Performance monitoring and reporting Alex Ball, Director, Astus Services Group NZ 12 May 2014

A changing role CFOs and Finance teams are now required to provide better understanding of overall business performance. In other words, for many entities, the Chief Financial Officer is now the Chief Performance Officer. This requires financial teams to deploy and maintain robust performance management, monitoring and reporting frameworks And, as importantly, for finance folk to speak the same language as their business colleagues

Performance Management Cycle Monitor Act Plan Strategise Goals, Strategic Objectives Budgets, forecasts, Initiatives Reports, Dashboard, Analytics Interpret, Decide, Act, Adjust Alignment of performance with strategy is key Strategy, key objectives and business plans are set Monitoring requires robust, consistent measurement of integrated KPIs and metrics This provides for timely and more informed decisioning to minimise execution gap

Criteria for KPI Businesses typically can and do monitor a significant volume of management information. Management should focus on a handful of indicators – measures that matter, or KPIs A KPI measures performance against a goal and is usually aligned to a strategic objective

TYPICAL Types of kpi Financial vs Non Financial Leading (driver) vs Lagging (outcome) Quantitative vs Qualitative

Non financial indicators Changing the conversations Managers manage using business drivers What gets measured gets managed Aligns Finance and line management Mixing desk concept

Identifying drivers Non-financial Financial EBITDA Call centre FTE Calls answered Quantity of calls Acquisitions Conversion rate Connections Non-financial Financial Grade of Service Churn Revenue Recontract rate Gross margin ARPU CoS EBITDA Opex

A range of measures Financials: Key financial KPIs Profit and Loss Cashflow Balance Sheet Key financial KPIs Cost To Acquire Cost To Serve Debtor days Capex spend vs budget Key initiative progress Status and spend metrics Non financial KPIs: Call abandonment rate Churn FTE Sale conversion rates Market indicators Net Promoter Score Brand Awareness Market Share movements Other indicators Engagement scores Unplanned staff churn Complaint metrics

dashboards The cascading principle: Strategic (senior management) Tactical (business unit) Operational (team or individual)

New areas of business Identifying the measures that matter Business Case? How can these KPIs be measured? How robust are our information gathering, processing and storage systems and processes? Statistical variation of data – do we understand it?

Linkage to forecasts Rear view mirror only useful if using the windscreen Present YTD with updated forecasts Link YTD themes to forecast risk (and strategy execution) Identify actions

Linkage to business planning Performance reporting should capture issues and learnings to use in business planning, including: Revised correlations between business drivers Revised margin settings Improved understanding of seasonality impacts Projects with amended revenue benefits, opex or capex needs Revenue benefits, opex and capex for projects due to complete before or during next financial year

Traditional financial reporting   YTD Company Actual Budget Variance $m Division A 15.7 16.1 -0.4  Division B 22.2 22.5 -0.3 Division C 18.5 18.1 0.4  Total Revenue 56.4 56.7 CoS A 8.6 8.8 0.2 CoS B 11.1 11.3 CoS C 10.1 9.3 -0.8 Total CoS 29.8 29.4 GM A 7.1 7.3 -0.2 GM B 11.2 -0.1 GM C 8.4 Gross Margin 26.6 27.3 -0.7 GM % 47.2% 48.1% -1.0% Labour 8.3 8.5 Advertising 0.8 1.1 0.3 Other 3.9 4.4 0.5 Total Opex 13.0 14.0 1.0 EBITDA 13.6 13.3 EBITDA % 24.1% 23.5% 0.7% Revenue Revenue unfavourable to budget by $0.3m with A and B unfavourable while C favourable Gross Margin Margin unfavourable by $0.7m or 1% with A, B and C all negative Opex Opex favourable to budget by $1m across all categories EBITDA EBITDA favourable by $0.3m or 0.7% driven by opex improvements despite shortfall in GM

PERFORMANCE Reporting   YTD Company Actual Budget Variance $m Division A 15.7 16.1 -0.4  Division B 22.2 22.5 -0.3 Division C 18.5 18.1 0.4  Total Revenue 56.4 56.7 CoS A 8.6 8.8 0.2 CoS B 11.1 11.3 CoS C 10.1 9.3 -0.8 Total CoS 29.8 29.4 GM A 7.1 7.3 -0.2 GM B 11.2 -0.1 GM C 8.4 Gross Margin 26.6 27.3 -0.7 GM % 47.2% 48.1% -1.0% Labour 8.3 8.5 Advertising 0.8 1.1 0.3 Other 3.9 4.4 0.5 Total Opex 13.0 14.0 1.0 EBITDA 13.6 13.3 EBITDA % 24.1% 23.5% 0.7% Debtor Days Month 6 Month 5   Costs to acquire A 24 22  1.2 1.3  B 31 33 1.4 1.5 C 38 34 1.6 1.7 Acquisition Churn 2,455 2,345 458 570 3,788 3,670 790 590 2,567 3,650 1,459 890 Sales calls answered Conversion Rate 18,005 17,500 14% 13% 16,420 17,000 23% 22% 17,891 21% Balance Sheet $m Grade of Service Cash 4.2 4.6 87% 80% Debtor 57.3 54.2 82% Inventory 8.4 7.5 55% Fixed Assets 658.6 652.8 Re-contracting 2,764 2,500 Creditors 44.5 44.2 3,000 Provisions 5.6 5.2 2,688 2,800 Loan 158.7 - Net Assets 519.7 511.0 Cashflow Operations 8.7 8.2 Share Capital 130.9 Investing -9.1 -8.3 Reserves 388.8 380.1 Financing 0.3 Equity Movement -0.4 0.2

More informed decisions Analysis Actions Division C’s YTD revenue was ahead of budget by $0.4m. However, GM% was unfavourable by $0.4m and debtor days have increased by 12% month on month. Full year GM is now at risk relative to forecast. In addition, acquisition levels are down 34% on budget driven by a 7% drop in sales conversion rate from the target level of 21% Churn was 64% ahead of budget driven by a major drop in GoS to 55% (target 80%) and a smaller drop in re-contracting rates. Review C’s discount and credit settings and follow up C’s credit team performance Review C’s sales call centre FTE and post call satisfaction survey scores Review root causes of GoS issue and productivity level in C’s re-contracting team

summary To be a better ‘performance coach’ finance teams need to: Speak the same business language as line management Support the business by providing robust, consistent frameworks for measuring key performance metrics Deliver meaningful analysis using this broader range of performance information on issues requiring management action Identify learnings and link these to forecasted performance and future business planning methodologies