dence reporting CIMA has an active interest Charles TilleyChief Executive Chartered Institute of Management Accountants legal and regulatory sanctions Yet those companies who approach reporting wi ID: 91706
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dence* greater transparency on a companys internal assesses the companys performance against in a practical way.Lindsay TomlinsonVice-Chairman, Barclays Global Investors Europethis a reality.Tony GoodChair of Accounting Advocacy, reporting, CIMA has an active interest Charles TilleyChief Executive, Chartered Institute of Management Accountants legal and regulatory sanctions. Yet those companies who approach reporting with the right mindset one of transparency, not merely a perceived response A change in mindset towards reporting practice guidance is shown in Exhibit 1 below: nancial condition and results of operations in the future International nancial condition ((published November 2002, updated May 2004) assessment of the current and future performance of the business and the progress towards the achievement of ow, so that readers can ascertain the likelihood that past performance is indicative of uence changes in the value of the enterprise in the future should be disclosed and (date of implementation tbc) Telling the future by looking at the past assumes that looking in the rear-view mirror. t forecasts or litigation. However, companies need fright at the call for forward-looking ts ts, notably: enhanced business board effectiveness; improved ciencies owing from the proper alignment they need Transparent information on current the raw material of effective decision-making in the capital markets. This nancial cient to meet the needs of performance. The current reporting status quo is unsatisfactory. Investors understand whats happening ve to ten years time. A view of the future nancial reporting Preparers Guide goes into further However, the provision of a forward-relevant to an investors assessment that have affected a companys nancial year as well as those likely to affect its and position. These might include the able nancial nancial key performance necessary, whether they should be disclosed. Assuming that they are, targets. As we explain later, however, t different approach will be called for. 7Competitively-sensitive information For any company, there will be market position. However, this should c company.to be a realistic process. In reality, ow of people and information never been greater. looking information Clearly, forward-looking information is different from information found nancial statements. ts of transparency, communicating nancial and non- nancial cant competitive edge. opportunity, they will be able to:help stakeholders to differentiate nancial information is gures. ed data factors likely to affect your companys future cation of company, buying habits for a consumer products company, or raw company, quantifying prospective relating to those key A simple narrative description cient. It current and prior year, along with cation and/or commentary on uncertainties by its nature, be 100% supportable. on the information. Further, you linkage of other A key objective of reporting is to Accordingly, it is essential you and strategies. These elements are 15 affect your companys long-term value or prospects A number of companies already try and their future sustainability. However, in this example, BAA goes considerably further, linking an environmental factor, namely local air quality, to its long-term objective the worlds busiest and leading build a third runway. As set out in the extract below, the Government BAA plc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?HFEHJDE?I;9EDIKBJ7J?EDIB7KD9>6)7A;OEKH)7HA;CFBEO;;IKHL;OB7KD9>;ID7C;:JEFE<J>;JH7DIFEHJI;9JEH?DJ>; EM&ED;I/KJ7?D78?B?JO%D:;N.;9;?L;I.E/,=EB:7M7H:;7BJ>7D:I7<;JOO;7HHKDD?D="?HIJ;CFBEO;;LEBKDJ;;H?D=7M7H:I0>;E7H:E<%EKH!KHEF;7D0H7:;IIE9?7J?ED7FFHEL;I7FEB?9OFEI?J?EDIKFFEHJ?D=9ECC;D:II9EHFEH7J;H;FEHJ?D=$;7J>HEMH;9;?L;I7>?=>BO9ECC;D:;:7M7H:;(?L78B;?J?;IM7H:IM>?9>9;B;8H7J;I;N9;BB;D9;?DJ>;;B:E<9EHFEH7J;H;IFEDI?8?B?JO&E?DJ?DJ>;KI?D;II?DJ>;ECCKD?JOEHFEH7J;.;IFEDI?8?B?JO%D:;NGGG 211 3?=
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.81D?B@?B1D5)5C@?>C929<9DI$51>CD?I7FFHE79>JE9EHFEH7J;H;IFEDI?8?B?JO?I=K?:;:8OEKHM;BB;IJ78B?I>;:FEB?9?;IEDIKIJ7?D78B;:;L;BEFC;DJ7D:;J>?9I
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+D)7H9>J>;#EL;HDC;DJFK8B?I>;:$"30(,&2'$3230$?JID;MIJH7J;=OJE?ID;MIJH7J;=O7D:M?BBFK8B?I>EKHH;L?I;:GGG 211 3?=
3?B@?B1D5B5C@?>C929<9DI+KH7FFHE79>JE9EHFEH7J;H;IFEDI?8?B?JO?IIKFFEHJ;:8O7I;H?;IE<EJ>;HFEB?9?;IM>?9>FHEL?:;:;J7?B;:=K?:7D9;EDIF;9?9?IIK;I;J>?9I>;7BJ>7D:I7<;JO8KBBO?D=7D:>7H7IIC;DJ7D:;DL?HEDC;DJ7BBOI;DI?J?L;C7J;H?7BI
+KHFEB?9?;I7FFBOJEJ>;C7D7=;C;DJ7D:EF;H7J?EDE<FB9?JI+5/8/>23-+6+8.79<+6=:98=3,363>3/==/<39?=6C>=89>4?=><312>3>3=+6=9389?<-977/<-3+638>/=>=
Source: BAA plc Annual Report 2004/05 and used with kind permission
Accordingly, by describing how decisions, BAA provides a clear nancial activities with its future nancial performance.
2
out of the real-life
To the companies that allowed
PricewaterhouseCoopers commentary on the extracts presented. The
extracts are taken. The extracts may
16that help to attain your objectives and how they are
attain their objectives. However, in es active development of
Company PLC
Developmentprospects, as shown below, are those sites and propertieswhere we have identified opportunities and are progressing with design,planning applications and site preparation fordevelopmentprojects. Forexample, atThe Leadenhall Building a detailed planning consenthasbeen obtained fora new 47storey towerto provide 55,800sq m(601,000 sq ft) ofoffice accommodation; thatis three timesthe floorspace ofthe existing building.
Development prospectsSq ftCost
ProjectSector000£m201BishopsgateCity office836279RevisedsubmittedCity office601270DetailedLudgate WestCity office12347DetailedRegents PlaceWestEnd1,036370Osnaburghoffice/submittedResidentialNEQ pendingBlythe Valley ParkBusiness Park751115Outline/DetailedNew Century ParkBusiness Park/65788OutlineDistributionLeisure409124PendingResidential25446SubmittedDaventry (BLR)Distribution3355Outline
Redditch (BLG)Distribution2274DetailedTotal5,2291,348We have planning permission for58% ofthe developmentprospects forcommercial properties which, ifthey were builtata total costto the Groupof£529 million and fully let, would add furtherrental income ofsome£60million perannum atcurrentmarketrental values. This does notinclude 201Bishopsgate where we have an existing permission butarein the process ofseeking a revised planning consentfor77,630 sq m(835,600 sq ft).Atcurrentmarketrents, ifall these developmentprospects werecompleted and let, they would add a further£151million perannumtorental income.estimated costs ofconstruction excluding land and interestcostsBased on Group and 50% share ofJVs (exceptareas which are at100%)Property development riskLetting riskforspeculative developments; construction costand timeoverruns; adverse changes in planning and/orplanning policy whichmay cause delay and affectprofitability.These include limiting the amountofspeculative development;assessing letting potential and prospective profitability ofdevelopmentspriorto commencementofconstruction; on-going assessmentofdevelopmentexpenditure by quantity surveyors with regularcompari-sons ofcosts againstbudget; and ensuring executives are keptup todate with planning policies.We held a numberofbriefing sessions with owners and occupiersofneighbouring properties to ensure thatthey were fully informedandunderstood the scheme, and thatwe could take into accountanyconcerns they may have. Forexample we metwith two neighbouringchurches who raised concerns aboutconstruction noise and its impacton church services. We reassured them thatwhen services are takingplace the noisiestactivities would be keptto a minimum.Obtaining planning permissions forthe Companys developmentprogramme is a complex and expensive process involving manyorganisations and expertconsultants.The professional expertise needed, from architects, engineers,ecologists, environmental consultants and otherspecialistconsultantsmeans thatsecuring planning permissions gets more expensiveeveryyear.Focusing on one particularplanning application, the proposal forthe redevelopmentof122Leadenhall Streetin the City ofLondon costsome £5million alone, demonstrating the technical expertise andresource commitmentwhich is required. The firststage in the process
Aplanning application checklist
Transportation
Townscape and visual includingbuilding heritage
Ecology
Archaeology
Daylightand sunlight
Wind
Socio-economics
Airquality
Noise and vibration
Ground conditions, hazardous
Telecommunications
Sustainability
Demolition and construction
Waterresources
Civil aviationOurstrategy was to workwith English Heritage and theGovernments advisors on architecture, the Commission forArchitectureand the BuiltEnvironment(CABE) atan early stage, and to secureagreementto the application from the City Corporation.
The British Land Company PLC
Development Process
the Leadenhall BuildingObtaining planning permissions forthe Companys developmentprogramme is a complex and expensive process involving manyorganisations and expertconsultants.The professional expertise needed, from architects, engineers,ecologists, environmental consultants and otherspecialistconsultantsmeans thatsecuring planning permissions gets more expensiveeveryyear.Focusing on one particularplanning application, the proposal forthe redevelopmentof122Leadenhall Streetin the City ofLondon costsome £5million alone, demonstrating the technical expertise andresource commitmentwhich is required. The firststage in the processwas the identification ofthe opportunity, which initially arose fromchanges in planning policy.Increasingly the technical assessmentworkneeds to be doneaspartofa formal, detailed Environmental Statementcovering alltherelevantissues, which is submitted as partofthe application.Within each heading there can be a range ofissues. So, forexample,Transportation mightinclude road transport, public transport,pedestrians, parking, servicing ofthe building, deliveries and refusecollection. A greatdeal ofeffortgoes into ensuring thatthe technicalassessmentis comprehensive and accurate.Fora long time the City Corporations view was thattall buildingswere notacceptable in the City ofLondon. This was supported byEnglish Heritage, the Governments advisoron listed buildings andconservation matters. Howeverin the late 1990s a numberoffactorscame togetherto change thatview. The election ofKen Livingstoneasthe firstMayorofLondon in 2000 was importantas he is a seriousenthusiastforwell designed, tall buildings as partofhis overall growthstrategy forLondon. The City ofLondons Unitary DevelopmentPlanReview and the London Plan changed the planning policy by promotingthe developmentofa clusteroftall buildings atthe heartofthe City ofLondon to rival Canary Wharf.AtLeadenhall Streetthe appointmentofteam members was key;mostimportantly the selection ofthe Richard Rogers Partnership, whichhad designed the Lloyds Building on the opposite side ofLeadenhallStreet. The sketch (shown opposite) was partofthe original RichardRogers Partnership submission, made as long ago as 2001. Thisdemonstrated a grasp ofthe key planning issue from the beginning;the view ofthe building with the backdrop ofthe dome ofSt. PaulsCathedral as seen from the westalong FleetStreet; the outline ofthecathedral is shown in the circle. The basic shape ofthe proposedLeadenhall Building, deferring to the domes dominance, has remainedmuch the same throughoutthe schemes design development.Ourstrategy was to workwith English Heritage and theGovernments advisors on architecture, the Commission forArchitectureand the BuiltEnvironment(CABE) atan early stage, and to secureagreementto the application from the City Corporation.The Leadenhall Building viewed from the east.Computergenerated image courtesy ofCityscape.
We held a numberofbriefing sessions with owners and occupiersofneighbouring properties to ensure thatthey were fully informedandunderstood the scheme, and thatwe could take into accountanyconcerns they may have. Forexample we metwith two neighbouringchurches who raised concerns aboutconstruction noise and its impacton church services. We reassured them thatwhen services are takingplace the noisiestactivities would be keptto a minimum.The application was submitted in February 2004, afterovertwoyears ofintensive design developmentand pre-application discussion.The City Corporations Planning and Transportation Committeeresolved to grantplanning permission in October2004and, followinglengthy negotiations on a legal agreementproviding funding forenvironmental improvements in the local area, transportimprovements,affordable housing and training forlocal people, planning permissionwas finally granted in May 2005fora building of47floors and600,000 sq ftnetand a construction commitmentin the orderof£270million. This increases the floorcapacity, compared with thecurrentbuilding, by more than three times.Aplanning application checklist
Transportation
Townscape and visual includingbuilding heritage
Ecology
Archaeology
Daylightand sunlight
Wind
Socio-economics
Airquality
Noise and vibration
Ground conditions, hazardous
Telecommunications
Sustainability
Demolition and construction
Waterresources
Civil aviation
Illustration from the initial presentation by the Richard RogersPartnership in 2001.The view from the west with the Leadenhall Building attachedto thenorth side ofFleet Street. Computergenerated image courtesy ofCityscape.The existing 122Leadenhall Street
AnnualReport&Accounts2005
Source: The British Land Company PLC Annual Report & Accounts 2005 and used with kind permission.
of a company explaining how it
Development Process
Corporate Strategy
BritishLandseeks toachieve long-term growth in shareholder value by:
enhancing property returnsthrough active management and development
Operating and Financial Review
Development programme
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Key performance indicators and targetsCategoryIndicator200520042003Target 2006
CustomersCustomer Dissatisfaction
23%29%37% To increase the number against an objective of compoundcompoundcompound of extremely and very reducing the number ofreduction*reduction*reduction*satisfied customers by 5%dissatisfied customers by 25%
To improve levels of customerTo achieve this, we carry out moremonth. Weask them about theiroverall perception of BTand thequality of service. Customers who usethey are with our competitors. Theand experience, and products andBT Global Services uses three types ofFace-to-face interviews, normally withTracker surveys, an overall satisfactionWe publish customer-satisfaction andquality-of-service measures every sixKeep them informed (we shouldn'tTake ownership of their issues we make to them.
Source: BT Group plc Annual Review and summary nancial statements 2005, BT Group plc Social and Environment Report 2005, www.btplc.com and used with kind permission.
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nanical information alone. We, however, would encourage companies nancial and non- nancial used by management In this example, Wells Fargo to use different measures, giving es nancial and nancial that it believes Wells Fargo goes on to measure
Wells Fargo & Company
Which MeasuresReally Matter?We measure success differentlythan our competitors.We believethese measures matter most.Theyre the most important long-term indicators of success inthe financial services industry.- Revenue Growth- Earnings Per Share- Return On Equity- Revenue vs.Expense Growth- Assets Managed,Administered- Managing Risk- Retaining Team Members- Team Member Engagement- Retaining Customers- Customer Service- Customer Access Options- Cross-Selling- Product Solutions (Sales)Per Banker Per Day- Market Share- Total Stockholder ReturnLetty CanteroWells Fargo BankCorona, CaliforniaTeam member since:1994
Last year,we called for a new set of financial performance measuresto reflect more accurately how financial services companieslike ours create value for customers and stockholders.We believe this new set of measures is more suited to the faster growing,dynamic,diversified,knowledge-based financial services industry than to the stagnant,old banking segment.The more preciselythat service companies can measure the value they create,the more accurately the marketplace can measure the value of their stock.Our proposal prompted such significant interest and discussion that weve expanded on it in our report to you this year.Which measures really matter?Wells Fargo & Company Annual Report 2004
Source: Wells Fargo & Company Annual Report 2004 and used with kind permission.
nancial performance, namely that
Which MeasuresReally Matter?We measure success differentlythan our competitors.We believethese measures matter most.Theyre the most important long-term indicators of success inthe financial services industry.- Revenue Growth- Earnings Per Share- Return On Equity- Revenue vs.Expense Growth- Assets Managed,Administered- Managing Risk- Retaining Team Members- Team Member Engagement- Retaining Customers- Customer Service- Customer Access Options- Cross-Selling- Product Solutions (Sales)Per Banker Per Day- Market Share- Total Stockholder Return
any fancy new theories. We are simplymatter. Thats why we say nancialmeasures of the banking industry.Forexample: Asset size and return on assetsimportant to banks in the old days
Total customers can be a meaninglessmeasure it gives you little or no insightinto breadthand depth Think of the profit difference between 100 percent of their business
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Our strategy
e will identify opportunities products and emerging markets.We will consider organic growth and/or acquisition.
Every company is affected by its Pilkingtons Operating and Financial linkage to Group strategy. Directors objectives for the business its markets to its strategy. It
Demonstrate the linkage of other content areas within your reporting to your longer-term objectives and the
PILKINGTON plcOPERATING AND FINANCIAL REVIEW 2005
Glass is a growth industry. Global demand for glass outstrips economic growth around the world. Todays architects and car designers are using larger surface areas of glass in their designs, increasingly with added functionality and complexity.GROWTH IN GLASSOver the past 20 years, glass demand has grown more quickly than GDP.Over the long-term, glass demand is still growing at around 3.9 per centper annum. Demand growth for glass is driven not only by economic growth,but also by legislation and regulations concerning safety, noise attenuationand the response to the growing need for energy conservation. Architectsand car designers are using increasingly more glass in buildings and vehicles.
2002 2003 2004 2005 2006 2007 2008 2009 2010
Developed Markets +3m
2002 2004 2006 2008 2010 2012 2014
Developed Markets +7m
1991 1993 1995 1997 1999 2001 2003 2005
Real GDP growth: 2.6% p.a.
VALUE GROWTH
BUILDINGS
DEMAND GROWTH DRIVERSEnergy saving legislation and buildingregulations; reduction of energy loss fromEnergy saving legislation, reduction of air-conditioning load in buildings.Preventing non air-conditioned buildings
from overheating Increasing legislative requirement for safety glass in certain applicationsRequirement for transparency combined
with security featuresFire protection Requirement for good light transmission and compliance with regulations on fireIncreasing noise levels caused by traffic,aircraft etc progressively backed by
Reduction in use of detergents, safety atheights. Product range now extended tocombine self-cleaning with additional features
DEMAND GROWTH DRIVERSComplexityDesigners see glazing as a crucial element in designs to differentiate vehicles Curvature & surface Styling demands increase the complexity and depth of curves in vehicle glazing,making surface tolerances critical, e.g.
Larger glass areas require tinted and coated glazing to reduce solar heat build-upand air-conditioning loadCrime and vandalism increase the need for enhanced security, provided by
laminated side glazingsReduced time to market and leanglazing, including trim and other fittings, in one unitComplex antenna arrays and electronics
integrated into glazingDemand for increased vehicle comfort
through noise reduction
VALUE GROWTH
AUTOMOTIVE
OPERATING AND FINANCIAL REVIEW 2005
Source: Pilkington plc Operating and Financial Review 2005 and used with kind permission.
table growth c
GROWTH IN GLASSOver the past 20 years, glass demand has grown more quickly than GDP.Over the long-term, glass demand is still growing at around 3.9 per centper annum. Demand growth for glass is driven not only by economic growth,but also by legislation and regulations concerning safety, noise attenuationand the response to the growing need for energy conservation. Architectsand car designers are using increasingly more glass in buildings and vehicles.
Our industry
7
opportunities
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ACHIEVEMENTS TO DATEPilkington-constructed fourth floatline in Brazil for our South Americanjoint venture is in full production.Sound base established in China Pilkington management.Float line joint venture in Russia NEXTSTEPSey factor influencing the timing of our transition from Stage 2 toStage 3 will be progress in building our financial strength.China, Russia, India and the Robust systems implemented toassessviability of all growthopportunities.Groundwork laid for growthstructured to minimise cash outlayuntil the transition to Stage 3.Demand growth in mature Risks of operating in new working with joint ventures and local partners where
1991 1993 1995 1997 1999 2001 2003 2005
MOST FUTURE GROWTH OPPORTUNITIES WILL COME FROM EMERGING MARKETS
2002 2003 2004 2005 2006 2007 2008 2009 2010
2002 2004 2006 2008 2010 2012 2014
VALUE GROWTH
BUILDINGS
DEMAND GROWTH DRIVERSEnergy saving legislation, reduction of air-conditioning load in buildings.Preventing non air-conditioned buildings
safety glass in certain applicationsRequirement for transparency combined
Fire protection Requirement for good light transmission aircraft etc progressively backed by
Reduction in use of detergents, safety atheights. Product range now extended to
DEMAND GROWTH DRIVERSComplexityCurvature & surface and depth of curves in vehicle glazing,making surface tolerances critical, e.g.
and air-conditioning loadneed for enhanced security, provided by
Reduced time to market and leanin one unit
integrated into glazing
Demand for increased vehicle comfort
VALUE GROWTH
AUTOMOTIVE