AR on AR 2022

AR on AR 2022 |  Summary  |  Ratings  |  Top picks  | Best practices 

Summary

This year's Annual Report on Annual Reports – AR on AR 2022 – is based on an evaluation of more than 500 annual reports in 20 criteria.  

The evaluation is based on well-balanced criteria that consider financial and operational analysis, strategy and operations, share and broader stakeholders’ issues, and information content and communication style (including visual and textual elements) – whether in print or online. It focuses both on the content of the reports and on how the information is presented.

Report assessment criteria take into consideration trends, challenges, investors, and other stakeholders’ expectations. Therefore, they have evolved throughout the years, and are updated regularly.

Like last year, we have asked what professional users of annual reports – analysts, investors, and business journalists – find important in annual reports as part of our 2022 Capital Market survey. Strategy, financial statements and the year in brief continue to be the top most important pieces of information. Sustainability reviews and data also continue to increase in importance every year.

The 20 criteria are split up into the following five sections:

• Introduction and Investors
• Strategy and Operations
• Environmental, Social and Governance (ESG)
• Financial
• Style 

Lower average score this year

The total average score this year was 59.7 out of 100, compared to 62.1 last year, and 65.3 the year before. The number of pages has increased from an average of 270 last year to 276.

The section that had the largest drop was "Strategy and Operations", which dropped from 65% to 59%. This is unfortunate as information about a company's strategy is the most important piece of information in an annual report according to our Capital Market survey earlier this year. The importance of information about operations has also increased according to the survey.

The lower score might for many companies be a consequence of the fact that there are only 20 criteria this year compared to 25 last year. This means that the evaluation focuses on the most important information and that some criteria might have been combined into one or that they have been removed from the process. 

The section with the highest average score was Environment, Social and Governance (ESG) , with an average of 65%, compared to 68% last year. Companies describe in particular their sustainability strategy well. 

Best-performing criteria 

The criteria that were given the highest average score in this year's review were:

• Risks and risk management
• Governance
• Sustainability strategy 
• Strategy and goals
• Financial review

This indicates that companies are keen to highlight their sustainability efforts and approaches beyond what's required. 

The criteria with the lowest average score

The criteria that would need more attention to improve were:

• Online version
• Share information and ownership
• User-friendliness/structure
• The year in brief
• Financial targets and achievements

Only three companies got a full score in the financial targets and achievements criterion, which also included a financial outlook. The low score for usability is somewhat surprising. Around 40% of the annual reports in PDF provided relevant bookmarks, and 25% presented navigation links to make it easier for readers to go between sections in the reports. This would give a better overview of the content of the report. With links within the report, duplicate or repeated content could be skipped, making it possible to slim down the reports. The average length of the annual reports this year – including sustainability reports and related documents – was 270 pages. The equivalent for the top 10 performers was 201 pages.

32% of the companies provided some kind of online report. Many of these offered online summaries, with links to the PDF. This is unfortunate as companies are missing out on reaching more readers in other target groups. See some examples of good online annual reports in the Best practices section. 

Average score per country

Australia was represented by five companies this year and got the highest average score when comparing countries, with an average of 67.9. Commonwealth Bank of Australia held the highest score of 74 points. The other companies were BHP, Westpac Banking, National Australia Bank and CSL.

Denmark, represented by 20 companies, follows in second place, with an average score of 64.4. The United Kingdom, represented by 99 companies, gained an average of 64.2, the same score as the Netherlands, which had fewer companies in the ranking. Sweden's 100 companies managed to get an average of 64.1.

This means that the annual reports of Swedish and British companies overall hold high standards. Both countries are strong in Environmental, Social and Governance (ESG). British companies have a high average in the strategy and operations section, whereas Swedish companies are generally good at introducing the company and providing information about their shareholders.

The Dutch companies score the highest in style - they're often well-designed and provide an online report.

* Max score = 100

Average score per sector

The Basic Resources sector, with top-performing companies like SSAB, SKF and UPM, got the highest average score of 72.9. These companies were particularly strong in ESG and Strategy and Operations. They also scored the highest in style.

There's a large gap of 7.8 points to the second-best performing sector, Construction and Material.

Industrial Goods and Services was the largest sector, with 78 companies and an average score of 57.7. The smallest sectors were Media, Retail, and Travel and Leisure, which were represented by 11 companies in total. They received 61.2, 55.8, and 54.7 points respectively.

* Max score = 100