Financial reports add some flavor

New government rules are opening the door to more compelling financial reports.

New government rules are opening the door to more compelling financial reports.

Well before the Securities & Exchange Commission adopted the new "Internet Availability of Proxy Materials" ruling in January, publicly traded companies were injecting more promotional language into their annual reports.

The new rule allows for posting proxy statements/annual reports online, instead of mailing hard copies. It even encourages issuers to provide more interactivity, so financial communicators have more to work with.

According to a survey last year, well before the SEC rule passed, the National Investor Relations Institute reported some 77% of companies are providing "qualitative statements" about market conditions to assist analysts in arriving at estimates.

Third-party services are a good place to start, with vendors like Thomson Financial - provider of First Call analyst research - debuting new products prompted by the ruling. Its new offerings include an executive and director compensation highlights page, event charts (interactive stock charts for earnings and conference calls, calendar events, media mentions, etc.), and more.

"We've [already] seen a 30% increase in these products," says Kelly McPartland, director of Web posting services at Thomson. "By saving a lot on printing, companies can reinvent better online reports."

But even when the voluntary rule takes effect July 1, traditional printed reports, which continue to evolve, will still be popular.

"We live in a 24/7 news cycle, with a company's financials distributed and crunched well before the printed version is mailed, so annual reports are being re-envisioned as much stronger marketing [pieces]," says Brad Wilks, MD and CEO, Sard Verbinnen & Co., Chicago. "When you look at best-of-breed companies, in terms of disclosure, they focus more on things that may not directly correlate with financial performance."

For instance, Perdue Creative, an agency that develops annual reports, is in post-production for a report for GTx, a biopharmaceutical company.

"GTx will likely operate in the red until [it has] fully commercialized and marketed a variety of drugs under development," says Jay Perdue, partner/creative director.

Perdue's design includes a transparent film placed over the cover. "When the cover is closed, you read one message; when you pull back the purple transparent film, it's a broader message about the development of these types of drugs," he says. "This device makes the report more readable and lets us tell the bigger story the numbers don't."

Spartan Motors, an emergency-vehicle manufacturer, didn't need to tell a bigger story, but a better one. For Q4 earnings, released on February 15, Spartan included a new financial breakdown of revenue/backlog by operating and product groups.

"Management believed investors would better understand the story if they could see the breakdown into different segments," says Ryan McGrath, senior associate, Lambert, Edwards & Associates.

"[It] reviewed the press releases of its publicly traded competitors and discovered a competitor was using a similar strategy," he adds. "Be aware of the tactics your peer companies [use] to communicate to investors and analysts. Read their press releases, SEC filings, and conference-call transcripts."

McGrath also advises conducting perception studies on a regular basis with institutional shareholders and sell-side analysts to see how to better communicate to investors.

Mark Hynes, PR Newswire's MD of IR services, advises planning development for multiple online annual reports, one for each key audience - something that was cost-prohibitive with print versions.

Moreover, Hynes eyes the seismic shift away from short-term earnings guidance.

"A lot of companies see short-term guidance as too much of a rod for their own backs, while research is proving short-term guidance is bad for business," he says. "So they've stopped issuing short-term guidance, in favor of setting targets for the long-term picture, but not just financials. It's a range of business targets, like expansion into new markets, units of sales. It allows analysts to offer clients more of your information."

Technique tips


Plan now if you want to develop multiple online annual reports later

Canvas your vendors to find the services that are right for you

Survey institutional investors/analysts to locate areas to improve


Abandon the printed annual report entirely. Some audiences prefer this format

Operate in a vacuum. Monitor what your competitors are doing

Get cute. You're still bound by regulators

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