Strategy T his year, most companies have built on the small improvements of last year to really strengthen the quality of their strategic discussion within the Annual Report. The best reporters are moving beyond viewing the report as a historic record of past performance, enabling the company to show the link of where it is now in terms of strategy, actions and progress with what it plans to do in the future. A growing number of companies are trying to communicate how they deliver their strategy by presenting their business model to show how they create value over the long-term. Five-year trend analysis Quality of reporting Time What’s required? Until recently, other than the requirement to provide ‘a fair review of the company’ the Companies Act 2006 makes no demands on how a company should detail its strategy, though it is now widely regarded that strategy should underpin the entire narrative and that business objectives should be clearly stated. The majority of companies have embraced this regime, particularly as investors demand greater insight into what management’s plans are for the future. With the new UK Corporate Governance Code including a recommendation that companies should include an ‘explanation of the basis on which the company generates or preserves value over the longer term (the business model) and the strategy for delivering the objectives of the company’, preparers now have some additional considerations for their strategy discussion. Explanations of the business model are, at present, extremely varied and it would seem that this is an area in which companies are beginning to address the ‘spirit’ of the new Code. • Steady improvement in the extent and quality of strategic information provided. • Many companies are beginning to report against their strategy throughout the narrative, demonstrating how it is linked to KPIs, risks, CR and governance. • Increased business model reporting driven by new provisions in the UK Corporate Governance Code. Leading reporters: • Use strategy to underpin the entire narrative of the report consistently reinforcing the company’s direction of travel. • Link KPIs and risks specifically to individual objectives. • Report in detail on the business model, with a clear explanation of how the company generates revenue. www.blacksunplc.com © Black Sun Plc 2011 19
