Landsec ranked best reporter in FTSE 100

Landsec has been recognized as the best reporter in the FTSE 100 this year and for the third time in 12 years of this research, according to consultancy Radley Yeldar’s report on reporting standards and shortcomings in the FTSE 100.

The report, entitled ‘How does it stack up?’, ranks Landsec (formerly Land Securities) top owing to improved communication of its key resources and relationships, a weakness for many reporters.

New entrants to the ranking include Coca-Cola HBC, Mondi, Taylor Wimpey and United Utilities Group. Vodafone has drastically improved its previous ranking of 37th to second place, thanks to much-improved resource and relationship coverage and risk narrative.

The UK’s Financial Reporting Council (FRC) recently highlighted three key necessary reporting areas that need improvement:

1. Clear explanation of the relationship between different pieces of information
The strongest reports give sufficient attention to the interconnection between disclosures such as KPIs, strategy and risk, while maintaining the overall flow of the report for it to remain cohesive. Although most reports in the FTSE 100 make multiple links between their various sections, Radley Yeldar discovered that just 10 percent achieve this with an ordering that is entirely logical.

2. Ensure disclosures on KPIs are sufficiently case-specific and that descriptions are clear and informative
Radley Yeldar rebased this year’s study’s criteria to reflect higher expectations for companies in performance reporting. This was partially driven by new guidance devised by the European Securities and Markets Authority in response to a disparity between reporters’ approaches to outlining alternative performance measures. 

Subsequently, the criteria favor companies that adopt an appropriate range of KPIs and use them to form a strong ‘spine’ throughout their report. Radley Yeldar believes this creates robust and coherent reporting that links KPIs and strategic priorities to demonstrate progress, and provides clarity in how directors are remunerated. Only 5 percent of reporters do this at the highest level, while an additional 29 percent demonstrate good practice reporting to an almost-as-high standard.

In particular, the FRC would like companies to ensure that KPIs linked to remuneration are explained in sufficient detail. Just 26 percent of reporters in the FTSE 100 demonstrate an unequivocal link between the KPIs in their strategic report and the KPIs in their remuneration section.

3. Consider the broader drivers of value that contribute to the long-term success of the company

Landsec excels in clearly identifying its key resources and relationships, something companies across the entire FTSE 100 typically struggle with. These are often important sources of value that haven’t been recognized in the financial statements – such as the staff – which are often discussed in a separate section from the business model.

The International Integrated Reporting Council’s reporting framework has long-term value creation at the heart of its principles. As it becomes more widespread, Radley Yeldar finds many reporters struggle to use the framework effectively, feeling compelled to ‘tick off’ its six capitals, when its purpose is for companies to report on those most relevant to them.

Brett Simnett, director of investor engagement at Radley Yeldar, says: ‘A good report should identify the key material resources and relationships the company needs to operate successfully. This should then inform the structure of the report’s narrative.

‘There are signs that some reporters are seeing the benefits of a fresh approach to how they report, but there are many who are adding layer upon layer of extra information on top of existing formats, which is hindering clear communication.’

The ‘How does it stack up’ research uses 15 criteria to assess annual reports, which are grouped into four categories: understanding the business and context, explaining and measuring performance, business sustainability, and effective storytelling.

Top 10 ranking for 2017*

*Based on FTSE 100 constituents as of May 31, 2017 review

Source: Radley Yeldar