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Tendenze in atto nel reporting di sostenibilità: reporting integrato e valorizzazione degli intangibili


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Intervento a cura di KPMG al SAP Sustainability Forum.

Intervento a cura di KPMG al SAP Sustainability Forum.

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  • 1. Integrated Reporting Performance insight through Better Business Reporting Issue
  • 2. 2 | Section or Brochure nameContents3 Foreword4 Telling the value creation story 8 Integrated Reporting in practice: The South African story14 What does an Integrated Report look like?28 Better Corporate Responsibility Reporting32 Applying Integrated Reporting principles in the public sector36 Active Governance: the core of Better Business Reporting40 Some common questions© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity.Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 3. Integrated Reporting Issue 2 | 3 Foreword Welcome to the second edition of Integrated Reporting, our publication focusing on the challenge of providing Better Business Reporting. The world of corporate reporting needs to evolve. The gap between investors’ needs for a more complete picture of value and the information currently being reported is not sustainable. Businesses are investing to develop and protect their long-term value in a changing world but CEOs are often left frustrated that these efforts don’t get the recognition they deserve. In the first edition of Integrated Reporting published in September last year, we presented a series of short articles by some of our experts to explain what Integrated Reporting is, why senior executives and non-executives should be interested and recent developments in the evolution of Integrated Reporting. Since then, the consultation on the International Integrated Reporting Council’s (IIRC’s) Discussion Paper has closed and the IIRC has issued a summary of the responses 1, its Pilot Programme has gained momentum and the IIRC is moving forward with the development of an Integrated Reporting Framework which it intends to publish by the end of 2013. In this second edition of Integrated Reporting, we start by explaining how Integrated Reporting can help organizations better explain their value creation story. We then review progress in South Africa where Integrated Reporting is already becoming a reality. We also address some of the practical issues that companies may find on the Integrated Reporting journey. One of the most common questions raised by companies is “what does an Integrated Report look like?” Michael Bray provides . insight to this question, whilst Matt Chapman and Wim Bartels address the particular issue of corporate responsibility reporting within an Integrated Report and Mark Hoffman explains how Integrated Reporting principles can, and are being, adapted for Public Sector entities. Nick Ridehalgh considers the relevance of Integrated Reporting to good corporate governance and we end with answers to some commonly asked questions. Whether you are actively pursuing Integrated Reporting within your own organization or simply looking to improve your existing corporate reporting, we hope that these short insights will help you on your journey to Better Business Reporting. If you would like to learn more please speak to your usual KPMG contact or one of our specialists listed on the back cover. David Matthews KPMG in the UK 1 IIRC: Summary of Responses to the September 2011 Discussion Paper and Next Steps, May 2012.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 4. 4 | Integrated Reporting Issue 2Telling the value creation story By Matt Chapman, KPMG in the UK In brief: • There is a gap between the information currently being reported by companies and the information investors need to assess business prospects and value • Integrated Reporting can help fill this gap by providing a basis for companies to explain their value creation more effectively to the capital markets • Integrated Reporting can help readers look beyond companies’ short-term results to form clearer views on long-term value • Integrated Reporting can be applied by any company to improve the focus of their Annual Report© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 5. Integrated Reporting Issue 2 | 5Explaining ‘business as usual’ is not enough. Owners needthe information to assess the value impact of business plansand changes in the business environment.There is growing recognition that the range of issues and Although designed to support the preparation of dedicatedopportunities affecting long-term business value is much Integrated Reports, this approach can be applied by anybroader than can be reflected in a set of current year company preparing its Annual Report - or other elements offinancial measures. Annual Reports should reflect this its corporate reporting.if they are to support investors’ capital allocationdecisions effectively. For executives frustrated by apparent investor short-termism, this is an opportunity to provide a more complete pictureIntegrated Reporting provides a basis to address this by of value, how it’s shaped by current and future events, andre-focussing reporting around an organization’s business explain what management is doing to create and preserve it.model and operational priorities. The aim is to reflectthe critical opportunities and challenges that affect Ultimately this is about business making its case forthe business – the same issues that management are capital in a more effective way – bridging the gap betweendealing with on a daily basis within the organization. management’s value creation story and investors’ assessment of business value and stewardship.Explaining business value YOUR REPORT READER’S NEEDS BUSINESS VALUE Organisation & Business Model Game Changers Governance & Remuneration (long-term) Value impact Operating Context Future Outlook Performance Strategy Management Plans (medium-term) Stewardship assessment Business As Usual (short-term) Report content elementsThe influence of stakeholders on business value and viabilitycannot be ignored in the current business environment.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 6. 6 | Integrated Reporting Issue 2An Integrated Reportingapproach to communicatingbusiness valueExplaining business value There has been some discussion about whether IntegratedThe backward looking focus of much corporate reporting Reporting requires business to assign monetary values tohas meant that the majority of reporting effort has gone intangible assets in order to provide a complete pictureinto explaining the ‘business as usual’ element of value. of value. We do not believe this information is necessarilyThis only tells part of the story. Generally there are three useful to investors whose assessment of value will generallydiscrete elements that need to be explained: derive from modelling future cash flows. Effective reporting should help readers form their own views of1. ‘Business as usual’ – reflecting the current shape and the short, medium and long-term cash generation performance of the business. Based on current year capability of the business. financial and operational performance. Readers will also want to understand how representative this is of the current A more complete picture of business value state of the business. Integrated Reporting combines financial and non-financial information with a forward-looking perspective that’s2. he likely effect of management’s plans, external issues T designed to help readers understand all the components and opportunities. Readers will want to understand both of business value – and how they may be affected by the context for the plans and the scale and uncertainties future opportunities and exposures. affecting them to form a view on how they impact value. Taken together, these characteristics mean that it can3. he long-term value of the business beyond its detailed T provide a more complete perspective over business operating-horizon. At this level it is the ‘game changing’ performance and value. business opportunities and threats – loss of operating license, re-alignment of markets - that will affect the assessment. For many businesses this will represent a large segment of total value, yet the lack of reporting focus here can cause investors to fall back on industry level generalizations when assessing future value.For executives frustrated by apparent investorshort-termism, this is an opportunity to provide a morecomplete picture of value.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 7. Integrated Reporting Issue 2 | 7 Bringing the three perspectives on business performance and value together Companies investing in the future of INVESTORS their business should welcome the Informed assessment of business value and stewardship opportunity to explain how they are creating assessment value and sustaining business value. INTEGRATED REPORT ch gam lue n One report addressing an e va atio ge cre short, medium rs and long-term business value MANAGEMENT STAKEHOLDER Telling the DEPENDENCIES company’s value Business reliance on creation story non-financial capitalSource: KPMG InternationalTelling the business’s story • Understand how the business issues and opportunitiesThe gap between what companies are doing and what reported will affect an investor’s assessment of businessthey’re reporting needs closing. Integrated Reporting value. Provide the information that supports thiscan help companies do this by letting them tell their assessment. Some matters are relevant because they couldstory on their own terms. It places the responsibility change the shape of the business, others may have a morefor communicating the business’s story on the reporter immediate impact such as a step change in productiverather than a set of reporting rules. capacity. The type of information that readers need for each will be different.This represents a cultural shift from a compliance driven focusto an approach led by business activity and user-needs. • Provide context (as well as performance and risk measures)Two steps in particular can help to achieve this: so that readers can form their own views of potential value impacts. If the strategy depends on developing a particular• Building the report around the company’s business model, market, help readers to understand its current and potential the context in which it operates, and its strategy to address size rather than just explaining the strategy. the opportunities and challenges that it faces (these are the first three Integrated Reporting content elements). Addressing the key drivers of value A small number of stakeholder issues may have a• emonstrating ‘Integrated Thinking’ in determining D fundamental effect on business value. They may represent detailed content. Issues identified at the outset of the threats, such as possible loss of operating license or report relating to business model and operating context opportunities, such as the creation of major new markets. should feed through into the business strategy and Reports should cover these issues to provide a more ultimately the performance reporting and governance. complete picture of value. This thread is central to explaining what management is doing and why. It also provides a basis for ensuring Corporate Responsibility reporting sometimes highlights the that the report remains focused on the issues that cost of managing these issues over the business benefit. matter to the business. A more complete picture is needed. Reporters should be looking to prioritize the most relevant issues:Supporting a more informed assessment of valueThe mismatch between current corporate reporting and • High impact issues should form part of the core businessbusiness value has become increasingly apparent in the reporting flowing through the report in the same way asvolatile business environment of the last five years. other strategically relevant business issues.The focus on current year performance may gosome way towards helping readers understand • or lower impact issues readers may simply need to see F‘business as usual’ but it is not enough to provide the relevant risk indicator and understand that the risk isa complete picture of long-term value. being managed.Identifying the content needed to explain how business For many businesses these ‘game changing’ issues willissues and opportunities affect value will depend on the represent a large segment of total value, yet a lack ofissues themselves but two steps should provide a basis reporting focus can lead to investors falling back on industry-for determining this: level generalizations.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 8. 8 | Integrated Reporting Issue 2Integrated Reporting in practice:The South African storyBy Mark Hoffman, KPMG in South Africa In brief: • Companies listed in South Africa now need to adopt Integrated Reporting on an ‘apply or explain’ basis • KPMG in South Africa’s experience is that many of the most successful implementations have been driven from the board and top management • Successful Integrated Reporting is not just about reporting, but about co-ordinating different disciplines within the business and focussing on the organization’s core strategy • The businesses which have gained most from Integrated Reporting have spent time and effort in building a continuous reporting approach© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 9. Integrated Reporting Issue 2 | 9The first annual cycle of Integrated Reporting in South One year inAfrica shows this has been a rewarding – though Companies listed on the Johannesburg Securities Exchangesometimes challenging – journey for the listed (JSE) were required to adopt Integrated Reporting from yearscompanies applying it. Through KPMG in South Africa’s commencing on or after 1 March 2010. The driver for thisinvolvement with more than 80 companies we can see was the King Code of Governance Principles for South Africathe positive impact that the entire change in reporting 2009 (King III) becoming a JSE listing requirement. King IIIethos is having on companies’ strategic thinking. Our recommends that organizations should adopt Integratedexperience is yielding important lessons for companies Reporting on an ‘apply or explain’ basis.already embarking on the Integrated Reporting journeyas well as those who simply want to improve the There has been a generally positive and pro-active responsequality of their reporting. from JSE-listed companies and a number of State-Owned Entities in South Africa which have embraced Integrated Reporting as part of their King III application programmes. The levels of application have varied, depending on the maturity, sophistication and approach by organizations to Integrated Reporting. Reporters typically fit into the following categories (and sometimes more than one): Early adopters business- case driven; Compliance approach; Wait and see; and Laggards. It is clear that the concept is bedding down and gathering momentum. Full adoption of Integrated Reporting is a journey and we think it could take most companies up to three years for it to become a fully established way of reporting the business strategy and performance. The journey duration depends on the departure point – the maturity and sophistication of existing reporting systems – and management’s energy and commitment to implementation. We have had the privilege of working with more than 80It is clear that the concept Integrated Reporting organizations. Below we share someis bedding down and of the key learning points observed in the first annual Integrated Reporting cycle, some of the challenges, and howgathering momentum. businesses are tackling these.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 10. 10 | Integrated Reporting Issue 2Peer groups are establishingbenchmarks and trends interms of structure and content.What have we learnt? Ad hoc reporting versus continuous process Given the often pressing reporting commitments andDriven from the top deadlines that businesses face, there needs to be a balanceThe more successful Integrated Reporting implementation between preparing an ad hoc annual report and establishingprogrammes have benefitted from close involvement an enduring integrated reporting process within theof CEOs and executive committees. Well organized and business. Shortcomings in the reporting process (such ascommitted steering committees and project-management reporting of risk management, stakeholder engagement,teams are needed to drive the implementation process. execution of strategy, performance and remuneration structures) often point management to deficiencies inIntegrated thinking and management underlying activities or processes. Management can fall intoThe key to successful Integrated Reporting implementation the trap of ‘fixing the report’ on an ad hoc basis rather thanis the ability of the business to achieve integrated thinking addressing the underlying issues.and integrated management in the organization. This requiresgetting the different disciplines within the business to work The ideal state is achieved when the internal managementtogether and break down the silos that are evident in many reporting is aligned with external reporting thereby focusingorganizations. Some of the more successful Integrated on the activities most valued by investors. The story of theReporting teams have included the following functions: business is already understood, analyzed and told before the Integrated Report is prepared. Reaching this state takes away the huge effort typically observed in year-end reporting Finance Performance Reporting and moves towards a continuous reporting flow. We have Sustainability Governance Regulatory seen businesses actively align their executive committee and (Safety, Health Environment) board reporting to their Integrated Reporting process, and Risk Management Strategy Operations Management vice-versa. The result is that what gets reported is managed Corporate Communications Human Resources throughout the year so there are no surprises in the year-end Investor Relations reporting process. Stakeholder Engagement Information Technology Forward-looking focus Integrated Reports should include a forward-lookingThese functions can be structured in different ways in perspective on the business corroborated by a look-backeach organization but the key challenge for the Integrated on performance against strategies and strategic objectives.Reporting project leader is to get buy-in and ensure This marks a shift in focus from short-term historicalinvolvement from all the main internal stakeholders. financial performance to providing an understanding ofThere needs to be ‘one view’ of the business and consensus how management is driving the medium to long-termon one set of material issues that need to be addressed business prospects. The cultural change required fromthrough one combined strategy. For example the days report preparers is substantial.of having a stand-alone sustainability strategy are gone,and we are increasingly seeing this incorporated into the Business-case driven approachcore strategy of the business. Implementation of Integrated Reporting has mostly been a positive experience for corporates that haveManagement can fall into the trap of ‘fixing the report’ on anad hoc basis rather than addressing the underlying issues.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 11. Integrated Reporting Issue 2 | 11We have seen businesses actively align their executivecommittee and board reporting to their Integrated Reportingprocess, and vice-versa.established a clear business-case driven approach to Where now for South African companies?the task. Most organizations have built on their existing This has been a discovery process for the many first-timereporting practices and now are focussing on areas integrated reporters, and the first annual wave of reportsneeding improvement. got this project off to a good start. The International Integrated Reporting Council pilot programme is alsoWhat do users think? adding international momentum.It is early days and there has not been overwhelmingfeedback from users – yet. We believe this will take time as The South African business community has respondedusers get used to the new approach to business reporting positively to something that has been a long time in coming.and Integrated Reporting gathers momentum, and as more Most businesses view it as a refreshing way of looking atdetailed content is provided around the broader range of and managing their businesses and reporting both internallyissues being identified in the report. and externally.A number of forums and interaction between reporters and Peer groups are establishing benchmarks and trends instakeholders are taking place on a collective and individual terms of structure and content as well as common materialbasis. This ongoing interaction and feedback should start issues and performance measures. This has been particularlythe stakeholder engagement that is required to more clearly evident in the mining and banking sectors.define users’ legitimate requirements and expectations from Most first-time reporters have identified areas of theirIntegrated Reporting. Integrated Reporting process that can be improved, andBut it is not just about the users of the reports. There are we expect that report detail will improve as its valueclear benefits for underlying businesses adopting Integrated becomes apparent and the underlying reporting systemsReporting. Interestingly a lot of positive feedback comes improve. Many of these developments will be addressedfrom management teams who are finding that Integrated in the journey to better reporting that has been adoptedReporting enables them to: and will become evident in new generations of Integrated Reports. Most importantly it should be recognized that• Focus the business on the really material issues Integrated Reporting is a way of achieving Better Business Reporting. It is being driven by businesses and their• Achieve integrated thinking and integrated management stakeholders as opposed to being simply another regulatory• Consider risks and opportunities more widely compliance exercise. The successes and better practice (including environmental, social and governance, trends being developed as well as continued stakeholder and stakeholder engagement) engagement, thought leadership and drive by the business community will ultimately underpin the future success of• Communicate strategy more effectively Integrated Reporting.• Enhance performance reporting• Streamline reporting externally and internally The days of having a stand- alone sustainability strategy are gone.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 12. 12 | Integrated Reporting Issue 2Better Business Reporting in practice: Materiality Materiality is applied at all levels of Integrated Reporting,Challenges found (and how you can particularly in risk and opportunity analysis but also inovercome them) considering the impact of strategic focus areas and performance reporting and outlook.Various common challenges and critical success factorsemerged as we worked with clients in South Africa Quantitative materiality thresholds can be defined usingto tackle Integrated Reporting. Leading reports found traditional concepts of reporting materiality but qualitativeinnovative solutions and are establishing best practice criteria need to consider issues including reputation, credibility,trends in many of these areas, bringing creative thinking to sensitivity and strategic relevance of matters. The structure ofthe table. It is clear from the leading reports that Integrated a well-designed Integrated Report provides a natural basis forReporting in these companies was driven by the business determining the material qualitative issues.– by its objectives, by its strategy, and by the different areasof the business working together to create integrated value Reporters who have applied the connectivity principleacross the organization as a whole. Leading companies effectively have found that their report contentalso demonstrated strong interaction between reporters naturally addresses the most material issues affectingand stakeholders. business value.This approach has already started to pay dividends with Additionally, the stakeholder assessments that manythe results looping back into the different areas of an companies went through as part of their reporting process hasorganization and flowing through to its governance and helped them to step back to identify a more complete picturecontinuing improvement of long-term strategy. As the of business challenges and opportunities. In this respectIntegrated Reporting process continues to mature, this materiality has been much less of an issue than many hadinteraction should generate increasing benefits for an originally anticipated.organization and its value creation. Here we consider our Assurancefindings so far on some of the challenges and success Developing an appropriate assurance process over integratedfactors noted to date. reporting is a significant challenge for many organizations. A focus group has been formed in South Africa to address this challenge and develop guidance in consultation with regulators and other stakeholders. A combined (internal and external) assurance approach is at the heart of an efficient and effective strategy. The assurance approach needs to combine the following: • Governance – oversight and approval of the reporting strategy, structures and processes • Processes – establishment of appropriate processes, systems and controls at all levels of the Integrated Reporting process, including internal audit and external assurance providers • Data – assurance over quality of underlying data • Use of judgment – assessments of risk and materiality The first challenge for reporters is to build appropriate systems of controls over these new reporting areas. The size of this task should not be under-estimated given the volume of qualitative and quantitative data which has not previously been subject to a formalIFRS reporting in the reporting statements remains Once this has been achieved we expect that the assurance community (internal and external) will be ready to meet thea safe haven for objective demand for broader assurance in these areas by building on existing assurance standards for forward-looking and non-reporting which can be financial information.reconciled to the analysis Logical links and flowsprovided by management in Connecting elements of the report is critical to the success of effective Integrated Reporting. Appropriate structuring leadsthe Integrated Reports. to good linkage and logical flow. Redundancies and irrelevant© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 13. Integrated Reporting Issue 2 | 13content can be identified through an editing process that links Stating the business strategycontent across the Integrated Reporting elements. Many reports only set out generic strategic themes or objectives for the organization. Businesses need to stateThe ultimate test? If it’s not linked, it doesn’t belong. the underlying strategies clearly so users can understandRegulatory requirements and other reporting the essence of these plans and where they will take theOrganizations in South Africa need to continue to meet organization. Only by understanding a strategy can performancetheir regulatory reporting requirements under King III, the be understood. Articulation of strategy usually requires anCompanies Act of 2008, International Financial Reporting outline of the underlying activities, initiatives and processesStandards and the JSE Listing requirements. They may also linking to the associated targeted performance and aspirations.wish to subscribe to certain non-mandatory frameworks (such Selecting the right KPIsas the Global Reporting Initiative, JSE Socially Responsible Key performance indicators presented in reports are onlyIndex, Carbon Disclosure Project, United Nations Global effective when placed in context.Compact and Millennium Development Goals). It is important to link KPI’s to underlying strategicMany companies have found the most effective way of imperatives as well as associated targets and trends thatdealing with additional content that’s not material in the provide the required context. Some organizations have gonecontext of the Annual Report itself has been by providing as far as benchmarking KPIs with their peer groups locallyexplicit links to other documents. and internationally.For example, often only abridged financial statements are It is notable that the extractive industries and banking sectorprovided with linkage to a separate document containing the have been leaders in providing additional performancefull IFRS financial statements. This approach has worked well information. Peer pressure may be playing a part here, withwhere the linkages have been clearly highlighted and are easy participants reluctant to risk challenge over the completeness ofto follow. their disclosures.Stakeholder engagement Financial performance analysisStakeholder engagement is sometimes overlooked or dealt Financial results included in Integrated Reports are often limitedwith at a shallow level. Integrated Reports should reflect to summarized financial statements prepared on an abridgedmeaningful interaction and engagement with stakeholders, basis. Better reports provide analysis of drivers of volatilityfiltering to material issues and demonstrating responsiveness and sustainability of trends in financial performance and linkin the business strategy and ultimately performance. them to underlying strategic initiatives. This could extend toLeading reports demonstrate that interaction actually took providing management’s perspective on sustainable earningsplace and specify the issues arising from it rather than and identifying what are considered exceptional items in theusing generic stakeholder engagement avenues financial results. IFRS reporting in the financial statementsand themes. remains a safe haven for objective reporting which can be reconciled to the analysis provided by management in theOrganizations that have addressed shortcomings in their Integrated Reports.stakeholder engagement processes find that a wealth ofbusiness intelligence lies in meaningful interaction with Targets and future performancestakeholders across all spectrums of the business. The forward-looking orientation of Integrated Reporting necessitates preparers to start providing meaningful insight intoProviding a balanced view management’s plans and aspirations. It does not necessarilyUsers of reports typically want a clear view of shortcomings require management to provide detailed projections orand challenges businesses face. Most importantly, they want forecasts of financial performance. Ideally the uncertainties andto understand how management is dealing with these issues. non-controlled factors should be identified and their impact on performance outlined in sensitivity analysis. Management’sBusinesses tend to think that reporting these challenges aspirations and targets should focus on what they control fromcan lead to a negative perception of the organization. Those a strategic and operational perspective.charged with governance have a responsibility to ensure thatthe Integrated Report deals with all the organization’s material Reporters can be reluctant to provide targets and futureissues in an objective manner, providing a balanced view of performance aspirations in their external reports. Reasonsthe organization. given revolve around regulatory concerns on providing forward-looking information and creating expectations thatUltimately most businesses have developed what they may be used against management in future periods. Oftenconsider to be the best strategy to deal with the challenges regulatory concerns and commercial sensitivities can bethey face. They have generally found it preferable to managed through careful presentation. Without guidanceexplain how they’re managing the issue rather than on future performance goals, many users set their own implicitretreat behind boilerplate disclosure that may leave expectations – these can be equally damaging to managementreaders with the impression it is not being addressed at if not met.all. Similarly, organizations may benefit from highlighting theopportunities and competitive advantages they have achievedin successfully executing their strategies.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 14. 14 | Integrated Reporting Issue 2What does anIntegrated Report look like?By Michael Bray, KPMG in Australia and Matt Chapman, KPMG in the UKOne of the questions KPMG member firms are most often The Integrated Report should cover the six content elementsasked in relation to Integrated Reporting is: what does an using the five guiding principles to enable capital providersIntegrated Report look like? Whilst some organizations have and other key stakeholders to make decisions about themade significant progress in applying Integrated Reporting business’s value and stewardship – the matters that shapeprinciples, they are all, in our view, still on the journey its value for the longer term, its aspirations and plans for thetowards Better Business Reporting. medium-term, the business as it currently stands, and how it has delivered on its promises.One of the distinguishing features of Integrated Reportingis that in contrast to compliance based reporting, there canbe no model report – every report must be built around Guiding principles for Integrated Reportingthe unique business model of the preparer. This requires avery different mindset when looking at examples of good • Strategic focusreporting. There are many good illustrations of how to reportspecific matters but examples can only provide a starting • Future Orientationpoint for a company’s own reporting, not a template. • Connectivity of informationThe starting point for understanding how Integrated • Responsiveness and stakeholder inclusivenessReporting works is considering the application of the contentelements and guiding principles of the IIRC’s Integrated • Conciseness, reliability and materialReporting framework. We have not provided an example ofan overall ‘perfect’ Integrated Report as it simply does notexist at this stage, although the experience in South Africaand the work of the IIRC pilot programme will take us in It is important to note that whilst the content elementsthat direction in the future. What we have done instead is provide a good overall structure, there is no need toto show the elements that companies need to consider assemble the report in a linear fashion. A consistent threadin building up their Integrated Reports, and give some of key issues should run throughout the report – it should beexamples of good practice to date. possible to follow a strategic objective all the way through the report, from how that objective relates to the businessIntegrated Reporting building blocks model, through the associated risks and risk mitigationThe IIRC has set out the content elements and guiding strategies, to the key performance indicators measuringprinciples which underlie Integrated Reporting. progress in achieving these, and to the future outlook.Applying the Integrated Reporting Content elements YOUR REPORT READER’S NEEDS BUSINESS VALUE Organisation Business Model Game Changers Governance Remuneration (long-term) Value impact Operating Context Future Outlook Performance Strategy Management Plans (medium-term) Stewardship assessment Business As Usual (short-term) Report content elements© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 15. Integrated Reporting Issue 2 | 15Can I model it?Ultimately good reporting is about meeting investors’ needs. Integrating with IFRS and other reportingFor an Annual Report this comes down to answering two frameworkskey questions. What does it tell me about the value of the Many South African companies are rebranding their annualbusiness and what does it tell me about the management’s reports as ‘integrated annual reports’, with Integratedstewardship of the business? Some of the best examples of Reporting replacing the ‘front end’ of the annual reportreporting help readers understand how to model value - how and IFRS-based financial statements either in the sameto structure a cash flow model of the business and how to document or published separately.form views on the key model judgments. Businesses that Existing Annual Report elements such as chairman’sdon’t do this risk greater capital markets volatility. statements, CEO reports and operational reviews areTackling Integrated Reporting by element being re-focussed on specific Integrated Reporting contentOn the following pages we consider each of the six elements. Many companies are also continuing to producecontent elements and the challenges that reporters have GRI-based sustainability reports, usually in a separatein addressing them. In doing so, we also highlight how the publication or on-line.guiding principles apply across the content elements. Material information from the financial and sustainabilityWe set out the questions reporters need to ask themselves reporting is being retained in the Integrated Report andbefore moving on to give illustrations of good practice. In a supplemented with new ‘value-indicating’ KPIs. Otherpublication of this size, we can only cover a limited number reporting may be reduced in volume and complexity byof examples: there are many more examples of ‘good’ out the renewed focus that Integrated Reporting can bring.there. Some of these have come from South African public The financial statements of UK company ITV provide ancompanies that are now preparing their second round of interesting example of how financial statements can beIntegrated Reports. Other examples come from companies de-cluttered to provide a clearer report within the existingwhich have been working to improve their reporting IFRS framework.without necessarily seeking to follow the Integrated In the longer term, Integrated Reporting may become aReporting principles. self-contained, clear and concise articulation of business value and stewardship. Integrated Reporting may be distributed electronically, or even be an electronic repository from which readers can drill down to other reports for detail. ANNUAL REPORT Typical approach • Structured around Integrated Reporting content elements • Retains traditional components (Chairman’s statement etc) within the Integrated Reporting framework • Incorporates the financial and non-financial data necessary to understand all components of business value • No direct change to supporting reports such as the financial statements and corporate responsibility report (though there may be an opportunity to cut clutter from both) FINANCIAL CORPORATE OTHER REPORTS STATEMENTS RESPONSIBILITY© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 16. 16 | Integrated Reporting Issue 2What does it look like?Organizational overview business model.This element of the report provides essential context to the companies that have found a graphical presentation to be user. It provides the foundation on which the morespecific disclosures elsewhere in the report are based. It is A high level view of the business model provides a startingalso the part of the report that users will fall back on to point for readers to understand the business on its terms – inassess the headline impact of unexpected events on fact it should be the foundation of the report. However, it’s notfuture cash generation in the absence of any specific enough on its own. Detail is needed if readers are to use themanagement guidance. business model description in their decision-making. The right detail will support two different perspectives on the business – readers will need both of these when making different Challenges: judgments about the business: • Is sufficient detail provided to understand the relative 1 Explaining business activity importance of each group of assets / activities to the A good description of the business model should provide a value of the business? basis for explaining each aspect of the business operations – the suppliers it interacts with, the inputs on which it depends, • Is the analysis sufficient to put the elements of the the processes it undertakes, the outputs it produces, and the business into context? customers it sells to. For example, in their Sustainable Living Plan, Unilever identify their top 10 raw materials by volume. • Do the components of the business model described This helps readers understand the potential impact of strategic link through to the rest of the report?. objectives around sustainable sourcing. This is not to say that extensive disclosures are required inThe starting point is an explanation of how the business works and each area – the amount of detail only needs to be sufficientthe factors which affect the continued operation of the business for readers to assess the impact of the material risks andmodel. Sasol and National Grid are among a growing number of opportunities identified elsewhere in the report. Example – Explaining the business model Operating and Financial Review How the US electricity industry works Business Overview Generation – Transmission – Distribution – Supply – National Grid and others National Grid and others National Grid and others National Grid and others Electricity generating stations produce electricity from another The transmission system supplies electricity to substations in The distribution system receives electricity from the substation Utilities such as National Grid and qualified retail marketers form of energy such as fossil fuel (coal, oil or natural gas), individual service areas. Transmission lines transmit electricity and supplies it to customers at a voltage that they can use. The purchase electricity for customers connected to the nuclear, hydroelectric, geothermal, solar or wind. from the generation source or substation to distribution distribution system can be considered to begin at a substation. distribution system. Qualified retail marketers buy and sell substations. Transmission voltages at National Grid vary from The substation transformer converts the transmission voltage electricity only in deregulated states, but usually do not own We own 57 generation units on Long Island that together 69 kV to 345 kV. Transmission voltages can also be converted to a distribution voltage. Electricity at the distribution voltage, or operate generation, transmission or distribution facilities. provide 4.1 GW of power under contract to the Long Island to lower subtransmission voltages, typically 15 kV to 69 kV, to also called primary voltage, is typically 4 kV to 35 kV and is Physical Power Authority (LIPA). We also own 3.4 MW of solar supply distribution substations and/or provide electricity to supplied to the service area by distribution lines. Unlike in the UK, supply and distribution are not necessarily generation in Massachusetts, making us the largest large industrial customers. separate in the US; electricity distribution companies often owner of solar generation in the state. Distribution lines may be located overhead on utility poles sell electricity to their own customers connected to their Operating and Financial Review We own and operate transmission facilities in upstate New York, or buried underground. Distribution transformers convert distribution system. Massachusetts, Rhode Island, New Hampshire and Vermont. distribution voltage to a secondary voltage, which is the We also own and operate a 224 km transmission interconnector voltage used by customers. We own distribution facilities between New England and Canada. We operate and maintain and provide service to 3.4 million customers in upstate the transmission system on Long Island, owned by LIPA. New York, Massachusetts, Rhode Island and New Hampshire. We maintain and operate the distribution system on Long Island, providing service to 1.1 million LIPA customers. Corporate Governance Generating station Subtransmission Primary customer customer 26 kV/69 kV 4 kV, 13 kV and 35 kV Generator transformer Substation transformer Directors’ Remuneration Report Transmission lines 345 kV, 230 kV, 138 kV and 69 kV Transmission customer Secondary customer Distribution lines 120 V/240 V Financial Statements Utilities may generate all the electricity they sell or may The independent system operators operate as independent Distribution rates are regulated by the state public utility In deregulated states, which includes all the states in which purchase electricity on the wholesale market from other administrators for the oversight of electricity transmission commissions. Utility distribution facilities provide electricity we operate, consumers have the option to select their energy utilities, independent power producers, power marketers while providing fair and open access to the electricity services to end users. This contrasts with the UK, where supply from the incumbent utility or retail marketers/energy or from a market based on membership in a regional grid. Each independent system operator is the clearing distribution companies do not sell electricity to end users. supply companies. transmission reliability organisation such as an independent house for load serving entities’ bids to purchase electricity system operator (ISO). and generating stations’ offers to sell electricity. New York Customer bills typically comprise a commodity rate, Where customers choose National Grid, those customers pay ISO and ISO New England markets determine the wholesale covering the cost of electricity delivered, without a profit us for distribution and commodity cost. Where they choose to We purchase electricity through the New York ISO and energy price for New York and New England respectively. margin, and a delivery rate, covering our delivery service. purchase from third parties, they pay us for distribution only Commercial ISO New England for transmission and distribution to and pay the third party supplier for the commodity. our customers. We also contract directly with generators We are permitted to recover the cost of electricity transmission to purchase electricity. across the regional grid from our customers as a transmission service charge. Useful Information All available power from our Long Island generation facilities is made available to the New York ISO market to meet the Long Island Power Authority’s requirements and for sale to others. 14 National Grid plc Annual Report and Accounts 2010/11 Annual Report and Accounts 2010/11 National Grid plc 15 Source: National Grid plc Annual Report and Accounts 2010/11, pages 14-15© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 17. Integrated Reporting Issue 2 | 172 Explaining the business’s resourcesThe business will generally depend on different resources at How well does your reporting explain youreach stage in its process. Readers will want to understand business model?the extent to which the business depends on these capitalsand the impact it has on them. They will represent the Would a reader agree with these statements?key source of risk and opportunity for the business.The frustration for many reporters has been that the cost • I understand the resources on which the businessof managing these resources is covered in traditional has access to, depends on, and how it affects themcorporate reporting whilst the benefit is not. • I can see what the business currently does and howThe IIRC has identified six capitals: financial, intellectual, it adds valuemanufactured, social, human and natural. Not all will be • I can see how management’s plans will change thesignificant for every reporter but some will be essential shape of the businessif readers are to understand the resources the businessdepends on and how it affects them. • I understand the high level assumptions that underpin the business modelThe mining industry has been providing in-depth analysisof its natural resources for many years. The result is muchgreater visibility over how management of the productivecapacity of the business is evolving. Other businesseswill have different priorities – for example brand Detail is needed if readersmanagement – but they may well benefit from following are to use the businesssimilar reporting principles. model description in their decision-making. Example – Explaining the business model introduction to sasol /continued our integrated business model Sasol’s integrated business model is fundamental to our ability to create value using our proprietary technology A proprietary version of and processes to produce liquid fuels and chemical products. Sasol’s low-temperature Fischer-Tropsch (FT) process, GTL Diesel used with an advanced iron Our GTL diesel of a higher quality than diesels GTL Naphtha derived from crude oil. GTL diesel has a high or cobalt catalyst, to convert synthesis gas into waxes and GTL Kerosene (jet fuel) cetane number (70+ versus the conventional Sasol GTL related petrochemical streams for producing and marketing GTL LPG (liquid petroleum gas) 45 – 55), low sulphur (less than five parts per million), low aromatics (less than 1%) and (gas-to-liquids) low temperature conversion waxes and diesel. Chemical value-adds excellent cold-flow characteristics. Our GTL diesel, therefore, is ideal as a low-emissions, process + cobalt catalyst Base oils premium grade fuel and as a blend stock for Paraffins upgrading conventional diesels. At the Oryx GTL plant in Qatar, Sasol syncrude Waxes natural gas is purchased and used as feedstock for the GTL process. Slurry Phase -t o- liquids ( GT FT Reactor gas L) gasification Product Chemical products hy Fischer-Tropsch (FT) natural gas and reforming workup dr o Chemical intermediates from the FT process Our proprietary syngas are separated, purified and, together with gasification technology Syngas production c ar bon f eedst Using steam and oxygen at high conventional chemical raw materials, and temperatures, coal is gasified converted into a range of final products. reforming and natural gas reformed to produce synthesis gas syngas Ethylene Sasol obtains its raw coal (syngas is a mixture of carbon Polyethylene materials through its coal- coal monoxide and hydrogen). Polypropylene oc mining activities, oil and gas Polyvinyl Chloride k exploration, and purchases from the open market. co L) Sasol n-Butanol Markets a l- t Some raw materials are sold o- liquids ( CT Advanced syncrude Alcohol, acetic acid, Sasol markets products directly to external markets. Synthol™ ketones directly to the consumer, Sasol CTL Reactor chemical building Chemical Comonomers as well as to commercial (coal-to-liquids) (SAS TM) blocks workup and industrial customers, + iron catalyst thereby integratingits Through Sasol Petroleum process upstream and downstream International (SPI) and high temperature conversion activities. Sasol Gas, we obtain The proprietary Sasol reactor co-products Ammonia Explosives natural gas through the Sasol Mining supplies most of the at the heart of the SAS™ Methanol Fertilisers process, the high-temperature Coal gasification and cross-border pipeline feedstock coal required for the the FT process produce Crude tar acids linking the Pande CTL process in Secunda. version of Sasol’s Fischer- Tropsch (FT) process used at co-products for recovery Sulphur and Temane fields in and beneficiation. Mozambique to our Secunda, produces a synthetic Secunda complex. We form of crude oil and chemical use this gas as our sole natural gas from Mozambique feedstock. Refine hydrocarbon feedstock Petrol at Sasolburg and as a fuel components and blend Diesel supplementary feedstock to coal at Secunda. LPG crude oil crude oil as feedstock Illuminating paraffin Bitumen Crude oil, coal and natural gas Fuel oil are sold to the open market. Fuel products New Energy In the liquid fuels business, synthetic fuels components are upgraded and marketed together with conventional fuels produced in a refinery from crude oil. sustaining our integrated business model Greenhouse gas (GHG) emissions Water Corporate governance New Energy Innovation Research Coal is an important part of the world’s energy mix, Various technological advancements Sound corporate governance Sasol New Energy (SNE) was created to In downstream chemical process technology, Besides the research and development and Sasol will continue to produce transportation fuels in effluent recycling, cooling, structures and processes are applied focus on new technologies that can be we have developed several proprietary processes and new-product formulation and testing from coal and gas. We are committed to substantially pre-treatment of water for steam at Sasol and are considered by the integrated with our core technologies for recovering and processing a range of work we do at Sasolburg through Sasol reducing our carbon emissions by developing more generation and solids handling are board to be pivotal to delivering on to reduce our GHG footprint. As part of solvents, waxes and phenolics for the world Technology’s fuel research group, we efficient production processes and investigating carbon paving the way for significantly sustainable growth in the interest our commitment to reduce production market. We have also developed and patented conduct further fundamental research at capture and storage solutions. We have set several targets improved zero liquid effluent discharge of all stakeholders. of carbon dioxide in our operations and several base-metal catalysts for our FT synthesis the Sasol Advanced Fuels Laboratory (SAFL), to reduce our greenhouse gas emissions intensity by designs, which are being developed integrate new technology into our FT processes. We have been innovative in coal in collaboration with the University of Cape 15% (on the 2005 baseline) in all our operations by 2020. irrespective of water availability processes, SNE will look into renewable exploration and mining, where Sasol Mining Town, and the Sasol Fuels Application Centre The targets we have set for all our operations reflect not or pricing. and lower-carbon energy options such (sometimes in partnership with technology (SFAC). SFAC enables us to conduct sea-level only our desire to be a responsible company, but also our as solar, biofuels and biomass, as well as suppliers) has developed high-extraction engine and fuel research and tests in line awareness that a strong business case exists nuclear, hydro and natural gas. mining methods, advanced directional drilling with international trends. for sustainable development. techniques, roof-bolting systems, continuous miner systems and a virtual-reality training system for continuous miner operators, among Refer to our key performance indicators for more details on our performance against targets and page 78 other cost-saving innovations. for details on our energy efficiency initiatives. Source: Sasol Integrated Annual Report 2011, pages 8-9 All extracts from published reports should be read in conjuction with the full report itself including its notes.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 18. 18 | Integrated Reporting Issue 2What does it look like?Operating context includingrisks opportunities.This part of the report describes the external factors affecting Some reporters clearly put a great deal of effort intothe business (both positively and negatively) and how the identifying potential risks. We believe readers will be morebusiness identifies and responds to these factors. interested in gaining a deeper understanding of the smaller number of issues that could have a fundamental effect onCompliance led reporting has generally focussed on the business value.downside risks here but if a more complete picture ofvalue is to be given, business opportunities also need to be Some companies provide a broad-ranging analysis of theiraddressed as they form a major part of the long-term value risks and their management, explaining their risk managementof many businesses. performance in some detail in terms of risk tolerance levels set by the board (risk area, aspirations, tolerance level, targets, and 2010 and 2011 performance). They also comment on their Challenges: risk review process and risk management assurance. • Does the description balance the focus between The linkage of issues across the report can help keep it the long-term major risks to the business model and focused on the most material issues. If an issue is identified short-term operational issues? as a key risk or opportunity, linkage demands that the strategy and performance in managing it are also explained, • Is sufficient detail provided to understand the impact together with future outlook and governance. If management of the risk / opportunity? For example, what size of find it difficult to explain these, they should ask themselves revenue segment does it affect? whether they are reporting on issues that are of only peripheral relevance. 36 37 36 Transparency and accountability 37 Transparency and accountability Transparency and accountability Transparency and accountability Figure 2.10: Risk, strategy and performance (within the tolerance levels set by the Board) 2.2 Risk management During the year, our international During 2011, the ERM process operations were surveyed by the Risk Area Aspirations Tolerance level Targets 2010 2011 Effective and integrated risk at Gold Fields was reviewed by IMIU (International Mining Industry management sits at the heart PricewaterhouseCoopers, which Optimise our assets Underwriters) and our South African of true business sustainability. found that: FIFR – Zero 0.11 0.12 mines by Zurich Risk Engineers, Gold Fields has a well-established SIFR – 25% less 1 2.22 2.64 part of Zurich Re. Both agencies Safety Zero Harm Zero Harm Enterprise Risk Management (ERM) LTIFR – 25% less 1 4.39 2 4.69 noted continued improvement in risk process, which not only covers our compliant with the risk management at these operations MTIFR – 25% less 1 7.16 2 5.68 ‘traditional’ operational and business management requirements and all of the mines are placed in 2013 MHSC milestones risks, but also our environmental, of King III Health Zero Harm Zero Harm On track On track the top quartile of the approximate for Silicosis NIHL social, health and safety risks. 400 mines assessed. Environment Zero Harm Zero Level 4 and 5 incidents Zero Zero Zero ISO 31000 risk management 5Moz by 2015 95% compliance 3.5Moz 3.5 3.5 The overriding purpose of the Gold Delivery Gold Fields has operated for 11 guidelines have been adopted N C E 25% N C E 15% - 20% 16% 25% ERM process is to help Gold Fields years without making a property become more resilient in the global Securing our future claim into the insurance market. business environment and achieve a mature risk management Human Pipeline of scarce and 60% – successor cover ratio 60% 50% 70% its strategic objectives – to grow process that is leading many Resources critical skills for top 250 employees Gold Fields, to optimise its Additional content online of the approaches in the non- Global leader Full compliance with all Licence to operations and to secure its financial sector operate in sustainable legal and community Full compliance 100% 100% future. It also supports our efforts gold mining commitments to achieve the highest levels of Ethics and Full compliance – SOX and No material / significant No material / significant corporate governance, as well Corporate substantial compliance to Nil Nil failures failures Governance King III as full compliance with the risk management requirements of South Growing Gold Fields Africa’s King III Code. Capital Projects Project delivered on time / 7% - 10% overrun South Deep, Chucapaca, On track On track budget FSE, APP Yanfolila , The ERM process is comprised Proper assessment of risk Enterprise Risk Management Mergers IRR 3 5% – Near-mine of two integrated and well-aligned and returns commensurate As per IRR On track On track Acquisitions IRR 10% – Greenfields with the risk components: operational risk management and strategic risk Appropriate Leaning towards greater Exploration balance between geological geological potential in high As per GBAR 4 On track On track management (see Figure 2.8). potential political risk risk areas It is aligned with the ISO 31000 international standard on Operational risk management Targets achieved Improved on previous year Targets not achieved Strategic risk management risk management. The identification, analysis, The identification, analysis, evaluation and treatment of evaluation and treatment of hazards 1 South Africa only – other regions are subject to a 20% reduction 3 Internal Rate of Return significant or material risks which and risks in order to create a safer, f target for SIFR, LTIFR and MTIFR 4 Global Business Area Rating system could have a profound effect healthier, more productive, 2 Restatement – LTIFR previously reported as 4.38 and MTIFR previously on the sustainability of environmentally friendlier reported as 7.09. Please see p4 for explanation the business and sustainable working environment Risk review process The Group’s top strategic risks Risk management assurance are then reviewed by the Gold Fields The multi-stage strategic risk Our Risk Management Charter Figure 2.9: Risk management review process Executive Committee (ExCo) on management process starts with provides for four levels of ERM a biannual basis. Mitigation quarterly strategic risk management process assurance: (1) Financial strategies are developed on the Disclosure of risks assessments at each of our mines Internal Controllers review mitigating Audit Committee Risk Review basis of this review, which are to all Stakeholders and service divisions. In addition, all strategies on a regular basis to presented at the Audit Committee’s management sites regularly conduct operational ensure they are being implemented. Strategic risk Risks from the dedicated risk meetings and Group Executive Committee Risk Review risk assessments compliant with These reviews must be captured external environment reviewed after six months. standards set by Simrac (Safety in the Cura risk management in Mines Research Advisory software system; (2) Internal The Board and company Regional, operational, service divisions and new project strategic risk reviews on a quarterly basis Committee) in South Africa and the Audit conducts an annual review management are responsible for Top 10 risks and risk mitigating actions discussed at quarterly business reviews AU/NZ Standard 4360 in Australasia. on the effectiveness of the risk risk governance and management. Key strategic risks are identified and management process; (3) Internal Operational risk management Nonetheless, the integral involvement analysed, and mitigating actions are Audit provides assurance to the Baseline, initial or ‘whole of mine’ risk assessment and risk profile of all line managers in the process is Project risk put in place (or eviewed if already Board that the risk management plan Hazard identification essential to ensure the effectiveness management guidline in place). The regions’ top risks are is integrated into the daily business and risk assessment of the system. Issue based risk assessment – Change Management and HAZOPS forwarded to the egional executive activities of Gold Fields; (4) Internal in terms of SIMRAC – Exploration site committees, which review the risk Audit conducts an annual review of AUSNZ 4360 risk assessments register and decide on appropriate the mitigating strategies of the top Ongoing or continuous risk assessment mitigating actions. risks in the risk registers to ensure they are being implemented. FOUNDATION – If we cannot mine safely, we will not mine PRINCIPLE – Stop, Think, Verify, Fix and Continue Gold Fields – Integrated Annual Review for the 12 months ended 31 December 2011 Gold Fields – Integrated Annual Review for the 12 months ended 31 December 2011 Gold Fields – Integrated Annual Review for the 12 months ended 31 December 2011 Gold Fields – Integrated Annual Review for the 12 months ended 31 December 2011© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 19. Integrated Reporting Issue 2 | 19 The linkage of issues across the report can help keep it focused on the most material issues.Many South African reporters have used stakeholderinteraction as a basis for providing the assessment of How well does your reporting explain the operatingoperational and strategic risk. This approach can help to context of the business?balance focus on the major long term risks and opportunities Would a reader agree with these statements?that can transform business value with the more immediateoperational challenges on which management focusses • I understand the risks and opportunities associatedon a daily basis. This distinction between long and short-term with the resources on which the business depends onis particularly important in this part of the report – readersneed to understand both. • I can see how the business affects (positively and negatively) the providers of the resources that itNedbank overviews its various key stakeholders and their key depends onissues, introducing each of them, explaining the importanceof each and why they need to be engaged and how they • Management has explained the assumptions aroundhave been engaged. Nedbank pays particular attention to future business environment on which the its individual key stakeholders. For example, in relation to organization’s plans are based; I understand the regulators it reviews relevant objectives, summarizes the change in resource required to deliver this planstrategy for 2011 and self-assesses performance. It ties this • I understand the current risks and opportunities facedto strategic objectives for 2012 and beyond, and comments by the business and how they are managedon feedback and resultant actions. It also cross-references /links to other reports. Example – Stakeholder engagement STAKEHOLDER OVERVIEW STAKEHOLDER OVERVIEW STAKEHOLDER INTRODUCTION STAKEHOLDER INTRODUCTION Reporting Reporting standard standard STAFF STAFF Ou Ou GRI GRI1: 4.1444.154.15, 3. G3 : , .14, , tpe tpe 4.16, 4.16, usinesses usinesses r fo r fo Reasons for engagement Reasons for engagement rm rm 4.174.17 tions ions ed ed lar lar Great place Great place To eTo uresuhetthatdbank ank upoup rensaansemplmplr oer hoichobcepry viding a saaesafosipiositave anspinispiring ns en t ra N e N edb GroGr remaim i an eoye oyf cof ce i y bo providing f , p e, t ve i nd i d r ng ic profit profit Sust Sust g g osit working environment. working environment. s inc d in 4 anches acro ches b st ncti client valu oposi ss all b ss all b ain ain abl abl to invest to invest Cross- Cross- eS e S bank cial rform ng t ear and Fully ullyuto ursdandand andprenpond taff texperiencies, ceseds eds and cernserns. F to nden t erst and res o sd to s o s aff exper en ne , ne and con onc . rop efi efi omic sed bran referencing referencing A A r na na onom To providevadlesaalff twfth strateracediirectrontandandtpeetit ent informatronarregnrdgroupoupivictesi.ties. T pro i l t l s aif wi h st git g c dii ec ion per in r nninformation i eg diag ing gr act a tiiv ep ep ba anderfo nce e yea r n n 9b acro ible priceprioe: boo ible : bc o nk Distinctive client valu TangTang con 9 k im k im s p sa in 4 Types of engagement Types of engagement cia 92 in ec pro pro Cultural Cultural sed in e lp nd ve ve ed e dd dd sustainability sustainability rea rea FIN m FIN e A robustbusmconabiiontoonaof -aoeface,facritteritaen anoabrcasdcasmcounicutiions.ions.sehieseuncld dud uretane andagemgement A ro co t bi mt na i f f cef t c- - to- w e, wn t nd br d d oa t co t mmman cat The T ncl ide ucelt cul urd e g enga ent 4m 4m ffer ffer u u Worldclass Worldclass r Pages 136136 – 151 Pages – 151 s inc I 15 c I 15 surveys, roadshows, emails, intranet communications, data casting, magazines and and relevant training. surveys, roadshows, emails, intranet communications, data casting, magazines relevant training. 92 ve s s Gro Gro R R ay Dianiking o ay banking o rn rn rin ri he y O A a h an wt wt red red re re at managing at managing tu tu Leadingding feep Geeenrthrouhroughcaliftacieidatrocpso,cwsthwiatunaltworkingkieameaorsperr onasonal tery terd teameamctfvenese.ness. Lea for Dor De rp G een t gh a fa i at l t ped ers e is, n th r a ural wor t ng ts fm fos per l m smas any and t effe eifectivs g t R and Client service score Client aervice score hi hi ive ive r r Del Del holdeholde e n n ts ents riskrisk nt nt men e e shar shar me me ng ng Cross- Cross- RO totaltotal ge ge em enhancem io io ni ni % in% in sit sit ana ana CLIENTS CLIENTS A r referencing referencing enhs nce 1 5 ,3 1 5 ,3 po po sk msk m Sund Sund ted ted it y it y i n ri i n ri era nera iquid quid odglood li hip hip l poo poo l RO E RO E en e o nd g nd ders ders r t o r A t ax t ax A Reasons for engagement Reasons for engagement Stakeholder Stakeholder els a els a Lea Lea tributtrobut oS t o S i ystem R116bn in neiw new lo R116b n lo con con G G an p an p Great place Great place al leval lev t t engagement engagement pit pit can can To uTo erntanstahe fihe ncial seavisers ineedseof s lofntlsenttter.tter. nd u sderd t nd t na fin nci rl ce v c s n edc ie c i bes be Syst ayouayou t s to t s to ca ca nifi nifi capit alpitvells vels a le a l e Page 86 86 Page to bank to bank Sig Sig asedased c To pTovproviderappiatpriadeice vine aolutiolnsito s teemcletntlsentenitdfiedified ncial nialdseeds. r ide app oprro e at v ad acd snd s out on m o t eie c i ’ id s’ i ent na fin ncee n . S clienclien g g 26 % 26 % eral fee lineeeiases aees re era f cr ncre rs ts ts ed by d by e e e To eTournsthattthe hhe hierviservevel evelectpectes cif s lofntlsents met.met. ns ee ure hat t igh sgh ce l ice exp ex an ian oec ie c i are are reascreas ncr incr on on Gen Gen tainetaine c i and And AaRB- apc roac aIRB- I pproap St r St r d at o at o d d in d in th th wi wi , IMA, IMA To eTournsaccuracurocy erfsoerslonaormatimn.tion. ns ee ure ac y af po pna i f l infor o a r belo belo r w infla infla w en en h h t ion t ion vid vid ng g M M SA SA r AM r AM A A Types of engagement Types of engagement asedased poiotprhrouhro12 h 12 foot f r nt t int t g ug portiportin ncreIncre h 1 1 in re in re nd nd l fo l fo Di Di I staffetaffe s d out out d nce nce I a I a va va Highly Highly lets aets a l lle lle owthowth l II l II ro ro Interactiransithrs thrh uganbranchletstlbus,inessnesatrielnshipsmianmanagerd anll centces,tces, coaintlainesl,ines,ntliseminars, ars, Inte o ct on oug o br h ch out ou , et s bu i rels o ation h p agers ans cad all r n rompl mp l t clie c ent semin familiamilept knpt in t h 900 900 f es kies ie t h nd 389 389 nd r r se se pp pp involved in thethe involved in eir hoir ho e Rg Rg Ba Ba B a B a social media, surveys and and marketing and advertising activities. social media, surveys marketing and advertising activities. ce ce 13 13 ATMATMs mes mes s NI g NI S S Ex Ex CL CL or forSAR SAR O RO R sincesince 20 0 9 0 0 9 2 g df d community community Markeairkgttihattrest restonatomcounicutiingtdngidicttiive tilventliientght-ght-oefd rinfgs.ings. Mt n e ng ha ona es c es mmman ca i ist n s nc c i c nsi insi led l f e of er IENIEN on on ne ne ive ive and and AT AT throuhrou t gh logh loan i t io i t io e e pany pany r r an restrresttuucs ures pos os ec ec St St Clientlienviservice C sert ce scores ores sc uc rre t T T W el lW el l p to r to r environment environment SHAREHOLDERS SHAREHOLDERS RE UL L increia crea n com com s s GU sed ac d ac se nk nk S S ross ross al ba ba G 1 57 1 57 8et9 irle7ail , 7 8 69 r 6 a t all buslinesses sses busine Great place Great place A A ed ed , 48 48 RE busi busi tS tS JSE’sJShi’rd hird t toansfrornsf or m m Reasons for engagement Reasons for engagement to work to work ness ness fi rs e fi rs t E s t mos m r st t a bankbank he h in aing a of t f t O ne O ne o ImprIovpdoded d m er v t i scoi sco t To provide relevant andand timeous information to current and future shareholders. To provide relevant timeous information to current and future shareholders. net pg t nd 2nd orpcoape rat e ne 7 c 27 r re f roe f ro t o 95,o 95,2 r 2 ar ma en e t s Exten xten rimpriy - clriy - cl iornt oains SH AR EH O LDER S SH AR EH O LDER S E Ret aRetdia ed a d ine a n d m 89 ,589 ,5 t m g g ti levte leve i et 7,6 et t arnt t ar t gaing Types of engagement Types of engagement ES ES ded ded % % t ban ban l 2 co 2 co l IT I IT I men me ntributtrobut o s s n i 7,6 ContCionttribut r bu ed ed ills delvs ldevelop i l e op o o king king r s ar ut at u ts Achievchieved sk A ed sk ed t ned t hou hou R89m89mR LocaLocal antd rnaeionailonaldrshowh.ows. l and i n e i t t rnat roa oadss clin cli on de n de rs in rs in ches ches N N codacom m- a m m- t o so o so t cial d ial d c e e m m Staff Sttafftattriti a tri i o ram ram t Prog Prog s s 59 branbran 59 VodaVoen epesapelsa allows l ows evelopmopm evel Ad hod homcounicutiionsiand andweriwg rinvesnoestnd andlynt lyuerqueries. A c c c mmman cat o s s ansn e i ng i t vr a or a as aq st ies. t las las ) ) veen en e tr ntvel eve fo for m ent ent CO MMU MU evelopmlopm ship Dhip De dc dc to thto they-lery-lmarlkmarrkmore aore a Annualnualereneralemngtang anhertmeemngs.ings. An gen gal me ti ee i d ot d o her ti eet eadereaders o rl o rl a a et et ccessicessib cb t in Lt in L le le 0w w – 16 – 10 or or le low- cowt- costkbag king le l os ban in n Confeoenerenand anesentsentns.ions. C r nf ces ces pr d preatio at CO M men men l e vmat h at ( 6 re varue al uecmes ches ( ff m ff m ed a eeaa eeahiershilp role i l d d l rs d p r o est est Play Play ST S TA F F cult ucult u e in e n e Securecesitixchange nge N ewrvServicEN SENnnouncemcements. S iti ur E es ExchaN ews Se s ice (S e ( ) a S) announents. st a st a h tun igh inv inv nal nal nviro viro n hig l of l of it ies es nt nt tio tio nm nm MedMedila aseeases. ia re e rel s. or n h AF ca ca leve ve High High le ai ai investedsited in t ve R9mR9m in n t he Whe W W F W ent aentsaless– es – C7 P17 nit i is a is a n nifi gnifi ems rem WF W l is u i u C O P1 O Invesnmenmanalynt lyrsefinigs. ngs. I t vest t e t as ab it br efi sr th ortu g at er at er scorescore n n F p p B al a B al a ga ga survey vey Feedback vickbriokbrokeroreportd ahe corpcoape rwte site. site. Feedba a v a e rep rts ans t nd the orr t o a ebweb Si Si aff Staff sur op op ulat ve c ve r bu bu mC umiulat iontcionttriion t ion nce P ce P n or or St ent ent Cu t o aft o af rograograe me rmm m m s s Detailetailefd rmatimntoonaon alblpubld hedumcuments nournsfurle dulcldisurosofreelevantvianormatimn.tion. D d n o infor o a i n ll pu l ishe is doc do ents to e t s ee u l f is l o scl e u r of rele nft infor o a l ass) nth Si x Si x loy m loy m fi nit ifi nit i on Community Community emp emp sp sp R6,6bn,6bent on tocn loc R6 n enl o es R1 s R1 e In addition to the above, Nedbank Group regularly engages with its holding company, Old Old Mutual Group, to ensure In addition to the above, Nedbank Group regularly engages with its holding company, Mutual Group, to ensure o l as s ) new new 75m7t5m at edat e m 96 9 96 9 wo wo al p al p o d to nt nt roc roc alignment of policies and and methodologies, effective capturing of synergies and and leveraging of opportunities. alignment of policies methodologies, the the effective capturing of synergies leveraging of opportunities. of leaders of leaders reatedeated ff i ff i ure ure ldc ldc sta sta C Cr 000 000 SA’s SA’ls onlry oarbon- neu ment ent on y ca bc n- n m or or t h 14th 14 is w sw eut r t r ns wins wi i al b al b Cross- Cross- satio satio % % ( 10 ( 10 n oin l ank ank REGULATORS REGULATORS nver nver 1% 1% ,8 bn ,i8 bln ansoans t referencing referencing y co y co to 1 to 1 R1 R1 to o teg teg down own bla bla ck S ck S tra tra s cores core d il s il s opy opy MEs MEs Reasons for engagement Reasons for engagement RiskRisk and and ent r ent r ral lveral l ta ta O ve O Re Re To maintain good relationships with regulators and and ensure compliance with their legal and regulatory requirements, To maintain good relationships with regulators ensure compliance with their legal and regulatory requirements, balance sheet balance sheet thereby retaining Nedbank Group’s various operating licences and and minimising its operational risk. thereby retaining Nedbank Group’s various operating licences minimising its operational risk. management management Pages 372372 – 423 Pages – 423 Types of engagement Types of engagement O ngOingoineemngs iand antd ractirantwinhweguregors,tiorcl,uncludinuderudalnvisilts iaitd atatutatutreporepor.ting. o m g ti eet ngs i n e inte o c iot rith lat ula n s iding pr g p nti e t a v sns snd s ory ory rting Detailetaileviewsiewthwilth teusterd auncfuonailonalaaraboutbthe ehe ctfifve tive of e IofB pracpracticethe bheinessness. D d r ed rev wi s c us clrs ans f nd ti nct are s eas a out t ffe e ec us us A R AIRB tices n s in t us bu i . Cross- Cross- referencing referencing COMMUNITIES COMMUNITIES Reporting Reporting Social Social standard standard Reasons for engagement Reasons for engagement sustainability sustainability Pages 112112 – 135 Pages – 135 To creaceepaetnershipshihattwalt belltbestlitatietNte Nank Gnoup’ounts graeedaeedironmenmental aocial actlivicitev.ities. To t r at r pa tner t ps h i l wis faci fac li a edb edba rk Gr s i p’ e int t gr t nv enviro ntal and snd socia at i s Stakeholder overview Stakeholder overview Stakeholder overview Stakeholder overview GRI GRI FSSS: FS5 FSSS: FS5 To oToaon tiaipuitnfrut frcomcounitiunitind aepreeentsente tive -non-eroveenmorgaorgationsi(N s (NsGO s)aregagdiey focufoareaa.reas. bt i b n n pom om mmm es a es r nd r spreativ a non gov gnmr nt ent nis nisat onGO ) reg din r kng key s cus s GRI GRI1: 1.2: 1.2 3. G3 1 To oToaon tiaipuitnfrut frenvironmenmentalerxs eo s nournsthattNat Nank Gnoup’oup’eropiernsiare tarkingking e liacehe mosmost bt i b n n pom om enviro ntal exp e tp trt e t s ee ure h edb edba rk Gr s ops at o at ons a e ta placp n t in the t environmentally responsible manner. environmentally responsible manner. To creaceeawarenarenefss of Nank Gnoup’ounts graeedaeedironmenmental aocial icialianivies.ives. To t r ate awess o N edb edba rk Gr s i p’ e int t gr t nv enviro ntal and snd so nit i t t at Cross- Cross- Cross- Cross- referencing referencing Types of engagement Types of engagement referencing referencing N edNank Foundatnont–oon– oingoiupporpport rojectsectd antd ractirantwinhwitwide varietariof y on-non- prand anderoveenment b edbank Fou i da i n g o sng su t of pof proj ans i n e inte o c iot a h a wide v y et n f profit ofit gov gnmr nt organisations. organisations. Environmental Environmental Definitions andand Definitions Building Africa’s most admired bank by by our staff, clients, Building Africa’s most admired bank our staff, clients, Environmenme/Sus/Susaainty ipaytnershipshipthwitWW W F-Cambaimgeidgegraogme fmreSustSusaailnabladerahip,sUiN,ISA ISA Enviro ntal ntal tain tb liab lit r pa tner wi s W h F- SA, SA, C r d br Pro Pr m ram o for ain tb e Lee Le sder h p UN sustainability sustainability abbreviations abbreviations Pages 449449 – 455 Pages – 455 shareholders, regulators and communities. shareholders, regulators and communities. Advisory Council on Business and and Climate Change and United Nations Environment Programme Finance Initiative Advisory Council on Business Climate Change and the the United Nations Environment Programme Finance Initiative Pages 96 – 111111 Pages 96 – (UNEP FI). FI). (UNEP 16 16 17 17 NEDBANK GROUP INTEGRATED REPORT 2011 NEDBANK GROUP INTEGRATED REPORT 2011 NEDBANK GROUP INTEGRATED REPORT 2011 NEDBANK GROUP INTEGRATED REPORT 2011 Source: Nedbank Group Integrated Report 2011, pages 16-17 All extracts from published reports should be read in conjuction with the full report itself including its notes.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 20. 20 | Integrated Reporting Issue 2What does it look like?Strategic objectivesThis part of the report should explain the vision of how the 1 Visionorganization will look in the future and how it will get there. Where are we trying to get to? Focus on what the businessThere should be a natural link between the operating risks should look like after management has implemented itsand opportunities identified elsewhere in the report and the strategy. Help readers understand the rationale for followingstrategy for dealing with them. The result should be a mix the vision (including any changes to previous strategies) andof information covering both short-term operational strategy the assumptions about the future on which it is based.and the long-term strategic vision for the business. 2 Starting point This is the base from which the business is starting its journey, including its strengths and exposures, focussing on Challenges: those aspects of the business that are directly relevant to the strategy. A good description here provides a basis for • Are the consequences (good and bad) for the understanding how business activities and resources will organization’s resource requirements and availability need to change as a result of following the strategy. clear – and does analysis in the rest of the report support this understanding? 3 Delivery Leading reports help readers understand the milestones on • Are the consequences of the strategy visible in both the journey to delivering the change, and an explanation of the performance and outlook sections of the report? how the key risks and opportunities are being managed and • Does the content describe a long-term vision for the the impact they could have on the strategic goal. This should business or near-term tweaks to business operations? form the basis for identifying the operational performance indicators that show readers how the business has progressed in delivering the strategy.An effective description of strategy should have three key The following example from ITV demonstrates the uniqueelements: vision, starting point and delivery: aspects of its business strategy. Example – Explaining business strategy 17 18 ITV plc Report and accounts 2010 Overview Strategy operations Performancefinancials Responsibility Transforming ITV Governance Financial statements ‘Develop new revenue streams through building our programme brands and platform offerings’ How are we going to achieve it? We need to develop a channel We will continue to support and grow portfolio that is more balanced the Freeview and Freesat platforms where ITV channels perform strongly. Part of our 3 between pay and free television, Drive new 1 platform strategy will also be the launch of 2 driving forward sponsorship and YouView, the next generation of Freeview. product placement and developing This will allow viewers to navigate seamlessly new revenue streams through between their favourite Freeview channels revenue streams and the most popular on demand content building our programme brands on ITV Player and the BBC iPlayer, and platform offerings. subscription free. needs to be transformed. Growing revenues from the SDN business, by exploiting Navigation and the viewing experience will which operates one of the six digital be improved to cultivate a richer, deeper terrestrial multiplex licences in the UK that 4 relationship between ITV and its viewers. make up Freeview, also remains a focus. In addition, we will maximise the reach our content of our video on demand service, ITV Player, In the past we have not exploited the full making the service available on new value of our programming. With our new platforms. We will also undertake pay trials Total Value approach to programme on and are developing a payment commissioning and brand exploitation, we across multiple mechanism to enable us to do this. intend to maximise the lifetime revenues from our strongest brands. As explained earlier we have restructured platforms, the sales team to ensure we have the right team in place to offer creative advertising solutions and drive revenues across all our platforms. free and pay What do we want to achieve? – Enter pay TV – Transform – Own customer relationships on connected platforms – Total Value approach to brand exploitation – Build addressable advertising capabilities Corrie Nation ITV Live iPhone app Source: ITV plc Report and Accounts 2010, pages 17-18© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 21. Integrated Reporting Issue 2 | 21It is important to demonstrate the unique features of thestrategy. After all, this is management’s opportunity to explain How clearly does your reporting explain thehow it is enhancing the business model. Reporters who don’t business strategy?do this, risk falling back on generic industry-level objectives Would a reader agree with these statements?such as market leadership. This adds little value, and in realitymay be creating operational goals that the business has little • I understand where the company is on its journeyhope of achieving. In contrast, ITV’s description of its strategy towards its strategic visionran to some 19 pages in its 2010 Annual Report, providingreaders with a clear picture of how the business is expected • I understand how the business will change in the to change under management’s plans. short-term as it develops towards its strategic vision • I can see the operational milestones in implementing the business strategy • I can see in broad terms how the business plans to evolve to meet changes in its operating environment; I understand its strengths and weaknesses as it prepares to meet this challenge • I understand how the long-term strategy willThis is management’s be deliveredopportunity to explainhow it is enhancing thebusiness model. Example – Explaining business strategy National Australia Bank Annual Review 2011 Our business Our strategy Ourstrategy “NAB’s strategy for fair exchange of value has been continued reinforced by a number of Personal Banking initiatives including competitively priced products and services, leading the industry by abolishing early exit fees.” Cameron Clyne, Group CEO Banking cost to income ratio Customer satisfaction 3 4 % Personal Banking Australia Very or fairly satisfied (%) 78.2 77.2 46.2 75.4 74.8 78.5 45.5 74.1 74.1 44.5 74.7 73.8 43.9 43.5 72.8 43.4 70.8 69.0 Reduce complexity Mar Sep Mar Sep Mar Sep Enhance our 2009 2009 2010 2010 2011 2011 Mar Sep Mar Sep Mar Sep and cost. 2009 2009 2010 2010 2011 2011 100 Source: NAB internal reputation. NAB Average of the three majors Source: Roy Morgan Research, September 2011. Australian Main • Continually improve key areas of customer service Financial Institutions, population aged 14+, six month moving average. • Improving our customer outcomes Customer satisfaction is based on customers who answered very/fairly • Converge and simplify processes and ensure disciplined satisfied. NAB compared with the three major banks (ANZ, CBA, WBC). expense management • Invest in our people – leadership and skill development, diversity Simplified our product ranges and closed and volunteering • Upgrade our technology with a multi-year program that will make more than 100 products us a more agile, efficient and competitive business by simplifying • Address our broader responsibility in society – education, inclusion banking, finance and risk systems, processes and tools and environment 2011 HIGHLIGHTS 2011 HIGHLIGHTS • Simplified our product ranges • Awarded ‘Best Low Fee Bank Account’ for NAB Classic Banking by CHOICE for the second consecutive year • Progressed simplification of the mortgage process for our customers and our frontline bankers • Removed mortgage exit fees and introduced fairer credit card charges • Progressed technology upgrades in infrastructure, network, re-platforming program and customer process • Awarded ‘Most Satisfied Customers’ of the Major Banks by Canstar Blue FOCUS GOING FORWARD • Awarded ‘Best Career Development Program’ for the Academy (NAB’s learning and development centre) in the 2011 Australian Banking and Finance Awards • Continue to progress the upgrade of operations and replace ageing infrastructure • Contributed over 25,000 volunteer days to the community, worth more than $8 million • Responsible management of costs within growth • Included in the Dow Jones Sustainability Index (Asia Pacific Index top-ten leaders and the World Index), and the Carbon Disclosure Project Performance and Disclosure Indices MLC NAB WEALTH • Published our third Reconciliation Action Plan, setting out 22 commitments A core priority at MLC NAB Wealth is to create for the year ahead market-leading online capability for financial advisers and customers. There are significant benefits for FOCUS GOING FORWARD both our business and our customers in enabling more transactions to be completed online, including • Continue delivering our promise of ‘More Give, Less Take’ to show we stand faster turnaround times and improvements to for fairer and better banking customer service, accuracy and efficiency. • Achieve our Greenhouse Reduction and Beyond Carbon Neutral targets by 2013 “MLC Online Applications are invaluable in • Create a more diverse workforce through initiatives that help achieve our PERSONAL BANKING streamlining accurate business implementation – disclosed diversity targets By listening to our customers and maintaining they completely cut out the need to mail paperwork, and enable new accounts to be set • Continue to focus on issues of inclusion, hardship and education in our our commitment to ‘do the right thing’, we up on MLC’s system instantly, which reduces wider community have enhanced our reputation and expanded potential errors associated with manual the NAB family. Ms Silvester, from Forest Hill in administration. Ultimately, this helps advisers Victoria, broke up with Westpac after 30 years. spend more time actually speaking with clients!” “I just got sick of paying this extra money Chris Gillis, NAB Financial Planning each month and I just felt I wasn’t getting the personal service.” Ms Silvester, new NAB customer Source: National Australia Bank Annual review 2011, pages 12-13 All extracts from published reports should be read in conjuction with the full report itself including its notes.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 22. 22 | Integrated Reporting Issue 2What does it look like?PerformanceThis part of the report describes current levels of Woodside Petroleum shows how the creation of new oil andperformance both as a basis for assessing progress in gas reserves can be reported.delivering management’s strategic targets and as a base forunderstanding the future outlook for the business. 2 How has the business performed against its operational objectives? Operational objectives cover both the management of risk and Challenges: the delivery of performance milestones. The measures that are reported on here should follow naturally from the description of • Is the analysis of performance on a basis consistent operating context (management of risk) and business strategy with to the operational reality of the business (performance milestones). If these parts of the report have and on a basis that can be projected forwards by the a clear focus there should be a relatively small number of reader by applying a set of operational assumptions? key operational performance indicators that are aligned with measures that management is itself using to run the business. • Have all aspects of corporate strategy been addressed? The example below from Marks and Spencer Group plc shows • Does ‘underlying performance’ provide a balanced operational performance against management’s plan. perspective from which the future outlook can be assessed? 3 What underlying return is being generated by the business? The starting point for most valuation models will be the current earnings generation capacity and growth of the business.If the foundation of the report has been well designed A consequence of this is that, without adjustment, small(covering business model, operating context, and strategy), earnings fluctuations can have a magnified effect on valuationthe material areas for performance reporting should naturally assessments leading to share price volatility.follow. However, care needs to be taken in selecting the rightmeasures to report. The performance indicators selected Companies have long reported adjusted earnings figures thatneed to support readers’ decision-making processes. This can help provide a more stable base for this assessment thanmeans recognizing that different types of measures are raw financial data. There is however a distinction between therelevant to different judgments. backwards-looking adjustments that are typically reported, and the more forward-looking analysis needed to help readersThe following four key areas should help readers form a understand the current earnings run-rate. As an illustration,clearer view of business value and stewardship: the results of acquisitions are often excluded from underlying earnings – this provides a basis for comparison of business1 How has the ‘asset’ base changed and how has performance against targets but it does not help readersit been managed? understand the earnings generation capability of the businessBusinesses investing in their asset base can be frustrated post-acquisition earnings. To understand this, readers will needthat financial reporting rules often class their investment to see the impact pre-acquisition earnings would have had onas a cost rather than an asset. It is in both companies’ and statutory earnings.investors’ interest that a broader view be provided. The sixcapitals (financial, intellectual, manufactured, social, human, 4 What does current performance say about thenatural) outlined by the IIRC should help preparers provide a prospects of the business?more complete picture of investment in (and consumption As well as providing a basis for understanding underlyingof) the asset base, and ultimately help readers understand business return, current performance information also helpswhether the productive capacity of the business has readers understand the implications for future performance –declined or been enhanced. but the information needed for this is different.In some instances, it may be possible to report on specific The focus here generally needs to be on identifying andoutcomes – for example brand recognition scores. In explaining performance variances – in particular variancesothers, reporting on investment in the asset may be more against the strategic objectives management has set itself.appropriate – for example research investment. In all cases it The relevant measures will often be operational ratheris important to focus on investment that has a direct benefit than financial in nature. A balanced view, written from anto the business. operational perspective, is important here – the logic of© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 23. Integrated Reporting Issue 2 | 23 The performance indicators selected need to support readers’ decision-making processes.Integrated Reporting means that any gaps in the reportingof strategically important performance will be immediately How well does your reporting explainapparent to readers. Most businesses respond quickly to business performance?areas of operational under performance. The opportunity toexplain this response should be preferable to leaving readers Would a reader agree with these statements?to assess the implications for themselves. • I can see the extent to which the productive capacityThe quality and depth of the business model description of the business has been retained / enhancedwill be important in helping readers relate the implications • I can see the extent to which management isof operational performance variances to overall business delivering on its short, medium, and long-termperformance and value. In a well designed report, detail change programmeprovided in the business model should follow the sameoperational structures as the performance analysis. So, for • I can see how successful the business is inexample if one segment of the customer base is performing generating valueahead of expectations, readers can look to the businessmodel to understand the relative size of that base and • I understand the capacity of the business to ultimately form their own judgment on the implications for generate valuefuture earnings. • I have sufficient visibility over the key short-medium, and long-term risk indicators to assess whether its current direction and ability to generate financial returns is sustainable Example – Reporting operating performance 16 Woodside Petroleum Ltd | 2011 Annual Report 10 Overview 0VS Reserves statement QFSGPSNBODF Financial performance Contingent resources increased 322.7 MMboe primarily due to positive revisions in the Greater Browse fields and exploration and appraisal Group revenue £m 07/08 08/09 09/10 10/11 In November 2010 we set out plans to invest an additional £850m to £900m over the next three success in the Greater Exmouth and Greater Pluto regions. UK 8,309.1 8,164.3 8,567.9 8,733.0 years to enhance our UK business and develop our multi-channel and international capabilities. International 712.9 897.8 968.7 1,007.3 bCO +2.1% (53 wks) +4.2% (52 wks) Total 9,022.0 9,062.1 9,536.6 9,740.3 As a result, we have set a target to grow Group revenue to between £11.5bn and £12.5bn by 2013/14. Underlying Group operating profit £m 07/08 08/09 09/10 10/11 10/11 £824.9m 2011 Key performance highlights UK 972.9 652.8 701.2 677.9 09/10 £843.9m The three year organic Proved International 116.4 116.1 142.7 147.0 reserves replacement ratio Woodside’s reserves(1) overview 2011 2010 Change% bN -2.3% (53 wks) +5.9% (52 wks) Total 1,089.3 768.9 843.9 824.9 08/09 07/08 £768.9m £1,089.3m remains above 100%. Proved(2) MMboe 1,292.4 1,308.5 (1.2) Proved reserves life is 20 years. Proved plus Probable(3) MMboe 1,610.2 1,680.1 (4.2) Contingent resources(4) MMboe 2,136.5 1,813.8 17.8 Net contingent resources in the Greater Browse region increased Performance against our plan 251.5 MMboe. Key metrics Proved Proved plus Probable 2011 reserves replacement ratio(5) % 75 (10) Net contingent resources in Organic 2011 reserves replacement ratio(6) % 76 (6) Focusing on the UK P16 the Greater Exmouth region Three year reserves replacement ratio % 84 57 increased 21.8 MMboe. Three year organic reserves replacement ratio % 102 88 UK market share clothing and footwear UK market share food Net contingent resources in the Reserves life Years 20 25 Annual production(7) MMboe 63.7 63.7 Greater Pluto region increased Value Volume 66.8 MMboe. Net acquisitions and divestments MMboe (0.6) (2.3) +0.5%pts +0.3%pts +0.1%pts Analysis This year we grew market share across all areas of our clothing Analysis Our food market share increased this year as customers did more Proved reserves annual reconciliation by product* Proved reserves business, as we offered customers greater choice at the same unrivalled of their shopping with MS, recognising the great value and quality we offer. (Woodside share) quality and value. More information on our clothing performance is set out Our performance in this area is detailed on page 20. Dry gas(8) Condensate(9) Oil Total on page 16. Bcf(10) MMbbl(11) MMbbl MMboe(12) 1,328 4PVSDF,BOUBS8PSMEQBOFM$MPUIJOHBOEGPPUXFBSTIBSFXFQSJM 4PVSDF,BOUBS8PSMEQBOFMPPEBOE%SJOLTIBSFXFQSJM 1,308 1,296 1,292 Reserves at 31 December 2010 6,450 122.3 54.6 1,308.5 1,227 Revision of previous estimates(13) 105 2.6 13.7 34.6 Reserves (MMboe) Extensions and discoveries(14) 72 1.1 0.0 13.7 UK mystery shopping programme 90 Acquisitions and divestments (3) 0.0 (0.1) (0.6) 85 83 Annual production(7) (218) (8.7) (16.8) (63.7) 81 82 80 79 79 79 78 Reserves at 31 December 2011 6,406 117.2 51.4 1,292.4 Average score is 76 76 77 *small differences are due to rounding to first decimal place. 75 70 72 74 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 07 08 09 10 11 Proved reserves have remained steady over Best estimate contingent resources annual reconciliation by product Analysis In April 2010 we rebased our mystery shopping scores to help us target even the past five years. higher standards of customer service. This year we conducted around 6,800 visits to Dry gas Condensate Oil Total stores and have seen a steady improvement in performance over the course of the Bcf MMbbl MMbbl MMboe year, with average scores increasing by 11%. Proved plus Probable reserves Drive UK space growth Contingent resources at 31 December 2010 8,298 246.9 111.2 1,813.8 Transfer to reserves (28) (0.7) (2.7) (8.3) Revision of previous estimates 1,248 38.1 (6.8) 250.2 Average weekly footfall Annual space growth 1,703 10/11 20.7m 1,651 1,680 1,688 1,610 Extensions and discoveries 315 5.7 31.0 92.0 Reserves (MMboe) 09/10 21.0m Acquisitions and divestments (44) (1.4) (2.0) (11.2) N 08/09 21.6m Contingent resources at 31 December 2011 9,788 288.6 130.7 2,136.5 -0.3% 07/08 21.8m Analysis Customer visits to our stores were broadly stable in 2010/11. Analysis This year we have set out a commitment Concerns about rising petrol prices meant footfall slowed slightly in the to deliver c.3% UK space growth per annum second half of the year. However, we remained ahead of the overall market until 2015/16. This programme will help us 07 08 09 10 11 figure of -1.4%. create a store portfolio that delivers a leading multi-channel shopping experience. Refer to page 18 for Notes to the Reserves Statement. Proved plus Probable reserves have remained steady over the past five years. Marks and Spencer Group plc Annual report and financial statements 2011 Source: Woodside Petroleum Ltd Annual Source: Marks and Spencer Group plc Report, 2011, page 16. The above disclosures Annual Report 2011, page 10 reflect the Group’s position as at 31 Dec 2011 All extracts from published reports should be read in conjuction with the full report itself including its notes.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 24. 24 | Integrated Reporting Issue 2What does it look like?Future outlookThis part of the report should provide a basis for readers 1 Help readers form their own views of the futureto form their own views on the long-term prospects of the Don’t assume that explaining the future outlook requiresbusiness. The information in this section is central to readers’ a financial forecast. If enough clarity is provided over yourunderstanding of business value. But businesses have existing operations, readers should be able to build theirtraditionally been wary of sharing this type of information. own judgments around management’s expectations forThis is understandably a difficult area given the legal and the operational performance of the different parts of theregulatory environment in which businesses operate. We business rather than relying on high level financial forecasts.believe the approach outlined below can make it easier for For example, AstraZeneca provide information on bothbusinesses to manage these concerns. research progress and future patent expiries. 2 Don’t take responsibility for assumptions you can’t control Challenges: Financial forecasts and projections inevitably involve significant assumptions that are beyond management’s • Are assumptions expressed in sufficient detail that operational control. Help readers to understand these readers can understand the impact of flexing them? assumptions by explaining them. BHP Billiton plc achieves Does the description of existing operations also this by providing a sensitivity analysis to metals prices based support this? on current year performance. • Does the outlook help readers form their own 3 Stay at the right level views – to the extent possible – on the long- Commercial sensitivities are a natural concern for many term elements of a valuation assessment as well as businesses when looking to the future. However, the the short-term? information needed for shareholders to assess future business value is generally at a much higher level to that which would be relevant to a competitor. For example shareholders may be looking to understand growth in a particular market but are less likely to need to know the Example – Patent development and expiries Patent expiries for our key marketed products Pipeline by Therapy Area at 31 December 2011 US revenue ($m) Phase I Phase II Phase III/ Line Key marketed products*# US Patent expiry 2011 2010 2009 Registration Extensions Nexium 20151 2,397 2,695 2,835 Crestor 2016 3,074 2,640 2,100 Toprol-XL/Seloken Expired 404 689 964 Cardiovascular AZD2820# AZD2927 Brilinta/Brilique Axanum dapagliflozin# AZD4017 dapagliflozin# Brilinta/Brilique (diabetes – add on to insulin Atacand 2012 182 216 263 and add on to metformin PEGASUS-TIMI LT data) Symbicort 2014 (combination), 2023 (formulation), 2026 (pMDI device) 846 721 488 Crestor # dapagliflozin# Zoladex Expired 39 46 54 (elevated CRP) (diabetes – in patients with Seroquel IR 2012 3,344 3,107 3,074 dapagliflozin/ high CV risk – Study 18 and metformin FDC # 19 data) Seroquel XR 2017 (formulation)2 779 640 342 Kombiglyze XRTM/ dapagliflozin# Synagis 2015 (composition), 2023 (formulation) 570 646 782 (diabetes – add on KomboglyzeTM FDC # * Prilosec/Losec Expired 38 47 64 to DPP-IV) OnglyzaTM SAVOR-TIMI# Key marketed products*# EU Patent expiry 4 Canadian Patent expiry Japanese Patent expiry EU, Canada and Japan revenue ($m)3 2011 2010 2009 Source: BHP Billiton Annual Report, 2011 Nexium 2014 2014 20205 1,042 1,422 1,395 Gastrointestinal tralokinumab Entocort (CAT-354) Nexium Crestor 2017 2012 2017 2,534 2,201 1,782 (peptic ulcer bleeding) Toprol-XL/Seloken Expired Expired Expired 163 169 181 Nexium Atacand 2012 Expired N/A 799 837 808 (GERD) Business Review Symbicort 2018 (formulation) 2012 (combination) 2017 (combination) 1,822 1,621 1,459 2019 (Turbuhaler device) 2018 (formulation) 2018 (formulation) 2019 (Turbuhaler device) 2019 (Turbuhaler device) Zoladex Expired Expired Expired 733 718 744 Infection AZD5099 AZD9773# CAZ AVI# FluMist/Fluenz Business Review AZD5847 CXL# (CAZ104) Seroquel IR 2012 Expired 2012 651 705 792 MEDI-534 (CEF104) Q-LAIV Flu Vac Seroquel XR 2017 (formulation) 2017 (formulation) N/A 562 401 301 (MEDI-3250) MEDI-550 Synagis 2015 (composition) 2015 (composition) 2015 (composition) 405 392 300 MEDI-557 Zinforo # (ceftaroline) Prilosec/Losec Expired Expired Expired 660 660 641 MEDI-559 * Patents are or may be challenged by third parties and generics may be launched ‘at risk’. See the Principal risks and uncertainties section from page 130. Many of our products are subject to challenges by third parties. Details of material challenges by third parties can be found in Note 25 to the Financial Statements from page 184. Additional patents relating to the stated products may have terms extending beyond the quoted dates. Neuroscience # 1 Licence agreements with Teva and Ranbaxy Pharmaceuticals Inc. allow each to launch a generic version in the US from May 2014, subject to regulatory approval. AZD1446 # AZD2423 NKTR-118# Diprivan # 2 Licence agreements with Handa and Accord allow each to launch a generic version in the US from 1 November 2016 or earlier upon certain circumstances, subject to regulatory approval. AZD3241 AZD3480# TC-5214 # EMLA# 3 Aggregate revenue for the EU, Canada and Japan. AZD3839# AZD6765 (adjunct) 4 Expiry in major EU markets. AZD5213 TC-5214 # 5 PTE application pending. MEDI-578 (monotherapy) Patent expiries The period of RDP starts from the date of the first marketing approval Oncology AZD1480 MEDI-3617# AZD4547 Caprelsa Faslodex Iressa AZD2014 moxetumomab AZD8931 (vandetanib) (high dose (500mg) (1st line EGFR The tables above set out certain patent expiry dates and sales for our from the relevant health authority and runs in parallel to any pending AZD3514 pasudotox# fostamatinib# ** RanmarkTM # 2nd line advanced mut+ NSCLC) key marketed products. The expiry dates relate to the basic substance patent protection. RDP would generally be expected to expire prior to AZD5363# (CAT-8015) MEDI-575 # (denosumab) breast cancer) Iressa olaparib Faslodex (treatment beyond patent relevant to that product unless indicated otherwise. The expiry patent expiry in all major markets. If a product takes an unusually long AZD8330# selumetinib# (1st line advanced progression) (ARRY-424704) selumetinib# (AZD6244) dates shown include any PTE and Paediatric Exclusivity periods. time to secure marketing approval or if patent protection has not been (AZD6244) breast cancer) MEDI-551 # (ARRY-142886) secured, expired or lost, then RDP may be the sole IP right protecting MEDI-565 # (ARRY-142886)/ tremelimumab# MK2206 Data exclusivity a product from copying as generics should not be approved and MEDI-573# In addition to patent protection, Regulatory Data Protection (RDP marketed until RDP has expired. or ‘data exclusivity’) is an important IP right which arises in respect of data which is required to be submitted to regulatory authorities Compulsory licensing in order to obtain marketing approvals for our medicines. Significant Compulsory licensing (the overruling of patent rights to allow Respiratory AZD2115 AZD1981 fostamatinib# Oxis MEDI-546 # AZD2423 Symbicort investment is required to generate such data (for example, through patented medicines to be manufactured and sold by other parties) Inflammation MEDI-551# AZD5069 (asthma/COPD) conducting global clinical trials) and the use of this proprietary data is increasingly being included in the access to medicines debate. MEDI-570# AZD5423 Symbicort is protected from use by third parties (such as generic manufacturers) We recognise the right of developing countries to use the flexibilities (COPD) AZD8683 for a number of years in a limited number of countries. The period in the World Trade Organisation’s Agreement on Trade-Related benralizumab# Symbicort (SMART) (MEDI-563) of such protection and the extent to which the right is respected Aspects of Intellectual Property Rights (TRIPS) (including the Doha mavrilimumab# differs significantly between these countries. We believe in enforcing amendment) in certain circumstances, such as a public health (CAM-3001) our rights to RDP and consider it an important protection for emergency. We believe that this should apply only when all other ways MEDI-8968# our inventions, particularly as patent rights are increasingly of meeting the emergency needs have been considered and where sifalimumab# (MEDI-545) being challenged. healthcare frameworks and safeguards are in place to ensure that the tralokinumab medicines reach those who need them. (CAT-354) Key – showing movements since 27 January 2011 Addition New filing # Partnered product. No change Launched * Kombiglyze XRTM in the US; KomboglyzeTM FDC in the EU. ** Added to pipeline table after starting Phase II in January 2012. Progression Reclassified AstraZeneca Annual Report and Form 20-F Information 2011 Therapy Area Review 57 AstraZeneca Annual Report and Form 20-F Information 2011 Delivering our strategy Intellectual Property 35 Source: AstraZeneca Annual Report and Form 20-F Information 2011, pages 35 and 57© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 25. Chilean peso and Brazilian real. Foreign exchange gains and of FY2011 to US$10.49 per lb at year-end. The average nickel price losses reflected in operating costs owing to fluctuations in the for FY2011 was US$10.86 per lb, 24 per cent above the average abovementioned currencies relative to the US dollar may potentially for FY2010. Higher prices were underpinned by the improved offset one another. The Australian dollar, Brazilian real, Chilean global economic recovery, service centre re-stocking and strong peso and South African rand strengthened against the US dollar underlying consumption. The fall of the nickel price in early May during FY2011. Integrated Reporting Issue 2 | 25 2011 was caused by a general sell-off by investors. This drop led to a wait-and-see purchasing behaviour among stainless distributors We are also exposed to exchange rate translation risk in relation and end-users in the following months. On the supply side, more to net monetary liabilities, being our foreign currency denominated nickel production was added in the first half of FY2011, whereas monetary assets and liabilities, including debt and other long-term the second half of the year was characterised by supply disruptions. liabilities (other than closure and rehabilitation provisions Partially offsetting these disruptions was a particularly high level at operating sites where foreign currency gains and losses of nickel pig iron production in China. are capitalised in property, plant and equipment). The following table indicates the estimated impact on FY2011 Details of our exposure to foreign currency fluctuations are profit after taxation of changes in the prices of our most significant contained within note 28 ‘Financial risk management’ to the Readers should be able to build their own judgments commodities. With the exception of price-linked costs, the sensitivities financial statements. below assume that all other variables, such as exchange rate, costs, 3.4.4 Interest rates around management’s expectations. volumes and taxation, remain constant. There is an inter-relationship between changes in commodity prices and changes in currencies that is not reflected in the sensitivities below. Volumes are based We are exposed to interest rate risk on our outstanding borrowings and investments. Our policy on interest rate exposure is for interest on our borrowings to be on a US dollar floating interest rate basis. on FY2011 actual results and sale prices of our commodities under Deviation from our policy requires the prior approval of our Financial Risk Managementthis level,and is managed within our Cash performance should At Committee, explanations of future a mix of short-, medium- and long-term contracts. Movements in Example –sensitivities should therefore be used with care. commodity prices can cause movementsresults rates and vice versa. These Explaining in exchange sensitivities Flow at Risk (CFaR) limit, which is described in noteshape of the business rather than focus more on the overall 28 ‘Financial risk management’ in the financial statements. When required under Estimated impact on FY2011 profit after taxation this strategy, we use interest rate swaps, including cross currencyFor example, recognizing detailed operational considerations. of changes of: US$M interest rate swaps, one part of the business a floating to grow faster than that to convert a fixed rate exposure to is likely rate exposure. As at 30 June 2011, we had US$0.8 billion of fixed US$1/bbl on oil price 43 others can help readers to adjust their expectations of overall interest borrowings that had not been swapped to floating rates, US¢1/lb on aluminium price 20 margins earned. arising principally from legacy positions that were in existence prior US¢1/lb on copper price 18 to the merger that created the DLC structure. US¢1/lb on nickel price 1 US$1/t on iron ore price 80 US$1/t on manganese alloy 0.5 How well does your reporting explain the future US$1/dmtu on manganese ore 138 outlook for the business? US$1/t on metallurgical coal price 22 US$1/t on energy coal price 24 Would a reader agree with these statements? Source: BHP the commodity price movements in FY2011 86 The impact of Billiton Annual Report, 2011, page • I can see what effect management’s plans will have is discussed in section 3.6 ‘Operating results’. on the future productive capacity of the businesstechnical details of a planned new product launch; the track • I can see how changes to the business environmentrecord of past launches may be more helpful to together with management’s plans will affect thetheir86 | BHP BILLITON ANNUAL REPORT 2011 assessment. ability of the business to generate financial returns4 Help readers understand the long-term prospects • I can see how the ‘game changing’ issues affectingThe long-term prospects of the business are, of course, the operating environment could affect productivehugely subjective – so is there any value in explaining these? capacity and ability to generate returnsWe believe there is, but the focus of the explanation shouldbe different. Irrespective of whether management provides • I have enough information to form my own viewsthis information, anyone looking to value the business will about how the issues and opportunities identified inneed to form a judgment over its long-term prospects. This is the report might affect the businesslikely to represent a significant proportion of overall value. Example – Explaining targets and aspirations Report by the Managing Board Highlights of 2011 DSM in motion: driving focused growth Sustainability Stakeholder engagement People in 2011 Planet in 2011 Profit in 2011 Outlook Innovation External recognition Strategic and financial targets Sustainability aspirations 2011-2015 Profitability targets 2013 Dow Jones Sustainability Index - EBITDA € 1.4 - 1.6 bn Top ranking (SAM Gold Class)1 - ROCE 15% ECO+ (innovation) 80%+ of pipeline is ECO+2 Sales targets 2015 ECO+ (running business) - Organic sales growth 5-7% annually From approximately 34% toward 50% - China sales from USD 1.5 bn to USD 3 bn Energy efficiency - High growth economies sales from ~32% toward 50% of sales 20% improvement in 2020, compared to 2008 - Innovation sales from ~12% to 20% of sales Greenhouse-gas emissions -25% (absolute) by 2020, compared to 2008 Aspiration regarding Emerging Business Areas for 2020 Employee Engagement Survey - EBA sales € 1 bn Toward High Performance Norm3 Diversity and People+ To be updated in 2011 In terms of the sales targets established for this strategy period, DSM comfortably exceeded the organic sales growth target and 1 This means a total score of at least 75% and within 5% of the SAM sector leader demonstrated solid growth in sales in China in 2011. DSM saw 2 See page 224 for a definition of ECO+ 3 The High Performance Norm (79% favorable) is the composite of the top 25% a growth in sales in high growth economies as a percentage of employee responses of the selected external benchmark organizations overall sales to 39% in 2011, bringing the company closer to its announced goal of moving from approximately 32% toward 50% of total net sales. Innovation sales — measured as sales from In 2010 DSM set a number of ambitious sustainability aspirations innovative products and applications introduced in the last five for 2015, and in 2011 the company made good progress toward years — reached 18% of total net sales in 2011, close to the meeting them. The highlights can be found on page 27. company’s 2015 target of approximately 20%. High Growth Economies: from reaching out to being truly Further progress was made in the Emerging Business Areas global (EBAs). The EBAs are DSM Biomedical, DSM Bio-based A key element of DSM in motion: driving focused growth is for Products Services and DSM Advanced Surfaces. DSM to move from being a European company reaching out to the world to being a truly global company. All the evidence For the period 2011-2015 capital expenditure can be expected indicates that fast-growing economies such as China, India, at a level comparable to that in the accelerated Vision 2010 Brazil and Russia and other emerging areas will be the major period (€ 500-550 million per year on average). For the total growth engines for the world economy over the next decade. period, capital expenditure is expected to amount to € 2.5-2.7 DSM’s market penetration in the high growth economies has billion, of which approximately USD 1 billion in China. In addition, increased from just 22% of sales in 2005 to 39% now, the target DSM aspires to keep working capital as a percentage of for 2015 being to move toward 50% of sales. DSM expects over annualized net sales below 19%. At the end of 2011 working 70% of its growth in the period to 2015 to come from high growth capital as a percentage of annualized net sales amounted to economies. 20.2%. DSM has a clear focus on China, where the company has set a target to double sales to a level of at least USD 3 billion by 2015. In 2011 DSM made good progress toward this target: China sales increased 23% to USD 2.0 billion. To support this growth DSM intends to invest USD 1 billion in China in this strategy period. DSM will also increase its presence in other markets, doubling or even trebling revenues in India, Latin America and Russia. Source: Royal DSM Integrated Annual Report 2011, page 29 Integrated Annual Report 2011 29 All extracts from published reports should be read in conjuction with the full report itself including its notes.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 26. 26 | Integrated Reporting Issue 2What does it look like?Governance RemunerationIn many regions there are already extensive compliance- 2 How governance works within the companybased disclosures covering governance and remuneration Readers need to know how strategic decisions are taken.reporting. Nevertheless, there is still scope for companies The focus should be on how governance links to the risksto use an Integrated Reporting approach to improve their identified and their mitigation strategy, with the challengereporting within their local compliance framework. in ensuring that there is a link made between the decision- making process and the business’s priorities – its strategy and opportunities as identified elsewhere in the report. Challenges: At the same time reporters should ensure there is not an excessive focus on the governance process at the expense • Compliance requirements can lead to generic of concentrating on the practical execution of the board’s disclosure offering little that is specific to the responsibilities and substance of its decision-making. organization. Disclosures need to stay focussed and relevant to the company and its business value. 3 Performance and remuneration One of the challenges of board remuneration reporting • Setting a tone that reflects the importance the board has been the potential mismatch between the short term places on the maintenance and enhancement of financial performance of the business and its long-term long-term shareholder value. value. Integrated Reporting attempts to address this by • Demonstrating the connection between the building reports that amongst other things highlight the decision-making processes and the business’s delivery of operational performance milestones against priorities, as set out in the rest of the report. the strategic objectives of the business. The potential is an improved basis for remuneration reporting that’s aligned with the business mission and value creation. Below we highlight three areas where theIntegrated Reporting principles can help to improve How well does your reporting explain the governancegovernance reporting: over the business?1 Demonstrating the relevance of the board’s experience Would a reader agree with these statements?Shareholders will expect the composition of their boardto reflect the needs of the company’s business model. • I can see that key management decisions wereReporters can help demonstrate this by explaining the subject to due process and scrutiny by the board;rationale for the board’s composition, linking the individual I can see the extent to which decisions affectingappointments (including the strengths and benefits that long-term value feature in the processindividual board members bring to their roles) with an • I can see that the board is focussed on the issues thatexplanation of the overall positioning of the board as a matter and has the expertise to address thesewhole. Readers should be able to understand why any boardmembers who are up for re-election should be re-elected • I can see that the board understands and engagesin terms of their individual contribution in the context of with potential stakeholder issues, threatsthe business model and how they link with the rest of the and opportunitiescompany’s governance network. • I understand the amount and basis for boardFor example BHP Billiton provide a summary of Directors’ remuneration and the link between remunerationskills and experience covering the composition of each of the and the delivery of business strategy and valuemain board committees.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 27. Integrated Reporting Issue 2 | 27 The potential is an improved basis for remuneration reporting that’s aligned with the business mission and value creation. Example – Linking skills and remuneration to strategy 6 Remuneration Report continued 5 Corporate Governance Statement continued 6.2.2 Our remuneration policy underpins our Group strategy 5.3.3 Skills, knowledge, experience and attributes of Directors continued The Remuneration Committee recognises that the implementation of the Group’s strategy and our ongoing performance depends on the quality and motivation of our people. Skills and experience Board Risk and Audit Nomination Remuneration Sustainability Our purpose is to create long-term shareholder value through the discovery, acquisition, development and marketing of natural resources. Managing and leading Our strategy is to own and operate large, low-cost, expandable, upstream assets diversified by commodity, geography and market. Sustainable success in business at a very senior level in 11 Directors 3 Directors 3 Directors 3 Directors 3 Directors Our focus on the safety and health of our workforce, our fundamental drive for sustainability across all our business operations, our a successful career. concern for the environment and communities within which we work, and our management of operational risks are reflected through Global experience our remuneration policy and structures. Senior management or equivalent experience in multiple global 12 Directors 4 Directors 3 Directors 3 Directors 3 Directors The diagram below illustrates how BHP Billiton’s remuneration policy and structures serve to support and reinforce the six key drivers locations, exposed to a range of political, cultural, regulatory and of our strategy. business environments. Governance Commitment to the highest standards of governance, including 12 Directors 4 Directors 3 Directors 3 Directors 3 Directors NON-FINANCIAL FINANCIAL GROWTH experience with a major organisation, which is subject to rigorous governance standards and an ability to assess the effectiveness of senior management. PEOPLE SUSTAINABILITY WORLD-CLASS FINANCIAL PROJECT PIPELINE GROWTH OPTIONS ASSETS STRENGTH AND Drivers of strategy Strategy DISCIPLINE Track record of developing and implementing a successful strategy, 12 Directors 4 Directors 3 Directors 3 Directors 3 Directors G[XYbhaWTgba JXWXcXaWba @TagTaaZ 5T_TaVaZ 9bVhfbaWX_iXeaZ 5h_WaZX`UXWWXW including appropriately probing and challenging management on the bYbheUhfaXff ^XlfTYXglTaW [Z[ dhT_gl YaTaVT_Y_XkU_gl TaXa[TaVXW Zebjg[VTcTVgl delivery of agreed strategic planning objectives. fbhecXbc_X! Xaieba`XagT_ TffXgfTaW jg[g[XVbfg eXfbheVX TaWg[XTU_gl GT_XagXWTaW `cXeTgiXf `TaTZaZg[X`a bYYaTaVXa XaWbj`Xaggb gbchefhXaXj Financial acumen `bgiTgXWcXbc_X bheYbVhfba g[X`bfgXYYXVgiX XYYXVgiXVTcgT_ haWXecaYhgheX beZTaVZebjg[ Senior executive or equivalent experience in financial accounting and 12 Directors 4 Directors 3 Directors 3 Directors 3 Directors TeXbhe`bfg fhfgTaTU_gl TaWXYYVXagjTl! `TaTZX`Xag ZXaXeTgbaf bcgbaf! reporting, corporate finance and internal financial controls, including ceXVbhfeXfbheVX! TaWbabheTU_gl cebZeT`f! bYZebjg[! BhecXbc_XÀf gbbcXeTgXjg[a an ability to probe the adequacies of financial and risk controls. VTcTVglgbWeiX bheCode of Capital projects Zebjg[j___XTW Business Conduct. gbYhgheXfhVVXff! Experience working in an industry with projects involving large-scale 10 Directors 3 Directors 3 Directors 2 Directors 3 Directors capital outlays and long-term investment horizons. Health, safety and environment remuneration policy JXcebiWX EX`haXeTgba EX`haXeTgbaYeT`Xjbe^eXjTeWfg[X 6baffgXagjg[bhe_baZ gXe`fgeTgXZV Experience related to workplace health and safety, environmental 11 Directors 4 Directors 3 Directors 2 Directors 3 Directors Vb`cXggiXeXjTeWf YeT`Xjbe^eXjTeWf TV[XiX`XagbYWX`TaWaZYaTaVT_ YbVhfcXeYbe`TaVX`XTfheXfTeX_a^XW Supported by and social responsibility, and community. gbTggeTVg`bgiTgX fgebaZcXeYbe`TaVX cXeYbe`TaVXgTeZXgf[X_caZWeiX gb_baZ gXe`Zebjg[!G[feXjTeWf TaWeXgTa[Z[_l ag[XTeXTf bcXeTgbaT_XYYVXaVlTaWfhcXebe XkXVhgiXfYbeWX_iXeaZfhfgTaTU_X Remuneration f^__XWXkXVhgiXf bY[XT_g[fTYXgl eXfh_gfTVebffg[X:ebhc! eXgheafTaWTibWaZXkVXffiXef^f! Board remuneration committee membership or management 12 Directors 4 Directors 3 Directors 3 Directors 3 Directors j__aZgbjbe^TebhaW Xaieba`XagTaW experience in relation to remuneration, including incentive programs g[Xjbe_W! g[XVb``hagl! and pensions/superannuation and the legislation and contractual framework governing remuneration. Mining —:@6UTfXfT_TeXf —$(bYFGYbe —FGbhgVb`XfYbeg[X:@6TeXjXZ[gXW —G[X?GCbcXeTgXfbiXeT_baZ gXe` Senior executive experience in a large mining organisation combined 4 Directors 1 Director 0 Directors 0 Directors 2 Directors TeXT_ZaXWjg[ :@6`X`UXeff gbjTeWfg[XTV[XiX`XagbYV[T__XaZaZ [bemba!CXeYbe`TaVXF[TeXfTeXfhU]XVg with an understanding of the Group’s corporate objective to create Vb`cTeTU_X UTfXWba[XT_g[ YaTaVT_Cf_a^aZeX`haXeTgbagbg[X gbTcXeYbe`TaVX[heW_XgXfgXWbiXe long-term value for shareholders through the discovery, development eb_XfaZ_bUT_ fTYXglXaieba`Xag cXeYbe`TaVXbY5;C5__gbaÀfTffXgfTaW TYiX lXTecXebW! and conversion of natural resources. Vb`cTaXfbY TaWVb``hagl VTcgT_`TaTZX`XagcebZeT`f- —G[X?GC_a^fTfZaYVTagVb`cbaXag Tf`_TefmX ;F86`XTfheXf! »4%(gb(#jXZ[gaZbacebYg bYcTlYbeXkXVhgiXfgbg[XWX_iXel Oil and gas TaWVb`c_Xkgl! —G[X:ebhcÀf TYgXegTkTW]hfgXWYbeYbeXZaXkV[TaZX bYfhcXebeeXgheafYbef[TeX[b_WXef! Senior executive experience in the oil and gas industry, including in depth 4 Directors 1 Director 2 Directors 2 Directors 1 Director 5TfXfT_TeXfYbe cXeYbe`TaVX `biX`XagfVb``bWglceVXfTaW »8kXVhgiXfba_lWXeiXiT_hXYeb` bg[XeXkXVhgiXf ag[XTeXTfbY XkVXcgbaT_gX`fTaWHaWXe_laZ g[Xe?GCTjTeWfj[XeX5;C5__gba knowledge of the Group’s strategy, markets, competitors, operational TeXUXaV[`Te^XW XTeaaZfUXYbeXagXeXfgTaWgTk! Enacted through remuneration structures issues, technology and regulatory concerns. [XT_g[fTYXgl bhgcXeYbe`fVb`cTeTgbeVb`cTaXfa gbVb`cTeTU_X Xaieba`Xag »4$#gb$(jXZ[gaZbaVTcgT_ ZebjaZgfGbgT_F[TeX[b_WXeEXgheaGFE! eb_Xfjg[aXTV[ `TaTZX`XagVbfgTaWfV[XWh_X! Marketing TaWVb``hagl 9beTjTeWfaeXfcXVgbYlXTefhcgbTaW ZXbZeTc[lTaW `cTVgfFG aV_hWaZ9L%#$#g[XVb`cTeTgbefTeX Senior executive experience in marketing and a detailed understanding 10 Directors 3 Directors 3 Directors 3 Directors 3 Directors —¿BagTeZXgÀcXeYbe`TaVXTZTafgg[XCf XdhgTU_XTVebff bhgVb`XfYbe cXXefXVgbeVb`cTaXf!9be9L%#$$TjTeWf of the Group’s corporate objective to create long-term value for WX_iXefTVTf[FGeXjTeWbY+#bYUTfX g[X:ebhc! T__XkXVhgiXf! GFEcXeYbe`TaVXeX_TgiXgbfXVgbecXXef fT_Tel!G[X`Tk`h`VTf[TjTeWbY$)# shareholders through the provision of innovative customer and —9heg[XeeXjTeWf j__WXgXe`aXg[XiXfgaZbY)*bYg[X feTeX_lTjTeWXWTaWfba_lTiT_TU_X market-focused solutions. TeXTiT_TU_X j[XeXT__aba YaTaVT_TaWYaTaVT_ fXVhegXfTaWGFEcXeYbe`TaVXTZTafg gbXkXVhgiXf gTeZXgfTeXfZaYVTag_lXkVXXWXW! TUebTW`Te^XgaWXkj__WXgXe`aX Public policy YbecXeYbe`TaVX g[XiXfgaZbYg[XeX`TaaZfXVhegXf! Experience in public and regulatory policy, including how it 12 Directors 4 Directors 3 Directors 3 Directors 3 Directors —6Tf[FGeXjTeWfTeX`TgV[XWUlTaTjTeW TZTafgT__Tgef^ »9h__iXfgaZhaWXeg[X?GCba_lbVVhef bY5;C5__gbaXdhglj[V[fWXYXeeXWYbe affects corporations. Vb`cbaXagfbY j[XeX5;C5__gbaÀfGFEbhgcXeYbe`f gjblXTefcebiWaZTaTccebceTgXYbVhf eX`haXeTgba! g[TgbYg[XVb`cTeTgbeVb`cTaXf Total Directors 12 Directors 4 Directors 3 Directors 3 Directors 3 Directors bag[X_baZXe gXe`g`XYeT`XXiXaa G[XTgef^ GFEUl`beXg[Ta#! eXZTeWgbTaahT_FGeXjTeWf! Vb`cbaXagf —G[X@a`h`F[TeX[b_WaZEXdheX`Xag fXeiXg[XWhT_ ##bYTaahT_ceX gTkUTfXfT_Tel Director qualifications Non-executive Director locations checbfXbY- Ybeg[X68BTaW%##Ybebg[Xe:@6 »aVXagifaZ `X`UXef[X_cfgbXafheXXkXVhgiXfTaW TaWeXjTeWaZ f[TeX[b_WXefagXeXfgfeX`TaT_ZaXW! Business/Finance, 7 Directors US, 3 Directors XkXVhgiXfYbe cXeYbe`TaVX.TaW —8kXVhgiXfTeXceb[UgXWYeb` Engineering and Science, 2 Directors Australia, 5 Directors [XWZaZhaiXfgXWXdhglbef[TeXf Science, 2 Directors UK, 2 Directors »ceb`bgaZ eXgXagbaTaW g[TgTeX[X_WTfcTegbYg[X@a`h` Engineering, 1 Director South Africa, 1 Director F[TeX[b_WaZEXdheX`Xag! eXjTeWaZ_blT_gl! Source: BHP Billiton Annual Report, 2011, pages 112 and 130 130 | BHP BILLITON ANNUAL REPORT 2011 112 | BHP BILLITON ANNUAL REPORT 2011 There is still scope for companies to use an Integrated reporting approach to improve their reporting within their local compliance framework. All extracts from published reports should be read in conjuction with the full report itself including its notes.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 28. 28 | Integrated Reporting Issue 2Better CorporateResponsibility ReportingBy Matt Chapman, KPMG in the UK and Wim Bartels KPMG in the Netherlands In brief: • Integrating corporate responsibility reporting demonstrates the connection with business operations and strategy • Reporting should be driven by the business model and linked to strategy and potential for future value creation and defence • Different reporting approaches and performance measures are needed depending on the nature of each issue • Every issue and opportunity needs to be put into a business context with enough detail for readers to understand the potential implications for business value© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 29. Integrated Reporting Issue 2 | 29 In our recent publication Expect the Unexpected: Building business value in a changing world1 we set out a system of 10 sustainability mega forces that will impact each and every business over the next 20 years. As a result of these mega forces, the resources on which business relies are becoming more difficult to access and more costly. Infrastructure and natural systems are coming under strain as patterns of population, economic growth and wealth change. Physical assets and supply chains will be affected by the unpredictable impacts of a changing climate. And businesses will have to deal with an ever more complex web of sustainability legislation and fiscal instruments.These sustainability mega forces can have a fundamental effect on business value. Shareholders need the informationto assess these impacts and to understand how the business is addressing them. Corporate reporting needs to adapt inorder to answer these questions. If it does not, the investment businesses have made in managing these challenges andopportunities may not be recognized by the capital markets.It is not enough to incorporate existing corporate responsibility reporting into the Annual Report. This is simply ‘CombinedReporting’. The information provided needs to be tailored to shareholder needs.We explain how Integrated Reporting principles can be used to explain an organization’s corporate responsibility approach,challenges and opportunities more effectively to its shareholders – and ultimately produce a better corporate report that willbe of interest to all its stakeholders.Context is essential if readersare to relate the issue beingreported to their decision-making process.1 KPMG International, 2012© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 30. 30 | Integrated Reporting Issue 2Businesses that report their corporate responsibility activitiesseparately from their routine operations send the message thatthey see them as separate from the core business.Focus on what matters to the reader than the Annual Report reader, or be required by specificA key first step is to recognise that Annual Report readers reporting frameworks. Detailed information addressinghave specific information needs depending on the these issues can be linked to and reported in a separateimplications of each responsibility issue. Some issues cut Corporate Responsibility Report if necessary. Includingto the heart of business value; others are of less immediate this information in an Annual Report may obscure moreinterest to shareholders – unless something goes wrong. important messages.We suggest four categories as a basis for ensuring that reports If a corporate responsibility issue is strategically important,focus on supporting readers’ decision-making processes. say so. Be open about the investment you are making inEach category requires a different reporting approach: managing it and be clear about the operational benefit – your readers want to understand this. If it’s not relevant to• ame changers G understanding business value and stewardship, take it out of Issues and opportunities of core importance to the long- the Annual Report. You can report on it separately to those term shape or viability of the business model. These can that are interested. include the potential loss of an operating license, and loss of access to key resources. Opportunities are relevant too A major part of business value typically lies in how Identification of these issues together with the efforts and the organization develops and exploits its long-term progress being made to manage them should be central opportunities. Corporate responsibility information is central to corporate reporting, not on the periphery. This means to explaining this. Where a key part of long-term business providing a basis for readers to understand the potential strategy or value is derived from exploiting a sustainability impacts, and the progress being made in managing them. megatrend, readers will want to understand the trend• irect impact issues D and the business strategy and progress in exploiting it. These are less significant in terms of scale but still of Many reporters need to rebalance their emphasis from interest because of their direct consequence on the corporate responsibility downsides to looking ahead to how business’s underlying performance. management plans to exploit the opportunities. Readers want to understand the material consequences The value of context and need specific information to do this. For example, Context is essential if readers are to relate the issue being reporting global carbon emissions does not help readers reported to their decision-making process. Annual Report understand the potential impact of a localized carbon tax – readers want to understand what shapes the financial value regional emissions analysis is needed instead. of the business, typically through cash flow modelling. They need sufficient background information to understand how• ygiene factors H each issue might influence future cash flows. There are some issues that, if not managed effectively, could severely damage business performance. For example water stress may be an issue in some areas, Shareholders need to understand whether these issues but not in others. To understand the operational impact are being well managed. readers will need to see how much production depends on water-stressed assets. Simply providing statistics on the For the most significant issues this may mean reporting management of total water consumption is not enough. risk indicators, such as levels of maintenance expenditure Neither will illustrations of water-saving projects meet or customer satisfaction. For less significant issues, readers’ needs. reporting may simply need to show there are adequate governance procedures. Ad hoc illustrations of corporate responsibility investment alone do not explain management performance.• ther O These illustrations emphasise the cost of the activity Some issues don’t have a material bearing on business without showing its benefit. This is why current corporate value but may interest specific stakeholder groups other responsibility reporting often fails to connect with investors.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 31. Integrated Reporting Issue 2 | 31The right detail at the right level Demonstrate relevance with genuine integrationReaders need different information depending on the scale If corporate responsibility is central to your business model itand nature of each issue. It helps here to think of three should have a central role in your reporting too. Businessestypes of key performance measure: risk, performance, and that report their corporate responsibility activities separatelyreward. Each measure has a different purpose and different from their routine operations send the message that theyinformation is needed to explain the issue to the reader - see them as separate from the core business.illustrated in the table below. Reporting can lose focus andbecome ineffective when this distinction is ignored. But genuine integration goes further than simply recognizing that corporate responsibility should have a place in anIt is rarely appropriate to lump all corporate responsibility Annual Report. The logic of Integrated Reporting is that allissues together under reputational risk. The implications of reporting content should be driven by the business model,not managing them properly can be much deeper than this, operating context and business strategy through to itsand will be specific for each issue. performance, governance and future outlook. This means addressing corporate responsibility matters alongside otherIn our 2011 survey of corporate responsibility reporting1 we operational matters rather than in a separate corporatenoted a growing trend towards restatement of previously responsibility section. A segmental review of operationalreported information. We see this as a positive. Why? It performance is not complete unless it includes the relevantindicates the growing level of attention to this area, and that corporate responsibility measures.the quality of information and reporting is improving. This isessential as the information becomes increasingly central to We believe that corporate responsibility reporting has anreaders’ decision-making in an Integrated Report. essential role to play in communicating a more complete picture of business value. Over 95 percent of the 250Of course where re-statements, re-definitions and changes largest companies in the world1 report on their corporateof targets and measures are made, good reporting practice responsibility activities. Now that this type of reporting isrequires that these changes are explained in a way that the firmly established, the next step for many companies isreason for the change is understood and comparisons with integrating it into their mainstream corporate reporting. Thepast performance can still be made. Integrated Reporting principles can show the way to do this. KPI Purpose and focus Reporting illustrations Risk Reports on issues that should not have a major • Operating maintenance spend for an airline impact on the business, provided they are • Industry workplace safety ranking for a construction company managed effectively. • Staff turnover for a retailer Reader interest focusses on trends or relative measures rather than absolute outcomes. Performance Reports on issues the business knows it needs to Possible targets in the business strategy: change as part of its core strategy. • Water consumption in stressed areas for a chemicals company • Mix of ethically sourced raw materials for a consumer goods Reader interest lies in the progress made in manufacturer implementing this change - have specific operational targets and milestones been met? Reward Measures that demonstrate direct value to the Possible outcomes in the business strategy: business. These help the reader understand the actual • Market share in a new segment (e.g., green energy generation) or potential investment returns. • Brand rankings1 KPMG International Survey of Corporate Responsibility Reporting 2011© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 32. 32 | Integrated Reporting Issue 2Applying Integrated Reportingprinciples in the public sectorBy Mark Hoffman, KPMG in South Africa © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  • 33. Integrated Reporting Issue 2 | 33In brief: Public sector organizations are under constant pressure to develop better reporting. IntegratedMany public sector bodies are tasked with Reporting principles provide aproviding service delivery and governance potential solution that can be readily adapted to their broaderexcellence in a financially, economically, socially goals. A wider range of stakeholdersand environmentally sustainable manner. Integrated with varied expectations have an interest in the performance of publicReporting can help to balance reporting of these sector organizations. An Integratedoften conflicting objectives. Reporting approach can help to address these factors.• Integrated Reporting can provide a framework for public sector organizations to focus their reporting on their principle objectives• Integrated Reporting can help public sector bodies explain their strategies; operational model and governance, and show how their performance can be assessed against these strategies• Stakeholder engagement can help organizations show how they have balanced the often conflicting needs of different stakeholder groups• Integrated Reporting offers organizations the opportunity to align their reporting with their risks and opportunities and management accountabilitiesOrganizations need to engage with theirkey stakeholder groups effectively.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 34. 34 | Integrated Reporting Issue 2A business approach to public sector reporting Stakeholder engagement and material issuesThere is a growing social and regulatory drive for public Relationships and interactions with key stakeholders are atsector organizations to provide performance reporting the heart of every public sector organization. Typical majorthat can be used to assess the delivery of organizations’ stakeholders include:strategies. This pressure comes not only from Government Regulatorsgovernment in its oversight capacity but from allinterested key stakeholders. Direct Indirect customers Financiers, banks rating agenciesIntegrated Reporting introduces a business approach to Public communities Suppliers, business partnersreporting in the public sector that fully embraces stakeholder PPPsinclusivity and the critical need for financial, economic, Employee trade unions NGOs, forums, media environmental, social and governance sustainability. interest groupsA public sector organization’s value lies in its ability tomeet its service delivery and governance objectives in Public sector organizations need to engage with their keythe short, medium and long-term, just as a private sector stakeholder groups effectively, and to understand theorganization looks for sustainable, profitable growth. needs and concerns, and trends and developments in theseStakeholders seek a change in management or ultimately a groups in order to respond pro-actively in their political solution if inappropriate strategies are targeted Experience shows that stakeholders have varied and oftenor poor performance results, just as capital markets choose conflicting needs and concerns. Focused and innovativeto divest in listed companies. management is required to deal with this challenge. The benefit of an Integrated Report is the opportunityIn South Africa the positive response by a number of State it provides to explain how competing objectives haveOwned Entities to Integrated Reporting under the King been balanced.Code of Governance Principles is encouraging and reflectsa good fit for Integrated Reporting in these organizations. When confronted with a list of stakeholder needs, it isThe alignment of Integrated Reporting to Performance important to stay focussed. Proportionality is key. TheInformation initiatives, as contemplated under the South amount of weight attached to each stakeholder’s needs willAfrican National Treasury reporting requirements, points to depend on both the organization’s priorities (which should beIntegrated Reporting as the direction for future public clearly explained in its business model) and the impact thatsector reporting. these stakeholders have on the organization itself. Ultimately, stakeholder engagement can help theBelow we explore some of the observations arising from organization identify material issues – risks and opportunitiesthe practical application of Integrated Reporting elements to – that it should respond to and address.public sector organizations.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 35. Integrated Reporting Issue 2 | 35 The benefit of an Integrated Report is the opportunity it provides to explain how competing objectives have been balanced.Example – risks opportunities Performance measures In our Better Corporate Responsibility Reporting article we Risk Opportunity have highlighted the three different types of performance Inability to meet customer New technologies present indicator (risk, performance, reward) that should be demand through unexpected opportunities to rapidly install addressed by businesses. The same indicators are relevant growth urbanization trends capacity in the public sector, however ‘reward’ measures will often Loss of public confidence Increased population densities be expressed in terms of operational targets rather than through service delivery enhance viability of new financial targets (though some financial measures will shortcomings projects and technologies remain relevant to the funding stakeholder). In order to provide a clearer perspective on the strategy, performanceAn Integrated Report provides a platform for the organization indicators and associated targets in the short, medium andto contextualize its risks and opportunities against the current long-term need to be set out clearly.trends and constraints that it faces. Performance targets need to be put in context, showingStrategy which parts of strategy execution they relate to andThe description of strategy will need to address and distinguishing between lead (input) and lag (outputreflect the conflicting needs and expectations of indicators).different stakeholders and other constraints that the Example – performance targets in contextorganization faces. Pro-active maintenance Capital projects capacityFor example, most organizations need to meet pressing programme expansion programmeservice delivery expectations in the short-term whilst % on-time maintenance Capital expenditure spend developing and investing in new technologies and inspections and overhauls project completion on timeinfrastructure to meet their medium to long-term objectives (lead indicator) statistics (lead)in a financially, economically and socially sustainable manner. Number of breakdowns Capacity installed to volume 5 hours down time (lag) demand projections (lag)Example – balanced strategy for a public sector utility Meet pressing short-term electricity demand using sub-optimal technologies in terms of carbon efficiency; Governance and remuneration Address carbon-efficient technologies through medium to Stakeholders are growing increasingly demanding over long-term capital projects. the quality of governance, transparency and accountability from public sector organizations. Integrated reportingMany public sector organizations need to show how provides insight into how the organization is governed and,their strategy aligns with national priorities and how they importantly, what informed the decision-making process andwork collaboratively with other organizations to achieve how management are held accountable for performance.common goals. Where next? What was originally seen as a private sector initiative has clear relevance and application to public sector organizations. The principles of Integrated Reporting have been readilyWhat was originally seen as adapted to the ‘managing for outcomes’ approach toa private sector initiative has demonstrate accountability for service delivery by a number of South African organizations.clear relevance and application We look forward to seeing this approach spread in Southto public sector organizations. Africa and the Rest of the World.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 36. 36 | Integrated Reporting Issue 2Active Governance: the core ofBetter Business ReportingBy Nick Ridehalgh, KPMG in Australia In brief: • The profile of corporate stakeholders and their ability to influence business has changed. Companies must demonstrate they are managing the interests of all their capital providers in order to show that they have a sustainable business model • Boards have a duty to maximise a company’s overall economic value and ensure best use of all types of capital.They need to report openly on the companies’ achievements and challenges • Boards need to take responsibility for driving the organizational change towards integrated thinking and for ensuring the content of their corporate reporting meets capital provider’s information needs The world in which companies operate is changing. Businesses are facing capital constraints from a broader range of resources than just finance. Boards are responsible for addressing these capital requirements in a sustainable manner for a company’s long-term success. We consider why boards need to provide active governance, how Integrated Reporting helps, and the board’s vital role in driving the changes needed from the top down for Integrated Thinking to become embedded in the organization’s culture.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 37. Integrated Reporting Issue 2 | 37A new focus for 21st century companies They need different types of information at different stagesThe key providers of capital in much of the 20th century were of their decision making:wealthy families with a single bottom-line agenda – to makemoney. Today the providers of financial capital are largely • ue diligence phase – when the investor, supplier, Dordinary people investing through their pension funds. Often customer, employee, banker, etc. undertakes an initialthese same investors are also the company’s employees, investigation into a specific organization in deciding whethercustomers and impacted communities. So even though these to invest, supply, purchase, join or finance the company.‘universal investors’ still require financial returns (and security • ngoing monitoring phase – the user undertakes a regular Oin their retirement), those returns need to be made over review of the organization’s performance and prospects tothe long-term with a positive (or at least neutral) impact on, ensure nothing material has occurred that might change theamongst other things, the environment and community original general. In order to meet due diligence information needs, theThe result is that companies are dependent on and must company must provide a broad suite of information aboutmanage a much broader range of capitals – the continued the organization.availability of intellectual, manufactured, social, human, andnatural capitals cannot be taken for granted. However, once due diligence has been undertaken and a decision made, then the shareholder or other user onlyObligations of the 21st century board requires information that explains:Directors need to work together to identify and assesschanges today and potential changes over the short, medium • aterial changes to governance, strategy and future Mand long-term that may materially influence the company’s outlook, including changes to key directors and executives,strategy and longer-term success. They have to make decisions the company’s risk profile or appetite, the businessbased on best available information and an honest application environment or external factors; andof the collective mind of the board operating in the best • erformance against strategic objectives to confirm delivery Pinterests of the company. In doing this, the directors must try against strategy to date across key value drivers, and anto maximise the company’s total economic value (not its explanation of any proposed changes to key value driversbook value) for shareholders whilst meeting other based on experience to date and/or changes to strategy, riskstakeholders’ needs. and future outlook.To do this, boards need to embed Integrated Thinking into Much of the information required for due diligence isevery decision made by them, the organization’s management standing data that can be provided on the company’s websiteand its staff. All decisions should consider not just returns and updated from time to time, as improvements and otheron financial and manufactured capital, but also on the changes are made. Only changes that are potentially materialorganization’s human capital, intellectual capital, natural capital to stakeholder decisions should be reported in companyand social capital. reports produced for the monitoring phase, with reference to website amendments where appropriate (subject, of course,Shareholders recognise that long-term business viability to any regulatory constraints).depends on providing a balanced return across all capitalsover time, and are telling boards to provide visible oversight An Integrated Report, in which the organization tellsand leadership in ensuring the required cultural change its own value creation story, aims to provide theis embedded into business-as-usual at all levels of the information investors require for their ongoingorganization. Progress has to be candidly reported through to monitoring needs. By addressing these needs we expectthe board and ultimately to the shareholders. that it will meet many if not all of the material needs of other stakeholders.Readers’ information needsShareholders have varying time and abilities to read and So why are companies not providing this Integrated Reportanalyze long company reports. Companies all over the world now? Many jurisdictions allow for this kind of report incomplain about the regulatory reporting burden and users the Review of Operations Financial Condition (OFR) orcomplain about the length, complexity and boiler-plate nature Management Discussion Analysis (MDA). However,of the documents produced. No-one in the reporting supply 20th century corporate reporting was driven by boiler-platechain is satisfied with the totality of information available to imposed frameworks, complex rules, aversion to litigationhelp them make and monitor their capital allocation decisions. risk and an over-reliance on the ‘commercially sensitive’ argument over-riding full and transparent reporting.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 38. 38 | Integrated Reporting Issue 2The board must drive Integrated Reporting developing the structure of this reporting framework, butThe board’s role in corporate reporting has sometimes been also for more detailed internal reporting (to the board andtoo little, too late. Although certain key reports are approved executive management) which focusses on the key valueat board meetings, there is often too little time for any major drivers and performance, and provides a clear assessmentoverhaul of the content. of material future risks and opportunities to longer-term value creation.In the Centro case (2011) in Australia, in which errors andomissions found in the annual filings led to a significant Practical Concernsloss of economic value, the Federal Court’s judgement The 21st century board must take the lead in controllingreminded directors that they take overall responsibility for the information it receives and communicates. In drivingthe content of the financial report and directors’ report. development of a candid and concise strategy-aligned(Mr Greg Medcraft, ASIC Chairman, June 2011). Integrated Report, it must actively debate and contest management’s claims that some material is ‘commerciallyThe findings of the Centro case, combined with the sensitive’ or ‘not legally required’. If the information isexpectations and challenges of managing a broader set of potentially material to the decisions of capital providers,stakeholders, mean boards must be more involved – and is the Board prepared to take the responsibility for notinvolved at an earlier stage – in developing the structure and reporting it?messaging of key reports, such as the OFR or MDA. What if directors are concerned about their own liability ifIndeed, if the Integrated Report provides the annual a future event does not turn out as expected? Professor‘monitoring’ information required by shareholders and other Mervyn King, Chairman of the International Integratedstakeholders, then directors must be involved not only in© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 39. Integrated Reporting Issue 2 | 39 Action points for boards Active governance requires positive action and candid disclosure by boards to meet the material informationReporting Council, suggests companies should maintainan Explanations Register setting out the due diligence needs of their capitalundertaken by the company and the board’s rationale in providers. Directors should askmaking the decision/ disclosure based on best availableinformation. Different permutations of such a register, and themselves whether they arepotentially other safe harbour provisions, will need to be satisfied with the following:developed for specific jurisdictions to protect directors whoare taking care and diligence and making educated decisions • Are the board and management’susing the best available information. strategic planning activities, includingThere is growing global regulatory focus on broader based the impact on strategy and strategicreporting. Integrated Reporting is now required for listed objectives, being communicatedcompanies in South Africa on an ‘apply or explain’ basis. effectively?Many other companies throughout the world are starting toadopt Integrated Thinking in day-to-day business decision- • Is the board’s assessment of strategicmaking, and are quite transparent in their public disclosures, risks and external factors (includingbut many others follow regulatory-driven boiler-plate going concern) being communicateddisclosures in their public reporting. It is up to 21st century properly? Does this communicationdirectors to take positive action to meet theirreporting obligations to their stakeholders through include an explanation of what hasmore active governance. changed and the consequential impact, including any changes to the organization’s risk profile? • Have executive and staff incentives been discussed? Is the link to integrated thinking, cultural change and effective implementation of short and longer-term strategies explained? • How have one-off reportable events been handled? Has there been continuous disclosure? Does disclosure include board activity, speed and accuracy of response, and consequences/outcomes? • Has the content of the Integrated Report been discussed regularly? Have the directors been involved in the structure and design of the primary report, other public reports and other board papers? • Have changes to standing data been properly explained? What about the implications of the changes on the business model, strategy and risk?© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 40. 40 | Integrated Reporting Issue 2Some commonquestions answeredCan the Integrated Reporting principles be applied However, while many preparers and users of corporateto an Annual Report reports would welcome a reduction in the volume ofYes - whilst some companies will opt for full Integrated information that is provided, in the short-term it is unlikelyReporting, many more are likely to use the principles to that there will be any relaxation of regulations which lessendevelop their existing Annual Reporting. the reporting burden.The IIRC’s content elements can be used as ‘chapter How long is an Integrated Report?headings’ into which the traditional elements of an The simple answer is: as long as it needs to be andAnnual Report can fit. This evolutionary approach will no longer. Factors such as diversity of operations (inbe attractive to companies who simply want to improve both geography and nature) and the complexity of thetheir current reporting (though they will need to guard business will clearly influence its length. There may also beagainst retaining content not material to an opportunities to reduce length through a clearer focus onIntegrated Report). materiality and elimination of reporting clutter.Who is the intended user of an Integrated Report? In practice, some companies may seek to fulfil theirInvestors are the primary audience of an Annual Report, regulatory reporting obligations through their Integratedand this is reflected in the IIRC’s initial focus for Integrated Report. Depending on the regulatory environment, thisReporting. However, information which satisfies the could mean including information that goes beyond thatreasonable needs of investors should satisfy many, set out in the principles of the Integrated Reportingif not all, of the needs of other stakeholder groups. Framework such as that required by financial and sustainability reporting frameworks.An Integrated Report will be relevant to anybody interestedin the strategy and performance of the company. Is an Integrated Report a single document?But this does not mean that it will necessarily provide all A single document is not a pre-requisite, but companiesof the information which might be desired by all interested that seek to use their Integrated Report to meet regulatorystakeholders. To meet all of these needs in a single report obligations are likely either to produce a single document orwould neither be reasonable nor sensible. incorporate links to other information.Will Integrated Reporting replace existing reporting? Other elements of corporate reporting should benefit fromIt would be logical to assume that as long as an Integrated applying Integrated Reporting Principles consistently acrossReport meets the needs of investors, then it will become the the range of corporate’s main report. Other reports may continueto provide additional information to address othershareholders’ needs....Information which satisfies the reasonable needs of investors should satisfy many, if not all of the needs of other stakeholder groups…© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 41. Integrated Reporting Issue 2 | 41Are there any examples of Integrated Reports available?The perfect Integrated Report has yet to be produced but In brief:our research shows that there are many examples of theIntegrated Reporting principles being applied to individual • Integrated Reporting provides areporting elements. Many examples come from companies basis for organizations to explainin South Africa looking to produce a dedicated Integrated their business story more effectivelyReport. Others come from companies who are simplylooking to provide a clearer picture of their business and its to the capital marketsvalue. We have provided a small selection of these examplesin this publication. • Any organization can apply Integrated Reporting principles toWill the Integrated Reporting Framework provide clarityon measurement issues? improve their Annual ReportThe Integrated Reporting Framework will provide a setof principles for identifying matters which should be • Reporting is built around thecommunicated within an Integrated Report but it will not business model to provide a more– at least at the outset – address how individual items complete understanding ofshould be measured. This will remain the domain ofexisting standard-setting bodies. long-term business value • Reports do not replace existing financial and sustainability reporting though they may link to or incorporate it where relevant • The IIRC is developing a detailed reporting framework though the principles can be applied now© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved.
  • 42. Contact usDavid Matthews PierMario BarzaghiKPMG in the UK KPMG in ItalyT: + 44 (0) 207 311 8572 T: +39 02 6763 2404E: E: pbarzaghi@kpmg.itMatt ChapmanKPMG in the UKT: +44 (0) 207 311 3236E: BartelsKPMG in the NetherlandsT: + 31 206 56 7783E: bartels.wim@kpmg.nlOliver BeyhsKPMG in GermanyT: + 49 30 2068 4485E: obeyhs@kpmg.comMichael BrayKPMG in AustraliaT: + 61 3 9288 5720E: RidehalghKPMG in AustraliaT: +61 2 9455 9312E: ButruilleKPMG in SpainT: +34 914 565 953E: ebutruille@kpmg.esMark HoffmanKPMG in South AfricaT: + 27 82 496 3697E: ShibasakaKPMG in JapanT: + 81 3 3266 7670E: Straume SteneKPMG in NorwayT: +47 4063 9851E: The information contained herein is of general nature and is not intended to address the circumstances of any particular indi vidual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. RR Donnelley | RRD-268931 | June