Section F: Performance .1 Introduction to Section F

One of the underlying focus areas of an integrated report is the recognition that the success of an entity is tied to three interlinked elements that provide a more holistic performance evaluation that encompasses the society, the environment and its economic performance.

This section looks at the assessment of the performance indicators and disclosures in these focus areas: (1) financial, (2) social and (3) environmental. An analysis was done to evaluate whether detailed disclosures were made about the quantitative indicators regarding the strategic goals and a description of the techniques and processes employed to create them. The following disclosure checklist was used to make an assessment of the KPIs used to measure the performance of the entities:

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• whether the KPIs are designed and customised to be relevant to the business;

• whether the business regularly used the same KPIs for reporting purposes;

• whether the entity has identified the goals for these KPIs and if there are comparisons made against past performance to determine a pattern in relation to industry benchmarks; and

• whether the entities consistently use the same KPIs for different reporting periods.

4.7.2 Performance - Results

Table 4.7 below provides the results of the assessment made on the extent of the disclosures regarding the performance of the SOEs. The results of the assessment indicate that 76% of the total disclosures were categorised as accomplished effective communication, 19% of the findings show partial accomplishment (with room for improvement), whereas 4% of the results show as not having accomplished clear and effective communication. The results of the overall assessment indicate that the entities did well in providing disclosures and insights concerning their performance. This section received the second best rating of the eight sections due to the fact that the required disclosures already form part of reporting in the annual financial statements.

Table 4.7 Results - Performance

59 The detail of the “Accomplished” section varied from 53% to 94% with six questions out of thirteen getting more than 80%, one scoring above 75% but below 80% and six scoring below 75%.

The entities did exceptionally well (over 80%) in the following areas: (1) the extent to which the entity has achieved its strategic objectives and the related outcomes in terms of effects on the capitals, (2) details of the quantitative indicators with respect to targets, value drivers and priorities and risks, explaining their significance and implications and the methods and assumptions used in compiling them, (3) details on the linkage between past and current performance and between current performance and future outlook (4) presentation of KPIs which are tailored for the entity, (5) the entity reports KPIs that are consistent with measures used by management in assessing the performance of the entity, and (6) insight into reasons for significant variations from targets or benchmarks and why these are or are not expected to reoccur.

The entities did well (between 70% and 80%) in the following areas: (1) the integrated report provides insight into the state of stakeholder relationships and the organisation has responded to the stakeholders’ legitimate needs, interests and expectations, (2) the integrated report presents the KPIs with targets, forecasts or projections over the short and medium term, and (3) the integrated report presents KPIs against previously reported targets, forecasts or projections to enhance accountability.

The entities scored less than 70% in the following three areas: (1) details on the organisation's effects (both positive and negative) on the capitals, including material effects on capitals up and down the value chain, (2) details on KPIs, comparing them with past periods to establish a trend and comparing them with industry benchmarks, and (3) presentation of measurement techniques and assumptions made with qualitative information. There exists room for improvement in these areas where issues concerning performance measurement should be closely looked at and reconciled to the KPIs of the entity as this will help the stakeholders in understanding how the performance of the leadership of the entities is assessed against the strategic goals and also in linking current performance and future outlook. An underlying concern in the analysis is that the preparers are inclined to mainly focus on historical data, with very little focus on forward-looking information, thus the integrated reports provide little attention to projected (future) performance.

60 This research project found that most entities clearly identified their performance measures, and were split into financial KPIs, operational KPIs and sustainability KPIs. Financial measures of performance typically pay more attention to short-term performance targets and less focus on drivers of value such as customer and employee satisfaction, innovation, quality or other non-financial objectives that may be important in achieving profitability and longer-term strategic goals. Non-financial performance measures could be used as leading indicators of potential future financial performance. The selection of performance measures, financial and non-financial, must be connected to aspects such as organisational strategy and objectives. In addition, SOEs should take into account that the selection of performance measurement choices is an ever-changing process, therefore it continually needs to reassess its performance measurement indicators as strategies and objectives evolve.

Over and above 'basic' performance reporting, there is a substantial amount of effort that should be given to the explanation for applying particular methods of performance, the definitions of the KPIs that are used to evaluate performance, the rationale for their use, and exactly how the performance is going to be achieved and measured. The usefulness and relevance of the KPIs can be enhanced by applying industry-specific ones to their business including management commentaries to enable stakeholders to have insight into the performance of the entity so as to make well-informed decisions.