Introduction

This is the eighth annual Value Added Scoreboard. It contains details of the Value Added by the top 800 UK companies (UK800) and the top 750 European companies (E750).

The importance of Value Added

Value Added measures the amount of wealth created by a company and is of particular importance since it reflects the ability of companies to provide their customers with what they want and are prepared to pay for. As such, it provides a broader perspective on a company’s economic contribution than operating profit.

A company’s Value Added is calculated as the value of its sales less the cost of its bought-in goods and services.

A company can increase its Value Added by:

• introducing innovative new products and services that provide greater value to customers compared to the cost of the materials, components and services used to make them;
• selling more existing products and services, for example by improved marketing or by entering markets in new geographies, or by raising prices and hence margins;
• reducing the cost of bought-in items, for example by more effective procurement and improved design and development; and
• improving productivity by reducing the unit cost of bought-in items required for each unit of output.

It can also enhance its Value Added through mergers with and acquisition of other companies.

This year’s Scoreboard analyses the overall scale and growth of leading companies’ Value Added and examines the efficiency with which they create Value Added by using various key indicators deployed in previous versions of the Scoreboard:

• the amount of Value Added created per person employed (P₁);
• the ratio of Value Added to the costs of employment and depreciation used to create it (P₂); and
• the ratio of Value Added to indicators of the assets employed to create it.

The Scoreboard also analyses companies’ performance over time in relation to stock market capitalisation.

How the Scoreboard is compiled

Data for this year’s Value Added Scoreboard have been derived from companies’ latest audited company annual reports and consolidated accounts (as at 5th January 2009) by Company Reporting Ltd under contract to the Department for Business, Innovation & Skills (BIS). Annual reports with a year-end older than 30 months before the cut- off date or a publication date older than 24 months before the cut-off date are excluded. This means that the Scoreboard largely reflects business activities during 2007 and 2008, before the full effects of the current economic downturn were evident.

The data which underpin the Scoreboard have other important features which also affect the interpretation of the results of their analysis:

• the Scoreboard only includes European companies since US and Japanese companies following US GAAP do not provide enough information in their accounts to enable Value Added to be calculated¹;
• the top 800 UK companies by Value Added include bot domestically owned/listed companies and foreign-owned companies which report in the UK; 1 A few European companies use US GAAP and these are also excluded. The larger companies of this type are named in the ‘Notes’ at the back of Volume 2.
• no foreign-owned companies are included in the E750 to avoid double counting;
• companies are classified into the 38 sectors used by FTSE and Dow Jones² and assigned to the country where the overall group is incorporated with all FTSE 100 companies being assigned to the UK: this means that all the analyses of Value Added by country reflect this attribution rule and not the Value Added generated just by those parts of businesses which operate within the borders of particular countries; and
• all the financial data have been converted to sterling at a fixed exchange rate as at 31st December 2008 and are expressed in nominal, cash terms.

To be included in this year’s Scoreboard, UK companies in the UK800 must have generated Value Added in excess of £123 million whilst all European companies in the E750 generated over £578 million. Further details of the definitions used, the method of calculating Value Added and its limitations are given in Appendix A.

Where to go for further information

Further information related to the Scoreboard can be obtained from a number of sources:

• Volume 2 of the Scoreboard contains data for each company in the UK800 and E750 taken from the latest set of accounts available on 5th January 2009;
• an accompanying CD contains full data on the companies within both the UK800 and the E750; and
• further information is available online at: www.innovation.gov.uk/value_added.

¹A few European companies use US GAAP and these are also excluded. The larger companies of this type are named in the ‘Notes’ at the back of Volume 2.

²The sector classification is based on the Industry Classification Benchmark (ICB).