On 10th May 2005, the Accounting Standards Board published its final Reporting Standard on the Operating and Financial Review ("OFR"). The Reporting Standard (RS1) is described in more detail in our Law-Now article published on 17th May 2005. In short, directors must include in an OFR a balanced and comprehensive analysis of the development and performance of the business, its financial position, trends and factors underlying these things; a description of the group’s business, objectives and strategies, principal risks and uncertainties; and, to the extent relevant, information about the group’s employees, customers, suppliers and shareholders, its impact on the environment, and analysis of its financial and non-financial performance using Key Performance Indicators that the directors consider relevant to the group.

Though the Reporting Standard is aimed at all companies that are required to prepare an Operating and Financial Review, the implementation guidance included with the Reporting Standard does set out examples of non-financial Key Performance Indicators (KPIs) which may be relevant to the telecoms sector. These include:

Average revenue per user (customer)/number of subscribers

Average revenue per user is an important measure in the telecoms sector, and is likely to be a KPI included in OFRs for companies in the sector. The disclosure would probably include:

  • product segment calculations (pre-pay/post pay; type of connection; etc)
  • reference to source material
  • quantified targets – increases in revenue from certain segments
  • quantified data, and changes from year to year.

Percentage of revenue from new products

Similarly, the introduction of new products or new product ranges may be an important factor for growth, and a KPI based on changes to revenue from new products may be an appropriate measurement for an OFR.

Customer churn

Churn rates in different geographical zones/product groups may also be an appropriate KPI.

Other KPIs

  • Other non-financial KPIs may also be relevant in relation to the telecoms industries – such as:
  • employee performance and development - health & safety issues, such as lost days due to injury; recruitment and retention; and training and development
  • environmental matters - management of water and energy; disposal of waste and packaging, etc.

Though the Reporting Standard makes it clear that it is up to directors to disclose the Key Performance Indicators which they judge to be effective in measuring the development, performance and position of their company’s business, there will no doubt be a certain amount of standardisation as to which KPIs are used in particular industry sectors.

Directors will also need to consider how existing policies may need to be reviewed, and whether new policies need to be implemented, and information gathered, measured and analysed, to enable them to produce meaningful data for the KPIs that they select.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 10/06/2005.