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 retail sector. These include:

Sales per square foot

Depending on the nature of the circular, revenue per square foot may be an appropriate KPI. The disclosure would need to consider factors including:

  • definition and calculation of the measures (e.g. store space excluding non sales space, etc)
  • source of the data
  • quantified targets – to increase sales by a defined amount
  • quantified data, and description of changes over time.

Waste due to packaging

The impact of waste on the company may also be an important factor for the OFR – and a KPI relating to this should measure the amount of waste arising from packaging of products, and how the cost, and impact, of such waste might change over time.

Social risks in the supply chain

Where branded products are sourced from overseas, boards may consider that the means by which compliance of overseas suppliers with common working standards is monitored and validated is an appropriate factor to be measured through a KPI.

Other KPIs

Other non-financial KPIs may also be relevant in relation to the retail sector 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, 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 13/06/2005.