Guidelines on developing a Statement of Corporate Intent

Transcription

1 Government of Seychelles Guidelines on developing a Statement of Corporate Intent Revised 2013 Public Enterprise Monitoring Commission Republic of Seychelles 1 P a g e

2 TABLE OF CONTENTS INTRODUCTION... 3 THE SCI... 3 SUBMISSION OF THE SCI... 3 MODIFICATION OF THE SCI...4 CONTENTS OF THE SCI.4 Requisites of the SCI.4 Additional Matter..4-5 STATEMENT OF CORPORFATE INTENT SUGGTESTED FORMAT... 6 PART ONE: INTRODUCTION Background of the PE Vision Mission 6 PART TWO: NATURE AND SCOPE OF ACTIVITIES Core Business Nature and Scope of the Business.7 PART THREE: OBJECTIVES AND TARGETS Objectives Strategic Initiatives Key Performance Indicators & targets..8 PART FOUR: ASSUMPTIONS, RISKS AND FINANCIAL FORECASTING Assumptions Risks and Mitigation Strategies Financial Projections Income Statement Balance Sheet Cash flow Forecasts Others PART FIVE: OTHER UNDERTAKINGS Prudent Financial Management Capital Structure Dividend Policy Corporate Governance Risk Management Compliance with Government Policies..17 PART SIX: PERFORMANCE AGREEMENT Director s Statement PART SEVEN: ATTACHMENTS 19 2 P a g e

3 INTRODUCTION These guidelines outline the expectations with respect to the content and format relating to the development of Public Enterprises (PEs) Statements of Corporate Intent (SCI). These guidelines aim to: provide clarity to PE boards regarding the expectations with respect to the content, focus and format of the SCI; provide a clear framework for PE boards and management regarding the SCI process; and ensure there is a consistent approach across PEs in the content, focus and format of SCIs. A suggested format for PE SCIs is provided in these guidelines. THE SCI The SCI is intended as a formal performance agreement between a PE board and Responsible Ministers, Minister of Finance and the Public Enterprise Monitoring Commission (PEMC). This is reflected in the Public Enterprise Monitoring Commission Act No.3 of 2013 Sections, A PE s SCI must be consistent with its corporate plan. The Statement should be a three year medium term outlook for the business. It should be a forward-looking document focusing on key business drivers, such as the PE s strengths and opportunities, and the strategies it intends to pursue to capitalise on these strengths and opportunities to achieve its business objectives. It should also address any weaknesses and threats to its business, and proposed response and mitigation strategies. The SCI will form the basis of the Commission s assessment of how successfully each PE achieves the financial and non-financial targets and outcomes each year. The performance targets should also form a vital part of the annual reports that the PE s provide to the Ministry of Finance, Trade and Investment to be presented to the National Assembly. Accordingly, each PE board must continually assess its performance against the SCI and report against the agreed outcomes. It is expected that the SCI targets will form the basis of more regular management reports to the board. It is also expected that the financial and non-financial performance targets in the SCI will reflect the performance contracts for the Chief Executive Officer, Chief Financial Officer and any other senior executives appointed by the Board. The SCI will also be used to measure the performance of the Board by the Commission. It may be necessary to also include in the SCI details of any Community Service obligations or Agreements that the PE is providing to the government which affect their performance. The SCI should make reference to anything that underpins or impacts on the SCI outcomes. SUBMISSION OF SCI Each PE will prepare and submit not later than one month after the commencement of each consecutive third financial year an updated statement of corporate intent in respect of the financial year in which it is delivered and that of a further two consequent financial years. 3 P a g e

4 MODIFICATION OF THE SCI The PEMC Act (Section 34:2) provides that an SCI may be modified by the PE board after notifying and agreeing with the Responsible Ministers and the Commission. Given that a range of factors, particularly those external to the PE, continue to impact on a PE s activities, and therefore on its SCI targets and outcomes, it is recommended that SCIs should not be continually modified to reflect changed circumstances. However, situations may arise where events impact on the core of a PE s business and the agreed SCI becomes ineffective or irrelevant. In such situations, the relevant board must advise Responsible Ministers and the Commission of this at the earliest opportunity. CONTENTS OF THE SCI Requisites that must be included in the SCI: a. the objectives and mission of the PE; b. an outline of the nature and scope of the activities undertaken by the PE; c. the ratio of the shareholders funds to the value of the total assets of the PE (return on equity); d. the PE s performance targets both financial and non-financial) for its activities for the relevant financial years including the following requirements under the PEMC Act No.3 of 2013:- i. Percentage increase in turnover ii. Percentage increase in return on assets iii. Percentage increase in return on Capital employed iv. Percentage increase in profit after tax e. estimate the amount intended to be distributed as dividends each year; f. an estimate of the Net Present Value of the investments in the PE and the manner in which, and the time at which, this value is to be re-assessed using a percentage cost of capital applicable to the enterprise. A PE s SCI should also include the following additional details: a. an outline of the strategies for achieving its medium to long-term corporate and business objectives; b. an outline of the major infrastructure/capital investments proposed to be undertaken by the PE during the relevant financial year; c. an outline of the borrowings made, and proposed to be made, by the PE; d. an outline of the strategies to be adopted by the PE to minimise and manage any risks that may adversely affect its ability to meet its objectives and targets. Attachment 1 outlines a broad framework that provides clarity for PE boards as to:- matters mandatory under the PEMC Act to be included in the SCI; and 4 P a g e

5 the suggested format of the SCI. The suggested format may be adapted, where necessary to suit the particular circumstances of individual PEs. From time to time, the Commission may require the inclusion of additional material not covered in the suggested format. Such requirements will be communicated to PEs by the Commission. 5 P a g e

6 STATEMENT OF CORPORATE INTENT (SCI) SUGGESTED FORMAT It is suggested that the Statement of Corporate Intent (SCI) for each Public Enterprise (PE) should be divided into five parts and the parts should be divided into sections as appropriate. Part One: Introduction Part Two: the nature and scope of activities Part Three: incorporates the corporate objectives, operational objectives, critical success factor, key performance indicators (KPI) and performance targets; Part Four: assumptions, risks and all the financial forecasting matters; Part Five: other undertakings Part Six: the sign off Part Seven: Attachments 1. PART ONE: INTRODUCTION This section should briefly state the following: 1.1 Background of the PE Date of incorporation Mandate Ownership Subsidiaries Composition of board members 1.2 Vision 1.3 Mission 2. PART TWO: NATURE AND SCOPE OF ACTIVITIES This section should clearly define the core business activities which should be consistent with the PE s Act, decrees, establishing laws and memorandum and articles of association. For the purpose of this guideline it is considered that:- core business activities represents the core business activities to be undertaken by the group in line with its core competencies the nature and scope of the activities to be undertaken by the group defines the boundary within which the group may carry out its business. It includes all those activities which are related to the production and distribution of goods and services with an objective of earning profit. Preferably, this should be stated in the following format: 2.1 Core Business: (PE s) Core Business is. 2.2 Nature and Scope of the Business: 6 P a g e

7 Our major business units/activities are 3. PART THREE: Objectives and Targets The PEMC Act No.3 of 2013 (Section 4: a) requires every PE to operate as a successful business and, to this end, to be as profitable and efficient as comparable businesses not owned by the public and to exhibit a sense of social responsibility. The Commission expects PE s to benchmark, where possible their performance against comparable business segments to demonstrate achievement of the non-financial dimensions of operating as a successful business. All stakeholders are interested in receiving information regarding the following areas of financial and non-financial performance:- Profitability; service performance; social responsibility, investment; debt servicing; net worth of assets and other indicators that the board considers relevant or that the Responsible Ministers and PEMC advise from time to time. Ministers are also interested in receiving other internal benchmarks that the board considers appropriate, e.g. comparison with different business segments. Performance indicators (financial and non-financial) must: be meaningful to the PE s business and the PE Act, be specific and measurable without ambiguity, be timely and capable of being audited, where appropriate, be within the PE s responsibility or power to control, be consistent with and influence, as appropriate, the PE s purpose and principles of operation or business, respect commercial sensitivity, where appropriate, encourage and reflect best practice, and where appropriate, ensure employee participation in, and ownership of, these indicators. All PE s should include in their SCIs a glossary of the terms used for financial performance indicators. This section should therefore outline the following and the table below provides examples. 7 P a g e

8 Corporate Operational Objectives Strategic Initiatives KPI s KPI Measure Targets 3.1 OBJECTIVES Corporate Objectives Operational Objectives Strategic Initiatives Key Performance Indicators (KPI s) Key Performance Measure Targets Financially Sustainable Maximise Revenue flows Transparent cost and pricing Develop cost reflective tariffs structures Gearing Ratio Free funds from operations Gearing ratio Cash flow from operating activities.%.(sr).%.(sr).%.(sr) Trusted Improve relationship with customers and key interest group Implement communication and engagement strategy Engage with community through sponsorship and community activities Customer satisfaction Stakeholder engagement Average response time Customer satisfaction index.% % % This sub section should state the PE s objectives for the next three years. This should include the corporate and operational or functional objectives and both type of objectives should be consistent with the long term plans and SMART (Specific, Measurable, Achievable, Realistic and Time bound) Corporate Objectives The corporate objectives relate to the business as a whole and they should provide the focus for setting more detailed objectives for the main functional activities of the PE. It is important that corporate objectives cover a range of key areas where the business wants to achieve results rather than focusing on a single objective. Corporate objectives should cover key areas such as market standing, innovation, productivity, financial resources, profitability, management, employees and public responsibility Functional or Operational Objectives In this sub-section, the PE s business functions such as finance & administration, marketing & sales, production & operations, human resource management should set operational or functional objectives which are consistent with the higher-level corporate objectives. So, functional objectives set for each major business function should be designed to ensure that the corporate objectives are achieved. 3.2 STRATEGIC INITIATIVES This section should specify the means, projects or programs through which the PE s vision and objectives would be achieved in order to attain its targeted performance. 8 P a g e

9 3.3 KEY PERFORMANCE INDICATORS (KPI)AND TARGETS The KPI will be used to measure the performance of the PE in achieving its corporate and operational objectives. The target will lay out the value that the KPI should achieve. The KPI and targets should be specific to individual PE s reflecting the nature of their business and are agreed upon by the PE Board. As the SCI is a three year document, each of the targets should b e broken up for the different years. The PE s should lay out both financial and non-financial KPI, including those mandatory under the PEMC Act No.3 of Some of the most common financial and non financial KPI are suggested below Financial Performance Indicators In accordance with the corporate and operational objectives, (PE) undertakes to achieve at least the following performance targets: Performance Targets Year 1 Year 2 Year 3 Suggestions: Return on Total Assets Return on Operating Assets Return on Equity Return on Investments Dividends Other Non-Financial Performance Indicators Year 1 Year 2 Year 3 Lost time injury frequency rate Customer Satisfaction Employee performance Service Levels Compliance with reporting requirements Staff turnover Efficiency Gains (market share) Other as agreed with Ministers 9 P a g e

10 PART 4: ASSUMPTIONS, RISKS AND FINANCIAL FORECASTING 4.1 ASSUMPTIONS This section describes the most significant assumptions used to prepare the financial projections included in this SCI. In developing a SCI, PE s must make certain assumptions regarding factors that would impact on its business. Assumptions that underpin the forecasted outcomes should be clearly set out in the SCI and may be presented in the following format: (PE's) undertaking to achieve its performance outcomes is predicated upon the following assumptions: Assumptions Year 1 Year 2 Year 3 Economic Indices CPI Wages Growth Long term interest rates Revenue PE Specific but if your tariffs are limited by the government, then this should be included in your assumptions Operating Expenses PE Specific Redundancy Costs PE-specific Other as agreed with Ministers Demand for products/services Economic growth Price elasticity and demand climate outlooks and weather patterns Community Service Obligations Should state any concessionary tariffs, subsidized pricing which affect the profitability of the PE. 10 P a g e

11 4.2 RISKS AND MITIGATION STRATEGIES Whilst the SCI should be based on the best available information, several risks exist that may affect the strategic direction of the PE and the attainment of the financial and operational outcomes set out in the financial projections and targets. It is therefore of paramount importance that the PE s make known any risks that will impact on its performance and the mitigation strategies to be used. Risk 1 Mitigation Strategy 1 Mitigation Strategy 2 and so on Risk 2 Mitigation Strategy 1 Mitigation Strategy 2 and so on 4.3 FINANCIAL PROJECTIONS The SCI should include some financial information such as the budget projections for the next three years. The following Income Statement, Balance Sheet and Cash Flow Statement formats are suggestions only and may be modified to reflect the operations of individual PEs. As per the PEMC Act No. 3 of 2013, the statements should comply with the IFRS format Income Statement Revenue Cost of Sales GROSS PROFIT Other income Wages and Salaries Administrative Expenses Selling and Distribution Expenses Research and Development Expenses Other Expenses PROFIT FROM OPERATING ACTIVITIES Finance Income Finance Costs NET FINANCE INCOME (LOSS) Year 1 Year 2 Year 3 Share of profit from associates / joint ventures PROFIT BEFORE TAX Income Tax Expense PROFIT FROM CONTINUING OPERATIONS Profit (loss) from discontinued operations 11 P a g e

12 PROFIT FOR THE YEAR Other comprehensive Income Foreign currency translation differences foreign operations [subsidiaries] Foreign currency translation differences Equity accounted investees [Associates, Joint ventures, Financial assets] Revaluation of property, plant & Equipment Net change in fair value of available-for-sale financial assets Defined benefit plan actuarial gains (losses) Tax on other comprehensive income OTHER COMPREHENSIVE INCOME FOR THE YEAR - NET OF TAX TOTAL COMPREHENSIVE INCOME FOR THE YEAR *Note: Where "Other" are significant amounts, detailed information may be required to be provided to the Responsible Minister as part of the SCI negotiation process Balance Sheet Balance Sheet Group (Consolidated) Non-Current Assets Property, plant and equipment Investment property Goodwill Other intangible assets Biological assets Trade and other receivables Financial assets Other Investments Deferred tax assets Other assets TOTAL NON-CURRENT ASSETS Current Assets Inventories Biological Assets Investments Other financial assets 12 P a g e Year 1 Year 2 Year 3

13 Current tax assets Transfers receivable from other governments Trade Receivables Prepayments Cash and Cash equivalents Assets held for sale Other assets TOTAL CURRENT ASSETS TOTAL ASSETS NET ASSETS / EQUITY Share Capital Share Premium Reserves Retained Earnings TOTAL NET ASSETS / EQUITY Non-Current Liabilities Long-term borrowings Financial liabilities Employee benefits Trade and other payables Deferred income / revenue Long-term provisions Liabilities held-for-sale TOTAL NON-CURRENT LIABILITIES Current Liabilities Bank overdraft Current tax liabilities Loans & borrowings Trade and other payables Deferred income / revenue Provisions Liabilities held for sale CURRENT LIABILITIES TOTAL LIABILITIES TOTAL NET ASSETS/ EQUITY & LIABILITIES *Note: Where "Other" are significant amounts, detailed information may be required to be provided to the Responsible Minister as part of the SCI negotiation process. 13 P a g e

14 Cash Flow/Outflow Statements Cash Flow Statement Group (Consolidated) Cash Flows from Operating Activities Year 1 Year 2 Year 3 Inflows Sales of goods and services Interest received Rental income Other income Outflows Employee costs Suppliers, cost of sales, expenses Interest paid Other payments Depreciation and amortization Payments into trust fund accounts Dividends received (minus dividend paid to government) Net Cash Flow from Operating Activities Cash Flow from Investing Activities Purchase of plant and equipment Proceeds from sale of plant and equipment Proceeds from sale of investments Purchase of investments Capital grants Net Cash Flows from Investing Activities Cash Flows from Financing Activities Proceeds from borrowings - other Proceeds from borrowings - external assistance Repayment of borrowings Net Cash Flows from Financing Activities Net Increase/(Decrease) in Cash Cash at the Beginning of the Financial Year CASH AT THE END OF THE FINANCIAL YEAR Note: Where "Other" are significant amounts, detailed information may be required to be provided to the Responsible Minister as part of the SCI negotiation process. 14 P a g e

15 Transactions with Government of Seychelles as Owners of the PE Equity injections/(withdrawals) Dividends provided for or paid Year 1 Year 2 Year Assets This section should list all the major operating assets the PE owns and manages. Interests in various assets, whether 100% or a lesser interest, should be indicated. Major operating assets are open to interpretation, but it is not the intention for this declaration of assets to include small items. Asset lists should already be maintained by all PE s and this list will be sufficient for the purposes of the SCI. Where a PE does not own physical assets, the PE and Responsible Ministers may negotiate what information regarding assets is to be provided. Preferably, details of assets should be provided in the format suggested below. Consistent with its core business, (PE) owns and manages the following major assets: Provide a list of assets including % owned Community Service Agreement (CSA) The SCI will not form the basis of approval of CSAs however where a PE delivers some kind of Community Service at below market rates, the SCI should at least briefly define the nature, costing and funding of these Community Services. It may be presented in the following format: The Community Services performed by the (PE) and their financial impact are. Tax and Community Service Agreement Payments/Costs Tax Paid/Payable `CSA Paid/Payable or Received/Receivable Year 1 Year 2 Year 3 If no Community Services apply, please insert: No Community Service Obligations have been identified for (PE) Capital Expenditure Program Information to be included in this section is PE-specific and the required information will not be applicable to all PEs. What individual information is included here is subject to negotiation between PEs and Responsible Ministers. 15 P a g e

16 Proposed Capital Expenditure (Projects expected to be approved during the next three years) Asset Project Status Budgeted Total Cost Expected Date of Completion Total Estimated Expenditure Year 1 Total Estimated Expenditure Year 2 Total Estimated Expenditure Year 3 PART 5: OTHER UNDERTAKINGS As part of the SCI, the PE should include the following additional undertakings as part of its performance agreement with the Responsible Ministers: 5.1 PRUDENT FINANCIAL MANAGEMENT The Board and CEO of (PE) take full responsibility to ensure that prudent financial practices will be applied both within the corporation and within its subsidiaries (whether fully controlled or otherwise). Without limiting the obligations imposed on the Board and the CEO by the PE Act and, where applicable, the Company Act, this includes a commitment to: abide with the Guidelines for Good Governance issued by the Seychelles Government; and establish, maintain and implement appropriate financial risk management practices CAPITAL STRUCTURE (PE) will prudently manage the financing of its existing business and new business developments. As an integral part of the financing of the Public Enterprise, the overall debt will be managed to ensure that (PE) maintains the appropriate credit rating and will pay all liabilities on time. 5.3 DIVIDEND POLICY 1 (PE s) dividend policy takes into account the return its shareholders expect on their investments. The Board will make a recommendation on the basis of its shareholders agreeing to provide the necessary funding for projects which have received Board and Responsible Ministers approval or for the maintenance of (PE s) approved capital structure or for ensuring the operational viability of (PE). 5.4 CORPORATE GOVERNANCE (PE) will continually monitor and review its corporate governance arrangements to reflect good practice, having regard to recommendations in the Governance Guidelines for Public Organisations. 1 PEMC is currently working on a new dividend policy and will be updating the investment of surplus fund which will be communicated to PE s in due course. 16 P a g e

17 5.6 RISK MANAGEMENT The Board of Directors of (PE) has ultimate responsibility for the management of all potential internal and external risks for the PE. The PE s risk identification and management process is monitored by the (e.g. Audit / Risk Committee; insert name of committee as appropriate), which is a subcommittee of the Board and which reports to the Board on a regular basis. The risk management framework is designed to ensure that all potential financial, operational and other risks are regularly identified, assessed, monitored and reported to the (e.g. Audit / Risk Committee; insert name of committee as appropriate) and the (PE) Board, along with appropriate risk mitigation and management plans. In particular, potential security risks have been considered and identified and a framework to respond to security threats has been developed. The Board will continually monitor security risks and update (PE s) response framework as necessary. Risk management plans should be incorporated in the Corporation's budgetary and strategic planning process. 5.7 COMPLIANCE WITH GOVERNMENT POLICIES All the relevant Government Policies that PEs are required to comply with are detailed in Part 7 of this pro-forma. This list should be included as an attachment to the SCI and the following undertaking should be included in the SCI: (PE) and its subsidiaries will comply with all relevant Government policies and guidelines as set out in Attachment 3. In particular, (PE) and its subsidiaries will comply with the approval, notification, reporting and other requirements of those policies and guidelines. PART SIX: PERFORMANCE AGREEMENT PE Boards should sign the SCI prior to providing it to the Responsible Ministers. This will demonstrate that all board members have agreed to the performance targets for the business for the next three years. The Directors Statement could be worded as follows: DIRECTORS' STATEMENT This Statement of Corporate Intent ( SCI ), for the financial years.is presented to the Responsible Ministers, and the Public Enterprise Monitoring Commission in accordance with Section 34 of the PEMC Act The SCI represents a formal commitment by the Board of Directors of (PE) to the Responsible Ministers and the Commission with respect to the financial and non-financial performance targets specified for the next three years. The SCI also represents an acknowledgment and commitment by the board regarding major activities, objectives, undertakings, policies, investments and borrowings of the (PE). In signing the document (PE) Board of Directors has undertaken to take all reasonable steps to ensure that the document and all reports to are prepared with accuracy and timeliness. 17 P a g e

18 All directors to sign This SCI is signed by all Directors in accordance with a unanimous decision of the Board of (PE). Chair Person Director (1) Director (2) Date Date Date and so on Date 18 P a g e

19 PART SEVEN: ATTACHMENTS The PE s should attach to their SCI the following information: ATTACHMENT 1 PE s should attach their Weighted Average Cost (WACC) Calculations in line with the WACC guidelines ATTACHMENT 2 In relation to the PE Board undertaking where the PE has not adopted the Good Governance Guidelines for Public Organisation, the PE needs to provide details of recommendations not adopted and the reasons why they have not been adopted. ATTACHMENT 3 Attachment three should just list all of the Government Policies which the PE is abiding by which might include any of the following: Government Policies and Guidelines Guidelines for the Preparation of Statement of Corporate Intent Good Governance Guidelines for Public Organisations (2009) Investment of Surplus fund (2009) Procurement Act (2009) Public Debt Mangement Act (2009) Public Finances Management Act (2012) CSA Policy (2009) Dividend Policy (2013) 19 P a g e