Shareholder communications: No substantial swing towards electronic annual reporting until 2008 onwards

February 07

An investigation by CMM Group into the likely future for corporate financial reports, in terms of their publishing and distribution media, has found that no substantial swing towards delivering annual reports electronically is going to take place until the 2008 reporting season.  Even then, the proportion of printed to electronic reporting is expected to be 72% print compared to 28% electronic.

This research follows the Government’s announcement late last year that the new provisions in the Companies Bill on electronic shareholder communications would come into effect in January 2007.  These new provisions enable companies to use the internet and e-mail as the default option in communications with shareholders. Companies will only be obliged to send shareholders paper documents, such as annual reports and interim statements, when shareholders positively request a printed copy.

However, respondents indicated that little change from print & mail communication of annual reports was expected for companies with a Financial Year End up to April/May 2007. Overall, though, by the end of 2007 and into the 2008 reporting season, the ratio of electronic distribution of annual and interim reports was expected by the end buyers (IR professionals) to be 72% print and 28% electronic. Broadly it was felt by respondents that any appreciable swing towards electronic was only going to be felt from the 2008 reporting season onwards, with anecdotal evidence pointing towards many investment professionals and individual shareholders wanting both hard copy and electronic versions.

Respondents to the CMM survey noted a number of key obstacles that stood in the way of large scale electronic reporting.  First was the need to capture and maintain a database of shareholder emails addresses.  Second was the fact that only 57% of the population have a home internet connection, with possible implications about the email ‘reachability’ of retail investors.  Thirdly, was the dominant opinion amongst institutional investors that they required both printed and electronic versions of all key reports, implying that electronic reporting may grow substantially, but not necessarily replacing printed communications.

The provisions were previously scheduled to come into effect with the main parts of the Companies Bill towards the end of 2008.  However, as a concession to the unexpected requirement on companies to include information on their supply chain within their Business Reviews, the Government brought the ability to report electronically to shareholders forward to January 2007.

Yolanda Noble, Chief Executive, Corporate Mailing Matters, comments: “The majority sentiment regarding electronic financial reports distribution is that for the next one and a half/ two years (at least), things will change very little and electronic reports will be regarded as a complementary distribution medium. From 2008-2009 onwards, investor relations directors in particular suggest that this will change significantly, with electronic reporting representing over a quarter of all activity.  However, printed reports will remain in the majority for some time to come, especially as they become used more and more as key marketing documents. ”

Response also suggests some companies feel that interim reports will be delivered electronically sooner than full annual reports, which people still prefer in hard copy format. Nevertheless, it seems that corporations with a large retail shareholder base (i.e. private investors) will tend to prefer printed copies of annual and interim reports.