Apollo Investment Management

Financial disclosure: simple improvements for Asian markets

Availability of information

Annual reports should be available with similar speed to all shareholders. In particular, they should be available to all shareholders before the AGM (and before the custodians' deadlines, which are earlier). Full text of AGM/EGM resolutions should also be available, through stock exchange websites and the wireservice feeds. We currently face imminent AGM voting deadlines, with inadequate summaries of the resolutions, for two Singapore companies. Neither annual report is available, although we are asked to vote to adopt it. We have similar problems in Thailand and Indonesia. Some companies deliberately release the report only after the AGM.

A major obstacle to investing in Korea & Taiwan, for us although evidently not for all investors, is the availability of English-language information. This is a shame when some companies do already have English language reports, available perhaps to bankers and personal visitors, but do not make them publicly available. The ability to make English financial statements available for all Thai companies, however small, suggests that it might not be too onerous to provide the same information elsewhere.

The stock exchange or regulatory authority should provide an official library of all company announcements and official documents (annual reports, prospectuses, circulars, resolutions etc); and the archive should be kept indefinitely (at least for several decades - not for 3 or 6 months). A Singapore-listed company once gave me a partial interim report, explaining when queried on missing elements that it had to file the full version with the authorities, but could then leave out unwanted elements in the report sent to investors. I am not sure whether this was a correct interpretation of the rules, but clearly there should be one official version, and this should be centrally stored rather than left to the webmasters of individual companies or the (often non-existent) IT departments of investors.

There should be one clearly-definitive announcement of financial results for a particular period. Hong Kong listed companies often announce interim results without balance sheets, the latter being quietly posted weeks later on the exchange website without any notice fed through the wire services. Frequently one ends up looking at three versions of an announcement - a summary or PR statement, the initial announcement, and a fuller version later - but the last is frequently missed for lack of publicity. Even if one catches it, this repetition is unnecessarily time-consuming and duplicative for the reader. The similar US practice in which companies give proforma spin first, and GAAP accounts later, is similarly misleading and unproductive. Exchange feeds to the wire services should announce release of the full-detail announcement.

Summary information can also be essential, when the number of announcements of certain types is indigestibly large. Share dealing announcements are a major example. Wire service newslists for some companies are dominated by hundreds of individual share transaction reports, with the text often indicating only the type of announcement - eg "notice of a change in the percentage level of a substantial shareholder's interest" - and requiring the download of an attached file for each of the hundreds. Such headlines should indicate which shareholder and in which direction. Summarized information should be provided in addition, on an official website and in the periodic financial reports, along with the change over the period - or the prior position, so that the change can be seen.

All announcements to all shareholders. Thailand provides quarterly reports, management comments, and many other announcements in both Thai and English. I only recently became aware that information on insider sales* is available in Thai but not English - or at any rate not fed to the wire services, and we searched unsuccessfully on the SET website for an announcement of some very material insider sales which had become known to the market.
[* 1 Nov 04: We now know that the information is on the SEC website, at http://capital.sec.or.th/webapp/corp_fin/daily59e.php - so the only question is whether this might usefully be included alongside other company news.]

Bondholder announcements should be disclosed to the stock exchange and hence to shareholders. Otherwise some equity investors (who happen to be bondholders, or related to bondholders) have information not available to others. This can be material. (International bondholders in 1998 had enough information to predict the default and eventual collapse of one Malaysian group; local stockmarket investors did not.) Bondholders themselves are not often well served by secrecy, since information does not circulate efficiently through Euroclear or Cedel: the efficient availability of information to the market would have benefits outweighing any advantage conveyed by secrecy.

Content of announcements

Full cashflow statements: Hong Kong interims contain cashflow statements so summarised as to be almost useless. Thai companies can provide detailed accounts quarterly, in a single announcement with full balance sheet, cashflow and notes. Other countries should do likewise.

Parent company information is not a redundant anachronism, displaced by consolidated accounts: it is sometimes essential. Cash locked in subsidiaries is not always available to the parent.

Management discussion & less useful verbiage: increased disclosure of mundane detail such as the number of meetings attended by directors and the structure of committees should not necessarily displace intelligent discussion of the business, but unfortunately that seems to be what has happened in Malaysia. If directors need to attend courses and jump through too many bureaucratic hoops, they may feel they have done enough to fulfil their responsibilities: the energy required to think imaginatively about its interests and about information flow to owners has been dissipated.

Full versus timely disclosure: bookbuilding for Hong Kong issues frequently takes place before adequate information is available. A full & meticulously detailed prospectus is filed eventually, in another triumph for form over function.

Format of information

The format of information may seem less important than availability and content, but it makes a real practical difference to the user, especially on a cumulative basis.

Annual reports & other large documents should be downloadable in their entirety. Downloading multiple separate sections, and having to open them all to review a single financial report, can be extremely inconvenient. The multiple sections may be preferred by some users, but the option of a single complete download should be provided.

Acrobat (.pdf) files are ideal for official documents, since the format will be identical for all viewers and printers. Text files are also fine. Word or Excel documents can be problematic if opened in rival or earlier-version software. (The reader may see all the earlier drafts of the document, with revisions: potentially confusing for the reader and embarrassing for the company). They also need to be scanned for viruses and other nasties before opening, an unnecessary chore. HTML can be fine if compiled with understanding of the format, and how it adapts to the different devices on which the content may be read; however, too many webpages in Asia defy these principles, and cannot be viewed or printed as intended.

Acrobat files should be prepared electronically from the original documents. If prepared from photocopies, text and numbers may be indistinct.

Colours can be problematic - both when a document is photocopied into electronic format, and when it is printed. Many tables become indecipherable. Dark text on a light background works best; black on white best of all.

Pictures in electronic documents can be very user-hostile. Small pictures illustrating products can be useful, but full-page pictures just make the report hard to read. If wanted in the print version of the annual report, perhaps these pages could be left unnumbered, and omitted from the electronic version.

Orienting pages in landscape (horizontal) mode should be considered, to match the orientation of most computer monitors.

Multiple small-print columns on a portrait (vertically oriented) page are hard to read on screen.

Different languages should be kept separate - ideally, separate versions of documents should be offered. Intermingling text in different languages on the same page makes both versions hard to read (alternate pages are almost as bad), and it multiplies the document length and file size for each reader.

Stock exchanges may wish to recommend document-preparation services to listed companies.

The importance of standards for official & corporate websites should be emphasised. Websites should be accessible on any platform, running any software, with access for the disabled, and to do this they should obey HTML standards. (The Singapore Exchange has on a number of occasions rendered its whole site inaccessible. This year's redesign by Bursa Malaysia initially rendered its side menu unusable by misusing fonts and layout.)

Consistent website layout is helpful, so that frequent users can return frequently to a bookmarked subindex and find it in the same place. (SGX makes frequent changes, and announcements by listed companies are evidently not as high on their webmaster's priority list as on mine, since they are not always easy to find from the home page.)

Good website organisation would be helpful. I regularly need to look up an individual company, and find either a specific announcement or everything available. To pick out the company name should be quick. To select the company 'Surface Mount Technology' from the MAS website takes 11 clicks, and each click, even with broadband, is slow (multiseconds, leading to fractured reading of newspapers). The Singapore exchange offers 'all-in-one' information for each company, but in practice may offer only an announcement of a circular; the user who wants the actual document must return to the beginning & start the multi-click process for laborious reselection of the company name.

So there are my recommendations for now, on availability of information, content, and format. I may add to this list from time to time, as practical examples arise.

Claire Barnes, 9 Oct 2004
last updated 25 Mar 2005

Previous reports:
Home Investment philosophy Fund performance Reports & articles *What's new?*
Why Apollo? Who's Claire Barnes? Fund structure Poetry & doggerel Contacts