In this article, we are going to look the annual report issued by a company listed on either the main market or the ACE market of Bursa Malaysia. Listing on either board requires the company to comply with a list of rules and regulations compiled by Bursa Malaysia and other regulators, both in the period leading up to listing and post-listing.
One of these obligations is the obligation to issue an annual report once every financial year.
So, what exactly is this annual report all about, and what can we as investors learn from it?
The first thing to note about an annual report is that it is a public document. Meaning, a PDF copy of the annual report of every listed company is actually available for free download on Bursa Malaysia’s website. You just need to key in the name of the company to get to a page with links to all that particular company’s announcements. The annual report as well as the audited financial statements and other documents, can be downloaded from here.
So, why should we bother to read the annual report of a company? Actually, there’s a variety of compelling reasons why.
1. You as an investor, can find out a lot of valuable information about a company just by reading this document alone. Among other items, you can gauge the company’s profitability, growth prospects, fiscal stability, as well as ROI potential in the form of dividends or other potential upside.
So-called “reading between the lines” or rather, examining the deeper implications of the information presented, can also help the investor predict potential problems, risks or other factors that could impact your investment prospects.
Let’s now look at the index of a standard annual report to get an idea of the kind of information you’ll be able to access. Note that different companies arrange their annual reports differently, but the same information should be in each one – just perhaps on a different page.
The first few pages would usually comprise a historical financial summary as well as corporate information including a corporate directory, a chart showing the group structure, some information on the board of directors and the details as to which directors sit on the individual board committees.
This will already give you a quick snapshot of the company’s financial position, its shareholding relationship with other companies in the Group and the profile of its board comprising executive and non-executive directors. Key questions here would be – is the board balanced in terms of educational background, skillsets, corporate experience, gender and ethnic diversity? Are there family relationships between board members? What are the other relationships between the directors and related parties disclosed in this section, which might alter your perception of the board as a whole?
There will also be some content relating to the Company’s services in this section. This is a pretty important section as it will cover the scope and nature of the company’s business. This is the lifeblood of the company from an investment perspective. Questions to ask here would include what are the industry trends? Is this a sunset or a growth industry? Is there potential for this business to expand exponentially in years to come?
2. Look for the Letter to Shareholders/Chairman’s statement, and another section called the Management Discussion & Analysis statement. From here, you can get a snapshot of the company’s performance in the past financial year and gain some insights into the future plans and prospects of the company. The information contained here will (when compared to the previous year’s annual report) show you where and how the company achieved (or failed to achieve) its objections and key performance indicators.
You will also come across a rather large segment of the annual report entitled corporate governance. Truth be told, you could probably skip through these sections as for the most part, they contain standard disclosures. These reports include the Statement on Corporate Governance, the Statement on Internal Control, the Audit Committee Report and others. There are no figures in these sections.
Nearing the end of the annual report, you’ll reach the analysis of shareholdings. This shows you the lists of substantial shareholdings and directors’ interests, as well as a list of the top 30 largest shareholders at a given date. This provides an insight into who are the movers and shakers behind the company so that you can assess their individual value to the business, as well as an understanding of who really controls the company in terms of shareholders’ rights.
And then, the “main course” so to speak – the audited financial statements (“AFS”). Note, the AFS would have already been announced to Bursa no later than 4 months from the company’s financial year end.
So by the time it appears again in the annual report (which is usually only released later as there is a 6 month timeframe following the close of the financial year, for annual reports). So by the time you find it in the annual report, you may already be familiar with it if you have been monitoring the company’s announcements for some time. A review of the AFS will reveal the real numbers behind all the other information in the annual report.
You’ll be able to monitor how the company is doing in terms of expenses, sales revenue, profits, gearing and efficiency in relation to inventory. A number of key ratios can be derived from the figures in the AFS. Also, pay close attention to the audit opinion expressed by the external auditors and also the notes to the financial statements, as key assumptions can be ascertained from here which provide investors with a deeper insight into how the company is really doing.
There is a wealth of information online to guide you through the details in relation to annual reports. Hopefully, this overview will give you the general gist and assist you in your evaluation of prospective companies for investment purposes.
Happy Investing!
