Storyboard for

1. Preparing Strategic Reports Storyboard for

2. …clear thinking

3. By completing this module you will be able to: List what a Strategic Report should contain Explain the thinking behind the Strategic Report Describe the communication principles List the content of a strategic report Outline how to structure a strategic report At the end, you can visit useful Internet sites on a “Web Ride” Lecturer: Ralph Tiffin Learning time: approx. 20 min How to use this learning module? - Click on "Help" in the Table of Contents (TOC) Preparing Strategic Reports Graphic: [presenter or standard graphic]

4. With effect for financial years ending on or after 30 Sep 2013, all companies (apart from smaller entities) have to prepare a separate strategic report alongside the annual directors’ report The legal requirement for the Strategic Report comes from The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 No. 1970 The SR Regulations replace the business review currently required by s417 Companies Act 2006 Legal requirement Graphic: [OSCR logo]

5. Overview of the guidance on the Strategic Report • The strategic report is part of the Annual Report - probably as we know it but with the Business Review being replaced by the Strategic Report • The strategic report does not exist in isolation Graphic: [a map]

6. Ensure that relevant information meets the needs of shareholders Encourage companies to experiment and be innovative in a way that enables them to best ‘tell their story’ Promote greater cohesiveness in the annual report through improved linkage Objectives of the non-mandatory guidance Graphic: [gun sight]

7. Information is material if its omission from or misrepresentation in the strategic report might reasonably be expected to influence the economic decisions shareholders make on the basis of the annual report as a whole Conversely, the inclusion of immaterial information can obscure key messages and should be excluded from the strategic report The strategic report should contain only the information that is relevant to shareholders’ needs and the inclusion of too much information or detail may obscure matters of importance Strategic reports and materiality Graphic: [a haystack (and needle)]

8. To provide context for the related financial statements To provide shareholders with an analysis of the entity’s past performance To provide insight into the entity’s main objectives and strategies including the principal risks it faces and how they might affect future prospects The strategic report has three main content-related objectives: Graphic: [a lightbulb]

9. The Strategic Report replaces Summary Financial Statements • s426 CA 2006 allows a company, in certain circumstances, to send its members the strategic report with supplementary material instead of the annual report • The supplementary material includes information on the audit report issued on annual accounts and, in the case of a quoted company, limited extracts from the directors’ remuneration report • This option replaces the option to send summary financial statements Graphic: [information icon]

10. The Strategic Report should: be fair, balanced and understandable be neutral, addressing both positive and negative be written in plain language and concise contain only relevant information be comprehensive not concentrate solely on a single timeframe provide information that is entity-specific highlight relationships and interdependencies The communication principles Graphic: [a letter being written]

11. Directors should ensure that the annual report, when taken as a whole, is fair, balanced and understandable The directors should ensure that shareholders are not misled as a result of the omission of, or undue emphasis on certain matters   The excessive use of jargon and industry specific terms should be avoided where possible Further points for clear communication Graphic: [crystal as in Crystal Mark logo]

12. The content elements • The various content elements required to be included in the strategic report should not be addressed in isolation • There are numerous relationships and interdependencies between elements and other disclosures in the annual report which should be picked up and highlighted in the strategic report Graphic: [Underground map]

13. Content of the Strategic Report

14. The strategic report should include a description of the entity’s principal objectives and its strategies for achieving those objectives  An entity will normally have set a number of formal objectives describing what it intends to achieve In addition, the entity will also have developed explicit strategies that describe the means by which it intends to achieve its objectives Addressing these issues may be a very useful check for boards, exactly what are the entity’s visions, objectives and strategies and missions - these words are often used pretty loosely Make use of the exercise Graphic: [checklist on clipboard]

15. Where relevant, linkage to and discussion of key performance indicators should be included in any descriptions given in order to allow an assessment of the entity’s progress against its objectives and strategies The identification of the business segments to which the principal objectives and strategies relate and a subsequent discussion of what exactly the entity hopes to achieve will provide a clear sense of the strategic direction of the key parts of the business KPIs should be discussed and linked to or from the report Graphic: [a set of traffic lights]

16. The business model should be described • The description of the entity’s business model should set out how it generates or preserves value, and how it captures that value • The model should describe, at a high level, what the entity does and why it does it - i.e. what makes it different from, or the basis on which it competes with, its peers • The description of the business model could be used to signpost other relevant information in the strategic report • It could also highlight the principal risks that could affect a specific part of the business Graphic: [a clockwork mechanism]

17. Significant trends and external factors should be disclosed • Trends and factors affecting the business may arise either as a result of the external environment in which the entity operates or from internal sources • Linkage example • The reasons for the entity adopting its principal objectives and strategies (and the business model) may be clarified through a linkage to a description of trends and factors affecting an entity Graphic: [a wind turbine]

18. The strategic report should include a description of the principal risks and uncertainties facing the entity, together with an explanation of how they are managed or mitigated 6.50: The risks and uncertainties included in the strategic report should be limited to those considered by the entity’s management to be the most important to the future development, performance or position of the entity Risks and uncertainties should be disclosed and explained Graphic: [radioactive sign]

19. For KPIs the following information should be identified and explained where relevant: its definition and calculation method its purpose the source of underlying data any significant assumptions made any changes in the calculation method used compared to previous financial years The selection and use of KPIs should be explained Graphic: [traffic lights]

20. 6.60: The strategic report should provide an analysis of the development and performance of the business in the financial year and of its position at the end of that year 6.61: The analysis should supplement the financial statements, where relevant providing additional explanations of amounts recognised in the financial statements and the conditions and events that shaped the information contained in them An analysis of past performance is required Graphic: [a bar chart]

21. Do you start with: Your objectives – if you do have clear objectives A description of your business model – a stable cash generating company Your analysis of the past year Trends and external factors – effectively forcing you down a path Your strategies – as so many do – but do they coherently lead anywhere? Your vision – one definition “that seen in a delirium or trance” ? All are possible starting points on which the detailed report content can be based Structuring your strategic report Graphic: [the framework of a buiilding under construction]

22. The key things to remember from this module are: The strategic report guidance is comprehensive and helpful Concise and focused reports are desirable The various sections of the Annual Report should be linked Make use of the exercise to review and confirm just why you are in business Summary Graphic: [standard summary graphic]

23. Web Ride

24. …clear thinking

25. Please select the correct answer(s) and then click on “Submit” Which of the following are content related objectives? to provide context for the related financial statements to provide shareholders with an analysis of the entity’s past performance to provide shareholders with forecasts of where strategies are leading to provide insight into the entity’s main objectives and strategies including the principal risks it faces and how they might affect future prospects Question 1

26. Please select the correct answer(s) and then click on “Submit” Which of the following are communications principles? That a strategic report should: Be fair, balanced and understandable Be written in plain language and concise Concentrate solely on a single timeframe Provide information that is entity-specific Question 2

27. Please select the correct answer(s) and then click on “Submit” Which of the following should be considered and if relevant disclosed for KPIs ? Its definition and calculation method Its significance to the business sector The source of underlying data Any significant assumptions made Question 3

28. Now you have finished this module and acquired basic knowledge on Preparing Strategic Reports If you answered all the questions in the Quiz correctly, you can print out your personal certificate by clicking on the link Thank you for your attention! Finish Graphic: [standard finish graphic]