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Video transcript: Integrated reporting

Transcript for a video of a presentation about KiwiRail adopting integrated reporting filmed at the 2018 Audit New Zealand client update.

Title: Integrated reporting, Greg Taylor, Financial Reporting Manager, KiwiRail

Greg Taylor

Part of my role at KiwiRail is to oversee performance reporting, and this includes the delivery of our annual integrated report, through my teams. Integrated report at the moment is quite a trendy subject, and as Felicity pointed out, it is being stakeholder-driven at the moment. A lot of major organisations are starting to adopt – Meridian, Z Energy, New Zealand Post, and Sandford, to name a few. As Felicity outlined, the Treasury – with the Living Standards framework – that’s an integrated reporting model as well.

For the next 15 minutes or so, I’m gonna give you an overview of integrated reporting and what it is. I’m gonna try to leave the jargon out of it and try to just keep it in really simple terms. I’m also gonna give you a little bit of insight into our experiences, a first-time adopter with integrated reporting, and share some of the learnings that we’ve picked up along the way from having completed two reports now.

The first thing is: at KiwiRail, our annual integrated report is effectively just our annual report. In its most simple terms, it’s called an integrated report because we don’t report up and down along business unit lines anymore. We report across the business on the drivers that materially affect our ability to create value. Within the integrated reporting framework, this value is known as ‘capitals’.

For KiwiRail, our capitals, which give us the ability to create value, are our people. Our assets are the environment, so from an environmental viewpoint how do we create value? Moving one tonne of freight on rail is about 66% more environmentally friendly than moving it by a truck. So when you add this up across the network, we save New Zealand about 200,000 tonnes of carbon emissions a year. And we also take 1.1 million trucks off the road. That’s the concept of some of the value that we’re adding.

We also have a capital for our skills and know-how, so how we run our business – our IP, our relationships – our interactions with customers and stakeholders, and our financial capital as well which is, once again, it’s not just the financial capital that we use to generate or to run our business operating model and run our capex programme. It’s also the wider value, the value of rail brings to New Zealand.

I think EY last year estimated that rail, for instance, brings $1.5 billion of value to the New Zealand economy. These are not figures that you’d see in a financial statement. Probably another real core principle with integrated reporting is integrated thinking. And once again, that’s just the act of consideration between business units, or functional units, to acknowledge and understand the relationship with other business units.

A really simple example for KiwiRail would be – we run trains from Auckland to Christchurch, so we have a freight plan. When the trains turn up in Wellington they need a ship to take them across the Strait. If there’s no ship waiting for the train, then we’re disconnected and we’re not operating in an integrated way.

On the screen now, we have what is the integrated reporting framework. It should be a pretty familiar model for most people in this room. You have your business model in the middle, you have your inputs/outputs, and outcomes. And it’s for this reason, and it’s my personal view, that integrated reporting is actually well suited to the public sector because public sector organisations are already being driven by outcomes. So provided you’re delivering these outcomes across your business, as opposed to up and down singular business unit lines, then it’s likely that you’re already operating with an integrated approach. If you are thinking of adopting an integrated report, you might actually be a lot closer than you think you are.

Why has integrated reporting been so good for KiwiRail?

It’s one of those things – it’s just a report. What is the benefit that it can actually have? But when you first start reporting on an outcomes basis, on the fact is, it materially affects your ability to create value over time. These factors become your business drivers.

Now, for me personally, the lights-on moment came is when we adopted an integrated report. We did an assessment of the integrated thinking and the integrated operating that was actually occurring in our business. What we were able to see really clearly, is ways – simple strategies and initiatives – we could take to supercharge and embed those practices into our business. One good example we have is we set up a capital committee, and the capital committee invites all the executives – including the head of our sales team, who doesn’t actually have a capital budget at all – invites the asset managers and the key project managers that we have. Also, the commercial managers are there. So you have 20 to 25 people attending on a monthly basis, so there’s more talking – there’s more understanding between business units. There’s greater relationships and understanding of the interdependencies that actually are occurring in the business.

Four months into this capital committee being set up, we were tested. We had the Kaikoura earthquake in November of 2016. The immediate impact of the main north line shutting in Kaikoura was we lost a third of our domestic revenue overnight. Two months after this the capital committee came together; two hours later we left the room and we were able to bridge the gap between that revenue loss, without sacrificing the organisational priorities that we had. Each business unit understood where the priority was for our business right now and made sacrifices as a result. We were geared up to deal with it.

I’m gonna talk a little bit about the process that we went through as first time adopters now. The first thing that we did, Felicity talked about a lot of organisations are shifting because of stakeholder expectation. We shifted two years ago so we didn’t have that stakeholder expectation upon us – it really just started with one person having an idea that we should do this. He was a subject-matter expert, and now he’s a strategy manager and sustainability manager. He probably had a little bit of vested interest because KiwiRail had previously produced a sustainability report, it was a really good piece of work but no one actually read it.

What he did is he approached a group of third-tier and fourth-tier managers, and between us we formed a group of about five people, and we researched integrated reporting, and we started to think, “Hey, this might be a good idea.”

So the next step, step three, was really the make-or-break for us. It was the biggest hurdle we had to go through because, ultimately, to do an integrated report you have to demonstrate the ability that there’s been some integrated thinking and that you’re acting and running your business in an integrated manner. Otherwise, you’d just be writing a report based on fiction. We looked at our annual report, we looked at our sustainability report, we looked at our monthly board reporting, and what we found is that we were actually already operating in an integrated manner, and reporting in an integrated manner through those board reports.

The next thing we did is we went along, presented our finance to the exec. But because we had a core group of five people, we’d put a bit of work in – we were prepared for that conversation. It went pretty well; it was pretty easily done. And then we formed the projects, we got the green light, and formed the project team.

So for KiwiRail, the formation of the team, and the structure of the team, was one thing we absolutely nailed – we had a core team. So we had a project manager who was the financial performance and planning manager, and her role is she’s responsible for all the board reporting. She’s got coverage across everything. She understands the story that we’re trying to tell as an organisation. We also had a subject-matter expert in there. We had a writer and we had a comms person as part of the core-four team.

Around that team we put a lot of key supporters – we had the general manager of finance, the general manager of strategy, the finance teams, the commercial managers, the comms team as well. So there are a lot of enablers, there are a lot of people that were prepared to step in, help with the writing, help with reviewing, fact-checking, and then we went out to the business and we talked to asset engineers and we worked with them to develop case studies.

The reason it worked is because we had a clear line of sight to the exec, we had two executive members who were sponsors, were happy to be sponsors for the project. Most nights I sit at home with my wife, on the couch – we’ve both got our laptops out and she laments that she has to go through five channels to get a paper signed off to go to the exec. We had one. We were set up, we were geared up to move quickly, we were geared up to get quick sign-offs. It just worked. We weren’t overcome by compliance.

I think another observation we have, at KiwiRail, is our finance and our strategy team fall under the same exec member. There was a lot of empowerment there that we could actually, as and when we came up with initiatives and ideas, we could actually embed them, we could go about and put them into the business. We had the weight behind us to do it.

The integrated reporting framework does not require an integrated report – it takes a capitals approach. When we adopted, two organisations in New Zealand who had already adopted before us. They were New Zealand Post who took a capitals approach and Sandford who took a strategy approach. This really goes back to the integrated reporting framework being principles based – you know it’s trying to strike a balance between flexibility and prescription. So we had to make a choice, and we went back and forward on this quite a bit, but ultimately we went with the capitals approach because, as a first-time adopter, we thought there’s more information available, there’s more prescription, there are the templates, and there’s a greater comparison with what other organisations are doing.

I think, two years on, there are some cons with taking the capitals approach. It has created another way that we talk about our business. We have a back-to-basics strategy at KiwiRail where we focus on operational performance, our customers, our people, relationships, and safety. By bringing in a capitals reporting approach, it’s another way of describing your business. It has at times created some internal confusion. But, what I would say as a first-time adopter, it was definitely much easier I think.

I’ve included this slide because, essentially, if you call yourself an integrated report there are requirements you actually have to do. What we did is we listed out all the requirements, we noted the expectation within the framework, and then how we have addressed it in our report. We just set up a simple traffic light matrix. It was quite a motivating exercise because obviously everything was red lights at the start, and as you sort of worked through the process, you’re turning a lot more to green. It also helped speed up getting it through the exec, and getting it through the chairman as well because ultimately the chairman has to sign it out, so this is an integrated report.

What have we learned through our two integrated reports that we’ve done so far?

Start early, share the load. Don’t leave it to a couple of people. Get amongst the business – that’s where all the rich stories come from. Keep an open mind. The amount of times we put things up and they got knocked down, so we had a lot of fast failures. It doesn’t have to be perfect. In fact, an integrated report should be imperfect. It should be balanced, it should show the challenges – it shouldn’t be just a marketing document.

The last one is: design changes everything. It’s much easier to sell something when it looks cool.

From our first report to our second report, we received a lot of feedback. What we’ve tried to do is we’ve tried to create – you know, we’ve developed our value creation, we’ve also tried to put more balance into the report. We’ve tried to put it more focused on the outlook of what’s happening in the future, and we’ve also tried to highlight what challenges we face within each capital as well.

We tried to get some more governance transparency as well, which was initially met with a little bit of resistance, but after attendance records at board meetings were very favourable, that came through pretty easily.

My final slide is just one I’ve chucked in. I’ve just included it because, as an organisation, we’re super proud of our integrated report. We adopted early. It picked up an award at the Australasian Reporting Awards for Public Sector Communications. It was also 100% internally generated. Most importantly, for us an organisation, people like reading it. It’s an easy read, and so that has to be a good thing.

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