of the company. This creates a positive and optimistic picture rather

than being a mundane account of facts and figures.


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11. BIBLIOGRAPHY1. Advanced Technical Writing Webpage, University of Idaho

http://www.class.uidaho.edu/adv_tech_wrt/

2. Purdue Online Writing Lab, Purdue Universityhttp://owl.english.purdue.edu/owl/resource/670/05/

3. Website of Government Finance Officers Associationhttp://www.gfoa.org/services/rp/MDArevised.rtf

12. REFERENCES1. Alattar, J.M, and Al-Khater, K (2007).An empirical investigation of users' views on

corporate annual reports in Qatar. International Journal of Commerce andManagement,4, 312-325.

2. Stittle, J. (2003). Annual Reports: How to Deliver Your Corporate Message toStakeholders. England: Ashgate Publishing, Limited.

4. Stuart, Goldstein (2005). Unleashing the Power of the Annual Report at DTCC.Strategic Communication Management, Volume no. 9 Issue no. 3

5. Bowman, J.P , and Branchaw B.P.(1988) .Writing Business Reports. Chicago: TheDryden Press.

CFM-II - Final Report

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