Home' Trinidad and Tobago Guardian : December 28th 2014 Contents DECEMBER 28 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG11
We have entered the
December to April---
report on their
financial and operational results for the last
The annual report to shareholders is, per-
haps, the single most important communi-
cation that shareholders (and other stakehold-
ers) receive from a company.
This document narrates and explains the
company s financial and business affairs for
the past year. Regulators have stipulated the
minimum information that should be provided,
however, companies have wide latitude as to
how much detail and explanatory narrative
they can include in the document.
The minimalistic approach
One approach to the preparation of this
document takes a minimalistic stance, as
described in the following ways.
We will disclose only what is legally man-
dated. Our narrative will be brief and cryptic.
We adopt this approach because we do not
want information getting into the wrong hands
When we are required to disclose informa-
tion that we prefer not to divulge, we will do
so in a manner of our own choosing; if share-
holders or other interested parties find our
explanation convoluted or legalistic, that is
not our concern. We have fulfilled our obli-
We reserve the right not to answer any mis-
chievous or "non-essential" questions.
We will distract readers and puff up our
annual report to show that we are not "heart-
less capitalists" by listing how we disburse
shareholders money to help NGO s and related
organisations. We don t see the need to report
on the actual total sums disbursed.
Our business is "highly confidential" and
we are not particularly interested in "engaging
shareholders" in our affairs. We have enough
stress and problems dealing with regulators
and other forms of officialdom.
We assume that shareholders are primarily
interested in knowing if we are still making
money and if their dividend will remain intact
or be increased.
The engaging approach
Shareholders and other stakeholders are
treated as partners and are not considered
"nuisances that we have to tolerate."
We will provide information that can help
readers understand our business and the chal-
lenges we face, both currently and in the fore-
seeable future. Our narrative will be clear,
comprehensive and engaging.
Our business commentary and financial
analysis will be insightful and meaningful,
without compromising the privacy and security
of our customers and business partners (current
We prefer to err on the side of giving too
much rather than too little information. We
recognise that some of the detail that we pro-
vide may be of limited use to some of our
stakeholders; nevertheless, we will continue
to provide information that readers in the
"information age" can use to better serve us
in the future.
We will ask for constructive feedback and
treat same with courtesy and respect.
Our contributions to civic groups and NGO s
are highlighted to help readers understand the
extent of our community involvement and the
positive ways we impact the wider society.
We recognise that, when our stakeholders
better understand our business, they will be
able to respond to our unique needs in some
of the following ways:
1. Employees, who understand and share
our methods, vision and beliefs, will make the
necessary efforts to help us achieve our goals
2. Shareholders, who are satisfied customers,
will provide first hand (and free) advertising
for our services and products.
3. Curious "outsiders" will look for ways to
join the team, as suppliers, employees, business
partners or investors.
We understand that, more than mere finan-
cial returns, such as dividends and capital
appreciation, many shareholders want to be
part of a "winning team".
Readers will appreciate that I have presented
two widely divergent ways of looking at how
a company approaches the preparation, pro-
duction and eventual distribution of the annual
report. Of course, almost no company will fit
neatly into either extreme description.
On the other hand, some characteristics
from each example are possible to discern
from companies listed on the local stock mar-
ket, as shown in the following examples.
The RBL example:
Republic Bank Ltd is normally the first com-
pany to issue its annual accounts and hold its
AGM. Congratulations to them on both counts!
With apologies to those who have read
recent articles, let us take the example of
"other income" in RBL s 2014 accounts.
In the context of a relatively small increase
in net interest income, the huge increase in
"other income" assumes proportionately
This line item rose to $1.487 billion from
2013 s $1.257 billion. The net increase of $230
million was almost entirely due to two one-
Under the section of the annual report head-
ed "Managing director s discussion and analy-
sis" (page 22), we see the following incomplete
comment: "Other income for the group was
$1.49 billion, an increase of 18.3 per cent, all
due to gains from the sale of available for sale
investments." Absolutely nothing else!
As indicated last week, the sale of Visa
International shares generated a gain of $210
million while a further $118 million profit came
from the sale of its 24 per cent stake in The
Home Mortgage Bank.
Of course, astute readers will now realise
that most other components of "other income",
such as fees and commissions, declined; yet,
no explanations were offered for same!
Now, you may ask: how was this information
The Visa sale was shown in one of the slides
presented at the AGM. The profit on the sale
of HMB shares was disclosed in response to
a shareholder s direct query at the AGM.
Would it not have been better for both pieces
of information to have been disclosed in the
managing director s report?
Considering that not all shareholders could
attend the meeting, this seems to be the best
place to do so.
RBL restricts its business sectors to two:
retail and commercial banking and investment
banking. Maybe, a separation of the retail and
commercial banking businesses might yield
more meaningful comparisons?
Perhaps, they gave themselves such a tight
deadline to complete the report and host the
AGM that some details slipped them?
The NCBJ example
Similar to RBL, NCBJ released its financials
to September 2014 on November 14, 2014,
while its annual report brochure is expected
at the end of January 2015 and the AGM should
be held by the end of February 2015.
Although smaller than RBL, NCBJ has more
subsidiaries and operates in a broader range
of the financial services sector, such as life
and general insurance and payment services.
In disclosing its sector operations, we note
that its retail banking and commercial banking
units are shown separately (unlike RBL). Treas-
ury and correspondent banking is shown as
one unit; life insurance and pension s man-
agement are appropriately grouped, while gen-
eral insurance has its own column.
However short, there was some commentary
for each sector when the summary financials
were released. Based on the quality of the 2013
annual report, when the full 2014 annual report
is published in January 2015, we can expect
to see much more detailed commentary, not
only on each business segment but on the
broader business and financial services envi-
In terms of explanatory comments and read-
ability, NCBJ s report is far superior to that
In its 2013 report, NCBJ even devoted a
couple of pages to its future plans. There was
also a section explaining the several initiatives
that NCBJ is employing to save energy costs.
(We "spoilt brats" here in energy-rich Trinidad
may want to take note and start asking our
public companies to report on same.)
In general, the report is presented with much
more energy and flair. This posture seems
consistent with its more dynamic operating
style, contrasting with the more staid posture
It is useful to remember that both RBL and
NCBJ share a common heritage, UK-based
Barclays Bank. Look how differently they have
Annual reports tend to reflect the culture
and philosophy of the issuer. Perhaps, few of
them can match the quality and readability
of companies such as Berkshire Hathaway Inc,
which is run by the legendary Warren E Buf-
fet.What about explaining its executive com-
pensation plan in some detail and listing the
salary and benefits of its top five or ten exec-
utives? It might also be useful to understand
how (or if) those parties might be penalised
for poor performance.
For those who have the inclination, the con-
trasting reporting and presentation styles of
Sagicor Group Jamaica (dynamic) and Sagicor
Financial Corporation (Barbados) (reserved)
make for interesting reading.
One obvious benefit of having so many
Jamaican companies listed on our local
exchange is that it exposes the local investor
to a higher standard of disclosure and com-
Some local companies, such as Guardian
Group and Massy Holdings, are selectively
trying to emulate this more dynamic and inclu-
sive style of presentation; this augurs well for
the future of our youthful stock exchange.
My hope for the New Year is that more
listed companies take a more proactive
approach to the preparation and publication
of their annual (stewardship) reports.
Happy New Year to all my readers!
THE ANNUAL REPORT
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