How Does It Stack Up? 2016 at the Centre of the Reporting Debate A

100% 0% 01 02 03 % 04 86 05 06 07 08 09 10 50 11 % % 12 50 13 14 4% 15 +2 87% 16 43 17 % 58% 18 19 + 20 14 % % 21 +9 22 23 24 36 % % 4 % + 77 25

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How does it stack up? 2016 0% 100% At the centre of the reporting debate A review of FTSE 100 narrative reporting How does it stack up?

Over 30 years we’ve built a track record for helping clients The job of an annual report is to present the investment improve their annual and sustainability reports. And for case with clarity and conviction, and showcase the past the last 11 of those years we’ve shared our expertise and 12 months in the context of markets and strategy. It should experience through ‘How does it stack up?’. A yearly inspire all stakeholders, from employees and community review of FTSE 100 annual reports, HDISU is now widely organisations to the media and customers, to respect and recognised for its comparative analysis, impartiality and trust the company. This is of course a tall order – but it’s forthright approach to the challenges we all face. We’re something that is very much within the remit of an annual proud of its reputation as a practical tool that promotes report, which has almost unrivalled potential to transform best practice and gives all companies – not just RY clients perceptions and lay the groundwork for a company’s – access to some of the thinking that can establish or future success. keep them at the forefront of reporting. That so many reporters are still not stepping up to the It would be good to write that the last few years have seen mark is disappointing. We hope that this report not only a steady increase in reporting standards, as comms and IR highlights some of the key issues and how they can best teams lead their companies into the future of integrated be addressed, but is also the start of a conversation that reporting. Or, at the very least, move them towards more will continue through the reporting hub on our website. balanced, coherent and transparent reporting. All interested parties – clients, agencies, suppliers and the media – are welcome to contribute. The more the It’s true that the strategic report has taken its rightful place better. Because although this is an RY document with at the heart of reporting. And it’s clear that areas such as an RY perspective, the challenge extends far beyond governance and remuneration are benefiting from some our teams and those of our clients. long overdue transparency. It’s also a fact that integrated reporting has good momentum and is leading to more balanced performance narratives that identify and quantify business impacts beyond financial return. But while some companies have wholeheartedly embraced Brett Simnett the spirit of high quality, transparent reporting – and Director of Investor several of them are featured in this document – others are Engagement, RY continuing to provide incoherent messaging and all-round obfuscation. Why? is the obvious question and that’s something we aim to answer, firstly in this document but also in the interactive reporting hub we’ve launched on our website at ry.com/hdisu. HDISU? 01

Our criteria

We use 16 criteria to assess annual reports, grouped into Understanding the the four categories you see here. business and context 02 As we’re a creative consultancy, we use our skills and – Business overview knowledge to arrive at a unique, qualitative judgement. – Business model We acknowledge that this is a subjective view and that – Marketplace other views are available – but it’s guided by experience – Resources and relationships and focused by a deep-seated belief in the value of communication. HDISU isn’t a tick-box exercise in compliance. Instead, we’re able to judge the quality, Explaining and measuring depth, transparency and coherence of content, rather performance 14 than simply identifying that the content in question is – Strategy present. As with many other comms projects, what the – KPIs audience takes away from the experience is not only – Performance shaped by what you say, but by the way that you say it. The criteria themselves are designed to reflect current annual reporting legislation and best practice. We haven’t How sustainable included a separate category to assess Integrated Reporting is the business? 24 because many of the notions that are central to it, such as sustainability and resources and relationships, are picked – Risk up by other criteria. – Sustainability – Governance – Forward-looking aspect

How effectively is the story explained? 34 – Messaging – Linkage and flow – Materiality and transparency – Navigation and appeal – Clarity of language

The top 10 reporters in 2016 42 A final view… 58 Contributors 60 02 radley yeldar.

Understanding the business and context

What we measure What we have seen Driven by the increasing prevalence of the strategic report Business overview and the growing influence of the Integrated Reporting Business model Framework, most if not all FTSE 100 constituents make an effort to explain their business model. In the majority Marketplace of cases, it’s no longer hard to understand a company’s Resources and relationships operations, how it creates value and the market where it operates. What do you do, where and how? Who are your customers? The concept of the business model continues to evolve, What trends are impacting the marketplace? And why with many companies using the International Integrated should an investor care about any of this – what makes you Reporting Council’s model as a basis. The leading a different sort of proposition to everybody else in your field? practitioners provide an exceptionally clear articulation These are not always easy questions to answer, but they’re of their products, services and divisions, explaining in a central part of what investors and other stakeholders easy-to-understand words and graphics how they create need to know. So this category aims to get to the heart value for all stakeholders, not just financial return for of what makes a business tick, evaluating the overview shareholders. Readers can look at the relevant pages of the company, its business model, its marketplace of these reports and see transparency and integration, and the resources and relationships it relies on to carry balance and coherence. out its activities. But for others, the opportunity to mark themselves out as distinctive, transparent companies – the sort of organisations that investors can quickly understand and might therefore consider investing in – has passed them by. Although we have our theories, we’re not sure exactly why companies should be so wary of being distinctive and standing out from the crowd. Are they unclear what their business model is? Do they not know the critical resources and relationships that sustain their business? Or is it that they are not sure how to communicate what they do? HDISU? 03

5.34

4.46 Three of the best 5.33

Antofagasta Provident Financial Ashtead 4.29 04 radley yeldar.

Understanding the business and context Antofagasta

No struggle with the business model here... Antofagasta plc The company has excelled with a clear explanation Annual report and financial statements 2015 of the business and value chain. What’s interesting Antofagasta plc with this report is the easy way in which the reader 2015 statements financial and report Annual can see at a glance what the company does at each stage from inputs through to restoration and outputs, with signposting to where more information can be found. There’s no corporate jargon on these pages. If you knew nothing whatsoever about copper mining, then this section would give you at least the basics. There’s also a good section on the resources and relationships that Antofagasta relies on in its day-today operations, such as financial capital, employees, contractors and water. Overall, this is a quality report that details what the company does and the context in which it does it.

INPUTS EXPLORATION EVALUATION CONSTRUCTION EXTRACTION PROCESSING MARKETING RESTORATION OUTPUTS

Business model OVERVIEW Key relationships Suppliers Relationships with trade unions are based Suppliers play a critical role in the Group’s on mutual respect and transparency. The Group cannot run its business in isolation. The business ability to operate, supplying a large range of This helps the Group to retain employees model is underpinned by a series of relationships with products and services from grinding media and avoid labour disputes, contributing to catering at the mine sites. to greater productivity and business efficiency. During 2014, the Group renewed stakeholders at local, regional, national and international level, More information on key inputs is included on pages 19 to 21. labour agreements at all of its then mining which contribute to the long-term success of the Group. operations, except Zaldívar, ensuring stability The Group currently conducts business until 2018. The Group forms long-term partnerships with some suppliers, with over 5,000 suppliers and is working STRATEGIC REPORT while others are managed with a more short-term focus based with the top suppliers in each category The Group undertakes an annual survey to ensure the most cost-effective and to assess employee satisfaction. Based on market competition. efficient solutions are employed across on the results, action is taken to improve all operations. The corporate procurement the work environment. team has consolidated all procurement More on Employees on pages 61 to 63. practices across the operations and projects. In addition, the team has reduced Contractors the number of suppliers to extract greater The number of contractors working for benefits from elected suppliers over a long Antofagasta varies according to business

period of time. The Group has identified 300 needs and the level of construction activity. GOVERNANCE Customers Similarly, the Group’s molybdenum categories across all its mining operations Most of the copper and molybdenum sales contracts are made under long-term and construction projects and is negotiating As at 31 December 2015, there were are made under annual contracts or longer- framework agreements, with pricing The Group’s marketing with its suppliers on each of these. approximately 13,900 contractors working term framework agreements, with sales usually based on Platts’ average prices. team builds long-term This strategic approach will allow the Group at the Group’s operations and projects. Contractors are vitally This was some 30% lower than the volumes agreed for the coming year. Across the industry neither copper to extract greater benefits from its suppliers relationships with core same time last year, principally due to important to mining operations producers nor consumers tend to make over a long period of time. For example, the The majority of sales are to industrial the completion of construction of the annual commitments for 100% of their customers, while maintaining Group may develop long-term partnerships and the Group aims to build customers who refine or further process Antucoya project. the copper – smelters, in the case of respective production or needs. Therefore, relationships with trading with some suppliers, while others are long-term relationships with copper concentrate production, and producers normally retain a portion to be managed with a more short-term focus Contractors are vitally important to mining contractor companies based

companies that participate FINANCIAL STATEMENTS copper fabricators in the case of cathode sold on the spot market throughout the year. based on market competition. operations and the Group aims to build in shorter-term sales. long-term relationships with contractor on the highest standards. production. The Group’s marketing The prices realised by the Group during The Group has an open-door policy that companies based on the highest standards. team builds long-term relationships with a specific period will differ from the encourages suppliers to raise any issues Safety and health targets are included in these core customers, while maintaining average market price for that period. This is or concerns. Suppliers are audited regularly performance contracts and compliance relationships with trading companies that because, in line with industry practice, sales to ensure compliance with the law and with safety and human rights laws and participate in shorter-term sales. agreements generally provide for provisional Company standards, particularly concerning labour regulations are assessed regularly pricing at the time of shipment, with final safety and health and the environment. Over 80% of the Group’s mining sales are by internal and external audits. under contracts of a year or longer and pricing based on the average market Given the sensitive market conditions for metals sales pricing is generally based price for the month in which settlement suppliers, emphasis has been placed on The minimum wage paid by Antofagasta takes place. Minerals to contractor employees is on prevailing market prices. monitoring the suppliers’ financial health and OTHER INFORMATION 70% higher than that required by Chilean For copper concentrate, sales remain ensuring bank guarantees are in place when law, and contractor staff have access to Structure of the Group’s sales contracts open until settlement occurs, on average deemed necessary. the same facilities as the Group’s own The Group’s sales contracts typically set three to five months from the shipment employees at the mine camps. out the annual volumes to be supplied and date. Settlement for the gold and silver Employees the main terms for the sale of each payable content in copper concentrate sales occurs The Group employs approximately 5,300 metal, with the pricing of the contained approximately one month from shipment. people, who work alongside approximately copper in line with LME prices. In the case Copper cathode sales remain open for 13,900 contractors at its corporate offices, of concentrate, a deduction is made from an average of one month from shipment. operations and projects. Mining is inherently 6.0 LME prices to reflect TC/RCs – the smelting Settlement for copper in concentrate sales risky and ensuring the safety and health of and refining costs necessary to process is later than for copper cathode sales since every employee is an absolute priority. It is the concentrate into copper cathodes. further refinement of copper in concentrate an ethical obligation and is central to the These TC/RCs are typically determined is needed before sale. Molybdenum sales Group’s strategic objectives. annually and in line with terms negotiated generally remain open for two or three The Group has created a variety of initiatives across the concentrate market. months from shipment. over the last few years to secure and A significant proportion of the Group’s develop talent. In particular, the Group copper cathode sales are made under seeks to attract young professionals into the 7.0 annual contracts, priced in line with LME mining industry and complement their work prices. In copper cathode transactions, experience with workshops and seminars a premium, or in some cases a discount, across different functional areas. on the LME price is negotiated to reflect differences in quality, logistics and financing compared with the metal exchanges’ standard copper contract specifications.

22 Antofagasta plc Annual report and financial statements 2015 Antofagasta plc 23 9.0

Detailed discussion of key relationships 8.0 HDISU? 05

Business model OVERVIEW Creating value through Investment versus income the mining lifecycle Mining is a long-term business and timescales can run into Revenues, however, depend on commodity prices. These tend to be cyclical, decades. The period from initial exploration to the start of so even as production volumes decline revenues can increase, and vice production often exceeds ten years and then, depending versa. Long-life and low-cost operations increase the chances of a mine on the nature of the project and market conditions, it may benefiting from the peaks in the commodity price cycle while withstanding

take more than five years of operation to recoup the initial the troughs. Also, during the life of a mine there will often be expansions STRATEGIC REPORT investment. If possible, mines usually plan to exploit higher- that help it to keep down its unit costs of production – the most important grade areas towards the start of the mine life in order to financial KPI on a mine. maximise returns from the operation. As a result, average ore grades may decline over time, with production volumes decreasing along with revenues. Core operations GOVERNANCE 1. Inputs 2. Exploration 3. Evaluation 4. Construction 5. Extraction 6. Processing 7. Marketing 8. Restoration 9. Outputs

Resources Chile Los Pelambres Encuentro Oxides Los Pelambres Ongoing value chain

Relationships International Incremental Centinela Centinela The copper and FINANCIAL STATEMENTS Expansion by‑products from the Molybdenum Plant Antucoya Group’s mines go on Centinela Second to be further processed Zaldívar for use in end markets, Concentrator including property, Twin Metals power, electronics, transport and consumer products.

Further information Further information Further information Further information Further information Further information Further information Further information Further information on page 14. on page 14. on page 15. on page 15. on pages 16 and 17. on pages 16 and 17. on pages 16 and 17. on page 18. on page 18. OTHER INFORMATION

Income Income

3–5 YEARS 5 YEARS 3–5 YEARS +20 YEARS

Investment Investment

Innovative sustainability Sustainable development is an integral and innovative Sustainability drives business success and without it the Group component of Antofagasta’s decision-making process, would not operate as efficiently as it does. firmly embedded in the business model and strategy of the For more information on the Group’s commitment to sustainability see pages 53 to 63. Group. Antofagasta is committed to operational excellence, safety, talent management, environmental management and co-operation with employees and local communities. INPUTS EXPLORATION EVALUATION CONSTRUCTION EXTRACTION PROCESSING MARKETING RESTORATION OUTPUTS

Business model Creating value through the mining lifecycle

12 Antofagasta plc Annual report and financial statements 2015 Antofagasta plc 13 OVERVIEW 1. Inputs 3. Evaluation – 5 years Evaluation The Group’s mining operations depend on a range of key inputs, such as energy, Effective project evaluation and design is critical Los Pelambres water, labour and fuel. The management of these inputs has a significant impact to maximise value at this stage of the mining cycle. Incremental Expansion on operating costs, so ensuring the long-term availability of key resources is a vital The Group’s wealth of experience in both areas More on page 49. part of supply management. helps to make the best use of mineral deposits.

Resources The Group integrates sustainability criteria into design Centinela Second Concentrator • Labour • Energy • Plant and equipment processes and project evaluation, developing innovative Balanced Maximising solutions for challenges such as water, energy and More on pages 49 and 50. STRATEGIC REPORT Business model • Financial capital • Water • Services and supplies community relations. inputs • Mineral resource-rich land • Reagents • Fuel value Twin Metals Relationships with summary followed • Employees and contractors • Neighbouring communities • Government and More on page 50. • Customers • Environment public authorities by more detail on • Suppliers • Infrastructure providers More on key inputs and cost base on pages 19 to 21.

each stage GOVERNANCE Exploration – 3–5 years – 3–5 Exploration 2. Exploration 4. Construction years – 3–5 Construction Once a project has been approved by the Board, Centinela To secure the future of the business in the long Exploration programmes construction begins. This stage requires significant term, the Group must grow its mineral resource throughout Chile input of capital and resources, and effective More on page 48. base. It undertakes in-house exploration activities More on pages 50 and 51. project management and cost control are key in Chile. Exploration programmes further afield are to maximising a project’s return on investment. Encuentro Oxides carried out in partnership with other companies Earn-in agreements in FINANCIAL STATEMENTS in order to benefit from their local knowledge The Group has a co-operative approach to developing More on page 48. and experience. North America, Latin Growing America, Europe, Africa Risk sharing projects. Typically, after the feasibility stage, and into and Australia the construction phase, the Group seeks a partner Molybdenum Plant resources for projects, diversifying risk and providing a broader More on pages 50 and 51. Efficient access to funding. More on page 48. construction and cost control OTHER INFORMATION

Increased mineral resources by 831.3 million tonnes in 2015 at Los Volcanes and Polo Sur deposits.

14 Antofagasta plc Annual report and financial statements 2015 Antofagasta plc 15 06 radley yeldar.

Understanding the business and context Provident Financial

This is Provident Financial’s first report as a FTSE 100 company. And the reporting team has picked up the gauntlet with gusto. Words and graphics combine to present a clear explanation of the company as well as its various divisions – what they do, where they operate and the social benefits they generate. These add up to a transparent, easy-to- grasp overview of a business that could potentially be challenging to understand. The differences between the divisions are well articulated, as is the way in which they fit together to create a cohesive group with a clear purpose. The marketplace section provides transparent detail, outlining past trends as well as future opportunities. Clear purpose of business It also highlights areas where regulatory changes could impact the company.

Divisions at a glance

02 03 Provident Financial plc Provident Financial plc Annual Report and Financial Statements 2015 Annual Report and Financial Statements 2015 Overview At a glance Overview

Vanquis Bank Est 2002 Vanquis Bank is the leading supplier of credit cards 1.4m £185.5m The group has three UK customers UK profit before tax in the non-standard credit market. We provide new customers with a low credit limit and only increase divisions, covering five it when we have sufficient experience of the customer 1,386 £250– handling their account responsibly. We maintain a Employees high level of contact with customers, from the initial £3,500 different areas of the call welcoming the customer to Vanquis Bank and Range of credit limits Vanquis Bank Vanquis Non-standard credit cards continuing throughout our relationship. non-standard market. Read more on Vanquis Bank on pages 26 to 31

Provident Est 1880 Provident offers home credit loans, typically 0.9m £105.4m Customers Profit before tax1,2 of a few hundred pounds, through a network of 5,500 local agents who call each week at 0.9 million customers’ homes in the UK and Ireland. Agents are 2,160 £100– primarily paid commission on what they collect, not Employees2 what they lend, so it is in their interest not to lend £2,000 more than customers can repay. The total amount Loan range Home credit repayable is fixed at the outset, so there are no extra charges whatsoever. Read more on Provident on pages 34 to 37

Satsuma Est 2013 (Start up) Satsuma is our online instalment loan product. 49,000 £100– Customers We give new customers a small-sum, short-term £1,000 loan and collect repayments by continuous payment Loan range authority once a week, on a day agreed with the customer. Just like our other businesses we adopt a low and grow approach to lending. Our UK-based call centre is always there to discuss any issues customers Online lending may have. Just like our home credit product, the total amount repayable is fixed at the outset, so there are 8.0 no extra charges whatsoever. Read more on Satsuma on pages 40 to 43 Consumer CreditConsumer Division Provident Financial Group Financial Provident glo Est 2014 (Start up) glo is our guarantor loans product serving customers 4,000 £1,000– Customers who are unable to access mainstream credit from £7,000 banks and building societies with larger amounts of Loan range affordable credit over longer durations. The loan is guaranteed by a family member or friend with a sound credit record who supports the customer if their 5.0 circumstances change. Guarantor loans

Read more on glo on pages 44 to 46

Moneybarn Est 19923 Moneybarn is the market leader in the provision 31,000 £21.3m Customers Profit before tax1 of vehicle finance for people in the non-standard credit market. Moneybarn is able to help those who may have had problems with credit in the past but 151 £4,000– who are now over them to get to work, take their Employees children to school and live their lives. £25,000 1 Before exceptional costs and, in respect of Moneybarn, Loan range Moneybarn prior to the amortisation of acquisition intangibles. Non-standard vehicle finance 2 Represents CCD as a whole. 3 Acquired in August 2014. Read more on Moneybarn on pages 52 to 56 9.0

7.0 HDISU? 07

Clear and succinct overview of PFG’s markets 04 05 Provident Financial plc Provident Financial plc Annual Report and Financial Statements 2015 Annual Report and Financial Statements 2015 Overview The markets we serve Our social purpose and investment case Overview

The investment case for Provident Financial The UK non-standard credit No business can operate is very attractive: market is made up of around sustainably in today’s > Leaders in the non-standard credit market will be larger, 2.4m 3,758 well-funded specialist lenders with sustainable business 12 million people who, for a Number of customers Number of employees world without a compelling models like us. variety of reasons, from relatively social purpose. > We have an attractive mix of businesses which deliver attractive growth and returns over the medium-term and exhibit low low income to a poor credit volatility through the economic cycle. Provident Financial’s social purpose is history, are not well served by > We have a significant competitive advantage in the areas financial inclusion for those who are not well of technology, marketing, underwriting and collections. the mainstream credit market’s served by mainstream credit products or > Tougher regulation and transition to the Financial Conduct products and services. are excluded altogether. Authority (FCA) is causing dislocation in the non-standard credit market which provides new opportunities for To do this, we provide non-standard credit responsible lending businesses such as Provident Financial. customers with appropriate amounts of credit, 5,500 £2.0bn > Our management teams are highly skilled and experienced, Our customers look for: Number of Year-end receivables maintain close contact with them throughout particularly in serving the non-standard credit market. self-employed agents the term of their loan and work with them – typically less than > We have a robust balance sheet and prudent funding. Smaller sums sympathetically if they experience difficulties. a mainstream provider would lend. > We generate sufficient capital to support planned growth Terms and conditions are designed to meet and business development without compromising our High levels of contact with their lender their particular needs and rigorous checks progressive dividend policy. – our customers like someone to talk to are made to ensure that customers can afford about their loan. the repayments. We have been doing this Understanding – our customers usually successfully since 1880. have little leeway in their income, so, if they To assist with this social purpose we have experience problems during the term of £135.5m £3.1m five core values which run throughout each their loan, want to talk to someone who Total tax contribution* Community investment of our divisions: understands their situation and can offer a Fair solution. With some of our products this can We are fair and reasonable in our dealings even mean the ability to reschedule repayments with stakeholders. at no extra cost to the customer whatsoever. Responsible We conduct our business dealings responsibly and ensure that we have a positive impact on the environment and communities we serve. Accessible We provide our customers with access to products that meet their needs. Straightforward We are straightforward, open and honest in all our dealings. Progressive We anticipate and respond to the challenges of a changing world.

* Comprises both direct and indirect tax contribution. 08 radley yeldar.

Understanding the business and context 12 Provident Financial plc Annual Report and Financial Statements 2015 Strategic report

ProvidentOur business Financial continued model

Managing credit risk s nd fu ng ni ai bt O 02 01 Develop tailored Secure longer-term, products to meet lower rate funding customers’ needs 03 Attract target customers How we operate across our products and services 04 Assess aﬀordability and credit

worthiness

08 g

Pay for funds r

and generate t

r Group business

i s

surplus capital 05 k model showing to deploy Lend the main stages

responsibly

s of the value chain d

i 07

n i

a Manage arrears t 12 13 b 06 Provident Financial plc Provident Financial plc

Annual Report and Financial Statements 2015 Annual Report and Financial Statements 2015

O and customer Strategic report

Collect M

a Our business model diﬃculties g

repayments i n

g How we create value

e > Borrow long and lend short. > Investment grade credit of BBB with

01 02 Secure longer-term,

d > Maintain diverse range of funding sources. a stable outlook.

due i

t 03 lower rate funding

Strong relationships with core banks. r > Maintain borrowing facilities to provide > i s k Ma 04 headroom for the following 12 months. naging cr edit risk 08 05 ds 07 06 un g f in in ta b Strategic report O > Provide financial access for those who would be > High levels of customer satisfaction. 01 02 Develop tailored otherwise financially excluded. 03 products to meet > Specialist business model. 02 > Simple, transparent products. 01 Develop tailored 04 customers’ needs > 135 years of serving non-standard customers. Secure longer-term, products to meet 08 05 lower rate funding customers’ needs 07 06

Typical customer: Channels to market: 01 02 Attract target > Mixed employment status. > Multi-channel approach – Business to 03 customers > Low to average incomes. Consumer (B2C), Business to Business (B2B). 03 04 > Limited indebtedness. > Strong brand loyalty. Attract target 08 05 > Live in rented accommodation or social housing. > Marketing expertise. > Average age of between 25 and 50 years old. > Broker relationships. customers 07 06

> Bespoke underwriting developed over > Strong data analytics based on long history. How we operate 01 02 Assess affordability a number of years. 03 and credit worthiness > Specialists in assessing non-standard > Use of external bureau data to supplement consumers. across our products 04 in-house data. > Leading-edge technology. 08 05 and services 04 07 06 Assess > Small-sum, short duration. > High standards of regulation 01 02 Lend responsibly aﬀordability > ‘Low and grow’ approach to lending. and compliance. 03 and credit Starting customers on low amounts before > Affordable weekly/monthly repayments. 04 growing lending as customers demonstrate > No hidden charges. worthiness they can manage repayments. 08 05

07 06

08 g

> Maintain regular and close contact > Multiple methods of repayment.

c 01 02 Collect repayments

Pay for funds r

e with customers. > Compliant remuneration arrangements

d 03 due

i > High-tech contact centres. for contact centre staff and commission

and generate t

i policies for home credit agents. s 04 > Experienced and well-trained collections teams.

surplus capital 05 k to deploy 08 05 Lend 07 06

responsibly

> Regular contact and ongoing dialogue

g 01 02 Manage arrears

i 07

throughout the customer journey. n

i 03

a Manage arrears and customer

t > Multiple forbearance methods.

b 06

O and customer 04 difficulties > Sympathetic approach.

Collect M

diﬃculties g 08 05

repayments i n

c 07 06

due i t

r i s k

> High ROA businesses generate surplus capital. 01 02 Pay for funds and 03 generate surplus > Distribute 80% of earnings in dividends. > 20% equity retained sufficient to fund future 04 capital to deploy growth in receivables. 08 05 > Maintain low level of gearing at 3.5 times or below. 07 06

See how the model applies to each of our businesses in the divisional performance reviews. HDISU? 09

Detailed marketplace discussion

18 19 Provident Financial plc Provident Financial plc Annual Report and Financial Statements 2015 Annual Report and Financial Statements 2015 Strategic report The non-standard credit market

Overview History indicates potential

Uncertainty remains as to the future size and shape of the UK non-standard credit The group specialises in serving the needs market but this provides the group with significant opportunity, particularly with Strategic report of the approximately 12 million UK non‑standard Satsuma and glo.

credit customers with a range of products from Pre-2000 2000-2007 2007-2012 2012 onwards Expansion of access Underlying Post credit crunch Regulated future credit cards and car finance, to home credit and to credit issues emerge short-term fix

online unsecured and guarantor loans. Large, greater than £12bn Unsecured credit withdrawn Global credit crunch rapidly Regulators take action to annual non-standard progressively as issues curtails secured lending protect consumers and Non-standard credit customers typically have a poor credit history, The UK non-standard credit market is more diverse in the types of unsecured instalment arise with mainstream and and tempers bank overdraft curtail payday lending which is or no credit history at all, or may have had past problems with credit offer than the prime market, reflecting the wider variety of market develops, served by specialist models (eg high loss risk appetite as large PPI inappropriate for longer-term credit, often due to periods of unemployment, family break-up, customer needs and situations, as well as business models aimed mainstream and specialist rates, branch infrastructure fines and redress begin, needs and not sustainable. branch and direct/ costs, accounting for and regulation tightens. ill‑health or the use of inappropriate mainstream credit offers. at profitably serving the higher credit risk customer. New models of online phone models. arrears, concern over PPI Consumers left with few instalment lending Firms wanting to serve this market sustainably require a tailored The diagram below provides an overview of the types of product and charges). approach to credit, usually focusing on lower amounts of credit for offers common in the UK non‑standard credit market, showing Low headline prices options to fill genuine begin to emerge with shorter terms initially, higher levels of customer contact and the use the typical loan sizes and terms of lending for each, and where the with significant add‑ons For those not renting, secured underlying ongoing credit more transparent of a security or asset in some form linked to the provision of credit. group’s products sit in the market. including PPI. lending (often through needs that remain, beyond pricing and sustainable brokers) increases rapidly the excesses fuelled by repayment schedules. Firms also need to be more flexible in dealing with non‑standard Consumers typically Typically, larger amounts are only viable over longer periods and to fill the gap on the back of the house price and secured customers who are more likely to run into repayment issues and borrowing a few thousand Limits to friends and family often in relation to a product or asset purchase in order to improve rapid house price inflation finance bubble. require forbearance. pounds over a few years, capacity encourages growth the chances of repayment. The main exception is guarantor lending, and ‘light touch’ regulation. Business models in this sector therefore usually incur higher costs where the guarantor, typically a relative or friend of the borrower, often through brokers to New model of payday lending of guarantor lending in than more standardised and less flexible prime credit offers, agrees to repay the loan should the borrower default. consolidate (eg credit/store For renters, strong growth emerges, especially online, the absence of sufficient resulting in the need to charge higher prices in order to generate cards, overdrafts and mail in overdraft availability and to offer a short‑term fix for unsecured supply. order credit), to buy cars, to bank appetite encouraged by consumers without access acceptable returns for the risk that shareholders and investors take. Potential for the market to take holidays and to improve the government helps to fill to increased help from friends grow back towards pre- their homes. the gap. and family. credit crisis levels of c.£10bn UK non-standard credit market and PFG businesses as supply returns, which presents an attractive £ opportunity for Satsuma, Cash-based glo and other longer-term 150,000 Asset-based unsecured loan products. Mortgage

75,000 14 Traditional sub-prime unsecured instalment loans 25,000 Secured New style online non-standard instalment loans 2nd charge Car finance 12 Payday loans 5,000 Unsecured /guarantor loan

Rent to own 10 2,500 We are addressing this

Logbook/Bill of sale potential opportunity 1,000 Credit card 8 Short-term unsecured loan Authorised Other forms of Mail order credit Typical loan size 500 overdraft unsecured lending Payday loan Home credit cash loan 6

Unauthorised 350 overdraft 4 250

Pawn/Sale & 2 150 buy back Estimated unsecured gross advances (£bn) Typical contractual term of credit 0 <1 1–3 6 1 18 2 3 4 15 25 None/ 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 month months months year months years years years years years revolving

Source: PFG analysis based on Datamonitor, OFT, FCA, CMA, BBA, FLA, statutory filings, company announcements and press (excludes motor finance secured on the vehicle). 10 radley yeldar.

Understanding the business and context Ashtead

The business model discussion is the key highlight of what is a good all-round report from the equipment PLC GROUP ASHTEAD rental specialists. While the graphics present a clear 2016 & Accounts Report Annual picture of what the company does, how it works and how it adds value, the copy rewards the reader with valuable detail about how Ashtead adapts the business model across different stages of the economic cycle, and also diversifies the fleet and customer base. This level of easy-to-understand information gives investors the information they need to make sound decisions. The earlier pages also provide a visually engaging and balanced overview of the business, including a page of facts that provides the backdrop to the business model section.

Annual Report & Accounts 2016

Key facts about Ashtead

6 Ashtead Group plc Annual Report & Accounts 2016 Ashtead Group plc Annual Report & Accounts 2016 7

MAKING THINGS STRATEGIC REPORT HAPPEN

Our equipment can be used to lift, power, generate, light, move, dig, compact, drill, support, access, scrub, pump, direct, heat and ventilate – whatever is required. 1,000,000+ 550,000 METRES OF BARRIERS ASSEMBLED SMALL TOOLS RENTED Here’s how we helped make things happen in 2015/16:

125 MILLION+ MILES TRAVELLED FOR DELIVERY AND SERVICE 15 BILLION+ BTU/hr IN THE HEATING FLEET

7.0 2,700,000 7,000,000+ 500,000+ RENTAL CONTRACTS WRITTEN kW OF POWER RENTAL ASSETS 5.0 8.0 1,000+ 200+ 570,000 APPLICATIONS FOR APPRENTICESHIPS ENTERTAINMENT EVENTS SUPPORTED CUSTOMERS 8.0 HDISU? 11

12 Ashtead Group plc Annual Report & Accounts 2016 Ashtead Group plc Annual Report & Accounts 2016 13

OUR MARKETS CAPITALISING ON STRATEGIC REPORT MARKET OPPORTUNITY

Most of our business and growth Much of our market share gains come from these small independents when we set up new stores or acquire them. Ours is a capital- 03 US MARKET SHARE comes from the US which is a much intensive industry where size matters. Scale brings cost benefits Over the last five years we and sophistication in areas like IT and other services, and this leads have consistently grown at larger rental market than the UK and ultimately to further consolidation. The industry has evolved over United Rentals 10% less mature. The US rental market is the last five years such that the proportion of the market enjoyed two to three times the market Sunbelt 7% by the larger players has increased by 25%. We have clearly been Herc Rentals 3% potentially five times bigger than the a major beneficiary of this trend. Whilst there will always be a place growth rate. Home Depot 1% UK and we continue to capitalise on the for strong local players, the market enjoyed by the larger players is likely to grow by a further 30 to 40% in the medium term. BlueLine Rentals 1% Sunstate 1% structural changes in that market as We are confident that as the market grows, our share will also customers increasingly want to rent increase. We have a good track record of success, having almost Top 7–10 4% rather than buy their own equipment. doubled our market share in the last six years. We continue to set Top 11–100 c.16% ambitious targets for continuing to double our market share and Others c.57% market demand allows for this. The speed with which we increase 01 US MARKET OUTLOOK We also have a small presence in Canada which we will seek our market share is a function of how quickly we can get new Total building starts to develop over time, as and when the opportunities for growth locations up and running and generating profit. (Millions of square feet) 2016 2017 2018 present themselves. The US market is currently very strong, the Total building +11% +14% +0% Source: Management estimate based on IHS Global Insight market estimates. Note: Restated to reflect latest IHS Global Insight market size data. UK market is showing resilience and we continue to increase our We believe that our model is a differentiator and explains in part our Commercial and industrial +6% +9% +5% strong performance relative to some of our larger peers. We take market share in both markets. Our aim is to grow the business Institutional +8% +14% +11% wherever we are in the economic cycle. A strong market in the share from our larger competitors because we have the right fleet Residential +12% +16% -3% US and a good one in the UK mean we are performing particularly in the right place and because we offer better service. However, we 04 US MARKET SHARE DEVELOPMENT well currently. take more market share from the smaller operators than our bigger Source: Dodge Data & Analytics (March 2016). competitors where our advantage is greater. We remain committed THE US to a very broad product offering in segments with low rental 2002 2% Economic strength penetration and high returns. The diversity of both our fleet and its 02 CONSTRUCTION ACTIVITY BY CYCLE Our core US markets are very strong. We have been impacted application gives us enormous competitive advantage. You can read 2007 4% by difficulties in energy sectors, but oil and gas was only a small more about our business model on pages 16 to 21. 200 2013 5% part of our business, so the negative impact has been relatively The combination of our business model, the strong economy and limited. In fact, the problems in the oil and gas sector served the long-term trend to rental, which we discuss further on page 14, 180 2016 7% to demonstrate the robust and diverse nature of our business. provides the perfect environment for us to achieve our goals. 160 Construction markets remain strong but we also continue to see Target 15% In addition, our market share gains accelerate as we make the 140 growing employment, the benefits of lower energy prices and most of our scale advantages. In the longer term, we believe that 0 15 increased disposable income which is positive for our broader 120 US market share in the order of 20% is a reasonable goal. Source: Management estimates. markets like event work and residential remodelling. In the US in 100 particular, people are generally spending more money which has As we increase our market share and grow our specialty 80 a knock-on effect in our non-construction markets. We continue to businesses, they necessarily become a greater proportion of the see very encouraging short-term trends and the consensus is that mix. The acquisitions we make are often to expand into a new 60 T T T T T T T T T T T +2 +4 +10 +12 +6 +8 the market will experience steady longer term growth. Commercial specialty area or to develop an existing one and then we supplement +14 +16 +18 +20 and industrial starts continue to grow well and we expect this to them with greenfield openings. For example, last year we made an continue at least until 2018. acquisition to expand our climate control business to the Pacific Northwest and opened eight greenfield locations to expand further 1975–1982 1982–1991 1991–2011 With the obvious exception of energy, the markets we serve are this highly profitable specialty business. Current cycle Forecast strong, as both structural and cyclical trends remain favourable. (T=100 based on constant dollars) Chart 02 shows the last three construction cycles. These have Source: Dodge Data & Analytics. followed one of two patterns. From 1975 to 1982 and from 1982 to SPECIALTY FLOORING SOLUTIONS 1991 the initial recovery was very aggressive but the overall cycle In July last year we set up our first specialty flooring was relatively short. We believe we remain mid-cycle and whilst solutions business. We are already the single largest the pace of growth may moderate, we should have multiple years rental provider of surface maintenance equipment of structural and cyclical opportunity ahead. focused on the commercial cleaning industry. We provide Market share in the US long and short-term rental options, battery, electric, We continue to grow our market share in the US and even though LPG and diesel powered units, walk-behind and ride-on we are the second largest equipment rental company, there sweepers and scrubbers, floor burnishers and single remains plenty of room to grow as chart 03 shows. Our major disc machines (polish, scrub, grind), carpet extractors large competitors are United Rentals and Herc Rentals with 10% and 3% respectively. Home Depot, BlueLine and Sunstate have and specialty cleaning equipment. We serve the shares of 2% or less. Most of the remainder of the market is made education, hospitality, events, retail and healthcare up of small, local, independent tool shops. industries as well as stadiums, industrial plants and warehouses.

Detailed marketplace commentary with clear market share chart 12 radley yeldar.

Understanding the business and context

Ashtead continued

In-depth business 18 Ashtead Group plc Annual Report & Accounts 2016 Ashtead Group plc Annual Report & Accounts 2016 19 model narrative

OUR BUSINESS MODEL CONTINUED STRATEGIC REPORT

WHAT WE DO On-site hire depot and Designing bespoke lifting Managing the flow for sewer contractors’ village for solutions for complex problems, bypasses to enable the long-term maintenance including lifting the façade onto refurbishment of ageing IS SIMPLE. and construction projects. multistorey buildings. infrastructure in a dry HOW WE DO IT environment.

IS NOT. Providing temporary climate control Renting generators, Rapid response to natural solutions for retail access equipment, disasters such as floods, Providing traffic premises, office lighting, barriers and Designing, erecting tornadoes and hurricanes, management solutions buildings and temporary trakway to an and dismantling including pumps and power for engineering projects construction sites. outdoor music festival. scaffolding systems. generation equipment. or clean-up after an accident.

At its most basic, our model is simple – Assuming we purchase an asset for $100, generate revenue of MANAGING THE CYCLE $60 each year (equivalent to 60% dollar utilisation) and receive 35% We describe ourselves as being a late cycle business in that our we purchase an asset, we rent it to of the original purchase price as disposal proceeds, we generate Managing the cycle is key main end market, non-residential construction, is usually one a return of $455 on an initial outlay of $100 over an average to our strategy. of the last parts of the economy to be affected by a change in customers and generate a revenue seven-year useful life. We incur costs in providing this service, economic conditions. This means that we have a good degree of stream each year we own it (on average, principally employee, property and transportation costs and fleet visibility on when we are likely to be affected, as the signs will have depreciation. However, this simple overview encompasses a been visible in other parts of the economy for some time. We are seven years). Then we sell it in the significant number of moving parts and activities. Our ability to therefore able to plan accordingly and react in a timely manner second-hand market and receive a excel in these areas enables us to generate strong margins and when necessary. Key to the execution of our model is the planning deliver long-term, sustainable shareholder value, whilst managing we undertake to capitalise on the opportunities presented by the proportion of the original purchase the risks inherent in our business (refer to pages 30 to 32). cycle. The opportunities are for both organic growth, through winning market share from less well positioned competitors, and price in disposal proceeds. positioning ourselves to be able to fund acquisitive growth if suitable opportunities arise (see content on our strategy on pages 22 to 27).

DIFFERENTIATING OUR FLEET AND SERVICE The differentiation in our fleet and service means that we provide equipment to many different sectors. Construction continues to be our largest market but now represents around 45% as we have deliberately reduced our reliance on construction. An increasing proportion of our North American business (22%) is in specialty areas such as Pump & Power, Climate Control, Scaffolding, Oil & Gas and Industrial Services. Residential construction is 07 MANAGING THE CYCLE – SUNBELT a small proportion of our business (5%) as it is not a heavy user 2 2 % of equipment. IN SPECIALTY BUSINESSES 2007 2008 2009 2010 2013 Our customers range in size and scale from multinational Strong Rightsizing Running Benefitting Improving market of the tight from market businesses, through strong local contractors to individual do-it- Preparation business business structural yourselfers. Our diversified customer base includes construction, for downturn change industrial and homeowner customers, as well as government 3,277 < entities and specialist contractors. Our core market is the small 2,742 50% 2,189 1,820 RELIANT ON CONSTRUCTION to mid-sized local contractor. The nature of the business is such 1,626 1,450 1,507 Revenue ($m) 1,308 1,081 1,225 that it consists of a high number of low-value transactions. In the year to April 2016, Sunbelt dealt with over 540,000 customers, 46 44 who generated average revenue of $5,600. 38 36 32 34 30 27 26 25 Fleet age (months)

5,663 4,733 3,596 2,868 Fleet size ($m) 2,147 2,314 2,136 2,094 2,151 2,453

47 48 41 45 36 37 35 32 32 36 EBITDA margin (%)

25 26 26 24 19 19 20 14 Return on investment* (%) 6 9

* Excluding goodwill and intangible assets. HDISU? 13

16 Ashtead Group plc Annual Report & Accounts 2016 Ashtead Group plc Annual Report & Accounts 2016 17

OUR BUSINESS MODEL

We create value through the short-term rental STRATEGIC REPORT CREATING of equipment that is used for a wide variety SUSTAINABLE VALUE of applications to a diverse customer base. Our rental fleet ranges from small hand-held tools to the largest construction equipment and is available through a network of stores in North America and the UK.

WHAT WE DO HOW WE DO IT VALUE CREATION

PURCHASE DIFFERENTIATING OUR FLEET AND SERVICE The provision of cost-effective NING We purchase equipment from leading PLAN AHEAD Broad fleet mix rental solutions to a diverse manufacturers and maintain it through Highly responsive (no job too small) customer base. its useful life. Scale to meet size and range of requirement P19 P19

RENT S C Developing long-term E A We rent on a short-term basis, a full range I R ENSURING OPERATIONAL EXCELLENCE relationships with customers T DIFFERENTIATING ENSURING of construction and industrial equipment I E N OUR FLEET OPERATIONAL F Optimal fleet age and suppliers. to a diverse range of customers. U AND SERVICE EXCELLENCE U Nationwide networks in US and UK T L P21

R B Long-term partnerships with leading O A

P L equipment manufacturers P SELL A O Focused, service-driven approach N Enhancing the communities

We sell old equipment in the second-hand F C Strong customer relationships in which we operate, through

O E OUR

market and buy new.

S Industry-leading application of technology

E employment, opportunity H

G CUSTOMERS and community involvement. E

A P20

T E

N P46

A M

D INVESTING IN OUR PEOPLE

A Highly skilled team Generating sustainable

MAXIMISING G

INVESTING IN E

I OUR RETURN ON Devolved structure returns for shareholders M

K OUR PEOPLE

E Maintaining significant staff continuity through the cycle.

A INVESTMENT

T N T Strong focus on recruitment, training P16 and incentivisation P21 A DA N P IO TIN IT G O POS MAXIMISING OUR RETURN ON INVESTMENT UR OST FLEET AND C Effective management and monitoring of fleet investment Optimisation of utilisation rates and returns Flexibility in local pricing structures Focus on higher-return equipment Appropriate incentive plans consistent with improved returns P18 DISCOVER MORE ABOUT HOW WE MANAGE THE CYCLE P19 P21

Simple value chain approach to the business model 14 radley yeldar.

Explaining and measuring performance

What we measure What we have seen Looking at the FTSE 100 as a whole, we can see a general Strategy improvement in the ways in which companies approach KPIs strategy disclosure. Many now set out their objectives coherently and show how they are making progress Performance against those objectives. The best practitioners are also linking strategy with future performance – giving investors What’s the strategy? Has that changed – and if so, in an indication of where and how growth will be achieved in what way and why? How has the business performed the years ahead. against the strategy? How do the individual divisions contribute to the overall execution of the strategy? The level of detail provided is also on the rise. Many These are fair and fundamental questions to ask any businesses now include a breakdown of divisional strategies business, but far too many either aren’t listening or don’t and explain that while these differ from each other, they acknowledge the importance of sharing the facts with combine to support the overall group strategy. Some any degree of transparency. companies are even making inroads into the sometimes impenetrable jungle of the financial review, using charts The aim here is to communicate the essence of the and commentary to help investors quickly understand business in all its glory: this is how we operate and where the results. These teams deserve our applause. we’re trying to get to... this is the progress we’ve made in the last year... and this is what we intend to achieve in the You can sense the ‘but’ coming here... and the reasons for coming 12 months. disappointment within this category are headed by twin failings with KPIs. Firstly, we’ve seen a small but significant Ideally, the objectives should be linked to KPIs, thereby decrease in the quality of KPI disclosure – some reports have giving investors an understanding of how the company actually gone backwards in terms of telling investors how measures success. they measure performance. Secondly, too many companies still struggle to articulate how their KPIs link to the strategy. In our view, this is a linkage that has to be absolutely spot on. The KPIs should be the metrics that measure the progress of the strategy. This is the only way in which investors will be able to gauge the progress the business has made against its strategic aims. Is this failing simply because companies haven’t yet worked out which KPIs to use? Or is it because the strategy is too obtuse to measure? HDISU? 15

Three of the best

ITV 5.21 Vodafone Intu

5.30

5.14 16 radley yeldar.

Explaining and measuring performance ITV

The ITV report is a model of transparency this year, with several pages of detailed discussion on strategic priorities followed by a dashboard that summarises performance, explains the focus for the next year and provides links to the relevant KPIs. The financial and performance review is also one of the best. Waterfall charts help clarify the year-on- year changes to the numbers, while the financial statements incorporate explanation boxes which lay out the key facts to be found on each page. Overall, this report displays admirable disclosure and balance – readers can quickly grasp the progress ITV has made over the year.

Delivering strong growth and building scale

ITV plc Annual Report and Accounts for the year ended 31 December 2015

Strategic priorities clearly defined in print and online

8.0

8.0 HDISU? 17

Detailed narrative on Strategic Report Strategy and Operations Strategic Priority 3

each strategic priority Strategic Report setting out progress and future direction As digital media and consumer behaviour continue to evolve, our ability to create and distribute high-value content in new and efficient ways is of increasing significance. ITV is continually exploring and experimenting with new ways to distribute our content to broadcasters and platform owners, Strategic both free and pay, while also seeking new opportunities to extend the reach of our content for the consumer.

Priority 3: See page 30 for more

Build a global pay and Capitalising on growing demand for VOD through the ITV Hub Changes in technology and the growing base of connected devices are driving distribution business rapid growth in audiences’ appetite for VOD and in turn fuelling demand from advertisers for VOD inventory. ITV as a creator and owner of content, particularly sought after drama and entertainment content, is well placed to exploit this growing customer base.

Our Online business has grown rapidly over the last few years and is contributing meaningful revenue to the Group. In November we successfully launched the ITV Hub to replace ITV Player and ITV.com across mobile, PC and connected TV, through which audiences can access ITV content on different devices, live or on demand. This is a major step forward in the quality, innovation and ease of use of ITV’s online services. The biggest change is that live content is now central to the ITV Hub and live simulcast viewing is becoming increasingly popular particularly around sporting events and large entertainment shows, as viewers are using their connected devices as a television set. Simulcast viewing now represents about 30% of viewing on the platforms on which it is available.

To drive growth in our online audiences and online advertising revenues we have also been working to increase the distribution of the ITV Hub which is now available on 27 platforms, most recently launching on Amazon Fire, YouView Sony and Freeview Play. Long-form video requests continue to grow strongly up 14% in 2015, driven by mobile and connected televisions. Online consumption, which is the measure of how long viewers are spending online, has also increased by 42% reflecting the quality of ITV’s content and the improved viewing experience of the ITV Hub.

To date there have been 21 million downloads of our app and to further increase usage we will continually extend and enhance the ITV Hub with improvements in technology and new content, such as premieres, box sets and short-form content.

Overall the new service has been very well received by both audiences and advertisers, with consumption growing strongly since launch, particularly for live viewing where our audiences enjoy the new ‘live swipe’ feature on smartphones and tablets and the ITV Hub’s improved streaming quality.

Additionally, we are working to Online, Pay & Interactive maximise the value of our digital revenue growth data. We have introduced new £188m digital advertising features like AdSync+ as well as dynamically- 188 served advertising on ITV’s live 23% simulcast channels on PC and 153 YoY

Apple platforms. With 13 million 118

registered users of the ITV Hub, we 102 are not only able to understand and 81

58 +276% engage with our audiences better 50 Increase but we are also developing more on 2009 Pictured: The Voice is produced by Netherlands based 2015 acquisition Talpa targeted advertising online in 2016. 09 10 11 12 13 14 15 Media. It has been sold to 180 countries.

26 ITV plc Annual Report and Accounts 2015 ITV plc Annual Report and Accounts 2015 27

Strategic Report Strategy and Operations Strategic Priority 3 Strategic Report

Strategic Priority 3 continued

Pictured left to right: Vera is a British based detective drama in its sixth series on ITV. It has had huge international success and has been sold to 177 countries; Thunderbirds Are Go! is produced by ITV Studios and broadcast on CITV. It has been sold to 90 countries to date.

As we look to increase ITV brand loyalty, Expanding our global Global Entertainment also invests in we have already increased our exposure distribution network the funding of scripted content with to new types of content including In 2015 Global Entertainment, the international appeal. ITV has invested Our Online, Pay & short-form and younger focused distribution arm of ITV Studios, delivered around £160 million in the year, up Our scripted Interactive business long-form programming and new types revenue growth of 9% to £157 million £60 million, in scripted programmes content has sold well of distribution. We are widening our (2014: £144 million) as we have continued such as Texas Rising, Aquarius and The is rapidly growing digital reach by expanding our presence to drive value from the investment Good Witch, two of which have been internationally with on YouTube to bring new audiences to we have made in creating and owning recommissioned and they are selling and profitable.” our programmes. In 2015 we launched the rights to quality content with well internationally. programmes such 22 new ITV branded channels across a international appeal. Reality dating show Love Island as Poldark, Aquarius, range of our biggest programme brands. generated significant activity on In addition to distributing ITV’s own Further developing our pay offering We saw usage increase over 400% Global Entertainment the ITV Hub with 11 million requests content, we have also acquired the Texas Rising, Endeavour in the UK and internationally across the year on the ITV branded revenue growth £m on ad-funded platforms across the third-party distribution rights to a and Mr Selfridge ITV earns revenue from pay television channels to deliver over 160million £157m series. It was the first ITV programme number of international shows including through licensing our channels and views, the equivalent of over 8 million to generate two million views in Schitt’s Creek from Canada and Nordic all selling to over

content. 2015 pay revenue grew by hours of viewing. 157 a week. thriller Jordskott.

38% as we continued to develop our 144 100 countries.” 135 133 9% 126 126 services across multiple platforms. Talpa has a very strong digital presence 123 YoY 2016 and beyond internationally across its range of Our scripted content has sold well Looking ahead we expect to deliver Our pay business in the UK includes deals formats. Since 2014 it has developed internationally with programmes double-digit growth in our Online, Pay with Sky and Virgin for our HD channels 10 successful connected live formats such as Poldark, Aquarius, Texas Rising, & Interactive revenues as we further Talpa Connect +25% and catch-up VOD, an advertising free including The Voice, The Voice Kids and Increase Endeavour, Jekyll & Hyde and Mr Selfridge develop our ability to distribute and sell Since 2014: subscription version of the ITV Hub on Dance Dance Dance, in 40 countries, with on 2009 all selling to over 100 countries. Our our content. We will continue to invest iOS and a deal with Sky to make ITV’s 90 apps/sites and 100 YouTube channels, 09 10 11 12 13 14 15 entertainment and factual entertainment to enhance the ITV Hub and through content available through its connected in total delivering over 12 billion views. content also continues to sell well with a mixed economy of organic growth, 10 platforms including Sky Go and Now TV. Our distribution business has a programmes such as Come Dine With partnerships and acquisitions, we will successful connected In 2014 we launched our first pay We have made investments in the substantial archive of over 40,000 hours develop our pay and online services Me, The Voice, The Voice Kids, I Love My live formats channel, ITV Encore, which we are digital arena as we look to develop our of television and film content that we Country, The Chase, I’m A Celebrity… Get and channels and explore new ways strengthening with more exclusive expertise in monetising online audiences. distribute to broadcasters and platform Me Out Of Here! and the Price of Beauty. to package and sell our content to in content including original commissions These include: Believe Entertainment owners around the world. In 2015 take advantage of demand for quality such as The Frankenstein Chronicles and Group, a producer of digital-branded we have continued to enhance our During the year we have also signed a content in the UK and internationally Houdini & Doyle and critically acclaimed short-form entertainment; Zealot, a distribution network, benefiting from number of new multi-year and multi- from consumers, broadcasters and 40 countries acquired series such as The Americans digital content multi-platform network; our increased rights ownership and territory deals including a seven year platform owners. and Jordskott. Indigenous Media, a producer of scripted strong network relationships as ITV deal for Coronation Street with CBC in with digital content; and Channel Mum, Studios has grown in scale. Canada. In early 2016 we agreed a multi Lastly, we are also continuing to drive apps/sites Outside the UK we have established the first ever online video network series and territory deal for Thunderbirds the debate around the implementation 90 a number of smaller pay propositions dedicated to young mothers. We have a strong and balanced Are Go! with Amazon covering the of retransmission fees in the UK to and including Cirkus, a subscription VOD portfolio of scripted and unscripted US and India for first run and UK and ensure that we are fairly compensated service that offers the ‘Best of British’ Looking ahead we will further develop programmes and formats, both Germany for second run. We are now for our investment in content for the 100 YouTube channels content to international pay platforms our pay offering both in the UK and new and returning. We continuously starting to benefit from merchandising ITV main channel when it is carried on which is available in the Nordics and internationally exploring opportunities strengthen this using ITV’s strong cash around Thunderbirds Are Go! as we look pay TV platforms. with over more recently in Iceland. We also for both pay and online as we seek to flow to create and fund new content to extend the franchise beyond the distribute ITV Essentials, an online monetise our content further. We will and acquire third-party rights. ITV television set. 12 billion views service for expats, and ITV Choice, a look to do this through a mixed economy Studios creates new programmes in general entertainment channel for of organic growth, partnerships and the key genres of drama, entertainment emerging markets which was recently acquisitions. We will also increasingly and factual entertainment. launched in South Africa. look for opportunities to ‘window’ our content across our free channels, pay channels and the ITV Hub to derive maximum value for audiences, platforms and advertisers.

28 ITV plc Annual Report and Accounts 2015 ITV plc Annual Report and Accounts 2015 29 18 radley yeldar.

Explaining and measuring performance

ITV continued

Summary of strategic performance

Strategic Report Strategy and Operations Performance Dashboard Strategic Report Performance Dashboard

Pictured left to right: The Tour de France has been broadcast on ITV4 for eight years; Trevor McDonald presented two documentaries during 2015, with The Mafia, broadcast in March being the most watched documentary in Q1 on any channel. Demonstrating continued progress against Key Performance Our Key Performance Indicators (KPIs) align our performance • Adjusted EBITA our strategic priorities. Indicators across and accountability to our strategy of continuing to develop • Adjusted EPS all three priorities a creative, commercial and global organisation. Five KPIs • Profit to cash conversion measure the Group’s operational and financial performance • Non-NAR revenue across all three priorities: • Employee engagement

Strategic priority 2015 performance Focus for 2016 Key Performance Indicators

• ITV NAR growth of 6%, ahead of our estimate of the TV advertising market • Strengthen on-screen viewing in key demographics • ITV Family SOV • Share of broadcast up to 46.1% in 2015 (2014: 45.9%) • Further invest in our content, channels and brand to maintain • ITV Family SOCI 1 • ITV Family SOV down 3% our unique scale • ITV Family share of broadcast Maximise audience • ITV delivered 98% of commercial audiences over five million and 93% • Grow our share of total television and VOD advertising • Percentage of commercial audiences and revenue share of audiences over three million • Continue to maximise the value of our programme brands over three million and over five million from free-to-air • Delivered most watched entertainment drama, soap and sporting event through sponsorship, interactivity and brand extensions • ITV2 and ITV3 largest digital channels in the UK • Developing new and more targeted advertising opportunities broadcast and • Innovative sponsorship and brand extension partnerships with advertisers • Developing branded content solutions through our new content VOD business • Launched AdSync+, a partnership with RadiumOne to amplify the reach of creation service ITV AdVentures our TV advertising • Integration of UTV • Dynamic advertising now served to ITV simulcast content on PC and iOS • Significant digital engagement with 100 million votes across our big SSeeee page 18 for more on entertainment shows and 40 million paid competition entries Strategic Priority 1

• Good growth across ITV Studios with 8% organic and 33% including • Build further scale internationally • Number of new commissions for ITV Studios the acquisitions • Continue to develop IP in key creative markets to exploit growing • Percentage of ITV output from ITV Studios 2 • ITV Studios’ share of ITV main channel output at 60% worldwide demand Grow international • 46% growth in Off-ITV production revenue in the UK • Build a pipeline of programmes across genres and content life cycle content business • Continued investment in creative pipeline with over 7,000 hours • Develop more 16 to 24 focused content of original content produced and delivered • Attract and retain key creative talent • Completed three acquisitions including Talpa Media, our biggest • Continue to look at acquisitions, investments and talent deals acquisition to date • 53% of ITV Studios revenue generated outside the UK • Top indie producer across Europe and the US • Delivered three US scripted series in the year, two of which have SSeeee page 22 for more on been recommissioned Strategic Priority 2

• Successful launch of the ITV Hub • Further invest in the quality and distribution of the ITV Hub • Total long-form video requests • Long-form video requests up 14%, consumption up 42% • Build a network of pay channels and OTT services • Number of new commissions for ITV Studios 3 • 21 million downloads of app and 13 million registered users • Consider wider partnerships with OTT/VOD players Build a global pay • Launched new original programming on ITV Encore • Continue to trial direct to consumer pay opportunities and distribution • New pay deal with Virgin and others including Amazon TVOD and TalkTalk • Develop innovative new content windowing strategy business • Cirkus and ITV Choice now launched in four countries • Further grow our international distribution network with high- • Launched many YouTube channels across our programme brands focusing quality content on short-form content, which has driven very significant views • Maximise the use of our strong cash flows to finance the production • A leading European distributor of content, with Aquarius, Mr Selfridge, of high-profile dramas that return and travel internationally Poldark and Hell’s Kitchen USA all sold to over 100 countries • Invest in developing third-party distribution deals SSeeee page 26 for more on • Six formats sold to three or more countries • Secure retransmission fees in the medium term Strategic Priority 3

30 ITV plc Annual Report and Accounts 2015 ITV plc Annual Report and Accounts 2015 31 HDISU? 19

Detailed financial Strategic Report Performance and Financials Financial and Performance Review review Strategic Report Financial and Performance Review

ITV delivered another strong performance in 2015 Growth in NAR and high margin Online, Pay & Interactive Broadcast & Online revenue combined with the growth in ITV Studios and our 2015 2014 Change Change with growth across the business. continued focus on costs, delivered an 18% increase in adjusted Twelve months to 31 December £m £m £m % EBITA to £865 million (2014: £730 million), resulting in a 1% NAR 1,719 1,629 90 6 improvement in the adjusted EBITA margin to 29%. Adjusted Online, Pay & Interactive EPS grew 20% to 16.5p (2014: 13.8p) while reported EPS grew revenue 188 153 35 23 7% to 12.4p (2014: 11.6p). Reported EPS grew at a slower rate SDN external revenue 64 71 (7) (10) than adjusted EPS primarily because of the treatment of Other commercial income 175 170 5 3 employment linked consideration for our acquisitions which Broadcast & Online Reflecting our continued investment in quality content, we is included within reported earnings. This is explained over non-NAR revenue 427 394 33 8 grew revenue across all parts of the business and reported the following pages. Total Broadcast & Online our sixth consecutive year of double-digit growth in our revenue 2,146 2,023 123 6 We remain highly cash key profit measures, while further improving our adjusted We remain focused on balance sheet efficiency and working Total schedule costs (1,045) (1,018) (27) (3) generative which, together EBITA margin. We remain highly cash generative which, capital management. Despite increased investment in scripted Other costs (442) (437) (5) (1) together with our continued focus on costs, places us in a content, our profit to cash ratio remained strong at 91%. After Total Broadcast & Online with our continued focus strong position to invest for further growth and enhance acquisitions of £406 million (net of cash acquired), dividend adjusted EBITA 659 568 91 16 shareholder value into 2016 and beyond. payments of £459 million and our deficit pension contributions Adjusted EBITA margin 31% 28% on costs, places us in a of £90 million, we ended 2015 with net debt of £319 million Broadcast & Online delivered another strong performance, strong position to invest 2015 2014 Change Change (31 December 2014: net cash of £41 million). This gives us the Twelve months to 31 December £m £m £m % financial flexibility to continue to invest in the business. with total revenue up 6% to £2,146 million (2014: £2,023 million) for further growth and NAR 1,719 1,629 90 6 driven by 6% growth in NAR and 23% growth in Online, enhance shareholder value Total non-NAR 1,664 1,327 337 25 Adjusted EBITA tracker Pay & Interactive. Total revenue 3,383 2,956 427 14 £m into 2016 and beyond.” Internal supply (411) (366) 45 12 900 Broadcast & Online revenue tracker Group external revenue 2,972 2,590 382 15 44 £m 850 865 2,175 Adjusted EBITA 865 730 135 18 90 28 35 3 2 Group adjusted EBITA margin 29% 28% 800 2,125 90 (7) 2,146 (27) Adjusted EPS 16.5p 13.8p 2.7p 20 750 2,075 Adjusted diluted EPS 16.3p 13.7p 2.6p 19 730 Dividend per share 6.0p 4.70p 1.3p 28 700 2,025 2014 NAR Network Online, Pay & ITV Studios 2015 2,023 Special dividend 10.0p 6.25p – – Schedule Interactive and Other 1,975 Net (debt)/cash as Broadcast 2014 NAR Online, SDN Sponsorship Other 2015 at 31 December (319) 41 (360) – Pay & & Brand Non-NAR Interactive Extensions The unadjusted profit before tax and EPS from the The Financial and Performance Review focuses on the adjusted Consolidated Income Statement are as follows: results, which, in management’s view, reflect the underlying

2015 2014 Change Change performance of the business, providing a more meaningful The television advertising market again showed strong Twelve months to 31 December £m £m £m % comparison of how the business is managed and measured growth with NAR up 6% to £1,719 million (2014: 1,629 million) Profit before tax 641 605 36 6 on a day-to-day basis. and continued good growth across all the major advertising EPS 12.4p 11.6p 0.8p 7 categories. The Finance advertising category was driven by Diluted EPS 12.3p 11.5p 0.8p 7 The key adjustments are to reflect production tax credits in traditional banking brands and the Retail and Food sectors EBITA before exceptional items (‘adjusted EBITA’) and remove remained strong with supermarkets and furniture stores Total ITV revenue increased 14% to £3,383 million (2014: the effect of certain items from adjusted profit before tax increasing spend. We saw strong growth from technology £2,956 million), with external revenue up 15% at £2,972 million and EPS. These include all operating and non-operating companies such as Google and Facebook as well as new digital (2014: £2,590 million). This reflects 6% growth in NAR to exceptional items primarily acquisition-related costs such as: brands, such as Just Eat and Purple Bricks, all using TV to build £1,719 million (2014: £1,629 million), and 25% growth in employment linked consideration and professional fees for brand awareness. Entertainment & Leisure did see a decline non-NAR revenue to £1,664 million (2014: £1,327 million). due diligence; impairment of intangible assets; amortisation which was as a result of significant spend by bookmakers in Non-NAR now accounts for 49% (2014: 45%) of total revenue. of intangible assets acquired through business combinations 2014 around the Football World Cup. including formats and customer contracts; net financing cost adjustments; and tax adjustments relating to these items. A full reconciliation between our adjusted and statutory results is provided on page 43.

36 ITV plc Annual Report and Accounts 2015 ITV plc Annual Report and Accounts 2015 37

Explanation boxes

on the financial Financial Statements Financial Statements statements

Notes to the Financial Statements Section 2: Results for the Year

The results for the year aggregate these classes of revenue into four significant categories: In this section This section focuses on the results and performance of the Group. On the following pages you will find disclosures explaining the Group’s results for 2015 2014 £m £m the year, segmental information, exceptional items, taxation and earnings Broadcast & Online per share. NAR 1,719 1,629 Non-NAR 427 394 ITV Studios Productions 1,045 789 2.1 Profit Keeping it This section analyses the Group’s profit before tax by reference to the activities Distribution 192 144 before tax simple performed by the Group and an analysis of key operating costs. Total revenue 3,383 2,956 Earnings before interest, tax, amortisation (EBITA) and before exceptional items Segmental information remains the Group’s key profit indicator. This reflects the way the business is Operating segments, which have not been aggregated, are determined in a manner that is consistent with managed and how the Directors assess the performance of the Group. This section how the business is managed and reported to the Board of Directors. The Board is regarded as the chief therefore also shows each division’s contribution to total revenue and EBITA. operating decision maker. Financial Statements The Board considers the business primarily from an operating activity perspective. The reportable segments for the years ended 31 December 2015 and 31 December 2014 are therefore Broadcast & Online Accounting policies and ITV Studios, the results of which are outlined in the following tables: Revenue recognition Revenue is stated exclusive of VAT and comprises the sale of products and services to third parties. Broadcast Judgement is required when determining the appropriate timing and amount of revenue that can be & Online ITV Studios* Consolidated 2015 2015 2015 recognised, specifically around whether there is a firm contract and that the service has been provided, £m £m £m and if so, whether there is a fixed or reasonably determinable price that is reasonably certain will be Total segment revenue 2,146 1,237 3,383 collected. Intersegment revenue – (411) (411) Revenue from the sale of products is recognised when the Group has transferred both the significant risks Revenue from external customers 2,146 826 2,972 and rewards of ownership and control of the products sold, and the amount of revenue can be measured EBITA before exceptional items 659 183 842 reliably. Revenue recognition criteria for the Group’s key classes of revenue are recognised on the Share of losses of joint ventures and associated undertakings – – – following bases: Broadcast & Online ITV Studios* Consolidated Applicable segment Class of revenue Recognition criteria 2014 2014 2014 Broadcast & Online Advertising (NAR), Video on Demand on transmission, as audience targets are met £m £m £m (VOD) Total segment revenue 2,023 933 2,956 Broadcast & Online Sponsorship across period of transmission of the sponsored Intersegment revenue – (366) (366) programme or series Revenue from external customers 2,023 567 2,590 Broadcast & Online Pay over the term of the contract or accrued in the EBITA before exceptional items 568 162 730 month for the expected revenue per subscriber Share of losses of joint ventures and associated undertakings – – – or download and trued up on receipt of third- * Revenue of £389 million (2014: £255 million) was generated in the US during the year, and represented £314 million (2014: £297 million) party reports showing revenue share calculation of non-current assets at year end. (showing subscribers or number of downloads) Broadcast & Online Participation (Interactive & Brand as the service is provided or event occurs Intersegment revenue, which is carried out on arm’s length terms, is generated from the supply of ITV Extensions) Studios programmes to Broadcast & Online for transmission primarily on ITV. This revenue stream is a Studios Programme production on delivery of episode and acceptance by the measure which forms part of the Group’s strategic priority of building a strong international content customer business, as by producing and retaining rights to the broadcast shows the Group benefits further from Studios Programme distribution rights when the contract is signed and content is available subsequent international content and format sales. for exploitation Studios Format and licences at the point in time when the license is transferred In preparing the segment information, centrally managed costs have been allocated between reportable and the customer is able to use and benefit from segments on a methodology driven principally by revenue, headcount and building occupancy of each the licence segment. This is consistent with the basis of reporting to the Board of Directors. Studios Digital: Archive on delivery of content (one-off) or over the contract period in a manner that reflects the flow of content delivered (top-up)

106 ITV plc Annual Report and Accounts 2015 ITV plc Annual Report and Accounts 2015 107 20 radley yeldar.

Explaining and measuring performance

Vodafone Chief Executive’s strategic review Responding to a changing world Taking personal responsibility for the strategy It has been a year of continued progress, with signs section, the Vodafone CEO lays out the company’s of recovery in Europe and continued growth in emerging markets. Our Project Spring investment programme three strategic priorities. Each is covered in some is now complete. detail and transparency, setting the scene and using solid proof points to describe progress. Plc GroupVodafone On each page, we see a summary that quickly Executing our strategy to capture growth opportunities and easily guides the reader through the key Annual Report 2016Annual issues – the market trends, market facts and how Review of the year Project Spring, our two year £19 billion a Fibre networks that provide high investment programme, which was designed We have made good progress on a number speed broadband to 72 million homes Vodafone aims to generate value within that context. to place Vodafone at the forefront of the of fronts in the last year. We have significantly in Europe; including 30 million on our growth in mobile data and the increasing trend For those seeking greater detail, the commentary expanded our mobile and fixed data network own infrastructure towards the convergence of fixed and mobile coverage and quality, leading to strong services, came to its close in March 2016. a Further expansion in enterprise products alongside puts flesh on the bones of the strategy. growth in data usage; we have maintained Highlights include: and services, with IP-VPN extended encouraging commercial momentum, with to 70 countries, IoT connectivity platform consistent customer growth; and we have a Vodafone’s KPIs also scored well in our assessment 4G population coverage of 87% in our to 30 countries and cloud & hosting returned to organic growth in both revenue European markets, up from just 32% to 12 countries process. The KPIs are well-chosen, linking well and EBITDA, thanks in part to strong in September 2013 cost efficiency.Confi In emerging dence markets, with the strategy to demonstrate the progress a Extensive modernisation and capacity During the year we also significantly stepped we are achieving sustained growth supported in the future improvements, with 93% of our European up our focus on improving our customers’ by the strength of our brand, our networks the company has made over the year. Vodafone Group Plc network now ‘single RAN’ and 90% with experience of our network and customer and our distribution.Annual Report 2016 In Europe, the majority high capacity backhaul service, in order to bring to life the clear of our markets have returned to growth, customer benefits of our investments. reflecting a more stable regulatory and a 3G population coverage of 95% in targeted As measured by Net Promoter Score, macroeconomic environment and better urban areas in India, and 4G launched in the we ended the year as the leader in 13 out competitive performance than in recent years. last few months of 21 markets and improved in 15 of these Our key strategic drivers – data, convergence a 91% of all customer data sessions in Europe markets: good progress, but still much and enterprise – are at the heart of this now at speeds of 3 Mbps or better – the rate to do to build clear differentiation. continued improvement. needed for high definition video streaming a Dropped call rates down by 40% since September 2013 – so customers on average now only lose one call in 217 Vittorio Colao Chief Executive

Our strategy We aim to be a converged communications leader, investing to provide our customers with differentiated network access and excellent customer service. Together with capturing the scale and efficiency benefits of our global presence, we aim to generate attractive returns, enabling us to sustain our investment levels, further increase our network differentiation and meet our customers’ high expectations. Annual Report 2016 Report Annual Vodafone Group Plc Group Vodafone Data Convergence Enterprise 8.0

10 5.0

8.0 HDISU? 21

Chief Executive’s strategic review

Responding to Overview a changing world It has been a year of continued progress, with signs CEO owning

of recovery in Europe and continued growth in emerging review Strategy the strategy, with markets. Our Project Spring investment programme clear summary is now complete. panel at the start of each section

Executing our strategy to capture growth opportunities Performance

Review of the year Project Spring, our two year £19 billion a Fibre networks that provide high We are witnessing various drivers of data Our network investments are yielding very investment programme, which was designed growth across our markets: the increasing We have made good progress on a number speed broadband to 72 million homes Data positive results in our major markets, with to place Vodafone at the forefront of the High speed, worry-free penetration of smartphones, both in Europe of fronts in the last year. We have significantly in Europe; including 30 million on our a number of independent tests demonstrating growth in mobile data and the increasing trend and emerging markets; high speed 3G and 4G improvements in data coverage and expanded our mobile and fixed data network own infrastructure Governance towards the convergence of fixed and mobile networks, delivering consistent high-definition coverage and quality, leading to strong performance, and placing us very clearly services, came to its close in March 2016. a Further expansion in enterprise products video to customers on the move; bigger screen growth in data usage; we have maintained in the top tier of network operators. We ranked Highlights include: and services, with IP-VPN extended Context sizes for a richer experience; the proliferation encouraging commercial momentum, with best overall in Italy and Spain, best network to 70 countries, IoT connectivity platform a of “over-the-top” video services; and the rapid in London, and a strong number two network consistent customer growth; and we have a 4G population coverage of 87% in our As smartphone penetration increases, to 30 countries and cloud & hosting migration of social media from the desktop overall in Germany. returned to organic growth in both revenue European markets, up from just 32% customers want faster and more reliable to 12 countries to mobile. Customers increasingly expect high and EBITDA, thanks in part to strong in September 2013 data services In AMAP, progress has been equally strong. speed data coverage as much as they expect cost efficiency. In emerging markets, a In South Africa, we have built 3G coverage Financials a Extensive modernisation and capacity During the year we also significantly stepped Customers have multiple mobile devices reliable voice services. Our data strategy we are achieving sustained growth supported to 99% and 4G coverage to 58% – significantly improvements, with 93% of our European up our focus on improving our customers’ and want a single, worry free bill is simple: to build high quality mobile data by the strength of our brand, our networks ahead of our competitors. We have developed network now ‘single RAN’ and 90% with experience of our network and customer a networks, to encourage worry-free usage and our distribution. In Europe, the majority Customers who are on the move pricing plans that make data affordable high capacity backhaul service, in order to bring to life the clear at fair prices, and to offer products and services of our markets have returned to growth, demand high-definition video for customers across every demographic. customer benefits of our investments. tailored to specific needs and accessible reflecting a more stable regulatory and a 3G population coverage of 95% in targeted capabilities and low latency speeds This has been further boosted by the success As measured by Net Promoter Score, to a wide range of users. macroeconomic environment and better (fast reaction time) for a more urban areas in India, and 4G launched in the we ended the year as the leader in 13 out of Vodafone-branded mobile phones and competitive performance than in recent years. enjoyable experience Additional information last few months of 21 markets and improved in 15 of these Total data traffic across our network grew 71% tablets. With these products, we are able Our key strategic drivers – data, convergence in the year, mainly reflecting the increased to bring the same quality and functionality a 91% of all customer data sessions in Europe markets: good progress, but still much and enterprise – are at the heart of this take-up of 4G. Driven by Project Spring, as well-known phone brands to the market now at speeds of 3 Mbps or better – the rate to do to build clear differentiation. What we’re aiming for continued improvement. we now offer 4G services in 21 of our markets, at a much reduced price point, opening needed for high definition video streaming a We’re encouraging customers to use 4G with India, Turkey and Albania added during up mobile data services for low income a Dropped call rates down by 40% since to give them a better user experience. the year. Our 4G customer base grew by 126% customers for the first time. September 2013 – so customers The number of 4G customers more than to 47 million, with average usage typically In India, we have experienced strong growth on average now only lose one call in 217 Vittorio Colao doubled to 47 million in the year doubling when customers migrate from 3G Chief Executive in data over the last few years since the launch a to 4G. From a commercial perspective, we are We are driving data usage by bundling of 3G in 2011. Through Project Spring, we have focusing on offering customers worry-free content with 4G. Data usage grew 71% extended our 3G network by 40,000 base data usage, with bigger data bundles and more in the year, and video usage accounts for station sites to 55,000 since September 2013. inclusive roaming. We now have the most around one-third of data traffic We now have 27 million 3G customers out extensive 4G roaming network in the world, a Increasing smartphone penetration of a total base of 198 million mobile users. Our strategy reaching over 90 countries. Despite this strong also helps drive data usage. 58% progress, only 27% of our European customers We aim to be a converged communications leader, investing to provide our customers with differentiated network access and excellent of our customers have a smartphone are using 4G, giving us significant opportunity customer service. Together with capturing the scale and efficiency benefits of our global presence, we aim to generate attractive returns, in Europe, compared to 52% last year for further growth. enabling us to sustain our investment levels, further increase our network differentiation and meet our customers’ high expectations. a We want our customers to use our services wherever they are. Our 4G roaming network reaches 93 countries

Average smartphone usage in Europe MB/month 2014 473

2015 755 Annual Report 2016 Report Annual Annual Report 2016 Report Annual Vodafone Group Plc Group Vodafone Vodafone Group Plc Group Vodafone Data Convergence Enterprise 2016 1,120 Enhancing customer services M-Pesa, our money transfer service, 197m now has more than 25 million active of our customers use data, representing customers, an increase of 27% in the year,

boosted by market launches in Albania and 43% of all customers, up from 40% last year Ghana and supported by a network of more 10 than 261,000 agents in 11 countries. 11 22 radley yeldar.

Explaining and measuring performance Intu

Although the CEO doesn’t fully own the strategy in the manner of Vodafone’s report, he does provide a valuable introduction which prepares the ground for the content that follows. This includes a key summary page that transparently demonstrates the progress and performance made during the year, with links to the relevant risks and KPIs. The KPIs are carefully chosen, with explanations of why each is important, how it is measured and The intu difference how the company has performed.

intu properties plc Annual report 2015

5.0

8.0

8.0 HDISU? 23

34 intu properties plc Annual report 2015 intugroup.co.uk Strategic report 35 Key performance indicators

Key performance Total financial return (%) Why is this important? How is this measured? How have we performed? Strategic This is a measure of The movement in adjusted Total financial return objective +4% +4% +1% +14% +10% 32 intu properties plc Annual report 2015 intugroup.co.uk Strategic report 33 15 the movement in the net asset value per share in the year was strong, Strategic overview underlying value of assets plus dividends paid in the driven by property 1 Strategy overview indicators and liabilities underpinning year as a percentage of valuation increases. 10 the value of a share the opening net asset 2 We have clear strategic objectives to ensure the business model is put into action effectively plus the dividend paid value per share. Key to strategic objectives We measure progress against strategic objectives to shareholders. 5 4 Optimising We are achieving this by Making the We are achieving this by 1 Optimise asset performance 1 — making our locations the most desirable for shopping and socialising 3 — offering a distinctive customer signature experience to all our centres asset performance — astutely managing the assets to take advantage of new trends and occupiers brand count — having the best-in-class digital offering for retailers and customers — building long-term partnerships with local authorities and communities — delivering continued world class service to retailers and shoppers using the following financial and non-financial Progress in 2015 Priorities in 2016 Progress in 2015 Priorities in 2016 2 UK development momentum — increased the leisure and catering elements — agree terms on final leases for catering — built on the Tell intu programme and — build on the success of our annual events, of centres with the opening of the new developments at intu Metrocentre, improved customer experience with net such as Student Nights leisure development at intu Potteries and intu Eldon Square and intu Bromley promoter score increasing 20 per cent — continue to build new partnerships with restaurant quarter at intu Victoria Centre — continue to introduce new entrants to — increased retailers trading on intu.co.uk global brands 0 — introduced new brands to our customers our centres to enhance the tenant mix. to over 350, increasing sales through — nationwide launch of the intu app 3 performance measures including Kiko, David’s Bridal and This may be from online brands looking the website — increase revenues from in centre and Make the brand count Red Dog Saloon for a store presence — secured national brand promotions with online initiatives — built local authority and parliamentary — continue to deliver growth in like-for-like 20th Century Fox and MasterCard relationships and made representation on net rental income retail issues including business rates and 2011 2012 2013 2014 2015 KPIs we use to measure our success Managing risk 4 Sunday trading — footfall — property market Seize the growth opportunity in Spain — like-for-like net rental income — operations KPIs we use to measure our success Managing risk — shareholder return — brand — optimising asset performance — property market — income performance encompasses our whole business — operations — GVA and as such is measured by all KPIs — brand

Seizing the growth We are achieving this by Strategic 4 — building a platform of the best centres in Spain through acquisition and development UK development We are achieving this by opportunity in Spain Income performance (pence) Why is this important? How is this measured? How have we performed? 2 — delivering the required planning approvals for all projects — delivering the same brand experiences and returns in Spain as in the UK momentum — generating the required level of demand to commence a project — moving the development options forward to a point where we can consider exercising them and commencing developments objective — having the required funding to progress the pipeline Why is this important? How is this measured? How have we performed? Strategic Underlying earnings per Underlying earnings Underlying earnings per Progress in 2015 Priorities in 2016 Footfall (%) Progress in 2015 Priorities in 2016 — started work on the major extension at — complete ongoing developments at — integrated Puerto Venecia into the Group — gain required planning approvals and level 15.0p 14.7p 13.7p 13.3p 14.2p following its acquisition in January 2015 of pre-lets to start intu Costa del Sol 15 intu Watford intu Metrocentre, intu Eldon Square Footfall is an important Footfall numbers across Footfall was unchanged objective share is based on the exclude property and share increased during the — started restaurant developments at and intu Bromley — rebranded Parque Principado as — continue to improve asset performance intu Metrocentre, intu Eldon Square — continue the extension at intu Watford intu Asturias, introducing the intu of Spanish centres 1 and intu Bromley — commence major projects at brand to Spain — increase the exposure of the intu brand — exercised the option to acquire the land in Spain measure of a centre’s intu’s centres are captured in 2015, ahead of the underlying income derivative valuation year, reflecting the positive — achieved planning approval for the intu Broadmarsh and intu Lakeside redevelopment of intu Broadmarsh — resolve planning issues at near Málaga for the construction of 2 intu Braehead and intu Milton Keynes intu Costa del Sol popularity with customers. using a combination of 1 per cent reduction in 1 generated in the year movements and like-for-like net rental KPIs we use to measure our success Managing risk KPIs we use to measure our success Managing risk 1 — footfall — property market — shareholder return — property market — like-for-like net rental income — financing — total financial return — financing — shareholder return — developments and acquisitions +0% Retailers use this measure person or car counting the national benchmark 10 which gives an indication exceptional income income movement, along — prime property assets — developments and acquisitions 3 — total financial return — brand 0 — GVA — brand — income performance — prime property assets -1 as a key part of their cameras located at specific as measured by Experian, of the Group’s ability or charges. with the contribution from For more information on KPIs see For more information on risk see pages 34 and 35 pages 37to 39 3 -2 decision-making process entrance and exit points continuing the trend to pay dividends. 2014 acquisitions. -1% 4 -3 on where to locate within the centre. of outperforming 5 -4 their stores. this benchmark. 4 Strategic progress and -5 0 priorities clearly defined 2011 2012 2013 2014 2015 intu 2011 2012 2013 2014 2015 Experian Prime property assets (%) Why is this important? How is this measured? How have we performed? Strategic Occupancy (%) Why is this important? How is this measured? How have we performed? Strategic Measures the capital The valuation gain or loss The Group outpeformed objective Attracting and retaining The passing rent of let Occupancy has increased objective return on the Group’s in the year expressed as a the IPD benchmark again 9 1 the right mix of retailers and under-offer units during the year to 6 property assets and percentage of the book reflecting the overall 100 +4% and catering and leisure expressed as a percentage 96 per cent and 1 3 compares this with the value pre-valuation quality of the Group’s 98 operators will enhance of the passing rent of let remains above the IPD IPD index, a recognised assessed on a like-for-like assets and the active 0 +2.8% 2 96 96% our centres’ appeal and and under-offer units plus (retail) monthly index -3 industry benchmark. basis for the Group’s asset management 94 trading environment. the ERV of unlet units. benchmark figure. -6 investment property. and development 4 92 95% -9 initiatives undertaken. 90 2011 2012 2013 2014 2015

2011 2012 2013 2014 2015 intu intu IPD monthly index (retail) IPD (retail) GVA of community investment (£bn) Why is this important? How is this measured? How have we performed? Strategic Like-for-like net rental income (%) Why is this important? How is this measured? How have we performed? Strategic Shopping centres GVA is calculated on GVA has increased by objective Measures the organic Removes from the Like-for-like net rental objective 3.5 4.2 create wealth and a range of different 20 per cent reﬂecting 5 1 4 +3.6% -2.7% -1.9% -3.2% +1.8% growth in income year-on-year movement income has returned to employment for their activities and types of increases in employment generated from the in net rental income growth in 2015 reﬂecting 1 4 local communities. Gross economic output of our by intu and at intu centres. Group’s properties the impact of acquisitions, improved occupancy, value added, or GVA, UK assets, including: 2 3 2 in the year. developments better rental values from 3 measures the economic investment expenditure, and disposals. strong retailer demand, contribution of intu to intu operational jobs, fewer tenants going 2 local communities. tenant jobs and tax 3 0 4 contributions. This data into administration 1 and development units is independently assured. -2 coming back on stream, 0 in particular in the second half of the year. 2014 2015 -4

2011 2012 2013 2014 2015 Greenhouse gas emissions intensity Why is this important? How is this measured? How have we performed? Strategic 2 (CO2e kg/m ) Measures our Greenhouse gas We have had award- objective operational efficiency equivalents are winning reductions Shareholder return (%) Why is this important? How is this measured? How have we performed? Strategic and performance of our calculated to work of 30 per cent from 1 Combines share price Uses the movement The Group showed a small objective 120 120 108 85 84 73 existing assets. It also out the greenhouse gas 2011-2014. We are on movement and dividends in share price during negative shareholder measures performance intensity of the energy we track to meet our target 30 to produce a direct the year plus dividends return in 2015 compared 1 20 90 against our carbon use. These include direct of 50 per cent reduction +11% measure of the change paid in the year. to a rise in the REIT sector 10 intensity reduction target and indirect emissions by 2020. in shareholder value which was largely driven 0 2 of 50 per cent by 2020 of our directly-managed in the year. by REITs with exposure 60 -10 against the 2010 baseline. UK centres. -1% -20 to central London offices. -30 3 30

2011 2012 2013 2014 2015 4 0 intu 2011 2012 2013 2014 2015 FTSE REIT index Clear KPI explanation and link to strategy 24 radley yeldar.

How sustainable is the business?

What we measure What we have seen The good news is that this year average scores have Risk increased across all the criteria in this category. It’s clear Sustainability to us that more companies are recognising the need to provide a well-rounded, transparent and balanced view Governance of past performance and future prospects. Forward-looking aspect Sustainability content is becoming more strategic – central to both the company’s performance and its prospects. Best- Sustainability is itself a term that can cause confusion. practice reporters are explaining why their sustainability focus Too many organisations see it as being only concerned areas are material to the business and how they may impact with environmental performance and, in some cases, licence future performance. Risk disclosure has improved, with more to operate. While these issues are clearly important, for us companies taking time to discuss how the risk landscape has this category is all about the future in the broader sense. evolved during the year. How is the company planning for the years to come? Is this a sustainable business or one that will merely shine today Governance has also seen a step-change regarding before fading away? disclosure. The FRC published a report during the year on how boards can influence corporate culture. In response, A good report should describe the principal risks that face some companies now make an effort to explain how this the business (including environmental risks) and how it influence works in practice within the company. These is mitigating those risks. As well as risk, this conversation reporters are also providing more transparent descriptions relates to corporate governance – the reader should have of board activity and evaluation. a clear understanding of the governance structures in place and how the board is managing the business. The bad news is that despite the handful of shining examples of good practice we came across, many companies continue to avoid transparent opinion. It seems that for some, the least said the better. There is little forward- looking content and even less transparency when it comes to risks and what happens in the boardroom. For example, one might expect the UK referendum and the issues surrounding Brexit to take centre stage in any analysis of the future prospects of FTSE 100 companies. Regardless of whether the likely outcome is broadly positive (falling pound) or negative (trade barriers), it surely demands discussion? Yet most of the reports we assessed all but ignored the whole Brexit issue. Another example is around executive pay, an area that concerns many investors. Few companies transparently articulate a viewpoint on this and most content relating to remuneration remains clouded by impenetrable vocabulary. HDISU? 25

5.75

5.51

Three of the best

M&S BT Lloyds Banking Group

5.07 5.10

5.33

100% 0% 33 ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

FIND OUT MORE

See p34 for Governance and Board structures See p36-37 for Board activities in 2015/16

See p34 for Board roles and responsibilities

RETIREMENTS IN 2015/16 BOARD DIVERSITY

The tables and graphics below provide a visual outline of our Board’s diversity in terms of gender, range of experience and length of tenure. More information on our Board Diversity Policy can be found Laura Wade-Gery Marc Bolland John Dixon on page 41. Executive Director, Multi-channel Chief Executive Executive Director, GM

Appointed: July 2011 Retired: 2 April 2016. Marc stepped Resigned: 16 July 2015. After GENDER DIVERSITY BUSINESS OUR Skills, competence and experience: down on 2 April 2016 after six years 29 years with M&S, John stepped 2 April 2016 24 May 2016 as Chief Executive. He remains down in July 2015 to pursue new (As at (As at date of Laura brings considerable retail, year end) Annual Report) e-commerce and customer available to the Board to assist in career opportunities outside of the transition until 30 June 2016. the Company. experience, gained from over 15 years GROUP BOARD GROUP BOARD in senior roles in the retail sector. Male Laura has been instrumental in the Male 62% 64% improvement and modernisation Female 38% Female 36% of our e-commerce and multichannel capabilities, which she continues to lead. In July 2014, Laura’s role was EXECUTIVE EXECUTIVE expanded to include responsibility Male 60% Male 50% for UK stores to provide greater oversight and a fully integrated Female 40% Female 50% approach to M&S’s multi-channel strategy. Laura is currently on Martha Lane Fox maternity leave and is due to return Non-Executive Director NON-EXECUTIVE NON-EXECUTIVE in September 2016. Retired: 2 April 2016. In line with best Male 62% Male 71% Other roles: Non-Executive Director practice, Martha chose not to seek of British Land, Trustee of Royal re-election at the AGM following Female 38% Female 29% Opera House Covent Garden Limited, completion of her third three year term and retired from the Board 26 radley yeldar. Trustee of Aldeburgh Music. SECTOR EXPERIENCE PERFORMANCE OUR on 2 April 2016. How sustainable is the business? 91%1 100%100%

GROUP SECRETARY RETAIL CONSUMER N R N A M&S 5555%5% 46%466% FINANCE E-COMMERCE & TECHNOLOGY INTERNATIONAL Richard Solomons Andrew Fisher Amanda Mellor EXPERIENCE Non-Executive Director Non-Executive Director Group Secretary and Appointed: April 2015 Appointed: December 2015 Head of Corporate Governance Skills, competence and experience: Skills, competence and experience: Appointed: July 2009 Richard brings strong commercial, Andrew has substantial experience Other roles: Non-Executive Director The M&S report puts sustainability close to centre- ﬁ nancial, consumer, branding and of the international consumer and of Kier Group plc. GOVERNANCE stage, providing a clear picture of how the business global experience to the Board. technology sectors, and has led the NON-EXECUTIVE His extensive international retail, successful growth of a number of DIRECTOR TENURE will continue in the future. Risks are linked to the and global consumer experience, technology-focused enterprises and role as a CEO of an international over the past 18 years. He is currently 0-1 YEAR 16 .66% business model, giving the report a well-connected business provides valuable insight Executive Chairman of Shazam (1 DIRECTOR) ANNUAL REPORT & 1-3 YEARS 16 .66% FINANCIAL STATEMENTS to the Board. During his career at Entertainment Limited, having and holistic feel. The individual risks and how they 2016 IHG, Richard was integral in shaping previously served as Chief Executive (1 DIRECTOR) and implementing IHG’s asset-light Offi cer since 2005. Prior to that, 3-6 YEARS 66.66% are mitigated are discussed with transparency, as strategy, which has helped the Andrew was European Managing (5 DIRECTORS) are the changes in risk level. business grow signiﬁ cantly since Director of Infospace Inc and founder it was formed in 2003, as well as and Managing Director of TDLI.com. supporting the return of $10.4bn He is a member of the Advisory Board KEY TO COMMITTEES Governance is another strong area for M&S. It shuns to shareholders. to the Secretary of State for the Other roles: Chief Executive of Review of the BBC Charter. N Nomination R Remuneration the easy boilerplate approach still adopted by many IHG, Governor of the Aviation Other roles: Executive Chairman A Audit CC Committee Travel Industry Group of the World of Shazam Entertainment Limited, Chair reporters and instead provides good insight into Economic Forum, Member of the Non-Executive Director of board activities and discussions. Industry Real Estate Financing MoneySupermarket.com Group plc. Full biographical details of Advisory Council. each director are available on marksandspencer.com/thecompany FINANCIAL STATEMENTS FINANCIAL

7.0

9.0 6.0

8.0 33 ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

FIND OUT MORE

See p34 for Governance and Board structures See p36-37 for Board activities in 2015/16

See p34 for Board roles and responsibilities

RETIREMENTS IN 2015/16 BOARD DIVERSITY

Appointed: July 2011 Retired: 2 April 2016. Marc stepped Resigned: 16 July 2015. After GENDER DIVERSITY BUSINESS OUR Skills, competence and experience: down on 2 April 2016 after six years 29 years with M&S, John stepped 2 April 2016 24 May 2016 as Chief Executive. He remains down in July 2015 to pursue new (As at (As at date of Laura brings considerable retail, year end) Annual Report) e-commerce and customer available to the Board to assist in career opportunities outside of the transition until 30 June 2016. the Company. experience, gained from over 15 years GROUP BOARD GROUP BOARD in senior roles in the retail sector. Male Laura has been instrumental in the Male 62% 64% improvement and modernisation 53 Female 38% Female 36% of our e-commerce and multichannel ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 capabilities, which she continues to lead. In July 2014, Laura’s role was EXECUTIVE EXECUTIVE expanded to include responsibility Male 60% Male 50% for UK stores to provide greater oversight and a fully integrated Female 40% Female 50% approach to M&S’s multi-channel strategy. Laura is currently on Martha Lane Fox maternity leave and is due to return Non-Executive Director NON-EXECUTIVE NON-EXECUTIVE in September 2016. Retired: 2 April 2016. In line with best KEYMale PERFORMANCE62% Male MEASURES71% Other roles: Non-Executive Director practice, Martha chose not to seek of British Land, Trustee of Royal re-election at the AGM following Female 38% Female 29% Opera House Covent Garden Limited, completion of her third three year term and retired from the Board Trustee of Aldeburgh Music. SECTOR EXPERIENCE PERFORMANCE OUR HDISU? 27 on 2 April 2016. GROUP REVENUE UNDERLYING PBT RETURN ON CAPITAL EARNINGS PER SHARE FREE CASH FLOW EMPLOYED (PRE SHAREHOLDER RETURNS)

91%1 100%100%

£10.4bn GROUP SECRETARY£684.1m 15.0% 34.8p £539.3m RETAIL CONSUMER N R N A

ALIGNED TO REMUNERATION Performance5555%5% Share46%466% Plan (PSP) Annual Bonus Scheme

FINANCE E-COMMERCE & TECHNOLOGY INTERNATIONAL Richard Solomons Andrew Fisher Amanda Mellor EXPERIENCE Non-Executive Director Non-Executive Director Group Secretary and Head of Corporate Governance

Appointed: April 2015 Appointed:ANNUAL December BONUS 2015 SCHEME 2015/16 See more on p60-61 BUSINESS OUR Skills, competence and experience: Skills, competence and experience: Appointed: July 2009 Richard brings strong commercial, AndrewBonus has substantial payments experience made in respectOther roles: of Non-Executive Director Corporate element (max 60%) Individual element (max 40%) ﬁ nancial, consumer, branding and of theperformance international consumer for the and year wereof Kier betweenGroup plc. GOVERNANCE global experience to the Board. technology sectors, and has led the NON-EXECUTIVE 21% and 53% of maximum bonus His extensive international retail, successful growth of a number of Marc BollandDIRECTOR TENURE and global consumer experience, technology-focusedopportunity. enterprises This resulted in payments 15.9% 16.0% and role as a CEO of an international over the past 18 years. He is currently 0-1 YEAR 16 .66% business provides valuable insight Executiveranging Chairman from of Shazam £207,000 to £622,000 with (1 DIRECTOR) to the Board. During his career at Entertainmenthalf of allLimited, amounts having being deferred into Patrick Bousquet-Chavanne1-3 YEARS 16 .66% 5.9% 27.6% IHG, Richard was integral in shaping previously served as Chief Executive (1 DIRECTOR) and implementing IHG’s asset-light Offi cershares since 2005. for Priorthree to that, years, subject to malus 3-6 YEARS 66.66% strategy, which has helped the Andrewprovisions was European being Managing met. Steve Rowe (5 DIRECTORS) 10.7% 10.0% business grow signiﬁ cantly since Director of Infospace Inc and founder it was formed in 2003, as well as and ManagingFurther Director detail of of TDLI.com. the performance targets supporting the return of $10.4bn He is a member of the Advisory Board KEY TO COMMITTEES to shareholders. to theand Secretary the extentof State forto the which each were achieved Laura Wade-Gery 5.9% 33.6% Other roles: Chief Executive of Revieware of theshown BBC Charter. on page 60 of this report. N Nomination R Remuneration IHG, Governor of the Aviation Other roles: Executive Chairman A Audit CC Committee Travel Industry Group of the World of Shazam See Entertainment more on Annual Limited, Bonus Scheme on p60 Helen Weir Chair 24.1% 28.4% Economic Forum, Member of the Non-Executive Director of Industry Real Estate Financing MoneySupermarket.com Group plc. Full biographical details of Maximum bonus possible Actual bonus earned Advisory Council. each director are available on marksandspencer.com/thecompany FINANCIAL STATEMENTS FINANCIAL OUR PERFORMANCE OUR

Quick snapshot of Board experience and composition

PERFORMANCE SHARE PLAN (PSP) 2015/16 See more on p62-63

The chart opposite illustrates the results PSP performance weighting of the three-year performance against the PSP targets which were set in 2013. EPS Awards will vest in June 2016, with an Maximum possible 50% Actual performance estimated vesting value detailed in the 0% single ﬁ gure table. E ROCE % PS 30 5 Maximum possible 20% 0 EPS weighting/performance E % Actual performance 0% U Three-year EPS growth of 2.9% was below N E

the 5% required for threshold vesting. V GOVERNANCE

Revenue* E

R 52 53 MARKS AND SPENCER GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 Maximum possible

30% * DIRECTORS’ REPORT: GOVERNANCE ROCE weighting/performance

EXECUTIVE REMUNERATION 2015/16 Actual performance 4.8% REMUNERATION Average ROCEKEY PERFORMANCE over MEASURES the last three years GROUP REVENUE UNDERLYING PBT RETURN ON CAPITAL EARNINGS PER SHARE FREE CASH FLOW EMPLOYED (PRE SHAREHOLDER AT A GLANCE RETURNS) was 14.7%,£10.4bn £684.1mbelow15.0% the34.8p 15.0%£539.3m required for This overview summarises our Policy in action and *Weighting (by revenue source) shows the alignment between our remuneration ALIGNED TO REMUNERATION Performance Share Plan (PSP) Annual Bonus Scheme framework, the Company’s performance and R payments to directors for 2015/16. this element of the award to vest. UK 10% O

STRATEGIC PAY ALIGNMENT 2015/16 See more on p58 ANNUAL BONUS SCHEME 2015/16 See more on p60-61 BUSINESS OUR C The table below shows the integration This clearly demonstrates a strong linkage Further details of the alignment with Bonus payments made in respect of Corporate element (max 60%) Individual element (max 40%) between M&S’s fi nancial key performance between performance metrics, payments non-fi nancial and strategic measures performance for the year were between International E indicators as shown on page 18 and the to directors and business performance over are set out in the table on page 58. 21% and 53% of maximum bonus 10% Marc Bolland senior remuneration framework for 2015/16. the short- and long-term. opportunity. This resulted in payments 15.9% 16.0% ranging from £207,000 to £622,000 with KPI Incentive scheme Impact on incentive payment for 2015/16 Revenuehalf of all amounts being deferredweighting/performance into Patrick Bousquet-Chavanne 5.9% 27.6% 2 shares for three years, subject to malus Group Revenue Performance Multi-channel revenue was the only metric above threshold target for the 0 provisions being met. Share Plan year resulting in 4.8% vesting of PSP awards under this element. Steve Rowe 10.7% 10.0% Multi-channel 10% % Further detail of the performance targets Underlying Group Annual Bonus Scheme Underlying Group PBT for the year was £684.1m, and above the target set and the extent to which each were achieved Laura Wade-Gery 5.9% 33.6% Profi t Before Tax (PBT) for bonus payments to begin. For executive directors, 5.9% of bonus was are shown on page 60 of this report. payable as a result of 2015/16 PBT results. As a result of 2015/16 Multi-Channel See more on Annual Bonus Scheme on p60 Helen Weir 24.1% 28.4%

Return on Capital Performance Average three-year ROCE performance of 14.7% (which included 15.0% Maximum bonus possible Actual bonus earned Employed (ROCE) Share Plan achievement for 2015/16) was below the threshold required for this element of the PSP to vest. OUR PERFORMANCE OUR Underlying Earnings Performance EPS growth was 2.9% over the three years ending in 2015/16 (based on anrevenue performance, 4.8% of awards per Share (EPS) Share Plan outturn of 34.8p for this year) and was below the 5% growth required for vesting under the PSP.

Free cash fl ow1 Annual Bonus Scheme Free cash fl ow performance for the year was above the maximum target. The Committee felt it appropriate to adjust downwards the outturn for bonus purposes as a result of items such as project delays resulting in an will vest.PERFORMANCE SHARE Other PLAN (PSP) 2015/16 revenue See measuresmore on p62-63 were achievement of 18.2% of bonus. The chart opposite illustrates the results PSP performance weighting 1. Pre shareholder returns and pre acquisition of subsidiary. of the three-year performance against See full Strategic alignment of pay on p58 the PSP targets which were set in 2013. EPS Awards will vest in June 2016, with an Maximum possible 50% Actual performance 0% SINGLE FIGURE REMUNERATION 2015/16 See more onnot p58 met,estimated vesting value detailedmeaning in the these elements of the single fi gure table. E The graph opposite summarises the total Total ROCE % PS 30 5 £000 Maximum possible 20% 0 payments made to executive directors EPS weighting/performance E % Actual performance 0% U in respect of the 2015/16 fi nancial year. Marc Three-year EPS growth of 2.9% was below N £1,289 £622 £128 £2,039 E

These ﬁ gures illustrate those detailed in Bolland the 5% required for threshold vesting. V GOVERNANCE Revenue* E

the single fi gure table later in this report. Maximum possible R Patrick ROCE weighting/performance 30% * £714 £366 £50 £1,130 Bousquet-Chavanne awardAverage ROCEwill over the last three yearslapse. Actual performance 4.8% Fixed pay comprises salary, benefi ts and pension benefi ts. Further information on was 14.7%, below the 15.0% required for *Weighting (by revenue source) Steve R payments made under the Annual Bonus £720 £230 £69 £1,019 this element of the award to vest. UK 10% O Rowe C International 10% E Scheme and Performance Share Plan as a Revenue weighting/performance 2 Laura Multi-channel 10% 0% result of one- and three-year performance £542 £207 £72 £821 Wade-Gery As a result of 2015/16 Multi-Channel respectively is illustrated on page 53, with revenue performance, 4.8% of awards full detail provided later in this report. Helen £946 £620 £1,566 will vest. Other revenue measures were See more on Single Figure Remuneration Weir not met, meaning these elements of the on p58 See more on Performance Share Plan Fixed pay Total bonus Total PSP vested award will lapse. See more on Performance Share Plan See Annual Bonus Scheme on p53 & p60-61 See PSP on p53 & p62-63on p62on p62 FINANCIAL STATEMENTS FINANCIAL FINANCIAL STATEMENTS FINANCIAL 27 ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

OUR PERFORMANCE RISK MANAGEMENT

As with any business, we face risks and uncertainties on a daily basis. Eff ective risk management places us in a better position to be able to achieve our strategic objectives.

APPROACH TO RISK MANAGEMENT KEY AREAS OF FOCUS under the UK Corporate Governance Code. OUR BUSINESS OUR The Board is accountable for carrying This year the Group Board has placed The statement is designed to strengthen out a robust assessment of the principal signifi cant focus on defi ning our risk stewardship and to encourage directors risks facing the Company, including those appetite. At the highest level, this is an to focus on the longer term. Further detail threatening its business model, future expression of the types and amount of on this can be found on page 47. performance, solvency and liquidity. risk we are willing to take or accept to On behalf of the Board, the Audit achieve our strategic and operational PRINCIPAL RISKS AND UNCERTAINTIES Committee reviews the eff ectiveness objectives. It is a key consideration in Overleaf are details of our principal risks of the Group risk management processes. decision-making across the Group and and uncertainties and the key mitigating helps us defi ne the mitigating activities activities in place to address them. It is Each business area is responsible for required to manage our risks. recognised that the Group is exposed to formally identifying and assessing their risks wider than those listed. We disclose risks half-yearly, measuring them against Following on from last year’s progress, those we believe are likely to have the a defi ned set of criteria, and considering we have taken our risk appetite work greatest impact on our business at this likelihood of occurrence and potential a step further and the Board has agreed moment in time and which have been impact to the Group. The Group Risk a set of Group-level appetite statements. the subject of debate at recent Board function facilitates a similar exercise with The purpose of these is to articulate the or Audit Committee meetings. Executive Board members, combining Board’s desired risk-taking approach, information to provide a consolidated and to support the business in its To achieve a holistic view of the risks view. The top risks (based on likelihood management of a number of principal risks. facing our business, we consider those PERFORMANCE OUR and impact as illustrated below) form our The current statements summarise normal that are external to our business, core Group Risk Profi le, which is reported to the risk parameters within which the Group to our day-to-day operation, related to Executive Board for review and challenge, already operates; as our business evolves business change activity, and those that ahead of fi nal review and approval by the we will continue to refi ne our risk appetite could emerge in the future. Group Board. These principal risks are then statements and approach. Further detail The diagram below maps our principal risks subject to Board discussion during the can be found on page 48. to our business model. This mapping helps course of the year, as appropriate. 28 radley yeldar. During 2015/16, the directors also assessed us assess and manage risk, and provides a How sustainable is the business? To drive continuous improvement across the long-term viability of the Company greater understanding of our principal risks the business, the Executive Board monitors in the context of its principal risks. The in the context of our business operations, the ongoing status of action plans against inclusion of a Viability Statement in Annual including their broader infl uence on key risks quarterly. Reports from 2016 is a newM&S continuedrequirement viability, as discussed above.

Risks mapped against RISK LIKELIHOOD AND IMPACT RISK AND OUR BUSINESS MODEL the business model

ITIC Identiﬁ cation Risks CIOPOL AL UNR SO EST highlighted and G G 1 2 documented in a GOVERNANCE CLOTHING & HOME CHANGING G TRANSFORMATION CONSUMER centrally managed BEHAVIOURS 3 risk register BUSINESS SP TRANSFORMATION N & RE OND N STE LI PLAN A ST RA 4 G G TE CLOTHING & E G HOME SUPPLY Assessment G INSPIRATION Y A & CHAIN AND G Aim to excite LOGISTICS Risks assessed in N P E L NETWORK and inspire our A & terms of likelihood customers N E N

V I 5 N of occurrence and R E IN TOUCH CORE INNOVATION G IT

N F N S INTEGRATION

N O Listen PURPOSE Aim to potential impact LIKELIHOOD R actively MAKING improve 26 27 E EVERY MARKS AND SPENCER GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 STRATEGIC REPORT on the Group I and act things for N G 11 MOMENT B thoughtfully the better OUR PERFORMANCEG OUR PERFORMANCE N SPECIAL I M&S.COM R S

E OUR PEOPLE RISK MANAGEMENT BUSINESS A E X RESILIENCE N D C INTEGRITY Our people bring our values to life. As with any business, we face risks and uncertainties D & H Their , on a daily basis. talent commitment to our customers and Eff ective risk management Mitigation Strive to do pride in M&S are key to our long-term growth. places us in a better position to be able to achieve N A & P our strategic objectives. N S the right thing O 10 E L 6 Required actions A G LIVING OUR VALUES DIVERSITY AND WELLBEING PLAN A APPROACH TO RISK MANAGEMENT KEY AREAS OF FOCUS under the UK Corporate Governance Code. L E The statement is designed to strengthen BUSINESS OUR INTERNATIONAL We have built on last year’s Fit For The People are increasingly looking to work for This year we extended our Make Your Mark The Board is accountable for carrying This year the Group Board has placed E L Future programme with a series of training organisations that giveFOOD them the freedom youth employment scheme to our head out a robust assessment of the principal signiﬁ cant focus on deﬁ ning our risk stewardship and to encourage directors

UNLIKELY POSSIBLE LIKELYCERTAIN ALMOST V initiatives designed to help employees to be themselves. We have developed an offi ce and Castle Donington distribution risks facing the Company, including those appetite. At the highest level, this is an to focus on the longer term. Further detail E on this can be found on page 47. live our values of Inspiration, Innovation, approachCOMPETITION to Be Yourself in our induction centre, increasing the options available to threatening its business model, future expression of the types and amount of are agreed and & Integrity and In Touch. Last summer,D our process, encouraging employees to young people. Across the business, 1,400 performance, solvency and liquidity. risk we are willing to take or accept to top 160 managers took part in a leadership recognise people’s diff erences while people took their fi rst steps into work thanks On behalf of the Board, the Audit achieve our strategic and operational PRINCIPAL RISKS AND UNCERTAINTIES G PLAN A development programme called Fit to not being afraid to express their own. to the programme. Meanwhile, our Marks Committee reviews the eff ectiveness objectives. It is a key consideration in Overleaf are details of our principal risks 9 Lead. The initiative looked at how we Our employees’ wellbeing is also crucial & Start scheme for people who face barriers of the Group risk management processes. decision-making across the Group and and uncertainties and the key mitigating can be more collaborative, agile and to us and we continue to invest in getting into work Thelped an additional helps us defi ne the mitigating activities activities in place to address them. It is Each business area is responsible for L entrepreneurial as an organisation. We also programmes such as Dare to Care, an 1,400 people throughI work placements required to manage our risks. recognised that the Group is exposed to formally identifying and assessing their assigned, with CYBER/ ran events for 750 line managers and 3,500 internal campaign focused around raising in our stores and distribution centres. risks wider than those listed. We disclose MINOR MODERATE MAJOR CRITICAL O S X risks half-yearly, measuring them against Following on from last year’s progress, O Y store managers in which they examined awareness of mental health. We introduced Spark Something Good to those we believe are likely to have the a defi ned set of criteria, and considering we have taken our risk appetite work UR BU how our values can drive high performance. encourageE our people to make a diff erence greatest impact on our business at this CE & likelihood of occurrence and potential a step further and the Board has agreed B INFORMATION The feedback from all the events was TRANSFORMING OUR BUSINESS R in their local communities. The scheme moment in time and which have been impact to the Group. The Group Risk a set of Group-level appetite statements. extremely positive. We received 50,000 allowed employees to coordinate their the subject of debate at recent Board A As we continue to transform our business, R function facilitates a similar exercise with The purpose of these is to articulate the SECURITY comments specifi c to living the values in annual volunteer day in a collaborative or Audit Committee meetings. target deadlines we must ensure that the changes we make Executive Board members, combining Board’s desired risk-taking approach, our annual Your Say survey – they really way.B By taking part in a series of community L are implemented and communicated to information to provide a consolidated and to support the business in its To achieve a holistic view of the risks resonate with our employees. projects in individual cities on the same employees eff ectively. The robust processes view. The top risks (based on likelihood management of a number of principal risks. facing our business, we consider those PERFORMANCE OUR day, employees mobilised as teams for E we have in place around succession and impact as illustrated below) form our The current statements summarise normal that are external to our business, core ENGAGED AND ENTREPRENEURIAL good causes. In London, we transformed planning, change management and our Group Risk Profi le, which is reported to the risk parameters within which the Group to our day-to-day operation, related to C 8 7 24 community projects over 24 hours. The Our Your Say survey showed that employee dedicated Employee Communications team Executive Board for review and challenge, already operates; as our business evolves business change activity, and those that and quarterly engagement levels remain high at 78%. help us mitigate such risks from a people scheme will be rolled out to 24 cities across O ahead of fi nal review and approval by the we will continue to refi ne our risk appetite could emerge in the future. IMPACT the UK and Ireland over two years – we have We want to develop and celebrate the talent perspective. Our Business Involvement Group Board. These principal risks are then statements and approach. Further detail CLOTHING & FOOD SAFETY already completed fi ve cities; London, The diagram below maps our principal risks N within M&S, and it’s only right that good Group (BIG), M&S’s network of elected subject to Board discussion during the can be found on page 48. Manchester, Swansea, Edinburgh and Dublin. to our business model. This mapping helps O ideas are given a platform. Give Me Five, employee representatives, enables us to course of the year, as appropriate. HOME ETHICAL AND INTEGRITYour initiative where employees pitch ideas inform, involve and consult with colleagues During 2015/16, the directors also assessed us assess and manage risk, and provides a M to senior managers, has given employees across our business on our future plans. To drive continuous improvement across the long-term viability of the Company greater understanding of our principal risks status updates the business, the Executive Board monitors in the context of its principal risks. The in the context of our business operations, a sense of ownership and a number of the BIG gives colleagues the chance to voice Y SOURCING pitched ideas have been implemented. their opinions and ideas, get answers and the ongoing status of action plans against inclusion of a Viability Statement in Annual including their broader infl uence on The idea of Give Me Five itself came from have their views represented. key risks quarterly. Reports from 2016 is a new requirement viability, as discussed above. some of our store and offi ce colleagues keen to support our Fit for the Future drive RISK LIKELIHOOD AND IMPACT RISK AND OUR BUSINESS MODEL to bring a more entrepreneurial spirit to M&S. ITIC Identifi cation Risks CIOPOL AL UNR SO EST EMPLOYEE DIVERSITY A S AT 2 A PR IL 2016 highlighted and G G 1 2 GOVERNANCE

documented in a STATEMENTS FINANCIAL CLOTHING & HOME CHANGING G TRANSFORMATION CONSUMER centrally managed BEHAVIOURS % 72% 3 28 BUSINESS risk register TRANSFORMATION RESPON EN & D Total employees N IST S L PLAN A TR 4 Female 57,841 A G G TE CLOTHING & 80,041 E G HOME SUPPLY Male 22,200 Assessment G INSPIRATION Y A & CHAIN AND G Aim to excite LOGISTICS Risks assessed in N P E and inspire our L NETWORK G GROSS RISK LEVEL BEFORE MITIGATIONN NET RISK LEVEL AFTER MITIGATION A & terms of likelihood customers N E N

V I 5 N of occurrence and R 4 E IN TOUCH CORE INNOVATION G IT

2 N F % % N S INTEGRATION 8 5 N O Listen PURPOSE Aim to potential impact LIKELIHOOD R actively MAKING improve E EVERY

Total senior managers N on the Group I and act things for G 11 MOMENT B thoughtfully the better G Female 70 1. Our Inspiring Women 2. All our people can inﬂ uence 3. Our awards this year include N M&S.COM SPECIAL I R S 168 E BUSINESS A E Male 98 X Network events have seen change through BIG, which has The Times Top 50 Employers for RESILIENCE N D C INTEGRITY D & H Mitigation & Strive to do a raft of high-proﬁ le visitors 3,500 representatives from every Women, Training Journal’s Best N A P

N S the right thing O Required actions 10 E L 6 deliver motivating speeches store and business area who Operational Programme for G INTERNATIONAL L E E L FOOD

UNLIKELY POSSIBLE LIKELYCERTAIN ALMOST V E are agreed and & D COMPETITION to our employees. Guests this 38 gather feedback and represent our store induction programme G PLAN A 2% % 9 T 6 assigned, with L I year have included Ruby Wax colleagues on the topics that are and, for the second year running, MINOR MODERATE MAJOR CRITICAL O CYBER/ SO Y X B INFORMATION URCE & BU E A SECURITY R Total Board* target deadlines L B and Baroness Karren Brady. most important to them. BIG’s the Prince’s Trust Young Achiever E C 8 7 Female 5 and quarterly O 13 agenda this year included the Award, which went to Stacey Fox IMPACT N CLOTHING & FOOD SAFETY O Male 8 M HOME ETHICAL AND INTEGRITY national living wage and Sparks. from our Swansea store. status updates Y SOURCING FINANCIAL STATEMENTS FINANCIAL G GROSS RISK LEVEL BEFORE MITIGATIONN NET RISK LEVEL AFTER MITIGATION * Includes Marc Bolland and Martha Lane Fox who retired from the Board on 2 April 2016. Refer to p33 for current Board diversity information. HDISU? 29

This is another report that features a logical, BT Group plc easy-to-follow discussion around how the risk Annual Report & Form 20-F 2016 environment has changed during the year. Risks are linked to the business model and strategy, Broadening and helping the reader grasp how these risks could deepening our materially impact the business in the future. customer relationships The section on stakeholder relationships and environmental performance includes clear reference to the company’s targets for 2020 – an excellent way to convey BT’s commitment to being a sustainable company and therefore a good long-term investment.

Online case studies clearly relate to stakeholders

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7.0

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7.0 30 radley yeldar.

How sustainable is the business?

BT continued

38 BT Group plc 39 Annual Report 2016 Overview The Strategic Report Governance Financial statements Additional information

Creating a connected society Supporting charities and communities Our lenders Stakeholders Our lenders, mainly banking institutions and bondholders, play an important role in our treasury and funding strategy. and relationships Our 2020 ambitions Our 2020 ambition These relationships are vital for funding the business and meeting As well as our people, our main stakeholders are: our our liquidity requirements. We tell you more about this on customers; communities; shareholders; lenders; our More than 9 out of 10 people in the Help generate more than £1bn for UK will have access to our fibre- good causes, using our people, their page 102. pension schemes; suppliers; government; and regulatory based products and services skills and our technology authorities. 9/10 £1bn Our pension schemes We operate defined benefit and defined contribution pension Our markets and customers Help 10m people overcome social schemes. The largest is the BT Pension Scheme (BTPS) which has We sell fixed-voice, broadband, mobile and TV products and disadvantage through the benefits our This year we added £94m towards our £1bn target. £60m of this 301,500 members. You can read more about it on page 107. services to individuals and households in the UK. For small and products and services can bring m was raised via MyDonate, our commission-free online fundraising medium-sized enterprises, as well as larger businesses in the UK, 10 and donations platform. This takes our overall fundraising total to Our suppliers we offer fixed-voice, broadband, mobility, networking and IT £327m. Our suppliers play a vital role; their products and services help us services. In both the UK and globally we offer managed networked deliver our strategy. We source from across the world and currently IT services to multinational corporations, domestic businesses and This year, we extended our fibre footprint in the UK to more As well as supporting a number of smaller charities and individual have suppliers in over 150 countries. We spent around £10.2bn public sector organisations. than 25m premises and – in line with our 2020 goal – this fundraisers, we again used MyDonate and our communications with our suppliers this year (2014/15: £9.4bn). Around 64% of means around 8.5 out of 10 people can now access fibre-based technology – with help from our volunteers – to support various our spend is with the top 100 suppliers. Some of our customers are also our competitors. This is because products and services (see page 85). We plan to extend coverage large telethons (page 34). These included Comic Relief, Children we sell wholesale products and services to other communications even further so that fibre availability in the UK exceeds the in Need, and the Disasters Emergency Committee appeal after the We want to get the most from our suppliers – especially from their providers in the UK and overseas. Government’s current target of 95% by the end of 2017. earthquake in Nepal. diversity, skills and innovation. The mix of suppliers keeps evolving as we expand into markets such as mobility, TV and televised sport. You can read about our markets, customers and the services We continue to push for greater digital inclusion, both by playing In the UK, we provide discounted calls and line rental charges to This year we’ve grown our supplier base in IT security, to support we provide them in our lines of business section, from page 57. a leading role in the development of the Government’s Digital members of The Charities Club, saving those charities £1.2m on our growing investment in cyber security. But we’ve also removed a Inclusion Outcomes Framework, and through the use of our own their phone bills. over 2,800 suppliers from our procurement systems. Communities and society products. We see sport as a positive vehicle for change in young people’s BT’s purpose is embedded at the heart of our business, and has As part of integrating EE, we’re working to identify opportunities We’re helping low income groups to get online with two products: lives. Through the donations of BT Sport customers, The helped us to deliver economic growth and wider societal and for cost savings and efficiencies through our combined spend. BT Basic + Broadband and our BT Business Digital Inclusion for Supporters Club funded nine new sports charities and community environmental benefits. During the year we invested £35m to Social Housing solution. The launch of the ‘BT and Barclays Wi-Fi sports foundations this year (four in the UK). And we encourage Our approach to procurement accelerate a number of environmental and societal priorities that in Our Community’ initiative is providing access, guidance and people to take up sport through the Join In campaign. We have around 330 BT people in 30 countries working with help to bring our purpose to life (see page 43). This investment is coaching to those who need it most. suppliers. As part of our cost transformation activities we’ve a mixture of cash, time volunteered, and in-kind contributions. It Our shareholders concentrated on making the most of our relationships with is equivalent to 1.1% of our previous year’s adjusted profit before Keeping people safe online remains a priority. Internet Matters, We have around 825,000 shareholders. As well as the Annual our largest suppliers to get even better value. In-life contract tax. Over the last five years we’ve invested over £153m, the website we co-founded in 2014 to help parents keep their Report and Annual General Meeting, we keep our shareholders management of our top 130 suppliers has delivered savings an average of 1.18% of our adjusted profit before tax. children safe online, has now had over 2.5m visitors. The Right up to date with how we’re doing through regular mailings. These of around £18m. Click, our partnership with UNICEF UK, has seen BT volunteers often include offers on our products and services that are only We’ve continued our Purchase Order (PO) Intercept programme, deliver 280 workshops in schools, teaching children and parents available to shareholders. Our website includes press releases, BT’s total investment in society reviewing all POs over £1,000 to make sure that we’re getting how to use the internet safely. newsletters, presentations and webcasts that can also keep our Year ended 31 March the best from our spend across BT. Our Central Business Services shareholders informed. This year we’ve developed a methodology to measure the social organisation has hired more people to support this programme. £m impact of our products and services. This has been successfully 40 1.50% We held a general meeting in April 2015 at which our shareholders They’ve reviewed around 90,000 POs, accounting for £4bn of 1.12% 1.01% 1.15% 1.10% piloted on three propositions (BT Basic, Digital Inclusion for Social approved the acquisition of EE. And in January 2016 we published spend, and have saved us more than £15m. Housing and Mobile Health Worker) and has been used on a

30 5 5.0 9 a prospectus for the issue of new BT shares that were part of the . 3

1 corporate contract through our work with the Colombian The Procurement Profession, part of the BT Academy, has grown 2 1 32 . . 3 consideration for the acquisition. 20 7 government (page 62). Having a way to measure the wider this year, developing a rich library of over 120 training modules. 27 . 2 benefits our products and services can bring shows how valuable Most of our shares are held by institutional investors. We have an The website attracts nearly 250 visits a month on average. 10 ICT, and what we do, has become in people’s day-to-day lives. extensive investor relations programme aimed at keeping existing Our ambition is to have all our buyers accredited and licensed. We can also use the methodology to influence how we develop investors informed and attracting new ones. This programme And for a few of our expert practitioners to be recognised 0 our future products. includes: 2012 2013 2014 2015 2016 externally as fellows of CIPS (Chartered Institute of Procurement Outside the UK, our Connecting Africa programme has now • reporting quarterly results, accompanied by a conference call and Supply). Investment – time, cash and in-kind support successfully connected all 30 of the planned SOS Children’s or presentation from senior management; We now have 198 licensed buyers. And there are now five fellows Percentage of previous year's adjusted proﬁt before taxation Villages, in 13 countries, using BT’s satellite technology. We • ‘teach-ins’ on key topics; of CIPS (2014/15: two) leading our procurement activities in BT. have used this in seven villages to provide a new Healthcare • site visits (for example this year we invited investors to an Management System, improving healthcare services for over innovation event at Adastral Park); and 100,000 people. • meetings and conference calls with investors both in the UK and around the world. We also continue to embed social and environmental criteria into our business processes, helping us to make better decisions, In 2015/16, we held 353 meetings or events with institutional stimulate growth and spark innovation. In January we launched investors. This compares with 369 in 2014/15. a BT Infinity Lab competition, in partnership with the Department We were voted the best company for investor relations in England of Transport, to stimulate social and environmental innovation in in the Extel Survey 2015, for the second year running. We also the SME sector. maintained our second place in the European telecoms sector. And we won the IR Magazine award for best investor relations in the European Technology & Communications sector.

a Data excludes EE.

Resources and relationships discussed in detail 32 BT Group plc 33 Annual Report 2016 Overview The Strategic Report Governance Financial statements Additional information

A global workforce Hiring more apprentices We’re doing this by: At 31 March 2016 we had 102,500 full-time equivalent We hired around 550 new apprentices into eight business • Inspiring Kids to connect with exciting and relevant tech (FTE) employees in 61 countries, with 81,400 of them based in operations, learning a range of skills. Demand for apprentices concepts; the UK. This includes 12,800 who joined the group as part of EE. continues to grow so we expect to hire even more next year. • Enabling Teachers to feel confident to teach young people We’re one of the largest employers in the UK, supporting Investing for growth about tech in computing lessons; and its economy by providing jobs and income. Learning matters at BT. We create meaningful roles so that people • Equipping Schools to be able to use technology effectively. understand what they are responsible for. We also invest in learning This year, excluding acquisitions, we recruited nearly 11,400 We’re working with our partners – the British Computer Society and development to allow our people to build skills and careers to people, bringing fresh ideas and new approaches to help us and the National Schools Partnership – to deliver the Barefoot deliver successfully for our customers. The BT Academy helps them innovate, learn and improve. Of these, more than 4,200 are Computing Programme, which helps primary school teachers do this. in the UK. across the country deliver the new computing curriculum. Over the 2014/15 school year we supported 12,500 teachers, helping The Academy is not a physical place or building, it’s a combination to give around 340,000 children better teaching in computer of materials, events, and activities. It gives people easy science. We’re on track to reach a further 15,000 teachers and External hires (full-time equivalents) access to the knowledge and skills they need, when they need it, 400,000 children by the end of the 2015/16 school year. Year ended 31 March changing the way they learn and develop. It is organised across Challenge Cup 000 four ‘faculties’. Getting young people ‘Work Ready’ Challenge Cup is our key people engagement programme. It’s an annual 12 We’re a founding partner of Movement to Work, a voluntary competition that started in 2003. collaboration of UK employers committed to tackling youth 10 The Academy It encourages people to form teams and come up with insights and new unemployment. Our Work Ready programme helps 16–24 initiatives, including ideas for changing business processes. 8 year-olds get better prepared for work, building both confidence The aim of the Challenge Cup is to improve customer experience while Business Customer Leadership Technical and their core employability skills. It often supports people from disadvantaged backgrounds. generating ideas for creating growth and saving money for BT. This year 6 over 4,300 people came together to form over 900 teams across 24 Our traineeship programme is at the heart of our strategy. Those countries. The number of people participating has increased year on Each faculty supports a number of communities we call 4 not currently in education, employment or training can join BT for year, with 67% of those involved this year doing so for the first time. ‘professions’, providing both structured learning and ways seven weeks of skills development and work experience. So far over 2 to connect and share with others. 1,000 young people have taken part in this initiative, with more We’re very pleased with how the Academy has done in its first than 600 gaining recognised certificates in work skills and business Twice a year, more than 72,000 people provide feedback on 0 administration. Many go on to get jobs, either in BT or elsewhere. working for BT through our employee engagement survey. It helps 2013 2014 2015 2016 full year. Across the world employees used the Academy website us develop a focused people strategy and support action planning over 400,000 times. Over 20% of our people each month are The Prince’s Trust now sharing information and ideas as well as accessing learning at a local level. Engagement levels have remained stable for the last UK Non-UK BT is part of The Prince’s Trust Technology Leadership Group, which materials online. two years at just over 3.8 (out of a maximum of 5, with a telecoms helps thousands of young people turn their lives around each year. benchmark of 3.95). The tools we’ve developed have won awards – gold for Internal We’ve donated use of the BT Tower as a venue for the Trust’s We continued to transform our HR function, reviewing our Learning Solution of the Year at the Learning and Performance annual ICT Leaders Dinner for the last ten years – raising £96,000 We keep our people informed about company results, major systems, processes, policies and services. This has allowed us to Institute Annual Learning Awards 2016, and silver for Best Use in 2015. business decisions and other things that affect them using a simplify further the way we work and to improve the service our of Technology in Learning at the Training Journal Awards 2015. variety of digital channels. Leaders regularly connect with their HR team offers our people. Engaging our people teams through roundtable meetings, town hall debates, site visits, This year has seen many success stories culminating in the We continue to focus on the health of our organisation. From the webcasts and blogs. As our business evolves to meet the needs of our customers, National Apprenticeship Finals in January 2016 where we had rapid expansion of our Academy, through to the business initiatives we adapt our organisation, redeploying people through the BT two finalists. We also won the Scottish SDS Macro Apprentice that are driving ‘Continuous Improvement’ across BT, we are We consult with our people or their representatives on a regular transition centre. This helps us avoid redundancies. Last year in Employer Of The Year Award. investing in a culture of strong employee engagement. basis, taking their views into account on decisions that affect the UK, 1,000 people were redeployed, meaning that we retained them. In the UK we recognise two main trade unions. The This also benefits our customers. We believe that highly-engaged Communication Workers Union represents people in engineering, experienced people with the skills we need for the future. Preparing young people for employment employees provide the best experience for customers, helping us administration and clerical positions. Prospect represents With growing demand for digital skills in the UK, we feel well- to broaden and deepen our relationship with them. Recruiting talented people placed to help create a future supply of suitably-skilled people, managerial and professional people. helping both our own business and the national economy, and A customer-connected workforce creating a brighter future for the country’s youth. Diversity at work Employee engagement index Diversity is part of our heritage – as far back as 1880 Henry Improving the quality of our customer relationships is at the heart Year ended 31 March Fawcett, who was blind, was appointed Postmaster General. of our people strategy. 3.9 We’ve built on previous years, recruiting 900 new field engineers Our 2020 ambition Improving the mix of our people remains a priority and, in and more than 900 new people to work in customer-facing roles 3.8 particular, we’re encouraging more women to take up a career in technology. We’re proud of our Tech Literacy programmes and – in our UK contact centres. We’ve also converted 600 agency Help 5m children to receive better events like the BT Young Scientist and Technology exhibition workers to permanent employees, so that we keep their skills and teaching in computer skills 3.7 experience in the organisation. that target young women in education. We’ve run recruitment 5m campaigns in Openreach to attract more women into engineering Highest-ever graduate intake 3.6 and redesigned our entry schemes to try to get rid of any In 2015/16 we hired 300 graduates globally, our highest intake unconscious bias. to date. We’re planning on hiring around 300 again in 2016/17. Creating a culture of tech literacy 3.5 2012 2013 2014 2015 2016 19,000 women now work for us – many with flexible contracts. We were again in the top half of The Times Top 100 Graduate We’ve made a long-term commitment to help build a culture That’s 21% of our workforce and there are more than 11,000 Employers. We’re one of only four companies in the IT and telecoms of tech literacy. As our first goal, we want to help 5m children women in our management team (corresponding to 26%). sector to feature in the top 100. by the end of 2020. We aim to have at least 25% female representation on our Board, and it currently sits at 27% (three out of 11 Board members). Our maternity return rate, measured one year after women come back, is 86%, well above the industry average.

Targets give the section a forward-looking focus

44 BT Group plc 45 Annual Report 2016 Overview The Strategic Report Governance Financial statements Additional information

Reducing our customers’ carbon footprinta,b Reducing our carbon footprint We continue to progress towards our 3:1 goal, measuring the We report all of the greenhouse gas (GHG) emission sources Our performance as a sustainable impact our products and services can have on reducing our required under UK regulationsc. The following chart shows the customers’ carbon emissions. 10% reduction this year in our total operational worldwide and responsible business CO equivalent (CO e) emissionsd: The first table below demonstrates our performance against our six 2020 ambitions.Below that, we report progress against seven This year we generated £3.6bn of revenue from products that 2 2 foundation measures. Next year, we aim to maintain or improve on each of our ambitions and measures. To aid comparison against have contributed to carbon abatement – up from £3.4bn in previous years, we exclude EE’s contribution to the group this year, but we’ll provide new baseline numbers in our 2016/17 Annual 2014/15. As an example, our Field Force Automation services a,b,c,e BT’s worldwide greenhouse gas emissions Report. enable organisations with mobile teams to improve their Year ended 31 March productivity by automating fleet and driver scheduling and CO e Ktonnes Our 2020 ambitions reporting. This means they can better manage their fleet of 2 vehicles, saving fuel and reducing emissions. 1,750 Our 2020 ambitions 2014/15 performance 2015/16 performance Status Page 1,628

117 Supporting Use our skills and technology to help generate more than £1bn £86m raised for £94m raised for 38 45 3:1 Goal 2015/16b 2014/15 1,500 charities and for good causes good causes good causes communities Customer savings 7.6 Mt 7.1 Mt 750 1,097 Cumulative total: Cumulative total: £234m since 2012 £327m since 2012 Overview The Strategic Report Governance Financial statements Additional information Our impact 4.8 Mt 4.6 Mt 535 500 Inspire 66% (two-thirds) of our people to volunteer 26% of BT people 27% of BT people 151 391 387 34 Ratio 1.6:1 1.5:1 349 volunteering volunteering 148 190 147 126 250 More than 9/10 people in the UK will have access to our fibre-based 7.5 out of 10 8.5 out of 10 414 62 65 51 Creating a 38 a,b Our own energy use and carbon footprint 194 182 174 172 connected products and services 0 society 1997 2013 2014 2015 2016 Helping 10m people overcome social disadvantage through the n/a – new target 2.6m people reached 38 Reducing our energy use (Base) We’ve reduced our worldwide energy use for the seventh benefits our products and services can bring consecutive year. In Great Britain we spent around £307m on Creating Help 5m children to receive better teaching in computer skills n/a – new target 344,000 children 33 energy and fuel this year (2014/15: £306m). We estimate that Scope 3: Other indirect emissions (eg production of purchased materials a culture reached e our energy savings programme has helped reduce our overall bill and fuels) of tech Scope 2: Indirect emissions from the generation of our purchased energy literacy by £29m this year, and by £190m since 2009/10. 95% of the (mainly electricity) worldwide energy we buy comes from renewable sources and Scope 1: Direct emissions from our own operations (eg fuel combustion) Delivering Enable customers to reduce their carbon emissions by at least 1.5:1 achieved 1.6:1 achieved 44 we’re aiming to achieve 100% – where markets allow – by the end Figures exclude third-party consumption and EE. environmental three times the end-to-end carbon impact of our business of 2020. benefits

We also report two CO e intensity measures: BT’s worldwide energy usea,b 2 Our foundation measures Year ended 31 March • Our climate stabilisation intensity (CSI) target: by 2020, we’ll Gwh reduce our operational worldwide carbon emissions per unit of Our foundations 2014/15 performance 2015/16 performance Status Page value-added (our contribution to GDP) by 80% compared to 2,800 Our Investment to accelerate our purposeful business approach; 1.15% of PBT 1.10% of PBT 38 1996/97. This year, we achieved 81%, exceeding our target. investment to be more than 1% of adjusted profit before tax (PBT) invested invested 2,700 Next year, we’ll incorporate EE into the numbers and set a new

2,600 target. Our Customer service: to consistently improve RFT across our entire 4.7% improvement 3.0% reduction 22 16 2,67 8 customers customer base (see page 22) • Our scope 1 & 2 emissions this year totalled 12.5 tonnes CO2e 2,500 2, 6 26 per £m revenue, reflecting an 86% reduction since our base Our Employee engagement index: our relationship with our 3.82/5 achieved 3.81/5 achieved 2, 5 33 2,400 2 year of 1996/97. 1 employees employees

2,300 2, 4 a,b

2, 338 Conserving natural resources 2,200 Sickness absence rate: % of calendar days lost to sickness 2.23% calendar days 2.33% calendar days 34 lost to sickness lost to sickness Our performance as a sustainable 2,100 Reducing water usage Most of our water usage is for office and catering facilities, or to 2,000 2012 2013 2014 2015 2016 cool equipment (for example, in telephone exchanges). This year Ethical performance: our employees’ awareness and training 4.33/5 achieved 4.31/5 achieved we reduced our UK water consumption by 10%. We’ll continue 52 to target and reduce leaks using our half-hourly meter readings, provided by our automatic monitoring and reporting programme. Our suppliers Ethical Trading: across our supply chain, with focus on Human 96% follow-up 100% follow-up 40 Managing waste products Rights. Achieve 100% follow-up within three months, for all within three months within three months We try to minimise the amount of materials we use in our suppliers identified as high or medium risk, through our ethical standards questionnaire operations, and re-use them where we can. Otherwise our

specialist contractors recycle them wherever possible, or manage Our CO2e emissions: a measure of our climate change impact. We’ll reduce 79% reduction in net 81% reduction in net and responsible business 44 environmental our worldwide CO e emission intensity by 80% by December 2020 their disposal – including hazardous materials such as oil and some 2 CO2e emission intensity CO2e emission intensity types of light bulbs and batteries – in line with legislation. impact vs. base levels vs. base levels (1996/97) (1996/97)

The first table below demonstrates our performance against our six 2020 ambitions.Below that, we report progress against seven Target met Target failed Ongoing a We restate previous years’ data when subsequent information is deemed to be materially d We report on all our greenhouse gas emissions as a single total, by converting them to the

significant, such as replacing previous estimates with measured figures. equivalent amount of CO2 using latest government conversion factors. b EE data is excluded, in line with the GHG protocol below, pending next year’s report when we e Detailed emissions data is available from our Delivering Our Purpose website, www.btplc. will provide new baseline numbers. com/Purposefulbusiness. To comply with revised GHG Protocol guidance this year, we now c We use the GHG Protocol Corporate Accounting and Reporting Standard, with UK Government report both market and location-based Scope 2 data. This chart uses a market-based measure To find out more about our 2020 ambitions, our methodologies and how our foundation measures. Next year, we aim to maintain or improve on each of our ambitions and measures. To aid comparison against GHG Conversion Factors for Company Reporting 2015. for 2015/16, consistent with the methodology used in previous years. results are calculated, take a look at www.btplc.com/Purposefulbusiness previous years, we exclude EE’s contribution to the group this year, but we’ll provide new baseline numbers in our 2016/17 Annual Report. Our 2020 ambitions Sustainability performance Our 2020 ambitions 2014/15 performance 2015/16 performance Status Page dashboard

Supporting Use our skills and technology to help generate more than £1bn £86m raised for £94m raised for 38 charities and for good causes good causes good causes communities Cumulative total: Cumulative total: £234m since 2012 £327m since 2012

Inspire 66% (two-thirds) of our people to volunteer 26% of BT people 27% of BT people 34 volunteering volunteering

Creating a More than 9/10 people in the UK will have access to our fibre-based 7.5 out of 10 8.5 out of 10 38 connected products and services society Helping 10m people overcome social disadvantage through the n/a – new target 2.6m people reached 38 benefits our products and services can bring

Creating Help 5m children to receive better teaching in computer skills n/a – new target 344,000 children 33 a culture reached of tech literacy

Delivering Enable customers to reduce their carbon emissions by at least 1.5:1 achieved 1.6:1 achieved 44 environmental three times the end-to-end carbon impact of our business benefits

Our foundation measures

Our foundations 2014/15 performance 2015/16 performance Status Page

Our Investment to accelerate our purposeful business approach; 1.15% of PBT 1.10% of PBT 38 investment to be more than 1% of adjusted profit before tax (PBT) invested invested

Our Customer service: to consistently improve RFT across our entire 4.7% improvement 3.0% reduction 22 customers customer base (see page 22)

Our Employee engagement index: our relationship with our 3.82/5 achieved 3.81/5 achieved 33 employees employees

Sickness absence rate: % of calendar days lost to sickness 2.23% calendar days 2.33% calendar days 34 lost to sickness lost to sickness

Ethical performance: our employees’ awareness and training 4.33/5 achieved 4.31/5 achieved 52

Our suppliers Ethical Trading: across our supply chain, with focus on Human 96% follow-up 100% follow-up 40 Rights. Achieve 100% follow-up within three months, for all within three months within three months suppliers identified as high or medium risk, through our ethical standards questionnaire

Our CO2e emissions: a measure of our climate change impact. We’ll reduce 79% reduction in net 81% reduction in net 44 environmental our worldwide CO e emission intensity by 80% by December 2020 2 CO2e emission intensity CO2e emission intensity impact vs. base levels vs. base levels (1996/97) (1996/97)

Target met Target failed Ongoing

To find out more about our 2020 ambitions, our methodologies and how our results are calculated, take a look at www.btplc.com/Purposefulbusiness 32 radley yeldar.

How sustainable is the business? Lloyds Banking Group

Risk presents the financial sector with an abundance of challenges – it’s not hard to see why so many risk sections in this area are long and detailed. Neither BECOMING is it hard to find financial companies that are happy THE BEST to provide risk content that is cumbersome at best BANK FOR and impenetrable at worst. A well-written, cohesive CUSTOMERS summary is one way to cut through the clutter – Lloyds Banking Group Annual Report and Accounts and this is where LBG scored well this year. The 2015 banking group gives a clear overview of the principal risks alongside risk indicators and a transparent explanation of how risk relates to strategy. There’s also an excellent forward-looking focus to the report, while the ‘helping Britain prosper’ plan tells a strong sustainability story that is material to the business.

Clear view of Board focus and activity

Governance Lloyds Banking Group Annual Report and Accounts 2015 Corporate governance report continued

LEADERSHIP continued The Board in action Deep dives The Non-Executive Directors see attendance at Board and During the year the Board held eight ‘deep dives’ which BOARD FOCUS IN 2015 Committee meetings as only one part of their role. The Non- report Strategic Executive Directors regularly meet with senior management provided the opportunity for presentations from senior and spend time increasing their understanding of the business management and an in-depth review of key areas of FINANCIAL STRATEGY AND CUSTOMER FOCUS REGULATORY through formal briefing sessions or more informal events such focus including: – Budget for 2015 and Group – Review of progress in implementing – Ring-fencing and resolution as breakfast briefings, dinners and site visits. – Customer experience the Group’s 2015-17 strategy operating plan – SM&CR updates The Non-Executive Directors also receive regular updates – Group Digital (two updates) – Draft results and presentation – Continuing development and – Banking Standards Boar d updates from the Group Chief Executive’s office including a weekly – IT transformation update and outlook to analysts monitoring of key metrics of – Regulatory changes email which gives context to current issues. In-depth and – Group Operations, including IT strategy – Approval of dividends customer dashboard background materials are regularly provided via a reading – Retail performance and products – Approval of large transactions – Conduct, culture and values room on the Board portal. – Commercial Banking – Disposal of TSB Bank – IT resilience and digital In addition to the annual schedule of Board and Committee – The changing UK payments landscape transformation meetings, the Board held eight ‘deep dives’, a two-day Financial results strategy offsite meeting and a strategy meeting at the Group’s Bristol site reviewing the operating plan. Further details are Strategy offsite given opposite. During the year the Board spent two days offsite REGULAR AGENDA ITEMS focusing on: The Board meets annually prior to the AGM in Scotland – Group performance report from the Group Chief Executive followed by a joint discussion with the Board of Scottish – Culture and colleague engagement – Report on financial performance, including budgets, forecasts Widows Group Limited allowing in-depth focus on – Group strategy implementation and capital position from the Chief Financial Officer insurance matters. – Retail strategy – Risk report from the Chief Risk Officer Non-Executive Directors’ office The agenda was structured to allow plenty of opportunity – Chairman’s activities report for discussion and concluded with a group discussion on – Reports from Committee Chairmen The Non-Executive Directors frequently visit the Group’s strategy, culture and rebuilding trust. offices on Group business and to meet with senior

management outside of Board and Committee meetings. Governance To support the Non-Executive Directors in fulfilling their role, Site visit to Bristol the Group provides an office, with administrative support, In November 2015, the Board held an offsite meeting in and a meeting room for the Non-Executive Directors’ use. Bristol, attended by GEC members, at which it reviewed GOVERNANCE SHAREHOLDERS RISK MANAGEMENT the Group operating plan in detail. The November Committee meetings also took place at the Group’s Bristol – Board effectiveness and – Investor Relations updates – Approval of Group risk appetit e Chairman’s office 7.0 offices. During the visit, Board and GEC members took the Chairman’s performance reviews and Risk Management Framework The Chairman maintains an office with support to help manage – AGM brieﬁng opportunity to meet colleagues based in Bristol and the his programme of activities, obtain briefings and deal with – Board and Committee structure, – Dividend reinvestment – Review of internal control systems South West over dinner and at an informal breakfast hosted external contacts. size and composition programme – Investigations into PPI and by the Chairman and Non-Executive Directors. Some Board – Responsible Business review and – Proposed public offering LIBOR issues members also visited the Bristol City Centre branch to meet creation of the Responsible Business Chairman’s activities the local director and branch based colleagues. of shares in the Company – Investigations into packaged Risk management

Committee by HM Treasury bank account complaints The Chairman undertakes an extensive engagement – Review of Corporate Governance – Review and approval o f PRA programme each year representing the Group at industry Chairman’s Town Hall sessions Framework events, acting as a spokesperson for the Group and meeting stress testing results In October 2015, as part of his engagement programme, – Company Secretary’s Corporate with clients, regulators, investors, the media, our Foundations – CMA investigation into the Chairman visited two of the Group’s IT sites near Governance Review and their beneficiaries. The programme includes visits to retail banking regional offices, branches, IT and operations centres, where Manchester, where he was joined by 275 colleagues. the Chairman meets local management and colleagues The Chairman spoke to colleagues on the progress the through meetings, floor walks, team talks and Town Hall Group is making with the next stage of its strategy to sessions. The Town Hall sessions are an opportunity for become the best bank for customers, how it had colleagues to hear from the Chairman on the Group’s strengthened its balance sheet, and the importance of performance and strategic direction, and importantly, continuing to restore the trust and confidence of customers

BOARD MEETINGS AND ACTIVITY IN 2015 to ask questions. These events are very popular and are and other key stakeholders. The visit included a question Financial statements always well attended. and answer session, where colleagues asked questions on such topics as how the Group is remediating risk, the BD BD D BD D B B BD B BD B BD impact of new challenger banks and emerging new technologies on the landscape.

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Board oversight: IT resilience and digital transformation The Board remains focused on how the Group delivers solutions that continue to put the customer at the heart of everything it does. The Group’s multi-channel service reflects customers’ changing preferences in how they choose to do business with the Group, providing seamless access through a secure and resilient digital infrastructure. 2014 Q1 results Strategy Half year Q3 results full year offsite results The Board spends considerable time reviewing the delivery of the three-year IT resilience investment and digital transformation results and meeting and programmes. IT resilience and cyber security are regularly monitored through the risk dashboard in the reports from the Group Chief informationOther Board site dividend AGM dividend Executive and Group Risk Officer and through the work of the Board Risk Committee of which all Non-Executive Directors are KEY visit to members. Additionally, the Board received a detailed progress update at its strategy offsite meeting in November and presentations Bristol and from senior management on the delivery of the programmes at ‘deep dive’ sessions held during the year. Board meeting B Group Also, the Board’s approach to succession planning, led by the Chairman, helps ensure the Board is well placed to address future operating Board meeting and deep dive BD technology and market risks across the full range of business areas in which the Group operates. Read more on succession planning plan Deep dive D and Board appointments on page 73. 7.0 The deep dive sessions, strategy offsite meeting and site Information on the progress being made on the delivery of digital capability can be found in the strategic report and on IT resilience visit to Bristol are described on page 65. and cyber security in the report from the Board Risk Committee.

64 65

9.0 7.0 Lloyds Banking Group Annual Report and Accounts 2015

HDISU? 33

Help for businesses Our year-on-year net growth in lending to SMEs increased by Explaining our wider

5 per cent in 2015. Our lending to SMEs has grown 25 per cent Strategic report net since 2011, while it declined 13 per cent across the industry economic contribution as a whole during the same period. We contribute to the UK economy through our products and As part of our Helping Britain Prosper Plan we have a target to services, and through our commitments in our Helping Britain Prosper Plan. We also make a positive economic impact as a Strategic report Lloyds Banking Group Annual Report and Accounts 2015 increase the amount of net lending to SMEs and Mid Market Operating responsibly continued companies by £53 billion by 2017. We met our 2015 Prosper major employer and purchaser. Responsible marketing and communications Help for businesses As a responsible business we must ensure that the way that we Making our products Our year-on-year net growth in lending to SMEs increased by Explaining our wider

market our brands, products and services is fair, accurate, not 5 per cent in 2015. Our lending to SMEs has grown 25 per cent Strategic report misleading and ultimately easy for consumers to understand. and services clearer net since 2011, while it declined 13 per cent across the industry economic contribution Plan target to increase net lending to these segments by at The Group complies with voluntary and mandatory advertising We serve an increasingly diverse customer base of individuals and as a whole during the same period. We contribute to the UK economy through our products and and marketing standards. We are working to better understand businesses. To deliver sustainable growth we need to serve them As part of our Helping Britain Prosper Plan we have a target to services, and through our commitments in our Helping Britain customer behaviour and have used behavioural economic all equally well. increase the amount of net lending to SMEs and Mid Market Prosper Plan. We also make a positive economic impact as a techniques to assess their preferences and improve our marketing companies by £53 billion by 2017. We met our 2015 Prosper major employer and purchaser. materials as a result. This has made them more concise and clear. Plan target to increase net lending to these segments by at For example, we’ve simplified a savings maturity letter by least £2 billion. least £2 billion. introducing summary boxes and bullet points to highlight key information. This simple change has contributed to a reduction in We support our business customers through our extensive complaints about the product maturity process by 80 per cent. network of customer facing staff. More than half a million business and commercial clients now bank digitally with us.

Protecting customers’ privacy and data We work with the Tinder Foundation and other partners such Financial results as the Government to improve digital skills for individuals, Our customers, including 11.5 million who actively bank small businesses and charities. digitally, of which 6.6 million who use their mobile to bank with We support our business customers through our extensive us, trust us with their money and personal details. To protect these assets, we consistently invest in security technologies, Widening financial inclusion processes and training for colleagues. Since 2011 we have We want to do more to help customers who are financially invested £157 million to improve security and provide Responsible lending excluded or at risk of becoming so. Our financial inclusion Creating new jobs protection for our customers. We also provide our customers strategy, launched in 2014, focuses on four strategic themes: We understand the need to lend responsibly, in line with We employ more than 75,000 colleagues. We offer them all network of customer facing staff. More than half a million with useful information about how they can improve their own providing accessible products and services that meet our own low-risk business model and customers’ ability to competitive rewards and benefits, including incentivisation money and data security behaviour. customers’ needs; improving awareness and understanding meet their repayments. The support we offer all customers of the impacts of financial exclusion across the bank; working schemes based on customer outcomes. We are helping to We closed down more than 2,353 fraudulent websites in 2015 and the credit worthiness processes we use, reflect our in partnership with and signposting to other organisations create additional jobs and bring talented people into our and we are a strategic partner of Get Safe Online, a joint responsible approach. that might be better suited to meet customer needs; and business through our Apprenticeship Scheme. This year we

initiative between the government, the National Crime Governance continuing to invest in financial education. created over 1,000 new apprenticeship roles, bringing the total business and commercial clients now bank digitally with us. Agency, and public and private sector supporters from to over 3,200 since we launched the scheme in October 2012. the technology, communication, retail and finance sectors. Serving vulnerable Opening a basic bank account can be the first step towards We have committed, as part of our Helping Britain Prosper We monitor unusual activity on customer accounts and use financial inclusion for many customers. In 2015, we provided Plan, to create 8,000 new apprenticeships by 2020. state-of-the-art technology to detect potential criminal customers over 300,000 new basic bank accounts and also helped 55,000 activity. If we spot anything suspicious we take immediate customers upgrade from basic to more mainstream products. Ensuring our products and Supporting UK trade and manufacturing and appropriate action. We work with the Tinder Foundation and other partners such Financial results Digital technology offers an important opportunity to make services are accessible and Providing support to UK businesses so that they can export suitable to the individual needs financial services more accessible. Today, almost 6 million and attract international investment is essential to long term credit and debit card transactions of all our customers is at the adults in the UK have never used the internet and over economic growth. In 2015, Lloyds Bank Commercial Banking monitored for potential fraud heart of everything we do; 50 per cent of charities and more than 1 million small and became the first UK bank to enter into a strategic partnership every month consistently offering the best medium-sized businesses lack basic digital skills. Increasing with UK Trade and Investment to support UK businesses to

26m Risk management as the Government to improve digital skills for individuals, experience for all of our digital capability is one of the most important factors that will export and to attract inward investment into the UK. customers, providing products drive financial inclusion over the coming years, so we aim to use We are committed to supporting the manufacturing sector and services when our our expertise and reach to promote wider understanding and Tackling money laundering in the UK. In 2015, we announced a £5 million investment over customers need our support. access, as shown in our Lloyds Bank Consumer Digital Index. and terrorist financing five years to support over 500 skilled apprentices at the Lloyds This includes improving our Bank Advanced Manufacturing Training Centre in Coventry. small businesses and charities. We take steps to make sure our products are not used for criminal processes when customers are Financial support and education This will help address the skills gap in the sector and help purposes, such as money laundering and terrorist financing, bereaved and reviewing our The credit union sector provides an essential service to many improve productivity and innovation in the sector. working closely with legislators and regulators to combat this. We websites and mobile banking complete appropriate and proportionate customer due diligence people across Britain. We believe that it can become an even services to ensure they are more powerful choice for consumers to turn to, which is why throughout the duration of the customer relationship, and we accessible to all our disabled of new funding support monitor unusual activity on all customer accounts and use we’ve been working in partnership with the Association of customers. British Credit Unions Limited and the Credit Union Foundation, provided to UK manufacturing advanced technology to detect potential criminal activity. If we companies in 2015 to provide a £4 million fund over four years which is invested in £1.4bn Financial statements spot anything suspicious we take immediate and appropriate action. In 2015 we made further revisions to our Anti-Money the core funding of credit unions to help them become more Help for homebuyers sustainable. In 2015, 69 credit unions applied for awards and Laundering and Counter Terrorist Policy and launched specialist Purchasing goods and services training across the Group to help colleagues understand what is Buying a property is the biggest financial commitment many 21 secured a large grant or seed funding. required from them. people ever make. We want to help more people get onto We can help our current and future customers to avoid We are working together with our suppliers and others in our Widening financial inclusion and move up the housing ladder. We made a public target financial difficulties by providing them with a better supply chain to ensure we source goods and services in ways Reporting concerns to provide 1 in 4 of all new first-time buyers’ mortgage loans understanding of money matters. We have invested £10 million that are responsible, sustainable and mutually beneficial. completed in the UK in 2015, and we have fulfilled that in our Money for Life programme for young people since it They must also provide best value for our customers and Our whistleblowing policy, known as ‘Speak Up’, explains commitment. Across all our customer brands, our gross new launched in 2009. We are reviewing this programme in 2016 shareholders. In 2015, we spent around £5.8 billion on a how colleagues can raise concerns confidentially without fear mortgage lending totalled £39 billion in 2015, and our support following the launch of the UK Financial Capability Strategy diverse range of goods and services, with over 4,000 different of reprisal. During 2015, 153 allegations received through for home-buyers represented over 60 per cent of this lending. published by the Money Advice Service and our own suppliers. We continue to honour our commitment to pay our our Speak Up line were investigated. Of the investigations suppliers on time and are signatories to the Prompt Payment We are a leading supporter of the UK government’s experience of delivering community based financial education. We want to do more to help customers who are financially concluded at year end, 63 per cent were upheld with Code. In our Helping Britain Prosper Plan, we set a 2015 target Help to Buy scheme. We have advanced £3.5 billion of new We are considering additional ways to support customers and informationOther appropriate remedial action taken where necessary. The to pay 96 per cent of our supplier invoices within 30 days and lending to customers under the mortgage guarantee element colleagues with money management. majority of Speak Up allegations come from our Retail and we exceeded this target. Group Operations divisions, which given the scale of these of the scheme, since it was launched in the second half of 2013 business areas remains proportionate. We continue to educate up to the end of 2015. additional funding provided to and empower colleagues to do the right thing for our customers support credit unions in 2015 excluded or at risk of becoming so. Our financial inclusion of new mortgage lending by challenging wrong behaviours if they witness them. £1m to more than 79,000 Creating new jobs first-time buyers in 2015 Download more information about our Codes and £11bn Read more about our Helping Britain Prosper Plan Read more about our business model and wider value Policies at www.lloydsbankinggroup.com/RBDownloads at www.lloydsbankinggroup.com/ProsperPlan creation on page 18. 18 strategy, launched in 2014, focuses on four strategic themes: providing accessible products and services that meet We employ more than 75,000 colleagues. We offer them all 24 25 customers’ needs; improving awareness and understanding competitive rewards and benefits, including incentivisation schemes based on customer outcomes. We are helping to of the impacts of financial exclusion across the bank; working Discussion on responsible business in partnership with and signposting to other organisations create additional jobs and bring talented people into our and economic contribution that might be better suited to meet customer needs; and business through our Apprenticeship Scheme. This year we continuing to invest in financial education. created over 1,000 new apprenticeship roles, bringing the total Governance to over 3,200 since we launched the scheme in October 2012. Opening a basic bank account can be the first step towards We have committed, as part of our Helping Britain Prosper financial inclusion for many customers. In 2015, we provided Plan, to create 8,000 new apprenticeships by 2020. over 300,000 new basic bank accounts and also helped 55,000 customers upgrade from basic to more mainstream products. Supporting UK trade and manufacturing Digital technology offers an important opportunity to make Providing support to UK businesses so that they can export financial services more accessible. Today, almost 6 million and attract international investment is essential to long term adults in the UK have never used the internet and over economic growth. In 2015, Lloyds Bank Commercial Banking 50 per cent of charities and more than 1 million small and became the first UK bank to enter into a strategic partnership medium-sized businesses lack basic digital skills. Increasing with UK Trade and Investment to support UK businesses to digital capability is one of the most important factors that will export and to attract inward investment into the UK. Risk management drive financial inclusion over the coming years, so we aim to use our expertise and reach to promote wider understanding and We are committed to supporting the manufacturing sector access, as shown in our Lloyds Bank Consumer Digital Index. in the UK. In 2015, we announced a £5 million investment over five years to support over 500 skilled apprentices at the Lloyds Bank Advanced Manufacturing Training Centre in Coventry. Financial support and education This will help address the skills gap in the sector and help The credit union sector provides an essential service to many improve productivity and innovation in the sector. people across Britain. We believe that it can become an even more powerful choice for consumers to turn to, which is why we’ve been working in partnership with the Association of of new funding support British Credit Unions Limited and the Credit Union Foundation, provided to UK manufacturing companies in 2015 to provide a £4 million fund over four years which is invested in £1.4bn Financial statements the core funding of credit unions to help them become more sustainable. In 2015, 69 credit unions applied for awards and 21 secured a large grant or seed funding. Purchasing goods and services We can help our current and future customers to avoid We are working together with our suppliers and others in our financial difficulties by providing them with a better supply chain to ensure we source goods and services in ways understanding of money matters. We have invested £10 million that are responsible, sustainable and mutually beneficial. in our Money for Life programme for young people since it They must also provide best value for our customers and launched in 2009. We are reviewing this programme in 2016 shareholders. In 2015, we spent around £5.8 billion on a following the launch of the UK Financial Capability Strategy diverse range of goods and services, with over 4,000 different published by the Money Advice Service and our own suppliers. We continue to honour our commitment to pay our experience of delivering community based financial education. suppliers on time and are signatories to the Prompt Payment Code. In our Helping Britain Prosper Plan, we set a 2015 target

We are considering additional ways to support customers and informationOther colleagues with money management. to pay 96 per cent of our supplier invoices within 30 days and we exceeded this target. additional funding provided to £1m support credit unions in 2015 Read more about our Helping Britain Prosper Plan Read more about our business model and wider value at www.lloydsbankinggroup.com/ProsperPlan creation on page 18. 18

25 34 radley yeldar.

How effectively is the story explained?

What we measure What we have seen A story well told is the difference between a seamless, Message coherent report and one that is made up of a number Linkage and flow of seemingly disconnected events and disclosures. The notion of storytelling may be relatively well-established Materiality and transparency among communicators, but it still causes confusion for Navigation and appeal some reporters. Let’s be clear here – storytelling is not about using unbelievable fairy tales to pacify hyperactive children Clarity of language at bedtime. The task of the report is the very opposite of sending people to sleep – it’s to keep them awake. As the The primary job of an annual report is to tell the story of FRC’s guidance is at pains to point out, it’s the process of the year, in the context of market factors, strategy and risk, disclosing the key facts of the year in an imaginative way and provide an opinion on the future. The story should be that will promote understanding. compelling, integrated and easy to read. It should include clear signposts to additional, deeper content. And it should ‘Messaging’ is the lowest scoring of all our criteria and be a seamless and transparent exposition, containing a an area where many FTSE 100 companies are falling balance of negative and positive events. Few companies well short. It seems that many are shy of producing a can say with any honesty that any year has been a total report that tells anything approaching a story. Surely, triumph. Investors understand that – and the occasional any company sufficiently successful to be a constituent admission that you got it wrong or that things didn’t pan of the index has by definition identified a credible market out quite as you’d hoped will go a long way to convincing opportunity and shaped itself to seize that opportunity. readers that the business has everything under control. On the plus side, we have seen big improvements in linkage A good report will communicate the company’s key and flow. The key is to link the sections together, so that messages via a mix of narrative styles, such as case purpose, vision, market environment, business model, risk, studies. It will also provide topical information on the strategy, performance and governance come together to year’s achievements, with the various sections linking tell the story of the year. There’s also been a step forwards together to provide a coherent story with a single ‘voice’. in narrative balance this year, with several companies taking The design should carry this story, using creativity to the opportunity to explain the disappointments of the year highlight the key information and make the report an as well as highlight the achievements. effortless and engaging read. In terms of language, many reporters are upping their efforts to avoid jargon and to keep the content easy to read and varied in format. But more still needs to be done here – the best design in the world won’t compensate for impenetrable copy. Companies need to focus on energising and inspiring investors, not dulling senses with insipid headlines and convoluted sub-clauses. HDISU? 35

Three of the best

British Land Paddy Power Betfair Aviva

5.08

3.56 5.04

4.26

4.33 36 radley yeldar.

How effectively is the story explained? British Land

This report takes the company’s strategic vision We create of creating ‘places people prefer’ and uses it as Places People Prefer the main theme to anchor the narrative. This key Annual Report and Accounts 2016 message is brought to life in both the strategy content and in case studies that tell great stories with style and conviction. Strategic objectives are well linked to KPIs, demonstrating the year’s performance as well as to remuneration where British Land explains how executive pay is tied to the strategy. The language throughout is easy to understand, with an engaging narrative guiding the reader through the various sections.

Strategic Report

PLACEMAKING CONTINUED

560m shopper visits to Meadowhall over 25 years

Reviving historic links in new developments At Aldgate Place, designed by Allies and Morrison, we are reinstating an original pedestrian street link which sits above an old Victorian service tunnel connecting Aldgate and Aldgate East stations. This public thoroughfare will be reinvigorated with shops and cafés, Places which connect physically and digitally bringing a new sense of community to the area. with the people who use them, including local communities. Engaging with local communities Our fourth annual Community Day brought together 200 British Land volunteers as well as 520 local jobseekers, schoolchildren, students, elderly residents and people with learning Connecting is about providing assets which disabilities across 20 community partnerships. complement people’s lifestyles, enabling them Our partners commented on the commitment to integrate their work and their leisure time. of those involved, reflecting how the event helps It means places which are easy to access, us strengthen local relationships around our so we focus on assets with great transport £4.3bn London assets. For our volunteers it is a great infrastructure and those with convenient of our assets are within close proximity team building opportunity which enables them access points or parking facilities. We often of a Crossrail station (opening 2018) to interact with people of different ages and invest to improve connections for pedestrians backgrounds as well as learning new skills. and cyclists, and we build local relationships connecting with local communities to better understand their needs. We also think about how digitally enabled we are and how we can use these capabilities to create a closer community.

Building our exposure to Crossrail When Crossrail opens in 2018, it will transform rail transport in London and the South East, increasing central London rail capacity by 10%, and bringing an estimated 1.5 million more people to within 45 minutes of central London. Already, Crossrail is driving regeneration and economic development. Around £4 billion of our assets are located near Crossrail and two of our Masterplanning a Celebrating local heritage London campuses, Broadgate and Paddington, destination for London Elk Mill in Oldham is one of several assets 6.0 will have their own Crossrail stations. Canada We have shared our initial ideas for the Canada where we are using public art to celebrate local 7.0 Water, our 46-acre scheme in South London, Water Masterplan with the local community. heritage and connect with local communities. is very close to Canary Wharf and, from 2018, These include a 3.5 acre park, two new public Professional sculptor Emma Hunter worked will be just minutes from the West End. squares, cycling and pedestrian friendly spaces with local people to create artworks illustrating and dockside improvements so people can enjoy Elk Mill’s cotton-spinning heritage and poems and interact with the water and wildlife. We are inspired by local people’s stories feature on a also proposing a pedestrianised, open-air high trio of sculptures in the style of spinning cotton street, with national and independent retailers bobbins. Bronze footprints are set into paving alongside new restaurants and cafés and a new stones around the Park, recalling a time when culture and entertainment hub, at the heart of mill workers went barefoot to avoid slipping the town centre. Our plans are at an early stage on the oily floor. and will evolve, but creating a vibrant and To read more case studies go to engaging environment will be our key focus. www.britishland.com/placemaking

28 British Land Annual Report and Accounts 2016 British Land Annual Report and Accounts 2016 29 6.0

7.0 7.0 HDISU? 37

Strategic Report

PLACEMAKING

Placemaking is how we create attractive and engaging real estate which is in tune with modern lifestyles and are Places People Prefer.

Actively managing our assets is a core part of our business. We put our customers first, and invest in the skills and resources which help us understand them better. This understanding guides our investment activities, from investing and developing the right assets, to enhancing and enlivening them with a range of amenities, Visual treatment events and activities. This creates preference for our properties, helping to drive occupier combined with demand, growth in rents and capital values. engaging copy in the page titles gives the document pace

Strategic Report

26 British Land Annual Report and Accounts 2016 MARKET OVERVIEW British Land Annual Report and Accounts 2016 27 Mixed use development experience Large scale projects, combining offices, retail, residential and leisure set amidst attractive public spaces. Typically, these More than developments involve close collaboration with local planning What sets authorities, communities and Ability to source and 64,000 partners, as well as active execute complex deals us apart? people work across our office portfolio day-to-day management. We have the expertise and financial flexibility required to execute complex deals delivering highly attractive returns for Placemaking skills our shareholders. Improving our assets to create a better overall experience for our customers and local communities. Places which Our approach to doing business puts are easy to visit, vibrant, pleasant and the customer at the heart of what we do. engaging and with high quality on site This underpins our ability to deliver services; places where people want Places People Prefer. to work, shop, live and visit. Customer insight Our investment in data collection and analytics brings us closer to our customers, guiding our investments and helping us to create places that meet their expectations and lifestyles.

Sustainability credentials High quality ofﬁce We have been sustainability campuses leaders for a long time and Office-led environments focused have successfully integrated around key transport infrastructure sustainability into our placemaking with a growing retail and leisure offer approach, innovating to improve enabling people to combine work and Strong network people’s wellbeing, supporting play. The diversity of our offering of relationships local communities, designing for provides opportunities and amenities Our networks span occupiers, the future and developing skills for local communities, helping to planners, local authorities, and opportunities at our places. energise the broader campus. community leaders, strategic partners and investors, reflecting For more information on sustainability our many years as leading www.britishland.com/sustainability developers and landlords Lifestyle focused retail across the UK. environments 330m Regional and local multi-let annual footfall at our retail assets retail assets in tune with modern consumer lifestyles, where people 29,500 go to shop, eat and be entertained. People benefited directly from our community programme this year, including apprentices, jobseekers and schoolchildren

12 British Land Annual Report and Accounts 2016 British Land Annual Report and Accounts 2016 13 38 radley yeldar.

How effectively is the story explained? Paddy Power Betfair

It’s rare to come across a report that so accurately reflects the tone of voice adopted by the brand in its more public communications. The Paddy Power team has stuck to its guns, even after the merger with Betfair, to provide a consistent brand experience for all its stakeholders. This year, the company elected to use the style of a teenage diary, complete with doodles, song lyrics and hashtags. We’re not suggesting that this approach would work for every company – far from it, in fact. But the sense of fun conveyed

in the report works well with the brand and Includes the 2015 Paddy Power Betfair plc Annual Report certainly differentiates the report from its peers. The messages are crystal clear – investors know what they’re getting with Paddy Power Betfair.

July 2015

DearDear diary,diary,

II don’tdon’t likelike cricket,cricket, II lovelove it,it, OhOh yeah,yeah, AtAt leastleast wewe dodo whenwhen thethe AshesAshes isis on.on.

I’dI’d bebe lyinglying ifif II wrotewrote thatthat II waswas thethe world’sworld’s biggestbiggest cricketcricket fan.fan. OnOn thethe plusplus side,side, whatwhat otherother eventevent allowsallows youyou thethe luxuryluxury ofof sittingsitting inin aa fieldfield inin thethe sunshine,sunshine, drinkingdrinking beerbeer allall dayday butbut alsoalso notnot havehave peoplepeople thinkingthinking you’reyou’re aa urine-soakedurine-soaked hobo?hobo?

InIn thethe build-upbuild-up toto thethe 20152015 hostilitieshostilities betweenbetween EnglandEngland andand Australia,Australia, thethe majormajor talkingtalking pointpoint revolvedrevolved aroundaround thethe absenceabsence ofof England’sEngland’s favouritefavourite SouthSouth African,African, KevinKevin Pietersen.Pietersen. AsAs thethe bigbig dayday rolledrolled around,around, ratherrather thanthan representingrepresenting thethe ThreeThree Lions,Lions, KPKP waswas busybusy sunbathingsunbathing inin thethe Caribbean,Caribbean, stoppingstopping occasionallyoccasionally toto smashsmash cricketcricket ballsballs intointo thethe standsstands andand collectcollect massivemassive paycheques.paycheques.

TheThe phonecallphonecall nevernever camecame andand spottingspotting anan opportunity,opportunity, II swoopedswooped andand signedsigned PietersenPietersen upup toto airair somesome ofof hishis famouslyfamously outspokenoutspoken viewsviews forfor PaddyPaddy Power.Power. WeWe mademade anan amusingamusing videovideo ofof himhim ridingriding inin onon aa whitewhite horsehorse toto savesave England’sEngland’s AshesAshes bid.bid. ItIt waswas meantmeant toto bebe aa cleverclever metaphormetaphor forfor howhow hehe waswas goinggoing toto drivedrive thethe hostshosts onon toto aa stirringstirring againstagainst thethe oddsodds victory,victory, butbut itit justjust turnedturned outout toto bebe himhim ridingriding aa whitewhite horsehorse becausebecause EnglandEngland gotgot onon justjust finefine withoutwithout him.him.

TheThe AussiesAussies displayeddisplayed theirtheir customarycustomary mouthiness,mouthiness, butbut thethe hostshosts wrappedwrapped upup thethe seriesseries winwin andand thatthat funnyfunny littlelittle urnurn withwith aa TestTest matchmatch toto spare,spare, courtesycourtesy ofof aa ferociousferocious bowlingbowling displaydisplay fromfrom StuartStuart BroadBroad whowho sawsaw thethe AussiesAussies collapsecollapse toto 6060 allall outout –– comfortablycomfortably thethe mostmost embarrassingembarrassing AussieAussie performanceperformance sincesince NicoleNicole KidmanKidman inin BMXBMX Bandits.Bandits.

AlthoughAlthough hishis egoego maymay havehave beenbeen aa littlelittle bitbit bruisedbruised byby howhow easilyeasily hishis formerformer team-matesteam-mates claimedclaimed victory,victory, KPKP spokespoke toto meme viavia thethe PaddyPaddy PowerPower Blog,Blog, providingproviding PaddyPaddy PowerPower withwith somesome fascinatingfascinating insightinsight thatthat waswas alwaysalways interestinginteresting andand onlyonly sometimessometimes self-aggrandising.self-aggrandising. EitherEither way,way, itit mademade itsits wayway intointo thethe newspapersnewspapers andand sportssports sectionssections ofof websites,websites, KevinKevin gotgot paidpaid andand EnglandEngland wonwon thethe Ashes.Ashes. EveryoneEveryone 5.0 II don’tdon’t likelike cricketcricket won.won. ExceptExcept ofof coursecourse thethe Aussies.Aussies. YoursYours gloriously,gloriously, I love it Paddy 3.0

8.0

9.0

8.0 HDISU? 39

The diary entries give an engaging snapshot of progress made in January/February 2015 the year

Dear diary,

ObviouslyObviously I’mI’m anan incredibleincredible person,person, butbut partpart ofof beingbeing incredibleincredible isis acknowledgingacknowledging thatthat sometimes things don’t go to plan. True perfection has to be imperfect. Someone clever said that. Einstein. Or Noel Gallagher. That’s how I sum up my attempts to get David Ginola elected as FIFA President.

I’llI’ll bebe thethe firstfirst toto admitadmit itit didn’tdidn’t gogo soso well.well. InIn JanuaryJanuary -- longlong beforebefore thethe FBIFBI raids,raids, multiple arrests and shocking news that FIFA actually has an ethics committee - I tried toto dodo somethingsomething aboutabout itit –– toto runrun aa genuinegenuine footballfootball manman toto standstand againstagainst thethe regimeregime toto FBI win back the beautiful game. #missingballs

So, I teamed up with reform group Change FIFA to back a shock bid from footballing legendlegend DavidDavid Ginola.Ginola. Together,Together, wewe launchedlaunched TeamTeam Ginola,Ginola, withwith aa manifestomanifesto basedbased onon Transparency, Integrity and Equality - and specific, radical policies for each. InIn FebruaryFebruary II waswas DownDown UnderUnder forfor thethe startstart ofof thethe CricketCricket WorldWorld Cup,Cup, justjust inin timetime forfor And it’s fair to say the whole project was a resounding success. Well, ‘success’ if the goal Australian self-confidence to reach Kanye West levels and the arrival of England, aka the Poms. ofof thethe exerciseexercise waswas toto getget thethe sportssports mediamedia toto hatehate usus andand getget thethe typicaltypical footballfootball InIn conjunctionconjunction withwith theirtheir NewNew ZealandZealand neighbours,neighbours, thethe AussiesAussies werewere hostinghosting thethe tournamenttournament andand supporter to respond to us with indifference. What was it about the exceedingly handsome, theythey kickedkicked offoff theirtheir bidbid forfor gloryglory withwith aa blockbustingblockbusting gamegame againstagainst theirtheir oldest,oldest, fiercestfiercest andand highly toned, wealthy, Frenchman with fantastic hair that failed to resonate with your probablyprobably moaniestmoaniest cricketingcricketing enemies.enemies. ThatThat waswas thethe perfectperfect opportunityopportunity toto kickkick thethe hornets’hornets’ average football fan? Hmmm … I may never truly know. nest.nest. KickKick it,it, thenthen slogslog thatthat hornets’hornets’ nestnest overover mid-wicketmid-wicket forfor six.six.

Playing upon the classic cricketing stereotypesBoard of the Baggy Greens’ of brashness Directors and the classic JUST F**K perceptionperception ofof thethe EnglishEnglish playersplayers beingbeing aa bitbit vanillavanilla andand lackinglacking bottlebottle inin high-pressurehigh-pressure situations, I brilliantly came up with the Missing Balls campaign. I went around Melbourne putting upup postersposters whichwhich saidsaid ‘MISSING:‘MISSING: PairPair ofof balls.balls. IfIf foundfound pleaseplease returnreturn toto thethe EnglishEnglish cricketcricket OFF ALREADY! teamteam #missingballs’.#missingballs’. BecauseBecause thethe postersposters weren’tweren’t accompaniedaccompanied byby SportsbetSportsbet branding,branding, therethere waswas nono troubletrouble gettinggetting socialsocial mediamedia thumbsthumbs andand actualactual mediamedia tonguestongues waggingwagging aboutabout whowho waswas responsible. The ninja style stealth of the campaign sucked in people from all walks of life. Even my Australian competitors at Ladbrokes failed to guess who might have been behind the mischief, tweeting it on their own Twitter account. Executive directors IfIf thatthat chatterchatter wasn’twasn’t enough,enough, thethe highlighthighlightBreon camecame Corcoran whenwhen II hiredhired (aged aa helicopterhelicopter 44) became andand flewflew Chief aa giantgiant Executive Officer in February 2016. Breon banner of the poster above the ground whilejoined England Betfair trained Group ahead plc of as the Chief match Executive and then Officer on 1 August 2012. Prior to this, displayed the poster on digital billboardsBreon along thewas route the formerthe England Chief team Operating bus took Officeren route to at Paddy Power plc and previously thethe groundground onon matchday.matchday. LOLZ.LOLZ. was Managing Director – Non Retail and Development. He joined Paddy Power plc

The whole campaign went down extremely wellin 2001 somewhat having helped previously by the visitors worked producing with J.P. the Morgan most and Bankers Trust. Breon has underwhelmingunderwhelming EnglishEnglish performanceperformance onon AustralianAustralianan MBA soilsoil (INSEAD) sincesince LilyLily and AllenAllen is a rubbedrubbedgraduate shouldersshoulders of Trinity withwith College,Dr.Dr. Dublin. Breon is also a non- Karl Robinson. They were hammered by 111executive runs and a director couple of of weeks Tilney later Bestinvest found Group. themselvesthemselves checkingchecking inin forfor aa returnreturn flightflight homehome atat thethe samesame timetime asas suchsuch cricketing giants as Afghanistan and Scotland.Andy McCue (aged 41) became Chief Operating Officer in February 2016. He joined Paddy Power 10 years ago having served as Chief Executive Officer of Yours Pom-bashingly, Paddy Power plc from January 2015 to February 2016, having previously led the combined retail estates and the telephone business. Prior to joining Paddy Paddy Power, he was a Principal with OC&C Strategy Consultants and a Manager at Andersen. Andy holds a MA (Hons) Economics from Cambridge University and a Masters in Finance from London Business School. He is a non-executive director of Hostelworld Group plc.

Alex Gersh (aged 52) became Chief Financial Officer in February 2016. Alex was appointed as Betfair Group plc’s Chief Financial Officer in December 2012. Alex has extensive experience of working in highly competitive, international businesses. Previously, Alex was Chief Financial Officer of NDS Group, a leading supplier of technology solutions for digital pay-TV, Chief Financial Officer of Flag Telecom, a global network services provider, and Chief Financial Officer of BT Cellnet. His early career was spent with Ernst & Young. He is a qualified Certified Public Accountant.

Board of Directors

Executive directors Michael Cawley (aged 61) was appointed as a non-executive director and as a Breon Corcoran (aged 44) became Chief Executive Officer in February 2016. Breon member of the Audit Committee in July 2013. He was appointed Chairman of the joined Betfair Group plc as Chief Executive Officer on 1 August 2012. Prior to this, Audit Committee in July 2014. Michael served as Deputy Chief Executive Officer Breon was the former Chief Operating Officer at Paddy Power plc and previously and Chief Operating Officer of Ryanair from 2003 to 2014, having previously was Managing Director – Non Retail and Development. He joined Paddy Power plc served as Ryanair’s Chief Financial Officer and Commercial Director since 1997. in 2001 having previously worked with J.P. Morgan and Bankers Trust. Breon has During his time at Ryanair, the airline experienced huge international growth with an MBA (INSEAD) and is a graduate of Trinity College, Dublin. Breon is also a non- profit after tax rising from c. €20 million in 1996 to c. €550 million in 2013. Prior to joining Ryanair, Michael was Group Finance Director of Gowan Group Limited, one gary executive director of Tilney Bestinvest Group. of Ireland’s largest private companies and the main distributor for Peugeot and Andy McCue (aged 41) became Chief Operating Officer in February 2016. He Citroen automobiles in Ireland. He was appointed as a non-executive director of joined Paddy Power 10 years ago having served as Chief Executive Officer of Hostelworld Group plc in October 2015. Michael holds a Bachelor of Commerce Paddy Power plc from January 2015 to February 2016, having previously led degree and is a fellow of the Institute of Chartered Accountants in Ireland. Michael the combined retail estates and the telephone business. Prior to joining Paddy was appointed as a member of the Risk Committee in February 2016. Power, he was a Principal with OC&C Strategy Consultants and a Manager at Peter Andersen. Andy holds a MA (Hons) Economics from Cambridge University and a Danuta Gray (aged 57) was appointed as a non-executive director and as a Masters in Finance from London Business School. He is a non-executive director of member of the Remuneration Committee in January 2013. Danuta was appointed Non-executive directors Hostelworld Group plc. as a member of the Audit Committee in February 2016. Danuta brings to the Jackson Board significant leadership experience as the former Chief Executive Officer of O2 Alex Gersh (aged 52) became Chief Financial Officer in February 2016. Alex was Ireland, a position she held from 2001 to 2010. Prior to that, she was Senior Vice appointed as Betfair Group plc’s Chief Financial Officer in December 2012. Alex has President of BT Europe in Germany and, previous to that, was General Manager at Gary McGann (aged 65), Chairman, was appointed as a non-executive director in extensive experience of working in highly competitive, international businesses. BT Mobile in the UK. She is a non-executive director of Michael Page plc and Old rulz! Previously, Alex was Chief Financial Officer of NDS Group, a leading supplier of Mutual plc and is the Senior Independent Director of Aldermore Bank. She is also November 2014 and as Chairman from July 2015. Gary was Group Chief Executive technology solutions for digital pay-TV, Chief Financial Officer of Flag Telecom, a a non-executive member of the Defence Board of the U.K. Ministry of Defence. She global network services provider, and Chief Financial Officer of BT Cellnet. His early holds a B.Sc. in Biophysics, an M.Sc. and an MBA. career was spent with Ernst & Young. He is a qualified Certified Public Accountant. Peter Jackson (aged 40) became a non-executive director and a member of Officer of Smurfit Kappa Group plc from 2002 until his retirement in September the Remuneration Committee and Risk Committee in February 2016. Peter was appointed as a non-executive director of Betfair Group plc in April 2013. Prior to stewy 2015. He joined the Smurfit Kappa Group in 1998 as Chief Financial Officer and this, Peter was Group Chief Executive Officer of Travelex from March 2010 to March 2015, leaving following the successful sale of the business. Before Travelex, Peter was Managing Director of Consumer Banking for the Lloyds Banking Group, having also served as President and Chief Operations Officer. He had held a number of previously held a number of senior roles within the retail arm of HBOS plc before its kenny gary merger with Lloyds. Peter started his career at McKinsey and Co. senior positions in both the private and public sectors over the previous 20 years,

Stewart Kenny (aged 64) was a co-founder of Paddy Power in 1988. He has including Chief Executive of Gilbeys of Ireland and Aer Lingus Group. Gary is Non-executive directors considerable experience in the betting industry and has established two successful rulz! Gary McGann (aged 65), Chairman, was appointed as a non-executive director in bookmaking firms. He trained with Ladbrokes in London for two years before November 2014 and as Chairman from July 2015. Gary was Group Chief Executive establishing a chain of betting shops, Kenny O’Reilly Bookmakers. He sold that Chairman of Aon Ireland and Sicon Limited and a non-executive director of Smurfit Officer of Smurfit Kappa Group plc from 2002 until his retirement in September business to Coral in 1986 and subsequently re-entered the business, opening ten 2015. He joined the Smurfit Kappa Group in 1998 as Chief Financial Officer and betting shops between 1986 and 1988. He was Group Chief Executive from 1988 Kappa Group plc, Green Reit plc and Multi-Packaging Solutions International also served as President and Chief Operations Officer. He had held a number of to 2002, and Chairman from 2002 to 2003. Stewart has been a member of the Risk senior positions in both the private and public sectors over the previous 20 years, Committee since June 2006 and was appointed as a member of the Nomination including Chief Executive of Gilbeys of Ireland and Aer Lingus Group. Gary is Committee in July 2012. Chairman of Aon Ireland and Sicon Limited and a non-executive director of Smurfit Limited. He holds BA (UCD) and MSc Management (Trinity) Degrees and is a Fellow Kappa Group plc, Green Reit plc and Multi-Packaging Solutions International Pádraig Ó Ríordáin (aged 50) was appointed as a non-executive director in July Limited. He holds BA (UCD) and MSc Management (Trinity) Degrees and is a Fellow 2008. Pádraig is an internationally recognised lawyer with extensive experience of the Association of Chartered Certified Accountants (FCCA). Gary is a member of of the Association of Chartered Certified Accountants (FCCA). Gary is a member of advising on regulated industries in Ireland and international markets. He is a the Nomination, Remuneration and Risk Committees since July 2015. P.O.R Corporate Partner in Arthur Cox, the leading Irish law firm, where he served as Managing Partner from 2003 to 2011. In 2009, he was named European Managing the Nomination, Remuneration and Risk Committees since July 2015. Ian Dyson (aged 53) became Senior Independent Director and a member and Partner of the Year and received the Lifetime Achievement Award from the Chairman of the Nomination Committee and a member of the Audit Committee in Managing Partners’ Forum in 2012. He studied law in University College Cork and February 2016. Ian was the Senior Independent Director and Chairman of the Audit Harvard Law School and has practiced in New York and Dublin. Pádraig is Chairman Committee of Betfair Group plc since 2010. He was formerly Chief Executive Officer of the DAA plc, which owns Dublin and Cork airports. Pádraig is Chairman of dyson of Punch Taverns plc, Group Finance & Operations Director at Marks & Spencer plc the Group’s Remuneration Committee (appointed in August 2008), and is also a and Finance Director of The Rank Group plc. Prior to this he was Group Financial member of the Risk Committee (appointed in December 2011). Ian Dyson (aged 53) became Senior Independent Director and a member and Controller of Hilton Group plc. He joined Hilton from Le Meridien, a division of Forte plc, where he had been Finance Director. His early career was spent with Peter Rigby (aged 60) became a non-executive director and a member of the Arthur Andersen, where he qualified as a Chartered Accountant in 1986 and Remuneration Committee and Chairman of the Risk Committee in February 2016. Chairman of the Nomination Committee and a member of the Audit Committee in became a Partner at the firm in 1994. Ian is also currently a non-executive director Peter was appointed as a non-executive director of Betfair Group plc in April and the Chairman of the Audit Committee of InterContinental Hotels Group PLC 2014. Prior to this, Peter was Chief Executive Officer of Informa plc until the end of February 2016. Ian was the Senior Independent Director and Chairman of the Audit and SSP Group plc and Senior Independent Director of ASOS Plc and a non- 2013. Peter first joined Informa plc in 1983 and served as Chief Executive Officer executive director of Punch Taverns plc. from 1988, during which time it grew to a business with revenues of £1.2bn and a market capitalisation exceeding £3bn. He previously held the role of Finance Committee of Betfair Group plc since 2010. He was formerly Chief Executive Officer Zillah Byng-Thorne (aged 41) became a non-executive director and a member Director for Stonehart Publications. He holds a BA in Economics from Manchester of the Audit Committee and Nomination Committee in February 2016. Zillah was University, and is a qualified accountant. appointed as a non-executive director of Betfair Group plc in September 2013. MR. of Punch Taverns plc, Group Finance & Operations Director at Marks & Spencer plc Prior to this, Zillah was Chief Financial Officer of Trader Media Group from 2009 and Secretary dyson interim Chief Executive until July 2013, Chief Financial Officer of Fitness First Group Ltd from 2006 to 2009, and Chief Financial Officer of the Thresher Group from 2002 T Edward Traynor (aged 38) was appointed as Group General Counsel and Company and Finance Director of The Rank Group plc. Prior to this he was Group Financial to 2005. Zillah has also previously held senior finance positions with GE Capital Secretary in May 2015. A solicitor, Edward was previously a Director and Head of and HMV Media Group, qualified as an accountant with Nestle UK Ltd, and was a Legal & Regulatory Affairs for Vodafone Ireland. Having worked in private practice non-executive Director of Mecom Group plc from 2011 until February 2015. She with both McCann FitzGerald and Eugene F. Collins, Edward moved to Vodafone in Controller of Hilton Group plc. He joined Hilton from Le Meridien, a division of is also currently Chief Executive Officer of Future plc, having previously served as 2007 where he has held a number of positions within both the legal function and Chief Financial Officer. the wider business. Edward studied Law in University College Dublin and De Paul University, Chicago. Forte plc, where he had been Finance Director. His early career was spent with 32 PADDY POWER BETFAIR PLC Annual Report 2015 33 Arthur Andersen, where he qualified as a Chartered Accountant in 1986 and became a Partner at the firm in 1994. Ian is also currently a non-executive director and the Chairman of the Audit Committee of InterContinental Hotels Group PLC and SSP Group plc and Senior Independent Director of ASOS Plc and a non- executive director of Punch Taverns plc.

Zillah Byng-Thorne (aged 41) became a non-executive director and a member of the Audit Committee and Nomination Committee in February 2016. Zillah was appointed as a non-executive director of Betfair Group plc in September 2013. Prior to this, Zillah was Chief Financial Officer of Trader Media Group from 2009 and interim Chief Executive until July 2013, Chief Financial Officer of Fitness First Group Ltd from 2006 to 2009, and Chief Financial Officer of the Thresher Group from 2002 to 2005. Zillah has also previously held senior finance positions with GE Capital and HMV Media Group, qualified as an accountant with Nestle UK Ltd, and was a non-executive Director of Mecom Group plc from 2011 until February 2015. She is also currently Chief Executive Officer of Future plc, having previously served as Chief Financial Officer.

32 40 radley yeldar.

How effectively is the story explained? Aviva

This year, Aviva has opted for an editorial reportage 2015 accounts and report Annual Aviva plc Aviva plc Annual report and accounts approach for its report, using pull-out quotes and 2015 Your Aviva consumer-style photography to tell the company’s Marcus’s story story in a way that is visually engaging. At first glance, it’s almost more of a magazine than Our33 million an annual report, with the ‘Your Aviva’ theme customers What’s important and how we help them introduced early and then underlined by well-written every step of the way case studies throughout. What makes us different? Our strategy in action and the benefits it As befits such a design approach, the language is brings to our customers CUSTOMER FOCUS Read clear and easy to understand. In summary, this is an What’s our plan of Anna’s story excellent and hugely engaging report – one that will action? Page 4 How we’re doing – and how appeal to retail as much as institutional investors. we’re going to do better Aviva has thought about Your absolutely Aviva everything

Your Aviva Anna’s story Strategic report Strategic

We launched our new “Me” provides the full who looks after herself, she “You, Me, We” package in spectrum of insurance to single also appreciates the healthy Poland in 2015. It’s tailored people – with additional eating recipes we send her to meet different people’s benefits like pet care and even every week. needs at different times in housekeeping. And “We” is Anna thinks “You, Me, their lives. for young families. It’s not just We” shows that “Aviva has We can offer this to insurance but offers things like thought about absolutely customers because we’re child care and tutoring – and everything”. She describes a True Customer Composite. even someone to call when herself as someone who smiles And we think it means simplicity you want advice on caring for a lot. We hope Aviva has made and convenience for our your baby. her smile that much wider. customers, delivered digitally. Anna loves our “Me” “You” is for young people package. In addition to the and offers everything from life protection and accident cover, insurance to health benefits she knows her much-loved dog in the event of injuries like will be cared for if she has to breaks, twists or sprains. go into hospital. As someone Aviva has thought about absolutely everything

5.0

6.0

6.0 7.0 04 | Aviva plc Annual report and accounts 2015 Aviva plc Annual report and accounts 2015 | 05

7.0

28 | Aviva plc Annual report and accounts 2015 HDISU? 41

The case studies bring both the Aviva brand and customer benefits to life

Your Aviva Marcus’s story Strategic report Strategic Strategic report Strategic

Imagine if 70 businesses in again and, as the local mayor few weeks a temporary market your community vanished said “everybody came was operating. In total, Aviva overnight: livelihoods lost, together to make it work” – paid out around £2.7 million lost income for suppliers, that included Aviva, as the or just under $CAD5 million. and thousands of Market’s insurer. Now a bigger, better disappointed customers. Marcus, the Market’s St Jacob’s Farmers’ Market is That’s what happened in President, said “one of the back as a bustling much-loved St Jacob’s, Ontario, when the best decisions we made was to place, with a huge diversity of much-loved St Jacob’s Farmers’ review our insurance with our shops and stalls, where people Market burnt down. broker regularly, which can meet their friends and Overnight, local people lost resulted in us having the right family. We’re proud we helped the place where they went for coverage to be able to St Jacob’s Farmers’ Market to everything from antiques to recover.” This was a complex rise from the ashes – and take livestock. One business owner case, but John, our loss its place back at the heart of said it “felt like losing a home adjuster, quickly agreed a plan the community. – like you weren’t going to see of action and we made a your family anymore.” substantial advance so the But local people resolved resurrection of the Farmers’ For video case study visit: that the market would rise Market could begin. Within a www.aviva.com/AR15

One of the best decisions we made was to review our insurance regularly

28 | Aviva plc Annual report and accounts 2015 Aviva plc Annual report and accounts 2015 | 29 42 radleyHow doesyeldar. it stack up?

The top 10 reporters in 2016

While they’re all very different companies, our top 10 It’s no surprise to see long-time HDISU top 10 reporters reporters share a commitment to open and transparent such as Fresnillo, Land Securities, British Land and communication. They tell their stories coherently, giving AngloAmerican again featuring in our list of the best – investors real insight into areas such as strategy as well but it’s good that they’ve been joined by a few new names. as the past year’s performance and future prospects. First-timers in the FTSE 100, Provident Financial Group worked hard to demonstrate the wider value the business This year, we’ve seen a change at the top, with ARM taking creates for customers, while Ashtead scored well with an the title for the first time. Communication is clearly important engaging discussion of the business model and market to ARM. The company understands the value of telling an environment. BT also made our top 10 on the back of engaging story with style, passion and transparency – and a consistent, detailed and balanced discussion around it’s not stretching the point to say that ARM’s recent high performance and risk. profile takeover by SoftBank could indicate how accurately the investment case has been presented. None of these reports are perfect. There are things they do well and others where there’s still room for improvement. However, on balance they provide the most transparent, coherent view of their particular businesses. They score highly across most of our criteria and are good role models for other reporters to follow on the journey towards a more joined-up, integrated approach to the annual report. HDISU? 43

1 2 3 4 5

6 7 8 9 10 44 radley yeldar.

Our top 10 reporters in 2016

3 Land Securities Energising our world

The places where we shop, work and play have a huge influence on our lives. Land Securities aims to meet the diverse needs of customers, communities and businesses – and this year’s report takes an engaging, compelling look at the company’s progress. Land Securities scores highly on all our criteria, but does exceptionally well in our ‘How sustainable is the business’ category. The governance section

goes further than describing board activities, using ANNUAL REPORT case studies to demonstrate governance in action. 2016 The risk section is equally clear, featuring helpful graphics and content that is linked back to the strategy. The report highlights the way that properties affect people in their daily lives, using detailed case studies backed up by lively photography and quotes that have the ring of authenticity about them. The language is clear throughout, presenting the investment case with transparency and verve. Overall, this is a great read.

19 32

34 HDISU? 45

Land Securities Annual Report 2016 1 STRATEGIC REPORT PROFIT BEFORE TAX TOTAL PROPERTY TOTAL SHAREHOLDER STRATEGIC REPORT INCLUDING VALUATION SURPLUS RETURN RETURN1 OUR PURPOSE IS TO 14 Chief Executive’s statement LAND 16 Our market m % % 18 Our business model SECURITIES £1,335.6 11.5 -9.6 20 Development timeline 2015: £2,416.5m 2015: 23.0% 2015: 26.3% PROVIDE THE RIGHT 22 Strategy AT A GLANCE 24 Investing through the lifecycle TOTAL BUSINESS RETURN1 DIVIDEND PER SHARE2 25 Our strategy in action SPACE FOR OUR 26 Key performance indicators We are the largest listed 28 London Portfolio review 13.4% 35.0p 32 Retail Portfolio review commercial property 2015: 30.7% 2015: 31.85p CUSTOMERS AND 36 Financial review company in the UK by 42 Physical review 44 Social review market capitalisation. OUR COMMUNITIES – 46 Managing risk COMBINED PORTFOLIO VALUE 50 Going Concern and

We buy, sell, develop Viability Statement GOVERNANCE LONDON HELPING BUSINESSES and manage commercial West End offices 22.5% GOVERNANCE property, with a focus City offices 12.5% 52 Letter from the Chairman Central London shops 10.1% TO SUCCEED, THE 54 Board of Directors on offices, retail and leisure Mid-town offices 9.2% 56 Executive Committee Inner London offices 2.2% 57 Leadership in London, and retail and £14.5bn Other 0.3% ECONOMY TO GROW 60 Letter from the Chairman of leisure outside London. RETAIL the Nomination Committee Shopping centres and shops 26.2% 61 Effectiveness Retail parks 6.2% AND PEOPLE TO THRIVE. 63 Letter from the Chairman of Our vision is to be the best property company the Audit Committee in the UK in the eyes of our customers, our Leisure and hotels 10.7% Other 0.1% 65 Accountability communities, our partners and our employees. 69 Governance in action Our goal is to outperform our peer group in To ensure we provide the right space 71 Relations with shareholders terms of total shareholder return through the 72 Directors’ Remuneration Report property cycle. Here we show our financial we must constantly anticipate and meet 86 Directors’ Report performance over the last 12 months and 3,4 4 2 REVENUE PROFIT ADJUSTED DILUTED EARNINGS DIVIDEND FINANCIAL STATEMENTS beyond. £m PENCE PER SHARE PENCE PER SHARE people’s changing needs, using our FINANCIAL STATEMENTS 362.1 45.7 35.0 90 Statement of Directors’ 319.6 329.1 insight and experience to inspire how Responsibilities 299.4 41.5 290.7 40.5 91 Independent Auditor’s Report 38.5 we shape our buildings. 95 Income statement 36.8 31.85 95 Statement of comprehensive 30.7 29.8 income 29.0 This year we highlight some of the gems 96 Balance sheets 97 Statements of changes in equity in our portfolio, the key things we did at 98 Statement of cash flows those places during the year, and how 99 Notes to the financial statements ADDITIONAL INFORMATION 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 people use and enjoy our space. 144 Business analysis – Group 148 Business analysis – London ADJUSTED DILUTED NAV VALUATION SURPLUS4,5 ADJUSTED NET DEBT AND LTV 149 Business analysis – Retail PENCE PER SHARE £m RATIO4 150 Sustainability reporting ADDITIONAL INFORMATION 1,434 2,036.9 4,400 50 154 Combined Portfolio analysis 1,293 4,290 156 Lease lengths 4,200 4,172 156 Development pipeline 1,013 4,000 3,981 3,948 158 Five year summary 40 863 903 160 Acquisitions and disposals 3,800 161 Directors’ Remuneration Policy 907.4 165 Subsidiaries, joint ventures 3,600 Notes 763.8 Group LTV % and associates 1. Total Shareholder Return and total business return provide 30 shareholders with the clearest guide to the Group’s progress Adjusted net debt £m 3,400 167 Shareholder information in financial terms. 3,239 170 Key contacts and advisers 2. We aim to deliver a progressive dividend. 190.9 217.5 3,200 171 Glossary 3. Revenue profit is our measure of the underlying pre-tax profit of the Group. 3,000 20 172 Cautionary statement 4. Includes proportionate share of joint ventures and subsidiaries, 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 as explained in the notes to the financial statements. 5. The percentage change for the valuation surplus represents Adj. net debt LTV the increase in value of the Combined Portfolio over the year, The six charts above show the main components of our adjusted for net investment. most important indicator of progress – total return. Land Securities purpose is introduced at the start of the report 46 radley yeldar.

Our top 10 reporters in 2016

Land Securities continued

42 Land Securities Annual Report 2016 Strategic Report Land Securities Annual Report 2016 43

or the rich diversity of parkland at Bluewater, STRATEGIC REPORT NEW DEVELOPMENTS we already pay attention to biodiversity and CARBON TARGETS provide green infrastructure at many of our PHYSICAL We look to build assets that can create value assets; now we want to do more. In December 2015, world leaders met in Paris for us and our customers, communities and at the UN Conference on Climate Change, REVIEW partners for years to come. We are ambitious, known as COP21, to negotiate global cuts to imaginative and considered in the way we WELLBEING carbon emissions. The resulting agreement A focus on the materials and develop. commits countries to limit global warming Strategic Report Land Securities Annual Report 2016 23 We believe sustainable design helps When designing a new development we below 2°C and to ideally not go over 1.5°C. In technologies we use to create make our operations and assets more efficient consider the effect our space will have on the run up to COP21, Land Securities took part and operate our assets, and and cost-effective, minimises future operational everyone who encounters it – from office in the conference and was one of hundreds of costs, mitigates the business risk of changing occupiers and their employees to retailers, businesses that made significant pledges to the effect our spaces have regulation and creates resilient schemes with their employees and their customers; from action. In particular, we committed to: on people and the natural enduring appeal. It’s also what the people who visitors to neighbours; from people today to — Report climate change information in support us – from office occupiers to retailers, those who may experience the building ten or mainstream reports as a fiduciary duty environment. from Local Authorities to local communities – twenty years from now. By thinking in smart — Engage responsibly in climate policy expect from us. Where Part L is applicable, the and innovative ways we can create new space — Procure 100% of electricity from

building code for carbon emissions, our new that enriches people’s lives. Given the amount renewable sources. GOVERNANCE OUR TOP TEN ASSETS BY VALUE developments are being designed beyond the of time employees spend at work, and the requirements. We carry out embodied carbon preciousness of leisure hours, it’s vital our In response, we have set an ambitious 1 Cardinal Place, SW1 assessments at major developments and office and shopping centres are safe, healthy science-based carbon target: to reduce Landmark site home to blue-chip and enjoyable places to spend time. 2 currently divert 98.3% of waste from landfill. carbon intensity (kgCO2/m ) by 40% by 2030

STRATEGIC REPORT businesses and retailers You can see a timeline of our recent compared to a 2013/14 baseline for property Annualised net rent £33.4m developments on pages 20–21 of this Annual under our management for at least two years. Report, and you can read what other people This target will set us on the path to achieve ENERGY 2 New Street Square, EC4 think about our approach – at Oxford and our long-term ambition of an 80% carbon Contemporary offices with retail and Victoria – on pages 2–13. intensity reduction by 2050. For many years we’ve worked to reduce our restaurants 23.61m energy requirements through active energy Annualised net rent £32.2m Amount of space we own in sq ft management at our sites. We focus not only on the energy used within landlord-controlled 3 Bluewater, Kent BIODIVERSITY 100% RENEWABLE ELECTRICITY areas but also the energy used by our MARKET CYCLE The dominant shopping centre in the customers when sub-metered from landlord south east of England We have led our industry in understanding and From April 2016, our Group electricity contract minimising environmental impact and want to 85,000 went 100% renewable with the appointment supplies. We’re sharing the benefits of greater Annualised net rent £29.5m (LS share) continue that leadership in our approach to Number of plants in our green walls in of Smartest Energy as our new provider. We efficiency with our customers, helping them

to meet regulatory obligations and reduce FINANCIAL STATEMENTS 4 One New Change, EC4 wildlife and natural systems. These systems central London were also the first property company in the their energy bills. Our aim is to self-generate Office and leisure destination in an sustain our business, our communities and UK to join RE100, a collaborative initiative of How we aim to as much of the energy consumed at our iconic building each of us as individuals. We have a strategic influential businesses committed to 100% properties as possible. We are working to Annualised net rent £29.2m target to ‘maximise the biodiversity potential of renewable electricity. The contract helps our operational and development sites’ and 27 secure a competitive price for our customers achieve this at design, by selecting the least 5 Trinity Leeds have been working with The Wildlife Trusts to Number of nationally rare and protected with great service levels, and it also enables carbon intensive technologies possible, and by match our activity Superb 778,000 sq ft retail understand what this means for us in practice species of plants and animals in them to reduce their carbon impacts too. For retrofitting technologies such as photovoltaics on some of our shopping centres and other destination developed by us and what we need to do to achieve it. Whether Bluewater’s parkland us, the new deal also means better contract Annualised net rent £27.9m it’s the new green roofs at 1 & 2 New Ludgate terms including lower management costs, assets. better payment terms and a strong service 6 1 Sherwood Street/Piccadilly Lights, W1 level agreement. to the movements Offices, retail, leisure and a world THE BREADTH OF OUR SUSTAINABLE DESIGN AND INNOVATION AT WESTGATE OXFORD famous advertising landmark Annualised net rent £19.6m 15% CLIMATE RISKS Reduction in energy consumption in our 7 20 Fenchurch Street, EC3 five largest energy consuming assets 687,900 sq ft of offices and a unique Energy Climate change is bringing increasingly consWater of the market. um erratic and severe weather conditions. In the against a 2013/14 baseline Communityagement pti public Sky Garden ng on

e ADDITIONAL INFORMATION Annualised net rent £2.9m UK this includes hotter, drier summers; warmer, Mate n wetter winters; sea levels rising; and increases lutio rial 8 Gunwharf Quays, Portsmouth Pol s in extreme weather events such as heavy Outlet shopping, leisure and rain and heatwaves. It is important for us to GWH

WESTGATE Waste 1.84 entertainment on a waterfront location h & review our assets, particularly older buildings, WASTE Power capacity generated this year from alt OXFORD

ellbeing

He Annualised net rent £26.4m w SUSTAINABILITY in relation to future climate projections. renewables installed across our portfolio COMMITMENTS Understanding the risks and acting accordingly More than 10,000 tonnes of waste is

Co mana generated at our properties each year. We 9 Queen Anne’s Gate, SW1 nstr sk ri will ensure that our portfolio is sufficiently SELL gementuction offer our building occupiers the facilities BREEAM ‘Excellent’ offices: built by us in Flood resilient to climate change, so we can continue 1977, refurbished in 2008 to provide the right space for our customers needed to dispose of their waste, and it’s our Co TONNES mmun g facilitie logy &n responsibility to ensure that this is done safely, Annualised net rent £30.9m ity o s Ec and communities. 270 landscapi Annual carbon emissions saving from our Transport securely and sustainably. Reflecting our drive Selling some assets at 10 1 & 2 New Ludgate, EC4 to be leaders in our sector, this year we reset hydrogen fuel cell at 20 Fenchurch Street 382,300 sq ft of modern, technically our overall recycling target from 70% to a more resilient office space, restaurant and retail ambitious 75%, and achieved an average the right point in a rising Annualised net rent £1.0m recycling rate of 72%. market means value can BUY be crystallised and the Falling values portfolio can be biased bring opportunities towards high quality to buy assets at Business activities are assets with long lease attractive prices. lengths. discussed in relation to DEVELOP Starting schemes at the movements of the market

right point in a rising P S R GOVERNANCE E O U P market helps maximise L E A R V T value and minimise risk. Y Y T V R A E L P U O E R MANAGE S P Active management of assets through the cycle helps to reduce voids and ensure space meets occupiers’ changing needs.

cycle so we benefi t from lower We put strong emphasis on construction costs, aiming to creating attractive, well- deliver completed schemes while considered space where people demand from customers is rising will want to spend time and return and levels of available space are frequently. We help customers low. We generally develop pursue multi-channel strategies FINANCIAL STATEMENTS LONDON speculatively so we monitor RETAIL and we ensure our environments changing conditions forensically. use new technology to enhance The London offi ces market sees We are drawing our major The retail property market is less the shopper’s experience. We marked periods of over- and development programme to a volatile than London offi ces and is de-risk developments by seeking under- supply, and demand can close for this cycle. We have plenty fundamentally driven by long-term substantial pre-lettings before we move from one phase to another of options for development within structural changes, such as the start construction. And we ensure quite quickly. We create value by our portfolio – and the fi nancial eff ect of the economy on we contribute to the environmental, developing space in line with the capacity to acquire development consumers or the impact of online social and economic fabric of the cycle; strengthening income sites – as we move into a new cycle. retailing. We are seeing increasing local area and community, which through smart asset management; With every development we aim demand for high quality space in helps to make our centres busy and and recycling capital through to create a positive environmental, thriving locations where visitors well regarded. well timed disposals and social and economic impact. can enjoy a great experience. acquisitions. We operate in central We create value by providing Manage London in areas we know well. Manage customers with new or more We are proactive managers, We are constantly in dialogue with effi cient space that can attract the constantly looking for opportunities Everything we do is driven by the our customers throughout their right shoppers and visitors in the to enhance our space in line with the need to meet the needs of our leases. This gives us fresh insight right numbers. Geographically, we changing needs of our customers ADDITIONAL INFORMATION customers, communities and and enables us to be proactive. are focused in the south east and and communities. We continually partners. We give particular This helps us to retain customers the best regional destinations. refresh the tenant mix in our centres attention to placemaking, and improve rental values resulting and are particularly focused on designing sustainable buildings, in greater portfolio resilience. Buy fi nding the most compelling blend enhancing public realm and We acquire when we see an of retail and leisure. facilities in and around our buildings. Sell opportunity to transform an We sell assets at appropriate under-managed property or land Sell Buy points in the cycle. Where possible, into a great destination for We dispose of an asset when we We aim to buy assets when values we aim to add value through asset shoppers and visitors. see opportunities elsewhere to are falling or low, or when we see a management or refurbishment use capital to create better, more long-term opportunity to enhance ahead of selling an asset. Develop valuable space with greater appeal. value. We use our close relationships Develop with retailers to ensure we For more on our London understand their changing needs. For more on our Retail We start to develop early in the Portfolio go to: pages 28–31 Portfolio go to: pages 32–35 Strategic Report Land Securities Annual Report 2016 47 STRATEGIC REPORT RISK MANAGEMENT PROCESS Diagram 16

1st line of defence 2nd line of defence RD OA 3rd line of defence B DIT AU AL RN NMENT TE VIRO EX EN TTEE OMMI T E C EC IV H UT N C O E L X O Y E T G I S Y R E U Identify & N C IO E assess R S L & E A Y D T E E R F S A

T L Monitoring Determine risk A MANAGING E & review response GOVERNANCE

H OUR RISKS

L I N A

T G E E R L N A L P O L Reporting & IC HDISU? 47 R IE communication S IS S L O K & R M T T A R N N AI O A NI C G NG AL IT E RN L D M TE O U E IN TR A NT N L O A C N E IAL R E NC E T FINA NT IT I M M O T C DI AU

Current and emerging 46 Land Securities Annual Report 2016 Strategic Report Land Securities Annual Report 2016 47

Our approach The identification of risk is a continual process. STRATEGIC REPORT In order to be the best property company Risks are identified through discussion with RISK MANAGEMENT PROCESS Diagram 16 risks are clearly identified in the UK in the eyes of our customers, our management, external agencies, stakeholders MANAGING communities our partners and our employees and government bodies. A full and detailed 1st line of defence 2nd line of defence we must understand and manage the risks review of the risks is undertaken with our RD OA 3rd line of defence B DIT RISK faced by the organisation. Risk is an inherent executive committees four times a year and AU

AL part of our business model. Our approach to RN MENT from this, and the feedback from our external E IRON XT NV risk is to be risk aware, not risk averse. advisors, the top Group risks, which form the E E FINANCIAL STATEMENTS TTEE The management of OMMI T The Board has overall responsibility basis for the principal risks and uncertainties, E C EC IV H UT N for the monitoring of risk management and as well as emerging risks, are challenged C O risk is embedded in our E L X O Y E T G the system of internal control. It recognises and validated by the Executive Committee. I DiagramS Y 17 CURRENT ASSESSMENT OF PRINCIPAL RISKS R E Identify & N everyday business U the importance of identifying and actively These risks are then presented to the Audit C IO E assess R S monitoring the full range of financial and Committee four times a year to ensure L & E activities and culture, with A Y D non-financial risks facing the business. By representatives of the Board are aware of, and T E E R F S all our employees having regularly reviewing the risk appetite of the contribute to, the latest position. In addition, a A S

business, the Board ensures that the risk risk session is held with the Board every two , H

T an important role to play. L Monitoring Determine risk exposure remains appropriate at any point years to ensure full Board participation in our A MANAGING E & review response GOVERNANCE in the cycle. Whilst it has chosen to delegate risk management process. Such a session was H OUR RISKS

L I N this responsibility to the Audit Committee, undertaken in 2015/16. A T G E E who are responsible for providing assurance Senior management from across the R L N over these areas, managing risk is embedded business will also attend the Executive A L P as part of our everyday business activities Committee and the Audit Committee to discuss O L Impact I Reporting & C and culture with all our employees having specific risk areas, such as cyber threat. R IE communication S IS S L O a role to play. Our Executive Committee are The Risk Management function, headed K & R M T T A R N responsible for the day-to-day management of by the Director of Risk Management and N AI O A NI C G NG AL IT E RN L D risks, which includes the ongoing identification, Internal Audit is responsible for facilitating M TE O U E IN TR A NT N L assessment and mitigation of risks as well as the risk discussions with the business, for O A C N E IAL R E NC TE T for the design, implementation and evaluation providing challenge and for coordinating FINA N IT I M M of the system of internal control and for the presentation of the risks to the executive CO IT ensuring its operational effectiveness. committees, the Audit Committee and UD H A EA Diagram 16 sets out our approach to the Board. GY LT managing risk and the link to the three lines of Internal Audit reviews internal controls Very high O H defence governance model for effective risk using a risk-based approach, and management L & management and internal control. on a quarterly basis self-certify that the key O FINANCIAL STATEMENTS N S We assess each risk on three factors: controls within its area of responsibility have CURRENT ASSESSMENT OF PRINCIPAL RISKS Diagram 17 H A likelihood; financial impact, both to income been operating effectively. F and capital values; and reputational impact, This year we have also undertaken a Impact C E from the business unit through to Group level. detailed sustainability materiality assessment HEA E Very high OGY LTH T L & O S We also consider the inherent (gross) risk to identify key risks and areas for focus. HN AF T EC ET Y T Y (the impact of the risk before any mitigating This has included reviewing current and action is taken) and the residual (net) risk (the forthcoming legislation, peer activity, and High risk that remains after the effect of mitigating interviews with our own people and external actions and controls are taken into account). stakeholders, including investors, customers, Medium 8 As a result of this analysis we identify principal supply chain partners and community groups. Low T 10 risks (current risks with relatively high impact The assessment has confirmed that energy N 9 P E 18 O Increase from last year M L I and certainty) and emerging risks (those risks and carbon, and sustainable building design N T I Decrease from last year O C R I A for which the extent and implications are not are our most material sustainability issues. V L High N yet fully understood). This also informs the Please refer to our Sustainability Report for Current principal risk areas E 7 business as to those risks that have a high more detail on our programme and priorities in 1 Customers 20 2 Market cyclicality dependency on the internal control systems, this area. 19 13 3 Development VERY HIGH HIGH MEDIUM LOW which then directly helps to focus the work of Diagram 17 shows our current assessment 4 People and skills the internal audit team. The business considers of the principal risks and the emerging risks we 5 Liability structure LIKELIHOOD ADDITIONAL INFORMATION the full range of external and internal risks, are monitoring. 6 Financing 17 15 7 Sustainability 4 including strategic, operational, people and 16 technology. A risk scoring matrix is used to 8 Health & safety 9 Security P 21 1 E L ensure a consistent approach is followed. O 14 A 10 Cyber P I L C E O S Medium Emerging risks 2 11 Lack of UK competitiveness 8 12 Tax 3 13 Political unrest 11 12 14 Business rates 15 Demographic change 6 16 Living wage 5 EC 17 Modern slavery act ON CE OM AN Low 18 Lack of innovation IC FIN 19 Resilience of portfolio to climate change 20 Energy supply 21 Organised crime T 10 N 9 P E 18 O Increase from last year M L I N T I Decrease from last year O C R 58 Land Securities Annual Report 2016 Governance Land Securities Annual Report 2016 59 I A L V BOARD COMPOSITION AND ROLES Table18 BOARD ACTIVITY Table 21 STRATEGIC REPORT N The Board currently comprises a Non-executive Chairman (who was independent on appointment), two Executive Directors and six Independent Non-executive Directors. They are advised and supported by the Group General Counsel and Company Secretary. Their key responsibilities are The diagram below shows the key areas of Board activity during the year. Current principal risk areas E as set out in the table below: 7 Chairman Dame Alison Carnwath Responsible for leading the Board, its effectiveness and governance and for monitoring and measuring progress against strategy and the performance of the Chief Executive. Ensures Board Strategy, property and funding Governance, stakeholders members are aware of and understand the views and objectives of major shareholders and other — Reviewed the Group’s strategy, in particular and shareholders key stakeholders. Maintains a culture of openness and debate and helps set the tone from the top its retail park strategy, and business — Discussed the outcome of the in terms of the purpose, vision and values for the whole organisation. development programme in the light of externally facilitated Board 1 Customers future property demand expectations evaluation and effectiveness review, Chief Executive Robert Noel Responsible for developing the Group’s strategic direction for consideration and approval by the — Debated the changing status of the property and agreed improvement 20 Board, implementing the agreed strategy, running the business day-to-day and leading the cycle, including the Company’s position, risk opportunities executive team. Maintains a close working relationship with the Chairman. profile and preparations for any business — Considered the Group’s 2020 impact sustainability strategy, including Chief Financial Officer Martin Greenslade Supports the Chief Executive in developing and implementing strategy, and in relation to the — Reviewed the Group’s performance versus progress versus annual targets and 2 Market cyclicality financial and operational performance of the Group. budget and targets, external benchmarks improvements planned and by reference to its peers — Reviewed regular health and safety

13 GOVERNANCE Independent Kevin O’Byrne, Chris Bartram, Responsible for bringing an external perspective, sound judgement and objectivity to the Board’s — Reviewed performance versus Board updates 19 Non-executive Directors Simon Palley, Stacey Rauch, deliberations and decision-making. Support and constructively challenge the Executive Directors approval for key schemes and assets — Reviewed developments in Cressida Hogg CBE and Edward using their broad range of experience and expertise. Monitor the delivery of the agreed strategy completed or developed corporate governance and received Bonham Carter within the risk management framework set by the Board. — Considered portfolio liquidity analysis and key legal and regulatory updates 3 Development development exposure — Reviewed the investor relations Kevin O’Byrne Acts as a sounding board for the Chairman and a trusted intermediary for other Directors. Senior Independent — Considered and approved disposals of strategy and regularly reviewed VERY HIGH HIGHDirector MEDIUMAvailable to discussLOW with shareholders any concerns that cannot be resolved through the normal Strategy, Governance, properties with a value in excess feedback from institutional channels of communication with the Chairman or the Executive Directors. Leads the other of £150m property and stakeholders and shareholders, roadshows and other independent Non-executive Directors in the performance evaluation of the Chairman. — Reviewed and approved the conditions funding shareholders engagement activities — Reviewed and approved the Group’s Group General Counsel Tim Ashby Provides advice and assistance to the Board, the Chairman and other Directors, particularly in around the redevelopment of Buchanan Galleries, Glasgow new purpose, vision and values as 4 People and skills and Company Secretary relation to corporate governance practices, induction training and development. Ensures that — Considered and approved the part of setting culture and tone from Board procedures are complied with, applicable rules are followed and good information flow the top exists to the Board and its Committees. The appointment and removal of the Company Secretary Group’s Going Concern and Viability Statements, dividend — Received regular meeting reports

is a matter for the Board as a whole. ADDITIONAL INFORMATION policy, debt funding arrangements, from the Chairman of the Audit, gearing levels and the early Remuneration and Nomination redemption of £400m of medium THE BOARD Committees 5 Liability structure LIKELIHOOD term notes Internal control — Reviewed and approved certain — Approved the relocation of the and risk annual fee increases for the BOARD MEETINGS AND ATTENDANCE Table 19 Company’s head office to Non-executive Directors. management Financial FINANCIAL STATEMENTS 80-100 Victoria Street, SW1. performance 6 Financing 17 15 AGM

Leadership and 7 Sustainability people 4 1 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sept 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 31 Mar 16

The number of Board and Committee meetings and their attendance by each Director during the year was as follows: Table 20 16 Audit Nomination Remuneration Internal control and risk management Financial performance 8 Health & safety Director Board Committee Committee Committee — Reviewed the Group’s risk register and the — Considered the financial Dame Alison Carnwath 8/8 2/2 3/3 effectiveness of the systems of internal performance of the business control and risk management and approved the annual budget, Robert Noel 8/8 — Undertook externally facilitated catastrophic key performance targets and five Leadership and people year plan Martin Greenslade 8/8 risk and reputational risk management ADDITIONAL INFORMATION Kevin O’Byrne 8/8 5/5 2/2 reviews — Discussed the composition of the — Reviewed the half year and annual P — Debated significant and emerging risks, Board and its Committees, including results and presentations to Chris Bartram 1 8/8 2/2* 2/2 1/1* succession planning analysts and approved the Annual 9 Security 21 including cyber-security, terrorism, the loss of Simon Palley 7/8 2/2 3/3 key people and the uncertainty arising from — Appointed a new Group General Report E Stacey Rauch 8/8 L 5/5 the imminent EU referendum. Counsel and Company Secretary — Considered the half year and full — Reviewed the development of people year valuation of the Group’s O 14 Cressida Hogg CBE 8/8 A 3/3** 2/2** and potential talent in the Group, portfolio by the external valuer Edward Bonham Carter 8/8 I 3/3 including succession planning for — Reviewed the Group’s tax structure 10 Cyber Senior Leaders and insurance programme. P * Chris Bartram stepped down from the Remuneration Committee and joined the Audit Committee on 23 July 2015, immediately post the AGM. ** Cressida Hogg stepped down from the Audit Committee and joined the Remuneration Committee on 23 July 2015, immediately post the AGM. — Discussed the results of the employee C engagement survey L — Approved and adopted new employee E O share incentive plans. S Emerging risks 2 11 Lack of UK competitiveness 12 Tax 3 Visually engaging 13 Political unrest 11 12 board activity 14 Business rates discussion 15 Demographic change 6 16 Living wage 5 EC 17 Modern slavery act ON CE OM AN 18 Lack of innovation IC FIN 19 Resilience of portfolio to climate change 20 Energy supply 21 Organised crime 48 radley yeldar.

Our top 10 reporters in 2016

2 Fresnillo Gold standard communication

The world’s leading silver miner and one of Mexico’s largest gold producers, Fresnillo operates in an industry facing significant pressures. The company’s response has been to produce an annual report that 2015 Report Annual plc Fresnillo is both detailed and transparent – and which goes a long way towards showing investors exactly how Fresnillo is rising to the challenges of its market environment. Fresnillo has a strong track record with HDISU over recent years, based on providing a consistently high level of detail. The company doesn’t shirk its responsibility to clearly lay out its aims and progress. Driving Long- Term Value This deep content is material and well‑linked from Solid across the report – investors are able to gain a Foundations

Fresnillo plc comprehensive and valuable understanding of Annual Report 2015 the business. The strategy pages are particularly noteworthy, with objectives, performance, next steps and KPIs all laid out clearly. Risks are also covered with style and expertise, including a transparent explanation of how those risks have evolved during the year.

Fresnillo plc Fresnillo Today Fresnillo plc Fresnillo Today Annual Report 2015 Driving Long-Term Value from Solid Foundations Annual Report 2015 Driving Long-Term Value from Solid Foundations Fresnillo TodayFresnillo

Our Investment Case

Our solid foundations provide a competitive Report Strategic advantage in the mining industry and position us to drive long-term value.

p95 p50–65 p50–59 p60–61 p66–86

Strong balance sheet High quality assets Low cost Disciplined Commitment and flexible approach to to sustainable operations development business practices Governance Corporate

How this drives value: operational flexibility, How this drives value: long-term visibility, How this drives value: healthy How this drives value: long-term How this drives value: licence to Statements Financial investments for growth, returns to shareholders long life returns margins, adaptability across profitable growth operate price cycles We aim to maintain a strong financial position with a healthy cash We are amongst the largest concession holders in mineral-rich 23 balance and a low leverage ratio. This enables us to balance Mexico. We hold a portfolio of low cost gold and silver mines, high Our high quality assets allow us to extract Our development projects meet stringent We understand the needs of our local investment in profitable growth with returns to our shareholders, potential development projects and advanced exploration prospects, mineral profitably even in depressed metal viability criteria, including environmental and communities and prioritise local goods and while optimising our operations. Even in the current metal price with a focus on district consolidation that allows us to leverage our price environments, with all-in sustaining social impact, sustaining capital expenditures service for our operations, continue to work environment, we were able to invest US$474.7 million in capex, local knowledge and achieve significant synergies through shared costs below average realised prices at each and rates of return. Delivery timelines and to ensure the safety and health of our US$140.2 million in exploration and pay out US$37.5 million in infrastructure. of our mines in 2015. We benefit from the budgets are optimised to allow us to advance people, and strive for continuous dividends, and still close the year with a strong cash position of ability to tailor mine plans and leverage towards our production targets whilst improvement in minimising our US$500 million and low leverage. expertise, and within our districts to share adjusting for adverse market conditions to environmental footprint. This is essential not personnel and plant capacity accordingly. We maintain a healthy financial position. only for operational continuity but in order to optimise performance with a focus on drive value for all our stakeholders. We continuous improvement in productivity and invested US$19.06 million in our HSECR efficiency, and lower unit consumption of initiatives in 2015, following an investment of operating materials and energy. In 2015 cost US$20.54 million in 2014. HERRADURA NOCHE BUENA per tonne decreased at four of our five TAJITOS operating mines. CENTAURO DEEP

ORISYVO Net debt: EBITDA GUAZAPARES

0.55x SAN JULIAN Total hours of safety training

As at 31 December 2015 CIENEGA RODEO Vibrating screens at Saucito result in capacity Construction of milling area at San Julián (US$m) CONETO increase nears completion SAN RAMON 355,635 GUACHICHIL 114,817 101,468 37,155 12,459 26,057 63,679 355,635 Cash balance 500 FRESNILLO COYOTES JUANICIPIO Exploration at operating units Senior -800 SAUCITO notes Exploration at development projects HUIZACHE GUANAJUATO Exploration projects under drilling Net -300 Exploration prospects LA JOYA 27 debt Interesting results 2015 Fresnillo Saucito Herradura Noche Ciénega San Total -800 -700 -600 -500 -400 -300 -200 -100 0 100 200 300 400 500 Buena Julián 08 09 32

34 HDISU? 49

Fresnillo plc Strategic Report Fresnillo plc Strategy Annual Report 2015 Driving Long-Term Value from Solid Foundations Annual Report 2015 Driving Long-Term Value from Solid Foundations Fresnillo TodayFresnillo

Key Performance Indicators continued 3 Explore

Our performance in the year: 2015 exploration investment 2016 exploration budget Report Strategic US$151m US$135-140m 3

2015 objectives 2015 performance 2016 objectives Governance Corporate Our 2015 exploration programme was mainly focused on areas of influence at our current operating mines > US$170 million budgeted for exploration, > US$151 million invested in exploration, > US$135-140 million budgeted for including capitalised expenses including capitalised expenses exploration, including capitalised expenses and key exploration sites. > Juanicipio: continue construction of the > Juanicipio: construction advanced, > Juanicipio: detailed engineering, further See pages 62–65 decline and further geological investigation exploration resulted in 27.3% and 10.1% exploration increase in gold and silver resources; project will be developed on a stand-alone basis > Orisyvo: conclude preliminary economic > Orisyvo: completed PEA; project currently assessment (PEA) deferred > Continue our exploration programme to > The conversion from resources to reserves > Ongoing exploration to convert resources gradually convert resources into reserves in our mines was insufficient to replenish into reserves at mines and at key projects at our mines and at key projects silver reserves, except at Saucito. Resource Statements Financial upgrade at Candameña increased measured and indicated resources by 0.6 million gold ounces

For project and prospect specific information see pages 62–65

3 Explore KPIs Total resources (attributable) Quantifies measured, indicated and inferred resources at all our assets; an indicator of the Group’s growth potential and ability to discover and develop new ore bodies.

Attributable silver resources Attributable gold resources Millions of ounces Millions of ounces 1,970.7 35.5 1,811.1 2,038.8 2,140.3 2,008.4 1,970.7 27.5 31.2 33.5 34.1 35.5

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Silver resources decreased by 1.9% mainly due to changes Gold resources rose 4.2% as a result of increases at Rodeo, in vein modelling and deep drill-hole results at Saucito and Guachichil, Candameña, Guanajuato and Saucito. lower silver price assumptions at San Julián. This was partly mitigated by increased silver at Huizache, Juanicipio, Ciénega and Guanajuato.

Exploration activities at Herradura

30 31

Progress against the year’s objectives are succinctly discussed and objectives for the year ahead identified 50 radley yeldar.

Our top 10 reporters in 2016

Fresnillo continued

Demonstrating the change in risk over Fresnillo plc Strategic Report Fresnillo plc Strategy the year Annual Report 2015 Driving Long-Term Value from Solid Foundations Annual Report 2015 Driving Long-Term Value from Solid Foundations Fresnillo TodayFresnillo

Managing our Risks

Risk is inherent in all business activities. We maintain a Risk management system Report Strategic The annual and ongoing elements of comprehensive risk management framework that serves to identify, the Group’s risk management process 2 are controlled by well-established risk assess and respond to our principal risks. Our approach is not Severe identification, assessment and monitoring 2 intended to eliminate risk entirely, but rather to provide the structural 1 processes. We have progressed in means to identify, prioritise and manage the risks involved in our embedding a risk management culture 3 activities in order to support our value creation objectives. amongst all employees, however this is an 7 7 ongoing process and we are still working to 4 4 demonstrate this with evidence collected 6 3 through the monitoring of our controls to 5 mitigate risks. 11 Governance In accordance with our governance practices, Executive Management reviews strategic 9 The Board of Directors is responsible the Audit Committee supports the Board of objectives and risk appetite, assesses the We have continued to build on our existing Governance Corporate for maintaining the Company’s risk Directors in monitoring the Company’s risk level of risk related to achieving these risk management framework, enhancing risk management and internal control systems. exposures and is responsible for reviewing objectives, and incorporates controls into management and internal control systems Impact 8 8 10 The Board’s mandate includes defining risk the effectiveness of the risk management the strategic and operating plans to mitigate across the business in line with changes to appetite and monitoring risk exposures to and internal control systems. The Risk them. This top-down risk identification and the UK Corporate Governance Code. ensure that the nature and extent of Manager and Internal Audit support the assessment process helps to ensure that significant risks taken by the Company Audit Committee in evaluating the design the bottom-up process performed at the In addition to the permanent risk are aligned with our overall goals and and operating effectiveness of the risk business unit level is aligned with and management activities, our priority for strategic objectives. mitigation strategies and the internal focused on current strategy and objectives. 2016 is to continue promoting a ‘monitoring controls implemented by management. environment’ which consists of validating the effectiveness of our current controls in order to support the Board in their

responsibilities, which include monitoring Statements Financial and reviewing risk management and the Verylow Likelihood internal control systems. Unlikely Almost certain 2015 risk assessment The annual risk assessment exercise across X 2015 X 2014 all our operations, advanced projects, Risk management framework diagram exploration offices, support and corporate Risk* areas identified and evaluated 104 risks in 1. Impact of global macroeconomic developments (silver and gold prices) (v) 2015. This universe was narrowed down Top-down The Board into major risks monitored by Executive 2. Access to land (v) Oversight, identification, > Has overall responsibility > Sets strategic objectives > Monitors the nature and > Provides direction on the Management and the Audit Committee, and 3. Potential actions by the government (e.g. taxes/more stringent regulations) (v) assessment and for the Group’s risk and defines risk appetite extent of risk exposure importance of risk then further consolidated into 11 principal 4. Security mitigation of risk at management and against risk appetite for management and risk risks closely monitored by Executive corporate level internal control systems our principal risks management culture Management and the Board of Directors. 5. Public perception against mining 6. Projects (performance risk) (v) For the bottom-up process, the teams in 7. Safety charge of each business unit determined the Executive Committee Audit Committee Internal Audit 8. Union relations > Assesses and mitigates our risks > Supports the Board in monitoring > Supports the Audit Committee in perceived level of risk for their individual unit. Company-wide risk exposure against risk appetite reviewing the effectiveness of our Executive Management then reviewed and 9. Exploration > Monitors our risk management > Reviews the effectiveness of our risk management and internal challenged each perceived level through the 10. Human resources process and internal controls risk management and internal controls systems evaluation of certain controls and relative risk 11. Environmental incidents (v) controls systems levels, and compared it to Fresnillo plc’s risk Bottom-up universe as a whole. The result of this * Bold text indicates those risks which have changed during 2015. Identification, Operational level exercise is used as another input for the (v) Risk that was considered for the viability assessment as detailed on page 48. assessment and > Risk management process and > Risk identification, assessment > Risk awareness and safety culture selection of the principal risks of Fresnillo plc. mitigation of risk at internal controls embedded across and mitigation performed across embedded across the business The same risk analysis was conducted on We believe there were a number of impacted and also profit sharing to business unit level and functional areas, mining operations, the business advanced projects, detailing the specific risks across functional areas developments in 2015 that have the employees and union workers has projects and exploration sites faced by each project according to the potential to adversely impact the entire decreased. As a result of these changes we unique characteristics and conditions of each Mexican mining industry. These include determined that the following risk rating site. The risk heat map for each business unit Mexico’s transition towards indigenous levels facing Fresnillo plc have increased: and development project is included in the consultation (which is an emerging initiative ‘potential actions by the government’, Review of Operations (pages 50 to 61). but worth monitoring); the perceived level ‘security’, ‘access to land’ and ‘union of corruption across Mexico remaining relations’. As with all our key risks, the Board high; continued legal challenges to the and the Executive Committee continue to mining industry by individuals and local closely monitor them. communities who may seek to disregard previous land agreements; and due to lower metal prices, profit levels have been

36 37 HDISU? 51

Managing our Risks continued

Fresnillo Potentialplc actions by the government e.g. implementation of more stringent regulations for obtaining permits, etc. StrategySecurity Report Strategic Risk description Response/mitigation Risk appetite Link to strategy Risk description Response/mitigation Risk appetite Link to strategy We face the risk of implementation of new Indigenous consultation is an ongoing topic, thus Low > Mines in operation Our people, contractors and suppliers face We closely monitor the security situation, maintain Low > Mines in operation governmental requirements that will have we will continue monitoring developments and > Development projects the risk of kidnapping, extortion or harm due clear internal communications and coordinate > Development projects Annual Reportan adverse impact on us, or2015 other potential, working with the Mexican Mining Chamber to try Drivingto security conditionsLong-Term in the regions where work in areasValue of higher insecurity, alongfrom with the Solid Foundations not yet materialised, new or more stringent and reach agreements that will benefit both Risk rating (relative position) > Growth pipeline we operate. We face the risk of restricted following practices to manage our security risks Risk rating (relative position) > Growth pipeline ecological or explosives regulations or more parties going forward. 2015: Very high (3) > Sustainable access to operations/projects and theft and prevent possible incidents: 2015: Very high (4) > Sustainable difficult processes to grant permits. 2014: Very high (4) development of assets. 2014: Very high (3) development Nevertheless, such a huge change in the Mining > We maintain close relations with authorities, During 2015, Mexico’s Supreme Court of Law could take time due to the complexity of the The influence of drug cartels, other criminal including army encampments installed nearby Justice heard a case relating to an injunction terms and proceedings yet to be discussed. Key risk indicators elements and general lawlessness in the Key risk indicators certain of our operations. We also reinforce our TodayFresnillo which analysed the merits and relevance of regions where we operate, combined with the right of indigenous communities to prior We continue collaborating with other members of > Number of media our exploration and project activities in relationship with the army secretariat at the > Total number of and informed consent within the overall the mining community via the Mexican Mining Change in heat map: mentions related to areas of transfer or cultivation of drugs, regional level in order to align and coordinate Change in heat map: security incidents process for granting mining concessions. Chamber to lobby against new detrimental taxes/ mining regulations (i.e. makes working in these areas of particular efforts. affecting our workforce Governance Corporate Should the Court find in favour of the royalties or regulations. We also support the tax/royalties/banning risk for us. > Travel management e.g. travel in convoy, use (thefts, kidnapping, industry’s lobbying efforts to improve the general indigenous communities, a step towards of mining activities in aircraft versus land travel (when possible) and extortion, etc.) public’s understanding of the Mining Law. creating precedent in this regard will have Description of risk change protected areas/legal avoid known insecure areas. Description of risk change > Number of sites been taken that could eventually affect the precedents) and profile We uphold strict controls on receiving, handling, The indigenous consultation > In 2015 we developed the engineering for the Continued increased state of affected and work granting of new concessions in Mexico. of those quoted storing and dispatching explosives in each of topic is being given greater standard of technological and physical security insecurity in the regions where days lost, by region (political parties, our operations and projects to maintain our focus in Mexico. This topic is measures for all of our business units. We we operate. and type of site government officials, explosives permits. currently not yet regulated by started the implementation of this engineering etc.) We have suffered minor > Number of media the Mexican Mining Law as which is expected to be concluded in 2016. security incidents to contractor mentions related to such, however Mexico ratified security issues the “Indigenous and Tribal > We contracted security personnel (internal and personnel; that said, incidents affecting the mining Peoples Convention” issued by contractors) to improve the efficiency of our are getting closer to our industry the ILO (International Labour security strategy. operations and more frequent.

Organisation) which states: “... > We continued to utilise logistics controls in 2015 Statements Financial governments shall establish or to further reduce the probability of theft of maintain procedures through mineral concentrate, including the use of which they shall consult these real-time tracking technology and the use of peoples, with a view to guard services and control checkpoints in a ascertaining whether and to “safe corridor,” and reduced authorised stops in what degree their interests order to optimise delivery times and minimise would be prejudiced, before the convoys’ exposure. undertaking or permitting any programmes for the > We invest in community programmes, exploration or exploitation of infrastructure improvements, and government such resources pertaining to initiatives to support development of lawful their lands. The peoples local communities and discourage criminal concerned shall wherever acts. possible participate in the > In order to ensure the security of our personnel, benefits of such activities, and shall receive fair compensation access to the San Nicolas del Oro prospect for any damages which they remains suspended because of the state of may sustain as a result of such insecurity in Guerrero state. activities.” > Rotation of personnel to reduce their exposure to certain regions. Another factor to increase the level of this risk is the perceived > Promote reporting to authorities amongst our level of corruption across contractors. Mexico, which remains high. We share a general industry view that local and regional government levels in particular have regrettably worsened notwithstanding the national effort of the anti-corruption system, which as of today is not yet fully deployed. This situation might as a result cause a delay in obtaining

permits for certain operations Report Strategic Security and/or projects. Risk description Response/mitigation Risk appetite Link to strategy Our people, contractors and suppliers face We closely monitor the security situation, maintain Low > Mines in operation 40 41 the risk of kidnapping, extortion or harm due clear internal communications and coordinate > Development projects to security conditions in the regions where work in areas of higher insecurity, along with the > Growth pipeline we operate.Describing We theface the risk of restricted following practices to manage our security risks Risk rating (relative position) accessrisk to indicators operations/projects and and theft and prevent possible incidents: 2015: Very high (4) > Sustainable of assets.clearly linking risk 2014: Very high (3) development > We maintain close relations with authorities, The influenceto the strategy of drug cartels, other criminal including army encampments installed nearby elements and general lawlessness in the certain of our operations. We also reinforce our Key risk indicators regions where we operate, combined with our exploration and project activities in relationship with the army secretariat at the > Total number of areas of transfer or cultivation of drugs, regional level in order to align and coordinate Change in heat map: security incidents makes working in these areas of particular efforts. affecting our workforce Governance Corporate risk for us. > Travel management e.g. travel in convoy, use (thefts, kidnapping, aircraft versus land travel (when possible) and extortion, etc.) avoid known insecure areas. Description of risk change > Number of sites > In 2015 we developed the engineering for the Continued increased state of affected and work standard of technological and physical security insecurity in the regions where days lost, by region measures for all of our business units. We we operate. and type of site started the implementation of this engineering We have suffered minor > Number of media which is expected to be concluded in 2016. security incidents to contractor mentions related to > We contracted security personnel (internal and personnel; that said, incidents security issues contractors) to improve the efficiency of our are getting closer to our affecting the mining security strategy. operations and more frequent. industry

> We continued to utilise logistics controls in 2015 Statements Financial to further reduce the probability of theft of mineral concentrate, including the use of real-time tracking technology and the use of guard services and control checkpoints in a “safe corridor,” and reduced authorised stops in order to optimise delivery times and minimise the convoys’ exposure. > We invest in community programmes, infrastructure improvements, and government initiatives to support development of lawful local communities and discourage criminal acts. > In order to ensure the security of our personnel, access to the San Nicolas del Oro prospect remains suspended because of the state of insecurity in Guerrero state. > Rotation of personnel to reduce their exposure to certain regions. > Promote reporting to authorities amongst our contractors.

41 52 radley yeldar.

Our top 10 reporters in 2016

1 ARM Shaping the future of reporting

This is a great report – one that the reporting team The hero pages include work that wouldn’t look of any company in any sector would be proud to out of place in a poster campaign targeted at call its own. consumers. Arresting and intriguing, these spreads stop the reader in their tracks before delivering key The temptation for a business like ARM – which information on how ARM is changing our world. produces the technology that is shaping the connected world – is to fill its annual report with The strategic report narrative tells a complex story futuristic imagery. But while the ARM report does in a simple yet powerful way. The business model, use photography of chips and mobile phones, the for example, presents a compelling investment case feature spreads are very much rooted in the world and the strategy demonstrates a continued drive around us. Panoramic shots of city skylines give towards strong year-on-year performance. Logic and ARM the opportunity to show the bigger picture, transparency abounds on these pages – you can demonstrating how its technology is transforming see the linkages, understand the business, identify everyday lives and changing the way we work and progress and see opportunities for the future. play for the better.

ARM Holdings plc Annual Report 2015: Strategic Report We shape the connected world

36 28 HDISU? 53

Automotive autonomy Generating energy effectively Wearable technology Mobile computing Smart city streets Intelligent networks Smarter homes ARM’s technology is Cars are becoming mobile computing platforms. Wind turbines and solar panels can be made Smart watches, biometric-monitors and ARM-based mobile computers, including City infrastructure from street lights to car Broadband and mobile phone network speeds Cost-efficiency in the home can be improved More sensors and cameras are being included more effective by including technology that augmented reality headsets are intelligent, smartphones, tablets and some laptops are, parking meters can be made more effective by are increasing, and latency decreasing, enabling through learning thermostats that understand to assist the driver with lane detection, reading controls and monitors the wind turbine, and connected devices that can give us extra for many people, the primary device for their embedding intelligent chips. Street lights that new services for operators to provide to your daily routine, domestic appliances that use shaping the way we roadside signage and identifying potential hazards aggregates data across the entire wind farm. information to improve our health and work, whether in an office or on the road; can dim when no one is nearby will save energy consumers and enterprises, from delivering advanced algorithms for calculating water and or people crossing the road. In time, driver wellness, or just to help us have more fun. for researching and writing school assignments; and reduce carbon emissions, and prognostics in more movie and TV options to collating and detergent requirements, and smart meters that all live our lives; in the assistance may lead to a fully automated vehicle. and for engaging with friends. the lighting system can detect faults before they analysing data from sensors. give information on energy usage, allowing the occur, thereby reducing maintenance costs and householder to make better decisions. home, as we travel, at improving reliability. school or work, and as we have fun with our friends

ARM’s growing market 10 ARM Strategic Report 2015 ARM Strategic Report 2015 Overview Strategy Performance Commitment Financials 11 is closely aligned to the Mobile computing Efficient networking infrastructure technologies they offer Connecting us to each other, Moving more data, without using more energy and our data

For many people, mobile computers, including At the same time, basic smartphones are becoming Networking infrastructure equipment moves Total available market (TAM) for smartphones and tablets, have become their primary cheaper and are proliferating across the world. Networking infrastructure data around the world. It includes mobile phone mobile applications processors* device for sending emails, browsing the internet and In developing economies and in remote parts of the base stations, WiFi hotspots in cafés and train engaging with friends on social networking sites. world, smart mobile devices are allowing people stations, corporate networks, cable and satellite to be better connected, not just to each other, but TV distribution, video-on-demand servers and the Over the past few years most of the innovation also to education and information, and banking and entire infrastructure of routers and switches that in smartphones has been along conventional medical services. Even these basic smartphones can connects the internet together. Huge numbers of TAM Value TAM Value parameters; speed of the main chip, screen size and contain several chips that utilise ARM processor and 2015 chips are needed within these systems and analysts* 2015 connectivity. And these are going to continue to be physical IP technology. ** estimate that there were about 140 million chips ** important drivers of innovation. sold for use in networking infrastructure in 2015, $18bn Today ARM-based application processors can be $13bn worth about $13 billion. Other technologies are now being introduced into found in about an 85% share of mobile devices, smartphones. Sensors, such as microphones, noise including smartphones, tablets and laptops. Over the The network operators who own and run these cancellation technology and location awareness, past five years this market has grown by an average networks believe that they can offer new services are being integrated into your mobile computer, of 30% per year. Analysts predict that the average Smartphones that cost less than to consumers and enterprises that will generate ARM Market Share 15% of chips ARM Market Share 85% of chips enabling it to do more than it has ever been able to annual growth rate to 2020 of this market is $100 are taking mobile technology new revenue streams for them. However, networks do before. Next generation smartphones will be expected to be about 7%. Although this is a lower to developing economies, enabling everyone to connect not just to their today are mainly built up using fixed function able to interact better with other devices; sharing rate of growth, it still makes mobile computing one families and friends but also to medical hardware, requiring relatively simple chips to control information such as context or location. This will of the fastest growing markets in the semiconductor and banking services. them. Operators want to transition these networks enable them to change their behaviour when you industry, which will continue to benefit ARM. to much more intelligent and flexible systems, are at home, in your car, or in the office or at school. requiring sophisticated computer chips that will Future mobile devices will be able to interact with run new software that is being created to enable you in a much more natural way; understanding these new services. All of the major semiconductor TAM Value what you say, reading your handwriting, and TAM Value companies that make chips for this market have 2020 recognising your gestures. The smartphone is going 2020 licensed an ARM processor to help them add more to significantly improve over the next few years, intelligent chips to their product portfolios. $25bn and all of this is going to require more processing $16bn ARM is well positioned to gain share capability and more technology from ARM to enable ARM is confident that ARM-based chips will gain in networking infrastructure as future it to happen. share, however the rate of share gain is harder to networks require more flexible compute capability, and all the major chip vendors predict as it depends on many factors including the for this market have already licensed investment plans of network operators. ARM technology. ARM Target Market Share ARM is targeting ARM Target Market Share 45% of chips to at least maintain market share

* Including smartphones, tablets and laptops. ** Based on ARM and market data. ** Based on ARM and market data. * Gartner, December 2015. 54 radley yeldar.

Our top 10 reporters in 2016

ARM continued

14 ARM Strategic Report 2015 Fish are better with chips

In South Korea, fish farmers are growing healthier fish through the combination of smart, ARM- based technology and SK Telecom’s mobile communications systems. By installing wireless, intelligent sensors in their fish ponds, farmers can measure variations in water quality and nutrient levels, helping them know when to feed the fish, or to attend to a maintenance task. As these fish farms are usually in remote regions and coastal areas, only wireless technology was cost-effective.

Find out more about innovation by ARM’s Partners in a range of end markets visit: www.arm.com/markets HDISU? 55

The benefits of ARM technologies are brought to life through unexpected imagery

ARM Strategic Report 2015 Overview Strategy Performance Commitment Financials 15

Smart sensor

ARM Cortex-M

Sensors across the fish farm monitor the quality of the water.

Data transmitted wirelessly by the sensors is collated and analysed. Information and alerts are transmitted to the farmer’s phone.

Base station Mobile tower device 56 radley yeldar.

Our top 10 reporters in 2016

ARM continued

30 ARM Strategic Report 2015 ARM Strategic Report 2015 Overview Strategy Performance Commitment Financials 31

KPI: KPI: Growth driver: Growth driver: Increase value of ARM Increasing the royalty rate per chip and Generate new revenue Investing in new technologies technology in smart devices the number of chips in smart devices streams from adjacent markets and businesses

Principal risks From smartphones to dashboards in cars, today’s During the year, the number of chips sold containing Principal risks ARM is best known for the digital technology it mbed Device Server Number of engineers invested in consumer devices can access the internet and our Cortex-A technology rose 16%. This was driven Penetration of technologies provides to semiconductor companies, however ARM launched mbed Device Server, a solution longer-term development projects view complex content via rich user interfaces. by the growth in the number of ARM-based mobile around 500 of our R&D engineers spend their for managing IoT systems in 2014. Examples of 1 4 5 7 1 2 4 6 11 149 These devices typically contain several ARM-based computing devices as well as more networking time researching new markets and developing new IoT systems include smart lighting which can vary chips to run the operating system, process sensor infrastructure equipment being deployed with technologies. In 2015 two of our research projects its brightness according to traffic levels, smart 12 161 data and interface with communication networks. ARM technology. matured into revenue-generating businesses – irrigation systems which can adjust how much water 13 209 Read more on pages 36 to 39 In 2015, the popularity of taking “selfies” resulted Read more on pages 36 to 39 Cordio and mbed Device Server. they disperse according to the moisture content 14 275 in more OEMs incorporating better front-facing Nearly all smartphones sold in 2015 had a Cortex-A of nearby soil, and smart factories that can place 2015 488 cameras into their phones. Some of the chips family processor in the main chip. Of these Cordio orders with suppliers automatically when store providing image processing support to the cameras around 50% were based on our latest processor 2015 Cordio provides highly-integrated and ultra-low- rooms run low of stock. Each IoT system could contained ARM processors, thereby increasing the architecture, ARMv8-A (up from about 10% in 2014); power radio technology to semiconductor vendors. have hundreds of thousands of low-cost end points number of ARM-based chips. around 40% also contained Mali graphics processors The radio provides Bluetooth connectivity to which communicate with remote servers in a secure (up from 25%); and 10% deployed chips with more low-cost sensors that can then communicate with manner. Provisioning and managing a large number The latest generation of smart devices can than four cores (up from <1%), which enables the internet wirelessly, running for several years of secure connections is a complex task. incorporate advanced technologies such as multiple responsive performance without compromising off a single coin-sized battery. Smartphones with more than four cores 10% ARM processors per chip and graphics processors battery life. In 2015, ARM established commercial partnerships, to provide acceleration for games and the user Smartphones based on ARM’s Mali 40% This product was enabled by two acquisitions – relating to mbed Device Server, with several IoT and graphics processor interface. Devices with more ARM content typically The future opportunity Sunrise Micro Devices and Wicentric – which were data analytics companies, including General Electric provide higher royalties, so the growing demands for ARM expects compute requirements will continue Smartphones based on ARMv8-A 50% completed in early 2015. Since then we have invested Company, IBM Corporation, Microsoft Corporation compute performance leads to a growing revenue to rise; driven by richer user experiences in further in the Cordio platform, and it forms part of and Salesforce.com, Inc. opportunity for ARM. consumer markets and data processing trends the IoT Subsystem for Cortex-M processors which in enterprise. We expect these trends will drive was released later in the year. This product combines Future opportunities demand for our most advanced technologies. processor, radio and physical IP technologies from ARM intends to grow the Cordio and mbed Device ARM, allowing relatively small design teams within Server product lines into meaningful revenue our customers to bring low-power IoT products streams. In addition, ARM is evaluating potential 2020 to market quickly and with low development risk. investments which may yield new revenue streams target in the future. Smartphones are Creating smarter getting smarter infrastructure The Samsung Galaxy S6 is powered by Smart, connected chips can be found in streetlights, traffic Samsung Exynos 7 Octa system-on-chip, Smartphones with more than four cores 50% signals, car parking, toll booths, and across mass transport integrating ARM big.LITTLE technology Smartphones based on ARM’s Mali 50% systems such as railways, trams and buses. Similar chips are featuring ARM quad-core Cortex-A57 graphics processor making manufacturing, agriculture and freight transport logistics processors running at 2.1GHz and quad- more efficient and effective. Smartphones based on ARMv8-A >85% core Cortex-A53 processors at 1.5GHz, as well as ARM Mali graphics processor.

Each growth driver is 32 ARM Strategic Report 2015 ARM Strategic Report 2015 Overview Strategy Performance Commitment Financials 33

explicitly linked to key Growth driver: KPI: Growth driver: KPI: Invest to create a sustainable Investing in ARM’s people Invest to create a sustainable Investing in sustainability performance indicators business, fit for the long term and systems business, fit for the long term

Principal risks Our people design our products, deliver them Partly as a result of this investment, normalised Number of employees at year-end Principal risks ARM takes a long-term view of its business; it can The future opportunity Absolute company score to our customers, and support the ecosystem of expenditure on research and development take ten years to develop a new architecture, design Our corporate responsibility programme will Partners which brings that technology to market. rose to £214.8 million in 2015, representing 11 1,382 734 2,116 a processor based on that architecture, for our continue to improve, and we are embarking on new 11* 0 5 6 7 8 9 5 6 7 8 9 We invest in our people through hiring the brightest 22% of revenues and 28% growth year-on-year. 12 1,652 740 2,392 customers to build that design into a chip and for that programmes designed to improve our performance 12 53 and best graduates as well as seasoned industry Expenditure on research and development under 13 1,987 846 2,833 chip to start shipping in large numbers. And each across areas such as supply chain management, 13 61 experts, developing them and providing a supportive IFRS was £278.0 million, representing 29% of 14 2,370 924 3,294 processor may ship in chips for several decades to environment and impact reporting. We have set 14 69 Read more on pages 36 to 39 culture to maximise their capability and potential. revenues and 24% growth year-on-year. Read more on pages 36 to 39 come. The sustainability of our business is therefore 2015 2,938 1,037 3,975 ourselves a DJSI performance target score of 85% 2015 74 See page 42 for more information. a critical factor in how we develop and execute for 2020. 2020 Target 85 The future opportunity Number of engineers Other employees our strategy. In 2015, ARM increased headcount by a net 681 We aim to create a work environment where Since 2012, we have also increased our cash *ARM entered the Dow Jones Sustainability Index (DJSI) in 2012 people. Some of our new colleagues came from everyone can grow and excel, and be rewarded for Since 2012 ARM has participated in an annual contributions for the corporate responsibility acquisitions, with the majority being new hires their contribution. We will continue to grow our assessment process for the Dow Jones Sustainability programme from 0.13% of pre-tax profit to 0.50% in Percentile ranking of company into the business. Overall, most new joiners were engineering capability and operational execution, and Index (DJSI), considered by many to be an industry 2015. This is supplemented by employee volunteering engineers to increase our research and development as the products designed by our people are adopted standard for corporate-wide sustainability. time contributions, in-kind contributions, pro-bono 12 57 capability. Headcount grew in all areas of the The process involves a rigorous assessment of in more end markets, we expect the business to support and leveraged contributions through 13 68 business, and an increasing proportion of our generate more profits. the sustainability of the governance, strategy and partnerships and industry sector collaborations. engineers are working on processor technologies performance of around 2,000 of the world’s 14 76 for servers and networking devices. largest companies. 2015 76

ARM’s systems and supporting infrastructure Each year we have improved on our overall Contribution to the CR programme amplifies the creativity of everyone in the performance score and our percentile performance as percentage of pre-tax profit (%) organisation and enables our engineers to develop in relation to the semiconductor industry peers. and test complex technology. In 2015, we initiated In 2015 we were included in the European Index 12 0.13 a multi-year programme to improve our online of the DJSI for the first time as our sustainability 13 0.44 support for developers and engineers who use programme across the whole business was 14 0.38 ARM technology in their products. In Q4 2015, recognised as being aligned with best practices in we launched the developer.arm.com website, the industry, and in some cases leading the way. 2015 0.50 and more services will be introduced in 2016. Shaping and connecting an innovative workforce Improving care in ARM’s employees are recognised and rewarded rural communities for how they work together, how they drive innovation and how they support our customers. Khushi Baby uses a mobile app for community health workers that interfaces with a digital necklace worn by patients. Health workers can scan a patient’s chip, without needing connectivity to a central database, and can read, act upon, and update the health record. HDISU? 57

8 ARM Strategic Report 2015 ARM Strategic Report 2015 Overview Strategy Performance Commitment Financials 9

Our marketplace Where the market is now

ARMv8-A Overview of the semiconductor market As silicon chip designs become more complex it The semiconductor industry develops Semiconductors, or silicon chips, are the electronic is expected that the semiconductor industry will Next generation controllers that manage many of the digital devices continue to license semiconductor IP. As the global phones will be that we use every day. Computers, mobile phones, leader, ARM is well-positioned to benefit from both aware of the chips that manage all of the world’s televisions, washing machines and cars can contain this trend. their location and Around 50% of many silicon chips. Also, many enterprise and context (i.e. home, smartphones sold industrial applications, from sensors to servers, are The market in 2015 office, school, etc.). in 2015 contained electronic devices. PCs, mobile phones made smarter and more efficient by silicon chips. In 2015, approximately 750 billion silicon chips were an ARMv8-A based manufactured.* Of these, some 47 billion contained processor. and even modern washing machines The semiconductor ecosystem a processor. The processor is the brain of the chip, As consumer electronic products and industrial and controls not just the operation of the chip, but equipment have become more sophisticated, the also the operation of the product that the chip goes have some form of chip providing their chips that control them have become more complex into. ARM estimates that the total value of chips with and more costly to develop. Over many years the processors sold in 2015 was about $115 billion, and intelligence. Each generation of chip is semiconductor industry has disaggregated into that by 2020 the value of this market will have grown specialist companies that focus on each stage in the to about $150 billion. creation, design and manufacture of a silicon chip. Faster connectivity typically smarter than its predecessor, This allows each company to invest and innovate in ARM processor designs were in around 15 billion and reduced the area where they can add the most expertise in chips, a 32% market share. About 45% of the latency will enable the value chain. ARM-based chips went into mobile devices. In recent new services. enabling more capable and more years we have also started to gain share in important Some companies specialise in designing the chip; whilst growth markets such as networking infrastructure efficient consumer and embedded some companies, such as ARM, specialise in developing and embedded intelligence. critical intellectual property (IP) components within the design; others in building the tools needed to Over the next few pages we look at the main electronic products. manufacture the chips; others in the chip fabrication; markets for ARM’s technology. and others in developing software, such as operating systems and apps.

ARM works closely with all the leading companies within the semiconductor ecosystem to ensure that its technology works well with other companies’ products, that silicon chip designers can quickly The business model identifies build low-power and high-performance chips, and that OEMs can create complex programmes using a combination of third-party and in-house operating systems and applications. the resources and relationships * World Semiconductor Trade Statistics, January 2016. critical to its success and the value the business creates

24 ARM Strategic Report 2015 ARM Strategic Report 2015 Overview Strategy Performance Commitment Financials 25

Our business model Creating sustainable value What we need to execute How we create value How ARM creates value How ARM creates value The value we create our business model for our Partners for our shareholders for the long term

ARM is the world’s leading People and expertise ARM employs engineers to develop advanced processors, ARM recovers its costs from each technology’s licence ARM reinvests back into the business, hiring more engineers Chips shipped We are committed to hiring and physical IP, tools and software that we mainly license to revenues. Over the medium term, we expect ARM’s revenues to develop new technology that will enable us to create ARM’s Partners shipped around 15 billion semiconductor intellectual developing some of the most innovative 3,975 companies developing chips for consumer electronics and profits to grow as our Partners design our technology into value for the long term. ARM’s technology can be re-used ARM-based chips in 2015. These smart 15bn and imaginative engineers who, together Full time employees and enterprise equipment. We continue to invest in a broader range of end markets. by our customers in many different products and end chips help to make consumer electronics ARM-based chips property (IP) supplier. with supporting teams, can develop and R&D programmes, hiring more engineers and investing markets; these will generate royalty revenues for years to easier to use and more fun, and deploy ARM’s next generation products in productivity tools as future generations of technology Our customers include the world’s largest semiconductor come. Technology that we started licensing more than 25 enterprise equipment more capable and and services become increasingly complex. companies and their regular royalty payments have become a years ago is still being deployed in new chips and generating energy-efficient The technology we design is reliable cash flow. We have relatively little capital expenditure, royalty revenues today. at the heart of many of the It is more cost-effective for our Partners to license the or other cash-intensive purchases, and hence our normalised R&D investment technology from us. The design of a processor or a library profits after tax convert to normalised cash generated. So the Licence/royalty income of physical IP requires a large amount of R&D investment more profits we earn the more cash we generate. Every licence signed represents the In 2015, we invested £215 million in R&D digital electronic products and expertise. In addition, the creation and development of opportunity for future royalty streams 1,348 (normalised) to broaden and extend £215m an ecosystem of software and tools companies that support Cumulative licences signed Invested in research which can extend to over 25 years sold in the world. our product portfolio, and another ARM’s technology and its licensees would be difficult and development £74 million was invested in acquisitions to reproduce. to accelerate product development (normalised) We license our technology to a network of multiple and create new revenue streams for With ARM designing the technology once and licensing many Partners, mainly leading semiconductor companies. adjacent markets times, ARM is able to cover its own R&D costs and also Licensees pay upfront fees to gain access to our reduce the cost for each semiconductor company. ARM’s Revenue technology. They then incorporate our designs Technology collaboration Partners are then able to invest in the complementary ARM’s US dollar revenues grew 15% in alongside their own technology to create smart, ARM works closely with other technologies that go into a System-on-Chip. This leads to 2015, as our existing customers adopted $1,489m more choice in digital electronics for OEMs and consumers. and deployed our latest technology in their Revenue in 2015 energy-efficient chips. ARM receives a royalty on companies in the semiconductor industry 9,000 to share knowledge, align roadmaps and Engineers and industry current and future product portfolios, and every chip sold that uses one of our technology to develop compatible technologies experts attended ARM’s as 41 new companies chose to adopt ARM designs. Typically, our royalty is based on the price annual technology technology for the first time of the chip. We have built and invested in this conferences and symposia unique ecosystem to ensure our mutual R&D Product Multiple customers continue to build more activity development applications Patents Each ARM design is suitable for a wide range of end effective products. This helps ensure that ARM filed an additional 242 patents in applications and can be re-used in different chip ARM’s technologies are suitable for chips 2015, taking the total number of patents 4,500 across a range Patents owned or pending families addressing multiple markets. Each new chip going into future consumer electronics owned or pending to more than 4,500. and enterprise equipment of markets These patents help protect ARM’s family generates a new stream of royalties. An ARM technology globally and help secure our design may be used in many different chips and may future revenue streams ship for over 25 years. Supply chain 2–3 years 3–4 years +25 years In 2015, ARM spent about £150 million Profits £511m on goods and services essential to our £150m With our revenues growing faster than Normalised profits before tax business operations. These were mainly Spent with suppliers our reinvestments in R&D, we are able costs related to essential business to deliver increasing profits over the travel, property management, legal long term and accounting fees, and IT support £415m and services IFRS profits before tax

Strong financials Shareholder returns ARM had normalised cash generation In 2015, ARM bought back 9.0 million of £361 million last year. A proportion £361m Investment Upfront Royalty Royalty shares at a value of £92.2 million. £200m Normalised net In addition, the proposed full year Cash returned to shareholders in 2015 of this cash is used to fund our business phase licence fee revenue revenue continues operations to ensure we invest to secure cash generated dividend is 8.78 pence, a 25% increase future profits and long-term value for shareholders 58 radley yeldar.

A final view...

So what does this exercise tell us about where UK reporting This is at the heart of the better reports. And it’s the stands today? cornerstone of a more integrated approach to reporting. We’ve said it before and we’ll say it again – integrated Firstly, it underlines – if any such emphasis was needed reporting is no more and no less than good reporting. – the value and relative rarity of a coherent, transparent Joined-up thinking and transparency (good communication, report; one that tells a connected and consistent story from in other words) will always outweigh fudge and bluster, front to back instead of providing investors with a series of misrepresentation and obfuscation. Pity the investors, fractured, disconnected statements. In our experience, the analysts and other stakeholders faced with the annual only way that such an outcome can be achieved is through challenge of trying to scythe their way through the complex commitment from all those involved in the process. From jargon and convoluted language, poor structure and mixed- the boardroom to those responsible for generating first draft up messaging of many reports. The sad truth is that there’s content, the entire client team must buy into the approach. usually a kernel of fact and knowledge in there somewhere. The best practitioners provide a narrative that clearly sets The difficulty is in finding it and investors can’t be blamed out the long-term investment case for the business. They if they give up and look for opportunities elsewhere. highlight the year’s progress against the backdrop of its So lack of basic communication – the bland leading the market environment. They outline the business model in bland – is the single most obvious failing we came across easily-understood detail. They’re transparent about risk and in the HDISU research. Sometimes, it’s almost as if the demonstrate how governance contributes to performance. company is doing all it can to prevent you finding out And they do all this by teaming thoughtful design with what it does, how it does it and what degree of success well-written copy. it’s enjoyed in the previous 12 months. But surely this In short, they communicate. can’t be the case... can it? Interestingly, while some UK reporters struggle to communicate, despite the best intentions of the IIRC, in Europe the situation is rather different. More and more companies across the Channel are stepping up to the mark. Many are adopting the integrated approach and also fully embracing digital and the opportunities it creates. We recognise that to some extent this trend is encouraged by the regulatory environment in Europe, but the alarm bells should nevertheless be ringing in the UK. Have we become complacent, after leading the world for so many years in terms of communication and creativity? HDISU? 59

...and a plea

So what do we hope to see in 2017? It’s clear from the FRC In short, we’re looking for annual reports to steadily evolve that many companies need to work harder to explain how to become more: their business models add value beyond financial gain, and we do expect this to be addressed. It would also be good Coherent: telling a consistent story through if companies recognised the importance of Brexit and compelling content increasing concerns over executive pay, and demonstrated how business models and governance processes are moving Transparent: being clear and showing how performance to take account of what could be seismic shifts in the versus strategy is measured economic and political landscape. Integrated: with sections linked together, creating a total In general terms, we’re hopeful that FTSE 100 companies overview including sustainability issues collectively rise to the challenge of explaining their long-term Balanced: sharing the bad news as well as the good sustainability and using coherent messaging to run as a thread through their reports. Hopeful is the key word here – How can companies achieve this? By putting together we suspect that while some will forge ahead, an increasing a great internal team that works together to identify key number will be left behind. messages and gain buy-in at an early stage. And by using every appropriate comms tool, from stunning design to brilliant writing, to make sure that the story is told with energy, relevance, style and consistency. 60 radley yeldar.

Contributors

Brett Simnett David Ritsema Jo Wade Lucy Dixon Director of Investor Investor Engagement Investor Engagement Investor Engagement Engagement Consultant Consultant Consultant

Sean Bride Adam Mills Danni Finlayson Rob Lamb Investor Engagement Creative Director – Designer Design Director Consultant Investor Engagement HDISU? 61

Now it’s your turn

We’ve raised a number of issues in this report. But while we have many of the questions, we don’t have all of the answers. These are matters that affect all companies, both in the FTSE 100 index and beyond, as well as all those who help produce annual reports. Designers, project managers, client directors, IR and comms teams, copywriters and many others – we’d like your take on the state of reporting. Our new reporting hub is live at ry.com/HDISU. Over the coming months, we’ll be adding our own thoughts and the opinions of others to the hub. Please let us have your perspective, on whatever issue you choose whether we’ve raised it in HDISU or not. Together, we can make progress and lift the standards of reporting in the UK. We’re RY, a creative consultancy. We create standout communications that make a real impact. We help multinationals, start‑ups and private companies, as well as public bodies and even whole countries. We’ve been doing it for over 30 years now, determined to stand out ourselves as the most inspirational agency to work with, and for.

ry.com/HDISU

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