Building Public Trust Awards 2005Recognising reporting excellence*

*connected thinking

Contents03 Foreword - Kieran Poynter04 The Judging Panel06 Chair of the Judging Panel:

Professor Sir Andrew Likierman

Building Public Trust Awards in the FTSE07 BPTA and the OFR08 Further Benefits of Nomination10 People Reporting12 Communication of Corporate Strategy14 Reporting of Economic Performance16 Reporting of Executive Remuneration18 The Building Public Trust Award

‘For Telling It How It Is’ in the FTSE

Building Public Trust Award in the Public Sector (in association with the National Audit Office)

20 Introduction by Sir John Bourn KCB21 Towards Best Practice in Public Sector Reporting22 The Building Public Trust Award

‘For Telling It How It Is’ in the Public Sector24 A New Award in 2006: Tax Reporting25 Contacts

2

I am often asked why I am sopersonally committed to theBuilding Public Trust Awards.

It's quite simple. I want to live ina society where enterprise isnurtured rather than strangledby regulations, and where anunfortunate twist of fate doesnot automatically becomegrounds for legal redress. To my mind, there is only oneway to achieve this: by fostering a climate of trust andunderstanding.

That is why these awards are so important. They offer us theopportunity to celebrate excellence in reporting by the UK'sleading quoted companies and public sector bodies - and toreward their commitment to nurture trust by "telling it how it is".

Putting such a commitment into effect requires sustained effort.We at PricewaterhouseCoopers have just announced our thirdannual report and accounts, and I can confirm that attainingexcellence in reporting is no small task. But we remainconvinced that the rewards of transparency will outweigh thecosts - a belief strengthened by our recent stakeholder surveys.

As the new Operating and Financial Review becomes realityover the next year, I look forward to an increasing level ofdebate around reporting in the UK. And I urge companies toembrace the shared spirit behind those guidelines and tonight'sawards - the desire to make the UK a great place to dobusiness, where trust pervades the everyday lives of people andcorporations.

Kieran PoynterUK ChairmanPricewaterhouseCoopers LLP

3Foreword - Kieran Poynter

4The Judging Panel

Professor Sir Andrew Likierman (chair of the judging panel)Sir Andrew Likierman is Professor of ManagementPractice at London Business School. He is also non-executive Chairman of MORI, and has non-executivedirectorships including the Bank of England andTavistock and Portman NHS Trust. He recentlyheaded the Government Accountancy Service for tenyears.

Sir John Bourn KCB Sir John Bourn is the Comptroller and AuditorGeneral of the UK and Chairman of the ProfessionalOversight Board for Accountancy. He is also amember of the Financial Reporting Council, as wellas being Chairman of the World Bank's MultilateralAudit Advisory Group.

Nick AndersonNick Anderson has more than 19 years investmentmanagement experience. After six years at Schroder Investment Management, he joined InsightInvestment - the investment arm of HBOS - in 2003as Head of Research. Prior to this he spent 11 yearswith Norwich Union.

Professor David Begg Professor David Begg, Principal of Tanaka BusinessSchool and Professor of Economics at ImperialCollege, previously taught at Oxford University andBirkbeck College. A CEPR Research Fellow since itsinception in 1984, he is published widely onmacroeconomics. He is a Fellow of the Royal Societyof Edinburgh.

Philippa Foster Back Philippa Foster Back became Director of the Instituteof Business Ethics in 2001. She was formerly GroupTreasurer at EMI. She holds non-executivedirectorships including the Ministry of Defence andInstitute of Directors and is a past President of theAssociation of Corporate Treasurers.

5The Judging Panel

Mary Keegan Mary is Head of the Government AccountancyService and Finance Director of HM Treasury. Herprevious roles include Chairman of the Accounting Standards Board and Head ofPricewaterhouseCoopers Global CorporateReporting Group. She is a respected commentatorand author on governance and corporate reporting.

Denise Kingsmill CBE Denise Kingsmill originally rose to prominence as anemployment lawyer. She became Deputy Chair ofthe Competition Commission in 1997 and in 2001headed the UK Government's task force intowomen's employment. She chaired the Accountingfor People Taskforce and has several non-executivedirectorships.

Anita SkipperAnita Skipper joined Morley Fund Management asHead of Corporate Governance in 1993. As amember of several corporate governancecommittees, including those of the ABI andInternational Corporate Governance Network, shehas played an important role in developinggovernance practices in the UK and worldwide.

Jean-François Théodore Jean-François Théodore is Chairman of theManaging Board and Chief Executive Officer ofEuronext, the pan-European stock exchange createdin September 2000 through a merger of theAmsterdam, Brussels and Paris bourses. He is also aBoard member of LIFFE, Euronext's UK-basedderivatives market.

Dr Richard WardDr Richard Ward became Chief Executive of theInternational Petroleum Exchange in 1999. He waspreviously Head of Marketing and BusinessDevelopment for energy derivatives at TraditionFinancial Services, before which he worked asBusiness Development Manager for BP'sInternational Oil Trading business.

This year saw a healthy increasein the number of companiesnominating themselves in everycategory. This increase is verywelcome and hopefully reflectsthe growing importance that UKcorporations are placing ontransparency and openness intheir reporting, both financial andnon-financial. With the new-style OFR, this focus looks set to intensify.

Since clear reporting is about better information, not moreinformation, there was debate among this year's judging panelabout whether the increase in nominations was reflected inrising quality of reporting overall. The consensus was thatprogress is steadily being made - indeed, I am often pleasantlysurprised by the quality of many recent reports.

But I would add two observations. One is that expectations areincreasing all the time, so the quality standard is rising year byyear. The other is that incentives for open and transparentreporting - tonight's awards aside - are not as significant as theycould be. Companies are taking transparency more seriously.But to sustain and build the momentum towards better reporting,users of corporate information must play their part bydemonstrating how much quality matters to them.

Sir Andrew LikiermanProfessor of Management Practice London Business School

6Chair of the Judging Panel:Professor Sir Andrew Likierman

Two routes - same destinationThe new Operating and Financial Review (OFR) that comes intoforce next year for UK listed companies need not represent yetmore red tape. For managements that approach the OFR in theright spirit, it actually presents an exciting opportunity to enterinto wider and more meaningful dialogues with all theirstakeholders. In other words, to build public trust.

It is perhaps not surprising that the ValueReporting® frameworkdeveloped by PricewaterhouseCoopers over the past eightyears - and that three years ago inspired the launch of theBuilding Public Trust Awards - closely mirrors the disclosureframework envisaged in the new OFR.

A practical frameworkBased on interviews with more than 3,000 CFOs, analysts andinvestors into the quality and sustainability of corporatereporting, the ValueReporting framework codifies the collectiveinsights of PricewaterhouseCoopers specialists and surveyrespondents into a simple and practical reporting framework.

Benchmarking qualityThis framework aligns neatly with the OFR's approach todisclosure, and forms the basis for the benchmarking tool usedto assess nominations for the five FTSE Building Public TrustAward categories.

77BPTA and the OFR

ValueReporting framework

Enter your company's external communications for one or morecategories in the 2006 Building Public Trust Awards and you willbe offered the findings of the benchmarking analysis used toscreen your company's nomination (illustrated below) along withspecific observations made by the judges or subject matterexperts during the evaluation process.

1. ContentThis chart illustrates the depth of reporting around each elementof the framework.

2. QualityThis chart drills down into the different types of informationcompanies provide, be it good quality narrative reporting,quantification, benchmarking, targeting or segmental data.

88Further Benefits of Nomination

The darker shaded arearepresents the nominee'sreporting.

The average relative to bestpractice is shown in light blue.

The outer edge of the chartrepresents the best reportingaround that element of theaward criteria.

This company (in dark blue)has underperformed theaverage in all areas exceptbenchmarking, where it ismarginally ahead. Interestingly, whilst itsreporting is close to "best inclass" in the qualitative andquantitative areas, it is wellbehind when considering theprovision of benchmarkingdata or targets.

3. LinkageThis table illustrates the degree to which the informationprovided is linked across the framework. For example, can thereader establish a clear 'line of sight' from the company's peoplestrategy to its corporate performance?

We hope that this feedback process will add value to yourongoing review of your company's reporting strategy. And,although these high level observations cannot be viewed as anOperating and Financial Review "readiness" assessment, wehope that they offer some interesting insights as you formulateyour response to the new regulation.

99Further Benefits of Nomination

The greater the number of"bold" boxes appearing ineach category area, thegreater the company's abilityto provide a "joined up"picture of performance.

A "bold" box in this tableillustrates above averagereporting for that element ofthe company's business.

The judges were looking for nominees in this category to makea clear statement of their business goals, and to link theseexplicitly to the required people actions, including information onpeople culture, values and processes. When combined, theseelements should enable the reader to understand how peoplehave contributed to the company’s performance.

The 2005 awards saw a strong increase in the number ofnominations for this category - a trend the judges viewed as'encouraging'. However, they felt that while many of thenominee companies had provided extensive people information,the linkage with goals and performance could often have beenmade clearer. The judges also noted that reporting on peoplestill tended to be in companies' Corporate Social Responsibilityreports rather than their annual reports.

1010People Reporting

WinnerBT Group plc

"BT presents a wealth of people statistics underpinned by cleartargets - some of which it admits that it failed to meet, a truedemonstration of transparency. By providing explicit peopletargets for 2006 it creates a real sense of discipline, and makesitself accountable for its statements. While some readers mightfind the volume of data challenging, the necessary informationon people management is all there."

Highly Commended (in alphabetical order)

Associated BritishPorts Holdings PLC"Very detailed information on healthand safety, including targets andbenchmarks, plus good data onemployee demographics andstrategies to manage diversity."

Yell Group plc"Yell gives a very clear descriptionof its people strategy, culture andvalues, and links these explicitlywith its business performance."

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The judges were looking for a clear articulation of strategyunderpinned by a thorough assessment of any regulatory,competitive, environmental, social and economic issuesaffecting current and future performance. Furthermore, theyexpected to see a candid review of performance againststrategic objectives, quantitative milestones and future targets

The judges felt that, compared to last year, companies had“raised their game” in articulating their overall strategy.However they also noticed that very few companies providedfuture quantitative targets.

12Communication of CorporateStrategy

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WinnerCadbury Schweppes plc

"This is a highly accessible annual report. It enables readers tofind easily a thorough description of the company's strategy.The company's commitment to communicating its strategy camethrough strongly. What particularly stood out, was thecompany's punchy and highly accessible overview of its short-term strategy, major markets and measurable targets."

Highly Commended (in alphabetical order)

BAA plc"The question and answer sectionin the annual report gives candidanswers to challenging strategicquestions, complemented bydetailed reviews of investmentplans for key assets."

HSBC Holdings plc"HSBC’s report offers a concisearticulation of a 50 year old winningstrategy and a clear explanation ofhow its strategy is implementedtoday, with detailed priorities by keycustomer segments."

This award was looking for clear and transparent information onthree elements: capital base, cash returns on that capital, andcost of capital. The judges were looking for companies todisclose and link these elements to give the reader a clearpicture of their performance in creating financial wealth.

The number of nominations in this category more than trebledfrom their level in 2004, a trend which the judges believedshowed that economic reporting was being taken increasinglyseriously by companies. That said, the benchmarking processthrew up a wide disparity of scores, suggesting manycompanies have some way to go. Similarly, in the judges'opinion, whilst the three nominees were clear leaders in thisarea, each still had some scope for improvement.

14Reporting of EconomicPerformance

15

WinnerTomkins plc

"Tomkins has reported a considerable depth of information,combining a detailed disclosure of economic performance witha clear focus on value creation. Of particular note was its stronguse of graphics alongside the text to increase the accessibilityof this complex information. The company's commitment to -and application of - the 'building blocks of value' frameworkworked well."

Highly Commended (in alphabetical order)

Barclays PLC"Thorough all-round disclosure for acomplex business, including themovement and allocation ofeconomic capital across divisions.Clear statement of past economicperformance and future targets."

Diageo plc"Strong economic reportingmeasures, together with detailedsegmental information showingclearly where the company's cashwas actually generated."

The criteria for this award were changed from the previous year,when reporting of executive remuneration was assessedalongside the reporting of corporate governance. In assessingcompanies this year, the judges were looking for remunerationdisclosures that extended beyond the basic legislativerequirements, showed a commitment to best practice asrecommended by institutional investors and demonstrated thelink between executive reward and company strategy.

The judges were especially impressed by companies' attemptsto 'go the extra mile', for example by clearly disclosing thelinkage between reward and performance, and explicitlycomparing executive pay with that of other employees. Whilethere was evidence of performance linkage among the shortlisted companies, the judges felt a true comparison of executivepay with that of other employees is still rare in FTSE 100companies.

16Reporting of ExecutiveRemuneration

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WinnerAmlin plc

"The company gave a candid, well-justified and thoroughexplanation of its incentive arrangements for underwriters,demonstrating alignment with strategy and showing clearly whythe approaches for underwriters differed from those formanagement. The linkage between reward and performancewas illustrated by clear highlighting of expected and potentialvalues, and of the company's progress against performancemeasures. Transparency was further enhanced by explicit sign-posting and best practice disclosures."

Highly Commended (in alphabetical order)

BAE Systems plc"Clear reporting of the robustmethodology for setting basesalaries and of the policies andprocesses around non-executiveappointments and fees."

SkyePharma PLC"Transparent comparison of actualremuneration with the company'sstated policy, using easily-readabletables to illustrate the make-up ofthe package."

Not surprisingly, the flagship award attracted the largest numberof self-nominations. The assessment criteria closely echoed thedisclosure framework being introduced in the new OFRregulations, focusing on the three pillars of the content, qualityand linkage of the reported information.

Within these overall criteria, the judges looked for attributesincluding clear communication of strategic goals and risks, ofmanagement's view of the competitive, regulatory andeconomic environment, and of qualitative and quantitativetrends and targets. The judges remarked that the short listedcompanies' annual reports all exhibited very differentapproaches to the same goal - clear and transparent reportingof their underlying drivers of value. These contrastingapproaches underlined the fact that reporting excellence is nota case of 'one size fits all'.

18The BPT Award ‘For Telling ItHow It Is’ in the FTSE

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WinnerBT Group plc

“BT's corporate communications covered all the bases. Thereporting is very detailed and authoritative - rich in information,with excellent coverage of risks, resources and relationships.The complex regulatory environment is especially wellexplained, as are BT’s performance targets. Furthermore, itoffers a degree of balance in its presentation of its performance,commenting on missed targets as well as the positive highlightsof the year - a rare feature in corporate reports today.”

Highly Commended (in alphabetical order)

Associated BritishPorts Holdings PLC"Very forward-looking, showingclear line-of-sight from strategythrough processes to performance.The annual report had a highlyvisual and accessible look and feel."

Cadbury Schweppes plc"Well balanced between text anddata, with explicit linkage to strategythroughout. The concise 'factfile'accompanying the annual reportwas an impressive innovation."

I am delighted that the NationalAudit Office has once againbeen able to co-sponsor theBuilding Public Trust Award 'For Telling It How It Is' in thePublic Sector. The award and associated benchmarkingprocess provide valuable addedimpetus to our efforts to improvecorporate reporting in the publicsector.

In particular, this award represents an excellent opportunity forrecognising best practice. We wish to hold up best practice asan example and encourage others to follow it, so that in thefuture the best becomes the norm.

This process of continuous improvement is especially importantsince those organisations that spend taxpayers' money areaccountable to every one of us. "Where has the money gone?"and "How has my money been spent?" are questions to whichthe public and their elected representatives want - and deserve- answers. An open and honest account of an organisation'sactivities is an important step in answering the questions UKcitizens are entitled to ask. Public sector bodies must clearly setout a genuine assessment of their achievement.

At the heart of a functioning society is the trust between thepublic and public servants. This award recognises andencourages the steps that are made to earn and keep that trust.That is why the award is important to the National Audit Office,to the public sector and to the public.

Sir John Bourn KCBComptroller and Auditor General National Audit Office

2020Introduction by Sir John Bourn KCB

The way in which we assess and benchmark the self-nominations from public sector organisations mirrors veryclosely the process we apply to FTSE companies. Using avariant of the ValueReporting framework tailored to reflect thedynamics of public sector entities, we screen their reporting inprecisely the same way - and provide feedback to the samelevel of detail.

While ValueReporting was developed through research amongprivate sector corporations, it is highly relevant to today's publicsector organisations. They can learn a great deal from thecorporate sector in presenting a more joined-up, end-to-endexplanation of their goals and objectives, the context forstrategic decisions, the resources and relationships employed inimplementing their strategy, and the operational and financialoutcomes of their activities.

As we have already mentioned, next year sees the introductionof the new-style OFR, which echoes the ValueReportingframework. While the OFR is not mandatory for the publicsector, the culture of openness it promotes will inevitably affectpublic sector reporting. As a further contribution,PricewaterhouseCoopers is launching a new on-line self-assessment 'Transparency Test Kit' to help public sectororganisations assess their reporting performance and needs.

However, the only way to get the detailed insight provided by ourValueReporting-based screening is to self-nominate for theBPTA. As we enter the era of the OFR, we believe that 2006 willsee self-nominations from the public sector continuing to rise.

2121Towards Best Practice in Public Sector Reporting

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The same underlying screening for reporting content, qualityand linkage was applied to public sector self-nominees as totheir private sector counterparts. As well as a tailored version ofthe ValueReporting benchmarking tool, the process included aspecially-convened public sector judging panel, which producedthe short list of three finalists for consideration by the mainpanel. The judges were looking for attributes including a clearly-expressed strategy linked directly to objectives and targets, andexternal references to illustrate relative performance.

The judging panel was impressed by the quality and readabilityof the reports. Members noted that progress was clearly beingmade in making reporting documents more attractive andaccessible, as well as in providing a more robust overview ofeach organisation and its performance against objectives andtargets.

22The BPT Award ‘For Telling ItHow It Is’ in the Public Sector

"In association with the National Audit Office"

23

WinnerHousing Corporation

"This is a clear and well-written report that strikes a goodbalance between internal and external focus. It presents a goodexplanation of how demographic and economic factors impactthe organisation, and its responses to them. There is also strongreporting around risk - explaining the approach to risks, thespecific risks faced, and how these risks are identified andmanaged. The social and ethical reporting is excellent."

Highly Commended (in alphabetical order)

Crown ProsecutionService"Good explanation of how the CPSoperates within the complexCriminal Justice System, and ofhow the policy environment impactsupon both."

Metropolitan Police"Targets are clear, and linkeddirectly to strategy and policies. Theimpact of policy and regulation onobjectives and performance is wellexplained."

In response to changing trends and expectations for disclosureon tax, we are introducing a new Tax Reporting Award in the2006 Building Public Trust Awards programme.

The award will recognise the company that most effectivelyreports on tax. Areas of particular interest will include not justthe corporate tax numbers and associated commentary, but alsoa company's tax strategy and how it supports overall businessstrategy, disclosure on its tax risk position and reporting of taxcontributions. As well as corporation tax, disclosure ofcontributions made by way of other business taxes borne suchas employer national insurance contributions, business rates,other duties and also wider contributions to society through, forexample, taxes collected on behalf of employees and supplierswill be of interest.

24A New Award in 2006: Tax Reporting

25Contacts

PeopleRichard Phelpsrichard.phelps@uk.pwc.com Tel: 01491 84 2511

StrategyYann Bonduelleyann.bonduelle@uk.pwc.comTel: 020 7804 5935

EconomicPerformanceJohn Rugmanjohn.rugman@uk.pwc.comTel: 0121 265 6674

ExecutiveRemunerationRoz Crawfordroz.crawford@uk.pwc.comTel: 020 7212 3103

Public SectorJanet Eilbeckjanet.eilbeck@uk.pwc.comTel: 020 7804 9178

ValueReporting®Alison Thomasalison.thomas@uk.pwc.comTel: 020 7212 2438

Operating & FinancialReviewMark O'Sullivanmark.j.osullivan@uk.pwc.comTel: 020 7804 3459

Kirsty McCallumkirsty.mccallum@uk.pwc.comTel: 020 7804 6509

Building Public TrustAwards enquiriesDenise Gleesondenise.gleeson@uk.pwc.comTel: 020 7804 6227

®ValueReporting is aPricewaterhouseCoopers trademarkand is registered in the UnitedKingdom, the United States,Singapore, Hong Kong, Taiwan andSwitzerland

@2005 PricewaterhouseCoopers LLP. All rights reserved.PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is aseparate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP. (08/05)

www.bptawards.com