JSE Best Practices Awards 2010 – Annual Report Winner

Annual Reports are produced primarily to provide information for a company’s stakeholders, but also for reasons of regulatory compliance, marketing and the creation of archival records. These notes are intended to provide guidance to the preparers and judges of the Annual Reports of listed companies. They are intended to give general guidance on best practices in the Reports’ preparation and provide clarification on the rationale of the weighted criteria that are to be used in the judging process.

 

Evaluation of reports is done by the Annual Report Sub-committee of the JSE Best Practices Committee. This Sub-committee may be comprised of persons selected from the Exchange’s management, investors, academics and current and former professionals in the financial services industry. The criteria, their relative weightings and grouping are determined by this Sub-committee, with guidance from the Exchange, and are subject to possible change with each yearly review. The current evaluation scheme is based on the assignment of 100 points, as allocated among 4 groups of criteria, namely:

 

 

There exist several sources of guidelines relating to best practices for Annual Report structure, design, use of graphics and even written content. The best practice guidelines outlined below have been culled from a variety of local and international sources. Key principles include:

 

·         Simplicity – The annual report should be written in such a way that persons with or without specialist industry or financial knowledge can benefit equally from the report.

·         Clarity – It should be laid out coherently and organised in such a way that key information is easy to find, easily understood and more complex issues are clearly explained.

·         Consistency – Shareholders will expect to be able to track progress on key issues over time and make comparisons with last year.

·         Conciseness – There is a lot to cover in a well prepared annual report and the content should be precise and to the point – quantity does not always mean quality.

 

International best practices ask that Annual Reports be well structured, thoroughly informative and professionally produced communicative tools that are appropriate for the intended users of the report. Reports that aspire to meet best practices will:

 

·         Skilfully accommodate the information needs of its various readers including government, industry and business groups, employees and the local community

 

·         Speak authoritatively to the results of the past period and give indications of what is expected in the future while identifying key constituents and addressing matters of governance, management accountability and corporate social responsibility;

 

·         Contain graphic illustrations, charts, tables, photographs and other visual or pictorial representations, as effective non-verbal means of highlighting trends, providing focus to a particular area and/or explaining a complex topic simply and concisely;

 

·         Be prepared in a timely and efficient manner, with a view to enhancing stakeholder knowledge and value.

 

This is the weightiest category, with almost half of the total points to be allocated. The Jamaica Stock Exchange requires management discussion and analysis to be an integral part of every public company’s annual and quarterly submissions. Key criteria for the award are as follows:

 

·         Vision and Philosophy – 5%: More is expected than simply stating the company’s value, vision and/or mission statements. Best practice requires a leadership level discussion of the rationale and/or inspiration behind the vision and the internal and external relevance of the company’s overarching philosophies. The review will look for supporting/collaborative evidence of each company’s efforts in pursuit of these stated values and take note of statements made throughout the report which appear to be inconsistent or in conflict with the company’s stated vision and philosophy.

 

·         Strategic Direction – 10%: A clear indication of the company’s strategic thrust, the rationale for same and an update of its efforts towards, and achievement of, strategic targets for the period under review. The review will look at any effort made to link these strategies back to the overarching vision and philosophy.

 

·         Corporate Governance – 10%: Any general recitation of the elements of corporate governance must be supported or replaced by details of the company’s own instituted CG measures, the number of times its relevant committees have met and their plans and milestones in improving CG practices. The Company should also indicate any relevant corporate governance challenges faced in the review period and actions taken. Information on directors’ compensation including methodology will be welcomed. The review will look for evidence of the existence of an acknowledged governance framework, and statements that a comprehensive CG charte, or at least some CG principles that meet the JSE’s minimum requirements, have been adopted and adhered to.

 

·         Corporate Social Responsibility – 5%: Accounts of the charitable works undertaken by a company or its related foundation are best supported by a rationale for such undertakings, as it is expected that the plans for such CSR efforts will be comprehensively thought out and planned. CSR rationale should speak to the issues faced by the company in its industry and as a member of its local, regional and global community. Bald statements of the resources (whether time or money or both) that have been allotted to various causes will not suffice; instead, judges will look to link such efforts back to stated value statements, philosophy and/or strategic indicators.

 

·         Risk Management Practices – 10%: Best practices require more than a recitation of the academic definitions and principles that may be guiding a company’ RM efforts. The Annual Report should detail the company’s RM framework, including committee(s) charged with responsibility for RM, their meeting record, challenges faced (internally and externally) during the review period, implemented measures, milestones and plans. Leadership discussions should place such RM plans within the context of defined strategic plans and environmental conditions, as appropriate. This information is required for both financial and non-financial companies.

 

·         Profile of Directors and Executives. Composition of Sub-Committees – 5%: Basic information such as names, qualifications, areas of expertise and experience should be complemented by photographs of the individuals and a list of the sub-committees on which they serve. Independent directors should be specifically identified and a definition of “independent director” supplied somewhere in the Annual Report.

 

·         Industry & Business Discussion Analysis 10%. Companies are required to discuss the local and international business environment, and those of any major subsidiaries, and the impact of the environment on the results for the review period. All current and expected regulatory changes should also be discussed, highlighting the potential business impact. Companies should also note the status of their fulfilment of regulatory requirements.

 

This section comprises 25% of the score to be allocated. Well laid-out audited financial statements should be complemented by effective and insightful analysis of the significant issues, trends and one-off events. Leadership discussion should aim for focus and clarity, without the excessive use of technical jargon or industry-specific terminology.

 

·         Analysis of Trends -10%: Charts, graphs, tables or any other useful diagrammatic or illustrative tool may be employed to give non-verbal information to users of the Annual Report. Key Performance Indices, as determined by company’s management, are to be highlighted and compared to best practice and/or industry standards to give Report users a better idea of the nature of daily business drivers. Year-on-year trends, for as long a period as thought relevant, are particularly useful.

 

·         Historical Data – 5%: A minimum of 5 years of historical accounting data should be included in each Annual Report to provide context for the current period being reviewed. Full marks may only be awarded to companies displaying 10 years of such accounting data, as appropriate for a company that has been in operations that long, and as accompanied by key ratios.

 

 

·         Disclosure of Earnings from On-Going vs. Discontinued Operations – 10%: Management discussions should highlight any material changes to the company’s business model from one period to the next. Such discussion to include any discontinued or recently started business line, any addition or disposal and any one-off or unusual events that significantly impacted the company’s results during the period under review. Judges may call upon their knowledge of events, internal and external to the company, in determining the adequacy of the management discussion.

 

Criteria in this category account for 10% of the total score available for allocation. Preparers should keep in mind the fact that Reports may also serve as marketing tools and will therefore be considered a showcase for the company’s other efforts and abilities.

 

·         Aesthetic Appeal – 5%: Annual Reports contain a lot of information and accordingly should be presented in such a way as to be pleasant and interesting to its prospective user. Reports should seek to appropriately utilise all elements of design and layout to present the information clearly and concisely. Judges will look for appropriate use of colour, photographs and other visuals.

 

·         Readability – 5%: Reports should be accessible to intended user both visually and intellectually. Font-size, type and spacing should lend itself to easy reading by persons of even slightly less-than-average eyesight. Data, text and graphics should be organised in a logically manner that allows for ready understanding of the information being communicated. Writing should be simple but not simplistic, while conforming to normative corporate standards of good taste and political correctness. Obscure references, technical terms and convoluted expressions are to be generally avoided. Judges will take note also of grammatical and other errors.

 

This criterion accounts for 10% of the total score available for allocation and is determined primarily by the date on which the JSE receives the Annual Report as relative to the company’s financial year end. Companies in breach of JSE Rule 409, which requires submission of Annual Reports within 120 days of their year-end, and those that have not made the Annual Report widely available to stakeholders will be penalised accordingly.

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