FINANCIAL REPORTING AND IR

KPMG and the Consumer Goods Forum recently conducted a survey of 539 senior consumer manufacturing and retail executives from across the globe. The survey identified a consistent priority for the industry: nearly half of consumer executives across all organization types, sizes and geographies said expansion or top-line growth was the most critical priority for their companies. While the top spot on the agenda has varied over the years, it appears that expansion and growth are more important than ever for consumer executives.

The focus on revenue growth may not simply be a product of a generally favourable economic environment and growing consumer confidence, but more because the balance sheet work has largely been completed. Many companies have completed several rounds of cost cutting and restructuring and are now turning attention to growth. 

Achievement of corporate growth objectives in 2016 will be particularly challenging given the level of global volatility and uncertainty – the geopolitical environment, commodity prices, interest rates, currency fluctuations, slowing growth in emerging markets – as well as technological advances disrupting established industries and business models.

The survey results shed light on the strategies respondents are deploying to achieve top-line growth, as well as providing insight into potential areas of concern. Six levers were identified that are likely to exert the most influence on a company’s ability to grow:

• consumer trust;
• omni-channel;
• data security;
• sustainability and corporate social responsibility (CSR);
• consumer knowledge; and
• supply chain.

While these six levers can contribute to top-line expansion, they can also quickly derail a company’s growth plans. This article explores two of these levers through the lens of financial reporting and IR.

Levers or Derailers: Consumer Trust and Sustainability/CSR

It is no surprise that consumer trust is a focus area for consumer markets companies looking to grow. Consumer trust was identified by 65 percent of respondents as “very” or “critically” important to the company’s success over the next one to two years.

The 2015 Edelman Trust Barometer (an annual global study from the large public relations advisory) found that “nearly two-thirds (63%) of respondents refuse to buy products and services from companies they do not trust” and almost as many “criticize them to a friend or relative.” On the upside, 68% say they would recommend a trusted company to others. When purchasing goods and services, consumers are not only assessing the trustworthiness of the item purchased but of the brand and the company behind it. Consumers’ assessment of trust is driven by more than just a company’s marketing campaign. All information provided to the market, including in a company’s disclosures, is readily available to be scrutinized by the media and special interest activists looking for details on the leading issues of the day.

Three-quarters of survey respondents agreed “our consumers demand transparency.” Without transparency, or if transparency exposes a problem, growth can be derailed. Transparency also underpins a company’s financial reporting and disclosures. Top of mind for many executives is the topic of tax transparency, with the obligation to report country-by-country tax information to all jurisdictions on the immediate horizon.

The Organisation for Economic Co-operation and Development (OECD) released its final report on its base erosion last year, with multinational companies meeting a revenue threshold required to provide, in a single country-by-country file, detailed information about every jurisdiction in which they operate. The OECD isn’t the only group looking to increase transparency in financial disclosure. The IASB and other standard setters around the world continue to raise the bar for transparency and disclosure in response to both investor and societal changing expectations. Responding appropriately to requests for information, whether from consumers, shareholders or regulators, clearly has the potential to impact the strength of a company’s brand.

Social and environmental responsibility was also identified as a key lever; in fact 58% of respondents identified it as “very” or “critically” important to the company’s success over the next one to two years. This area covers a broad range of issues related to companies’ compliance policies and efforts to demonstrate ethical behaviour through their environmental programs and stewardship. Once viewed as optional by many companies, consumer and stakeholder pressure and government and NGO regulation have made this a fundamental part of a company’s strategy. This is a growing area for investor relations professionals, who often play a key role in determining how to measure and report the social impacts of their organizations.

Successful CSR efforts can undoubtedly be an enabler of growth, helping to build consumer trust and demand for goods and services. However, the challenges posed by sustainability and CSR reporting make this a difficult growth lever to wield. These challenges include a plethora of measurement techniques and assessment tools, the cost of assessment, the complexity of quantifying impacts, and the numerous areas within one company on which reporting could focus. Given the importance of consumer confidence in a company brand, companies can expect consumers and shareholders to continue to seek greater input and broader disclosure on issues such as CSR.

Andy Brown, CPA, CA is a Senior Manager, and Rob Brouwer, FCPA, CPA is Canadian Managing Partner, Clients and Markets, for KPMG LLP in Canada.