How to write a good annual report for listed companies in Singapore

Yes, we confess. We are nerds who study annual reports, and what makes them good.

How it started

In 2016, as a 20-year-old, I studied annual reports to better understand the underlying fundamentals of the company I was investing in. The first ones I ever studied were SATS, the airline services company, and Raffles Medical, the private healthcare provider in Singapore.

I didn’t know it at that time, but these were examples of how to communicate better through the annual reports a company produced.

So it almost seemed like fate that 7 years later, in November 2023, we were asked to design an annual report for the MINDS school, which served those with special needs. Whilst this was quite different from a listed company, it served as a lesson in communicating the needs of different stakeholders.

But before piecing together what the various parties wanted to say, it was necessary to figure out why one was doing the annual report.

Yes, I know. You’re doing the annual report, because you need to.

The SGX, or the listing exchange you’re on, needs an annual report.

But there’s no need for you to beautify it in any way. In fact, Apple shows that you can be the world’s biggest company, and still not bother too much with your annual report.

Don’t get me wrong. I’m not saying that Apple’s example is a sign that you don’t have to design your annual report or write it well.

What it does reveal is that if you have a strong financial performance, you can write in plain, simple and accessible English, and still do very well.

That said, let’s look at the principles behind the best annual reports.

Share insights, not information

The best annual reports are constantly able to create more and more value because of how they talk about the underlying principles of their business.

When was the last time you read an annual report that made you go,

Wow. This is so insightful.

I’m going to pass it to the rest of my team.

The best-written annual reports are those that share insights, and not just information.

One example I constantly highlight to clients is that of The Hour Glass, which sells luxury watches. Their Chairman’s Statement has set a high bar for what annual reports look like.

When I was there at their 2024 Annual General Meeting in July, I recall many shareholders referencing the Statement as they expounded on their questions.

First share about the general business environment

If you look at The Hour Glass, they do the following.

They first start with sharing how the current business environment looks like. This often looks like a discussion around:

1. Politics
2. Economic environment such as the macro and micro-economic factors
3. Social issues

Then dive more deeply into your own industry and how business there has been like

They then follow it up with a more specific deep dive into their own watch industry.

Different industries have varying performances at different points of the market cycle. To garner investor interest, it’s sometimes vital to share where your industry is at in the market cycle, and why investing in your company, at this particular point in the market cycle, will do better than most others.

For example, in grocery retailer Sheng Siong’s Annual Report in 2024, they shared about how inflationary worries were pushing more consumers to tighten their belts around spending. This resulted in them being a better choice for investors, with the share of wallet spend going to consumer spending, rather than discretionary spending on things like luxury goods and holidays.

Pointing out where your company is now in the market cycle, and how it’s positioning for the future, will then follow with you reflecting on your business performance for the year.

Then review your business performance for the year

Then comes your performance for the year. Some questions to answer shareholders are:

1. What has the strategy been for the past few years?
2. Have you delivered according to that strategy, or has the performance been largely an anomaly?
3. If you’ve not done particularly well, why is that so?

For example, if we study OCBC Bank’s CEO’s Statement, she shares about why business has improved.

1. They prudently chose to grow their loans in specific industries.
2. They also better managed their liquidity sources by ensuring that the collaterals they held on hand were of better quality. For example, in 2023, there was a $839 million net fair value gain on Fair Value through Other Comprehensive Income financial assets, as compared to $2.42 billion of losses a year ago in 2022.

OCBC sets an example on how to show greater assurance through the annual statement.

It’s not just about putting fluff, but about genuinely communicating, like you would with your granny.

Communicate like you would with your granny

Imagine your grandma came to you today and asked,

Hey, how’s business been recently?

It’s fine if business is great. But what if it’s not? How then do you explain in a way that does not frighten investors?

You could lie your way through, but you don’t really want to.

Even though we are not a public company, reading annual reports has inspired me to communicate with greater accountability. It’s not just for our clients or customers, but for our own staff too.

This year, business hasn’t been great. That has taught us a lot about learning to communicate better. I remember one colleague once being extremely spooked by the fact that we were communicating quite negatively about our business. We were not doing well, and on the verge of closing our revenue stream from training students in mental wellness.

I told them that there was little way we could continue such a business, with few paying clients, and the fact that our competitors were funded by the government. These competitors could offer these lessons for free. How would we even compete with them?

Doing this will scare some investors, but it’s better to have investors who are there for the long haul rather than those who are there for a quick buck.

Just look at what trading company Avarga has done.

Be honest with where the economy is at

Avarga, once an investor darling with its high dividends and capital appreciation, has turned sour with investors since 2023. It opted to conserve cash, not pay out dividends, and this has resulted in it losing much popularity.

Just read the above for why it has done so.

It has continued to hold onto its beliefs, as it tries to turn around the business.

Avarga shows the pain of communicating clearly in how its share price has declined over the past few years. But it also reveals the value of doing so, as the investors who hold onto the stock are those who are there for its honest appraisal of its business.

Ironically, with it being more honest, it ensures that the share price is less subject to volatility, as investors learn to hold onto the longer term.

At the end of the day, writing a good annual report is not just about writing for investors.

Good annual report writing, is writing for your granny.

It’s not about adding a gleam to the business performance, and hoping the stock market rewards it.

But it’s about being honest, because the people who invest in your company are people who have saved for years, and are looking to your company for future security in terms of capital and dividend growth.

If the 2008 Global Financial Crisis showed anything, it was that communicating in arcane, technical language that polished up an investment’s merits, and hid its flaws, could help you to earn a lot of money.

But when the tide goes out, your company might be left holding a big wad of cash.

The investors are the ones who will be hurt.

You have a choice.

Communicate clearly, for it’s less about you, and more about the investors you are accountable to.