Each report we read inevitably starts with a very simple set of questions; ‘what does the Company do?’, ‘how does the Company create value?’, ‘what is the Company’s business model’? Even if it’s a business we’ve researched before, we always find ourselves taking a few minutes to remind ourselves of a company’s activities (unique or otherwise), operations and capabilities. Once a clear and understandable picture has been painted in our mind, the process of forming an opinion on its future plans and outlook becomes much easier.
In October 2016 the Financial Reporting Lab (the Lab) published research and guidance on good and appropriate ‘business model reporting’ which made very interesting reading. Both the full report and summary outlined specific investor needs, around ‘business model disclosure’ that our ‘Think team’ empathised with. There is no question that, for an investor, a business model provides fundamental information that aids “their analysis and understanding of a company and its performance, position and prospects, both at the initial investment stage and for ongoing monitoring and stewardship responsibilities”.
Having delivered a number of ‘business models’ for many PLCs and reflecting on the Lab’s work, we pose two questions that we often deliberate over: 1) What is the most appropriate communications media/channel to use?; 2) How much detail and how long should the disclosure be?
A closer look
We recently published the Annual Report for Henry Boot PLC, accessible both in print and also as a digital ‘Year in Review’ summary. Part of the project involved a comprehensive disclosure of the company’s business model, to be contained not only within their Annual Report publication but also made more widely available via their website and other communication channels (including social media) after they received feedback from investors who found it difficult to follow.
To add some context, Henry Boot PLC is a Group made up of six primary businesses, forming three segments, that operate across the whole property value chain. All six businesses operate relatively autonomously and it is rare for them to work on the same assets. Each business has a different business model, some subtly different whilst others are more distinctly so.
- What was the rationale for the composition of the Group?
- How are these six businesses generating long-term sustainable value for Henry Boot and its shareholders?
These were key questions we asked John Sutcliffe (Chief Executive Officer) during our consultations, as we learnt and then developed a communications plan. We use a variety of academic models mixed with a common sense approach when researching and advising our customers on how to best tackle business model disclosure. On this project it was important to ‘achieve an equilibrium’ between ‘oversimplification’ and disclosing ‘too much information’ as to confuse investors even further.
Interviews and sessions with the Henry Boot team provided much greater insight and clarity, shining a light on the various revenue streams (both cyclical and recurring) and the cash generative nature of the businesses within the Group.
To provide the most engaging experience, explain the Group composition rationale in the clearest way and disclose the key activities of all six businesses within the Group, an online video was chosen as the most appropriate communications medium. The graphics used within the video and printed material centre around an infographic that illustrates the various revenue streams generated by the Group’s segments and how strong cash generation creates a competitive edge, fuelling future opportunity and success.
Decisions on detail, complexity and the most appropriate communications approach were made as a result of the script and narrative generated through consultation. Although the Lab’s research highlights the desire, from investors, for the business model disclosure to be appropriately positioned within the strategic report, if the strategic report has been limited to print or PDF publishing, your options are limited in terms of taking advantage of other media (without having to signpost the user out of the report). The digital ‘Year in Review’ in this instance provides the best of both worlds, using video to provide an engaging experience.
In terms of running time, the video is around six minutes long. There are those that would argue that this is too long, equally there are those that would say that in order to fully understand the business model, and the six businesses within the Group, the video would naturally need to be longer than your average online promotional video. On this, the Lab’s research summary is clear: for Companies with more than one business model, greater disclosure is required.
For more information on how we can help you to achieve your equilibrium, we’d love to talk.