Annual Report Trends 2008

our 5th comprehensive survey of annual report trends, benchmarks and best practices

Sponsored by Strategy • Design Communications

Corporate websites have quickly become the investor’s primary source of information on public companies. Why? Because the internet cannot be rivalled when it comes to breadth or depth of information, or for the immediacy with which it’s presented. And yet, as this annual report survey confirms, most of the leading companies in North America and Europe continue to devote substantial time and resources to the printed annual report. They do so because only the printed report offers the control required – over structure, pacing and context – to ensure that the right story reaches the right audience, with impact.

02 Who did the research and how 03 Why the survey was done 04

section

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What we found

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Focus 08 C  overs: 10

Readers often judge a report by its cover  hemes: T A strong theme anchors and unifies the report

12 Investment argument: There’s not much point in a report without it

section

2

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C  redibility

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 orporate governance: C Current initiatives, not boilerplate descriptions are best

16 Message to shareholders: Investors want to know what the CEO really thinks

20 Sustainability: Investors feel good about responsible corporate behaviour

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S  torytelling

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 arket environment: M Explaining your place in the universe

24 At-a-glance: A snapshot of the scale and scope of your business

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Strategy at work:

It’s best to show them what you mean

32 Testimonials: Straight from the horse’s mouth 34 Visuals & design: A picture is worth more than a thousand words

section

4

36

P  erformance

40

 D&A: M Through the eyes of management

38

S  pecial report: IFRS... not just an accounting exercise

42 Measuring performance: Bringing your numbers to life

44 Risk management: Sharing your plans for the unexpected

our 2nd comprehensive survey of sustainability report trends, benchmarks and best practices

CSR TRENDS 2008 is Craib’s second annual review of benchmarks and best practices in sustainability/corporate social responsibility reporting, and serves as a complementary resource to AR TRENDS. For information on obtaining copies, visit www.craib.com or www.cbsr.ca.

section

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46

 bjectives & targets: O Helping your investors keep score

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A  ccessibility

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W  ho we surveyed Credits

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W  ebsites: Not just a web-based print library

The contents of this book are protected by copyright and may not be reproduced without permission. ©

Craib Design & Communications, 2008.

To download a PDF version of this book or to obtain printed copies, visit www.craib.com or www.blunnco.com.



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Making sense of it all We ordered 680 reports from the TSX/S&P Composite as well as S&P’s 500, Global 100, EURO 350, Africa, Australia, Middle East and Japan/ Korea indexes. We selected 130 Canadian and

75 U.S. reports to collect data on more than 100 items and characteristics that we believe define an annual report. Our goal is to explore how companies use traditional annual reports to inform and engage investors as effectively as possible. This is not a survey of financial disclosure, therefore we did not order or review any Form 10-Ks. All of the reports that flooded into our offices were used to collect examples of best practices.

who did the research and how Craib Design & Communications

Blunn & Company

Craib is a dynamic team of professional designers, strategists, researchers and writers with almost 30 years of communications experience. We have worked with a diverse range of organizations, from prominent TSX 300 companies to small, private firms. Clients entrust their communications needs to us year after year, and often our relationships with them extend well beyond the scope of our original assignment.

Blunn & Company is an investor relations consulting firm that specializes in determining, creating and delivering effective investor communications. We believe the best communication is a matter of good storytelling. Accordingly, our focus is much wider than writing a convincing argument; in fact we start from the premise that the intended audience will not bother to read much of our carefully crafted prose. From the outset, we think in terms of how the story will appear in the mind’s eye of the reader and strive to layer information in a way that delivers key messages with impact.

Our approach is based on listening to and understanding our clients’ key issues and communications objectives. We put effective, content-driven communication first. This year marks the fifth year of our AR TRENDS survey and the second edition of our CSR TRENDS survey. Our experience in compiling these reports, as well as our wealth of experience in tailoring communications material to our clients’ needs, leaves us in an exceptionally strong position to work with you to create an effective annual report.

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Understanding the needs and motivations of different investor audiences is an important part of that process. For more than 15 years, Blunn & Company has been helping clients improve the effectiveness of their communication efforts with complementary services such as our annual report, website and investor perceptions audits.

Why we do this survey Whether it’s writing or designing an annual report, nothing else provides the perspective of pouring over hundreds of the best reports in the world. Trouble is – who has the time? AR TRENDS solves that problem by imposing a systematic, disciplined process that ensures we keep abreast of benchmarks, best practices and great ideas from around the world every year. Better yet, each of us – from writers and editors to graphic designers and production staff – get in on the act. And that helps all of us see how content and design work together to deliver a story with impact.

why the survey was done Answering three fundamental questions The annual report continued to evolve during the past year in response to budgetary pressures, changing stakeholder needs and the ascendancy of the IR website. In times like these, most companies want to make sense of the trends and benchmark their own practices against what others are doing. This report is intended to help you do that by answering three fundamental questions. First, what are other companies doing? In the United States, most companies now issue only Form 10-Ks. In fact, in 2008 only 27% of U.S. companies published a traditional annual report. The rest issued a Form 10-K, a Form 10-K in a glossy wrap, or a summary annual report. In contrast, 83% of Canadian companies on the TSX/S&P published reports very similar in content and production quality to the reports they’ve been issuing since we began this survey.

Second, is the annual report worth the effort? We have to agree with the hundreds of Canadian, American and European companies that continue to spend significant time and resources to explain their performance and investment merit. Print remains the best way to place an important story before the eyes of your intended audience with impact. It’s easier to use, it invites leisurely reading and it doesn’t have to wait on a server until someone comes to find it. Third, how does my last report compare to other reports? In our review of the traditional annual reports we received, there is striking consistency in production quality, design elements, structure and thematic emphasis over the five years we’ve conducted this survey. Inside this book, you’ll find benchmarks, trends, best practices, tips and guidelines and plenty of examples and illustrations.



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Print is still important The internet has had a profound impact on the size and shape of the printed annual report, but as this year’s survey confirms, public companies are still devoting significant resources to its production. IR websites are great for storing reams of information or disseminating news in the blink of an eye, but most companies still rely on the traditional annual report to convincingly place their most important messages before the eyes of investors. Evidence of that commitment can be seen in the prevalence of reports with high production values. 90% of the reports in our survey were produced in four or more colours, 85% contained colour photography and 41% incorporated design extras such as gatefolds, tip-ins, die-cuts and spot glosses.

what we found

CDN

More than 50% of companies note the paper’s environmental quality

Performance reporting on CSR issues is becoming more quantified

Of the reports surveyed, 35% identified the percentage of post consumer waste in the paper while 45% used FSC-assured paper.

41% of all companies are providing performance indicators or statistics along with their discussion of CSR policies, philosophy and initiatives.

100%

100% 100

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80%

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60

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20

U.S. 0% 0

0% 07

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At the same time, having to spread the IR budget between on-line and print initiatives has caused companies to find new and creative ways to meet their communication objectives. This year’s survey revealed a resurgence in the number of reports in a tabloid format; the number of North American and European companies splitting the annual report into two volumes also continued to increase. This isn’t surprising given the fact that some European reports are now weighing in at 300 pages and contain much of the information found in Canadian management information circulars. But the two-report approach also had a liberating effect here at home by allowing companies to channel precious resources into the higher circulation, higher impact business review, while producing a comparatively plain vanilla financial report for the people who need it.

Canada and Europe versus the U.S. While many of the best U.S. companies mirror these trends, the majority seem less committed to the annual report. According to National Investor Relations Institute, nearly 60% of today’s U.S. reports are 10-K wraps. The reported reasons are cost savings and ease of production. But the 10-K is a regulatory document driven by SEC disclosure and we think companies going this route are paying a big price in terms of communication effectiveness.

Fewer HTML reports As for the internet, it’s undoubtedly the best place for the massive amounts of information companies have to present about their financial history, corporate governance, sustainability performance and many other subjects. That’s why the best printed annual reports – while often containing highlights of the company’s performance in these areas – include visible pointers to the IR website.

Whether it’s a separate annual review or the front end of a traditional report, today’s companies are also working harder to paint the big picture in a shorter, more focused document for time-pressed investors. Often, this includes prominent investment arguments and illustrated features of the company’s strategies at work. Such features are characterized by active headlines that draw conclusions, leaner copy that delivers bite-sized chunks of information and a heavier reliance on photography, graphs and other visual devices to present supporting evidence. At the same time, traditional elements that might interrupt the flow of key messages – such as tables of contents, profiles, or even highlights pages – have been eliminated, modified or moved to another section of the report.

One thing visitors will find on the web, of course, is the annual report itself. One unfortunate trend we’ve noticed is that more companies are simply posting a PDF of the print report on their websites. We think that’s a shame. As the best examples cited in this survey make clear, the inherent advantages of HTML – from Flash animation to embedded video to dynamic links – create a uniquely interactive and entertaining experience.

Reporting against objectives remains more common in Canada

44% of Canadian reports use special production techniques

Companies continue to use the front cover to establish a theme

The percentage of U.S. reports providing quantified objectives remains substantially below the percentage of Canadian companies willing to report against targets.

The use of special production techniques such as gatefolds, tip-ins, die-cuts and spot gloss continues to increase.

Almost 40% of the cover themes on 2007 reports were generic, 22% were related to the company’s strategic direction and 13% introduced the investment argument.

100%

100 100%

100 100%

80%

80%80

80%80

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60%60

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section  1:

the best reports focus on what matters most

Outstanding report : PotashCorp PotashCorp knows exactly what it wants investors to think and each element of the report is designed to reinforce the company’s story. At the heart of the annual review is a double-gatefold spread entitled “6 Keys to Understanding our Business”. Using an engaging mix of lean copy and compelling photography, charts and other visual devices, PotashCorp delivers a convincing, easily absorbed case for investment. Top marks for: Defining cover theme on inside front cover to create context; Effective use of white space makes information digestible and eases readers into the report; Liberal use of visual devices to layer information and engage readers; Prominent presentation of investment argument.

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OUTSTANDING OUTSTANDING

Cover

6 Keys to Understanding our Business

Operating highlights



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Section 1

While they aren’t sold in book stores, effective annual reports usually start with a cover that helps them stand out from the crowd. Covers are critical in capturing interest and distinguishing your company from its peers. The best ones also give the reader important context for experiencing the report through striking visuals, unique messages and original design.

covers:

readers often judge a report by its cover Best practices

DO use a theme or key message that is relevant and firmly supported by information inside the report. DON’T waste your reader’s time with platitudes. DON’T forget the back cover – it’s the second most visible space in an annual report.

What investors need… At the most fundamental level, readers need a good reason to delve inside your report. True, they asked to be on the mailing list and you spent a lot of money to honour that request. But when your report arrives with a pile of other annuals, it’s easy to get lost in the avalanche. That’s why the best covers promise investors what they inevitably want. And that’s a fresh perspective – one that reinforces the wisdom of their investment or distinguishes your company in the minds of prospective shareholders. They’ll have to go inside the report for the strategy, or market fundamentals, or other supporting evidence. If the cover encourages them to do that, it will have done its job.

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Benchmarks

83% 5% 32%

of annual report covers contain a theme or positioning statement. of annual report covers provide only the name of the company and year. of annual reports contain meaningful content on the back cover.

westjet Airlines Ltd. WestJet’s 2007 annual report takes full advantage of its large tabloid format to present what the company considers to be “Our Biggest Year Yet”. Employee ownership – a mainstay of the WestJet brand – is very much in evidence in the sea of enthusiastic employees, some of whom are literally carrying the report’s theme.

• Large tabloid format heightens visual impact of the report.

• Unusual birds-eye view of the airliner

cleverly integrates front and back cover.

• The company’s familiar branding is creatively reflected by placard-carrying “owners”.

Back cover

Front cover

domtar Corporation Domtar’s magazine-style cover creatively mixes visual elements to engage the reader while heralding the company’s new status as North America’s leading fine paper manufacturer. The intriguing photograph of CEO Raymond Royer with a very large cat is explained immediately inside the report by an ad for the company’s Cougar® brand paper.

• Magazine-style cover engages readers with

prominent photography and teaser copy for various features. • Juxtaposition of wild animal and calmly seated executive creates immediate interest.

research in motion limited Canada’s biggest technology company makes clever use of one of its elegant smart phones to provide a visual anchor for the annual report. The cover quickly commands readers’ attention with an intriguing text message and sets the stage for a powerful presentation of product capabilities in the first few pages.

• The promise of an answered question

effectively draws the reader into the report.

• Simple, elegant product photography

creates interest and provides a powerful visual link to inside spreads. • Creative rear view of smart phone makes clever use of back cover.

Front cover

More best practices

Back cover

Barrick Gold Corporation / Canadian Tire Corporation, Limited / Cineplex Galaxy Income Fund / Duke Energy Corporation / The Western Union Company / Westpac Banking Corporation

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Section 1

In a world of information overload, a strong theme serves as the vital anchor with which your report’s key messages are delivered with impact. The best thematic approaches start right on the front cover with powerful statements and/or visual elements that arrest the reader’s attention and promise a unique context for experiencing the report.

themes:

a strong theme anchors and unifies the report Best practices

DO make a point of explaining the significance of the theme on the inside front cover/page one or in the introduction to the feature section. DO remember to reinforce the theme wherever possible throughout the front section of the report.

What investors need… It’s equally important to elaborate upon the theme immediately inside the report by explaining the significance of cover information or modifying the corporate profile. By the same token, every other element of the front section – from the highlights to the at-a-glance to the shareholders letter to the feature pages – should be designed and written to reinforce the theme. If your aim is to capture the reader’s imagination, stay far away from worn-out messages such as “creating shareholder value” or “building on our strengths”. Such expressions may legitimately describe the company’s strategies or prospects but readers will tune out such a generic approach.

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DON’T expect to capture the reader’s attention with generic theme statements such as “building shareholder value”.

Benchmarks

87% 77% 45%

of annual reports have a graphic on the cover. of annual reports elaborate on the themes on the IFC and/or page one. of annual reports focus on the company’s strategy or investment argument.

wells fargo & company The theme of the Wells Fargo annual report – “Working Together” – is established immediately with an authentically friendly employee/customer shot on the front cover. Case studies throughout the report support the theme by exploring how the company uncovers emerging customer needs and creates new financial products and services to meet them.

southern company “Facing Realities”, the theme of Southern Company’s 2007 annual report, conveys a message remarkably similar to TransAlta’s by asking: How will we meet the world’s growing energy needs while minimizing man’s impact on the environment? Each section of the report is designed to answer that question with illustrated examples of the company’s key strategies.

transalta Corporation TransAlta’s report makes good use of the theme – “We’re Ready for a Changing World” – to showcase the diversity and sustainability of the company’s energy assets. Every element of the annual report – from key strategies to market fundamentals to financial strength – is designed and written to reinforce and elaborate upon the theme.

More best practices Canadian Tire Corporation, Limited / Goldman Sachs Group



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Section 1

While most annual reports are also directed at employees, customers and other interested stakeholders, there’s no doubt that investors are the reports’ primary audience. No matter how you choose to present it, successful communication of the investment argument should be the “bottom line” objective by which any annual report is measured.

investment argument:

there’s not much point in a report without it Best practices

DO state your case clearly and succinctly and ask yourself: “Could an investor spend five minutes with this report and explain to someone else what makes us a good investment?” DO support your argument with tangible evidence of competitive strengths, positive market fundamentals and progress against objectives. DO consider summarizing the investment argument on a visible surface such as the back cover of the report.

What investors need... Current shareholders are looking for confirmation that their investment continues to make sense. Prospective shareholders are looking for reasons they might invest. In either case, you need to demonstrate that your company has a strategy for profitable growth and the financial, human and other resources needed to carry it out. Most reports contain some elements of an investor proposition in the form of performance highlights, elements of the strategic plan or an analysis of growth opportunities. However, it’s too much to expect readers to connect all the dots and draw the right conclusions. The best reports spell out their investment merits and organize the evidence required to support those conclusions.

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Benchmarks

11% 6% 9%

of annual reports contain themes that describe the investment argument. of Canadian annual reports contain an investment argument that is unique to the company. of U.S. annual reports contain an investment argument that is specific to the company.

enbridge inc. Enbridge’s investment argument leads from the cover which literally promises to deliver “3 Solid Investment Propositions”. The first seven pages of the report are devoted to a sparsely worded, powerfully illustrated presentation of the company’s attractive investment characteristics. Each section is supported by relevant metrics to help make the case.

• Investment argument strategically placed at the front of the report.

• C leverly stylized illustrations of pipe •

are used to metaphorically support investment points. C  omprehension is enhanced through succinct, direct copy.

agnico-eagle Mines LIMITED Agnico-Eagle takes an unusual but effective approach by summarizing its investment argument on the back cover of the annual report. By posing the simple question “Why Invest?”, the company takes the opportunity to communicate seven distinct reasons why Agnico-Eagle will continue to generate solid returns throughout the gold cycle.

• Makes efficient use of the second most

visible surface on the annual report – the back cover. • Unusual photograph of core samples creates visual interest. • Investment merits efficiently distilled into seven reasons for continued success.

barrick gold corporation Barrick makes a powerful case right up front with a double gatefold that explains the company’s investment merits from gold industry fundamentals to a growing project pipeline to operating strengths to financial results. The entire investment case is neatly summarized in a single frame of reference.

• Four-panel gatefold at the front of the report commands attention.

• Beautiful photography creates visual interest.

• Key metrics are included in support of each argument.

More best practices Abertis Infraestructuras S.A. / AltaGas Income Trust / Penn West Energy Trust / PotashCorp / Viterra Inc.

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section  2:

achieving credibility doesn’t happen by accident

Outstanding report : Telus corporation TELUS takes its responsibilities to stakeholders seriously as evidenced by numerous elements in the report including: a candid and balanced letter to shareholders, a detailed assessment of performance against annual objectives, a presentation of the company’s share price performance versus North American peers and dedicated corporate governance and sustainability sections with prominent pointers to the IR website. Top marks for: Clear and comprehensive presentation of performance against objectives; Captioned five-year performance graphs communicate important trends and accomplishments; Plain language writing style enhances comprehension and credibility.

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OUTSTANDING OUTSTANDING

Cover

Corporate social responsibility



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Section 2

A good letter from the CEO should explain all the major events of the past year and help put them into perspective, but the bulk of the letter should look ahead. The CEO must explain where the company is going and why its strategy makes sense in the context of company strengths and industry trends and developments. Above all, an effective letter must be credible.

message to shareholders:

investors want to know what the CEO really thinks Best practices

DO provide insight into what shareholders might expect in the coming year. This is not a forecast, but a reasonable explanation of what management sees ahead. DO deal with bad news openly. Investors would rather get all the bad news at once and be assured by an executive who appears to be fully aware of the company’s problems.

What investors need... Today’s investors can tell in an instant when the CEO’s rosy perspective doesn’t square with reality. Neither of the two possibilities – an executive unaware of the facts or one who has chosen to ignore them – is reassuring. More often than not, however, it’s the unintended consequences of platitudes, jargon and convoluted language that cause readers to tune out. Investors want to believe that they’re being treated to a candid, balanced assessment of the company’s performance and prospects. Creating that impression requires plain, straightforward language and a fulsome discussion of both successes and failures in the context of the company’s strategies and relevant performance metrics.

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DON’T be afraid to draw conclusions for the reader. Investors prefer management that isn’t afraid to make a stand.

Benchmarks

95% 5% 46%

of reports contain a conventional letter to shareholders. of reports contain an illustrated letter to shareholders in lieu of a conventional feature section. of shareholder letters begin on page one or page two.

high liner Foods Incorporated High Liner’s well-written letter to shareholders is brief but covers all the bases including an important 2007 acquisition. The tone is candid with open acknowledgement of goals not met as well as those reached. Visual interest is enhanced through the use of pullquotes and captioned product photography.

• Candid tone addresses performance against objectives.

• V isual interest is maintained through •

the use of pull-quotes and captioned product photography. S  idebar within the letter gives extra attention to strategic priorities.

limited brands, inc. The feature section of this 10-K-wrap is comprised solely of a lavishly produced letter to shareholders. It’s unusually candid, striking a credible balance between 2007’s successes and failures. Visual interest is maintained through an engaging mix of type and colour, not to mention the full-page photographs of beautiful models clad in the company’s undergarments.

• Entire feature section comprised of 15-page letter from the CEO.

• Lavish photography illustrates the

company’s aim to make customers feel “sophisticated, forever young and sexy”. • Unusual approach couples the look and feel of a glamour magazine with a plain vanilla 10-K.

volkswagen aG This German company’s 300-page annual report is anchored by a polished and confident letter to shareholders that outlines Volkswagen’s ambitious plans to become the world’s best and largest automobile company. The letter includes a hard-hitting Q&A with an unusual twist; the interviewer is Dirk Maxeiner, a freelance publisher and columnist with the Die Welt newspaper.

• Unashamedly boastful call-outs invite further investigation.

• Interview-style photography creates visual interest.

• Unusual format includes interview

conducted by independent journalist. More best practices Agrium Inc. / Cameco Corporation / Domtar Corporation / InnVest REIT / TELUS Corporation / Wells Fargo & Company

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Section 2

Directors are the stewards of shareholder interests and the annual report should demonstrate their quality and depth of expertise. The best governance sections focus on the past year’s activities rather than boilerplate committee descriptions and point the reader to the corporate website and other sources for more detailed information.

corporate governance:

current initiatives, not boilerplate descriptions are best Best practices

DO provide a summary of governance initiatives undertaken in the previous year as well as those planned for the coming year. DO consider a letter from the chair to discuss board practices, policies and initiatives.

What investors need... Total shareholder return is the ultimate measure of value for an investment but annual report readers also want to see evidence that their money is in good hands. Unfortunately, while the amount of space devoted to corporate governance mushroomed in the wake of widespread corporate malfeasance a few years back, the subject is receiving comparatively scant attention in today’s reports, especially in the United States. Some companies continue to see their commitment to governance as a strategic advantage, however, and use the report to highlight best practices and ongoing initiatives with a prominent pointer to the IR website for additional information. It’s also an ideal place to convey the qualifications and experience of the company’s directors.

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DON’T sacrifice biographies for photography. Having both is ideal but biographies are more important.

Benchmarks

25% 35% 7%

of reports explain governance policies and procedures. of Canadian reports include a letter from the chair; only 8% of U.S. reports contain one. of annual reports contain highlights on current governance initiatives.

bmo Financial Group While most company reports dutifully contain boilerplate descriptions of governance practices, BMO’s report is full of best practices including a detailed description of 2007 governance initiatives, a list of various governance awards, conveniently located board of directors information and prominent pointers to relevant sources for more information.

• 2007 initiatives fully explained. • Governance chart illustrates reporting structure.

• Includes pointers to additional information.

telus Corporation Similar to other leading reports, this one goes beyond the norm with detailed information on recent governance initiatives including SOX compliance, risk assessment and investor communication activities. The governance section is also designed to make the company’s commitment to governance visible with a prominent summary of “long-standing best practices”.

• Offers handy summary of governance best practices.

• Prominent pointer to related information on-line.

• Explanation of recent initiatives shows commitment to good governance in action.

tullow oil European reports continue to raise the bar for corporate governance reporting and Tullow Oil is one of the best. The 22-page governance section includes comprehensive director biographies and a letter from the chair highlighting 2007 activities. It also includes much of the information found in Canadian information circulars such as director remuneration.

• European report with leading-edge governance communication.

• Includes detailed director remuneration and other information that is buried in the information circulars of North American companies.

More best practices Kinross Gold Corporation / Royal Bank of Canada / Scotiabank / TD Bank Financial Group

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Section 2

More companies are voluntarily focusing on broader corporate sustainability and responsibility issues than ever before. Even if you produce a separate, full-blown sustainability report, best practice is to include an outline of corporate goals, practices and beliefs in the annual report along with performance highlights in key areas of responsibility.

sustainability:

investors feel good about responsible corporate behaviour Best practices

DO consider including a summary of sustainability performance highlights along with financial and operating highlights at the front of the report.

What investors need... The practice of corporate sustainability reporting continues to grow in Canada and throughout the world in terms of both the number and quality of reports. More and more companies seem to recognize the growing importance of sustainable business practices to their investors, as reflected in rising shareholder activism and the growing use of ethical investment performance criteria. Today, more than 52% of the companies in our survey included a dedicated CSR section in the annual report compared to just 35% a few years ago. The best ones offer evidence of the company’s commitment to sustainability with a high level description of core values and operating principles, a description of continuous improvement practices and highlights of quantifiable performance measures.

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DO provide industry-specific sustainability metrics and detail your performance against them. DON’T forget to mention your sustainability/CSR report if you publish one.

Benchmarks

52% 49% 14 %

of reports include a dedicated sustainability section. of these are located in the middle of the report, usually at the end of the feature section. of companies also produce a separate sustainability report.

royal bank of canada The Canadian banks have a tradition of extensive CSR reporting through their public accountability reports. Even though much of this information is available elsewhere, RBC makes convenient access the priority with a nine-page summary of highlights of its commitment and performance. Captioned photography and relevant performance metrics heighten visual interest throughout.

• Dedicated nine-page section

showcases CSR initiatives and points to complementary documents. • Effective layered information approach with captioned photography and performance measurement charts. • 2007 highlights tables summarize recent progress in each area of involvement.

aviva PLC A 10-page section entitled “Employees and responsibility” provides a comprehensive summary of Aviva’s CSR initiatives in the 2007 annual report. Sidebars are used throughout to showcase corporate achievements. Environmental performance is particularly impressive with six-year charts tracking direct and indirect emissions, paper and water consumption and waste production.

• Section anchored by letter from HR

director with prominent pointer to full CSR report on company’s website. • Six-year charts of key indicators illustrate company’s direct and indirect impact on the environment in a glance.

sasol Limited Group Sasol’s commitment to CSR is evident from the highlights section in the front of the report which gives equal billing to financial, operating and sustainability performance. The balanced 12-page sustainability review highlights accomplishments as well as disappointments and includes quantitative long-term goals for health, safety and environmental performance.

• Material health, safety and environmental risks neatly organized in a single table.

• Liberal use of captioned photography and

multi-year graphs to showcase important corporate initiatives and track performance.

More best practices Canadian Imperial Bank of Commerce / EnCana Corporation / Logica / TransAlta Corporation / UBS AG

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section  3:

the ancient art of storytelling is the heart of a good report

Outstanding report : General electric company The central story of the GE report revolves around six essential themes that are changing the world and the reasons GE is poised to win the race to tomorrow. The story is told with compelling writing and imaginatively supported by a magazine-style mix of gorgeous captioned photography and a variety of eyecatching charts, maps and illustrations. Top marks for: Exceptionally well-written letter is candid, balanced and convincing; Eye-catching feature spreads provide compelling support for the theme; Engaging magazine-style layout offers interest and variety to the reader; Excellent leadership section details executive development and compensation policies including quantitative strategic and operational goals for CEO.

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OUTSTANDING OUTSTANDING

Cover

Essential themes: digital connections & origination

Business portfolio at-a-glance



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Section 3

You should never overestimate the reader’s knowledge of your company. Even with well-known companies, there can be misunderstandings about the scope or thrust of the business. A well-designed at-a-glance is a powerful tool for distilling a wealth of information on your business in an organized, highly visual manner.

at-a-glance:

a snapshot of the scale and scope of your business Best practices

DO use a multi-faceted approach that includes diverse elements such as charts, photos, lists, text, maps and illustrations.

What investors need... Understanding the nature of a diversified company’s operations can be daunting for investors, let alone figuring out how all the parts of the puzzle fit together in support of corporate strategy and financial goals. The at-a-glance gives you a chance to satisfy those information needs while providing vital context for experiencing the balance of the report. The most effective at-a-glances take their jobs a step further in support of the annual report’s overall objectives. Rather than providing an isolated synopsis of the company’s operations, they incorporate photography, illustrations and other visual devices to link with different segments of the report. They are also anchored by strong headlines that help present operations in a way that supports the report’s central theme.

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DO consider a grid to organize information by business unit or category – such as operations, performance, strategy and outlook – in a way that will allow the reader to understand the nature of each business segment and the drivers of future performance. DON’T hide the at-a-glance. Place it at the front to provide context for the balance of the report.

Benchmarks

31% 75% 4%

of annual reports contain an at-a-glance. of at-a-glances are two or more pages. of at-a-glances contain one or more columns devoted to objectives.

macquarie power & Infrastructure Income Fund This detailed, yet easy-to-read spread uses captioned charts and bullet-point copy to effectively communicate financial highlights and key performance drivers in the company’s six operating segments. The section is anchored by an introductory paragraph that establishes an important connection between the company’s investment proposition and its assets.

monsanto Company Monsanto’s at-a-glance meets the challenge of distilling the company’s complex agricultural technologies into two, easy to understand businesses. It also effectively communicates the practical connections between growing worldwide demand for food and the innovative agricultural technologies the company is developing to meet that challenge.

the coca-cola company This highly visual, four-page at-a-glance mixes sparse copy, illustrated vignettes, ample product photography and colourful maps and charts to create a compelling, easy-to-read presentation. The section reflects a strong commitment to CSR with prominent reference to Coca-Cola’s “Manifesto for Growth” – the company’s holistic vision for the sustainability of its business and communities.

More best practices Mondi Group / TELUS Corporation / Viterra Inc. / Agnico-Eagle Mines Limited

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Section 3

During the past few years, the Toronto Stock Exchange has significantly outperformed its counterparts south of the border. The reason is a heavier concentration of companies in the until-recently red-hot resource sectors. Market fundamentals are always an important part of the story and the best reports make a point of explaining them.

market environment:

explaining your place in the universe Best practices

DO make your analysis of the market fundamentals the starting point for the investor proposition. A rising tide raises all boats. DO use a multi-faceted approach that presents supporting evidence in the form of charts, photos, lists, text, maps and illustrations.

What investors need... Your company may be better managed than any of its competitors in the sector but if you aren’t explaining your position in the context of the market environment in which you operate, your investors are only getting part of the story. Imagine a retailer that ignores consumer spending projections or a telecommunications company which fails to address the potential impact of rival technology platforms. To varying degrees, most annual reports give coverage to trends in the market environment in which they operate. All too often, however, this important information is buried in the low-impact MD&A. If the competitive landscape is shifting in ways that have a major impact on your investment proposition, you need to bring them to light as a high profile feature in the report with all the requisite visual support.

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DON’T confine your analysis solely to the MD&A. Increasingly, companies are describing how trends in their market tie into corporate strategy in the front of the annual report.

Benchmarks

40%

of annual reports provide a discussion of the company’s market environment within the MD&A. Emerging best practice, however, is a more visible presentation in the feature section of the report, often supported by captioned photography and graphs to illustrate key trends. Often, the discussion is part of a wider investment argument.

viterra inc. Viterra’s 2007 report featured a six-page essay on the reasons Canadian agriculture has a bright future. Why? Global population growth, higher protein consumption and diversion of acreage to ethanol are driving the cost of all agricultural commodities higher. And as the country’s largest grain handler and agricultural retailer, Viterra is positioned to benefit.

• Effective layered design includes

numerous captioned charts to draw the reader into the essay. • Extensive use of independent statistics to support conclusions about key trends and challenges.

potashCORP Like Viterra, PotashCorp is focused on agricultural fundamentals and its annual analysis of factors affecting its business is one of the best. The report helpfully summarizes 13 economic, agricultural and other trends that describe the company’s market environment and ably supports the discussion with relevant charts and graphs.

• Comprehensive discussion of factors

affecting supply and demand in all of the company’s key markets. • Series of eight long-term charts quickly conveys supporting industry information.

l’orÉal S.A. The L’Oréal report relies on an engaging mix of beautiful faces, charts and graphs to readily convey information and create visual interest. This spread is designed for scanners with a compelling variety of information bites on the global cosmetic market trends that underpin the company’s abundant opportunities for growth.

• Matrix page layout offers an engaging amount of variety.

• Obscure but compelling statistics make a convincing case for the company’s growth prospects.

More best practices Alcoa Inc. / British Petrolium plc / Security Capital Assurance Ltd. / Silver Standard Resources Inc.

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Section 3

At the heart of any annual report are the strategies for improving performance and building shareholder value. The best presentations are highly visual with a variety of illustrated vignettes to create interest and showcase the various initiatives that are enabling the company to realize its growth strategies.

strategy at work:

it’s best to show them what you mean Best practices

DO remember to draw conclusions for readers with strong headlines and back them up with the required evidence. DO use a variety of visual devices such as captioned photos or illustrations to show how your strategies are being carried out at the operational level.

What investors need... Most investors will not take the time to read an essay on the company’s strategic approach from beginning to end no matter how skilled the writing or compelling the argument. What they need is a high level view of the important elements of your strategy and a highly-visual presentation of the initiatives that show the strategy in action. The best presentations use bold headlines to actively draw conclusions for readers but are equally careful to furnish the evidence that supports their claims. Each of the examples in this section of our report illustrates the successful execution of this approach. They employ a variety of elements – from intriguing copy to customer testimonials to prominent performance measurement charts – to show their strategies successfully at work.

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DO remember to provide evidence that the strategy is working in the form of captioned graphs or other performance metrics.

Benchmarks

42% 85% 22

of reports discuss strategy in the MD&A. of reports use colour photography (usually captioned) to showcase their strategies in action. pages is the average length of the front section (preceding financials) in Canadian and U.S. annual reports.

chevron Corporation Chevron successfully conveys its core strategies through a series of intriguing questions about the challenges facing the company. Beautifully supported by expansive colour photography, impressive statistics and clean, succinct copy, it’s hard not to be curious about the answers to these questions.

• Question and answer format

successfully piques curiosity about the company’s strategies. • Beautiful colour photography exemplifies strategy in action. • Liberal use of facts and figures provides evidence of impressive achievements in response to enormous technical challenges.

bae systems plc The approach taken in BAE’s 2007 report is a decidedly denser read but a rewarding one for those willing to make the effort. BAE offers a comprehensive explanation of core strategies including the resources, key performance indicators and risks for each. The subsequent series of illustrated case studies shows the strategy in action.

• Section anchored by thorough explanation of growth strategies.

• Creative mix of captioned photography,

illustrations and charts employed in case studies to support arguments. • Prominent pointer to key performance measures offers proof that the strategy is working.

campbell soup company Campbell boldly summarizes the five core strategies by which it is winning in the marketplace and workplace and then illustrates each in a lively and engaging series of spreads. A mix of the company’s traditional and new products features prominently in these spreads to capture the attention of readers.

• Each element of the five-part strategy clearly defined in bold type.

• Each spread features captioned

photography of well-known products to command attention and show strategy at work.



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Section 3

strategy at work: (Cont’d)

edf Group The heart of EDF’s annual report is its 17-page “A Strategy of Investment” which summarizes the un-sustainability of current energy policies. The five strategies that follow offer proof of the company’s progress on all fronts. The text is relatively dense but the design incorporates a variety of captioned photography, maps and other visual devices to create interest.

• Alarming quote from EDF’s chairman successfully commands attention.

• Assessment of current energy challenges is authoritative and credible.

• Each element of the strategy is clearly set out to show the merits of the company’s positioning.

bank of america corporation The best reports do more than state the company’s strategy; they show it in action with words and visuals. The theme of Bank of America’s annual report – “Insight + Innovation = Opportunity” – is well supported by feature spreads which illustrate the key innovations that are advancing the company’s strategy for growth.

• Interesting customer profiles used to

demonstrate the value of new services.

• Layered design approach invites readership. • Claims are well supported by testimonials and relevant metrics.

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general electric company GE’s excellent annual report is anchored by an exploration of “six essential themes” that are driving the transformation of the world economy. Each is convincingly argued and the report is equally adept in showing how GE is ideally positioned – in terms of scale, breadth and depth – to take advantage of extraordinary opportunities in the years ahead.

• Introductory page sets out compelling vision of the future.

• Exploration of broad global themes

suggests fundamental demand and opportunity for GE’s businesses. • Magazine-style design employs a variety of visual devices and layouts to reward the reader.

vodafone group plc Rather than present a series of feature spreads to show the company’s strategy in action, the Vodafone annual report uses a two-page at-a-glance to show how it is meeting its objectives. Each of the strategic plan elements elaborates upon comments in the CEO letter, with details on relevant company initiatives and statistical evidence of progress.

• Unique single-spread summary of key

strategic initiatives with strong links to commentary in the CEO letter. • Lots of information in a small space but visual interest is enhanced though the presence of graphs, tables and familiar logos.

Benchmarks

% of reports that emphasize the company’s strategy or investment argument 100%

100

80%

80

60%

60

40%

CDN

20%

U.S.

0%

40 20 0

04

05

06

07

08

More Canadian and U.S. reports are emphasizing strategy and/or investment merit.

More best practices Duke Energy Corporation / The Coca-Cola Company / Newell Rubbermaid Inc. / SABMiller plc / Volvo AB

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7

Section 3

The best evidence that your business model is working often comes in the person of a satisfied customer, operating employee, or both. Readers of annual reports are attracted by photographs of people and, as long as the scenarios that you choose to present do not appear too contrived, testimonials can lend a sense of authenticity to your story.

testimonials:

straight from the horse’s mouth Best practices

DO ensure the choice of speakers is consistent with the theme and tone of the report. DO include case studies to illustrate the strength of your relationship with customers, suppliers, employees and communities.

What investors need... Photographs of people are one of the most surefire ways of getting readers to plunge into any publication. They inevitably pique our human curiosity. That’s why some of the most effective annual reports feature their customers, suppliers or own employees to give voice to the company’s strategy, strengths or competitive advantages. Some of the most effective presentations combine the perspectives of people inside and outside the organization to illustrate an understanding of the customer’s point of view or demonstrate the strength of important relationships. While readers recognize that any presentation of this type is inevitably “staged” to show the company’s initiatives in a favourable light, investors can be won over with authentic testimonials that convey the independence or expertise of the speaker.

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DON’T put words in the speaker’s mouth. A testimonial that sounds contrived or inauthentic can do more harm than good.

Benchmarks

33% 11 % 7%

of U.S. and 12% of Canadian reports use testimonials to reinforce key messages. of testimonials feature employees, 11% feature customers. of testimonials feature other stakeholder groups such as members of the community.

stryker Corporation Stryker is a company that knows its success depends on “fostering ongoing collaboration with thought leaders in the medical technology industry”. The annual report pays tribute to such relationships with dual testimonials that allow prominent physicians and scientists, as well as Stryker executives, to comment on the importance of critical initiatives.

• Well-written message from the chairman establishes importance of relationships and sets context for testimonials. • Variety of layouts includes expansive portraits and spare copy. • Captioned product photography used effectively to show the fruits of collaboration.

american express Company By giving voice to the opinions of its own customers, American Express has successfully conveyed the enduring value of the relationships upon which its business depends. The design is sophisticated, elegant and minimalistic with polished writing, a brevity of text and beautiful black and white photography.

• Each of the five beautifully designed

spreads cleverly supports a different facet of the report’s theme – “Uncommon Service”. • Spare copy and minimalistic design approach confer a sense of causal sophistication. • Skilled writing lends a sense of authenticity to the testimonials.

TelefonaktieBolaget LM ericsson The Ericsson report does a great job of showing how its products are increasingly vital in the lives of everyday customers. This section tells a convincing story, using customers’ own enthusiasm, expansive photography and a sophisticated design to quickly convey benefits. Each testimonial is twinned with a more detailed spread on related strategy and operations.

• Short, prominent quotes anchor each section. • Compelling customer photography is expansive and engaging.

• Complementary fact box provides

a synopsis of the scale and benefits of each product and service. More best practices Baxter International Inc. / Merrill Lynch & Co., Inc. / Pfizer, Inc. / Yum! Brands, Inc.

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Section 3

Photographs, illustrations, maps and graphs can effectively deliver facts and messages that the reader might otherwise miss if all of your information is buried in text. They can catch the eye of the reader who’s inclined to scan through annual reports or supplement your investment argument with credible evidence.

visuals & design:

a picture is worth more than a thousand words Best practices

DO be sure to provide captions for photographs, illustrations and graphs. The captions should explain the significance of your images, not just describe them. DON’T use images as wallpaper. Every image should support the reader’s understanding of key messages.

What investors need... Almost every annual report designer has had to defend his or her work against those who regard white space as a waste of costly real estate. But as this year’s survey of annual reports reveals, sometimes less is more – a lot more. Much of the annual report is a regulatory document and it’s important to give investors the level of detail they need to assess the company’s performance, progress and prospects. But the most effective annual reports are designed to pace the reader’s experience and provide valuable context at the front end. They accomplish this not by hitting readers with a wall of text but by delicately painting “the big picture” with expansive photography/illustration and lively copy.

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DON’T use too many images. A judicious number of remarkable images will have more impact than a cavalcade of mediocre ones.

Benchmarks

90% 41% 80%

of annual reports use a layered information approach to create visual interest. of annual reports incorporate design extras such as gatefolds, tip-ins, die-cuts and spot glosses. of MD&As are produced in one or two colours.

westjet Airlines Ltd. WestJet takes advantage of its oversized tabloid format to bring new life to the MD&A. Ownership through profit sharing is an important element of the company’s brand and here, employees get in on the act to proudly demonstrate their commitment. Similar two-page photographs appear throughout the MD&A to create interest and communicate company values and achievements.

cml healthcare Income Fund CML is a growing laboratory services company whose prospects are buoyed by fundamental demographic trends. The company’s 2007 annual report anchors its investment case with a series of illustrated charts that quickly and convincingly communicate the reasons for growing demand and rising spending in the health care segment.

british sky broadcasting Group plc Eye-popping visuals such as this HD television image instantly command attention and help draw readers into British Sky’s 2007 annual report. The feature section consists of six similarly exciting spreads, each of which employs bold numbers and cleverly layered sidebars to create interest and communicate the scope and nature of the company’s operations.

More best practices Ameriprise Financial, Inc. / General Electric Company / HarleyDavidson, Inc. / Silver Wheaton Corp.

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section  4:

an excellent performance deserves some profile

Outstanding report: BMO Financial Group BMO respects the legitimate interests of its shareholders by providing a comprehensive picture of the bank’s performance relative to its North American peers as well as its own objectives. “Numbers that Matter” greets readers on page one; each key performance indicator refers the reader to a more detailed explanation of its importance within the operating review or MD&A. Top marks for: Exceptional commitment to accountability with detailed performance against targets and comparisons to North American peers; Outstanding MD&A with detailed descriptions of “Value Measures” and informative captioned charts throughout; Offers interest and variety.

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OUTSTANDING OUTSTANDING

Cover

Three point strategy

Objectives & targets



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Section 4

Even though the Canadian changeover to IFRS is not scheduled to happen until 2011, the scale of the transition means there are decisions to be made today.

special report:

IFRS...not just an accounting exercise Securities Administrators, companies may also pursue early adoption of IFRS on a case by case basis. Diane Kazarian PricewaterhouseCoopers LLP

It may be easy to dismiss the transition to International Financial Reporting Standards (IFRS) as an issue solely for accountants, but the implications and changes will affect everyone within a company, from CEOs to analysts and investors. IFRS are the global accounting standards that will replace Canadian Generally Accepted Accounting Principles (GAAP). The Canadian Accounting Standards Board (AcSB) has decided that Canada will adopt IFRS by 2011, and will join the 100 countries that have already transitioned, including all of the European Union. Public companies are required to disclose their transition plans in 2008 and the anticipated effects of their changeover in 2009. After a recent confirmation by the Canadian

With IFRS, company senior management will be tasked with discussing and explaining the changes to stakeholders. HR faces a large-scale, cross-function training initiative to prepare for the transition. Legal will be revisiting debt agreements and other contracts which rely on accounting results. IT and systems may need to be re-tooled, upgraded or changed. The marketing, public and investor relations departments will need to educate stakeholders and manage perceptions. It’s not just corporate either. Employees with profit sharing options, or who are expecting bonuses or commissions on revenue, will find themselves keenly interested in the new financial statements produced under IFRS. Furthermore, investors may find that IFRS will have a real impact on the way that they perceive companies and consequently the investment decisions that they make.

December 31

December 31

January 1

2008

2009

2010

Disclose plan for IFRS convergence *

Disclose plan for IFRS convergence and anticipated effects quarterly  *

IFRS opening balance sheet

The timeline assumes a calendar year in which a company first reports under IFRS in 2011 and presents a single year of comparatives.

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In addition to being more lengthy – mail carriers in the U.K. struggled under the weight of delivering HSBC’s 1.5 kg, 454-page annual report last year – the financial statements – which are like bread and butter for analysts, investors, lenders, shareholders and board members – could look very different under IFRS.

What we’ve heard... Findings from a PricewaterhouseCoopers/ MORI survey of UK Fund Managers, April/May 2006.

Furthermore, business units may need to provide new or different information in order to comply with IFRS. IFRS compliance may also dictate that companies report new and additional data, which can have a direct impact on IT systems and processes. Given that all of Canada’s public companies are working on the same timetable, companies needing additional staff to assist in the transition are likely to find themselves in a very tight labour market.

76%

think that the change to IFRS is significant.

47%

said the impact of information reported under IFRS had influenced their investment decisions directly.

13%

PricewaterhouseCoopers has some recommendations for companies just beginning to consider their transition strategy. The first is the significant task of collecting, collating and understanding IFRS numbers and disclosures. Secondly, companies need to anticipate and plan for changes to reporting procedures, financial and management information systems, and the skills and knowledge of staff. Finally, embedding IFRS across the organization enables the business to implement change in a smooth transition to a new way of operating, using the new IFRS language comfortably and authoritatively.

said that the impact had influenced them to invest in a specific company.

76%

of fund managers surveyed believe that the information presented by companies in their annual accounts, including any restatements, has been very or fairly clear and understandable.

68%

found the detailed final accounts very or fairly useful compared to information provided during interim reporting.

Even though the Canadian changeover to IFRS is not scheduled to happen until 2011, the scale of the transition means there are decisions to be made today. In order to have a smooth conversion process, companies which have not yet considered IFRS need to come to grips with it, and soon.

24%

said IFRS has had a great impact on their perception of a company’s value.

For more information visit www.pwcifrs.ca

84%

Diane Kazarian is PricewaterhouseCoopers Canada’s International Financial Reporting Standards (IFRS) leader and a partner in the Audit and Assurance Group of PricewaterhouseCoopers LLP working in the Toronto office. She also leads the national Banking and Capital Markets Industry Assurance practice.

said they know a great deal or a fair amount about the new standards and a similar proportion also felt very or fairly confident in their understanding of the impact of IFRS on the companies they invest in.

December 31

January 1

March 31

December 31

2010

2011

2011

2011

First annual comparative figures under IFRS

IFRS go-live

First interim IFRS-based financial statements with Q1, 2010 comparatives

First annual IFRS-based financial statements

* C  anadian Securities Administrators Staff Notice 52-320 requires quarterly disclosures in Management’s Discussion and Analysis starting in 2008 on the plan for IFRS convergence and, starting in 2009, the expected impact of the adoption of IFRS. Quantification of the impact of adoption of IFRS will be required in 2010 in the annual Management’s Discussion and Analysis at the latest.

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Section 4

The most thorough MD&As have adopted either the letter or the spirit of the guidelines issued by the Canadian Institute of Chartered Accountants, which recommend that companies discuss their vision, strategy, key performance drivers, capabilities to deliver results and risks. The best MD&As are also written in plain language that makes them comprehensible.

md&a:

through the eyes of management Best practices

DO follow the CICA’s guidelines on preparation and disclosure. You can find them at www.cica.ca.

What investors need... The MD&A is very much a regulatory document; in fact, along with the financial statements and notes, it’s the only part of the traditional annual report that public companies are required to produce. Yet some companies make the extra effort required to bring this vital performance document alive in the minds of their investors. While production values are usually much more modest, the most effective MD&As offer evidence of a layered information approach with bold headlines, captioned charts and graphs, and sometimes photography and illustration to capture attention and draw readers into the body text. Investors also want to hear from management in plain, nonpromotional language that explains the company’s progress in a balanced, credible manner.

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DO design the pages of the MD&A to appeal to the widest possible audience. A layered information approach benefits even the most seasoned number-cruncher. DO consider a table of contents and use colour or other visual elements for easier navigation.

Benchmarks

75% 5% 8%

of Canadian and 32% of U.S. MD&As contain an outlook section. of Canadian reports follow all of the CICA reporting guidelines. of MD&As include photography and/or illustration.

potashcorp PotashCorp’s MD&A has long been recognized for the excellence of its disclosure and the 2007 report was no exception. Every element – from market fundamentals to the SWOT analyses of operating segments to the balanced scorecard – is exemplary. All of this information is made more engaging through the use of plain language and a variety of visual devices.

• Engaging, reader-friendly writing style invites readership.

• Two-colour production brought to life with

pull-quotes and captioned photography and charts throughout. • Preceding CFO letter includes key performance metrics against industry peers.

BMO Financial Group Year after year, BMO’s MD&A can be counted on to provide a clear and candid assessment of performance against clearly defined strategies and objectives. The three page “Financial Performance and Condition at a Glance” is exemplary with 12 five-year graphs illustrating the company’s performance relative to its North American peer group.

• Comprehensive discussion of enterprise-

wide strategy provides context for the bank’s priorities and initiatives. • Dedicated value measures section tracks performance and describes importance of total shareholder return, EPS growth, return on equity, etc. • Layered information approach includes more than 60 captioned charts to highlight key trends and provide context.

innvest reit Canada’s largest hotel REIT combines the CICA-recommended structure with a variety of captioned photographs, charts and other visual devices to create an inviting, readerfriendly MD&A. The company’s showcase properties figure prominently in the report, conveying a palpable sense of the quality of the REIT’s assets and lending vitality to a traditionally regulatory document.

• Adherence to CICA guidelines enhances the MD&A’s effectiveness.

• Captioned colour photography shows off the quality of assets and creates interest.

• Captioned fact boxes offer vital statistics that pull readers into the body text.

More best practices Barrick Gold Corporation / Viterra Inc. / Petro-Canada / TELUS Corporation

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Section 4

Most of the performance measurements an investor could want are contained in the MD&A and financial statements. But the best reports make a point of assembling the most important financial, operating and other highlights within a single frame of reference. They also help draw conclusions for readers by presenting highlights in the context of the company’s overall strategy.

measuring performance:

bringing your numbers to life Best practices

DO consider including CSR metrics on the highlights page even if they appear elsewhere in the annual or the CSR report. DO consider moving the highlights from their traditional spot at the front of the report if they are interrupting the flow of your investor proposition.

What investors need... Investors can hunt through your annual report to find all the year’s highlights but presenting them in a single spread is not only more convenient, it gives you a chance to present the most important measures of the company’s performance in the right context. Doing that with impact requires a dynamic visual presentation, one that includes a variety of information in the form of captioned multi-year graphs, bullet points and perhaps photographs or illustrations. Some of the most effective performance highlight sections are anchored by active headlines which serve to support the key messages or draw a connection between the company’s strategic direction and its results. They also make it easier to identify trends with three years of data or year-overyear percentage changes.

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DON’T cherry pick only the most flattering metrics or change the line-up from year to year; consistency builds credibility.

Benchmarks

89% 48% 83%

of annual reports use performance graphs in the feature section. use graphs in the MD&A.

of annual reports include a financial highlights page and 26% provide operating highlights.

ameriprise financial, inc. The annual’s financial highlights section strikes a playful mood by introducing three employees who are presenting evidence of the company’s growing earnings per share – a thematic device that’s carried on throughout the report. Consolidated financial highlights on the adjacent page include percentage changes year-over-year, an investor friendly best practice.

SASOL limited group Sasol’s 2007 annual report welcomes readers with a comprehensive mix of financial, operating and – something we’re seeing much more of – sustainable development highlights. Visual impact is enhanced through a combination of bullet points, tables and charts. The highlights achieve a credible tone by also acknowledging setbacks.

Prudential plc Prudential’s 2007 annual report includes an excellent two-page spread on key performance indicators. Detailed commentary defines each KPI and explains its significance in measuring performance while bold typography highlights year-over-year results and colourful four-year charts make it easy to track the company’s progress.

More best practices Aviva plc / PotashCorp / BMO Financial Group



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Section 4

Most public companies operate in extremely competitive dynamic environments where success depends on their ability to respond quickly to changing customer needs, new competitors, shifting regulatory environments and a host of other significant risks to their performance. The best reports identify every aspect of known exposures and describe the processes with which they are mitigated.

risk management:

sharing your plans for the unexpected Best practices

DO devote more discussion to those risks more likely to challenge your ability to achieve your goals.

What investors need... The annual reports of North American and European financial services companies contain the most comprehensive discussion of risk and risk management you are likely to find, and yet, the past year’s meltdown in the world’s credit markets took almost everyone by surprise. Rather than causing companies to throw in the towel, however, we expect such events will give renewed impetus to the growing amount of space and detail that annual reports devote to risk. Investors want to see evidence of the enterprisewide risk management approach that is used to identify, measure, monitor and manage risk throughout a company’s operations. In order to aid comprehension, you should try to visually segment the presentation into primary areas of exposure such as competitive, financial, operational, reputational and environmental risks.

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DON’T resort to boilerplate descriptions; describe how each risk affects your company with specific plans for mitigation. DO take a look at the CICA’s performance resource centre at cica.ca/cpr for more examples of best practice reporting.

Benchmarks

93% 41% 56%

of annual reports discuss risks in the MD&A. of these discussions describe the company’s specific exposure to these risks. provide risk mitigation strategies.

royal bank of canada Thirty pages of RBC’s annual report are set aside for risk, so if you’re wondering what’s missing in your report, start looking here. The discussion ranges from risk management and governance to credit, trading, liquidity, legal and environmental risk. The discussion is exhaustive and well supported with illustrations, graphs and other visual devices.

bae systems PLC BAE’s seven-page section on risk relies heavily on visuals to help readers picture how the company’s risk management system works. It’s followed by an easy-toread matrix of key financial and operating risks with helpful high-level summaries of each risk and detailed descriptions of risk mitigation strategies.

altagas income trust The profitability of AltaGas’ transmission and processing facilities is dependent on a number of factors including the volatile supply and demand dynamics of natural gas. This table helps make sense of a complex puzzle with a straightforward synopsis of risks, mitigation strategies and evidence of progress.

More best practices 3i Group plc / Agrium Inc. / Metso GYJ / PotashCorp



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Section 4

The best annual reports not only describe the company’s strategic direction, they quantify progress by establishing financial and operating objectives – and measure their annual performance against them. Some companies produce detailed spreads featuring an objectives scorecard with goals, key metrics and relevant graphs.

objectives & targets:

helping your investors keep score Best practices

DO illustrate the relationship between your goals and your strategies. DON’T set goals that cannot be measured. “We will expand EBITDA margin to 20% in three years” is far more meaningful than “We will maximize shareholder value”.

What investors need... While the feature material in a good annual report provides a clear explanation of the company’s strategies, investors are most impressed when management shows the courage of its convictions by making itself accountable in advance for specific, measurable results. The best reports in our survey publish a range of financial, operating and other objectives that make it easy to see if the strategy is working. And they do so year-in and year-out without worrying that every objective is met. Investors don’t expect you to reach every objective; in fact the scorecard approach can backfire if they think management is hopping over a bar that’s been set too low.

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DON’T hide missed targets. Acknowledge the situation, explain the results, and discuss how you plan to improve.

Benchmarks

24% 3% 15%

of Canadian reports include a corporate objectives scorecard. of U.S. reports contain the same kind of information. of Canadian reports include quantifiable objectives in their scorecards.

canadian tire Corporation, limited This unique Canadian retailer has a long history of publishing its corporate objectives. In keeping with the theme of this year’s report – “Bigger and Better” – the company clearly describes the initiatives that will help it reach 12 operating and financial objectives. The targets immediately precede the feature section to help give the company’s activities more context.

telus Corporation TELUS’ remarkably comprehensive presentation includes a handy scorecard which tracks 2007 performance against 13 consolidated and segmented objectives. 2008 objectives are also clearly laid out with five-year bar charts illustrating the magnitude of future targets in the context of past results. A synopsis of the presentation also appears in the shorter annual review.

potashCorp Three pages of the MD&A are devoted to discussing the company’s performance against the past year’s objectives and setting out new targets for 2008. PotashCorp’s “Pathway to Success” emphasizes the importance of a balanced performance with employees, communities, customers and investors and, accordingly, each group is subject to its own targets.

More best practices Aviva plc / BMO Financial Group / Canadian Imperial Bank of Commerce / Inmet Mining Corporation

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section  5:

the on-line annual report makes accessibility a priority

Outstanding report: Land Securities group plc The best on-line annual reports are much more than repurposed print documents. They are designed to take advantage of the inherent advantages of the Web. The Land Securities 2007 annual report provides a good example of this approach. Judicious use of Flash animation welcomes readers into the report with a highly visual contents page that offers viewers a peak inside the report. Once inside, there are plenty of features to make the report a rewarding experience. Top marks for: A build-your-own-report feature and a dedicated downloads page; Financial statements available in Excel; Interactive property maps and 3-D animated videos of projects in development. www.landsecurities.com

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ON-LINE

HTML annual report

All you need to know

Portfolio section with video

Pop-up graphs



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Section 5

A good investor relations website should be much more than an electronic bulletin board for the company’s print documents. Ideally, it should make use of the internet’s capabilities to engage the visitor with a dynamic experience, encourage exploration and link each frame of reference to related sections of the site.

websites:

not just a web-based print library Best practices

DO provide an intuitive interface, making common links such as corporate overview, financial statements and corporate governance readily accessible. DO offer documents in both HTML and PDF and break downloads down into manageable segments.

What investors need... The best IR websites offer a full statutory annual report for downloading, ideally in several manageable segments, as well as an on-line version that incorporates video and/or animation to add visual interest and create a more dynamic experience. The on-line annual report also offers the advantage of being easier to read and navigate with features such as variable text size, related links and key word search functions. Its capacity for interactivity is also a plus as it gives viewers a welcome opportunity to shape their own experience – whether they’re drilling down for more information on a director’s attendance record or clicking to access a footnote on one of the financial statements.

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DON’T treat the site as a static repository for data. Keep it up to date with news releases, industry information and other news.

Benchmarks

28% 13 % 7%

of corporate websites have a direct link to the current annual report on the homepage. of Canadian and 24% of U.S. companies offer an HTML version of the report. of companies offer the entire annual report in HTML.

cameco corporation Cameco takes full advantage of web-based communication with functions such as variable-size graphs, mouse-over highlighting of financial tables, an interactive map that highlights strategic developments and a Flash introduction that deftly places the investment argument right up front. The full print report is available in HTML and a handy PDF print button allows viewers to select sections for printing without interruption. www.cameco.com

potashcorp PotashCorp’s on-line annual is exceptionally easy to use thanks to features like variable text size, search functions, pop-up graphs, an interactive board presentation, mouse-over highlighting for financial tables and a handy “my shortcuts” button that saves preferences for subsequent visits. The Flash intro – “yesterday today tomorrow” – is directed squarely at investors. www.potashcorp.com



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Section 5

websites: (Cont’d)

bmo financial group BMO’s on-line annual report combines loads of functionality and leading-edge content. Features include variable text size, search functions, a build your own report feature, horizontal mouse-over highlighting for financial tables, roll-over board of director photos that expand and highlight individual members, Excel downloads for financial tables and a welcome audio from the CEO. www.bmo.com

general electric company This is a cleanly designed, easy to use on-line annual report with horizontal and vertical mouse-over highlighting for financial tables, a dedicated downloads section, intuitively designed tabs and horizontal navigation within sections and content features such as a great interview-style video. The letter to shareholders is available in five languages. www.ge.com

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marks & spencer group plc This UK-based retailer offers visitors a dynamic on-line annual report experience with outstanding features such as a Flash timeline of key events for the year, interactive maps highlighting the company’s stores and an emerging markets interactive map with expansion plans per region. Navigation is clean and intuitive and functionality is enhanced by large print and audio options. www.marksandspencer.com

aviva plc Aviva’s first rate on-line annual report incorporates all the usual best practices and adds a new one – the option of recording your own notes in the report. Beyond the report, the IR site contains an abundance of great tools including the ability to “create your own page” which lets you create your own bookmarks, email alert criteria, dates of interest, reading list and more. www.aviva.com

Benchmarks

100

Posting reports in both PDF and HTML is becoming less common

80 60

100%

40

80%

20

60%

0

40%

CDN

20%

U.S.

0% 05

06

07

08

Although HTML is a more powerful format for the web, more companies are using only PDF for their annual reports.

More best practices Barclays plc / British Petrolium plc / Enbridge Inc. / Royal Dutch Shell plc / Land Securities Group plc / Legal & General Group plc

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7

Our survey began by ordering reports from 680 companies on every continent. Of those we identified 205 Canadian and U.S. reports to be included in our benchmarking analysis. We did not benchmark the European reports owing to dissimilarities in the regulatory environment but we did look at over 300 of them for best practices. Below are the 248 companies that were surveyed or identified for a best practice.

who we surveyed • 3i Group plc Aastra Technologies Limited • Abertis Infraestructuras S.A. Aecon Group Inc. Aeroplan Income Fund AFLAC Inc. AGF Management Limited • Agnico-Eagle Mines Limited • Agrium Inc. Air Products & Chemicals Alamos Gold Inc. • Alcoa Inc. Algonquin Power Income Fund Alimentation Couche-Tard Inc. • AltaGas Income Trust • American Express Company • Ameriprise Financial, Inc. AmerisourceBergen Corp. Anheuser-Busch ARC Energy Trust AT&T Inc. Avery Dennison Corp. • Aviva plc • BAE Systems plc • Bank of America Corporation • Barclays plc Barr Pharmaceuticals, Inc. • Barrick Gold Corporation • Baxter International Inc. Becton, Dickinson Bell Aliant Regional Communication

BFI Canada Income Fund • BMO Financial Group Boardwalk Real Estate Investment • British Petroleum plc • British Sky Broadcasting Group plc Brookfield Asset Management Inc. Brown-Forman Corporation C.H. Robinson Worldwide CAE Inc. • Calfrac Well Services Ltd. • Cameco Corporation • Cameron International Corp. • Campbell Soup Company • Canadian Imperial Bank of Commerce Canadian National Railway Company Canadian Natural Resources Limited Canadian Oil Sands Trust Canadian Pacific Railway Limited • Canadian Tire Corporation, Limited Canadian Western Bank CanWest Global Communications Corp. Cascades Inc. CCL Industries Inc. CGI Group Inc. CHC Helicopter Corporation • Chevron Corporation • Cineplex Galaxy Income Fund Cisco Systems • CML HealthCare Income Fund

• indicates AR reports chosen as best practices 54

AR TRENDS 2008

• The Coca-Cola Company Cognizant Technology Solutions Colgate-Palmolive Cominar Real Estate Investment Trust Compton Petroleum Corporation ConocoPhillips Constellation Brands Consumers’ Waterheater Income Fund Corning Inc. Crescent Point Energy Trust CVS Caremark Corp. Davis + Henderson Income Fund Denison Mines Corp. Developers Diversified Realty Corporation Devon Energy Corp. Discover Financial Services • Domtar Corporation • Duke Energy Corporation Dundee Real Estate Investment Trust • EDF Group Emera Incorporated • Enbridge Inc. • EnCana Corporation Enerflex Systems Income Funds Energy Savings Income Fund Enerplus Resources Fund Entergy Corp.

Equinox Minerals Limited FedEx Corporation Finning International Inc. First Quantum Minerals Ltd. Flint Energy Services Ltd. Fort Chicago Energy Partners L.P. Fortis Inc. Freehold Royalty Trust Freeport-McMoRan Copper & Gold, Inc. Galleon Energy Inc. • General Electric Company General Mills Genuine Parts Company Gildan Activewear Inc. Gold Eagle Mines Ltd. Golden Star Resources Ltd. • Goldman Sachs Group Great-West Lifeco Inc. • Harley-Davidson, Inc. Harvest Energy Trust • High Liner Foods Incorporated HudBay Minerals Inc. Huntington Bancshares Husky Energy Inc. IGM Financial Inc. Imperial Oil Limited Industrial Alliance Insurance and Financial Services Inc. ING Canada Inc. • Inmet Mining Corporation Inter Pipeline Fund • InnVest REIT Jazz Air Income Fund Johnson & Johnson Inc. KeyCorp Limited Keyera Facilities Income Fund Kimco Realty Kingsway Financial Services Inc. • Kinross Gold Corporation Laboratory Corporation of America Holding • Land Securities Group plc Laurentian Bank of Canada • Legal & General Group plc Legg Mason, Inc. Lehman Brothers • Limited Brands, Inc. Linamar Corporation Loblaw Companies Limited • Logica • L’Oréal S.A. Lowe’s Companies, Inc. • Macquarie Power & Infrastructure Income Funds Major Drilling Group International Inc. Maple Leaf Foods Inc. • Marks & Spencer Group plc Marshall & Ilsley Corporation McDonald’s Corporation McGraw-Hill Companies MDS Inc. • Merrill Lynch & Co., Inc. Metro Inc. • Metso GYJ

• Mondi Group • Monsanto Company Moody’s Corp NAL Oil & Gas Trust Newalta Income Fund • Newell Rubbermaid Inc. News Corporation Norbord Inc. Northbridge Financial Corporation Nova Chemicals Corporation NovaGold Resources Inc. Nucor Corp. OPTI Canada Inc. Pan American Silver Corp. Paramount Resources Ltd. Parker-Hannifin Corporation Pembina Pipeline Income Fund • Penn West Energy Trust Petrobank Energy and Resources Ltd. • Petro-Canada • Pfizer, Inc. Polo Ralph Lauren Corp. • PotashCorp Power Financial Corporation PPL Corp. ProEx Energy Ltd. Progress Energy Trust • Prudential plc Reitmans (Canada) Limited • Research in Motion Limited RioCan Real Estate Investment Trust Rockwell Collins, Inc. RONA Inc. • Royal Bank of Canada • Royal Dutch Shell plc • SABMiller plc Saputo Inc. • Sasol Limited Group Schering-Plough Corporation • Scotiabank Sears Canada Inc. • Security Capital Assurance Ltd. Shaw Communications Inc. ShawCor Ltd. The Sherwin-Williams Company Shoppers Drug Mart Corporation Sigma-Aldrich Corporation • Silver Standard Resources Inc. • Silver Wheaton Corp. Sino-Forest Corporation SNC-Lavalin Group Inc. • Southern Company St. Jude Medical, Inc. The Stanley Works • Stryker Corporation Sun Life Financial Inc. Suncor Energy Inc. Superior Plus Income Fund Teck Cominco Limited • Telefonaktiebolaget LM Ericsson • TELUS Corporation Teradata Corp. Teranet Income Fund Thompson Creek Metals Company Inc.

Thomson Corporation Timinco Limited Toromont Industries Ltd. • TD Bank Financial Group Torstar Corporation Total System Services, Inc. TransCanada Corporation Transcontinental Inc. • TransAlta Corporation Transat A.T. Inc. TransForce Income Fund Trinidad Drilling Ltd. TSX Group Inc. • Tullow Oil Tyson Foods, Inc. U.S. Bancorp • UBS AG United Technologies Corporation Vermilion Energy Trust • Viterra Inc. • Vodafone Group plc • Volkswagen AG • Volvo AB Vulcan Materials Company Walgreen Co. Walmart Stores, Inc. • Wells Fargo & Company • WestJet Airlines Ltd. • The Western Union Company • Westpac Banking Corporation Wm. Wrigley Jr. Company Xerox Corporation Yamana Gold Inc. Yellow Pages Income Fund • Yum! Brands, Inc. Zions Bancorp



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For further information please contact:

Strategy • Design Communications

Craib Design & Communications 42 Wellington Street East, 2nd Floor Toronto, Ontario M5E 1C7 416.363.5206 www.craib.com

Blunn & Company 42 Wellington Street East, 2nd Floor Toronto, Ontario M5E 1C7 416.368.8545 www.blunnco.com

Kevin Ward, Creative Director Craib Design & Communications [email protected]

Chuck Midgette, President [email protected]

Elaine Wyatt, President Craib Strategic Directions  [email protected] Courtney Craib, Web Development Manager Craib Design & Communications [email protected]

Special thanks to our sponsors: Printed by:

Paper supplied by:

Grafikom Grafikom is one of Canada’s leading commercial, digital, specialty and print management companies. With a specialty in the print production of high profile corporate documents such as annual and CSR reports, they offer unsurpassed expertise and confidentiality along with exacting quality and accuracy. Their 24-hour-a-day operations and equipment redundancy make it possible for them to provide their customers with flexible scheduling and last minute changes while still meeting critical deadlines. They are located in Sherbrooke, Toronto, Calgary and Edmonton and are proud to be FSC certified in support of responsible forest management. Their Toronto plant is a participant in the “Minimum Waste Program” for Metro Toronto. In the first 6 months of 2008 they achieved an annual average waste diversion rate of 96% recovering approximately 1,100 metric tons of material.

M-real M-real Corporation is one of Europe’s leading manufacturers and suppliers of fine papers, paperboard and consumer packaging solutions, with a total annual production capacity of over 6 million tons of paper. This book is printed on M-real Galerie Art Silk 80 lb Text and 100 lb Cover, part of the company’s lineup of high quality papers that are ideally suited for annual and corporate sustainability reports. Galerie Art Silk is FSC certified and contains up to 30% pre-consumer recycled content and EuroArt Plus is PEFC Certified with over 70% certified wood. All M-real paper mills have ISO 14001 environmental management systems and they hold certified chain of custody systems to verify the origin of wood material. M-real systematically reduces the carbon dioxide emissions and improves energy efficiency in all its operations.

For more information: www.grafikom.ca 1.877.grafikom [email protected] Photography by: Brian Pieters Toronto photographer Brian Pieters specializes in corporate and editorial studio and location photography. An award-winning digital commercial photographer, he has travelled internationally for over 15 years, shooting advertising, corporate and editorial assignments for a prestigious client roster that includes General Electric, Royal Bank of Canada, Dupont, Tim Hortons and Bell Canada. Brian also took the staff portraits on the Craib website. For more information: www.pietersphoto.com 416.461.6107 [email protected]

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For more information, visit m-real.com or call M-real in Canada at 1.514.866.2066, or in the U.S. at 1.888.305.9291.

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our 2nd comprehensive survey of sustainability report trends, benchmarks and best practices

Strategy • Design Communications

CSR TRENDS 2008 is a complementary resource to AR TRENDS. It is Craib’s second annual review of trends, benchmarks and best practices in sustainability reports.

www.craib.com www.blunnco.com