greater transparency on a company - PDF document

dence* greater transparency on a company’s internal assesses the company’s 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 what’s 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 investor’s assessment that have affected a company’s 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 company’s 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 company’s 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 world’s busiest and leading build a third runway. As set out in the extract below, the Government BAA plc .;IFEDI?8?B?JO

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38>/= 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 office12347DetailedRegents 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 Companys 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 theGovernments 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 Companys 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 Corporations view was thattall buildingswere notacceptable in the City ofLondon. This was supported byEnglish Heritage, the Governments 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 ofLondons 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. PaulsCathedral as seen from the westalong FleetStreet; the outline ofthecathedral is shown in the circle. The basic shape ofthe proposedLeadenhall Building, deferring to the domes dominance, has remainedmuch the same throughoutthe schemes design development.Ourstrategy was to workwith English Heritage and theGovernments 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 Corporations 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 attachedto 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 1 19 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. 22 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.Theyre 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 measures„to 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 weve 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.Theyre 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. Thats why we say “nancialmeasures of the banking industry.Forexample:€ Asset size and return on assets„important to banks in the old daysŽ„ € 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 6 24 Our strategy e will identify opportunities products and emerging markets.We will consider organic growth and/or acquisition. Every company is affected by its Pilkington’s 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. Todays 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 25 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