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What is The Guide to Annual Reports?

Welcome to the 1st edition of The Guide to Annual Reports in Malaysia, the latest addition to Black Sun’s annual flagship research on trends and best practices in corporate reporting, and on how companies are responding to challenges and changes within the reporting landscape. Through The Guide, we hope to stimulate debate around what constitutes ‘best practice’ and contribute to the wider development towards long-term thinking, disclosure, and transparency.

 

New requirements for reporting

The shift to non-financial reporting in Malaysia is evident since companies were required to report on non-financial indicators, also known as sustainability reporting. The 2017 revision of the Malaysian Code on Corporate Governance (MCCG) has further spurred the shift by introducing requirements for integrated reporting, which focuses on disclosure of value creation.


Where do companies stand amidst these changes?


 

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ONE: SETTING THE SCENE

The majority of KLCI30 companies have presented vision statements but most have not provided purpose statements, which explain why companies exist. Few have provided clear investment cases, which help to describe the strengths of the companies.
 

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TWO: LEADERSHIP

While the listing rules no longer require statements from any senior figures of the companies, the majority of KLCI30 companies still produce leadership statements; many also have separate statements from the Chairman and CEO. However, few have reported statements from senior figures other than the Chairman and CEO.

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THREE: BUSINESS MODEL

Being one of the eight content elements of the Framework, the disclosure of the business model is a key component to show that the report is aligned with the framework. Many companies have disclosed their business model, in which majority described how they create value for stakeholders.

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FOUR: MARKET

Many KLCI30 companies had separate sections on market review, but the majority of them only focused on discussions about economic or financial factors. We expect companies to review a wider range of emerging trends and better clarify the impacts and their responses to market trends.

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FIVE: STRATEGY

While the listing rules only require disclosure of the company’s objectives and strategies for achieving the objectives, a handful of companies have gone to great lengths by linking them with risks.

 

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SIX: PERFORMANCE

Close to half of the KLCI30 companies have used key performance indicators (KPIs) to review performance in a focused and strategic manner. However, only a few have discussed the link between KPIs and corporate strategy.

 

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SEVEN: RISK

Risk management is relatively well guided by the MCCG and the MMLR. One of the key areas for improvement in risk management disclosure is to ensure connectivity with other key sections, such as strategy and material matters.

 

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EIGHT: SUSTAINABILITY

Most companies have incorporated sustainability information, including stakeholder engagement initiatives and material matters, in their annual report. Our observations show, however, that companies need to incorporate more discussions about stakeholders' feedback and their responses to the feedback.

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NINE: GOVERNANCE

As the disclosure of the Corporate Governance Overview Statement comes into effect, it opens up a window of opportunity for companies to adopt a story-telling approach. The current results indicate that there is still room for improvement. Static information remains common, even though we expect future improvements to engage readers with more current and strategic information.

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