evolution of the annual report: strategic report accolades

2 October 2014

The 2014 Strategic Report Index Accolades

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The seventh year of the Accolades – the ‘no nomination’ awards

– Why the Accolades matter:

– Case studies that show the effective use of business strategy in reporting and its value to investors

– The benefit of recognition for companies that are outstanding at articulating and applying strategic thinking

– A window to propagate the valuable but often misused management technique that is business strategy

Dr Anthony Hesketh

Lancaster University Management SchoolCopenhagen Business SchoolDeloitte Analytics

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Background to the Accolades

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Tangibles

Intangibles

Reducing uncertainty for shareholders is the primary role of the Annual Report

Market value

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Book value

Audited accounts assure past performance

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£

A rigorous, consistently applied evaluation basis addressing past, present and future

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+ clarity and logicObjectives and

strategy

Business model

Govern

ance

SustainabilityFuture factors and risk

Performance and KPIs

Strengths and resources

Past

Future

Future

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How we build the Strategic Report Index

Annual Report

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How scores have changed over time

Good strategic narrative reduces uncertainty

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The six 2014 Accolades

– Best Business Model

– Best Key Performance Indicators

– Best Strategic Risk

– Best Strategic Capability

– Best Shared Strategic Value

– Strategic Leadership

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16 Companies from 15 sectors short-listed

6 Companies for ≥ 2 Accolades

3 Companies from the FTSE250

12 of these short-listed in previous years

27 Companies from 21 sectors long-listed

9 Companies for ≥ 2 Accolades

8 Companies from the FTSE250

Best Business Model

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Long-listed Short-listed Winner

British American Tobacco

British American Tobacco

Experian

Halma

Marks and Spencer Group

Marks and Spencer Group

Provident Financial Group

Provident Financial Group

Rexam Rexam

Spirent Communications

Tate and Lyle

Foundation of the strategic framework

Defines the logic of the business

Distinct sources of value – created, developing

Basis for sustainable profitability

Encompasses value system of enterprise

Comprehensive exposition of PFG’s business model is the foundation of its strategy

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Explains simply, clearly how PFG creates value uniquely for customers

Clarifies why PFG is profitable by highlighting, exploring key differentiators

Relates application of Group model to divisions and operational processes

12-page business model section cornerstone of Strategic Report

Best Key Performance Indicators

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Long-listed Short-listed Winner

ARM Holdings ARM Holdings

Balfour Beatty Balfour Beatty

Fresnillo

Halma Halma

ITV ITV

Land Securities Group

Lloyds Banking Group

Provident Financial Group

Complete set of KPIs – financial and non-financial

Ease of intelligibility

Good trend data

Illustrative of strategic progress

Usefulness in monitoring performance

ARM’S KPIs are quite clearly central to its whole strategic management process

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Comprehensive KPIs linked directly to growth drivers of ARM’s strategy

8-page KPI section provides context for discussion of strategy and performance against strategy

Clear indication of role each KPI plays in ARM's strategic management process

KPI presentation contributes to simplifying complexity of the business

Best Strategic Risk

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Long-listed Short-listed Winner

Domino Printing Sciences

Fresnillo Fresnillo

Halma

Land Securities Group Land Securities Group

Legal and General Group

Legal and General Group

Marks and Spencer Group

TUI Travel TUI Travel

Unilever

Key risk factors relative to strategy

Direct influence on achieving objectives

Specific management, control or mitigation comments

Risk governance, appetite, management

Clear sensitivity to the future

Fresnillo’s evaluation of risk inspires real confidence

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Comprehensive in its evaluation of risk, its governance and management

Demonstrates an unrelenting focus on strategic risk

Accessible, intelligible and useful to the shareholder

Contributes to perceptions of good strategic management

Best Strategic Capability

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Long-listed Short-listed Winner

AstraZeneca

Aviva

Coca-Cola HBC Coca-Cola HBC

Lloyds Banking Group Lloyds Banking Group

Marks and Spencer Group

Marks and Spencer Group

Rexam

Unilever Unilever

Weir Group

Investment in key strengths and resources

Development of intangibles and hidden assets

Attention to value drivers

Enterprise value system wide

Match to indicated demands of strategy

What makes Marks and Spencer’s Strategic Report more strategically capable

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83 relevant references across a concise 34-page Strategic Report

Expansive narrative rich in relevant scope and content

Recurrent themes reflect key capabilities required for sustained strategy-driven success

Focus on customer value drivers, and on process, systems and reputation intangibles

Coverage of full enterprise-wide value system

Best Shared Strategic Value

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Long-listed Short-listed Winner

Anglo American Anglo American

Catlin Group

Coca-Cola HBC Coca-Cola HBC

Galliford Try

Johnson Matthey

Lloyds Banking Group Lloyds Banking Group

Rio Tinto

Unilever Unilever Integration of social, environmental in business

strategy

Attention to full range of stakeholders

Clear environmental policy, commitment

Sustainability governance

Reporting of social and environmental performance

Coca-Cola HBC AG produces an integrated de facto Strategic Report of remarkable quality

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“The reason we have adopted integrated reporting is that this better reflects how we operate as a business. After a decade of embedding sustainability throughout our organisation, we now think and operate in a more integrated manner; there is therefore no longer a need to publish separate reports on our financial and non-financial performance.”“The four pillars of our strategy – Community Trust, Consumer Relevance, Customer Preference and Cost Leadership – frame the discussion of our key activities during the year.”

Strategic Leadership

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Long-listed Short-listed Winner

Fresnillo

Land Securities Group

Lloyds Banking Group

Marks and Spencer Group

Rexam

Unilever

Clarity and rigour of strategic thinking

Robust and integrated strategic framework

Strategic management in past, present and future

Development of strategic capability

Clear and persuasive shared value

Lloyds displays outstanding quality in almost every aspect of its strategy framework

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Topped the 2014 Index with 9.0

Placed in 4 long-lists and then 3 short lists for the 6 Accolades

Full set of KPIs illustrates strategic progress as well as strategy in action

Expansive narrative matches capabilities to the likely demands of strategy

12 out of 44-pages on social and environmental dimensions fully integrated with business strategy

The 2014 Strategic Report Accolade winners

– Strategic Leadership: Lloyds Banking Group plc

– Best Business Model: Provident Financial Group plc

– Best Key Performance Indicators: ARM Holdings plc

– Best Strategic Risk: Fresnillo plc

– Best Strategic Capability: Marks and Spencer Group plc

– Best Shared Strategic Value: Coca-Cola HBC AG

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