Financial Director Summer 2016

www.financialdirector.co.uk FINANCIAL DIRECTOR SUMMER 2016

Summer 2016

Financial directions Financial Director reveals the brightest young stars in the finance profession

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Contents Events

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30

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CURRENT AFFAIRS

10 Beware: BHS ahead Arcadia FD was warned about potential suitors 11 Accountex 2016 What did we take away from this year’s accountancy show?

12 Analytics in action How data helped two companies relocate 12 Quality and quantity Employers can’t agree over the apprenticeship levy

COLUMNS

16 Mind the digits What implications does digital transformation have?

18 Secret FD How strike action could impact upon financial plans 20 Economics How UK unemplyment and wage pressures are linked 22 IT strategy Finance continues to struggle to find its place

36

FEATURES

COVER STORY 24 Bright young things Our annual rundown of finance talent aged under 35 28 C-suite youngsters CFOs who have made it before their 35th birthdays 29 Valuable asset CFOs who break into the intensive portfolio market can reap the rewards 30 Building an estate Derwent London’s CFO talks about the real estate investor’s strategy 34 The survivor Brewin Dolphin’s FD on how the wealth management firm has changed in its 254 years 36 Heads in the sand With EU audit reform about to kick in, why are so many firms so unprepared?

40 A rock and a hard place How does the EU referendum affect the future of VAT?

42 Hold the hype Practical mainstream Internet of Things systems could still be a decade away

REGULARS

3 Editor’s letter Better together 4 Briefing EY given thumbs down 6 Movers Wolseley backtracks on CFO appointment 44 Macro Dominant short-term uncertainties put world stock markets into semi-paralysis 46 The Rules: Fraud Is the new ‘failure to prevent’ offence the answer to tackling fraud?

47 The Rules: PSC Regulations Thousands of companies could already be in breach of the PSC Register 48 Off Balance Refereeing the Brexit debate

Financial Director is delighted to announce that Alistair Darling and Sir Clive Woodward are among the keynote speakers for the CFO Agenda 2016 on 28 June 2016.

Alistair Darling served as chancellor of the Exchequer during the most turbulent and far-reaching economic crisis the world had seen. He will speak to our Agenda audience just days after the UK’s EU Referendum.

Sir Clive was England’s first full-time professional head coach in 1997, and led the team to three Six Nations Championships including a Grand Slam, and success at the 2003 World Cup. For the 2016 Agenda, we’ll be taking on the theme of “Culture. Strategy. Change”, where we’ll be bringing CFOs and FDs up to speed on the emerging finance trajectory for the next 12 months, including: • New industry opportunities and risks • Guidance on implementing new business strategies at a high level and in an exclusive environment • What the Brexit referendum means for you and your business • The CFO’s pivotal role in corporate and management culture • Mitigating tax versus reputation – Do companies have a duty to avoid tax?

Topics range from maximising the use of data, to reconfiguring how we think about risk management. The programme will also focus on how a company can maintain fluid but robust governance processes, as well as exploring the importance of the sustainability promise.

Find out more by emailing events@contentive.com or visit cfoagenda.financialdirector.co.uk

Summer 2016 | financialdirector.co.uk | 1

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EDITOR’S LETTER

EDITOR Richard Crump SENIOR REPORTER Chris Warmoll REPORTERS Calum Fuller, Fraser Simpson PRODUCTION EDITOR Simon Turner CONTRIBUTORS Adam Chester, Will Christopher, Peter Cochrane, Christian Doherty, Mark Evans,Valerie Findley, Nicholas Hallam, James Kenyon, David Kern, The Secret FD, ILLUSTRATOR Bill McConkey EDITORIAL ENQUIRIES (020) 8080 9138 SALES MANAGER Oli Henry (020) 8080 9133 ACCOUNT MANAGER Renaldo De Souza (020) 8080 9133 Georgia Riley (020) 8080 9128 EMAIL firstname.lastname@contentive.com HEAD OF EDITORIAL Kevin Reed CEO Louis Warner POSTAL ADDRESS Contentive, 1 Hammersmith Broadway, London REPRINTS For custom editorial reprints contact Wrights Reprints at (+1) 877 652 5295 (international toll free) financialdirector@wrightsreprints.co.uk PRINTERS Headley Brothers Ltd. Mailed by Headley Brothers Ltd. SUBSCRIPTIONS UK £68, Europe £88, RoW £118 Financial Director is published by Contentive © Contentive, 2016 Financial Director is available on the internet at www.financialdirector.co.uk ISSN no. 0961-2556 Average net circulation, 7,547 (December 2015-May 2016). Total net circulation for audit issue cover dated May 2016, 7,533 Financial Director is printed on paper from sustainable sources in Scandinavia/Germany

We’re in it together

L

ater this month I will be hosting the CFO Agenda. Coming days after the landmark EU Referendum, Financial Director’s conference for senior finance professionals will undoubtedly be dominated by the fallout from the vote.

Whether the country opts to Leave or Remain, businesses will need to digest the impacts of currency fluctuations, market movements and whole host economic and trading impacts. Yet any market dislocation is likely only to be temporary and most should be able to ride this out.

Far more important to the success of a business is effective management and a healthy corporate culture. Instilling the right culture must come from the top. This might not at first appear to be the preserve of finance, but it is core to corporate governance and is the duty of all board members.

It is the role of board members and executive management to set strategy and allow and trust their lieutenants and department heads to deliver corporate aims. But decision-making must feel collegiate, with buy-in gained from all members of the finance team and broader business.

If management makes decisions in isolation of those responsible for delivering the outcomes, while also micro-managing at a granular level they fail to see the helicopter-level picture and sap the morale of those working under them.

Through analytics and its unique business partner roles, finance is the function best placed to assess the effectiveness of culture, governance and managing organisational change.

But don’t take my word for it. An array of CFOs, policymakers, academics, politicians and one World Cup-winning head coach will be at the CFO Agenda to provide their insights. Make sure you are too.

Richard Crump, editor

Summer 2016 | financialdirector.co.uk | 3

BRIEFING Audit rebellion

OIL

Standard Life Investments votes against EY for Shell Standard Life Investments has voted against the appointment of EY as auditors of Royal Dutch Shell at the FTSE 100 oil giant’s annual general meeting.

The global asset manager previously raised concerns over the appointment of EY amid concerns over conflicts of interest and auditor independence issues following the takeover of BG Group by Shell.

Standard Life was among the 7% of shareholders who voted against the motion to appoint EY in Shell’s AGM yesterday. Some 92.41% of investors voted in favour of EY’s appointment.

EY was appointed as Shell’s auditor for the financial year 2016 and had already been serving as BG Group’s auditor since 2013. BG Group was merged with Shell in a £36bn deal in February. EY’s lead partner Allister Wilson was also the lead partner for BG immediately prior to the takeover.

In a statement, Standard Life said it was concerned “that the interests

of shareholders in both companies were adequately addressed”.

“Shell’s appointment of the audit partner at EY who was responsible for the BG Group audit, compounds the perception of conflicts of interest that we highlighted at Shell’s 2015 AGM,” it said.

“Standard Life Investments is a substantial investor in Shell and BG, and it is our view that the objectivity of Shell’s proposed auditor could indeed be impaired by their prior connection with BG.” A Shell spokesman said: “EY was appointed as Shell’s auditor for the financial year 2016 following an extensive competitive tender,

in line with industry best practice.

Over 92% of shareholders supported the appointment at our 2016 AGM. We have full confidence in EY’s suitability for the role.”

EY said it was unable to comment.

The news comes as the FRC confirmed last week it is to introduce measures to further curb potential conflicts of interest facing auditors in its latest update to the UK Corporate Governance Code.

The final draft includes changes to strengthen auditor independence by applying prohibitions to a range of engagements that could result in an auditor facing a conflict of interest.

The announcement forms part of the EU’s audit reforms, which are intended to open the FTSE 350 market up to more audit firms such as Grant Thornton and BDO, among others.

Central to those reforms are mandatory tendering and rotation of auditors every ten years.

Instances of white collar crime

Source: Pinsent Masons

11,500 11,000

11,261

10,500

9,500

9,700

9,000

9,343

9,401

2014

2015

8,500 8,000 2011

2012

4 | financialdirector.co.uk | Summer 2016

Europe’s largest companies will now have to provide country-by-country reports to each member state they operate in, after the European Council ramped up its efforts to clampdown on tax avoidance.

The council adopted rules on the reporting by multinational companies of tax-related information and exchange of that information between member states. The directive forms the first element of a European Commission package to strengthen rules against corporate tax avoidance, as well as building on the OECD’s base erosion and profit shifting (BEPS) rules.

FTSE 100 companies withholding key information in reports

A third of FTSE 100 companies are painting “an inaccurate picture” for their investors by withholding relevant information in their annual reports, including health and safety incidents, data breaches, skills challenges and employee turnover, creating a major risk for shareholders.

According to a joint report from CIMA, the CIPD and the CMI, Valuing your Talent: Illustrating Your Company’s True Value, there has been a significant decrease in the level of transparency on how companies measure and report on their staff.

2 KPMG raises concerns over Lycamobile’s company structure

10,490

10,000

1 EC adopts countryby-country reporting for EU multinationals

2013

International telephone calls business Lycamobile has been criticised by its auditors KPMG over its company structure, which left it unable to account for £134m of assets.

Lyca’s complex and opaque web of offshore and UK companies raised concerns over where its assets were drawn from.

Its latest filing with Companies

FOLLOW FINANCIAL DIRECTOR APPOINTMENTS twitter.com/fdappointments

1

Metrics

17 % The percentage of businesses that invest in cyber-security training for staff Source: Open University

73 % Finance leaders that agree 2 4

closer CIO / CFO alignment has become more important to achieving their finance transformation Source: Oracle

58 % CFOs that want all intangibles to be recognised in corporate reporting Source: Brand Finance

3

House – posted six months late on 7 May – show that the Big Four firm was unable to obtain “all the information and explanations that we consider necessary for the purposes of the audit”.

It earmarked the £134m owed to Lycamobile by related companies, “for which the audit evidence available to us was limited because of the complex nature of the related party structure the company operates within”.

There is no suggestion Lycamobile has undertaken any illegal activity.

3 BIS launches insolvency consultation

BIS has launched a consultation on whether the UK’s insolvency regime needs updating following a flurry of recent corporate failures and “an increasing European focus on providing businesses with the tools to facilitate company rescue”.

The consultation explores four broad areas for reform. Core to this is introducing a moratorium

CFO top risks weighted

by GDP 11%

11% 43% 11%

24% Geopolitical risk Foreign demand Domestic demand

Organic/business specific Financial markets/ FX risk

Source: Deloitte

for distressed businesses to benefit from protection against legal action while considering their options for rescue.

The government department 19.1% is also seeking to widen the definition of essential supplies, with appropriate safeguards for suppliers; develop a new restructuring plan to increase the options available to rescue businesses and increase the availability of rescue finance.

£193 bn Annual cost of fraud in the UK

Source: Portsmouth University

60 % Rise in bad debt levels across the energy utility sector over the past five years Source: PwC

4 Google’s Paris HQ raided in tax probe

Google suffered a dawn raid at its Paris offices by French authorities over allegations of money laundering and “acts of aggravated financial fraud”.

Reports suggest that Google’s French HQ was raided by about 100 tax investigators in the early hours of 24 May. The raids form part of an inquiry into whether Google shifted revenue to Ireland, where the corporation tax rate is 12.5%, in order to avoid French taxes.

Summer 2016 | financialdirector.co.uk | 5

MOVERS CFO U-turn

PLUMBING SUPPLIER

Wolseley shelves CFO appointment Shareholder unrest over accounting irregularities at Simon Nicholls’ current biz UK building supplier Wolseley has made an embarrassing U-turn on the appointment of its new chief financial officer Simon Nicholls, who was due to join from aerospace and defence business Cobham.

An uprising by shareholders has driven the FTSE 100 listed company to shelve plans to appoint Nicholls as CFO over concerns of accounting irregularities at Cobham, the company where he has been finance boss since 2013.

David Keltner, current CFO of Ferguson Enterprises, the group’s US subsidiary, will be appointed as the interim group CFO of Wolseley on 1 September 2016.

The selection process to appoint a permanent group CFO will commence immediately, the company said in a statement.

Nicholls was appointed as the new finance chief at the plumbing giant in January, four months before Cobham was forced to launch a £500m emergency rights issue to shore up its balance sheet following a fall in first-quarter profit and to stop debt from a 2014 acquisition spree pushing

it towards a breach of banking covenants. It was also reported that Cobham had dismissed two directors from its wireless operation after it discovered mistakes with revenues from contracts.

In a note to clients, Howard Seymore, an analyst at Numis, said that “several institutions were very adamant” that Nicholls should not join Wolseley after the profit warning. Analysts at Barclays, Wolseley’s house broker, said the decision not to proceed due to the recent issues at Cobham was the

Facts and figures

operational skills and experience will make a significant contribution to the future development of Wolseley,” Davis said.

At Cobham, Nicholls helped drive a strategy aimed at taking the FTSE 250 company away from its historical reliance on military markets. Cobham’s nascent plans to steer away from relying too heavily on government defence budgets is clearly a bold move given that about 60% of its current income stream is derived from defence – a third of which comes from the US military – and the remainder is commercial.

“The day after I joined in May 2013, the chief executive Bob Murphy brought in a new head of strategy and over the next few months we went through a redesign of the whole strategic planning process,” he told Financial Director in October last year.

A spokesman for Cobham said Nicholls remains at the business and is fully focused on successfully completing the rights issue.

A spokesman for Wolseley said: “This is a private matter between the board and Simon and it is not appropriate to discuss further.”

Regional Analysis: Revenues Q1 Revenue Q1

£3.56bn

£3.38bn

right thing to do given ongoing questions regarding the situation there and possible reputational risk to Wolseley.

“In addition, having these questions circling at the beginning of a new stage would be an unhelpful distraction. It is also a brave, decisive step by John Martin, which is encouraging at the start of his time as chief executive,” it said.

In a separate note Cannaccord Genuity said: “Clearly, this is slightly inconvenient for Wolseley and prevents as smooth a transition as was previously expected.

However, operationally we do not see any big risk for Wolseley. David Keltner, the interim chief financial officer, is currently responsible for the largest part of the business; the US business accounts for more than two-thirds of the group. Clearly, despite the nearterm inconvenience, it is more important that the group appoints a suitable permanent CFO.” In January, Cobham chairman Gareth Davis said he was pleased to have attracted someone of Nicholls’ “calibre and expertise”.

“I am confident Simon’s

Trading Profit Q1

£503m

£510m

£182m

£105m £2.26bn

£236m 2015

6 | financialdirector.co.uk | Summer 2016

£250m 2016

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07/06/2016 10:24

MOVERS Kicked out

Networked Product testing company Intertek Group has appointed former Compass Group finance director Andrew Martin as a non-executive director.

At Intertek he will work alongside CFO Edward Leigh.

Leigh joined Intertek in March 2013 as the group’s financial controller.

Prior to that, Leigh spent nine years at Dixons Retail plc where he worked with CFO Humphrey Singer.

Singer was appointed group FD of Dixons Carphone on 6 August 2014, upon completion of the merger of Dixons Retail and Carphone Warehouse. He is a non exec at Taylor Wimpey.

At Taylor Wimpey he joins CFO Ryan Mangold on the board.

Appointed as a director and to the post of group FD in November 2010, Mangold previously held the post of group financial controller.

FOOTBALL

FIFA shows red card to FD Kattner World football governing body FIFA has axed its finance director and deputy secretary general Markus Kattner after an internal probe found he had received a number of irregular bonus payments worth millions of pounds.

The payments were made between 2008 and 2014 and were signed off by then-president Sepp Blatter and the organisation’s thensecretary general Jerome Valcke.

Joining FIFA as director of finance in 2003, Kattner has been temporarily filling the top administrative job of world soccer’s governing body since Valcke was suspended last year before being fired in January.

“Markus Kattner has been dismissed,” FIFA said in a statement.

“FIFA’s internal investigation uncovered breaches of his fiduciary responsibilities in connection with his employment contract.”

A request for comment from Kattner was not answered.

Kattner’s dismissal comes just over a week after Domenico Scala – FIFA’s man tasked with reforming football’s governing body – quit after the organisation passed a resolution which he claimed undermined the independence of its watchdog committees.

The resolution, passed by 186

votes to one by the FIFA Congress, gave the FIFA Council power to appoint or “dismiss any office holders” of its independent bodies such as the ethics committee and the audit and compliance committee.

Scala said the new rule “undermines a central pillar of the good governance of FIFA and it destroys a substantial achievement of the reforms”.

He added: “It will henceforth be possible for the council to impede investigations against single members at any time, by dismissing the responsible committee members or by keeping them acquiescent through the threat of a dismissal.

“The bodies are factually deprived of their independence and are in danger of becoming auxiliary agents of those whom they should actually supervise.”

FIFA said that Scala had “misinterpreted” the decision and the committees would remain independent. “The council fully respects the independence of the audit and compliance and the ethics committees, and any suggestions to the contrary are without merit,” it said.

FIFA is in the process of recovering from the biggest corruption scandal in its history, with Scala seeking to implement an eight-part reform programme announced in September, including limiting the tenure of the president and the executive committee to three terms of four years.

Scala also put forward plans for improved integrity checks; direct election for executive committee members by congress; individual disclosure of remunerations, income and compensation for key FIFA figures; improved levels of governance at confederations and member associations; revised World Cup bidding proposals; and improvements with regard to structure and decision-making.

The ethics committee has investigated and banned more than a dozen top officials for ethics violations. These have included Blatter and Valcke, as well as former executive committee members.

PROPERTY

Foxtons picks Berry as new CFO Foxtons CFO Gerard Nieslony is to step down to FD after the company announced it has appointed Hays financial controller Mark Berry as its new CFO. Berry will join the London estate agency and its board on 7 November, having spent 16 years at the FTSE 250 recruiter.

Nieslony is noted for managing Foxtons through its IPO process.

8 | financialdirector.co.uk | Summer 2016

He will step down from the board upon Berry’s arrival.

Foxtons chairman Garry Watts said: “We are delighted to welcome Mark to the board. His broad experience at Hays across finance functions and in corporate development will be invaluable in supporting our growth and further expansion. Since our IPO in 2013 we have opened 20 new

branches, bringing our network to 62 branches with a pipeline of further openings planned in the years ahead.

“I would like to thank Gerard for his significant contribution including the successful transition of Foxtons into public ownership. I am delighted that we will continue to benefit from his experience in his new role.”

FOR MORE CAREER STORIES GO TO www.financialdirector.co.uk/careers

ENERGY

Madrian resurfaces at Reactive Technologies Former RWE npower CFO Jens Madrian has been appointed as chief financial officer and chief commercial officer at Reactive Technologies, as part of its plan to lead the smart power transformation taking place in the UK energy sector.

His main responsibilities will include driving the strategic, financial and commercial development and growth of the company in the UK and overseas, the company said.

Madrian quit big six energy firm npower along with its chief executive in August last year, after German owner RWE overhauled the management of its UK division following “unexpectedly negative” half-year results.

Along with CEO Paul Massara, Madrian left the business “by mutual consent” after a steep fall

in profits at the UK subsidiary contributed to an 11% fall in operating profits at RWE. Madrian joined RWE in 1999 before moving to npower in 2015.

Madrian agreed to stay in post until December 2015 to ensure a smooth handover to his successor.

Up to now he has still been with the parent company RWE to support the board on the strategic restructure of the RWE Group.

He joins Reactive Technologies as it grows its team of energy and technology specialists to support the widespread deployment of a patented, cloud-based, intelligent energy management platform.

“For several years I have witnessed the gradual transformation of the energy sector in the UK and other European countries,” Madrian said. “The transition from a

RETAIL

centralised energy generation industry, that continues to rely heavily on polluting fossil fuels, to one that will inevitably involve decarbonisation, decentralisation and digitalisation… is turning the industry on its head.

“When I asked myself

which companies were best placed to introduce and lead transformational change in the energy sector, I was impressed by those demonstrating the ability to adapt quickly and introduce valuable experience and expertise from other industry sectors.”

OUTSOURCING

Luxury handbag brand Mulberry has welcomed new group finance director Neil James Ritchie, replacing Roger Mather.

Ritchie began his career as an accountant at PwC in 1994, before moving over to FTSE 100 GlaxoSmithKline. He then served in a number of financial roles at Dyson, most notably as group finance director and global commercial finance director.

Mather, who served as the company’s group finance director for eight years, will leave Mulberry on 30 June.

Mulberry chief executive Thierry Andretta said: “We are delighted to welcome Neil. His experience in developing and managing international business with a leading, innovative British brand will be very valuable during this exciting period for Mulberry.”

fervent-adepte-de-la-mode/Flickr

Ritchie bags Mulberry job All change at Xchanging

Mulberry chairman Godfrey Davis said: “On behalf of the board, I would like to thank Roger for his significant contribution to Mulberry over the last eight years.”

David Bauernfeind is stepping down as chief financial officer of Xchanging as part of boardroom clear-out after the UK company, which provides software and outsourcing services for insurers, accepted a takeover offer from US rival Computer Sciences Corporation.

In an update on the 190p share takeover offer, Xchanging said it expected to delist from the London Stock Exchange on 6 June, while a string of board directors resigned with effect from 5 May. Bauernfeind notified the board of his intention to leave, but will remain with the company for around a month to manage the handover to CSC, and will leave on the delisting of Xchanging becoming effective.

Geoff Unwin, the departing chairman of Xchanging, said: “I

would like to take this opportunity to thank David for all his work since joining the group in 2001, and especially as group CFO since June 2011. The board wishes him all the best for the future.”

Summer 2016 | financialdirector.co.uk | 9

CURRENT AFFAIRS BHS troubles

Arcadia FD warned about BHS buyer ahead of sale, MPs told Finance director of Sir Philip Green’s retail business was warned about risks of selling BHS to a consortium with no retail experience, writes Richard Crump The finance director of Sir Philip Green’s retail business was warned about the proposals to sell BHS to a consortium with no retail experience, MPs were told during a hearing into the retailer’s collapse.

Anthony Gutman, joint head EMEA investment banking services at Goldman Sachs, said the bank flagged concerns to Paul Budge, Arcadia Group’s finance director, and Sir Philip Green, over the proposals, the consortium and Dominic Chappell, who led the buyout. These included the facts that Chappell had been declared bankrupt and lacked experience in the retail industry.

During the joint business, innovation and skills and work and pensions committee hearing into the collapse of BHS, Budge confessed that the company was “cautious” about the impending sale but both he and a several Arcadia executives “seriously believed there was a credible business plan and seriously believed he was surrounded by credible people.”

He said the “most heavy due diligence I have seen” took place before the deal was rubber stamped and BHS’s demise was down to the turnaround plan not being delivered “quickly enough”. BHS auditor PwC was also questioned over why it described the embattled retailer as a ‘going concern’ just days before it was sold for £1.

MPs expressed their concerns as to why PwC had been prepared to sign off the troubled retailer’s accounts as a going concern, when the spectre of possible insolvency was

looming and visible to both the pension scheme trustees and the company itself.

Five days after the auditor’s report was formally signed off on 6 March 2015, BHS was sold to Retail Acquisitions on 11 March.

PwC partner Steve Denison said that “at the time no deal had been done, so in the event a deal didn’t happen, then there was written confirmation of financial support from Tavata [BHS shareholder group].

‘In the event the deal did happen, that financial support would fall away and so other factors came into play such as the provision of additional cash resource for trading in the future”.

Denison said there was “no material uncertainty”, given that “the existing management team was trying to turn the

BHS PENSION DEFICIT

2012

£61m 10 | financialdirector.co.uk | Summer 2016

2016

£274m

At time of collapse

£574m

business around, and had some success in driving costs down and reducing cash requirements, the cash requirements were lower than the losses shown, and there was a deal which would bring extra cash from the vendor and new cash from the purchaser.

In a written reply to committee member and MP, Richard Fuller, over going concern issues, PwC said the completion of the BHS audit for the year ending 31 August 2014, whereby most of the work was done in late 2014, was brought forward to the beginning of March at the request of the company and because of the potential sale.

KPMG partner, David Clarke, whose firm performed an advisory role to the BHS pension schemes, told the hearing that it had raised concerns over Retail Acquisitions, and sent them to both the retailer and the raft of other advisers before the sale of BHS took place.

Clarke revealed that he and his team “were particularly concerned about its ability to continue to trade and fund both BHS – which was clearly loss-making – and the [pension] schemes.”

He said the firm had submitted its concerns to the group in writing on February 25 2015.

“These included what working capital facility they would have and what security packages would be in place, a deal timetable and whether the buyer had started pensions due diligence, so they understood what they were acquiring.”

The cross-party group of politicians heard how the BHS pension deficit had rocketed to £274m in 2016 from just £61m four years earlier. And when the business collapsed earlier this year, its 22,500 pension scheme members, where most had less than £18,000 in assets – the deficit was estimated to have mushroomed to £574m.

The select committee will be hearing evidence from advisers – including Grant Thornton – to Retail Acquisitions Ltd (RAL) on the sale on 25 May.

Accountex 2016 CURRENT AFFAIRS

Four things to take away from Accountex 2016 There was a lot to take in during a jam-packed two days at Accountex at London’s ExCeL Centre, so sister title Accountancy Age is here to break it all down The UK’s largest independent accountancy exhibition returned for its fifth year, and Financial Director’s sister title Accountancy Age went along to interview key exhibitors on the tech trends impacting the profession.

They also attended a number of seminars which delved deep into the heart of the accountancy world, so here are four things that they learnt over the course of the two days.

We heard it from HMRC itself. Oliver Fisher, HMRC’s deputy director of making tax digital’s strategic design and policy, admitted to a packed seminar that the government department “has a lot to do between now and 2020” – the year HMRC aims to go ‘fully digital’ for both its staff and the millions of taxpayers that use the taxman’s services.

Fisher sympathised with those who are not digitally-savvy, admitting that “not everyone” will be able to digitally file their tax returns, adding that HMRC will “not force” those who are not already online to sign up to the digital system.

He also revealed that the taxman is looking to bring out consultation documents on making tax digital “soon”, despite them already being overdue. Since Fisher’s revelation, HMRC revealed that it will not be releasing the documents until after the EU referendum.

Competition is stiff in the cloud accounting game

We also spoke to a host of big players in the cloud accountancy software game, from the likes of Sage, Intuit, Xero, IRIS and Thompson Reuters; all of them are competing for relatively the same consumer base – the self-employed and their accountants.

Gary Turner, co-founder and UK managing director of New Zealand-based firm Xero, was in bullish mood about the competition,

Steve James/Flickr

Making tax digital is a long way away from being perfect

claiming that the likes of Sage and Intuit are just “noise” compared with his tech company.

Despite this self-assuredness, there is a number of emerging accountancy software firms that are confident they can capture a significant piece of the action.

Mark Woolley, commercial director at software Australian software firm Reckon explained his firm’s ‘pay-as-you-play’ type software for taxpayers, meaning people only pay for the specific software that they use, instead of buying into an expensive subscription.

Tech firms are helping accountants go digital

After Turner labelled the technology company as just “noise”, we headed over to the Intuit QuickBooks stand, where Rich Preece, Europe VP and managing director explained how his tech company is helping taxpayers and accountants get online.

“It’s all about helping a firm of accountants grow themselves and grow their practices,” he said. “We’re helping accountants move to the cloud, how to get their own social media profiles up and running, such as LinkedIn.

Hopefully this will help practitioners get ‘in front’ of the clients”.

Preece also touched on Intuit’s refreshment of its partner programme in order to improve the accountant’s relationship with cloud-based technology.

“We’ve got a great programme for accountants; it’s called the pro adviser programme and it trains accountants how to use cloud programmes to help their clients,” said Preece, who revealed that out of the 2,000 accountants who signed up to programme in the last year, employees from some of the larger accountancy firms made up the majority of users, along with the more tech-savvy, younger practitioners.

Award shows have never been more important to the profession

There aren’t many things better than a British accountancy practice, but former Accountancy Age editor Kevin Reed and chartered accountant Mark Lee explained across two very busy sessions why an award-winning practice stands out from the crowd.

Reed and Lee explored why recognition from a number of award shows such as The British Accountancy Awards adds weight to a practice’s marketing and business campaigns, while also positively motivating staff.

They spoke of making the process easy for the judges; including meeting wordcounts and providing KPIs and metrics that illustrate the story you are telling across your entry.

Both said that, while it can help to have a specialist writer or consultant help you in the entry process, those within the practice closely linked to the entry itself should be as involved in putting the entry together as possible.

Last year Reed and Peter Gillman, former head of award-winning firm Price Bailey, produced a short video explaining the strategy behind entering you or your practice into an award. You can see the video by going to http://tinyurl.com/jxy68v2.

Summer 2016 | financialdirector.co.uk | 11

CURRENT AFFAIRS Analytics

Step in the right direction Why Cisco and Thales re-located bases and saved £30m using data analysis Cisco and Thales are using HR analytics to make major decisions in the structure of their organisations, writes HRD Connect.

The pair used in-house analytics teams to decide that their respective plans for two different locations were not feasible.

Instead, both companies decided to open bases in new locations, with Thales closing an existing office as part of the process.

Speaking at the People Analytics conference, Cisco Systems global head of talent acquisition and people planning operations Ian Bailie explained how using large-scale talent pool data saved the business from making a costly site strategy mistake.

Technology provider Cisco was looking to expand its presence in China with management largely set on one location as the data they had suggested there was a substantial available pool of talent.

Talent puddle

However, Cisco’s talent analytics team crunched the numbers on that recruitment data.

“We took the information, ran our own different searches behind the scenes and what they saw was a massive talent pool very quickly shrank to barely 10% of that,” said Bailie.

“Once we looked at language skill, multinational experience and some of the other things that are just part of the Cisco recruitment process, we suddenly turned around and said, ‘you do not want to put the office in this location because you’re not going to be able to hire anybody there’.”

As a result the decision was reversed and another location was selected. Bailie noted that being able to prevent mistakes such as this could have had several benefits.

“Being able to back out of a bad real estate decision like that is not only a great thing for the business, but it’s also great for recruitment because we’d have had five to ten years of struggling to find talent there, where we’d have been the ones getting blamed for not finding the right people,” he continued.

“So it’s about what is the problem the business is trying to solve, and how can we give them the data they need to solve that problem.”

12 | financialdirector.co.uk | Summer 2016

Thales’ talent troubles

Thales had a similar situation where it was trying to expand one element of the business that was based in Basingstoke in the south of England.

Following a large-scale analysis of the available workforce it brought a potential talent pool within the UK of 28,000 down to just 66 people.

It also appeared that Basingstoke was not an attractive proposition to draw people from elsewhere in the country to live and work.

Former Thales director of resourcing and HR Jason West told the People Analytics conference that the problem became even more evident when put in a geographical context.

“We mapped the location compared to our competitors and were kind of in the middle of nowhere,” he said.

“So the outcome of a lot of very difficult conversations was the managing director decided to close the business in Basingstoke and move it to Bristol – that’s the power of real market intelligence.”

On the right track

Overall, Thales saved an estimated £30m profit as a result of its extensive investment in HR analytics which included the creation of a central resourcing and recruitment team.

In another example, the business could not fill long-term vacancies for its signalling work on London Underground’s Victoria Line.

After conducting wide-ranging in-depth market analysis including its competitors, the team revealed a lack of supply in the market for these skilled people.

“These people don’t exist because there’s been chronic underinvestment in the area, the industry hasn’t been training people and it’s a protected market,” West said. “You have to be certified to work trackside on London Underground, so we’re really going to struggle.

“So we came up with a solution. We have electricians working for us who are certified to work trackside – we worked with our learning and development colleagues to make a training course to turn our electricians into these short-supply testers. It was a threemonth conversion course and within about four months all of those roles were filled and there’s never been a problem since.”

Thales now has a pipeline in place so that every time a tester leaves to become an independent contractor there is somebody coming in at the bottom end and being trained on the testing course.

“It’s a joined up approach to solving a problem instead of each bit of HR taking its own piece individually,” West added.

Apprenticeships CURRENT AFFAIRS

Quality as well as quantity Employers at loggerheads over the government’s new apprenticeship levy The Chartered Institute of Personnel and Development (CIPD) has released a new survey that reveals employer’s concerns over the apprenticeship levy, with companies fearing that the government is sacrificing quality over quantity, writes Apprentice Eye.

Apprenticeship levy

The government’s apprenticeship levy consultation, which was designed to gain the public’s opinion over the plan to create three million new apprenticeships by 2020, closes on 2 October.

This summer George Osborne announced that large businesses would have to pay a small tax in order to fund the initiative.

The CIPD surveyed 275 business leaders, with 30% of them believing that the levy

would encourage businesses to develop an apprenticeship programme to help build key skills. The same number of respondents also believed that the number of apprentices in the UK would increase because of the levy.

There is a definite split in opinion regarding the effects of the levy, with 31% of business owners under the impression that the legislation would cause them to reduce their investment in other areas of workforce training and development.

The survey also reveals that: • Less than half (47%) of employers want to use the cash from the levy in order to fund their own apprenticeship recruitment system.

• Only 10% of business leaders want the apprenticeship to fund Level 3 qualifications or above.

Quantity over quality

Peter Cheese, chief executive of the CIPD, believes that the government is right to put a focus on apprenticeships, but needs to make sure that quality apprenticeships are ensured during this process. ‘‘Our survey suggests that boosting both numbers and quality at the same time will be a significant challenge,” he said. “It is important the levy is weighted towards increasing the number of apprenticeships at or above level 3.’ ‘‘It’s also important the apprenticeships levy is not regarded as a solution in itself to the skills and productivity challenges facing the UK. ‘‘We need to prioritise investment in organisations’ leadership and people management capability which underpins more strategic workforce investment.’’

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Summer 2016 | financialdirector.co.uk | 13

A G E N D A C U LT U R E . S T R AT E G Y. C H A N G E .

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MARK EVANS

Chief Financial Officer,

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O2 UK

28.06.2016 THE WALDORF

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GUEST COLUMN Mark Evans

READ ALL OF OUR COLUMNISTS financialdirector.co.uk/comment

Disruptive behaviour Digital transformation must come hand-in-hand with a changed mind-set

D

igital disruption. It’s arguably one of the most used terms in business. However, what implications does it really have for big businesses across sectors, our shareholders and employees?

Put simply, connectivity and digital innovation are transforming operating models, irrespective of industry. Whatever term you use for it, it is real and relevant – regardless of your business or seat at the boardroom table. Here’s why.

More than 90% of adults in the UK own at least one mobile phone; more than two-thirds of these are smartphones. It is estimated that by 2020, 30 billion devices will be wirelessly connected, supporting a global digital services market worth as much as the entire UK economy.

Consumers’ expectations of what they access is constantly changing. They want to have personalised experiences and instant access to services.

For businesses, it means there’s ever more urgent need to keep pace with those demands. Uber and AirBnB are the posterchildren of such agility. They spotted an opportunity and used tech to find a solution that was not previously feasible or viable in a given market. Now they are reaping the rewards.

When you look at the speed and scale of this connectivity revolution, it’s not hard to see why digital disruption is making its way to the top of CEOs’ agendas the world over. How can more organisations create it, rather than have it done to them?

Digital transformation is not about introducing new technology or digital processes. It must come hand-in-hand with a changed mind-set – one that is more inquisitive about your customers, more collaborative with colleagues and more challenging of the status quo.

As finance professionals, we need to be as close to our customers as we are to the numbers. We need to be anticipating their changing needs and responding to them quickly. It shouldn’t only be down to the customer insight teams. The modern-day finance function should be equipped to understand the increasing demands levied at service providers by their customers.

Second, we must drive better collaboration with colleagues from across the business. Just as we expect our marketing colleagues to understand financial limitations and implications for a business, so too should financiers stretch their creative capacity to

16 | financialdirector.co.uk | Summer 2016

find new and adaptive ways of doing business.

Forward-thinking CFOs should seek out creative solutions and embrace bold decision-making to overcome business challenges.

Finally, we must relentlessly challenge the status quo. Kevin Plank, founder of Under Armour, started out by asking: “Why has no one made a t-shirt that keeps you dry under your sports kit?” By focusing on what should be done differently to give customers what they want, his company has earned permission from consumers and investors to expand into other fitness services such as wearable technology and health apps.

The mobile industry has traditionally locked customers into 24-month contracts but, in reality, people want the latest phones whenever they choose – a request I can’t argue with. At O2 we ripped up the rulebook and, in doing so, my team considered the opportunity with a view to it strengthening our business model. The two separate finance agreements allow us to generate more cash up front, which we now invest in new revenue streams.

With any form of change, challenge is inevitable: the cost of making the transition; uncertainty of outcomes; a risk-averse culture internally; heightened customer expectations externally – the list goes on.

To truly deliver business transformation, these three principles must be embraced by the entire business – including the finance function. That’s not easily said from someone in a traditionally analogue, prescribed and risk-adverse discipline. CFOs have a central role to play, and I don’t just mean by appreciating its ability to drive cost efficiencies or streamline operations. I mean in truly understanding and championing how connectivity can add significant value within your business model. ■

Mark Evans, chief financial officer of O2 UK, will discuss how to instil an effective change management programme on 28 June at the CFO Agenda

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THE SECRET FD

READ ALL OF OUR COLUMNISTS financialdirector.co.uk/comment

The striker strikes back Has anyone correctly factored the direct cost of industrial action to our long-term financial plans?

I

t appears that an agreement to end the dispute between NHS (so-called junior) doctors and the government over the imposition of a new contract has been reached. Transport for London continues to suffer strikes over alleged ‘hostile’ management attitudes and the safety of proposed 24-hour weekend tube services. BBC journalists called industrial action in April over flexible working arrangements, and university lecturers staged two days of strikes and other disruptive action during exam periods, complaining about a pay reduction of 14.5% in real terms since 2009. This summer, in time for the Euro 2016 football tournament, France is engaged in its national hobby of widespread strikes, this time over labour reforms designed to achieve job creation and economic growth.

Industrial action usually takes place in the context of a labour dispute but it may also be intended to bring about political or social change, and it may include one or more of the following: work to rule, overtime ban, occupation of the workplace, go-slow or strike.

The word ‘strike’ in this context was first used in 1768 when sailors in support of demonstrations in London ‘struck’ or lowered the topgallant sails of ships at port, therefore disabling their ability to put to sea. The first recorded account of strike action was towards the end of the 20th dynasty, under Pharaoh Ramses III in ancient Egypt in 1152BC, and the practice has spread with alacrity ever since.

Multinational businesses are faced with a neverending plethora of varying local legal and cultural differences on industrial action matters, some of which come with severe personal liabilities for employers and directors that are unlikely to be on their risk registers.

Famous landmark strikes include the 1980 Gdansk shipyard disputes which led to the historic Gdansk Social Accord. In the UK, we had the Winter of Discontent that brought about the fall of the Labour government. The Iron Lady famously faced down the miners in their 1984 strike in a humiliating defeat for unions but with wide economic and social consequences. These examples are in the context of a broader social movement rather than simply about pay and conditions, but their economic impacts and legacies both positive and negative are complex and impossible to measure accurately.

18 | financialdirector.co.uk | Summer 2016

In the US, workers at General Motors staged a national strike in 1998 which had some unusual economic consequences. Car buyers (mostly fleets and lease companies) diverted business towards Ford, Chrysler and Toyota instead, so they and the supply chain fared quite well. Then, immediately after the strike, US car production hit record levels and everyone including GM was a winner.

I read an interesting study, which found that the frequency of strikes in the UK has been inversely proportional to their cost in cases where the key factors affect both the employers and the employees (eg. pay and conditions), but in the cases where the factors affect only the employees (eg. unemployment levels) the correlation was weaker and strikes were more frequent.

The current strikes in France are inconsistent with this theory. The country seems to be incapable of reforming its economy, and many businesses are resigned to the fact that the cost of further industrial action outweighs the benefits from the attempted injection of flexibility into the 3,280-page labour code by the deeply unpopular President Hollande.

Although not all industrial disputes are about pay and conditions, after years of austerity and pay restraint I fear we are facing an inevitable cost bubble which may burst and take the form of increased industrial action, putting many organisations and businesses at risk.

However, I would be surprised if any of us has correctly factored the direct cost nor the ongoing financial consequences of industrial action in our long-term financial plans, although I believe certain FDs have been tempted to exaggerate the profit impact of industrial action incurred when presenting their results. Surely not, you might say! ■

Last month the SFD was in Dubai where strikers and unions receive no legal protection, and strikes can unfortunately lead to criminal punishment

ECONOMICS Adam Chester

READ ALL OF OUR COLUMNISTS financialdirector.co.uk/comment

Tight market, tame growth It remains to be seen how far UK unemployment falls before increasing wage pressures really kick in

C

onventional economic theory says that when employment levels are high – as they are now in the UK – wage and price inflation pressure starts to build, prompting policymakers, such as the Bank of England, to tighten monetary policy by raising interest rates.

Yet, in recent years, the UK unemployment rate has fallen to levels historically associated with rising pay, but remuneration growth has failed to gain traction. The so-called ‘Phillips Curve’, which suggests the lower an economy’s rate of unemployment, the more rapidly wages increase, appears to no longer be the case.

Why the labour market remains so strong and wage growth so weak is a key question for policymakers. Governor Mark Carney suggested that the Bank of England would consider raising interest rates when the unemployment rate fell to 7%. That was nearly three years ago. Since then, the unemployment rate has fallen to a ten-year low of just 5.1%, while the number of people in work has risen to above 31.5 million – a record high.

Job vacancies have reached nearly 750,000. If these were filled by those out of work, the adjusted unemployment rate would be just 2.8%, its lowest since 2004.

But, if the labour market is supposedly so tight, why has wage growth remained so tame?

There are a number of possible reasons. It may be that heightened economic insecurity and weak global inflation have impaired employee bargaining power. It may also be that poor productivity and the resulting squeeze in corporate earnings means companies cannot afford to pay more.

Headline remuneration figures may also be disguising more subtle trends. There is evidence that rising skill shortages and the implementation of the living wage have driven up pay for high and low wage earners, while those on a middle-income have seen their pay squeezed.

There are a number of reasons why there appears to be this fundamental shift in the structure of the UK economy, allowing permanently lower levels of unemployment without stimulating inflation.

But fundamentally, the supply of labour has increased. The active portion of the economy’s labour force, aged 16-64, has risen to a record 20 | financialdirector.co.uk | Summer 2016

high of 78.3% in recent years, and to 63.6% for all those aged 16-plus.

Various influences have driven this ‘participation rate’ higher, including an ageing population, tighter disability benefits and rising immigration. Since 2000, the proportion of those aged 65-plus that are economically active has more than doubled to just over 10%, while the number of immigrants employed in the UK reached 3.2 million at the end of last year, of which two million were non-UK, EU nationals. Indeed, nearly half of the growth in employment last year was accounted for by foreign nationals.

The proportion of those aged 65-plus remaining in employment has plenty of scope to rise further, especially given the uncertainty surrounding future pension provision. Furthermore, changes in the way disability and other social benefits are awarded might lead to a continued fall in the number of people who are economically inactive due to long-term sickness.

Not only is there scope for the number of workers to rise, but also the hours they work.

Having fallen sharply in the late 1990s and early 2000s, average hours worked have started to rise in recent years. Eight million of the UK’s workforce are currently employed part-time, including those on zero hour contracts. At least some of these are likely to be content to work longer hours if asked to do so.

It remains to be seen how far UK unemployment falls before increasing wage pressures really kick in. The answer has important implications for all areas of UK economic policy – not least whether, or by how much, UK interest rates may ultimately need to rise. ■

Adam Chester is head of economics, commercial banking at Lloyds Bank

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IT STRATEGY Peter Cochrane

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Control or creativity?

Finance continues to struggle to find its place, define its function, and become the dynamic enabler it should be

O

n the racetrack of change, the slowest lane is reserved for the legal system, with government running a little faster. Ahead of these is society, while over the horizon technology surges on ever accelerating. Somewhere in here is management and finance, but exactly where fundamentally defines companies and organisations.

During my working career I have experienced organisations with financial control down to the penny that has totally disabled creativity, delivery and entrepreneurship, while at the other end of the spectrum, individual empowerment, responsibility, and reward by long-term results has created the likes of Apple and Google. For the most part I have watched the finance function generally become dumber, more simplistic and centralist to the advantage of the short-term and detriment of the long. At the same time engineering, production, marketing, sales and support along with general management have become smarter. The increased use of modelling, analysis, predictive selling and maintenance have transformed these functions to keep organisations ahead of the game.

In the defence of finance, we might observe that their real job is to fully understand the entire supply chain in order to support every company function in their effort to satisfy the market, defend against competition and change, while delivering to the desired results to the board and investors. Sadly, there does not appear to be a ‘macro suite’ enabling the fuller function and finance are reduced to looking at material budgets and travel expenses as ‘micro accounts’ in their own right. In a disconnected world this might just work, or not, but in today’s connected environment such an approach is disabling and often disastrous. The unseen and unintended consequences of financial control instead of management are all too obvious to those responsible for creating success and delivery, and quickly drive a wedge between the creative and the blindly functional.

Financial managers now need a reasonably deep knowledge of technology, the market, competition, opportunities and risk. The microscope that is the spreadsheet and financial package has to be replaced by the binoculars of modelling and a fuller understanding. Some of today’s packages go some way in this direction but often have their sophistication and full capabilities intentionally 22 | financialdirector.co.uk | Summer 2016

unused or disabled by a lack of understanding.

In large organisations the first step towards integration is to outsource people and resources from finance into the operational units, to see the action, and be on hand to help. This closeness and immediacy promotes understanding and tolerance on both sides and is a big step towards smart management rather than dumb control. The next step is to reflect the experiences and intelligence gathered back into the financial model of the company and the group.

In smaller organisations this move towards functional integration is often much easier. The specialisation and silos of responsibility tend to be less stringent and a fuller situation awareness is easier to grasp and span. Managers often find themselves fully or partially responsible for their department’s spend. But all this still leaves one stone unturned.

The developers of financial management apps and tools are in need of the ‘real input’ of company and people experiences. There are commercial operations as ‘imagined’ on MBA courses, and accountancy packages conjured by developers with experiences of past employment, and then the reality of today’s dynamic business environment. Embracing these development talents and making them a part of the overall scheme of understanding is now vital.

Our commercial past was slow, stable, disconnected and relatively benign. Today it is fast, dynamic, non-linear, connected and competitive.

Not only do we need functional understanding from the top to bottom of organisations, we have to leverage big and small data, modelling and war gaming. Dynamic complexity is the challenge, understanding and innovation the solution, and this does not reside in any one department. ■

Peter Cochrane is an IT consultant and former chief technologist at BT

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FEATURE 35 under 35

Bright young things Welcome to the second annual 35 under 35 – Finance, where we flag up some of the best talent working within the finance function in the UK. Follow #FDYP on Twitter for more discussion on our Young Professionals Day

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ENOCH ADEYEMI (FCCA), FINANCIAL REPORTING ACCOUNTANT, SAINSBURY’S BANK Hailing from Nigeria, Adeyemi started his career with Kames Capital where he was responsible for financial, regulatory and management reporting. He has developed strong technical IFRS and commercial knowledge, including responsibility for a £30m expenses budget. At Sainsbury’s Bank, Adeyemi is helping lay the blueprint for a strong financial reporting team, with the business at the heart of it.

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DAVID BARNETT (ACA), MARKETS & BANKING FINANCE, BANK OF ENGLAND Barnett trained in the public sector, and now works at the Bank of England. He trained on the highly competitive government finance graduate scheme, working in the Treasury, Cabinet Office and DWP. While at DWP, he was responsible for the department’s organisation and delivery of the Budget and Autumn Statement. He challenged and reviewed financial projections and analysis, IFRS advisory, business change proposals and ad hoc projects.

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TIM BATTRICK (ACA), SENIOR DIRECTOR, FTI CONSULTING A chartered accountant and member of the ICAEW, Battrick joined FTI as a graduate in 2008 and achieved the fastest ever promotion from graduate to senior director. Battrick’s pro-bono work concerned an evaluation of a charitable programme. He wrote two reports about the programme and a related paper that has been published in an academic journal. He has since presented at an event organised by the Institute for Fiscal Studies on ways in which charities can assess their impact.

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BEN CATLIN (ACCA), HEAD OF ACUTE FINANCE, NHS NORTH EAST LONDON CSU Catlin has worked within finance at multiple NHS bodies including the world-renowned Addenbrookes Hospital. Today he manages the finances for five London boroughs, with expenditure totalling over £1bn. Recently he beat more than 1,200 other employees to win the employee of the year award, in recognition of his efforts to ‘drive change in work practices and develop stakeholder relationships, resulting in improvements in accuracy and productivity’.

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MIRANDA ATKINS (ACA), K2 INTELLIGENCE After first training at Smith & Williamson and becoming an ICAEW-qualified accountant in June 2015, Kerr now works in the financial investigations team of the K2 Intelligence London office. Before specialising in financial investigations, she spent five years working in accounting and previously holding roles as an external auditor and finance manager.

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KIERAN D’SILVA, CO-FOUNDER & CFO, PRIMARYBID LIMITED Having joined Darwin as an Associate in 2013, D’Silva was promoted to CFO within the first year, aged just 26 at the time. He is the co-founder and CFO of the Darwin spin-out, PrimaryBid.com – the world’s first crowdfunding platform for AIM-listed companies which has raised about £1.5m on behalf of them to date.

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JONATHAN ENFIELD (ACA), MANAGEMENT ACCOUNTANT, COLAS RAIL Enfield has a talent for mixing engineering with finance – ‘a very scarce skill’, according to his employer, Colas Rail UK. Enfield joined the Business Systems finance team in August 2011 and became a management accountant in March 2014. He recently became a member of ICAEW, having become fully exam qualified in December 2015. Enfield is a civil engineering graduate from Birmingham University and blends an understanding of engineering with a practical application of finance and working with business systems.

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TIM GARDINER, SENIOR DIRECTOR, FTI CONSULTING Gardiner invariably receives high praise from clients reflecting his technical skills and commitment to delivering robust results, often against tight deadlines. Gardiner has also made an outstanding contribution to running the practice, including managing the graduate recruitment programme and serving as de facto social secretary.

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DANIEL HALLIDAY (ACA), FINANCE DIRECTOR, TENTEL Halliday was TenTel’s third-ever employee, joining in April 2014. He was instrumental in securing nearly £2m in investment as well as a £170,000 regional selective assistance grant.

He has been responsible for setting up TenTel’s billing platform and its integration into TenTel’s infrastructure, commercial negotiations with key suppliers, establishing a finance department and managing financial planning. On 1 January 2016, Halliday was promoted to finance director, with a broader remit including IT and software development, data and reporting, and acquisitions.

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DOVILE HANN (ACCA), FINANCE DIRECTOR, BIJOU COMMERCE Hann is a recent recruit to mobile platform provider Bijou Commerce, having spent several years honing her finance skills at Next Jump as financial controller and company secretary – where the company grew from £2m turnover to £30m during that time. The tennis-loving FD has provided mentorship to junior staff, and has also run public speaking sessions. Bijou Commerce is a sister business of Financial Director’s owner Contentive.

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CHRIS HARRISON (FCA), FINANCE DIRECTOR, COLAS RAIL After qualifying with Deloitte in 2002, and a later stint at PwC, Harrison moved from practice to business in 2007 joining former FTSE 250 property company Minerva.

During his time at Colas Rail UK he has held roles of financial controller, procurement director and head of property. Harrison also helps train ACAs as a ‘qualified person responsible for training’.

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FRANCESCA HARRISON (CIMA), HEAD OF FINANCE, M&S.COM (UK & INTERNATIONAL), MARKS & SPENCER While M&S may be navigating troubled waters at the moment, Harrison is one of the shining lights in its finance department. Acting as a key business partner to retail luminaries such as Laura Wade-Gery and David Walmsley, she has built upon her CIMA training and nearly 10 years with Sky TV/BSkyB.

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MARTYN HERBERT, FINANCE BUSINESS PARTNER, CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS Herbert qualified as a management accountant 18 months ago, but since then has already suggested, and implemented a new reporting system which has revolutionised the CIMA’s management information. Thanks to Herbert’s innovation, reporting for all departments within CIMA takes place within one suite of dashboards, and all information – including both financial and nonfinancial KPIs – is linked clearly to overall business strategy.

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CATHERINE HINNIGAN (ACMA, CGMA), FINANCIAL ANALYST, CAPITAL ONE (EUROPE) Hinnigan joined Capital One in 2011 as a graduate, first with the risk operations team before taking a rotation in the marketing department. She was selected for a secondment to redesign some of the critical financial forecasting models. Having made a great impression on her team and finance leadership, Hinnigan was asked to stay on, initially as a business partner with marketing. She subsequently took on her current role coordinating the forecasting process for the UK business, including leading reviews with the company’s international CFO and CEO, alongside which she is now leading a project to redesign our suite of management reporting.

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SANGITA KAVENDAN (ACMA, CGMA) HEAD OF MULTICHANNEL SERVICE STRATEGY, BSKYB Kevendan has worked in a variety of major media and telecoms companies (AOL, TalkTalk, Lonely Planet) primarily as a finance business partner driving transformational revenue growth and cost reduction. For example, at Lonely Planet she worked with the online leadership team to turn online from loss to profit in under two years by substantially growing a variety of revenue streams and realigning the cost base structure. For the past two years she has been working at Sky helping drive its digital transformation.

Summer 2016 | financialdirector.co.uk | 25

FEATURE 35 under 35

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SUZY KERTON, FINANCIAL ACCOUNTANT, CABINET OFFICE Having been CFO at Clear Books for nearly two years, Kerton took a financial accountant role at the Cabinet Office. Her role at Clear Books included everything finance-related and she also formed part of the executive management team, involved in the strategic decision making of the company. She was recently named in the 2016 Business Finance Awards UK FD of the Year – Growing Business shortlist and in the 2015 ICAS One Young CA competition. Currently, she supports the finance team in preparing the financial statements of the Cabinet Office and has secured a place at Imperial College Business School on the full-time MBA.

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SARAH LACEBY (ACCA), SENIOR MANAGER, FIXED INCOME DIVISION, FINANCIAL PLANNING AND ANALYTICS TEAM, MORGAN STANLEY Laceby has worked within the institutional sales and trading division at Morgan Stanley since 2008, covering a variety of roles from product control to management reporting and gaining exposure to a wide range of business lines. Now a senior manager, she has become a subject matter expert on expenses and support within the business globally and advises on a variety of strategic expense projects and initiatives. She works closely with senior management to understand the business and in turn provide targeted management reporting and financial analysis to aid decision making.

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YAK LEE, ASSISTANT CONTROLLER, LAZADA

GROUP Yak Lee is an assistant controller of Lazada Group, an online shopping start up – that has seen investments from Tesco, J.P. Morgan, Verlinvest, Investment AB Kinnevik and Rocket Internet, since it began in 2012. Yak Lee is a chartered accountant and has been an ICAEW member since 2015, having trained at KPMG.

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CLAIRE MAITH (FCCA), FINANCE DIRECTOR, PETER VARDY Following a move from the north east of England to Scotland, Maith’s first task was to lead the acquisition of three dealerships concluding each deal on the same day. However, the acquisitions were only the start of the process as she then successfully integrated each business system change along with 200 people culturally.

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RACHEL MANN (ACA), GROUP CHIEF ACCOUNTANT, VERTU MOTORS Mann trained with Deloitte in Newcastle and worked there for five years, before turning her skills in business – she’s now group chief accountant at Vertu Motors – at 29. She became an ICAEW member and chartered accountant in May 2012.

26 | financialdirector.co.uk | Summer 2016

33

DINESH MANUELPILLAI, DIRECTOR OF FINANCE OPERATIONS, G4S Having trained with BDO, Manuelpillai was promoted twice within his six years at Dixons Carphone, being recognised by the board as one of the organisation’s top 10 future business leaders. Joining G4S, Manuelpillai now plays a key role in the transformation of the UK business.

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ERIN MCEWAN (ACCA), MANAGEMENT ACCOUNTANT, NHS LANARKSHIRE McEwan is currently employed as the management accountant working in the acute division in NHS Lanarkshire. Its current portfolio includes all aspects of the finances including budgeting, forecasting and financial reporting for the surgical directorate in Hairmyres Hospital and physiotherapy services across NHS Lanarkshire.

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OWEN MCLELLAN (CIMA, ACT), SENIOR FINANCE & STRATEGY MANAGER – CONVENIENCE, WM MORRISON SUPERMARKETS CIMA & ACT qualified with Pfizer & PwC, McLellan originally joined Morrisons as a member of a newly formed Strategy Department before gravitating back to a career in finance and helping to create a Convenience proposition. Having founded and headed up a new finance function, he became part of the Convenience board and led the subsequent sale of the business to a PE-backed third party in 2015. Now part of the wider retail leadership team, McLellan is also a member of the Morrisons Finance Academy Board and has been largely responsible for creating a first-class finance function for colleagues.

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MICHELLE MCGREGOR (ACCA), ASSISTANT MANAGER, CENTRAL FINANCE, FBS REPORTING, LLOYDS BANKING GROUP During a secondment within Lloyds, McGregor designed and built a fully automated MI reporting suite. This included creating reporting packs and analysis tools which culminated in the creation of a technologically advanced, streamlined process with in-built strong financial controls, thereby enabling internal customers to proactively identify and act upon material variances.

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JOHN STORY, FINANCE DIRECTOR, STORY CONTRACTING Since joining Story Contracting in 2014, Story has helped to secure financial arrangements to support the business’s growth. In 2015 he was named as Young Finance Professional of the Year award at the FD Excellence Awards.

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ANDY NASH (ACA), HEAD OF FINANCE, LESSONS FOR LIFE FOUNDATION Nash was shortlisted for the Business Finance Awards 2016 – New Accountant of the Year.

As part of the senior management team he is responsible for optimising the financial performance and capacity of the Foundation. This includes ensuring all financial information produced by the team is accurate and fit for purpose, including financial oversight of the grants provided to partners in Africa.

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MIRELLE OLIVIER EMEA FINANCIAL CONTROLLER, HAYS Since November 2014, Olivier has moved up the ranks at Hays. From UK financial analysis and reporting manager, to commercial finance manager – at the start of the year she was promoted to EMEA financial controller – all by the age of 26.

32

KATE PEARCE, REGIONAL FINANCE DIRECTOR, BMI HEALTHCARE Pearce demonstrated consistent high quality as head of FP&A before being promoted to regional FD for London. In her previous role she was responsible for overhauling the company’s forecasting processes, taking a lead role in detailed and critical business analysis during a long regulatory review and in supporting the business more widely with ongoing insight.

34

FLORA RUFFIN (FCCA), FINANCE BUSINESS PARTNER, INTERNATIONAL AIRLINES GROUP Ruffin has always sought to challenge her thinking, and a desire to better communicate her business ideas led her to join a local public speaking group. A key part of her role is to provide financial insights and recommendations to senior managers and to influence a wide range of stakeholders. Another is to introduce new ways of working to a team in the shared service centre based in India.

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JOANNA SMITH (ACA), CORPORATE DEVELOPMENT MANAGER, CHANNEL 4 Smith spent four years at PwC before joining Channel 4 as corporate development analyst. She was quickly promoted after successfully launching a new fund to invest in UK independent production. Smith helped to design the fund infrastructure and handled all aspects of fund applications, delivering nine successful deals over two years.

27

CLAIRE SOWDEN (ACA), PRINCIPAL ANALYST, CAPITAL ONE Sowden’s impact on Capital One’s operations area has been game-changing.

She has supported on everything from detailed budgeting to visiting vendors as part of contract negotiations. On a strategic level, she has partnered to uncover multi-million pound savings that have been re-invested in our business’ evolution in to a FinTech. In 2016, Sowden was named New Accountant of the Year at the Business Finance Awards.

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CHRIS TABOIS, HEAD OF FINANCE – MERCHANDISING, COLES Nearly ten years in retail, most of which have been with Tesco, have offered Tabois exposure to almost all areas of finance in five roles. In order to bolster his international credentials, Tabois has joined a growing army of finance ex-pats with Coles in Australia. A significant loss to the UK retail sector, but no doubt he will return enriched by the experience.

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VICKY WESTBROOK (ACCA), FINANCE DIRECTOR, METCALFE’S SKINNY A languages graduate, Westbrook’s interest in finance was sparked during an internship at Gü.

She joined Metcalfe after gaining experience at Unilever as head of finance and has built a finance team which has supported Metcalfe’s compound annual growth of 79% between 2013 and 2015. In her ten months as FD she has had to cope with explosive growth, demerger, IT overhaul and a company sale (as well as her own wedding).

29

JOANNE WILKINSON, FINANCE DIRECTOR, NORTH BAR LTD AND NORTH BREWING COMPANY Wilkinson has brought control to the company’s finances and enabled the business to acquire funding for growth, leading to the opening of an additional bar site and the launch of a new business, North Brewing Company. She was promoted from finance manager to finance director within 18 months of joining the company.

27

AMANDA WILLIAMS (ACA), FINANCIAL CONTROLLER, FAITHFUL+GOULD After having trained with KPMG, Williams has now moved to industry working as a financial controller – worldwide operations. As part of her role she travels to America and south-east Asia. Williams currently chairs the North East Young Chartered Accountants’ Group, organising lots of events for younger and newly-qualified members.

Summer 2016 | financialdirector.co.uk | 27

FEATURE CFOs under 35

The young ones To celebrate Financial Director’s annual 35 under 35 list, here are five influential CFOs who entered the C-suite lounge before their 35th birthday

22

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DYLAN SMITH, CFO, BOX What were you doing when you were 20 years old? In the UK, many will still be in their second year at university, but 20-yearold American Dylan Smith decided to take a year off from his studies to establish cloud-based content management company Box with his college roommate Aaron Levine.

Smith has never gambled with his impressive reputation as Box co-founder and CFO, but at the beginning of his C-suite career he invested $20,000 (£13,800) in seed money himself paid by winnings from playing online poker.

“The misperception was that I was really good, but I just ground it out. It was a good way to make money for Box,” Smith said in an interview with Financial Director in November 2013.

Without an accounting background, Smith did not take a typical CFO career path. But an economics degree from Duke University, a natural flair for maths and a keen entrepreneurial spirit have arguably been just as important as an accounting qualification in building Box from a dorm room project to a multi-national business with an estimated value of $1.5bn (£930m), 20 million users and 97% of the Fortune 500 as customers.

28 | financialdirector.co.uk | Summer 2016

EDUARDO LUIZ SAVERIN, CFO, FACEBOOK Like Box co-founder Smith, Saverin became CFO of a tech firm while at university, being named co-founder, CFO and business manager of Facebook with Mark Zuckerberg while studying economics at Harvard.

However, Saverin and Zuckerberg’s professional relationship took a turn for the worse, with Zuckerberg ultimately freezing him out, a saga which was well documented in the Oscar-winning film The Social Network.

Saverin is still worth a cool $5.9bn, much of that coming from his Facebook shares.

Now the former CFO is a prominent investor, placing his money in a number of companies including airport car rental firm Silvercar.

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PAUL CONNOR, FINANCE DIRECTOR, INSPIRED ENERGY Connor was appointed FD of Inspired Energy, a leading UK energy procurement consultant to UK corporates and SMEs, in November 2014.

He joined as head of finance in September 2013, during a period in which the company successfully doubled turnover of £5.3m to £10.6m, and grown EBITDA from £2.6m to £4.5m.

During his time as FD the business has acquired Energisave Online, as well as integrating two acquisitions into the group in 2014, KWH Consulting and Simply Business Energy. The future is bright for this young energy FD.

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DIVINIA KNOWLES, FINANCE DIRECTOR, MOSHI MONSTERS Chances are that if you have children, you know exactly what a Moshi Monster is. The jewel in the crown of British entertainment company Mind Candy, the kiddy-focused social network boasts a user base of more than 50 million children, a figure that former FD Knowles is very proud of.

Knowles spent six years building Moshi Monster’s finance function from scratch, serving as COO, CFO and director of the company.

“I used to do all the accounts and be that business advisory function. I have also built a finance team, structured it, put in our financial systems, and budgeted across

33

the company – but in different steering committees to finance. All those things I have done from scratch,” Knowles told Financial Director in May 2012.

In July 2014 Knowles became president of Mind Candy, and has since gone on to become COO and director of Fairtrade coffee firm Pact.

MITESH VELANI, FINANCE DIRECTOR, SARACENS In a sport yet to fully embrace the moneybags culture associated with Premier League football, Velani can lay claim to turning around the financial fortunes of a rugby club once riddled with £40m worth of debt, into a club who are English Premiership and European Champions Cup champions and, according to Velani, in a ‘profit-making position’.

Velani first entered the professional services industry with Deloitte, and then went on to start his own business from the ground up, a character-building exercise which equipped him with the experience to take on the role as FD at the Premiership club, five years after serving as Saracens’ group financial controller.

“We invested in something great and we can take the club forward, and then you’ve got to start to take revenue from the investment,” Velani told Financial Director last year about the club’s Barnet-based new stadium. “That’s where we are now. We’ve settled in nicely.”

Portfolio CFOs FEATURE

Who wants to be a PE CFO?

The intensity of the portfolio CFO role is not for everyone, but for those who break into this market, the rewards are there for the taking, suggests James Kenyon

F

ollowing a year of near record exits at better than expected rates of return, uninvested dry powder currently stands at a record $1.3tn (£900bn), according to Bain & Co’s latest Global Private Equity Report. Record levels of activity, coupled with this dry powder is naturally linked to an increased demand for skilled senior leaders capable of managing and transforming PE portfolio companies, and delivering successful exits for their sponsors.

The portfolio company CFO is, alongside the CEO, the most crucial talent decision for the sponsor. With Deloitte estimating that about 70% of portfolio CFOs are brought in by private equity firms, this is the most in-demand role of any portfolio executive team. Equally, there is little dispute that the CFO’s credentials are the most sharply defined and non-negotiable. The position carries significant responsibility and requires exceptional talent. The portfolio CFO is accountable for the successful implementation of the strategic business model – at pace – and with often limited resources and under intense pressure.

The DNA of a successful portfolio CFO has been much analysed and commented upon. Through our own private equity CFO searches, it is evident that PE firms look for certain critical factors with a justified rationale when selecting CFOs.

Strong academics

Typically, a portfolio CFO will have strong academics with either an accountancy qualification or an MBA and a diverse wealth of experience and expertise. They will be tenacious and analytical with the operational and commercial acumen to get to the heart of a business, identify cost excesses, improve productivity and efficiency and, of course, generate profits. More often than not, they will have held CFO or FD positions before with proven experience of the full range of responsibilities. Generally, prior experience as a PE portfolio CFO, relevant situational, rather than sector, experience and ideally M&A expertise are all preferred.

Often, they will have the duality of both large and small company experience.

The larger corporate experience brings professional training and understanding of rigour, discipline and complex corporate systems, while the small business experience demonstrates hands-on resourcefulness, agility and the ability to deliver without the support of a well-structured large organisation.

Public company experience can be advantageous as it typically brings a robust financial reporting capability alongside knowledge of handing investor relations. This expertise is particularly attractive if an IPO is the preferred exit route and the CFO will be required to remain in situ for the initial period post-IPO. With relatively limited resources at hand, a portfolio CFO will need to be tenacious, process-oriented, financially disciplined and prepared to roll their sleeves up and muck in in order to drive the strategic business plan and deliver the high level of detailed and accurate financial metrics that the PE firm will demand.

Diplomacy

Diplomacy and communication skills, together with persuasiveness and the ability to influence are absolutely key. The CFO will have to operate effectively, juggling the sometimes conflicting priorities of the different parties involved, including banks, PE sponsors, the management team and the

CEO or founders. The CFO must be able to present a vision and operating plan for the future that satisfies and motivates all the relevant parties. Additionally the CFO will need to present and demonstrate the progress being made and goals being achieved to PE investors and banks alike. Finally at exit, the ability of the CFO to present convincingly to potential buyers (depending on the exit route) will be of utmost importance. This is in part why successful prior exit experience is highly valued by PE firms.

The CFO must be able to cope with the scrutiny of the PE firm while working in partnership with the CEO. The ability to work with urgency, focus and decisiveness is essential. Timing is critical – with a PE firm looking to hold the portfolio company for no more than three to five years (although economic conditions have lengthen this in recent years), the CFO must be single mindedly able to take decisive actions and make time-critical decisions to ensure the business plan is executed according to the prescribed timetable.

The unique demands of the private equity market place require exceptional talent. It is unsurprising that demand exceeds supply, particularly when the complexities of timing are added to the mix. A CFO active in a PE portfolio company will be available only at the beginning or end of a deal cycle. On the other hand, a PE firm will often (although not always) only commence the search for a CFO once a purchase is completed. At this point, speed is critical, as the new CFO needs to be installed as soon as possible.

As the battle rages on for CFOs with the right aptitudes and proven records of profitable transactions, compensation packages are moving upwards. Typically these are heavily weighted to performance and successful exit completion. The intensity of the portfolio CFO role is not for everyone, but for those who break into and thrive in this market, the rewards are there for the taking. ■ James Kenyon is a consultant at Redgrave Partners Summer 2016 | financialdirector.co.uk | 29

FD INTERVIEW

Damian Wisniewski | Derwent London

Prime estate Damian Wisniewski, Derwent London’s CFO and a grandson of a Polish cavalry office, explains how he is leading the FTSE 250 real estate investor’s strategic financial charge WORDS CHRIS WARMOLL PORTRAITS ALEX GRIFFITHS

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s quarters go, the first of 2016 has got off to a blistering start for FTSE 250 property outfit, Derwent London.

The London-centric real estate investment trust (REIT) – the biggest in the capital with a portfolio valued at £5bn (as at December 2015) – delivered an upbeat set of results, thanks in part to a winning mix of robust letting activity and its sizeable development pipeline.

It posted £13.2m of annual rental income on the year to date, spurred on by letting or pre-letting more than 185,000 sq ft to commercial tenants. Among that pre-letting boon is 29,500 sq ft to Capital One at the stillto-be completed White Collar Factory in the Silicon Roundabout heartland of Old Street on the City fringe.

Allied to this, the firm currently has one million square feet under construction with 40% (400,000 sq ft) due to be finished by the middle of 2017. Of that, some 57% is already pre-let.

And leading the firm’s strategic financial charge is the grandson of a Polish cavalry officer, finance director Damian Wisniewski.

Wisniewski, also a talented pianist who has just been appointed a Trustee at the Royal Academy of Music, has held the position – where he also sits on the board – since 2010 and also commands the firm’s treasury, taxation and financial reporting efforts.

And he’s inherited some of that dashing intellectual panache and sabre-rattling fiscal swordsmanship of his forebears in the way he approaches his role.

Yet his path to the financial pinnacle of the £4bn company took a somewhat meandering route, at least given his choice of 30 | financialdirector.co.uk | Summer 2016

degree – mechanical engineering – which he successfully completed at Imperial, despite realising early on that “I didn’t really want to become an engineer”.

“I knew roughly how an internal combustion engine worked but I didn’t feel I knew how the world worked, so oddly enough I ended up, again without much real thought, joining Arthur Young,” he says.

That was 1983.

“I saw it very much as almost like a second degree, so not only was I getting paid but I’d get a qualification, and I would learn something about a part of the world which I was pretty naive in.

He describes that period as “surprisingly enjoyable”, where he “had much more fun than at university”.

“So it was a growing up in all senses,” he says. “I stayed for a couple of years, got to assistant manager level, but I was now was thinking actually do I want to be a partner? I was on a fast track to partner but I thought, ‘do I really want that? Either way, what will be good for me is getting some commercial experience.’”

Post Big Bang

Clearly it was good for him. Fast-forward to 1988 and with an ACCA qualification under his belt, Wisniewski was soon seconded to the Stockley Park Consortium, jointly owned by Stanhope, Chelsfield, Prudential and Kajima – the place of his property ‘blooding’ – and it was there he became financial controller and company secretary.

“There was no finance director so I was essentially there at board meetings,” says Wisniewski. “The late 1980s were very interesting and exciting times. Just post Big

Bang. The whole world felt like it was opening out. And then of course there was quite a big down turn.”

At the relatively tender age of 27, he was asked by the FD of Stanhope Properties to control and monitor financial elements of several major projects such as Broadgate, Chiswick Park and the ITN building.

Wisniewski’s knowledge of the real estate sector was rapidly deepening and he was duly appointed group financial controller, spearheading the finance function from 1992 to 2005, securing the group FD role in 2003.

His career at Chelsfield began after its MD – who sat on the Stockley Park Consortium board – approached him to see if he’d like a role there.

And those informal methods have been a constant throughout his working life.

“I haven’t applied for a job, really,” he says.

“All the way through people have approached me. I’m lucky enough to have been in good places at good times and that’s been a really sweet way of going through a career.”

He dubs Chelsfield “a fabulous place” and “very entrepreneurial and exciting”.

The business grew “enormously” before being floated in December 2000 for £2.1bn.

That period was “hard work but it was always exciting”. Part of that excitement and frisson of unpredictability emanated from the man who ran the firm – Elliott Bernerd.

Something of legend within the British property scene, it’s fair to dub Bernerd a Titan of the UK property industry for over 30 years.

Not only was he responsible for developing Britain’s first American-style business park – Stockley Park – from a virtual rubbish dump near Heathrow airport but also for amassing sizeable stakes in the lucrative White City

Summer 2016 | financialdirector.co.uk | 31

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FD INTERVIEW

Damian Wisniewski | Derwent London

and Paddington Basin schemes. He also owned the Wentworth Golf Club and helped transform the Royal Philharmonic Orchestra into the upper echelons of world orchestras.

Wisniewski describes him as a “very charismatic property guy” who had “fingers in lots of pies and lots of balls in the air”, which meant that “there were always amazing things being looked at”.

While the majority never came off, the bigger play – growing the wider business – can only be dubbed an enormous success given its transformation.

“When I joined the business it was a private company worth probably £80m or £90m,” he says.

“By 2003 it was worth £3bn or £4bn.”

While there, Wisniewski took on responsibility for financial reporting, appraising market opportunities and financing a swathe of equity issues, taxation, bank loans and IT. He also owned several projects including the White City and Stratford shopping centres (later sold to the Australian outfit Westfield), Merry Hill in the Midlands, co-location player, Global Switch and a string of properties peppered across Europe and the US. During his baker’s dozen sojourn at Chelsfield, it was floated with a full London listing in 1993, taken private in 2003/4 before being sold for a hefty £2.1bn price to Westfield, the Reuben Brothers and Multiplex, now Brookfield.

A strategic approach

Wisniewski has taken the most pertinent lessons from those more buccaneering days and fused them with a calmer and arguably more strategic approach.

For example, Derwent London’s raison d’etre is to “create value throughout the property cycle by regenerating our buildings via development or refurbishment, effective asset management and capital recycling”.

Typically, that means buying property in what it calls “off-market” central London locations that have relatively low capital values and modest rents in “improving” locales. These are almost all, without exception, in the West End or Tech Belt.

The fact they can still unearth these gems is testament to a finely attuned nose for such discoveries and the ability to then do the right thing to transform and unlock their nascent value.

Allied to that, the business has a strong balance sheet modestly leveraged, a vigorous income stream and flexible financing arrangements.

Much of that fiscal intelligence applied by Wisniewski was further honed and developed at the Wood Wharf Limited partnership where he was chief operating officer for three years between 2005-08 and then for the following two years as COO and CFO at Dawnay Day Treveria and Treveria Asset Management.

For at Wood Wharf he was asked to join and

IN BLACK AND WHITE Wisniewski is a chartered accountant and, prior to joining Derwent London, he held senior finance roles at Treveria Asset Management, Wood Wharf Limited Partnership and Chelsfield.

He has overall responsibility for financial strategy, treasury, taxation and financial reporting.

create a team to run the freshly formed public private partnership vehicle – jointly owned by British Waterways, Canary Wharf and Ballymore. The fusion resulted in a six million square foot masterplan for a mixed use scheme. Wisniewski arranged all the finance, penned the business plans, negotiated site assembly deals and worked closely with the planning, master-planning and legal teams at Canary Wharf, all the while acting as CFO/COO. Wisniewski was duly enlisted to Treveria by Dawnay Day to help steer the ailing AIM-listed Treveria vehicle – set up by them in 2006 – back to fiscal health.

Following a strategic review and the collapse of Dawnay Day in mid-2008, his role was soon internalised and he worked with – and for – chairman Ian Henderson and a management team across London, Luxembourg and Germany as COO/CFO. He successfully helped keep it AIMlisted and it was eventually sold to opportunity and hedge-fund investors.

“I learned a lot there,” says Wisniewski.

“Importantly I also got to meet some amazing people including Ian Henderson, who used to run the largest public property company in the UK, Land Securities.

He and I struck up a very good friendship and worked together very well.

“It was very political, there were a lot of difficulties, and then most of the big institutions sold out as the share price fell because it was clearly over-leveraged, and the shares were then picked up by hedge funds and special opportunities funds. The nature of the business changed. It has recently sold all its properties and I think it’s still got an A listing but it’s essentially virtually disappeared now. That was a fascinating time.”

Diversifying finance

And having – like many others in the property game – realised that the 1990s and Noughties saw the sector over-exposed itself to the banks – and vice versa, “I felt we should diversify the sources of the finance”.

“I wasn’t the only one doing this, it was good common sense,” says Wisniewski. “It was also good business sense because you don’t want all your eggs in one basket. We ended up with a mixture of flexible bank financing, facilities that you can move up and down – revolving facilities.

“We’ve got, for example, a £550m unsecured facility with the four main clearing banks. We’ve also got another bank facility, and in an industry like this where you’re sometimes taking some long-term decisions, you want a fair bit of fixed-rate facilities that you can essentially tuck away for 15 or 20 years.”

And with his finance team of 18, the foundations of what is already a pretty solid business look to be in rude health, much like the central London market in which Wisniewski so clearly relishes working. ■ Summer 2016 | financialdirector.co.uk | 33

FD INTERVIEW

Andrew Westenberger | Brewin Dolphin

Invest for success Andrew Westenberger, finance director of wealth management firm Brewin Dolphin, explains how time has been both a friend and foe to the 254 year-old business WORDS FRASER SIMPSON

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lot has happened over the past 254 years. War and peace has engulfed the world, financial markets have risen and fallen and businesses have flourished and collapsed. However, wealth management firm Brewin Dolphin has not only survived the test of time, it has also managed to reinvent itself to stay relevant.

Formed in 1762 by stockbroker John Dawes, the FTSE 250 company has formed itself into one of the largest investment management and financial planning firms in the country, home to 39 offices throughout the UK and Channel Islands.

“I was in the World Trade Center a week before, for a 40th birthday party,” he says. “I flew out of New York the night before [9/11] and I was in the UK on a business trip with Barclays, but my wife and family were still out there. I watched it all unfold on TV and I was on the first plane back a few days later.”

After a career’s worth of hopping between London and New York, in 2004 Westenberger stayed in London as the firm’s global head of financial control, but his time at Barclays Capital was cut short in 2008.

Crunch time

In safe hands

Since 1994, Brewin Dolphin has been on the London Stock Exchange and since 2013 its finances have been looked after by FD Andrew Westenberger, who began his career in 1990 as a chartered accountant, serving at a company that would eventually become the spine of PwC. “I qualified as a chartered accountant with Coopers and Lybrand just round the corner from here,” explains Westenberger, who started out as a junior on the audit team, working on the notorious Maxwell audit. “Then in 1993 I went to work for Bankers Trust which was an American investment bank, at a time when they were starting to really grow post-big bang and coming to London.”

Westenberger cut his teeth at the company’s product control division before the firm was bought out by Deutsche Bank.

“Coincidentally, I left Bankers Trust to go and work for Deutsche Bank just before that,” says Westenberger, who joined the company at a time he describes as one “of great expansion and growth, the beginning of a fast acceleration of financial services which culminated in 2008”.

34 | financialdirector.co.uk | Summer 2016

Long before Deutsche Bank was hit by the financial crisis, Westenberger crossed the Atlantic to begin the next stage of his career.

“I was actually posted to New York in 2000

by Deutsche Bank, and while I was there I left to join Barclays Capital,” he says.

Westenberger travelled between London and New York during his eight years at Barclays’ investment banking division, starting out in credit derivatives in New York, before running financial planning and analysis in London.

After having child number two in the UK’s capital, Westenberger and family went back to New York in 2003, where he served in a number of finance roles at the company, including COO at the firm’s credit markets business.

“That was fun because it was different, and again, it was the maximum point of the financial bubble,” he says. “Everything was growing at 25% compound.”

However, on 11 September 2001, New York grinded to a halt by a tragic event that Westenberger narrowly avoided.

Westenberger was a casualty of the financial crisis and was made redundant, but upon reflection he saw his departure from Barclays Capital as a blessing in disguise.

The redundancy led Westenberger to become group FD of financial services company Evolution Group, a listed, £300m mid-cap firm, which he says was the best thing to happen to his career.

“My feeling then was serendipity because if I was to stay at Barclays Capital I would have had less opportunity to move into a plc role,” he says. “Although you get a lot of responsibility and you are well rewarded at these big banks, you’re a much smaller cog in a big machine and you don’t get the breadth and experience I got at Evolution.”

In 2011, around the same time the company was bought out by Investec, Westenberger left Evolution, but was well prepared for his next role as finance director at Brewin Dolphin in January 2013.

Tough decisions

Almost immediately after joining the firm, Westenberger put his stamp on Brewin Dolphin, which to him was going through a

period of ‘indigestion’ due to a number of acquisitions made over the years.

“We were going through a period of… I think ‘turnaround’ is probably too strong a word, but a period of refocusing of the business over the past three years,” he admits.

Almost as soon as Westenberger joined, the company’s senior management changed, as executive chairman Jamie Matheson retired and David Nicholl was promoted to CEO, but Westenberger was about to drive an even bigger change.

“One of the first things I had to do was make 100 people redundant from our corporate central function, which led to a £6m staff cost reduction,” he says. “The business recognised that it needed to establish some credibility with shareholders who were becoming slightly impatient with the lack of progress with the profit margin.”

As well as the redundancies, one of the first things Westenberger did was strengthen the firm’s finances, raising £40m to firm up the balance sheet.

“We also sold Stocktrade, our execution-only business and focused on our core discretionary investment management service and pushed even further into the world of financial planning advice,” he says.

Time to grow

Despite the business having existed for more than 250 years as a stockbroker, investment manager and now wealth manager, Brewin Dolphin needed to change identity in order to stay relevant in the highlycompetitive market.

“There were cheaper substitutes out there already like Nutmeg and robo-type advisers, so it was key for us that in order to stay relevant we needed to be more advice-focused,” says Westenberger.

Around that time, Westenberger had to execute more substantial changes.

“The profit margin was languishing at around 15%, so we set a new target of 25%, which we still have in place,” he says.

In 2014, the finance director took a “very big decision” to terminate Brewin Dolphin’s expensive technology project.

“It had been designed to try and introduce more efficiency into the business,” says Westenberger, but the project was burning a £33m hole in Brewin Dolphin’s pocket and he soon found himself cutting the project, which came as an initial shock to shareholders.

“When you put that RNS out, that’s no small feat,” said Westenberger. “But the decision was a classic example of how finance needs to always be looking forward, not backwards.

“We can’t make apologies for the past, but we knew that we needed to adopt a different strategy, which is what we did. We continue to streamline the business

IN BLACK AND WHITE January 2013 – present Finance director, Brewin Dolphin 2009 – 2011 Group finance director, Evolution Group PLC and director of its principal subsidiary Williams de Broe Limited 2000 – 2008 Various senior finance and business management roles, Barclays Capital 1996 – 2000 Head of Product Control groups in London and New York, Deutsche Bank 1993 – 1996 Product controller, Interest Rate Derivatives, Bankers Trust 1987 – 1993 Chartered accountant, Coopers & Lybrand

and we are integrating technology in a far more modular way, and I think that they [the shareholders] accepted the decision.”

Another way in which Westenberger adopted a different strategy was by removing outdated software Lotus 123, the predecessor of Microsoft Excel, from the business.

“I was quite shocked to find that we still used a product which is not even supported by its vendor anymore,” he says, adding that the software has “just gone” from the company.

The removal of the archaic tool allowed Westenberger to reflect upon how over the past 250 years, the company had both flourished, but had also fallen behind in some respects.

“The firm had grown rapidly in recent years and the finance function had grown with it by adding bodies, but it hadn’t really thought about what the role of the finance function was and how the finance function could add value in the long-term,” he says.

“When I joined, it [the finance function] was more of record-keeper in a sense, but we’ve now successfully implemented a new financial reporting tool, making our ability to analyse financial information key to what we’re doing.”

Glass half-full

Despite improving certain functions of the business, the company is still paying the financial price to re-address previous issues, having recently posted a 12.5% fall in adjusted profits over the past six months, a figure which Westenberger puts down to the cost of investments and recent turbulence in the market.

“The value of our income is linked to the value of our client portfolios, and the value of the portfolios move up and down in line with investment markets.

Those markets peaked over a year ago,” he explains.

The company is now moving towards a much brighter future, adding a Cambridge office to its portfolio in February, as it begins to focus on attracting a much younger client base.

“The biggest challenge for us is that we’ve got very loyal, long-standing customers, so now we’re trying to capture the attention of young people who may not feel like we’re relevant to them at the moment,” says Westenberger.

One of his main aims is to try and blend “innovation with our tradition, the heritage, and our client services”, which he believes is a mix that can’t be found among the competition.

“That’s why firms such as Nutmeg and roboadvisors are fundamentally not succeeding,’ he says.

“There isn’t a trust, firms take a long time to grow trust with their clients but we’ve done that already.

“We take the glass half-full approach. We analyse what we have and see how we can build on it, rather than focusing on what we don’t have.” ■ Summer 2016 | financialdirector.co.uk | 35

FEATURE Audit 350

Failing to prepare Around a fifth of FTSE 350 companies are “woefully unprepared” for the EU’s audit rotation reforms set to take effect in June

J

une is to be a watershed time for audit. EU audit reform is to kick in on 17 June, and will have a swingeing impact on all areas of audit regulation, including market competition, auditor oversight, audit quality and standards application, audit reporting, corporate governance related to auditors, auditor selection and auditor independence.

In the UK, the regulations will be operated on a comply-or-explain basis among public interest entities (PIEs).

PIEs are defined by the EU as “all entities that are both governed by the law of a member state and listed on a regulated market”. It adds the regulation takes in “all credit institutions in the EU”, “all insurance undertakings in the EU”, and “entities designated by member states as publicinterest entities”.

Under the EU’s audit directive and regulation, PIEs are compelled to put their audits up for grabs every decade and swap auditors every 20 years, in addition to limiting the level of non-audit fees.

It is a move intended to open the FTSE 350 market up to more audit firms such as Grant Thornton and BDO.

Astonishing unawareness

So it is with no small amount of astonishment and dismay that about a fifth of FTSE 350 companies are “woefully unprepared” for the EU’s audit rotation reforms set to take effect in June, according to research from Big Four firm EY. EY’s survey of 100 CFOs, tax directors and audit committee chairs found that 19% of respondents were unaware their company needed to tender or rotate its audit. And of those that did, almost half had not yet put a strategic plan in place.

Approximately 28% of firms said they also lacked full understanding of the proposed restrictions on non-audit services, with a handful (7%) stating they had no knowledge of the changes at all.

While 61% of those surveyed said they are planning to invite tenders from at least 36 | financialdirector.co.uk | Summer 2016

one non-Big Four firm, intentions are not necessarily becoming a reality. In the last six months there have been 25 audit tenders completed by FTSE 350 companies, but none have been awarded to a non-Big Four firm.

“As expected, some companies have been moving ahead of the regulations, with over half of the FTSE 100 having tendered their audit since the spectre of the regulations loomed,” Hywel Ball, head of assurance at EY said of the rather concerning figures. “But we haven’t seen the same level of preparation among the rest of the FTSE 350, with less than a quarter having tendered so far.

“This was never going to be a cost-free exercise. Choosing an auditor and managing the mix of non-audit services is one of the biggest procurement decisions a company has to make. It requires a major time

investment when going through the tender process and then bringing the new team up to speed, all of which carries an internal cost to the company.”

In March, Ball told sister title Accountancy Age that mandatory rotation could “further entrench” the Big Four’s market position, and even see them encroach on traditional non-Big Four market space. However, several non-Big Four audit partners disputed his assessment, suggesting it could take as long as ten years to see the fruits of the regulation.

A pain in the butt

While Flybe non-executive chairman and audit committee chairman at Quintain Estates & Development Simon Laffin might agree with Ball’s forecast for the audit market, he is less than convinced by EY’s

numbers on the FTSE’s preparedness.

“Doing an audit tender is a pain in the butt, but it’s not going to be the biggest issue a board’s going to face in a year,” Laffin explains. “My experience is your auditor, when you have an audit, will pass comment on when you need to have an audit tender. Your auditor will tell you, so every company will know. We’re talking about professional companies and I bet all the finance directors know.”

For finance directors and their teams, though, there is a smorgasbord of elements to consider in the run-up to 17 June.

In addition to simply working out if a tender is due, there is the potential for conflicts of interest to consider, and whom is preferred for non-audit services given the strategic implications of those decisions.

“The biggest decision they have to make is who they want to be their advisers,” says ICAS director of technical policy James Barbour. “They may have someone doing their external audit; they may need someone to do their internal audit if they don’t have their own internal audit team. Then you have the tax advisers as well. We still don’t have absolute clarity in what is tax advice in relation to the prohibitions – there are still some uncertainties out there. If they decide their number one priority is their tax adviser, that may restrict who their auditor could be.”

In many cases, Simon Laffin says, those considerations are likely to still lead to a Big Four auditor, particularly for FTSE 350 businesses with multinational operations – simply because other firms do not have the coverage overseas.

Practical considerations such as these could well distort the application of the reforms, he adds.

“They [the EU and regulators] thought

having more frequent tenders would reduce the dominance of the Big Four. I think in fact the opposite is going to happen,” Laffin explains. “One of the figures that came out [of EY’s report] is that 39% of companies said they wouldn’t invite a non-Big Four [to tender]. Some of the non-Big Four don’t have the international coverage required.

If you’re a big multinational company in a lot of different companies, you don’t want to be going to somebody who doesn’t have coverage in Namibia, so you’ll be drawn to the Big Four.”

Despite that stark warning, ICAS’s James Barbour does see room for firms “outwith the Big Four”.

“It should lead to more [non-Big Four firms] getting more non-audit work,” he says. “Once they have their foot in the door with the non-audit work, that then increases the likelihood that at a future tender they’re a more likely candidate to get the appointment as external auditor.”

WHAT IMPACT WILL MANDATORY AUDIT ROTATION HAVE ON YOUR BUSINESS?

Very positive

9%

Positive

39%

Neutral

25%

Negative

27%

Big Four expansion

That could particularly be the case if the Big Four’s expansion into other areas continues.

Simon Laffin believes this point has largely gone unrecognised by both the market and the regulators.

He says: “There’s a growing problem as well that I don’t think the regulators have even thought about: some of these audit firms are actually competitors to the company. Nobody’s ever conceived that an auditor can be a competitor to the company it’s auditing, but it’s happening.

“It’s happening because the audit firms are branching out – into management consultancy, into data analysis, into IT implementation. Do you want a representative of one of your competitors crawling all over your business? Even if

Source: EY

HOW MANY AUDITORS WILL YOU BE INVITING TO TENDER (OR BE LIKELY TO INVITE)?

SIX

7%

FIVE

18%

FOUR

32%

THREE

36%

TWO

7%

Source: EY

Summer 2016 | financialdirector.co.uk | 37

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there’s a Chinese wall, we all know they’re paper thin and they’ll give you no guarantees that an auditor won’t emerge in another part of their business.

“I think one of the issues we’re going to face is companies scratching their heads as to who on Earth to invite as a serious competitor to the incumbent.”

Preventing conflicts

It’s a situation that was illustrated in April when Deloitte divested the transactional side of its real estate arm in order to prevent conflicts with its audit team. The US Securities and Exchange Commission governing the independence of auditors had stymied potential business for the real estate team, while it also fell foul of caps on fees to auditors for non-audit services.

Property agents Knight Frank, Gerald Eve and Savills have all acquired portions of the team which was set up in 2010.

“When you stop audit firms doing non-audit work, I think people thought audit firms would sell their management consultancies and slim down to just being audit companies,” Laffin adds. “In a way that’s logical, but it also shows the naivety of the regulators, because if someone said to you in your business, ‘we’re going to start chopping your main business down because we’re going to stop people using some of your peripheral businesses’, you don’t react by retrenching – you react by finding other things to diversify into. And anything an audit firm diversifies into drags it into competition with potential clients.”

While further signs of Laffin’s concerns over potential conflicts are yet to be borne out, Barbour does highlight that the timescale at play is lengthy – between ten and 20 years – before we can say with any certainty whether the reform has been a success.

“We need to wait and see how things will pan out,” he says, “You could end up with a situation where if someone has been appointed for the first time, barring anything unexpected, that firm will be there for ten years, and they’ll tender after ten years. What we don’t know is how audit committees will look at this in ten years’ time. Will they say, ‘things have changed and the economy is now better. I would be quite happy to appoint the same firm for another ten years’?

There could be 20 years before we have another change. That’s where we’re looking before we get any potential change.” ■

WHAT CRITERIA WOULD YOU USE TO SELECT YOUR CHOICE OF AUDITOR? (PLEASE RANK TOP 3) Firm’s reputation within sector

28%

19%

17%

Credentials of audit team

21%

23%

16%

Knowledge of the business

26%

18%

16%

Quality of proposition

9%

14%

18%

Regulatory inspection reports

5% 6%

10%

Fee

11%

3%

5%

Preference to retain non-audit professional services provider

6%

3%

10%

Cultural fit of lead partner

6%

2% 3%

Team availability 2%

0% 10% 20% 30% 40% 50% 60% 70%

WHAT DO YOU SEE AS THE MAIN RISKS FOR YOUR COMPANY OF CHANGING YOUR AUDITOR? (PLEASE RANK TOP 3) Change in view of existing accounting judgments

18%

15%

9%

Increase in audit costs

15%

15%

11%

Increased business disruption

9%

11%

15%

Additional demands on finance department

5%

13%

15%

Lack of understanding of business

16%

9%

7%

Reduced audit quality

11%

6%

5%

Additional demands on C-suite

9%

7%

4%

Reduction in choice of non-audit service providers

3%

7%

4%

Impact on provision of non-audit services

8%

2% 1%

No risks

10% Additional demands on business unit heads 1%

4%

5%

Impact on investor sentiment 1%1%

5%

0% 10% 20% 30% 40% 50% Most important

Second most important

Third most important

Source: EY

Summer 2016 | financialdirector.co.uk | 39

FEATURE Tax

The future of an illusion

With the EU referendum just days away, the EU is between a VAT rock and a hard place, writes Nicholas Hallam, chief executive of VAT consultancy Accordance

O

ver the last couple of years, the prime minister has had a few run-ins with former Polish premier (and current president of the European Council) Donald Tusk – the particularly divisive issue being David Cameron’s plan to restrict the levels of benefit payments to EU nationals living in the UK. Tusk was resistant to agreeing restrictions because it could be seen as undermining the principle of the free movement of people across the EU; for Cameron on the other hand, benefit payments to those recently arrived from the EU had become politically toxic – a symbol of both the EU’s lust for control, and its perceived unfairness.

It may have surprised Cameron, then, when earlier this week Tusk went on the attack against the hubris of the European project: “Obsessed with the idea of instant and total integration, we failed to notice that ordinary people, the citizens of Europe, do not share our Euro-enthusiasm.”

Putting on the brakes

Without ever mentioning Brexit directly, Tusk’s speech suggested that ‘euro-scepticism’ and ‘euro-pessimism’ were an understandable reaction to the illusion of “a utopia of Europe without nation states, a utopia of Europe without conflicting interests and ambitions, a utopia of Europe imposing its own values on the external world”.

Strong stuff, and coming from the president, it seems a real indication that the brakes will be put on the drive to an “ever closer union”, which is good news for Cameron – unless it is already too late for him.

Over the last few days, support for Leave appears to have surged: immigration is once again dominating the news; Brexit is now very much on the cards.

I was very kindly invited by the Institute of Directors to be a panellist at their Brexit debate last month; our section was on the possible effects of departure from the EU on professional services, the law and taxation in the UK. 40 | financialdirector.co.uk | Summer 2016

The UK may be about to leave the EU at precisely the moment the EU finally begins to behave in the way that it desires As far as VAT goes, we really do not know what the consequences will be, because we don’t know what an eventual deal with the EU might look like; and that uncertainty seems typical of the whole professional services and legal sector.

Nevertheless, it was striking how optimistic the Brexiteers are in the face of these large unknowns. Priti Patel, who

gave one of the keynote speeches, spoke with passion about the possibilities for Britain beyond a declining, moribund Europe. According to her, Brexit is an opportunity for the UK to reclaim its 19th century heritage as a great trading nation: globalisation and technology mean that we can well afford to step away from Europe and its problems.

One of my co-panellists – Swati Dhingra, professor of economics at the LSE – is not so sure. The formidably well-informed Dhingra is a leading researcher into the economics of Brexit, and her view is that geography matters.

“Reducing trade barriers between the UK and the rest of the world is a laudable aim and would be likely to increase trade and raise UK income,” she says. “But it is not an adequate replacement for EU membership. The best-known fact in international economics is that international trade and investment fall substantially with

distance (Head and Mayer, 2014).

“Doubling the distance between two countries roughly halves the trade between them. The UK is much closer geographically to the EU than to other large economies such as the US or China and, therefore, it is not surprising that roughly half of the UK’s trade is with the EU.” What’s more, Dhingra’s research suggests that massive economic powers such as the US and China are unlikely to come to favourable trade terms with plucky, freeranging independents. Size matters; strength answers to strength. Dhingra believes that it makes sense to have a say in the conduct of your local mega-trading bloc.

Changing business landscape?

Assuming that Dhingra is correct and that, post-Brexit, UK companies attempt to trade with and operate in the EU at pretty much the same level they do now (though on perhaps altered terms) the question of how business and consumption taxes are treated in Europe will continue to be of great significance to the UK economy.

It was a bit of a shock, then, to hear Jonathan Heath, head of HMRC’s VAT Central Liaison Office (the section that works with other Member States), say last month that he expected the UK to cease to participate in European VAT discussions immediately should the UK vote to leave the EU. Influence on future reform would be gone.

Heath was responding to questions after a session he took at the International VAT Association’s recent conference in Vienna.

Much of the session (and the conference) was given over to analysis of the European Commission’s recent EU VAT Action Plan.

As EU VAT commissioner, Donato Raponi, ruefully noted, it was the commission’s second such plan in five years, the latest version having been put together in the aftermath of the commission’s failure to introduce a single, standard VAT return for the whole of Europe. Member states have hugely different fiscal cultures (HMRC, for instance, operates with a gossamer light touch compared with its European counterparts): they could get nowhere near agreeing the basic information a standard VAT return ought to include.

The new plan (subtitled Time to Decide) is effectively a challenge from the commission to member states: “Are you serious about

wanting a consistent VAT system for the single market?”

Its two major structural proposals are for developments out of the one-stop-shop for electronic services that was introduced in January 2015. Firstly, a one-stop-shop framework for e-commerce distance sales (sales made by an EU business directly to a consumer in another member state); and then, beyond that (at an unspecified future point) the creation of a genuine ‘single VAT area’ through the extension of the one-stop-shop to cover B2B transactions relating to goods.

Obstacles

I have written before for Financial Director about the obstacles to the application of the one-stop-shop principle to e-commerce.

The fundamental problem is the degree of tax authority integration and coordination required for the system to operate: member states would have to align VAT registration thresholds (hugely contentious because of cultural differences about tax collection); audit foreign companies on each other’s behalf; and collect VAT owed to other member states (Greece collecting VAT on Germany’s behalf, for example).

The scheme for a ‘single VAT area’ effectively envisages the beginnings of a supranational tax authority: not quite President Tusk’s ‘instant and total integration’, but nevertheless a major reconfiguration of EU tax sovereignty.

(As a counter-balance, there are also proposals to allow member states more freedom in respect of setting VAT rates – though commission representatives observe that member states are likely to reject too much freedom, as domestic governments like

The fundamental problem is the degree of tax authority integration and coordination required for the system to operate

“Reducing trade barriers between the UK and the rest of the world is a laudable aim and would be likely to increase trade and raise UK income. But it is not an adequate replacement for EU membership” to blame the EU for high taxes!).

The commission is basing the case for further VAT harmonisation on the need to fight fraud: there is an annual ‘VAT gap’ (the difference between the collected and the collectible) of €170bn (£133m). It is a vast amount of money, but, as HMRC’s Heath pointed out, about €120bn of that sum can be attributed to mistakes rather than deliberate criminality.

The total annual VAT take in the EU is in the region of €1tn; and while the gross amounts involved may be staggering, a 5% fraud rate compares favourably with alternative systems. Take US sales tax, for example, where the evasion percentage runs well into the double figures.

Indeed, it seems that member states have already started pushing back against the new plan. At least two have asked the commission for permission to apply a reverse charge mechanism to all domestic transactions, on the basis that it is a highly effective antifraud mechanism.

The commission is now caught between its vision of integration and its commitment to fighting fraud. If accepted, the proposal would further fragment the EU’s VAT framework, and perhaps spell the end of the commission’s campaign to harmonise VAT. As far as VAT is concerned, the UK may be about to leave the EU at precisely the moment the EU finally begins to behave in the way that it desires. ■ Summer 2016 | financialdirector.co.uk | 41

FEATURE Internet of Things

Future thinking Real, practical mainstream application of Internet of Things systems and processes are somewhere between five and ten years away, finds Christian Doherty

E

very year, Gartner publishes what it calls its Hype Chart. It is a barometer of where the latest tech fads sit on a spectrum, from Next Big Thing in tech, from early stage ‘innovation trigger’ (currently occupied by, among others, brain-computer interface and smart dust), through the peak of inflated expectations, down the trough of disillusionment, before emerging onto the plateau of productivity, where actual applications like 3D printers and speech recognition currently sit, making real contributions to companies’ operations and people’s lives.

Sitting at the apex of the curve of inflated expectations, poised to plummet down into the trough of disillusionment, sits the Internet of Things (IoT). What that means, at least according to Gartner, is that real, practical mainstream application of IoT systems and processes are somewhere between five and ten years away, and that the idea is set to experience a bumpy few years before that happens.

But does that reflect the reality?

Patchy progress

The IoT is defined as ‘the network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment’.

From a domestic standpoint, that means smartphones, fitness bands, smartwatches, fridges and ovens, smart locks, thermostats and TVs. But adoption of IoT systems and processes is undoubtedly growing: according to Gartner’s latest estimates, there will be almost 6.4 billion devices connected by the end of 2016, with 25 billion by the end of the decade. Meanwhile, IDC pegs the IoT’s market value at $655bn (£449bn), rising to $1.7tn by 2020.

At the public level, the IoT is allowing the development of smart cities, where sensor networks monitor everything from traffic flow, levels of rubbish in bins and number of people at bus stops. Its applications in defence and healthcare in particular are fairly well advanced.

In business, however, the IoT is still in its infancy. Few companies have really harnessed 42 | financialdirector.co.uk | Summer 2016

its power: some US retailers are using sensors to improve fleet and inventory management, but largely achieving that by building on existing asset management systems.

Use of sensors (measuring temperature, humidity, energy and water use among others) is well-trodden ground for many industries (again, healthcare, or oil and gas) but for a lot of sectors, the idea of using networked sensors to improve operational efficiencies is just not on the radar.

Harnessing immediate benefit

However, there is a growing feeling among some observers that with some smart investment, IoT can quickly start to deliver genuine benefits to the bottom line. Indeed, there are many firms now offering plug ins to monitor water usage, HVAC and energy use that can be installed and operational within days.

And while the IoT may not represent the fourth industrial revolution, it could provide FDs and operational managers with compelling, reliable, real time insight over an organisation’s physical assets, infrastructure and performance.

Damon Hart Davis spent 30 years working in banking before leaving to set up OpenTRV, a startup that manufactures a sensor-led heating system designed to save energy by

not heating rooms you are not in. Instead of using one thermostat for the whole house, it is designed to be simple to (retro-)fit to existing UK housing stock with radiator central heating. And it’s Hart-Davis’s belief that CFOs can utilise the IoT to effect genuine improvements across their business.

“Take a food service company, for instance,” he says. “There are legally mandated limits you have to operate in in terms of the freezers you run. For most businesses, that means you need a guy going round checking each unit; so at the moment, it’s manually intensive, and there’s all kinds of risks around result tampering or lack of oversight, with potentially serious consequences.

“So clearly you’d like to reduce the cost of collecting the data, to reduce the possibilities of tampering, as well as giving real time feedback to the operational team and, ultimately, the finance director.”

Achieving that would be relatively simple with IoT. “Install a little IoT thermometer that can transmit data to a central server, so it doesn’t require a human being; it has tamper protection so it can’t break, and you’re sure it’s doing what it should be doing,” he says. “Simply by using that you’re cutting cost and reducing risk.”

The sensor in a system like that outlined above is relatively unsophisticated and inexpensive. It feeds data through an authentication and encryption process, then arrives back at a server which verifies it.

Operational managers can then act on the data in real time, or aggregate it over time to give a snapshot of whatever is being monitored.

Secure in the knowledge

The sensor can go beyond simply collecting data: you could deposit it into a blockchain, the distributed database that grew out of the development of crypto-currency bitcoin.

Using blockchain, the food service company could automatically (and securely) share with its auditors, for instance, and the Health and Safety Executive, giving a full, unimpeachable audit trail of a regulated process that can’t be tampered with.

“This is a potentially a huge deal as a risk reduction tool, a time saver and a safety

enhancer,” says Hart-Davis, not to mention an assurance tool. And that’s just the food industry.

“The potential applications of something similar across a whole swathe of organisations and industries so far untouched by the IoT are enormous.”

Secure monitoring of things without requiring human intervention is an obvious game changer – IoT has the potential for eliminating a lot of low paid grunt work. “It could get rid of the sort of jobs you can’t actually pay someone to do on minimum wage: it could be health, logistics, agriculture, food, you name it,” he says. “From checking stock, turning down thermostats or adjusting lighting, the possibilities are endless.

“This is not the new industrial revolution, but it might allow us to halve the food safety problem, or lower our energy use, or water use. It can reduce wasted man hours, deploy resources in a smarter, more cost effective way, cut pollution, improve working conditions and move stock quicker.”

Cheap, plentiful and trustworthy

The game changer for the FD, many believe, will be the proliferation of relatively cheap sensors: the idea is to achieve a comparable level of granularity across the business’s physical assets and infrastructure to that which is currently delivered by ERP system for its financial performance.

Making the data cheap, plentiful and trustworthy could form the foundation of a genuinely new way of working. Using many sensors has the great advantage of allowing anyone looking at the data to drill down and immediately pinpoint where energy use is highest, say, or emission levels are concentrated.

“Measuring more things in more detail means you can manage in more detail, which is something most CFOs would want,” says HartDavis. “If you’re doing IoT simply for its own sake then you’re doing it wrong. But if you’re doing it to make your business run better then that’s where the benefit lies.”

Of course, progress is unlikely to be without difficulty, and there are serious issues to address.

Security is perhaps the most obvious. Worries over hackers breaking into heating systems – or worse – make for good headlines, but there’s no doubt that the IoT offers cyber criminals another, potentially rich playing field for extortion, malware and general chaos.

In addition, interoperability is sure to be a major hurdle. Making systems integrate and talk to each other isn’t easy when you have major

tech players determined to build walled garden systems: it’s likely that Apple kit won’t work with Google apps, or Amazon may hoard its own IP, and so on.

An open source approach would solve that problem, and though we shouldn’t hold our breath on that, an organisation called OpenSensors.io aims to provide a central, open platform for publishing and subscribing to realtime data streams generated by the internet of things. The firm promises to make it easier for people to connect, deploy and remotely manage large deployments of sensors and internetconnected devices, plus subscribe to and reuse publicly available real-time data.

Beyond that, much of the activity in the IoT space is focused on developing industry specific apps. In agriculture, a start-up called KisanHub is using satellite technology and in-field sensors, to collect huge amounts of data for farmers to use in order to improve efficiency. The sensor network provides precise information on rainfall, irrigation, crop growth, wind speed, cloud cover and so on, all of which is displayed via a dashboard.

And of course, expect to see IBM, Microsoft, Amazon and the rest pour millions into their own R&D as well as acquiring the best of the rest. While sensor manufacturers make their products more resilient, efficient and smart, work to improve user interfaces is also underway, designed to give companies bespoke dashboards in order to customise how data is displayed, sorted and analysed.

In a few years’ time it’s possible that rather than simply publishing a sustainability report, the likes of Apple or Unilever will release blockchain data that follows individual components from the moment they enter the manufacture or supply chain, verified by sensors and demonstrating how products were built, shipped and sold.

Without doubt, the IoT represents a potentially game changing breakthrough.

And while dreaming big about microsensors making business leaders omnipotent, all-seeing overlords may be scary, some simple research and a manageable pilot scheme with carefully targeted small scale investment could change the way your business works forever. ■

More value from the IoT could be created in advanced economies, but the number of deployments could be higher in the developing world Advanced

Developing

Reasons for different levels of impact

Settings

Home

Retail environments

Offices

Factories

Worksites

Health care spending in advanced

89%

Human

11% economies is twice that in developing economies

77%

71%

75%

57%

54%

23%

29%

25%

43%

46%

Higher values in advanced economies outweighs higher number of emerging market households Higher adoption and values in advanced economies, but large number of retail settings in developing markets Higher costs and wages in advanced economies raises value of impact Larger investments in automation in advanced economies but large number of factories in emerging markets Higher adoption in advanced economies outweighs larger number of developing economy deployments

Vehicles

63%

37%

Higher costs in advanced economies

Cities

62%

38%

More autonomous vehicles in advanced economies, but larger number of cities and populations in developing markets

Outside

Total NOTE: Numbers may not sum due to rounding

56%

62%

44%

Transportation/shipping spending higher in advanced economies

38% SOURCE: McKinsey Global Institute analysis

Summer 2016 | financialdirector.co.uk | 43

MACRO Stock fluctuations

World’s major stock markets enter period of semi-paralysis

Dominant short-term uncertainties relate to the US Federal Reserve’s interest rate policies, the health of the Chinese economy and the UK’s EU referendum The world’s major stock markets, after recovering the sharp losses they incurred early in 2016, have entered a period of semi-paralysis. Prices are DAVID KERN fluctuating daily and a mild downward tendency has again become apparent.

Instances of volatility and illogical behaviour, mainly in the forex markets, are now more frequent. The economic outlook remains subdued. While Japan and the eurozone have reported stronger than expected growth in the first quarter of 2016, the US and China have decelerated. But overall, global growth expectations weakened further, and the overriding perception remains that the pace of expansion in most major regions will remain weak in the next few years.

Overall, the mood of the markets remains cautious and unsettled, and the foreign exchanges are particularly volatile. The dominant short-term uncertainties relate to the US Federal Reserve’s interest rate policies, the health of the Chinese economy and the EU Brexit referendum in the UK. Japan’s GDP expanded at an annualised rate of 1.7% in the first three months of 2016, well in excess of the expected 0.3% increase.

The higher first quarter growth reversed a GDP contraction in the last quarter of 2015 and ensured that Japan has avoided another technical recession.

However, Japan’s full-year GDP growth forecast for 2016 was raised only marginally (from 0.5 to 0.6%), and the Bank of Japan

indicated that it will not alter its ultraexpansionary monetary policy, and may probably even consider further stimulus. Given this background, the steady strengthening in the yen against the US dollar that was apparent in recent months started to move into reverse during May. The dollar has risen some 3.5% against the yen in recent weeks, although it is still much weaker than six months ago.

The BoJ’s policies justify a weak yen. But it is strange that the yen strengthened earlier in the year, when there were serious risks of Japanese

recession, but it started weakening after Japan’s GDP recovered strongly in the first quarter.

Conflicting messages

The dollar/euro rate has followed a similar pattern, giving the impression of diverging from growth trends. Eurozone GDP growth accelerated from 0.3% in Q4 2015 to 0.5% in Q1 2016, largely reflecting stronger expansion in Germany and France. Germany, the eurozone’s largest economy, grew by 0.7% in the first quarter of the year, faster than

Official interest rates – forecast for next 24 months

Actual Forecast (end-quarter)

20.05.16 30.06.16 31.12.16 30.06.17 31.12.17 30.06.18 US Fed funds rate 0.25-0.50% 0.50-0.75% 0.75-1.00% 1.25-1.50% 1.75-2.00% 2.00-2.25% ECB refi rate 0.00% 0.00% 0.00% 0.00% 0.30% 0.60% Japan overnight rate 0.00% 0.00% 0.00% 0.00% 0.25% 0.50% China 1-yr lending rate 4.35% 4.10% 4.10% 4.10% 4.35% 4.60% UK bank rate 0.50% 0.50% 0.75% 1.25% 1.75% 2.25% Actual figures from official sources. Forecasts from David Kern, Kern Consulting GDP growth – major economies % change on previous year

Actual

Estimate Forecast

2014 2015 2016 2017 2018 US 2.4% 2.4% 1.6% 2.1% 2.3% Japan -0.1% 0.5% 0.6% 0.6% 1.0% Eurozone 0.8% 1.5% 1.6% 1.5% 1.5% Germany 1.6% 1.5% 1.6% 1.6% 1.6% France 0.2% 1.1% 1.2% 1.3% 1.4% UK 2.9% 2.3% 1.8% 1.9% 2.3% China 7.4% 6.9% 6.4% 6.2% 6.2% India 7.3% 7.3% 7.3% 7.3% 7.3% Brazil 0.1% -3.8% -3.5% 0.2% 1.0% Russia 0.6% -3.8% -1.7% 1.1% 1.5% World 3.4% 3.1% 2.9% 3.2% 3.4% Actual figures from official sources. Forecasts from David Kern, Kern Consulting

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44 | financialdirector.co.uk | Summer 2016

expected and its strongest performance in two years. The French economy also gathered speed in Q1 2016, growing by 0.5%, after 0.3% growth in the fourth quarter of 2015.

In reaction, the European Central Bank suspended plans to reduce its deposit rate further. But, with eurozone’s annual inflation rate at -0.2% for April, it is not surprising that senior ECB officials have made it clear that a cut in rates remains a possibility “in principle”.

These conflicting messages have unsettled the forex markets. In spite of the stronger eurozone growth in Q1 2016, the euro has started falling against the dollar since early May. Our full-year 2016 eurozone GDP forecast has been upgraded to 1.6% and, if present forecasts are correct, eurozone GDP growth in 2016 will match that of the US, an unusual state of affairs. But neither the ECB, nor most economic analysts, have sufficient confidence in the eurozone’s ability to sustain its recent improved growth performance.

Sharp contrasts

US GDP grew at an annualised rate of 0.5% in Q1 2016, after 1.4% growth in Q4 2015, lower than expected and the slowest pace of US expansion in two years. Although oil prices recovered in recent months, the net impact of recent developments is a marked downgrading of full-year 2016 US GDP growth, to 1.6%.

The US economy created 160,000 new jobs in April, 40,000 fewer than had been expected by most analysts. The US unemployment rate remained stable in April, at 5%, but earlier estimates of job increase in February and March were revised down.

However, initial market expectations that the disappointing US labour market and GDP figures would lead the Fed to delay raising interest rates have proved premature.

With US inflation and retail sales edging up, the recent Fed minutes have been more hawkish than expected, and have produced a radical change in expectations about interest rates. In sharp contrast to market views that signalled only a few weeks ago that global and domestic headwinds will force the Fed to wait

until the end of the year before tightening, a growing number of economists are now predicting a small rise in US rates in June or July 2016. Consequently, after falling until recently the US dollar started to strengthen, in spite of weaker growth prospects. Risks of a new relapse in the equity markets may still persuade the Fed to wait. But their willingness to consider an early policy tightening proves that senior Fed officials are aware of the risks associated with the current abnormal situation.

Macro views

Dominated by Brexit

The UK markets continue to be dominated by the acrimonious Brexit referendum. It is clear that changing perceptions over the risks of Brexit occurring have been a key factor influencing movements in sterling.

After falling sharply earlier in the year, when the Leave campaign appeared to make good progress, the pound strengthened more recently, in reaction to evidence that the Remain camp is gradually edging ahead. The polls are close, and it is still difficult to predict the outcome, but most market traders and analysts believe that the UK will vote to stay.

Meanwhile, the referendum has heightened uncertainties and might have contributed to the economy’s weakness this year. UK quarterly GDP growth slowed from 0.6% in Q4 2015 to 0.4% to Q1 2016, and there are worrying signs that the pace of expansion has decelerated further in Q2. Our full-year forecast for 2016 has been downgraded to 1.8%. It is therefore not surprising that the Bank of England’s May Inflation Report has conveyed a subdued message of weaker growth and higher unemployment than in its February report, and has signalled that any thought of raising interest rates is off the agenda for the time being. The Monetary Policy Committee will probably wait until the fourth quarter of 2016 at the earliest before considering a rise in interest rates.

0.1 % Increase to Japan’s growth forecast for

2016 despite Japan’s GDP expanding at an annualised rate of 1.7% in the first three months of 2016, well in excess of the expected 0.3% increase

0.2 % The eurozone’s annual inflation rate at

-0.2% for April. It is not surprising that senior ECB officials have made it clear that a cut in rates remains a possibility “in principle”

0.5 % The French economy also gathered speed

in Q1 2016, growing by 0.5%, after 0.3% growth in the fourth quarter of 2015

0.5 % US GDP growth in Q1 2016, after 1.4% growth in Q4 2015, lower than expected and the slowest pace of US expansion in two years

David Kern of Kern Consulting is chief economist at the British Chambers of Commerce. He was formerly NatWest Group chief economist

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Summer 2016 | financialdirector.co.uk | 45

THE RULES Fraud

Hidden flaws New ‘failure to prevent’ offence may boost fraud prevention measures, but Will Christopher fears the further creep of criminal law into business is not the answer

S

hortly before the recent May anti-corruption summit hosted by David Cameron, he announced a consultation on an extension of the corporate offence of failing to prevent bribery to other economic crimes such as fraud and money laundering. The assumption is that it will be modelled on section 7 of the Bribery Act, which introduced the first such “failure to prevent” offence.

This made a corporate criminally liable in the event its employees or any associated persons are found to have paid bribes, unless it has in place adequate procedures to prevent bribery.

The new proposed offence is to be welcomed if it prompts corporates to implement anti-fraud procedures and take them more seriously. Hitherto these have suffered somewhat from a flawed cost benefit analysis. When section 7 was introduced

it spawned an industry selling “adequate procedures” advice on bribery to corporates.

The possibility of criminal liability, with large fines and other penalties was in many cases persuasive and led to anti-bribery procedures being implemented. In contrast, anti-fraud procedures designed to prevent, detect and effectively respond were far less likely to be considered, until, that is, the corporate becomes the victim of a large fraud.

For it is usually only after becoming a victim that a company realises just how damaging a fraud loss can be, not only in terms of the loss itself, but also in respect of the costs of an investigation and litigation and the enormous amounts of management time wasted, with the associated distraction from the business. In fact the converse is also true: it makes good business sense to prevent fraud, for those reasons, and because all fraud losses prevented go straight to the bottom line.

Enormous change ane expense However, while the new offence may boost fraud prevention measures, I fear the further creep of criminal law into business is not the answer. Aside from the fact it will generate enormous change and huge expense in order to put in place adequate procedures to prevent fraud, the proposed offence is fraught with difficulties.

It is important the consultation addresses the concern that this offence will be very difficult to define, in contrast to the equivalent Bribery Act offence. In particular, it is difficult to see how it will be defined

46 | financialdirector.co.uk | Summer 2016

without the unwelcome possibility that a corporate may find itself both the victim of fraud, and a potential defendant to criminal proceedings.

There are a variety of ways in which fraud could occur in a corporate, or by an associated person, and in most, if not all, cases the corporate has a civil cause of action against the individual perpetrating the fraud, and so could be considered a victim.

At present it is difficult to see how the drafting might distinguish between these. To draft the offence too narrowly – for instance, by requiring that the fraud must have been perpetrated with the intention of obtaining an advantage for the business – would be likely to exclude some surprising examples of fraudulent behaviour. A very widely drafted offence would have a dramatic impact on the breadth of policies and procedures which would have to be implemented to be able to avail the corporate of the “adequate procedures” defence, increasing the compliance burden and the expense.

It could also adversely affect the appetite of the corporate to take effective steps to respond to a fraud. Too often, companies are reluctant to take proactive steps to recover lost assets unless they are faced with a massive fraud loss.

An investigation is often carried out, but it is concluded that litigation would not be in the interests of the corporate, even though this would restore lost assets, and provide an effective deterrent. The prospect of criminal exposure is very likely to make pursuing even a very large loss unattractive.

Is it beneficial to criminalise corporate failure to prevent fraud and at the same time further discourage recovery of fraud losses?

This is surely not in the public interest, as more fraud will be swept under the carpet.

This cannot be the government’s intention in considering the introduction of the new offence and careful thought needs to be given to how it will work in practice. ■ Will Christopher is a partner specialising in civil fraud and internal investigations at law firm Kingsley Napley LLP

PSC Regulations THE RULES

A controlling nature At first sight it may seem obvious who is likely to be a PSC, but Valerie Findlay says the legislation is of course more complex and extensive in its reach

T

housands of companies in the UK could unwittingly be in breach of The Register of People with Significant Control Regulations 2016/339 (PSC Regulations).

From 6 April 2016 many companies and limited liability partnerships (LLP) are now required to keep a new statutory register recording the “persons with significant control” (PSC) of the company or LLP. Companies should already be compiling this Register or they will be in breach of the PSC Regulations. Failure to comply is a criminal offence by both the company and its officers, conviction for which could result in up to two years’ imprisonment and an unlimited fine.

At first sight it may seem obvious who is likely to be a PSC (for example, someone with a majority of voting shares or voting rights in a company) but the legislation is of course more complex and extensive in its reach. The legislation is aimed at greater transparency, but contrary to popular perception the PSC Regulations do not necessarily identify all the beneficial interests in a company.

Will PSC Regulations apply to your company?

The PSC Regulations apply to most companies that are not already subject to transparency regulations as a company traded on a regulated or prescribed market and apply to certain public companies, a private company limited by shares or guarantee (including charitable companies and dormant companies), Societas Europea companies and

unlimited companies. The regulations do not apply to limited partnerships and Charitable Incorporated Organisations.

Who is a person with significant control?

An individual is a PSC if that individual directly or indirectly (through a majority stake in a legal entity or a chain of legal entities) holds any shares or rights in a company that meet one or more of five specified conditions: • holds more than 25% of the shares (by aggregate nominal value and includes preference or deferred shares) or a right to share in more than 25% of the capital or profits of the company; • holds more than 25% of the voting rights in the company; • has the right to appoint or remove a majority of the directors (holding a majority of the voting rights at meetings of the board

What must a business do to comply with the PSC Regulations?

• Make sure you take reasonable steps to identify registrable PSCs – this may involve a review of the company’s articles of association, any shareholders agreement and further information on the service of a notice on the registered shareholder

• Confirm the information with that person (if they are an individual) • Compile a register of PSCs – using certain specific wording and notify the Registrar at Companies House when filing your first annual confirmation after 30 June 2016

on all or substantially all matters).

• has the right to, or exercises, significant influence or control over the company • exercises such influence or control through a trust Generally a share or right held in an individual’s name will be a direct interest but this must be investigated further (for example, where shares are held as nominee, jointly, or under a joint arrangement such as a shareholders agreement) or by way of security. An individual has an indirect interest where they either have a majority interest in a legal entity which holds the relevant shares or rights in a company, or is part of a chain of entities each having a majority interest in the next entity in the chain ultimately holding such shares or rights. If any of those entities further down the chain from the individual is a relevant legal entity (for instance, would have been a PSC if it had been an individual and has to maintain its own PSC register) then that relevant legal entity may be the PSC for the company at the bottom of the chain and not the individual.

The assessment of PSC is therefore complicated where there is a chain of entities.

The place to start the review is at the bottom of any chain working upwards reviewing each entity. ■ Valerie Findlay is a senior solicitor at Turbervilles Solicitors Summer 2016 | financialdirector.co.uk | 47

OFF BALANCE Brexit

PwC receptionist Go figure turned on her heel In a move that would surely 60k have Emmeline Pankhurst The number of human factory workers that Foxconn, the world’s largest electronics manufacturer, has replaced with machines to reduce labour costs

Final whistle for Brexit 52% Andrew Moyser, a partner at Top 20 accountants MHA MacIntyre Hudson, earlier this month tackled the thorny issue of the EU Referendum in front of a business audience at the Bedford Blues Rugby Club in you guessed it, Bedford.

Refereeing the match between pro-leave MP Richard Fuller, member of parliament for Bedford & Kempston, and ‘remain’ MEP for East of England Richard Howitt, was high-profile academic Professor Joe Nellis of Cranfield University.

OB can only wonder whether Prof Nellis need to blow his whistle and send any rowdy participants to the sin bin. Or maybe there was fair play from both sides for once?

Chilango wrapped up The taxman has turned up the heat on takeaway businesses after winning a lengthy VAT battle against London-based Mexican eatery Chilango, after the restaurant chain argued that its burritos, tacos and other menu items should be given a zero VAT rating.

In February 2013, the crowdfunded Mexican restaurant, which has five sites in London and two outside the capital, claimed a £681,623 refund from HMRC after deciding that its takeaway sales between 2008 and 2012 should have been zero-rated.

Chilango argued that it was the overall temperature of the product that should determine whether it was liable for VAT. Many of its products included meat filling which was heated, whereas its salad, salsa, cheese and other sauces were cold, which Chilango thought was reason enough to get away from paying VAT. The tribunal ruled against Chilango, deciding that the restaurant failed to demonstrate that the products actually needed to be heated in order to be consumed.

OB hopes that Chilango does not hike its burrito prices up, otherwise it will need another place to go after a Friday-night session.

48 | financialdirector.co.uk | Summer 2016

The percentage of office workers who have not informed their superiors about their ailments caused by their workstation, according to research

by Fellowes.

Conditions include headaches, neckaches and tension

40 % The number of

British business travellers that only have “a few hours if I’m lucky” of free time on a typical business trip. In total, 68% of Brits on business travel have less than one day of free time

spinning in her grave, a PwC receptionist was sent home on her first day for wearing flat shoes instead of high heels.

Temp worker Nicola Thorp arrived to work at one the Big Four firm’s London offices only to be told she must wear shoes “with a two-to-four inch heel” by outsourced staff agency Portico, which provides PwC’s receptionists.

Understandably, Thorp complained, but she was sent home without pay. Despite, at 2016, being well into the 21st Century, OB was astonished to learn that Portico had the law on its side. It’s an episode that does not sit very comfortably against the context of the preceding few years, in which PwC has made great play of championing the advancement and recognition of female talent.

PwC has since apologised to Nicola and has promised to review its suppliers’ employment policies in detail, but OB still maintains that it was a step in the wrong direction.

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01/06/2016 14:37