Nkonki Proprietary Insights into the Top 100* JSE Listed Companies. Integrated Reporting Trends. Experience Ingenuity. Also available on:

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1 Nkonki Proprietary 2015 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends Experience Ingenuity. Also available on:

2 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends *An analysis of the Top 100 JSE Listed Companies Disclaimer This document is proprietary to Nkonki and the information herein is confidential. It is supplied in confidence and should not be disclosed, duplicated or otherwise revealed in whole or in part to any third parties without the prior written consent of Nkonki.

3 Foreword Executive Summary Chapter 1 Research findings and results Chapter 2 Industry analysis Chapter 3 Qualitative insights Chapter 4 New trends in integrated reporting in South Africa Annexure A The mark plan, adjudication process and panel Annexure B Integrated reporting ratings, rankings and industries Annexure C Maturity chart Annexure D - High level roadmap About Nkonki

4 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends FOREWORD FOREWORD Paul Druckman, CEO, International Integrated Reporting Council Transparency with a purpose South Africa is in a unique position when it comes to Integrated Reporting. Since 2010 companies listed on the Johannesburg Stock Exchange have been required to prepare integrated reports because the principles of King III (which include the preparation of integrated reports) fall into the Listing Requirements on an apply or explain basis. As CEO of the International Integrated Reporting Council, the South African experience has offered me many crucial insights. Initially, it enabled us to draw on the learnings of South African companies when developing the International <IR> Framework - which was piloted by many companies in South Africa as well as internationally - to ensure it was aligned to the needs of businesses. Now, the South African experience enables us to reflect on how the Framework is being applied by businesses that have been working towards <IR> for many years, giving us case studies and research to share with the wider world as more and more businesses move towards <IR>. Nkonki s report gives crucial insight in this respect into the opportunities and challenges experienced by mature integrated reporters. Three indicators stood out for me in this survey. Firstly, that companies have scored well for their strategic focus. Integrated Reporting is about entering the company through the doorway of strategy. This is important, because when organizations think about their strategy for the short, medium and long term they start to actively consider future risks and what actions they can take now to alleviate them. It also gives providers of financial capital the reassurance they need to invest over longer time horizons, because they understand how businesses are planning for the future. Future orientation is a clear distinction between the corporate reporting system of old and the new form of reporting that is taking shape. Instead of reporting backward-looking sets of financial results, that quickly become outdated, an integrated report delves into how value will be created now and in the future. The second thing to stand out to me was that businesses are struggling with the fundamental concepts in the Framework. This is striking, because it suggests these businesses are not taking advantage of the opportunity that now exists to articulate a business strategy that goes beyond financial transactions. Businesses should articulate the multi-capitals they are using in their business models, using Integrated Reporting as a vehicle to explain how the company creates value. If South Africa s biggest companies really do only have financial transactions as the drivers of their business models, then that might cause problems for the South African economy over time. But I do not believe that this is the case in reality and I hope, as they advance their corporate reporting further, they will be able to start to articulate the multicapitals (or resources and relationships) they use and affect in their business models, and furthermore, recognise the benefits of doing so. Finally, this report recognizes a struggle that is common to all businesses the art of being concise. As Mark Twain eloquently phrased it, I didn t have time to write you a short letter, so I wrote a long one instead. Being concise, when faced with ever increasing demands to be transparent, is a challenge. However it is one that organizations need to tackle, because a report is only useful if the reader can understand what the key, pertinent messages they should be taking away from it are. As the Financial Chief of General Electric said when it was pointed out to him that General Electric s annual report is 32,950 words longer than Harry Potter and the Philosopher s Stone, Not a retail investor on planet Earth could get through it, let alone understand it. Instead of being transparent for the sake of transparency, Integrated Reporting encourages a business to be transparent with a purpose a purpose of communicating how all of its resources create value over time. There are great opportunities for this concise form of reporting to become a reality. Not least if we take advantage of the digital revolution which has swept across the world thanks to the success of cloud, social and mobile technologies. Although this revolution has created new challenges for businesses as they deal with faster and vaster flows of information both inside the company and externally with stakeholders, if harnessed properly it can bring new meaning to the corporate reporting process as businesses get used to the new world of real-time engagement with stakeholders. I would like to thank Nkonki for compiling this research, it gives me confidence that businesses are finding the Framework to be valuable guidance as they evolve their corporate reporting practices. But what is the end game? Why does corporate reporting need to keep up what is its importance? 1

5 The International Integrated Reporting Council (IIRC) believes that corporate reporting reform can help align capital allocation and corporate behaviour to the wider goals of financial stability and sustainable development. For obvious reasons corporate reporting reform alone will not bring about financial stability and sustainable development. The work of the IIRC goes hand in hand with other efforts around the world, which is why we are working through our networks and within our coalition to encourage three shifts. Firstly, a shift from a financial capital market system to an inclusive capital market system. We are encouraging governments, central banks, stock exchanges and standard setters to recognise the interconnection between elements such as finance, knowledge and other resources, and embed systems of governance that enable this. The second shift the IIRC is calling for is from short-term capital markets to sustainable capital markets - to end the incentive systems that perpetuate short-term thinking and decision-making. And finally, the third shift is from silo reporting to Integrated Reporting. Together these three shifts can be a force for financial stability and sustainable development in markets around the world. For many, such as these businesses in South Africa, the third shift towards Integrated Reporting is already a reality. There are currently around 1,000 businesses around the world who are using the International <IR> Framework to think holistically about their strategy and plans. Many of them around 750 people engage with the IIRC through <IR> Networks to advance corporate reporting together, learning from each other to find the best ways of moving towards <IR>. If you would like to become part of an <IR> Network and work with others to advance your corporate reporting in the areas identified in this report visit www. integratedreporting.org or business.network@theiirc.org. Interesting Statistics 2014 market capitalisation of Top 2013 market capitalisation of Top 100 companies: 100 companies: Total revenue: R8.6 trillion R7.4 trillion 2014: R3.2 trillion 2013: R2.9 trillion Total assets: Average number of pages of integrated reports: Longest integrated report: 2014: R10.7 trillion 2013: R9.6 trillion 2014: : : : 516 pages 2013: 456 pages 2012: 426 pages 2

6 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends EXECUTIVE SUMMARY EXECUTIVE SUMMARY This is the fifth year that Nkonki is recognising the top companies listed on the Johannesburg Stock Exchange (JSE) for their integrated reports. The annual award started in 2011 and initially covered only the Top 40 companies by market capitalisation. In 2012 to 2014, the scope was extended to cover the Top 100 companies due to the prevalence of integrated reporting in South Africa. Nkonki is proud that South African companies have embraced integrated reporting and have a wealth of experience to share with others. We are proud that, through this award, our firm is playing an active role in assisting companies to improve their reports and strive for best practice reporting. Nkonki has developed tools to assist companies, both listed and public sector, in their integrated reporting journey: the Nkonki Roadmap to Integrated Reporting and the Nkonki Integrated Reporting Maturity Chart. These tools are available on www. nkonki.com and provide essential insights to companies planning to prepare an integrated report and those wishing to assess their readiness to do so or their maturity level. In this year s awards, a new mark plan was introduced based solely on the International Integrated Reporting Council s (IIRC) International <IR> Framework (Framework) issued in December The mark plan evaluated the application of the guiding principles and content elements (indicators) of the Framework. It also includes a points allocation for the Wow Factor, rewarding innovation in the report. The mark plan differs significantly from those of previous years which included other aspects such as King III and certain JSE Listings Requirements. This should be taken into account when considering comparative figures. (See Annexure A for detailed information on the mark plan). In the past surveys, those companies featured on the JSE s Socially Responsible Investment (SRI) Index were included and therefore the number of companies exceeded 100, however for the 2014 reports the focus is only on the top 100 JSE listed companies, even though 105 companies were surveyed. Average Score per Framework Indicator An analysis of the 105 companies surveyed (2013:107 companies) is covered in chapter 1. The results, as seen in the table below, show that the companies scored above 70% in six of the ten indicators. This is an admirable performance and testament to their experience in integrated reporting despite the Framework having been issued only in December The companies did particularly well in covering Strategic Focus information as well as Comparable and Consistent information. They scored less favourably (below 50%), however, in Fundamental Concepts and the Wow Factor for innovation. Conciseness is on the borderline coming in at a score of 54% % 78% 71% 69% 71% 73% 54% 84% 45% 72% % 0 Total average final score Strategic Focus Connectivity of Information Stakeholder Relationships Materiality Conciseness Reliability and Completeness Consistency and Comparability *Fundamental Concepts Content Elements The Wow Factor * Companies need to improve on the Fundamental concepts. In terms of the <IR> Framework, Fundamental concepts deal with the disclosure of how value is created and how companies use the various 6 capitals in their value creation process. Companies are expected to consider and disclose the impact of their value creation process on their overall stock of capitals over the long term. 3

7 The Top 10 Companies Congratulations to the following companies whose reports are in this year s Top 10 1 list: Tsogo Sun Holdings Limited Royal Bafokeng Platinum Limited ArcelorMittal South Africa Limited Nedbank Group Limited Liberty Holdings Limited Nampak Limited and Redefine Properties Limited Pretoria Portland Cement Limited Sanlam Limited Sasol Limited Barloworld Limited Tsogo Sun Holdings Limited emerged as a surprise winner this year as the company was not previously included in the Top 100 due to its market capitalisation. All of the companies in the top 10 list achieved excellence in integrated reporting and are fine examples of current best practice in South Africa, and indeed globally. Chapter 2 sets out Industry analysis, in nine sectors, based on the average scores of the surveyed companies. The leading sectors, shown in the table below, are Telecommunications and Basic Materials (Oil & Gas was excluded as there is only one company in the sector). The Technology sector fell into last place after ranking highly in previous years. 1 There are a total of 12 companies as a result of three companies sharing 6th position. 4

8 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends EXECUTIVE SUMMARY The winning companies in each Industry are: Industry Basic Materials Consumer Goods Consumer Services Financials Healthcare Industrials Oil & Gas Technology Telecommunications Company Name Royal Bafokeng Platinum Limited Tongaat Hulett Limited Tsogo Sun Holdings Limited Nedbank Group Limited Life Healthcare Group Holdings Limited Nampak Limited Sasol Limited Business Connexion Group Limited Vodacom Group Average Score per Industry % 58% 58% 57% 61% 66% 82% 50% 78% Basic Materials Consumer Goods Consumer Services Financials Healthcare Industrials Oil & Gas Technology Telecommunications In chapter 3, there are excerpts from the reports of companies covering elements such as the business model, capitals and value creation. While these excerpts will be helpful to other companies it s worth remembering that each company will find its own way to best tell its value creation story with the input of the board or other governance body and the executive. Once again, we extend our congratulations to each of the award winners. We thank the adjudicators for their hard work and dedication in the task of marking over 100 reports and we look forward to another year of promoting better corporate reporting in South Africa. 5

9 CHAPTER 1 RESEARCH FINDINGS AND RESULTS This chapter covers the analysis of the Top 100 JSE Listed Companies (2013: 107 companies). The mark plan was changed this year to focus on the International <IR> Framework (refer to Annexure A), and this should be taken into account when considering comparative figures. The mark plan covered the following indicators of the Framework: Strategic Focus 17 Connectivity of Information 17 Stakeholder Relationships 17 Materiality 17 Conciseness 17 Reliability and Completeness 17 Consistency and Comparibility 17 Fundamental Concepts 32 Content Elements 32 The Wow Factor 17 Total: 200 marks 6

10 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 1 CHAPTER 1 RESEARCH FINDINGS AND RESULTS Seventy-six of the 105 companies (2013:101 of the 107 companies), scored above 50% and the average was 62% (2013:69%). Although this decrease might be perceived as negative, it should be taken into account that the marking was stricter due to the new mark plan that was implemented this year as outlined in Annexure A. Further, comparison can be made against the average score of 59% allocated to the integrated reporting section in last year s mark plan. Furthermore, one should bear in mind that the low-hanging fruit in the previous mark plan became easier to implement, such as reporting on directors and their remuneration became so much better that many companies could earn top scores for these and similar items. The 2014 results, with the mark plan around the International <IR> Framework, offers a useful baseline for assessing the integrated reports of the Top 100 companies on the JSE going forward. Below is the trend analysis of the average scores over the years albeit with different mark plans: % % % % The analysis of the 2014 average score is represented below (including the comparative figures), indicating the percentage of companies with ratings of between A and D: A Rating 80% 100% B Rating 70% 79% C Rating 60% 69% D Rating 50% 59% Below D Rating 0 49% Percentage Rating of Companies % 21% 26% 29% 19% 33% 16% 24% 15 11% 10 6% 5 0 A B C D Below D

11 Average Score Per Framework Indicator The results highlight a substantial gap between Strategic Focus and Consistency and Comparability on the one hand (scores around 80%) and The Wow Factor and Fundamental Concepts scoring below 50% on the other. Conciseness is on the borderline with a score of 54% % 78% 71% 69% 71% 54% 73% 84% 45% 72% % 0 Total average final score Strategic Focus Connectivity of Information Stakeholder Relationships 1.1 Scores Achieved in each Indicator Materiality Conciseness Reliability and Completeness Consistency and Comparability Fundamental Concepts Content Elements The Wow Factor Strategic Focus % 91 of the companies scored higher than a D rating and the average score was 78% % 9% 3% 2% A B C D Below D The survey reveals that the reports have a strong strategic focus, scoring an average of 78.4% in this area. Some of the companies showed how strategic priorities will create long-term shareholder value, which was linked to performance metrics for directors in the short-, medium- and long-term. Most strategies were presented in an illustrative manner through tables and info-graphics making them clear and understandable. Many of the statements made by the chairman of the board and the chief executive in the integrated reports made good connections to the companies strategies, reiterating and reinforcing the future outlook of the company by the leadership. 8

12 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 1 CHAPTER 1 RESEARCH FINDINGS AND RESULTS Connectivity of Information % 31% 89 of the companies scored higher than a D rating and the average score was 71% % 11% 0% 0 A B C D Below D The level of Connectivity of information in the reports, with an average score of 71% is good, with the majority of companies demonstrating a logical approach to the structure and content of their reports. The survey found that most companies are making use of cross references, tables and graphics, which makes the information flow and the connection between processes and information more comprehensible and easier to read. The content elements are being interlinked, with good flow between qualitative and quantitative information and information linked to future outlook. It is also notable that most companies had cross-referenced to additional reports and detailed information on their websites. Room for improvement though is in the area of connecting the capitals by indicating their interdependencies Stakeholder Relationships % 82 of the companies scored higher than a D rating and the average score was 69% % 20 18% 10 7% 3% 0 A B C D Below D The majority of companies mention stakeholders in their reports with most identifying the various stakeholder groups, which range from communities to providers of capital. Forty-nine percent of the companies that are A rated, articulated how they engage with their stakeholders. The impact of these engagements on the company s value creation process was also well articulated. The effective use of tables and cross referencing, as well as links to other content elements, helped to clarify the approach taken in terms of stakeholder relationships. Some companies address their reports to investors (providers of financial capital) while others address it to all stakeholders. 9

13 1.1.4 Materiality % 85 of the companies scored higher than a D rating and the average score was 71% % 15% 10 4% 3% 0 A B C D Below D Only 15% of the Top 100 companies did not disclose material issues or the determination process. On the opposite end of the continuum, 58% of companies scored highly in Materiality. The majority of companies that disclose material issues, do so upfront in the report and then connect these to other content elements such as risks and opportunities, strategy, resource allocation and KPIs. These material items identified by companies range across financial and non-financial aspects. In some instances companies indicate that stakeholders had an influence on the prioritisation of material issues Conciseness 50 38% of the companies scored higher than a D rating and the average score was 54%. 42% % 10 0 A 5% B C 1% D Below D Many companies in the Top 100 are still struggling when it comes to the conciseness of their reports. With the longest report at 516 pages and 42% of the companies scoring below a D rating, it is clear that improvement is required. The average number of pages in the 2014 reports is 169 (2013: 157) Thirty-eight percent of companies surveyed made good use of diagrams and tables, but only some included summarised Annual Financial Statements in their reports which is an easy way to cut down on the number of pages. 10

14 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 1 CHAPTER 1 RESEARCH FINDINGS AND RESULTS Reliability and Completeness 60% of the companies scored higher than a D rating and the average score was 73% % 16% % A B C D Below D 1% The surveyed companies scored an average of 74.9% on Reliability and Completeness. A number of companies reports deal with the concept of combined assurance, clearly articulating the various lines of defense and the well-established governance structures with defined terms of references. The long history of King III and discipline in financial reporting are two of the factors Nkonki believes have contributed to South African companies scoring well in this indicator Consistency and Comparability % 97 of the companies scored higher than a D rating and the average score was 84% % 2% 0% 3% A B C D Below D Consistency and comparability of information, which scored an average of 84%, with 81% of the companies obtaining an A rating, is clearly an element that is understood within the Top 100 companies. In particular the financial information, performance against targets and KPIs, and the governance information, have a strong connection to similar information published in prior year. Nkonki believes the maturity of this guiding principle can be attributed to the maturity of corporate reporting, such as embracing the International Financial Reporting Standards (IFRS) and code of governance principles of King III, of the companies listed on the JSE. 11

15 1.1.8 Fundamental Concepts Only 43 of the companies scored higher than a D rating and the average score was 45%. 57% 30 25% % 6% 6% 0 A B C D Below D It is clear from the results, with 57% of the companies scoring below a D rating, that South African companies are still on a journey with respect to being able to articulate their business models, in other words, how they create value through the use of all of the capitals over the short-, medium- and long-term. In most cases, the majority of the companies do, however, have a good understanding of the business model in terms of financial capital and the value creation thereof, but there is clearly a need to improve in terms of reporting on non-financial capitals Content Elements % 91 of the companies scored higher than a D rating and the average score was 72% % % 9% 9% 0 A B C D Below D The content elements outlined in the International <IR> Framework were mostly disclosed and presented in the reports of the Top 100 companies with an average score of 72%. As mentioned in the Connectivity commentary, 47% of companies made good links between the content elements, making the value creation story of the company unique and more easily understood. While the presentation of the information differed from company to company, there were some similarities between companies within the same sector, particularly those in Financial Services and Basic Materials. 12

16 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 1 CHAPTER 1 RESEARCH FINDINGS AND RESULTS The Wow Factor of the companies scored lower than a D rating and the average score was just 14%. 92% % 0% 6% A B C D Below D 3% It is obvious from the scores achieved that one of the areas needing the most attention is the so-called Wow Factor. The Wow Factor indicates innovation and uniqueness and these can only be achieved once a company is very mature in its integrated reporting process, when those in charge of governance are so familiar with the process that new and exciting ideas start formulating. 1.2 Reliability of Information The International <IR> Framework states: The reliability of information is affected by its balance and freedom from material error. Reliability (which is often referred to as faithful representation) is enhanced by mechanisms such as robust internal control and reporting systems, stakeholder engagement, internal audit or similar functions, and independent, external assurance. The above is the only reference in the International <IR> Framework to assurance. Following the release of the IIRC s paper Overview of Feedback and Call for Action, the baton has now been handed to the International Auditing and Assurance Standards Board (IAASB), specifically its Integrated Reporting Working Group. The group released a publication Exploring Assurance on Integrated Reporting and Other Emerging Developments in External Reporting in July 2015 and the next step will be the release of a discussion paper. 13

17 Non-Financial Assurance Providers: The Top 100 companies referred to various assurance providers in their reports. Some explained their assurance policy, as set by the board, and listed the context of assurance and the assurance providers. The graphic below shows the various assurance provider used to assure certain non-financial information disclosed in the report. Types of Non-Financial Assurance Providers: Internal audit and external assurance 6 % None 36 % External assurance 25 % Types of non-financial assurance providers External assurance and other 2 % Other Internal audit 16 % 11 % Internal audit and other 4 % It is of concern that 36% of the Top 100 listed companies in South Africa do not obtain any assurance on their non-financial disclosure in their reports. 14

18 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 1 CHAPTER 1 RESEARCH FINDINGS AND RESULTS 1.3 Timing of Reports versus Scores Achieved One would expect, that with the release of the International <IR> Framework in December 2013, that companies with a year-end later in the 2014 year would have done better in their scores and ratings as opposed to those with year-ends earlier in year. This is because it would have taken time for companies to process the latest guidelines and apply these in their integrated reports. Looking at the graph of the average and highest scores per yearend this certainly seemed to be the case. Timeline: Average and Highest Score Per Year-End % 82% 85% 89% 80 60% 59% 59% 65% 70% 60 48% 48% 48% February - 14 March - 14 June - 14 August - 14 September - 14 December - 14 Average % Highest% This analysis should, however, determine how good a company s integrated report is. An example is the winner, Tsogo Sun Holdings Limited, which scored the highest, even having a 31 March 2014 year-end. Furthermore, it was the first time that this company was part of the Top 100 group. Therefore better integrated reports can be produced by any company, despite its year-end or even history (to an extent). 1.4 Length of Reports The average number of pages of the report was 169, with the longest report being 516 pages. In 2013, the average number of pages was 157, with the longest report being 456 pages. In 2012, the average number of pages was 175, with the longest report being 426 pages, so this can be regarded as a negative trend. The shortest report in 2014 is 63 pages compared to 36 pages in 2013 and 63 in It is clear that conciseness is still an issue for many companies. This might be because of a lack of focus on material items. A factor could be that 53 of the companies still included in 2014 the full AFS in their reports. Many companies however, included only abridged or summarised AFS. One company included both a full and an abridged set of AFS in its report. On the opposite end of the scale, four companies did not include any financial statement in their integrated reports. 47 companies produced separate sustainability or similar reports, being an average of 55 pages. 15

19 1.5 Title of Reports Annual Integrated Report 9 % Integrated Report 38 % Annual Report 9 % Annual Report and Accounts 4 % Title of the JSE Top 100 Companie s Reports Integrated Annual Report 40 % Research commissioned by the International Integrated Reporting Council (IIRC) has revealed significant behavioural change and strong benefits to both preparers and users of financial reports arise that from a move to integrated reporting. The research reports indicate that 91% of respondents have seen a positive impact on external engagement with stakeholders, including investors. Eighty seven percent of the businesses that have published at least one integrated report, believe that investors better understand their strategy; 79% of respondents report improvements in decision making; 68% report a better understanding of risks and opportunities, and 78% seeing better collaborative thinking by the board about goals and targets. The IIRC,

20 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 1 CHAPTER 1 RESEARCH FINDINGS AND RESULTS The title Integrated Report is the most mature name, indicating that there is only one kind of report, which is produced annually and which integrates all relevant information into one integrated package. The name Integrated Annual Report is still the most popular. However, this creates the perception that there are other annual reports over and above the integrated one (which can be regarded as true in many instances, where there are also sustainability reports, annual financial statements, etc.). This has, however, decreased from 46% in The Annual Integrated Report alludes to the fact that there are other integrated reports, for example half-yearly integrated reports, or quarterly integrated reports. This accounts for 9% of the names, the same as in Although there is not a direct relationship, most of the companies that still publish Annual Reports were still en route to Integrated <IR> Reporting. They represent 9% of the companies (2013: 8%). The term Annual Report and Accounts are all used by either UK or Swiss registered companies (four in total). 1.6 Commendable Features Some commendable features in the report noted by the adjudicators during the assessments (excluding the Top 10 companies) include the following: AECI Limited has a very good risk maturity model as well as a corporate governance self-assessment model. Sappi Limited s sustainable business model. Grindrod Limited s disclosure of its integrated business model. Wilson Bayly Holmes-Ovcon Limited s strategic risk matrix, as well as four pages dedicated to the future outlook. Exxaro Resources Limited, the winner last year, still displayed pockets of excellence. Its G4 Core table is exceptionally comprehensive, and there is an excellent environmental graphic, as well as graphics relating to strategy and philosophy. There is excellent risk disclosure and a top 10 risk heat map is included. Life Healthcare Group Holdings Limited shows a very good link between capitals and strategic objectives. Gold Fields Limited impressed with its dashboard, its internal and external standards and principles and its risk and materiality graphs. Tongaat Hulett Limited went the extra mile in disclosing land development maps. Some of the PLC companies already include the latest longform external audit report in their annual reports and accounts, e.g. Redefine International PLC, Capital & Counties Properties PLC, Intu Properties PLC, Mondi PLC, Old Mutual PLC, Investec PLC, Anglo American PLC, BHP Billiton PLC, Lonmin PLC, British American Tobacco PLC and SABMiller PLC. Hyprop Investments Limited drafted a unique graphic combining focus areas, material issues, measures and risks. Mondi Limited and PLC discloses excellent stakeholder engagement activities in the sustainability report it is unfortunate that a summary wasn t included in the integrated report. Although Woolworths Holdings discloses a good stakeholder engagement model in its integrated report, the only discussion takes place in the sustainability report. AngloGold Ashanti Limited discloses that it has a Serious Concerns Committee which started in 2014, to investigate ethical and other allegations. Sibanye Gold describes an excellent strategic risk matrix, as well as including a graphic of the report content and material issues. It also has a summarised integrated report in addition to the normal one of 240 pages. Standard Bank Group Limited shows its integrated pillars for strategy, and states that integrated thinking was adopted. Telkom SA SOC Limited has a very good section on stakeholder engagement. Mediclinic International Limited includes an excellent table for combined assurance, but it is a pity it is in the sustainability report and not in the integrated report. The integrated report contains an excellent materiality assessment matrix. Imperial Holdings Limited has an excellent governance model in its integrated report, as well as an excellent combined assurance model. Old Mutual PLC outlines five pillars of responsible business which are then linked to the largest stakeholders. 17

21 CHAPTER 2 Industry Analysis This chapter gives analysis of the integrated reports of the Top 100 JSE listed companies in terms of their Sectors. As in the past, the Telecommunications sector performed well, in terms of its overall score (Oil & Gas should be ignored as the sector is represented by one company only). The winners in each category are named in the Executive Summary. 18

22 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 2 CHAPTER 2 INDUSTRY ANALYSIS Overall Ratings The Industry analysis shows that the leading sectors are Telecommunications, Basic Materials and Industrials (Oil & Gas has not included as there is only one company in that sector). The Healthcare sector has always done reasonably well in this analysis, although it has now been surpassed by Basic Materials and Industrials. The Technology sector lagged with an average score of 50%. Average Score per Industry % 58% 58% 57% 61% 66% 82% 50% 78% Basic Materials Consumer Goods Consumer Services Financials Healthcare Industrials Oil & Gas Technology Telecommunications The award winners in each of the sectors (all those companies which scored an A rating, except for Sasol again) are the following: Industry and Companies Basic Materials Royal Bafokeng Platinum Limited ArcelorMittal South Africa Limited Anglo American Platinum Limited Gold Fields Limited Consumer Services Tsogo Sun Holdings Limited Financials Nedbank Group Limited 19

23 Industry and Companies Financials continued Liberty Holdings Limited Redefine Properties Limited Sanlam Limited Healthcare Life Healthcare Group Holdings Limited Industrials Nampak Limited Pretoria Portland Cement Limited Barloworld Limited Wilson Bayly Holmes-Ovcon Limited Oil & Gas Sasol Limited Industry Evaluation Strategic Focus Connectivity of Information Stakeholder Relationships Materiality Conciseness Basic Materials Consumer Goods Consumer Services Financials Healthcare Industrial Technology Telecommunications 20

24 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 2 CHAPTER 2 INDUSTRY ANALYSIS Industry Evaluation Continued Reliability and Completeness Consistency and Comparability Fundamental Concepts Content Elements The Wow Factor Basic Materials Consumer Goods Consumer Services Financials Healthcare Industrial Technology Telecommunications It is useful to analyse the disclosure recommendations of the International <IR> Framework in terms of which sectors are leading or lagging in each indicator. The graph above and the table below exclude the Oil & Gas sector, as it is represented by only one company, and the sector is also excluded from the analysis in the remainder of this chapter. Leading and Lagging Industries Framework Indicator Leading Industry Lagging Industry Strategic Focus Telecommunications Technology Connectivity of Information Telecommunications Consumer Services Stakeholder Relationships Telecommunications Financials Materiality Basic Materials Technology Conciseness Telecommunications Technology Reliability and Completeness Telecommunications Technology Consistency and Comparability Telecommunications Consumer Services Fundamental Concepts Basic Materials Technology Content Elements Telecommunications Technology The Wow Factor Basic Materials and Financials and Industrial Technology 21

25 It is clear that Telecommunications is the strongest Industry in terms of integrated reporting, while the Technology sector is lagging in almost every respect. Having said that, one should remember that each of these industries is represented by only three companies in the Top 100 and that this may skew average statistics. It should be noted, however, that Technology was one of the leading industries in previous years. In the category analysis that follows, only the top three positions in each category are Listed. A full list of all the company ratings per Industry is given in Annexure B. 2.2 Basic Materials Top rated performers in the Basic Materials Sector are: Company Name Rating Royal Bafokeng Platinum Limited 1 ArcelorMittal South Africa Limited 2 Anglo American Platinum Limited 3 The winner, Royal Bafokeng Platinum Limited, was sixth in Exxaro Resources Limited was the winner in 2013 and in 2012, and is fifth in Harmony Gold Mining Company Limited was the winner in % 75% 81% 89% 87% 89% 84% 72% 62% % 20 18% 0 Strategic Focus Connectivity of Information Stakeholder Relationships Materiality Conciseness Reliability and Completeness Consistency and Comparability Fundamental Concepts Content Elements The Wow Factor Total average score 22

26 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 2 CHAPTER 2 INDUSTRY ANALYSIS The Basic Materials Sector scored very well on Strategic Focus, Materiality, and Consistency and Comparability. However, more work can be done on Conciseness and on being innovative and creative (the Wow Factor). Overall the Industry scored an average of 72% (2013:75% and 2012:69%) against the highest average Sector score of 78% (2013:77% and 2012:72%) excluding Oil & Gas. The reports of all three winners in this sector can be regarded as good examples for those wishing to follow their lead. They are among the top seven overall. 2.3 Consumer Goods Top rated performers in the Consumer Goods Sector are: Company Name Rating Tongaat Hulett Limited 1 Oceana Group Limited 2 Steinhoff International Holdings Limited 3 Tongaat Hulett limited was the winner in 2012 and in 2011, and was second in Illovo Sugar Limited was first in 2013, and is now fourth % % 67% 66% 65% 55% 75% 66% 58% 40 35% % Strategic Focus Connectivity of Information Stakeholder Relationships Materiality Conciseness Reliability and Completeness Consistency and Comparability Fundamental Concepts Content Elements The Wow Factor Total average score 23

27 The Consumer Goods Sector scored very well on Consistency and Comparability, Strategic Focus, and on Reliability and Completeness. More work can be done on applying the Fundamental Concepts and on being innovative and creative (the Wow Factor). Overall the Sector scored an average of 58% (2013:63% and 2012:58%) against the highest average Sector score of 78% (2013:77% and 2012:72%) excluding Oil & Gas. 2.4 Consumer Services Top rated performers in the Consumer Services Sector are: Company Name Rating Tsogo Sun Holdings Limited 1 Woolworths Holdings 2 The Foschini Group Limited 3 Truworths International Limited 3 Woolworths was the winner in this sector from 2011 to 2013, and is now second placed. Tsogo Sun Holdings Limited, the winner, was not included in the awards in previous years % 66% 64% 67% 67% 61% 78% 68% 58% % % 0 Strategic Focus Connectivity of Information Stakeholder Relationships Materiality Conciseness Reliability and Completeness Consistency and Comparability Fundamental Concepts Content Elements The Wow Factor Total average score 24

28 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 2 CHAPTER 2 INDUSTRY ANALYSIS The Consumer Services Sector scored very well on Consistency and Comparability and on Strategic Focus. More work can be done on applying the Fundamental Concepts and on being innovative and creative (the Wow Factor). Overall the Sector scored an average of 58% (2013:69% and 2012:69%) against the highest average Sector score of 78% (2013:77% and 2012:72%). can be regarded as an excellent example for those wishing to follow its lead. 2.5 Financials Top rated performers in the Financials Sector are: The report of Tsogo Sun Holdings Limited (the overall winner) Company Name Rating Nedbank Group Limited 1 Liberty Holdings Limited 2 Sanlam Limited 3 The winner, Nedbank Group Limited, was also the winner in 2011 and was second in Standard Bank Group Limited was the winner in 2012 and 2013 and has now dropped to seventh place % % 69% 60% 58% 52% 65% 68% 57% 40 35% 20 18% 0 Strategic Focus Connectivity of Information Stakeholder Relationships Materiality Conciseness Reliability and Completeness Consistency and Comparability Fundamental Concepts Content Elements The Wow Factor Total average score 25

29 The Financials Sector scored very well on Consistency and Comparability and on Strategic Focus. More work can be done on applying the Fundamental Concepts and on being innovative and creative (the Wow Factor). Overall the Sector scored an average of 57% (2013:64% and 2012:59%) against the highest average Sector score of 78% (2013:77% and 2012:72%) excluding Oil & Gas. The reports of all four winners in this sector can be regarded as good examples for those wishing to follow their lead. They are among the top eight overall in this award. 2.6 Healthcare Top rated performers in the Healthcare Sector are: Company Name Rating Life Healthcare Group Holdings Limited 1 Aspen Pharmacare Holdings Limited 2 Mediclinic International Limited 3 Life Healthcare Group Holdings Limited was third in 2013 while Aspen Pharmacare Holdings was the winner in 2012 and Mediclinic International Limited was first in % 70% 68% 84% 74% 82% 73% 61% 60 50% 40 38% 20 12% 0 Strategic Focus Connectivity of Information Stakeholder Relationships Materiality Conciseness Reliability and Completeness Consistency and Comparability Fundamental Concepts Content Elements The Wow Factor Total average score 26

30 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 2 CHAPTER 2 INDUSTRY ANALYSIS The Healthcare Goods Sector scored outstandingly in terms of Materiality and Consistency and Comparability. More work can be done on applying the Fundamental Concepts and on being innovative and creative (the Wow Factor). Overall the Sector scored an average of 61% (2013:73% and 2012:66%) against the highest average Sector score of 78% (2013:77% and 2012:72%). The report of Life Healthcare Group Holdings Limited (in eleventh overall place) can be regarded as a good example for those wishing to follow its lead. 2.7 Industrials Top rated performers in the Industrials Sector are: Company Name Rating Nampak Limited 1 Pretoria Portland Cement Limited 2 Barloworld Limited 3 Nampak Limited came in as the winner after being in seventh place in Pretoria Portland Cement Limited was the winner in 2013, 2012 and in 2011, while Barloworld Limited was in second place in % 78% 73% 76% 63% 76% 85% 71% 65% 60 53% % 0 Strategic Focus Connectivity of Information Stakeholder Relationships Materiality Conciseness Reliability and Completeness Consistency and Comparability Fundamental Concepts Content Elements The Wow Factor Total average score 27

31 The Industrials sector scored very well on Consistency and Comparability and in a number of other Indicators. More work can be done on being innovative and creative (the Wow Factor). Overall the Sector scored an average of 66% (2013:70% and 2012:71%) against the highest average Sector score of 78% (2013:77% and 2012:72%). The reports of all three winners in this Sector can be regarded as good examples for those wishing to follow their lead. 2.8 Technology Top-rated performers in the Technology Sector are (this Sector only has three companies which were included in the study): Company Name Rating Business Connexion Group Limited 1 EOH Holdings Ltd. 2 Datatec Limited 3 Datatec Limited was the winner in 2013 and in Business Connexion Group Limited was the winner in 2011 and was in second place in 2013 (only two companies were in this Sector then) % 67% 67% 57% 37% 60% 80% 65% 50% % 0% Strategic Focus Connectivity of Information Stakeholder Relationships Materiality Conciseness Reliability and Completeness Consistency and Comparability Fundamental Concepts Content Elements The Wow Factor Total average score 28

32 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 2 CHAPTER 2 INDUSTRY ANALYSIS The Technology Sector scored well on Consistency and Comparability. More work can be done on a number of Indicators, but particularly on applying the Fundamental Concepts, on being innovative and creative (the Wow Factor), and on Conciseness. Overall the Sector scored an average of 50% (2013:66% and 2012:63%) against the highest average Sector score of 78% (2013:77% and 2012:72%). 2.9 Telecommunications Top-rated performers in the Telecommunications Sector are (this Sector only has three companies which were included in the study): Company Name Rating Vodacom Group 1 Telkom SA SOC 2 This is the Sector with the highest scores and is thus very competitive % 90% 87% 87% 89% 98% 88% 80 77% 78% 60 61% % 0 Strategic Focus Connectivity of Information Stakeholder Relationships Materiality Conciseness Reliability and Completeness Consistency and Comparability Fundamental Concepts Content Elements The Wow Factor Total average score The Telecommunications Sector scored extremely well on: Consistency and Comparability Strategic Focus Reliability and Completeness The Content Elements Connectivity of Information Stakeholder Relationships Materiality More work should be done on being innovative and creative (the Wow Factor). Overall the Sector scored an average of 78% (2013:77% and 2012:72%), the highest of all the industries. 29

33 CHAPTER 3 QUALITATIVE INSIGHTS It is obvious from the scores achieved that the two areas needing the most attention are the so-called Wow Factor and the Fundamental Concepts. The Wow Factor shows innovation and distinctiveness and can only be achieved once a company is so mature in its integrated reporting process that those in charge of governance are very familiar with the process that new and exciting ideas start developing. The Fundamental Concepts, which includes having a business model with the input and output capitals and the process of value creation, is a relatively new concept, having only come into being in December 2013, when the International <IR> Framework was published. Most of the other Indicators have been around for some time now (King III, etc.), and so are familiar to most companies. For this reason they have done fairly well in terms of disclosing risks and opportunities, governance, performance and future outlook, to name but a few. For these reasons, this chapter will focus solely on the Fundamental Concepts (business model, capitals and value creation) and how these were reported by the Top Five. 30

34 Insights into the Top 100* JSE Listed Companies Integrated Reporting Trends CHAPTER 3 CHAPTER 3 QUALITATIVE INSIGHTS A number of excellent practical examples from the Top 5 companies have been included this year to help provide clarity on many aspects of the business model, capitals and value creation, as well as give tangible examples of what can be done to improve this aspect of integrated reporting, which can be quite difficult to fully comprehend based on the available theory alone. Tsogo Sun Holdings Limited The winner, Tsogo Sun Holdings Limited, gives an excellent and comprehensive view of its business model. A brief description is included below: 1. The model takes into consideration all six capitals as inputs in line with the International <IR> Framework. The elements of each capital are also listed, e.g. natural capital consists of physical locations, energy consumption, water consumption and biodiversity. The key to the graphic states that we create value through the operation of quality assets in leading locations in key markets and by investing in and building our portfolio across a range of consumer segments. 2. Alongside the inputs (the six capitals) the actual activities and processes are shown. The business model is introduced as an integrated model, explicitly stating: Integration An integrated approach across the divisions results in leveraging the assets and resources within the group under a unified management structure with a common corporate identity. 3. The two divisions, namely the Gaming Division and the Hotel Division, are then outlined with a brief description of each business, its key market differentiators and key business processes. Arrows from the centre (displaying the key support processes, such as Corporate, Finance, Internal Audit, IT, Procurement, Marketing, etc.) point to the various stakeholders, with page numbers included where these are discussed in more detail). The model thus shows how the two divisions are bound by common support processes, leading to an integrated approach in terms of the business model. A common line named Governance (with its page number reference) cuts across the entire activities and processes block. A further indication of the integrated approach is the key line at the bottom of the graphic, containing common aspects and the pages where they are to be found cutting across the whole picture from inputs to outputs and outcomes: Legislation and Regulations Economic Conditions Industry Sector External Environment Technology Consumer Preferences Societal Issues Environmental Challenges 4. The second last part of the business model contains the outputs (detailing each of the two divisions as well) consisting of quality hospitality and leisure experiences relevant to our customers at appropriate price points and of Environmental and social impacts. Again, each of these contains page number references. 5. The final part of the business model contains the outcomes, linked to strategic priorities: Deliver to our stakeholders, e.g. taxation and returns to investors Financial strength and durability, e.g. prudent gearing levels and adequate funding Product relevance to customer experience, e.g. customer satisfaction Regulatory compliance, e.g. licence to trade Human resources, e.g. employee development and wellness Organic growth, e.g. profit and cash flow Inorganic growth, e.g. capacity increases It is a well though-out, complete and fairly innovative model, giving a holistic view of the business. From the page references in the business model and from the way in which the index has been developed, it is clear that the integrated report is structured around the business model. Whereas some integrated reports only included a business model, sometimes isolated from the rest of the content, this report contains an additional seven pages describing the business model. The application of materiality is obvious where the material risks and opportunities are described. This includes heat maps regarding the risk scenarios. It is concise and only 100 pages long (with summarised consolidated AFS included). 31