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©2015 Deloitte LLP. All rights reserved.

Deloitte Finance ClubThe community for FinancialControllers and senior financialexecutives

Wednesday, 29th April 2015


Deloitte Finance ClubA few facts

• Established in May 1997 as the Financial Controllers’ Club, and renamedDeloitte Finance Club in 2013

• Provides an annual programme of technical updates and hot topic briefings

• Connects our members to relevant experts as well as over 2,200 membersacross the country

Deloitte Finance Club – Business Partnering: better decision-making through Finance insight (29 Apr 2015)2


Deloitte Finance ClubUpcoming programme

• Summer finance checklist 2015Thursday, 14 May 2015 – 8:30am-10:30am (arrivals from 8am)

Further dates and topics to be confirmed


https://www.deloitte.co.uk/financeclub/register0514.cfm


Deloitte Finance ClubAgenda

• Managing legacy defined benefit pension schemes Mark McClintockPaul YatesJeff Cunningham

• Business Partnering: better decision-making Richard Hortonthrough Finance insight Malcolm Wilkinson



Managing legacyDefined Benefitpension schemesHow to find a newsolution to alegacy issue

Mark McClintockPaul YatesJeff Cunningham


• Over the last 5 years there has beena growing trend of DB schemesclosing to the future accrual ofbenefits

• DB schemes increasingly becoming alegacy issue for FDs/CFOs


Current market practice

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013

Closed to futureaccrual

Closed to newmembers

Open

Both recently announced that they will close

Source : NAPF survey 2014

A changing pensions landscape


Road mapManaging risk

Insurance

• Partial buy in/out – olderpensioners?

• Longevity swaps

• Impaired Life annuities/ Medicalunderwriting

Closure to future accrual

• No further liability and risk buildsup

• Remove salary link?

Liability management

• Remove some liability andassociated risk

• Member “option” – in line withCode of Practice


Overall riskreduction

Scheme funding

• Manage funding and contributionrequirements

• Consider funding options eg asset-backed contributions

• Ongoing expense monitoring

Asset management

• Hedging

• LDI, Dynamic de-risking

©2015 Deloitte LLP. All rights reserved.Deloitte Finance Club – Business Partnering: better decision-making through Finance insight (29 Apr 2015)8

Scheme funding


Market conditions• Low Gilt yields• Poor equity returns over 2014 and early 2015

Legislative changes

• End of contracting out (if still open to accrual)• Budget 2014 – impact on transfers out / member

incentive exercises• Budget 2015 – reduction in Lifetime Allowance

Operational Issues• Recent benefit change / closure• Or planned closure• Changes to advisors


Scheme fundingRecent developments


Scheme fundingMarket changes

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 Nov 2014 Jan 2015 Mar 2015

FTSE over 15 year Gilt yield

Yie

ldp

/a

General Election7th May

?


Scheme fundingFunding strategies

• Increased deficits likely to be unavoidable

• Consider short term and long term objectives

• Cash increasingly becoming no longer the only option for funding schemes


Direct funding Covenant/security

Investment outperformance

Contingent contributions

Asset-backed contributions

Historical

Alternative

Progressive

Inflation linked contribution schedules

Contingent assets

Reservoir trusts

Parent company guarantees

Cash contributions

Contingent contributions


Selected pension funding partnerships

Diageo

Backed by:whisky stock

Size:~£400m

ITV

Backed by:business

securitisationand property

Size:~£250m

TUI Travel

Backed by:brand (with

schememerger)

Size:~£275m

AllianceBoots

Backed by:property

Size:~£275m

Centrica

Backed by:power

stations andintragroupreceivables

Size:~£450m

AGFA

Backed by:3rd party

receivables

Size:~£36m

Scheme fundingAsset-backed contributions



Asset management


1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%


-300

-250

-200

-150

-100

-50

0


Hedging strategy(80% Equity, 20%Bonds with aninflation andinterest ratehedging strategy)

Lower risk(20% Equity, 80%Bonds)

Return seeking(80% Equity, 20%Bonds)

FTSE over 15 yearGilt yield

Schemes with a significant proportion of returnseeking assets

Assets predominantly gilts, corporate bonds andindex-linked gilts – or inflation and interest raterisks are effectively hedged through a swapportfolio.

Asset managementRecent funding progression


Yie

ldp

/aA

sse

ts/L

iab

ilitie

s£

m


Asset managementCash-liability profile• Freedom & Choice can lead some members holding expensive long-dated and

inflation-linked cashflow reserves to exit the pension scheme

• This can change the risk profile of the scheme and would bring forward cashpayments from the scheme. If expected to be material investment strategy willneed to be reviewed

If longer term cash obligations for certain members exitthe pension scheme, then total remaining obligation canreduce in cost and risk



Under35

35-40 40-45 45-50 50-55 55-60 60-65 65-70 70-75 75-80 Over 80

Enhanced TransferValues (ETVs)

Typically deferredsunder 55

FlexibleRetirement

Options (FROs)

Typically deferredsover 55

Pension IncreaseExchange (PIE)

Pensioners

Closure to futureaccrual

Actives

Longevity Swaps,Buy-ins, Annuity

Purchase

Liability managementTargeting your exercise



Expense monitoring


0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0

100

200

300

400

500

600

700

800

£30m300 members

£200m2,000 members

£2bn20,000 members

Co

sta

s%

of

sch

em

ea

sse

ts

Pe

rm

em

be

rc

ost

£p

.a.

Scheme size

Average UK pension scheme running costs

Administration costs Investment costs Other costs

Expense monitoringIdentifying the costs

• Over £1bn is paid in professional fees in respect of UK defined benefit pensionschemes each year

• Investment charges constitute c. 20-40% of overall running costs for DB pensionschemes


Recent Pensions Regulatorresearch showed:

• Per-member running costswere significantly higheramongst small schemescompared to medium and largeschemes.

• Larger schemes received agreater number of services ineach cost area.

Source: The Pensions Regulator:Defined benefit scheme running costresearch


Expense monitoringThe Deloitte Pensions Master PlanThe Deloitte Pensions Master Plan is a multi-employer defined benefit pensionscheme.

• A new pension arrangement for companies to transfer existing schemes into

• Each company has its own segregated section

• Each section can benefit from lower charges

20

Deloitte Pensions Master Plan

Independenttrustee

Pensionscheme

Trustees

Sectiontrustees

•Asset and liability transfer•Wind up old pensionscheme

XYZplc

Deloitteclient

•XYZ’s pensionresponsibilities areunchanged by the transfer

Deloitte Finance Club – Business Partnering: better decision-making through Finance insight (29 Apr 2015)


Expense monitoringThe Deloitte Pensions Master Plan

Reduced costs Economies of scale from a larger pool of assets

Improved governance An independent trustee and governance framework

No loss of control Trustees, investments and other advisers unchanged

High quality advice Deloitte act as scheme actuary and administrator


Expense monitoringConsider all costs

Investment Fees

Actuarial Fees

AdministrationFees

CovenantFees

Investmentfees

Administrationfees

Legalfees

Pension schemeexpenses

Independenttrustee fees

Covenantfees

Actuarialfees


Summary


Road mapManaging risk


Insurance

• Partial buy in/out – olderpensioners?

• Longevity swaps

• Impaired Life annuities/ Medicalunderwriting

Closure to future accrual

• No further liability and risk buildsup

• Remove salary link?


• Remove some liability andassociated risk

• Member “option” – in line withCode of Practice

Overall riskreduction

Scheme funding

• Manage funding and contributionrequirements

• Consider funding options eg asset-backed contributions

• Ongoing expense monitoring

Asset management

• Hedging

• LDI, Dynamic de-risking


Business PartneringBetter decision-making throughFinance insight

Richard HortonMalcolm Wilkinson


Deloitte Finance insightFinance Business Partnering research


About the researchAnalysed survey responses from 75 FDs

26.7%

44.0%

8.0%

5.3%

1.3%4.0%

10.7%

Participants by role

Chief Financial Officer

Finance Director

Controller

Finance TransformationLead

Finance BusinessPartner

Head of Finance

Others

9.3%

17.3%

6.7%

4.0%

9.3%14.7%

26.7%

2.7%

9.3%

Participants by industry

BIPS

CB

ER

FSI

HLS

MF

PS

RE

TMT

16.0%

21.3%

16.0%12.0%

10.7%

24.0%

Participants by revenue

Less than £250 million

£250 million to £1 billion

£1 billion to £3 billion



More than £10 billion


Upward trend in demandPartnering activities expect to increase further

Decreased,4.1% Stay the same,

20.3%

Increased,66.2%

SignificantlyIncreased,

9.5%

Change in demand for Business Partnering activities2012-14, percentage of respondents

SignificantlyDecrease, 1.4%

Decrease, 1.4%

Stay the same,14.9%

Increase,59.5%

SignificantlyIncrease,

23.0%

Anticipated change in demand for Business Partneringactivities 2014-17, percentage of respondents


Time spent on partnering activitiesOn average, 23% of total Finance capacityTime spent on Business Partnering activities as a percentage of total Financecapacity


3%

1%

16%

25%

27%

21%

4%

No Business Partnering activity

0 to 5%

5 to 10%

10 to 20%

20 to 30%

30 to 50%

More than 50%

Percentage of respondents


Output of partnering activitiesNot consistently used in decision-making


Decision support and Finance BusinessPartnering role definitions

Time spent by Business Partnersgathering data and using spreadsheets


Reasons for insight not being usedRoles not clearly defined & use of spreadsheets

45%

49%

5%

No, we do not have definitions

We have definitions but they arenot consistently applied

Yes, we have definitions that areconsistently applied

1%

3%

4%

32%

41%

19%

0 to 5%

5 to 10%

10 to 20%

20 to 30%

30 to 50%

More than 50%




Wants over needsNeed to meet expectations underpins prioritisationMethods used to prioritise requests from the business


1%

11%

65%

19%

3%

Based on internal controls and external reporting requirements

Partially based on need to exceed expectations of the Business

Based on the need to meet or exceed the expectations of the Business

Partially based on a diagnosis of Business opportunities

Based on diagnosis of the business opportunity and the ability ofFinance to the impact performance

Percentage of respondents agreeing with statements


Where time is spentPriorities focus on calendar-based activities

1.4

1.5

1.6

1.6

1.5

2.1

2.3

2.5

2.2

2.1

2.8

2.1

2.5

2.5

2.4

2.6

2.2

2.8

2.8

3.5

3.3

3.3

1.9

2.0

2.4

2.5

2.5

2.6

2.6

2.7

2.8

3.0

3.0

3.1

3.2

3.2

3.2

3.2

3.3

3.5

3.8

4.0

4.3

4.4

Brand equity

Research & development efficiency or effectiveness

Marketing efficiency or effectiveness

Competitive & environmental analysis

Merger & Acquisition advice

Channel profitability

Workforce planning/compensation

Supply chain optimisation

Supplier/contract management

Risk management

Demand planning

Capital allocation/investments

SG&A cost optimisation

Project management

Customer profitability

Operations optimisation

Pricing optimisation

Working capital management

Product profitability

Standard performance reporting

Forecasting

Budgeting and planning

Prioritisation

Automation

Scale of 1 to 5, 1 = lowest priority/lowest level of automation, 5 = highest priority/highest level of automation


A framework for Finance Business PartnersDeloitte framework describes value adding roleThe Framework identifies focused interventions that allow Finance BusinessPartners to create value for the business


FB

Pe

na

ble

rs

• The underlying enablers required to effectivelydeliver desired Business Partner activities areidentified

• Aspects such as information, capability and capacityare key to empowering the Finance function todeliver these value add activities

De

live

ryo

fs

trate

gy

• The Deloitte Finance Business PartneringFramework identifies four ways through whichBusiness Partners can add value

• If the Finance function is not actively engaged inthese debates there is a opportunity for it toreposition itself and become a ‘player’ not a‘scorekeeper’ in the eyes of the Business

• Each value driver can be associated with FinanceBusiness Partner activities that can add significantvalue to an organisation and help to unlockopportunities

The Framework translates Business strategy into Finance-led interventions that deliver quantified value...

...it also identifies the enablers required to build the trustand common language essential for success


A framework for Finance Business PartnersSetting a strategy to support value generationDeveloping a successful partnering organisation requires Finance to be clear whattheir role is in value creation in the Business


Make and moveproducts

Plan the Business Sell productsGrow thebusiness

Example Business Partnering activities

What are theopportunities toimprove businessvalue drivers?

What focusedinterventions shouldFinance prioritise (i.e.specific activities)?

What tool, talent,organisation willsuccessfully enablethis?

1

3

2

DELIVERY OF STRATEGY

Revenue growth Operating margin Asset efficiency Market expectations

Information & analytics

Talent & capabilities

Business alignment & capacityEn

ab

lers

Focused interventions

Efficiencyinitiatives

DemandPlanning

integration

Multi-channelstrategyanalytics

Customernegotiation

support

Cost to serveExternal /

CompetitorBenchmarks

Incentivestructuredecisionsupport

MarketingROI analysis

Productprofitability

analysis

Inventoryturnover &

obsolescence

Make or buydecisionsupport

Productionplanning

Pricingoptimisation

support

Capexappraisal

Sustainabilityanalysis


Finance Partners must drive andprotect value

• Lead from the front

• Deliver strong end-to-end analyticalsupport to influence decisions

• Integrate the Enterprise and drivetradeoffs

• Develop talent to create futurebusiness leader capabilities

• Manage risk using scenario planning,modelling and simulation

• Be the guardian of integrity andvalues

• Drive and protect value

• Innovate and educate


A vision for Finance Business PartnersHow well have you defined the role?

Pro-active

Fast

Insight

Strategicperspective

Involved

Foresight

Influencing

Innovative

Storytelling

Challenging


A robust approach to building key capabilitiesEnsure talent development drives valueBuilding a finance development programme and talent strategy that increasesFinance’s ability to drive value in the organisation requires it to be routed in adefinition of Finance’s role in delivering the value opportunities in the business


Financeimpact

Dynamicdevelopmentprogramme

Capabilities key toFinance value events

Key Finance value events

Priority business value opportunities

• What business impact measures best representthe intended Return on Investment of thedevelopment spend?

• What combination of tactical developmentinterventions will have a strategic andaccelerating impact on Finance capability?

• What skills, knowledge, behaviours and mindsetsare consistently needed for successfulFinance Value Events?

• Where does Finance need to getinvolved/lead/orchestrate to bring insight andinfluence value decisions?

• What are the key value-creating opportunitiesthe business needs to pursue to deliver on thestrategy?


The Finance Capability ChallengeDefine required mindset, skills and behaviours

For each of the key competencies, there is a clear definition of what thecompetency title means and three levels of proficiency are defined using specificexamples from the business



Align operating model to achieve “more with less”High quality insight is key for effective partnering

Centre of Excellence

• Organised by knowledge set• Expertise focus• “Best Practice”

Development• Issue/knowledge intensivee.g. Tax, Treasury, Analytics

Shared Services

• Consolidated organisation• Operational focus• Standardised services• Process intensive• Multiple businesses or

locationse.g. Record to Report,Purchase to Pay

Business Partner

• Aligned with function/unit• Line/management focus• Knowledge & know-how

transfer• Decision/action intensive

Site support

• Work is distributed todivisions /entities forspecific service needs

• Required for specific input/data capture

• Manually intensivee.g. Credit Control

Value

Lo

ca

tio

n

Insight optimisation enablers

Lo

cal

Cen

tral

Low High

Vision

A clear view of how strategic imperatives translate intofinancial performance – for the Centre of Excellence(CoE) and finance business partnering (FBP) agenda

Capability

Hiring & training the right people with the right skills –for the CoE and business partners

External profile

Value of the CoE and the FBP agenda needs seniorsponsorship from top down

Information

High quality analytics and MI through optimisation ofdata, processes, applications and technology – theCoE feeds the FBPs

High value Finance model

Knowledge based / alignedwith value map

Low cost / defined servicelevel


To recapSix key takeaways

1 Deloitte’s research into Finance Business Partnering has analysed the surveyresponses of 75 senior Finance executives from UK headquartered organisations

2In over half of organisations the business does not use the insight produced byBusiness Partners on a consistent basis. Moreover, in only eight per cent oforganisations does the business view this output as their primary source of insight

3 Demand for Decision Support and Finance Business Partnering activities increasedbetween 2012 and 2014 and is expected to increase over the next three years

4The average Finance function focuses a quarter of its total capacity on deliveringBusiness Partnering activities. Business Partners prioritise cyclical, calendar-basedactivities such as budgeting and planning

5 The typical Finance Business Partner spends 36 per cent of their time gatheringdata and using spreadsheets

6Only five percent of respondents have clearly defined Business Partnering roles thatare applied and communicated across their organisation. Deloitte analysis showsthat organisations with defined roles are more likely to have Business Partners thatdisplay the skills required to guide, influence and challenge the business



Upcoming Finance insightWhere we’re focusing next

How can CFOs attract and retain the best talent?

Which skills are the most important for improving Finance functionalperformance?

Which Finance skills have the biggest impact on businessoutcomes/performance?

How can Finance deliver accurate and timely reporting that is alsoinsightful and actionable?

What technologies can be easily implemented to aid reporting andanalytics?

What skills and behaviours are needed to generate insight andcommunicate it to stakeholders?


Financetalent

Managementinformation


Deloitte Finance ClubUpcoming programme

• Summer finance checklist 2015Thursday, 14 May 2015 – 8:30am-10:30am (arrivals from 8am)

Further dates and topics to be confirmed


https://www.deloitte.co.uk/financeclub/register0514.cfm


Deloitte Finance ClubContacts and resources• Malcolm Wilkinson +44 20 7007 1862 [email protected]

• Richard Horton +44 20 7007 7274 [email protected]

• Mark McClintock +44 2890 53 1429 [email protected]

• Paul Yates +44 20 7007 2238 [email protected]

• Jeff Cunningham +44 20 7303 0141 [email protected]

• James Bates +44 20 7303 0094 [email protected]

Resources:

• Deloitte Finance Club home page: www.deloitte.co.uk/financeclub

• UK Accounting Plus (formerly IAS Plus): www.ukaccountingplus.co.uk

• Annual report insights 2014: www.deloitte.co.uk/annualreportinsights

• Future of UK GAAP: www.deloitte.co.uk/futureofukgaap


mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.deloitte.co.uk/financeclubhttp://www.ukaccountingplus.co.uk/http://www.deloitte.co.uk/annualreportinsightshttp://www.deloitte.co.uk/futureofukgaap


Deloitte Finance ClubRecent seminars• Revenue recognition and the TMT sector – Wednesday, 26 March 2014

• Accounting for real estate and a Tax update – Wednesday, 23 April 2014

• Finance IT systems – Wednesday, 7 May 2014

• Summer finance checklist – Thursday, 17 July 2014

• Football Finance and Fraud: an inevitable cost of doing business? –Wednesday, 1 October 2014

• Managing pensions risks and costs and a Tax update –Wednesday, 22 October 2014

• All change! Key trends and developments in the UK insurance market –Wednesday, 19 November 2014

• Holiday finance checklist 2014 – Wednesday, 10 December 2014

• The rise of omnichannel: what it means for Finance – Wednesday, 25 March2015


http://www.deloitte.co.uk/email/DFC-revenue-recognition.pdfhttp://www.deloitte.co.uk/email/DFC-Real-estate-Tax.pdfhttp://www.deloitte.co.uk/email/Tjt5tUwru.pdfhttp://www.deloitte.co.uk/email/DFC-SummerFC14.pdfhttp://www.deloitte.co.uk/email/DFC-Football-Finance-Fraud.pdfhttp://www.deloitte.co.uk/email/DFC-pensions-tax.pdfhttp://www.deloitte.co.uk/email/DFC-Insurance.pdfhttp://www.deloitte.co.uk/email/DFC-HolidayFC14.pdfhttp://www.deloitte.co.uk/email/DFC-Retail.pdf


©2015 Deloitte LLP.Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, and its network of member firms, each ofwhich is a legally separate and independent entity. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

Deloitte LLP is the United Kingdom member firm of DTTL.

This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend uponthe particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of thispublication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLPaccepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

Deloitte Pensions Master PlanThis document provides general information about the Deloitte Pensions Master Plan. It is the responsibility of employers and trustees to satisfy themselves that anytransfer into the Deloitte Pensions Master Plan is appropriate for their needs and the needs of pension scheme members. Employers and trustees retain responsibilityfor the remainder of the ceding pension scheme post-transfer. Independent professional advice should be sought where appropriate. Trustees should always seeklegal advice in advance of a transfer.


Deloitte Finance ClubDeloitte Finance ClubDeloitte Finance ClubDeloitte Finance ClubManaging legacy Defined Benefit pension schemes��Road mapScheme fundingScheme fundingScheme fundingScheme fundingScheme fundingAsset managementAsset managementAsset managementLiability managementLiability managementExpense monitoringExpense monitoringExpense monitoringExpense monitoringExpense monitoringSummaryRoad mapBusiness PartneringDeloitte Finance insightAbout the researchUpward trend in demandTime spent on partnering activitiesOutput of partnering activitiesReasons for insight not being usedWants over needsWhere time is spentA framework for Finance Business PartnersA framework for Finance Business PartnersA vision for Finance Business PartnersA robust approach to building key capabilitiesThe Finance Capability ChallengeAlign operating model to achieve “more with less”To recapUpcoming Finance insightDeloitte Finance ClubDeloitte Finance ClubDeloitte Finance ClubSlide Number 45

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